1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1996 SECURITIES ACT FILE NO. 333-7817 INVESTMENT COMPANY ACT FILE NO. 811-6661 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- PRE-EFFECTIVE AMENDMENT NO. 1 /X/ POST-EFFECTIVE AMENDMENT NO. / / (CHECK APPROPRIATE BOX OR BOXES) ------------------------ MUNIYIELD NEW YORK INSURED FUND II, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800 800 SCUDDERS MILL ROAD PLAINSBORO, NEW JERSEY 08536 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) ------------------------ ARTHUR ZEIKEL MUNIYIELD NEW YORK INSURED FUND II, INC. 800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536 MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 (NAME AND ADDRESS OF AGENT FOR SERVICE) ------------------------ COPIES TO: FRANK P. BRUNO, ESQ. MARK B. GOLDFUS, ESQ. BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD NEW YORK, NY 10048-0557 PLAINSBORO, NJ 08536 ------------------------ APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the Registration Statement becomes effective under the Securities Act of 1933. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 MUNIYIELD NEW YORK INSURED FUND II, INC. CROSS REFERENCE SHEET PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933 FORM N-14 PROXY STATEMENT AND ITEM NO. PROSPECTUS CAPTION - ---------- --------------------------------------- PART A Item 1. Beginning of Registration Statement and Outside Front Cover Page of Prospectus............................ Registration Statement Cover Page; Prospectus Cover Page Item 2. Beginning and Outside Back Cover Page of Prospectus............................ Table of Contents Item 3. Fee Table, Synopsis Information and Risk Factors............................... The Reorganization -- Summary; The Reorganization -- Risk Factors and Special Considerations Item 4. Information about the Transaction....... The Reorganization -- Summary; The Reorganization -- Agreement and Plan of Reorganization Item 5. Information about the Registrant........ Prospectus Cover Page; The Reorganization -- Summary; The Reorganization -- Comparison of the Funds; Additional Information Item 6. Information about the Company Being Acquired.............................. Prospectus Cover Page; The Reorganization -- Summary; The Reorganization -- Comparison of the Funds; Additional Information Item 7. Voting Information...................... The Reorganization -- Summary; The Reorganization -- Comparison of the Funds; Information Concerning the Annual Meetings; Additional Information Item 8. Interest of Certain Persons and Experts............................... Not Applicable Item 9. Additional Information Required for Reoffering by Persons Deemed to be Underwriters.......................... Not Applicable PART B Item 10. Cover Page.............................. Not Applicable Item 11. Table of Contents....................... Not Applicable Item 12. Additional Information about the Registrant............................ The Reorganization -- Comparison of the Funds Item 13. Additional Information about the Company Being Acquired........................ The Reorganization -- Comparison of the Funds Item 14. Financial Statements.................... Financial Statements PART C Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Registration Statement. 3 MUNIVEST NEW YORK INSURED FUND, INC. MUNIYIELD NEW YORK INSURED FUND II, INC. MUNIYIELD NEW YORK INSURED FUND III, INC. P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 ------------------------ NOTICE OF ANNUAL MEETINGS OF STOCKHOLDERS ------------------------ TO BE HELD ON SEPTEMBER 30, 1996 ------------------------ TO THE STOCKHOLDERS OF MUNIVEST NEW YORK INSURED FUND, INC. MUNIYIELD NEW YORK INSURED FUND II, INC. MUNIYIELD NEW YORK INSURED FUND III, INC.: NOTICE IS HEREBY GIVEN that annual meetings of stockholders (the "Meetings") of MuniVest New York Insured Fund, Inc. ("MuniVest New York Insured"), MuniYield New York Insured Fund II, Inc. ("MuniYield New York Insured II") and MuniYield New York Insured Fund III, Inc. ("MuniYield New York Insured III") will be held at the offices of Merrill Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey on Monday, September 30, 1996 at 11:45 A.M., New York time (for MuniVest New York Insured), 12:00 noon, New York time (for MuniYield New York Insured II) and 12:15 P.M., New York time (for MuniYield New York Insured III) for the following purposes: (1) To approve or disapprove an Agreement and Plan of Reorganization (the "Agreement and Plan of Reorganization") contemplating (i) the acquisition of all of the assets of MuniVest New York Insured by MuniYield New York Insured II, and the assumption of all of the liabilities of MuniVest New York Insured by MuniYield New York Insured II, in exchange solely for an equal aggregate value of newly-issued shares of Common Stock of MuniYield New York Insured II ("MuniYield New York Insured II Common Stock") and shares of a newly-created series of Auction Market Preferred Stock ("AMPS") of MuniYield New York Insured II to be designated Series B ("MuniYield New York Insured II Series B AMPS") and the distribution of such MuniYield New York Insured II Common Stock to the holders of Common Stock of MuniVest New York Insured and such MuniYield New York Insured II Series B AMPS to the holders of AMPS of MuniVest New York Insured; (ii) the acquisition of all of the assets of MuniYield New York Insured III by MuniYield New York Insured II, and the assumption of all of the liabilities of MuniYield New York Insured III by MuniYield New York Insured II, in exchange solely for an equal aggregate value of newly-issued shares of MuniYield New York Insured II Common Stock and shares of a newly-created series of AMPS of MuniYield New York Insured II to be designated Series C ("MuniYield New York Insured II Series C AMPS") and the distribution of such MuniYield New York Insured II Common Stock to the holders of Common Stock of MuniYield New York Insured III and such MuniYield New York Insured II Series C AMPS to the holders of AMPS of MuniYield New York Insured III; and (iii) the redesignation of the currently outstanding series of AMPS of MuniYield New York Insured II as Series A AMPS. A vote in favor of this proposal also will constitute a vote in favor of the 4 liquidation and dissolution of each of MuniVest New York Insured and MuniYield New York Insured III and the termination of their respective registration under the Investment Company Act of 1940; (2) To elect a Board of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III to serve for the ensuing year; (3) For the stockholders of MuniVest New York Insured and MuniYield New York Insured III only: To consider and act upon a proposal to ratify the selection of Ernst & Young LLP to serve as independent auditors of each of MuniVest New York Insured and MuniYield New York Insured III for the respective Fund's current fiscal year ending October 31, 1996; and (4) For the stockholders of MuniYield New York Insured II only: (a) in the event that proposal 1 is approved by the requisite number of stockholders of each Fund and the Reorganization takes place prior to October 31, 1996, to consider and act upon a proposal to ratify the selection of Ernst & Young LLP to serve as independent auditors of the combined fund for the fiscal year ending October 31, 1996; and (b) in the event that proposal 1 is not approved by the requisite number of stockholders of each Fund or the Reorganization does not take place prior to October 31, 1996, to consider and act upon a proposal to ratify the selection of Deloitte & Touche LLP to serve as independent auditors of MuniYield New York Insured II for its current fiscal year ending October 31, 1996; (5) To transact such other business as properly may come before the Meetings or any adjournment thereof. The Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have fixed the close of business on August 16, 1996 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Meetings or any adjournment thereof. A complete list of the stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III entitled to vote at the Meetings will be available and open to the examination of any stockholder of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, respectively, for any purpose germane to the Meetings during ordinary business hours from and after September 16, 1996, at the offices of MuniYield New York Insured II, 800 Scudders Mill Road, Plainsboro, New Jersey. You are cordially invited to attend the Meetings. STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETINGS IN PERSON ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY APPLICABLE TO THEIR FUND AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. The enclosed proxy is being solicited on behalf of the Board of Directors of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as applicable. By Order of the Boards of Directors MARK B. GOLDFUS Secretary Plainsboro, New Jersey Dated: August 21, 1996 5 PROXY STATEMENT AND PROSPECTUS MUNIVEST NEW YORK INSURED FUND, INC. MUNIYIELD NEW YORK INSURED FUND II, INC. MUNIYIELD NEW YORK INSURED FUND III, INC. P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 (609) 282-2800 ------------------------ ANNUAL MEETINGS OF STOCKHOLDERS ------------------------ SEPTEMBER 30, 1996 This Joint Proxy Statement and Prospectus (this "Proxy Statement and Prospectus") is furnished in connection with the solicitation of proxies on behalf of the Boards of Directors of MuniVest New York Insured Fund, Inc., a Maryland corporation ("MuniVest New York Insured"), MuniYield New York Insured Fund II, Inc., a Maryland corporation ("MuniYield New York Insured II"), and MuniYield New York Insured Fund III, Inc., a Maryland corporation ("MuniYield New York Insured III"), for use at Annual Meetings of Stockholders (the "Meetings") called to approve or disapprove the proposed reorganization whereby (i) MuniYield New York Insured II will acquire all of the assets, and will assume all of the liabilities, of MuniVest New York Insured, in exchange solely for an equal aggregate value of newly-issued shares of Common Stock, par value $.10 per share, of MuniYield New York Insured II ("MuniYield New York Insured II Common Stock") and shares of a newly-created series of Auction Market Preferred Stock ("AMPS") of MuniYield New York Insured II, with a par value of $.10 per share and a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to be designated Series B AMPS ("MuniYield New York Insured II Series B AMPS"), to be issued by MuniYield New York Insured II; (ii) MuniYield New York Insured II will acquire all of the assets, and will assume all of the liabilities, of MuniYield New York Insured III, in exchange solely for an equal aggregate value of newly-issued shares of MuniYield New York Insured II Common Stock and shares of a newly-created series of AMPS of MuniYield New York Insured II, with a par value of $.10 per share and a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to be designated Series C AMPS ("MuniYield New York Insured II Series C AMPS"), to be issued by MuniYield New York Insured II; (iii) MuniYield New York Insured II will redesignate its currently outstanding series of AMPS as Series A AMPS; and (iv) each of MuniVest New York Insured and MuniYield New York Insured III will be deregistered and dissolved (collectively, the "Reorganization"). MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III sometimes are referred to herein collectively as the "Funds" and individually as a "Fund", each as applicable and each as the context requires. This Proxy Statement and Prospectus also is being furnished in connection with the election of a Board of Directors of each Fund and the ratification of the selection of independent auditors for each Fund. This Proxy Statement and Prospectus serves as a prospectus of MuniYield New York Insured II under the Securities Act of 1933, as amended (the "Securities Act"), in connection with the issuance of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS in the Reorganization. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS AUGUST 21, 1996. 6 (continued from previous page) This Proxy Statement and Prospectus sets forth concisely the information about MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III that stockholders of the Funds should know before considering the Reorganization and should be retained for future reference. Each of the Funds has authorized the solicitation of proxies in connection with the Reorganization solely on the basis of this Proxy Statement and Prospectus and the accompanying documents. The address of the principal executive offices of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III is 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and the telephone number is (609) 282-2800. The aggregate net asset value of the MuniYield New York Insured II Common Stock to be issued to MuniVest New York Insured and thereafter distributed to the holders of shares of Common Stock, par value $.10 per share, of MuniVest New York Insured ("MuniVest New York Insured Common Stock") will equal the aggregate net asset value of the shares of MuniVest New York Insured Common Stock on the date of the Reorganization. Similarly, it is intended that the aggregate liquidation preference and value of the MuniYield New York Insured II Series B AMPS to be issued to MuniVest New York Insured and thereafter distributed to the holders of shares of AMPS of MuniVest New York Insured, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) ("MuniVest New York Insured AMPS") will equal the aggregate liquidation preference and value of the MuniVest New York Insured AMPS on the date of the Reorganization. As soon as practicable after the receipt by MuniYield New York Insured II of all of MuniVest New York Insured's assets and the assumption by MuniYield New York Insured II of all of MuniVest New York Insured's liabilities, MuniVest New York Insured will distribute the MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS to MuniVest New York Insured's stockholders as described under "The Reorganization". Thereafter, MuniVest New York Insured will terminate its registration under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and will liquidate and dissolve in accordance with the laws of the State of Maryland. In addition, the aggregate net asset value of the MuniYield New York Insured II Common Stock to be issued to MuniYield New York Insured III and thereafter distributed to the holders of shares of Common Stock, par value $.10 per share, of MuniYield New York Insured III ("MuniYield New York Insured III Common Stock") will equal the aggregate net asset value of the shares of MuniYield New York Insured III Common Stock on the date of the Reorganization. Similarly, it is intended that the aggregate liquidation preference and value of the MuniYield New York Insured II Series C AMPS to be issued to MuniYield New York Insured III and thereafter distributed to the holders of shares of AMPS of MuniYield New York Insured III, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) ("MuniYield New York Insured III AMPS") will equal the aggregate liquidation preference and value of the MuniYield New York Insured III AMPS on the date of the Reorganization. As soon as practicable after the receipt by MuniYield New York Insured II of all of MuniYield New York Insured III's assets and the assumption by MuniYield New York Insured II of all of MuniYield New York Insured III's liabilities, MuniYield New York Insured III will distribute the MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS to MuniYield New York Insured III's stockholders as described under "The Reorganization". Thereafter, MuniYield New York Insured III will terminate its registration under the Investment Company Act and will liquidate and dissolve in accordance with the laws of the State of Maryland. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III are non-diversified, leveraged, closed-end management investment companies with virtually identical invest- 2 7 ment objectives. Each of the Funds seeks to provide stockholders with as high a level of current income exempt from Federal, New York State and New York City income taxes as is consistent with their respective investment policies and prudent investment management. Each of the Funds seeks to achieve its investment objective by investing primarily in a portfolio of long-term municipal obligations issued by or on behalf of the State of New York, its political subdivisions, agencies and instrumentalities and by other qualifying issuers that pay interest which, in the opinion of bond counsel to the issuer, is exempt from Federal, New York State and New York City income taxes ("New York Municipal Bonds"). There can be no assurance that after the Reorganization the surviving fund will achieve the investment objective of either MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III. MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock are listed on the New York Stock Exchange (the "NYSE") under the symbols "MVY", "MYT" and "MYY", respectively. Subsequent to the Reorganization, shares of MuniYield New York Insured II Common Stock will continue to be listed on the NYSE under the symbol "MYT". Reports, proxy materials and other information concerning any of the Funds may be inspected at the offices of the NYSE, 11 Wall Street, New York, New York 10005. 3 8 TABLE OF CONTENTS PAGE ------ INTRODUCTION......................................................................... 6 THE REORGANIZATION................................................................... 8 SUMMARY......................................................................... 8 RISK FACTORS AND SPECIAL CONSIDERATIONS......................................... 20 Special Considerations Relating to New York Municipal Bonds................ 20 Effects of Leverage........................................................ 20 Portfolio Management....................................................... 21 Ratings Considerations..................................................... 21 COMPARISON OF THE FUNDS......................................................... 23 Financial Highlights....................................................... 23 Investment Objective and Policies.......................................... 29 Portfolio Insurance........................................................ 31 Description of Municipal Bonds............................................. 33 Special Considerations Relating to New York Municipal Bonds................ 33 Other Investment Policies.................................................. 34 Information Regarding Options and Futures Transactions..................... 35 Investment Restrictions.................................................... 39 Rating Agency Guidelines................................................... 40 Portfolio Composition...................................................... 41 Portfolio Transactions..................................................... 42 Portfolio Turnover......................................................... 43 Net Asset Value............................................................ 44 Capital Stock.............................................................. 44 Management of the Funds.................................................... 47 Voting Rights.............................................................. 49 Stockholder Inquiries...................................................... 50 Dividends and Distributions................................................ 50 Automatic Dividend Reinvestment Plan....................................... 51 Liquidation Rights of Holders of AMPS...................................... 53 Tax Rules Applicable to MuniVest New York Insured, MuniYield New York Insured II, MuniYield New York Insured III and their Stockholders........ 53 AGREEMENT AND PLAN OF REORGANIZATION............................................ 57 General.................................................................... 57 Procedure.................................................................. 59 Terms of the Agreement and Plan of Reorganization.......................... 59 Potential Benefits to Common Stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III as a Result of the Reorganization............................................. 62 Surrender and Exchange of MuniVest New York Insured and MuniYield New York Insured III Stock Certificates........................................... 64 Tax Consequences of the Reorganization..................................... 65 Capitalization............................................................. 67 4 9 PAGE ------ ELECTION OF DIRECTORS................................................................ 68 Committee and Board Meetings.................................................... 73 Compliance with Section 16(a) of the Securities Exchange Act of 1934............ 73 Interested Persons.............................................................. 74 Compensation of Directors....................................................... 74 Officers of the Funds........................................................... 75 SELECTION OF INDEPENDENT AUDITORS.................................................... 76 INFORMATION CONCERNING THE ANNUAL MEETINGS........................................... 78 Date, Time and Place of Meetings................................................ 78 Solicitation, Revocation and Use of Proxies..................................... 78 Record Date and Outstanding Shares.............................................. 78 Security Ownership of Certain Beneficial Owners and Management of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III............................................................................ 78 Voting Rights and Required Vote................................................. 79 ADDITIONAL INFORMATION............................................................... 81 CUSTODIAN............................................................................ 82 TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR.............................. 82 LEGAL PROCEEDINGS.................................................................... 83 LEGAL OPINIONS....................................................................... 83 EXPERTS.............................................................................. 83 STOCKHOLDER PROPOSALS................................................................ 83 INDEX TO FINANCIAL STATEMENTS........................................................ F-1 EXHIBIT I AGREEMENT AND PLAN OF REORGANIZATION...................................... I-1 EXHIBIT II ECONOMIC CONDITIONS IN NEW YORK........................................... II-1 EXHIBIT III RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER.......................... III-1 EXHIBIT IV PORTFOLIO INSURANCE....................................................... IV-1 5 10 INTRODUCTION This Proxy Statement and Prospectus is furnished in connection with the solicitation of proxies on behalf of the Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III for use at the Meetings to be held at the offices of Merrill Lynch Asset Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New Jersey on September 30, 1996, at 11:45 A.M., New York time (for MuniVest New York Insured), 12:00 noon, New York time (for MuniYield New York Insured II) and 12:15 P.M., New York time (for MuniYield New York Insured III). The mailing address for each of the Funds is P.O. Box 9011, Princeton, New Jersey 08543-9011. The approximate mailing date of this Proxy Statement and Prospectus is August 26, 1996. 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 MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as applicable, at the address indicated above or by voting in person at the appropriate Meeting. All properly executed proxies received prior to the Meetings will be voted at the Meetings in accordance with the instructions marked thereon or otherwise as provided therein. Unless instructions to the contrary are marked, proxies will be voted "FOR" each of the following proposals: (1) to approve the Agreement and Plan of Reorganization among MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III (the "Agreement and Plan of Reorganization"); (2) to elect a Board of Directors of each Fund to serve for the ensuing year; (3) for the stockholders of MuniVest New York Insured and MuniYield New York Insured III only: to ratify the selection of Ernst & Young LLP as the independent auditors of MuniVest New York Insured or MuniYield New York Insured III, as applicable, for the respective Fund's current fiscal year ending October 31, 1996; and (4) for the stockholders of MuniYield New York Insured II only: (a) in the event that proposal 1 is approved by the requisite number of stockholders of each Fund and the Reorganization takes place prior to October 31, 1996, to consider and act upon a proposal to ratify the selection of Ernst & Young LLP to serve as independent auditors of the combined fund for the fiscal year ending October 31, 1996; and (b) in the event that proposal 1 is not approved by the requisite number of stockholders of each Fund or the Reorganization does not take place prior to October 31, 1996, to consider and act upon a proposal to ratify the selection of Deloitte & Touche LLP to serve as independent auditors of MuniYield New York Insured II for its current fiscal year ending October 31, 1996. With respect to proposal 1, approval of the Agreement and Plan of Reorganization will require the affirmative vote of stockholders representing (i) a majority of the outstanding shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS, voting together as a single class, and a majority of the outstanding shares of MuniVest New York Insured AMPS, voting separately as a class, (ii) a majority of the outstanding shares of MuniYield New York Insured II Common Stock and AMPS of MuniYield New York Insured II, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) ("MuniYield New York Insured II AMPS") voting together as a single class, and a majority of the outstanding shares of MuniYield New York Insured II AMPS, voting separately as a class, and (iii) a majority of the outstanding shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS, voting together as a single class, and a majority of the outstanding shares of MuniYield New York Insured III AMPS, voting separately as a class. Because of the requirement that the Agreement and Plan of Reorganiza- 6 11 tion be approved by stockholders of all three Funds, the Reorganization will not take place if stockholders of any one Fund do not approve the Agreement and Plan of Reorganization. With respect to proposal 2, (i) holders of shares of MuniVest New York Insured AMPS are entitled to elect two Directors of MuniVest New York Insured and holders of shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS, voting together as a single class, are entitled to elect the remaining Directors of MuniVest New York Insured; (ii) holders of shares of MuniYield New York Insured II AMPS are entitled to elect two Directors of MuniYield New York Insured II and holders of shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS, voting together as a single class, are entitled to elect the remaining Directors of MuniYield New York Insured II; and (iii) holders of shares of MuniYield New York Insured III AMPS are entitled to elect two Directors of MuniYield New York Insured III and holders of shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS, voting together as a single class, are entitled to elect the remaining Directors of MuniYield New York Insured III. Assuming a quorum is present, (x) election of the two Directors of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as the case may be, to be elected by the holders of shares of MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS or MuniYield New York Insured III AMPS, respectively, voting separately as a class, will require the affirmative vote of a majority of the votes cast by the holders of shares of that Fund's AMPS, represented at the Meetings and entitled to vote; and (y) election of the remaining Directors of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as the case may be, will require the affirmative vote of a majority of the votes cast by the holders of shares of their respective Common Stock and AMPS, represented at the Meetings and entitled to vote, voting together as a single class. With respect to proposal 3, (i) approval of the ratification of the selection of Ernst & Young LLP as the independent auditors of MuniVest New York Insured will require the affirmative vote of a majority of the votes cast by the holders of shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS represented at the Meetings and entitled to vote, voting together as a single class; and (ii) approval of the ratification of the selection of Ernst & Young LLP as the independent auditors of MuniYield New York Insured III will require the affirmative vote of a majority of the votes cast by the holders of shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS represented at the Meetings and entitled to vote, voting together as a single class. With respect to proposal 4(a), (i) approval of the ratification of the selection of Ernst & Young LLP as the independent auditors of the combined fund will require the affirmative vote of a majority of the votes cast by the holders of shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS represented at the Meetings and entitled to vote, voting together as a single class; and with respect to proposal 4(b), approval of the ratification of the selection of Deloitte & Touche LLP as the independent auditors of MuniYield New York Insured II will require the affirmative vote of a majority of the votes cast by the holders of shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS represented at the Meetings and entitled to vote, voting together as a single class. The Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have fixed the close of business on August 16, 1996 as the record date (the "Record Date") for the determination of stockholders entitled to notice of, and to vote at, the Meetings or any adjournment thereof. Stockholders on the Record Date will be entitled to one vote for each share held, with no 7 12 shares having cumulative voting rights. As of the Record Date, there were issued and outstanding 7,204,432 shares of MuniVest New York Insured Common Stock, 1,960 shares of MuniVest New York Insured AMPS, 11,114,832 shares of MuniYield New York Insured II Common Stock, 2,800 shares of MuniYield New York Insured II AMPS, 3,688,900 shares of MuniYield New York Insured III Common Stock and 1,000 shares of MuniYield New York Insured III AMPS. To the knowledge of the management of each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, no person owned beneficially more than 5% of the respective outstanding shares of either class of capital stock of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III at the Record Date. The Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III know of no business other than that discussed in proposals 1, 2, 3 and 4 above which will be presented for consideration at the Meetings. If any other matter is properly presented, it is the intention of the persons named in the enclosed proxy to vote in accordance with their best judgment. THE REORGANIZATION SUMMARY The following is a summary of certain information contained elsewhere in this Proxy Statement and Prospectus and is qualified in its entirety by reference to the more complete information contained in this Proxy Statement and Prospectus and in the Agreement and Plan of Reorganization, attached hereto as Exhibit I. In this Proxy Statement and Prospectus, the term "Reorganization" refers collectively to (i) the acquisition of all of the assets and the assumption of all of the liabilities of MuniVest New York Insured by MuniYield New York Insured II and the subsequent distribution of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS to the holders of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS, respectively; (ii) the acquisition of all of the assets and the assumption of all of the liabilities of MuniYield New York Insured III by MuniYield New York Insured II and the subsequent distribution of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS to the holders of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS, respectively; (iii) the redesignation of the currently outstanding series of MuniYield New York Insured II AMPS as Series A AMPS; and (iv) the subsequent deregistration and dissolution of each of MuniVest New York Insured and MuniYield New York Insured III. At meetings of the Boards of Directors of MuniVest New York Insured and MuniYield New York Insured III held on May 3, 1996, and at a meeting of the Board of Directors of MuniYield New York Insured II held on June 21, 1996, the Board of Directors of each of the Funds unanimously approved a proposal, as applicable, that (i) MuniYield New York Insured II acquire all of the assets, and assume all of the liabilities, of MuniVest New York Insured in exchange solely for MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS to be issued to MuniVest New York Insured and thereafter distributed to the stockholders of MuniVest New York Insured; and/or (ii) MuniYield New York Insured II acquire all of the assets, and assume all of the liabilities, of MuniYield New York Insured III in exchange solely for MuniYield New York Insured II Common Stock and MuniYield New 8 13 York Insured II Series C AMPS to be issued to MuniYield New York Insured III and thereafter distributed to the stockholders of MuniYield New York Insured III. Subject to obtaining the necessary approvals from the stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, the Board of Directors of each of MuniVest New York Insured and MuniYield New York Insured III deemed advisable the deregistration of MuniVest New York Insured or MuniYield New York Insured III, as applicable, under the Investment Company Act and its respective dissolution under the laws of the State of Maryland. The Reorganization requires approval of the stockholders of each of the three Funds. The Reorganization will not take place if the stockholders of any one Fund do not approve the Agreement and Plan of Reorganization. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III seek to provide stockholders with as high a level of current income exempt from Federal, New York State and New York City income taxes as is consistent with their respective investment policies and prudent investment management. Each of the Funds seeks to achieve its investment objectives by investing primarily in a portfolio of New York Municipal Bonds. At all times, except during temporary defensive periods, at least 65% of each Fund's total assets will be invested in New York Municipal Bonds. Under normal circumstances, at least 80% of each Fund's total assets will be invested in New York Municipal Bonds and other municipal bonds the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes but not New York State or New York City income taxes ("Municipal Bonds"), with remaining maturities of one year or more which are covered by insurance guaranteeing the timely payment of principal at maturity and interest. Unless otherwise indicated, references herein to Municipal Bonds shall be deemed to include New York Municipal Bonds. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III are non-diversified, leveraged, closed-end management investment companies registered under the Investment Company Act. If the stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III approve the Reorganization, MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS will be issued to MuniVest New York Insured and MuniYield New York Insured III, as applicable, in exchange for the assets of MuniVest New York Insured and MuniYield New York Insured III and thereafter MuniVest New York Insured and MuniYield New York Insured III will distribute these shares to its stockholders as provided in the Agreement and Plan of Reorganization. After the Reorganization, each of MuniVest New York Insured and MuniYield New York Insured III will terminate its registration under the Investment Company Act and its incorporation under Maryland law. Based upon their evaluation of all relevant information, the Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have determined that the Reorganization will potentially benefit the holders of Common Stock of each of the Funds. Specifically, after the Reorganization MuniVest New York Insured and MuniYield New York Insured III stockholders will remain invested in a closed-end fund that has an investment objective and policies virtually identical to those of MuniVest New York Insured and MuniYield New York Insured III and which utilizes the same management personnel. In addition, it is anticipated that common stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III will be subject to a reduced overall operating expense ratio based on the combined assets of the surviving fund after the Reorganization. It is not anticipated that the Reorganization will directly benefit the holders of shares of MuniVest New York 9 14 Insured AMPS, MuniYield New York Insured II AMPS or MuniYield New York Insured III AMPS; however, the Reorganization will not adversely affect the holders of shares of AMPS of any of the Funds and the expenses of the Reorganization will not be borne by the holders of shares of AMPS of any of the Funds. In deciding to recommend the Reorganization, the Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III took into account the investment objective and policies of each of the Funds, the expenses incurred both due to the Reorganization and on an ongoing basis by the new and existing stockholders of MuniYield New York Insured II and the potential benefits, including economies of scale, to the holders of Common Stock and AMPS of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III as a result of the Reorganization. The Board of Directors of each of the Funds, including all of the Directors who are not "interested persons", as defined in the Investment Company Act, of each of the Funds, has determined that the Reorganization is in the best interests of each of the Funds and of the holders of Common Stock and AMPS of each of the Funds and that the interests of such stockholders will not be diluted as a result of effecting the Reorganization. If all of the requisite approvals are obtained, it is anticipated that the Reorganization will occur as soon as practicable after such approval, provided that the Funds have obtained prior to that time a favorable private letter ruling from the Internal Revenue Service (the "IRS") concerning the tax consequences of the Reorganization as set forth in the Agreement and Plan of Reorganization. Under the Agreement and Plan of Reorganization, however, the Board of Directors of either MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III may cause the Reorganization to be postponed or abandoned should such Board determine that it is in the best interests of the stockholders of its Fund to do so. The Agreement and Plan of Reorganization may be terminated, and the Reorganization abandoned, whether before or after approval by the Funds' stockholders, at any time prior to the Exchange Date (as defined below), (i) by mutual consent of the Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III; (ii) by the Board of Directors of MuniVest New York Insured if any condition to MuniVest New York Insured's obligations has not been fulfilled or waived by such Board; (iii) by the Board of Directors of MuniYield New York Insured II if any condition to MuniYield New York Insured II's obligations has not been fulfilled or waived by such Board; or (iv) by the Board of Directors of MuniYield New York Insured III if any condition to MuniYield New York Insured III's obligations has not been fulfilled or waived by such Board. 10 15 PRO FORMA FEE TABLE FOR COMMON STOCKHOLDERS OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED II, MUNIYIELD NEW YORK INSURED III AND THE COMBINED FUND AS OF APRIL 30, 1996 (UNAUDITED)(A) ACTUAL ------------------------------------- MUNIYIELD MUNIVEST NEW YORK MUNIYIELD NEW YORK INSURED NEW YORK PRO FORMA INSURED II INSURED III COMBINED -------- -------- ----------- --------- Common Stockholder Transaction Expenses: Maximum Sales Load (as a percentage of the offering price) imposed on purchases of Common Stock........................... 5.50%(b) 5.50%(b) 5.50%(b) (c) Dividend Reinvestment and Cash Purchase Plan Fees................................. None None None None Annual Fund Operating Expenses (as a percentage of average net assets attributable to Common Stock at April 30, 1996; annualized)(d); Investment Advisory Fees..................... 0.75% 0.71% 0.73% 0.70% Other Expenses Transfer Agent Fees....................... 0.04% 0.03% 0.06% 0.02% Custodian Fee............................. 0.01% 0.01% 0.01% 0.01% Miscellaneous............................. 0.35% 0.27% 0.52% 0.24% --- --- --- --- Total Other Expenses......................... 0.40% 0.31% 0.59% 0.27% --- --- --- --- Total Annual Operating Expenses................ 1.15% 1.02% 1.32% 0.97% === === === === - --------------- (a) No information is presented with respect to AMPS because neither a Fund's operating expenses nor expenses of the Reorganization will be borne by AMPS holders of any of the Funds. Generally, AMPS are sold at a fixed liquidation preference of $25,000 per share and investment return is set at an auction. (b) Sales load charged in the Fund's initial offering, subject to reductions for bulk purchases. Shares of Common Stock purchased on the secondary market are not subject to sales loads, but may be subject to brokerage commissions or other charges. (c) No sales load will be charged on the issuance of shares in the Reorganization. Shares of Common Stock are not available for purchase from the Funds but may be purchased through a broker-dealer subject to individually negotiated commission rates. (d) The actual annualized Fund operating expenses were derived from each Fund's shareholder report dated as of April 30, 1996. The pro forma annual operating expenses for the combined fund are projections for a 12-month period. 11 16 EXAMPLE: CUMULATIVE EXPENSES PAID ON SHARES OF COMMON STOCK FOR THE PERIODS INDICATED: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- An investor would pay the following expenses on a $1,000 investment, including the maximum sales load of $55 and assuming (1) an operating expense ratio of 1.15% for MuniVest New York Insured shares, 1.02% for MuniYield New York Insured II shares, 1.32% for MuniYield New York Insured III shares and 0.97% for shares of the combined fund and (2) a 5% annual return throughout the period: MuniVest New York Insured............................... $ 66 $90 $ 115 $187 MuniYield New York Insured II........................... $ 65 $86 $ 108 $173 MuniYield New York Insured III.......................... $ 68 $95 $ 123 $205 Combined Fund*.......................................... $ 64 $84 $ 106 $167 - --------------- * Assumes that the Reorganization had taken place on April 30, 1996 The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that a common stockholder of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III will bear directly or indirectly as compared to the costs and expenses that would be borne by such investors taking into account the Reorganization. THE EXAMPLE SET FORTH ABOVE ASSUMES THAT SHARES OF COMMON STOCK WERE PURCHASED IN THE INITIAL OFFERINGS AND THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS AND UTILIZES A 5% ANNUAL RATE OF RETURN AS MANDATED BY SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") REGULATIONS. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND 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 MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III as a Result of the Reorganization". BUSINESS OF MUNIVEST NEW YORK INSURED............ MuniVest New York Insured was incorporated under the laws of the State of Maryland on February 19, 1993 and commenced operations on April 30, 1993. Like MuniYield New York Insured II and MuniYield New York Insured III, MuniVest New York Insured is a non-diversified, leveraged, closed-end management investment company whose investment objective is to provide stockholders with as high a level of current income exempt from Federal, New York State and New York City income taxes as is consistent with its investment policies and prudent investment management. Furthermore, like MuniYield New York Insured II and MuniYield New York Insured III, MuniVest New York Insured seeks to achieve its investment 12 17 objective by investing primarily in a portfolio of New York Municipal Bonds. See "Comparison of the Funds -- Investment Objectives and Policies". Like MuniYield New York Insured II and MuniYield New York Insured III, MuniVest New York Insured has outstanding both Common Stock and AMPS. As of July 31, 1996, MuniVest New York Insured had net assets of $142,195,512. BUSINESS OF MUNIYIELD NEW YORK INSURED II......... MuniYield New York Insured II was incorporated under the laws of the State of Maryland on May 5, 1992 and commenced operations on June 26, 1992. Like MuniVest New York Insured and MuniYield New York Insured III, MuniYield New York Insured II is a non-diversified, leveraged, closed-end management investment company whose investment objective is to provide stockholders with as high a level of current income exempt from Federal, New York State and New York City income taxes as is consistent with its investment policies and prudent investment management. Furthermore, like MuniVest New York Insured and MuniYield New York Insured III, MuniYield New York Insured II seeks to achieve its investment objective by investing primarily in a portfolio of New York Municipal Bonds. See "Comparison of the Funds -- Investment Objectives and Policies". Like MuniVest New York Insured and MuniYield New York Insured III, MuniYield New York Insured II has outstanding both Common Stock and AMPS. As of July 31, 1996, MuniYield New York Insured II had net assets of $228,983,721. BUSINESS OF MUNIYIELD NEW YORK INSURED III........ MuniYield New York Insured III was incorporated under the laws of the State of Maryland on September 28, 1992 and commenced operations on November 27, 1992. Like MuniVest New York Insured and MuniYield New York Insured II, MuniYield New York Insured III is a non-diversified, leveraged, closed-end management investment company whose investment objective is to provide stockholders with as high a level of current income exempt from Federal, New York State and New York City income taxes as is consistent with its investment policies and prudent investment management. Furthermore, like MuniVest New York Insured and MuniYield New York Insured II, MuniYield New York Insured III seeks to achieve its investment objective by investing primarily in a portfolio of 13 18 New York Municipal Bonds. See "Comparison of the Funds -- Investment Objectives and Policies". Like MuniVest New York Insured and MuniYield New York Insured II, MuniYield New York Insured III has outstanding both Common Stock and AMPS. As of July 31, 1996, MuniYield New York Insured III had net assets of $77,031,734. COMPARISON OF THE FUNDS....... Investment Objectives and Policies. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have virtually identical investment objectives and policies. All three Funds seek to provide income exempt from Federal, New York State and New York City income taxes and seek to maintain as much of their respective portfolios invested in New York Municipal Bonds as possible. As of July 31, 1996, 99% of MuniVest New York Insured's net assets, 99% of MuniYield New York Insured II's net assets and 97% of MuniYield New York Insured III's net assets were invested in New York Municipal Bonds. The same investment restrictions apply to each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III. See "Comparison of the Funds -- Investment Objectives and Policies". Capital Stock. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III each has outstanding both Common Stock and AMPS. MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock are all traded on the NYSE. As of July 31, 1996, (i) the net asset value per share of the MuniVest New York Insured Common Stock was $12.94 and the market price per share was $11.625, (ii) the net asset value per share of the MuniYield New York Insured II Common Stock was $14.30 and the market price per share was $13.00, and (iii) the net asset value per share of the MuniYield New York Insured III Common Stock was $14.10 and the market price per share was $12.50. MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS and MuniYield New York Insured III AMPS have liquidation preferences of $25,000 per share and are sold principally at auctions. See "Comparison of the Funds -- Capital Stock". Auctions generally have been held and will be held every seven days in the case of the MuniVest New York Insured AMPS and the MuniYield New York Insured II AMPS, and every 28 days 14 19 in the case of the MuniYield New York Insured III AMPS, unless the applicable Fund elects, subject to certain limitations, to have a special dividend period. As of the auction held on August 1, 1996, the dividend rate on the MuniVest New York Insured AMPS was 3.41%; as of the auction held on August 2, 1996, the dividend rate on the MuniYield New York Insured II AMPS was 3.38%; and as of the auction held on July 17, 1996, the dividend rate on the MuniYield New York Insured III AMPS was 3.451%. Advisory Fees. The investment adviser for each of the Funds is Fund Asset Management, L.P. ("FAM"). FAM is an affiliate of MLAM, and both FAM and MLAM are owned and controlled by Merrill Lynch & Co., Inc. ("ML & Co."). The principal business address of FAM is 800 Scudders Mill Road, Plainsboro, New Jersey 08536. MLAM or FAM acts as the investment adviser for more than 130 registered investment companies. FAM also offers portfolio management and portfolio analysis services to individuals and institutions. FAM is responsible for the management of each Fund's investment portfolio and for providing administrative services to each Fund. Roberto Roffo serves as the portfolio manager for each of MuniVest New York Insured and MuniYield New York Insured III. Walter O'Connor serves as the portfolio manager for MuniYield New York Insured II. Pursuant to separate investment advisory agreements between each Fund and FAM, each Fund pays FAM a monthly fee at the annual rate of 0.50% of such Fund's average weekly net assets. Subsequent to the Reorganization, FAM will continue to receive compensation at the rate of 0.50% of the average weekly net assets of the surviving Fund. See "Comparison of the Funds -- Management of the Funds". Other Significant Fees. The Bank of New York is the custodian, transfer agent, dividend disbursing agent and registrar for MuniVest New York Insured in connection with its Common Stock, and receives a fee for such services. Boston EquiServe is the transfer agent, dividend disbursing agent and registrar for both MuniYield New York Insured II and MuniYield New York Insured III in connection with their respective Common Stock. State Street Bank and Trust Company is the custodian for the assets of MuniYield New York Insured II and MuniYield New York Insured III. IBJ Schroder Bank and Trust Company is the transfer agent, registrar and auction agent for 15 20 MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III in connection with their respective AMPS. The principal business addresses are as follows: The Bank of New York, 90 Washington Street, New York, New York 10286 (for its custodial services) and 101 Barclay Street, New York, New York 10286 (for its transfer agency services); Boston EquiServe, 150 Royall Street, Canton, Massachusetts 02021; State Street Bank and Trust Company, One Heritage Drive, P2N, North Quincy, Massachusetts 02171; and IBJ Schroder Bank and Trust Company, One State Street, New York, New York 10004. See "Comparison of the Funds -- Management of the Funds". Overall Expense Ratio. As of April 30, 1996, the overall annualized operating expense ratio for MuniVest New York Insured was 0.76%, based on average net assets of approximately $145.0 million including AMPS, and 1.15%, based on average net assets of approximately $96.0 million excluding AMPS, the overall annualized operating expense ratio for MuniYield New York Insured II was 0.72%, based on average net assets of approximately $234.6 million including AMPS, and 1.02%, based on average net assets of approximately $164.6 million excluding AMPS, and the overall annualized operating expense ratio for MuniYield New York Insured III was 0.90%, based on average net assets of approximately $78.3 million including AMPS, and 1.32%, based on average net assets of approximately $53.3 million excluding AMPS. If the Reorganization had taken place on April 30, 1996, the overall operating expense ratio for the combined fund on a pro forma basis would have been 0.66%, based on average net assets of approximately $457.9 million including AMPS, and 0.97%, based on average net assets of approximately $313.9 million excluding AMPS. Purchases and Sales of Common Stock and AMPS. Purchase and sale procedures for MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock are identical, and investors typically purchase and sell shares of Common Stock of such Funds through a registered broker-dealer on the NYSE, thereby incurring a brokerage commission set by the broker-dealer. Alternatively, investors may purchase or sell shares of Common Stock of such Funds through privately negotiated transactions with existing stockholders. 16 21 Purchase and sale procedures for MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS and MuniYield New York Insured III AMPS also are identical. Such AMPS generally are purchased and sold at separate auctions conducted on a regular basis by IBJ Schroder Bank and Trust Company, as the auction agent for each Fund's AMPS (the "Auction Agent"). Unless otherwise permitted by the Funds, existing and potential holders of AMPS only may participate in auctions through their broker-dealers. Broker-dealers submit the orders of their respective customers who are existing and potential holders of AMPS to the Auction Agent. On or prior to each auction date for the AMPS (the business day next preceding the first day of each dividend period), each holder may submit orders to buy, sell or hold AMPS to its broker-dealer. Outside of these auctions, shares of MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS or MuniYield New York Insured III AMPS may be purchased or sold through broker-dealers for the AMPS in a secondary trading market maintained by the broker-dealers. However, there can be no assurance that a secondary market actually will be developed and maintained by the broker-dealers for the AMPS of any of the Funds. Ratings of AMPS. The MuniVest New York Insured AMPS, the MuniYield New York Insured II AMPS and the MuniYield New York Insured III AMPS have each been assigned a rating of AAA from Standard & Poor's Ratings Group ("S&P") and "aaa" from Moody's Investors Service, Inc. ("Moody's"). See "Comparison of the Funds -- Rating Agency Guidelines". Portfolio Insurance. The policies are the same for each Fund with respect to obtaining insurance for portfolio securities. Under normal circumstances, at least 80% of each Fund's assets will be invested in Municipal Bonds either (i) insured under an insurance policy purchased by the Fund or (ii) insured under an insurance policy obtained by the issuer thereof or any other party. See "Comparison of the Funds -- Investment Objectives and Policies -- Portfolio Insurance". Portfolio Transactions. The portfolio transactions in which MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III may engage are identical, as are the procedures for such transactions. See "Comparison of the Funds -- Portfolio Transactions". 17 22 Dividends and Distributions. The methods of dividend payment and distributions are identical for MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, both with respect to the Common Stock and the AMPS of each Fund. See "Comparison of the Funds -- Dividends and Distributions". Net Asset Value. The net asset value per share of Common Stock of each Fund is determined as of 15 minutes after the close of business on the NYSE (generally, 4:00 P.M., New York time) on each day during which the NYSE is open for trading. For purposes of determining the net asset value of a share of Common Stock of each Fund, the value of the securities held by the Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS of the Fund is divided by the total number of shares of Common Stock of the Fund outstanding at such time. Expenses, including the fees payable to FAM, are accrued daily. See "Comparison of the Funds -- Net Asset Value". Voting Rights. The corresponding voting rights of the holders of shares of MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock are identical. Similarly, the corresponding voting rights of the holders of shares of MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS and MuniYield New York Insured III AMPS are identical. See "Comparison of the Funds -- Capital Stock". Stockholder Services. An automatic dividend reinvestment plan is available to the holders of shares of MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock. The plans are identical for the three Funds. See "Comparison of the Funds -- Automatic Dividend Reinvestment Plan". Other stockholder services, including the provision of annual and semi-annual reports, are the same for the three Funds. 18 23 OUTSTANDING SECURITIES OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED II AND MUNIYIELD NEW YORK INSURED III AS OF JULY 31, 1996 AMOUNT HELD AMOUNT OUTSTANDING BY EXCLUSIVE OF AMOUNT AMOUNT FUND FOR ITS SHOWN IN PREVIOUS TITLE OF CLASS AUTHORIZED OWN ACCOUNT COLUMN - ---------------------------------------------------- ----------- ------------ ------------------- MuniVest New York Insured Common Stock................................... 199,998,040 -0- 7,204,432 AMPS........................................... 1,960 -0- 1,960 MuniYield New York Insured II Common Stock................................... 199,997,200 -0- 11,114,832 AMPS........................................... 2,800 -0- 2,800 MuniYield New York Insured III Common Stock................................... 199,999,000 -0- 3,688,900 AMPS........................................... 1,000 -0- 1,000 TAX CONSIDERATIONS............ MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have jointly requested a private letter ruling from the IRS with respect to the Reorganization to the effect that, among other things, neither MuniVest New York Insured, MuniYield New York Insured II nor MuniYield New York Insured III will recognize gain or loss on the transaction and MuniVest New York Insured stockholders and MuniYield New York Insured III stockholders will not recognize gain or loss on the exchange of their MuniVest New York Insured shares or MuniYield New York Insured III shares for MuniYield New York Insured II Common Stock (except to the extent that a MuniVest New York Insured or MuniYield New York Insured III common stockholder receives cash representing an interest in less than a full share of MuniYield New York Insured II Common Stock in the Reorganization), MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS. The consummation of the Reorganization is subject to the receipt of such ruling. The Reorganization will not affect the status of MuniYield New York Insured II as a regulated investment company (a "RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). Each of MuniVest New York Insured and MuniYield New York Insured III will liquidate pursuant to the Reorganization. See "Agreement and Plan of Reorganization -- Tax Consequences of the Reorganization". 19 24 RISK FACTORS AND SPECIAL CONSIDERATIONS Since each of the three Funds invests primarily in a portfolio of Municipal Bonds, any risks inherent in such investments are equally applicable to all three Funds and will be similarly pertinent to the combined fund after the Reorganization. It is expected that the Reorganization itself will not adversely affect the rights of holders of shares of Common Stock or AMPS of any of the Funds or create additional risks. SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL BONDS Each of the Funds ordinarily invests substantially all of its total assets in New York Municipal Bonds and, therefore, each Fund is more susceptible to factors adversely affecting issuers of New York Municipal Bonds than is a municipal bond investment company that is not concentrated in issuers of New York Municipal Bonds to this degree. In recent years, New York State, New York City and other New York public bodies have encountered financial difficulties which could have an adverse effect with respect to the performance of each of the Funds. As of August 15, 1996, Moody's, S&P and Fitch Investors Service, Inc. ("Fitch") rated New York City's general obligation bonds Baa1, BBB+ and A-, respectively. On February 28, 1996, Fitch placed New York City's general obligation bonds on FitchAlert with negative implications. On July 10, 1995, S&P revised downward its rating on outstanding general obligation bonds of New York City from "A-" to "BBB+". Moody's, S&P and Fitch currently rate New York State's general obligation bonds A, A- and A+, respectively. FAM does not believe that the current economic conditions in New York will have a significant adverse effect on a Fund's ability to invest prudently in New York Municipal Bonds. See Exhibit II -- "Economic and Financial Conditions in New York". EFFECTS OF LEVERAGE Utilization of leverage, through the issuance of AMPS, involves certain risks to holders of MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock. For example, each Fund's issuance of AMPS may result in higher volatility of the net asset value of its Common Stock and potentially more volatility in the market value of its Common Stock. In addition, fluctuations in the short-term and medium-term dividend rates on, and the amount of taxable income allocable to, the AMPS affect the yield to holders of Common Stock. So long as each Fund, taking into account the costs associated with its AMPS and the Fund's operating expenses, is able to realize a higher net return on its investment portfolio than the then-current dividend rate on the AMPS, the effect of leverage is to cause holders of the Fund's Common Stock to realize a higher current rate of return than if the Fund were not leveraged. Similarly, since a pro rata portion of each Fund's net realized capital gains on its investment assets generally is payable to holders of the Fund's Common Stock, if increased net capital gains are realized by the Fund because of increased capital for investment, the effect of leverage will be to increase the amount of such gains distributed to holders of the Fund's Common Stock. However, short-term, medium-term and long-term interest rates change from time to time as does their relationship 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 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 increase substantially relative to the long-term obligations in which each Fund may be invested. To the extent that the current dividend rate on the AMPS approaches the net return on a Fund's investment portfolio, the benefit of leverage to holders of Common Stock is reduced, 20 25 and if the current dividend rate on the AMPS were to exceed the net return on a Fund's portfolio, the Fund's leveraged capital structure would result in a lower rate of return to holders of Common Stock than if the Fund were not leveraged. Similarly, since both the costs associated with the issuance of AMPS and any decline in the value of a Fund's investments (including investments purchased with the proceeds from any AMPS offering) are borne entirely by holders of the Fund's Common Stock, the effect of leverage in a declining market would result in a greater decrease in net asset value to holders of Common Stock than if the Fund were not leveraged. Such decrease in net asset value likely would be reflected in a greater decline in the market price for shares of Common Stock. In an extreme case, a decline in net asset value could affect each Fund's ability to pay dividends on its Common Stock. Failure to make such dividend payments could adversely affect the Fund's qualification for the special tax treatment afforded RICs under the Code. See "Agreement and Plan of Reorganization -- Tax Consequences of the Reorganization". Each Fund intends, however, to take all measures necessary to continue to make Common Stock dividend payments. If a Fund's current investment income were not sufficient to meet dividend requirements on either the Common Stock or the AMPS, it could be necessary for the Fund to liquidate certain of its investments. In addition, each Fund has the authority to redeem its AMPS for any reason and may redeem all or part of its AMPS if (i) the Fund anticipates that its leveraged capital structure will result in a lower rate of return for any significant amount of time to holders of the Common Stock than that obtainable if the Common Stock were unleveraged or (ii) the asset coverage (as defined in the Investment Company Act) for the AMPS declines below 200% or the Fund fails to satisfy the guidelines specified by Moody's and S&P in connection with their respective rating of the AMPS. Redemption of the AMPS or insufficient investment income to make dividend payments may reduce the net asset value of the Common Stock and require the Fund to liquidate a portion of its investments at a time when it may be disadvantageous, in the absence of such extraordinary circumstances, to do so. PORTFOLIO MANAGEMENT The portfolio management strategies of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III are the same. In the event of an increase in short-term or medium-term rates or other change in market conditions to the point where a Fund's leverage could adversely affect holders of Common Stock as noted above, or in anticipation of such changes, each Fund may attempt to shorten the average maturity of its investment portfolio, which would tend to offset the negative impact of leverage on holders of its Common Stock. Each Fund also may attempt to reduce the degree to which it is leveraged by redeeming AMPS pursuant to the provisions of the Fund's Articles Supplementary establishing the rights and preferences of the AMPS or otherwise purchasing shares of AMPS. Purchases and sales or redemptions of AMPS, whether on the open market or in negotiated transactions, are subject to limitations under the Investment Company Act. If market conditions subsequently change, each Fund may sell previously unissued shares of AMPS or shares of AMPS that the Fund previously issued but later repurchased or redeemed. RATINGS CONSIDERATIONS MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have received ratings of their AMPS of AAA from S&P and "aaa" from Moody's. In order to maintain these ratings, the Funds are required to maintain portfolio holdings meeting specified guidelines of such rating 21 26 agencies. These guidelines may impose asset coverage requirements that are more stringent than those imposed by the Investment Company Act. As described by Moody's and S&P, a preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock obligations. The ratings of the AMPS are not recommendations to purchase, hold or sell shares of AMPS, inasmuch as the ratings do not comment as to market price or suitability for a particular investor, nor do the rating agency guidelines address the likelihood that a holder of shares of AMPS will be able to sell such shares in an auction. The ratings are based on current information furnished to Moody's and S&P by the Funds and FAM and information obtained from other sources. The ratings may be changed, suspended or withdrawn as a result of changes in, or the unavailability of, such information. Neither the MuniVest New York Insured Common Stock, the MuniYield New York Insured II Common Stock nor the MuniYield New York Insured III Common Stock has been rated by a nationally recognized statistical rating organization. The Board of Directors of each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, as the case may be, 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. 22 27 COMPARISON OF THE FUNDS FINANCIAL HIGHLIGHTS MuniVest New York Insured The financial information in the table below, except for the six-month period ended April 30, 1996 and the leverage information which are unaudited and have been provided by FAM, has been audited in conjunction with the annual audits of the financial statements of the Fund by Ernst & Young LLP, independent auditors. The following per share data and ratios have been derived from information provided in the financial statements of the Fund. FOR THE YEAR ENDED OCTOBER FOR THE PERIOD FOR THE SIX MONTHS 31, APRIL 30, 1993+ ENDED APRIL 30, ----------------------------- TO OCTOBER 31, 1996 1995 1994 1993 ------------------ --------- --------- --------------- INCREASE (DECREASE) IN NET ASSET VALUE: PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period.... $ 13.14 $ 11.79 $ 14.90 $ 14.18 ------- ------- ------- -------- Investment income -- net................ .49 1.00 1.03 .48 Realized and unrealized gain (loss) on investments -- net.................... (.47) 1.36 (3.06) .80 ------- ------- ------- -------- Total from investment operations........ .02 2.36 (2.03) 1.28 ------- ------- ------- -------- Less dividends and distributions to Common Stock shareholders: Investment income -- net............ (.38) (.75) (.86) (.34) Realized gain on investments -- net................ -- -- (.04) -- ------- ------- ------- -------- Total dividends and distributions to Common Stock shareholders............. (.38) (.75) (.90) (.34) ------- ------- ------- -------- Capital charge resulting from issuance of Common Stock......................... -- -- -- (.03) ------- ------- ------- -------- Effect of Preferred Stock activity:++ Dividends and distributions to Preferred Stock shareholders: Investment income -- net............ (.12) (.26) (.17) (.06) Realized gain on investments -- net................ -- -- (.01) -- Capital charge resulting from issuance of Preferred Stock.................. -- -- -- (.13) ------- ------- ------- -------- Total effect of Preferred Stock activity.............................. (.12) (.26) (.18) (.19) ------- ------- ------- -------- Net asset value, end of period.......... $ 12.66 $ 13.14 $ 11.79 $ 14.90 ======= ======= ======= ======== Market price per share, end of period... $ 11.875 $ 12.00 $ 10.50 $ 14.75 ======= ======= ======= ======== TOTAL INVESTMENT RETURN:** Based on market price per share......... 2.05%# 21.97% (23.65)% .59%# ======= ======= ======= ======== Based on net asset value per share...... (.65)%# 18.94% (15.13)% 7.49%# ======= ======= ======= ======== RATIOS TO AVERAGE NET ASSETS:*** Expenses, net of reimbursement.......... .76%* .75% .64% .35%* ======= ======= ======= ======== Expenses................................ .76%* .77% .74% .79%* ======= ======= ======= ======== Investment income -- net................ 4.85%* 5.22% 5.06% 4.75%* ======= ======= ======= ======== 23 28 FOR THE PERIOD FOR THE SIX MONTHS FOR THE YEAR ENDED OCTOBER APRIL 30, 1993+ ENDED APRIL 30, 31, TO OCTOBER 31, 1996 1995 1994 1993 ------- ------- ------- -------- SUPPLEMENTAL DATA: Net assets, net of Preferred Stock, end of period (in thousands).............. $ 91,188 $ 94,682 $ 84,920 $ 106,279 ======= ======= ======= ======== Preferred Stock outstanding, end of period (in thousands)................. $ 49,000 $ 49,000 $ 49,000 $ 49,000 ======= ======= ======= ======== Portfolio turnover...................... 75.53% 192.08% 74.77% 10.81% ======= ======= ======= ======== DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:+++ Investment income -- net................ $ 428 $ 938 $ 610 $ 242 ======= ======= ======= ======== LEVERAGE: Asset coverage per $1,000............... $ 2,861 $ 2,932 $ 2,733 $ 3,169 ======= ======= ======= ======== - --------------- * Annualized. ** Total investment returns based on market value, which can be significantly greater or less than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. *** Does not reflect the effect of dividends to Preferred Stock shareholders. + Commencement of operations. ++ The Fund's Preferred Stock was issued on June 1, 1993. +++ Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. # Aggregate total investment return. MuniYield New York Insured II The financial information in the table below, except for the six-month period ended April 30, 1996 which is unaudited and has been provided by FAM, has been audited in conjunction with the annual audits of the financial statements of the Fund by Deloitte & Touche LLP, independent auditors. The following per share data and ratios have been derived from information provided in the financial statements of the Fund. FOR THE PERIOD FOR THE SIX MONTHS FOR THE YEAR ENDED OCTOBER 31, JUNE 26, 1992+ ENDED APRIL 30, ---------------------------------- TO OCTOBER 31, 1996 1995 1994 1993 1992 ------------------ -------- -------- -------- -------------- INCREASE (DECREASE) IN NET ASSET VALUE: PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period..... $ 14.63 $ 13.13 $ 15.89 $ 13.43 $ 14.18 ------- ------- ------- ------- -------- Investment income -- net................. .52 1.07 1.07 1.11 .27 Realized and unrealized gain (loss) on investments -- net..................... (.44) 1.50 (2.76) 2.46 (.66) ------- ------- ------- ------- -------- Total from investment operations......... .08 2.57 (1.69) 3.57 (.39) ------- ------- ------- ------- -------- Less dividends and distributions to Common Stock shareholders: Investment income -- net............. (.41) (.84) (.87) (.91) (.18) Realized gain on investments -- net................. -- -- (.01) -- -- ------- ------- ------- ------- -------- 24 29 FOR THE PERIOD FOR THE SIX MONTHS JUNE 26, 1992+ ENDED APRIL 30, FOR THE YEAR ENDED OCTOBER 31, TO OCTOBER 31, 1996 1995 1994 1993 1992 ------- ------- ------- ------- -------- Total dividends and distributions to Common Stock shareholders.............. (.41) (.84) (.88) (.91) (.18) ------- ------- ------- ------- -------- Capital charge resulting from issuance of Common Stock........................... -- -- -- -- (.03) ------- ------- ------- ------- -------- Effect of Preferred Stock activity:++ Dividends and distributions to Preferred Stock shareholders: Investment income -- net............... (.12) (.23) (.19) (.20) (.02) Realized gain on investments -- net.... -- -- (.00)## -- -- Capital charge resulting from issuance of Preferred Stock..................... -- -- -- -- (.13) ------- ------- ------- ------- -------- Total effect of Preferred Stock activity............................... (.12) (.23) (.19) (.20) (.15) ------- ------- ------- ------- -------- Net asset value, end of period........... $ 14.18 $ 14.63 $ 13.13 $ 15.89 $ 13.43 ======= ======= ======= ======= ======== Market price per share, end of period.... $ 13.125 $ 13.25 $ 11.00 $ 15.25 $ 13.75 ======= ======= ======= ======= ======== TOTAL INVESTMENT RETURN:** Based on market price per share.......... 2.11%# 28.61% (22.96)% 17.90% (7.17)%# ======= ======= ======= ======= ======== Based on net asset value per share....... (0.09)%# 18.96% (11.75)% 25.77% (4.09)%# ======= ======= ======= ======= ======== RATIOS TO AVERAGE NET ASSETS:*** Expenses, net of reimbursement........... .72%* .74% .74% .62% .13%* ======= ======= ======= ======= ======== Expenses................................. .72%* .74% .74% .70% .68%* ======= ======= ======= ======= ======== Investment income - net.................. 4.98%* 5.27% 5.09% 5.25% 5.05%* ======= ======= ======= ======= ======== SUPPLEMENTAL DATA: Net assets, net of Preferred Stock, end of period (in thousands)............... $157,621 $162,655 $145,977 $176,595 $146,633 ======= ======= ======= ======= ======== Preferred Stock outstanding, end of period (in thousands).................. $ 70,000 $ 70,000 $ 70,000 $ 70,000 $ 70,000 ======= ======= ======= ======= ======== Portfolio turnover....................... 76.12% 110.76% 36.79% 3.33% 19.40% ======= ======= ======= ======= ======== DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:+++ Investment income -- net................. $ 462 $ 910 $ 759 $ 809 $ 92 ======= ======= ======= ======= ======== LEVERAGE: Asset coverage per $1,000................ $ 3,252 $ 3,324 $ 3,085 $ 3,523 $ 3,095 ======= ======= ======= ======= ======== - --------------- * Annualized. ** Total investment returns based on market value, which can be significantly greater or less than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. *** Does not reflect the effect of dividends to Preferred Stock shareholders. + Commencement of operations. ++ The Fund's Preferred Stock was issued on September 16, 1992. +++ Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. # Aggregate total investment return. ## Amount is less than $.01 per share. 25 30 MuniYield New York Insured III The financial information in the table below, except for the six-month period ended April 30, 1996 and the leverage information which are unaudited and have been provided by FAM, has been audited in conjunction with the annual audits of the financial statements of the Fund by Ernst & Young LLP, independent auditors. The following per share data and ratios have been derived from information provided in the financial statements of the Fund. FOR THE PERIOD FOR THE YEAR ENDED NOVEMBER 27, FOR THE SIX MONTHS OCTOBER 31, 1992+ ENDED APRIL 30, ------------------------- TO OCTOBER 31, 1996 1995 1994 1993 ------------------ ------- ------- --------------- INCREASE (DECREASE) IN NET ASSET VALUE: PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............ $ 14.27 $ 12.82 $ 15.51 $ 14.18 ------- ------- ------- -------- Investment income -- net........................ .50 1.02 1.03 .85 Realized and unrealized gain (loss) on investments -- net............................ (.48) 1.44 (2.59) 1.45 ------- ------- ------- -------- Total from investment operations................ .02 2.46 (1.56) 2.30 ------- ------- ------- -------- Less dividends and distributions to Common Stock shareholders: Investment income -- net.................... (.39) (.75) (.86) (.68) Realized gain on investments -- net......... -- -- (.08) -- ------- ------- ------- -------- Total dividends and distributions to Common Stock shareholders............................ (.39) (.75) (.94) (.68) ------- ------- ------- -------- Capital charge resulting from issuance of Common Stock........................................... -- -- -- (.05) ------- ------- ------- -------- Effect of Preferred Stock activity:++ Dividends and distributions to Preferred Stock shareholders: Investment income -- net.................... (.13) (.26) (.17) (.09) Realized gain on investments -- net......... -- -- (.01) -- Capital charge resulting from issuance of Preferred Stock............................. -- -- (.01) (.15) ------- ------- ------- -------- Total effect of Preferred Stock activity........ (.13) (.26) (.19) (.24) ------- ------- ------- -------- Net asset value, end of period.................. $ 13.77 $ 14.27 $ 12.82 $ 15.51 ======= ======= ======= ======== Market price per share, end of period........... $ 12.125 $12.375 $10.625 $ 15.00 ======= ======= ======= ======== TOTAL INVESTMENT RETURN:** Based on market price per share................. .96%# 23.93% (24.11)% 4.69%# ======= ======= ======= ======== Based on net asset value per share.............. (.57)%# 18.44% (11.44)% 14.51%# ======= ======= ======= ======== RATIOS TO AVERAGE NET ASSETS:*** Expenses, net of reimbursement.................. .90%* .92% .88% .55%* ======= ======= ======= ======== Expenses........................................ .90%* .92% .88% .87%* ======= ======= ======= ======== Investment income -- net........................ 4.78%* 4.98% 4.88% 4.86%* ======= ======= ======= ======== 26 31 FOR THE PERIOD NOVEMBER 27, FOR THE SIX MONTHS FOR THE YEAR ENDED 1992+ ENDED APRIL 30, OCTOBER 31, TO OCTOBER 31, 1996 1995 1994 1993 ------- ------- ------- -------- SUPPLEMENTAL DATA: Net assets, net of Preferred Stock, end of period (in thousands)......................... $ 50,810 $52,654 $47,301 $57,005 ======= ======= ======= ======== Preferred Stock outstanding, end of period (in thousands)................................ $ 25,000 $25,000 $25,000 $25,000 ======= ======= ======= ======== Portfolio turnover.............................. 66.37% 176.98% 65.22% 11.06% ======= ======= ======= ======== DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:+++ Investment income -- net........................ $ 483 $ 944 $ 625 $ 325 ======= ======= ======= ======== LEVERAGE: Asset coverage per $1,000....................... $ 3,032 $ 3,106 $ 2,892 $ 3,280 ======= ======= ======= ======== - --------------- * Annualized. ** Total investment returns based on market value, which can be significantly greater or less than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. *** Does not reflect the effect of dividends to Preferred Stock shareholders. + Commencement of operations. ++ The Fund's Preferred Stock was issued on March 25, 1993. +++ Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. # Aggregate total investment return. 27 32 PER SHARE DATA FOR COMMON STOCK* TRADED ON THE NEW YORK STOCK EXCHANGE (UNAUDITED) MuniVest New York Insured PREMIUM (DISCOUNT) TO NET MARKET PRICE** NET ASSET VALUE ASSET VALUE ------------------ ---------------- --------------- QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW - ------------------------------------ ------- ------- ------ ------ ----- ------ July 31, 1993....................... $ 15.25 $ 14.25 $14.54 $14.10 7.12% (0.21)% October 31, 1993.................... 15.375 14.125 15.21 14.28 3.88 (3.65) January 31, 1994.................... 15.00 13.50 15.07 14.37 2.80 (8.97) April 30, 1994...................... 15.00 11.75 15.01 12.08 6.54 (8.99) July 31, 1994....................... 13.00 11.625 13.61 12.40 2.10 (9.60) October 31, 1994.................... 12.375 10.375 13.11 11.79 (3.92) (13.50) January 31, 1995.................... 11.125 9.125 12.08 10.89 (0.63) (17.94) April 30, 1995...................... 11.875 10.875 12.94 12.10 (5.01) (10.71) July 31, 1995....................... 12.25 11.00 13.44 12.54 (5.60) (15.08) October 31, 1995.................... 12.00 11.25 13.25 12.57 (8.06) (13.50) January 31, 1996.................... 12.75 11.50 13.76 13.20 (6.87) (15.81) April 30, 1996...................... 12.75 11.50 13.90 12.50 (3.92) (11.10) July 31, 1996....................... 11.625 11.25 12.94 12.50 (9.73) (11.97) MuniYield New York Insured II PREMIUM (DISCOUNT) TO NET MARKET PRICE** NET ASSET VALUE ASSET VALUE ------------------ ---------------- --------------- QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW - -------------------------------------- ------- ------- ------ ------ ----- ------ January 31, 1993...................... $ 15.00 $ 13.75 $14.35 $13.44 6.08% (1.25)% April 30, 1993........................ 15.75 14.50 15.42 14.35 4.31 (3.78) July 31, 1993......................... 15.375 14.50 15.49 15.00 (0.36) (4.42) October 31, 1993...................... 15.75 15.00 16.16 15.33 (1.25) (6.02) January 31, 1994...................... 15.375 14.125 16.03 15.42 (1.34) (10.15) April 30, 1994........................ 15.625 12.625 16.00 13.47 (0.78) (9.89) July 31, 1994......................... 13.75 12.625 14.67 13.74 (2.26) (10.59) October 31, 1994...................... 13.25 11.00 14.30 13.13 (5.49) (17.24) January 31, 1995...................... 12.375 10.125 13.57 12.21 (4.39) (20.07) April 30, 1995........................ 13.00 12.375 14.34 13.58 (5.19) (12.62) July 31, 1995......................... 13.00 12.375 14.79 13.97 (9.60) (14.71) October 31, 1995...................... 13.25 12.50 14.72 13.95 (7.97) (11.76) January 31, 1996...................... 13.75 13.00 15.24 14.70 (8.25) (14.02) April 30, 1996........................ 13.875 12.75 15.43 14.00 (6.73) (11.99) July 31, 1996......................... 13.25 12.75 14.30 13.89 (6.09) (9.71) 28 33 MuniYield New York Insured III PREMIUM (DISCOUNT) TO NET MARKET PRICE** NET ASSET VALUE ASSET VALUE ------------------ ---------------- ---------------- QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW - ----------------------------------- ------- ------- ------ ------ ------ ------ January 31, 1993................... $15.125 $ 15.00 $14.38 $14.18 6.07% 4.31% April 30, 1993..................... 16.00 14.125 15.06 14.34 6.24 (3.91) July 31, 1993...................... 15.50 14.50 15.13 14.64 3.67 (3.59) October 31, 1993................... 15.875 14.875 15.81 14.95 5.07 (4.71) January 31, 1994................... 15.25 14.00 15.58 15.00 (1.21) (8.04) April 30, 1994..................... 15.375 12.125 15.53 13.01 2.74 (11.04) July 31, 1994...................... 13.75 12.50 14.32 13.33 0.88 (9.55) October 31, 1994................... 13.125 10.625 13.96 12.82 (4.68) (17.64) January 31, 1995................... 11.75 9.875 13.15 11.87 (4.49) (19.06) April 30, 1995..................... 12.125 11.75 13.98 13.15 (6.91) (14.67) July 31, 1995...................... 12.50 11.625 14.52 13.55 (11.42) (17.66) October 31, 1995................... 13.00 11.75 14.35 13.56 (4.90) (15.13) January 31, 1996................... 13.25 12.375 14.89 14.34 (8.87) (15.54) April 30, 1996..................... 13.375 11.875 15.08 13.60 (8.05) (13.04) July 31, 1996...................... 12.50 12.125 14.10 13.61 (8.83) (13.14) - --------------- * Calculations are based upon shares of Common Stock outstanding at the end of each quarter. ** As reported in the consolidated transaction reporting system. As indicated in the tables above, since November 1, 1993 the MuniVest New York Insured Common Stock, the MuniYield New York Insured II Common Stock and the MuniYield New York Insured III Common Stock generally have traded at prices close to net asset value, with small premiums or discounts to net asset value being reflected in the market value of the shares from time to time. Since November 1, 1993, share prices for MuniVest New York Insured Common Stock have fluctuated between a maximum premium of 6.54% and a maximum discount of (17.94%), share prices for MuniYield New York Insured II Common Stock have traded at a maximum discount of (20.07%), and share prices for MuniYield New York Insured III Common Stock have fluctuated between a maximum premium of 2.74% and a maximum discount of (19.06%). Although there is no reason to believe that this pattern should be affected by the Reorganization, it is not possible to state whether shares of the surviving fund will trade at a premium or discount to net asset value following the Reorganization, or what the extent of any such premium or discount might be. INVESTMENT OBJECTIVE AND POLICIES The structure, organization and investment policies of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III are virtually identical, with the minor differences between the three Funds set forth below. Each Fund seeks as a fundamental investment objective as high a level of current income exempt from Federal, New York State and New York City income taxes as is consistent with the Fund's investment policies and prudent investment management. 29 34 The investment objective and policies of each of the three Funds are identical. Each Fund seeks to achieve its investment objective by investing primarily in a portfolio of New York Municipal Bonds. 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. At all times, except during temporary defensive periods, at least 65% of each Fund's total assets will be invested in New York Municipal Bonds. Under normal circumstances, at least 80% of each Fund's total assets will be invested in New York Municipal Bonds and Municipal Bonds with remaining maturities of one year or more which are covered by insurance guaranteeing the timely payment of principal at maturity and interest. At times, each Fund may seek to hedge its portfolio through the use of futures and options transactions to reduce volatility in the net asset value of its shares of Common Stock. Ordinarily, none of the Funds intends to realize significant investment income not exempt from Federal, New York State and New York City income taxes. Each Fund seeks to invest substantially all of its total assets in Municipal Bonds except at times when, in the judgment of FAM, Municipal Bonds of sufficient quality and quantity are unavailable for investment by the Fund. Each Fund may invest 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 an alternative minimum tax. The investment grade Municipal Bonds in which each Fund invests are those Municipal Bonds rated at the date of purchase within 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, Aaa through Baa3 for Moody's and AAA through BBB- for Fitch. In the case of short-term notes, the investment grade rating categories are SP-1 through SP-3 for S&P, MIG-1 through MIG-4 for Moody's and F-1+ through F-4 for Fitch. In the case of tax-exempt commercial paper, the investment grade rating categories are A through A-3 for S&P, Prime-1 through Prime-3 for Moody's and F-l+ through F-4 for Fitch. Obligations ranked in the fourth highest rating category assigned long-term debt or in an equivalent short-term rating category (BBB, SP-3 and A-3 for S&P; Baa, MIG-4 and Prime-3 for Moody's; and BBB, F-3 and F-4 for Fitch), while considered "investment grade," may have certain speculative characteristics. 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 other financial institution which provided such credit enhancement. See Exhibit III -- "Ratings of Municipal Bonds and Commercial Paper" and Exhibit IV -- "Portfolio Insurance". Each of the Funds may invest in variable rate demand obligations ("VRDOs") and VRDOs in the form of participation interests ("Participating VRDOs") in variable rate tax-exempt obligations held by a financial institution, typically a commercial bank. The VRDOs in which each Fund may invest are tax-exempt obligations (in the opinion of counsel to the issuer) which 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%) of 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 30 35 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. The average maturity of each Fund's portfolio securities varies based upon FAM's assessment of economic and market conditions. The net asset value of the shares of common stock of a closed-end investment company, such as each Fund, which invests primarily in fixed-income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed-income portfolio can be expected to decline. Prices of longer-term securities generally fluctuate more in response to interest rate changes than do short-term or medium-term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as the Funds. On a temporary basis, each Fund may invest in short-term tax-exempt securities, short-term U.S. Government securities, repurchase agreements or cash. Such securities or cash will not exceed 20% of each Fund's total assets except during interim periods pending investment of the net proceeds from public offerings of the Fund's securities and temporary defensive periods when, in the opinion of FAM, prevailing market or economic conditions warrant. Each Fund is classified as non-diversified within the meaning of the Investment Company Act, which means that the Fund is not limited by such Act in the proportion of its total assets that it may invest in securities of a single issuer. However, each Fund's investments are limited so as to qualify the Fund for the special tax treatment afforded RICs under the Code. See "Agreement and Plan of Reorganization -- Tax Consequences of the Reorganization". 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 are 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 are invested in the securities (other than U.S. Government securities) of a single issuer. A fund which elects to be classified as "diversified" under the Investment Company Act must satisfy the foregoing 5% requirement with respect to 75% of its total assets. To the extent that any of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III assumes large positions in the securities of a small number of issuers, the Fund's yield may fluctuate to a greater extent than that of a diversified company as a result of changes in the financial condition or in the market's assessment of the issuers. PORTFOLIO INSURANCE Under normal circumstances, at least 80% of each Fund's assets will be invested in Municipal Bonds either (i) insured under an insurance policy purchased by the Fund or (ii) insured under an insurance policy obtained by the issuer thereof or any other party. The insurance policies in either instance will be 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, Aaa from Moody's or AAA from Fitch. See Exhibit IV to this Proxy Statement and Prospectus for a brief description of S&P's and Moody's insurance claims-paying ability ratings. Currently, a majority of the insured Municipal Bonds in each Fund's portfolio are insured by the following insurance companies which satisfy the foregoing requirements: AMBAC Indemnity Corporation, Financial Security Assurance, Capital Guaranty Insurance Company, Financial Guaranty Insurance Company and Municipal Bond Investors Assurance Corporation. 31 36 Each Fund also may purchase Municipal Bonds covered by insurance issued by any other insurance company which satisfies the foregoing requirements. 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 mutual fund insurance policies (the "Policies") from insurance companies meeting the requirements set forth above which guarantee payment of principal and interest on specified eligible Municipal Bonds purchased by the Fund. 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 on 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 which are then due and owing. The Policies will not guarantee the market value of the insured Municipal Bonds or the value of the shares of the Fund. The insurer will not have the right to withdraw coverage on securities insured by its Policies and held by a Fund so long as such securities remain in the Fund's portfolio. In addition, the insurer may not cancel its Policies for any reason except failure to pay premiums when due. The Board of Directors of each Fund reserves the right to terminate any of the Policies if it determines that the benefits to the Fund of having its portfolio insured under such Policy are not justified by the expense involved. The premiums for the Policies are paid by a Fund and the yield on the Fund's portfolio is reduced thereby. FAM estimates that the cost of the annual premiums for the Policies of each Fund currently range from approximately .20 of 1% to .25 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 the Fund purchases Municipal Bonds insured under policies obtained by parties other than the Fund, the Fund does not pay the premiums for such policies; rather, the cost of such policies may be reflected in the purchase price of the Municipal Bonds. It is the intention of FAM to retain any insured securities which are in default or in significant risk of default and to place a value on the insurance which ordinarily will be the difference between the market value of the defaulted security and the market value of similar securities which are not in default. In certain circumstances, however, FAM may determine that an alternative value for the insurance, such as the difference between the market value of the defaulted security and its par value, is more appropriate. FAM will be unable to manage the portfolio of a Fund to the extent it holds defaulted securities, 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 defaulted securities and securities which have a significant risk of default. There can be no assurance that insurance of the kind 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 discontinue its policy of maintaining insurance for all or any of the Municipal Bonds held in the Fund's portfolio. Although FAM periodically 32 37 reviews the financial condition of each insurer, there can be no assurance that the insurers will be able to honor their obligations under all circumstances. The portfolio insurance reduces financial or credit risk (i.e., the possibility that the owners of the insured 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). 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 industrial development bonds are issued by or on behalf of public authorities to finance various privately operated facilities, including pollution control facilities. For purposes of this 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 "private activity bonds" as discussed below. The two principal classifications of Municipal Bonds are "general obligation" bonds and "revenue" or "special obligation" bonds. General obligation bonds are secured by the issuer's pledge of faith, credit and taxing power for the payment of principal and interest. Revenue or special obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds from a special excise tax or other specific revenue source such as from the user of the facility being financed. Industrial development bonds are in most cases revenue bonds and generally do not constitute the pledge of the credit or taxing power of the issuer of such bonds. The payment of the principal and interest on such industrial development bonds depends solely on the ability of the user of the facility financed by the bonds to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. Municipal Bonds also may include "moral obligation" bonds which normally are 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 "private activity bonds" (in general, bonds that benefit non-governmental entities). Interest received on certain tax-exempt securities which are classified as "private activity bonds" may subject certain investors in the Fund to an alternative minimum tax. There is no limitation on the percentage of each Fund's assets that may be invested in Municipal Bonds which may subject certain investors to an alternative minimum tax. See "Summary -- Tax Considerations" and "Agreement and Plan of Reorganization -- Tax Consequences of the Reorganization". Federal tax legislation has limited the types and volume of bonds the interest on which qualifies for a Federal income tax exemption. As a result, this legislation and legislation which may be enacted in the future may affect the availability of Municipal Bonds for investment by the Funds. SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL BONDS Each Fund ordinarily will invest at least 65% of its total assets in New York Municipal Bonds and, therefore, is more susceptible to factors adversely affecting issuers of New York Municipal Bonds than is a 33 38 municipal bond investment company that is not concentrated in issuers of New York Municipal Bonds to this degree. As of August 15, 1996, Moody's, S&P and Fitch rated New York City's general obligation bonds Baa1, BBB+ and A-, respectively. Moody's, S&P and Fitch currently rate New York State's outstanding general obligation bonds A, A- and A+, respectively. Because each Fund's portfolio will comprise investment grade securities, each Fund is expected to be insulated from the market and credit risks that may exist in connection with investments in non-investment grade New York Municipal Bonds. See Exhibit II -- "Economic Conditions in New York". OTHER INVESTMENT POLICIES MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have adopted certain other policies as set forth below: Borrowings. Each Fund is authorized to borrow amounts of up to 5% of the value of its total assets at the time of such borrowings; provided, however, that each Fund is authorized to borrow money in excess of 5% of the value of its total assets for the purpose of repurchasing its Common Stock or redeeming its AMPS. Borrowings by each Fund create an opportunity for greater total return 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. For so long as shares of a Fund's AMPS are rated by Moody's or S&P, unless it receives written confirmation from Moody's or S&P, as the case may be, that such action would not impair the ratings then assigned to the shares of AMPS by Moody's or S&P, the issuing Fund will not borrow money except for the purpose of clearing portfolio securities transactions (which borrowings under any circumstances shall be limited to the lesser of $10 million and an amount equal to 5% of the market value of the Fund's assets at the time of such borrowings and further in the case of MuniVest New York Insured and MuniYield New York Insured III, which borrowings shall be repaid within 60 days and not be extended or renewed). When-Issued Securities and Delayed Delivery Transactions. Each of the Funds 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 Municipal Bonds having a market value at all times at least equal to the amount of the forward commitment. Indexed and Inverse Floating Obligations. Each of the Funds may invest in Municipal Bonds the return on which is 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 or based on the value of gold or some other product. 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. Also, a Fund may invest in so-called "inverse floating rate bonds" 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, by a remarketing agent, or by reference to a short-term tax-exempt interest rate index). Each Fund may purchase original issue inverse floating rate bonds in both the primary and secondary markets and also 34 39 may purchase in the secondary market synthetically-created inverse floating rate bonds evidenced by custodial or trust receipts. Generally, interest rates on inverse floating rate bonds will decrease when short-term rates increase, and will increase when short-term rates decrease. Such securities have the effect of providing a degree of investment leverage, since they may increase or decrease in value in response to changes, as an illustration, in market interest rates at a rate which 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 rate bonds with shorter-term maturities or which contain 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 which allows FAM to vary the degree of investment leverage relatively efficiently under different market conditions. Call Rights. Each of the Funds may purchase a Municipal Bond issuer's right 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 the 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. 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 ("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 fluctuates. There can be no assurance that a Fund's hedging transactions will be effective. In addition, because of the leveraged nature of each Fund's 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. For so long as a Fund'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. Furthermore, a Fund only will engage in hedging activities from time to time and may not necessarily be engaging in hedging activities when movements in interest rates occur. Certain Federal income tax requirements may limit a Fund's ability to engage in hedging transactions. Gains from transactions in financial futures contracts or options thereon distributed to stockholders are taxable as ordinary income or, in certain circumstances, as long-term capital gains to stockholders. The following is a description of the transactions involving options and financial futures contracts and options thereon in which each Fund may engage, limitations on the use of such transactions and risks associated therewith. The investment policies with respect to the hedging transactions of a Fund are not fundamental policies and may be modified by the Board of Directors of the Fund without the approval of the Fund's stockholders. Writing Covered Call Options. Each Fund is authorized to write (i.e., sell) covered call options with respect to Municipal Bonds it owns, thereby giving the holder of the option the right to buy the underlying 35 40 security covered by the option from the Fund at the stated exercise price until the option expires. Each Fund writes only covered call options, which means that so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option. The Fund may not write covered call options on underlying securities in an amount exceeding 15% of the market value of its total assets. Each Fund receives a premium from writing a call option, which increases the Fund's return on the underlying security in the event the option expires unexercised or is closed out at a profit. By writing a call, a Fund limits its opportunity to profit from an increase in the market value of the underlying security above the exercise price of the option for as long as the Fund's obligation as a writer continues. Covered call options serve as a partial hedge against a decline in the price of the underlying security. Each Fund may engage in closing transactions in order to terminate outstanding options that it has written. Purchase of Options. Each Fund is authorized to 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 the Fund's 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 terminated by entering into the closing sale transaction. 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 Thereon. 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 or options thereon may provide a hedge against a decline in the value of portfolio securities because such depreciation may be offset, in whole or in part, by an increase in the value of the position in the financial futures contracts or options. A purchase of financial futures contracts or options thereon 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 or options. The purchase or sale of a financial futures contract or option thereon 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 or option thereon fluctuates making the long and short positions in the financial futures contract or option thereon 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 which the Fund holds or anticipates purchasing against adverse changes in interest rates. 36 41 Each Fund also may purchase and sell financial futures contracts on U.S. Government securities and purchase and sell put and call options on such financial futures contracts for such hedging purposes. With respect to U.S. Government securities, currently there are financial futures contracts based on long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA Certificates and three-month U.S. Treasury bills. Subject to policies adopted by its Board of Directors, each Fund also may engage in transactions in other financial futures contracts or options thereon, such as financial futures contracts or options on other municipal bond indices which may become available, if FAM should determine that there normally is sufficient correlation between the prices of such financial futures contracts or options thereon and the Municipal Bonds in which the Fund invests to make such hedging appropriate. Over-The-Counter Options. Each Fund is authorized to engage in transactions involving financial futures contracts or options thereon 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 options transactions are two-party contracts with price and terms negotiated by the buyer and seller. Restrictions on OTC Options. Each Fund is authorized to engage in transactions in OTC options only with member banks of the Federal Reserve System and primary dealers in U.S. Government securities or with affiliates of such banks or dealers which have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. OTC options and assets used to cover OTC options written by the Funds are considered by the staff of the Commission 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. Utilization of financial futures contracts and options thereon involves the risk of imperfect correlation in movements in the price of financial futures contracts and options thereon and movements in the price of the security which is the subject of the hedge. If the price of the financial futures contract or option thereon 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 which 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 or options thereon have different maturities, ratings, geographic compositions or other characteristics than the security being hedged. In addition, the correlation may be affected by additions to or deletions from the index which serves as a basis for a financial futures contract or option thereon. 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 financial futures contracts 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 futures trading activities described herein will not result in a Fund's being deemed a "commodity pool," as defined under such regulations, provided that the Fund adheres to certain restrictions. In particular, the Fund may purchase and sell futures contracts and options thereon (i) for bona fide hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial margin and premiums required to establish positions in such contracts and options does not exceed 5% of the liquidation value of the Fund's portfolio, after taking into account unrealized 37 42 profits and unrealized losses on any such contracts and options. Margin deposits may consist of cash or securities acceptable to the broker and the relevant contract market. When a Fund purchases a financial futures contract, or writes a put option or purchases a call option thereon, it will maintain an amount of cash, cash equivalents (e.g., commercial paper and daily tender adjustable notes) or short-term, high-grade, fixed-income 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 financial futures contracts and options thereon, FAM believes that, because each Fund will engage in transactions involving financial futures contracts and options thereon only for hedging purposes, the options and futures portfolio strategies of a Fund will not subject the Fund to certain risks frequently associated with speculation in financial futures contracts and options thereon. A Fund may be restricted in engaging in transactions involving financial futures contracts and options thereon due to the requirement that less than 30% of its gross income in each taxable year be derived from the sale or other disposition of securities held for less than three months. 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. Each Fund intends to enter into financial futures contracts and options thereon, on an exchange or in the over-the-counter market, only if there appears to be a liquid secondary market for such financial futures contracts or options. 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 a financial futures contract position or the related option. The inability to close financial futures contract positions or the related options 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 a financial futures contract or the related option. The liquidity of a secondary market in a financial futures contract or option thereon may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which limit the amount of fluctuation in a financial futures contract or option price during a single trading day. Once the daily limit has been reached in the financial futures contract or option, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open financial futures contract positions or the related options. Prices in the past have reached or exceeded the daily limit on a number of consecutive trading days. If it is not possible to close a financial futures contract position or the related option 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 interest rates remain stable during the period in which a financial futures contract or option thereon is held by a Fund or moves in a direction opposite to that anticipated, the Fund may realize a loss on the hedging transaction which is not fully 38 43 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. INVESTMENT RESTRICTIONS MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have identical investment restrictions. The following are fundamental investment restrictions of each Fund and may not be changed without the approval of the holders of a majority of the outstanding shares of Common Stock and the outstanding shares of AMPS and any other preferred stock, voting together as a single class, and a majority of the outstanding shares of AMPS and any other preferred stock, voting separately as a class. (For this purpose and under the Investment Company Act, "majority" means for each such class the lesser of (i) 67% of the shares of each class of capital stock represented at a meeting at which more than 50% of the outstanding shares of each class of capital stock are represented or (ii) more than 50% of the outstanding shares of each class of capital stock.) None of the Funds may: 1. Make investments for the purpose of exercising control or management. 2. Purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization, or by purchase in the open market of securities of closed-end investment companies and only if immediately thereafter not more than 10% of the Fund's total assets would be invested in such securities. 3. Purchase or sell real estate, real estate limited partnerships, commodities or commodity contracts; provided, however, that the Fund may invest in securities secured by real estate or interests therein or issued by companies that invest in real estate or interests therein, and the Fund may purchase and sell financial futures contracts and options thereon. 4. Issue senior securities other than preferred stock or borrow amounts in excess of 5% of its total assets taken at market value; provided, however, that the Fund is authorized to borrow moneys in excess of 5% of the value of its total assets for the purpose of repurchasing shares of Common Stock or redeeming shares of preferred stock. 5. Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 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. 39 44 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, however, that for purposes of this restriction, states, municipalities and their political subdivisions are not considered to be part of any industry. An additional investment restriction adopted by each 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 investment restriction (4) above or except as may be necessary in connection with transactions in financial futures contracts and options thereon. If a percentage restriction on investment policies or the investment or use of assets set forth above is adhered to at the time a transaction is effected, later changes in percentage resulting from changing values will not be considered a violation. RATING AGENCY GUIDELINES Each Fund intends that, so long as shares of its AMPS are outstanding, the composition of its portfolio will reflect guidelines established by Moody's and S&P in connection with the Fund's receipt of a rating for such shares on their date of original issue of "aaa" from Moody's and AAA from S&P. Moody's and S&P, nationally recognized statistical rating organizations, issue ratings for various securities reflecting the perceived creditworthiness of such securities. The guidelines for rating AMPS have been developed by Moody's and S&P in connection with issuances of asset-backed and similar securities, including debt obligations and variable rate preferred stocks, generally on a case-by-case basis through discussions with the issuers of these securities. The guidelines are designed to ensure that assets underlying outstanding debt or preferred stock will be varied sufficiently and will be of sufficient quality and amount to justify investment-grade ratings. The guidelines do not have the force of law but have been adopted by each Fund in order to satisfy current requirements necessary for Moody's and S&P to issue the above-described ratings for shares of AMPS, which ratings generally are relied upon by institutional investors in purchasing such securities. The guidelines provide a set of tests for portfolio composition and asset coverage that supplement (and in some cases are more restrictive than) the applicable requirements under the Investment Company Act. Each Fund may, but is not required to, adopt any modifications to these guidelines that hereafter may be established by Moody's or S&P. Failure to adopt any such modifications, however, may result in a change in the ratings described above or a withdrawal of the ratings altogether. In addition, any rating agency providing a rating for the shares of AMPS, at any time, may change or withdraw any such rating. As set forth in the Articles Supplementary of each Fund, the Board of Directors, without stockholder approval, may modify certain definitions or restrictions which have been adopted by the Fund pursuant to the rating agency guidelines, provided the Board of Directors has obtained written confirmation from Moody's and S&P that any such change would not impair the ratings then assigned by Moody's and S&P to the AMPS. See "The Reorganization -- Risk Factors and Special Considerations -- Ratings Considerations". For so long as any shares of a Fund's AMPS are rated by Moody's or S&P, as the case may be, a Fund's use of options and financial futures contracts and options thereon will be subject to certain limitations mandated by the rating agencies. 40 45 PORTFOLIO COMPOSITION Although the investment portfolios of all three Funds must satisfy the same standards of credit quality, the actual securities owned by each Fund are different, as a result of which there are certain differences in the composition of the three investment portfolios. Of the Municipal Bonds owned by MuniVest New York Insured, as of July 31, 1996, 90.7% are rated in the highest grade by Moody's or S&P, 97.6% are rated in the highest two grades, 100% are rated in the highest three grades, 100% are rated in the highest four grades, and none are unrated. The comparable percentages for MuniYield New York Insured II are 88.7% in the highest grade, 91.5% in the highest two grades, 100% in the highest three grades, 100% in the highest four grades and none unrated. The comparable percentages for MuniYield New York Insured III are 92.0% in the highest grade, 97.1% in the highest two grades, 100% in the highest three grades, 100% in the highest four grades and none unrated. There are small differences in concentration among the categories of issuers of the Municipal Bonds held in the portfolios of the Funds. For MuniVest New York Insured, as of July 31, 1996, the highest concentration of Municipal Bonds was in General Obligation Bonds, Transportation and Hospitals/Healthcare, accounting for 24%, 20%, and 14% of the Fund's portfolio, respectively; for MuniYield New York Insured II, the highest concentration was in Transportation, General Obligation and Education, accounting for 27%, 14% and 13% of the Fund's portfolio, respectively; and for MuniYield New York Insured III, the highest concentration was in Transportation, Hospitals/Healthcare and Education, accounting for 28%, 24% and 12% of the Fund's portfolio, respectively. MuniVest New York Insured As of July 31, 1996, approximately 86% of the market value of MuniVest New York Insured's portfolio was invested in long-term municipal obligations and approximately 13% of the market value of MuniVest New York Insured's portfolio was invested in short-term municipal obligations. The following table sets forth certain information with respect to the composition of MuniVest New York Insured's long-term municipal obligation investment portfolio as of July 31, 1996. NUMBER OF VALUE S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT - ---- -------- ---------------- -------------- ------- AAA Aaa 32 $110,993 90.7% A A 1 2,996 2.4 BBB Baa 2 8,389 6.9 -- -------- ----- 35 $122,378 100.0% == ======== ===== - --------------- * Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal obligations. S&P's rating categories may be modified further by a plus (+) or minus (-) in AA, A, BBB, BB, B and C ratings. Moody's rating categories may be modified further by a 1, 2 or 3 in Aa, A, Baa, Ba and B ratings. See Exhibit III -- "Ratings of Municipal Bonds and Commercial Paper". MuniYield New York Insured II As of July 31, 1996, approximately 89% of the market value of MuniYield New York Insured II's portfolio was invested in long-term municipal obligations and approximately 10% of the market value of 41 46 MuniYield New York Insured II's portfolio was invested in short-term municipal obligations. The following table sets forth certain information with respect to the composition of MuniYield New York Insured II's long-term municipal obligation investment portfolio as of July 31, 1996. NUMBER OF VALUE S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT - ---- -------- ---------------- -------------- ------- AAA Aaa 45 $181,030 88.7% AA Aa 1 5,739 2,8 BBB Baa 3 17,405 8.5 ------ -- -- --- 49 $204,174 100.0% === == ======== - --------------- * Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal obligations. S&P's rating categories may be modified further by a plus (+) or minus (-) in AA, A, BBB, BB, B and C ratings. Moody's rating categories may be modified further by a 1, 2 or 3 in Aa, A, Baa, Ba and B ratings. See Exhibit III -- "Ratings of Municipal Bonds and Commercial Paper". MuniYield New York Insured III As of July 31, 1996, approximately 88% of the market value of MuniYield New York Insured III's portfolio was invested in long-term municipal obligations and approximately 9% of the market value of MuniYield New York Insured III's portfolio was invested in short-term municipal obligations. The following table sets forth certain information with respect to the composition of MuniYield New York Insured III's long-term municipal obligation investment portfolio as of July 31, 1996. NUMBER OF VALUE S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT - ---- -------- ---------------- -------------- ------- AAA Aaa 28 $ 62,724 92.0% AA Aa 1 3,444 5.1 A A 1 1,997 2.9 ------ -- -- --- 30 $ 68,165 100.0% === == ======== - --------------- * Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal obligations. S&P's rating categories may be modified further by a plus (+) or minus (-) in AA, A, BBB, BB, B and C ratings. Moody's rating categories may be modified further by a 1, 2 or 3 in Aa, A, Baa, Ba and B ratings. See Exhibit III -- "Ratings of Municipal Bonds and Commercial Paper". PORTFOLIO TRANSACTIONS The procedures for engaging in portfolio transactions are the same for MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III. 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, MuniVest New York 42 47 Insured, MuniYield New York Insured II and MuniYield New York Insured III do not necessarily pay the lowest commission or spread available. None of the Funds has any obligation to deal with any broker or dealer in the execution of transactions in portfolio securities. Subject to obtaining the best price and execution, securities firms which provide supplemental investment research to FAM, including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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. The securities in which each Fund primarily invests are traded in the over-the-counter markets, and each Fund normally deals directly with the dealers who make markets in the securities involved, except in those circumstances where better prices and execution are available elsewhere. Under the Investment Company Act, except as permitted by exemptive order, persons affiliated with a Fund are prohibited from dealing with the Fund as principals in the purchase and sale of securities. Since transactions in the over-the-counter markets usually involve transactions with dealers acting as principals for their own account, a Fund will 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. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III also may make loans to tax-exempt borrowers in individually negotiated transactions with the borrower. 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 made a determination not to seek such recapture. The Directors will reconsider this matter from time to time. Periodic auctions are conducted for the MuniVest New York Insured AMPS, the MuniYield New York Insured II AMPS and the MuniYield New York Insured III AMPS by the Auction Agent for the Funds. The auctions require the participation of one or more broker-dealers, each of whom enters into an agreement with the Auction Agent. After each auction, the Auction Agent pays a service charge, from funds provided by the issuing Fund, to each broker-dealer at the annual rate of 1/4 of 1%, 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 MuniVest New York Insured, MuniYield New York Insured II nor MuniYield New York Insured III purchases securities for short-term trading profits. However, any of the Funds may dispose of securities without regard to the time that they have been held when such action, for defensive or other reasons, appears advisable to FAM. While it is not possible to predict turnover rates with any certainty, 43 48 at present it is anticipated that each Fund's annual portfolio turnover rate, under normal circumstances, will be less than 100%. (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.) The portfolio turnover rate for each of the years ended October 31, 1995 and 1994 was 192.08% and 74.77%, respectively, for MuniVest New York Insured, 110.76% and 36.79%, respectively, for MuniYield New York Insured II and 176.98% and 65.22%, respectively, for MuniYield New York Insured III. NET ASSET VALUE The net asset value per share of Common Stock of each Fund is determined as of 15 minutes after the close of business on the NYSE (generally, 4:00 P.M., New York time) on each day during which the NYSE is open for trading. For purposes of determining the net asset value of a share of Common Stock of each Fund, the value of the securities held by the Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS is divided by the total number of shares of Common Stock outstanding at such time. Expenses, including the fees payable to FAM, are accrued daily. The Municipal Bonds in which each Fund invests are traded primarily in the over-the-counter markets. In determining net asset value, each Fund utilizes 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 of the Fund. The Board of Directors of each Fund has determined in good faith that the use of a pricing service is a fair method of determining the valuation of portfolio securities. Obligations with remaining maturities of 60 days or less are valued at amortized cost, unless this method no longer produces fair valuations. Positions in futures contracts are valued at closing prices for such contracts established by the exchange on which they are traded, or if market quotations are not readily available, are valued at fair value on a consistent basis using methods determined in good faith by the Board of Directors of each Fund. CAPITAL STOCK MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III each has outstanding both Common Stock and AMPS. MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock all are traded on the NYSE. The shares of MuniVest New York Insured Common Stock commenced trading on the NYSE on April 30, 1993. As of July 31, 1996, the net asset value per share of the MuniVest New York Insured Common Stock was $12.94 and the market price per share was $11.625. The shares of MuniYield New York Insured II Common Stock commenced trading on the NYSE on June 26, 1992. As of July 31, 1996, the net asset value per share of the MuniYield New York Insured II Common Stock was $14.30 and the market price per share was $13.00. The shares of MuniYield New York Insured III Common Stock 44 49 commenced trading on the NYSE on November 27, 1992. As of July 31, 1996, the net asset value per share of the MuniYield New York Insured III Common Stock was $14.10 and the market price per share was $12.50. Each Fund is authorized to issue 200,000,000 shares of capital stock, all of which shares initially were classified as Common Stock. The Board of Directors of each Fund is authorized to classify or reclassify any unissued shares of capital stock by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption. In connection with each Fund's offering of shares of AMPS, MuniVest New York Insured reclassified 1,960 shares of unissued capital stock as AMPS, MuniYield New York Insured II reclassified 2,800 shares of unissued capital stock as AMPS, and MuniYield New York Insured III reclassified 1,000 shares of unissued capital stock as AMPS. Common Stock Holders of each Fund's Common Stock are entitled to share equally in dividends declared by the Fund's Board of Directors payable to holders of the Common Stock and in the net assets of the Fund available for distribution to holders of the Common Stock after payment of the preferential amounts payable to holders of any outstanding preferred stock. Holders of a Fund's Common Stock do not have preemptive or conversion rights and shares of a Fund's Common Stock are not redeemable. The outstanding shares of Common Stock of each Fund are fully paid and nonassessable. So long as any shares of a Fund's AMPS or any other preferred stock are outstanding, holders of the Fund's Common Stock will not be entitled to receive any dividends of or other distributions from the Fund unless all accumulated dividends on outstanding shares of the Fund's AMPS and any other preferred stock have been paid, and unless asset coverage (as defined in the Investment Company Act) with respect to such AMPS and any other preferred stock would be at least 200% after giving effect to such distributions. Preferred Stock MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS and MuniYield New York Insured III AMPS are structured identically to each other. The AMPS of each Fund are shares of preferred stock of the Fund that entitle their holders to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor, at a rate per annum that may vary for the successive dividend periods. MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS and MuniYield New York Insured III AMPS all have liquidation preferences of $25,000 per share; none of the Fund's AMPS are traded on any stock exchange or over-the-counter. Each Fund's AMPS can be purchased at an auction or through broker-dealers who maintain a secondary market in the AMPS. Auctions generally have been held and will be held every seven days in the case of the MuniVest New York Insured AMPS and the MuniYield New York Insured II AMPS, and every 28 days in the case of the MuniYield New York Insured III AMPS, unless the applicable Fund elects, subject to certain limitations, to have a special dividend period. As of the auction held on August 1, 1996, the dividend rate on the MuniVest New York Insured AMPS was 3.41%; as of the auction held on August 2, 1996, the dividend rate on the MuniYield New York Insured II AMPS was 3.38%; and as of the auction held on July 17, 1996, the dividend rate on the MuniYield New York Insured III AMPS was 3.451%. 45 50 Under the Investment Company Act, each Fund is permitted to have outstanding more than one series of preferred stock as long as no single series has priority over another series as to the distribution of assets of the Fund or the payment of dividends. Holders of a Fund's preferred stock do not have preemptive rights to purchase any shares of AMPS or any other preferred stock that might be issued. The net asset value per share of a Fund's AMPS equals its liquidation preference plus accumulated dividends per share. Certain Provisions of the Charter Each Fund's Charter includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board of Directors and could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. A Director may be removed from office with or without cause by a vote of the holders of at least 66 2/3% of the votes entitled to be voted on the matter. A Director elected by the holders of Common Stock, AMPS and any other preferred stock may be removed only by action of such holders, and a Director elected by the holders of AMPS and any other preferred stock may be removed only by action of the holders of AMPS and any other preferred stock. In addition, the Charter of each Fund requires the affirmative 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: (i) a merger or consolidation or statutory share exchange of the Fund with any other corporation or entity, (ii) 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 (iii) 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 entire Board of Directors, in which case the affirmative vote of a majority of all of the votes entitled to be cast by stockholders of the Fund, voting as a single class, is required. Such approval, adoption or authorization of the foregoing also would require the favorable vote of the holders of a majority of the shares of preferred stock 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 Articles of Incorporation. The amendment would have to be declared advisable by the Board of Directors prior to its submission to stockholders. Such an amendment would require the affirmative vote of the holders of at least 66 2/3% of the Fund's outstanding shares of capital stock (including the AMPS and any other preferred stock) entitled to be voted on the matter, voting as a single class (or a majority of such shares if the amendment was previously approved, adopted or authorized by at least two-thirds of the entire Board of Directors) and the affirmative vote of a majority of the votes entitled to be cast by holders of shares of preferred stock (including the AMPS), voting separately as a class. Such a vote also would satisfy a separate requirement in the Investment Company Act that the change be approved by the stockholders. Stockholders of an open-end investment company may require the company to redeem their shares of common stock at any time (except in certain circumstances as authorized by or under the Investment Company Act) at their net asset value, less such redemption charge, if any, as might be in effect at the time of a redemption. All redemptions will be made in cash. If the Fund is converted to an open-end investment company, it could be 46 51 required to liquidate portfolio securities to meet requests for redemption and the Common Stock no longer would be listed on a stock exchange. Conversion to an open-end investment company also would require redemption of all outstanding shares of preferred stock (including the AMPS) and would require changes in certain of the Fund's investment policies and restrictions, such as those relating to the issuance of senior securities, the borrowing of money and the purchase of illiquid securities. The Board of Directors of each Fund has determined that the 66 2/3% voting requirements described above, which are greater than the minimum requirements under Maryland law or the Investment Company Act, are in the best interests of stockholders generally. Reference should be made to the Charter of each Fund on file with the Commission for the full text of these provisions. MANAGEMENT OF THE FUNDS Directors and Officers. The Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III currently consist of six persons, five of whom are not "interested persons", as defined in the Investment Company Act, of any of the Funds. The Directors are responsible for the overall supervision of the operations of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and perform the various duties imposed on the directors of investment companies by the Investment Company Act and under applicable Maryland law. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have the same officers. For further information regarding the Directors and officers of each Fund, see "Election of Directors". Management and Advisory Arrangements. FAM serves as the investment adviser for MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III pursuant to separate investment advisory agreements that, except for their termination dates, are identical. FAM is an affiliate of MLAM, and both FAM and MLAM are owned and controlled by ML & Co. FAM provides each Fund with the same investment advisory and management services. FAM or MLAM acts as the investment adviser for more than 130 registered investment companies. FAM also offers portfolio management and portfolio analysis services to individuals and institutions. As of July 31, 1996, FAM and MLAM had a total of approximately $207.3 billion in investment company and other portfolio assets under management (approximately $30.4 billion of which were invested in municipal securities), including accounts of certain affiliates of FAM. 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 direction of the Board of Directors of the Fund, FAM is responsible for the actual management of the Fund's portfolio. The responsibility for making decisions to buy, sell or hold a particular security for each Fund rests with FAM, subject to review by the Board of Directors of the Fund. FAM provides the portfolio management for MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III. 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, the Fund pays a monthly fee at an annual rate of .50 of 1% of the Fund's average weekly net assets (i.e., the average weekly 47 52 value of the total assets of the Fund, minus the sum of accrued liabilities of the Fund and accumulated dividends on its shares of AMPS). For purposes of this calculation, average weekly net assets are determined at the end of each month on the basis of the average net assets of the Fund for each week during the month. The assets for each weekly period are determined by averaging the net assets at the last business day of a week with the net assets at the last business day of the prior week. Each Fund's investment advisory agreement obligates FAM to provide investment advisory services and to pay all compensation of and furnish office space for officers and employees of the Fund connected with investment and economic research, trading and investment management of the Fund, as well as the compensation of all Directors of the Fund who are affiliated persons of FAM or any of its affiliates. Each Fund pays all other expenses incurred in the operation of the Fund, including, among other things, expenses for legal and auditing services, taxes, costs of printing proxies, listing fees, stock certificates and stockholder reports, charges of the custodian and the transfer agent, dividend disbursing agent and registrar, fees and expenses with respect to the issuance of AMPS, 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 accounting services to each Fund, and each Fund reimburses FAM for its respective costs in connection with such services. Unless earlier terminated as described below, the investment advisory agreement between MuniVest New York Insured and FAM will continue from year to year if approved annually (a) by the Board of Directors of MuniVest New York Insured or by a majority of the outstanding shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS, voting together as a single class, and (b) by a majority of the Directors of MuniVest New York Insured 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 MuniVest New York Insured. Similarly, unless earlier terminated as described below, the investment advisory agreement between MuniYield New York Insured II and FAM will continue from year to year if approved annually (a) by the Board of Directors of MuniYield New York Insured II or by a majority of the outstanding shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS, voting together as a single class, and (b) by a majority of the Directors of MuniYield New York Insured II who are not parties to such contract or "interested persons" 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 MuniYield New York Insured II. Similarly, unless earlier terminated as described below, the investment advisory agreement between MuniYield New York Insured III and FAM will continue from year to year if approved annually (a) by the Board of Directors of MuniYield New York Insured III or by a majority of the outstanding shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS, voting together as a single class, and (b) by a majority of the Directors of MuniYield New York Insured III who are not parties to such contract or "interested persons" 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 MuniYield New York Insured III. 48 53 VOTING RIGHTS Voting rights are identical for the holders of shares of MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock. Holders of each Fund's Common Stock are entitled to one vote for each share held and will vote with the holders of any outstanding shares of the Fund's AMPS or other preferred stock on each matter submitted to a vote of holders of Common Stock, except as set forth below. Stockholders of each Fund are entitled to one vote for each share held. The shares of each Fund's Common Stock, AMPS and any other preferred stock do not have cumulative voting rights, which means that the holders of more than 50% of the shares of a Fund's Common Stock, AMPS and any other preferred stock voting for the election of Directors can elect all of the Directors standing for election by such holders, and, in such event, the holders of the remaining shares of a Fund's Common Stock, AMPS and any other preferred stock will not be able to elect any of such Directors. Voting rights of the holders of MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS and MuniYield New York Insured III AMPS are identical. Except as otherwise indicated below, and except as otherwise required by applicable law, holders of shares of a Fund's AMPS will be entitled to one vote per share on each matter submitted to a vote of the Fund's stockholders and will vote together with the holders of shares of the Fund's Common Stock as a single class. In connection with the election of a Fund's Directors, holders of shares of a Fund's AMPS and any other preferred stock, voting separately as a class, shall be entitled at all times to elect two of the Fund's Directors, and the remaining Directors will be elected by holders of shares of the Fund's Common Stock and shares of the Fund's AMPS and any other preferred stock, voting together as a single class. In addition, if at any time dividends on outstanding shares of a Fund's AMPS shall be unpaid in an amount equal to at least two full years' dividends thereon or if at any time holders of any shares of a Fund's preferred stock are entitled, together with the holders of shares of the Fund's AMPS, to elect a majority of the Directors of the Fund under the Investment Company Act, then the number of Directors constituting the Board of Directors automatically shall be increased by the smallest number that, when added to the two Directors elected exclusively by the holders of shares of AMPS and any other preferred stock as described above, would constitute a majority of the Board of Directors as so increased by such smallest number, and at a special meeting of stockholders which will be called and held as soon as practicable, and at all subsequent meetings at which Directors are to be elected, the holders of shares of the Fund's AMPS and any other preferred stock, voting separately as a class, will be entitled to elect the smallest number of additional Directors that, together with the two Directors which such holders in any event will be entitled to elect, constitutes a majority of the total number of Directors of the Fund as so increased. The terms of office of the persons who are Directors at the time of that election will continue. If the Fund thereafter shall pay, or declare and set apart for payment in full, all dividends payable on all outstanding shares of AMPS and any other preferred stock for all past dividend periods, the additional voting rights of the holders of shares of AMPS and any other preferred stock as described above shall cease, and the terms of office of all of the additional Directors elected by the holders of shares of AMPS and any other preferred stock (but not of the Directors with respect to whose election the holders of shares of Common Stock were entitled to vote or the two Directors the holders of shares of AMPS and any other preferred stock have the right to elect in any event) will terminate automatically. 49 54 STOCKHOLDER INQUIRIES Stockholder inquiries with respect to MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III may be addressed to any of the Funds by telephone at (609) 282-2800 or at the address set forth on the cover page of this Proxy Statement and Prospectus. DIVIDENDS AND DISTRIBUTIONS The Funds' current policies with respect to dividends and distributions relating to shares of their Common Stock are identical. Each Fund intends to distribute all of its net investment income. Dividends from such net investment income are declared and paid monthly to holders of a Fund's Common Stock. Monthly distributions to holders of a Fund's Common Stock normally consist of substantially all of the net investment income remaining after the payment of dividends on the Fund's AMPS. All net realized long-term or short-term capital gains, if any, are distributed at least annually, pro rata to holders of shares of a Fund's Common Stock and AMPS. While any shares of a Fund's AMPS are outstanding, the Fund may not declare any cash dividend or other distribution on the Fund's Common Stock, unless at the time of such declaration (1) all accumulated dividends on the Fund's AMPS have been paid, and (2) the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of the Fund's outstanding shares of AMPS. This limitation on a Fund's ability to make distributions on its Common Stock under certain circumstances could impair the ability of the Fund to maintain its qualification for taxation as a RIC. See "Agreement and Plan of Reorganization -- Tax Consequences of the Reorganization". Similarly, the Funds' current policies with respect to dividends and distributions relating to shares of their AMPS are identical. The holders of shares of a Fund's AMPS are entitled to receive, when, as and if declared by the Board of Directors of the Fund, out of funds legally available therefor, cumulative cash dividends on their shares. Dividends on a Fund's shares of AMPS so declared and payable shall be paid (i) in preference to and in priority over any dividends so declared and payable on the Fund's Common Stock, and (ii) to the extent permitted under the Code and to the extent available, out of net tax-exempt income earned on the Fund's investments. Dividends for the MuniVest New York Insured AMPS, the MuniYield New York Insured II AMPS and the MuniYield New York Insured III AMPS are paid through The Depository Trust Company ("DTC") (or a successor securities depository) on each dividend payment date. DTC's normal procedures now provide for it to distribute dividends in same-day funds to agent members, who in turn are expected to distribute such dividends to the person for whom they are acting as agent in accordance with the instructions of such person. Prior to each dividend payment date, the relevant Fund is required to deposit with the Auction Agent sufficient funds for the payment of such declared dividends. None of the Funds intends to establish any reserves for the payment of dividends, and no interest will be payable in respect of any dividend payment or payment on the shares of a Fund's AMPS which may be in arrears. Dividends paid by each Fund, to the extent paid from tax-exempt income earned on New York Municipal Bonds, are exempt from Federal, New York State and New York City income taxes, subject to the possible application of the alternative minimum tax. However, each Fund is required to allocate net capital gains and other income subject to regular Federal, New York State and New York City income taxes, if any, proportionately between shares of its Common Stock and shares of its AMPS in accordance with the current position of the IRS described herein. Each Fund notifies the Auction Agent of the amount of any net capital gains or other taxable income to be included in any dividend on shares of AMPS prior to the auction 50 55 establishing the applicable rate for such dividend. The Auction Agent in turn notifies each broker-dealer whenever it receives any such notice from a Fund, and each broker-dealer then notifies its customers who are holders of the Fund's AMPS. Each Fund also may include such income in a dividend on shares of its AMPS without giving advance notice thereof if it increases the dividend by an additional amount to offset the tax effect thereof. The amount of taxable income allocable to shares of a Fund's AMPS will depend upon the amount of such income realized by the Fund and other factors, but generally is not expected to be significant. For information concerning the manner in which dividends and distributions to holders of each Fund's Common Stock may be reinvested automatically in shares of the Fund's Common Stock, see "Automatic Dividend Reinvestment Plan" below. Dividends and distributions may be taxable to stockholders under certain circumstances as discussed below, whether they are reinvested in shares of a Fund or received in cash. If MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as the case may be, retroactively allocates any net capital gains or other income subject to regular Federal, New York State and New York City income taxes to shares of its AMPS without having given advance notice thereof as described above, which only may happen when such allocation is made as a result of the redemption of all or a portion of the outstanding shares of its AMPS or the liquidation of the Fund, the Fund will make certain payments to holders of shares of its AMPS to which such allocation was made to offset substantially the tax effect thereof. In no other instances will the Fund be required to make payments to holders of shares of its AMPS to offset the tax effect of any reallocation of net capital gains or other taxable income. AUTOMATIC DIVIDEND REINVESTMENT PLAN Pursuant to each Fund's Automatic Dividend Reinvestment Plan (each, the "Plan"), unless a holder of a Fund's Common Stock elects otherwise, all dividend and capital gains distributions are reinvested automatically by either The Bank of New York or Boston EquiServe, as applicable, as agent for stockholders in administering the Plan (as applicable, the "Plan Agent"), in additional shares of the Fund's Common Stock. Holders of a Fund's Common Stock who elect not to participate in the Plan receive all distributions in cash paid by check mailed directly to the stockholder of record (or, if the shares are held in street or other nominee name, then to such nominee) by The Bank of New York or Boston EquiServe, as applicable, as dividend paying agent. Such stockholders may elect not to participate in the Plan and to receive all distributions of dividends and capital gains in cash by sending written instructions to The Bank of New York or Boston EquiServe, as applicable, as dividend paying agent, at the address set forth below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by written notice if received by the Plan Agent not less than ten days prior to any dividend record date; otherwise, such termination will be effective with respect to any subsequently declared dividend or capital gains distribution. Whenever a Fund declares an ordinary income dividend or a capital gain dividend (collectively referred to as "dividends") payable either in shares or in cash, non-participants in the Plan receive cash, and participants in the Plan receive the equivalent in shares of the Fund's Common Stock. The shares are acquired by the Plan Agent for the participant's account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized shares of the Fund's Common Stock from the Fund ("newly-issued shares") or (ii) by purchase of outstanding shares of the Fund's Common Stock on the open market ("open-market purchases"), on the NYSE or elsewhere. If on the payment date for the dividend, the net asset value per share of the Fund's Common Stock is equal to or less than the market price per share of the Fund's Common Stock plus estimated brokerage commissions (such condition being referred to herein as 51 56 "market premium"), the Plan Agent invests the dividend amount in newly-issued shares on behalf of the participant. The number of newly-issued shares of the Fund's Common Stock to be credited to the participant's account is determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are issued, provided that the maximum discount from the then current market price per share on the date of issuance may not exceed 5%. If on the dividend payment date, the net asset value per share is greater than the market value (such condition being referred to herein as "market discount"), the Plan Agent invests the dividend amount in shares acquired on behalf of the participant in open-market purchases. In the event of a market discount on the dividend payment date, the Plan Agent has until the last business day before the next date on which the shares trade on an "ex-dividend" basis or in no event more than 30 days after the dividend payment date (the "last purchase date") to invest the dividend amount in shares acquired in open-market purchases. Each Fund intends to pay monthly income dividends. Therefore, the period during which open-market purchases can be made exists only from the payment date on the dividend through the date before the next "ex-dividend" date, which typically is approximately ten days. If, before the Plan Agent has completed its open-market purchases, the market price of a share of a Fund's Common Stock exceeds the net asset value per share, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Fund's shares, resulting in the acquisition of fewer shares than if the dividend had been paid in newly-issued shares on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent ceases making open-market purchases and invests the uninvested portion of the dividend amount in newly-issued shares at the close of business on the last purchase date. The Plan Agent maintains all stockholders' accounts in the Plan and furnishes written confirmation of all transactions in the account, including information needed by stockholders for tax records. Shares in the account of each Plan participant are held by the Plan Agent in non-certificated form in the name of the participant, and each stockholder's proxy includes those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held pursuant to the Plan in accordance with the instructions of the participants. In the case of stockholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the record stockholders as representing the total amount registered in the record stockholder's name and held for the account of beneficial owners who are to participate in the Plan. There are no brokerage charges with respect to shares issued directly by MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III 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 "Agreement and Plan of Reorganization -- Tax Consequences of the Reorganization". 52 57 Stockholders participating in the Plan may receive benefits not available to stockholders not participating in the Plan. If the market price plus commissions of a Fund's shares of Common Stock is above the net asset value, participants in the Plan receive shares of the Fund's Common Stock at less than they otherwise could purchase them and have shares with a cash value greater than the value of any cash distribution they would have received on their shares. If the market price plus commissions is below the net asset value, participants receive distributions in 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 in shares at prices below the net asset value. Also, since none of the Funds normally redeems its shares, the price on resale may be more or less than the net asset value. Each Fund reserves the right to amend or terminate its Plan. There is no direct service charge to participants in the Plan; however, each Fund reserves the right to amend its Plan to include a service charge payable by the participants. LIQUIDATION RIGHTS OF HOLDERS OF AMPS Upon any liquidation, dissolution or winding up of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as the case may be, whether voluntary or involuntary, the holders of shares of the Fund's AMPS will be entitled to receive, out of the assets of the Fund available for distribution to stockholders, before any distribution or payment is made upon any shares of the Fund's Common Stock or any other capital stock of the Fund ranking junior in right of payment upon liquidation to AMPS, $25,000 per share together with the amount of any dividends accumulated but unpaid (whether or not earned or declared) thereon to the date of distribution, and after such payment the holders of AMPS will be entitled to no other payments except for any additional dividends. If such assets of the Fund shall be insufficient to make the full liquidation payment on the AMPS and liquidation payments on any other outstanding class or series of preferred stock of the Fund ranking on a parity with the AMPS as to payment upon liquidation, then such assets will be distributed among the holders of shares of AMPS and the holders of shares of such other class or series ratably in proportion to the respective preferential amounts to which they are entitled. After payment of the full amount of liquidation distribution to which they are entitled, the holders of shares of a Fund's AMPS will not be entitled to any further participation in any distribution of assets by the Fund except for any additional dividends. A consolidation, merger or share exchange of a Fund with or into any other entity or entities or a sale, whether for cash, shares of stock, securities or properties, of all or substantially all or any part of the assets of the Fund shall not be deemed or construed to be a liquidation, dissolution or winding up of the Fund. TAX RULES APPLICABLE TO MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED II, MUNIYIELD NEW YORK INSURED III AND THEIR STOCKHOLDERS The tax consequences associated with investment in shares of MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock are identical. Similarly, the tax consequences associated with investment in shares of MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS and MuniYield New York Insured III AMPS are identical. Each of the Funds has elected and qualified for the special tax treatment afforded RICs under the Code. As a result, in any taxable year in which they distribute an amount equal to at least 90% of taxable net income and 90% of tax-exempt net income (see below), the Funds (but not their stockholders) are not subject to Federal income tax to the extent that they distribute their net investment income and net 53 58 realized capital gains. In prior taxable years and in the taxable year of the Reorganization, each Fund has distributed substantially all of its income. MuniYield New York Insured II intends to continue to distribute substantially all of its income in the taxable years following the Reorganization. If, at any time when shares of a Fund's AMPS are outstanding the Fund does not meet the asset coverage requirements of the Investment Company Act, the Fund is required to suspend distributions to holders of shares of its Common Stock until the asset coverage is restored. This can prevent the Fund from distributing at least 90% of its net income and therefore can jeopardize the Fund's qualification for taxation as a RIC. Upon any failure to meet the asset coverage requirements, the Funds may, and under certain circumstances are required to, redeem shares of AMPS in order to maintain or restore the requisite asset coverage and avoid the adverse consequences of failing to qualify as a RIC. Each Fund is qualified to pay "exempt-interest dividends" as defined in Section 852(b)(5) of the Code. Under such section, if, at the close of each quarter of its taxable year, at least 50% of the value of a Fund's total assets consists of obligations exempt from Federal income tax ("tax-exempt obligations") under Section 103(a) of the Code (relating generally to obligations of a state or local governmental unit), the Fund is qualified to pay exempt-interest dividends to its stockholders. Exempt-interest dividends are dividends or any part thereof paid by a Fund which are attributable to interest on tax-exempt obligations and designated by the Fund as exempt-interest dividends in a written notice mailed to stockholders within 60 days after the close of its taxable year. To the extent that the dividends distributed to a Fund's stockholders are derived from interest income exempt from Federal income tax under Code Section 103(a) and are properly designated as exempt-interest dividends, they are excludable from a stockholder's gross income for Federal income tax purposes. Exempt-interest dividends are included, however, in determining the portion, if any, of a person's social security benefits and railroad retirement benefits subject to Federal income taxes. Interest on indebtedness incurred or continued to purchase or carry a Fund's shares is not deductible for Federal income tax purposes to the extent attributable to exempt-interest dividends. A tax adviser should be consulted with respect to whether exempt-interest dividends retain the exclusion under Code Section 103(a) if a stockholder would be treated as a "substantial user" or "related person" under Code Section 147(a) with respect to property financed with the proceeds from an issue of "industrial development bonds" or "private activity bonds," if any, held by a Fund. Each Fund informs its stockholders annually as to the portion of the Fund's distributions which constitutes exempt-interest dividends. Interest on indebtedness incurred or continued to purchase or carry a Fund's shares is not deductible for Federal, New York State or New York City income tax purposes. The IRS, in a revenue ruling, held that certain AMPS would be treated as stock for Federal income tax purposes. The terms of the MuniVest New York Insured AMPS, the MuniYield New York Insured II AMPS and the MuniYield New York Insured III AMPS are substantially similar, but not identical, to the AMPS discussed in the revenue ruling, and in the opinion of Brown & Wood LLP, counsel to all three Funds, the shares of each Fund's 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) constitute dividends to the extent of current and accumulated earnings and profits as calculated for Federal income tax purposes. Nevertheless, the IRS could take a contrary position, asserting, for example, that the shares of AMPS constitute debt. If this position were upheld, the discussion of the treatment of distributions below would not apply to holders of shares of AMPS. Instead, distributions by each Fund to holders of shares of its AMPS would constitute interest, whether or not they exceed the earnings and profits of the Fund, would be 54 59 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, New York State and New York City 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, and for New York State and New York City income tax purposes, will be treated as capital gains which are taxed at ordinary income rates. Distributions by a Fund, whether from exempt-interest income, ordinary income or capital gains, will not be eligible for the dividends received deduction for corporations under the Code. 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 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. Thus, each Fund is required to allocate a portion of its net capital gains and other taxable income to the shares of its AMPS. Each Fund may notify the Auction Agent of the amount of any net capital gains and other taxable income to be included in any dividend on shares of its AMPS prior to the auction establishing the applicable rate for such dividend. Except for the portion of any dividend that a Fund informs the Auction Agent will be treated as capital gains or other taxable income, the dividends paid on the shares of AMPS constitute exempt- interest dividends. Alternatively, each Fund may include such income in a dividend on shares of its AMPS without giving advance notice thereof if it increases the dividend by an additional amount to offset the tax effect thereof. The amount of net capital gains and ordinary income allocable to shares of a Fund's AMPS (the "taxable distribution") depends upon the amount of such gains and income realized by the Fund and the total dividends paid by the Fund on shares of its Common Stock and shares of its AMPS during a taxable year, but the taxable distribution generally is not significant. In the opinion of Brown & Wood LLP, counsel to all three Funds, under current law the manner in which each Fund allocates items of tax-exempt income, net capital gains, and other taxable income, if any, between shares of its Common Stock and shares of its AMPS will be respected for Federal income tax purposes. However, the tax treatment of additional dividends may affect a Fund's calculation of each class' allocable share of capital gains and other taxable income. In addition, there is currently no direct guidance from the IRS or other sources specifically addressing whether a Fund's method for allocating tax-exempt income, net capital 55 60 gains and other taxable income between shares of its Common Stock and shares of its AMPS will be respected for Federal income tax purposes, and it is possible that the IRS could disagree with counsel's opinion and attempt to reallocate a Fund's net capital gains or other taxable income. In the event of a reallocation, some of the dividends identified by a Fund as exempt-interest dividends to holders of shares of its AMPS could be recharacterized as additional capital gains or other taxable income. In the event of such recharacterization, a Fund is not required to make payments to such stockholders to offset the tax effect of such reallocation. In addition, a reallocation could cause a Fund to be liable for income tax and excise tax on any reallocated taxable income. Brown & Wood LLP has advised each Fund 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 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 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 regulated investment company. 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 an 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 alternative minimum tax. Each Fund purchases such "private activity bonds" and reports to stockholders within 60 days after its fiscal 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 an 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 an alternative minimum tax on exempt-interest dividends paid by such Fund. Under certain provisions of the Code, some stockholders may be subject to a 31% withholding tax on certain ordinary income dividends and on capital gain dividends and redemption payments ("backup withholding"). Generally, stockholders subject to backup withholding will be those for whom no taxpayer identification number is on file with a Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such stockholder is not otherwise subject to backup withholding. Ordinary income dividends paid to stockholders who are nonresident aliens or foreign entities are subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. 56 61 A loss realized on a sale or exchange of shares of a Fund is disallowed if other Fund shares are acquired (whether under the Automatic Dividend Reinvestment Plan or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. 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. AGREEMENT AND PLAN OF REORGANIZATION GENERAL Under the Agreement and Plan of Reorganization (attached hereto as Exhibit I), (i) MuniYield New York Insured II will acquire all of the assets, and will assume all of the liabilities, of MuniVest New York Insured, in exchange solely for an equal aggregate value of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS to be issued by MuniYield New York Insured II; and (ii) MuniYield New York Insured II will acquire all of the assets, and will assume all of the liabilities, of MuniYield New York Insured III, in exchange solely for an equal aggregate value of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS to be issued by MuniYield New York Insured II. Upon receipt by MuniVest New York Insured and MuniYield New York Insured III of such shares, MuniVest New York Insured and MuniYield New York Insured III will distribute the shares of MuniYield New York Insured II Common Stock to the holders of MuniVest New York Insured Common Stock and MuniYield New York Insured III Common Stock, the shares of MuniYield New York Insured II Series B AMPS to the holders of MuniVest New York Insured AMPS and the shares of MuniYield New York Insured II Series C AMPS to the holders of MuniYield New York Insured III AMPS in exchange for their shares in MuniVest New York Insured and MuniYield New York Insured III. Separate Articles of Amendment to the Articles Supplementary establishing the powers, rights and preferences of the MuniYield New York Insured II AMPS, redesignating the currently outstanding MuniYield Insured II AMPS as Series A AMPS, and separate Articles Supplementary to the Articles of Incorporation of MuniYield New York Insured II establishing the powers, rights and preferences of the MuniYield New York Insured II Series B AMPS and the MuniYield New York Insured II Series C AMPS each will have been filed with the State Department of Assessments and Taxation of Maryland (the "Maryland Department") prior to the closing of the Reorganization. As soon as practicable after the date that the Reorganization takes place (the "Exchange Date"), each of MuniVest New York Insured and MuniYield New York Insured III will file Articles of Dissolution with the Maryland Department to effect the formal dissolution of such Funds, and will dissolve. MuniVest New York Insured and MuniYield New York Insured III will each distribute the shares of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS received by it pro rata to its holders of record of MuniVest New York Insured Common Stock, MuniYield New York Insured III Common Stock, MuniVest New York Insured AMPS and MuniYield New York Insured III AMPS, respectively, in exchange for such stockholders' shares in MuniVest New York Insured and MuniYield New York Insured III. Such distribution would be accomplished by opening new accounts on the books of MuniYield New York Insured II in the names of the common and preferred stockholders of MuniVest New York Insured and MuniYield New York Insured III and transferring to those stockholder accounts the MuniYield New York Insured II Common Stock, 57 62 MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS previously credited on those books to the account of MuniVest New York Insured and MuniYield New York Insured III. Each newly-opened account on the books of MuniYield New York Insured II for the previous holders of MuniVest New York Insured Common Stock and MuniYield New York Insured III Common Stock would represent the respective pro rata number of shares of MuniYield New York Insured II Common Stock (rounded down, in the case of fractional shares, to the next largest number of whole shares) due such holder of MuniVest New York Insured Common Stock and MuniYield New York Insured III Common Stock. No fractional shares of MuniYield New York Insured II Common Stock will be issued. In lieu thereof, MuniVest New York Insured II's transfer agent, Boston EquiServe, will aggregate all fractional shares of MuniYield New York Insured II 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 MuniVest New York Insured Common Stock or MuniYield New York Insured III Common Stock certificates. Similarly, each newly-opened account on the books of MuniYield New York Insured II for the previous holders of MuniVest New York Insured AMPS would represent the respective pro rata number of shares of MuniYield New York Insured II Series B AMPS due such holder of MuniVest New York Insured AMPS, and each newly-opened account on the books of MuniYield New York Insured II for the previous holders of MuniYield New York Insured III AMPS would represent the respective pro rata number of shares of MuniYield New York Insured II Series C AMPS due such holder of MuniYield New York Insured III AMPS. See "Surrender and Exchange of MuniVest New York Insured and MuniYield New York Insured III Stock Certificates" below for a description of the procedures to be followed by MuniVest New York Insured and MuniYield New York Insured III stockholders to obtain their MuniYield New York Insured II Common Stock (and cash in lieu of fractional shares, if any), MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS, as the case may be. Accordingly, as a result of the Reorganization, every holder of MuniVest New York Insured Common Stock and MuniYield New York Insured III Common Stock would own shares of MuniYield New York Insured II Common Stock that (except for cash payments received in lieu of fractional shares) would have an aggregate net asset value immediately after the Exchange Date equal to the aggregate net asset value of that stockholder's MuniVest New York Insured Common Stock or MuniYield New York Insured III Common Stock immediately prior to the Exchange Date. Since the MuniYield New York Insured II Common Stock would be issued at net asset value in exchange for the net assets of MuniVest New York Insured and MuniYield New York Insured III having a value equal to the aggregate net asset value of those shares of MuniYield New York Insured II Common Stock, the net asset value per share of MuniYield New York Insured II Common Stock should remain virtually unchanged by the Reorganization. Similarly, since the MuniYield New York Insured II Series B AMPS would be issued at a liquidation preference and value per share equal to the liquidation preference and value per share of the MuniVest New York Insured AMPS, and the MuniYield New York Insured II Series C AMPS would be issued at a liquidation preference and value per share equal to the liquidation preference and value per share of the MuniYield New York Insured III AMPS, the respective liquidation preference and value per share of the MuniYield New York Insured II Series B AMPS and the MuniYield New York Insured II Series C AMPS will remain unchanged by the Reorganization. Thus, the Reorganization will result in no dilution of net asset value of the MuniYield New York Insured II Common Stock, other than to reflect the costs of the Reorganization, and will result in no dilution of liquidation preference and value per share of the MuniYield New York Insured II Series B AMPS 58 63 or MuniYield New York Insured II Series C AMPS. However, as a result of the Reorganization, a stockholder of any of the Funds likely will hold a reduced percentage of ownership in the larger combined entity than he or she did in either of the constituent Funds. PROCEDURE At meetings of the Boards of Directors of MuniVest New York Insured and MuniYield New York Insured III held on May 3, 1996, and at a meeting of the Board of Directors of MuniYield New York Insured II held on June 21, 1996, the Board of Directors of each of the Funds, including all of the Directors who are not "interested persons", as defined in the Investment Company Act, of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III unanimously approved the Agreement and Plan of Reorganization and the submission of such Agreement and Plan of Reorganization to the Funds' respective stockholders for approval. Also on June 21, 1996, the Board of Directors of MuniYield New York Insured II approved the filing of separate Articles Supplementary to MuniYield New York Insured II's Articles of Incorporation establishing the powers, rights and preferences of the MuniYield New York Insured II Series B AMPS and the MuniYield New York Insured II Series C AMPS in order that they may be given to holders of MuniVest New York Insured AMPS and MuniYield New York Insured III AMPS as part of the Reorganization. As a result of such Board approvals, MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III jointly filed a proxy statement with the Commission soliciting a vote of the stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III to approve the Reorganization. The costs of such solicitation are to be paid by MuniYield New York Insured II after the Reorganization so as to be borne equally and exclusively on a per share basis by the holders of MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock. It is anticipated that annual meetings of stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III will be held on September 30, 1996. If the stockholders of all three Funds approve the Reorganization, the Reorganization will take place as soon as practicable after such approval, provided that the Funds have obtained prior to that time a favorable private letter ruling from the IRS concerning the tax consequences of the Reorganization as set forth in the Agreement and Plan of Reorganization. THE BOARDS OF DIRECTORS OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED II AND MUNIYIELD NEW YORK INSURED III RECOMMEND THAT THE STOCKHOLDERS OF THE RESPECTIVE FUNDS APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION. TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION The following is a summary of the significant terms of the Agreement and Plan of Reorganization. This summary is qualified in its entirety by reference to the Agreement and Plan of Reorganization, attached hereto as Exhibit I. Valuation of Assets and Liabilities. The respective assets of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III will be valued on the business day prior to the Exchange Date (the "Valuation Date"). The valuation procedures are the same for all three Funds: net asset value per share of the MuniVest New York Insured Common Stock, the MuniYield New York Insured II 59 64 Common Stock and the MuniYield New York Insured III Common Stock will be determined as of 15 minutes after the close of business on the NYSE (generally, 4:00 P.M., New York time) on the Valuation Date. For the purpose of determining the net asset value of a share of the MuniVest New York Insured Common Stock, the MuniYield New York Insured II Common Stock or the MuniYield New York Insured III Common Stock, the value of the securities held by the issuing Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS of the issuing Fund is divided by the total number of shares of Common Stock of the issuing Fund outstanding at such time. Daily expenses, including the fees payable to FAM, will accrue on the Valuation Date. The Municipal Bonds in which each Fund invests are traded primarily in the over-the-counter markets. In determining net asset value on the Valuation Date, each Fund will utilize the valuations of portfolio securities furnished by a pricing service approved by the Boards of Directors of the Funds. The pricing service typically values portfolio securities at the bid price or the yield equivalent when quotations are readily available. 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 MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have determined in good faith that the use of a pricing service is a fair method of determining the valuation of portfolio securities. Positions in financial futures contracts will be valued on the Valuation Date at closing prices for such contracts established by the exchange on which they are traded, or if market quotations are not readily available, will be valued at fair value on a consistent basis using methods determined in good faith by the Board of Directors. Distribution of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS. On the Exchange Date, MuniYield New York Insured II will issue to MuniVest New York Insured and MuniYield New York Insured III a number of shares of MuniYield New York Insured II Common Stock the aggregate net asset value of which will equal the respective aggregate net asset value of shares of MuniVest New York Insured Common Stock or MuniYield New York Insured III Common Stock, as applicable, on the Valuation Date. Each holder of MuniVest New York Insured Common Stock and MuniYield New York Insured III Common Stock will receive the number of shares of MuniYield New York Insured II Common Stock corresponding to his or her proportionate interest in the respective aggregate net asset value of the MuniVest New York Insured Common Stock or the MuniYield New York Insured III Common Stock, as applicable. On the Exchange Date, MuniYield New York Insured II also will issue (i) to MuniVest New York Insured a number of shares of MuniYield New York Insured II Series B AMPS the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of MuniVest New York Insured AMPS on the Valuation Date, and (ii) to MuniYield New York Insured III a number of shares of MuniYield New York Insured II Series C AMPS the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of MuniYield New York Insured III AMPS on the Valuation Date. Each holder of MuniVest New York Insured AMPS or MuniYield New York Insured III AMPS, as the case may be, will receive the number of shares of MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS corresponding to his or her proportionate interest in the aggregate liquidation preference and value of the MuniVest New York Insured AMPS or the MuniYield New York Insured III AMPS. No sales charge or fee of any kind will be charged to MuniVest 60 65 New York Insured stockholders or MuniYield New York Insured III stockholders in connection with their receipt of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS in the Reorganization. It is anticipated that the MuniYield New York Insured II Series B AMPS will follow a similar auction schedule and procedures as those presently followed by the MuniVest New York Insured AMPS, and that the MuniYield New York Insured II Series C AMPS will follow a similar auction schedule and procedures as those presently followed by the MuniYield New York Insured III AMPS. As a result of the Reorganization, the last dividend period for the MuniVest New York Insured AMPS and MuniYield New York Insured III AMPS prior to the Exchange Date may be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary. Expenses. MuniYield New York Insured II shall pay, subsequent to the Exchange Date, all expenses incurred in connection with the Reorganization, including, but not limited to, all costs related to the preparation and distribution of materials distributed to each Fund's Board of Directors, expenses incurred in connection with the preparation of the Agreement and Plan of Reorganization, a registration statement on Form N-14 and a private letter ruling request to the IRS, Commission and state securities commission filing fees and legal and audit fees in connection with the Reorganization, costs of printing and distributing this Proxy Statement and Prospectus, legal fees incurred preparing each Fund's board materials, attending each Fund's board meetings and preparing the minutes, accounting fees associated with each Fund's financial statements, stock exchange fees, rating agency fees, portfolio transfer taxes (if any), and any similar expenses incurred in connection with the Reorganization. In this regard, expenses of the Reorganization will be deducted from the assets of the combined fund so as to be borne equally and exclusively on a per share basis by the holders of MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock. Neither MuniVest New York Insured, MuniYield New York Insured II nor MuniYield New York Insured III shall pay any expenses of its respective stockholders arising out of or in connection with the Reorganization. Required Approvals. Under MuniVest New York Insured's Articles of Incorporation (as amended to date and including Articles Supplementary establishing the powers, rights and preferences of the MuniVest New York Insured AMPS), relevant Maryland law and the rules of the NYSE, stockholder approval of the Agreement and Plan of Reorganization requires the affirmative vote of stockholders representing more than 50% of the outstanding shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS, voting together as a single class, and of the MuniVest New York Insured AMPS, voting separately as a class. Similarly, under MuniYield New York Insured II's Articles of Incorporation (as amended to date and including Articles Supplementary establishing the powers, rights and preferences of the MuniYield New York Insured II AMPS), relevant Maryland law and the rules of the NYSE, stockholder approval of the Agreement and Plan of Reorganization requires the affirmative vote of stockholders representing more than 50% of the outstanding shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS, voting together as a single class, and of the MuniYield New York Insured II AMPS, voting separately as a class; and under MuniYield New York Insured III's Articles of Incorporation (as amended to date and including Articles Supplementary establishing the powers, rights and preferences of the MuniYield New York Insured III AMPS), relevant Maryland law and the rules of the NYSE, stockholder approval of the Agreement and Plan of Reorganization requires the affirmative vote of stockholders representing more than 50% of the outstanding shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS, voting together as a single class, and of the 61 66 MuniYield New York Insured III AMPS, voting separately as a class. Because of the requirement that the Agreement and Plan of Reorganization be approved by the stockholders of all three Funds, the Reorganization will not take place if the stockholders of any one Fund do not approve the Agreement and Plan of Reorganization. Deregistration and Dissolution. Following the transfer of the assets and liabilities of MuniVest New York Insured and MuniYield New York Insured III to MuniYield New York Insured II and the distribution of shares of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to MuniVest New York Insured stockholders and MuniYield New York Insured III stockholders, each of MuniVest New York Insured and MuniYield New York Insured III will terminate its registration under the Investment Company Act and its incorporation under Maryland law and will withdraw its authority to do business in any state where it is required to do so. Amendments and Conditions. The Agreement and Plan of Reorganization may be amended at any time prior to the Exchange Date with respect to any of the terms therein. The obligations of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III pursuant to the Agreement and Plan of Reorganization are subject to various conditions, including a registration statement on Form N-14 being declared effective by the Commission, approval of the stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, a favorable IRS ruling being received as to tax matters, an opinion of counsel as to securities matters being received and the continuing accuracy of various representations and warranties of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III being confirmed by the respective parties. Postponement, Termination. Under the Agreement and Plan of Reorganization, the Board of Directors of any of the Funds may cause the Reorganization to be postponed or abandoned should such Board determine that it is in the best interests of the stockholders of its respective Fund to do so. The Agreement and Plan of Reorganization may be terminated, and the Reorganization abandoned at any time (whether before or after adoption thereof by the stockholders of any of the Funds) prior to the Exchange Date, or the Exchange Date may be postponed: (i) by mutual consent of the Boards of Directors of the three Funds; (ii) by the Board of Directors of MuniVest New York Insured if any condition to MuniVest New York Insured's obligations set forth in Section 9 of the Agreement and Plan of Reorganization has not been fulfilled or waived by such Board; (iii) by the Board of Directors of MuniYield New York Insured II if any condition to MuniYield New York Insured II's obligations set forth in Section 10 of the Agreement and Plan of Reorganization has not been fulfilled or waived by such Board; or (iv) by the Board of Directors of MuniYield New York Insured III if any condition to MuniYield New York Insured III's obligations set forth in Section 11 of the Agreement and Plan of Reorganization has not been fulfilled or waived by such Board. POTENTIAL BENEFITS TO COMMON STOCKHOLDERS OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED II AND MUNIYIELD NEW YORK INSURED III AS A RESULT OF THE REORGANIZATION In approving the Reorganization, the Board of Directors of each Fund identified certain benefits that are likely to result from the Reorganization, including lower expenses per share of Common Stock, greater efficiency and flexibility in portfolio management and a more liquid trading market for the shares of Common Stock of the combined fund. With respect to each of MuniVest New York Insured and MuniYield New York Insured III, following the Reorganization their respective stockholders will remain invested in a closed-end fund that has investment objectives and policies similar to that of MuniVest New York Insured and 62 67 MuniYield New York Insured III. The Boards also considered the possible risks and costs of combining the Funds, and examined the relative credit strength, maturity characteristics, mix of type and purpose, and yield of the Funds' portfolios of Municipal Bonds and the costs involved in a transaction such as the Reorganization. The Boards noted the many similarities between the Funds, including their virtually identical investment objectives and investment policies, their common management and their similar portfolios of Municipal Bonds. Based on these factors, the Boards concluded that the Reorganization (i) presents no significant risks that would outweigh the benefits discussed above and (ii) involves minimal costs (including relatively minor legal, accounting and administrative costs). The surviving fund that would result from the Reorganization would have a larger asset base than any of the Funds has currently. Based on data presented by FAM, the Board of each Fund believes that administrative expenses for a larger combined fund would be less than the aggregate expenses for the individual Funds, resulting in a lower expense ratio for common stockholders of the combined fund and higher earnings per common share. In particular, certain fixed costs, such as costs of printing stockholder reports and proxy statements, legal expenses, audit fees, mailing costs and other expenses will be spread across a larger asset base, thereby lowering the expense ratio for the combined fund. To illustrate the potential economies of scale, as of April 30, 1996, the total annualized operating expense ratio for MuniVest New York Insured was 0.76%, based on average net assets of approximately $145.0 million including AMPS, and 1.15%, based on average net assets of approximately $96.0 million excluding AMPS, the total annualized operating expense ratio for MuniYield New York Insured II was 0.72%, based on average net assets of approximately $234.6 million including AMPS, and 1.02%, based on average net assets of approximately $164.6 million excluding AMPS, and the total annualized operating expense ratio for MuniYield New York Insured III was 0.90%, based on average net assets of approximately $78.3 million including AMPS, and 1.32%, based on average net assets of approximately $53.3 million excluding AMPS. If the Reorganization had taken place on April 30, 1996, the overall operating expense ratio for the combined fund on a pro forma basis would have been 0.66%, based on average net assets of approximately $457.9 million including AMPS, and 0.97%, based on average net assets of approximately $313.9 million excluding AMPS. Management projections estimate that MuniYield New York Insured II will have net assets in excess of $441.8 million upon completion of the Reorganization. A larger asset base should provide benefits in portfolio management. After the Reorganization, MuniYield New York Insured II should be able to purchase large amounts of Municipal Bonds at more favorable prices than any of the Funds separately and, with this greater purchasing power, request improvements in the terms of the Municipal Bonds (e.g., added indenture provisions covering call protection, sinking funds and audits for the benefit of large holders) prior to purchase. Based on the foregoing, the Boards concluded that the Reorganization presents no significant risks or costs (including legal, accounting and administrative costs) that would outweigh the benefits discussed above. In approving the Reorganization, the Board of Directors of each Fund determined that, with respect to net asset value and liquidation preference, the interests of existing stockholders of the Fund would not be diluted as a result of the Reorganization. Although the Reorganization is expected to result in a reduction in net asset value per share of the combined fund after the Reorganization of approximately $.01 as a result of the estimated costs of the Reorganization, management of each Fund advised its Board that it expects that such costs would be recovered within 18 months after the Exchange Date due to a decrease in the operating expense ratio. 63 68 It is not anticipated that the Reorganization directly would benefit the holders of shares of MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS or MuniYield New York Insured III AMPS; however, the Reorganization will not adversely affect the holders of shares of AMPS of any of the Funds and the expenses of the Reorganization will not be borne by the holders of shares of AMPS of any of the Funds. SURRENDER AND EXCHANGE OF MUNIVEST NEW YORK INSURED AND MUNIYIELD NEW YORK INSURED III STOCK CERTIFICATES After the Exchange Date, each holder of an outstanding certificate or certificates formerly representing shares of MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York Insured III AMPS, as the case may be, 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 New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS distributable with respect to such holder's shares of MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York Insured III AMPS, together with cash in lieu of any fractional shares. Promptly after the Exchange Date, the transfer agent for the MuniYield New York Insured II Common Stock, the MuniYield New York Insured II Series B AMPS or the MuniYield New York Insured II Series C AMPS, as the case may be, will mail to each holder of certificates formerly representing shares of MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York Insured III AMPS, as the case may be, a letter of transmittal for use in surrendering his or her certificates for certificates representing shares of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS, as the case may be, and cash in lieu of any fractional shares. PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON CONSUMMATION OF THE REORGANIZATION, MUNIVEST NEW YORK INSURED AND MUNIYIELD NEW YORK INSURED III COMMON AND PREFERRED STOCKHOLDERS WILL BE FURNISHED WITH INSTRUCTIONS FOR EXCHANGING THEIR MUNIVEST NEW YORK INSURED OR MUNIYIELD NEW YORK INSURED III STOCK CERTIFICATES FOR MUNIYIELD NEW YORK INSURED II STOCK CERTIFICATES AND, IF APPLICABLE, CASH IN LIEU OF FRACTIONAL SHARES. From and after the Exchange Date, certificates formerly representing shares of MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York Insured III AMPS, as the case may be, will be deemed for all purposes to evidence ownership of the number of full shares of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS distributable with respect to such shares of MuniVest New York Insured and MuniYield New York Insured III in the Reorganization, provided, that until such MuniVest New York Insured or MuniYield New York Insured III stock certificates have been so surrendered, no dividends payable to the holders of record of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS, as the case may be, as of any date subsequent to the Exchange Date will be paid to the holders of such outstanding MuniVest New York Insured or MuniYield New York Insured III stock certificates. Dividends payable to holders of record of shares of MuniYield New 64 69 York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS, as the case may be, as of any date after the Exchange Date and prior to the exchange of certificates by any MuniVest New York Insured or MuniYield New York Insured III stockholder will be paid to such stockholder, without interest, at the time such stockholder surrenders his or her MuniVest New York Insured or MuniYield New York Insured III stock certificates for exchange. From and after the Exchange Date, there will be no transfers on the stock transfer books of MuniVest New York Insured and MuniYield New York Insured III. If, after the Exchange Date, certificates representing shares of MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York Insured III AMPS are presented to MuniYield New York Insured II, they will be cancelled and exchanged for certificates representing MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS, as the case may be, and cash in lieu of fractional shares, if any, distributable with respect to such MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York Insured III AMPS in the Reorganization. TAX CONSEQUENCES OF THE REORGANIZATION General. The Reorganization has been structured with the intention that it qualify for Federal income tax purposes as a tax-free reorganization under Section 368(a)(1)(C) of the Code. Each of the three Funds has elected and qualified for the special tax treatment afforded RICs under the Code, and MuniYield New York Insured II intends to continue to so qualify after the Reorganization. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have jointly requested a private letter ruling from the IRS that for Federal income tax purposes: (i) the Reorganization, as described, will constitute a reorganization within the meaning of Section 368(a)(1)(C) of the Code, and each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III will be deemed a "party" to a Reorganization within the meaning of Section 361(b) of the Code; (ii) in accordance with Section 368(a) of the Code, no gain or loss will be recognized to MuniVest New York Insured or MuniYield New York Insured III as a result of the Reorganization or on the distribution of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to MuniVest New York Insured stockholders and MuniYield New York Insured III 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 New York Insured II 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 MuniVest New York Insured or MuniYield New York Insured III on the receipt of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS in exchange for their corresponding MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York Insured III AMPS (except to the extent that MuniVest New York Insured common stockholders and MuniYield New York Insured III common stockholders receive cash representing an interest in fractional shares of MuniYield New York Insured II in the Reorganization); (v) in accordance with Section 362(b) of the Code, the tax basis of the MuniVest New York Insured assets and the MuniYield New York Insured III assets in the hands of MuniYield New York Insured II will be the same as the tax basis of such assets in the hands of MuniVest New York Insured and MuniYield New York Insured III immediately prior to the 65 70 consummation of the Reorganization; (vi) in accordance with Section 358 of the Code, immediately after the Reorganization, the tax basis of the MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS received by the stockholders of MuniVest New York Insured and MuniYield New York Insured III in the Reorganization will be equal, in the aggregate, to the tax basis of the MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS surrendered in exchange; (vii) in accordance with Section 1223 of the Code, a stockholder's holding period for the MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS will be determined by including the period for which such stockholder held the MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York Insured III AMPS exchanged therefor, provided, that such MuniVest New York Insured or MuniYield New York Insured III shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, MuniYield New York Insured II's holding period with respect to the MuniVest New York Insured assets and the MuniYield New York Insured III assets transferred will include the period for which such assets were held by MuniVest New York Insured and MuniYield New York Insured III; (ix) the payment of cash to MuniVest New York Insured stockholders and MuniYield New York Insured III stockholders in lieu of fractional shares of MuniYield New York Insured II will be treated as though the fractional shares were distributed as part of the Reorganization and then redeemed, with the result that such MuniVest New York Insured and MuniYield New York Insured III stockholders will have short- or long-term capital gain or loss to the extent that the cash distribution differs from the basis allocable to the MuniYield New York Insured II fractional shares; and (x) the taxable year of each of MuniVest New York Insured and MuniYield New York Insured III will end on the effective date of the Reorganization and pursuant to Section 381(a) of the Code and regulations thereunder, MuniYield New York Insured II will succeed to and take into account certain tax attributes of MuniVest New York Insured and MuniYield New York Insured III, such as earnings and profits, capital loss carryovers and method of accounting. As noted in the discussion under "Comparison of the Funds--Tax Rules Applicable to MuniVest New York Insured, MuniYield New York Insured II, MuniYield New York Insured III and Their Stockholders", a Fund must distribute annually at least 90% of its net taxable and tax-exempt income. A distribution only will be counted for this purpose if it qualifies for the dividends paid deduction under the Code. In the opinion of Brown & Wood, the issuance of MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS pursuant to the Reorganization in addition to the already existing MuniYield New York Insured II Series A AMPS will not cause distributions on any series of AMPS to be treated as preferential dividends ineligible for the dividends paid deduction. It is possible that the IRS may assert that, because there are several series of AMPS, distributions on such shares are preferential under the Code and therefore not eligible for the dividends paid deduction. If the IRS successfully disallowed the dividends paid deduction for dividends on the AMPS, MuniYield New York Insured II could lose the special tax treatment afforded RICs. In this case, dividends on the shares of AMPS would not be exempt from Federal income tax. Additionally, MuniYield New York Insured II would be subject to the alternative minimum tax. Under Section 381(a) of the Code, MuniYield New York Insured II will succeed to and take into account certain tax attributes of MuniVest New York Insured and MuniYield New York Insured III, including, but not limited to, earnings and profits, any net operating loss carryovers, any capital loss carryovers and method of accounting. The Code, however, contains special limitations with regard to the use of net 66 71 operating losses, capital losses and other similar items in the context of certain reorganizations, including tax-free reorganizations pursuant to Section 368(a)(1)(C) of the Code, which could reduce the benefit of these attributes to MuniYield New York Insured II. 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. Status as a Regulated Investment Company. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have elected and qualified for taxation as RICs under Sections 851-855 of the Code, and after the Reorganization MuniYield New York Insured II intends to continue to so qualify. CAPITALIZATION The following table sets forth as of April 30, 1996 (i) the capitalization of MuniVest New York Insured, (ii) the capitalization of MuniYield New York Insured II, (iii) the capitalization of MuniYield New York Insured III and (iv) the pro forma capitalization of MuniYield New York Insured II as adjusted to give effect to the Reorganization. PRO FORMA CAPITALIZATION OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED II, MUNIYIELD NEW YORK INSURED III AND THE COMBINED FUND AS OF APRIL 30, 1996 (UNAUDITED) MUNIVEST MUNIYIELD MUNIYIELD COMBINED NEW YORK NEW YORK NEW YORK PRO FORMA FUND AS INSURED INSURED II INSURED III ADJUSTMENT ADJUSTED(A) ------------ ------------ ----------- ----------- ------------ Net Assets:.......................... $140,188,266 $227,620,698 $75,810,118 ($1,830,597) $441,788,485 Net Assets Attributable to Common Stock............................ $ 91,188,266 $157,620,698 $50,810,118 ($1,830,597) $297,788,485 Net Assets Attributable to AMPS.... $ 49,000,000 $ 70,000,000 $25,000,000 -- $144,000,000 Shares Outstanding: Common Stock....................... 7,204,432 11,114,832 3,688,900 -- 21,126,869(b) AMPS Series A......................... 1,960 2,800 1,000 -- 2,800 Series B......................... -- -- -- -- 1,960(b) Series C......................... -- -- -- -- 1,000(b) Net Asset Value Per Share: Common Stock....................... $12.66 $14.18 $13.77 -- $14.10(c) AMPS............................... $25,000 $25,000 $25,000 -- $25,000 - --------------- (a) The adjusted balances are presented as if the Reorganization had been consummated on April 30, 1996 and are for informational purposes only. Assumes distribution of undistributed net investment income and accrual of estimated Reorganization expenses of $215,000. No assurance can be given as to how many shares of MuniYield New York Insured II Common Stock that MuniVest New York Insured stockholders and MuniYield New York Insured III stockholders will receive on the Exchange Date, and the foregoing should not be relied upon to reflect the number of shares of MuniYield New York Insured II Common Stock that actually will be received on or after such date. (b) Assumes the issuance of 10,012,037 shares of MuniYield New York Insured II Common Stock and two newly-created series of AMPS consisting of 1,960 shares and 1,000 shares, respectively, in exchange for the net assets of 67 72 each of MuniVest New York Insured and MuniYield New York Insured III. The number of shares issued was based on the net asset value of each Fund, net of distributions, on April 30, 1996. (c) Net Asset Value Per Share of Common Stock after Reorganization-related expenses and distribution of undistributed net investment income. ELECTION OF DIRECTORS At the Meetings, the Boards of Directors for MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III will be elected to serve until the next Annual Meeting of Stockholders and until their successors are elected and qualified. If the stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III approve the Reorganization, then the Board of Directors of MuniYield New York Insured II elected at the Meetings will serve as the Board of the combined fund, until its next Annual Meeting of Stockholders. If the stockholders of either MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III vote against the Reorganization, then the Board of Directors of each Fund elected at the Meetings will continue to serve until the next Annual Meeting of Stockholders of each Fund. It is intended that all properly executed proxies will be voted (unless such authority has been withheld in the proxy) as follows: With respect to the proxies of MuniVest New York Insured stockholders: (1) All proxies of the holders of shares of MuniVest New York Insured AMPS, voting separately as a class, will be voted in favor of the two persons designated as Directors to be elected by the holders of shares of MuniVest New York Insured AMPS; and (2) All proxies of the holders of shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS, voting together as a single class, will be voted in favor of the four persons designated as Directors to be elected by the holders of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS. With respect to the proxies of MuniYield New York Insured II stockholders: (1) All proxies of the holders of shares of MuniYield New York Insured II AMPS, voting separately as a class, will be voted in favor of the two persons designated as Directors to be elected by the holders of shares of MuniYield New York Insured II AMPS; and (2) All proxies of the holders of shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS, voting together as a single class, will be voted in favor of the four persons designated as Directors to be elected by the holders of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS. With respect to the proxies of MuniYield New York Insured III stockholders: (1) All proxies of the holders of shares of MuniYield New York Insured III AMPS, voting separately as a class, will be voted in favor of the two persons designated as Directors to be elected by the holders of shares of MuniYield New York Insured III AMPS; and (2) All proxies of the holders of shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS, voting together as a single class, will be voted in favor of the four 68 73 persons designated as Directors to be elected by the holders of shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS. The Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III know 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 Boards of Directors may recommend. The same individuals currently serve as the Directors of both MuniVest New York Insured and MuniYield New York Insured III. Certain information concerning the nominees for the Boards of Directors of MuniVest New York Insured and MuniYield New York Insured III, including their designated classes, is set forth below. TO BE ELECTED BY HOLDERS OF MUNIVEST NEW YORK INSURED AMPS, VOTING SEPARATELY AS A CLASS, AS WELL AS BY HOLDERS OF MUNIYIELD NEW YORK INSURED III AMPS, VOTING SEPARATELY AS A CLASS SHARES BENEFICIALLY OWNED AT THE RECORD DATE PRINCIPAL OCCUPATIONS ------------- DURING THE PAST FIVE YEARS DIRECTOR COMMON NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS - ------------------------------- --- ------------------------------- -------- ------ ---- Donald Cecil(1)(2)............. 69 Special Limited Partner of 1992 0 0 Cumberland Associates Cumberland Partners (an 1114 Avenue of the Americas investment partnership) since New York, New York 10036 1982; Member of Institute of Chartered Financial Analysts; Member and Chairman of Westchester County (N.Y.) Board of Transportation. M. Colyer Crum(1)(2)........... 64 James R. Williston Professor of 1992 0 0 Soldiers Field Road Investment Management, Boston, Massachusetts 02163 Harvard Business School, from 1971 to 1996; Director of Cambridge Bancorp, Copley Properties, Inc. and Sun Life Assurance Company of Canada. (See footnotes on following page) 69 74 TO BE ELECTED BY HOLDERS OF MUNIVEST NEW YORK INSURED AMPS AND MUNIVEST NEW YORK INSURED COMMON STOCK, VOTING TOGETHER AS A SINGLE CLASS, AS WELL AS BY HOLDERS OF MUNIYIELD NEW YORK INSURED III AMPS AND MUNIYIELD NEW YORK INSURED III COMMON STOCK, VOTING TOGETHER AS A SINGLE CLASS SHARES BENEFICIALLY OWNED AT THE RECORD DATE PRINCIPAL OCCUPATIONS ------------- DURING THE PAST FIVE YEARS DIRECTOR COMMON NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS - ------------------------------- --- ------------------------------- -------- ------ ---- Edward H. Meyer(1)(2).......... 69 President of Grey Advertising 1992 0 0 Grey Advertising Inc. Inc. since 1968, Chief 777 Third Avenue Executive Officer since 1970 New York, New York 10017 and Chairman of the Board of Directors since 1972; Director of The May Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan Allen Interiors, Inc. and Harman International Industries, Inc. Jack B. Sunderland(1)(2)....... 67 President and Director of 1992 0 0 P.O. Box 7 American Independent Oil West Cornwall, Connecticut Company, Inc. (an energy 06796 company) since 1987; Member of Council on Foreign Relations since 1971. J. Thomas Touchton(1)(2)....... 57 Managing Partner of The Witt- 1992 0 0 Suite 3405 Touchton Company and its One Tampa City Center predecessor, The Witt Co. (a 201 North Franklin Street private investment Tampa, Florida 33602 partnership) since 1972; Trustee Emeritus of Washington and Lee University; Director of TECO Energy Inc. (an electric utility holding company). Arthur Zeikel(1)(3)............ 64 President of FAM (which term as 1992 0 0 800 Scudders Mill Road used herein includes its Plainsboro, New Jersey 08536 corporate predecessors) since 1977; President of MLAM (which term as used herein includes its corporate predecessors) since 1977; President and Director of Princeton Services since 1993; Executive Vice President of ML & Co. since 1990; Director of MLFD since 1977. - --------------- (1) Each of the nominees is a director, trustee or member of an advisory board of certain other investment companies for which FAM or MLAM acts as investment adviser. See "Compensation of Directors" below. (2) Member of the Audit Committee of the Board of Directors. (3) Interested person, as defined in the Investment Company Act, of the Fund. 70 75 Certain information concerning the nominees for the Board of Directors of MuniYield New York Insured II, including their designated classes, is set forth below. TO BE ELECTED BY HOLDERS OF MUNIYIELD NEW YORK INSURED II AMPS, VOTING SEPARATELY AS A CLASS SHARES BENEFICIALLY OWNED AT THE RECORD DATE PRINCIPAL OCCUPATIONS ------------- DURING THE PAST FIVE YEARS DIRECTOR COMMON NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS - ------------------------------- --- ------------------------------- -------- ------ ---- Joseph L. May(1)(2)............ 67 Attorney in private practice 1992 0 0 424 Church Street since 1984; President, May and Suite 2000 Athens Hosiery Mills Nashville, Tennessee 37219 Division, Wayne- Gossard Corporation from 1954 to 1983; Vice President, Wayne- Gossard Corporation from 1972 to 1983; Chairman, The May Corporation (personal holding company) from 1972 to 1983; Director, Signal Apparel Co. from 1972 to 1989. Andre F. Perold(1)(2).......... 44 Professor, Harvard Business 1992 0 0 Morgan Hall School since 1989 and Associate Soldiers Field Professor from 1983 to 1989; Boston, Massachusetts 02163 Trustee, The Common Fund since 1989; Director, Quantec Limited since 1991 and Teknekron Software Systems since 1994. (See footnotes on page 73) 71 76 TO BE ELECTED BY HOLDERS OF MUNIYIELD NEW YORK INSURED II AMPS AND MUNIYIELD NEW YORK INSURED II COMMON STOCK, VOTING TOGETHER AS A SINGLE CLASS SHARES BENEFICIALLY OWNED AT THE RECORD DATE PRINCIPAL OCCUPATIONS ------------- DURING THE PAST FIVE YEARS DIRECTOR COMMON NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS - ------------------------------- --- ------------------------------- -------- ------ ---- James H. Bodurtha(1)(2)........ 52 Chairman and Chief Executive 1992 0 0 124 Long Pond Road Officer, China Enterprise Plymouth, Massachusetts 02360 Management Corporation since 1993; Chairman, Berkshire Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993. Herbert I. London(1)(2)........ 57 Dean, Gallatin Division of New 1992 0 0 113-115 University Place York University from 1978 to New York, New York 10003 1993 and Director from 1975 to 1976; John M. Olin Professor of Humanities since 1993 and Professor since 1980, New York University; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Trustee, Hudson Institute since 1980; Overseer, Center for Naval Analyses; Director, Damon Corporation since 1991. Robert R. Martin(1)(2)......... 69 Chairman and Chief Executive 1992 0 0 513 Grand Hill Officer, Kinnard Investments, St. Paul, Minnesota 55102 Inc. from 1990 to 1993, Executive Vice President, Dain Bosworth from 1974 to 1989; Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof in 1979; Director, Securities Industry Association from 1981 to 1982 and Public Securities Association from 1979 to 1980; Director, WTC Industries, Inc. from 1994 to 1996; Trustee, Northland College since 1992. (See footnotes on following page) 72 77 TO BE ELECTED BY HOLDERS OF AMPS AND COMMON STOCK, VOTING TOGETHER AS A SINGLE CLASS (CONTINUED) SHARES BENEFICIALLY OWNED AT THE RECORD DATE PRINCIPAL OCCUPATIONS DURING ------------- THE PAST FIVE YEARS DIRECTOR COMMON NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS - ------------------------------- --- ------------------------------- -------- ------ ---- Arthur Zeikel(1)(3)............ 64 President of FAM since 1977; 1992 0 0 800 Scudders Mill Road President of MLAM since 1977; Plainsboro, New Jersey 08536 President and Director of Princeton Services since 1993; Executive Vice President of ML & Co. since 1990; Director of MLFD since 1977. - --------------- (1) Each of the nominees is a director, trustee or member of an advisory board of certain other investment companies for which FAM or MLAM acts as investment adviser. See "Compensation of Directors" below. (2) Member of the Audit Committee of the Board of Directors. (3) Interested person, as defined in the Investment Company Act, of the Fund. COMMITTEE AND BOARD MEETINGS The Board of Directors of each Fund has a standing Audit Committee, which consists of the Directors who are not "interested persons", as defined in the Investment Company Act, of the Fund. The principal purpose of the Audit Committee is to review the scope of the annual audit conducted by each Fund's independent auditors and the evaluation by such auditors of the accounting procedures followed by the Fund. The non-interested Directors have retained independent legal counsel to assist them in connection with these duties. None of the Boards of Directors has a nominating committee. During the fiscal year ended October 31, 1995, the Boards of Directors and the Audit Committees of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III each held four quarterly meetings. All of the Directors of each Fund then in office attended at least 75% of the total number of meetings of the Board of Directors and the total number of meetings held by all of the committees of the Board on which they served during such period. 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 "Securities Exchange Act"), requires each Fund's officers, Directors 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 NYSE. 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 that they file. Based solely on each Fund's review of the copies of such forms, and amendments thereto, furnished to it during or with respect to its most recent fiscal year, and written representations from certain reporting persons that they were not required to file Forms 5 with respect to the most recent fiscal year, each Fund believes that all of its officers, Directors, greater than ten percent beneficial owners and other persons subject to Section 16 73 78 of the Securities Exchange Act because of the requirements of Section 30 of the Investment Company Act (i.e., any advisory board member, investment adviser or affiliated person of the Fund's investment adviser), have complied with all filing requirements applicable to them with respect to transactions during the Fund's most recent fiscal year, except that James H. Bodurtha inadvertently filed late a Form 3 to report his election as a Director of MuniYield New York Insured II. INTERESTED PERSONS Each Fund considers Mr. Zeikel to be an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act as a result of the positions he holds with FAM and its affiliates. Mr. Zeikel is the President of each Fund, the President of FAM and the President of MLAM. COMPENSATION OF DIRECTORS FAM, the investment adviser for MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, pays all compensation of all officers of each Fund and all Directors of each Fund who are affiliated with ML & Co. or its subsidiaries. MuniVest New York Insured pays each Director who is not affiliated with FAM a fee of $2,500 per year plus $250 per regular meeting attended, together with such Director's actual out-of-pocket expenses relating to attendance at meetings. The Fund also pays each member of its Audit Committee, which consists of all of the non-affiliated Directors, a fee of $500 per year plus $125 per meeting attended, together with such Director's out-of-pocket expenses relating to attendance at meetings. These fees and expenses for the fiscal year ended October 31, 1995 aggregated $22,627 for MuniVest New York Insured. MuniYield New York Insured II pays each Director who is not affiliated with FAM a fee of $2,500 per year plus $250 per regular meeting attended, together with such Director's actual out-of-pocket expenses relating to attendance at meetings. The Fund also pays each member of its Audit Committee, which consists of all of the non-affiliated Directors, a fee of $500 per year plus $125 per meeting attended, together with such Director's out-of-pocket expenses relating to attendance at meetings. These fees and expenses for the fiscal year ended October 31, 1995 aggregated $23,759 for MuniYield New York Insured II. MuniYield New York Insured III pays each Director who is not affiliated with FAM a fee of $2,500 per year plus $250 per regular meeting attended, together with such Director's actual out-of-pocket expenses relating to attendance at meetings. The Fund also pays each member of its Audit Committee, which consists of all of the non-affiliated Directors, a fee of $500 per year plus $125 per meeting attended, together with such Director's out-of-pocket expenses relating to attendance at meetings. These fees and expenses for the fiscal year ended October 31, 1995 aggregated $21,468 for MuniYield New York Insured III. The following table sets forth, for the fiscal year ended October 31, 1995, compensation paid by MuniVest New York Insured and MuniYield New York Insured III to the non-affiliated Directors and, for the calendar year ended December 31, 1995, the aggregate compensation paid by all registered investment 74 79 companies advised by FAM and its affiliate, MLAM ("FAM/MLAM Advised Funds"), to the non-affiliated Directors. AGGREGATE COMPENSATION FROM MUNIVEST NEW YORK INSURED, MUNIYIELD COMPENSATION COMPENSATION PENSION OR NEW YORK INSURED III FROM MUNIVEST FROM MUNIYIELD RETIREMENT BENEFITS AND FAM/MLAM NEW YORK NEW YORK ACCRUED AS PART OF ADVISED FUNDS PAID NAME OF DIRECTOR INSURED INSURED III FUND EXPENSES TO DIRECTORS - -------------------------------- ------------- -------------- ------------------- ---------------------- Donald Cecil(1)................. $ 4,500 $4,500 None $271,850 M. Colyer Crum(1)............... $ 4,500 $4,500 None $126,600 Edward H. Meyer(1).............. $ 4,500 $4,500 None $239,225 Jack B. Sunderland(1)........... $ 4,500 $4,500 None $134,600 J. Thomas Touchton(1)........... $ 4,500 $4,500 None $134,600 - --------------- (1) The Directors serve on the boards of MLAM/FAM Advised Funds as follows: Mr. Cecil (36 registered investment companies consisting of 36 portfolios); Mr. Crum (18 registered investment companies consisting of 18 portfolios); Mr. Meyer (36 registered investment companies consisting of 36 portfolios); Mr. Sunderland (20 registered investment companies consisting of 29 portfolios); and Mr. Touchton (20 registered investment companies consisting of 29 portfolios). The following table sets forth, for the fiscal year ended October 31, 1995, compensation paid by MuniYield New York Insured II to the non-affiliated Directors and, for the calendar year ended December 31, 1995, the aggregate compensation paid by all FAM/MLAM Advised Funds to the non-affiliated Directors. AGGREGATE COMPENSATION FROM MUNIYIELD NEW YORK COMPENSATION PENSION OR INSURED II AND FROM MUNIYIELD RETIREMENT BENEFITS FAM/MLAM ADVISED NEW YORK ACCRUED AS PART OF FUNDS PAID NAME OF DIRECTOR INSURED II FUND EXPENSES TO DIRECTORS - ----------------------------------------------- -------------- ------------------- ----------------------- James H. Bodurtha(1)........................... $5,000 None $ 157,500(2) Herbert I. London(1)........................... $4,500 None $ 157,500 Robert R. Martin(1)............................ $4,500 None $ 157,500 Joseph L. May(1)............................... $4,500 None $ 157,500 Andre F. Perold(1)............................. $4,500 None $ 157,500 - --------------- (1) The Directors serve on the boards of MLAM/FAM Advised Funds as follows: Mr. Bodurtha (22 registered investment companies consisting of 46 portfolios); Mr. London (22 registered investment companies consisting of 46 portfolios); Mr. Martin (22 registered investment companies consisting of 46 portfolios); Mr. May (22 registered investment companies consisting of 46 portfolios); and Mr. Perold (22 registered investment companies consisting of 46 portfolios). (2) $157,500 represents the amount Mr. Bodurtha would have received if he had been a Director for the entire calendar year ended December 31, 1995 and had attended all Board and Audit Committee meetings held. Mr. Bodurtha was elected to the Fund's Board of Directors on June 23, 1995. OFFICERS OF THE FUNDS The Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have elected the following officers of each of the Funds. The principal 75 80 business address of each officer is 800 Scudders Mill Road, Plainsboro, New Jersey 08536. The following sets forth information concerning each of these officers: OFFICER NAME AND PRINCIPAL OCCUPATION OFFICE AGE SINCE - ----------------------------------------------------------- --------------- ---- ------- Arthur Zeikel.............................................. President 64 1992 President of FAM since 1977; President of MLAM since 1977; President and Director of Princeton Services since 1993; Executive Vice President of ML & Co. since 1990; Director of MLFD since 1977. Terry K. Glenn............................................. Executive Vice 55 1992 Executive Vice President of FAM and of MLAM since 1983; President Executive Vice President and Director of Princeton Services since 1993; President of MLFD since 1986 and Director thereof since 1991; President of Princeton Administrators, L.P. since 1988. Vincent R. Giordano........................................ Senior Vice 51 1992 Senior Vice President of FAM and of MLAM since 1984; President Senior Vice President of Princeton Services since 1993. Kenneth A. Jacob........................................... Vice President 45 1992 Vice President of FAM and of MLAM since 1984; employed by MLAM since 1978. Donald C. Burke............................................ Vice President 36 1993 Vice President and Director of Taxation of MLAM since 1990; Employee at Deloitte & Touche LLP from 1982 to 1990. Walter O'Connor............................................ Portfolio 34 1993 Vice President of MLAM since 1993; Assistant Vice Manager(1) President of MLAM from 1991 to 1993; Assistant Vice President of Prudential Securities from 1984 to 1991. Roberto Roffo.............................................. Portfolio 30 1992 Vice President of MLAM since 1996 and a Portfolio Manager Manager(1) thereof since 1992; prior thereto, employee of State Street Bank and Trust Company from 1989 to 1992. Gerald M. Richard.......................................... Treasurer 47 1992 Senior Vice President and Treasurer of FAM and of MLAM since 1984; Senior Vice President and Treasurer of Princeton Services since 1993; Treasurer of MLFD since 1981 and Vice President thereof since 1984. Mark B. Goldfus............................................ Secretary 49 1992 Vice President of FAM and of MLAM since 1985. - --------------- (1) Mr. O'Connor is the Portfolio Manager of MuniYield New York Insured II and Mr. Roffo is the Portfolio Manager of MuniVest New York Insured and MuniYield New York Insured III. SELECTION OF INDEPENDENT AUDITORS The Board of Directors of MuniVest New York Insured, including a majority of the Directors who are not "interested persons", as defined in the Investment Company Act, of the Fund, has selected the firm of 76 81 Ernst & Young LLP as independent auditors, to audit the financial statements of the Fund for the current fiscal year ending October 31, 1996. The Board of Directors of MuniYield New York Insured II, including a majority of the Directors who are not "interested persons" of the Fund, has selected the firm of Deloitte & Touche LLP as independent auditors, to audit the financial statements of the Fund for the current fiscal year ending October 31, 1996. However, in the event that the Reorganization is approved by the requisite number of stockholders of each Fund and the Reorganization takes place prior to October 31, 1996, the Board of Directors of MuniYield New York Insured II, including a majority of the Directors who are not "interested persons" of the Fund, have selected the firm of Ernst & Young LLP as independent auditors, to audit the financial statements of the combined fund for the fiscal year ending October 31, 1996. The Board of Directors of MuniYield New York Insured III, including a majority of the Directors who are not "interested persons" of the Fund, has selected the firm of Ernst & Young LLP as independent auditors, to audit the financial statements of the Fund for the current fiscal year ending October 31, 1996. The Funds know of no direct or indirect financial interest of such firms in the Funds. Such appointment is subject to ratification or rejection by the stockholders of the Funds. If the stockholders of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III approve the Reorganization, then the independent auditors selected at the Meetings for MuniYield New York Insured II will serve as the independent auditors of the combined fund until its next Annual Meeting of Stockholders. If the stockholders of either MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III vote against the Reorganization, then the independent auditors of each Fund selected at the Meetings will continue to serve until the next Annual Meeting of Stockholders of each Fund. Unless a contrary specification is made, the accompanying proxy will be voted in favor of ratification of the selection of such auditors. Deloitte & Touche LLP also acts as independent auditors for ML & Co. and all of its subsidiaries and for most other investment companies for which FAM or MLAM acts as investment adviser. The fees received by Deloitte & Touche LLP from these other entities are substantially greater, in the aggregate, than the total fees received by it from MuniYield New York Insured II. The Board of Directors of MuniYield New York Insured II considered the fact that Deloitte & Touche LLP has been retained as the independent auditors of ML & Co. and the other entities described above in its evaluation of the independence of Deloitte & Touche LLP with respect to MuniYield New York Insured II. Ernst & Young LLP also acts as independent auditors for several other investment companies for which FAM or MLAM acts as investment adviser. The fees received by Ernst & Young LLP from these other entities are substantially greater, in the aggregate, than the total fees received by it from MuniVest New York Insured and MuniYield New York Insured III. The Board of Directors of each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III considered the fact that Ernst & Young LLP has been retained as the independent auditors of the other entities described above in its evaluation of the independence of Ernst & Young LLP with respect to MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as applicable. Representatives of Deloitte & Touche LLP or Ernst & Young LLP, as applicable, are expected to be present at the Meetings and will have the opportunity to make a statement if they so desire and to respond to questions from stockholders. 77 82 INFORMATION CONCERNING THE ANNUAL MEETINGS DATE, TIME AND PLACE OF MEETINGS The Meetings will be held on September 30, 1996 at the offices of MLAM, 800 Scudders Mill Road, Plainsboro, New Jersey at 11:45 A.M., New York time (for MuniVest New York Insured), 12:00 noon, New York time (for MuniYield New York Insured II) and 12:15 P.M., New York time (for MuniYield New York Insured III). SOLICITATION, REVOCATION AND USE OF PROXIES A stockholder executing and returning a proxy has the power to revoke it at any time prior to its exercise by executing a superseding proxy or by submitting a notice of revocation to the Secretary of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as the case may be. Although mere attendance at the Meetings will not revoke a proxy, a stockholder present at the Meetings may withdraw his proxy and vote in person. All shares represented by properly executed proxies, unless such proxies previously have been revoked, will be voted at the Meetings in accordance with the directions on the proxies; if no direction is indicated, the shares will be voted "FOR" (i) the approval of the Agreement and Plan of Reorganization, (ii) the election of Directors and (iii) the ratification of the selection of Deloitte & Touche LLP or Ernst & Young LLP, as applicable, as independent accountants. It is not anticipated that any matters other than (i) the adoption of the Agreement and Plan of Reorganization, (ii) the election of Directors and (iii) the ratification of the selection of Deloitte & Touche LLP or Ernst & Young LLP, as applicable, will be brought before the Meetings. If, however, any other business properly is brought before the Meetings, proxies will be voted in accordance with the judgment of the persons designated on such proxies. RECORD DATE AND OUTSTANDING SHARES Only holders of record of shares of MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured II Common Stock, MuniYield New York Insured II AMPS, MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS at the close of business on the Record Date are entitled to vote at the Meetings or any adjournment thereof. At the close of business on the Record Date, there were 7,204,432 shares of MuniVest New York Insured Common Stock, 1,960 shares of MuniVest New York Insured AMPS, 11,114,832 shares of MuniYield New York Insured II Common Stock, 2,800 shares of MuniYield New York Insured II AMPS, 3,688,900 shares of MuniYield New York Insured III Common Stock and 1,000 shares of MuniYield New York Insured III AMPS issued and outstanding and entitled to vote. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED II AND MUNIYIELD NEW YORK INSURED III To the knowledge of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, at the date hereof, no person or entity owns beneficially 5% or more of the shares of any of the MuniVest New York Insured Common Stock, the MuniVest New York Insured AMPS, the 78 83 MuniYield New York Insured II Common Stock, the MuniYield New York Insured II AMPS, the MuniYield New York Insured III Common Stock or the MuniYield New York Insured III AMPS. On the Record Date, the Directors and officers of MuniVest New York Insured as a group (12 persons) owned an aggregate of less than 1% of the outstanding shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS. On the Record Date, the Directors and officers of MuniYield New York Insured II as a group (12 persons) owned an aggregate of less than 1% of the outstanding shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS. On the Record Date, the Directors and officers of MuniYield New York Insured III as a group (12 persons) owned an aggregate of less than 1% of the outstanding shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS. On the Record Date, Mr. Zeikel, a Director and officer of each of the Funds, and the other Directors and officers of each Fund owned an aggregate of less than 1% of the outstanding shares of Common Stock of ML & Co. VOTING RIGHTS AND REQUIRED VOTE For purposes of this Proxy Statement and Prospectus, each share of MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured II Common Stock, MuniYield New York Insured II AMPS, MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS is entitled to one vote. Approval of the Agreement and Plan of Reorganization requires the affirmative vote of stockholders representing (i) a majority of the outstanding shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS, voting together as a single class, and of the MuniVest New York Insured AMPS, voting separately as a class, (ii) a majority of the outstanding shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS, voting together as a single class, and of the MuniYield New York Insured II AMPS, voting separately as a class, and (iii) a majority of the outstanding shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS, voting together as a single class, and of the MuniYield New York Insured III AMPS, voting separately as a class. Under Maryland law, stockholders of a registered investment company whose shares are traded publicly on a national securities exchange, such as MuniVest New York Insured and MuniYield New York Insured III, are not entitled to demand the fair value of their shares upon a transfer of assets; therefore, the MuniVest New York Insured and MuniYield New York Insured III common stockholders will be bound by the terms of the Reorganization, if approved at the Meetings. However, any common stockholder of MuniVest New York Insured or MuniYield New York Insured III may sell his or her shares of Common Stock at any time on the NYSE. Conversely, since the MuniVest New York Insured AMPS and MuniYield New York Insured III AMPS are not traded publicly on a national securities exchange, shareholders of MuniVest New York Insured AMPS and MuniYield New York Insured III AMPS will be entitled to appraisal rights upon the consummation of the Reorganization. As stockholders of the corporation acquiring the assets of MuniVest New York Insured and of MuniYield New York Insured III, neither holders of MuniYield New York Insured II Common Stock nor holders of MuniYield New York Insured II AMPS are entitled to appraisal rights under Maryland law. 79 84 Under Maryland law, a holder of MuniVest New York Insured AMPS or MuniYield New York Insured III AMPS desiring to receive payment of the fair value of his or her stock (an "objecting stockholder") (i) must file with MuniVest New York Insured or MuniYield New York Insured III, as applicable, a written objection to the Reorganization at or before the Meeting, (ii) must not vote in favor of the Reorganization and (iii) must make written demand on MuniYield New York Insured II for payment of his or her stock, stating the number and class of shares for which he or she demands payment, within 20 days after the Maryland Department of Assessments and Taxation accepts for filing the Articles of Transfer with respect to the Reorganization (MuniYield New York Insured II is required promptly to give written notice to all objecting stockholders of the date that the Articles of Transfer are accepted for record). An objecting stockholder who fails to adhere to this procedure will be bound by the terms of the Reorganization. An objecting stockholder ceases to have any rights of a stockholder except the right to receive fair value for his or her shares and has no right to receive any dividends or distributions payable to such holders on a record date after the close of business on the date on which fair value is to be determined, which, for these purposes, will be the date of the Meeting. A demand for payment of fair market value may not be withdrawn, except upon the consent of MuniYield New York Insured II. Within 50 days after the Articles of Transfer have been accepted for filing, an objecting stockholder who has not received payment for his or her shares may petition a court located in Baltimore, Maryland for an appraisal to determine the fair market value of his or her stock. For purposes of each Meeting, a quorum consists of a majority of the shares entitled to vote at the Meeting, present in person or by proxy. If, by the time scheduled for each Meeting, a quorum of the applicable Fund's stockholders is not present or if a quorum is present but sufficient votes in favor of the Agreement and Plan of Reorganization are not received from the stockholders of the applicable Fund, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies from stockholders. Any such adjournment will require the affirmative vote of a majority of the shares of the applicable Fund present in person or by proxy and entitled to vote at the session of the Meeting to be adjourned. The persons named as proxies will vote in favor of any such adjournment if they determine that adjournment and additional solicitation are reasonable and in the interests of the applicable Fund's stockholders. With respect to the election of Directors, (i) holders of shares of MuniVest New York Insured AMPS are entitled to elect two Directors of MuniVest New York Insured and holders of shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS, voting together as a single class, are entitled to elect the remaining Directors of MuniVest New York Insured; (ii) holders of shares of MuniYield New York Insured II AMPS are entitled to elect two Directors of MuniYield New York Insured II and holders of shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS, voting together as a single class, are entitled to elect the remaining Directors of MuniYield New York Insured II; and (iii) holders of shares of MuniYield New York Insured III AMPS are entitled to elect two Directors of MuniYield New York Insured III and holders of shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS, voting together as a single class, are entitled to elect the remaining Directors of MuniYield New York Insured III. Assuming a quorum is present, (x) election of the two Directors of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as the case may be, to be elected by the holders of shares of MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS or MuniYield New York Insured III AMPS, respectively, voting separately as a class, will require the affirmative vote of a majority of the votes cast by the holders of that Fund's AMPS, represented at the Meeting and entitled to vote; and (y) election of the 80 85 remaining Directors of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, as the case may be, will require the affirmative vote of a majority of the votes cast by the holders of their respective Common Stock and AMPS, represented at the Meetings and entitled to vote, voting together as a single class. Approval of the ratification of the selection of Ernst & Young LLP as the independent auditors of MuniVest New York Insured will require the affirmative vote of a majority of the votes cast by the holders of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS represented at the Meetings and entitled to vote, voting together as a single class; approval of the ratification of the selection of Deloitte & Touche LLP as the independent auditors of MuniYield New York Insured II (or, in the event that the Reorganization is approved by the requisite number of stockholders of each Fund and the Reorganization takes place prior to October 31, 1996, approval of Ernst & Young LLP as the independent auditors of the combined fund) will require the affirmative vote of a majority of the votes cast by the holders of MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS represented at the Meetings and entitled to vote, voting together as a single class; and approval of the ratification of the selection of Ernst & Young LLP as the independent auditors of MuniYield New York Insured III will require the affirmative vote of a majority of the votes cast by holders of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS represented at the Meetings and entitled to vote, voting together as a single class. ADDITIONAL INFORMATION The expenses of preparation, printing and mailing of the enclosed form of proxy, the accompanying Notice and this Proxy Statement and Prospectus will be borne by MuniYield New York Insured II, the surviving fund after the Reorganization, so as to be borne equally and exclusively on a per share basis by the holders of MuniVest New York Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York Insured III Common Stock. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III likewise will reimburse banks, brokers and others for their reasonable expenses in forwarding proxy solicitation materials to the beneficial owners of shares of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and certain persons that MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III may employ for their reasonable expenses in assisting in the solicitation of proxies from such beneficial owners of shares of capital stock of MunIVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III. In order to obtain the necessary quorum at the Meetings (i.e., a majority of the shares of each class of each Fund's securities entitled to vote at the Meetings, present in person or by proxy), supplementary solicitation may be made by mail, telephone, telegraph or personal interview by officers of the Fund. The Funds also may hire proxy solicitors at the expense of MuniYield New York Insured II. It is anticipated that the cost of such supplementary solicitation, if any, will be nominal. Broker-dealer firms, including Merrill Lynch, holding Fund shares in "street name" for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares on each proposal before the Meetings. The Funds understand that, under the rules of the NYSE, such broker-dealer firms may, without instructions from their customers and clients, grant authority to the proxies 81 86 designated to vote on the election of a Board of Directors of each Fund to serve for the ensuing year (proposal 2) and the ratification of the selection of Deloitte & Touche LLP or Ernst & Young LLP, as applicable, as independent auditors for each Fund for the current fiscal year (proposals 3 and 4) if no instructions have been received prior to the date specified in the broker-dealer firm's request for voting instructions. Broker-dealer firms, including Merrill Lynch, will not be permitted to grant voting authority without instructions with respect to the approval of the Agreement and Plan of Reorganization (proposal 1). The Funds will include shares held of record by broker-dealers as to which such authority has been granted in its tabulation of the total number of shares present for purposes of determining whether the necessary quorum of shareholders of each Fund exists. Proxies which are returned to a Fund but which are marked "abstain" or on which a broker-dealer has declined to vote on any proposal ("broker non-votes") will be counted as present for the purposes of determining a quorum. Merrill Lynch has advised the Funds that it intends to exercise discretion over shares held in its name for which no instructions have been received by voting such shares on proposals 2, 3 and (in the case of MuniYield New York Insured II) 4 in the same proportion as it has voted such shares for which it has received instructions. However, abstentions and broker non-votes will not be counted as votes cast. Abstentions and broker non-votes will not have an effect on the vote on proposals 2, 3 and (in the case of MuniYield New York Insured II) 4; however, abstentions and broker non-votes will have the same effect as a vote against proposal 1. This Proxy Statement and Prospectus does not contain all of the information set forth in the registration statement and the exhibits relating thereto which MuniYield New York Insured II has filed with the Commission under the Securities Act and the Investment Company Act, to which reference is hereby made. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III are subject to the informational requirements of the Securities Exchange Act, and in accordance therewith file reports and other information with the Commission. Reports, proxy statements, registration statements and other information filed by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III can be inspected and copied at the public reference facilities of the Commission in Washington, D.C. and at the New York Regional Office of the Commission at Seven World Trade Center, New York, New York 10048. Copies of such materials also can be obtained by mail from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates. CUSTODIAN The Bank of New York acts as the custodian for cash and securities of MuniVest New York Insured. The principal business address of The Bank of New York in such capacity is 90 Washington Street, New York, New York 10286. State Street Bank and Trust Company acts as the custodian for cash and securities of MuniYield New York Insured II and MuniYield New York Insured III. The principal business address of State Street Bank and Trust Company in such capacity is One Heritage Drive, P2N, North Quincy, Massachusetts 02171. TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR The Bank of New York serves as the transfer agent, dividend disbursing agent and registrar with respect to the MuniVest New York Insured Common Stock, pursuant to a registrar, transfer agency and service 82 87 agreement with the Fund. The principal business address of The Bank of New York in such capacity is 101 Barclay Street, New York, New York 10286. Boston EquiServe serves as the transfer agent, dividend disbursing agent and registrar with respect to the MuniYield New York Insured II Common Stock and the MuniYield New York Insured III Common Stock, at the same rate for each Fund, pursuant to separate registrar, transfer agency and service agreements with each of the Funds. The principal business address of Boston EquiServe in such capacity is 150 Royall Street, Canton, Massachusetts 02021. IBJ Schroder Bank and Trust Company serves as the transfer agent, registrar and auction agent to MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, in connection with their respective AMPS, at the same rate for each Fund, pursuant to separate registrar, transfer agency and service agreements with each of the Funds. The principal business address of IBJ Schroder Bank and Trust Company is One State Street, New York, New York 10004. LEGAL PROCEEDINGS There are no material legal proceedings to which MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III is a party. LEGAL OPINIONS Certain legal matters in connection with the Reorganization will be passed upon for MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III by Brown & Wood LLP, New York, New York. Brown & Wood LLP will rely as to matters of Maryland law on the opinion of Wilmer, Cutler & Pickering, Baltimore, Maryland. EXPERTS The financial statements as of October 31, 1995 of MuniVest New York Insured included in this Proxy Statement and Prospectus have been so included in reliance on the reports of Ernst & Young LLP, independent auditors, given on their authority as experts in auditing and accounting. The principal business address of Ernst & Young LLP is 202 Carnegie Center, Princeton, New Jersey 08543. The financial statements as of October 31, 1995 of MuniYield New York Insured II included in this Proxy Statement and Prospectus have been so included in reliance on the reports of Deloitte & Touche LLP, independent auditors, given on their authority as experts in auditing and accounting. The principal business address of Deloitte & Touche LLP is 117 Campus Drive, Princeton, New Jersey 08540. The financial statements as of October 31, 1995 of MuniYield New York Insured III included in this Proxy Statement and Prospectus have been so included in reliance on the reports of Ernst & Young LLP, independent auditors, given on their authority as experts in auditing and accounting. 83 88 STOCKHOLDER PROPOSALS If a stockholder of any of the Funds intends to present a proposal at the 1997 Annual Meeting of Stockholders of any of the Funds, all of which are anticipated to be held in June, 1997, and desires to have the proposal included in the Fund's proxy statement and form of proxy for that meeting, the stockholder must deliver the proposal to the offices of the appropriate Fund by February 15, 1997. By Order of the Boards of Directors MARK B. GOLDFUS Secretary of each of the Funds 84 89 INDEX TO FINANCIAL STATEMENTS PAGE ---- Audited Financial Statements for MuniVest New York Insured for the Fiscal Year Ended October 31, 1995................................................................... F- 2 Unaudited Financial Statements for MuniVest New York Insured for the Six-Month Period Ended April 30, 1996............................................................... F-12 Audited Financial Statements for MuniYield New York Insured II for the Fiscal Year Ended October 31, 1995............................................................. F-20 Unaudited Financial Statements for MuniYield New York Insured II for the Six-Month Period Ended April 30, 1996........................................................ F-30 Audited Financial Statements for MuniYield New York Insured III for the Fiscal Year Ended October 31, 1995............................................................. F-38 Unaudited Financial Statements for MuniYield New York Insured III for the Six-Month Period Ended April 30, 1996........................................................ F-48 Unaudited Financial Statements for the Combined Fund on a Pro Forma Basis as of April 30, 1996........................................................................... F-56 F-1 90 AUDITED FINANCIAL STATEMENTS FOR MUNIVEST NEW YORK INSURED FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995 F-2 91 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors, MuniVest New York Insured Fund, Inc. We have audited the accompanying statement of assets, liabilities and capital of MuniVest New York Insured Fund, Inc., including the schedule of investments, as of October 31, 1995, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MuniVest New York Insured Fund, Inc. at October 31, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. Ernst & Young LLP Princeton, New Jersey November 30, 1995 F-3 92 MuniVest New York Insured Fund, Inc., October 31, 1995 SCHEDULE OF INVESTMENTS (in Thousands) S&P Moody's Face Value STATE Ratings Ratings Amount Issue (Note 1a) New York--98.5% Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds: AAA Aaa $ 2,990 Refunding, Series A, 6.125% due 7/01/2012 (e) $ 3,113 BBB Baa1 1,000 (Service Contract), Series P, 5.75% due 7/01/2015 962 AAA Aaa 5,000 Metropolitan Transportation Authority, New York, Transport Facilities Revenue Bonds, Series O, 6.375% due 7/01/2020 (e) 5,295 A1+ NR* 1,000 Nassau County, New York, IDA, Civic Facilities Revenue Bonds (Cold Spring Harbor Laboratory Project), VRDN, 3.95% due 7/01/2019 (a) 1,000 AAA Aaa 3,685 Nassau County, New York, UT, Series P, 6.50% due 11/01/2011 (b) 4,028 AAA Aaa 2,000 New York City, New York, Educational Construction Fund Revenue Bonds, Senior Sub-Series B, 5.625% due 4/01/2013 (e) 2,005 AAA Aaa 5,000 New York City, New York, IDA, Civic Facilities Revenue Bonds (USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 5,295 A1+ NR* 400 New York City, New York, IDA, IDR, (Japan Airlines Company Ltd. Project) VRDN, AMT, 4% due 11/01/2015 (a) 400 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds (e): AAA Aaa 3,000 Series B, 5.50% due 6/15/2019 2,938 AAA Aaa 4,000 Series F, 5.50% due 6/15/2023 3,895 New York City, New York, UT, Series B (Fiscal 92): BBB+ Baa1 5,000 7.50% due 2/01/2006 5,539 AAA Aaa 2,000 7% due 2/01/2017 (c) 2,226 AAA Aaa 2,000 7% due 2/01/2018 (c) 2,226 New York State Dormitory Authority Revenue Bonds: AAA Aaa 5,915 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2014 (e) 6,539 A1+ VMIG1++ 1,200 (Cornell University), VRDN, Series B, 3.90% due 7/01/2025 (a) 1,200 AAA Aaa 1,500 Refunding (State University Educational Facilities), Series A, 5.50% due 5/15/2010 (b) 1,521 AAA Aaa 4,500 Refunding (State University Educational Facilities), Series A, 5.875% due 5/15/2011 (b) 4,713 AAA Aaa 4,315 (Saint Vincent's Hospital and Medical Center), 5.80% due 8/01/2025 (c) (d) 4,296 AAA Aaa 1,380 (State University Educational Facilities), Series A, 5.875% due 5/15/2011 (c) 1,445 AAA Aaa 6,640 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (e) 7,085 A1+ NR* 1,000 New York State Energy Research and Development Authority, PCR (Niagara Power Corporation Project), VRDN, AMT, Series B, 3.95% due 7/01/2027 (a) 1,000 AAA Aaa 3,585 New York State HFA, M/F Housing Secured Mortgage Revenue Bonds, Series A, 6.30% due 8/15/2026 (c) 3,656 A Aaa 8,000 New York State Local Government Assistance Corporation Revenue Bonds, Series A, 7.125% due 4/01/2002 (g) 9,289 New York State Medical Care Facilities, Finance Agency Revenue Bonds: AAA Aaa 4,000 (Mental Health Services Facilities), Series C, 5.25% due 8/15/2014 (b) 3,776 AAA Aaa 3,500 (Montefiore Medical Center), Series A, 5.75% due 2/15/2025 (c) (d) 3,456 AAA Aaa 4,600 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (c) (d) 5,022 AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (c) (d) 2,128 F-4 93 AAA Aaa 3,500 Refunding (Mental Health Services Facilities), Series F, 5.25% due 2/15/2019 (e) 3,260 AAA Aaa 3,000 New York State Thruway Authority, General Revenue Bonds, Series A, 5.50% due 1/01/2023 (b) 2,921 New York State Urban Development Corporation, Revenue Refunding Bonds: BBB Baa1 2,360 (Correctional Facilities), 5.50% due 1/01/2015 2,209 AAA Aaa 10,000 (Correctional Facilities), Series A, 6.50% due 1/01/2010 (f) 11,026 AAA Aaa 5,000 (Correctional Facilities), Series A, 5% due 1/01/2017 (c) 4,613 BBB Baa1 2,000 (Onondaga County Convention Project), 6.25% due 1/01/2020 2,013 AAA Aaa 1,000 Niagara Falls, New York, Water Treatment Plant, UT, AMT, 7.25% due 11/01/2010 (e) 1,167 Port Authority of New York and New Jersey, Consolidated Bonds: AAA Aaa 3,000 72nd Series, 7.40% due 10/01/2012 (c) 3,457 AAA Aaa 3,185 Refunding, UT, AMT, 97th Series, 6.50% due 7/15/2019 (b) 3,375 A1+ VMIG1++ 100 Port Authority of New York and New Jersey, Special Obligation Revenue Bonds (Versatile Structure Obligation), VRDN, Series 2, 3.60% due 5/01/2019 (a) 100 A1+ VMIG1++ 1,800 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal Syracuse University Project), VRDN, 3.90% due 3/01/2023 (a) 1,800 Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Refunding Bonds: AAA Aaa 5,475 Series A, 6.625% due 1/01/2017 (e) 5,903 AAA Aaa 5,150 Series B, 6.875% due 1/01/2015 (c) 5,650 Total Investments (Cost--$133,117)--98.5% 141,542 Other Assets Less Liabilities--1.5% 2,140 -------- Net Assets--100.0% $143,682 ======== <FN> (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 1995. (b)FGIC Insured. (c)AMBAC Insured. (d)FHA Insured. (e)MBIA Insured. (f)FSA Insured. (g)Prerefunded. *Not Rated. ++Highest short-term rating by Moody's Investors Service, Inc. Ratings of issues shown have not been audited by Ernst & Young LLP. See Notes to Financial Statements. Portfolio Abbreviations To simplify the listings of MuniVest New York Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) HFA Housing Finance Agency IDA Industrial Development Authority IDR Industrial Development Revenue Bonds M/F Multi-Family PCR Pollution Control Revenue Bonds UT Unlimited Tax VRDN Variable Rate Demand Notes F-5 94 MuniVest New York Insured Fund, Inc., October 31, 1995 STATEMENT OF ASSETS, LIABILITIES AND CAPITAL As of October 31, 1995 Assets: Investments, at value (identified cost--$133,117,293) (Note 1a) $141,541,932 Cash 16,905 Interest receivable 2,417,981 Deferred organization expense (Note 1e) 15,660 Prepaid expenses and other assets 6,162 ------------ Total assets 143,998,640 ------------ Liabilities: Payables: Dividends to shareholders (Note 1f) $ 181,481 Investment adviser (Note 2) 58,860 240,341 ------------ Accrued expenses and other liabilities 76,122 ------------ Total liabilities 316,463 ------------ Net Assets: Net assets $143,682,177 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.10 per share (1,960 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $ 49,000,000 Common Stock, par value $.10 per share (7,204,432 shares issued and outstanding) $ 720,443 Paid-in capital in excess of par 100,237,381 Undistributed investment income--net 532,766 Accumulated realized capital losses on investments--net (Note 5) (15,233,052) Unrealized appreciation on investments--net 8,424,639 ------------ Total--Equivalent to $13.14 net asset value per share of Common Stock (market price--$12.00) 94,682,177 ------------ Total capital $143,682,177 ============ <FN> *Auction Market Preferred Stock. See Notes to Financial Statements. F-6 95 STATEMENT OF OPERATIONS For the Year Ended October 31, 1995 Investment Interest and amortization of premium and discount earned $ 8,281,991 Income (Note 1d): Expenses: Investment advisory fees (Note 2) $ 694,712 Commission fees (Note 4) 124,283 Professional fees 76,825 Printing and shareholder reports 41,712 Transfer agent fees 37,045 Accounting services (Note 2) 22,673 Directors' fees and expenses 22,627 Listing fees 16,170 Custodian fees 13,211 Pricing fees 6,473 Amortization of organization expenses (Note 1e) 6,275 Other 10,918 ---------- Total expenses before reimbursement 1,072,924 Reimbursement of expenses (Note 2) (34,961) ---------- Total expenses after reimbursement 1,037,963 ----------- Investment income--net 7,244,028 ----------- Realized & Realized loss on investments--net (8,401,860) Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 18,187,404 (Loss) on ----------- Investments--Net Net Increase in Net Assets Resulting from Operations $17,029,572 (Notes 1b, 1d =========== & 3): See Notes to Financial Statements. F-7 96 MuniVest New York Insured Fund, Inc., October 31, 1995 STATEMENTS OF CHANGES IN NET ASSETS For the Year Ended October 31, Increase (Decrease) in Net Assets: 1995 1994 Operations: Investment income--net $ 7,244,028 $ 7,389,100 Realized loss on investments--net (8,401,860) (6,831,186) Change in unrealized appreciation/depreciation on investments--net 18,187,404 (15,186,065) ------------ ------------ Net increase (decrease) in net assets resulting from operations 17,029,572 (14,628,151) ------------ ------------ Dividends & Investment income--net: Distributions to Common Stock (5,428,929) (6,182,613) Shareholders Preferred Stock (1,838,960) (1,194,786) (Note 1f): Realized gain on investments--net: Common Stock -- (267,833) Preferred Stock -- (42,571) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (7,267,889) (7,687,803) ------------ ------------ Capital Stock Offering and underwriting costs resulting from the issuance of Transactions Preferred Stock -- 23,256 (Notes 1e & 4): Value of shares issued to Common Stock shareholders in reinvestment of dividends and distributions -- 933,698 ------------ ------------ Net increase in net assets derived from capital stock transactions -- 956,954 ------------ ------------ Net Assets: Total increase (decrease) in net assets 9,761,683 (21,359,000) Beginning of year 133,920,494 155,279,494 ------------ ------------ End of year* $143,682,177 $133,920,494 ============ ============ <FN> *Undistributed investment income--net $ 532,766 $ 556,627 ============ ============ See Notes to Financial Statements. FINANCIAL HIGHLIGHTS For the Period The folowing per share data and ratios have been derived April 30, from information provided in the financial statements. For the Year Ended 1993++ to October 31, Oct. 31, Increase (Decrease) in Net Asset Value: 1995 1994 1993 Per Share Net asset value, beginning of period $ 11.79 $ 14.90 $ 14.18 Operating -------- -------- -------- Performance: Investment income--net 1.00 1.03 .48 Realized and unrealized gain (loss) on investments--net 1.36 (3.06) .80 -------- -------- -------- F-8 97 Total from investment operations 2.36 (2.03) 1.28 -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.75) (.86) (.34) Realized gain on investments--net -- (.04) -- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.75) (.90) (.34) -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- (.03) -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends and distributions to Preferred Stock shareholders: Investment income--net (.26) (.17) (.06) Realized gain on investments--net -- (.01) -- Capital charge resulting from issuance of Preferred Stock -- -- (.13) -------- -------- -------- Total effect of Preferred Stock activity (.26) (.18) (.19) -------- -------- -------- Net asset value, end of period $ 13.14 $ 11.79 $ 14.90 ======== ======== ======== Market price per share, end of period $ 12.00 $ 10.50 $ 14.75 ======== ======== ======== Total Investment Based on market price per share 21.97% (23.65%) .59%+++ Return:** ======== ======== ======== Based on net asset value per share 18.94% (15.13%) 7.49%+++ ======== ======== ======== Ratios to Average Expenses, net of reimbursement .75% .64% .35%* Net Assets:*** ======== ======== ======== Expenses .77% .74% .79%* ======== ======== ======== Investment income--net 5.22% 5.06% 4.75%* ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 94,682 $ 84,920 $106,279 Data: ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $ 49,000 $ 49,000 $ 49,000 ======== ======== ======== Portfolio turnover 192.08% 74.77% 10.81% ======== ======== ======== Dividends Investment income--net $ 938 $ 610 $ 242 Per Share on Preferred Stock Outstanding:++++++ <FN> *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++Commencement of Operations. ++++The Fund's Preferred Stock was issued on June 1, 1993. ++++++Dividends per share have been adjusted to reflect a two-for-one stock split. +++Aggregate total investment return. See Notes to Financial Statements. F-9 98 MuniVest New York Insured Fund, Inc., October 31, 1995 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniVest New York Insured Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MVY. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily avail- able are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valua- tions furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the con- tract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the require- ments of the Internal Revenue Code applicable to regulated invest- ment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax pro- vision is required. (d) Security transactions and investment income--Security trans- actions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Deferred organization and offering expenses--Deferred organiza- tion expenses are amortized on a straight-line basis over a five-year period. Direct expenses relating to the public offering of the Fund's Common and Preferred Stock were charged to capital at the time of issuance of the shares. F-10 99 (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. For the year ended October 31, 1995, FAM earned fees of $694,712, of which $34,961 was voluntarily waived. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1995 were $256,905,684 and $246,827,975, respectively. Net realized and unrealized gains (losses) as of October 31, 1995 were as follows: Realized Unrealized Losses Gains Long-term investments $(6,802,585) $8,424,639 Financial futures contracts (1,599,275) -- ----------- ---------- Total $(8,401,860) $8,424,639 =========== ========== As of October 31, 1995, net unrealized appreciation for Federal income tax purposes aggregated $8,424,639, of which $8,432,656 related to appreciated securities and $8,017 related to depreciated securities. The aggregate cost of investments at October 31, 1995 for Federal income tax purposes was $133,117,293. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of holders of Common Stock. Common Stock For the year ended October 31, 1995, shares issued and outstanding remained constant at 7,204,432. At October 31, 1995, total paid-in capital amounted to $100,957,824. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yield in effect at October 31, 1995 was 3.70%. A two-for-one stock split occurred on December 1, 1994. As a result, as of October 31, 1995, there were 1,960 AMPS authorized, issued and outstanding with a liquidation preference of $25,000 per share, plus accumulated and unpaid dividends of $24,836. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction. For the year ended October 31, 1995, MLPF&S, an affiliate of FAM, earned $101,497 as commissions. 5. Capital Loss Carryforward: At October 31, 1995, the Fund had a capital loss carryforward of approximately $13,810,000, of which $6,831,000 expires in 2002 and $6,979,000 expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On November 13, 1995, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $0.062339 per share, payable on November 29, 1995 to shareholders of record as of November 24, 1995. F-11 100 UNAUDITED FINANCIAL STATEMENTS FOR MUNIVEST NEW YORK INSURED FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1996 F-12 101 MuniVest New York Insured Fund, Inc., April 30, 1996 SCHEDULE OF INVESTMENTS (in Thousands) S&P Moody's Face Value STATE Ratings Ratings Amount Issue (Note 1a) New York--105.8% AAA Aaa $ 2,000 Battery Park City Authority, New York, Revenue Refunding Bonds, Senior Series A, 5.70% due 11/01/2020 (e) $ 1,926 AAA Aaa 2,400 Clifton Park, New York, Water Authority, Water System Revenue Bonds, Series A, 6.375% due 10/01/2002 (b) (g) 2,652 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds: AAA Aaa 3,500 (Grand Central Terminal), Series 1, 5.70% due 7/01/2024 (f) 3,372 AAA Aaa 2,990 Refunding, Series A, 6.125% due 7/01/2012 (e) 3,076 AAA Aaa 5,000 Metropolitan Transportation Authority, New York, Transport Facilities Revenue Bonds, Series O, 6.375% due 7/01/2020 (e) 5,152 AAA Aaa 3,685 Nassau County, New York, UT, Series P, 6.50% due 11/01/2011 (b) 4,026 AAA Aaa 2,000 New York City, New York, Educational Construction Fund Revenue Bonds, Senior Sub-Series B, 5.625% due 4/01/2013 (e) 1,973 AAA Aaa 5,000 New York City, New York, IDA, Civic Facilities Revenue Bonds (USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 5,220 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds: AAA Aaa 2,000 Series B, 5.375% due 6/15/2019 (e) 1,847 AAA Aaa 2,340 Series B, 5.50% due 6/15/2019 (c) 2,203 AAA Aaa 3,000 Series B, 5.50% due 6/15/2019 (e) 2,824 AAA VMIG1++ 3,900 VRDN, Series A, 4.20% due 6/15/2025 (a) (b) 3,900 AAA VMIG1++ 970 VRDN, Series C, 4% due 6/15/2023 (a) (b) 970 AAA VMIG1++ 6,800 VRDN, Series G, 4.10% due 6/15/2024 (a) (b) 6,800 A1+ VMIG1++ 3,700 New York City, New York, Trust Cultural Resource Revenue Bonds (Solomon R. Guggenheim), VRDN, Series B, 4.10% due 12/01/2015 (a) 3,700 New York City, New York, UT, Series B (Fiscal 92): BBB+ Baa1 5,000 7.50% due 2/01/2006 5,480 AAA Aaa 2,000 7% due 2/01/2017 (c) 2,171 AAA Aaa 2,000 7% due 2/01/2018 (c) 2,171 New York City, New York, UT, Series C, Sub-Series C-1 (e) (g): AAA Aaa 5,625 6.375% due 8/01/2002 6,190 AAA Aaa 4,455 6.375% due 8/01/2002 4,902 New York State Dormitory Authority Revenue Bonds: AAA Aaa 5,915 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2014 (e) 6,414 A1+ VMIG1++ 3,100 (Cornell University), VRDN, Series B, 4.10% due 7/01/2025 (a) 3,100 BBB Baa1 5,000 (Department of Health), 5.75% due 7/01/2017 4,636 AAA Aaa 1,500 Refunding (State University Educational Facilities), Series A, 5.50% due 5/15/2010 (b) 1,496 AAA Aaa 4,500 Refunding (State University Educational Facilities), Series A, 5.875% due 5/15/2011 (b) 4,627 AAA Aaa 4,315 (Saint Vincent's Hospital and Medical Center), 5.80% due 8/01/2025 (c) (d) 4,179 AAA Aaa 1,380 (State University Educational Facilities), Series A, 5.875% due 5/15/2011 (c) 1,419 AAA Aaa 5,000 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (e) 5,286 BBB Baa1 5,910 New York State HFA, Service Contract Obligation Revenue Bonds, Series A, 5.50% due 9/15/2022 5,243 A1+ VMIG1++ 2,000 New York State Local Government Assistance Corporation, VRDN, Series B, 4.10% due 4/01/2025 (a) 2,000 F-13 102 MuniVest New York Insured Fund, Inc., April 30, 1996 SCHEDULE OF INVESTMENTS (concluded) (in Thousands) S&P Moody's Face Value STATE Ratings Ratings Amount Issue (Note 1a) New York State Medical Care Facilities Finance Agency Revenue Bonds: AAA Aaa 4,600 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (c) (d) 4,930 AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (c) (d) 2,079 AAA Aaa 4,000 Refunding (Mental Health Services), Series F, 5.25% due 2/15/2021 (f) 3,591 New York New York State Urban Development Corporation Revenue Bonds: (concluded) AAA Aaa $ 6,000 Refunding (Correctional Facilities), Series A, 5% due 1/01/2017 (c) $ 5,301 AAA Aaa 4,000 (Sports Facilities Assistance Program), Series A, 5.50% due 4/01/2019 (e) 3,757 AAA Aaa 1,000 Niagara Falls, New York, Water Treatment Plant, UT, AMT, 7.25% due 11/01/2010 (e) 1,154 Port Authority of New York and New Jersey, Consolidated Revenue Bonds (c): AAA Aaa 3,000 72nd Series, 7.40% due 10/01/2012 3,372 AAA Aaa 3,000 104th Series, Third Installment, 4.75% due 1/15/2026 2,497 A1+ VMIG1++ 1,300 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal Syracuse University Project), VRDN, 4.10% due 3/01/2023 (a) 1,300 Triborough Bridge and Tunnel Authority, New York, Special Obligation Refunding Bonds: AAA Aaa 5,475 Series A, 6.625% due 1/01/2017 (e) 5,798 AAA Aaa 5,150 Series B, 6.875% due 1/01/2015 (c) 5,537 Total Investments (Cost--$144,656)--105.8% 148,271 Liabilities in Excess of Other Assets--(5.8%) (8,083) -------- Net Assets--100.0% $140,188 ======== <FN> (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 1996. (b)FGIC Insured. (c)AMBAC Insured. (d)FHA Insured. (e)MBIA Insured. (f)FSA Insured. (g)Prerefunded. ++Highest short-term rating by Moody's Investors Service, Inc. See Notes to Financial Statements. Portfolio Abbreviations To simplify the listings of MuniVest New York Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) HFA Housing Finance Agency IDA Industrial Development Authority UT Unlimited Tax VRDN Variable Rate Demand Notes F-14 103 STATEMENT OF ASSETS, LIABILITIES AND CAPITAL As of April 30, 1996 Assets: Investments, at value (identified cost--$144,656,130) (Note 1a) $148,271,406 Cash 96,615 Receivables: Securities sold $ 3,701,344 Interest 2,332,396 6,033,740 ------------ Deferred organization expense (Note 1e) 15,660 Prepaid expenses and other assets 6,404 ------------ Total assets 154,423,825 ------------ Liabilities: Payables: Securities purchased 13,922,234 Dividends to shareholders (Note 1f) 185,827 Investment adviser (Note 2) 57,767 14,165,828 ------------ Accrued expenses and other liabilities 69,731 ------------ Total liabilities 14,235,559 ------------ Net Assets: Net assets $140,188,266 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.10 per share (1,960 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $ 49,000,000 Common Stock, par value $.10 per share (7,204,432 shares issued and outstanding) $ 720,443 Paid-in capital in excess of par 100,237,381 Undistributed investment income--net 496,565 Accumulated realized capital losses on investments--net (Note 5) (13,881,399) Unrealized appreciation on investments--net 3,615,276 ------------ Total--Equivalent to $12.66 net asset value per share of Common Stock (market price--$11.875) 91,188,266 ------------ Total capital $140,188,266 ============ <FN> *Auction Market Preferred Stock. See Notes to Financial Statements. F-15 104 MuniVest New York Insured Fund, Inc., April 30, 1996 STATEMENT OF OPERATIONS For the Six Months Ended April 30, 1996 Investment Interest and amortization of premium and discount earned $ 4,060,417 Income (Note 1d): Expenses: Investment advisory fees (Note 2) $ 360,184 Commission fees (Note 4) 61,864 Professional fees 39,417 Printing and shareholder reports 19,239 Transfer agent fees 17,617 Accounting services (Note 2) 15,812 Directors' fees and expenses 11,452 Listing fees 8,052 Custodian fees 5,723 Pricing fees 3,297 Amortization of organization expenses (Note 1e) 3,133 Other 6,943 ------------ Total expenses 552,733 ------------ Investment income--net 3,507,684 ------------ Realized & Unreal- Realized gain on investments 1,351,653 ized Gain (Loss) on Change in unrealized appreciation on investments--net (4,809,363) Investments--Net ------------ (Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 49,974 ============ See Notes to Financial Statements. STATEMENTS OF CHANGES IN NET ASSETS For the Six For the Months Ended Year Ended April 30, October 31, Increase (Decrease) in Net Assets: 1996 1995 Operations: Investment income--net $ 3,507,684 $ 7,244,028 Realized gain (loss) on investments--net 1,351,653 (8,401,860) Change in unrealized appreciation/depreciation on investments--net (4,809,363) 18,187,404 ------------ ------------ Net increase in net assets resulting from operations 49,974 17,029,572 ------------ ------------ Dividends to Investment income--net: Shareholders Common Stock (2,704,926) (5,428,929) (Note 1f): Preferred Stock (838,959) (1,838,960) ------------ ------------ Net decrease in net assets resulting from dividends to shareholders (3,543,885) (7,267,889) ------------ ------------ Net Assets: Total increase (decrease) in net assets (3,493,911) 9,761,683 Beginning of period 143,682,177 133,920,494 ------------ ------------ End of period* $140,188,266 $143,682,177 ============ ============ <FN> *Undistributed investment income--net $ 496,565 $ 532,766 ============ ============ See Notes to Financial Statements. F-16 105 FINANCIAL HIGHLIGHTS For the For the Six Period The following per share data and ratios have been derived Months April 30, from information provided in the financial statements. Ended For the Year Ended 1993++ to April 30, October 31, Oct. 31, Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 Per Share Net asset value, beginning of period $ 13.14 $ 11.79 $ 14.90 $ 14.18 Operating -------- -------- -------- -------- Performance: Investment income--net .49 1.00 1.03 .48 Realized and unrealized gain (loss) on investments--net (.47) 1.36 (3.06) .80 -------- -------- -------- -------- Total from investment operations .02 2.36 (2.03) 1.28 -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.38) (.75) (.86) (.34) Realized gain on investments--net -- -- (.04) -- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.38) (.75) (.90) (.34) -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- -- (.03) -------- -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends and distributions to Preferred Stock shareholders: Investment income--net (.12) (.26) (.17) (.06) Realized gain on investments--net -- -- (.01) -- Capital charge resulting from issuance of Preferred Stock -- -- -- (.13) -------- -------- -------- -------- Total effect of Preferred Stock activity (.12) (.26) (.18) (.19) -------- -------- -------- -------- Net asset value, end of period $ 12.66 $ 13.14 $ 11.79 $ 14.90 ======== ======== ======== ======== Market price per share, end of period $ 11.875 $ 12.00 $ 10.50 $ 14.75 ======== ======== ======== ======== Total Investment Based on market price per share 2.05%+++ 21.97% (23.65%) .59%+++ Return:** ======== ======== ======== ======== Based on net asset value per share (.65%)+++ 18.94% (15.13%) 7.49%+++ ======== ======== ======== ======== Ratios to Average Expenses, net of reimbursement .76%* .75% .64% .35%* Net Assets:*** ======== ======== ======== ======== Expenses .76%* .77% .74% .79%* ======== ======== ======== ======== Investment income--net 4.85%* 5.22% 5.06% 4.75%* ======== ======== ======== ======== Supplemental Net assets, net of Preferred Stock, Data: end of period (in thousands) $ 91,188 $ 94,682 $ 84,920 $106,279 ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $ 49,000 $ 49,000 $ 49,000 $ 49,000 ======== ======== ======== ======== Portfolio turnover 75.53% 192.08% 74.77% 10.81% ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $ 2,861 $ 2,932 $ 2,733 $ 3,169 ======== ======== ======== ======== Dividends Investment income--net $ 428 $ 938 $ 610 $ 242 Per Share on ======== ======== ======== ======== Preferred Stock Outstanding:++++++ <FN> *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++Commencement of Operations. ++++The Fund's Preferred Stock was issued on June 1, 1993. ++++++Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. +++Aggregate total investment return. See Notes to Financial Statements. F-17 106 MuniVest New York Insured Fund, Inc., April 30, 1996 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniVest New York Insured Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. These unaudited finan- cial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal recur- ring nature. The Fund determines and makes available for publica- tion the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MVY. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily avail- able are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valua- tions furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the con- tract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the require- ments of the Internal Revenue Code applicable to regulated invest- ment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax pro- vision is required. (d) Security transactions and investment income--Security trans- actions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. F-18 107 (e) Deferred organization expenses--Deferred organization expenses are amortized on a straight-line basis over a five-year period. (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended April 30, 1996 were $104,168,877 and $109,980,495, respectively. Net realized and unrealized gains as of April 30, 1996 were as follows: Realized Unrealized Gains Gains Long-term investments $1,145,578 $3,615,276 Financial futures contracts 206,075 -- ---------- ---------- Total $1,351,653 $3,615,276 ========== ========== As of April 30, 1996, net unrealized appreciation for Federal income tax purposes aggregated $3,615,276, of which $4,596,696 related to appreciated securities and $981,420 related to depreciated securities. The aggregate cost of investments at April 30, 1996 for Federal income tax purposes was $144,656,130. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of holders of Common Stock. Common Stock For the six months ended April 30, 1996, shares issued and outstand- ing remained constant at 7,204,432. At April 30, 1996, total paid-in capital amounted to $100,957,824. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yield in effect at April 30, 1996 was 3.85%. As of April 30, 1996, there were 1,960 AMPS authorized, issued and outstanding with a liquidation preference of $25,000 per share, plus accumulated and unpaid dividends of $25,844. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction. For the six months ended April 30, 1996, MLPF&S, an affiliate of FAM, earned $37,228 as commissions. 5. Capital Loss Carryforward: At October 31, 1995, the Fund had a net capital loss carryforward of approximately $13,810,000, of which $6,831,000 expires in 2002, and $6,979,000 expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On May 10, 1996, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $0.057601 per share, payable on May 30, 1996 to shareholders of record as of May 21, 1996. F-19 108 AUDITED FINANCIAL STATEMENTS FOR MUNIYIELD NEW YORK INSURED II FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995 F-20 109 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of MuniYield New York Insured Fund II, Inc.: We have audited the accompanying statement of assets, liabilities and capital, including the schedule of investments, of MuniYield New York Insured Fund II, Inc. as of October 31, 1995, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the three-year period then ended and the period June 26, 1992 (commencement of operations) to October 31, 1992. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at October 31, 1995 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of MuniYield New York Insured Fund II, Inc. as of October 31, 1995, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey December 1, 1995 F-21 110 MuniYield New York Insured Fund II, Inc. October 31, 1995 SCHEDULE OF INVESTMENTS (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) New York--100.6% Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Refunding Bonds, Series B (c): AAA Aaa $10,000 6.25% due 7/01/2017 $ 10,371 AAA Aaa 8,650 6.25% due 7/01/2022 8,941 Monroe County, New York, Public Improvement, UT (d): AAA Aaa 2,000 6.15% due 6/01/2016 2,103 AAA Aaa 1,000 6.15% due 6/01/2017 1,048 AAA Aaa 3,250 Nassau County, New York, GO, UT, Series P, 6.50% due 11/01/2010 (b) 3,563 AAA Aaa 1,100 New Rochelle, New York, GO, UT, Series B, 6.15% due 8/15/2018 (c) 1,154 BBB+ Baa1 5,000 New York City, New York, GO, Series D, 6% due 2/15/2025 4,832 New York City, New York, IDA, Civic Facilities Revenue Bonds: A1+ NR* 1,800 (National Audobon Society), VRDN, 3.90% due 12/01/2014 (a) 1,800 AAA Aaa 5,000 (USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 5,295 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds: AAA Aaa 3,500 Series A, 6.25% due 6/15/2021 (b) 3,589 AAA Aaa 2,480 Series A-1994, 7% due 6/15/2015 (b) 2,742 AAA Aaa 2,520 Series A-1994, 7% due 6/15/2001 (b)(h) 2,865 AAA Aaa 5,000 Series B, 5.50% due 6/15/2019 (c) 4,896 A1+ VMIG1++ 7,900 New York City, New York, Trust Cultural Resource Revenue Bonds (Solomon R. Guggenheim), VRDN, Series B, 3.90% due 12/01/2015 (a) 7,900 New York State Dormitory Authority Revenue Bonds: AAA Aaa 1,000 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2014 (c) 1,105 AAA Aaa 2,825 (Consolidated City University System), Second Generation, Series A, 5.75% due 7/01/2013 (b) 2,901 A1+ VMIG1++ 1,000 (Cornell University), VRDN, Series B, 3.90% due 7/01/2025 (a) 1,000 AAA Aaa 1,750 Refunding (Mount Sinai School of Medicine), 6.75% due 7/01/2009 (c) 1,926 BBB+ Baa1 2,000 Refunding (State University Educational Facilities), Series B, 7% due 5/15/2016 2,137 AAA Aaa 1,050 (Saint John's University), 6.875% due 7/01/2011 (d) 1,161 AA- Aa 2,400 (Vassar College), 7.25% due 7/01/2015 2,668 PORTFOLIO ABBREVIATIONS To simplify the listing of MuniYield New York Insured Fund II, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation GO General Obligation Bonds HFA Housing Finance Agency IDA Industrial Development Agency M/F Muli-Family PCR Pollution Control Revenue Bonds UT Unlimited Tax VRDN Variable Rate Demand Notes F-22 111 MuniYield New York Insured Fund II, Inc. October 31, 1995 SCHEDULE OF INVESTMENTS (continued) (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) New York (continued) New York State Energy Research and Development Authority, Facilities Revenue Bonds (Con Edison Company Inc.), AMT, Series A: AAA Aaa $ 4,450 6.75% due 1/15/2027 (c) $ 4,668 AAA Aaa 3,250 6.75% due 1/15/2027 (d) 3,409 AAA Aaa 10,000 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (c) 10,669 A1+ NR* 3,800 New York State Energy Research and Development Authority, PCR (Niagara Mohawk Power Corporation Project), VRDN, AMT, Series B, 3.95% due 7/01/2027 (a) 3,800 A1+ NR* 700 New York State Environmental Facilities Corporation, Resource Recovery Revenue Bonds (OFS Equity Huntington Project), VRDN, AMT, 4.10% due 11/01/2014 (a) 700 AAA Aaa 1,325 New York State Environmental Facilities Corporation, Water Facilities Revenue Bonds (New Rochelle Water Company Inc. Project), AMT, 6.40% due 12/01/2024 (d) 1,381 AAA Aa 1,000 New York State HFA, M/F Mortgage Housing Insured Revenue Refunding Bonds, Series C, 6.45% due 8/15/2014 (e) 1,032 A A 3,250 New York State Local Government Assistance Corporation, Revenue Refunding Bonds, Series B, 5.50% due 4/01/2021 3,125 New York State Medical Care Facilities, Finance Agency Revenue Bonds: AAA Aaa 2,330 (Mental Health), Series F, 6.50% due 8/15/2012 (g) 2,472 AAA Aaa 9,805 (Mental Health Services Facilities Improvement), Series D, 5.90% due 8/15/2022 (d) 9,844 AAA Aaa 10,765 (Montefiore Medical Center), Series A, 5.75% due 2/15/2025 (d)(e) 10,629 AAA Aaa 6,250 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (d)(e) 6,823 AAA Aaa 8,500 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (d)(e) 9,045 AAA Aaa 5,200 Refunding (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (c) 5,407 AAA Aaa 4,000 Refunding (Mental Health Services), Series F, 5.375% due 2/15/2014 (b) 3,836 AAA Aaa 1,290 Refunding (Mental Health Services), Series F, 5.375% due 2/15/2014 (c) 1,237 AAA Aaa 6,990 Refunding (Mental Health Services), Series F, 5.25% due 2/15/2019 (b) 6,510 AAA Aaa 4,715 New York State Power Authority, General Purpose and Revenue Bonds, Series Y, 6% due 1/01/2020 (d) 4,764 New York State Thruway Authority, General Revenue Bonds: AAA Aaa 4,000 Series A, 5.50% due 1/01/2023 (b) 3,895 AAA Aaa 2,125 Series B, 5% due 1/01/2020 (c) 1,936 AAA Aaa 8,000 New York State Thruway Authority, General Revenue Bonds (Highway and Bridge Trust Fund), UT, Series B, 6.25% due 4/01/2012 (b) 8,457 New York State Urban Development Corporation Revenue Bonds: AAA Aaa 8,675 (Correctional Facilities), 5.375% due 1/01/2012 (c) 8,541 BBB Baa1 12,375 (Correctional Facilities), Series 4, 5.375% due 1/01/2023 11,236 BBB Baa1 3,250 Refunding (Onondaga County Convention Project), 6.25% due 1/01/2020 3,272 NR* Baa 1,870 North Country, New York, Development Authority Revenue Bonds (Solid Waste Management System), Series A, 6.75% due 7/01/1999 (h) 2,054 North Hempstead, New York, Revenue Refunding Bonds, Series B, UT (b): AAA Aaa 1,745 6.40% due 4/01/2013 1,932 AAA Aaa 555 6.40% due 4/01/2017 617 F-23 112 MuniYield New York Insured Fund II, Inc. October 31, 1995 SCHEDULE OF INVESTMENTS (concluded) (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) New York (concluded) Port Authority of New York and New Jersey, Consolidated Revenue Bonds: AA- A1 $ 5,000 69th Series, 7.125% due 6/01/2025 $ 5,464 AA- A1 5,000 72nd Series, 7.35% due 10/01/2027 5,725 Syracuse, New York, COP, Revenue Bonds (Syracuse Hancock International Airport), AMT (b): AAA Aaa 3,650 6.625% due 1/01/2012 3,875 AAA Aaa 3,120 6.50% due 1/01/2017 3,266 A1+ VMIG1++ 1,400 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal Syracuse University Project), VRDN, 3.90% due 3/01/2023 (a) 1,400 Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Refunding Bonds: AAA Aaa 6,575 6.25% due 1/01/2012 (d) 6,925 AAA Aaa 2,000 Series B, 6.875% due 1/01/2015 (c) 2,194 Total Investments (Cost--$222,807)--100.6% 234,137 Liabilities in Excess of Other Assets--(0.6%) (1,482) -------- Net Assets--100.0% $232,655 ======== <FN> (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 1995. (b)FGIC Insured. (c)MBIA Insured. (d)AMBAC Insured. (e)FHA Insured. (f)FSA Insured. (g)CGIC Insured. (h)Prerefunded. *Not Rated. ++Highest short-term rating by Moody's Investors Service, Inc. Ratings of issues shown have not been audited by Deloitte & Touche LLP. See Notes to Financial Statements. F-24 113 MuniYield New York Insured Fund II, Inc. October 31, 1995 FINANCIAL INFORMATION Statement of Assets, Liabilities and Capital as of October 31, 1995 Assets: Investments, at value (identified cost--$222,806,570) (Note 1a) $234,136,617 Cash 111,046 Interest receivable 3,687,706 Deferred organization expenses (Note 1e) 11,523 Prepaid expenses and other assets 9,311 ------------ Total assets 237,956,203 ------------ Liabilities: Payables: Securities purchased $ 4,832,400 Dividends to shareholders (Note 1f) 303,021 Investment adviser (Note 2) 101,521 5,236,942 ------------ Accrued expenses and other liabilities 64,506 ------------ Total liabilities 5,301,448 ------------ Net Assets: Net assets $232,654,755 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.10 per share (2,800 shares of AMPS* issued and outstanding at $25,000 per liquidation preference) $ 70,000,000 Common Stock, par value $.10 per share (11,114,832 shares issued and outstanding) $ 1,111,483 Paid-in capital in excess of par 154,792,338 Undistributed investment income--net 862,691 Accumulated realized capital losses on investments--net (Note 5) (5,441,804) Unrealized appreciation on investments--net 11,330,047 ------------ Total--Equivalent to $14.63 net asset value per Common Stock (market price--$13.25) 162,654,755 ------------ Total capital $232,654,755 ============ <FN> *Auction Market Preferred Stock. See Notes to Financial Statements. F-25 114 MuniYield New York Insured Fund II, Inc. October 31, 1995 FINANCIAL INFORMATION (continued) Statement of Operations For the Year Ended October 31, 1995 Investment Income Interest and amortization of premium and discount earned $ 13,490,414 (Note 1d): Expenses: Investment advisory fees (Note 2) $ 1,123,249 Commission fees (Note 4) 198,848 Professional fees 80,927 Accounting services (Note 2) 67,618 Printing and shareholder reports 50,149 Transfer agent fees 49,734 Listing fees 24,726 Directors' fees and expenses 23,759 Custodian fees 12,091 Pricing fees 9,748 Amortization of organization expenses (Note 1e) 6,929 Other 10,440 ------------ Total expenses 1,658,218 ------------ Investment income--net 11,832,196 ------------ Realized & Realized loss on investments--net (3,600,834) Unrealized Change in unrealized appreciation/depreciation on investments--net 20,296,119 Gain (Loss) on ------------ Investments--Net Net Increase in Net Assets Resulting from Operations $ 28,527,481 (Notes 1b, ============ 1d & 3): Statements of Changes in Net Assets For the Year Ended October 31, Increase (Decrease) in Net Assets: 1995 1994 Operations: Investment income--net $ 11,832,196 $ 11,939,369 Realized loss on investments--net (3,600,834) (1,840,959) Change in unrealized appreciation/depreciation on investments--net 20,296,119 (28,784,232) ------------ ------------ Net increase (decrease) in net assets resulting from operations 28,527,481 (18,685,822) ------------ ------------ Dividends & Distributions to Investment income--net: Shareholders Common Stock (9,302,093) (9,707,305) (Note 1f): Preferred Stock (2,547,832) (2,124,906) Realized gain on investments--net: Common Stock -- (81,339) Preferred Stock -- (18,298) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (11,849,925) (11,931,848) ------------ ------------ Net Assets: Total increase (decrease) in net assets 16,677,556 (30,617,670) Beginning of year 215,977,199 246,594,869 ------------ ------------ End of year* $232,654,755 $215,977,199 ============ ============ <FN> *Undistributed investment income--net $ 862,691 $ 880,420 ============ ============ See Notes to Financial Statements. F-26 115 MuniYield New York Insured Fund II, Inc. October 31, 1995 FINANCIAL INFORMATION (concluded) Financial Highlights For the Period The following per share data and ratios have been derived June 26, from information provided in the financial statements. 1992++ to For the Year Ended October 31, October 31, Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 Per Share Net asset value, beginning of period $ 13.13 $ 15.89 $ 13.43 $ 14.18 Operating -------- -------- -------- -------- Performance: Investment income--net 1.07 1.07 1.11 .27 Realized and unrealized gain (loss) on investments--net 1.50 (2.76) 2.46 (.66) -------- -------- -------- -------- Total from investment operations 2.57 (1.69) 3.57 (.39) -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.84) (.87) (.91) (.18) Realized gain on investments--net -- (.01) -- -- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.84) (.88) (.91) (.18) -------- -------- -------- -------- Capital charge resulting from issuance of Preferred Stock -- -- -- (.03) -------- -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends to Preferred Stock shareholders: Investment income--net (.23) (.19) (.20) (.02) Capital charge resulting from issuance of Preferred Stock -- -- -- (.13) -------- -------- -------- -------- Total effect of Preferred Stock activity (.23) (.19) (.20) (.15) -------- -------- -------- -------- Net asset value, end of period $ 14.63 $ 13.13 $ 15.89 $ 13.43 ======== ======== ======== ======== Market price per share, end of period $ 13.25 $ 11.00 $ 15.25 $ 13.75 ======== ======== ======== ======== Total Investment Based on market price per share 28.61% (22.96%) 17.90% (7.17%)+++ Return:** ======== ======== ======== ======== Based on net asset value per share 18.96% (11.75%) 25.77% (4.09%)+++ ======== ======== ======== ======== Ratios to Average Expenses, net of reimbursement .74% .74% .62% .13%* Net Assets:*** ======== ======== ======== ======== Expenses .74% .74% .70% .68%* ======== ======== ======== ======== Investment income--net 5.27% 5.09% 5.25% 5.05%* ======== ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end Data: of period (in thousands) $162,655 $145,977 $176,595 $146,633 ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $ 70,000 $ 70,000 $ 70,000 $ 70,000 ======== ======== ======== ======== Portfolio turnover 110.76% 36.79% 3.33% 19.40% ======== ======== ======== ======== Dividends Per Share Investment income--net $ 910 $ 759 $ 809 $ 92 On Preferred Stock Outstanding++++++ <FN> *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++Commencement of Operations. ++++The Fund's Preferred Stock was issued on September 16, 1992. ++++++Dividends per share have been adjusted to reflect a two-for-one stock split. +++Aggregate total investment return. See Notes to Financial Statements. F-27 116 MuniYield New York Insured Fund II, Inc. October 31, 1995 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniYield New York Insured Fund II, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYT. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund sells an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. F-28 117 MuniYield New York Insured Fund II, Inc. October 31, 1995 (e) Deferred organization expenses--Deferred organization expenses are amortized on a straight-line basis over a five-year period. (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1995 were $250,525,811 and $230,683,792, respectively. Net realized and unrealized gains (losses) as of October 31, 1995 were as follows: Realized Unrealized Losses Gains Long-term investments $(1,834,897) $11,330,047 Financial futures contracts (1,765,937) -- ----------- ----------- Total $(3,600,834) $11,330,047 =========== =========== As of October 31, 1995, net unrealized appreciation for Federal income tax purposes aggregated $11,292,235, of which $11,309,819 related to appreciated securities and $17,584 related to depreciated securities. The aggregate cost of investments at October 31, 1995 for Federal income tax purposes was $222,844,382. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock For the year ended October 31, 1995, shares issued and outstanding remained constant at 11,114,832. At October 31, 1995, total paid-in capital amounted to $155,903,821. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yield in effect at October 31, 1995 was 3.75%. A two-for-one stock split occurred on December 1, 1994. As a result, as of October 31, 1995, there were 2,800 AMPS shares authorized, issued and outstanding with a liquidation preference of $25,000 per share, plus accumulated and unpaid dividends of $14,384. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction. For the year ended October 31, 1995, MLPF&S, an affiliate of FAM, earned $66,149 as commissions. 5. Capital Loss Carryforward: At October 31, 1995, the Fund had a capital loss carryforward of approximately $3,616,000, of which $1,841,000 expires in 2002 and $1,775,000 expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On November 13, 1995, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $0.069842 per share, payable on November 29, 1995 to shareholders of record as of November 24, 1995. F-29 118 UNAUDITED FINANCIAL STATEMENTS FOR MUNIYIELD NEW YORK INSURED II FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1996 F-30 119 MuniYield New York Insured Fund II, Inc. April 30, 1996 SCHEDULE OF INVESTMENTS (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) New York--100.9% AAA Aaa $ 4,000 Battery Park City Authority, New York, Revenue Refunding Bonds, Senior Series A, 5.25% due 11/01/2017 (c) $ 3,636 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Refunding Bonds, Series B (c): AAA Aaa 10,000 6.25% due 7/01/2017 10,282 AAA Aaa 8,650 6.25% due 7/01/2022 8,877 AAA Aaa 5,500 Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Bonds, Series O, 6% due 7/01/2024 (c) 5,520 Monroe County, New York, Public Improvement, UT (d): AAA Aaa 1,850 6.15% due 6/01/2016 1,918 AAA Aaa 1,000 6.15% due 6/01/2017 1,027 AAA Aaa 3,250 Nassau County, New York, GO, UT, Series P, 6.50% due 11/01/2010 (b) 3,560 AAA Aaa 1,100 New Rochelle, New York, GO, UT, Series B, 6.15% due 8/15/2018 (c) 1,130 A1+ VMIG1++ 1,500 New York City, New York, Cultural Resource Trust Revenue Bonds (Solomon R. Guggenheim), VRDN, Series B, 3.90% due 12/01/2015 (a) 1,500 New York City, New York, GO, UT: BBB+ Baa1 10,000 Series F, 6.625% due 2/15/2014 10,157 AAA Aaa 2,660 Series J, 6% due 2/15/2005 (c) 2,832 BBB+ Baa1 5,450 Series K, 6.25% due 4/01/2016 5,334 AAA Aaa 5,000 New York City, New York, IDA, Civic Facilities Revenue Bonds (USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 5,220 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds: AAA Aaa 1,760 Series A, 7% due 6/15/2001 (b)(g) 1,962 AAA Aaa 2,480 Series A-1994, 7% due 6/15/2015 (b) 2,678 AAA Aaa 9,000 Series B, 5.50% due 6/15/2019 (c) 8,473 A1+ VMIG1++ 200 VRDN, Series C, 4% due 6/15/2022 (a)(b) 200 AAA VMIG1++ 1,600 VRDN, Series C, 4% due 6/15/2023 (a)(b) 1,600 New York State Dormitory Authority Revenue Bonds: AAA Aaa 3,640 (City University), 6.25% due 7/01/2020 (d) 3,776 AAA Aaa 2,825 (Consolidated City University System), Second Generation Series A, 5.75% due 7/01/2013 (b) 2,834 AAA Aaa 7,000 (Consolidated City University System), Third Generation Reserves, Series 1, 5.375% due 7/01/2025 (d) 6,418 AAA Aaa 1,000 (Consolidated City University System), Third Generation Reserves, Series 2, 6.875% due 7/01/2014 (c) 1,084 A1+ VMIG1++ 1,400 (Cornell University), VRDN, Series B, 4.10% due 7/01/2025 (a) 1,400 BBB Baa1 5,000 (Department of Health), 5.75% due 7/01/2017 4,636 AAA Aaa 3,650 (Mount Sinai School of Medicine), Series A, 5% due 7/01/2016 (c) 3,246 AAA Aaa 6,000 (Mount Sinai School of Medicine), Series A, 5.15% due 7/01/2024 (c) 5,370 AAA Aaa 1,750 Refunding (Mount Sinai School of Medicine), 6.75% due 7/01/2009 (c) 1,912 BBB+ Baa1 2,000 Refunding (State University Educational Facilities), Series B, 7% due 5/15/2016 2,121 AAA Aaa 1,050 (Saint John's University), 6.875% due 7/01/2011 (d) 1,133 New York State Energy Research and Development Authority, Facilities Revenue Bonds (Consolidated Edison Company Inc.), AMT, Series A: AAA Aaa 4,450 6.75% due 1/15/2027 (c) 4,650 AAA Aaa 3,250 6.75% due 1/15/2027 (d) 3,396 F-31 120 MuniYield New York Insured Fund II, Inc. April 30, 1996 SCHEDULE OF INVESTMENTS (concluded) (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) New York (concluded) AAA Aaa $ 10,000 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (c) $ 10,571 A1+ NR* 200 New York State Environmental Facilities Corporation, Resource Recovery Revenue Bonds (OFS Equity Huntington Project), VRDN, AMT, 4.10% due 11/01/2014 (a) 200 AAA Aaa 1,325 New York State Environmental Facilities Corporation, Water Facilities Revenue Bonds (New Rochelle Water Company Inc. Project), AMT, 6.40% due 12/01/2024 (d) 1,348 New York State Local Government Assistance Corporation, VRDN (a): A1+ VMIG1++ 7,000 Series B, 4.10% due 4/01/2025 7,000 A1+ VMIG1++ 5,500 Series F, 3.90% due 4/01/2025 5,500 New York State Medical Care Facilities Finance Agency Revenue Bonds: AAA Aaa 2,330 (Mental Health), Series F, 6.50% due 8/15/2012 (f) 2,442 AAA Aaa 3,390 (Montefiore Medical Center), Series A, 5.75% due 2/15/2025 (d)(e) 3,265 AAA Aaa 6,250 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (d)(e) 6,699 AAA Aaa 8,500 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (d)(e) 8,835 AAA Aaa 5,200 Refunding (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (c) 5,370 AAA Aaa 7,125 New York State Thruway Authority, General Revenue Bonds, Series B, 5% due 1/01/2020 (c) 6,246 New York State Thruway Authority, Highway and Bridge Trust Fund: AAA Aaa 7,500 Series B, 5.125% due 4/01/2015 (c) 6,842 AAA Aaa 8,000 UT, Series B, 6.25% due 4/01/2012 (b) 8,429 AAA Aaa 8,675 New York State Urban Development Corporation, Revenue Refunding Bonds (Correctional Facilities), 5.375% due 1/01/2012 (c) 8,367 North Hempstead, New York, Refunding, Series B, UT (b): AAA Aaa 1,745 6.40% due 4/01/2013 1,896 AAA Aaa 555 6.40% due 4/01/2017 595 Port Authority of New York and New Jersey, Consolidated Revenue Bonds: AA- A1 5,000 72nd Series, 7.35% due 10/01/2002 (g) 5,735 AAA Aaa 5,000 104th Series, Third Installment, 4.75% due 1/15/2026 (d) 4,162 Syracuse, New York, COP, Revenue Bonds (Syracuse Hancock International Airport), AMT (b): AAA Aaa 3,650 6.625% due 1/01/2012 3,795 AAA Aaa 3,120 6.50% due 1/01/2017 3,191 A1+ VMIG1++ 2,400 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal Syracuse University Project), VRDN, 3.90% due 3/01/2023 (a) 2,400 Triborough Bridge and Tunnel Authority, New York, Special Obligation Refunding Bonds: AAA Aaa 6,575 6.25% due 1/01/2012 (d) 6,821 AAA Aaa 2,000 Series B, 6.875% due 1/01/2015 (c) 2,151 Total Investments (Cost--$223,919)--100.9% 229,742 Liabilities in Excess of Other Assets--(0.9%) (2,121) -------- Net Assets--100.0% $227,621 ======== <FN> (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 1996. (b)FGIC Insured. (c)MBIA Insured. (d)AMBAC Insured. (e)FHA Insured. (f)FSA Insured. (g)Prerefunded. *Not Rated. ++Highest short-term rating by Moody's Investors Service, Inc. See Notes to Financial Statements. F-32 121 MuniYield New York Insured Fund II, Inc. April 30, 1996 FINANCIAL INFORMATION Statement of Assets, Liabilities and Capital as of April 30, 1996 Assets: Investments, at value (identified cost--$223,918,739) (Note 1a) $229,741,844 Receivables: Securities sold $ 14,099,097 Interest 3,726,356 17,825,453 ------------ Deferred organization expenses (Note 1e) 11,523 Prepaid registration fees and other assets 9,630 ------------ Total assets 247,588,450 ------------ Liabilities: Payables: Securities purchased 19,479,545 Dividends to shareholders (Note 1f) 290,321 Investment adviser (Note 2) 99,931 19,869,797 ------------ Accrued expenses and other liabilities 97,955 ------------ Total liabilities 19,967,752 ------------ Net Assets: Net assets $227,620,698 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.10 per share (2,800 shares of AMPS* issued and outstanding at $25,000 per liquidation preference) $ 70,000,000 Common Stock, par value $.10 per share (11,114,832 shares issued and outstanding) $ 1,111,483 Paid-in capital in excess of par 154,792,338 Undistributed investment income--net 825,026 Accumulated realized capital losses on investments--net (Note 5) (4,931,254) Unrealized appreciation on investments--net 5,823,105 ------------ Total--Equivalent to $14.18 net asset value per share of Common Stock (market price--$13.125) 157,620,698 ------------ Total capital $227,620,698 ============ <FN> *Auction Market Preferred Stock. See Notes to Financial Statements. F-33 122 MuniYield New York Insured Fund II, Inc. April 30, 1996 FINANCIAL INFORMATION (continued) Statement of Operations For the Six Months Ended April 30, 1996 Investment Income Interest and amortization of premium and discount earned $ 6,667,867 (Note 1d): Expenses: Investment advisory fees (Note 2) $ 582,804 Commission fees (Note 4) 88,965 Professional fees 40,793 Accounting services (Note 2) 28,451 Transfer agent fees 25,427 Printing and shareholder reports 24,753 Listing fees 12,344 Directors' fees and expenses 11,990 Custodian fees 6,660 Pricing fees 4,782 Amortization of organization expenses (Note 1e) 3,482 Other 7,519 ------------ Total expenses 837,970 ------------ Investment income--net 5,829,897 ------------ Realized & Realized gain on investments--net 510,550 Unrealized Gain Change in unrealized appreciation on investments--net (5,506,942) (Loss) on ------------ Investments--Net Net Increase in Net Assets Resulting from Operations $ 833,505 (Notes 1b, ============ 1d & 3): See Notes to Financial Statements. Statements of Changes in Net Assets For the Six For the Months Ended Year Ended April 30, October 31, Increase (Decrease) in Net Assets: 1996 1995 Operations: Investment income--net $ 5,829,897 $ 11,832,196 Realized gain (loss) on investments--net 510,550 (3,600,834) Change in unrealized appreciation/depreciation on investments --net (5,506,942) 20,296,119 ------------ ------------ Net increase in net assets resulting from operations 833,505 28,527,481 ------------ ------------ Dividends to Investment income--net: Shareholders Common Stock (4,574,298) (9,302,093) (Note 1f): Preferred Stock (1,293,264) (2,547,832) ------------ ------------ Net decrease in net assets resulting from dividends to shareholders (5,867,562) (11,849,925) ------------ ------------ Net Assets: Total increase (decrease) in net assets (5,034,057) 16,677,556 Beginning of period 232,654,755 215,977,199 ------------ ------------ End of period* $227,620,698 $232,654,755 ============ ============ <FN> *Undistributed investment income--net $ 825,026 $ 862,691 ============ ============ See Notes to Financial Statements. F-34 123 MuniYield New York Insured Fund II, Inc. April 30, 1996 FINANCIAL INFORMATION (concluded) Financial Highlights For the For the Period The following per share data and ratios have been derived Six Months June 26, from information provided in the financial statements. Ended 1992++ to April 30, For the Year Ended October 31, Oct. 31, Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992 Per Share Net asset value, beginning of period $ 14.63 $ 13.13 $ 15.89 $ 13.43 $ 14.18 Operating -------- -------- -------- -------- -------- Performance: Investment income--net .52 1.07 1.07 1.11 .27 Realized and unrealized gain (loss) on investments--net (.44) 1.50 (2.76) 2.46 (.66) -------- -------- -------- -------- -------- Total from investment operations .08 2.57 (1.69) 3.57 (.39) -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.41) (.84) (.87) (.91) (.18) Realized gain on investments--net -- -- (.01) -- -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.41) (.84) (.88) (.91) (.18) -------- -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- -- -- (.03) -------- -------- -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends and distributions to Preferred Stock shareholders: Investment income--net (.12) (.23) (.19) (.20) (.02) Realized gain on investments--net -- -- (.00)+++++ -- -- Capital charge resulting from issuance of Preferred Stock -- -- -- -- (.13) -------- -------- -------- -------- -------- Total effect of Preferred Stock activity (.12) (.23) (.19) (.20) (.15) -------- -------- -------- -------- -------- Net asset value, end of period $ 14.18 $ 14.63 $ 13.13 $ 15.89 $ 13.43 ======== ======== ======== ======== ======== Market price per share, end of period $ 13.125 $ 13.25 $ 11.00 $ 15.25 $ 13.75 ======== ======== ======== ======== ======== Total Investment Based on market price per share 2.11%+++ 28.61% (22.96%) 17.90% (7.17%)+++ Return:** ======== ======== ======== ======== ======== Based on net asset value per share (0.09%)+++ 18.96% (11.75%) 25.77% (4.09%)+++ ======== ======== ======== ======== ======== Ratios to Average Expenses, net of reimbursement .72%* .74% .74% .62% .13%* Net Assets:*** ======== ======== ======== ======== ======== Expenses .72%* .74% .74% .70% .68%* ======== ======== ======== ======== ======== Investment income--net 4.98%* 5.27% 5.09% 5.25% 5.05%* ======== ======== ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end Data: of period(in thousands) $157,621 $162,655 $145,977 $176,595 $146,633 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $ 70,000 $ 70,000 $ 70,000 $ 70,000 $ 70,000 ======== ======== ======== ======== ======== Portfolio turnover 76.12% 110.76% 36.79% 3.33% 19.40% ======== ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $ 3,252 $ 3,324 $ 3,085 $ 3,523 $ 3,095 ======== ======== ======== ======== ======== Dividends Investment income--net $ 462 $ 910 $ 759 $ 809 $ 92 Per Share ======== ======== ======== ======== ======== On Preferred Stock Outstanding:++++++ <FN> ++Commencement of Operations. ++++The Fund's Preferred Stock was issued on September 16, 1992. ++++++Dividends per share have been adjusted to reflect a two-for- one stock split that occurred on December 1, 1994. +++Aggregate total investment return. +++++Amount is less than $.01 per share. *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ***Do not reflect the effect of dividends to Preferred Stock shareholders. See Notes to Financial Statements. F-35 124 MuniYield New York Insured Fund II, Inc. April 30, 1996 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniYield New York Insured Fund II, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. These unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal recurring nature. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYT. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into F-36 125 MuniYield New York Insured Fund II, Inc. April 30, 1996 interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Deferred organization expenses--Deferred organization expenses are amortized on a straight-line basis over a five-year period. (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended April 30, 1996 were $169,530,640 and $171,674,292, respectively. Net realized and unrealized gains as of April 30, 1996 were as follows: Realized Unrealized Gains Gains Long-term investments $ 77,525 $5,823,105 Financial futures contracts 433,025 -- ---------- ---------- Total $ 510,550 $5,823,105 ========== ========== As of April 30, 1996, net unrealized appreciation for Federal income tax purposes aggregated $5,823,105, of which $7,336,234 related to appreciated securities and $1,513,129 related to depreciated securities. The aggregate cost of investments as of April 30, 1996 for Federal income tax purposes was $223,918,739. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock For the six months ended April 30, 1996, shares issued and outstanding remained constant at 11,114,832. At April 30, 1996, total paid-in capital amounted to $155,903,821. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yield in effect at April 30, 1996 was 3.85%. As of April 30, 1996, there were 2,800 AMPS shares authorized, issued and outstanding with a liquidation preference of $25,000 per share, plus accumulated and unpaid dividends of $14,768. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction. For the six months ended April 30, 1996, MLPF&S, an affiliate of FAM, earned $58,275 as commissions. 5. Capital Loss Carryforward: At October 31, 1995, the Fund had a net capital loss carryforward of approximately $3,616,000, of which $1,841,000 expires in 2002 and $1,775,000 expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On May 10, 1996, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $0.066419 per share, payable on May 30, 1996 to shareholders of record as of May 21, 1996. F-37 126 AUDITED FINANCIAL STATEMENTS FOR MUNIYIELD NEW YORK INSURED III FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995 F-38 127 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors, MuniYield New York Insured Fund III, Inc. We have audited the accompanying statement of assets, liabilities and capital of MuniYield New York Insured Fund III, Inc., including the schedule of investments, as of October 31, 1995, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1995 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MuniYield New York Insured Fund III, Inc. at October 31, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. Ernst & Young LLP Princeton, New Jersey December 4, 1995 F-39 128 MuniYield New York Insured Fund III, Inc. October 31, 1995 SCHEDULE OF INVESTMENTS (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) New York--99.2% AAA Aaa $1,250 Buffalo and Fort Erie, New York, Public Bridge Authority, Toll Bridge System Revenue Bonds, 5.75% due 1/01/2025 (d) $ 1,253 AAA Aaa 2,070 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds, Series A, 6.375% due 7/01/2018 (d) 2,194 AAA Aaa 5,650 Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Bonds, Series J, 6.375% due 7/01/2010 (c) 6,073 AAA Aaa 2,000 Monroe County, New York, Public Improvement, GO, UT, 6.15% due 6/01/2018 (b) 2,097 AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, Refunding, GO, UT, 6.20% due 2/15/2019 (b) 1,094 AAA Aaa 2,500 New York City, New York, IDA, Civic Facilities Revenue Bonds (USTA National Tennis Center Project), 6.375% due 11/15/2014 (g) 2,647 A1+ NR* 400 New York City, New York, IDA, IDR (Japan Airlines Company Ltd. Project), VRDN, AMT, 4.10% due 11/01/2015 (a) 400 AAA Aaa 2,500 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, Series B, 5.50% due 6/15/2019 (d) 2,448 New York State Dormitory Authority Revenue Bonds: AAA Aaa 1,000 (City University), Second Generation, Series A, 5.75% due 7/01/2018 (e) 1,011 AAA Aaa 4,250 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2014 (d) 4,698 BBB+ Baa1 1,000 Refunding (State University Educational Facilities), Series A, 6% due 5/15/2025 988 AAA Aaa 3,000 (Saint Vincent's Hospital and Medical Center), 5.80% due 8/01/2025 (b)(f) 2,987 BBB- Baa1 2,000 (Upstate Community Colleges), Series A, 6.25% due 7/01/2025 2,014 AAA Aaa 2,500 New York State Energy, Research and Development Authority, Facilities Revenue Bonds (Con Edison Company Inc.), AMT, Series A, 6.75% due 1/15/2027 (d) 2,622 AAA Aaa 2,000 New York State Energy, Research and Development Authority, Gas Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (d) 2,134 PORTFOLIO ABBREVIATIONS To simplify the listings of MuniYield New York Insured Fund III, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) GO General Obligation Bonds HFA Housing Finance Agency IDA Industrial Development Authority IDR Industrial Development Revenue Bonds M/F Multi-Family PCR Pollution Control Revenue Bonds UT Unlimited Tax VRDN Variable Rate Demand Notes F-40 129 MuniYield New York Insured Fund III, Inc. October 31, 1995 SCHEDULE OF INVESTMENTS (concluded) (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) New York (concluded) New York State Energy, Research and Development Authority, PCR, VRDN (a): A1+ NR* $ 900 (Niagara Mohawk Power Corporation Project), Series A, 3.85% due 7/01/2015 $ 900 A1+ VMIG1++ 1,100 Refunding (New York State Electric and Gas Company), Series C, 3.60% due 6/01/2029 1,100 AAA Aaa 2,500 New York State HFA, M/F Housing Secured Mortgage Revenue Bonds, AMT, Series A, 6.30% due 8/15/2026 (b) 2,550 BBB Baa1 2,500 New York State HFA, Service Contract Obligation Revenue Bonds, Series A, 5.50% due 9/15/2022 2,300 New York State Medical Care Facilities, Finance Agency Revenue Bonds: AAA Aaa 1,000 (Long-Term Health Care), Series A, 6.80% due 11/01/2014 (e) 1,087 AAA Aaa 1,865 (Long-Term Health Care), Series B, 6.45% due 11/01/2014 (e) 1,961 AAA Aaa 3,000 (Mental Health), Series E, 6.50% due 8/15/2015 (e) 3,199 AAA Aaa 2,000 (Mental Health), Series F, 6.50% due 8/15/2012 (e) 2,122 AAA Aaa 1,500 (Mental Health Services Facilities), Series E, 6.25% due 8/15/2019 (e) 1,538 AAA Aaa 6,000 (Montefiore Medical Center), Series A, 5.75% due 2/15/2025 (b)(f) 5,924 AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (b)(f) 2,183 AAA Aaa 1,250 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (b)(f) 1,330 AAA Aaa 3,000 New York State Thruway Authority, General Revenue Bonds (Highway and Bridge Trust Fund), UT, Series B, 6.25% due 4/01/2012 (c) 3,172 New York State Urban Development Corporation Revenue Bonds: AAA Aaa 3,000 (Correctional Facilities), Series 5, 5.50% due 1/01/2025 (d) 2,927 BBB Baa1 3,000 Refunding (Correctional Facilities), 5.50% due 1/01/2015 2,804 BBB Baa1 2,000 Refunding (Onondaga County Convention Project), 6.25% due 1/01/2020 2,013 AA- A1 3,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, 72nd Series, 7.35% due 10/01/2027 3,435 Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Bonds: AAA Aaa 1,500 Refunding, Series A, 6.625% due 1/01/2017 (d) 1,617 A1+ VMIG1++ 200 VRDN, 3.70% due 1/01/2024 (a)(c) 200 Total Investments (Cost--$73,225)--99.2% 77,022 Other Assets Less Liabilities--0.8% 632 ------- Net Assets--100.0% $77,654 ======= <FN> (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 1995. (b)AMBAC Insured. (c)FGIC Insured. (d)MBIA Insured. (e)CGIC Insured. (f)FHA Insured. (g)FSA Insured. *Not Rated. ++Highest short-term rating by Moody's Investors Service, Inc. Ratings of issues shown have not been audited by Ernst & Young LLP. See Notes to Financial Statements. F-41 130 MuniYield New York Insured Fund III, Inc. October 31, 1995 FINANCIAL INFORMATION Statement of Assets, Liabilities and Capital as of October 31, 1995 Assets: Investments, at value (identified cost--$73,225,476) (Note 1a) $ 77,022,092 Cash 81,224 Interest receivable 1,196,612 Deferred organization expenses (Note 1e) 15,279 Prepaid expenses and other assets 4,205 ------------ Total assets 78,319,412 ------------ Liabilities: Payables: Securities purchased $ 479,583 Dividends to shareholders (Note 1f) 97,010 Investment adviser (Note 2) 33,886 610,479 ------------ Accrued expenses and other liabilities 55,261 ------------ Total liabilities 665,740 ------------ Net Assets: Net assets $ 77,653,672 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.10 per share (1,000 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $ 25,000,000 Common Stock, par value $.10 per share (3,688,900 shares issued and outstanding) $ 368,890 Paid-in capital in excess of par 51,141,408 Undistributed investment income--net 314,421 Accumulated realized capital losses on investments--net (Note 5) (2,967,663) Unrealized appreciation on investments--net 3,796,616 ------------ Total--Equivalent to $14.27 net asset value per share of Common Stock (market price--$12.375) 52,653,672 ------------ Total capital $ 77,653,672 ============ <FN> *Auction Market Preferred Stock. See Notes to Financial Statements. F-42 131 MuniYield New York Insured Fund III, Inc. October 31, 1995 FINANCIAL INFORMATION (continued) Statement of Operations For the Year Ended October 31, 1995 Investment Income Interest and amortization of premium and discount earned $ 4,416,520 (Note 1d): Expenses: Investment advisory fees (Note 2) $ 374,464 Professional fees 78,090 Commission fees (Note 4) 64,916 Transfer agent fees 40,338 Printing and shareholder reports 35,404 Accounting services (Note 2) 32,737 Directors' fees and expenses 21,468 Listing fees 16,902 Amortization of organization expenses (Note 1e) 7,338 Custodian fees 5,343 Pricing fees 4,736 Other 9,329 ------------ Total expenses 691,065 ------------ Investment income--net 3,725,455 ------------ Realized & Realized loss on investments--net (1,996,988) Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 7,339,389 (Loss) on ------------ Investments Net Increase in Net Assets Resulting from Operations $ 9,067,856 - --Net (Notes 1b, ============ 1d & 3): See Notes to Financial Statements. F-43 132 MuniYield New York Insured Fund III, Inc. October 31, 1995 FINANCIAL INFORMATION (continued) Statements of Changes in Net Assets For the Year Ended October 31, Increase (Decrease) in Net Assets: 1995 1994 Operations: Investment income--net $ 3,725,455 $ 3,802,637 Realized loss on investments--net (1,996,988) (970,676) Change in unrealized appreciation/depreciation on investments--net 7,339,389 (8,602,309) ------------ ------------ Net increase (decrease) in net assets resulting from operations 9,067,856 (5,770,348) ------------ ------------ Dividends & Investment income--net: Distributions to Common Stock (2,771,523) (3,157,490) Shareholders Preferred Stock (944,040) (624,540) (Note 1f): Realized gain on investments--net: Common Stock -- (285,706) Preferred Stock -- (33,255) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (3,715,563) (4,100,991) ------------ ------------ Capital Stock Value of shares issued to Common Stock shareholders in Transactions reinvestment of dividends and distributions -- 197,662 (Notes 1e & 4): Offering costs resulting from the issuance of Preferred Stock -- (29,641) ------------ ------------ Net increase in net assets derived from capital stock transactions -- 168,021 ------------ ------------ Net Assets: Total increase (decrease) in net assets 5,352,293 (9,703,318) Beginning of year 72,301,379 82,004,697 ------------ ------------ End of year* $ 77,653,672 $ 72,301,379 ============ ============ <FN> *Undistributed investment income--net $ 314,421 $ 304,529 ============ ============ See Notes to Financial Statements. F-44 133 MuniYield New York Insured Fund III, Inc. October 31, 1995 FINANCIAL INFORMATION (concluded) Financial Highlights For the Period The following per share data and ratios have been derived Nov. 27, from information provided in the financial statements. For the Year Ended 1992++ to October 31, Oct. 31, Increase (Decrease) in Net Asset Value: 1995 1994 1993 Per Share Net asset value, beginning of period $ 12.82 $ 15.51 $ 14.18 Operating -------- -------- -------- Performance: Investment income--net 1.02 1.03 .85 Realized and unrealized gain (loss) on investments--net 1.44 (2.59) 1.45 -------- -------- -------- Total from investment operations 2.46 (1.56) 2.30 -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.75) (.86) (.68) Realized gain on investments--net -- (.08) -- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.75) (.94) (.68) -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- (.05) -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends and distributions to Preferred Stock shareholders: Investment income--net (.26) (.17) (.09) Realized gain on investments--net -- (.01) -- Capital charge resulting from issuance of Preferred Stock -- (.01) (.15) -------- -------- -------- Total effect of Preferred Stock activity (.26) (.19) (.24) -------- -------- -------- Net asset value, end of period $ 14.27 $ 12.82 $ 15.51 ======== ======== ======== Market price per share, end of period $ 12.375 $ 10.625 $ 15.00 ======== ======== ======== Total Investment Based on market price per share 23.93% (24.11%) 4.69%+++ Return:** ======== ======== ======== Based on net asset value per share 18.44% (11.44%) 14.51%+++ ======== ======== ======== Ratios to Average Expenses, net of reimbursement .92% .88% .55%* Net Assets:*** ======== ======== ======== Expenses .92% .88% .87%* ======== ======== ======== Investment income--net 4.98% 4.88% 4.86%* ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end of Data: period (in thousands) $ 52,654 $ 47,301 $ 57,005 ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $ 25,000 $ 25,000 $ 25,000 ======== ======== ======== Portfolio turnover 176.98% 65.22% 11.06% ======== ======== ======== Dividends Per Investment income--net $ 944 $ 625 $ 325 Share on Preferred Stock Outstanding:++++++ <FN> *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++Commencement of Operations. ++++The Fund's Preferred Stock was issued on March 25, 1993. ++++++Dividends per share have been adjusted to reflect a two-for- one stock split. +++Aggregate total investment return. See Notes to Financial Statements. F-45 134 MuniYield New York Insured Fund III, Inc. October 31, 1995 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniYield New York Insured Fund III, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYY. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Deferred organization expenses and offering expenses--Deferred organization expenses are amortized on a straight-line basis over a five-year period. F-46 135 MuniYield New York Insured Fund III, Inc. October 31, 1995 Direct expenses relating to the public offering of the Common and Preferred Stock were charged to capital at the time of issuance. (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1995 were $125,994,076 and $121,287,588, respectively. Net realized and unrealized gains (losses) as of October 31,1995 were as follows: Realized Unrealized Losses Gains Long-term investments $(1,440,405) $ 3,796,616 Short-term investments (645) -- Financial futures contracts (555,938) -- ----------- ----------- Total $(1,996,988) $ 3,796,616 =========== =========== As of October 31, 1995, net unrealized appreciation for Federal income tax purposes aggregated $3,796,616, of which $3,798,974 related to appreciated securities and $2,358 related to depreciated securities. The aggregate cost of investments at October 31, 1995 for Federal income tax purposes was $73,225,476. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock For the year ended October 31, 1995, shares issued and outstanding remained constant at 3,688,900. As of October 31, 1995, total paid- in capital amounted to $51,510,298. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yield in effect at October 31, 1995 was 3.745%. A two-for-one stock split occurred on December 1, 1994. As a result, as of October 31, 1995, there were 1,000 AMPS shares authorized, issued and outstanding with a liquidation preference of $25,000 per share, plus accumulated and unpaid dividends of $51,300. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction. For the year ended October 31, 1995, MLPF&S, an affiliate of FAM, earned $50,359 as commissions. 5. Capital Loss Carryforward: At October 31, 1995, the Fund had a capital loss carryforward of approximately $2,576,000, of which $971,000 expires in 2002 and $1,605,000 expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On November 13, 1995, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $0.066621 per share, payable on November 29, 1995 to shareholders of record as of November 24, 1995. F-47 136 UNAUDITED FINANCIAL STATEMENTS FOR MUNIYIELD NEW YORK INSURED III FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1996 F-48 137 MuniYield New York Insured Fund III, Inc. April 30, 1996 SCHEDULE OF INVESTMENTS (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) New York--98.6% AAA Aaa $1,625 Battery Park City Authority, New York, Revenue Refunding Bonds, Senior Series A, 5.25% due 11/01/2017 (d) $1,477 AAA Aaa 1,250 Buffalo and Fort Erie, New York, Public Bridge Authority, Toll Bridge System Revenue Bonds, 5.75% due 1/01/2025 (d) 1,216 AAA Aaa 2,070 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds, Series A, 6.375% due 7/01/2018 (d) 2,135 AAA Aaa 5,650 Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Bonds, Series J, 6.375% due 7/01/2010 (c) 5,915 AAA Aaa 2,000 Monroe County, New York, Public Improvement, GO, UT, 6.15% due 6/01/2018 (b) 2,054 AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, Refunding, GO, UT, 6.20% due 2/15/2019 (b) 1,059 New York City, New York, IDA, Civic Facilities Revenue Bonds: A1+ NR* 2,900 (National Audobon Society), 4.10% due 12/01/2014 2,900 AAA Aaa 2,500 (USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 2,610 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds: AAA Aaa 3,000 Series B, 5.375% due 6/15/2019 (d) 2,771 A1+ VMIG1++ 200 VRDN, Series C, 4% due 6/15/2022 (a)(c) 200 New York State Dormitory Authority Revenue Bonds: AAA Aaa 4,250 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2014 (d) 4,608 AAA Aaa 2,000 (Consolidated City University Systems), Second Generation, Series A, 5.375% due 7/01/2014 (c) 1,890 AAA Aaa 1,000 (Consolidated City University Systems), Second Generation, Series A, 5.75% due 7/01/2018 (f) 980 BBB Baa1 1,000 (Department of Health), 5.75% due 7/01/2017 927 AAA Aaa 3,000 (Mount Sinai School of Medicine), Series A, 5% due 7/01/2016 (d) 2,668 AAA Aaa 1,000 Refunding (Colgate University), 6% due 7/01/2016 (d) 1,028 AAA Aaa 3,000 (Saint Vincent's Hospital and Medical Center), 5.80% due 8/01/2025 (b)(g) 2,905 BBB- Baa1 2,500 (Upstate Community Colleges), Series A, 5.70% due 7/01/2021 2,291 AAA Aaa 2,500 New York State Energy Research and Development Authority, Facilities Revenue Bonds (Consolidated Edison Company Inc.), AMT, Series A, 6.75% due 1/15/2027 (d) 2,612 AAA Aaa 2,000 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (d) 2,114 A1+ NR* 200 New York State Environmental Facilities Corporation, Resource Recovery Revenue Bonds (OFS Equity Huntington Project), VRDN, AMT, 4.10% due 11/01/2014 (a) 200 AAA Aaa 1,000 New York State HFA, M/F Housing Secured Mortgage Revenue Bonds, AMT, Series A, 6.30% due 8/15/2026 (b) 1,008 PORTFOLIO ABBREVIATIONS To simplify the listings of MuniYield New York Insured Fund III, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) GO General Obligation Bonds HFA Housing Finance Agency IDA Industrial Development Authority M/F Multi-Family UT Unlimited Tax VRDN Variable Rate Demand Notes F-49 138 MuniYield New York Insured Fund III, Inc. April 30, 1996 SCHEDULE OF INVESTMENTS (concluded) (in Thousands) S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) New York (concluded) A1+ VMIG1++ $2,200 New York State Local Government Assistance Corporation, VRDN, Series F, 3.90% due 4/01/2025 (a) $ 2,200 New York State Medical Care Facilities, Finance Agency Revenue Bonds: AAA Aaa 3,000 (Mental Health), Series E, 6.50% due 8/15/2015 (f) 3,123 AAA Aaa 2,000 (Mental Health), Series F, 6.50% due 8/15/2012 (f) 2,096 AAA Aaa 1,500 (Mental Health Services Facilities), Series E, 6.25% due 8/15/2019 (f) 1,530 AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (b)(g) 2,144 AAA Aaa 1,250 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (b)(g) 1,299 AAA Aaa 3,000 New York State Thruway Authority, Highway and Bridge Trust Fund, UT, Series B, 6.25% due 4/01/2012 (c) 3,161 New York State Urban Development Corporation Revenue Bonds: AAA Aaa 5,000 (Correctional Capital Facilities), Series 5, 5.50% due 1/01/2025 (d) 4,666 BBB Baa1 3,000 Refunding (Correctional Facilities), Series 6, 5.375% due 1/01/2025 2,619 AA- A1 3,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, 72nd Series, 7.35% due 10/01/2002 (e) 3,441 A1+ VMIG1++ 200 Port Authority of New York and New Jersey, Special Obligation Revenue Bonds (Versatile Structure Obligation), VRDN, AMT, Series 1, 4.10% due 8/01/2028 (a) 200 Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Refunding Bonds: AAA Aaa 1,500 Series A, 6.625% due 1/01/2017 (d) 1,589 AAA Aaa 1,000 Series B, 6.875% due 1/01/2015 (c) 1,075 Total Investments (Cost--$73,109)--98.6% 74,711 Other Assets Less Liabilities--1.4% 1,099 -------- Net Assets--100.0% $ 75,810 ======== <FN> (a)The interest rate is subject to change periodically based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 1996. (b)AMBAC Insured. (c)FGIC Insured. (d)MBIA Insured. (e)Prerefunded. (f)FSA Insured. (g)FHA Insured. *Not Rated. ++Highest short-term rating by Moody's Investors Service, Inc. See Notes to Financial Statements. F-50 139 MuniYield New York Insured Fund III, Inc. April 30, 1996 FINANCIAL INFORMATION Statement of Assets, Liabilities and Capital as of April 30, 1996 Assets: Investments, at value (identified cost--$73,108,897) (Note 1a) $ 74,711,195 Cash 44,535 Receivables: Securities sold $ 2,658,875 Interest 1,243,452 3,902,327 ------------ Deferred organization expenses (Note 1e) 15,279 Prepaid expenses and other assets 4,610 ------------ Total assets 78,677,946 ------------ Liabilities: Payables: Securities purchased 2,683,933 Dividends to shareholders (Note 1f) 92,725 Investment adviser (Note 2) 33,324 2,809,982 ------------ Accrued expenses and other liabilities 57,846 ------------ Total liabilities 2,867,828 ------------ Net Assets: Net assets $ 75,810,118 ============ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.10 per share (1,000 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) $ 25,000,000 Common Stock, par value $.10 per share (3,688,900 shares issued and outstanding) $ 368,890 Paid-in capital in excess of par 51,141,408 Undistributed investment income--net 263,067 Accumulated realized capital losses on investments--net (Note 5) (2,565,545) Unrealized appreciation on investments--net 1,602,298 ------------ Total--Equivalent to $13.77 net asset value per share of Common Stock (market price--$12.125) 50,810,118 ------------ Total capital $ 75,810,118 ============ <FN> *Auction Market Preferred Stock. See Notes to Financial Statements. F-51 140 MuniYield New York Insured Fund III, Inc. April 30, 1996 FINANCIAL INFORMATION (continued) Statement of Operations For the Six Months Ended April 30, 1996 Investment Income Interest and amortization of premium and discount earned $ 2,216,153 (Note 1d): ------------ Expenses: Investment advisory fees (Note 2) $ 194,621 Professional fees 40,536 Commission fees (Note 4) 31,546 Printing and shareholder reports 17,701 Transfer agent fees 16,447 Accounting services (Note 2) 15,975 Directors' fees and expenses 11,457 Listing fees 8,198 Amortization of organization expenses (Note 1e) 3,674 Custodian fees 2,486 Pricing fees 2,362 Other 5,751 ------------ Total expenses 350,754 ------------ Investment income--net 1,865,399 ------------ Realized & Realized gain on investments--net 402,118 Unrealized Change in unrealized appreciation on investments--net (2,194,318) Gain (Loss) ------------ on Investments Net Increase in Net Assets Resulting from Operations $ 73,199 - --Net (Notes 1b, ============ 1d & 3): See Notes to Financial Statements. Statements of Changes in Net Assets For the Six For the Months Ended Year Ended Increase (Decrease) in Net Assets: April 30, 1996 Oct. 31, 1995 Operations: Investment income--net $ 1,865,399 $ 3,725,455 Realized gain (loss) on investments--net 402,118 (1,996,988) Change in unrealized appreciation/depreciation on investments--net (2,194,318) 7,339,389 ------------ ------------ Net increase in net assets resulting from operations 73,199 9,067,856 ------------ ------------ Dividends to Investment income--net: Shareholders Common Stock (1,433,753) (2,771,523) (Note 1f): Preferred Stock (483,000) (944,040) ------------ ------------ Net decrease in net assets resulting from dividends to shareholders (1,916,753) (3,715,563) ------------ ------------ Net Assets: Total increase (decrease) in net assets (1,843,554) 5,352,293 Beginning of period 77,653,672 72,301,379 ------------ ------------ End of period* $ 75,810,118 $ 77,653,672 ============ ============ <FN> *Undistributed investment income--net $ 263,067 $ 314,421 ============ ============ See Notes to Financial Statements. F-52 141 MuniYield New York Insured Fund III, Inc. April 30, 1996 FINANCIAL INFORMATION (concluded) Financial Highlights For the For the Six Period The following per share data and ratios have been derived Months Nov. 27, from information provided in the financial statements. Ended For the Year Ended 1992++ to April 30, October 31, Oct. 31, Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 Per Share Net asset value, beginning of period $ 14.27 $ 12.82 $ 15.51 $ 14.18 Operating -------- -------- -------- -------- Performance: Investment income--net .50 1.02 1.03 .85 Realized and unrealized gain (loss) on investments--net (.48) 1.44 (2.59) 1.45 -------- -------- -------- -------- Total from investment operations .02 2.46 (1.56) 2.30 -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net (.39) (.75) (.86) (.68) Realized gain on investments--net -- -- (.08) -- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders (.39) (.75) (.94) (.68) -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock -- -- -- (.05) -------- -------- -------- -------- Effect of Preferred Stock activity:++++ Dividends and distributions to Preferred Stock shareholders: Investment income--net (.13) (.26) (.17) (.09) Realized gain on investments--net -- -- (.01) -- Capital charge resulting from issuance of Preferred Stock -- -- (.01) (.15) -------- -------- -------- -------- Total effect of Preferred Stock activity (.13) (.26) (.19) (.24) -------- -------- -------- -------- Net asset value, end of period $ 13.77 $ 14.27 $ 12.82 $ 15.51 ======== ======== ======== ======== Market price per share, end of period $ 12.125 $ 12.375 $ 10.625 $ 15.00 ======== ======== ======== ======== Total Investment Based on market price per share .96%+++ 23.93% (24.11%) 4.69%+++ Return:** ======== ======== ======== ======== Based on net asset value per share (.57%)+++ 18.44% (11.44%) 14.51%+++ ======== ======== ======== ======== Ratios to Average Expenses, net of reimbursement .90%* .92% .88% .55%* Net Assets:*** ======== ======== ======== ======== Expenses .90%* .92% .88% .87%* ======== ======== ======== ======== Investment income--net 4.78%* 4.98% 4.88% 4.86%* ======== ======== ======== ======== Supplemental Net assets, net of Preferred Stock, end Data: of period (in thousands) $ 50,810 $ 52,654 $ 47,301 $ 57,005 ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) $ 25,000 $ 25,000 $ 25,000 $ 25,000 ======== ======== ======== ======== Portfolio turnover 66.37% 176.98% 65.22% 11.06% ======== ======== ======== ======== Leverage: Asset coverage per $1,000 $ 3,032 $ 3,106 $ 2,892 $ 3,280 ======== ======== ======== ======== Dividends Per Investment income--net $ 483 $ 944 $ 625 $ 325 Share on ======== ======== ======== ======== Preferred Stock Outstanding:++++++ <FN> *Annualized. **Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ***Do not reflect the effect of dividends to Preferred Stock shareholders. ++Commencement of Operations. ++++The Fund's Preferred Stock was issued on March 25, 1993. ++++++Dividends per share have been adjusted to reflect a two-for- one stock split that occurred on December 1, 1994. +++Aggregate total investment return. See Notes to Financial Statements. F-53 142 MuniYield New York Insured Fund III, Inc. April 30, 1996 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniYield New York Insured Fund III, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. These unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal recurring nature. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYY. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options, which are traded on exchanges, are valued at their last sale price as of the close of such exchanges or, lacking any sales, at the last available bid price. Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. * Financial futures contracts--The Fund may purchase or sell interest rate futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. * Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized F-54 143 MuniYield New York Insured Fund III, Inc. April 30, 1996 into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Deferred organization expenses--Deferred organization expenses are amortized on a straight-line basis over a five-year period. (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended April 30, 1996 were $47,482,276 and $51,028,279, respectively. Net realized and unrealized gains as of April 30, 1996 were as follows: Realized Unrealized Gains Gains Long-term investments $ 355,193 $ 1,602,298 Financial futures contracts 46,925 -- ------------ ------------ Total $ 402,118 $ 1,602,298 ============ ============ As of April 30, 1996, net unrealized appreciation for Federal income tax purposes aggregated $1,602,298, of which $2,216,622 related to appreciated securities and $614,324 related to depreciated securities. The aggregate cost of investments at April 30, 1996 for Federal income tax purposes was $73,108,897. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock For the six months ended April 30, 1996, shares issued and outstanding remained constant at 3,688,900. As of April 30, 1996, total paid-in capital amounted to $51,510,298. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yield in effect at April 30, 1996 was 3.77%. As of April 30, 1996, there were 1,000 AMPS shares authorized, issued and outstanding with a liquidation preference of $25,000 per share. The Fund pays commissions to certain broker-dealers at the end of each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction. For the six months ended April 30, 1996, MLPF&S, an affiliate of FAM, earned $25,068 as commissions. 5. Capital Loss Carryforward: At October 31, 1995, the Fund had a net capital loss carryforward of approximately $2,576,000, of which $971,000 expires in 2002 and $1,605,000 expires in 2003. This amount will be available to offset like amounts of any future taxable gains. 6. Subsequent Event: On May 10, 1996, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $0.062407 per share, payable on May 30, 1996 to shareholders of record as of May 21, 1996. F-55 144 UNAUDITED FINANCIAL STATEMENTS FOR THE COMBINED FUND ON A PRO FORMA BASIS AS OF APRIL 30, 1996 F-56 145 The following unaudited pro forma Combined Schedule of Investments as of April 30, 1996, represents a combining of the portfolios of each of the Funds as of that date. No adjustments were required to arrive at the Pro Forma for Combined Fund values. For additional information about the holdings of each Fund see the Schedule of Investments for each of the Funds as of April 30, 1996 contained in this Joint Proxy Statement and Prospectus as follows: MuniVest New York Insured (pages F-13 to F-14); MuniYield New York Insured II (pages F-31 to F-32) and MuniYield New York Insured III (pages F-49 to F-50). COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 1996 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------- MUNIYIELD PRO FORMA NEW YORK MUNIYIELD MUNIVEST FOR INSURED NEW YORK NEW YORK COMBINED New York -- 102.1% II INSURED III INSURED FUND - ----------------------------------------------------------------------------------------------------------- TOTAL FACE AMOUNT ISSUE VALUE VALUE VALUE VALUE - ----------------------------------------------------------------------------------------------------------- Battery Park City Authority, New York, Revenue Refunding Bonds Senior Series A: $ 5,625 5.25% due 11/01/2017(d)................. $ 3,636 $ 1,477 $ -- $ 5,113 2,000 5.70% due 11/01/2020(d)................. -- -- 1,926 1,926 1,250 Buffalo and Fort Erie, New York, Public Bridge Authority, Toll Bridge System Revenue Bonds, 5.75% due 1/01/2025(d)........... -- 1,216 -- 1,216 2,400 Clifton Park, New York, Water Authority, Water System Revenue Bonds, Series A, 6.375% due 10/01/2002(c)(e)............. -- -- 2,652 2,652 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds: 3,500 (Grand Central Terminal), Series 1, 5.70% due 7/01/2024(f)............... -- -- 3,372 3,372 2,990 Refunding, Series A, 6.125% due 7/01/2012(d)......................... -- -- 3,076 3,076 10,000 Refunding, Series B, 6.25% due 7/01/2017(d)......................... 10,282 -- -- 10,282 8,650 Refunding, Series B, 6.25% due 7/01/2022(d)......................... 8,877 -- -- 8,877 2,070 Series A, 6.375% due 7/01/2018(d)....... -- 2,135 -- 2,135 F-57 146 COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 1996 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------- MUNIYIELD PRO FORMA NEW YORK MUNIYIELD MUNIVEST FOR INSURED NEW YORK NEW YORK COMBINED New York -- 102.1% II INSURED III INSURED FUND - ----------------------------------------------------------------------------------------------------------- TOTAL FACE AMOUNT ISSUE VALUE VALUE VALUE VALUE - ----------------------------------------------------------------------------------------------------------- Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Bonds: $ 5,500 Refunding, Series O, 6% due 7/01/2024(d)......................... $ 5,520 $ -- $ -- $ 5,520 5,650 Series J, 6.375% due 7/01/2010(c)....... -- 5,915 -- 5,915 5,000 Series O, 6.375% due 7/01/2020(d)....... -- -- 5,152 5,152 Monroe County, New York, Public Improvement, UT(b): 1,850 6.15% due 6/01/2016..................... 1,918 -- -- 1,918 1,000 6.15% due 6/01/2017..................... 1,027 -- -- 1,027 2,000 GO, 6.15% due 6/01/2018................. -- 2,054 -- 2,054 1,005 Mount Sinai, New York, Union Free School District, Refunding, GO, UT, 6.20% due 2/15/2019(b)............................ -- 1,059 -- 1,059 Nassau County, New York, GO, UT, Series P(c): 3,250 6.50% due 11/01/2010.................... 3,560 -- -- 3,560 3,685 6.50% due 11/01/2011.................... -- -- 4,026 4,026 1,100 New Rochelle, New York, GO, UT, Series B, 6.15% due 8/15/2018(c).................. 1,130 -- -- 1,130 2,000 New York City, New York, Educational Construction Fund Revenue Bonds, Senior Sub-Series B, 5.625% due 4/01/2013(d)... -- -- 1,973 1,973 New York City, New York, GO, UT: 2,660 Series J, 6% due 2/15/2005(d)........... 2,832 -- -- 2,832 10,000 Series F, 6.625% due 2/15/2014.......... 10,157 -- -- 10,157 5,450 Series K, 6.25% due 4/01/2016........... 5,334 -- -- 5,334 F-58 147 COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 1996 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------- MUNIYIELD PRO FORMA NEW YORK MUNIYIELD MUNIVEST FOR INSURED NEW YORK NEW YORK COMBINED New York -- 102.1% II INSURED III INSURED FUND - ----------------------------------------------------------------------------------------------------------- TOTAL FACE AMOUNT ISSUE VALUE VALUE VALUE VALUE - ----------------------------------------------------------------------------------------------------------- New York City, New York IDA, Civic Facilities Revenue Bonds: $ 2,900 (National Audubon Society), CP, 4.10% due 12/01/2014....................... $ -- $ 2,900 $ -- $ 2,900 12,500 (USTA National Tennis Center Project), 6.375% due 11/15/2014(f)............. 5,220 2,610 5,220 13,050 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds: 1,760 Series A, 7% due 6/15/2001(c)(e)........ 1,962 -- -- 1,962 2,480 Series A-1994, 7% due 6/15/2015(c)...... 2,678 -- -- 2,678 5,000 Series B, 5.375% due 6/15/2019(d)....... -- 2,771 1,847 4,618 2,340 Series B, 5.50% due 6/15/2019(b)........ -- -- 2,203 2,203 12,000 Series B, 5.50% due 6/15/2019(d)........ 8,473 -- 2,824 11,297 3,900 VRDN, Series A, 4.20% due 6/15/2025(a)(c)...................... -- -- 3,900 3,900 400 VRDN, Series C, 4% due 6/15/2022(a)(c).. 200 200 -- 400 2,570 VRDN, Series C, 4% due 6/15/2023(a)(c).. 1,600 -- 970 2,570 6,800 VRDN, Series G, 4.10% due 6/15/2024(a)(c)...................... -- -- 6,800 6,800 New York City, New York, Trust Cultural Resource Revenue Bonds (Solomon R. Guggenheim), VRDN, Series B(a): 1,500 3.90% due 12/01/2015.................... 1,500 -- -- 1,500 3,700 4.10% due 12/01/2015.................... -- -- 3,700 3,700 New York City, New York, UT, Series B (Fiscal 92): 5,000 7.50% due 2/01/2006..................... -- -- 5,480 5,480 2,000 7% due 2/01/2017(b)....................... -- -- 2,171 2,171 F-59 148 COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 1996 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------- MUNIYIELD PRO FORMA NEW YORK MUNIYIELD MUNIVEST FOR INSURED NEW YORK NEW YORK COMBINED New York -- 102.1% II INSURED III INSURED FUND - ----------------------------------------------------------------------------------------------------------- TOTAL FACE AMOUNT ISSUE VALUE VALUE VALUE VALUE - ----------------------------------------------------------------------------------------------------------- $ 2,000 7% due 2/01/2018(b)....................... $ -- $ -- $ 2,171 $ 2,171 10,080 New York City, New York, UT, Series C, Sub-Series C-1, 6.375% due 8/01/2002(d)(e)......................... -- -- 11,092 11,092 New York State Dormitory Authority Revenue Bonds: 3,640 (City University), 6.25% due 7/01/2020(b)............................ 3,776 -- -- 3,776 2,000 (Consolidated City University System), Second Generation, Series A, 5.375% due 7/01/2014........................ -- 1,890 -- 1,890 1,000 (Consolidated City University System), Second Generation, Series A, 5.75% due 7/01/2018(g)..................... -- 980 -- 980 7,000 (Consolidated City University System), Third Generation Reserves, Series 1, 5.375% due 7/01/2025(b).............. 6,418 -- -- 6,418 11,165 (Consolidated City University System), Third Generation Reserves, Series 2, 6.875% due 7/01/2014(d).............. 1,084 4,608 6,414 12,106 2,825 (Consolidated City University System), Second Generation, Series A, 5.75% due 7/01/2013(c)..................... 2,834 -- -- 2,834 4,500 (Cornell University), VRDN, Series B, 4.10% due 7/01/2025(a)............... 1,400 -- 3,100 4,500 11,000 (Department of Health), 5.75% due 7/01/2017............................ 4,636 927 4,636 10,199 6,650 (Mount Sinai School of Medicine), Series A, 5% due 7/01/2016(d)............... 3,246 2,668 -- 5,914 6,000 (Mount Sinai School of Medicine), Series A, 5.15% due 7/01/2024(d)............ 5,370 -- -- 5,370 1,000 Refunding (Colgate University), 6% due 7/01/2016(d)......................... -- 1,028 -- 1,028 F-60 149 COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 1996 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------- MUNIYIELD PRO FORMA NEW YORK MUNIYIELD MUNIVEST FOR INSURED NEW YORK NEW YORK COMBINED New York -- 102.1% II INSURED III INSURED FUND - ----------------------------------------------------------------------------------------------------------- TOTAL FACE AMOUNT ISSUE VALUE VALUE VALUE VALUE - ----------------------------------------------------------------------------------------------------------- $ 1,750 Refunding (Mount Sinai School of Medicine), 6.75% due 7/01/2009(c).... $ 1,912 $ -- $ -- $ 1,912 1,500 Refunding (State University Educational Facilities), Series A, 5.50% due 5/15/2010(c)......................... -- -- 1,496 1,496 4,500 Refunding (State University Educational Facilities), Series A, 5.875% due 5/15/2011(c)......................... -- -- 4,627 4,627 2,000 Refunding (State University Educational Facilities), Series B, 7% due 5/15/2016............................ 2,121 -- -- 2,121 1,050 (Saint John's University), 6.875% due 7/01/2011(b)......................... 1,133 -- -- 1,133 1,380 (State University Educational Facilities), Series A, 5.875% due 5/15/2011(b)......................... -- -- 1,419 1,419 7,315 (Saint Vincent's Hospital and Medical Center), 5.80% due 8/01/2025(b)(h)... -- 2,905 4,179 7,084 2,500 (Upstate Community Colleges), Series A, 5.70% due 7/01/2021.................. -- 2,291 -- 2,291 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds, AMT: 12,000 (Brooklyn Union Gas Company), Series A, 6.75% due 2/01/2024(d)............... 10,571 2,114 -- 12,685 5,000 (Brooklyn Union Gas Company), Series B, 6.75% due 2/01/2024(d)............... -- -- 5,286 5,286 3,250 (Consolidated Edison Company Inc.), Series A, 6.75% due 1/15/2027(b)..... 3,396 -- -- 3,396 6,950 (Consolidated Edison Company, Inc.), Series A, 6.75% due 1/15/2027(d)..... 4,650 2,612 -- 7,262 F-61 150 COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 1996 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------- MUNIYIELD PRO FORMA NEW YORK MUNIYIELD MUNIVEST FOR INSURED NEW YORK NEW YORK COMBINED New York -- 102.1% II INSURED III INSURED FUND - ----------------------------------------------------------------------------------------------------------- TOTAL FACE AMOUNT ISSUE VALUE VALUE VALUE VALUE - ----------------------------------------------------------------------------------------------------------- $ 400 New York State Environmental Facilities Corporation, Resource Recovery Revenue Bonds (OFS Equity Huntington Project), VRDN, AMT, 4.10% due 11/01/2014(a)...... $ 200 $ 200 $ -- $ 400 1,325 New York State Environmental Facilities Corporation, Water Facilities Revenue Bonds (New Rochelle Water Company, Inc. Project), AMT, 6.40% due 12/01/2024(b)........................... 1,348 -- -- 1,348 1,000 New York State HFA, M/F Housing Secured Mortgage Revenue Bonds, AMT, Series A, 6.30% due 8/15/2026(b).................. -- 1,008 -- 1,008 5,910 New York State HFA, Service Contract Obligation Revenue Bonds, Series A, 5.50% due 9/15/2022..................... -- -- 5,243 5,243 New York State Local Government Assistance Corporation, VRDN (a): 9,000 Series B, 4.10% due 4/01/2025........... 7,000 -- 2,000 9,000 7,700 Series F, 3.90% due 4/01/2025........... 5,500 2,200 -- 7,700 New York State Medical Care Facilities Finance Agency Revenue Bonds: 3,000 (Mental Health), Series E, 6.50% due 8/15/2015(f)......................... -- 3,123 -- 3,123 1,500 (Mental Health Services Facilities), Series E, 6.25% due 8/15/2019(f)..... -- 1,530 -- 1,530 4,330 (Mental Health), Series F, 6.50% due 8/15/2012(f)......................... 2,442 2,096 -- 4,538 3,390 (Montefiore Medical Center), Series A, 5.75% due 2/15/2025(d)(e)............ 3,265 -- -- 3,265 12,850 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024(b)(h)............ 6,699 2,144 4,930 13,773 F-62 151 COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 1996 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------- MUNIYIELD PRO FORMA NEW YORK MUNIYIELD MUNIVEST FOR INSURED NEW YORK NEW YORK COMBINED New York -- 102.1% II INSURED III INSURED FUND - ----------------------------------------------------------------------------------------------------------- TOTAL FACE AMOUNT ISSUE VALUE VALUE VALUE VALUE - ----------------------------------------------------------------------------------------------------------- $ 11,750 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029(b)(h)............ $ 8,835 $ 1,299 $ 2,079 $ 12,213 5,200 Refunding (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029(d).... 5,370 -- -- 5,370 4,000 Refunding (Mental Health Services), Series F, 5.25% due 2/15/2021(f)..... -- -- 3,591 3,591 7,125 New York State Thruway Authority General Revenue Bonds, Series B, 5% due 1/01/2020(d)......................... 6,246 -- -- 6,246 New York State Thruway Authority, Highway and Bridge Trust Fund, Series B: 11,000 UT, 6.25% due 4/01/2012(c).............. 8,429 3,161 -- 11,590 7,500 5.125% due 4/01/2015(d)................. 6,842 -- -- 6,842 4,000 New York State Urban Development Corporation Revenue Bonds (Sports Facilities Assistance Program), Series A, 5.50% due 4/01/2019(d)............... -- -- 3,757 3,757 New York State Urban Development Corporation Revenue Bonds (Correctional Facilities): 8,675 Refunding, 5.375% due 1/01/2012(d)...... 8,367 -- -- 8,367 3,000 Refunding, Series 6, 5.375% due 1/01/2025............................ -- 2,619 -- 2,619 6,000 Refunding, Series A, 5% due 1/01/2017(d)......................... -- -- 5,301 5,301 5,000 Series 5, 5.50% due 1/01/2025(d)........ -- 4,666 -- 4,666 1,000 Niagara Falls, New York, Water Treatment Plant, UT, AMT, 7.25% due 11/01/2010(d)........................... -- -- 1,154 1,154 North Hempstead, New York, Refunding Bonds, Series B, UT(c): 1,745 6.40% due 4/01/2013....................... 1,896 -- -- 1,896 555 6.40% due 4/01/2017....................... 595 -- -- 595 F-63 152 COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 1996 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------- MUNIYIELD PRO FORMA NEW YORK MUNIYIELD MUNIVEST FOR INSURED NEW YORK NEW YORK COMBINED New York -- 102.1% II INSURED III INSURED FUND - ----------------------------------------------------------------------------------------------------------- TOTAL FACE AMOUNT ISSUE VALUE VALUE VALUE VALUE - ----------------------------------------------------------------------------------------------------------- Port Authority of New York and New Jersey, Consolidated Revenue Bonds: $ 8,000 72nd Series, 7.35% due 10/01/2002......... $ 5,735 $ 3,441 $ -- $ 9,176 3,000 72nd Series, 7.40% due 10/01/2012(e)...... -- -- 3,372 3,372 8,000 104th Series, 3rd Installment, 4.75% due 1/15/2026............................ 4,162 -- 2,497 6,659 200 Port Authority of New York and New Jersey, Special Obligation Revenue Bonds (Versatile Structure Obligations), VRDN, AMT, Series 1, 4.10% due 8/01/2028(a)... -- 200 -- 200 Syracuse, New York, COP, Revenue Bonds (Syracuse Hancock International Airport), AMT (c): 3,650 6.625% due 1/01/2012...................... 3,795 -- -- 3,795 3,120 6.50% due 1/01/2017....................... 3,191 -- -- 3,191 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal -- Syracuse University Project), VRDN(a): 2,400 3.90% due 3/01/2023....................... 2,400 -- -- 2,400 1,300 4.10% due 3/01/2023....................... -- -- 1,300 1,300 F-64 153 COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 1996 (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------- MUNIYIELD PRO FORMA NEW YORK MUNIYIELD MUNIVEST FOR INSURED NEW YORK NEW YORK COMBINED New York -- 102.1% II INSURED III INSURED FUND - ----------------------------------------------------------------------------------------------------------- TOTAL FACE AMOUNT ISSUE VALUE VALUE VALUE VALUE - ----------------------------------------------------------------------------------------------------------- Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Refunding Bonds: $ 6,575 6.25% due 1/01/2012(b).................... $ 6,821 $ -- $ -- $ 6,821 6,975 Series A, 6.625% due 1/01/2017(d)......... -- 1,589 5,798 7,387 5,150 Series B, 6.875% due 1/01/2015(b)......... -- -- 5,537 5,537 1,000 Series B, 6.875% due 1/01/2015(c)......... -- 1,075 -- 1,075 2,000 Series B, 6.875% due 1/01/2015(d)......... 2,151 -- -- 2,151 - ----------------------------------------------------------------------------------------------------------- Total Investments (Cost -- $441,684) -- 102.1%.................................. $229,742 $ 74,711 $148,271 $452,724 ======== ======== ======== ======== F-65 154 COMBINED SCHEDULE OF INVESTMENTS MUNIVEST NEW YORK INSURED MUNIYIELD NEW YORK INSURED II MUNIYIELD NEW YORK INSURED III SCHEDULE OF INVESTMENTS (UNAUDITED) (CONCLUDED) APRIL 30, 1996 (IN THOUSANDS) (a) The interest rate is subject to change periodically based upon prevailing market rate. The interest rate shown is the rate in effect at April 30, 1996. (b) AMBAC Insured. (c) FGIC Insured. (d) MBIA Insured. (e) Prerefunded. (f) FSA Insured. (g) Capital guaranteed. (h) FHA Insured. * Not Rated. + Highest short-term rating by Moody's Investors Service, Inc. To simplify the listings of the combined portfolios' holdings in the schedule of Investments, we have abbreviated the names of many of the securities according to the list at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation CP Commercial Paper GO General Obligation Bonds HFA Housing Finance Agency IDA Industrial Development Authority M/F Multi-Family UT Unlimited Tax VRDN Variable Rate Demand Notes F-66 155 The following unaudited pro forma Combined Statement of Assets, Liabilities and Capital for the Combined Fund has been derived from the Statements of Assets, Liabilities and Capital of the Funds at April 30, 1996 and such information has been adjusted to give effect to the Reorganization as if the Reorganization had occurred at April 30, 1996. The pro forma Combined Statement of Assets, Liabilities and Capital is presented for informational purposes only and does not purport to be indicative of the financial condition that actually would have resulted if the Reorganization had been consummated at April 30, 1996. The pro forma Combined Statement of Assets, Liabilities and Capital should be read in conjunction with the Funds' financial statements and related notes thereto which are included in this Joint Proxy Statement and Prospectus. COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL AS OF APRIL 30, 1996 (UNAUDITED) MUNIYIELD MUNIYIELD NEW YORK MUNIVEST PRO FORMA NEW YORK INSURED NEW YORK FOR INSURED II III INSURED ADJUSTMENTS COMBINED FUND ----------- ---------- ----------- ----------- ------------- ASSETS: Investments, at value...................................... $229,741,844 $74,711,195 $148,271,406 $ 0 $452,724,445 Cash....................................................... 0 44,535 96,615 0 141,150 Receivables: Interest.................................................. 3,726,356 1,243,452 2,332,396 0 7,302,204 Securities sold........................................... 14,099,097 2,658,875 3,701,344 0 20,459,316 Deferred organization expenses............................. 11,523 15,279 15,660 (30,939) 11,523 Prepaid expenses and other assets.......................... 9,630 4,610 6,404 0 20,644 ------------ ----------- ------------ ----------- ------------ Total assets........................................ 247,588,450 78,677,946 154,423,825 (30,939) 480,659,282 ------------ ----------- ------------ ----------- ------------ LIABILITIES: Payables: Securities purchased...................................... 19,479,545 2,683,933 13,922,234 0 36,085,712 Dividends to shareholders................................. 290,321 92,725 185,827 1,584,658 (1) 2,153,531 Investment adviser........................................ 99,931 33,324 57,767 0 191,022 Accrued expenses and other liabilities..................... 97,955 57,846 69,731 215,000 (2) 440,532 ------------ ----------- ------------ ----------- ------------ Total liabilities................................... 19,967,752 2,867,828 14,235,559 1,799,658 38,870,797 ------------ ----------- ------------ ----------- ------------ Net Assets................................................. $227,620,698 $75,810,118 $140,188,266 $(1,830,597) $441,788,485 ============ =========== ============ =========== ============ CAPITAL: Capital Stock (200,000,000 shares of each fund authorized; 200,000,000 shares as adjusted); Preferred Stock, par value $.05 per share (2,800 shares of MuniYield New York Insured II AMPS,* 1,000 shares of MuniYield New York Insured III AMPS,* and 1,960 shares of MuniVest New York Insured AMPS* issued and outstanding at $25,000 liquidation preference; 5,760 shares for the combined fund as adjusted).............................................. $ 70,000,000 $25,000,000 $ 49,000,000 $ 0 $144,000,000 Common Stock, par value, $.10 per share (11,114,832 shares of MuniYield New York Insured II Common Stock, 3,688,900 shares of MuniYield New York Insured III Common Stock, and 7,204,432 shares of MuniVest New York Insured Common Stock issued and outstanding; 21,126,869 shares for the combined fund as adjusted)......................................... 1,111,483 368,890 720,443 (88,129) 2,112,687 Paid-in-capital in excess of par........................... 154,792,338 51,141,408 100,237,381 (157,810) 306,013,317 Undistributed investment income -- net..................... 825,026 263,067 496,565 (1,584,658) 0 Accumulated realized capital losses on investments -- net........................................ (4,931,254) (2,565,545) (13,881,399) 0 (21,378,198) Unrealized appreciation on investments -- net.............. 5,823,105 1,602,298 3,615,276 0 11,040,679 ------------ ----------- ------------ ----------- ------------ Total -- Equivalent to $14.18 net asset value per share of MuniYield New York Insured II Common Stock, $13.77 net asset value per share of MuniYield New York Insured III Common Stock, $12.66 net asset value per share of MuniVest New York Insured Common Stock, and $14.10 net asset value per share for the combined fund........................... 157,620,698 50,810,118 91,188,266 (1,830,597) 297,788,485 ------------ ----------- ------------ ----------- ------------ Total capital.............................................. $227,620,698 $75,810,118 $140,188,266 $(1,830,597) $441,788,485 ============ =========== =========== =========== ============ - --------------- * Auction Market Preferred Stock (AMPS). (1) Assumes the distribution of undistributed net investment income. (2) Reflects the charge for estimated Reorganization expenses of $215,000. F-67 156 The following unaudited pro forma combined statement of operations for the Combined Fund has been derived from the statements of operations of the Funds for the six months ended April 30, 1996, and such information has been adjusted to give effect to the Reorganization as if the Reorganization had occurred on November 1, 1995. The pro forma combined statement of operations is presented for informational purposes only and does not purport to be indicative of the results of operations that actually would have resulted if the Reorganization had been consummated on November 1, 1995 nor which may result from future operations. The pro forma combined statement of operations should be read in conjunction with the Funds' financial statements and related notes thereto which are included in this Joint Proxy Statement and Prospectus. COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED) MUNIYIELD MUNIYIELD MUNIVEST PRO FORMA NEW YORK NEW YORK NEW YORK FOR INSURED II INSURED III INSURED ADJUSTMENTS COMBINED FUND ---------- ------------ --------- ------------ ------------- INVESTMENT INCOME: Interest and amortization of premium and discount earned....................... $6,667,867 $ 2,216,153 $4,060,417 $ 0 $ 12,944,437 EXPENSES: Investment advisory fees........ 582,804 194,621 360,184 1,137,609 Commission fees................. 88,965 31,546 61,864 182,375 Transfer agent fees............. 25,427 16,447 17,617 59,491 Professional fees............... 40,793 40,536 39,417 120,746 Accounting services............. 28,451 15,975 15,812 60,238 Directors' fees and expenses.... 11,990 11,457 11,452 34,899 Printing and shareholder reports...................... 24,753 17,701 19,239 61,693 Custodian fees.................. 6,660 2,486 5,723 14,869 Listing fees.................... 12,344 8,198 8,052 28,594 Pricing fees.................... 4,782 2,362 3,297 10,441 Amortization of organization expenses..................... 3,482 3,674 3,133 10,289 Other........................... 7,519 5,751 6,943 215,000(1) 235,213 ---------- ---------- ---------- --------- ------------ Total expenses.................. 837,970 350,754 552,733 215,000 1,956,457 ---------- ---------- ---------- --------- ------------ Investment income -- net........ 5,829,897 1,865,399 3,507,684 (215,000) 10,987,980 ---------- ---------- ---------- --------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET: Realized gain on investments -- net........... 510,550 402,118 1,351,653 2,264,321 Change in unrealized appreciation on investments -- net........... (5,506,942) (2,194,318) (4,809,363) (12,510,623) ---------- ---------- ---------- --------- ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $ 833,505 $ 73,199 $ 49,974 $(215,000) $ 741,678 ========== ========== ========== ========= ============ - --------------- (1) Reflects the charge for estimated Reorganization expenses of $215,000. F-68 157 EXHIBIT I AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of the 21st day of August, 1996, by and among MuniVest New York Insured Fund, Inc., a Maryland corporation ("MuniVest New York Insured"), MuniYield New York Insured Fund II, Inc., a Maryland corporation ("MuniYield New York Insured II") and MuniYield New York Insured Fund III, Inc., a Maryland corporation ("MuniYield New York Insured III") (MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III are sometimes referred to herein collectively as the "Funds"). PLAN OF REORGANIZATION The reorganization will comprise (a) the acquisition by MuniYield New York Insured II of all of the assets, and the assumption by MuniYield New York Insured II of all of the liabilities, of MuniVest New York Insured in exchange solely for an equal aggregate value of newly-issued shares of (i) common stock, par value $.10 per share, of MuniYield New York Insured II ("MuniYield New York Insured II Common Stock") and (ii) auction market preferred stock, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to be designated Series B, of MuniYield New York Insured II ("MuniYield New York Insured II Series B AMPS"), (b) the subsequent distribution to MuniVest New York Insured stockholders of (x) all of the MuniYield New York Insured II Common Stock received by MuniVest New York Insured in exchange for their shares of common stock, par value $.10 per share, of MuniVest New York Insured ("MuniVest New York Insured Common Stock") and (y) all of the MuniYield New York Insured II Series B AMPS received by MuniVest New York Insured in exchange for their shares of auction market preferred stock, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared), of MuniVest New York Insured ("MuniVest New York Insured AMPS"), (c) the acquisition by MuniYield New York Insured II of all of the assets, and the assumption by MuniYield New York Insured II of all of the liabilities, of MuniYield New York Insured III in exchange solely for an equal aggregate value of newly-issued shares of (i) MuniYield New York Insured II Common Stock and (ii) auction market preferred stock, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to be designated Series C, of MuniYield New York Insured II ("MuniYield New York Insured II Series C AMPS"), (d) the subsequent distribution to MuniYield New York Insured III stockholders of (x) all of the MuniYield New York Insured II Common Stock received by MuniYield New York Insured III in exchange for their shares of common stock, par value $.10 per share, of MuniYield New York Insured III ("MuniYield New York Insured III Common Stock") and (y) all of the MuniYield New York Insured II Series C AMPS received by MuniYield New York Insured III in exchange for their shares of auction market preferred stock, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared), of MuniYield New York Insured III ("MuniYield New York Insured III AMPS"), and (e) the redesignation of the existing series of auction market preferred stock, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared), of I-1 158 MuniYield New York Insured II (the "MuniYield New York Insured II AMPS") as Series A AMPS, all upon and subject to the terms hereinafter set forth (collectively, the "Reorganization"). In the course of the Reorganization, MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS will be distributed to MuniVest New York Insured stockholders as follows: (i) each holder of MuniVest New York Insured Common Stock will be entitled to receive a number of shares of MuniYield New York Insured II Common Stock equal to the aggregate net asset value of the MuniVest New York Insured Common Stock owned by such stockholder on the Exchange Date (as defined in Section 8(a) of this Agreement); and (ii) each holder of MuniVest New York Insured AMPS will be entitled to receive a number of shares of MuniYield New York Insured II Series B AMPS equal to the aggregate liquidation preference (and aggregate value) of the MuniVest New York Insured AMPS owned by such stockholder on the Exchange Date. In consideration therefor, on the Exchange Date MuniYield New York Insured II shall acquire all of the assets of MuniVest New York Insured and shall assume all of MuniVest New York Insured's obligations and liabilities then existing, whether absolute, accrued, contingent or otherwise. Also in the course of the Reorganization, MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS will be distributed to MuniYield New York Insured III stockholders as follows: (i) each holder of MuniYield New York Insured III Common Stock will be entitled to receive a number of shares of MuniYield New York Insured II Common Stock equal to the aggregate net asset value of the MuniYield New York Insured III Common Stock owned by such stockholder on the Exchange Date (as defined in Section 8(a) of this Agreement); and (ii) each holder of MuniYield New York Insured III AMPS will be entitled to receive a number of shares of MuniYield New York Insured II Series C AMPS equal to the aggregate liquidation preference (and aggregate value) of the MuniYield New York Insured III AMPS owned by such stockholder on the Exchange Date. In consideration therefor, on the Exchange Date MuniYield New York Insured II shall acquire all of the assets of MuniYield New York Insured III and shall assume all of MuniYield New York Insured III's obligations and liabilities then existing, whether absolute, accrued, contingent or otherwise. It is intended that the Reorganization described in this Plan shall be a reorganization within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the "Code"), and any successor provision. Prior to the Exchange Date, MuniVest New York Insured and MuniYield New York Insured III shall declare a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to their respective stockholders all of their respective net investment company taxable income for the period from November 1, 1995 to and including the Exchange Date, if any (computed without regard to any deduction or dividends paid), and all of its net capital gain, if any, realized for the period from November 1, 1995 to and including the Exchange Date. In this regard, the last dividend period for the MuniVest New York Insured AMPS and MuniYield New York Insured III AMPS prior to the Exchange Date may be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary. Separate Articles of Amendment to the Articles Supplementary establishing the powers, rights and preferences of the MuniYield New York Insured II AMPS, redesignating the existing series of MuniYield New York Insured II AMPS as Series A AMPS, and separate Articles Supplementary to MuniYield I-2 159 New York Insured II's Articles of Incorporation establishing the powers, rights and preferences of the MuniYield New York Insured II Series B AMPS and the MuniYield New York Insured II Series C AMPS each will have been filed with the State Department of Assessments and Taxation of Maryland (the "Maryland Department") prior to the Exchange Date. As promptly as practicable after the liquidation of each of MuniVest New York Insured and MuniYield New York Insured III pursuant to the Reorganization, each of MuniVest New York Insured and MuniYield New York Insured III shall be dissolved in accordance with the laws of the State of Maryland and will terminate its respective 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, MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III hereby agree as follows: 1. REPRESENTATIONS AND WARRANTIES OF MUNIVEST NEW YORK INSURED. MuniVest New York Insured represents and warrants to, and agrees with, MuniYield New York Insured II and MuniYield New York Insured III that: (a) MuniVest New York Insured is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland, and has the power to own all of its assets and to carry out this Agreement. MuniVest New York Insured has all necessary Federal, state and local authorizations to carry on its business as it is now being conducted and to carry out this Agreement. (b) MuniVest New York Insured is duly registered under the 1940 Act as a non-diversified, closed-end management investment company (File No. 811-7566), and such registration has not been revoked or rescinded and is in full force and effect. MuniVest New York Insured has elected and qualified for the special tax treatment afforded regulated investment companies ("RICs") under Sections 851-855 of the Code at all times since its inception and intends to continue to so qualify through its final taxable year ending upon liquidation. (c) As used in this Agreement, the term "MuniVest New York Investments" shall mean (i) the investments of MuniVest New York Insured shown on the schedule of its investments as of the Valuation Time furnished to each of MuniYield New York Insured II and MuniYield New York Insured III; and (ii) all other assets owned by MuniVest New York Insured or liabilities incurred by MuniVest New York Insured as of the Valuation Time. (d) MuniVest New York Insured has full power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action of its Board of Directors, and this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto. I-3 160 (e) Each of MuniYield New York Insured II and MuniYield New York Insured III has been furnished with MuniVest New York Insured's Annual Report to Stockholders for the year ended October 31, 1995, and the audited financial statements appearing therein, having been examined by Ernst & Young LLP, independent public accountants, fairly present the financial position of MuniVest New York Insured as of the respective dates indicated, in conformity with generally accepted accounting principles applied on a consistent basis. (f) Each of MuniYield New York Insured II and MuniYield New York Insured III has been furnished with MuniVest New York Insured's Semi-Annual Report to Stockholders for the six months ended April 30, 1996, and the unaudited financial statements appearing therein fairly present the financial position of MuniVest New York Insured as of the respective dates indicated, in conformity with generally accepted accounting principles applied on a consistent basis. (g) An unaudited statement of assets, liabilities and capital of MuniVest New York Insured and an unaudited schedule of investments of MuniVest New York Insured, each as of the Valuation Time (as defined in Section 4(d) of this Agreement) will be furnished to each of MuniYield New York Insured II and MuniYield New York Insured III at or prior to the Exchange Date for the purpose of determining the number of shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS to be issued to MuniVest New York Insured pursuant to Section 5 of this Agreement; and each will fairly present the financial position of MuniVest New York Insured as of the Valuation Time in conformity with generally accepted accounting principles applied on a consistent basis. (h) There are no material legal, administrative or other proceedings pending or, to the knowledge of MuniVest New York Insured, threatened against MuniVest New York Insured which assert liability on the part of MuniVest New York Insured or which materially affect its financial condition or its ability to consummate the Reorganization. MuniVest New York Insured is not charged with or, to the best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business. (i) There are no material contracts outstanding to which MuniVest New York Insured is a party that have not been disclosed in the N-14 Registration Statement (as defined in subsection (o) below) or will not otherwise be disclosed to MuniYield New York Insured II and MuniYield New York Insured III prior to the Valuation Time. (j) MuniVest New York Insured is not a party to or obligated under any provision of its Articles of Incorporation, as amended, or its by-laws, as amended, or 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 MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization. (k) MuniVest New York Insured has no known liabilities of a material amount, contingent or otherwise, other than those shown on its statements of assets, liabilities and capital referred to above, those incurred in the ordinary course of its business as an investment company since April 30, 1996, and those incurred in connection with the Reorganization. As of the Valuation Time, MuniVest New York Insured will advise MuniYield New York Insured II and MuniYield New York Insured III 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. I-4 161 (l) MuniVest New York Insured has filed, or has obtained extensions to file, all Federal, state and local tax returns which are required to be filed by it, and has paid or has obtained extensions to pay, all Federal, state and local taxes shown on said returns to be due and owing and all assessments received by it, up to and including the taxable year in which the Exchange Date occurs. All tax liabilities of MuniVest New York Insured have adequately been provided for on its books, and no tax deficiency or liability of MuniVest New York Insured has been asserted and no question with respect thereto has been raised by the Internal Revenue Service (the "IRS") or by any state or local tax authority for taxes in excess of those already paid, up to and including the taxable year in which the Exchange Date occurs. (m) At both the Valuation Time and the Exchange Date, MuniVest New York Insured will have full right, power and authority to sell, assign, transfer and deliver the MuniVest New York Investments. At the Exchange Date, subject only to the delivery of the MuniVest New York Investments as contemplated by this Agreement, MuniVest New York Insured will have good and marketable title to all of the MuniVest New York Investments, and MuniYield New York Insured II will acquire all of the MuniVest New York Investments free and clear of any encumbrances, liens or security interests and without any restrictions upon the transfer thereof (except those imposed by the Federal or state securities laws and those imperfections of title or encumbrances as do not materially detract from the value or use of the MuniVest New York Investments or materially affect title thereto). (n) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by MuniVest New York Insured 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"), the 1940 Act or state securities laws (which term as used herein shall include the laws of the District of Columbia and Puerto Rico). (o) The registration statement filed by MuniYield New York Insured II on Form N-14 relating to the MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to be issued pursuant to this Agreement, which includes the joint proxy statement of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and the prospectus of MuniYield New York Insured II with respect to the transactions contemplated herein, and any supplement or amendment thereto or to the documents therein (as amended, the "N-14 Registration Statement"), on its effective date, at the time of the stockholders' meetings referred to in Section 7(a) of this Agreement and on the Exchange Date, insofar as it relates to MuniVest New York Insured (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the joint proxy statement and prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall apply only to statements in or omissions from the N-14 Registration Statement made in reliance upon and in conformity with information furnished by MuniVest New York Insured for use in the N-14 Registration Statement as provided in Section 7(e) of this Agreement. I-5 162 (p) MuniVest New York Insured is authorized to issue 200,000,000 shares of capital stock, of which 1,960 shares have been designated as AMPS, and 199,998,040 shares have been designated as common stock, par value $.10 per share, each outstanding share of which is fully paid, nonassessable and has full voting rights. (q) All of the issued and outstanding shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS were offered for sale and sold in conformity with all applicable Federal and state securities laws. (r) The books and records of MuniVest New York Insured made available to MuniYield New York Insured II, MuniYield New York Insured III and/or their counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of MuniVest New York Insured. (s) MuniVest New York Insured will not sell or otherwise dispose of any of the shares of MuniYield New York Insured II Common Stock or MuniYield New York Insured II Series B AMPS to be received in the Reorganization, except in distribution to the stockholders of MuniVest New York Insured as provided in Section 5 of this Agreement. 2. REPRESENTATIONS AND WARRANTIES OF MUNIYIELD NEW YORK INSURED II. MuniYield New York Insured II represents and warrants to, and agrees with, MuniVest New York Insured and MuniYield New York Insured III that: (a) MuniYield New York Insured II is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland, and has the power to own all of its assets and to carry out this Agreement. MuniYield New York Insured II has all necessary Federal, state and local authorizations to carry on its business as it is now being conducted and to carry out this Agreement. (b) MuniYield New York Insured II is duly registered under the 1940 Act as a non-diversified, closed-end management investment company (File No. 811-6661), and such registration has not been revoked or rescinded and is in full force and effect. MuniYield New York Insured II has elected and qualified for the special tax treatment afforded RICs under Sections 851-855 of the Code at all times since its inception, and intends to continue to so qualify both until consummation of the Reorganization and thereafter. (c) As used in this Agreement, the term "MuniYield New York III Investments" shall mean (i) the investments of MuniYield New York Insured III shown on the schedule of its investments as of the Valuation Time furnished to each of MuniVest New York Insured and MuniYield New York Insured II; and (ii) all other assets owned by MuniYield New York Insured III or liabilities incurred by MuniYield New York Insured III as of the Valuation Time. (d) MuniYield New York Insured II has full power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action of its Board of Directors and this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto. I-6 163 (e) Each of MuniVest New York Insured and MuniYield New York Insured III has been furnished with MuniYield New York Insured II's Annual Report to Stockholders for the year ended October 31, 1995, and the audited financial statements appearing therein, having been examined by Deloitte & Touche LLP, independent public accountants, fairly present the financial position of MuniYield New York Insured II as of the respective dates indicated, in conformity with generally accepted accounting principles applied on a consistent basis. (f) Each of MuniVest New York Insured and MuniYield New York Insured III has been furnished with MuniYield New York Insured II's Semi-Annual Report to Stockholders for the six months ended April 30, 1996, and the unaudited financial statements appearing therein fairly present the financial position of MuniYield New York Insured II as of the respective dates indicated, in conformity with generally accepted accounting principles applied on a consistent basis. (g) An unaudited statement of assets, liabilities and capital of MuniYield New York Insured II and an unaudited schedule of investments of MuniYield New York Insured II, each as of the Valuation Time (as defined in Section 4(d) of this Agreement), will be furnished to each of MuniVest New York Insured and MuniYield New York Insured III at or prior to the Exchange Date for the purpose of determining the number of shares of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to be issued pursuant to Section 5 of this Agreement; each will fairly present the financial position of MuniYield New York Insured II as of the Valuation Time in conformity with generally accepted accounting principles applied on a consistent basis. (h) There are no material legal, administrative or other proceedings pending or, to the knowledge of MuniYield New York Insured II, threatened against MuniYield New York Insured II which assert liability on the part of MuniYield New York Insured II or which materially affect its financial condition or its ability to consummate the Reorganization. MuniYield New York Insured II is not charged with or, to the best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business. (i) MuniYield New York Insured II is not a party to or obligated under any provision of its Articles of Incorporation, as amended, or its by-laws, as amended, or 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 MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III 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) There are no material contracts outstanding to which MuniYield New York Insured II is a party that have not been disclosed in the N-14 Registration Statement or will not otherwise be disclosed to MuniVest New York Insured and MuniYield New York Insured III prior to the Valuation Time. (k) MuniYield New York Insured II has no known liabilities of a material amount, contingent or otherwise, other than those shown on MuniYield New York Insured II's statements of assets, liabilities and capital referred to above, those incurred in the ordinary course of its business as an investment company since April 30, 1996 and those incurred in connection with the Reorganization. As of the Valuation Time, MuniYield New York Insured II will advise MuniVest New York Insured and MuniYield New York Insured III 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. I-7 164 (l) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by MuniYield New York Insured II of the Reorganization, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act or state securities laws. (m) The N-14 Registration Statement, on its effective date, at the time of the stockholders' meetings referred to in Section 7(a) of this Agreement and at the Exchange Date, insofar as it relates to MuniYield New York Insured II (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the joint proxy statement and prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection 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 New York Insured II for use in the N-14 Registration Statement as provided in Section 7(e) of this Agreement. (n) MuniYield New York Insured II is authorized to issue 200,000,000 shares of capital stock, of which 2,800 shares have been designated as AMPS, and 199,997,200 shares have been designated as common stock, par value $.10 per share, each outstanding share of which is fully paid, nonassessable and has full voting rights. (o) The MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to be issued to MuniVest New York Insured and MuniYield New York Insured III, as applicable, 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 New York Insured II will have any preemptive right of subscription or purchase in respect thereof. (p) At or prior to the Exchange Date, the MuniYield New York Insured II Common Stock to be transferred to MuniVest New York Insured and MuniYield New York Insured III, as applicable, on the Exchange Date will be duly qualified for offering to the public in all states of the United States in which the sale of shares of MuniVest New York Insured and MuniYield New York Insured III presently are qualified, and there are a sufficient number of such shares registered under the 1933 Act and with each pertinent state securities commission to permit the transfers contemplated by this Agreement to be consummated. (q) At or prior to the Exchange Date the MuniYield New York Insured II Series B AMPS to be transferred to MuniVest New York Insured on the Exchange Date and the MuniYield New York Insured II Series C AMPS to be transferred to MuniYield New York Insured II on the Exchange Date will each be duly qualified for offering to the public in all states of the United States in which the sale of shares of MuniVest New York Insured and MuniYield New York Insured II, respectively, presently are qualified, and there are a sufficient number of such shares registered under the 1933 Act and with each pertinent state securities commission to permit the transfers contemplated by this Agreement to be considered. (r) At or prior to the Exchange Date, MuniYield New York Insured II will have obtained any and all regulatory, Director and stockholder approvals necessary to issue the MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to MuniVest New York Insured and MuniYield New York Insured III, as applicable. I-8 165 3. REPRESENTATIONS AND WARRANTIES OF MUNIYIELD NEW YORK INSURED III. MuniYield New York Insured III represents and warrants to, and agrees with, MuniVest New York Insured and MuniYield New York Insured II that: (a) MuniYield New York Insured III 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 New York Insured III 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 New York Insured III is duly registered under the 1940 Act as a non-diversified, closed-end management investment company (File No. 811-7258), and such registration has not been revoked or rescinded and is in full force and effect. MuniYield New York Insured III has elected and qualified for the special tax treatment afforded regulated investment companies ("RICs") under Sections 851-855 of the Code at all times since its inception and intends to continue to so qualify through its final taxable year ending upon liquidation. (c) MuniYield New York Insured III has full power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action of its Board of Directors, and this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto. (d) Each of MuniVest New York Insured and MuniYield New York Insured II has been furnished with MuniYield New York Insured III's Annual Report to Stockholders for the year ended October 31, 1995, and the audited financial statements appearing therein, having been examined by Ernst & Young LLP, independent public accountants, fairly present the financial position of MuniYield New York Insured III as of the respective dates indicated, in conformity with generally accepted accounting principles applied on a consistent basis. (e) Each of MuniVest New York Insured and MuniYield New York Insured II has been furnished with MuniYield New York Insured III's Semi-Annual Report to Stockholders for the six months ended April 30, 1996, and the unaudited financial statements appearing therein fairly present the financial position of MuniYield New York Insured III as of the respective dates indicated, in conformity with generally accepted accounting principles applied on a consistent basis. (f) An unaudited statement of assets, liabilities and capital of MuniYield New York Insured III and an unaudited schedule of investments of MuniYield New York Insured III, each as of the Valuation Time, will be furnished to each of MuniVest New York Insured and MuniYield New York Insured II at or prior to the Exchange Date for the purpose of determining the number of shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS to be issued pursuant to Section 5 of this Agreement; and each will fairly present the financial position of MuniYield New York Insured III as of the Valuation Time in conformity with generally accepted accounting principles applied on a consistent basis. (g) There are no material legal, administrative or other proceedings pending or, to the knowledge of MuniYield New York Insured III, threatened against MuniYield New York Insured III which assert liability on the part of MuniYield New York Insured III or which materially affect its financial condition or its ability I-9 166 to consummate the Reorganization. MuniYield New York Insured III is not charged with or, to the best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business. (h) There are no material contracts outstanding to which MuniYield New York Insured III is a party that have not been disclosed in the N-14 Registration Statement or will not otherwise be disclosed to MuniVest New York Insured and MuniYield New York Insured II prior to the Valuation Time. (i) MuniYield New York Insured III is not a party to or obligated under any provision of its Articles of Incorporation, as amended, or its by-laws, as amended, or 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 MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III 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) MuniYield New York Insured III has no known liabilities of a material amount, contingent or otherwise, other than those shown on its statements of assets, liabilities and capital referred to above, those incurred in the ordinary course of its business as an investment company since April 30, 1996, and those incurred in connection with the Reorganization. As of the Valuation Time, MuniYield New York Insured III will advise MuniVest New York Insured and MuniYield New York Insured II in writing of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued as of such time. (k) MuniYield New York Insured III has filed, or has obtained extensions to file, all Federal, state and local tax returns which are required to be filed by it, and has paid or has obtained extensions to pay, all Federal, state and local taxes shown on said returns to be due and owing and all assessments received by it, up to and including the taxable year in which the Exchange Date occurs. All tax liabilities of MuniYield New York Insured III have adequately been provided for on its books, and no tax deficiency or liability of MuniYield New York Insured III has been asserted and no question with respect thereto has been raised by the IRS or by any state or local tax authority for taxes in excess of those already paid, up to and including the taxable year in which the Exchange Date occurs. (l) At both the Valuation Time and the Exchange Date, MuniYield New York Insured III will have full right, power and authority to sell, assign, transfer and deliver the MuniYield New York III Investments. At the Exchange Date, subject only to the delivery of the MuniYield New York III Investments as contemplated by this Agreement, MuniYield New York Insured III will have good and marketable title to all of the MuniYield New York III Investments, and MuniYield New York Insured II will acquire all of the MuniYield New York III 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 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 MuniYield New York Insured III of the Reorganization, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act or state securities laws. I-10 167 (n) The N-14 Registration Statement, on its effective date, at the time of the stockholders' meetings referred to in Section 7(a) of this Agreement and on the Exchange Date, insofar as it relates to MuniYield New York Insured III (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the joint proxy statement and prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall apply only to statements in or omissions from the N-14 Registration Statement made in reliance upon and in conformity with information furnished by MuniYield New York Insured III for use in the N-14 Registration Statement as provided in Section 7(e) of this Agreement. (o) MuniYield New York Insured III is authorized to issue 200,000,000 shares of capital stock, of which 1,000 shares have been designated as AMPS, and 199,999,000 shares have been designated as common stock, par value $.10 per share, each outstanding share of which is fully paid, nonassessable and has full voting rights. (p) All of the issued and outstanding shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS were offered for sale and sold in conformity with all applicable Federal and state securities laws. (q) The books and records of MuniYield New York Insured III made available to MuniVest New York Insured, MuniYield New York Insured II and/or their counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of MuniYield New York Insured III. (r) MuniYield New York Insured III will not sell or otherwise dispose of any of the shares of MuniYield New York Insured II Common Stock or MuniYield New York Insured II Series C AMPS to be received in the Reorganization, except in distribution to the stockholders of MuniYield New York Insured III as provided in Section 5 of this Agreement. 4. THE REORGANIZATION. (a) Subject to receiving the requisite approvals of the stockholders of each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and to the other terms and conditions contained herein (i) MuniVest New York Insured agrees to convey, transfer and deliver to MuniYield New York Insured II for the benefit of MuniYield New York Insured II, and MuniYield New York Insured II agrees to acquire from MuniVest New York Insured for the benefit of MuniYield New York Insured II, on the Exchange Date all of the MuniVest New York Investments (including interest accrued as of the Valuation Time on debt instruments), and assume all of the liabilities of MuniVest New York Insured, in exchange solely for that number of shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS provided in Section 5 of this Agreement; and (ii) MuniYield New York Insured III agrees to convey, transfer and deliver to MuniYield New York Insured II for the benefit of MuniYield New York Insured II, and MuniYield New York Insured II agrees to acquire from MuniYield New York Insured III for the benefit of MuniYield New York Insured II, on the Exchange Date all of the MuniYield New York III Investments (including interest accrued as of the Valuation Time on debt instruments), and assume all of the liabilities of MuniYield New York Insured III, in I-11 168 exchange solely for that number of shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS provided in Section 5 of this Agreement. Pursuant to this Agreement, as soon as practicable after the Exchange Date (i) MuniVest New York Insured will distribute all shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS received by it to its stockholders in exchange for their corresponding shares of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS and (ii) MuniYield New York Insured III will distribute all shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS received by it to its stockholders in exchange for their corresponding shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS. Such distributions shall be accomplished by the opening of stockholder accounts on the stock ledger records of MuniYield New York Insured II in the amounts due the stockholders of MuniVest New York Insured and MuniYield New York Insured III based on their respective holdings in such funds as of the Valuation Time. (b) Prior to the Exchange Date, MuniVest New York Insured and MuniYield New York Insured III shall declare a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to their respective stockholders all of their respective net investment company taxable income for the period from November 1, 1995 to and including the Exchange Date, if any (computed without regard to any deduction or dividends paid), and all of its net capital gain, if any, realized for the period from November 1, 1995 to and including the Exchange Date. In this regard, the last dividend period for the MuniVest New York Insured AMPS and MuniYield New York Insured III AMPS prior to the Exchange Date may be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary. (c) Each of MuniVest New York Insured and MuniYield New York Insured III will pay, or cause to be paid, to MuniYield New York Insured II any interest such fund receives on or after the Exchange Date with respect to its respective Investments transferred to MuniYield New York Insured II hereunder. (d) The Valuation Time shall be 4:15 P.M., New York time, on October 25, 1996, or such earlier or later day and time as mutually may be agreed upon in writing (the "Valuation Time"). (e) MuniYield New York Insured II will acquire all of the assets of, and assume all of the known liabilities of, each of MuniVest New York Insured and MuniYield New York Insured III, except that recourse for such liabilities will be limited to MuniYield New York Insured II. The known liabilities of each of MuniVest New York Insured and MuniYield New York Insured III as of the Valuation Time shall be confirmed in writing to MuniYield New York Insured II pursuant to Sections 1(k) and 3(k) of this Agreement. (f) MuniYield New York Insured II will file with the Maryland Department (i) separate Articles of Amendment to the Articles Supplementary establishing the powers, rights and preferences of the MuniYield New York Insured II AMPS, redesignating the existing series of MuniYield New York Insured II AMPS as Series A AMPS and (ii) separate Articles Supplementary to its Articles of Incorporation establishing the powers, rights and preferences of the MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS prior to the closing of the Reorganization. I-12 169 (g) MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III will jointly file Articles of Transfer with the Maryland Department and any such other instrument as may be required by the State of Maryland to effect the transfer of the MuniVest New York Investments and the MuniYield New York III Investments to MuniYield New York Insured II. (h) MuniVest New York Insured and MuniYield New York Insured III will each be dissolved following the Exchange Date by filing separate Articles of Dissolution with the Maryland Department. (i) As promptly as practicable after the liquidation of each of MuniVest New York Insured and MuniYield New York Insured III pursuant to the Reorganization, MuniVest New York Insured and MuniYield New York Insured III shall each terminate its respective registration under the 1940 Act. 5. ISSUANCE AND VALUATION OF MUNIYIELD NEW YORK INSURED II COMMON STOCK, MUNIYIELD NEW YORK INSURED II SERIES B AMPS AND MUNIYIELD NEW YORK INSURED II SERIES C AMPS IN THE REORGANIZATION. Full shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS of an aggregate net asset value or liquidation preference, as the case may be, equal (to the nearest one ten thousandth of one cent) to the value of the assets of MuniVest New York Insured acquired in the Reorganization determined as hereinafter provided, reduced by the amount of liabilities of MuniVest New York Insured assumed by MuniYield New York Insured II, shall be issued by MuniYield New York Insured II in exchange for such assets of MuniVest New York Insured, plus cash in lieu of fractional shares. Full shares of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS of an aggregate net asset value or liquidation preference, as the case may be, equal (to the nearest one ten thousandth of one cent) to the value of the assets of MuniYield New York Insured III acquired in the Reorganization determined as hereinafter provided, reduced by the amount of liabilities of MuniYield New York Insured III assumed by MuniYield New York Insured II, shall be issued by MuniYield New York Insured II in exchange for such assets of MuniYield New York Insured III, plus cash in lieu of fractional shares. The net asset value of each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III shall be determined as of the Valuation Time in accordance with the procedures described in (i) the prospectus of MuniYield New York Insured II, dated June 19, 1992, relating to the MuniYield New York Insured II Common Stock and (ii) the prospectus of MuniYield New York Insured II, dated September 11, 1992, relating to the MuniYield New York Insured II AMPS, and no formula will be used to adjust the net asset value so determined of either MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III to take into account differences in realized and unrealized gains and losses. Values in all cases shall be determined as of the Valuation Time. The value of the MuniVest New York Investments and of the MuniYield New York III Investments to be transferred to MuniYield New York Insured II shall be determined by MuniYield New York Insured II pursuant to the procedures utilized by MuniYield New York Insured II in valuing its own assets and determining its own liabilities for purposes of the Reorganization. Such valuation and determination shall be made by MuniYield New York Insured II in cooperation with MuniVest New York Insured and MuniYield New York Insured III and shall be confirmed in writing by MuniYield New York Insured II to MuniVest New York Insured and MuniYield New York Insured III. The net asset value per share of the MuniYield New York Insured II Common Stock and the liquidation preference per share of the MuniYield New York I-13 170 Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS shall be determined in accordance with such procedures and MuniYield New York Insured II shall certify the computations involved. MuniYield New York Insured II shall issue to MuniVest New York Insured separate certificates or share deposit receipts for the MuniYield New York Insured II Common Stock and the MuniYield New York Insured II Series B AMPS, each registered in the name of MuniVest New York Insured. MuniVest New York Insured then shall distribute the MuniYield New York Insured II Common Stock and the MuniYield New York Insured II Series B AMPS to its corresponding stockholders of MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS by redelivering the certificates or share deposit receipts evidencing ownership of (i) the MuniYield New York Insured II Common Stock to State Street Bank and Trust Company, as the transfer agent and registrar for the MuniYield New York Insured II Common Stock and (ii) the MuniYield New York Insured II Series B AMPS to IBJ Schroder Bank and Trust Company, as the transfer agent and registrar for the MuniYield New York Insured II Series B AMPS. With respect to any MuniVest New York Insured stockholder holding certificates evidencing ownership of either the MuniVest New York Insured Common Stock or the MuniVest New York Insured AMPS as of the Exchange Date, and subject to MuniYield New York Insured II being informed thereof in writing by MuniVest New York Insured, MuniYield New York Insured II will not permit such stockholder to receive new certificates evidencing ownership of the MuniYield New York Insured II Common Stock or MuniYield New York Insured II Series B AMPS, exchange MuniYield New York Insured II Common Stock or MuniYield New York Insured II Series B AMPS credited to such stockholder's account for shares of other investment companies managed by Merrill Lynch Asset Management, L.P. or any of its affiliates, or pledge or redeem such MuniYield New York Insured II Common Stock or MuniYield New York Insured II Series B AMPS, in any case, until notified by MuniVest New York Insured or its agent that such stockholder has surrendered his or her outstanding certificates evidencing ownership of the MuniVest New York Insured Common Stock or the MuniVest New York Insured III AMPS or, in the event of lost certificates, posted adequate bond. MuniVest New York Insured, at its own expense, will request its stockholders to surrender their outstanding certificates evidencing ownership of the MuniVest New York Insured Common Stock or the MuniVest New York Insured AMPS, as the case may be, or post adequate bond therefor. MuniYield New York Insured II shall issue to MuniYield New York Insured III separate certificates or share deposit receipts for the MuniYield New York Insured II Common Stock and the MuniYield New York Insured II Series C AMPS, each registered in the name of MuniYield New York Insured III. MuniYield New York Insured III then shall distribute the MuniYield New York Insured II Common Stock and the MuniYield New York Insured II Series C AMPS to its corresponding stockholders of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS by redelivering the certificates or share deposit receipts evidencing ownership of (i) the MuniYield New York Insured II Common Stock to State Street Bank and Trust Company, as the transfer agent and registrar for the MuniYield New York Insured II Common Stock and (ii) the MuniYield New York Insured II Series C AMPS to IBJ Schroder Bank and Trust Company, as the transfer agent and registrar for the MuniYield New York Insured II Series C AMPS. With respect to any MuniYield New York Insured III stockholder holding certificates evidencing ownership of either the MuniYield New York Insured III Common Stock or the MuniYield New York Insured III AMPS as of the Exchange Date, and subject to MuniYield New York Insured II being informed thereof in writing by MuniYield New York Insured III, MuniYield New York Insured II will not permit such stockholder to receive new certificates evidencing ownership of the MuniYield New York Insured II Common I-14 171 Stock or MuniYield New York Insured II Series C AMPS, exchange MuniYield New York Insured II Common Stock or MuniYield New York Insured II Series C AMPS credited to such stockholder's account for shares of other investment companies managed by Merrill Lynch Asset Management, L.P. or any of its affiliates, or pledge or redeem such MuniYield New York Insured II Common Stock or MuniYield New York Insured II Series C AMPS, in any case, until notified by MuniYield New York Insured III or its agent that such stockholder has surrendered his or her outstanding certificates evidencing ownership of the MuniYield New York Insured III Common Stock or the MuniYield New York Insured AMPS or, in the event of lost certificates, posted adequate bond. MuniYield New York Insured III, at its own expense, will request its stockholders to surrender their outstanding certificates evidencing ownership of the MuniYield New York Insured III Common Stock or the MuniYield New York Insured III AMPS, as the case may be, or post adequate bond therefor. Dividends payable to holders of record of shares of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS, as the case may be, as of any date after the Exchange Date and prior to the exchange of certificates by any stockholder of MuniVest New York Insured or MuniYield New York Insured III shall be payable to such stockholder without interest; however, such dividends shall not be paid unless and until such stockholder surrenders his or her stock certificates of MuniVest New York Insured or MuniYield New York Insured III, as the case may be, for exchange. No fractional shares of MuniYield New York Insured II Common Stock will be issued to holders of MuniVest New York Insured Common Stock or MuniYield New York Insured III Common Stock. In lieu thereof, MuniYield New York Insured II's transfer agent, State Street Bank and Trust Company, will aggregate all fractional shares of MuniYield New York Insured II Common Stock and sell the resulting full shares on the New York Stock Exchange at the current market price for shares of MuniYield New York Insured II 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 MuniVest New York Insured Common Stock or MuniYield New York Insured III Common Stock certificates. 6. PAYMENT OF EXPENSES. (a) MuniYield New York Insured II shall pay, subsequent to the Exchange Date, all expenses incurred in connection with the Reorganization, including, but not limited to, all costs related to the preparation and distribution of a memorandum to the independent Directors of each of the Funds, the N-14 Registration Statement and a private letter ruling request to the IRS, expenses incurred in connection with the deregistration and dissolution of each of MuniVest New York Insured and MuniYield New York Insured III and the fees of special counsel to the Reorganization. Such fees and expenses shall include legal, accounting and state securities or blue sky fees, printing costs, filing fees, stock exchange fees, rating agency fees, portfolio transfer taxes (if any), and any similar expenses incurred in connection with the Reorganization. Neither MuniVest New York Insured, MuniYield New York Insured II nor MuniYield New York Insured III shall pay any expenses of its respective stockholders arising out of or in connection with the Reorganization. (b) If for any reason the Reorganization is not consummated, no party shall be liable to any other party for any damages resulting therefrom, including, without limitation, consequential damages. I-15 172 7. COVENANTS OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED II AND MUNIYIELD NEW YORK INSURED III. (a) MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III each agrees to call an annual meeting of its respective stockholders as soon as is practicable after the effective date of the N-14 Registration Statement for the purpose of considering the Reorganization as described in this Agreement. (b) MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III each covenants to operate its respective business as presently conducted between the date hereof and the Exchange Date. (c) Each MuniVest New York Insured and MuniYield New York Insured III agrees that following the consummation of the Reorganization, it will liquidate and dissolve in accordance with the laws of the State of Maryland and any other applicable law, it will not make any distributions of any MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS, as applicable, other than to the stockholders of MuniVest New York Insured and MuniYield New York Insured III and without first paying or adequately providing for the payment of all of the liabilities of MuniVest New York Insured and of MuniYield New York Insured III not assumed by MuniYield New York Insured II, if any, and on and after the Exchange Date it shall not conduct any business except in connection with its liquidation and dissolution. (d) MuniVest New York Insured and MuniYield New York Insured III each undertakes that if the Reorganization is consummated, it will file, or cause its agents to file, an application pursuant to Section 8(f) of the 1940 Act for an order declaring that such fund has ceased to be a registered investment company. (e) MuniYield New York Insured II 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. MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III each agrees to cooperate fully with the others, and each will furnish to the others the information relating to itself to be set forth in the N-14 Registration Statement as required by the 1933 Act, the 1934 Act, the 1940 Act, and the rules and regulations thereunder and the state securities or blue sky laws. (f) MuniYield New York Insured II agrees to advise MuniVest New York Insured or MuniYield New York Insured III, as applicable, promptly in writing if at any time prior to the Exchange Date the assets of MuniVest New York Insured or MuniYield New York Insured III include any assets which MuniYield New York Insured II is not permitted, or reasonably believes to be unsuitable for it, to acquire, including without limitation any security which, prior to its acquisition by MuniVest New York Insured or MuniYield New York Insured III, MuniYield New York Insured II has informed MuniVest New York Insured or MuniYield New York Insured III is unsuitable for MuniYield New York Insured II to acquire. Moreover, MuniYield New York Insured II has no plan or intention to sell or otherwise dispose of the assets of MuniVest New York Insured and/or MuniYield New York Insured III to be acquired in the Reorganization, except for dispositions made in the ordinary course of business. (g) MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III each agrees that by the Exchange Date all of its Federal and other tax returns and reports required I-16 173 to be filed on or before such date shall have been filed and all taxes shown as due on said returns either have been paid or adequate liability reserves have been provided for the payment of such taxes. In connection with this covenant, the Funds agree to cooperate with each other in filing any tax return, amended return or claim for refund, determining a liability for taxes or a right to a refund of taxes or participating in or conducting any audit or other proceeding in respect of taxes. MuniYield New York Insured II agrees to retain for a period of ten (10) years following the Exchange Date all returns, schedules and work papers and all material records or other documents relating to tax matters of MuniVest New York Insured and MuniYield New York Insured III for their taxable period first ending after the Exchange Date and for all prior taxable periods. Any information obtained under this subsection shall be kept confidential except as otherwise may be necessary in connection with the filing of returns or claims for refund or in conducting an audit or other proceeding. After the Exchange Date, each of MuniVest New York Insured and MuniYield New York Insured III shall prepare, or cause its agents to prepare, any Federal, state or local tax returns, including any Forms 1099, required to be filed by such Fund with respect to such Fund's final taxable year ending with its complete liquidation and for any prior periods or taxable years and further shall cause such tax returns and Forms 1099 to be duly filed with the appropriate taxing authorities. Notwithstanding the aforementioned provisions of this subsection, any expenses incurred by MuniVest New York Insured or MuniYield New York Insured III (other than for payment of taxes) in connection with the preparation and filing of said tax returns and Forms 1099 after the Exchange Date shall be borne by MuniYield New York Insured II. (h) MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III each agrees to mail to each of its respective stockholders of record entitled to vote at that Fund's annual meeting of stockholders at which action is to be considered regarding this Agreement, in sufficient time to comply with requirements as to notice thereof, a combined Proxy Statement and Prospectus which complies in all material respects with the applicable provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules and regulations, respectively, thereunder. (i) Following the consummation of the Reorganization, MuniYield New York Insured II expects to stay in existence and continue its business as a closed-end management investment company registered under the 1940 Act. 8. EXCHANGE DATE. (a) Delivery of the assets of MuniVest New York Insured and MuniYield New York Insured III to be transferred, together with any other MuniVest New York Investments or MuniYield New York III Investments, and the MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to be issued, shall be made at the offices of Brown & Wood LLP, One World Trade Center, New York, New York 10048, at 10:00 A.M. on the next full business day following the Valuation Time, or at such other place, time and date agreed to by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, the date and time upon which such delivery is to take place being referred to herein as the "Exchange Date". To the extent that any MuniVest New York Investments or MuniYield New York III Investments, for any reason, are not transferable on the Exchange Date, MuniVest New York Insured or MuniYield New York Insured III, as applicable, shall cause such Investments to be transferred to MuniYield New York Insured II's account with State Street Bank and Trust Company at the earliest practicable date thereafter. I-17 174 (b) MuniVest New York Insured and MuniYield New York Insured III will deliver to MuniYield New York Insured II on the Exchange Date confirmations or other adequate evidence as to the tax basis of each of the MuniVest New York Investments and MuniYield New York III Investments delivered to MuniYield New York Insured II hereunder, certified by Ernst & Young LLP. (c) MuniYield New York Insured II shall have made prior arrangements for the delivery on the Exchange Date of the MuniVest New York Investments and MuniYield New York III Investments to State Street Bank and Trust Company as the custodian for MuniYield New York Insured II. (d) As soon as practicable after the close of business on the Exchange Date, (i) MuniVest New York Insured shall deliver to MuniYield New York Insured II a list of the names and addresses of all of the stockholders of record of MuniVest New York Insured on the Exchange Date and the number of shares of MuniVest New York Insured Common Stock and/or MuniVest New York Insured AMPS owned by each such stockholder, certified to the best of their knowledge and belief by the transfer agent for the MuniVest New York Insured Common Stock or the MuniVest New York Insured AMPS, as applicable, or by its President; and (ii) MuniYield New York Insured III shall deliver to MuniYield New York Insured II a list of the names and addresses of all of the stockholders of record of MuniYield New York Insured III on the Exchange Date and the number of shares of MuniYield New York Insured III Common Stock and/or MuniYield New York Insured III AMPS owned by each such stockholder, certified to the best of their knowledge and belief by the transfer agent for the MuniYield New York Insured III Common Stock or the MuniYield New York Insured III AMPS, as applicable, or by its President. 9. MUNIVEST NEW YORK INSURED CONDITIONS. The obligations of MuniVest New York Insured hereunder shall be subject to the following conditions: (a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by the affirmative vote of two-thirds of the members of the Boards of Directors of each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and by the affirmative vote of (i) the holders of (a) a majority of the MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS, voting together as a single class, and (b) a majority of the MuniVest New York Insured AMPS, voting separately as a class, in each case issued and outstanding and entitled to vote thereon; (ii) the holders of (a) a majority of the MuniYield New York Insured II Common Stock and MuniYield New York Insured II AMPS, voting together as a single class, and (b) a majority of the MuniYield New York Insured II AMPS, voting separately as a class, in each case issued and outstanding and entitled to vote thereon; and (iii) the holders of (a) a majority of the MuniYield New York Insured III Common Stock and the MuniYield New York Insured III AMPS, voting together as a single class, and (b) a majority of the MuniYield New York Insured III AMPS, voting separately as a class, in each case issued and outstanding and entitled to vote thereon; and further that (1) MuniVest New York Insured shall have delivered to each of MuniYield New York Insured II and MuniYield New York Insured III a copy of the resolution approving this Agreement adopted by MuniVest New York Insured's Board of Directors, and a certificate setting forth the vote of MuniVest New York Insured's stockholders obtained, each certified by the Secretary of MuniVest New York Insured; (2) MuniYield New York Insured II shall have delivered to each of MuniVest New York Insured and MuniYield New York Insured III a copy of the resolution approving this Agreement adopted by MuniYield New York Insured II's Board of Directors, and a certificate setting forth the vote of MuniYield New York Insured II's stockholders obtained, each certified by the Secretary of MuniYield New York I-18 175 Insured II; and (3) MuniYield New York Insured III shall have delivered to each of MuniVest New York Insured and MuniYield New York Insured II a copy of the resolution approving this Agreement adopted by MuniYield New York Insured III's Board of Directors, and a certificate setting forth the vote of MuniYield New York Insured III's stockholders obtained, each certified by the Secretary of MuniYield New York Insured III. (b) That each of MuniYield New York Insured II and MuniYield New York Insured III shall have furnished to MuniVest New York Insured a statement of assets, liabilities and capital, with values determined as provided in Section 5 of this Agreement, together with a schedule of its respective investments, all as of the Valuation Time, certified on each Fund's behalf by its respective President (or any Vice President) and its Treasurer, and a certificate signed by the Fund's President (or any Vice President) and its Treasurer, dated as of the Exchange Date, certifying that as of the Valuation Time and as of the Exchange Date there has been no material adverse change in the financial position of the Fund since October 31, 1995, other than changes in its portfolio securities since that date or changes in the market value of its portfolio securities. (c) That each of MuniYield New York Insured II and MuniYield New York Insured III shall have furnished to MuniVest New York Insured a certificate signed by its respective President (or any Vice President) and its Treasurer, dated as of the Exchange Date, certifying that as of the Valuation Time and as of the Exchange Date all representations and warranties of MuniYield New York Insured II or MuniYield New York Insured III, respectively, 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 New York Insured II or MuniYield New York Insured III, respectively, 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 date. (d) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement. (e) That MuniVest New York Insured shall have received an opinion or opinions of Brown & Wood LLP, as counsel to MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, in form and substance satisfactory to MuniVest New York Insured and dated the Exchange Date, to the effect that (i) each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland; (ii) the MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to be issued pursuant to this Agreement are duly authorized and, upon delivery, will be validly issued and outstanding and fully paid and nonassessable by MuniYield New York Insured II, and no stockholder of MuniYield New York Insured II has any preemptive right to subscription or purchase in respect thereof (pursuant to the Articles of Incorporation, as amended, or the by-laws of MuniYield New York Insured II or, to the best of such counsel's knowledge, otherwise); (iii) this Agreement has been duly authorized, executed and delivered by each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and represents a valid and binding contract, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws pertaining to the enforcement of creditors' rights generally and equitable principles; (iv) each of MuniVest New York Insured and MuniYield New York Insured III has the power to sell, assign, transfer and deliver its respective assets transferred by it hereunder and, upon consummation of the Reorganization in accordance with the terms of this Agreement, each of MuniVest New York Insured and MuniYield New York Insured III will have duly transferred its I-19 176 respective assets and liabilities in accordance with this Agreement; (v) to the best of such counsel's knowledge, no consent, approval, authorization or order of any United States federal or Maryland state court or governmental authority is required for the consummation by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III 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 or blue sky laws; (vi) the N-14 Registration Statement has become effective under the 1933 Act, no stop order suspending the effectiveness of the N-14 Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the 1933 Act, and the N-14 Registration Statement, and each amendment or supplement thereto, as of their respective effective dates, appear on their face to be appropriately responsive in all material respects to the requirements of the 1933 Act, the 1934 Act and the 1940 Act and the published rules and regulations of the Commission thereunder; (vii) 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; (viii) such counsel do 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; (ix) the execution and delivery of this Agreement does not, and the consummation of the Reorganization will not, violate any material provision of the Articles of Incorporation, as amended, the by-laws, as amended, or any agreement (known to such counsel) to which either MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III is a party or by which either MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III is bound, except insofar as the parties have agreed to amend such provision as a condition precedent to the Reorganization; (x) neither MuniVest New York Insured, MuniYield New York Insured II nor MuniYield New York Insured III, 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 or blue sky laws, and except where each has so qualified or the failure so to qualify would not have a material adverse effect on MuniVest New York Insured, MuniYield New York Insured II, MuniYield New York Insured III or their respective stockholders; (xi) to the best of such counsel's knowledge no material suit, action or legal or administrative proceeding is pending or threatened against MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, the unfavorable outcome of which would materially adversely affect MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III; and (xii) all corporate actions required to be taken by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III to authorize this Agreement and to effect the Reorganization have been duly authorized by all necessary corporate actions on the part of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III. Such opinion also shall state that (x) while such counsel cannot make any representation as to the accuracy or completeness of statements of fact in the N-14 Registration Statement or any amendment or supplement thereto, nothing has come to their attention that would lead them to believe that, on the respective effective dates of the N-14 Registration Statement and any amendment or supplement thereto, (1) the N-14 Registration Statement or any amendment or supplement thereto contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (2) the prospectus included in the N-14 Registration Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and I-20 177 (y) such counsel do not express any opinion or belief as to the financial statements, other financial data, statistical data or information relating to MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III contained or incorporated by reference in the N-14 Registration Statement. In giving the opinion set forth above, Brown & Wood LLP may state that it is relying on certificates of officers of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III with regard to matters of fact and certain certificates and written statements of governmental officials with respect to the good standing of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and on the opinion of Wilmer, Cutler & Pickering as to matters of Maryland law. (f) That MuniVest New York Insured shall have received a private letter ruling from the IRS, to the effect that for Federal income tax purposes (i) the transfer of all of the MuniVest New York Investments and MuniYield New York III Investments to MuniYield New York Insured II in exchange solely for MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS as provided in this Agreement will constitute a reorganization within the meaning of Section 368(a)(1)(C) of the Code, and MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III will each be deemed a "party" to a Reorganization within the meaning of Section 361(b) of the Code; (ii) in accordance with Section 361(a) of the Code, (a) no gain or loss will be recognized to MuniVest New York Insured as a result of the Reorganization or on the distribution of MuniYield New York Insured II Common Stock and, MuniYield New York Insured II Series B AMPS to MuniVest New York Insured stockholders under Section 361(c)(1) of the Code and no gain or loss will be recognized to MuniYield New York Insured II as a result of the Reorganization or on the distribution of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS to MuniYield New York Insured III 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 New York Insured II 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 (a) the stockholders of MuniVest New York Insured on the receipt of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series B AMPS in exchange for their corresponding MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS or (b) to the stockholders of MuniYield New York Insured III on the receipt of MuniYield New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS in exchange for their corresponding shares of MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS, (except in each case to the extent that MuniVest New York Insured stockholders and MuniYield New York Insured III stockholders receive cash representing an interest in fractional shares of MuniYield New York Insured II Common Stock in the Reorganization); (v) in accordance with Section 362(b) of the Code, the tax basis of the MuniVest New York Insured assets and the MuniYield New York Insured III assets in the hands of MuniYield New York Insured II will be the same as the tax basis of such assets in the hands of MuniVest New York Insured or MuniYield New York Insured III immediately prior to the consummation of the Reorganization; (vi) in accordance with Section 358 of the Code, immediately after the Reorganization, the tax basis of the MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS received by the stockholders of MuniVest New York Insured and MuniYield New York Insured III in the Reorganization will be equal, in the aggregate, to the tax basis of the MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock and MuniYield New York Insured III AMPS surrendered, respectively, in exchange; (vii) in accordance with I-21 178 Section 1223 of the Code, a stockholder's holding period for the MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS will be determined by including the period for which such stockholder held the MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York Insured III AMPS exchanged therefor, as the case maybe, provided, that such MuniVest New York Insured shares or MuniYield New York Insured III shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, MuniYield New York Insured II's holding period with respect to the MuniVest New York Insured assets and MuniYield New York Insured III assets transferred will include the period for which such assets were held by MuniVest New York Insured or MuniYield New York Insured III; (ix) the payment of cash to MuniVest New York Insured stockholders and MuniYield New York Insured III stockholders in lieu of fractional shares of MuniYield New York Insured II will be treated as though the fractional shares were distributed as part of the Reorganization and then redeemed by MuniYield New York Insured II, with the result that each MuniVest New York Insured stockholder and MuniYield New York Insured III stockholder will have short- or long-term capital gain or loss to the extent that the cash distribution differs from such stockholder's basis allocable to the MuniYield New York Insured II fractional shares; and (x) the taxable year of each of MuniVest New York Insured and MuniYield New York Insured III will end on the effective date of the Reorganization and pursuant to Section 381(a) of the Code and regulations thereunder, MuniYield New York Insured II will succeed to and take into account certain tax attributes of each of MuniVest New York Insured and MuniYield New York Insured III, such as earnings and profits, capital loss carryovers and method of accounting. (g) That all proceedings taken by MuniYield New York Insured II, MuniYield New York Insured III and their counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to MuniVest New York Insured. (h) That the N-14 Registration Statement shall have become effective under the 1933 Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of MuniYield New York Insured II or MuniYield New York Insured III, contemplated by the Commission. (i) That MuniVest New York Insured shall have received from Deloitte & Touche LLP a letter dated as of the effective date of the N-14 Registration Statement and a similar letter dated within five days prior to the Exchange Date, in form and substance satisfactory to MuniVest New York Insured, to the effect that (i) they are independent public accountants with respect to MuniYield New York Insured II within the meaning of the 1933 Act and the applicable published rules and regulations thereunder; (ii) in their opinion, the financial statements and supplementary information of MuniYield New York Insured II included or incorporated by reference in the N-14 Registration Statement and reported on by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (iii) on the basis of limited procedures agreed upon by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and described in such letter (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of any unaudited interim financial statements and unaudited supplementary information of MuniYield New York Insured II included in the N-14 Registration Statement, and inquiries of certain officials of MuniYield New York Insured II responsible for financial and accounting matters, nothing came to their attention that caused them to believe that (a) such unaudited financial statements and related unaudited supplementary information do not comply as to form in all material respects with the applicable accounting requirements of I-22 179 the 1933 Act and the published rules and regulations thereunder, (b) such unaudited financial statements are not fairly presented in conformity with generally accepted accounting principles, applied on a basis substantially consistent with that of the audited financial statements, or (c) such unaudited supplementary information is not fairly stated in all material respects in relation to the unaudited financial statements taken as a whole; and (iv) on the basis of limited procedures agreed upon by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and described in such letter (but not an examination in accordance with generally accepted auditing standards), the information relating to MuniYield New York Insured II appearing in the N-14 Registration Statement, which information is expressed in dollars (or percentages derived from such dollars) concerning MuniYield New York Insured II (with the exception of performance comparisons, if any), if any, has been obtained from the accounting records of MuniYield New York Insured II or from schedules prepared by officials of MuniYield New York Insured II having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom. (j) That MuniVest New York Insured shall have received from Ernst & Young LLP a letter dated as of the effective date of the N-14 Registration Statement and a similar letter dated within five days prior to the Exchange Date, in form and substance satisfactory to MuniVest New York Insured, to the effect that (i) they are independent public accountants with respect to MuniYield New York Insured III 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 New York Insured III included or incorporated by reference in the N-14 Registration Statement and reported on by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (iii) on the basis of limited procedures agreed upon by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and described in such letter (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of any unaudited interim financial statements and unaudited supplementary information of MuniYield New York Insured III included in the N-14 Registration Statement, and inquiries of certain officials of MuniYield New York Insured III responsible for financial and accounting matters, nothing came to their attention that caused them to believe that (a) such unaudited financial statements and related unaudited supplementary information do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder, (b) such unaudited financial statements are not fairly presented in conformity with generally accepted accounting principles, applied on a basis substantially consistent with that of the audited financial statements, or (c) such unaudited supplementary information is not fairly stated in all material respects in relation to the unaudited financial statements taken as a whole; and (iv) on the basis of limited procedures agreed upon by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and described in such letter (but not an examination in accordance with generally accepted auditing standards), the information relating to MuniYield New York Insured III appearing in the N-14 Registration Statement, which information is expressed in dollars (or percentages derived from such dollars) concerning MuniYield New York Insured III (with the exception of performance comparisons, if any), if any, has been obtained from the accounting records of MuniYield New York Insured III or from schedules prepared by officials of MuniYield New York Insured III having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom. I-23 180 (k) That the Commission shall not have issued an unfavorable advisory report under Section 25(b) of the 1940 Act, nor instituted or threatened to institute any proceeding seeking to enjoin consummation of the Reorganization under Section 25(c) of the 1940 Act, no other legal, administrative or other proceeding shall be instituted or threatened which would materially affect the financial condition of MuniYield New York Insured II or MuniYield New York Insured III or would prohibit the Reorganization. (l) That MuniVest New York Insured shall have received from the Commission such orders or interpretations as Brown & Wood LLP, as counsel to MuniVest New York Insured, deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in connection with the Reorganization, provided, that such counsel shall have requested such orders as promptly as practicable, and all such orders shall be in full force and effect. 10. MUNIYIELD NEW YORK INSURED II CONDITIONS. The obligations of MuniYield New York Insured II hereunder shall be subject to the following conditions: (a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by all of the requisite votes set forth in Section 9(a) of this Agreement, and that all such certificates as set forth in such Section shall have been obtained. (b) That each of MuniVest New York Insured and MuniYield New York Insured III shall have furnished to MuniYield New York Insured II a statement of assets, liabilities and capital, with values determined as provided in Section 5 of this Agreement, together with a schedule of investments with their respective dates of acquisition and tax costs, all as of the Valuation Time, certified on each fund's behalf by its respective President (or any Vice President) and its Treasurer, and a certificate of both such officers, dated the Exchange Date, certifying that as of the Valuation Time and as of the Exchange Date there has been no material adverse change in the financial position of the fund since October 31, 1995, other than changes in such fund's Investments since that date or changes in the market value of such fund's Investments. (c) That each of MuniVest New York Insured and MuniYield New York Insured III shall have furnished to MuniYield New York Insured II a certificate signed by its respective President (or any Vice President) and its Treasurer, dated the Exchange Date, certifying that as of the Valuation Time and as of the Exchange Date all representations and warranties of MuniVest New York Insured or MuniYield New York Insured III, respectively, 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 MuniVest New York Insured or MuniYield New York Insured III, respectively, 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 MuniVest New York Insured shall have delivered to MuniYield New York Insured II a letter from Ernst & Young LLP, dated the Exchange Date, stating that such firm has performed a limited review of the Federal, state and local income tax returns of MuniVest New York Insured for the period ended October 31, 1995 (which returns originally were prepared and filed by MuniVest New York Insured), and that based on such limited review, nothing came to their attention which caused them to believe that such returns did not properly reflect, in all material respects, the Federal, state and local income taxes of MuniVest New York Insured for the period covered thereby; and that for the period from November 1, 1995 to and including the Exchange Date and for any taxable year of MuniVest New York Insured ending upon the I-24 181 liquidation of MuniVest New York Insured, such firm has performed a limited review to ascertain the amount of applicable Federal, state and local taxes, and has determined that either such amount has been paid or reserves established for payment of such taxes, this review to be based on unaudited financial data; and that based on such limited review, nothing has come to their attention which caused them to believe that the taxes paid or reserves set aside for payment of such taxes were not adequate in all material respects for the satisfaction of Federal, state and local taxes for the period from November 1, 1995 to and including the Exchange Date and for the final taxable year of MuniVest New York Insured ending upon liquidation or that MuniVest New York Insured had not qualified as a regulated investment company for Federal income tax purposes for the period from November 1, 1995 through liquidation of MuniVest New York Insured. (e) That MuniYield New York Insured III shall have delivered to MuniYield New York Insured II a letter from Ernst & Young LLP, dated the Exchange Date, stating that such firm has performed a limited review of the Federal, state and local income tax returns of MuniYield New York Insured III for the period ended October 31, 1995 (which returns originally were prepared and filed by MuniYield New York Insured III), and that based on such limited review, nothing came to their attention which caused them to believe that such returns did not properly reflect, in all material respects, the Federal, state and local income taxes of MuniYield New York Insured III for the period covered thereby; and that for the period from November 1, 1995 to and including the Exchange Date and for any taxable year of MuniYield New York Insured III ending upon the liquidation of MuniYield New York Insured III, such firm has performed a limited review to ascertain the amount of applicable Federal, state and local taxes, and has determined that either such amount has been paid or reserves established for payment of such taxes, this review to be based on unaudited financial data; and that based on such limited review, nothing has come to their attention which caused them to believe that the taxes paid or reserves set aside for payment of such taxes were not adequate in all material respects for the satisfaction of Federal, state and local taxes for the period from November 1, 1995 to and including the Exchange Date and for the final taxable year of MuniYield New York Insured III ending upon liquidation or that MuniYield New York Insured III had not qualified as a regulated investment company for Federal income tax purposes for the period from November 1, 1995 through liquidation of MuniYield New York Insured III. (f) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement. (g) That MuniYield New York Insured II shall have received an opinion or opinions of Brown & Wood LLP, as counsel to MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, in form and substance satisfactory to MuniYield New York Insured II and dated the Exchange Date, with respect to the matters specified in Section 9(e) of this Agreement and such other matters as MuniYield New York Insured II reasonably may deem necessary or desirable. (h) That MuniYield New York Insured II shall have received a private letter ruling from the IRS with respect to the matters specified in Section 9(f) of this Agreement. (i) That MuniYield New York Insured II shall have received from Ernst & Young LLP a letter dated as of the effective date of the N-14 Registration Statement and a similar letter dated within five days prior to the Exchange Date, in form and substance satisfactory to MuniYield New York Insured II, to the effect that (i) they are independent public accountants with respect to MuniVest New York Insured within the meaning of the 1933 Act and the applicable published rules and regulations thereunder; (ii) in their opinion, the I-25 182 financial statements and supplementary information of MuniVest New York Insured included or incorporated by reference in the N-14 Registration Statement and reported on by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (iii) on the basis of limited procedures agreed upon by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and described in such letter (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of any unaudited interim financial statements and unaudited supplementary information of MuniVest New York Insured included in the N-14 Registration Statement, and inquiries of certain officials of MuniVest New York Insured responsible for financial and accounting matters, nothing came to their attention that caused them to believe that (a) such unaudited financial statements and related unaudited supplementary information do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder, (b) such unaudited financial statements are not fairly presented in conformity with generally accepted accounting principles, applied on a basis substantially consistent with that of the audited financial statements, or (c) such unaudited supplementary information is not fairly stated in all material respects in relation to the unaudited financial statements taken as a whole; and (iv) on the basis of limited procedures agreed upon by MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III and described in such letter (but not an examination in accordance with generally accepted auditing standards), the information relating to MuniVest New York Insured appearing in the N-14 Registration Statement, which information is expressed in dollars (or percentages derived from such dollars) concerning MuniVest New York Insured (with the exception of performance comparisons, if any), if any, has been obtained from the accounting records of MuniVest New York Insured or from schedules prepared by officials of MuniVest New York Insured having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom. (j) That MuniYield New York Insured II shall have received from Ernst & Young LLP a letter dated as of the effective date of the N-14 Registration Statement and a similar letter dated within five days prior to the Exchange Date, in form and substance satisfactory to MuniYield New York Insured II, with respect to the matters pertaining to MuniYield New York Insured III specified in Section 9(j) of this Agreement. (k) That the MuniVest New York Investments and the MuniYield New York III Investments to be transferred to MuniYield New York Insured II shall not include any assets or liabilities which MuniYield New York Insured II, by reason of charter limitations or otherwise, may not properly acquire or assume. (l) 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 MuniVest New York Insured or MuniYield New York Insured III, contemplated by the Commission. (m) That the Commission shall not have issued an unfavorable advisory report under Section 25(b) of the 1940 Act, nor instituted or threatened to institute any proceeding seeking to enjoin consummation of the Reorganization under Section 25(c) of the 1940 Act, no other legal, administrative or other proceeding shall be instituted or threatened which would materially affect the financial condition of MuniVest New York Insured or MuniYield New York Insured III or would prohibit the Reorganization. (n) That MuniYield New York Insured II shall have received from the Commission such orders or interpretations as Brown & Wood LLP, as counsel to MuniYield New York Insured II, deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in connection with the Reorganization, provided, I-26 183 that such counsel shall have requested such orders as promptly as practicable, and all such orders shall be in full force and effect. (o) That all proceedings taken by MuniVest New York Insured, MuniYield New York Insured III and their counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to MuniYield New York Insured II. (p) That prior to the Exchange Date, each of MuniVest New York Insured and MuniYield New York Insured III 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 for the period from November 1, 1995 to and including the Exchange Date, if any (computed without regard to any deduction or dividends paid), and all of its net capital gain, if any, realized for the period from November 1, 1995 to and including the Exchange Date. In this regard, the last dividend period for the MuniVest New York Insured AMPS and the MuniYield New York Insured III AMPS prior to the Exchange Date may be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary. 11. MUNIYIELD NEW YORK INSURED III CONDITIONS. The obligations of MuniYield New York Insured III hereunder shall be subject to the following conditions: (a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by all of the requisite votes set forth in Section 9(a) of this Agreement, and that all such certificates as set forth in such Section shall have been obtained. (b) That each of MuniVest New York Insured and MuniYield New York Insured II shall have furnished to MuniYield New York Insured III a statement of assets, liabilities and capital, with values determined as provided in Section 5 of this Agreement, together with a schedule of its respective investments, all as of the Valuation Time, certified on each fund's behalf by its respective President (or any Vice President) and its Treasurer, and a certificate signed by the fund's President (or any Vice President) and its Treasurer, dated as of the Exchange Date, certifying that as of the Valuation Time and as of the Exchange Date there has been no material adverse change in the financial position of the fund since October 31, 1995, other than changes in its portfolio securities since that date or changes in the market value of its portfolio securities. (c) That each of MuniVest New York Insured and MuniYield New York Insured II shall have furnished to MuniYield New York Insured III a certificate signed by its respective President (or any Vice President) and its Treasurer, dated as of the Exchange Date, certifying that as of the Valuation Time and as of the Exchange Date all representations and warranties of MuniVest New York Insured or MuniYield New York Insured II, respectively, 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 MuniVest New York Insured or MuniYield New York Insured II, respectively, 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 date. (d) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement. (e) That MuniYield New York Insured III shall have received an opinion or opinions of Brown & Wood LLP, as counsel to MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York I-27 184 Insured III, in form and substance satisfactory to MuniYield New York Insured III and dated the Exchange Date, with respect to the matters specified in Section 9(e) of this Agreement and such other matters as MuniYield New York Insured III reasonably may deem necessary or desirable. (f) That MuniYield New York Insured III shall have received a private letter ruling from the IRS with respect to the matters specified in Section 9(f) of this Agreement. (g) That all proceedings taken by MuniVest New York Insured, MuniYield New York Insured II and their counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to MuniYield New York Insured III. (h) That the N-14 Registration Statement shall have become effective under the 1933 Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of MuniVest New York Insured or MuniYield New York Insured II, contemplated by the Commission. (i) That MuniYield New York Insured III shall have received from Ernst & Young LLP a letter dated as of the effective date of the N-14 Registration Statement and a similar letter dated within five days prior to the Exchange Date, in form and substance satisfactory to MuniYield New York Insured III, with respect to the matters pertaining to MuniVest New York Insured specified in Section 10(i) of this Agreement. (j) That MuniYield New York Insured III shall have received from Deloitte & Touche LLP a letter dated as of the effective date of the N-14 Registration Statement and a similar letter dated within five days prior to the Exchange Date, in form and substance satisfactory to MuniYield New York Insured III, with respect to the matters pertaining to MuniYield New York Insured II specified in Section 9(j) of this Agreement. (k) That the Commission shall not have issued an unfavorable advisory report under Section 25(b) of the 1940 Act, nor instituted or threatened to institute any proceeding seeking to enjoin consummation of the Reorganization under Section 25(c) of the 1940 Act, no other legal, administrative or other proceeding shall be instituted or threatened which would materially affect the financial condition of MuniVest New York Insured or MuniYield New York Insured II or would prohibit the Reorganization. (l) That MuniYield New York Insured III shall have received from the Commission such orders or interpretations as Brown & Wood LLP, as counsel to MuniYield New York Insured III, 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. 12. 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 each of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III) prior to the Exchange Date, or the Exchange Date may be postponed, (i) by mutual consent of the Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III; (ii) by the Board of Directors of MuniVest New York Insured if any condition of MuniVest New York Insured's obligations set forth in Section 9 of this Agreement has not been fulfilled or waived by such Board; (iii) by the Board of Directors of MuniYield New York Insured II if any I-28 185 condition of MuniYield New York Insured II's obligations set forth in Section 10 of this Agreement has not been fulfilled or waived by such Board; or (iii) by the Board of Directors of MuniYield New York Insured III if any condition of MuniYield New York Insured III's obligations set forth in Section 11 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, 1997, this Agreement automatically shall terminate on that date, unless a later date is mutually agreed to by the Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III. (c) In the event of termination of this Agreement pursuant to the provisions hereof, the same shall become void and have no further effect, and there shall not be any liability on the part of either MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III or persons who are their directors, trustees, officers, agents or stockholders in respect of this Agreement. (d) At any time prior to the Exchange Date, any of the terms or conditions of this Agreement may be waived by the Board of Directors of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III (whichever is entitled to the benefit thereof), if, in the judgment of such Board after consultation with its counsel, such action or waiver will not have a material adverse effect on the benefits intended under this Agreement to the stockholders of their respective fund, on behalf of which such action is taken. In addition, the Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III have delegated to Fund Asset Management, L.P. the ability to make non-material changes to the transaction if it deems it to be in the best interests of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III to do so. (e) The respective representations and warranties contained in Sections 1, 2 and 3 of this Agreement shall expire with, and be terminated by, the consummation of the Reorganization, and neither MuniVest New York Insured, MuniYield New York Insured II nor MuniYield New York Insured III nor any of their officers, directors or trustees, agents or stockholders shall have any liability with respect to such representations or warranties after the Exchange Date. This provision shall not protect any officer, director or trustee, agent or stockholder of MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III 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 Exchange Date and shall impose any terms or conditions which are determined by action of the Boards of Directors of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III 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 MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III, unless such terms and conditions shall result in a change in the method of computing the number of shares of MuniYield New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to be issued to MuniVest New York Insured and MuniYield New York Insured III in which event, unless such terms and conditions shall have been included in the proxy solicitation materials furnished to the stockholders of I-29 186 MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III prior to the meetings at which the Reorganization shall have been approved, this Agreement shall not be consummated and shall terminate unless MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III promptly shall call special meetings of stockholders at which such conditions so imposed shall be submitted for approval. 13. OTHER MATTERS. (a) Pursuant to Rule 145 under the 1933 Act, and in connection with the issuance of any shares to any person who at the time of the Reorganization is, to its knowledge, an affiliate of a party to the Reorganization pursuant to Rule 145(c), MuniYield New York Insured II will cause to be affixed upon the certificate(s) issued to such person (if any) a legend as follows: THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO MUNIYIELD NEW YORK INSURED FUND II, INC. (OR ITS STATUTORY SUCCESSOR) OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT REQUIRED. and, further, that stop transfer instructions will be issued to MuniYield New York Insured II's transfer agent with respect to such shares. MuniVest New York Insured and MuniYield New York Insured III will provide MuniYield New York Insured II on the Exchange Date with the name of any MuniVest New York Insured stockholder or MuniYield New York Insured III stockholder who is to the knowledge of such funds an affiliate of it 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 deemed to have been given if delivered or mailed, first class postage prepaid, addressed to MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York Insured III, in each case at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Attn: Arthur Zeikel, President. (d) This Agreement supersedes all previous correspondence and oral communications between the parties regarding the Reorganization, constitutes the only understanding with respect to the Reorganization, may not be changed except by a letter of agreement signed by each party and shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said state. (e) Copies of the Articles of Incorporation, as amended, of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York Insured III are on file with the Maryland Department and notice is hereby given that this instrument is executed on behalf of the Directors of each Fund. I-30 187 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. MUNIVEST NEW YORK INSURED FUND, INC. Attest: By: /s/ ARTHUR ZEIKEL /s/ MARK B. GOLDFUS ----------------------------------------- - ------------------------------------------- Arthur Zeikel Mark B. Goldfus President Secretary MUNIYIELD NEW YORK INSURED FUND II, INC. Attest: By: /s/ ARTHUR ZEIKEL /s/ MARK B. GOLDFUS ----------------------------------------- - ------------------------------------------- Arthur Zeikel Mark B. Goldfus President Secretary MUNIYIELD NEW YORK INSURED FUND III, INC. Attest: By: /s/ ARTHUR ZEIKEL /s/ MARK B. GOLDFUS ----------------------------------------- - ------------------------------------------- Arthur Zeikel Mark B. Goldfus President Secretary I-31 188 EXHIBIT II ECONOMIC CONDITIONS IN NEW YORK The following information is a brief summary of factors affecting the economy of the State of New York and does not purport to be a complete description of such factors. Other factors will affect issuers. The summary is based primarily upon one or more publicly available offering statements relating to debt offerings of state issuers; however, it has not been updated nor will it be updated during the year. The Funds have not independently verified the information. In recent years, New York State (sometimes referred to herein as the "State" or "New York"), some of its agencies, instrumentalities and public authorities and certain of its municipalities have faced serious financial difficulties that could have an adverse effect on the sources of payment for, or the market value of, the New York Municipal Bonds in which each Fund invests. NEW YORK CITY General. More than any other municipality, the fiscal health of New York City (sometimes referred to as the "City") has a significant effect on the fiscal health of the State. The national economic downturn which began in July 1990 adversely affected the local economy, which had been declining since late 1989. As a result, the City experienced job losses in 1990 and 1991 and real Gross City Product ("GCP") fell in those two years. Beginning in calendar year 1992, the improvement in the national economy helped stabilize conditions in the City. Employment losses moderated toward year-end and real GCP increased, boosted by strong wage gains. However, after noticeable improvements in the City's economy during the calendar year 1994, economic growth slowed in calendar year 1995, and the City's current four-year financial plan assumes that moderate economic growth will continue through calendar year 2000. For each of the 1981 through 1995 fiscal years, the City achieved balanced operating results as reported in accordance with generally accepted accounting principles ("GAAP"). The City was required to close substantial budget gaps in recent fiscal years in order to maintain balanced operating results. For the City's 1995 fiscal year, the City adopted a budget which halted the trend in recent years of substantial increases in City spending from one year to the next. There can be no assurance that the City will continue to maintain a balanced budget as required by State law without additional reductions in City services or entitlement programs or tax or other revenue increases which could adversely affect the City's economic base. Pursuant to the laws of the State, the Mayor is responsible for preparing the City's four-year financial plan, including the City's current financial plan for the 1997 through 2000 fiscal years (the "1997-2000 Financial Plan" or the "City Financial Plan"). The City's projections set forth in the City Financial Plan are based on various assumptions and contingencies which are uncertain and which may not materialize. Changes in major assumptions could significantly affect the City's ability to balance its budget as required by State law and to meet its annual cash flow and financing requirements. Implementation of the City Financial Plan is also dependent upon the City's ability to market its securities successfully in the public credit markets. The City's financing program for fiscal years 1997 through 2000 contemplates the issuance of $5.7 billion of general obligation bonds and $4.5 billion of bonds to be issued by the proposed New York City Infrastructure Finance Authority, primarily to reconstruct and II-1 189 rehabilitate the City's infrastructure and physical assets and to make capital investments. The creation of the Infrastructure Finance Authority, which is subject to the enactment of legislation by the State, is being proposed by the City as part of the City's effort to avoid certain State constitutional limitations on the amount of debt the City is authorized to issue. In addition, the City issues revenue notes and tax anticipation notes to finance its seasonal working capital requirements. The success of projected public sales of City bonds and notes will be subject to prevailing market conditions, and no assurance can be given that such sales will be completed. If the City were unable to sell its general obligation bonds and notes, it would be prevented from meeting its planned operating and capital expenditures. 1997-2000 Financial Plan. The City Financial Plan for the 1997 through 2000 fiscal years projects revenues and expenditures for the 1997 fiscal year (July 1, 1996-June 30, 1997) for the City balanced in accordance with GAAP and reflects proposed actions to close a previously projected budget gap of approximately $2.6 billion. Such gap closing actions primarily include spending reductions for Medicaid and welfare programs, City agency spending reductions, additional State aid, pension and debt service savings and the sale of certain City assets. The City Financial Plan also sets forth projections for the 1998 through 2000 fiscal years and outlines a proposed gap-closing program to close projected budget gaps of $1.7 billion, $2.7 billion and $3.4 billion for the 1998 through 2000 fiscal years, respectively, after successful implementation of the gap-closing program for the 1997 fiscal year. The City's projections set forth in the City Financial Plan are based on various assumptions and contingencies which are uncertain and which may not materialize. Changes in major assumptions could significantly affect the City's ability to balance its budget as required by State law and to meet its annual cash flow and financing requirements. Such assumptions and contingencies include the condition of the regional and local economies, the impact on real estate tax revenues of the real estate market, employment growth, wage increases for City employees consistent with those assumed in the City Financial Plan, continuation of interest earnings assumptions for pension fund assets, the ability of the City's hospital and education entities to maintain balanced budgets, provision of State and Federal aid, the impact of Federal welfare reforms on City revenues and adoption of the budget by the City Council in substantially the form submitted by the Mayor. The City Financial Plan also assumes the timely extension by the State Legislature of the current rate structures for personal income, corporation and sales taxes imposed by the City. The City Financial Plan is also subject to the ability of the City to implement the expenditure reductions, sell the assets and obtain the debt service savings outlined in the City Financial Plan. In addition, the City may incur expenditures which exceed those projected in the City Financial Plan. There can be no assurance that additional gap-closing measures will not be required to enable the City to achieve a balanced budget in a particular fiscal year. Certain of the proposed actions are subject to negotiation with the City's municipal unions. Various other actions proposed for the 1998 through 2000 fiscal years are subject to approval by the Governor and the State Legislature and the proposed reductions in spending for entitlement programs may be subject to legal challenge. The City depends on the State for State aid both to enable the City to balance its budget and to meet its cash requirements. If the State experiences revenue shortfalls or spending increases beyond its projections during the current or subsequent fiscal years, such developments could result in reductions in anticipated State aid to the City. In addition, there can be no assurance that State budgets in any given State fiscal year will be adopted by the April 1 statutory deadline and that there will not be adverse effects on the City's cash flow and additional City expenditures as a result of such reductions or delays. II-2 190 The City's financial plans have been the subject of extensive public comment and criticism. On July 16, 1996, the City Comptroller issued a report on the City Financial Plan which identified budget risks of up to $941 million, $2.58 billion, $3.53 billion and $4.31 billion for the City's 1997, 1998, 1999 and 2000 fiscal years, respectively. On July 18, 1996, the New York State Financial Control Board issued a report on the City Financial Plan which identified budget risks of $594 million, $1.08 billion, $851 million and $813 million for the City's 1997, 1998, 1999 and 2000 fiscal years, respectively. On July 18, 1996, the Office of the State Deputy Comptroller of New York issued a report on the City Financial Plan which identified budget risks of up to $848 million, $1.39 billion, $1.09 billion and $1.12 billion for the City's 1997, 1998, 1999 and 2000 fiscal years, respectively. Each of the reports noted that the City Financial Plan achieves budget balance for the 1997 fiscal year only with the inclusion of approximately $1.5 billion in non-recurring resources. It is reasonable to expect that such reports will continue to be issued and to engender public comment. Ratings. As of August 15, 1996, Moody's Investors Service, Inc. ("Moody's") rated the City's outstanding general obligation bonds "Baa1", Standard & Poor's Ratings Group ("Standard & Poor's") rated such bonds "BBB+" and Fitch Investors Service, Inc. ("Fitch") rated such bonds "A-". On February 28, 1996, Fitch placed the City's general obligation bonds on FitchAlert with negative implications. On July 10, 1995, Standard & Poor's revised downward its ratings on outstanding general obligation bonds of the City from "A-" to "BBB+". Such ratings reflect only the view of Moody's, Standard & Poor's and Fitch, from which an explanation of the significance of such ratings may be obtained. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely. Any such downward revision or withdrawal could have an adverse effect on the market prices of City bonds. Outstanding Indebtedness. As of June 30, 1996, the City had approximately $25.05 billion of long-term debt and as of June 30, 1995, the New York City Municipal Water Finance Authority (the "Water Authority") had approximately $6.05 billion of net long-term debt. Debt service on Water Authority obligations is secured by fees and charges collected from the users of the City's water and sewer system. State and Federal regulations require the City's water supply to meet certain standards to avoid filtration. The City's water supply now meets all technical standards and the City's current efforts are directed toward protection of the watershed area. The City has taken the position that increased regulatory, enforcement and other efforts to protect its water supply, relating to such matters as land use and sewage treatment, will preserve the high quality of water in the upstate water supply system and prevent the need for filtration. The U.S. Environmental Protection Agency has granted the City a waiver of filtration regulations through 1999. If filtration of the City's water supply is ultimately required, the capital expenditure required could be between $4 billion and $5 billion. Such an expenditure could cause significant increases in City water and sewer charges. Litigation. The City is a defendant in a significant number of lawsuits. Such litigation includes, but is not limited to, routine litigation incidental to the performance of its governmental and other functions, actions commenced and claims asserted against the City arising out of alleged constitutional violations, alleged torts, alleged breaches of contracts and other alleged violations of law and condemnation proceedings and other tax and miscellaneous actions. While the ultimate outcome and fiscal impact, if any, on the proceedings and claims are not currently predictable, adverse determination in certain of them might have a material adverse effect upon the City's ability to carry out the City Financial Plan. As of June 30, 1995, the City estimated its potential future liability on account of all outstanding claims to be approximately $2.5 billion. II-3 191 NEW YORK STATE Current Economic Outlook. The national economy has resumed a more robust rate of growth after a "soft landing" in 1995, with over 11 million jobs added nationally since early 1992. The State economy has continued to expand, but growth remains somewhat slower than in the nation. Although the State has added approximately 240,000 jobs since late 1992, employment growth in the State has been hindered during recent years by significant cutbacks in the computer and instrument manufacturing, utility, defense and banking industries. Government downsizing has also moderated these job gains. The State expects modest economic growth in New York's economy during the first half of the 1996 calendar year, but some slowdown is projected during the second half of the year due to government cutbacks and tight fiscal constraints on health and social services. On an average annual basis, the State's employment growth is expected to be up slightly and personal income is expected to record moderate gains from the 1995 rate. Overall employment growth is projected to be 0.9 percent in 1996 and 0.6 percent in 1997 while personal income growth is projected to be 6.2 percent in 1996 and 6.0 percent in 1997. State Financial Plan for the 1996-1997 Fiscal Year. The State's budget for the 1996-97 fiscal year (April 1, 1996 -March 31, 1997) was enacted by the Legislature on July 13, 1996, more than three months after the start of the fiscal year. Prior to adoption of the budget, the Legislature enacted appropriations for disbursements considered to be necessary for State operations and other purposes, including necessary appropriations for all State-supported debt service. The State Financial Plan for the 1996-97 fiscal year (the "State Financial Plan") is based on the State's budget as enacted by the Legislature and signed into law by the Governor, as well as actual results for the first quarter of the 1996-1997 fiscal year. The State Financial Plan projects a General Fund balanced on a cash basis with total projected receipts of $33.173 billion and total disbursements of $33.123 billion, representing increases of $365 million and $444 million, respectively, from the prior fiscal year. The State Financial Plan includes gap closing actions to offset a previously projected budget gap of $3.9 billion for the 1996-1997 fiscal year. Such gap closing actions include reductions in the State workforce, spending reductions in health care and education programs, projected increases in tax collections, pension and debt service savings and the use of certain reserve funds. There can no assurance that additional gap closing measures will not be required and there is no assurance that any such measures will enable the State to achieve a balanced budget for its 1996-1997 fiscal year. The State Financial Plan is based upon forecasts of national and State economic activity. Economic forecasts have frequently failed to predict accurately the timing and magnitude of changes in the national and State economies. Many uncertainties exist in forecasts of both the national and State economies, including consumer attitudes toward spending, Federal financial and monetary policies, the availability of credit and the condition of the world economy, which could have an adverse effect on the State. There can be no assurance that the State economy will not experience worse-than-predicted results in the 1996-1997 and subsequent fiscal years, with corresponding material and adverse effects on the State's projections of receipts and disbursements. Owing to these and other factors, the State may face substantial potential budget gaps in future years resulting from a significant disparity between tax revenues from a lower recurring receipts base and the spending required to maintain State programs at mandated levels. Any such recurring imbalance would be exacerbated by the use by the State of nonrecurring resources to achieve budgetary balance in a particular fiscal year. To correct any recurring budgetary imbalance, the State would need to take significant actions to II-4 192 align recurring receipts and disbursements in future fiscal years. There can be no assurance, however, that the State's actions will be sufficient to preserve budget balances in the then-current or future fiscal years. The State Financial Plan contains actions that provide nonrecurring resources or savings as well as actions that impose baseline losses of receipts. The Division of the Budget estimates the net amount of nonrecurring resources used in the State Financial Plan to be at least $1.3 billion. In addition to these nonrecurring actions, the adoption of a three-year 20% reduction in the State's personal income tax in 1995 in combination with business tax reductions enacted in 1994 will reduce State tax receipts by as much as $4.5 billion by the 1997-1998 fiscal year. 1995-1996 Fiscal Year. The State ended its 1995-1996 fiscal year in balance, with a reported 1995-1996 General Fund cash surplus of $445 million. Prior to adoption of the State's 1995-1996 fiscal year budget, the State had projected a potential budget gap of approximately $5 billion, which was closed primarily through spending reductions, cost containment measures, State agency actions and local assistance reforms. 1994-1995 Fiscal Year. In July, 1995, the State Comptroller issued its audit of the State's 1994-1995 fiscal year prepared in accordance with generally accepted auditing standards. The State completed its 1994-1995 fiscal year with a General Fund operating deficit of $1.426 billion, as compared with an operating surplus of $914 million for the previous fiscal year. The 1994-1995 fiscal year deficit was caused by several factors, including the use of $1.026 billion of the 1993-1994 fiscal year surplus in the 1994-1995 fiscal year and the adoption of changes in accounting methodologies by the State Comptroller. Local Government Assistance Corporation. In 1990, as part of a state fiscal reform program, legislation was enacted creating the Local Government Assistance Corporation ("LGAC"), a public benefit corporation empowered to issue long-term obligations to fund certain payments to local governments traditionally funded through the State's annual seasonal borrowing. As of June 1995, LGAC has issued bonds to provide net proceeds of $4.7 billion completing the program. The impact of LGAC's borrowing is that the State is able to meet its cash flow needs without relying on short-term seasonal borrowing. Financing Activities. State financing activities include general obligation debt of the State and State-guaranteed debt, to which the full faith and credit of the State has been pledged, as well as lease-purchase and contractual-obligation financings, moral obligation financings and other financings through public authorities and municipalities, where the State's obligation to make payments for debt service is generally subject to annual appropriation by the State Legislature. As of March 31, 1996, the total amount of outstanding general obligation debt was approximately $5.047 billion, including $293 million in Bond Anticipation Notes; the total amount of moral obligation debt was approximately $7.269 billion; and $20.343 billion of bonds issued primarily in connection with lease-purchase and contractual-obligation financing of State capital programs were outstanding. Public Authorities. The fiscal stability of the State is related, in part, to the fiscal stability of its public authorities. The State anticipates that its capital programs will be financed, in part, by State and public authorities borrowings in the 1996-1997 fiscal year. Public authorities are not subject to the constitutional restrictions on the incurrence of debt which apply to the State itself, and may issue bonds and notes within the amounts of, and as otherwise restricted by, their legislative authorization. As of September 30, 1995, the latest data available, there were 17 public authorities that had outstanding debt of $100 million or more and the aggregate outstanding debt, including refunding bonds, of these 17 public authorities was $73.45 billion. The II-5 193 State's access to the public credit markets could be impaired and the market price of its outstanding debt may be adversely affected, if any of its public authorities were to default in their respective obligations. Ratings. Currently, Moody's, Standard & Poor's and Fitch rate New York State's outstanding general obligation bonds "A", "A-" and "A+", respectively. Ratings reflect only the respective views of such organizations, and an explanation of the significance of such ratings must be obtained from the rating agency furnishing the same. There is no assurance that a particular rating will continue for any given period of time or that any such rating will not be revised downward or withdrawn entirely if, in the judgment of the agency originally establishing the rating, circumstances so warrant. A downward revision or withdrawal of such ratings may have an effect on the market price of the New York Municipal Bonds in which each Fund invests. Litigation. The State is a defendant in numerous legal proceedings including, but not limited to, claims asserted against the State arising from alleged torts, alleged breaches of contracts, condemnation proceedings and other alleged violations of State and Federal laws. State programs are frequently challenged on State and Federal constitutional grounds. Adverse developments in legal proceedings or the initiation of new proceedings could affect the ability of the State to maintain a balanced State Financial Plan in any given fiscal year. The State believes that the State Financial Plan includes sufficient reserves for the payment of judgments that may be required during the 1996-1997 fiscal year. There can be no assurance, however, that an adverse decision in one or more legal proceedings would not exceed the amount of such reserves for the payment of judgments or materially impair the State's financial operations. Other Localities. Certain localities in addition to the City could have financial problems leading to requests for additional State assistance during the State's 1996-1997 fiscal year and thereafter. The potential impact on the State of such actions by localities is not included in the projections of the State receipts and disbursements in the State's 1996-1997 fiscal year. Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted in the creation of the Financial Control Board for Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is charged with oversight of the fiscal affairs of Yonkers. Future actions taken by the Governor or the State Legislature to assist Yonkers could result in allocation of State resources in amounts that cannot yet be determined. II-6 194 EXHIBIT III RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND RATINGS Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A -- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds which are rated B generally lack characteristics of 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. Con. (...) -- Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operation experience, (c) rentals which begin when III-1 195 facilities are completed, or (d) payments to which some other limiting condition attaches. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. Short-term Notes and Variable Rate Demand Obligations: The four ratings of Moody's for short-term notes and VRDOs are MIG-1/VMIG-1, MIG-2/VMIG-2, MIG-3/VMIG-3, and MIG-4/VMIG-4; MIG-1/VMIG-1 denotes "best quality, enjoying strong protection from established cash flows"; MIG-2/VMIG-2 denotes "high quality" with "ample margins of protection"; MIG-3/VMIG-3 instruments are of "favorable quality . . . but lacking the undeniable strength of the preceding grades"; MIG-4/VMIG-4 instruments are of "adequate quality, carrying specific risk but having protection . . . and not distinctly or predominantly speculative". 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 related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and with established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or related supporting institutions) have an acceptable capacity 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 in the level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S ("STANDARD & POOR'S") MUNICIPAL DEBT RATINGS A Standard & Poor's municipal debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. III-2 196 The debt rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the issuer or obtained by Standard & Poor's from other sources Standard & Poor's considers reliable. Standard & Poor's does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or for other reasons. The ratings are based, in varying degrees, on the following considerations: I. Likelihood of default-capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; II. Nature of and provisions of the obligation; III. Protection afforded to, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. AAA -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A -- Debt rated "A" has a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher-rated categories. BB, B, CCC, CC, C -- Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on balance, as predominately speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" indicates the lowest degree of speculation and "C" the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. BB -- Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB-" rating. B -- Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will III-3 197 likely impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB-" rating. CCC -- Debt rated "CCC" has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The "CCC" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "B" or "B-" rating. CC -- The rating "CC" is typically applied to debt subordinated to senior debt that is assigned an actual or implied "CCC" rating. C -- The rating "C" is typically applied to debt subordinated to senior debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to cover a situation where a bankruptcy petition has been filed but debt service payments are continued. C1 -- The rating "C1" is reserved for income bonds on which no interest is being paid. D -- Debt rated "D" is in payment default. The "D" rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from "A-1" for the highest quality obligations to "D" for the lowest. The three designations in the "A" category are as follows: A-1 -- This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a "+" designation. A-2 -- Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated "A-1". A-3 -- Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B -- Issues rated "B" are regarded as having only speculative capacity for timely payment. C -- This rating is assigned to short-term debt obligations with a doubtful capacity for payment. III-4 198 D -- Debt rated "D" is in payment default. The "D" rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. 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 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 municipal note rating reflects the liquidity concerns and market access risks unique to such notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment. Amortization schedule (the larger the final maturity relative to other maturities, the more likely it will be treated as a note). Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note). Note rating symbols are as follows: SP-1 A very strong, or strong, capacity to pay principal and interest. Issues that possess overwhelming safety characteristics will be given a "+" designation. SP-2 A satisfactory capacity to pay principal and interest. SP-3 A speculative capacity to pay principal and interest. DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S ("FITCH") INVESTMENT GRADE BOND RATINGS Fitch investment grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The rating represents Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue or class of debt in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guarantees unless otherwise indicated. Bonds that have the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk. Fitch ratings are not recommendations to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security. III-5 199 Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. AAA -- Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA -- Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+". A -- Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB -- Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have 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. Credit Trend Indicator: Credit trend indicators show whether credit fundamentals are improving, stable, declining, or uncertain, as follows: Improving [ARROW UP] Stable [ARROW LEFT/RIGHT] Declining [ARROW DOWN] Uncertain [ARROW UP/DOWN] Credit trend indicators are not predictions that any rating change will occur, and have a longer-term time frame than issues placed on FitchAlert. 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. III-6 200 FITCHALERT: Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive" indicating a potential upgrade, "Negative" for potential downgrade, or "Evolving" where ratings may be raised or lowered. FitchAlert is relatively short-term, and should be resolved within three to 12 months. 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 same rating are of similar but not necessarily identical credit quality since rating categories cannot fully reflect the differences in degrees of credit risk. BB -- Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B -- Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC -- Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC -- Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C -- Bonds are in imminent default in payment of interest or principal. DDD, DD, and D -- Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery. Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "DDD," "DD," or "D" categories. III-7 201 DESCRIPTION OF FITCH'S INVESTMENT GRADE SHORT-TERM RATINGS Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. Fitch short-term ratings are as follows: F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-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-4 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. III-8 202 EXHIBIT IV PORTFOLIO INSURANCE Set forth below is further information with respect to the Mutual Fund Insurance Policies (the "Policies") which each Fund may obtain from several insurance companies with respect to insured Municipal Bonds held by the Fund. Each Fund has no obligation to obtain any such Policies and the terms of any Policies actually obtained may vary significantly from the terms described below. In determining eligibility for insurance, insurance companies will apply their own standards which correspond generally to the standards they normally use in establishing the insurability of new issues of Municipal Bonds and which are not necessarily the criteria which would be used in regard to the purchase of such bonds by the Funds. 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 the Funds. 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 a Fund which is adversely affected by either of the above described events. In addition to the payment of premiums, the Policies may require that a Fund notify the insurance company as to all Municipal Bonds in the Fund's portfolio and permit the insurance company to audit their records. The insurance premiums will be payable monthly by each 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 insurance companies will have insurance claims-paying ability ratings of AAA from Standard & Poor's Ratings Group ("S&P"), Aaa from Moody's Investors Service, Inc. ("Moody's") or AAA from Fitch Investors Service, Inc. ("Fitch"). 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 adjudged by S&P to be extremely strong and highly likely to remain so over a long period of time. 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 adjudged 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. 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, IV-1 203 capitalization and liquidity are all at very secure levels and are unlikely to be affected by potential adverse underwriting, investment or cyclical events. An insurance claims-paying ability rating by S&P, Moody's or Fitch 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.) The assignment of ratings by S&P, Moody's or Fitch 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-2 204 COMMON STOCK MUNIVEST NEW YORK INSURED FUND, INC. P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Mark B. Goldfus as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated hereon, all of the shares of Common Stock of MuniVest New York Insured Fund, Inc. (the "Fund") held of record by the undersigned on August 16, 1996 at the Annual Meeting of Stockholders of the Fund to be held on September 30, 1996, or any adjournment thereof. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. 1. To consider and act upon a proposal to approve the Agreement and Plan of Reorganization among the Fund, MuniYield New York Insured Fund II, Inc. and MuniYield New York Insured Fund III, Inc. FOR / / AGAINST / / ABSTAIN / / 2. To consider and act upon a proposal to elect the following persons as Directors of the Fund: FOR all nominees listed WITHHOLD AUTHORITY to vote for all nominees listed below / below (except as marked to the contrary below) / / / (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below.) Edward H. Meyer, Jack B. Sunderland, J. Thomas Touchton and Arthur Zeikel (Continued and to be signed on the reverse side) 205 3. To consider and act upon a proposal to ratify the selection of Ernst & Young LLP as the independent auditors of the Fund to serve for the current fiscal year ending October 31, 1996. FOR / / AGAINST / / ABSTAIN / / 4. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: - ------------------------------------------------------------------------- , 1996 X -------------------------------- Signature X -------------------------------- Signature, if held jointly PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. 206 AUCTION MARKET PREFERRED STOCK MUNIVEST NEW YORK INSURED FUND, INC. P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Mark B. Goldfus as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated hereon, all of the shares of Auction Market Preferred Stock of MuniVest New York Insured Fund, Inc. (the "Fund") held of record by the undersigned on August 16, 1996 at the Annual Meeting of Stockholders of the Fund to be held on September 30, 1996, or any adjournment thereof. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. 1. To consider and act upon a proposal to approve the Agreement and Plan of Reorganization among the Fund, MuniYield New York Insured Fund II, Inc. and MuniYield New York Insured Fund III, Inc. FOR / / AGAINST / / ABSTAIN / / 2. To consider and act upon a proposal to elect the following persons as Directors of the Fund: FOR all nominees listed below WITHHOLD AUTHORITY to vote for all nominees listed below / (except as marked to the contrary below) / / / (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below.) Donald Cecil, M. Colyer Crum, Edward H. Meyer, Jack B. Sunderland, J. Thomas Touchton and Arthur Zeikel (Continued and to be signed on the reverse side) 207 3. To consider and act upon a proposal to ratify the selection of Ernst & Young LLP as the independent auditors of the Fund to serve for the current fiscal year ending October 31, 1996. FOR / / AGAINST / / ABSTAIN / / 4. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: - ------------------------------------------------------------------------- , 1996 X -------------------------------- Signature X -------------------------------- Signature, if held jointly PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. 208 COMMON STOCK MUNIYIELD NEW YORK INSURED FUND II, INC. P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 P R O X Y THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Mark B. Goldfus as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated hereon, all of the shares of Common Stock of MuniYield New York Insured Fund II, Inc. (the "Fund") held of record by the undersigned on August 16, 1996 at the Annual Meeting of Stockholders of the Fund to be held on September 30, 1996, or any adjournment thereof. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 and 4. 1. To consider and act upon a proposal to approve the Agreement and Plan of Reorganization among the Fund, MuniVest New York Insured Fund, Inc. and MuniYield New York Insured Fund III, Inc. FOR / / AGAINST / / ABSTAIN / / 2. To consider and act upon a proposal to elect the following persons as Directors of the Fund: FOR all nominees listed below WITHHOLD AUTHORITY (except as marked to the contrary below) / / to vote for all nominees listed below / / (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below.) James H. Bodurtha, Herbert I. London, Robert R. Martin and Arthur Zeikel (Continued and to be signed on the reverse side) 209 3. In the event that proposal 1 has been approved by the requisite number of stockholders of each fund and the Reorganization has taken place prior to October 31, 1996, to consider and act upon a proposal to ratify the selection of Ernst & Young LLP as the independent auditors of the combined fund to serve for the fiscal year ending October 31, 1996. FOR / / AGAINST / / ABSTAIN / / 4. In the event that proposal 1 has not been approved by the requisite number of stockholders of each fund or the Reorganization has not taken place prior to October 31, 1996, to consider and act upon a proposal to ratify the selection of Deloitte & Touche LLP as the independent auditors of the Fund to serve for the current fiscal year ending October 31, 1996. FOR / / AGAINST / / ABSTAIN / / 5. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: _____________________, 1996 X ---------------------------------- Signature X ---------------------------------- Signature, if held jointly PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. 210 AUCTION MARKET PREFERRED STOCK MUNIYIELD NEW YORK INSURED FUND II, INC. P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Mark B. Goldfus as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated hereon, all of the shares of Auction Market Preferred Stock of MuniYield New York Insured Fund II, Inc. (the "Fund") held of record by the undersigned on August 16, 1996 at the Annual Meeting of Stockholders of the Fund to be held on September 30, 1996, or any adjournment thereof. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 and 4. 1. To consider and act upon a proposal to approve the Agreement and Plan of Reorganization among the Fund, MuniVest New York Insured Fund, Inc. and MuniYield New York Insured Fund III, Inc. FOR / / AGAINST / / ABSTAIN / / 2. To consider and act upon a proposal to elect the following persons as Directors of the Fund: FOR all nominees listed below WITHHOLD AUTHORITY to vote for all nominees listed below / (except as marked to the contrary below) / / / (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below.) James H. Bodurtha, Herbert I. London, Robert R. Martin, Joseph L. May, Andre F. Perold and Arthur Zeikel 3. In the event that proposal 1 has been approved by the requisite number of stockholders of each fund and the Reorganization has taken place prior to October 31, 1996, to consider and act upon a proposal to ratify the selection of Ernst & Young LLP as the independent auditors of the combined fund to serve for the fiscal year ending October 31, 1996. FOR / / AGAINST / / ABSTAIN / / (Continued and to be signed on the reverse side) 211 4. In the event that proposal 1 has not been approved by the requisite number of stockholders of each fund or the Reorganization has not taken place prior to October 31, 1996, to consider and act upon a proposal to ratify the selection of Deloitte & Touche LLP as the independent auditors of the Fund to serve for the current fiscal year ending October 31, 1996. FOR / / AGAINST / / ABSTAIN / / 5. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: - ------------------------------------------------------------------------- , 1996 X -------------------------------- Signature X -------------------------------- Signature, if held jointly PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. 212 COMMON STOCK MUNIYIELD NEW YORK INSURED FUND III, 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 Arthur Zeikel, Terry K. Glenn and Mark B. Goldfus as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated hereon, all of the shares of Common Stock of MuniYield New York Insured Fund III, Inc. (the "Fund") held of record by the undersigned on August 16, 1996 at the Annual Meeting of Stockholders of the Fund to be held on September 30, 1996, or any adjournment thereof. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. 1. To consider and act upon a proposal to approve the Agreement and Plan of Reorganization among the Fund, MuniVest New York Insured Fund, Inc. and MuniYield New York Insured Fund II, Inc. FOR / / AGAINST / / ABSTAIN / / 2. To consider and act upon a proposal to elect the following persons as Directors of the Fund: FOR all nominees listed below WITHHOLD AUTHORITY (except as marked to the contrary below) / / to vote for all nominees listed below / / (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below.) Edward H. Meyer, Jack B. Sunderland, J. Thomas Touchton and Arthur Zeikel 3. To consider and act upon a proposal to ratify the selection of Ernst & Young LLP as the independent auditors of the Fund to serve for the current fiscal year ending October 31, 1996. FOR / / AGAINST / / ABSTAIN / / (Continued and to be signed on the reverse side) 213 4. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: ------------------ , 1996 X -------------------------------- Signature X -------------------------------- Signature, if held jointly PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. 214 AUCTION MARKET PREFERRED STOCK MUNIYIELD NEW YORK INSURED FUND III, 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 Arthur Zeikel, Terry K. Glenn and Mark B. Goldfus as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated hereon, all of the shares of Auction Market Preferred Stock of MuniYield New York Insured Fund III, Inc. (the "Fund") held of record by the undersigned on August 16, 1996 at the Annual Meeting of Stockholders of the Fund to be held on September 30, 1996, or any adjournment thereof. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3. 1. To consider and act upon a proposal to approve the Agreement and Plan of Reorganization among the Fund, MuniVest New York Insured Fund, Inc. and MuniYield New York Insured Fund II, Inc. FOR / / AGAINST / / ABSTAIN / / 2. To consider and act upon a proposal to elect the following persons as Directors of the Fund: FOR all nominees listed below WITHHOLD AUTHORITY (except as marked to the contrary below) / / to vote for all nominees listed below / / (INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through the nominee's name in the list below.) Donald Cecil, M. Colyer Crum, Edward H. Meyer, Jack B. Sunderland, J. Thomas Touchton and Arthur Zeikel (Continued and to be signed on the reverse side) 215 3. To consider and act upon a proposal to ratify the selection of Ernst & Young LLP as the independent auditors of the Fund to serve for the current fiscal year ending October 31, 1996. FOR / / AGAINST / / ABSTAIN / / 4. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: ------------------ , 1996 X -------------------------------- Signature X -------------------------------- Signature, if held jointly PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. 216 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, Article VI of the Registrant's By-Laws and the Registrant's Investment Advisory Agreement with Fund Asset Management, Inc. (now known as Fund Asset Management, L.P.; the "Investment Adviser") provide for indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be provided to directors, officers and controlling persons of each Fund, pursuant to the foregoing provisions or otherwise, each Fund 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, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a Fund 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, unless in the opinion of its counsel the matter has been settled by controlling precedent, will submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. Reference is made to (i) Section Six of the Purchase Agreement relating to the Registrant's Common Stock, a form of which previously was filed as an exhibit to the Common Stock Registration Statement (as defined below), and (ii) Section Seven of the Purchase Agreement relating to the Registrant's AMPS, a form of which previously was filed as an exhibit to the AMPS Registration Statement (as defined below), for provisions relating to the indemnification of the underwriter. ITEM 16. EXHIBITS. EXHIBIT NUMBER - ----------- 1 (a) -- Articles of Incorporation of the Registrant(a) (b) -- Articles Supplementary creating Series A AMPS of the Registrant(b) (c) -- Form of Articles Supplementary creating Series B and Series C AMPS of the Registrant 2 -- By-Laws of the Registrant(a) 3 -- Not applicable 4 -- Form of Agreement and Plan of Reorganization between the Registrant, MuniVest New York Insured Fund, Inc. and MuniYield New York Insured Fund III, Inc.(c) 5 (a) -- Form of Certificate for Common Stock(d) (b) -- Form of Certificate for AMPS(f) (c) -- Portions of the Articles of Incorporation and the By-Laws of the Registrant defining the rights of holders of shares of the Registrant(e) 6 -- Investment Advisory Agreement between the Registrant and the Investment Adviser(a) 7 (a) -- Purchase Agreement between the Registrant, the Investment Adviser and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") relating to the Registrant's Common Stock(d) (b) -- Form of Purchase Agreement between the Registrant, the Investment Adviser and Merrill Lynch relating to the Registrant's AMPS(f) (c) -- Merrill Lynch Standard Dealer Agreement(a) 8 -- Not applicable 9 -- Custodian Contract between the Registrant and State Street Bank and Trust Company(d) 10 -- Not applicable C-1 217 EXHIBIT NUMBER - ----------- 11 -- Opinion and Consent of Brown & Wood LLP, counsel for the Registrant 12 -- Private Letter Ruling from the Internal Revenue Service(g) 13 (a) -- Registrar, Transfer Agency and Service Agreement between the Registrant and State Street Bank and Trust Company relating to the Registrant's Common Stock(d) (b) -- Form of Auction Agent Agreement(f) (c) -- Form of Broker-Dealer Agreement(f) (d) -- Form of Letter of Representations(f) 14 (a) -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant (b) -- Consent of Ernst & Young LLP, independent auditors for MuniVest New York Insured Fund, Inc. and MuniYield New York Insured Fund III, Inc. 15 -- Not applicable 16 -- Power of Attorney(h) - --------------- (a) Incorporated by reference to the Registrant's registration statement on Form N-2 relating to the Registrant's Common Stock (File Nos. 33-47744 and 811-6661), filed with the Securities and Exchange Commission (the "Commission") on May 8, 1992 (the "Common Stock Registration Statement"). (b) Incorporated by reference to Pre-Effecive Amendment No. 1 to the Registrant's registration statement on Form N-2 relating to the Registrant's AMPS (File Nos. 33-50304 and 811-6661) (the "AMPS Registration Statement") filed with the Commission on August 28, 1992. (c) Included as Exhibit I to the Proxy Statement and Prospectus included in this Registration Statement. (d) Incorporated by reference to Pre-Effective Amendment No. 2 to the Common Stock Registration Statement filed with the Commission on June 19, 1992. (e) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6), Article VII, Article VIII, Article IX, Article X, Article XI, Article XII and Article XIII of the Registrant's Articles of Incorporation, previously filed as Exhibit 1(a) to the Common Stock Registration Statement; and to Article II, Article III (sections 1, 3, 5 and 17), Article VI, Article VII, Article XII, Article XIII and Article XIV of the Registrant's By-Laws, previously filed as Exhibit 1(b) to the Common Stock Registration Statement. (f) Incorporated by reference to Registrant's AMPS Registration Statement filed with the Commission on July 31, 1992. (g) To be filed by post-effective amendment. (h) Included on the signature page of the Registrant's Registration Statement on Form N-14 filed on July 9, 1996 and incorporated by reference herein. ITEM 17. UNDERTAKINGS. (a) The Registrant undertakes to suspend offering of the shares of Common Stock covered hereby until it amends its Prospectus contained herein if (1) subsequent to the effective date of this Registration Statement, its net asset value per share of Common Stock declines more than 10 percent from its net asset value per share of Common Stock as of the effective date of this Registration Statement, or (2) its net asset value per share of Common Stock increases to an amount greater than its net proceeds as stated in the Prospectus contained herein. (b) The Registrant undertakes that: (1) For the purpose of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 497(h) under the Securities Act shall be deemed to be a part of the registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C-2 218 SIGNATURES As required by the Securities Act of 1933, this Pre-Effective Amendment to the Registration Statement has been signed on behalf of the Registrant, in the Township of Plainsboro and State of New Jersey, on the 20th day of August, 1996. MUNIYIELD NEW YORK INSURED FUND II, INC. (Registrant) By: /s/ GERALD M. RICHARD -------------------------------------- (Gerald M. Richard, Treasurer) As required by the Securities Act of 1933, this Pre-Effective Amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURES TITLE DATE - --------------------------------- --------------------------------------- ---------------- ARTHUR ZEIKEL* President (Principal Executive Officer) - --------------------------------- and Director (Arthur Zeikel) /s/ GERALD M. RICHARD Treasurer (Principal Financial and August 20, 1996 - --------------------------------- Accounting Officer) (Gerald M. Richard) JAMES H. BODURTHA* Director - --------------------------------- (James H. Bodurtha) HERBERT I. LONDON* Director - --------------------------------- (Herbert I. London) ROBERT R. MARTIN* Director - --------------------------------- (Robert R. Martin) JOSEPH L. MAY* Director - --------------------------------- (Joseph L. May) ANDRE F. PEROLD* Director - --------------------------------- (Andre F. Perold) *By: /s/ GERALD M. RICHARD August 20, 1996 - --------------------------------- (Gerald M. Richard, Attorney-in-Fact) 219 EXHIBIT INDEX ITEM NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------- 1 (c) -- Form of Articles Supplementary creating Series B and Series C AMPS of the Registrant 11 -- Opinion and Consent of Brown & Wood LLP, counsel for the Registrant 14 (a) -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant (b) -- Consent of Ernst & Young LLP, independent auditors for MuniVest New York Insured Fund, Inc. and MuniYield New York Insured Fund III, Inc.