AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1995
SECURITIES ACT FILE NO. 33-35442
INVESTMENT COMPANY ACT FILE NO. 811-4375
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 6 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 117 [X]
(Check appropriate box or boxes)
----------------
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND
OF MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
----------------
|
COPIES TO:
COUNSEL FOR THE TRUST: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD FUND ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: THOMAS R. SMITH JR., ESQ.
----------------
|
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX)
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON SEPTEMBER 22, 1995.
AMOUNT OF PROPOSED PROPOSED
SHARES MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- --------------------------------------------------------------------------------
Shares of Beneficial
Interest (par value $.10
per share)............. 1,214,480 $11.76 $500,000 $100
|
*(1) The calculation of the maximum aggregate offering price is made pursuant to Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during the Registrant's previous fiscal year was 3,629,317 shares of beneficial interest.
(3) 2,457,354 of the shares described in (2) above have been used for reduction pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment Company Act of 1940 in previous filings during the Registrant's current fiscal year.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND OF
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A
ITEM NO. LOCATION
-------- --------
PART A
Item 1. Cover Page............... Cover Page
Item 2. Synopsis................. Fee Table
Condensed Financial
Item 3. Information.............. Financial Highlights
Item 4. General Description of
Registrant............... Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund... Fee Table; Management of the Trust;
Inside Back Cover Page
Item 5A. Management's Discussion
of Fund Performance..... Not Applicable
Item 6. Capital Stock and Other
Securities............... Cover Page; Merrill Lynch Select
Pricing SM System; Additional
Information
Item 7. Purchase of Securities
Being Offered............ Cover Page; Fee Table; Merrill Lynch
Select Pricing SM System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase. Fee Table; Merrill Lynch Select
Pricing SM System; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal
Proceedings.............. Not Applicable
PART B
Item 10. Cover Page............... Cover Page
Item 11. Table of Contents........ Back Cover Page
Item 12. General Information and
History.................. Additional Information
Item 13. Investment Objective and
Policies................. Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund... Management of the Trust
Item 15. Control Persons and
Principal Holders of
Securities.............. Management of the Trust; Additional
Information
Item 16. Investment Advisory and
Other Services........... Management of the Trust; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and
Other Practices.......... Portfolio Transactions
Item 18. Capital Stock and Other
Securities............... General Information--Description of
Series and Shares
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered........... Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status............... Distributions and Taxes
Item 21. Underwriters............. Purchase of Shares
Item 22. Calculation of
Performance Data......... Performance Data
Item 23. 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.
PROSPECTUS
NOVEMBER 14, 1995
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011-PHONE NO. (609) 282-2800
Merrill Lynch Pennsylvania Municipal Bond Fund (the "Fund") is a mutual fund seeking to provide shareholders with as high a level of income exempt from Federal and Pennsylvania personal income taxes as is consistent with prudent investment management. The Fund invests primarily in a portfolio of long-term, investment grade obligations issued by or on behalf of the Commonwealth of Pennsylvania, its political subdivisions, agencies and instrumentalities and obligations of other qualifying issuers, such as issuers located in Puerto Rico, the Virgin Islands, and Guam, which pay interest exempt, in the opinion of bond counsel to the issuer, from Federal and Pennsylvania personal income taxes ("Pennsylvania Municipal Bonds"). Dividends paid by the Fund are exempt from Federal and Pennsylvania personal income taxes to the extent they are derived from Pennsylvania Municipal Bonds. The Fund may invest in certain tax- exempt securities classified as "private activity bonds" that may subject certain investors in the Fund to an alternative minimum tax. At times, the Fund may seek to hedge its portfolio through the use of futures transactions and options. There can be no assurance that the investment objective of the Fund will be realized. For more information on the Fund's investment objective and policies, please see "Investment Objective and Policies" on page 9.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], or from securities dealers which have entered into dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000
and the minimum subsequent purchase is $50. Merrill Lynch may charge its
customers a processing fee (presently $4.85) for confirming purchases and
repurchases. Purchases and redemptions directly through the Fund's Transfer
Agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares".
FUND ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and recurring expenses applicable to shares of the Fund follows:
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ---------- --------------- -------
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Im-
posed on Pur-
chases (as a
percentage of
offering
price)....... 4.00%(c) None None 4.00%(c)
Sales Charge
Imposed on
Dividend
Reinvestments. None None None None
Deferred Sales
Charge (as a
percentage of
original pur- None(d)
chase price 4.0% during the first
or redemption year, decreasing 1.0%
proceeds, annually thereafter to
whichever is 0.0% after
lower)....... the fourth year 1% for one year None(d)
Exchange Fee.. None None None None
ANNUAL FUND OP-
ERATING EX-
PENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)(e):
Investment Ad-
visory
Fees(f)...... 0.55% 0.55% 0.55% 0.55%
12b-1 Fees(g):
Account Main-
tenance Fees. None 0.25% 0.25% 0.10%
Distribution
Fees......... None 0.25% 0.35% None
(Class B shares convert
to
Class D shares
automatically
after approximately ten
years,
cease being subject to
distribution fees and
are
subject to lower account
maintenance fees)
Other Ex-
penses:
Custodial
Fees......... .01% .01% .01% .01%
Shareholder
Servicing
Costs(h)..... .05% .06% .06% .05%
Other......... .16% .16% .16% .16%
---- ----- ----- ----
Total Other .22% .23% .23% .22%
Expenses.... ---- ----- ----- ----
Total Fund Op-
erating Ex- .77% 1.28% 1.38% .87%
penses....... ==== ===== ===== ====
|
(b) Class B shares convert to Class D shares automatically approximately 10 years after initial purchase. See "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares"--page 25.
(c) Reduced for purchases of $25,000 and over. Class A or Class D purchases of $1,000,000 or more are not subject to an initial sales charge. See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares"--page 23.
(d) Class A and Class D shares are not subject to a contingent deferred sales charge ("CDSC"), except that certain purchases of $1,000,000 or more which are not subject to an initial sales charge may instead be subject to a CDSC of 1.0% of amounts redeemed within the first year after purchase.
(e) Information for Class A and Class B shares is stated for the fiscal year ended July 31, 1995. Information under "Other Expenses" for Class C and Class D shares is estimated for the fiscal year ending July 31, 1996.
(f) See "Management of the Trust--Management and Advisory Arrangements"--page 19.
(g) See "Purchase of Shares--Distribution Plans"--page 28.
(h) See "Management of the Trust--Transfer Agency Services"--page 21.
EXAMPLE:
CUMULATIVE EXPENSES PAID FOR THE
PERIOD OF:
-----------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
An investor would pay the following
expenses on a $1,000 investment
including the maximum $40 initial sales
charge (Class A and Class D shares only)
and assuming (1) the Total Fund
Operating Expenses for each class set
forth above, (2) a 5% annual return
throughout the periods and (3)
redemption at the end of the period:
Class A................................ $ 48 $ 64 $ 81 $ 132
Class B................................ $ 53 $ 61 $ 70 $ 155
Class C................................ $ 24 $ 44 $ 76 $ 166
Class D................................ $ 49 $ 67 $ 86 $ 143
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end of the
period:
Class A................................ $ 48 $ 64 $ 81 $ 132
Class B................................ $ 13 $ 41 $ 70 $ 155
Class C................................ $ 14 $ 44 $ 76 $ 166
Class D................................ $ 49 $ 67 $ 86 $ 143
|
The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that a shareholder in the Fund will bear directly or indirectly. The Example set forth above assumes reinvestment of all dividends and distributions and utilizes a 5% annual rate of return as mandated by the regulations of the Commission. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C shareholders who hold their shares for an extended period of time may pay more in Rule 12b-1 distribution fees than the economic equivalent of the maximum front-end sales charge permitted under the Rules of Fair Practice of the National Association of Securities Dealers, Inc. ("NASD"). Merrill Lynch may charge its customers a processing fee (presently $4.85) for confirming purchases and repurchases. Purchases and redemptions directly through the Fund's Transfer Agent are not subject to the processing fee. See "Purchase of Shares" and "Redemption of Shares."
MERRILL LYNCH SELECT PRICING (SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select Pricing (SM) System. The shares of each class may be purchased at a price equal to the next determined net asset value per share subject to the sales charges and ongoing fee arrangements described below. Shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives, and shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. The Merrill Lynch Select Pricing (SM) System is used by more than 50 mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM") or an affiliate of MLAM, Fund Asset Management, L.P. ("FAM" or the "Manager"). Funds advised by MLAM or FAM are referred to herein as "MLAM- advised mutual funds".
Each Class A, Class B, Class C or Class D share of the Fund represents an identical interest in the investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. The deferred sales charges and account maintenance fees that are imposed on Class B and Class C shares, as well as the account maintenance fees that are imposed on the Class D shares, are imposed directly against those classes and not against all assets of the Fund and, accordingly, such charges will not affect the net asset value of any other class or have any impact on investors choosing another sales charge option. Dividends paid by the Fund for each class of shares will be calculated in the same manner at the same time and will differ only to the extent that account maintenance and distribution fees and any incremental transfer agency costs relating to a particular class are borne exclusively by that class. Each class has different exchange privileges. See "Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial sales charges with respect to the Class A and Class D shares are the same as those of the deferred sales charges with respect to the Class B and Class C shares in that the sales charges applicable to each class provide for the financing of the distribution of the shares of the Fund. The distribution- related revenues paid with respect to a class will not be used to finance the distribution expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements for each class of shares under the Merrill Lynch Select Pricing (SM) System, followed by a more detailed description of each class and a discussion of the factors that investors should consider in determining the method of purchasing shares under the Merrill Lynch Select Pricing (SM) System that the investor believes is most beneficial under his particular circumstances. More detailed information as to each class of shares is set forth under "Purchase of Shares".
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(/1/) FEE FEE CONVERSION FEATURE
- ------------------------------------------------------------------------------------
A Maximum 4.00% initial No No No
sales charge(/2/)(/3/)
- ------------------------------------------------------------------------------------
B CDSC for a period of 4 years, 0.25% 0.25% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% ten years(/4/)
- ------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.35% No
- ------------------------------------------------------------------------------------
D Maximum 4.00% initial 0.10% No No
sales charge(/3/)
|
(3) Reduced for purchases of $25,000 or more. Class A and Class D share purchases of $1,000,000 or more may not be subject to an initial sales charge but instead will be subject to a 1.0% CDSC if redeemed within one year. See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares was modified. Also, Class B shares of certain other MLAM-advised mutual funds into which exchanges may be made have an eight year conversion period. If Class B shares of a Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired.
Class A: Class A shares incur an initial sales charge when they are purchased and bear no ongoing distribution or account maintenance fees. Class A shares are offered to a limited group of investors and also will be issued upon reinvestment of dividends on outstanding Class A shares. Investors that currently own Class A shares in a shareholder account are entitled to purchase additional Class A shares in that account. In addition, Class A shares will be offered to Merrill Lynch & Co., Inc. ("ML & Co.") and its subsidiaries (the term "subsidiaries", when used herein with respect to ML & Co., includes MLAM, the Manager and certain other entities directly or indirectly wholly-owned and controlled by ML & Co.) and their directors and employees, and to members of the Boards of MLAM-advised mutual funds. The maximum initial sales charge is 4.00%, which is reduced for purchases of $25,000 and over. Purchases of $1,000,000 or more may not be subject to an initial sales charge, but if the initial sales charge is waived, such purchases may be subject to a CDSC of 1% if the shares are redeemed within one year after purchase. Sales charges are also reduced under a right of accumulation which takes into account the investor's holdings of all classes of all MLAM-advised mutual funds. See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares."
Class B: Class B shares do not incur a sales charge when they are purchased, but they are subject to an ongoing account maintenance fee of 0.25%, and an ongoing distribution fee of 0.25% of the Fund's average net assets attributable to Class B shares, as well as a CDSC if they are redeemed within
four years of purchase. Approximately ten years after issuance, Class B shares will convert automatically into Class D shares of the Fund, which are subject to a lower account maintenance fee of 0.10% and no distribution fee. Class B shares of certain other MLAM-advised mutual funds into which exchanges may be made convert into Class D shares automatically after approximately eight years. If Class B shares of the Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, as will the Class D account maintenance fee of the acquired fund upon the conversion, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired. Automatic conversion of Class B shares into Class D shares will occur at least once a month on the basis of the relative net asset values of the shares of the two classes on the conversion date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes. Shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D shares. The conversion period for dividend reinvestment shares is modified as described under "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class D Shares."
Class C: Class C shares do not incur a sales charge when they are purchased, but they are subject to an ongoing account maintenance fee of 0.25% and an ongoing distribution fee of 0.35% of the Fund's average net assets attributable to Class C shares. Class C shares are also subject to a CDSC if they are redeemed within one year of purchase. Although Class C shares are subject to a 1.0% CDSC for only one year (as compared to four years for Class B shares), Class C shares have no conversion feature and, accordingly, an investor that purchases Class C shares will be subject to distribution fees that will be imposed on Class C shares for an indefinite period subject to annual approval by the Fund's Board of Trustees and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased and are subject to an ongoing account maintenance fee of 0.10% of the Fund's average net assets attributable to Class D shares. Class D shares are not subject to an ongoing distribution fee or any CDSC when they are redeemed. Purchases of $1,000,000 or more may not be subject to an initial sales charge, but if the initial sales charge is waived such purchases may be subject to a CDSC of 1.0% if the shares are redeemed within one year after purchase. The schedule of initial sales charges and reductions for the Class D shares is the same as the schedule for Class A shares. Class D shares also will be issued upon conversion of Class B shares as described above under "Class B" above. See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares."
The following is a discussion of the factors that investors should consider in determining the method of purchasing shares under the Merrill Lynch Select Pricing SM System that the investor believes is most beneficial under his particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales charge alternative may elect to purchase Class D shares or, if an eligible investor, Class A shares. Investors choosing the initial sales charge alternative who are eligible to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares. Investors qualifying for significantly reduced initial sales charges may find the initial sales charge alternative particularly attractive because similar sales charge reductions are not available with respect to the deferred sales charges imposed in connection with purchases of Class B or Class C shares. Investors not qualifying for reduced initial sales charges who expect to maintain their investment for an extended period of time also may elect to purchase Class A or Class D shares, because over time the accumulated ongoing account maintenance and distribution fees on Class B or Class C shares may exceed the initial sales charge. Although some investors that previously purchased Class A shares may no longer be eligible to purchase Class A shares of other MLAM-advised mutual funds, those previously purchased Class A shares, together with Class B shares holdings, will count toward a right of accumulation which may qualify the investor for reduced initial sales charges on new initial sales charge purchases. In addition, the ongoing Class B and Class C account maintenance and distribution fees will cause Class B and Class C shares to have higher expense ratios, pay lower dividends and have lower total returns than the initial sales charge shares. The ongoing Class D account maintenance fees will cause Class D shares to have a higher expense ratio, pay lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are deducted at the time of purchase, Class B and Class C shares provide the benefit of putting all of the investor's dollars to work from the time the investment is made. The deferred sales charge alternatives may be particularly appealing to investors who do not quality for a reduction in initial sales charges. Both Class B and Class C shares are subject to ongoing account maintenance fees and distributions fees; however, the ongoing account maintenance and distribution fees potentially may be offset to the extent any return is realized on the additional funds initially invested in Class B or Class C shares. In addition, Class B shares will be converted into Class D shares of the Fund after a conversion period of approximately ten years, and thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it to be most advantageous to have all their funds invested initially and intend to hold their shares for an extended period of time. Investors in Class B shares should take into account whether they intend to redeem their shares within the CDSC period and, if not, whether they intend to remain invested until the end of the conversion period and thereby take advantage of the reduction in ongoing fees resulting from the conversion into Class D shares. Other investors, however, may elect to purchase Class C shares if they determine that it is advantageous to have all their assets invested initially and they are uncertain as to the length of time they intend to hold their assets in MLAM-advised mutual funds. Although Class C shareholders are subject to a shorter CDSC period at a lower rate, they are subject to higher distribution fees and forgo the Class B conversion feature, making their investment subject to account maintenance and distribution fees for an indefinite period of time. In addition, while both Class B and Class C distribution fees are subject to the limitations on asset-based sales charges imposed by the NASD, the Class B distribution fees are further limited under a voluntary waiver of asset-based sales charges. See "Purchase of Shares-- Limitations on the Payment of Deferred Sales Charges."
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction with the annual audits of the financial statements of the Fund by Deloitte & Touche LLP, independent auditors. Financial statements for the year ended July 31, 1995 and the independent auditors' report thereon are included in the Statement of Additional Information. The following per share data and ratios have been derived from information provided in the Fund's audited financial statements. Financial information is presented for Class C and Class D shares only for the period October 21, 1994 (commencement of operations) to July 31, 1995. Further information about the performance of the Fund is contained in the Fund's most recent annual report to shareholders which may be obtained, without charge, by calling or by writing the Trust at the telephone number or address on the front cover of this Prospectus.
CLASS A CLASS B
-------------------------------------------- -----------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
AUG. 31 AUG. 31
FOR THE YEAR ENDED JULY 31, 1990+ TO FOR THE YEAR ENDED JULY 31, 1990+ TO
---------------------------------- JULY 31, ------------------------------------- JULY 31,
1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
------- ------- ------- ------- -------- -------- -------- -------- ------- --------
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 11.00 $ 11.39 $ 11.04 $ 10.27 $10.00 $ 11.00 $ 11.39 $ 11.04 $ 10.27 $ 10.00
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Investment
income--net..... .62 .60 .63 .67 .61 .56 .54 .58 .62 .57
Realized and
unrealized gain
(loss) on
investments--
net............. .07 (.33) .36 .77 .27 .07 (.33) .36 .77 .27
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Total from
investment
operations...... .69 .27 .99 1.44 .88 .63 .21 .94 1.39 .84
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Less dividends
and
distributions:
Investment
income--net..... (.62) (.60) (.63) (.67) (.61) (.56) (.54) (.58) (.62) (.57)
Realized gain on
investments--
net............. -- (.04) (.01) -- -- -- (.04) (.01) -- --
In excess of
realized gain on
investments--
net............. -- (.02) -- -- -- -- (.02) -- -- --
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Total dividends
and
distributions... (.62) (.66) (.64) (.67) (.61) (.56) (.60) (.59) (.62) (.57)
------- ------- ------- ------- ------ -------- -------- -------- ------- -------
Net asset value,
end of period... $ 11.07 $ 11.00 $ 11.39 $ 11.04 $10.27 $ 11.07 $ 11.00 $ 11.39 $ 11.04 $ 10.27
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 6.54% 2.37% 9.30% 14.53% 9.30%# 6.00% 1.86% 8.75% 13.94% 8.81%#
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
account
maintenance and
distribution
fees and net of
reimbursement... .77% .75% .69% .55% .39%* .78% .75% .69% .56% .40%*
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
Expenses, net of
reimbursement... .77% .75% .69% .55% .39%* 1.28% 1.25% 1.19% 1.06% .90%*
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
Expenses........ .77% .75% .81% .97% 1.57%* 1.28% 1.25% 1.32% 1.48% 2.07%*
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
Investment
income--net..... 5.72% 5.30% 5.70% 6.33% 6.71%* 5.21% 4.80% 5.19% 5.81% 6.21%*
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $23,040 $28,239 $27,639 $17,144 $9,402 $123,260 $130,418 $109,463 $65,599 $30,435
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
Portfolio
turnover........ 59.17% 37.73% 9.69% 4.14% -- 59.17% 37.73% 9.69% 4.14% --
======= ======= ======= ======= ====== ======== ======== ======== ======= =======
CLASS C CLASS D
---------- ----------
FOR THE PERIOD
OCTOBER 21, 1994+
TO JULY 31,
---------------------
1995 1995
---------- ----------
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 10.68 $ 10.68
---------- ----------
Investment
income--net..... .43 .47
Realized and
unrealized gain
(loss) on
investments--
net............. .39 .40
---------- ----------
Total from
investment
operations...... .82 .87
---------- ----------
Less dividends
and
distributions:
Investment
income--net..... (.43) (.47)
Realized gain on
investments--
net............. -- --
In excess of
realized gain on
investments--
net............. -- --
---------- ----------
Total dividends
and
distributions... (.43) (.47)
---------- ----------
Net asset value,
end of period... $ 11.07 $ 11.08
========== ==========
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 7.83%# 8.36%#
========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
account
maintenance and
distribution
fees and net of
reimbursement... .78%* .77%*
========== ==========
Expenses, net of
reimbursement... 1.38%* .87%*
========== ==========
Expenses........ 1.38%* .87%*
========== ==========
Investment
income--net..... 5.05%* 5.65%*
========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $ 1,868 $ 2,630
========== ==========
Portfolio
turnover........ 59.17% 59.17%
========== ==========
|
+ Commencement of operations.
* Annualized. ** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide shareholders with as high a level of income exempt from Federal and Pennsylvania personal income taxes as is consistent with prudent investment management. The Fund seeks to achieve its objective by investing primarily in a portfolio of long-term obligations issued by or on behalf of the Commonwealth of Pennsylvania, its political subdivisions, agencies and instrumentalities and obligations of other qualifying issuers, such as issuers located in Puerto Rico, the Virgin Islands, and Guam, which pay interest exempt, in the opinion of bond counsel to the issuer, from Federal and Pennsylvania personal income taxes. Obligations exempt from Federal income taxes are referred to herein as "Municipal Bonds" and obligations exempt from both Federal and Pennsylvania income taxes are referred to as "Pennsylvania Municipal Bonds." Unless otherwise indicated, references to Municipal Bonds shall be deemed to include Pennsylvania Municipal Bonds. The Fund at all times, except during temporary defensive periods, will maintain at least 65% of its total assets invested in Pennsylvania Municipal Bonds. The investment objective of the Fund as set forth in the first sentence of this paragraph is a fundamental policy of the Fund which may not be changed without a vote of a majority of the outstanding shares of the Fund.
Municipal Bonds may include several types of bonds. The interest on Municipal Bonds may bear a fixed rate or be payable at a variable or floating rate. At least 80% of the Municipal Bonds purchased by the Fund primarily will be what are commonly referred to as "investment grade" securities, which are obligations rated at the time of purchase within the four highest quality ratings as determined by either Moody's Investors Service ("Moody's") (currently Aaa, Aa, A and Baa), Standard & Poor's Corporation ("Standard & Poor's") (currently AAA, AA, A and BBB) or Fitch Investors Service, Inc. ("Fitch") (currently AAA, AA, A and BBB). If Municipal Bonds are unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager of the Fund, to obligations in which the Fund may invest. Municipal Bonds rated in the fourth highest rating category, while considered "investment grade", have certain speculative characteristics and are more likely to be downgraded to non-investment grade than obligations rated in one of the top three rating categories. See Appendix II--"Ratings of Municipal Bonds"--in the Statement of Additional Information for more information regarding ratings of debt securities. An issue of rated Municipal Bonds may cease to be rated or its rating may be reduced below "investment grade" subsequent to its purchase by the Fund. If an obligation is downgraded below investment grade, the Manager will consider factors such as price, credit risk, market conditions, financial condition of the issuer and interest rates to determine whether to continue to hold the obligation in the Fund's portfolio.
The Fund may invest up to 20% of its total assets in Municipal Bonds that are rated below Baa by Moody's or below BBB by Standard & Poor's or Fitch. Such securities, sometimes referred to as "high-yield" or "junk" bonds, are predominantly speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of the security and generally involve a greater volatility of price than securities in higher rating categories. The market prices of high-yielding, lower-rated securities may fluctuate more than higher-rated securities and may decline significantly in periods of general economic difficulty, which may follow periods of rising interest rates. In purchasing such securities, the Fund will rely on the Manager's judgment, analysis and experience in evaluating the creditworthiness of the issuer of such securities. The Manager will take into consideration, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of its management and regulatory matters. See "Investment Objective and Policies" in the Statement of Additional Information for
a more detailed discussion of the pertinent risk factors involved in investing in "high yield" or "junk" bonds and Appendix II--"Ratings of Municipal Bonds"-- in the Statement of Additional Information for additional information regarding ratings of debt securities. The Fund does not intend to purchase debt securities that are in default or which the Manager believes will be in default.
Certain Municipal Bonds may be entitled to the benefits of letters of credit or similar credit enhancements issued by financial institutions. In such instances, the Trustees and the Manager will take into account in assessing the quality of such bonds not only the creditworthiness of the issuer of such bonds but also the creditworthiness of the financial institution.
The Fund's investments include 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. The VRDOs in which the Fund will invest are tax-exempt obligations 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 the 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, some possibility that because of default or insolvency, the demand feature of VRDOs or Participating VRDOs may not be honored. The 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.
VRDOs that contain an unconditional right of demand to receive payment of the unpaid principal balance plus accrued interest on a notice period exceeding seven days may be deemed to be illiquid securities. A VRDO with a demand notice exceeding seven days will therefore be subject to the Fund's restriction on illiquid investments unless, in the judgment of the Trustees, such VRDO is liquid. The Trustees may adopt guidelines and delegate to the Manager the daily function of determining and monitoring liquidity of such VRDOs. The Trustees, however, will retain sufficient oversight and be ultimately responsible for such determination.
The Fund ordinarily does not intend to realize investment income not exempt from Federal and Pennsylvania income taxes. However, to the extent that suitable Pennsylvania Municipal Bonds are not available for investment by the Fund, the Fund may purchase Municipal Bonds issued by other states, their agencies and instrumentalities, the interest income on which is exempt, in the opinion of bond counsel, from Federal, but not Pennsylvania, taxation. The Fund also may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund nevertheless believes such securities to be exempt from Federal income taxation ("Non- Municipal Tax-Exempt Securities"). Non-Municipal Tax-Exempt Securities also may include securities issued by other investment companies that invest in municipal bonds, to the extent such investments are permitted by the Investment Company Act of 1940, as amended (the "1940 Act"). Other Non-Municipal Tax- Exempt Securities could include trust certificates or other instruments evidencing interests in one or more long-term municipal securities.
Under normal circumstances, except when acceptable securities are unavailable as determined by the Manager, the Fund will invest at least 65% of its total assets in Pennsylvania Municipal Bonds. For
temporary defensive periods or to provide liquidity, the Fund has the authority
to invest as much as 35% of its total assets in tax-exempt or taxable money
market obligations with a maturity of one year or less (such short-term
obligations being referred to herein as "Temporary Investments"), except that
taxable Temporary Investments shall not exceed 20% of the Fund's net assets.
The Temporary Investments, VRDOs and Participating VRDOs in which the Fund may
invest also will be in the following rating categories at the time of purchase:
MIG-1/VMIG-1 through MIG-4/VMIG-4 for notes and VRDOs and Prime-1 through
Prime-3 for commercial paper (as determined by Moody's), SP-1+ through SP-2 for
notes and A-1+ through A-3 for VRDOs and commercial paper (as determined by
Standard & Poor's), or F-1+ through F-3 for notes, VRDOs and commercial paper
(as determined by Fitch) or, if unrated, of comparable quality in the opinion
of the Manager. The Fund at all times will have at least 80% of its net assets
invested in securities the interest on which is exempt from Federal taxation.
However, interest received on certain otherwise tax-exempt securities which are
classified as "private activity bonds" (in general, bonds that benefit non-
governmental entities) may be subject to Federal alternative minimum tax. The
percentage of the Fund's net assets invested in "private activity bonds" will
vary during the year. See "Distributions and Taxes". In addition, the Fund
reserves the right to invest temporarily a greater portion of its assets in
Temporary Investments for defensive purposes, when, in the judgment of the
Manager, market conditions warrant. The investment objective of the Fund is a
fundamental policy of the Fund which may not be changed without a vote of a
majority of the outstanding shares of the Fund. The Fund's hedging strategies,
which are described in more detail under "Financial Futures Transactions and
Options," are not fundamental policies and may be modified by the Trustees of
the Trust without the approval of the Fund's shareholders.
POTENTIAL BENEFITS
Investment in shares of the Fund offers several benefits. The Fund offers investors the opportunity to receive income exempt from Federal and Pennsylvania personal income taxes by investing in a professionally managed portfolio of long-term Pennsylvania Municipal Bonds. The Fund also provides liquidity because of its redemption features and relieves the investor of the burdensome administrative details involved in managing a portfolio of tax- exempt securities. The benefits are at least partially offset by the expenses involved in operating an investment company. Such expenses primarily consist of the management fee and operational costs and, in the case of certain classes of shares, the account maintenance and distribution costs.
SPECIAL AND RISK CONSIDERATIONS RELATING TO MUNICIPAL BONDS
The risks and special considerations involved in investments in Municipal Bonds vary with the types of instruments being acquired. Investments in Non- Municipal Tax-Exempt Securities may present similar risks, depending on the particular product. Certain instruments in which the Fund may invest may be characterized as derivative instruments. See "Description of Municipal Bonds" and "Financial Futures Transactions and Options".
Moreover, the Fund ordinarily will invest at least 65% of its total assets in Pennsylvania Municipal Bonds, and therefore it is more susceptible to factors adversely affecting issuers of Pennsylvania Municipal Bonds than is a municipal bond mutual fund that is not concentrated in issuers of Pennsylvania Municipal Bonds to this degree.
Many different social, environmental and economic factors may affect the financial condition of Pennsylvania and its political subdivisions. From time to time Pennsylvania and certain of its political subdivisions have encountered financial difficulties which have adversely affected their respective credit standings. For example, the financial condition of the City of Philadelphia had impaired its ability to borrow and resulted in its obligations generally being downgraded by the major rating services to below investment grade. Other factors which may negatively affect economic conditions in Pennsylvania include adverse changes in employment rates, Federal revenue sharing or laws with respect to tax-exempt financing. Currently, Pennsylvania's general obligation bonds are rated AA- by Standard & Poor's and Fitch and A1 by Moody's. See "Description of Municipal Bonds" in the Statement of Additional Information and see also Appendix I to the Statement of Additional Information.
DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds include debt obligations issued to obtain funds for various public purposes, including construction and equipping of a wide range of public facilities (including water, sewer, gas, electricity, solid waste, health care, transportation, education and housing 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 bonds are issued by or on behalf of public authorities to finance various privately operated facilities, including certain facilities for local furnishing of electric energy or gas, sewage facilities, solid waste disposal facilities and other specialized facilities. For purposes of this Prospectus, such obligations are Municipal Bonds if the interest paid thereon is excluded from gross income for Federal income tax purposes ("exempt from Federal income tax") and, in the case of Pennsylvania Municipal Bonds, exempt from Pennsylvania personal income tax, even though such bonds may be IDBs or "private activity bonds" as discussed below.
The two principal classifications of Municipal Bonds are "general obligation" and "revenue" bonds which latter category includes industrial development bonds ("IDBs") and, for bonds issued after August 15, 1986, private activity bonds. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. The taxing power of any governmental entity may be limited, however, by provisions of state constitutions or laws, and an entity's creditworthiness will depend on many factors, including potential erosion of the tax base due to population declines, natural disasters, declines in the state's industrial base or inability to attract new industries, economic limits on the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes, and the extent to which the entity relies on Federal or state aid, access to capital markets or other factors beyond the state or entity's control. Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment of principal when due is affected by the issuer's maintenance of its tax base.
Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as from the user of the facility being financed; accordingly, the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special obligation bond is a function of the economic viability of such facility or such revenue source. The Fund will not invest in IDBs where the entity supplying the revenues from which the issuer is paid, including predecessors, has a record of less than three years of
continuous business operations, if such investments, together with investments in other unseasoned issuers, would exceed 5% of the Fund's total assets. Investments involving entities with less than three years of continuous business operations may pose somewhat greater risks due to the lack of a substantial operating history for such entities. The Manager believes, however, that the potential benefits of such investments outweigh the potential risks, particularly given the Fund's limitations on such investments.
The Fund may purchase IDBs or private activity bonds. IDBs or private activity bonds are tax-exempt securities issued by states, municipalities or public authorities and are issued to provide funds, usually through a loan or lease arrangement, to a private corporation for the purpose of financing construction or improvement of a facility to be used by the corporation. Such bonds are secured primarily by revenues derived from loan repayments or lease payments due from the corporation which may or may not be guaranteed by a parent company or otherwise secured. In view of this, an investor should be aware that repayment of such bonds depends on the revenues of a private corporation and be aware of the risks that such an investment may entail. Continued ability of a corporation to generate sufficient revenues for the payment of principal and interest on such bonds will be affected by many factors including the size of the corporation, capital structure, demand for its products or services, competition, general economic conditions, government regulation and the corporation's dependence on revenues for the operation of the particular facility being financed. The Fund may also invest in so-called "moral obligation" bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral commitment, but not a legal obligation, of the state or municipality in question.
The Fund may invest in Municipal Bonds (and Non-Municipal Tax-Exempt Securities) the return on which is based on a particular index of value or interest rates. For example, the 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 commodity. The principal amount payable upon maturity of certain Municipal Bonds also may be based on the value of an index. To the extent the 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. Interest and principal payable on the Municipal Bonds may also be based on relative changes among particular indices. Also, the Fund may invest in so-called "inverse floating obligations" or "residual interest bonds" on which the interest rates typically decline as market rates increase and increase as market rates decline. The Fund's return on such types of Municipal Bonds (and Non-Municipal Tax-Exempt Securities) will be subject to risk with respect to the value of the particular index, which may include reduced or eliminated interest payments and losses of invested principal. 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 will generally be more volatile than the market values of fixed-rate tax exempt securities. To seek to limit the volatility of these securities, the Fund may purchase inverse floating obligations with shorter term maturities or which contain limitations on the extent to which the interest rate may vary. The Manager, however, believes that indexed and inverse floating obligations represent flexible portfolio management instruments for the Fund which allow the Fund to seek potential investment rewards, hedge other portfolio positions or vary the degree of investment leverage relatively efficiently under different market conditions. Certain investments in such obligations may be illiquid. The Fund may not invest in such illiquid
obligations if such investments, together with other illiquid investments, would exceed 15% of the Fund's net assets.
Also included within the general category of Municipal Bonds are participation certificates issued by government authorities or entities to finance the acquisition or construction of equipment, land and/or facilities. The certificates represent participations in a lease, an installment purchase contract or a conditional sales contract (hereinafter collectively called "lease obligations") relating to such equipment, land or facilities. Although lease obligations do not constitute general obligations of the issuer for which the issuer's unlimited taxing power is pledged, a lease obligation is frequently backed by the issuer's covenant to budget for, appropriate and make the payments due under the lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the issuer has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non- appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. These securities represent a type of financing that has not yet developed the depth of marketability associated with more conventional securities. Certain investments in lease obligations may be illiquid. The Fund may not invest in illiquid lease obligations if such investments, together with all other illiquid investments, would exceed 15% of the Fund's total assets. The Fund may, however, invest without regard to such limitation in lease obligations which the Manager, pursuant to guidelines which have been adopted by the Board of Trustees and subject to the supervision of the Board, determines to be liquid. The Manager will deem lease obligations to be liquid if they are publicly offered and have received an investment grade rating of Baa or better by Moody's, or BBB or better by Standard & Poor's or Fitch. Unrated lease obligations, or those rated below investment grade, will be considered liquid if the obligations come to the market through an underwritten public offering and at least two dealers are willing to give competitive bids. In reference to obligations rated below investment grade, the Manager must, among other things, also review the creditworthiness of the municipality obligated to make payment under the lease obligation and make certain specified determinations based on such factors as the existence of a rating or credit enhancement such as insurance, the frequency of trades or quotes for the obligation and the willingness of dealers to make a market in the obligation.
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 Fund.
CALL RIGHTS
The Fund 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 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 that of holding a Municipal Bond as a non-callable security. Certain investments in such obligations may be illiquid. The Fund may not invest in such illiquid obligations if such investments, together with other illiquid investments, would exceed 15% of the Fund's total assets.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase or sell Municipal Bonds on a delayed delivery basis or a when-issued basis at fixed purchase terms. These transactions arise when securities are purchased or sold by the Fund with payment and delivery taking place in the future. The purchase will be recorded on the date the Fund enters into the commitment and the value of the obligation will thereafter be reflected in the calculation of the Fund's net asset value. The value of the obligation on the delivery date 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 high grade, liquid Municipal Bonds having a market value at all times at least equal to the amount of the forward commitment.
FINANCIAL FUTURES TRANSACTIONS AND OPTIONS
The Fund is authorized to purchase and sell certain exchange traded financial futures contracts ("financial futures contracts") solely for the purpose of hedging its investments in Municipal Bonds against declines in value and to hedge against increases in the cost of securities it intends to purchase. However, any transactions involving financial futures or options (including puts and calls associated therewith) will be in accordance with the Fund's investment policies. 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 futures contracts to make and accept a cash settlement, at a specific future time for a specified price. A sale of financial futures contracts may provide a hedge against a decline in the value of portfolio securities because such depreciation may be offset, in whole or in part, by an increase in the value of the position in the financial futures contracts. A purchase of financial futures contracts may provide a hedge against an increase in the cost of securities intended to be purchased, because such appreciation may be offset, in whole or in part, by an increase in the value of the position in the futures contracts. Distributions, if any, of net long-term capital gains from certain transactions in futures or options are taxable at long-term capital gains rates for Federal income tax purposes, regardless of the length of time the shareholder has owned Fund shares. See "Distributions and Taxes--Taxes".
The Fund deals in financial futures contracts traded on the Chicago Board of Trade based on The Bond Buyer Municipal Bond Index, a price-weighted measure of the market value of 40 large, recently issued tax-exempt bonds. There can be no assurance, however, that a liquid secondary market will exist to terminate any particular financial futures contract at any specific time. If it is not possible to close a financial futures position entered into by the 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 inability to close financial futures positions also could have an adverse impact on the Fund's ability to hedge effectively. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in a financial futures contract.
The Fund may purchase and sell financial futures contracts on U.S. Government securities and write and purchase put and call options on such futures contracts as a hedge against adverse changes in interest rates as described more fully in the Statement of Additional Information. With respect to U.S. Government securities, currently there are financial futures contracts based on long-term U.S. Treasury bonds, Treasury
notes, Government National Mortgage Association ("GNMA") Certificates and three-month U.S. Treasury bills.
Subject to policies adopted by the Trustees, the Fund also may engage in other financial futures contracts transactions and options thereon, such as financial futures contracts or options on other municipal bond indexes which may become available if the Manager of the Fund and the Trustees of the Trust should determine that there is normally a sufficient correlation between the prices of such futures contracts and the Municipal Bonds in which the Fund invests to make such hedging appropriate.
Utilization of futures transactions and options thereon involves the risk of imperfect correlation in movements in the price of futures contracts and movements in the price of the security which is the subject of the hedge. If the price of the futures contract moves more or less than the price of the security that is the subject of the hedge, the 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 futures contracts have different maturities, ratings or geographic mixes 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. Finally, in the case of futures contracts on U.S. Government securities and options on such futures contracts, the anticipated correlation of price movements between the U.S. Government securities underlying the futures or options and Municipal Bonds may be adversely affected by economic, political, legislative or other developments which have a disparate impact on the respective markets for such securities.
Under regulations of the Commodity Futures Trading Commission, the futures trading activities described herein will not result in the Fund being deemed to be 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) only for bona fide hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial margins and premiums required to establish positions in such contracts and options does not exceed 5% of the liquidation value of the Fund's portfolio assets after taking into account unrealized profits and unrealized losses on any such contracts and options. (However, as stated above, the Fund intends to engage in options and futures transactions only for hedging purposes.) Margin deposits may consist of cash or securities acceptable to the broker and the relevant contract market.
When the Fund purchases a futures contract, or writes a put option or purchases a call option thereon, it will maintain an amount of cash, cash equivalents (e.g., high grade 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 futures contracts, thereby ensuring that the use of such futures contract is unleveraged. It is not anticipated that transactions in futures contracts will have the effect of increasing portfolio turnover.
Although certain risks are involved in options and futures transactions, the Manager believes that, because the Fund will engage in futures transactions only for hedging purposes, the futures portfolio strategies of the Fund will not subject the Fund to certain risks frequently associated with speculation in futures transactions. The Fund must meet certain Federal income tax requirements under the Internal Revenue Code of 1986, as amended (the "Code"), in order to qualify for the special tax treatment afforded regulated
investment companies, including a requirement that less than 30% of its gross income be derived from the sale or other disposition of securities held for less than three months. Additionally, the Fund is required to meet certain diversification requirements under the Code.
The liquidity of a secondary market in a futures contract may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which limit the amount of fluctuation in a futures contract price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open futures positions. Prices have in the past moved beyond the daily limit on a number of consecutive trading days.
The successful use of transactions in futures also depends on the ability of the Manager to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent these rates remain stable during the period in which a futures contract is held by the Fund or moves in a direction opposite to that anticipated, the Fund may realize a loss on the hedging transaction which is not fully or partially offset by an increase in the value of portfolio securities. As a result, the Fund's total return for such period may be less than if it had not engaged in the hedging transaction. Furthermore, the Fund will only engage in hedging transactions from time to time and may not necessarily be engaging in hedging transactions when movements in interest rates occur.
Reference is made to the Statement of Additional Information for further information on financial futures contracts and certain options thereon.
REPURCHASE AGREEMENTS
As Temporary Investments, the Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer in U.S. Government Securities or an affiliate thereof. Under such agreements, the seller agrees, upon entering into the contract, to repurchase the security from the Fund at a mutually agreed upon time and price, thereby determining the yield during the term of the agreement. This results in a fixed rate of return insulated from market fluctuations during such period. The Fund may not invest in repurchase agreements maturing in more than seven days if such investments, together with the Fund's other illiquid investments, exceed 15% of the Fund's total assets. In the event of default by the seller under a repurchase agreement, the Fund may suffer time delays and incur costs or possible losses in connection with the disposition of the underlying securities.
INVESTMENT RESTRICTIONS
The Fund's investment activities are subject to further restrictions that are described in the Statement of Additional Information. Investment restrictions and policies which are fundamental policies may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities, as defined in the 1940 Act. Among its fundamental policies, the Fund may not: (i) invest more than 25% of its assets, taken at market value at the time of each investment, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities) (For purposes of this restriction, states, municipalities and their political subdivisions are not considered to be part of any industry); and (ii) borrow money, except that (a) the Fund may borrow from banks (as defined in the 1940 Act) in
amounts up to 33 1/3% of its total assets (including the amount borrowed), (b) the Fund may borrow up to an additional 5% of its total assets for temporary purposes, (c) the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (d) the Fund may purchase securities on margin to the extent permitted by applicable law. The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Fund's investment policies as set forth in the Prospectus and Statement of Additional Information, as they may be amended from time to time, in connection with hedging transactions, short sales, when- issued and forward commitment transactions and similar investment strategies.
Among its non-fundamental policies, the Fund may not (i) purchase securities of other investment companies, except to the extent such purchases are permitted by applicable law; (ii) invest in securities which cannot be readily resold because of legal or contractual restrictions or which cannot otherwise be marketed, redeemed or put to the issuer or a third party, if at the time of acquisition more than 15% of its total assets would be invested in such securities [This restriction (ii) shall not apply to securities which mature within seven days or securities which the Board of Trustees of the Trust has otherwise determined to be liquid pursuant to applicable law]; and (iii) invest in securities of companies having a record, together with predecessors, of less than three years of continuous operation, if more than 5% of the Fund's total assets would be invested in such securities. This restriction (iii) shall not apply to mortgage-backed securities, asset-backed securities or obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Under prior Pennsylvania law, in order for the Fund to qualify to pass
through to investors income exempt from Pennsylvania personal income tax, the
Fund was required to adhere to certain investment restrictions. In order to
comply with this and other Pennsylvania law requirements previously in effect,
the Fund adopted, as a fundamental policy, a requirement that it invest in
securities for income earnings rather than trading for profit, and that, in
accordance with such policy, it not vary its portfolio investments except to
(i) eliminate unsafe investments or investments not consistent with the
preservation of the capital or the tax status of the investments of the Fund;
(ii) honor redemption orders, meet anticipated redemption requirements, and
negate gains from discount purchases; (iii) reinvest the earnings from
securities in like securities; or (iv) defray normal administrative expenses.
Pennsylvania has recently enacted legislation which eliminated the necessity
for the foregoing investment policies. Since such policies are fundamental
policies of the Fund, which can only be changed by the affirmative vote of a
majority (as defined under the Investment Company Act) of the outstanding
shares, the Fund continues to be governed by such investment policies.
The Fund is classified as non-diversified within the meaning of the 1940 Act,
which means that the Fund is not limited by the 1940 Act in the proportion of
its assets that it may invest in obligations of a single issuer. However, the
Fund's investments will be limited so as to qualify for the special treatment
afforded regulated investment companies under the Code. See "Distributions and
Taxes--Taxes". To qualify, among other requirements, the Trust will limit the
Fund's investments so that, at the close of each quarter of the taxable year,
(i) not more than 25% of the market value of the Fund's total assets will be
invested in the securities of a single issuer, and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer and the
Fund will not own more than 10% of the outstanding voting securities of a
single issuer. For purposes of this restriction, the Fund will regard each
state and each political subdivision, agency or instrumentality of such state
and
each multi-state agency of which such state is a member and each public authority which issues securities on behalf of a private entity as a separate issuer, except that if the security is backed only by the assets and revenues of a non-government entity then the entity with the ultimate responsibility for the payment of interest and principal may be regarded as the sole issuer. These tax-related limitations may be changed by the Trustees of the Trust to the extent necessary to comply with changes to the Federal tax requirements. A fund which elects to be classified as "diversified" under the 1940 Act must satisfy the foregoing 5% and 10% requirements with respect to 75% of its total assets. To the extent that the Fund assumes large positions in the obligations of a small number of issuers, the Fund's total return 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.
Investors are referred to the Statement of Additional Information for a complete description of the Fund's investment restrictions.
MANAGEMENT OF THE TRUST
TRUSTEES
The Trustees of the Trust consist of six individuals, five of whom are not "interested persons" of the Trust as defined in the 1940 Act. The Trustees are responsible for the overall supervision of the operations of the Trust and the Fund and perform the various duties imposed on the directors or trustees of investment companies by the 1940 Act.
The Trustees are:
Arthur Zeikel*--President of the Manager and MLAM; President and Director of Princeton Services, Inc.; Executive Vice President of ML&Co.; Executive Vice President of Merrill Lynch; Director of the Distributor.
James H. Bodurtha--Chairman and Chief Executive Officer, China Enterprise Management Corporation.
Herbert I. London--John M. Olin Professor of Humanities, New York University.
Robert R. Martin--Director, WTC Industries, Inc.
Joseph L. May--Attorney in private practice.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, which is an affiliate of MLAM and is owned and controlled by ML&Co., a financial services holding company, acts as the manager for the Fund and provides the Fund with management
services. The Manager or MLAM acts as the investment adviser for more than 130 other registered investment companies. MLAM also provides investment advisory services to individual and institutional accounts. As of September 30, 1995, the Manager and MLAM had a total of approximately $189.4 billion in investment company and other portfolio assets under management, including accounts of certain affiliates of the Manager.
Subject to the direction of the Trustees, the Manager is responsible for the actual management of the Fund's portfolio and constantly reviews the Fund's holdings in light of its own research analysis and that from other relevant sources. The responsibility for making decisions to buy, sell or hold a particular security rests with the Manager. The Manager performs certain of the other administrative services and provides all the office space, facilities, equipment and necessary personnel for management of the Fund.
William Michael Petty is the Portfolio Manager of the Fund. He has been a Vice President of MLAM since 1993, an Assistant Vice President of MLAM from 1992 to 1993 and a municipal bond broker with J.J. Kenny Municipal Bond Brokers from 1990 to 1992.
Pursuant to the management agreement between the Manager and the Trust on behalf of the Fund (the "Management Agreement"), the Manager is entitled to receive from the Fund a monthly fee based upon the average daily net assets of the Fund at the following annual rates: 0.55% of the average daily net assets not exceeding $500 million; 0.525% of the average daily net assets exceeding $500 million but not exceeding $1.0 billion and 0.50% of the average daily net assets exceeding $1.0 billion. For the year ended July 31, 1995, the total fee paid by the Fund to the Manager was $827,537 (based upon average net assets of approximately $151.2 million).
The Management Agreement obligates the Trust on behalf of the Fund to pay certain expenses incurred in the Fund's operations, including, among other things, the management fee, legal and audit fees, unaffiliated Trustee's fees and expenses, registration fees, custodian and transfer agency fees, accounting and pricing costs, and certain of the costs of printing proxies, shareholder reports, prospectuses and statements of additional information. Accounting services are provided to the Fund by the Manager and the Fund reimburses the Manager for its costs in connection with such services. The Manager may voluntarily waive all or a portion of its management fee and may voluntarily assume all or a portion of the Fund's expenses. For the year ended July 31, 1995, the Fund reimbursed the Manager $40,065 for accounting services. For the year ended July 31, 1995, the ratio of total expenses, net of account maintenance and distribution fees, to average net assets was .77% for Class A shares and .78% for Class B shares; for the period October 21, 1994 (commencement of operations) to July 31, 1995, the annualized ratio of total expenses, net of account maintenance and distribution fees, to average net assets was .78% for Class C shares and .77% for Class D shares.
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics under Rule 17j-1 of the 1940 Act which incorporates the Code of Ethics of the Manager (together, the "Codes"). The Codes significantly restrict the personal investing activities of all employees of the Manager and, as described below, impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager preclear any personal securities investment (with limited exceptions, such as government securities). The preclearance requirement and associated procedures are designed to identify any substantive prohibition or limitation applicable to the proposed investment. The substantive restrictions applicable to all employees of the Manager include a ban on acquiring any securities in a "hot" initial public offering and a prohibition from profiting on short-term trading in securities. In addition, no employee may purchase or sell any security which at the time is being purchased or sold (as the case may be), or to the knowledge of the employee is being considered for purchase or sale, by any fund advised by the Manager. Furthermore, the Codes provide for trading "blackout periods" which prohibit trading by investment personnel of the Fund within periods of trading by the Fund in the same (or equivalent) security (15 or 30 days depending upon the transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly-owned subsidiary of ML&Co., acts as the Trust's transfer agent pursuant to a transfer agency, dividend disbursing agency and shareholder servicing agency agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Fund pays the Transfer Agent an annual fee of $11.00 per Class A or Class D shareholder account and $14.00 per Class B and Class C shareholder account and the Transfer Agent is entitled to reimbursement from the Fund for out-of-pocket expenses incurred by the Transfer Agent under the Transfer Agency Agreement. For the year ended July 31, 1995, the Fund paid the Transfer Agent a total fee of $98,221 pursuant to the Transfer Agency Agreement for providing transfer agency services. At September 30, 1995, the Fund had 645 Class A shareholder accounts, 4,075 Class B shareholder accounts, 113 Class C shareholder accounts and 55 Class D shareholder accounts. At this level of accounts, the annual fee paid to the Transfer Agent would aggregate approximately $66,332, plus out-of- pocket expenses.
PURCHASE OF SHARES
The Distributor, an affiliate of the Manager, MLAM and Merrill Lynch, acts as the Distributor of the shares of the Fund. Shares of the Fund are offered continuously for sale by the Distributor and other eligible securities dealers (including Merrill Lynch). Shares of the Fund may be purchased from securities dealers or by mailing a purchase order directly to the Transfer Agent. The minimum initial purchase is $1,000 and the minimum subsequent purchase is $50.
The Fund is offering its shares in four classes at a public offering price equal to the next determined net asset value per share plus sales charges imposed either at the time of purchase or on a deferred basis depending upon the class of shares selected by the investor under the Merrill Lynch Select Pricing (SM) System, as described below. The applicable offering price for purchase orders is based upon the net asset value of the Fund next determined after receipt of the purchase orders by the Distributor. As to purchase orders received by securities dealers prior to the close of business on the New York Stock Exchange (generally, 4:00 P.M., New York time), which includes orders received after the close of business on the previous day, the applicable offering price will be based on the net asset value determined as of 15 minutes after the close of business on the New York Stock Exchange on that day, provided the Distributor in turn receives the order from the
securities dealer prior to 30 minutes after the close of business on the New York Stock Exchange on that day. If the purchase orders are not received by the Distributor prior to 30 minutes after the close of business on the New York Stock Exchange, such orders shall be deemed received on the next business day. The Trust or the Distributor may suspend the continuous offering of the Fund's shares of any class at any time in response to conditions in the securities markets or otherwise and may thereafter resume such offering from time to time. Any order may be rejected by the Distributor or the Trust. Neither the Distributor nor the dealers are permitted to withhold placing orders to benefit themselves by a price change. Merrill Lynch may charge its customers a processing fee (presently $4.85) to confirm a sale of shares to such customers. Purchases directly through the Fund's Transfer Agent are not subject to the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select Pricing (SM) System, which permits each investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other relevant circumstances. Shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives and shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. Investors should determine whether under their particular circumstances it is more advantageous to incur an initial sales charge or to have the entire initial purchase price invested in the Fund with the investment thereafter being subject to a CDSC and ongoing distribution fees and higher account maintenance fees. A discussion of the factors that investors should consider in determining the method of purchasing shares under the Merrill Lynch Select Pricing (SM) System is set forth under "Merrill Lynch Select Pricing SM System" on page 4.
Each Class A, Class B, Class C and Class D share of the Fund represents identical interests in the investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees, and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. The deferred sales charges and account maintenance fees that are imposed on Class B and Class C shares, as well as the account maintenance fees that are imposed on Class D shares, will be imposed directly against those classes and not against all assets of the Fund and, accordingly, such charges will not affect the net asset value of any other class or have any impact on investors choosing another sales charge option. Dividends paid by the Fund for each class of shares will be calculated in the same manner at the same time and will differ only to the extent that account maintenance and distribution fees and any incremental transfer agency costs relating to a particular class are borne exclusively by that class. Class B, Class C and Class D shares each have exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted with respect to such class pursuant to which account maintenance and/or distribution fees are paid. See "Distribution Plans" below. Each class has different exchange privileges. See "Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial sales charges with respect to Class A and Class D shares are the same as those of the deferred sales charges with respect to Class B and Class C shares in that the sales charges applicable to each class provide for the financing of the distribution of the shares of the Fund. The distribution-related revenues paid with respect to a class will not be used to finance the distribution expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares. Investors are advised that only Class A and Class D shares may be available for purchase through securities dealers, other than Merrill Lynch, which are eligible to sell shares.
The following table sets forth a summary of the distribution arrangements for each class of shares under the Merrill Lynch Select Pricing (SM) System.
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(/1/) FEE FEE CONVERSION FEATURE
- ---------------------------------------------------------------------------------------
A Maximum 4.00% initial sales No No No
charge(/2/)(/3/)
- ---------------------------------------------------------------------------------------
B CDSC for a period of 4 years, 0.25% 0.25% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% ten years(/4/)
- ---------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.35% No
- ---------------------------------------------------------------------------------------
D Maximum 4.00% initial 0.10% No No
sales charge(/3/)
|
(3) Reduced for purchases of $25,000 or more. Class A and Class D share purchases of $1,000,000 or more may not be subject to an initial sales charge but instead may be subject to a 1.0% CDSC if redeemed within one year.
(4) The conversion period for dividend reinvestment shares was modified. Also, Class B shares of certain other MLAM-advised mutual funds into which exchanges may be made have an eight year conversion period. If Class B shares of the Fund are exchanged for Class B shares of another MLAM- advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to purchase Class A shares should purchase Class A shares rather than Class D shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers choosing the initial sales charge alternative is the next determined net asset value plus varying sales charges (i.e., sales loads), as set forth below.
SALES CHARGE SALES CHARGE DISCOUNT TO
AS PERCENTAGE AS PERCENTAGE* SELECTED DEALERS
OF OFFERING OF THE NET AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE AMOUNT INVESTED THE OFFERING PRICE
- ------------------ ------------- --------------- ------------------
Less than $25,000............. 4.00% 4.17% 3.75%
$25,000 but less than $50,000. 3.75 3.90 3.50
$50,000 but less than
$100,000..................... 3.25 3.36 3.00
$100,000 but less than
$250,000..................... 2.50 2.56 2.25
$250,000 but less than
$1,000,000................... 1.50 1.52 1.25
$1,000,000 and over**......... 0.00 0.00 0.00
|
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of $1,000,000 or more made on or after October 21, 1994 (the date Class D shares were initially offered to the public). If the sales charge is waived in connection with a purchase of $1,000,000 or more, such purchases will be subject to a CDSC of 1.0% if the shares are redeemed within one year after purchase.
The Distributor may reallow discounts to selected dealers and retain the balance over such discounts. At times the Distributor may reallow the entire sales charge to such dealers. Since securities dealers selling Class A and Class D shares of the Fund will receive a concession equal to most of the sales charge, they may be deemed to be underwriters under the Securities Act of 1933, as amended. During the fiscal year ended July 31, 1995, the Fund sold 252,327 Class A shares for aggregate net proceeds of $2,701,007. The gross sales charges for the sale of Class A shares of the Fund for that year were $16,482, of which $1,289 and $15,193 were received by the Distributor and Merrill Lynch, respectively. For the fiscal year ended July 31, 1995, the Distributor received no CDSCs with respect to redemption within one year after purchase of Class A shares purchased subject to front-end sales charge waivers. For the period October 21, 1994 (commencement of operations) to July 31, 1995, the Fund sold 241,043 Class D shares for aggregate net proceeds of $2,563,252. The gross sales charges for the sale of Class D shares of the Fund for the period were $26,959, of which $773 and $26,186 were received by the Distributor and Merrill Lynch, respectively. For the period October 21, 1994 (commencement of operations) to July 31, 1995, the Distributor received no CDSCs with respect to redemption within one year after purchase of Class D shares purchased subject to a front-end sales charge waiver.
Eligible Class A Investors. Class A shares are offered to a limited group of investors and also will be issued upon reinvestment of dividends on outstanding Class A shares. Investors that currently own Class A shares of the Fund in a shareholder account are entitled to purchase additional Class A shares of the Fund in that account. Class A shares are available at net asset value to corporate warranty insurance reserve fund programs provided that the program has $3 million or more initially invested in MLAM-advised mutual funds. Also eligible to purchase Class A shares at net asset value are participants in certain investment programs including TMA SM Managed Trusts to which Merrill Lynch Trust Company provides discretionary trustee services and certain purchases made in connection with the Merrill Lynch Mutual Fund Adviser program. In addition, Class A shares are offered at net asset value to ML & Co. and its subsidiaries and their directors and employees and to members of the Boards of MLAM-advised investment companies, including the Trust. Certain persons who acquired shares of certain MLAM-advised closed-end funds who wish to reinvest the net proceeds from a sale of their closed-end fund shares of common stock in shares of the Fund also may purchase Class A shares of the Fund if certain conditions set forth in the Statement of Additional Information are met. For example, Class A shares of the Fund and certain other MLAM-advised mutual funds are offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. who wish to reinvest the net proceeds from a sale of certain of their shares of common stock of Merrill Lynch Senior Floating Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon Class A and Class D shares issued as a result of the automatic reinvestment of dividends or capital gains distributions. Class A and Class D sales charges also may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A investors as set forth above under "Eligible Class A Investors."
Class D shares are offered at net asset value, without a sales charge, to an investor who has a business relationship with a Merrill Lynch financial consultant if certain conditions set forth in the Statement of Additional Information are met. Class D shares may be offered at net asset value in connection with the acquisition of assets of other investment companies.
Class D shares of the Fund are offered at net asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. who wish to reinvest the net proceeds from a sale of certain of their shares of common stock of Merrill Lynch Municipal Strategy Fund, Inc. in shares of the Fund.
Additional information concerning these reduced initial sales charges is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider Class B shares if they intend to hold their shares for an extended period of time and Class C shares if they are uncertain as to the length of time they intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors choosing the deferred sales charge alternatives is the next determined net asset value per share without the imposition of a sales charge at the time of purchase. As discussed below, Class B shares are subject to a four year CDSC, while Class C shares are subject only to a one year 1.0% CDSC. On the other hand, approximately ten years after Class B shares are issued, such Class B shares, together with shares issued upon dividend reinvestment with respect to those shares, are automatically converted into Class D shares of the Fund and thereafter will be subject to lower continuing fees. See "Conversion of Class B Shares to Class D Shares" below. Both Class B and Class C shares are subject to an account maintenance fee of 0.25% of net assets and Class B and Class C shares are subject to distribution fees of 0.25% and 0.35%, respectively, of net assets as discussed below under "Distribution Plans". The proceeds from the account maintenance fees are used to compensate Merrill Lynch for providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that the Fund will receive the full amount of the investor's purchase payment. Merrill Lynch compensates its financial consultants for selling Class B and Class C shares at the time of purchase from its own funds. See "Distribution Plans" on page 28.
Proceeds from the CDSCs and the distribution fee are paid to the Distributor and are used in whole or in part by the Distributor to defray the expenses of dealers (including Merrill Lynch) related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to financial consultants for selling Class B and Class C shares from the dealer's own funds. The combination of the CDSC and the ongoing distribution fee facilitates the ability of the Fund to sell the Class B and Class C shares without a sales charge being deducted at the time of purchase. Approximately ten years after issuance, Class B shares will convert automatically into Class D shares of the Fund, which are subject to a lower account maintenance fee and no distribution fee; Class B shares of certain other MLAM-advised mutual funds into which exchanges may be made convert into Class D shares automatically after approximately eight years. If Class B shares of the Fund are exchanged for Class B shares of another MLAM- advised mutual fund, the conversion period applicable to the Class B shares acquired in
the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C shares is limited by the NASD asset-based sales charge rule. See "Limitations on the Payment of Deferred Sales Charges" below. The proceeds from the ongoing account maintenance fee are used to compensate Merrill Lynch for providing continuing account maintenance activities. Class B shareholders of the Fund exercising the exchange privilege described under "Shareholder Services--Exchange Privilege" will continue to be subject to the Fund's CDSC schedule, if such schedule is higher than the CDSC schedule relating to the Class B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which are redeemed within four years of purchase may be subject to a CDSC at the rates set forth below charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no CDSC will be assessed on shares derived from reinvestment of dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
CLASS B
CDSC AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT MADE CHARGE
------------------- -------------
0-1.......................................................... 4.0%
1-2.......................................................... 3.0%
2-3.......................................................... 2.0%
3-4.......................................................... 1.0%
4 and thereafter............................................. None
|
For the fiscal year ended July 31, 1995, the Distributor received CDSCs of $302,369 with respect to redemptions of Class B shares, all of which were paid to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible applicable rate being charged. Therefore, it will be assumed that the redemption is first of shares held for over four years or shares acquired pursuant to reinvestment of dividends or distributions and then of shares held longest during the four- year period. The charge will not be applied to dollar amounts representing an increase in the net asset value since the time of purchase. A transfer of shares from a shareholder's account to another account will be assumed to be made in the same order as a redemption.
To provide an example, assume an investor purchased 100 Class B shares at $10 per share (at a cost of $1,000) and in the third year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional shares upon dividend reinvestment. If at such time the investor makes his first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to a CDSC because of dividend reinvestment. With respect to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the applicable rates in the third year after purchase).
In the event that Class B shares are exchanged by certain retirement plans for Class A shares in connection with a transfer to the Merrill Lynch Mutual Fund Adviser ("MFA") program, the time period that such Class A shares are held in the MFA program will be included in determining the holding period of Class B shares reacquired upon termination of participation in the MFA program (see "Shareholder Services--Exchange Privilege").
The Class B CDSC is waived on redemptions of shares following the death or disability (as defined in the Code) of a shareholder. Additional information concerning the waiver of the Class B CDSC is set forth in the Statement of Additional Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which are redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no Class C CDSC will be assessed on shares derived from reinvestment of dividends or capital gains distributions. For the period October 21, 1994 (commencement of operations) to July 31, 1995, the Distributor received CDSCs of $621 with respect to redemptions of Class C shares, all of which were paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. Therefore, it will be assumed that the redemption is first of shares held for over one year or shares acquired pursuant to reinvestment of dividends or distributions and then of shares held longest during the one-year period. The charge will not be applied to dollar amounts representing an increase in the net asset value since the time of purchase. A transfer of shares from a shareholder's account to another account will be assumed to be made in the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately ten years (the "Conversion Period"), Class B shares also will be converted automatically into Class D shares of the Fund. Class D shares are subject to an ongoing account maintenance fee of 0.10% of net assets but are not subject to the distribution fee that is borne by Class B shares. Automatic conversion of Class B shares into Class D shares will occur at least once each month (on the "Conversion Date") on the basis of the relative net asset values of the shares of the two classes on the Conversion Date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D shares. The Conversion Date for dividend reinvestment shares will be calculated taking into account the length of time the shares underlying such dividend reinvestment shares were outstanding. If at a Conversion Date the conversion of Class B shares to Class D shares of the Fund in a single account will result in less than $50 worth of Class B shares being left in the account, all of the Class B shares of the Fund held in the account on the Conversion Date will be converted to Class D shares of the Fund.
Share certificates for Class B shares of the Fund to be converted must be delivered to the Transfer Agent at least one week prior to the Conversion Date applicable to those shares. In the event such certificates are not received by the Transfer Agent at least one week prior to the Conversion Date, the related Class B shares will convert to Class D shares on the next scheduled Conversion Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert approximately eight years after initial purchase, and Class B shares of taxable and tax-exempt fixed income MLAM-advised mutual funds will convert approximately ten years after initial purchase. If, during the Conversion Period, a shareholder exchanges Class B shares with an eight-year Conversion Period for Class B shares with a ten-year Conversion Period, or vice versa, the Conversion Period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each, a "Distribution Plan") with respect to the account maintenance and/or distribution fees paid by the Fund to the Distributor with respect to such classes. The Class B and Class C Distribution Plans provide for the payment of account maintenance fees and distribution fees, and the Class D Distribution Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide that the Fund pays the Distributor an account maintenance fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rates of 0.25%, 0.25% and 0.10%, respectively, of the average daily net assets of the Fund attributable to shares of the relevant class in order to compensate the Distributor and Merrill Lynch (pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the Fund also pays the Distributor a distribution fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.25% and 0.35%, respectively, of the average daily net assets of the Fund attributable to the shares of the relevant class in order to compensate the Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing shareholder and distribution services, and bearing certain distribution-related expenses of the Fund, including payments to financial consultants for selling Class B and Class C shares of the Fund. The Distribution Plans relating to Class B and Class C shares are designed to permit an investor to purchase Class B and Class C shares through dealers without the assessment of an initial sales charge and at the same time permit the dealer to compensate its financial consultants in connection with the sale of the Class B and Class C shares. In this regard, the purpose and function of the ongoing distribution fees and the CDSC are the same as those of the initial sales charge with respect to the Class A and Class D shares of the Fund in that the deferred sales charges provide for the financing of the distribution of the Fund's Class B and Class C shares.
For the fiscal year ended July 31, 1995, the Fund paid the Distributor $618,190 pursuant to the Class B Distribution Plan (based on average net assets subject to such Distribution Plan of approximately $123.6 million), all of which was paid to Merrill Lynch for providing account maintenance and distribution-related activities and services in connection with Class B shares. During the period October 21, 1994 (commencement
of operations) to July 31, 1995, the Fund paid the Distributor $4,335 pursuant to the Distribution Plan relating to Class C shares (based on average net assets subject to such Distribution Plan of approximately $938,519), all of which was paid to Merrill Lynch for providing account maintenance and distribution-related activities and services in connection with Class C shares. During the fiscal period October 21, 1994 (commencement of operations) to July 31, 1995, the Fund paid the Distributor $1,586 pursuant to the Distribution Plan relating to Class D shares (based on average net assets subject to such Distribution Plan of approximately $2.1 million), all of which was paid to Merrill Lynch for providing account maintenance services in connection with Class D shares. At September 30, 1995, the net assets of the Fund subject to the Class B Distribution Plan aggregated approximately $123.7 million. At this asset level, the annual fee payable pursuant to the Class B Distribution Plan would aggregate approximately $618,657. At September 30, 1995, the net assets of the Fund subject to the Class C Distribution Plan aggregated approximately $2.7 million. At this asset level, the annual fee payable pursuant to the Class C Distribution Plan would aggregate approximately $16,397. At September 30, 1995, the net assets of the Fund subject to the Class D Distribution Plan aggregated approximately $2.7 million. At this asset level, the annual fee payable pursuant to the Class D Distribution Plan would aggregate approximately $2,703.
The payments under the Distribution Plan are based on a percentage of average daily net assets attributable to the shares regardless of the amount of expenses incurred and, accordingly, distribution-related revenues from the Distribution Plans may be more or less than distribution-related expenses. Information with respect to the distribution-related revenues and expenses is presented to the Trustees for their consideration in connection with their deliberations as to the continuance of the Class B and Class C Distribution Plans. This information is presented annually as of December 31 of each year on a "fully allocated accrual" basis and quarterly on a "direct expense and revenue/cash" basis. On the fully allocated accrual basis, revenues consist of the account maintenance fees, distribution fees, the CDSCs and certain other related revenues, and expenses consist of financial consultant compensation, branch office and regional operation center selling and transaction processing expenses, advertising, sales promotion and marketing expenses, corporate overhead and interest expense. On the direct expense and revenue/cash basis, revenues consist of the account maintenance fees, distribution fees and CDSCs and the expenses consist of financial consultant compensation. As of December 31, 1994, for Class B shares, the fully allocated accrual revenues incurred by the Distributor and Merrill Lynch exceeded fully allocated accrual expenses for such period by approximately $2,260,000 (1.93% of Class B net assets at that date). As of July 31, 1995, direct cash revenues for the period since the commencement of operations of Class B shares exceeded direct cash expenses by approximately $502,115 (.43% of Class B net assets at that date). As of July 31, 1995, for Class C shares, direct cash expenses for the period since commencement of operations of Class C shares exceeded direct cash revenues by $3,200 (0.86% of Class C net assets at that date).
The Fund has no obligation with respect to distribution and/or account maintenance-related expenses incurred by the Distributor and Merrill Lynch in connection with Class B, Class C and Class D shares, and there is no assurance that the Trustees of the Trust will approve the continuance of the Distribution Plans from year to year. However, the Distributor intends to seek annual continuation of the Distribution Plans. In their review of the Distribution Plans, the Trustees will be asked to take into consideration expenses incurred in connection with the account maintenance and/or distribution of each class of shares separately. The initial sales charges, the account maintenance fee, the distribution fee and/or the CDSCs received with respect to one class will not be used to subsidize the sale of shares of another class. Payments of the distribution fee on
Class B shares will terminate upon conversion of those Class B shares into Class D shares as set forth under "Deferred Sales Charge Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class D Shares."
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD imposes a limitation on certain asset-based sales charges such as the distribution fee and the CDSC borne by the Class B and the Class C shares, but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges) plus (2) interest on the unpaid balance for the respective class, computed separately at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts received from the payment of the distribution fee and the CDSC). In connection with the Class B shares, the Distributor has voluntarily agreed to waive interest charges on the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the maximum amount payable to the Distributor (referred to as the "voluntary maximum") in connection with the Class B shares is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving the interest charges at any time. To the extent payments would exceed the voluntary maximum, the Fund will not make further payments of the distribution fee with respect to Class B shares and any CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances the amount payable pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstances payments in excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Trust is required to redeem for cash all shares of the Fund upon receipt of a written request in proper form. The redemption price is the net asset value per share next determined after the initial receipt of proper notice of redemption. Except for any CDSC which may be applicable, there will be no charge for redemption if the redemption request is sent directly to the Transfer Agent. Shareholders liquidating their holdings will receive upon redemption all dividends reinvested through the date of redemption. The value of shares at the time of redemption may be more or less than the shareholder's cost, depending on the market value of the securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering the shares directly to the Transfer Agent, Merrill Lynch Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered other than by mail should be delivered to Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice of redemption in the case of shares deposited with the Transfer Agent may be accomplished by a written letter requesting redemption. Proper notice of redemption in the case of shares for which certificates have been issued may be accomplished by a written letter as noted above accompanied by certificates for the shares
to be redeemed. Redemption requests should not be sent to the Trust. The notice in either event requires the signature(s) of all persons in whose name(s) the shares are registered, signed exactly as such name(s) appear(s) on the Transfer Agent's register. The signature(s) on the redemption request must be guaranteed by an "eligible guarantor institution" as such is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. Notarized signatures are not sufficient. In certain instances, the Transfer Agent may require additional documents such as, but not limited to, trust instruments, death certificates, appointments as executor or administrator, or certificates of corporate authority. For shareholders redeeming directly with the Transfer Agent, payments will be mailed within seven days of receipt of a proper notice of redemption.
At various times the Trust may be requested to redeem Fund shares for which it has not yet received good payment (e.g., cash, Federal funds or certified check drawn on a United States bank). The Trust may delay or cause to be delayed the mailing of a redemption check until such time as it has assured itself that good payment has been collected for the purchase of such Fund shares, which will not exceed 10 days.
REPURCHASE
The Trust also will repurchase Fund shares through a shareholder's listed securities dealer. The Trust normally will accept orders to repurchase Fund shares by wire or telephone from dealers for their customers at the net asset value next computed after receipt of the order by the dealer, provided that the request for repurchase is received by the dealer prior to the close of business on the New York Stock Exchange (generally, 4:00 P.M., New York time) on the day received, and such request is received by the Trust from such dealer not later than 30 minutes after the close of business on the New York Stock Exchange on the same day. Dealers have the responsibility of submitting such repurchase requests to the Fund not later than 30 minutes after the close of business on the New York Stock Exchange, in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of shareholders and do not involve a charge by the Trust (other than any applicable CDSC). Securities firms which do not have selected dealer agreements with the Distributor, however, may impose a transaction charge on the shareholder for transmitting the notice of repurchase to the Trust. Merrill Lynch may charge its customers a processing fee (presently $4.85) to confirm a repurchase of shares of such customers. Redemptions directly through the Fund's Transfer Agent are not subject to the processing fee. The Trust reserves the right to reject any order for repurchase, which right of rejection might adversely affect shareholders seeking redemption through the repurchase procedure. However, a shareholder whose order for repurchase is rejected by the Trust may redeem Fund shares as set forth above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a one- time privilege to reinstate their accounts by purchasing Class A or Class D shares, as the case may be, of the Fund at net asset value without a sales charge up to the dollar amount redeemed. The reinstatement privilege may be exercised by sending a notice of exercise along with a check for the amount to be reinstated to the Transfer Agent within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. The reinstatement will be made at the net asset value per share next determined after the notice of reinstatement is received and cannot exceed the amount of the redemption proceeds. The reinstatement privilege is a one-
time privilege and may be exercised by the Class A or Class D shareholder only the first time such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services and investment plans designed to facilitate investment in shares of the Fund. Full details as to each of such services, copies of the various plans described below and instructions as to how to participate in the various services or plans, or to change options with respect thereto can be obtained from the Trust by calling the telephone number on the cover page hereof or from the Distributor or Merrill Lynch.
Investment Account. Each shareholder whose account (an "Investment Account") is maintained at the Transfer Agent has an Investment Account and will receive statements at least quarterly from the Transfer Agent. These statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions. The statements will also show any other activity in the account since the preceding statement. Shareholders will receive separate confirmations for each purchase or sale transaction other than automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gains distributions. A shareholder may make additions to his Investment Account at any time by mailing a check directly to the Transfer Agent. Shareholders may also maintain their accounts through Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch brokerage account, an Investment Account in the transferring shareholder's name will be opened automatically at the Transfer Agent. Shareholders considering transferring their Class A or Class D shares from Merrill Lynch to another brokerage firm or financial institution should be aware that, if the firm to which the Class A or Class D shares are to be transferred will not take delivery of shares of the Fund, a shareholder either must redeem the Class A or Class D shares (paying any applicable CDSC) so that the cash proceeds can be transferred to the account at the new firm or such shareholder must continue to maintain an Investment Account at the Transfer Agent for those Class A or Class D shares. Shareholders interested in transferring their Class B or Class C shares from Merrill Lynch and who do not wish to have an Investment Account maintained for such shares at the Transfer Agent may request their new brokerage firm to maintain such shares in an account registered in the name of the brokerage firm for the benefit of the shareholder at the Transfer Agent.
Exchange Privilege. Shareholders of each class of shares of the Fund each have an exchange privilege with certain other MLAM-advised mutual funds. There is currently no limitation on the number of times a shareholder may exercise the exchange privilege. The exchange privilege may be modified or terminated at any time in accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing (SM) System, Class A shareholders may exchange Class A shares of the Fund for Class A shares of a second MLAM- advised mutual fund if the shareholder holds any Class A shares of the second fund in his account in which the exchange is made at the time of the exchange or is otherwise eligible to purchase Class A shares of the second fund. If the Class A shareholder wants to exchange Class A shares for shares of a second MLAM-advised mutual fund, and the shareholder does not hold Class A shares of the second fund in his account at the time of the exchange and is not otherwise eligible to acquire Class A shares of the second fund, the shareholder will receive Class D shares of the second fund as a result
of the exchange. Class D shares also may be exchanged for Class A shares of a second MLAM-advised mutual fund at any time as long as, at the time of the exchange, the shareholder holds Class A shares of the second fund in the account in which the exchange is made or is otherwise eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the relative net asset values per Class A or Class D share, respectively, plus an amount equal to the difference, if any, between the sales charge previously paid on the Class A or Class D shares being exchanged and the sales charge payable at the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC are exchangeable on the basis of relative net asset value per share without the payment of any CDSC that might otherwise be due upon redemption of the shares of the Fund. For purposes of computing the CDSC that may be payable upon a disposition of the shares acquired in the exchange, the holding period for the previously owned shares of the Fund is "tacked" to the holding period of the newly acquired shares of the other Fund.
Class A, Class B, Class C and Class D shares also are exchangeable for shares of certain MLAM-advised money market funds specifically designated as available for exchange by holders of Class A, Class B, Class C or Class D shares. The period of time that Class A, Class B, Class C or Class D shares are held in a money market fund, however, will not count toward satisfaction of the holding period requirement for reduction of any CDSC imposed on such shares, if any, and, with respect to Class B shares, toward satisfaction of the Conversion Period.
Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the new Class B shares. In addition, Class B shares of the Fund acquired through use of the exchange privilege will be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares of the MLAM-advised mutual fund from which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income tax purposes. For further information, see "Shareholder Services--Exchange Privilege" in the Statement of Additional Information.
The Fund's exchange privilege is modified with respect to purchases of Class A and Class D shares by non-retirement plan investors under the MFA program. First, the initial allocation of assets is made under the MFA program. Then, any subsequent exchange under the MFA program of Class A or Class D shares of a MLAM-advised mutual fund for Class A or Class D shares of the Fund will be made solely on the basis of the relative net asset values of the shares being exchanged. Therefore, there will not be a charge for any difference between the sales charge previously paid on the shares of the other MLAM-advised mutual funds and the sales charge payable on the shares of the Fund being acquired in the exchange under the MFA program.
Automatic Reinvestment of Dividends and Capital Gains Distributions. All dividends and capital gains distributions are reinvested automatically in full and fractional shares of the Fund, without a sales charge, at
the net asset value per share at the close of business on the monthly payment date for such dividends and distributions. A shareholder may at any time, by written notification or by telephone (1-800-MER-FUND) to the Transfer Agent, elect to have subsequent dividends or both dividends and capital gains distributions paid in cash, rather than reinvested, in which event payment will be mailed or directly deposited monthly. Cash payments can also be directly deposited to the shareholder's bank account. No CDSC will be imposed upon redemption of shares issued as a result of the automatic reinvestment of dividends or capital gains distributions.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to receive systematic withdrawal payments from his Investment Account through automatic payment by check or through automatic payment by direct deposit to his bank account on either a monthly or quarterly basis. Alternatively, a Class A or Class D shareholder whose shares are held within a CMA (R) or CBA (R) account may elect to have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis through the CMA (R)/CBA (R) Systematic Redemption Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C or Class D shares may be made to an investor's Investment Account by pre-arranged charges of $50 or more to his or her regular bank account. The Fund's Automatic Investment Program is not available to shareholders whose shares are held in a brokerage account with Merrill Lynch. Alternatively, investors who maintain CMA (R) or CBA (R) accounts may arrange to have periodic investments made in the Fund in their CMA (R) or CBA (R) account or in certain related accounts in amounts of $100 or more through the CMA (R)/CBA (R) Automated Investment Program.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the execution of transactions in portfolio securities of the Fund. Municipal Bonds and other securities in which the Fund invests are traded primarily in the over-the-counter market. Where possible, the Trust deals directly with the dealers who make a market in the securities involved except in those circumstances where better prices and execution are available elsewhere. It is the policy of the Trust to obtain the best net results in conducting portfolio transactions for the Fund, taking into account such factors as price (including the applicable dealer spread), the size, type and difficulty of the transactions involved, the firm's general execution and operations facilities, and the firm's risk in positioning the securities involved and the provision of supplemental investment research by the firm. While reasonably competitive spreads or commissions are sought, the Fund will not necessarily be paying the lowest spread or commission available. The sale of shares of the Fund may be taken into consideration as a factor in the selection of brokers and dealers to execute portfolio transactions for the Fund. The portfolio securities of the Fund generally are traded on a net basis and normally do not involve either brokerage commissions or transfer taxes. The cost of portfolio securities transactions of the Fund primarily consists of dealer or underwriter spreads. Under the 1940 Act, persons affiliated with the Trust, including Merrill Lynch, are prohibited from dealing with the Trust as a principal in the purchase and sale of securities unless such trading is permitted by an exemptive order issued by the Commission. The Trust has obtained an exemptive order permitting it to engage in certain principal transactions with Merrill Lynch involving high quality short-term municipal bonds subject to certain conditions. In addition, the Trust may not purchase securities, including Municipal Bonds, for the Fund during the existence of any underwriting syndicate of which Merrill Lynch is a member except pursuant to procedures approved by the Trustees of
the Trust which comply with rules adopted by the Commission. The Trust has applied for an exemptive order permitting it to, among other things, (i) purchase high quality tax-exempt securities from Merrill Lynch when Merrill Lynch is a member of an underwriting syndicate and (ii) purchase tax-exempt securities from and sell tax-exempt securities to Merrill Lynch in secondary market transactions. Affiliated persons of the Trust may serve as its broker in over-the-counter transactions conducted for the Fund on an agency basis only.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The net investment income of the Fund is declared as dividends daily prior to the determination of the net asset value which is calculated 15 minutes after the close of business on the New York Stock Exchange (generally, 4:00 P.M., New York time) on that day. The net investment income of the Fund for dividend purposes consists of interest earned on portfolio securities, less expenses, in each case computed since the most recent determination of the net asset value. Expenses of the Fund, including the management fees and the account maintenance and distribution fees, are accrued daily. Dividends of net investment income are declared daily and reinvested monthly in the form of additional full and fractional shares of the Fund at net asset value as of the close of business on the payment date unless the shareholder elects to receive such dividends in cash. Shares will accrue dividends as long as they are issued and outstanding. Shares are issued and outstanding from the settlement date of a purchase order to the day prior to the settlement date of a redemption order.
All net realized long- or short-term capital gains, if any, are declared and distributed to the Fund's shareholders annually. Capital gains distributions will be reinvested automatically in shares unless the shareholder elects to receive such distributions in cash.
The per share dividends and distributions on each Class of shares will be reduced as a result of any account maintenance, distribution and transfer agency fees applicable to that class. See "Additional Information-- Determination of Net Asset Value".
See "Shareholder Services" for information as to how to elect either dividend reinvestment or cash payments. Portions of dividends and distributions which are taxable to shareholders as described below are subject to income tax whether they are reinvested in shares of the Fund or received in cash.
TAXES
The Trust intends to continue to qualify the Fund for the special tax treatment afforded regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Code"). If it so qualifies, in any taxable year in which it distributes at least 90% of its taxable net income and 90% of its tax-exempt net income (see below), the Fund (but not its shareholders) will not be subject to Federal income tax to the extent that it distributes its net investment income and net realized capital gains. The Trust intends to cause the Fund to distribute substantially all of such income.
To the extent that the dividends distributed to the Fund's Class A, Class B, Class C and Class D shareholders (together, the "shareholders") are derived from interest income exempt from Federal income
tax under Code Section 103(a) and are properly designated as "exempt-interest dividends" by the Trust, they will be excludable from a shareholder's gross income for Federal income tax purposes. Exempt-interest dividends are included, however, in determining the portion, if any, of a person's social security benefits and railroad retirement benefits subject to Federal income taxes. The portion of exempt-interest dividends paid from interest received by the Fund from Pennsylvania Municipal Bonds also will be exempt from Pennsylvania personal income tax. However, distributions attributable to capital gains derived by the Fund as well as distributions derived from income from investments other than Pennsylvania Municipal Bonds will be taxable for Pennsylvania personal income tax purposes. In the case of residents of the City of Philadelphia, distributions which are derived from interest received by the Fund from Pennsylvania Municipal Bonds or which are designated as capital gain dividends for Federal income tax purposes will be exempt from the Philadelphia School District investment income tax. Shareholders subject to income taxation by states other than Pennsylvania will realize a lower after-tax rate of return than Pennsylvania shareholders since the dividends distributed by the Fund generally will not be exempt, to any significant degree, from income taxation by such other states. The Trust will inform shareholders annually as to the portion of the distributions which constitutes exempt-interest dividends and the portion which is exempt from Pennsylvania personal income taxes. Interest on indebtedness incurred or continued to purchase or carry Fund shares is not deductible for Federal income tax purposes to the extent attributable to exempt-interest dividends. Persons who may be "substantial users" (or "related persons" of substantial users) of facilities financed by industrial development bonds or private activity bonds held by the Fund should consult their tax advisers before purchasing Fund shares.
It is unclear at this time whether an investment in the Fund by a corporate shareholder will qualify as an exempt asset for purposes of apportionment of the Pennsylvania capital stock/foreign franchise tax. To the extent exempt- interest dividends are excluded from taxable income for Federal corporate income tax purposes (determined before net operating loss carryovers and special deductions), they will not be subject to the Pennsylvania corporate net income tax.
Shares of the Fund will be exempt from Pennsylvania county personal property taxes to the extent the Fund's portfolio securities consist of Pennsylvania Municipal Bonds on the annual assessment date.
To the extent that the 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 ordinary income for Federal income tax purposes. Distributions, if any, from the 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 shareholder has owned Fund shares. Distributions by the Fund, whether from exempt-interest income, ordinary income or capital gains, will not be eligible for the dividends received deduction allowed to corporations under the Code.
All or a portion of the 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 shareholders. Distributions in excess of the Fund's earnings and profits will first 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). Any loss upon the sale or exchange of Fund shares held for six months or less will be treated as long-term
capital loss to the extent of any capital gain dividends received by the shareholder. In addition, such loss will be disallowed to the extent of any exempt-interest dividends received by the shareholder. If the Fund pays a dividend in January which was declared in the previous October, November or December to shareholders of record on a specified date in one of such months, then such dividend will be treated for tax purposes as being paid by the Fund and received by its shareholders on December 31 of the year in which such dividend was declared.
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 shareholders of the Fund, to an alternative minimum tax. The Fund will purchase such "private activity bonds" and the Trust will report to shareholders within 60 days after the Fund's taxable 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 "adjusted current earnings," which more closely reflect a corporation's economic income. Because an exempt-interest dividend paid by the Fund will be included in adjusted current earnings, a corporate shareholder may be required to pay alternative minimum tax on exempt-interest dividends paid by the Fund.
No gain or loss will be recognized for Federal income tax purposes by Class B shareholders on the conversion of their Class B shares into Class D shares. A shareholder's basis in the Class D shares acquired will be the same as such shareholder's basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring the shares, then the loss the shareholder can recognize on the exchange will be reduced (or the gain increased) to the extent any sales charge paid to the Fund on the exchanged shares reduces any sales charge such shareholder would have owed upon purchase of the new shares in the absence of the exchange privilege. Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be disallowed if other Fund shares are acquired (whether through the automatic reinvestment of dividends 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.
Under certain Code provisions, some shareholders may be subject to a 31% withholding tax on certain ordinary income dividends and on capital gain dividends and redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Trust or who, to the Trust'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 investor is not otherwise subject to backup withholding.
The Code provides that every person 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 Fund) during the taxable year.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code, Treasury regulations and Pennsylvania income tax laws presently in effect. For the complete provisions, reference should be made to the pertinent Code sections, the Treasury regulations promulgated thereunder and the applicable Pennsylvania income tax laws. The Code and the Treasury regulations, as well as the Pennsylvania tax laws, are subject to change by legislative, judicial or administrative action either prospectively or retroactively.
Shareholders are urged to consult their tax advisers regarding the availability of any exemption from state or local taxes and with specific questions as to Federal, foreign, state or local taxes.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return, yield and tax-equivalent yield for various specified time periods in advertisements or information furnished to present or prospective shareholders. Average annual total return, yield and tax-equivalent yield are computed separately for Class A, Class B, Class C and Class D shares in accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods will be computed by finding the average annual compounded rates of return (based on net investment income and any realized and unrealized capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each period. Average annual total return will be computed assuming all dividends and distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses, including any CDSC that would be applicable to a complete redemption of the investment at the end of the specified period such as in the case of Class B and Class C shares and the maximum sales charge in the case of Class A and Class D shares. Dividends paid by the Fund with respect to all shares, to the extent any dividends are paid, will be calculated in the same manner at the same time on the same day and will be in the same amount, except that account maintenance fees and distribution charges and any incremental transfer agency costs relating to each class of shares will be borne exclusively by that class. The Fund will include performance data for all classes of shares of the Fund in any advertisement or information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance data for various specified time periods. Such data will be calculated substantially as described above, except that (1) the rates of return calculated will not be average annual rates, but rather, actual annual, annualized or aggregate rates of return and (2) the maximum applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the impact on the performance data calculations of including or excluding the maximum applicable sales charges, actual annual or annualized total return data generally will be lower than average annual total return data since the average annual rates of return reflect compounding; aggregate total return data generally will be higher than average annual total return data since the aggregate rates of return reflect compounding over a longer period of time. In advertisements distributed to investors whose
purchases are subject to reduced sales loads in the case of Class A shares or waiver of the CDSC in the case of Class B shares or to reduced sales charges in the case of Class A or Class D shares, the performance data may take into account the reduced, and not the maximum, sales charge or may not take into account the CDSC and therefore may reflect greater total return since, due to the reduced sales charges or waiver of the contingent deferred sales charge, a lower amount of expenses is deducted. See "Purchase of Shares." The Fund's total return may be expressed either as a percentage or as a dollar amount in order to illustrate such total return on a hypothetical $1,000 investment in the Fund at the beginning of each specified period.
Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average daily number of shares outstanding during the period that were
entitled to receive dividends multiplied by the maximum offering price per
share on the last day of the period. Tax-equivalent yield quotations will be
computed by dividing (a) the part of the Fund's yield that is tax-exempt by (b)
one minus a stated tax rate and (c) adding the result to that part, if any, of
the Fund's yield that is not tax-exempt. The yield for the 30-day period ended
July 31, 1995 was 5.01% for Class A shares, 4.71% for Class B shares, 4.60% for
Class C shares and 4.92% for Class D shares and the tax-equivalent yield for
the same period (based on a Federal income tax rate of 28%) was 6.96% for Class
A shares, 6.54% for Class B shares, 6.39% for Class C shares and 6.83% for
Class D shares.
Total return, yield and tax-equivalent yield figures are based on the Fund's historical performance and are not intended to indicate future performance. The Fund's total return, yield and tax-equivalent yield will vary depending on market conditions, the securities comprising the Fund's portfolio, the Fund's operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The value of an investment in the Fund will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost.
On occasion, the Fund may compare its performance to performance data published by Lipper Analytical Services, Inc., Morningstar Publications, Inc. ("Morningstar") and CDA Investment Technology, Inc. or to data contained in publications such as Money Magazine, U.S. News & World Report, Business Week, Forbes Magazine and Fortune Magazine. From time to time, the Fund may include the Fund's Morningstar risk-adjusted performance ratings in advertisements or supplemental sales literature. As with other performance data, performance comparisons should not be considered indicative of the Fund's relative performance for any future period.
ADDITIONAL INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined once daily 15 minutes after the close of business on the New York Stock Exchange (generally, 4:00 P.M., New York time), on each day during which the New York Stock Exchange is open for trading. The net asset value per share is computed by dividing the sum of the value of the securities held by the Fund plus any cash or other assets minus all liabilities by the total number of shares outstanding at such time, rounded to the nearest cent. Expenses, including the fees payable to the Manager and the Distributor, are accrued daily.
The per share net asset value of Class A shares will generally be higher than the per share net asset value of shares of the other classes, reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the Class B and Class C shares and the daily expense accruals of the account maintenance fees applicable with respect to Class D shares; moreover, the per share net asset value of the Class D shares generally will be higher than the per share net asset value of the Class B and Class C shares, reflecting the daily expense accruals of the distribution and higher agency fees applicable with respect to Class B and Class C shares. It is expected, however, that the per share net asset value of the classes will tend to converge (although not necessarily meet) immediately after the payment of dividends or distributions which will differ by approximately the amount of the expense accrual differentials between the classes.
ORGANIZATION OF THE TRUST
The Trust is an unincorporated business trust organized on August 2, 1985 under the laws of Massachusetts. On October 1, 1987, the Trust changed its name from "Merrill Lynch Multi-State-Tax-Exempt Series Trust" to "Merrill Lynch Multi-State Municipal Bond Series Trust" and on December 22, 1987 the Trust changed its name to "Merrill Lynch Multi-State Municipal Series Trust". The Trust is an open-end management investment company comprised of separate series ("Series"), each of which is a separate portfolio offering shares to selected groups of purchasers. Each of the Series is to be managed independently in order to provide to shareholders who are residents of the state to which such Series relates as high a level of income exempt from Federal and, in certain cases, state and local income taxes as is consistent with prudent investment management. The Trustees are authorized to create an unlimited number of Series and, with respect to each Series, to issue an unlimited number of full and fractional shares of beneficial interest of $.10 par value of different classes. Shareholder approval is not required for the authorization of additional Series or classes of a Series of the Trust. At the date of this Prospectus, the shares of the Fund are divided into Class A, Class B, Class C and Class D shares. Class A, Class B, Class C and Class D shares represent interests in the same assets of the Fund and are identical in all respects except that Class B, Class C and Class D shares bear certain expenses related to the account maintenance associated with such shares, and Class B and Class C shares bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to account maintenance and distribution expenditures as applicable. See "Purchase of Shares". The Trust has received an order (the "Order") from the Commission permitting the issuance and sale of multiple classes of shares. The Trustees of the Trust may classify and reclassify the shares of any Series into additional classes at a future date. The Order permits the Trust to issue additional classes of shares of any Series if the Board of Trustees deems such issuance to be in the best interest of the Trust.
Shareholders are entitled to one vote for each full share and to fractional votes for fractional shares held in the election of Trustees (to the extent hereinafter provided) and on other matters submitted to the vote of shareholders. There normally will be no meeting of shareholders for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. Shareholders may, in accordance with the terms of the Declaration of Trust, cause a meeting of shareholders to be held for the purpose of voting on the removal of Trustees. Also, the Trust will be required to call a special meeting of shareholders of a Series in accordance with the requirements of the 1940 Act to seek approval of new management and advisory arrangements, of a material increase in distribution fees or of a change in the fundamental policies, objectives or restrictions of a Series. Except as set forth above, the
Trustees shall continue to hold office and appoint successor Trustees. Each issued and outstanding share is entitled to participate equally in dividends and distributions declared by the respective Series and in net assets of such Series upon liquidation or dissolution remaining after satisfaction of outstanding liabilities except that, as noted above, Class B, Class C and Class D shares bear certain additional expenses. The obligations and liabilities of a particular Series are restricted to the assets of that Series and do not extend to the assets of the Trust generally. The shares of each Series, when issued, will be fully-paid and non-assessable by the Trust.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder communications will be mailed to each identified shareholder regardless of the number of accounts such shareholder has. If a shareholder wishes to receive copies of each report and communication for all of the shareholder's related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address, tax identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated and/or mutual fund account numbers. If you have any questions regarding this please call your Merrill Lynch financial consultant or Merrill Lynch Financial Data Services, Inc. at 800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust at the address or telephone number set forth on the cover page of this Prospectus.
The Declaration of Trust establishing the Trust, dated August 2, 1985, a copy of which together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name "Merrill Lynch Multi-State Municipal Series Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally. No Trustee, shareholder, officer, employee or agent of the Trust shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim of the Trust but the "Trust Property" only shall be liable.
[This page intentionally left blank]
of Merrill Lynch Pennsylvania Municipal Bond Fund and establish an Investment Account as described in the Prospectus. In the event that I am not eligible to purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of
paper if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
Name...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address..............................
..................................... Name and Address of Employer ........
(Zip Code)
Occupation........................... .....................................
..................................... .....................................
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Ordinary Income Dividends Long-Term Capital Gains
SELECT [_] Reinvest SELECT [_] Reinvest ONE: [_] Cash ONE: [_] Cash
If no election is made, dividends and capital gains will be automatically reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] Check
or [_] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Pennsylvania Municipal Bond Fund
Authorization Form.
Specify type of account (check one): [_] checking [_] savings Name on your account .......................................................... Bank Name ..................................................................... Bank Number ...................... Account Number ............................ |
Bank Address ..................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING THIS SERVICE.
Signature of Depositor ........................................................
Signature of Depositor ............................... Date...................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
[ ][ ][ ][ ][ ][ ][ ][ ][ ] Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my correct Social Security Number or Taxpayer Identification Number and (2) that I am not subject to backup withholding (as discussed in the Prospectus under "Distribution and Taxes--Taxes") either because I have not been notified that I am subject thereto as a result of a failure to report all interest or dividends, or the Internal Revenue Service ("IRS") has notified me that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
..................., 19...... Dear Sir/Madam: Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill Lynch Pennsylvania Municipal Bond Fund or any other investment company with an initial sales charge or deferred sales charge for which Merrill Lynch Funds Distributor, Inc. acts as distributor over the next 13-month period which will equal or exceed:
[_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $1,000,000 Each purchase will be made at the then reduced offering price applicable to the amount checked above, as described in the Merrill Lynch Pennsylvania Municipal Bond Fund Prospectus.
I agree to the terms and conditions of the Letter of Intention. I hereby irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my attorney, with full power of substitution, to surrender for redemption any or all shares of Merrill Lynch Pennsylvania Municipal Bond Fund held as security.
By: ................................. .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both
must sign)
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In making purchases under this letter, the following are the related accounts on which reduced offering prices are to apply:
(1) Name............................. (2) Name.............................
Account Number....................... Account Number.......................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
- - - our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases made under a Letter of
Intention or Systematic Withdrawal
Plan. We guarantee the shareholder's
signature.
.....................................
Dealer Name and Address
- - - By: .................................
This form when completed, should Authorized Signature of Dealer
be mailed to:
[ ][ ][ ] [ ][ ][ ][ ]
Merrill Lynch Pennsylvania Branch Code F/C No.
Municipal Bond Fund ...............
F/C Last Name
c/o Merrill Lynch Financial [ ][ ][ ] [ ][ ][ ][ ][ ]
Data Services, Inc. Dealer's Customer A/C No.
P.O. Box 45289
Jacksonville, FL 32232-5289
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1. ACCOUNT REGISTRATION
(Please Print)
[ ][ ][ ][ ][ ][ ][ ][ ][ ]
Name of Owner...................... Social Security No. or
First Name Initial Last Name Taxpayer Identification
Number
Name of Co-Owner (if any)..........
First Name Initial Last Name
Address............................ Account Number ....................
(if existing account)
...................................
(Zip Code)
- -------------------------------------------------------------------------------
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2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account (check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a)I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of..........................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (Please Print)......................................................
Address .......................................................................
..........................................................................
Signature of Owner................................ Date..................
Signature of Co-Owner (if any)............................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name on your Account...........................................................
Bank Name......................................................................
Bank Number........................ Account Number............................
Bank Address...................................................................
........................................................................
Signature of Depositor................................. Date..................
Signature of Depositor.........................................................
(If joint account, both must sign)
|
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an automated clearing house ("ACH") debit on my checking account as described below each month to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Pennsylvania Municipal Bond Fund subject to the terms set forth below. In the event that I am not eligible to purchase Class A shares, I understand that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA AUTHORIZATION TO HONOR ACH DEBITS
SERVICES, INC. DRAWN BY MERRILL LYNCH FINANCIAL
DATA SERVICES, INC.
You are hereby authorized to draw an
ACH debit each month on my bank
account for investment in Merrill
Lynch Pennsylvania Municipal Bond To...............................Bank
Fund, as indicated below: (Investor's Bank)
Amount of each ACH debit $........ Bank Address.........................
Account No. ...................... City...... State...... Zip Code......
Please date and invest ACH debits As a convenience to me, I hereby
on the 20th of each month request and authorize you to pay and
beginning or as soon thereafter charge to my account ACH debits
------ drawn on my account by and payable
(Month) to Merrill Lynch Financial Data
as possible. Services, Inc. I agree that your
rights in respect to each such debit
I agree that you are drawing these shall be the same as if it were a
ACH debits voluntarily at my request check drawn on you and signed
and that you shall not be liable for personally by me. This authority is
any loss arising from any delay in to remain in effect until revoked
preparing or failure to prepare any personally by me in writing. Until
such debit. If I change banks or you receive such notice, you shall
desire to terminate or suspend this be fully protected in honoring any
program, I agree to notify you such debit. I further agree that if
promptly in writing. I hereby any such debit be dishonored,
authorize you to take any action to whether with or without cause and
correct erroneous ACH debits of my whether intentionally or
bank account or purchases of Fund inadvertently, you shall be under no
shares including liquidating shares liability.
of the Fund and crediting my bank
account. I further agree that if a ............ .....................
check or debit is not honored upon Date Signature of
presentation, Merrill Lynch Financial Depositor
Data Services, Inc. is authorized to
discontinue immediately the Automatic ............ .....................
Investment Plan and to liquidate Bank Signature of Depositor
sufficient shares held in my account Account (If joint account,
to offset the purchase made with the Number both must sign)
dishonored debit.
............ .....................
Date Signature of
Depositor
......................
Signature of Depositor
(If joint account,
both must sign)
|
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
MANAGER
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
PAGE
----
Fee Table.................................................................. 2
Merrill Lynch Select Pricing SM System..................................... 4
Financial Highlights....................................................... 8
Investment Objective and Policies.......................................... 9
Potential Benefits........................................................ 11
Special and Risk Considerations Relating to Municipal Bonds............... 11
Description of Municipal Bonds............................................ 12
Call Rights............................................................... 14
When-Issued Securities and Delayed Delivery Transactions.................. 15
Financial Futures Transactions and Options................................ 15
Repurchase Agreements..................................................... 17
Investment Restrictions................................................... 17
Management of the Trust.................................................... 19
Trustees.................................................................. 19
Management and Advisory Arrangements...................................... 19
Code of Ethics............................................................ 20
Transfer Agency Services.................................................. 21
Purchase of Shares......................................................... 21
Initial Sales Charge Alternatives--Class A and Class D Shares............. 23
Deferred Sales Charge Alternatives--Class B and Class C Shares............ 25
Distribution Plans........................................................ 28
Limitations on the Payment of Deferred Sales Charges...................... 30
Redemption of Shares....................................................... 30
Redemption................................................................ 30
Repurchase................................................................ 31
Reinstatement Privilege--Class A and Class D Shares....................... 31
Shareholder Services....................................................... 32
Portfolio Transactions..................................................... 34
Distributions and Taxes.................................................... 35
Distributions............................................................. 35
Taxes..................................................................... 35
Performance Data........................................................... 38
Additional Information..................................................... 39
Determination of Net Asset Value.......................................... 39
Organization of the Trust................................................. 40
Shareholder Reports....................................................... 41
Shareholder Inquiries..................................................... 41
Authorization Form......................................................... 43
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Code #11197-1195
[LOGO] MERRILL LYNCH
MERRILL LYNCH
PENNSYLVANIA MUNICIPAL
BOND FUND
MERRILL LYNCH MULTI-STATE
MUNICIPAL SERIES TRUST
[ART]
PROSPECTUS
November 14, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Pennsylvania Municipal Bond Fund (the "Fund") is a series of Merrill Lynch Multi-State Municipal Series Trust (the "Trust"), an open-end management investment company organized as a Massachusetts business trust. The investment objective of the Fund is to provide shareholders with as high a level of income exempt from Federal and Pennsylvania personal income taxes as is consistent with prudent investment management. The Fund invests primarily in a portfolio of long-term investment grade obligations issued by or on behalf of the Commonwealth of Pennsylvania, its political subdivisions, agencies and instrumentalities and obligations of other qualifying issuers, such as issuers located in Puerto Rico, the Virgin Islands, and Guam, which pay interest exempt, in the opinion of bond counsel to the issuer, from Federal and Pennsylvania personal income taxes. There can be no assurance that the investment objective of the Fund will be realized.
Pursuant to the Merrill Lynch Select Pricing (SM) System, the Fund offers four classes of shares, each with a different combination of sales charges, ongoing fees and other features. The Merrill Lynch Select PricingSM System permits an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other relevant circumstances.
This Statement of Additional Information of the Fund is not a prospectus and should be read in conjunction with the prospectus of the Fund, dated November 14, 1995 (the "Prospectus"), which has been filed with the Securities and Exchange Commission (the "Commission") and can be obtained, without charge, by calling or by writing the Fund at the above telephone number or address. This Statement of Additional Information has been incorporated by reference into the Prospectus.
FUND ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
The date of this Statement of Additional Information is November 14, 1995.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide shareholders with as high a level of income exempt from Federal and Pennsylvania personal income taxes as is consistent with prudent investment management. The Fund seeks to achieve its objective by investing primarily in a portfolio of long-term obligations issued by or on behalf of the Commonwealth of Pennsylvania, its political subdivisions, agencies and instrumentalities and obligations of other qualifying issuers, such as issuers located in Puerto Rico, the Virgin Islands and Guam, which pay interest exempt, in the opinion of bond counsel to the issuer, from Federal and Pennsylvania income taxes. Obligations exempt from Federal income taxes are referred to herein as "Municipal Bonds" and obligations exempt from both Federal and Pennsylvania income taxes are referred to as "Pennsylvania Municipal Bonds". Unless otherwise indicated, references to Municipal Bonds shall be deemed to include Pennsylvania Municipal Bonds. The Fund anticipates that at all times, except during temporary defensive periods, it will maintain at least 65% of its total assets invested in Pennsylvania Municipal Bonds. At times, the Fund will seek to hedge its portfolio through the use of futures transactions to reduce volatility in the net asset value of Fund shares. Reference is made to "Investment Objective and Policies" in the Prospectus for a discussion of the investment objective and policies of the Fund.
Municipal Bonds may include general obligation bonds of the State and its political subdivisions, revenue bonds of utility systems, highways, bridges, port and airport facilities, colleges, hospitals, housing facilities, etc., and industrial development bonds ("IDBs") or private activity bonds. The interest on such obligations may bear a fixed rate or be payable at a variable or floating rate. The Municipal Bonds purchased by the Fund will be what are commonly referred to as "investment grade" securities, which are obligations rated at the time of purchase within the four highest quality ratings as determined by either Moody's Investors Service ("Moody's") (currently Aaa, Aa, A and Baa), Standard & Poor's Corporation ("Standard & Poor's") (currently AAA, AA, A and BBB), or Fitch Investors Service, Inc. ("Fitch") (currently AAA, AA, A and BBB). If unrated, such securities must possess creditworthiness comparable, in the opinion of the manager of the Fund, Fund Asset Management, L.P. (the "Manager" or "FAM"), to other obligations in which the Fund may invest.
The Fund ordinarily does not intend to realize investment income not exempt from Federal and Pennsylvania income taxes. However, to the extent that suitable Pennsylvania Municipal Bonds are not available for investment by the Fund, the Fund may purchase Municipal Bonds issued by other states, their agencies and instrumentalities, the interest income on which is exempt, in the opinion of bond counsel, from Federal, but not Pennsylvania, taxation. The Fund also may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund nevertheless believes such securities to be exempt from Federal income taxation ("Non- Municipal Tax-Exempt Securities"). Non-Municipal Tax-Exempt Securities may include securities issued by other investment companies that invest in municipal bonds, to the extent permitted by applicable law. Other Non-Municipal Tax-Exempt Securities could include trust certificates or other derivative instruments evidencing interests in one or more Municipal Bonds.
Except when acceptable securities are unavailable as determined by the Manager, the Fund will under normal circumstances invest at least 65% of its total assets in Pennsylvania Municipal Bonds. For temporary periods or to provide liquidity, the Fund has the authority to invest as much as 35% of its assets in tax-exempt or taxable money market obligations with a maturity of one year or less (such short-term obligations being
referred to herein as "Temporary Investments"), except that taxable Temporary Investments, together with such other instruments as are not exempt from Pennsylvania taxation, shall not exceed 20% of the Fund's total assets. The Fund at all times will have at least 80% of its net assets invested in securities exempt from Federal taxation. However, interest received on certain otherwise tax-exempt securities which are classified as "private activity bonds" (in general, bonds that benefit non-governmental entities) may be subject to an alternative minimum tax. The Fund may purchase such private activity bonds. See "Distributions and Taxes." In addition, the Fund reserves the right to invest temporarily a greater portion of its assets in Temporary Investments for defensive purposes, when, in the judgment of the Manager, market conditions warrant. The investment objective of the Fund and the policies set forth in this paragraph are fundamental policies of the Fund which may not be changed without a vote of a majority of the outstanding shares of the Fund. The Fund's hedging strategies are not fundamental policies and may be modified by the Trustees of the Trust without the approval of the Fund's shareholders.
Municipal Bonds may at times be purchased or sold on a delayed delivery basis or a when-issued basis. These transactions arise when securities are purchased or sold by the Fund with payment and delivery taking place in the future, often a month or more after the purchase. The payment obligation and the interest rate are each fixed at the time the buyer enters into the commitment. The Fund will make only commitments to purchase such securities with the intention of actually acquiring the securities, but the Fund may sell these securities prior to the settlement date if it is deemed advisable. Purchasing Municipal Bonds on a when-issued basis involves the risk that the yields available in the market when the delivery takes place may actually be higher than those obtained in the transaction itself. If yields so increase, the value of the when-issued obligation generally will decrease. The Fund will maintain a separate account at its custodian bank consisting of cash, cash equivalents or high grade, liquid Municipal Bonds or Temporary Investments (valued on a daily basis) equal at all times to the amount of the when-issued commitment.
The Fund may invest in Municipal Bonds (and Non-Municipal Tax-Exempt Securities) the return on which is based on a particular index of value or interest rates. For example, the 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 commodity. The principal amount payable upon maturity of certain Municipal Bonds also may be based on the value of an index. Also, the Fund may invest in so-called "inverse floating obligations" or "residual interest bonds" on which the interest rates typically decline as market rates increase and increase as market rates decline. For example, to the extent the 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, which may include reduced or eliminated interest payments and losses of invested principal. 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 will generally be more volatile than the market values of fixed-rate tax exempt securities. To seek to limit the volatility of these securities, the Fund may purchase inverse floating obligations with shorter term maturities or which contain limitations on the extent to which the interest rate may vary. Certain investments in such obligations may be illiquid. The Fund may not invest in such illiquid obligations if such investments, together with other illiquid investments, would exceed 15% of the Fund's total assets. The Manager believes, however, that indexed and inverse floating obligations represent flexible portfolio management instruments for the Fund which allow the Fund to seek
potential investment rewards, hedge other portfolio positions or vary the degree of investment leverage relatively efficiently under different market conditions.
The Fund 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 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 to holding both the Call Right and the related Municipal Bond is identical to holding a Municipal Bond as a non-callable security. Certain investments in such obligations may be illiquid. The Fund may not invest in such illiquid obligations if such investments, together with other illiquid investments, would exceed 15% of the Fund's total assets.
The Fund may invest up to 20% of its total assets in Municipal Bonds which are rated below Baa by Moody's or below BBB by Standard & Poor's or Fitch or which, in the Manager's judgment, possess similar credit characteristics ("high yield securities"). See Appendix II--"Ratings of Municipal Bonds"--for additional information regarding ratings of debt securities. The Manager considers the ratings assigned by Standard & Poor's, Moody's or Fitch as one of several factors in its independent credit analysis of issuers.
High yield securities are considered by Standard & Poor's, Moody's and Fitch to have varying degrees of speculative characteristics. Consequently, although high yield securities can be expected to provide higher yields, such securities may be subject to greater market price fluctuations and risk of loss of principal than lower yielding, higher rated debt securities. Investments in high yield securities will be made only when, in the judgment of the Manager, such securities provide attractive total return potential relative to the risk of such securities, as compared to higher quality debt securities. The Fund will not invest in debt securities in the lowest rating categories (those rated CC or lower by Standard & Poor's or Fitch or Ca or lower by Moody's) unless the Manager believes that the financial condition of the issuer or the protection afforded the particular securities is stronger than would otherwise be indicated by such low ratings. The Fund does not intend to purchase debt securities that are in default or which the Manager believes will be in default.
Issuers of high yield securities may be highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risks associated with acquiring the securities of such issuers generally are greater than is the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates, issuers of high yield securities may be more likely to experience financial stress, especially if such issuers are highly leveraged. During periods of economic recession, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific issuer developments, or the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss due to default by the issuer is significantly greater for the holders of high yield securities because such securities may be unsecured and may be subordinated to other creditors of the issuer.
High yield securities frequently have call or redemption features that would permit an issuer to repurchase the security from the Fund. If a call were exercised by the issuer during a period of declining interest rates, the Fund likely would have to replace such called security with a lower yielding security, thus decreasing the net investment income to the Fund and dividends to shareholders.
The Fund may have difficulty disposing of certain high yield securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all high yield securities, there is no established secondary market for many of these securities, and the Fund anticipates that such securities could be sold only to a limited number of dealers or institutional investors. To the extent that a secondary trading market for high yield securities does exist, it generally is not as liquid as the secondary market for higher rated securities. Reduced secondary market liquidity may have an adverse impact on market price and the Fund's ability to dispose of particular issues when necessary to meet the Fund's liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain securities also may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing the Fund's portfolio. Market quotations generally are available on many high yield securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales.
It is expected that a significant portion of the high yield securities acquired by the Fund will be purchased upon issuance, which may involve special risks because the securities so acquired are new issues. In such instances the Fund may be a substantial purchaser of the issue and therefore have the opportunity to participate in structuring the terms of the offering. Although this may enable the Fund to seek to protect itself against certain of such risks, the considerations discussed herein would nevertheless remain applicable.
Adverse publicity and investor perceptions, which may not be based on fundamental analysis, also may decrease the value and liquidity of high yield securities, particularly in a thinly traded market. Factors adversely affecting the market value of high yield securities are likely to adversely affect the Fund's net asset value. In addition, the Fund may incur additional expenses to the extent that it is required to seek recovery upon a default on a portfolio holding or participate in the restructuring of the obligation.
DESCRIPTION OF MUNICIPAL BONDS AND TEMPORARY INVESTMENTS
Set forth below is a description of the Municipal Bonds and Temporary Investments in which the Fund may invest. A more complete discussion concerning futures and options transactions is set forth under "Investment Objective and Policies" in the Prospectus. Information with respect to ratings assigned to tax-exempt obligations which the Fund may purchase is set forth in Appendix II to this Statement of Additional Information.
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 bonds are issued by or on behalf of public authorities to finance various privately operated facilities, including certain facilities for local furnishing of electric energy or gas, sewage facilities, solid waste disposal facilities and other specialized facilities. Such obligations are included within the term Municipal Bonds if the interest paid thereon is, in the opinion of bond counsel, excluded from gross income for Federal income tax purposes and, in the case of Pennsylvania Municipal Bonds, exempt from Pennsylvania personal income taxes. Other types of IDBs or private activity bonds, the proceeds of which are used for the construction, equipment, repair
or improvement of privately operated industrial or commercial facilities, may constitute Municipal Bonds, although the current Federal tax laws place substantial limitations on the size of such issues.
The two principal classifications of Municipal Bonds are "general obligation" and "revenue" bonds which latter category includes IDBs and, for bonds issued after August 15, 1986, private activity 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 bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special or limited tax or other specific revenue source such as from the user of the facility being financed. IDBs and private activity 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. Generally, the payment of the principal of and interest on such 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, unless a line of credit, bond insurance or other security is furnished. The Fund also may invest in "moral obligation" bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, repayment of such bonds becomes a moral commitment, but not a legal obligation, of the state or municipality in question.
Also included within the general category of Municipal Bonds are participation certificates issued by government authorities or entities to finance the acquisition or construction of equipment, land and/or facilities. The certificates represent participations in a lease, an installment purchase contract or a conditional sales contract (hereinafter collectively called "lease obligations") relating to such equipment, land or facilities. Although lease obligations do not constitute general obligations of the issuer for which the issuer's unlimited taxing power is pledged, a lease obligation is frequently backed by the issuer's covenant to budget for, appropriate and make the payments due under the lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the issuer has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non- appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. These securities represent a type of financing that has not yet developed the depth of marketability associated with more conventional securities. Certain investments in lease obligations may be illiquid. The Fund may not invest in illiquid lease obligations if such investments, together with all other illiquid investments, would exceed 15% of the Fund's total assets. The Fund may, however, invest without regard to such limitation in lease obligations which the Manager, pursuant to guidelines which have been adopted by the Board of Trustees and subject to the supervision of the Board, determines to be liquid. The Manager will deem lease obligations to be liquid if they are publicly offered and have received an investment grade rating of Baa or better by Moody's, or BBB or better by Standard & Poor's or Fitch. Unrated lease obligations, or those rated below investment grade, will be considered liquid if the obligations come to the market through an underwritten public offering and at least two dealers are willing to give competitive bids. In reference to the latter, the Manager must, among other things, also review the creditworthiness of the municipality obligated to make payment under the lease obligation and make certain specified determinations based on such factors as the existence of a rating or credit enhancement such as insurance, the frequency of trades or quotes for the obligation and the willingness of dealers to make a market in the obligation.
Yields on Municipal Bonds are dependent on a variety of factors, including the general condition of the money market and of the municipal bond market, the size of a particular offering, the financial condition of
the issuer, the general conditions of the Municipal Bond market, the maturity of the obligation, and the rating of the issue. The ability of the Fund to achieve its investment objective is also dependent on the continuing ability of the issuers of the bonds in which the Fund invests to meet their obligations for the payment of interest and principal when due. There are variations in the risks involved in holding Municipal Bonds, both within a particular classification and between classifications, depending on numerous factors. Furthermore, the rights of owners of Municipal Bonds and the obligations of the issuer of such Municipal Bonds may be subject to applicable bankruptcy, insolvency and similar laws and court decisions affecting the rights of creditors generally.
DESCRIPTION OF TEMPORARY INVESTMENTS
The Fund may invest in short-term tax-free and taxable securities subject to the limitations set forth under "Investment Objective and Policies." The tax- exempt money market securities may include municipal notes, municipal commercial paper, municipal bonds with a remaining maturity of less than one year, variable rate demand notes and participations therein. Municipal notes include tax anticipation notes, bond anticipation notes and grant anticipation notes. Anticipation notes are sold as interim financing in anticipation of tax collection, bond sales, government grants or revenue receipts. Municipal commercial paper refers to short-term unsecured promissory notes generally issued to finance short-term credit needs. The taxable money market securities in which the Fund may invest as Temporary Investments consist of U.S. Government securities, U.S. Government agency securities, domestic bank or savings institution certificates of deposit and bankers' acceptances, short- term corporate debt securities such as commercial paper, and repurchase agreements. These Temporary Investments must have a stated maturity not in excess of one year from the date of purchase.
Variable rate demand obligations ("VRDOs") are tax-exempt obligations 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 upon a short notice period not to exceed seven days. There is, however, the possibility that because of default or insolvency the demand feature of VRDOs and Participating VRDOs, described below, may not be honored. The interest rates are adjustable at intervals (ranging from daily to up to one year) to some prevailing market rate for similar investments, such adjustment formula being calculated to maintain the market value of the VRDO at approximately the par value of the VRDOs on the adjustment date. The adjustments typically are based upon the prime rate of a bank or some other appropriate interest rate adjustment index. The Fund may invest in all types of tax-exempt instruments currently outstanding or to be issued in the future which satisfy the short-term maturity and quality standards of the Fund.
The Fund also may invest in VRDOs in the form of participation interests ("Participating VRDOs") in variable rate tax-exempt obligations held by a financial institution, typically a commercial bank. Participating VRDOs provide the 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 upon a specified number of days' notice, not to exceed seven days. In addition, a Participating VRDO is backed by an irrevocable letter of credit of guaranty of the financial institution. The Fund would have an undivided interest in the underlying obligation and thus participate on the same basis as the financial institution in such obligation except that the financial institution typically retains fees out of the interest paid on the obligation for servicing the obligation, providing the letter of credit and issuing the repurchase commitment. The 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.
VRDOs that contain an unconditional right of demand to receive payment of the unpaid principal balance plus accrued interest on a notice period exceeding seven days may be deemed to be illiquid securities. A VRDO with a demand notice exceeding seven days will therefore be subject to the Fund's restriction on illiquid investments unless, in the judgment of the Trustees, such VRDO is liquid. The Trustees may adopt guidelines and delegate to the Manager the daily function of determining and monitoring liquidity of such VRDOs. The Trustees, however, will retain sufficient oversight and be ultimately responsible for such determination.
The Trust has established the following standards with respect to money market securities in which the Fund invests. Commercial paper investments at the time of purchase must be rated "A-1+" through "A-3" by Standard & Poor's, "Prime-1" through "Prime-3" by Moody's, or "F-1+" through "F-3" by Fitch or, if not rated, the commercial paper must be issued by companies having an outstanding debt issue rated at least "A" by Standard & Poor's, Fitch or Moody's. Investments in corporate bonds and debentures (which must have maturities at the date of purchase of one year or less) must be rated at the time of purchase at least "A" by Standard & Poor's, Moody's or Fitch. Notes and VRDOs at the time of purchase must be rated SP-1+/A-1+ through SP-2/A-3 by Standard & Poor's, MIG-1/VMIG-1 through MIG-4/VMIG-4 by Moody's or F-1 through F-3 by Fitch. Temporary Investments, if not rated, must be of comparable quality to securities rated in the above rating categories, in the opinion of the Manager. The Fund may not invest in any security issued by a commercial bank or a savings institution unless the bank or institution is organized and operating in the United States, has total assets of at least one billion dollars and is a member of the Federal Deposit Insurance Corporation ("FDIC"), except that up to 10% of total assets may be invested in certificates of deposit of small institutions if such certificates are fully insured by the FDIC.
REPURCHASE AGREEMENTS
The Fund may invest in securities pursuant to repurchase agreements. Repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer in U.S. Government securities or an affiliate thereof. Under such agreements, the seller agrees, upon entering into the contract, to repurchase the security from the Fund at a mutually agreed upon time and price, thereby determining the yield during the term of the agreement. This results in a fixed rate of return insulated from market fluctuations during such period. In repurchase agreements, the prices at which the trades are conducted do not reflect accrued interest on the underlying obligations. Such agreements usually cover short periods, such as under one week. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. In the case of a repurchase agreement, the Fund will require the seller to provide additional collateral if the market value of the securities falls below the repurchase price at any time during the term of the repurchase agreement. In the event of default by the seller under a repurchase agreement construed to be a collateralized loan, the underlying securities are not owned by the Fund but only constitute collateral for the seller's obligation to pay the repurchase price. Therefore, the Fund may suffer time delays and incur costs or possible losses in connection with the disposition of the collateral. In the event of a default under such a repurchase agreement, instead of the contractual fixed rate of return, the rate of return to the Fund will depend on intervening fluctuations of the market value of such security and the accrued interest on the security. In such event, the Fund would have rights against the seller for breach of contract with respect to any losses arising from market fluctuations following the failure of the seller to perform. The Fund may not invest in repurchase agreements maturing in
more than seven days if such investments, together with other illiquid securities, would exceed 15% (10% to the extent required by certain state laws) of the Fund's total assets.
In general, for Federal and Pennsylvania income tax purposes, repurchase agreements are treated as collateralized loans secured by the securities "sold." Therefore, amounts earned under such agreements will not be considered tax-exempt interest.
FINANCIAL FUTURES TRANSACTIONS AND OPTIONS
Reference is made to the discussion concerning futures transactions under "Investment Objective and Policies" in the Prospectus. Set forth below is additional information concerning these transactions.
As described in the Prospectus, the Fund may purchase and sell exchange traded financial futures contracts ("financial futures contracts") to hedge its portfolio of Municipal Bonds against declines in the value of such securities and to hedge against increases in the cost of securities the Fund intends to purchase. However, any transactions involving financial futures or options (and puts and calls associated therewith) will be in accordance with the Fund's investment policies and limitations. To hedge its portfolio, the Fund may take an investment position in a futures contract which will move in the opposite direction from the portfolio position being hedged. While the Fund's use of hedging strategies is intended to moderate capital changes in portfolio holdings and thereby reduce the volatility of the net asset value of Fund shares, the Fund anticipates that its net asset value will fluctuate. Set forth below is information concerning futures transactions.
Description of Futures Contracts. A futures contract is an agreement between two parties to buy and sell a security, or in the case of an index-based futures contract, to make and accept a cash settlement for a set price on a future date. A majority of transactions in futures contracts, however, do not result in the actual delivery of the underlying instrument or cash settlement, but are settled through liquidation, i.e., by entering into an offsetting transaction. Futures contracts have been designed by boards of trade which have been designated "contracts markets" by the Commodity Futures Trading Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or sale of a security in that no price or premium is paid or received. Instead, an amount of cash or securities acceptable to the broker and the relevant contract market, which varies, but is generally about 5% of the contract amount must be deposited with the broker. This amount is known as "initial margin" and represents a "good faith" deposit assuring the performance of both the purchaser and seller under the futures contract. Subsequent payments to and from the broker, called "variation margin", are required to be made on a daily basis as the price of the futures contract fluctuates making the long and short positions in the futures contract more or less valuable, a process known as "mark to the market." At any time prior to the settlement date of the futures contract, the position may be closed out by taking an opposite position which will operate to terminate the position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid to or released by the broker and the purchase realizes a loss or gain. In addition, a nominal commission is paid on each completed sale transaction.
The Fund deals in financial futures contracts based on a long-term municipal bond index developed by the Chicago Board of Trade ("CBT") and The Bond Buyer (the "Municipal Bond Index"). The Municipal
Bond Index is comprised of 40 tax-exempt municipal revenue and general obligations bonds. Each bond included in the Municipal Bond Index must be rated A or higher by Moody's or Standard & Poor's and must have a remaining maturity of 19 years or more. Twice a month new issues satisfying the eligibility requirements are added to, and an equal number of old issues are deleted from, the Municipal Bond Index. The value of the Municipal Bond Index is computed daily according to a formula based on the price of each bond in the Municipal Bond Index, as evaluated by six dealer-to-dealer brokers.
The Municipal Bond Index futures contract is traded only on the CBT. Like other contract markets, the CBT assures performance under futures contracts through a clearing corporation, a non-profit organization managed by the exchange membership which also is responsible for handling daily accounting of deposits or withdrawals of margin.
As described in the Prospectus, the Fund may purchase and sell financial futures contracts on U.S. Government securities as a hedge against adverse changes in interest rates as described below. With respect to U.S. Government securities, currently there are financial futures contracts based on long-term U.S. Treasury bonds, Treasury notes, Government National Mortgage Association Certificates and three-month U.S. Treasury bills. The Fund may purchase and write call and put options on futures contracts on U.S. Government securities in connection with its hedging strategies.
Subject to policies adopted by the Trustees, the Fund also may engage in other futures contracts transactions such as futures contracts on other municipal bond indices which may become available if the Manager and the Trustees should determine that there is normally a sufficient correlation between the prices of such futures contracts and the Municipal Bonds in which the Fund invests to make such hedging appropriate.
Futures Strategies. The Fund may sell a financial futures contract (i.e., assume a short position) in anticipation of a decline in the value of its investments in Municipal Bonds resulting from an increase in interest rates or otherwise. The risk of decline could be reduced without employing futures as a hedge by selling such Municipal Bonds and either reinvesting the proceeds in securities with shorter maturities or by holding assets in cash. This strategy, however, entails increased transaction costs in the form of dealer spreads and typically would reduce the average yield of the Fund's portfolio securities as a result of the shortening of maturities. The sale of futures contracts provides an alternative means of hedging against declines in the value of its investments in Municipal Bonds. As such values decline, the value of the Fund's positions in the futures contracts will tend to increase, thus offsetting all or a portion of the depreciation in the market value of the Fund's Municipal Bond investments which are being hedged. While the Fund will incur commission expenses in selling and closing out futures positions, commissions on futures transactions are lower than transaction costs incurred in the purchase and sale of Municipal Bonds. In addition, the ability of the Fund to trade in the standardized contracts available in the futures markets may offer a more effective defensive position than a program to reduce the average maturity of the portfolio securities due to the unique and varied credit and technical characteristics of the municipal debt instruments available to the Fund. Employing futures as a hedge also may permit the Fund to assume a defensive posture without reducing the yield on its investments beyond any amounts required to engage in futures trading.
When the Fund intends to purchase Municipal Bonds, the Fund may purchase futures contracts as a hedge against any increase in the cost of such Municipal Bonds resulting from a decrease in interest rates
or otherwise, that may occur before such purchases can be effected. Subject to the degree of correlation between the Municipal Bonds and the futures contracts, subsequent increases in the cost of Municipal Bonds should be reflected in the value of the futures held by the Fund. As such purchases are made, an equivalent amount of futures contracts will be closed out. Due to changing market conditions and interest rate forecasts, however, a futures position may be terminated without a corresponding purchase of portfolio securities.
Call Options on Futures Contracts. The Fund also may purchase and sell exchange traded call and put options on financial futures contracts on U.S. Government securities. However, any transactions involving call and put options on futures contracts will be in accordance with the Fund's investment policies and limitations. See "Investment Objective and Policies--Investment Restrictions" in the Prospectus. The purchase of a call option on a futures contract is analogous to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the futures contract on which it is based, or on the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying debt securities. Like the purchase of a futures contract, the Fund will purchase a call option on a futures contract to hedge against a market advance when the Fund is not fully invested.
The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at expiration is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund's portfolio holdings.
Put Options on Futures Contracts. The purchase of options on a futures contract is analogous to the purchase of protective put options on portfolio securities. The Fund will purchase put options on futures contracts to hedge the Fund's portfolio against the risk of rising interest rates.
The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at expiration is higher than the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any increase in the price of Municipal Bonds which the Fund intends to purchase.
The writer of an option on a futures contract is required to deposit initial and variation margin pursuant to requirements similar to those applicable to futures contracts. Premiums received from the writing of an option will be included in initial margin. The writing of an option on a futures contract involves risks similar to those relating to futures contracts.
The Trust has received an order from the Commission exempting it from the provisions of Section 17(f) and Section 18(f) of the Investment Company Act of 1940, as amended (the "1940 Act") in connection with its strategy of investing in futures contracts. Section 17(f) relates to the custody of securities and other assets of an investment company and may be deemed to prohibit certain arrangements between the Trust and commodities brokers with respect to initial and variation margin. Section 18(f) of the 1940 Act prohibits an open-end investment company such as the Trust from issuing a "senior security" other than a borrowing from a bank. The staff of the Commission has in the past indicated that a futures contract may be a "senior security" under the 1940 Act.
Restrictions on Use of Futures Transactions. Regulations of the CFTC
applicable to the Fund require that all of the Fund's futures transactions
constitute bona fide hedging transactions and that the Fund 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 assets after taking into
account unrealized profits and unrealized losses on any such contracts and
options. (However, the Fund intends to engage in options and futures
transactions only for hedging purposes.) Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When the Fund purchases futures contracts or a call option with respect thereto or writes a put option on a futures contract, an amount of cash, cash equivalents or short-term, high-grade, fixed income securities will be deposited 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 futures contract, thereby ensuring that the use of such futures is unleveraged.
Risk Factors in Futures Transactions and Options. Investment in futures contracts involves the risk of imperfect correlation between movements in the price of the futures contract and the price of the security being hedged. The hedge will not be fully effective when there is imperfect correlation between the movements in the prices of two financial instruments. For example, if the price of the futures contract moves more than the price of the hedged security, the Fund will experience either a loss or gain on the futures contract which is not completely offset by movements in the price of the hedged securities. To compensate for imperfect correlations, the Fund may purchase or sell futures contracts in a greater dollar amount than the hedged securities if the volatility of the hedged securities is historically greater than the volatility of the futures contracts. Conversely, the Fund may purchase or sell fewer futures contracts if the volatility of the price of the hedged securities is historically less than that of the futures contracts.
The particular municipal bonds comprising the index underlying the Municipal Bond Index financial futures contract may vary from the Municipal Bonds held by the Fund. As a result, the Fund's ability to hedge effectively all or a portion of the value of its Municipal Bonds through the use of such financial futures contracts will depend in part on the degree to which price movements in the index underlying the financial futures contract correlate with the price movements of the Municipal Bonds held by the Fund. The correlation may be affected by disparities in the average maturity, ratings, geographical mix or structure of the Fund's investments as compared to those comprising the Municipal Bond Index, and general economic or political factors. In addition, the correlation between movements in the value of the Municipal Bond Index may be subject to change over time as additions to and deletions from the Municipal Bond Index alter its structure. The correlation between futures contracts on U.S. Government securities and the Municipal Bonds held by the Fund may be adversely affected by similar factors and the risk of imperfect correlation between movements in the prices of such futures contracts and the prices of the Municipal Bonds held by the Fund may be greater.
The Fund expects to liquidate a majority of the futures contracts it enters into through offsetting transactions on the applicable contract market. There can be no assurance, however, that a liquid secondary market will exist for any particular futures contract at any specific time. Thus, it may not be possible to close out a futures position. In the event of adverse price movements, the Fund would continue to be required to
make daily cash payments of variation margin. In such situations, if the Fund has insufficient cash, it may be required to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so. The inability to close out futures positions also could have an adverse impact on the Fund's ability to hedge effectively its investments in Municipal Bonds. The Fund will enter into a futures position only if, in the judgment of the Manager, there appears to be an actively traded secondary market for such futures contracts.
The successful use of transactions in futures and related options also depends on the ability of the Manager 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 futures contract or option is held by the Fund or such rates move in a direction opposite to that anticipated, the Fund may realize a loss on the hedging transaction which is not fully or partially offset by an increase in the value of portfolio securities. As a result, the Fund's total return for such period may be less than if it had not engaged in the hedging transaction.
Because of low initial margin deposits made on the opening of a futures position, futures transactions involve substantial leverage. As a result, relatively small movements in the price of the futures contracts can result in substantial unrealized gains or losses. Because the Fund will engage in the purchase and sale of futures contracts solely for hedging purposes, however, any losses incurred in connection therewith should, if the hedging strategy is successful, be offset in whole or in part by increases in the value of securities held by the Fund or decreases in the price of securities the Fund intends to acquire.
The amount of risk the Fund assumes when it purchases an option on a futures contract is the premium paid for the option plus related transaction costs. In addition to the correlation risks discussed above, the purchase of an option on a futures contract also entails the risk that changes in the value of the underlying futures contract will not be reflected fully in the value of the option purchased.
Municipal Bond Index futures contracts were approved for trading in 1986. Trading in such futures contracts may tend to be less liquid than that in other futures contracts. The trading of futures contracts also is subject to certain market risks, such as inadequate trading activity, which could at times make it difficult or impossible to liquidate existing positions.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental restrictions and policies relating to the investment of its assets and its activities. The fundamental policies set forth below may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities (which for this purpose and under the 1940 Act means the lesser of (i) 67% of the Fund's shares present at a meeting, at which more than 50% of the outstanding shares of the Fund are represented or (ii) more than 50% of the Fund's outstanding shares). The Fund may not:
1. Invest more than 25% of its assets, taken at market value at the time of each investment, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities). For purposes of this restriction, states, municipalities and their political subdivisions are not considered part of any industry.
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by applicable law, the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers' acceptances, repurchase agreements or any similar instruments shall not be deemed to be the making of a loan, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set forth in the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time.
5. Issue senior securities to the extent such issuance would violate applicable law.
6. Borrow money, except that (i) the Fund may borrow from banks (as defined in the 1940 Act) in amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii) the Fund may borrow up to an additional 5% of its total assets for temporary purposes, (iii) the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (iv) the Fund may purchase securities on margin to the extent permitted by applicable law. The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Fund's investment policies as set forth in its Prospectus and Statement of Additional Information, as they may be amended from time to time, in connection with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment strategies.
7. Underwrite securities of other issuers, except insofar as the Fund technically may be deemed an underwriter under the Securities Act of 1933, as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to the extent that the Fund may do so in accordance with applicable law and the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time, and without registering as a commodity pool operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except to the extent permitted by applicable law. The Fund currently does not intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of legal or contractual restrictions or which cannot otherwise be marketed, redeemed or put to the issuer or a third party, if at the time of acquisition more than 15% of its total assets would be invested in such securities. This restriction shall not apply to securities which mature within seven days or securities which the Board of Trustees of the Fund has otherwise determined to be liquid pursuant to applicable law.
d. Invest in warrants if, at the time of acquisition, its investments in warrants, valued at the lower of cost or market value, would exceed 5% of the Fund's net assets; included within such limitation, but not to exceed 2% of the Fund's net assets, are warrants which are not listed on the New York Stock Exchange or American Stock Exchange or a major foreign exchange. For purposes of this restriction, warrants acquired by the Fund in units or attached to securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with predecessors, of less than three years of continuous operation, if more than 5% of the Fund's total assets would be invested in such securities. This restriction shall not apply to mortgage-backed securities, asset- backed securities or obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those individual officers and Trustees of the Fund, the officers and general partner of the Manager, the directors of such general partner or the officers and directors of any subsidiary thereof each owning beneficially more than one- half of one percent of the securities of such issuer own in the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or development programs, except that the Fund may invest in securities issued by companies that engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or combinations thereof, except to the extent permitted in the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time.
i. Notwithstanding fundamental investment restriction (6) above, borrow amounts in excess of 20% of its total assets taken at market value (including the amount borrowed), and then only from banks as a temporary measure for extraordinary or emergency purposes. In addition, the Fund will not purchase securities while borrowings are outstanding.
In addition, to comply with Federal income tax requirements for qualification as a "regulated investment company", the Fund's investments will be limited in a manner such that, at the close of each quarter of each fiscal year, (a) no more than 25% of the Fund's total assets are invested in the securities of a single issuer, and (b) with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer. For purposes of this restriction, the Fund will regard each state and each political subdivision, agency or instrumentality of such state and each multi-state agency of which such state is a member and each public authority which issues securities on behalf of a private entity as a separate issuer, except that if the security is backed only by the assets and revenues of a non- government entity then the entity with the ultimate responsibility for the payment of interest and principal may be regarded as the sole issuer. These tax-related limitations may be changed by the Trustees of the Trust to the extent necessary to comply with changes to the Federal tax requirements.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") with the Trust, the Trust is prohibited from engaging in certain transactions involving such firm or its affiliates except pursuant to a permissive order or otherwise in compliance with the provisions of the 1940 Act and the rules and regulations thereunder. Included among such restricted transactions are purchases from or sales to
Merrill Lynch of securities in transactions in which it acts as principal. See "Portfolio Transactions". An exemptive order has been obtained which permits the Trust to effect principal transactions with Merrill Lynch in high quality, short-term, tax-exempt securities subject to conditions set forth in such order.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trustees, executive officers and the portfolio manager of the Trust, their ages and their principal occupations for at least the last five years are set forth below. Unless otherwise noted, the address of each Trustee and executive officer is P.O. Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel (63)--President and Trustee(1)(2)--President of the Manager
(which term, as used herein, includes the Manager's corporate predecessors)
since 1977; President of Merrill Lynch Asset Management, L.P. ("MLAM," which
term, as used herein, includes MLAM's corporate predecessors) since 1977;
President and Director of Princeton Services, Inc. ("Princeton Services") since
1993; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since
1990; Executive Vice President of Merrill Lynch since 1990 and a Senior Vice
President thereof from 1985 to 1990; Director of Merrill Lynch Funds
Distributor, Inc. ("MLFD" or the "Distributor") since 1991.
James H. Bodurtha (51)--Trustee(2)--124 Long Pond Road, Plymouth, Massachusetts 02360. Chairman and Chief Executive Officer, China Enterprise Management Corporation since 1993; Chairman, Berkshire Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993.
Herbert I. London (56)--Trustee(2)--113-115 University Place, New York, New York 10003. John M. Olin Professor of Humanities, New York University, since 1993; Professor, New York University since 1973; Dean, Gallatin Division of New York University from 1978 to 1993 and Director from 1975 to 1976; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Trustee, Hudson Naval Institute, since 1980; Director, Damon Corporation since 1991; Overseer, Center for Naval Analyses from 1983 to 1993.
Robert R. Martin (68)--Trustee(2)--513 Grand Hill, St. Paul, Minnesota 55102. Director, WTC Industries, Inc. since 1994 and Chairman thereof in 1994; Chairman and Chief Executive Officer, Kinnard Investments, Inc. from 1990 to 1993; Executive Vice President, Dain Bosworth from 1974 to 1989; Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof in 1979; Director, Securities Industry Association from 1981 to 1982 and Public Securities Association from 1979 to 1980; Trustee, Northland College since 1992.
Joseph L. May (66)--Trustee(2)--424 Church Street, Suite 2000, Nashville, Tennessee 37219. Attorney in private practice since 1984; President, May and Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983; Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May Corporation (personal holding company) from 1972 to 1983; Director, Signal Apparel Co. from 1972 to 1989.
Andre F. Perold (43)--Trustee(2)--Morgan Hall, Soldiers Field, Boston, Massachusetts 02163. Professor, Harvard Business School since 1989 and Associate Professor from 1983 to 1989; Trustee, The Common Fund, since 1989; Director, Quantec Limited since 1991 and Teknekron Software Systems since 1994.
Terry K. Glenn (55)--Executive Vice President(1)(2)--Executive Vice President of the Manager and MLAM since 1983; Executive Vice President and Director of Princeton Services since 1993; President of MLFD since 1986 and Director thereof since 1991.
Vincent R. Giordano (51)--Vice President(1)(2)--Portfolio Manager of the Manager and MLAM since 1977 and Senior Vice President of the Manager and MLAM since 1984; Vice President of MLAM from 1980 to 1984; Senior Vice President of Princeton Services since 1993.
Kenneth A. Jacob (44)--Vice President(1)(2)--Vice President of the Manager and MLAM since 1984.
William Michael Petty (34)--Portfolio Manager(1)(2)--Vice President of MLAM since 1993; Assistant Vice President of MLAM from 1992 to 1993; municipal bond broker with J.J. Kenny Municipal Bond Brokers from 1990 to 1992.
Donald C. Burke (35)--Vice President(1)(2)--Vice President and Director of Taxation of MLAM since 1990; Employee at Deloitte & Touche llp from 1982 to 1990.
Gerald M. Richard (46)--Treasurer(1)(2)--Senior Vice President and Treasurer of the Manager and MLAM since 1984; Senior Vice President and Treasurer of Princeton Services since 1993; Treasurer of MLFD since 1984 and Vice President since 1981.
At September 30, 1995, the Trustees and officers of the Trust as a group (12 persons) owned an aggregate of less than 1% of the outstanding shares of Common Stock of ML & Co. and owned an aggregate of less than 1% of the outstanding shares of the Fund.
COMPENSATION OF TRUSTEES
The Trust pays each Trustee not affiliated with the Manager a fee of $10,000 per year plus $1,000 per meeting attended, together with such Trustee's actual out-of-pocket expenses relating to attendance at meetings. The Trust also compensates members of its Audit and Nominating Committee, which consists of all the non-affiliated Trustees, a fee of $2,000 per year plus $500 per meeting attended. The Trust reimburses each unaffiliated Trustee for his out- of-pocket expenses relating to attendance at Board and Committee meetings. The fees and expenses of the Trustees are allocated to the respective series of the Trust on the basis of asset size. For the fiscal year ended July 31, 1995, fees and expenses paid to unaffiliated Trustees aggregated $7,393.
The following table sets forth for the fiscal year ended July 31, 1995, compensation paid by the Fund to the non-affiliated Trustees and for the calendar year ended December 31, 1994, the aggregate compensation paid by all investment companies (including the Fund) advised by FAM and its affiliate, MLAM ("FAM/MLAM Advised Funds") to the non-affiliated Trustees:
AGGREGATE
COMPENSATION
PENSION OR FROM FUND AND
RETIREMENT OTHER
BENEFITS FAM/MLAM
ACCRUED AS ADVISED FUNDS
COMPENSATION PART OF FUND'S PAID TO
NAME OF TRUSTEE FROM FUND EXPENSES TRUSTEE(1)
- --------------- ------------ -------------- -------------
James H. Bodurtha..................... $ 312 None $168,250*
Herbert I. London..................... $1,502 None $168,250
Robert R. Martin...................... $1,502 None $168,250
Joseph L. May......................... $1,502 None $168,250
Andre F. Perold....................... $1,502 None $168,250
|
(1) In addition to the Trust, the Trustees serve on the boards of other FAM/MLAM Advised Funds as follows: Mr. Bodurtha (46 funds); Mr. London (46 funds); Mr. Martin (46 funds); Mr. May (46 funds); and Mr. Perold (46 funds).
* $168,250 represents the amount Mr. Bodurtha would have received if he had been a Trustee for the entire calendar year ended December 31, 1994. Mr. Bodurtha was elected to the Trust's Board of Trustees effective June 23, 1995.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Trust--Management and Advisory Arrangements" in the Prospectus for certain information concerning the management and advisory arrangements of the Fund.
Securities may be held by, or be appropriate investments for, the Fund as well as other funds or investment advisory clients of the Manager or its affiliates. Because of different objectives or other factors, a particular security may be bought for one or more clients when one or more clients are selling the same security. If the Manager or its affiliates purchase or sell securities for the Fund or other funds for which they act as manager or for their advisory clients arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of the Manager or its affiliates during the same period may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
Pursuant to a management agreement between the Trust on behalf of the Fund and the Manager (the "Management Agreement"), the Manager receives for its services to the Fund monthly compensation based upon the average daily net assets of the Fund at the following annual rates: 0.55% of the average daily net assets not exceeding $500 million; 0.525% of the average daily net assets exceeding $500 million but not exceeding $1.0 billion and 0.50% of the average daily net assets exceeding $1.0 billion. For the fiscal years ended July 31, 1994 and 1995, the total advisory fees paid by the Fund to the Manager were $852,481 and $827,537, respectively.
California imposes limitations on the expenses of the Fund. These annual expense limitations require that the Manager reimburse the Fund in an amount necessary to prevent the aggregate ordinary operating expenses (excluding taxes, brokerage fees and commissions, distribution fees and extraordinary charges such as litigation costs) from exceeding in any fiscal year 2.5% of the Fund's first $30,000,000 of average net assets, 2.0% of the next $70,000,000 of average net assets and 1.5% of the remaining average net assets. The Manager's obligation to reimburse the Fund is limited to the amount of the management fee. Expenses not covered by the limitation are interest, taxes, brokerage commissions and other items such as extraordinary legal expenses. No fee payment will be made to the Manager during any fiscal year which will cause such expenses to exceed expense limitations at the time of such payment. No fee reimbursements were made during the years ended July 31, 1993, 1994 and 1995 pursuant to these operating expense limitations.
The Management Agreement obligates the Manager to provide investment advisory services and to pay all compensation of and furnish office space for officers and employees of the Trust connected with investment and economic research, trading and investment management of the Trust, as well as the compensation of all Trustees of the Trust who are affiliated persons of ML & Co. or any of its affiliates. The Fund pays all other expenses incurred in its operation and, if other Series shall be added ("Series"), a portion of the Trust's general administrative expenses will be allocated on the basis of the asset size of the respective Series. Expenses that will be borne directly by the Series include, among other things, redemption expenses, expenses of portfolio transactions, expenses of registering the shares under Federal and state securities laws, pricing costs (including the daily calculation of net asset value), expenses of printing shareholder reports, prospectuses and statements of additional information (except to the extent paid by the Distributor as described below), fees for legal and auditing services, Commission fees, interest, certain taxes, and other expenses attributable to a particular Series. Expenses which will be allocated on the basis of asset size of the respective Series include fees and expenses of unaffiliated Trustees, state franchise taxes, costs of printing proxies and other expenses related to shareholder meetings, and other expenses properly payable by the Trust. The organizational expenses of the Trust were paid by the Trust, and if additional Series are added to the Trust, the organizational expenses are allocated among the Series (including the Fund) in a manner deemed equitable by the Trustees. Depending upon the nature of a lawsuit, litigation costs may be assessed to the specific Series to which the lawsuit relates or allocated on the basis of the asset size of the respective Series. The Trustees have determined that this is an appropriate method of allocation of expenses. Accounting services are provided to the Fund by the Manager and the Fund reimburses the Manager for its costs in connection with such services. For the year ended July 31, 1995, the Fund reimbursed the Manager $40,065 for accounting services. As required by the Fund's distribution agreements, the Distributor will pay the promotional expenses of the Fund incurred in connection with the offering of shares of the Fund. Certain expenses in connection with the account maintenance and distribution of Class B shares will be financed by the Fund pursuant to the Distribution Plan in compliance with Rule 12b-1 under the 1940 Act. See "Purchase of Shares-- Distribution Plan".
The Manager is a limited partnership, the partners of which are ML & Co. and Princeton Services. ML & Co. and Princeton Services are "controlling persons" of the Manager as defined under the 1940 Act because of their ownership of its voting securities or their power to exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein, the Management Agreement will remain in effect from year to year if approved annually (a) by the Trustees of the Trust or by a majority of the outstanding shares of the Fund and (b) by a majority of the Trustees who are not parties to such contract or interested persons (as defined in the 1940 Act) of any such party. Such contracts are not assignable and may be terminated without penalty on 60 days' written notice at the option of either party thereto or by vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select Pricing (SM) System: shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives, and shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. Each Class A, Class B, Class C and Class D share of the Fund represents identical interests in the investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees, and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. Class B, Class C and Class D shares each have exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted with respect to such class pursuant to which account maintenance and/or distribution fees are paid. Each class has different exchange privileges. See "Shareholder Services--Exchange Privilege."
The Merrill Lynch Select Pricing (SM) System is used by more than 50 mutual funds advised by MLAM or its affiliate, the Manager. Funds advised by MLAM or the Manager are referred to herein as "MLAM-advised mutual funds."
The Fund has entered into four separate distribution agreements with the Distributor in connection with the continuous offering of each class of shares of the Fund (the "Distribution Agreements"). The Distribution Agreements obligate the Distributor to pay certain expenses in connection with the offering of each class of shares of the Fund. After the prospectuses, statements of additional information and periodic reports have been prepared, set in type and mailed to shareholders, the Distributor pays for the printing and distribution of copies thereof used in connection with the offering to dealers and prospective investors. The Distributor also pays for other supplementary sales literature and advertising costs. The Distribution Agreements are subject to the same renewal requirements and termination provisions as the Management Agreement described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The gross sales charges for the sale of Class A shares for the year ended July 31, 1993 were $113,436, of which the Distributor received $6,558 and Merrill Lynch received $106,848. The gross sales charges for the sale of Class A shares for the year ended July 31, 1994 were $93,697, of which the Distributor received $8,083
and Merrill Lynch received $85,614. The gross sales charges for the sale of Class A shares for the year ended July 31, 1995 were $16,482, of which the Distributor received $1,289 and Merrill Lynch received $15,193. The gross sales charges for the sale of Class D shares for the period October 21, 1994 (commencement of operations) to July 31, 1995 were $26,959, of which the Distributor received $773 and Merrill Lynch received $26,186.
The term "purchase", as used in the Prospectus and this Statement of Additional Information in connection with an investment in Class A and Class D shares of the Fund, refers to a single purchase by an individual, or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his spouse and their children under the age of 21 years purchasing shares for his or their own account and to single purchases by a trustee or other fiduciary purchasing shares for a single trust estate or single fiduciary account although more than one beneficiary is involved. The term "purchase" also includes purchases by any "company", as that term is defined in the 1940 Act, but does not include purchases by any such company which has not been in existence for at least six months or which has no purpose other than the purchase of shares of the Fund or shares of other registered investment companies at a discount; provided, however, that it shall not include purchases by any group of individuals whose sole organizational nexus is that the participants therein are credit cardholders of a company, policyholders of an insurance company, customers of either a bank or broker- dealer or clients of an investment adviser.
Closed-End Investment Option. Class A shares of the Fund and other MLAM- advised mutual funds ("Eligible Class A shares") are offered at net asset value to shareholders of certain closed-end funds advised by the Manager or MLAM who purchased such closed-end fund shares prior to October 21, 1994 and wish to reinvest the net proceeds of a sale of their closed-end fund shares of common stock in Eligible Class A shares, if the conditions set forth below are satisfied. Alternatively, closed-end fund shareholders who purchased such shares on or after October 21, 1994 and wish to reinvest the net proceeds from a sale of their closed-end fund shares are offered Class A shares (if eligible to buy Class A shares) or Class D shares of the Fund and other MLAM-advised mutual funds ("Eligible Class D Shares"), if the following conditions are met. First, the sale of closed-end fund shares must be made through Merrill Lynch, and the net proceeds therefrom must be immediately reinvested in Eligible Class A or Class D shares. Second, the closed-end fund shares must either have been acquired in the initial public offering or be shares representing dividends from shares of common stock acquired in such offering. Third, the closed-end fund shares must have been continuously maintained in a Merrill Lynch securities account. Fourth, there must be a minimum purchase of $250 to be eligible for the investment option. Class A shares of the Fund are offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. ("Senior Floating Rate Fund") who wish to reinvest the net proceeds from a sale of certain of their shares of common stock of Senior Floating Rate Fund in shares of the Fund. In order to exercise this investment option, Senior Floating Rate Fund shareholders must sell their Senior Floating Rate Fund shares to the Senior Floating Rate Fund in connection with a tender offer conducted by the Senior Floating Rate Fund and reinvest the proceeds immediately in the Fund. This investment option is available only with respect to the proceeds of Senior Floating Rate Fund shares as to which no Early Withdrawal Charge (as defined in the Senior Floating Rate Fund prospectus) is applicable. Purchase orders from Senior Floating Rate Fund shareholders wishing to exercise this investment option will be accepted only on the day that the related Senior Floating Rate Fund tender offer terminates and will be effected at the net asset value of the Fund on such day. Similarly, Class D shares of the Fund are offered at
net asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. ("Municipal Strategy Fund") who wish to purchase shares of the Fund with the net proceeds from a sale of certain of their shares of common stock of Municipal Strategy Fund pursuant to a tender offer by Municipal Strategy Fund. This investment option is available only with respect to the proceeds of Municipal Strategy Fund shares as to which no CDSC (as defined in the Municipal Strategy Fund prospectus) is applicable.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a right of accumulation under which eligible investors are permitted to purchase shares of the Fund subject to an initial sales charge at the offering price applicable to the total of (a) the public offering price of the shares then being purchased plus (b) an amount equal to the then current net asset value or cost, whichever is higher, of the purchaser's combined holdings of all classes of shares of the Fund and of other MLAM-advised mutual funds. For any such right of accumulation to be made available, the Distributor must be provided at the time of purchase, by the purchaser or the purchaser's securities dealer, with sufficient information to permit confirmation of qualification. Acceptance of the purchase order is subject to such confirmation. The right of accumulation may be amended or terminated at any time. Shares held in the name of a nominee or custodian under pension, profit-sharing, or other employee benefit plans may not be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases aggregating $25,000 or more of the Class A or Class D shares of the Fund or any other MLAM-advised mutual funds made within a 13-month period starting with the first purchase pursuant to a Letter of Intention in the form provided in the Prospectus. The Letter of Intention is available only to investors whose accounts are maintained at the Fund's transfer agent. The Letter of Intention is not available to employee benefit plans for which Merrill Lynch provides plan participant recordkeeping services. The Letter of Intention is not a binding obligation to purchase any amount of Class A or Class D shares. However, its execution will result in the purchaser paying a lower sales charge at the appropriate quantity purchase level. A purchase not originally made pursuant to a Letter of Intention may be included under a subsequent Letter of Intention executed within 90 days of such purchase if the Distributor is informed in writing of this intent within such 90-day period. The value of Class A and Class D shares of the Fund and of other MLAM-advised mutual funds presently held, at cost or maximum offering price (whichever is higher), on the date of the first purchase under the Letter of Intention, may be included as a credit toward the completion of such Letter, but the reduced sales charge applicable to the amount covered by such Letter will be applied only to new purchases. If the total amount of shares does not equal the amount stated in the Letter of Intention (minimum of $25,000), the investor will be notified and must pay, within 20 days of the expiration of such Letter, the difference between the sales charge on the Class A or Class D shares purchased at the reduced rate and the sales charge applicable to the shares actually purchased through the Letter. Class A or Class D shares equal to five percent of the intended amount will be held in escrow during the 13-month period (while remaining registered in the name of the purchaser) for this purpose. The first purchase under the Letter of Intention must be at least five percent of the dollar amount of such Letter. If a purchase during the term of such Letter would otherwise be subject to a further reduced sales charge based on the right for accumulation, the purchaser will be entitled on that purchase and subsequent purchases to that further reduced percentage sales charge but there will be no retroactive reduction of the sales charges on any previous purchase. The value of any shares redeemed or otherwise
disposed of by the purchaser prior to termination or completion of the Letter of Intention will be deducted from the total purchases made under such Letter. An exchange from a MLAM-advised money market fund into the Fund that creates a sales charge will count toward completing a new or existing Letter of Intention from the Fund.
Employee Access Accounts (SM). Class A or Class D shares are offered at net asset value to Employee Access Accounts available through employers that provide employer sponsored retirement or savings plans that are eligible to purchase such shares at net asset value. The initial minimum for such accounts is $500, except that the initial minimum for shares purchased for such accounts pursuant to the Automatic Investment Program is $50.
TMA (SM) Managed Trusts. Class A shares are offered at net asset value to TMASM Managed Trusts to which Merrill Lynch Trust Company provides discretionary trustee services at net asset value.
Purchase Privileges of Certain Persons. Trustees of the Trust, members of the Boards of other MLAM-advised investment companies, ML & Co. and its subsidiaries (the term "subsidiaries", when used herein with respect to ML & Co., includes MLAM, the Manager and certain other entities directly or indirectly wholly-owned and controlled by ML & Co.) and their directors and employees, and any trust, pension, profit-sharing or other benefit plan for such persons, may purchase Class A shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without sales charge, to an investor who has a business relationship with a financial consultant who joined Merrill Lynch from another investment firm within six months prior to the date of purchase by such investor, if the following conditions are satisfied: first, the investor must advise Merrill Lynch that it will purchase Class D shares of the Fund with proceeds from a redemption of a mutual fund that was sponsored by the financial consultant's previous firm and was subject to a sales charge either at the time of purchase or on a deferred basis; and second, the investor also must establish that such redemption had been made within 60 days prior to the investment in the Fund, and the proceeds from the redemption had been maintained in the interim in cash or a money market fund.
Class D shares of the Fund are also offered at net asset value, without sales charge, to an investor who has a business relationship with a Merrill Lynch financial consultant and who has invested in a mutual fund sponsored by a non- Merrill Lynch company for which Merrill Lynch has served as a selected dealer and where Merrill Lynch has either received or given notice that such arrangement will be terminated ("notice"), if the following conditions are satisfied: first, the investor must purchase Class D shares of the Fund with proceeds from a redemption of shares of such other mutual fund and the shares of such other fund were subject to a sales charge either at the time of purchase or on a deferred basis; and second, such purchase of Class D shares must be made within 90 days after such notice.
Class D shares of the Fund are offered at net asset value, without a sales charge, to an investor who has a business relationship with a Merrill Lynch financial consultant and who has invested in a mutual fund for which Merrill Lynch has not served as a selected dealer if the following conditions are satisfied: first, the investor must advise Merrill Lynch that it will purchase Class D shares of the Fund with proceeds from the redemption of shares of such other mutual fund and that such shares have been outstanding for a period of
no less than six months; and second, such purchase of Class D shares must be made within 60 days after the redemption and the proceeds from the redemption must be maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation
with a personal holding company or a public or private investment company. The
value of the assets or company acquired in a tax-free transaction may be
adjusted in appropriate cases to reduce possible adverse tax consequences to
the Fund which might result from an acquisition of assets having net unrealized
appreciation which is disproportionately higher at the time of acquisition than
the realized or unrealized appreciation of the Fund. The issuance of Class D
shares for consideration other than cash is limited to bona fide
reorganizations, statutory mergers or other acquisitions of portfolio
securities which (i) meet the investment objectives and policies of the Fund;
(ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall at
all times remain within its control); and (iii) are liquid securities, the
value of which is readily ascertainable, which are not restricted as to
transfer either by law or liquidity of market (except that the Fund may acquire
through such transactions restricted or illiquid securities to the extent the
Fund does not exceed the applicable limits on acquisition of such securities
set forth under "Investment Objective and Policies" herein).
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the Prospectus for certain information with respect to the separate distribution plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the 1940 Act (each a "Distribution Plan") with respect to the account maintenance and/or distribution fees paid by the Fund to the Distributor with respect to such classes.
Payments of account maintenance fees and/or distribution fees are subject to the provisions of Rule 12b-1 under the 1940 Act. Among other things, each Distribution Plan provides that the Distributor shall provide and the Trustees shall review quarterly reports of the disbursement of the account maintenance fees and/or distribution fees paid to the Distributor. In their consideration of each Distribution Plan, the Trustees must consider all factors they deem relevant, including information as to the benefits of the Distribution Plan to the Fund and its related class of shareholders. Each Distribution Plan further provides that, so long as the Distribution Plan remains in effect, the selection and nomination of Trustees who are not "interested persons" of the Trust, as defined in the 1940 Act (the "Independent Trustees"), shall be committed to the discretion of the Independent Trustees then in office. In approving each Distribution Plan in accordance with Rule 12b-1, the Independent Trustees concluded that there is reasonable likelihood that each Distribution Plan will benefit the Fund and its related class of shareholders. Each Distribution Plan can be terminated at any time, without penalty, by the vote of a majority of the Independent Trustees or by the vote of the holders of a majority of the outstanding related class of voting securities of the Fund. A Distribution Plan cannot be amended to increase materially the amount to be spent by the Fund without the approval by the related class of shareholders, and all material amendments are required to be approved by the vote of Trustees, including a majority of the Independent Trustees who have no direct or indirect financial interest in such Distribution Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Trust preserve copies of each Distribution Plan and any report made pursuant to such plan for a period of not less than six years from the date of such Distribution Plan or such report, the first two years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain asset-based sales charges such as the distribution fee and the CDSC borne by the Class B and Class C shares but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges), plus (2) interest on the unpaid balance for the respective class, computed separately, at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts received from the payment of the distribution fee and the CDSC). In connection with the Class B shares, the Distributor has voluntarily agreed to waive interest charges on the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the maximum amount payable to the Distributor (referred to as the "voluntary maximum") in connection with the Class B shares is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving the interest charges at any time. To the extent payments would exceed the voluntary maximum, the Fund will not make further payments of the distribution fee with respect to Class B shares, and any CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances the amount payable pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstances payment in excess of the amount payable under the NASD formula will not be made.
The following table sets forth comparative information as of July 31, 1995 with respect to the Class B and Class C shares of the Fund indicating the maximum allowable payments that can be made under the NASD maximum sales charge rule and, with respect to the Class B shares, the Distributor's voluntary maximum for the period August 31, 1990 (commencement of operations) to July 31, 1995.
DATA CALCULATED AS OF JULY 31, 1995
------------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- --------- ----------- ------- -------------- --------- --------------
CLASS B
Under NASD Rule as
Adopted................ $139,103 $8,694 $1,938 $10,632 $1,707 $8,925 $308
Under Distributor's Vol-
untary Waiver.......... $139,103 $8,694 $ 696 $ 9,390 $1,707 $7,683 $308
CLASS C (IN THOUSANDS)
Under NASD Rule As
Adopted................ $ 1,915 $ 120 $ 4 $ 124 $ 3 $ 121 $ 7
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(1) Purchase price of all eligible Class B shares sold since August 31, 1990
(commencement of operations) other than shares acquired through dividend
reinvestment and the exchange privilege. Purchase price of all eligible
Class C shares sold since October 21, 1994 (commencement of operations)
other than shares acquired through dividend reinvestment and the exchange
privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0%, as permitted under the
NASD Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the voluntary maximum or the NASD
maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such redemption may be suspended only for any period during which trading on the New York Stock Exchange is restricted as determined by the Commission or such Exchange is closed (other than customary weekend and holiday closings), for any period during which an emergency exists as defined by the Commission as a result of which disposal of portfolio securities or determination of the net asset value of the Fund is not reasonably practicable, and for such other periods as the Commission may by order permit for the protection of shareholders of the Fund.
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares," while Class B shares redeemed within four years of purchase are subject to a CDSC under most circumstances, the charge is waived on redemptions of Class B shares following the death or disability of a Class B shareholder. Redemptions for which the waiver applies are any partial or complete redemption following the death or disability (as defined in the Internal Revenue Code of 1986, as amended (the "Code")) of a Class B shareholder (including one who owns the Class B shares as joint tenant with his or her spouse), provided the redemption is requested within one year of the death or initial determination of disability. For the fiscal years ended July 31, 1993, 1994, and 1995 the Distributor received CDSCs of $114,196, $204,747 and $302,369, respectively, all of which was paid to Merrill Lynch. For the period October 21, 1994 (commencement of operations) to July 31, 1995, the Distributor received CDSCs of $621 with respect to redemptions of Class C shares, all of which was paid to Merrill Lynch.
The CDSC is also waived for any Class B shares that were acquired and held at the time of redemption by Employee Access Accounts available through employers that provide Eligible 401(k) Plans. The initial minimum for such accounts is $500, except that the initial minimum for shares purchased for such accounts pursuant to the Automatic Investment Program is $50.
PORTFOLIO TRANSACTIONS
Reference is made to "Investment Objective and Policies--Other Investment Policies and Practices" in the Prospectus.
Under the 1940 Act, persons affiliated with the Trust are prohibited from dealing with the Fund as a principal in the purchase and sale of securities unless such trading is permitted by an exemptive order issued by the Commission. Since over-the-counter transactions are usually principal transactions, affiliated persons of the Trust, including Merrill Lynch, may not serve as dealer in connection with transactions with the Fund. The Trust has obtained an exemptive order permitting it to engage in certain principal transactions with Merrill Lynch involving high quality short-term municipal bonds subject to certain conditions. For the year ended July 31, 1993, the Fund engaged in two transactions pursuant to such order for an aggregate market value of $1,003,147. For the year ended July 31, 1994, the Fund engaged in one transaction pursuant to such
order for an aggregate market value of $602,352. For the year ended July 31, 1995, the Fund engaged in no transactions pursuant to such order. The Trust has applied for an exemptive order permitting it to, among other things, (i) purchase high quality tax-exempt securities from Merrill Lynch when Merrill Lynch is a member of an underwriting syndicate and (ii) purchase tax-exempt securities from and sell tax-exempt securities to Merrill Lynch in secondary market transactions. Affiliated persons of the Trust may serve as broker for the Fund in over-the-counter transactions conducted on an agency basis. Certain court decisions have raised questions as to the extent to which investment companies should seek exemptions under the 1940 Act in order to seek to recapture underwriting and dealer spreads from affiliated entities. The Trustees have considered all factors deemed relevant, and have made a determination not to seek such recapture at this time. The Trustees will reconsider this matter from time to time.
As a non-fundamental restriction, the Trust will prohibit the purchase or retention by the Fund of the securities of any issuer if the officers and Trustees of the Trust, the officers and general partner of the Manager, the directors of such general partner or the officers and directors of any subsidiary thereof each owning beneficially more than one-half of one per cent of the securities of such issuer own in the aggregate more than five percent of the securities of such issuer. In addition, under the 1940 Act, the Fund may not purchase securities from any underwriting syndicate of which Merrill Lynch is a member except pursuant to an exemptive order or rules adopted by the Commission. Rule 10f-3 under the 1940 Act sets forth conditions under which the Fund may purchase municipal bonds in such transactions. The rule sets forth requirements relating to, among other things, the terms of an issue of municipal bonds purchased by the Fund, the amount of municipal bonds which may be purchased in any one issue and the assets of the Fund which may be invested in a particular issue.
The Fund does not expect to use any particular dealer in the execution of transactions but, subject to obtaining the best net results, dealers who provide supplemental investment research (such as information concerning tax- exempt securities, economic data and market forecasts) to the Manager may receive orders for transactions by the Fund. Information so received will be in addition to and not in lieu of the services required to be performed by the Manager under its Management Agreement and the expenses of the Manager will not necessarily be reduced as a result of the receipt of such supplemental information.
The Trust has no obligation to deal with any broker in the execution of transactions for the Fund's portfolio securities. In addition, consistent with the Rules of Fair Practice of the NASD and policies established by the Trustees of the Trust the Manager may consider sales of shares of the Fund as a factor in the selection of brokers or dealers to execute portfolio transactions for the Fund.
Generally, the Fund does not purchase securities for short-term trading profits. However, the Fund may dispose of securities without regard to the time they have been held when such action, for defensive or other reasons, appears advisable to its Manager. While it is not possible to predict turnover rates with any certainty, at present it is anticipated that the Fund's annual portfolio turnover rate, under normal circumstances after the Fund's portfolio is invested in accordance with its investment objective, 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 the 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 for the fiscal years ended July 31, 1993, 1994 and 1995 were 9.69%, 37.73% and 59.17%, respectively.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally prohibits members of the U.S. national securities exchanges from executing exchange transactions for their affiliates and institutional accounts which they manage unless the member (i) has obtained prior express authorization from the account to effect such transactions, (ii) at least annually furnishes the account with a statement setting forth the aggregate compensation received by the member in effecting such transactions, and (iii) complies with any rules the Commission has prescribed with respect to the requirements of clauses (i) and (ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a broker for the Fund in any of its portfolio transactions executed on any such securities exchange of which it is a member, appropriate consents have been obtained from the Fund and annual statements as to aggregate compensation will be provided to the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined once daily, Monday through Friday, as of 15 minutes after the close of business on the New York Stock Exchange (generally, 4:00 P.M., New York time) on each day during which the New York Stock Exchange is open for trading. The New York Stock Exchange is not open on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is computed by dividing the sum of the value of the securities held by the Fund plus any cash or other assets minus all liabilities by the total number of shares outstanding at such time, rounded to the nearest cent. Expenses, including the fees payable to the Manager and the Distributor, are accrued daily. The per share net asset value of the Class B, Class C, and Class D shares generally will be lower than the per share net asset value of the Class A shares, reflecting the higher daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to the Class B and Class C shares and the daily expense accruals of the account maintenance fees applicable with respect to Class D shares. Moreover the per share net asset value of the Class B and Class C shares generally will be lower than the per share net asset value of its Class D shares, reflecting the daily expense accruals of the distribution fees and higher transfer agency fees applicable with respect to the Class B and Class C shares of the Fund. It is expected, however, that the per share net asset value of the four classes eventually will tend to converge (although not necessarily meet) immediately after the payment of dividends, which will differ by approximately the amount of the expense accrual differentials between the classes.
The Municipal Bonds and other portfolio securities in which the Fund invests are traded primarily in over-the-counter municipal bond and money markets and are valued at the last available bid price in the over-the-counter market or on the basis of yield equivalents as obtained from one or more dealers that make markets in the securities. One bond is the "yield equivalent" of another bond when, taking into account market price, maturity, coupon rate, credit rating and ultimate return of principal, both bonds will theoretically produce an equivalent return to the bondholder. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their settlement prices as of the close of such exchanges. Short-term investments with a remaining maturity of 60 days or less are valued on an amortized cost basis, which approximates market value. Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of the Trustees of the Trust, including valuations furnished by a pricing service retained by the Trust, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Trust under the general supervision of the Trustees.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services described below which are designed to facilitate investment in shares of the Fund. Full details as to each of such services and copies of the various plans described below can be obtained from the Trust, the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an Investment Account and will receive statements, at least quarterly, from the Transfer Agent. These statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions. The statements will also show any other activity in the account since the preceding statement. Shareholders also will receive separate transaction confirmations for each purchase or sale transaction other than automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions. A shareholder may make additions to his or her Investment Account at any time by mailing a check directly to the Transfer Agent.
Share certificates are issued only for full shares and only upon the specific request of a shareholder who has an Investment Account. Issuance of certificates representing all or only part of the full shares in an Investment Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders considering transferring their Class A shares from Merrill Lynch to another brokerage firm or financial institution should be aware that, if the firm to which the Class A or Class D shares are to be transferred will not take delivery of shares of the Fund, a shareholder either must redeem the Class A or Class D shares (paying any applicable CDSC) so that the cash proceeds can be transferred to the account at the new firm or such shareholder must continue to maintain an Investment Account at the Transfer Agent for those Class A or Class D shares. Shareholders interested in transferring their Class B or Class C shares from Merrill Lynch and who do not wish to have an Investment Account maintained for such shares at the Transfer Agent may request their new brokerage firm to maintain such shares in an account registered in the name of the brokerage firm for the benefit of the shareholder at the Transfer Agent. If the new brokerage firm is willing to accommodate the shareholder in this manner, the shareholder must request that he or she be issued certificates for his or her shares, and then must turn the certificates over to the new firm for re-registration as described in the preceding sentence.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by purchasing Class A shares (if an eligible Class A investor as described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities dealer, or by mail directly to the Transfer Agent, acting as agent for such securities dealers. Voluntary accumulation also can be made through a service known as the Automatic Investment Plan whereby the Fund is authorized through pre-authorized checks or automated clearing house debits of $50 or more to charge the regular bank account of the shareholder on a regular basis to provide systematic additions to the Investment Account of such shareholder. The Fund's Automatic Investment Plan is not available to shareholders whose shares are held in brokerage accounts with Merrill Lynch. Alternatively, investors who maintain CMA (R) or CBA (R) accounts may arrange to have periodic investments made in the Fund in the CMA (R) or CBA (R) account or in certain related accounts, in amounts of $100 or more through the CMA (R)/CBA (R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of dividends and capital gains distributions, dividends and distributions will be reinvested automatically in additional shares of the Fund. Such reinvestment will be at the net asset value of shares of the Fund as of the close of business on the monthly payment date for such dividends and distributions. Shareholders may elect in writing to receive either their income dividends or capital gains distributions, or both, in cash, in which event payment will be mailed or direct deposited on or about the payment date. Cash payments can also be direct deposited to the shareholder's bank account.
Shareholders may, at any time, notify the Transfer Agent in writing or by telephone (1-800-MER-FUND) that they no longer wish to have their dividends and/or capital gains distributions reinvested in shares of the Fund or vice versa and, commencing ten days after the receipt by the Transfer Agent of such notice, such instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals from an Investment Account on either a monthly or quarterly basis as provided below. Quarterly withdrawals are available for shareholders who have acquired Class A or Class D shares of the Fund having a value, based on cost or the current offering price, of $5,000 or more, and monthly withdrawals are available for shareholders with Class A or Class D shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D shares are redeemed from those on deposit in the shareholder's account to provide the withdrawal payment specified by the shareholder. The shareholder may specify either a dollar amount or a percentage of the value of his Class A or Class D shares. Redemptions will be made at net asset value as determined 15 minutes after the close of business on the New York Stock Exchange (generally, 4:00 P.M., New York time) on the 24th day of each month or the 24th day of the last month of each quarter, whichever is applicable. If the Exchange is not open for business on such date, the Class A or Class D shares will be redeemed at the close of business on the following business day. The check for the withdrawal payment will be mailed, or the direct deposit for the withdrawal payment will be made, on the next business day following redemption. When a shareholder is making systematic withdrawals, dividends and distributions on all Class A or Class D shares in the Investment Account are reinvested automatically in the Fund's Class A or Class D shares, respectively. A shareholder's Systematic Withdrawal Plan may be terminated at any time, without charge or penalty, by the shareholder, the Trust,
the Transfer Agent or the Distributor. Withdrawal payments should not be considered as dividends, yield or income. Each withdrawal is a taxable event. If periodic withdrawals continuously exceed reinvested dividends, the shareholder's original investment may be reduced correspondingly. Purchases of additional Class A or Class D shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and tax liabilities. The Trust will not knowingly accept purchase orders for Class A or Class D shares of the Fund from investors who maintain a Systematic Withdrawal Plan unless such purchase is equal to at least one year's scheduled withdrawals or $1,200, whichever is greater. Periodic investments may not be made into an Investment Account in which the shareholder has elected to make systematic withdrawals.
Alternatively, a Class A or Class D shareholder whose shares are held within a CMA (R) or CBA (R) account may elect to have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis through the CMA (R)/CBA (R) Systematic Redemption Program. The minimum fixed dollar amount redeemable is $25. The proceeds of systematic redemptions will be posted to the shareholder's account five business days after the date the shares are redeemed. Monthly systematic redemptions will be made at net asset value on the first Monday of each month, bimonthly systematic redemptions will be made at net asset value on the first Monday of every other month, and quarterly, semiannual or annual redemptions are made at net asset value on the first Monday of months selected at the shareholder's option. If the first Monday of the month is a holiday, the redemption will be processed at net asset value on the next business day. The CMA (R)/CBA (R) Systematic Redemption Program is not available if Fund shares are being purchased within the account pursuant to the CMA (R)/CBA (R) Automated Investment Program. For more information on the CMA (R)/CBA (R) Systematic Redemption Program eligible shareholders should contact their Financial Consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege with certain other MLAM-advised mutual funds listed below. Under the Merrill Lynch Select PricingSM System, Class A shareholders may exchange Class A shares of the Fund for Class A shares of a second MLAM-advised mutual fund if the shareholder holds any Class A shares of the second fund in his account in which the exchange is made at the time of the exchange or is otherwise eligible to purchase Class A shares of the second fund. If the Class A shareholder wants to exchange Class A shares for shares of a second MLAM-advised mutual fund, and the shareholder does not hold Class A shares of the second fund in his account at the time of the exchange and is not otherwise eligible to acquire Class A shares of the second fund, the shareholder will receive Class D shares of the second fund as a result of the exchange. Class D shares also may be exchanged for Class A shares of a second MLAM-advised mutual fund at any time as long as, at the time of the exchange, the shareholder holds Class A shares of the second fund in the account in which the exchange is made or is otherwise eligible to purchase Class A shares of the second fund. Class B, Class C and Class D shares are exchangeable with shares of the same class of other MLAM-advised mutual funds. For purposes of computing the CDSC that may be payable upon a disposition of the shares acquired in the exchange, the holding period for the previously owned shares of the Fund is "tacked" to the holding period of the newly acquired shares of the other Fund as more fully described below. Class A, Class B, Class C and Class D shares are also exchangeable for shares of certain MLAM-advised money market funds specifically designated below as available for exchange by holders of Class A, Class B, Class C or Class D shares. Shares with a net asset value of at least
$100 are required to qualify for the exchange privilege, and any shares utilized in an exchange must have been held by the shareholder for 15 days. It is contemplated that the exchange privilege may be applicable to other new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or Class D shares") for Class A or Class D shares of another MLAM-advised mutual fund ("new Class A or Class D shares") are transacted on the basis of relative net asset value per Class A or Class D share, respectively, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A or Class D shares and the sales charge payable at the time of the exchange on the new Class A or Class D shares. With respect to outstanding Class A or Class D shares as to which previous exchanges have taken place, the "sales charge previously paid" shall include the aggregate of the sales charges paid with respect to such Class A or Class D shares in the initial purchase and any subsequent exchange. Class A or Class D shares issued pursuant to dividend reinvestment are sold on a no-load basis in each of the funds offering Class A or Class D shares. For purposes of the exchange privilege, Class A and Class D shares acquired through dividend reinvestment shall be deemed to have been sold with a sales charge equal to the sales charge previously paid on the Class A or Class D shares on which the dividend was paid. Based on this formula, Class A and Class D shares generally may be exchanged into the Class A or Class D shares of the other funds or into shares of the Class A and Class D money market funds without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding ("outstanding Class B or Class C shares") offers to exchange its outstanding Class B or Class C shares for Class B or Class C shares, respectively, of other MLAM-advised mutual funds ("new Class B or Class C shares") on the basis of relative net asset value per Class B or Class C share, without the payment of any contingent deferred sales load that might otherwise be due on redemption of the outstanding shares. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC schedule if such schedule is higher than the deferred sales charge schedule relating to the new Class B shares acquired through use of the exchange privilege. In addition, Class B shares of the Fund acquired through use of the exchange privilege will be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares of the Fund from which the exchange has been made. For purposes of computing the sales load that may be payable on a disposition of the new Class B or Class C shares, the holding period for the outstanding Class B or Class C shares is "tacked" to the holding period of the new Class B or Class C shares. For example, an investor may exchange Class B shares of the Fund for those of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held the Fund's Class B shares for two and a half years. The 2% CDSC that generally would apply to a redemption would not apply to the exchange. Three years later the investor may decide to redeem the Class B shares of Special Value Fund and receive cash. There will be no CDSC due on this redemption, since by "tacking" the two and a half year holding period of the Fund's Class B shares to the three year holding period for the Special Value Fund Class B shares, the investor will be deemed to have held the new Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of a money market fund advised by the Manager or its affiliates, but the period of time that Class B or Class C shares are held in a money market fund will not count towards satisfaction of the holding period requirement for purposes of reducing the CDSC or, with respect to Class B shares, towards satisfaction of the conversion period. However, shares of a money market fund which were acquired as a result of an exchange for Class B or Class C shares of the Fund may,
in turn, be exchanged back into Class B or Class C shares, respectively, of any fund offering such shares, in which event the holding period for Class B or Class C shares of the fund will be aggregated with previous holding periods for purposes of reducing the CDSC. Thus, for example, an investor may exchange Class B shares of the Fund for shares of Merrill Lynch Institutional Fund ("Institutional Fund") after having held the Class B shares for two and a half years and three years later decide to redeem the shares of Institutional Fund for each. At the time of this redemption, the 2% CDSC that would have been due had the Class B shares of the Fund been redeemed for cash rather than exchanged for shares of Institutional Fund will be payable. If, instead of such redemption the shareholder exchanged such shares for Class B shares of a fund which the shareholder continued to hold for an additional two and a half years, any subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the other funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
Merrill Lynch Adjustable Rate
Securities Fund, Inc. ............
High current income consistent with a
policy of limiting the degree of fluctu-
ation in net asset value of fund shares
resulting from movements in interest
notes through investment primarily in a
portfolio of adjustable rate securities,
consisting principally of mortgage-
backed and asset-backed securities.
Merrill Lynch Americas Income
Fund, Inc. .......................
A high level of current income, consis-
tent with prudent investment risk, by
investing primarily in debt securities
denominated in a currency of a country
located in the Western Hemisphere (i.e.,
North and South America and the sur-
rounding waters).
Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and Arizona income taxes as
is consistent with prudent investment
management through investment in a port-
folio primarily of intermediate-term in-
vestment grade Arizona Municipal Bonds.
Merrill Lynch Arizona Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide investors
with as high a level of income exempt
from Federal and Arizona income taxes as
is consistent with prudent investment
management.
Merrill Lynch Arkansas Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Arkansas income taxes as is consistent
with prudent investment management.
Merrill Lynch Asset Growth
Fund, Inc.........................
High total investment return, consistent
with prudent risk, from investment in
United States and foreign equity, debt
and money market securities the combina-
tion of which will be varied both with
respect to types of securities and mar-
kets in response to changing market and
economic trends.
Merrill Lynch Asset Income Fund,
Inc. ............................. A high level of current income through
investment primarily in United States
fixed income securities.
Merrill Lynch Balanced Fund for
Investment and Retirement, Inc. ..
As high a level of total investment re- turn as is consistent with a reasonable level of risk through investment in com- mon stocks and other types of securi- ties, including fixed income securities and convertible securities.
Merrill Lynch Basic Value Fund,
Inc. ............................. Capital appreciation, and secondarily,
income by investing in securities, pri-
marily equities, that are undervalued
and therefore represent basic investment
value.
Merrill Lynch California Insured
Municipal Bond Fund...............
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
California income taxes as is consistent
with prudent investment management
through investment in a portfolio pri-
marily of insured California Municipal
Bonds.
Merrill Lynch California Limited
Maturity Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and California income taxes
as is consistent with prudent investment
management through investment in a port-
folio primarily of intermediate-term in-
vestment grade California Municipal
Bonds.
Merrill Lynch California Municipal
Bond Fund.........................
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
California income taxes as is consistent
with prudent investment management.
Merrill Lynch Capital Fund, Inc. .. The highest total investment return con-
sistent with prudent risk through a
fully managed investment policy utiliz-
ing equity, debt and convertible securi-
ties.
Merrill Lynch Colorado Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Colorado income taxes as is consistent
with prudent investment management.
Merrill Lynch Connecticut
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Connecticut income taxes as is consis-
tent with prudent investment management.
Merrill Lynch Corporate Bond
Fund, Inc. .......................
Current income from three separate diver-
sified portfolios of fixed income secu-
rities.
Merrill Lynch Developing Capital
Markets Fund, Inc. ...............
Long-term capital appreciation through
investment in securities, principally
equities, of issuers in countries having
smaller capital markets.
Merrill Lynch Dragon Fund, Inc. ... Capital appreciation primarily through
investment in equity and debt securities
of issuers domiciled in developing coun-
tries located in Asia and the Pacific
Basin.
Merrill Lynch EuroFund............. Capital appreciation primarily through
investment in equity securities of cor-
porations domiciled in Europe.
Merrill Lynch Federal Securities
Trust.............................
High current return through investments
in U.S. Government and Government agency
securities, including GNMA mortgage-
backed certificates and other mortgage-
backed Government securities.
35
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Merrill Lynch Florida Limited
Maturity Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal income taxes as is consis-
tent with prudent investment management
while seeking to offer shareholders the
opportunity to own securities exempt
from Florida intangible personal prop-
erty taxes through investment in a port-
folio primarily of intermediate-term in-
vestment grade Florida Municipal Bonds.
Merrill Lynch Florida Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal in-
come taxes as is consistent with prudent
investment management while seeking to
offer shareholders the opportunity to
own securities exempt from Florida in-
tangible personal property taxes.
Merrill Lynch Fund For
Tomorrow, Inc. ...................
Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially po-
sitioned to benefit from demographic and
cultural changes as they affect consumer
markets.
Merrill Lynch Fundamental Growth
Fund, Inc. .......................
Long-term growth of capital through in-
vestment in a diversified portfolio of
equity securities placing particular em-
phasis on companies that have exhibited
above-average growth rate in earnings.
Merrill Lynch Fundamental
Value Portfolio (available only
for exchanges by certain
individual retirement accounts
for which Merrill Lynch acts as
custodian)...................
A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide capital
appreciation and income by investing in
securities, with at least 65% of the
portfolio's assets being invested in eq-
uities.
36
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Merrill Lynch Global Allocation
Fund, Inc. .......................
High total investment return, consistent
with prudent risk, through a fully man-
aged investment policy utilizing United
States and foreign equity, debt and
money market securities, the combination
of which will be varied from time to
time both with respect to the types of
securities and markets in response to
changing market and economic trends.
Merrill Lynch Global Bond Fund for
Investment and Retirement.........
High total investment return from invest-
ment in a global portfolio of debt in-
struments denominated in various curren-
cies and multi-national currency units.
Merrill Lynch Global Convertible
Fund, Inc. .......................
High total return from investment primar-
ily in an international diversified
portfolio of convertible debt securi-
ties, convertible preferred stock and
"synthetic" convertible securities con-
sisting of a combination of debt securi-
ties or preferred stock and warrants or
options.
Merrill Lynch Global Holdings,
Inc. (residents of Arizona must
meet investor suitability
standards)........................
The highest total investment return con-
sistent with prudent risk through world-
wide investment in an internationally
diversified portfolio of securities.
Merrill Lynch Global
Opportunity Portfolio.. (available A portfolio of Merrill Lynch Asset
only for exchanges by certain Builder Program, Inc., a series fund,
individual retirement accounts whose objective is to provide a high to-
for which Merrill Lynch acts as tal investment return through an invest-
custodian) ment policy utilizing United States and
foreign equity, debt and money market
securities, the combination of which
will vary depending upon changing market
and economic trends.
Merrill Lynch Global Resources
Trust.............................
Long-term growth and protection of capi-
tal from investment in securities of do-
mestic and foreign companies that pos-
sess substantial natural resource as-
sets.
Merrill Lynch Global SmallCap
Fund, Inc. .......................
Long-term growth of capital by investing
primarily in equity securities of compa-
nies with relatively small market capi-
talizations located in various foreign
countries and in the United States.
37
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Merrill Lynch Global Utility
Fund, Inc. .......................
Capital appreciation and current income
through investment of at least 65% of
its total assets in equity and debt se-
curities issued by domestic and foreign
companies which are primarily engaged in
the ownership and operation of facili-
ties used to generate, transmit or dis-
tribute electricity, telecommunications,
gas or water.
Merrill Lynch Growth Fund for
Investment and Retirement.........
Growth of capital and, secondarily, in-
come from investment in a diversified
portfolio of equity securities placing
principal emphasis on those securities
which management of the Fund believes to
be undervalued.
Merrill Lynch Healthcare Fund,
Inc. (residents of Wisconsin must
meet investor suitability
standards)........................
Capital appreciation through worldwide
investment in equity securities of com-
panies that derive or are expected to
derive a substantial portion of their
sale from products and services in
healthcare.
Merrill Lynch International
Equity Fund.......................
Capital appreciation and, secondarily,
income by investing in a diversified
portfolio of equity securities of is-
suers located in countries other than
the United States.
Merrill Lynch Latin America
Fund, Inc. .......................
Capital appreciation by investing primar-
ily in Latin American equity and debt
securities.
Merrill Lynch Maryland Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Maryland income taxes as is consistent
with prudent investment management.
Merrill Lynch Massachusetts
Limited Maturity Municipal Bond
Fund..............................
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and Massachusetts income
taxes as is consistent with prudent in-
vestment management through investment
in a portfolio primarily of intermedi-
ate-term investment grade Massachusetts
Municipal Bonds.
|
Merrill Lynch Massachusetts
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Massachusetts income taxes as is consis- tent with prudent investment management.
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and Michigan income taxes
as is consistent with prudent investment
management through investment in a port-
folio primarily of intermediate-term in-
vestment grade Michigan Municipal Bonds.
Merrill Lynch Michigan Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Michigan income taxes as is consistent
with prudent investment management.
Merrill Lynch Minnesota Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
level of income exempt from Federal and
Minnesota personal income taxes as is
consistent with prudent investment man-
agement.
Merrill Lynch Municipal Bond
Fund, Inc.........................
Tax-exempt income from three separate di-
versified portfolios of municipal bonds.
Merrill Lynch Municipal
Intermediate Term Fund............
Currently the only portfolio of Merrill
Lynch Municipal Series Trust, a series
fund, whose objective is to provide as
high a level as possible of income ex-
empt from Federal income taxes by in-
vesting in investment grade obligations
with a dollar weighted average maturity
of five to twelve years.
Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and New Jersey income taxes
as is consistent with prudent investment
management through a portfolio primarily
of intermediate-term investment grade
New Jersey Municipal Bonds.
Merrill Lynch New Jersey Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
New Jersey income taxes as is consistent
with prudent investment management.
Merrill Lynch New Mexico Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
New Mexico income taxes as is consistent
with prudent investment management.
Merrill Lynch New York Limited
Maturity Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal, New York State and New
York City income taxes as is consistent
with prudent investment management
through investment in a portfolio pri-
marily of intermediate-term investment
grade New York Municipal Bonds.
Merrill Lynch New York Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal, New
York State and New York City income
taxes as is consistent with prudent in-
vestment management.
Merrill Lynch North Carolina
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
North Carolina income taxes as is con-
sistent with prudent investment manage-
ment.
Merrill Lynch Ohio Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Ohio income taxes as is consistent with
prudent investment management.
Merrill Lynch Oregon Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Oregon income taxes as is consistent
with prudent investment management.
Merrill Lynch Pacific Fund, Inc. .. Capital appreciation by investing in eq-
uity securities of corporations domi-
ciled in Far Eastern and Western Pacific
countries, including Japan, Australia,
Hong Kong and Singapore.
Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and Pennsylvania income
taxes as is consistent with prudent in-
vestment management through investment
in a portfolio of intermediate-term in-
vestment grade Pennsylvania Municipal
Bonds.
Merrill Lynch Phoenix Fund, Inc. .. Long-term growth of capital by investing
in equity and fixed income securities,
including tax-exempt securities, of is-
suers in weak financial condition or ex-
periencing poor operating results be-
lieved to be undervalued relative to the
current or prospective condition of such
issuer.
Merrill Lynch Quality Bond
Portfolio (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as custodian)..
A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide a high
level of current income through invest-
ment in a diversified portfolio of debt
obligations, such as corporate bonds and
notes, convertible securities, preferred
stocks and governmental obligations.
41
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Merrill Lynch Short-Term Global
Income Fund, Inc. ................
As high a level of current income as is
consistent with prudent investment man-
agement from a global portfolio of high-
quality debt securities denominated in
various currencies and multi-national
currency units and having remaining ma-
turities not exceeding three years.
Merrill Lynch Special Value
Fund, Inc. .......................
Long-term growth of capital from invest-
ments in securities, primarily common
stocks, of relatively small companies
believed to have special investment
value and emerging growth companies re-
gardless of size.
Merrill Lynch Strategic
Dividend Fund.....................
Long-term total return from investment in
dividend paying common stocks which
yield more than Standard & Poor's 500
Composite Stock Price Index.
Merrill Lynch Technology Fund,
Inc. ............................. Capital appreciation through worldwide
investment in equity securities of com-
panies that derive or are expected to
derive a substantial portion of their
sales from products and services in
technology.
Merrill Lynch Texas Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal in-
come taxes as is consistent with prudent
investment management by investing pri-
marily in a portfolio of long-term, in-
vestment grade obligations issued by the
State of Texas, its political subdivi-
sions, agencies and instrumentalities.
Merrill Lynch U.S. Government
Securities Portfolio (available
only for exchanges by certain
individual retirement accounts
for which Merrill Lynch acts as
custodian)...................
A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide a high
current return through investments in
U.S. Government and government agency
securities, including GNMA mortgage-
backed certificates and other mortgage-
backed government securities.
42
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Merrill Lynch Utility Income
Fund, Inc. .......................
High current income through investment in
equity and debt securities issued by
companies which are primarily engaged in
the ownership or operation of facilities
used to generate, transmit or distribute
electricity, telecommunications, gas or
water.
Merrill Lynch World Income
Fund, Inc. .......................
High current income by investing in a
global portfolio of fixed income securi-
ties denominated in various currencies,
including multinational currency units.
Class A Share Money Market Funds:
Merrill Lynch Ready Assets Trust...
Preservation of capital, liquidity and
the highest possible current income con-
sistent with the foregoing objectives
from the short-term money market securi-
ties in which the Fund invests.
Merrill Lynch Retirement Reserves
Money Fund (available only if the
exchange occurs within certain
retirement plans).................
Currently the only portfolio of Merrill
Lynch Retirement Series Trust, a series
fund, whose objectives are to provide
current income, preservation of capital
and liquidity available from investing
in a diversified portfolio of short-term
money market securities.
Merrill Lynch U.S.A.
Government Reserves...............
Preservation of capital, current income
and liquidity available from investing
in direct obligations of the U.S. Gov-
ernment and repurchase agreements relat-
ing to such securities.
Merrill Lynch U.S. Treasury
Money Fund........................
Preservation of capital, liquidity and
current income through investment exclu-
sively in a diversified portfolio of
short-term marketable securities which
are direct obligations of the U.S. Trea-
sury.
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Class B, Class C and Class D Share Money Market Funds:
Merrill Lynch Government Fund...... A portfolio of Merrill Lynch Funds For
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and se-
curity of principal from investment in
securities issued or guaranteed by the
U.S. Government, its agencies and
instrumentalities and in repurchase
agreements secured by such obligations.
43
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Merrill Lynch Institutional Fund... A portfolio of Merrill Lynch Funds For
Institutions Series, a series fund,
whose objective is to provide maximum
current income consistent with liquidity
and the maintenance of a high quality
portfolio of money market securities.
Merrill Lynch Institutional
Tax-Exempt Fund...................
A portfolio of Merrill Lynch Funds For
Institutions Series, a series fund,
whose objective is to provide current
income exempt from Federal income taxes,
preservation of capital and liquidity
available from investing in a diversi-
fied portfolio of short-term, high qual-
ity municipal bonds.
Merrill Lynch Treasury Fund........ A portfolio of Merrill Lynch Funds For
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and se-
curity of principal from investment in
direct obligations of the U.S. Treasury
and up to 10% of its total assets in
repurchase agreements secured by such
obligations.
|
Before effecting an exchange, shareholders should obtain a currently effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their Merrill Lynch financial consultant, who will advise the Fund of the exchange. Shareholders of the Fund, and shareholders of the other funds described above with shares for which certificates have not been issued, may exercise the exchange privilege by wire through their securities dealers. The Fund reserves the right to require a properly completed Exchange Application. This exchange privilege may be modified or terminated at any time in accordance with the rules of the Commission. The Fund reserves the right to limit the number of times an investor may exercise the exchange privilege. Certain funds may suspend the continuous offering of their shares to the general public at any time and may thereafter resume such offering from time to time. The exchange privilege is available only to U.S. shareholders in states where the exchange legally may be made.
DISTRIBUTIONS AND TAXES
The Trust intends to continue to qualify the Fund for the special tax treatment afforded regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Code"). If it so qualifies, in any taxable year in which it distributes at least 90% of its taxable net income and 90% of its tax-exempt net income (see below), the Fund (but not its shareholders) will not be subject to Federal income tax to the extent that it distributes its net investment income and net realized capital gains. The Trust intends to cause the Fund to distribute substantially all of such income.
As discussed in the Fund's Prospectus, the Trust has established other series in addition to the Fund (together with the Fund, the "Series"). Each Series of the Trust is treated as a separate corporation for Federal income tax purposes. Each Series therefore is considered to be a separate entity in determining its treatment under the rules for RICs described in the Prospectus. Losses in one Series do not offset gains in another Series, and the requirements (other than certain organizational requirements) for qualifying for RIC status are determined for each Series at the Series level rather than at the Trust level.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined, in general, on an October 31 year-end, plus certain undistributed amounts from previous years. The required distributions, however, are based only on the taxable income of a RIC. The excise tax, therefore, generally will not apply to the tax-exempt income of a RIC, such as the Fund, that pays exempt-interest dividends.
The Trust intends to qualify the Fund 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 the Fund's taxable year, at least 50% of the value of its
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 shall be qualified
to pay exempt-interest dividends to its Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). Exempt-interest dividends are
dividends or any part thereof paid by the Fund which are attributable to
interest on tax-exempt obligations and designated by the Trust as exempt-
interest dividends in a written notice mailed to the Fund's shareholders within
60 days after the close of the Fund's taxable year. For this purpose, the Fund
will allocate interest from tax-exempt obligations (as well as ordinary income,
capital gains and tax preference items, discussed below) among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Commission's exemptive order permitting the
issuance and sale of multiple classes of shares) that is based on the gross
income allocable to Class A, Class B, Class C and Class D shareholders during
the taxable year or such other method as the Internal Revenue Service may
prescribe. To the extent that the dividends distributed to the Fund's
shareholders are derived from interest income exempt from Federal income tax
under Code Section 103(a) and are properly designated as exempt-interest
dividends, they will be excludable from a shareholder's gross income for
Federal income tax purposes. Exempt-interest dividends are included, however,
in determining the portion, if any, of a person's social security benefits and
railroad retirement benefits subject to Federal income taxes. Interest on
indebtedness incurred or continued to purchase or carry shares of a RIC paying
exempt-interest dividends, such as the Fund, will not be deductible by the
investor for Federal income tax purposes to the extent attributable to exempt-
interest dividends. Shareholders are advised to consult their tax advisers with
respect to whether exempt-interest dividends retain the exclusion under Code
Section 103(a) if a shareholder would be treated as a "substantial user" or
"related person" under Code Section 147(a) with respect to property financed
with the proceeds of an issue of "industrial development bonds" or "private
activity bonds", if any, held by the Fund.
The portion of the Fund's exempt-interest dividends paid from interest received by the Fund from Pennsylvania Municipal Bonds also will be exempt from Pennsylvania personal income tax. However, distributions attributable to capital gains derived by the Fund as well as distributions derived from income from investments other than Pennsylvania Municipal Bonds will be taxable for purposes of the Pennsylvania
personal income tax. In the case of residents of the City of Philadelphia, distributions which are derived from interest on Pennsylvania Municipal Bonds or which are designated as capital gain dividends for Federal income tax purposes will be exempt from the Philadelphia School District investment income tax. Shares of the Fund will be exempt from Pennsylvania county personal property taxes to the extent the Fund's portfolio securities consist of Pennsylvania Municipal Bonds on the annual assessment date. Shareholders subject to income taxation by states other than Pennsylvania will realize a lower after tax rate of return than Pennsylvania shareholders since the dividends distributed by the Fund generally will not be exempt, to any significant degree, from income taxation by such other states. The Trust will inform shareholders annually regarding the portion of the Fund's distributions which constitutes exempt-interest dividends and the portion which is exempt from Pennsylvania personal income taxes. The Fund will allocate amounts exempt from Pennsylvania personal income taxes among Class A, Class B, Class C and Class D shareholders based on a method similar to that described above for Federal income tax purposes.
It is unclear at this time whether an investment in the Fund by a corporate shareholder will qualify as an exempt asset for purposes of apportionment of the Pennsylvania capital stock/franchise tax. To the extent exempt-interest dividends are excluded from taxable income for Federal corporate income tax purposes (determined before net operating loss carryovers and special deductions), they will not be subject to the Pennsylvania corporate net income tax. An investment in or distributions from investment income and capital gains of the Fund, including exempt-interest dividends, may be subject to state taxes in states other than Pennsylvania (and, possibly, in Pennsylvania) and to local taxes imposed by municipalities in states other than Pennsylvania (and, possibly, municipalities in Pennsylvania). Accordingly, investors in the Fund, including, in particular, corporate investors which may be subject to the Pennsylvania capital stock/franchise tax, should consult their tax advisers with respect to the application of such taxes to an investment in the Fund, to the receipt of Fund dividends and to their Pennsylvania tax situation in general.
To the extent that the 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 ordinary income for Federal income tax purposes. Distributions, if any, from an excess of net long-term capital gains over net short-term capital losses derived from the sale of securities or from certain transactions in futures or options ("capital gain dividends") are taxable as long-term capital gains for Federal income tax purposes, regardless of the length of time the shareholder has owned Fund shares. Distributions by the Fund, whether from exempt-interest income, ordinary income or capital gains, will not be eligible for the dividends received deduction allowed to corporations under the Code.
All or a portion of the 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 shareholders. Any loss upon the sale or exchange of Fund shares held for six months or less will be treated as long-term capital loss to the extent of capital gain dividends received by the shareholder. In addition, such loss will be disallowed to the extent of any exempt-interest dividends received by the shareholder. Distributions in excess of the Fund's earnings and profits will first 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 the Fund pays a dividend in January which was declared in the previous October, November or December to shareholders of record on a specified date in one of such months, then such dividend will be treated for tax purposes as being paid by the Fund and received by its shareholders on December 31 of the year in which such dividend was declared.
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 shareholders of the Fund, to an alternative minimum tax. The Fund will purchase such "private activity bonds" and the Trust will report to shareholders within 60 days after the Fund's taxable year-end the portion of the Fund's 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 the Fund will be included in adjusted current earnings, a corporate shareholder may be required to pay alternative minimum tax on exempt-interest dividends paid by the Fund.
No gain or loss will be recognized for federal income tax purposes by Class B shareholders on the conversion of their Class B shares into Class D shares. A shareholder's basis in the Class D shares acquired will be the same as such shareholder's basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring the shares, then the loss the shareholder can recognize on the exchange will be reduced (or the gain increased) to the extent any sales charge paid to the Fund on the exchanged shares reduces any sales charge such shareholder would have owed upon purchase of the new shares in the absence of the exchange privilege. Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be disallowed if other Fund shares are acquired (whether through the automatic reinvestment of dividends 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.
Ordinary income dividends paid to shareholders who are nonresident aliens or foreign entities will be subject to a 30% U.S. withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident shareholders are urged to consult their own tax advisers concerning the applicability of the U.S. withholding tax.
Under certain Code provisions, some shareholders may be subject to a 31% withholding tax on certain ordinary income dividends and on capital gain dividends and redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Trust or who, to the Trust'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 investor is not otherwise subject to backup withholding.
The Code provides that every person 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 Fund) during the taxable year.
ENVIRONMENTAL TAX
The Code imposes a deductible tax (the "Environmental Tax") on a corporation's modified alternative minimum taxable income (computed without regard to the alternative tax net operating loss deduction and the deduction for the Environmental Tax) at a rate of $12 per $10,000 (0.12%) of alternative minimum taxable income in excess of $2,000,000. The Environmental Tax is imposed for taxable years beginning after December 31, 1986 and before January 1, 1996. The Environmental Tax is imposed even if the corporation is not required to pay an alternative minimum tax because the corporation's regular income tax liability exceeds its minimum tax liability. The Code provides, however, that a RIC, such as the Fund, is not subject to the Environmental Tax. However, exempt-interest dividends paid by the Fund that create alternative minimum taxable income for corporate shareholders (as described above) may subject corporate shareholders of the Fund to the Environmental Tax.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase or sell municipal bond index futures contracts and interest rate futures contracts on U.S. Government securities ("financial futures contracts"). The Fund may also purchase and write call and put options on such financial futures contracts. In general, unless an election is available to the Fund or an exception applies, such options and financial futures contracts that are "Section 1256 contracts" will be "marked to market" for Federal income tax purposes at the end of each taxable year, i.e., each such option or financial futures contract will be treated as sold for its market value on the last day of the taxable year and any gain or loss attributable to Section 1256 contracts will be 60% long-term and 40% short-term capital gain or loss. Application of these rules to Section 1256 contracts held by the Fund may alter the timing and character of distributions to shareholders. The mark-to-market rules outlined above, however, will not apply to certain transactions entered into by the Fund solely to reduce the risk of changes in price or interest rates with respect to its investments.
Code Section 1092, which applies to certain "straddles", may affect the taxation of the Fund's transactions in financial futures contracts and related options. Under Section 1092, the Fund may be required to postpone recognition for tax purposes of losses incurred in certain closing transactions in financial futures contracts or the related options.
One of the requirements for qualification as a RIC is that less than 30% of the Fund's gross income be derived from gains from the sale or other disposition of securities held for less than three months. Accordingly, the Fund may be restricted in effecting closing transactions within three months after entering into an option or financial futures contract.
PENNSYLVANIA TAXATION
Under present Pennsylvania law, the Fund, as presently configured, is not subject to Pennsylvania income taxes or Pennsylvania county personal property taxes.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code, Treasury regulations and applicable Pennsylvania income tax laws presently in effect. For the complete provisions, reference should be made to the pertinent Code sections, the Treasury regulations promulgated thereunder and the applicable Pennsylvania tax laws. The Code and the Treasury regulations, as well as the Pennsylvania income tax laws, are subject to change by legislative, judicial or administrative action either prospectively or retroactively.
Shareholders are urged to consult their own tax advisers regarding the availability of any exemptions from state or local taxes (other than those imposed by Pennsylvania) and with specific questions as to Federal, foreign, state or local taxes.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and other total return data, as well as yield and tax-equivalent yield in advertisements or information furnished to present or prospective shareholders. From time to time, the Fund may include the Fund's Morningstar risk-adjusted performance ratings in advertisements or supplemental sales literature. Total return, yield and tax-equivalent yield figures are based on the Fund's historical performance and are not intended to indicate future performance. Average annual total return, yield and tax-equivalent yield are determined separately for Class A, Class B, Class C and Class D shares in accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods are computed by finding the average annual compounded rates of return (based on net investment income and any realized and unrealized capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each period. Average annual total return is computed assuming all dividends and distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses, including the maximum sales charge in the case of the Class A and Class D shares and the CDSC that would be applicable to a complete redemption of the investment at the end of the specified period in the case of the Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return and aggregate total return performance data, both as a percentage and as a dollar amount based on a hypothetical $1,000 investment, for various periods other than those noted below. Such data will be computed as described above, except that (1) as required by the periods of the quotations, actual annual, annualized or aggregate data, rather than average annual data, may be quoted and (2) the maximum applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the impact on the performance data calculations of including or excluding the maximum applicable sales charges, actual annual or annualized total return data generally will be lower than average annual total return data since the average rates of return reflect compounding of return; aggregate total return data generally will be higher than average annual total return data since the aggregate rates of return reflect compounding over a longer period of time.
Set forth below is total return, yield and tax-equivalent yield information for the Class A, Class B, Class C and Class D shares of the Fund for the periods indicated.
CLASS A SHARES CLASS B SHARES CLASS C SHARES* CLASS D SHARES*
-------------------------- ---------------------------- -------------------------- ----------------------------
REDEEMABLE REDEEMABLE REDEEMABLE REDEEMABLE
EXPRESSED AS VALUE OF A EXPRESSED AS A VALUE OF A EXPRESSED AS VALUE OF A EXPRESSED AS A VALUE OF A
A PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL A PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT
$1,000 AT THE END OF $1,000 AT THE END OF $1,000 AT THE END OF $1,000 AT THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
------ ------------ ------------- -------------- ------------- ------------ ------------- -------------- -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGE)
One year ended
July 31, 1995... 2.28% $1,022.80 2.00% $1,020.00
Inception
(August 31,
1990) to July
31, 1995........ 7.58% $1,432.60 7.94% $1,455.80
Inception
(October 21,
1994) to July
31, 1995........ 8.90% $1,068.30 5.22% $1,040.20
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGE)
Year ended July
31, 1995........ 6.54% $1,065.40 6.00% $1,060.00
Year ended July
31, 1994........ 2.37% $1,023.70 1.86% $1,018.60
Year ended July
31, 1993........ 9.30% $1,093.00 8.75% $1,087.50
Year ended July
31, 1992........ 14.53% $1,145.30 13.94% $1,139.40
Inception
(August 31,
1990) to July
31, 1991........ 9.30% $1,093.00 8.81% $1,088.10
Inception
(October 21,
1994) to July
31, 1995........ 7.83% $1,078.30 8.36% $1,083.60
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGE)
Inception
(August 31,
1990) to July
31, 1995........ 43.26% $1,432.60 45.58% $1,455.80
Inception
(October 21,
1994) to July
31, 1995........ 6.83% $1,068.30 4.02% $1,040.20
YIELD
30 days ended
July 31, 1995... 5.01% 4.71% 4.60% 4.92%
TAX EQUIVALENT YIELD**
30 days ended
July 31, 1995... 6.96% 6.54% 6.39% 6.83%
|
* Information as to Class C and Class D shares is presented only for the period October 21, 1994 (commencement of operations) to July 31, 1995. Prior to October 21, 1994, no Class C or Class D shares had been publicly issued.
** Based on a Federal income tax rate of 28%.
In order to reflect the reduced sales charges in the case of Class A or Class D shares or the waiver of the CDSC in the case of Class B or Class C shares applicable to certain investors, as described under "Purchase of Shares" and "Redemption of Shares," respectively, the total return data quoted by the Fund in advertisements directed to such investors may take into account the reduced, and not the maximum, sales charge or may take into account the contingent deferred sales charge and therefore may reflect greater total return since, due to the reduced sales charge or the waiver of sales charges, a lower amount of expenses is deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust provides that the Trust shall be comprised of separate Series each of which will consist of a separate portfolio which will issue separate shares. The Trust is presently comprised of the Fund, Merrill Lynch Arizona Municipal Bond Fund, Merrill Lynch Arkansas Municipal Bond Fund, Merrill Lynch Colorado Municipal Bond Fund, Merrill Lynch Connecticut Municipal Bond Fund, Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch Maryland Municipal Bond Fund, Merrill Lynch Massachusetts Municipal Bond Fund, Merrill Lynch Michigan Municipal Bond Fund, Merrill Lynch Minnesota Municipal Bond Fund, Merrill Lynch New Mexico Municipal Bond Fund, Merrill Lynch New Jersey Municipal Bond Fund, Merrill Lynch New York Municipal Bond Fund, Merrill Lynch North Carolina Municipal Bond Fund, Merrill Lynch Ohio Municipal Bond Fund, Merrill Lynch Oregon Municipal Bond Fund and Merrill Lynch Texas Municipal Bond Fund. The Trustees are authorized to create an unlimited number of Series and, with respect to each Series, to issue an unlimited number of full and fractional shares of beneficial interest, par value of $.10 per share, of different classes and to divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interests in the Series. Shareholder approval is not necessary for the authorization of additional Series or classes of a Series of the Trust. At the date of this Statement of Additional Information, the shares of the Fund are divided into Class A, Class B, Class C and Class D shares. Class A, Class B, Class C and Class D shares represent interests in the same assets of the Fund and are identical in all respects except that the Class B, Class C and Class D shares bear certain expenses related to the account maintenance and/or distribution of such shares and have exclusive voting rights with respect to matters relating to such account maintenance and/or distribution expenditures. The Trust has received an order (the "Order") from the Commission permitting the issuance and sale of multiple classes of shares. The Order permits the Trust to issue additional classes of shares of any Series if the Board of Trustees deems such issuance to be in the best interest of the Trust. The Board of Trustees of the Trust may classify and reclassify the shares of any Series into additional classes at a future date.
All shares of the Trust have equal voting rights, except that only shares of the respective Series are entitled to vote on matters concerning only that Series and, as noted above, Class B, Class C and Class D shares have exclusive voting rights with respect to matters relating to the account maintenance and/or distribution expenses being borne solely by such class. Each issued and outstanding share is entitled to one vote and to participate equally in dividends and distributions declared by the Fund and in the net assets of such Series upon liquidation or dissolution remaining after satisfaction of outstanding liabilities, except that, as noted above, expenses related to the account maintenance and/or distribution of the Class B, Class C and
Class D shares are borne solely by such class. There normally will be no meetings of shareholders for the purposes of electing Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. Shareholders may, in accordance with the terms of the Declaration of Trust, cause a meeting of shareholders to be held for the purpose of voting on the removal of Trustees. Also, the Trust will be required to call a special meeting of shareholders in accordance with the requirements of the 1940 Act to seek approval of new management and advisory arrangements, of a material increase in distribution fees, or of a change in the fundamental policies, objectives or restrictions of a Series.
The obligations and liabilities of a particular Series are restricted to the assets of that Series and do not extend to the assets of the Trust generally. The shares of each Series, when issued, will be fully paid and nonassessable, have no preference, preemptive, conversion, exchange or similar rights, and are freely transferable. Holders of shares of any Series are entitled to redeem their shares as set forth elsewhere herein and in the Prospectus. Shares do not have cumulative voting rights and the holders of more than 50% of the shares of the Trust voting for the election of Trustees can elect all of the Trustees if they choose to do so and in such event the holders of the remaining shares would not be able to elect any Trustees. No amendments may be made to the Declaration of Trust without the affirmative vote of a majority of the outstanding shares of the Trust.
The Manager provided the initial capital for the Fund by purchasing 10,000 shares of the Fund for $100,000. Such shares were acquired for investment and can only be disposed of by redemption. The organizational expenses of the Fund (estimated at approximately $81,100) were paid by the Fund and are amortized over a period not exceeding five years. The proceeds realized by the Manager upon the redemption of any of the shares initially purchased by it will be reduced by the proportionate amount of unamortized organizational expenses which the number of shares redeemed bears to the number of shares initially purchased. Such organizational expenses include certain of the initial organizational expenses of the Trust which have been allocated to the Fund by the Trustees. If additional Series are added to the Trust, the organizational expenses will be allocated among the Series in a manner deemed equitable by the Trustees.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class B, Class C and Class D shares of the Fund based on the value of the Fund's net assets and number of shares outstanding on July 31, 1995 is calculated as set forth below.
CLASS A CLASS B CLASS C CLASS D
----------- ------------ ---------- ----------
Net Assets...................... $23,040,067 $123,260,463 $1,867,794 $2,629,576
=========== ============ ========== ==========
Number of Shares Outstanding.... 2,081,959 11,138,512 168,748 237,400
=========== ============ ========== ==========
Net Asset Value Per Share (net
assets divided by number of
shares outstanding)............ $ 11.07 $ 11.07 $ 11.07 $ 11.08
Sales Charge (for Class A and
Class D shares: 4.00% of offer-
ing price (4.17% of net asset
value per share))*............. .46 ** ** .46
----------- ------------ ---------- ----------
Offering Price.................. $ 11.53 $ 11.07 $ 11.07 $ 11.54
=========== ============ ========== ==========
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** Class B and Class C shares are not subject to an initial sales charge but may be subject to a CDSC on redemption of shares. See "Purchase of Shares-- Deferred Sales Charge Alternatives--Class B and Class C Shares" in the Prospectus.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400, has been selected as the independent auditors of the Fund. The independent auditors are responsible for auditing the annual financial statements of the Fund.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts 02101, acts as the custodian of the Fund's assets. The custodian is responsible for safeguarding and controlling the Fund's cash and securities, handling the delivery of securities and collecting interest on the Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484, acts as the Trust's transfer agent. The Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening, maintenance and servicing of shareholder accounts. See "Management of the Trust--Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is counsel for the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on July 31 of each year. The Trust sends to shareholders of the Fund at least semi-annually reports showing the Fund's portfolio and other information. An annual report, containing financial statements audited by independent auditors, is sent to shareholders each year. After the end of each year shareholders will receive Federal income tax information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain all the information set forth in the Registration Statement and the exhibits relating thereto, which the Trust has filed with the Securities and Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the Investment Company Act of 1940, to which reference is hereby made.
The Declaration of Trust establishing the Trust dated August 2, 1985, a copy of which, together with all amendments thereto (the "Declaration") is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name "Merrill Lynch Multi-State Municipal Series Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the Trust shall be held to any personal liability; nor shall resort be had to their private property for the satisfaction of any obligation or claim of the Trust but the "Trust Property" only shall be liable.
To the knowledge of the Trust, no person or entity owned beneficially 5% or more of the Fund's shares on November 10, 1995.
APPENDIX I
ECONOMIC AND FINANCIAL CONDITIONS IN PENNSYLVANIA
The following information is a brief summary of factors affecting the economy of the Commonwealth 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 Commonwealth issuers; however, it has not been updated nor will it be updated during the year. The Trust has not independently verified the information.
Many factors affect the financial condition of the Commonwealth of Pennsylvania (also referred to as the "Commonwealth") and its political subdivisions, such as social, environmental and economic conditions, many of which are not within the control of such entities. Pennsylvania and certain of its counties, cities and school districts and public bodies have from time to time in the past encountered financial difficulties which have adversely affected their respective credit standings. Such difficulties could affect outstanding obligations of such entities, including obligations held by the Fund. For example, the financial condition of the City of Philadelphia had impaired its ability to borrow and resulted in its obligations generally being downgraded by the major rating services (Moody's, Standard & Poor's and Fitch) in some cases below investment grade.
The General Fund, the Commonwealth's largest fund, receives all tax revenues, non-tax revenues and Federal grants and entitlements that are not specified by law to be deposited elsewhere. The majority of the Commonwealth's operating and administrative expenses are payable from the General Fund. Debt service on all bonded indebtedness of the Commonwealth, except that issued for highway purposes or for the benefit of other special revenue funds, is payable from the General Fund.
The five year period from fiscal 1990 through fiscal 1994 was marked by public health and welfare costs growing at a rate double the growth rate for all state expenditures. During this period, public health and welfare costs rose by an average annual rate of 9.4% while tax revenues were growing at an average annual rate of 5.8%. Consequently, spending on other budget programs was restrained to a growth rate of 4.7% and sources of revenues other than taxes (including transfers from other Commonwealth funds and hospital and nursing home pooling of contributions to use as federal matching funds) became larger components of fund revenues.
Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth reported an increase in the fiscal year-end unappropriated balance. The fiscal 1995 unappropriated surplus (prior to reserves for transfer to the Tax Stabilization Fund) was $540 million, an increase of $204.2 million over the fiscal 1994 unappropriated surplus (prior to transfers). Commonwealth revenues were $16,224.6 million, 2.9% above the estimate of revenues used at the time the budget was enacted. The higher than estimated revenues from tax sources were due to faster economic growth in the national and state economy than had been projected when the budget was adopted. Expenditures from Commonwealth revenues (excluding pooled financing expenditures), including $65.5 million of supplemental appropriations enacted at the close of the 1995 fiscal year, totaled $15.67 billion, representing an increase of 5% over spending during fiscal 1994.
The enacted fiscal 1996 budget provides for expenditures from Commonwealth revenues of $16.16 billion, a 2.7% increase over total appropriations from Commonwealth revenues in fiscal 1995. The fiscal
1996 budget is based on anticipated Commonwealth revenues, net of enacted tax changes but prior to tax refunds, of $16.27 billion, an increase over actual fiscal 1995 Commonwealth revenues of .3%. Excluding the estimated effects of the tax changes enacted in 1994 and 1995, Commonwealth revenues for fiscal 1996 are estimated to increase by approximately 2.9%. Tax changes (reductions) enacted with the fiscal 1996 budget totaled $282.9 million, representing an approximate 1.7% of base revenues. The largest dollar value changes were in the corporate net income tax where the scheduled 1997 reduction of the tax rate to 9.99% was accelerated to the 1995 tax year; a double weighting was provided for the sales factor of the corporate net income tax apportionment calculation; and the maximum allowance for the net operating loss deduction was increased from $500,000 to $1 million. The fiscal 1996 cost of these corporate net income tax changes is estimated to be $210.8 million. Other major components of the tax reduction include a $12.1 million decrease for the capital stock and franchise tax from an increase in the exemption amount; $24.7 million from the repeal of the tax on annuities; and $27.9 million from an acceleration of the scheduled phase-out of the inheritance tax on transfers of certain property to a surviving spouse. A 90 day amnesty program was also authorized in the tax bill and will be available to taxpayers from mid-October 1995 through mid-January 1996.
The economy of Pennsylvania is composed of many diverse sectors including manufacturing, mining, agriculture, services and wholesale and retail trade. Certain industries traditionally strong in the Commonwealth, such as coal, steel and railways, have declined and account for a decreasing share of total employment. Service industries (including trade, health care, education and finance) have grown, however, contributing increasingly to Pennsylvania's economy and now exceed the manufacturing section as the largest single source of employment.
Nonagricultural employment in the Commonwealth declined by 5.1% during the recessionary period from 1980 to 1983. In 1984, the declining trend was reversed as employment grew by 2.9% over 1983 levels. From 1983 to 1990, Commonwealth employment continued to grow each year, increasing an additional 14.3%. For the last three years, employment in the Commonwealth has increased 2.0%. The unemployment rate in Pennsylvania in September, 1995 stood at a seasonally adjusted rate of 6.4%. The seasonally adjusted national unemployment rate for September, 1995 was 5.6%.
The current Constitutional provisions pertaining to Commonwealth debt permit
the issuance of the following types of debt: (i) debt to suppress insurrection
or rehabilitate areas affected by disaster, (ii) electorate-approved debt,
(iii) debt for capital projects subject to an aggregate debt limit of 1.75
times the annual average tax revenues of the preceding five fiscal years and
(iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Debt service on all bonded indebtedness of Pennsylvania, except that issued for highway purposes or the benefit of other special revenue funds, is payable from Pennsylvania's General Fund, which receives all Commonwealth revenues that are not specified by law to be deposited elsewhere. As of June 30, 1995, the Commonwealth had $5.05 million of general obligation debt outstanding.
Other state-related obligations include "moral obligations". Moral obligation indebtedness may be issued by the Pennsylvania Housing Finance Agency ("PHFA"), a state agency which provides financing for housing for lower and moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of Philadelphia to, among other things, acquire and prepare various sites for use as intermediate care facilities for the mentally retarded. PHFA's bonds, but not its notes, are partially secured by a capital reserve fund required to be maintained by PHFA in an amount equal to the maximum annual debt service on its outstanding bonds in any succeeding calendar year. PHFA is not permitted to borrow additional funds as long as any deficiency exists in the capital reserve fund.
Certain state-created agencies have statutory authorization to incur debt for which state appropriations to pay debt service thereon is not required. The debt of these agencies is supported by assets of, or revenues derived from, the various projects financed and is not an obligation of the Commonwealth. Some of these agencies, however, are indirectly dependent on Pennsylvania appropriations. In addition, the Commonwealth maintains pension plans covering state employees, public school employees and employees of certain state-related organizations. For their fiscal years ended in 1994 the State Employees' Retirement System had a $249 million surplus and the Public School Employees' Retirement System had a total unfunded actuarial accrued liability of $3.8 billion.
The City of Philadelphia is the largest city in the Commonwealth with an estimated population of 1,585,577 according to the 1990 Census. Legislation providing for the establishment of Pennsylvania Intergovernmental Cooperation Authority ("PICA") to assist Philadelphia in remedying fiscal emergencies was enacted by the Pennsylvania General Assembly and approved by the Governor in June, 1991. PICA is designed to provide assistance through the issuance of funding debt and to make factual findings and recommendations to Philadelphia concerning its budgetary and fiscal affairs. At this time, Philadelphia is operating under a five year fiscal plan approved by PICA on April 17, 1995, as modified in July 1995.
To date, PICA has issued $1.42 billion of its Special Tax Revenue Bonds. This financial assistance has included the refunding of certain general obligation bonds, funding of capital projects and the liquidation of the cumulative General Fund balance deficit as of June 30, 1992 of $224.9 million. The audited General Fund balance of Philadelphia as of June 30, 1994 reflects a surplus of approximately $15.4 million, up from approximately $3 million as of June 30, 1993. Preliminary unaudited financial statements as of June 30, 1995 project a surplus approximating $59.6 million.
There is various litigation pending against the Commonwealth, its officers and employees. In 1978, the Pennsylvania General Assembly approved a limited waiver of sovereign immunity. Damages for any loss are limited to $250,000 for each person and $1 million for each accident. The Supreme Court held that this limitation is constitutional. Approximately 3,500 suits against the Commonwealth are pending.
The following are among the cases with respect to which the Office of Attorney General and the Office of General Counsel have determined that an adverse decision may have a material effect on government operations of the Commonwealth:
Baby Neal v. Commonwealth, et al.
In 1990, the American Civil Liberties Union and other various named plaintiffs filed an action against the Commonwealth in Federal court seeking an order that would require the Commonwealth to provide additional funding for child welfare services. No figures for the amount of funding sought are available.
However, a similar lawsuit filed in the Commonwealth Court of Pennsylvania was resolved through a court approved settlement which provides, among other things, for Commonwealth funding for such services in fiscal year 1991 and a commitment to pay Pennsylvania counties $30 million over five years. In December 1994, the Third Circuit Court of Appeals reversed the District Court's denial of the plaintiff's motion for class certification with respect to the interests of 16 minor plaintiffs. As a result, the District Court has recently certified the class and the parties have resumed discovery.
County of Allegheny v. Commonwealth of Pennsylvania
On December 7, 1987, the Supreme Court of Pennsylvania held that the statutory scheme for county funding of the judicial system is in conflict with the Pennsylvania Constitution. However, judgment was stayed in order to afford the General Assembly an opportunity to enact appropriate funding legislation consistent with its opinion. Since that time, the Supreme Court has denied various actions and motions by several Pennsylvania municipalities to compel the Commonwealth to comply with the Supreme Court's 1987 decision or to restore funding for local courts and district justices to levels existing in 1987. On December 7, 1992, the State Association of County Commissioners filed a new action in mandamus seeking to compel the Commonwealth to comply with the Supreme Court's decision in County of Allegheny. The Commonwealth has filed a response in opposition to the new action and a request was made by the counties to continue the action until Spring, 1995. The Court has not apparently acted on the new action and the General Assembly has yet to consider legislation implementing the Supreme Court's decision.
Fidelity Bank v. Commonwealth of Pennsylvania
On November 30, 1989, Fidelity Bank, N.A. ("Fidelity") filed an action in challenging the constitutional validity of a 1989 amendment increasing the bank shares tax and related legislation. The Commonwealth Court ruled in favor of the Commonwealth finding no constitutional deficiencies in the tax increase, but invalidating one element of the legislation which provided a credit to new banks (the "new bank tax credit"). Fidelity, the Commonwealth and certain intervener banks appealed to the Pennsylvania Supreme Court. However, pursuant to a Settlement Agreement dated as of April 21, 1995, the Commonwealth agreed to enter a credit in favor of Fidelity in the amount of $4,100,000 in settlement of the constitutional and non-constitutional issues. The credit represents approximately 5% of the potential claim of Fidelity, had the constitutional issues been resolved in its favor.
Pursuant to a separate Settlement Agreement dated as of April 21, 1995, the Commonwealth also settled with the intervening banks with respect to issues concerning the new bank tax credit.
Notwithstanding the foregoing settlements, other banks have filed protective
petitions which are currently pending at the various administrative agencies
challenging the validity of the 1989 tax increase. At least one of those cases
- -- Mellon Bank, N.A. -- has progressed to Commonwealth Court. Based upon the
favorable decision of the Commonwealth Court on the constitutional issues in
the Fidelity Bank litigation and the terms of the settlement with Fidelity, the
Commonwealth does not expect that substantial liability remains with respect to
the remaining cases.
Pennsylvania Association of Rural and Small Schools (PARSS) v. Casey
In January 1991, the Association of Rural and Small Schools and several other parties filed a lawsuit against then Governor Robert P. Casey and former Secretary of Education, Donald M. Carroll challenging
the constitutionality of the Commonwealth system for funding local school districts. The litigation consists of two parallel cases, one in the Commonwealth Court of Pennsylvania and one in the United States District Court for the Middle District of Pennsylvania. The federal court case has been indefinitely stayed pending resolution of the state court case. The state court case is currently in the pre-trial discovery stage.
Austin v. Department of Corrections, et al.
In November 1990, the American Civil Liberties Union filed a class action lawsuit in the United States District Court for the Eastern District of Pennsylvania on behalf of inmate populations in various Pennsylvania correctional institutions, challenging the conditions of confinement and seeking injunctive relief. On January 17, 1995, the Court approved a Settlement Agreement between the parties, pursuant to which the Commonwealth paid $1.3 million in attorney's fees to the plaintiffs' attorneys, with an additional $100,000 to be paid upon dismissal of a preliminary injunction relating to certain health issues. The parties are presently complying with monitoring provisions outlined in the Settlement Agreement.
Scott v. Snider
In 1991, a consortium of public interest law firms filed a class action suit in the U.S. District Court for the Eastern District of Pennsylvania against various Commonwealth officers alleging that the Commonwealth had failed to comply with the 1989 federal mandate to provide and pay for early and periodic screening, diagnostic and treatment services for Medicaid-eligible children. If the federal court were to grant all of the relief requested, the Commonwealth would be obligated, among other things, to substantially revise the methods by which it presently identifies children in need of treatment and to expand the scope of services and treatment presently provided to such children, and to increase fees paid to pediatric providers. The Court had denied the plaintiffs' request to proceed as a class action and dismissed five of the eighteen plaintiff organizations from the case. On June 2, 1995, the Court approved the settlement reached by the parties.
Envirotest/Synterra Partners
Envirotest Systems Corporation, Envirotest Partners ("Envirotest") and the Commonwealth of Pennsylvania have entered into a Standstill Agreement pursuant to which the parties will proceed to discuss resolution of claims which Envirotest might have against the Commonwealth arising from the suspension of an emissions testing program. Under the program, Envirotest entered into a contract with the Commonwealth for the operation of emissions inspection facilities and, incident thereto, acquired land to construct approximately 85 such facilities. On May 10, 1995, Envirotest filed a Statement of Claim with the Pennsylvania Board of Claims, and filed a complaint with the Commonwealth Court on May 15, 1995, to preserve its position. In these pleadings, Envirotest alleges damages in excess of $350 million. The Office of General Counsel has been informed by representatives of Envirotest that it has expended approximately $200 million to date to acquire land and construct and maintain the inspection facilities.
Currently, Pennsylvania general obligation bonds are rated AA-- by Standard & Poor's and Fitch, and A1 by Moody's. There can be no assurance that the economic conditions on which these ratings are based will continue or that particular bond issues will not be adversely affected by changes in economic or political conditions.
APPENDIX II
RATINGS OF MUNICIPAL BONDS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payment 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 payment 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.
Bonds which are rated Ca represent obligations which are speculative
Ca in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
|
Note: 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: The four ratings of Moody's for short-term notes are MIG
1/VMIG1, MIG 2/VMIG2, MIG 3/VMIG3 and MIG 4/VMIG4; MIG 1/VMIG1 denotes "best
quality . . . strong protection by established cash flows"; MIG 2/VMIG2 denotes
"high quality" with ample margins of protection; MIG 3/VMIG3 notes are of
"favorable quality . . . but . . . lacking the undeniable strength of the
preceding grades"; MIG 4/VMIG4 notes are of "adequate quality . . .
[p]rotection commonly regarded as required of an investment security is
present . . . there is specific risk."
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa--judged to be the best quality, carry the smallest degree of investment risk; Aa-- judged to be of high quality by all standards; A--possess many favorable investment attributes and are to be considered as upper medium grade obligations; Baa--considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured.
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 well 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 ("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.
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 any 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 circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded to, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditor's rights.
AAA Debt rate "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 higher rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is 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.
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BB B CCC CC C
Debt rated "BB", "B", "CCC" and "CC" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligations. "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.
CI The rating "C" 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 CORPORATE BOND RATINGS
A Standard & Poor's corporate debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. Debt rated "AA" has a very strong capacity to pay interest and to repay principal and differs from the highest rated issues only in small degree. Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than a debt of a higher rated category. 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.
The ratings from "AA" to "BBB" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's Commercial Paper Rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from "A-1" for the highest quality obligations to "D" for the lowest. These categories are as follows:
A-1 This 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 plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
B Issues rated "B" are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period.
A Commercial Paper Rating is not a recommendation to purchase or sell a security. The ratings are based on current information furnished to Standard & Poor's by the issuer or obtained by Standard & Poor's
from other sources it considers reliable. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information.
A Standard & Poor's note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in 3 years or less will likely receive a note rating. Notes maturing beyond 3 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.
Unrated: Where no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuers belongs to a group of securities that is not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in Standard & Poor's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date information to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
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 ratings represent 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 operative performance of the issuer and any guarantor, as well as the political and economic 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 guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such 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 forseeable events.
AA Bonds considered to be investment grade and of very high 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.
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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 (UP ARROW) Stable (LEFT ARROW/RIGHT ARROW) Declining (DOWN ARROW) Uncertain (UP/DOWN ARROW) |
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.
FitchAlert: Ratings are placed on FitchAlert to notify investors of the
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designated as
"Positive" indicating a potential upgrade, "Negative" for
potential downgrade, or "Evolving" where ratings may be raised or
lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
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DESCRIPTION OF FITCH SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in determining the credit risk associated with a 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, the 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.
66
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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 Bonds are in default of interest and/or principal payments.
D 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.
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Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "DDD", "DD", or "D" categories.
DESCRIPTION OF FITCH INVESTMENT GRADE SHORT-TERM RATINGS
Fitch short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally 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 the "F-1+" and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could
cause these securities to be rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D Default. Issues carrying 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.
INS The symbol "INS" indicates that the rating is based on an
insurance policy or financial guaranty issued by an insurance
company.
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INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Pennsylvania Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust as of July 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 the four-year period then ended and for the period August 31, 1990 (commencement of operations) to July 31, 1991. 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 July 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, such financial statements and financial highlights present fairly, in all material respects, the financial position of Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust as of July 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
September 1, 1995
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Pennsylvania--95.3%
AAA Aaa $ 500 Allegheny County, Pennsylvania, Airport Revenue Bonds (Great
Pittsburgh International Airport), AMT, Series C, 8.25% due
1/01/2016 (c)(k) $ 552
Allegheny County, Pennsylvania, Hospital Development Authority
Revenue Bonds:
A1+ VMIG1++ 100 (Presbyterian Health Center), VRDN, Series C, 3.80% due
3/01/2020 (a)(c) 100
NR* A 2,000 (South Hills Health System), Series A, 6.50% due 5/01/2014 2,007
AAA Aaa 4,785 Allegheny County, Pennsylvania, IDA, Revenue Refunding Bonds
(Commercial Development MPB Association Project), 7.70% due
12/01/2013 (h) 5,808
AAA Aaa 475 Allegheny County, Pennsylvania, Institutional District Bonds,
UT, Series 18, 7.30% due 4/01/2009 (c) 519
NR* Aaa 510 Allegheny County, Pennsylvania, Residential Finance Authority,
S/F Mortgage Revenue Bonds, Series L, 7.50% due 6/01/2015 (e) 543
AAA Aaa 750 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue
Bonds, Series C, 6.50% due 12/01/2001 (d)(f) 828
Beaver County, Pennsylvania, IDA, PCR, Refunding:
A1+ P1 300 (Duquesne Light Company--Beaver Valley), VRDN, 3.80% due 8/01/2020 (a) 300
AAA Aaa 500 (Ohio Edison Project), Series A, 7.75% due 9/01/2024 (d) 559
AAA Aaa 1,750 Bethlehem, Pennsylvania, Water Authority, Revenue Refunding Bonds,
5.30% due 11/15/2017 (c) 1,604
A- A3 1,000 Bradford County, Pennsylvania, IDA, Solid Waste Disposal Revenue Bonds
(International Paper Company Projects), AMT, Series A, 6.60% due 3/01/2019 1,017
AAA Aaa 2,000 Bristol Township, Pennsylvania, School District, GO, Series A, 6.625%
due 2/15/2002 (c)(f) 2,246
A A3 500 Dauphin County, Pennsylvania, IDA, Water Development Revenue Bonds
(Dauphin Consolidated Water Supply), AMT, Series A, 6.90% due 6/01/2024 550
AAA Aaa 575 Delaware County, Pennsylvania, College Authority Revenue Bonds
(Haverford College), 7.375% due 11/15/2000 (c)(f) 662
A- NR* 2,350 Delaware County, Pennsylvania, Hospital Authority Revenue Bonds
(Riddle Memorial Hospital), 6.50% due 1/01/2022 2,344
A+ Aa3 1,000 Delaware County, Pennsylvania, IDA, Revenue Refunding Bonds (Resource
Recovery Project), Series A, 8.10% due 12/01/2013 1,054
A1 P1 200 Delaware County, Pennsylvania, IDA, Solid Waste Revenue Bonds (Scott
Paper Company), VRDN, Series A, 3.90% due 12/01/2018 (a) 200
Emmaus, Pennsylvania, General Authority Revenue Bonds, VRDN (a):
A1+ NR* 1,400 (Local Government), Series H, 3.90% due 3/01/2024 1,400
A1 NR* 900 Sub-Series B-10, 3.95% due 3/01/2024 900
A1 NR* 350 Sub-Series D-8, 3.95% due 3/01/2024 350
Erie County, Pennsylvania, IDA, PCR, Refunding (International
Paper Co.):
A- A3 1,000 7.15% due 9/01/2013 1,061
A- A3 425 Series A, 7.60% due 9/01/2010 458
AAA Aaa 1,155 Exeter Township, Pennsylvania, School District, GO, UT, 6.65% due
5/15/2010 (d) 1,219
A- NR* 4,990 Gettysburg, Pennsylvania, Municipal Authority, College Revenue
Refunding Bonds (Gettysburg College Project), 6.60% due 2/15/2012 5,213
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PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Pennsylvania Municipal Bond Fund's portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to) GO General Obligation Bonds HFA Housing Finance Agency IDA Industrial Development Authority IDR Industrial Development Revenue Bonds LT Limited Tax MVRICS Municipal Variable Rate Inverse Class Securities PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds S/F Single-Family UPDATES Unit Price Demand Adjustable Tax-Exempt Securities UT Unlimited Tax VHA Veteran's Housing Authority VRDN Variable Rate Demand Notes |
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Pennsylvania (continued)
AAA Aaa $ 2,960 Hollidaysburg, Pennsylvania, Area School District, Improvement Bonds,
UT, 6.50% due 6/01/2020 (b) $ 3,103
NR* Baa1 1,500 Latrobe, Pennsylvania, IDA, College Revenue Bonds (Saint Vincent
College Project), 6.75% due 5/01/2024 1,507
BBB+ NR* 2,000 Lebanon County, Pennsylvania, Good Samaritan Hospital Authority,
Revenue Refunding Bonds (Good Samaritan Hospital Project), 6% due
11/15/2018 1,769
Luzerne County, Pennsylvania, IDA, Exempt Facilities Revenue Refunding
Bonds (Pennsylvania Gas & Water Company Project), AMT, Series A:
BBB- Baa3 3,600 7.20% due 10/01/2017 3,677
AAA Aaa 2,000 7% due 12/01/2017 (b) 2,159
Montgomery County, Pennsylvania, Higher Education and Health Authority,
Hospital Revenue Bonds:
AAA Aaa 2,500 (Abington Hospital), MVRICS, Series A, 8.883% due 6/01/2011 (b)(i) 2,753
NR* NR* 225 (Jeanes Health System Project), 8.625% due 7/01/2000 (f) 269
NR* NR* 575 (Jeanes Health System Project), 8.75% due 7/01/2000 (f) 689
BBB NR* 1,435 (Northwestern Corporation), 7% due 6/01/2012 1,450
BBB+ NR* 1,250 (Pottstown Memorial Medical Center Project), 7.35% due 11/15/2005 1,304
BBB+ Baa2 2,665 Montgomery County, Pennsylvania, IDA, PCR, Refunding (Philadelphia
Electric Company), AMT, Series A, 7.60% due 4/01/2021 2,868
BBB+ NR* 475 Moon Transportation Authority, Pennsylvania, Highway Improvement
Revenue Bonds, 9.50% due 2/01/2016 521
A A2 3,000 New Morgan, Pennsylvania, IDA, Solid Waste Disposal Revenue Bonds
(New Morgan Landfill Company Inc. Project), AMT, 6.50% due 4/01/2019 3,013
AAA Aaa 3,300 North Penn, Pennsylvania, Water Authority Revenue Bonds, 7% due
11/01/2004 (d)(f) 3,779
AAA Aaa 4,000 North Wales, Pennsylvania, Water Authority Revenue Bonds, 7% due
11/01/2004 (d)(f) 4,631
BBB NR* 2,095 Northampton County, Pennsylvania, Higher Education Authority Revenue
Bonds (Moravian College), 8.20% due 6/01/2001 (f) 2,495
BBB NR* 1,500 Northeastern, Pennsylvania Hospital and Educational Authority,
University Revenue Refunding Bonds (Wilkes University), 5.625% due
10/01/2018 1,354
BBB- Baa 2,500 Pennsylvania Convention Center Authority, Revenue Refunding Bonds,
Series A, 6.75% due 9/01/2019 2,566
BBB- Baa2 1,500 Pennsylvania Economic Development Financing Authority, Exempt Facilities
Revenue Bonds (MacMillan Limited Partnership Project), AMT, 7.60%
due 12/01/2020 1,620
BBB+ Baa1 4,000 Pennsylvania Economic Development Financing Authority, Wastewater
Treatment Revenue Bonds (Sun Company Inc.--R&M Project), AMT,
Series A, 7.60% due 12/01/2024 4,322
Pennsylvania, HFA, RIB, AMT (i):
AA Aa 2,000 7.604% due 4/01/2025 1,837
AA Aa 1,000 Refunding, Series 1991-31C, 9.377% due 10/01/2023 1,060
NR* Aaa 2,000 Pennsylvania Intergovernmental Cooperative Authority, City of Philadelphia
Funding Program, Special Tax Revenue Bonds, 6.80% due 6/15/2002 (f) 2,247
A NR* 2,000 Pennsylvania State Finance Authority, Revenue Refunding Bonds
(Municipal Capital Improvements Program), 6.60% due 11/01/2009 2,067
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SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Pennsylvania (continued)
Pennsylvania State, HFA, S/F Mortgage Revenue Bonds, AMT:
AA Aa $ 1,145 Series 28, 7.65% due 10/01/2023 $ 1,220
AA Aa 2,165 Series 40, 6.90% due 4/01/2025 2,237
AA Aa 1,500 Series 41-B, 6.65% due 4/01/2025 1,522
Pennsylvania State Higher Educational Assistance Agency, Student Loan
Revenue Bonds, VRDN, AMT (a):
A1 VMIG1++ 400 Series A, 3.90% due 1/01/2018 400
A1+ VMIG1++ 300 Series B, 3.90% due 7/01/2018 300
Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Bonds:
AA- NR* 1,000 (Carnegie Mellon University), Regional Growth, 9% due 11/01/2009 1,033
NR* Baa 2,295 (Delaware Valley College of Science & Agriculture), 7% due 4/01/2022 2,354
AAA Aaa 270 (Drexel University), 1st Series, 7.70% due 5/01/2012 (c) 278
NR* NR* 1,030 (Pennsylvania College of Podiatric Medicine), 8.50% due 10/01/2014 1,107
BBB+ NR* 1,250 Refunding (Allegheny College Project), Series B, 6% due 11/01/2022 1,150
A+ Aa 2,000 Pennsylvania State Higher Educational Facilities Authority, Revenue
Refunding Bonds (Thomas Jefferson University), Series A, 6.625%
due 8/15/2009 2,113
Pennsylvania State, IDA, Economic Development Revenue Bonds:
AAA Aaa 1,300 Refunding, 5.50% due 1/01/2014 (b) 1,225
A- A 1,225 Series A, 7% due 7/01/2001 (f) 1,390
AAA Aaa 250 Pennsylvania State Turnpike Commission, Turnpike Revenue Bonds,
Series H, 7.40% due 12/01/2000 (d)(f) 288
Philadelphia, Pennsylvania, Authority for IDR:
AAA Aaa 375 (Conversion Project--PGH Development Corp.), 7% due 7/01/1999 (b)(f) 417
A+ NR* 1,895 (National Board of Medical Examiners Project), 6.75% due 5/01/2012 1,977
A1+ VMIG1++ 200 (Philadelphia Airport Hotel), AMT, UPDATES, 3.85% due 12/01/2017 (a) 200
Philadelphia, Pennsylvania, Gas Works Revenue Bonds:
AAA Aaa 1,250 12th Series B, 7% due 5/15/2020 (c)(j) 1,470
AAA Aaa 750 13th Series, 7.70% due 6/15/2001 (f) 880
Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities
Authority Revenue Bonds:
AA Aa 1,400 (Children's Hospital of Philadelphia Project), Series A, 5.50% due
2/15/2022 1,266
A- NR* 1,015 (Children's Seashore House), Series A, 7% due 8/15/2017 1,043
A- NR* 4,000 (Children's Seashore House), Series B, 7% due 8/15/2022 4,101
BBB NR* 3,100 (Northwestern Corp.), 7.125% due 6/01/2018 3,214
A- A 1,500 Refunding (Chestnut Hill Hospital), 6.50% due 11/15/2022 1,487
AAA Aaa 500 Refunding (Magee Rehabilitation Hospital), 7% due 12/01/2005 (b) 556
AAA Aaa 1,000 Refunding (Magee Rehabilitation Hospital), 7% due 12/01/2010 (b) 1,085
BBB+ A 420 Refunding (Pennsylvania Hospital), 7.25% due 7/01/2014 428
BBB+ NR* 900 Refunding (Philadelphia MR Project), 6.20% due 8/01/2011 867
A- NR* 3,000 Refunding (Presbyterian Medical Center), 6.65% due 12/01/2019 (j) 2,992
A- Baa1 3,500 Refunding (Temple University Hospital), Series A, 6.625% due
11/15/2023 3,514
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SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Pennsylvania (concluded)
Philadelphia, Pennsylvania, Municipal Authority, Revenue Refunding
Bonds (d)(f):
AAA Aaa $ 40 7.80% due 4/01/1998 $ 45
AAA Aaa 360 7.80% due 4/01/2000 408
BBB Baa 1,000 Philadelphia, Pennsylvania, Water and Sewer Revenue Bonds,
16th Series, 7.50% due 8/01/2001 (f) 1,159
Philadelphia, Pennsylvania, Water and Wastewater Revenue Bonds (c):
AAA Aaa 2,500 5.50% due 8/01/2014 2,368
AAA Aaa 2,000 5.60% due 8/01/2018 1,894
AAA Aaa 6,000 Pittsburgh, Pennsylvania, Water and Sewer Authority, Water and Sewer
Systems Revenue Bonds, Series B, 5.75% due 9/01/2025 (g) 5,736
AAA Aaa 1,000 Reading, Pennsylvania, Refunding Bonds, GO, UT, 6.50% due 11/15/2002
(b)(f) 1,111
A1 Aaa 200 Sayre, Pennsylvania, Health Care Facilities Authority Revenue Bonds,
VHA (Pennsylvania Capital Financing Project), VRDN, Series B, 3.75%
due 12/01/2020 (a)(b) 200
A- NR* 1,750 Scranton-Lackawanna, Pennsylvania, Health and Welfare Authority,
Revenue Refunding Bonds (University of Scranton Project), Series A,
6.50% due 3/01/2013 1,826
A Aaa 2,000 York County, Pennsylvania, GO, LT, South Western School District,
6.40% due 6/15/2012 (d) 2,085
A1+ P1 300 York County, Pennsylvania, IDA, PCR, Refunding (Philadelphia Electric
Company), VRDN, Series A, 3.70% due 8/01/2016 (a) 300
Puerto Rico--3.2%
Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue Bonds,
Series A:
A Baa1 2,150 7.875% due 7/01/2017 2,391
A Baa1 310 7% due 7/01/2019 333
A Baa1 800 Puerto Rico Commonwealth, Highway Authority, Highway Revenue Refunding
Bonds, Series R, 6.75% due 7/01/2005 858
AAA NR* 740 Puerto Rico Commonwealth, Public Improvement, GO, 7.70% due 7/01/2000 (f) 860
Puerto Rico Electric Power Authority, Power Revenue Bonds:
AAA NR* 100 Refunding, Series M, 8% due 7/01/1998 (f) 113
A- Baa1 190 Series O, 7.125% due 7/01/2014 203
Total Investments (Cost--$142,050)--98.5% 148,558
Other AssetsLess Liabilities--1.5% 2,240
--------
Net Assets--100.0% $150,798
========
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1995.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)FGIC Insured.
(e)GNMA Insured.
(f)Prerefunded.
(g)FSA Insured.
(h)Capital Guaranty.
(i)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at July 31, 1995.
(j)Escrowed to maturity.
(k)Partial 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.
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FINANCIAL INFORMATION
B
Statement of Assets and Liabilities as of July 31, 1995
Assets: Investments, at value (identified cost--$142,049,537) (Note 1a) $148,558,194
Cash 64,263
Receivables:
Interest $ 2,358,823
Beneficial interest sold 216,172 2,574,995
------------
Deferred organization expenses (Note 1e) 1,244
Prepaid registration fees and other assets (Note 1e) 22,657
------------
Total assets 151,221,353
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 150,236
Beneficial interest redeemed 87,196
Investment adviser (Note 2) 66,529
Distributor (Note 2) 50,535 354,496
------------
Accrued expenses and other liabilities 68,957
------------
Total liabilities 423,453
------------
Net Assets: Net assets $150,797,900
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 208,196
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 1,113,851
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 16,875
Class D Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized 23,740
Paid-in capital in excess of par 145,351,545
Accumulated realized capital losses on investments--net (Note 5) (2,162,659)
Accumulated distribution in excess of realized capital gains--net (262,305)
Unrealized appreciation on investments--net 6,508,657
------------
Net assets $150,797,900
============
Net Asset Value: Class A--Based on net assets of $23,040,067 and 2,081,959 shares
of beneficial interest outstanding $ 11.07
============
Class B--Based on net assets of $123,260,463 and 11,138,512 shares
of beneficial interest outstanding $ 11.07
============
Class C--Based on net assets of $1,867,794 and 168,748 shares
of beneficial interest outstanding $ 11.07
============
Class D--Based on net assets of $2,629,576 and 237,400 shares
of beneficial interest outstanding $ 11.08
============
See Notes to Financial Statements.
|
FINANCIAL INFORMATION (continued)
Statement of Operations
For the Year Ended
July 31, 1995
Investment Income Interest and amortization of premium and discount earned $ 9,772,807
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 827,537
Account maintenance and distribution fees--Class B (Note 2) 618,190
Transfer agent fees--Class B (Note 2) 82,837
Professional fees 75,388
Printing and shareholder reports 69,818
Accounting services (Note 2) 40,065
Amortization of organization expenses (Note 1e) 16,208
Transfer agent fees--Class A (Note 2) 13,972
Pricing fees 13,380
Custodian fees 12,122
Registration fees (Note 1e) 7,500
Trustees' fees and expenses 7,393
Account maintenance and distribution fees--Class C (Note 2) 4,335
Account maintenance fees--Class D (Note 2) 1,586
Transfer agent fees--Class D (Note 2) 898
Transfer agent fees--Class C (Note 2) 514
Other 6,728
------------
Total expenses 1,798,471
------------
Investment income--net 7,974,336
------------
Realized & Realized loss on investments--net (2,162,672)
Unrealized Gain Change in unrealized appreciation on investments--net 2,862,358
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 8,674,022
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
|
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1995 1994
Operations: Investment income--net $ 7,974,336 $ 7,585,449
Realized gain (loss) on investments--net (2,162,672) 96,923
Change in unrealized appreciation on investments--net 2,862,358 (5,481,887)
------------ ------------
Net increase in net assets resulting from operations 8,674,022 2,200,485
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (1,403,188) (1,539,524)
Shareholders Class B (6,445,060) (6,045,925)
(Note 1f): Class C (36,471) --
Class D (89,617) --
Realized gain on investments--net:
Class A -- (111,974)
Class B -- (480,111)
In excess of realized gain on investments--net:
Class A -- (49,607)
Class B -- (212,698)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (7,974,336) (8,439,839)
------------ ------------
Beneficial Net increase (decrease) in net assets derived from
Interest beneficial interest transactions (8,558,779) 27,793,932
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (7,859,093) 21,554,578
Beginning of year 158,656,993 137,102,415
------------ ------------
End of year $150,797,900 $158,656,993
============ ============
See Notes to Financial Statements.
|
FINANCIAL INFORMATION (continued)
Financial Highlights
Class A
For the
Period
The following per share data and ratios have been derived Aug. 31,
from information provided in the financial statements. 1990++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
Per Share Net asset value, beginning of period $ 11.00 $ 11.39 $ 11.04 $ 10.27 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .62 .60 .63 .67 .61
Realized and unrealized gain (loss) on
investments--net .07 (.33) .36 .77 .27
-------- -------- -------- -------- --------
Total from investment operations .69 .27 .99 1.44 .88
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.62) (.60) (.63) (.67) (.61)
Realized gain on investments--net -- (.04) (.01) -- --
In excess of realized gain on
investments--net -- (.02) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.62) (.66) (.64) (.67) (.61)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.07 $ 11.00 $ 11.39 $ 11.04 $ 10.27
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.54% 2.37% 9.30% 14.53% 9.30%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .77% .75% .69% .55% .39%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses .77% .75% .81% .97% 1.57%*
======== ======== ======== ======== ========
Investment income--net 5.72% 5.30% 5.70% 6.33% 6.71%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 23,040 $ 28,239 $ 27,639 $ 17,144 $ 9,402
Data: ======== ======== ======== ======== ========
Portfolio turnover 59.17% 37.73% 9.69% 4.14% --
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
|
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class B
For the
Period
The following per share data and ratios have been derived Aug. 31,
from information provided in the financial statements. 1990++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
Per Share Net asset value, beginning of period $ 11.00 $ 11.39 $ 11.04 $ 10.27 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .56 .54 .58 .62 .57
Realized and unrealized gain (loss) on
investments--net .07 (.33) .36 .77 .27
-------- -------- -------- -------- --------
Total from investment operations .63 .21 .94 1.39 .84
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.56) (.54) (.58) (.62) (.57)
Realized gain on investments--net -- (.04) (.01) -- --
In excess of realized gain on
investments--net -- (.02) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.56) (.60) (.59) (.62) (.57)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.07 $ 11.00 $ 11.39 $ 11.04 $ 10.27
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.00% 1.86% 8.75% 13.94% 8.81%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of
Net Assets: reimbursement .78% .75% .69% .56% .40%*
======== ======== ======== ======== ========
Expenses, net of reimbursement 1.28% 1.25% 1.19% 1.06% .90%*
======== ======== ======== ======== ========
Expenses 1.28% 1.25% 1.32% 1.48% 2.07%*
======== ======== ======== ======== ========
Investment income--net 5.21% 4.80% 5.19% 5.81% 6.21%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $123,260 $130,418 $109,463 $ 65,599 $ 30,435
Data: ======== ======== ======== ======== ========
Portfolio turnover 59.17% 37.73% 9.69% 4.14% --
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
|
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
July 31, 1995
Increase (Decrease) in Net Asset Value: Class C Class D
Per Share Net asset value, beginning of period $ 10.68 $ 10.68
Operating -------- --------
Performance: Investment income--net .43 .47
Realized and unrealized gain on investments--net .39 .40
-------- --------
Total from investment operations .82 .87
-------- --------
Less dividends from investment income--net. (.43) (.47)
-------- --------
Net asset value, end of period $ 11.07 $ 11.08
======== ========
Total Investment Based on net asset value per share 7.83%+++ 8.36%+++
Return:** ======== ========
Ratios to Expenses, excluding account maintenance and distribution
Average fees and net of reimbursement .78%* .77%*
Net Assets: ======== ========
Expenses, net of reimbursement 1.38%* .87%*
======== ========
Expenses 1.38%* .87%*
======== ========
Investment income--net 5.05%* 5.65%*
======== ========
Supplemental Net assets, end of period (in thousands) $ 1,868 $ 2,630
Data: ======== ========
Portfolio turnover 59.17% 59.17%
======== ========
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
|
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Pennsylvania Municipal Bond Fund (the "Fund") is part
of Merrill Lynch Multi-State Municipal Series Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940 as a
non-diversified, open-end management investment company. The Fund
offers four classes of shares under the Merrill Lynch Select
Pricing SM System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio securities in which the Fund invests are traded primarily in the over-the-counter municipal bond and money markets and are valued at the last available bid price in the over-the-counter market or on the basis of yield equivalents as obtained from one or more dealers that make markets in the securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their settlement prices as of the close of such exchanges. Short-term investments with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Trustees of the Trust, including valuations furnished by a pricing service retained by the Trust, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell interest rate futures contacts 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.
(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 prepaid registration fees-- Deferred organization expenses are charged to expense on a straight- line basis over a five-year period. Prepaid registration fees are charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded
on the ex-dividend dates. Distributions in excess of realized capital gains are due primarily to differing tax treatments for futures transactions and post- October losses.
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. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
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 based upon the average daily value of the Fund's net assets at the following annual rates: 0.55% of the Fund's average daily net assets not exceeding $500 million; 0.525% of average daily net assets in excess of $500 million but not exceeding $1 billion; and 0.50% of average daily net assets in excess of $1 billion. The Investment Advisory Agreement obligates FAM to reimburse the Fund to the extent the Fund's expenses (excluding interest, taxes, distribution fees, brokerage fees and commissions, and extraordinary items) exceed 2.5% of the Fund's first $30 million of average daily net assets, 2.0% of the next $70 million of average daily net assets, and 1.5% of the average daily net assets in excess thereof. FAM's obligation to reimburse the Fund is limited to the amount of the management fee. No fee payment will be made to the Investment Adviser during any fiscal year which will cause such expenses to exceed expense limitation at the time of payment.
Pursuant to the distribution plans ("the Distribution Plans") adopted by the Fund in accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor ongoing account maintenance and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
|
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee compensates the Distributor and MLPF&S for providing account maintenance services to Class B, Class C and Class D shareholders. The ongoing distribution fee compensates the Distributor and MLPF&S for providing shareholder and distribution-related services to Class B and Class C shareholders.
For the year ended July 31, 1995, MLFD earned underwriting discounts and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $1,289 $14,788
Class D 702 25,153
|
For the year ended July 31, 1995, MLPF&S received contingent deferred sales charges of $302,369 and $621 relating to transactions in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly- owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of FAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1995 were $83,480,248 and $85,623,359,
respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
Net realized and unrealized gains (losses) as of July 31, 1995 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $(1,564,976) $ 6,508,657
Short-term investments 5 --
Financial futures contracts (597,701) --
----------- ------------
Total $(2,162,672) $ 6,508,657
=========== ============
|
As of July 31, 1995, net unrealized appreciation for Federal income tax purposes aggregated $6,508,657, of which $7,368,844 related to appreciated securities and $860,187 related to depreciated securities. The aggregate cost of investments at July 31, 1995 for Federal income tax purposes was $142,049,537.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $(8,558,779) and $27,793,932 for the years
ended July 31, 1995 and July 31, 1994, respectively.
Transactions in shares of beneficial interest for each class were as follows:
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 252,327 $ 2,701,007
Shares issued to share-
holders in reinvestment
of dividends 70,449 759,029
----------- ------------
Total issued 322,776 3,460,036
Shares redeemed (808,932) (8,690,691)
----------- ------------
Net decrease (486,156) $ (5,230,655)
=========== ============
|
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 550,023 $ 6,297,702
Shares issued to share-
holders in reinvestment of
dividends and distributions 80,433 915,022
----------- ------------
Total issued 630,456 7,212,724
Shares redeemed (489,751) (5,530,577)
----------- ------------
Net increase 140,705 $ 1,682,147
=========== ============
|
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 1,773,889 $ 19,140,874
Shares issued to share-
holders in reinvestment
of dividends. 290,703 3,133,419
----------- ------------
Total issued 2,064,592 22,274,293
Shares redeemed (2,786,939) (29,948,409)
Automatic conversion of
shares (25) (252)
----------- ------------
Net decrease (722,372) $ (7,674,368)
=========== ============
|
Class B Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 3,466,071 $ 39,679,393
Shares issued to share-
holders in reinvestment of
dividends and distributions 296,534 3,370,692
----------- ------------
Total issued 3,762,605 43,050,085
Shares redeemed (1,515,856) (16,938,300)
----------- ------------
Net increase 2,246,749 $ 26,111,785
=========== ============
|
Class C Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 190,095 $ 2,057,684
Shares issued to share-
holders in reinvestment
of dividends 2,162 23,850
----------- ------------
Total issued 192,257 2,081,534
Shares redeemed (23,509) (258,434)
----------- ------------
Net increase 168,748 $ 1,823,100
=========== ============
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 241,043 $ 2,563,252
Automatic conversion of
shares 25 252
Shares issued to share-
holders in reinvestment
of dividends 6,269 67,928
----------- ------------
Total issued 247,337 2,631,432
Shares redeemed (9,937) (108,288)
----------- ------------
Net increase 237,400 $ 2,523,144
=========== ============
[FN]
++Commencement of Operations.
|
5. Capital Loss Carryforward:
At July 31, 1995, the Fund had a net capital loss carryforward of
approximately $970,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
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TABLE OF CONTENTS
PAGE
----
Investments Objective and Policies......................................... 2
Description of Municipal Bonds and Temporary Investments................... 5
Description of Municipal Bonds............................................ 5
Description of Temporary Investments...................................... 7
Repurchase Agreements..................................................... 8
Financial Futures Transactions and Options................................ 9
Investment Restrictions.................................................... 13
Management of the Trust.................................................... 16
Trustees and Officers..................................................... 16
Compensation of Trustees.................................................. 17
Management and Advisory Arrangements...................................... 18
Purchase of Shares......................................................... 20
Initial Sales Charge Alternatives--Class A and Class D Shares............. 20
Reduced Initial Sales Charges............................................. 22
Distribution Plans........................................................ 24
Limitations on the Payment of Deferred Sales Charges...................... 25
Redemption of Shares....................................................... 26
Deferred Sales Charges--Class B and Class C Shares........................ 26
Portfolio Transactions..................................................... 26
Determination of Net Asset Value........................................... 28
Shareholder Services....................................................... 29
Investment Account........................................................ 29
Automatic Investment Plans................................................ 29
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 30
Systematic Withdrawal Plans--Class A and Class D Shares................... 30
Exchange Privilege........................................................ 31
Distributions and Taxes.................................................... 44
Environmental Tax......................................................... 48
Tax Treatment of Options and Futures Transactions......................... 48
Pennsylvania Taxation..................................................... 48
Performance Data........................................................... 49
General Information........................................................ 51
Description of Shares..................................................... 51
Computation of Offering Price Per Share................................... 53
Independent Auditors...................................................... 53
Custodian................................................................. 53
Transfer Agent............................................................ 53
Legal Counsel............................................................. 53
Reports to Shareholders................................................... 54
Additional Information.................................................... 54
Appendix I--Economic and Financial Conditions in Pennsylvania.............. 55
Appendix II--Ratings of Municipal Bonds.................................... 60
Independent Auditors' Report............................................... 68
Financial Statements....................................................... 69
|
Code #11198-1195
[LOGO] MERRILL LYNCH
MERRILL LYNCH
PENNSYLVANIA MUNICIPAL
BOND FUND
MERRILL LYNCH MULTI-STATE
MUNICIPAL SERIES TRUST
[ART]
STATEMENT OF ADDITIONAL INFORMATION
November 14, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for each of the years in the four-year period ended July 31, 1995, and for the period August 31, 1990 (commencement of operations) to July 31, 1991.
Contained in Part B:
Schedule of Investments as of July 31, 1995.
Statement of Assets and Liabilities as of July 31, 1995.
Statement of Operations for the year ended July 31, 1995.
Statements of Changes in Net Assets for each of the years in the two- year period ended July 31, 1995.
Financial Highlights for each of the years in the four-year period ended July 31, 1995, and for the period August 31, 1990 (commencement of operations) to July 31, 1991.
(B) EXHIBITS
EXHIBIT
NUMBER
-------
1(a) --Declaration of Trust of the Registrant, dated August 2, 1985.(a)
(b) --Amendment to Declaration of Trust, dated September 18, 1987.(a)
(c) --Amendment to Declaration of Trust, dated December 21, 1987.(a)
(d) --Amendment to Declaration of Trust, dated October 3, 1988.(a)
(e) --Amendment to Declaration of Trust, dated October 17, 1994 and
instrument establishing Class C and Class D shares of beneficial
interest.
(f) --Instrument establishing Merrill Lynch Pennsylvania Municipal Bond
Fund (the "Fund") as a series of Registrant.(a)
(g) --Instrument establishing Class A and Class B shares of beneficial
interest of the Fund.(a)
2 --By-Laws of Registrant.(a)
3 --None.
4 --Portions of the Declaration of Trust, Establishment and Designation
and By-Laws of the Registrant defining the rights of holders of the
Fund as a series of the Registrant.(b)
5(a) --Management Agreement between Registrant and Fund Asset Management,
L.P.(a)
(b) --Supplement to Management Agreement between Registrant and Fund Asset
Management, L.P.(e)
6(a) --Form of Revised Class A Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc. (including Form
of Selected Dealers Agreement).(e)
(b) --Form of Class B Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.(a)
(c) --Form of Class C Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(e)
(d) --Form of Class D Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(e)
(e) --Letter Agreement between the Fund and Merrill Lynch Funds
Distributor, Inc., dated September 15, 1993, in connection with the
Merrill Lynch Mutual Fund Adviser program.(c)
7 --None.
8 --Form of Custody Agreement between Registrant and State Street Bank &
Trust Company.(d)
|
EXHIBIT
NUMBER
-------
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data
Services, Inc.(f)
10 --Opinion of Brown & Wood, Counsel for the Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 --None.
13 --Certificate of Fund Asset Management, L.P.(a)
14 --None.
15(a) --Amended and Restated Class B Shares Distribution Plan and Class B
Shares Distribution Plan Sub-Agreement.(c)
(b) --Form of Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of the Registrant.(e)
(c) --Form of Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of the Registrant.(e)
16(a) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class A
Shares.(a)
(b) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class B
Shares.(a)
(c) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class C
Shares.
(d) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class D
Shares.
17(a) --Financial Data Schedule for Class A Shares.
(b) --Financial Data Schedule for Class B Shares.
(c) --Financial Data Schedule for Class C Shares.
(d) --Financial Data Schedule for Class D Shares.
|
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") phase-in requirements.
(b) Reference is made to Article II, Section 2.3 and Articles V, VI, VIII, IX, X and XI of the Registrant's Declaration of Trust, as amended, filed as Exhibits 1(a), 1(b), 1(c), 1(d) and 1(e) with Post-Effective Amendment No. 6 to the Registrant's Registration Statement on Form N-1A under the Securities Act of 1933, as amended (the "Registration Statement"); to the Certificates of Establishment and Designation establishing the Fund as a series of the Registrant and establishing Class A and Class B shares of beneficial interest of the Fund, which filed as Exhibits 1(f) and 1(g), respectively, with Post-Effective Amendment No. 6 to the Registration Statement; and to Articles I, V and VI of the Registrant's By-Laws, filed as Exhibit 2 with Post-Effective Amendment No. 6 to the Registration Statement.
(c) Filed on November 8, 1993 as an Exhibit to Post-Effective Amendment No. 4 to the Registrant's Registration Statement on Form N-1A under the Securities Act of 1933.
(d) Incorporated by reference to Exhibit 8 to Post-Effective Amendment No. 3 to the Registrant's Registration Statement on Form N-1A under the Securities Act of 1933 filed on October 14, 1994, relating to shares of Merrill Lynch Minnesota Municipal Bond Fund series of the Registrant (File No. 33-44734).
(e) Filed on October 19, 1994 as an Exhibit to Post-Effective Amendment No. 5 to the Registrant's Registration Statement on Form N-1A under the Securities Act of 1933.
(f) Incorporated by reference to Exhibit 9 to Post-Effective Amendment No. 5 to Registrant's Registration Statement on Form N-1A under the Securities Act of 1933 filed on October 20, 1995, relating to shares of Merrill Lynch Arizona Municipal Bond Fund series of the Registrant (File No. 33-41311).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1995*
-------------- -------------------
Class A shares of beneficial interest, par value
$0.10 per share.................................... 645
Class B shares of beneficial interest, par value
$0.10 per share.................................... 4,075
Class C shares of beneficial interest, par value
$0.10 per share.................................... 113
Class D shares of beneficial interest, par value
$0.10 per share.................................... 55
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* The number of holders includes holders of record plus beneficial owners, whose shares are held of record by Merrill Lynch, Pierce, Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees and agents (including persons who serve at its request as directors, officers or trustees of another organization in which it has any interest as a shareholder, creditor or otherwise) against all liabilities and expenses (including amounts paid in satisfaction of judgments, in compromise, as fines and penalties and as counsel fees) reasonably incurred by him in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which he may be involved or with which he may be threatened, while in office or thereafter, by reason of his being or having been such a trustee, officer, employee or agent, except with respect to any matter as to which he shall have been adjudicated to have acted in bad faith, willful misfeasance, gross negligence or reckless disregard of his duties; provided, however, that as to any matter disposed of by a compromise payment by such person, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless the Trust shall have received a written opinion from independent legal counsel approved by the Trustees to the effect that if either the matter of willful misfeasance, gross negligence or reckless disregard of duty, or the matter of good faith and reasonable belief as to the best interests of the Trust, had been adjudicated, it would have been adjudicated in favor of such person. The rights accruing to any Person under these provisions shall not exclude any other right to which he may be lawfully entitled; provided that no person may satisfy any right in indemnity or reimbursement granted herein or in Section 5.1 or to which he may be otherwise entitled except out of the property of the Trust, and no Shareholder shall be personally liable to any Person with respect to any claim for indemnity or reimbursement or otherwise. The Trustees may make advance payments in connection with indemnification under this Section 5.3, provided that the indemnified person shall have given a written undertaking to reimburse the Trust in the event it is subsequently determined that he is not entitled to such indemnification."
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act of 1940, as amended, may be concerned,
such payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount of the
advance which exceeds the amount to which it is ultimately determined that he
is entitled to receive from the Registrant by reason of indemnification; and
(iii)(a) such promise must be secured by a surety bond, other suitable
insurance or an equivalent form of security which assures that any repayments
may be obtained by the Registrant without delay or litigation, which bond,
insurance or other form of security must be provided by the recipient of the
advance, or (b) a majority of a quorum of the Registrant's disinterested, non-
party
Trustees, or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts that the recipient of the advance ultimately will be found entitled to indemnification.
In Section 9 of the Distribution Agreements relating to the securities being offered hereby, the Registrant agrees to indemnify the Distributor and each person, if any, who controls the Distributor within the meaning of the Securities Act of 1933, as amended (the "1933 Act"), against certain types of civil liabilities arising in connection with the Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to Trustees, officers and controlling persons of the Registrant and the principal underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee officer, or controlling person of the Registrant and the principal underwriter in connection with the successful defense of any action, suit or proceeding) is asserted by such Director, officer or controlling person or the principal underwriter in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Manager" or "FAM") acts as the investment adviser for the following open-end investment companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., and The Municipal Fund Accumulation Program, Inc.; and the following closed-end investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., MuniAssets Fund Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYeild Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the Manager, acts as the investment adviser for the following open-end companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builders Program, Inc., Merrill Lynch Asset
Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Balanced Fund for Investment and Retirement, Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch EuroFund, Merrill Lynch Fund for Tomorrow, Inc., Merrill
Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Allocation Fund, Inc., Merrill
Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc.,
Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Institutional Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc., and Merrill Lynch Variable
Series Funds, Inc. and the following closed-end investment companies:
Convertible Holdings, Inc. Merrill Lynch High Income Municipal Bond Fund, Inc.
and Merrill Lynch Senior Floating Rate Fund, Inc.
The address of each of these investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds for Institutions Series and Merrill Lynch Institutional Intermediate Fund is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of the Manager, MLAM, Princeton Services, Inc. ("Princeton Services") and Princeton Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281. The address of the Fund's transfer agent, Merrill Lynch Financial Data Services, Inc. is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the Manager indicating each business, profession, vocation or employment of a substantial nature in which each such person has been engaged since August 1, 1993 for his or its own account or in the capacity of director, officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice President of substantially all of the investment companies described in the preceding paragraph and Messrs. Giordano, Harvey, Hewitt, Kirstein and Monagle and Ms. Griffin are directors, trustees or officers of one or more of such companies.
OFFICERS AND PARTNERS OF FAM ARE SET FORTH AS FOLLOWS:
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
ML & Co. ............... Limited Partner Financial Services Holding
Company; Limited Partner of MLAM
Princeton Services,
Inc. .................. General Partner General Partner of MLAM
Arthur Zeikel........... President President and Director of MLAM;
President and Director of
Princeton Services; Director of
MLFD; Executive Vice President
of ML & Co.; Executive Vice
President of Merrill Lynch
Terry K. Glenn.......... Executive Vice Executive Vice President of MLAM;
President Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
President of Princeton
Administrators, L.P.; Director
of Financial Data Services, Inc.
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OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
Vincent R. Giordano..... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of MLAM
Norman R. Harvey........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President, General Counsel
President, General and Secretary of MLAM; Senior Vice
Counsel and President, General Counsel, Director
Secretary and Secretary of Princeton Services;
Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller of
and Controller MLAM; Senior Vice President and
Controller of Princeton Services
Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Richard L. Reller....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer MLAM; Vice President and Treasurer of
MLFD
Ronald L. Welburn....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
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ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each of the open-end investment companies referred to in the first two paragraphs of Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate Fund Accumulation Program, Inc., MuniAssets Fund, Inc., and The Municipal Fund Accumulation Program, Inc. and MLFD also acts as the principal underwriter for the following closed-end investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of MLFD. The principal business address of each such person is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich, Brady, Breen, Crook, Fatseas, Graczyk and Wasel is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646.
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
---- --------------------- ---------------------
Terry K. Glenn........... President and Director Executive Vice President
Arthur Zeikel............ Director President and Trustee
Philip L. Kirstein....... Director None
William E. Aldrich....... Senior Vice President None
Robert W. Crook.......... Senior Vice President None
Kevin P. Boman........... Vice President None
Michael J. Brady......... Vice President None
William M. Breen......... Vice President None
Sharon Creveling......... Vice President and Assistant None
Treasurer
Mark A. DeSario.......... Vice President None
James T. Fatseas......... Vice President None
Stanley Graczyk.......... Vice President None
Debra W. Landsman-Yaros.. Vice President None
Michelle T. Lau.......... Vice President None
Gerald M. Richard........ Vice President and Treasurer Treasurer
Salvatore Venezia........ Vice President None
William Wasel............ Vice President None
Robert Harris............ Secretary None
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(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules thereunder are maintained at the offices of the Registrant, 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Trust-- Management and Advisory Arrangements" in the Prospectus constituting Part A of the Registration Statement and under "Management of the Trust--Management and Advisory Arrangements" in the Statement of Additional Information constituting Part B of the Registration Statement, Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Plainsboro, and the State of New Jersey, on the 13th day of November, 1995.
Merrill Lynch Multi-State Municipal Series Trust
(Registrant)
/s/ Terry K. Glenn
By: _________________________________
(TERRY K. GLENN, EXECUTIVE VICE
PRESIDENT)
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Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
Arthur Zeikel* President and Trustee
- ------------------------------------- (Principal Executive Officer)
(ARTHUR ZEIKEL)
Gerald M. Richard* Treasurer (Principal Financial
- ------------------------------------- and Accounting Officer)
(GERALD M. RICHARD)
James H. Bodurtha* Trustee
- -------------------------------------
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(JAMES H. BODURTHA)
Herbert I. London* Trustee
- -------------------------------------
(HERBERT I. LONDON)
Robert R. Martin* Trustee
- -------------------------------------
(ROBERT R. MARTIN)
Joseph L. May* Trustee
- -------------------------------------
(JOSEPH L. MAY)
Andre F. Perold* Trustee
- -------------------------------------
(ANDRE F. PEROLD)
/s/ Terry K. Glenn November 13, 1995
*By: ________________________________
(TERRY K. GLENN, ATTORNEY-IN-FACT)
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POWER OF ATTORNEY
The undersigned Trustee of Merrill Lynch Multi-State Municipal Series Trust (the "Trust") hereby authorizes Arthur Zeikel, Terry K. Glenn and Gerald M. Richard, or any of them, as attorney-in-fact, to sign on his behalf, in the capacity stated below, any amendments to the Registration Statement (including post-effective amendments) on Form N-1A of Merrill Lynch Pennsylvania Municipal Bond Fund, a series of the Trust, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission.
SIGNATURE TITLE DATE
/s/ James H. Bodurtha Trustee
- ------------------------------------- November 10,
(JAMES H. BODURTHA) 1995
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EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
1(a) --Declaration of Trust of the Registrant, dated August 2,
1985. (a)...................................................
(b) --Amendment to Declaration of Trust, dated September 18,
1987. (a)...................................................
(c) --Amendment to Declaration of Trust, dated December 21, 1987.
(a).........................................................
(d) --Amendment to Declaration of Trust, dated October 3, 1988.
(a).........................................................
(e) --Amendment to Declaration of Trust, dated October 17, 1994
and instrument establishing Class C and Class D shares of
beneficial interest.........................................
(f) --Instrument establishing Merrill Lynch Massachusetts
Municipal Bond Fund (the "Fund") as a series of Registrant.
(a).........................................................
(g) --Instrument establishing Class A and Class B shares of
beneficial interest of the Fund. (a)........................
2 --By-Laws of the Registrant. (a).............................
5(a) --Form of Management Agreement between Registrant and Fund
Asset Management, L.P. (a)..................................
6(b) --Form of Revised Class B Shares Distribution Agreement
between Registrant and Merrill Lynch Funds Distributor, Inc.
(a).........................................................
10 --Opinion of Brown & Wood, counsel for the Registrant........
11 --Consent of Deloitte & Touche LLP, independent auditors for
the Registrant..............................................
13 --Certificate of Fund Asset Management, Inc. (a).............
16(a) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22 relating to Class A shares. (a)..........................
(b) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22 relating to Class B shares. (a)..........................
(c) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22 relating to Class C shares. .............................
(d) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22 relating to Class D shares. .............................
17(a) --Financial Data Schedule for Class A shares.................
(b) --Financial Data Schedule for Class B shares. ...............
(c) --Financial Data Schedule for Class C shares.................
(d) --Financial Data Schedule for Class D shares.................
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APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents fair and accurate narrative descriptions of graphic and image material omitted from this EDGAR Submission file due to ASCII-incompatibility and cross- references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC GRAPHIC OR IMAGE OR IMAGE IN TEXT - ---------------------- ------------------- Compass plate, circular Back cover of Prospectus and graph paper and Merrill Lynch back cover of Statement of logo including stylized market Additional Information bull |
EXHIBIT 99.1(a)
DECLARATION OF TRUST
OF
MERRILL LYNCH MULTI-STATE
TAX-EXEMPT SERIES TRUST
THE DECLARATION OF TRUST of Merrill Lynch Multi-State Tax-Exempt Series Trust is made the 2nd day of August, 1985 by the parties signatory hereto, as trustees (such persons, so long as they shall continue in office in accordance with the terms of this Declaration of Trust, and all other persons who at the time in question have been duly elected or appointed as trustees in accordance with the provisions of this Declaration of Trust and are then in office, being hereinafter called the "Trustees").
WHEREAS, the Trustees desire to form a trust fund under the laws of Massachusetts for the investment and reinvestment of funds contributed thereto; and
WHEREAS, it is proposed that the beneficial interest in the trust assets be divided into transferable shares of beneficial interest which may, at the discretion of the Trustees, be divided into separate series as hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust, all money and property contributed to the trust fund to manage and dispose of the same for the benefit of the holders from time to time of the shares of beneficial interest issued hereunder and subject to the provisions hereof, to wit:
ARTICLE I
2.
3.
ARTICLE II
4.
this Declaration of Trust. In the case of a vacancy, the Shareholders, acting at any meeting of Shareholders held in accordance with Section 10.2 hereof, or, to the extent permitted by the 1940 Act, a majority of the Trustees continuing in office acting by written instrument or instruments, may fill such vacancy; and any Trustee so elected by the Trustees shall hold office as provided ln this Declaration.
Any committee of the Trustees, including an executive committee, if any, may act with or without a meeting. A quorum for all meetings of any such committee shall be a majority of the members thereof. Unless provided otherwise in this Declaration, any action of any such committee may be taken at a meeting by vote of a majority of the members present (a quorum being present) or without a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust within the meaning of
Section 1.2 hereof or otherwise interested in any action to be taken may be
counted for quorum purposes under this Section and shall be entitled to vote to
the extent permitted by the 1940 Act.
To the extent permitted by the 1940 Act, all or any one or more Trustees may participate in a meeting of the Trustees or any committee thereof by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to such communications systems shall constitute presence in person at such meeting.
5.
6.
ARTICLE III
(a) conduct, operate and carry on the business of an investment company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise deal in or dispose of negotiable or non-negotiable instruments, obligations, evidences of indebtedness, certificates of deposit or indebtedness, commercial paper, repurchase agreements, reverse repurchase agreements and other securities, including, without limitation, those issued, guaranteed or sponsored by any state, territory or possession of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, or by the United States Government or its agencies or instrumentalities, or international instrumentalities, or by any bank, savings institution, corporation or other business entity organized under the laws of the United States and, to the extent provided in the Prospectus and not prohibited by the Fundamental Policies, organized under foreign laws; and to exercise any and all rights, powers and privileges of ownership or interest in respect of any and all such investments of every kind and description, including, without limitation, the right to consent and otherwise act with respect thereto, with power to designate one or more persons, firms, associations or corporations to exercise any of said rights, powers and privileges in respect of any of said instruments; and the Trustees shall be deemed to have the foregoing powers with respect to any additional securities in which any Series of the Trust may invest should the investment policies set forth in the Prospectus or the Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing before the possible termination of the Trust or any Series, nor shall the Trustees be limited by any law limiting the investments which may be made by fiduciaries.
7.
The right, title and interest of the Trustees in the Trust Property shall vest automatically in each Person who may hereafter become a Trustee upon his due election and qualification. Upon the resignation, removal or death of a Trustee he shall automatically cease to have any right, title or interest in any of the Trust Property, and the right, title and interest of such Trustee in the Trust Property shall vest automatically in the remaining Trustees. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered.
8.
9.
ARTICLE IV
10.
otherwise affiliated with persons who are parties to any or all of the contracts mentioned in this Section 4.3.
11.
ARTICLE V
12.
payment by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless the Trust shall have received a written opinion from independent
legal counsel approved by the Trustees to the effect that if either the matter
of willful misfeasance, gross negligence or reckless disregard of duty, or the
matter of good faith and reasonable belief as to the best interests of the
Trust, had been adjudicated, it would have been adjudicated in favor of such
person. The rights accruing to any Person under these provisions shall not
exclude any other right to which he may be lawfully entitled; provided that no
Person may satisfy any right of indemnity or reimbursement granted herein or in
Section 5.1 or to which he may be otherwise entitled except out of the property
of the Trust, and no Shareholder shall be personally liable to any Person with
respect to any claim for indemnity or reimbursement or otherwise. The Trustees
may make advance payments in connection with indemnification under this Section
5.3, provided that the indemnified person shall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he is not
entitled to such indemnification.
13.
14.
ARTICLE VI
If the Trustees shall divide the Shares into two or more Series, the following provisions shall be applicable:
(a) The number of Shares of each Series that may be issued shall be unlimited. The Trustees may classify or reclassify any unissued Shares or any Shares previously issued and reacquired of any Series into one or more Series that may be established and designated from time to time. The Trustees may hold as treasury Shares (of the same or some other Series), reissue for such consideration and on such terms as they may determine, or cancel any Shares of any Series reacquired by the Trust at their discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust Property of each Series that may be established shall be governed by Section 3.2 of this Declaration.
(c) All consideration received by the Trust for the issue or sale of Shares of a particular Series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any investment of such proceeds in whatever form the same may be, shall irrevocably belong to that Series for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Trust. In the event that there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular Series, the
15.
Trustees shall allocate them among any one or more of the Series established and designated from time to time in such manner and on such basis as they, in their sole discretion, deem fair and equitable. Each such allocation by the Trustees shall be conclusive and binding upon the shareholders of all Series for all purposes.
(d) The assets belonging to each particular Series shall be charged with the liabilities of the Trust in respect of that Series only and all expenses, costs, charges and reserves attributable to that Series and shall not be charged with the liabilities, expenses, costs, charges and reserves attributable to other Series, and any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular Series shall be allocated and charged by the Trustees to and among any one or more of the Series established and designated from time to time in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the holders of all Series for all purposes. The Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions with respect to any one or more Series shall be governed by Section 9.2 of this Trust. Dividends and distributions on Shares of a particular Series may be paid with such frequency as the Trustees may determine, to the holders of Shares of that Series, from such of the income and capital gains, accrued or realized, from the assets belonging to that Series, as the Trustees may determine, after providing for actual and accrued liabilities belonging to that Series. All dividends and distributions on Shares of a particular Series shall be distributed pro rata to the holders of that Series in proportion to the number of Shares of that Series held by such holders at the date and time of record established for the payment of such dividends or distributions.
The establishment and designation of any Series of Shares shall be effective upon the execution by a majority of the then Trustees of an instrument setting forth the establishment and designation of such Series. Such instrument shall also set forth any rights and preferences of such Series which are in addition to the rights and preferences of Shares set forth in this Declaration. At any time that there are no Shares outstanding of any particular Series previously established and designated, the Trustees may by an instrument executed by a majority of their number abolish that Series and the establishment and designation thereof. Each instrument referred to in this paragraph shall have the status of an amendment to this Declaration.
16.
partition or division of any property, profits, rights or interests of the Trust nor can they be called upon to share or assume any losses of the Trust or suffer an assessment of any kind by virtue of their ownership of Shares. The Shares shall be personal property giving only the rights in this Declaration specifically set forth. The Shares shall not entitle the holder to preference, preemptive, appraisal, conversion or exchange rights (except for rights of appraisal specified in Section 11.4).
17.
thorize the issuance of share certificates and promulgate appropriate rules and regulations as to their use.
Any person becoming entitled to any Shares in consequence of the death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation of law, shall be recorded on the applicable register of Shares as the holder of such Shares upon production of the proper evidence thereof to the Trustees or a transfer agent of the Trust, but until such record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereof and neither the Trustees nor any transfer agent or registrar nor any officer or agent of the Trust shall be affected by any notice of such death, bankruptcy or incompetence, or other operation of law.
18.
ARTICLE VII
(1) to hold the securities owned by the Trust or the Series and deliver the same upon written order;
(2) to receive and receipt for any moneys due to the Trust or the Series and deposit the same in its own banking department (if a bank) or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and accounts of the Trust or the Series and furnish clerical and accounting services; and
(5) if authorized to do so by the Trustees, to compute the net income of the Trust or the Series,
all upon such basis of compensation as may be agreed upon between the Trustees and the custodian. If so directed by a Majority Shareholder vote of the Series with respect to which the custodian is acting, the custodian shall deliver and pay over all property of the Trust held by it as specified in such vote.
The Trustees may also authorize each custodian to employ one or more subcustodians from time to time to perform such of the acts and services of the custodian and upon such terms and conditions, as may be agreed upon between the custodian and such sub-custodian and approved by the Trustees, provided that in every case such sub-custodian shall meet the qualifications for custodians contained in the 1940 Act.
19.
Act, pursuant to which system all securities of any particular class or series or any issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such securities, provided that all such deposits shall be subject to withdrawal only upon the order of the Trust.
20.
ARTICLE VIII
The holders of Shares or other securities of the Trust shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of Shares or other securities of the Trust as the Trustees deem necessary to comply with the provisions of the Internal Revenue Code, or to comply with the requirements of any other taxing authority.
21.
may not exercise such power with respect to Shares of any Series if the
Prospectus of such Series does not describe such power. In the event the
Trustees determine to exercise their power to redeem Shares provided in this
Section 8.3, shareholders shall be notified that the value of their account is
less than $1,000 and allowed 60 days to make an additional investment before
redemption is processed.
22.
ARTICLE IX
Inasmuch as the computation of net income and gains for Federal income tax purposes may vary from the computation thereof on the books, the above provisions shall be interpreted to give the Trustees the power in their discretion to distribute for any fiscal year as ordinary dividends and as capital gains distributions, respectively, additional amounts sufficient to enable the Trust to avoid or reduce liability for taxes.
23.
number of outstanding Shares in each Shareholder's account. It is expected that each Series of the Trust will have a positive net income at the time of each determination. If for any reason such net income is a negative amount, the Trust may offset such amount against dividends accrued in the account of the Shareholder of the applicable Series. If and to the extent such negative amount exceeds such accrued dividends, the Trust shall have authority to reduce the number of the outstanding Shares of the Series. Such reduction will be effected by having each Shareholder proportionately contributing to the Series capital the necessary Shares that represent the amount of the excess upon such determination. Each Shareholder will be deemed to have agreed to such contribution in these circumstances by his investment in the Series of the trust. This procedure will permit the net asset value per share of the Series of the Trust to be maintained at a constant dollar value per share.
The Trustees, by resolution, may discontinue or amend the practice of maintaining the net asset value per share at a constant dollar amount with respect to any Series at any time and such modification shall be evidenced by appropriate changes in the Prospectus.
24.
ARTICLE X
25.
retary, or with such other officer or agent of the Trust as the Secretary may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of a majority of the Trustees, proxies may be solicited in the name of one or more Trustees or one or more of the officers of the Trust. Only Shareholders of record shall be entitled to vote. Each full Share shall be entitled to one vote and fractional Shares shall be entitled to a vote of such fraction. When any Share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy ln respect of such Share, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Share. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. If the holder of any such Share is a minor or a person of unsound mind, and subject to guardianship or to the legal control of any other person as regards the charge or management of such Share, he may vote by his guardian or such other person appointed or having such control, and such vote may be given in person or by proxy.
26.
ARTICLE XI
Name Address Date of Birth
---- ------- -------------
Avery Moores Bruno 25 Rutgers Place September 19, 1983
Scarsdale, N.Y. 10583
Avery Daniel Katz 435 E. 70th Street July 20, 1984
New York, N.Y. 10021
Lindsay Rider MacKinnon Mountain Farm Road January 27, 1981
Tuxedo Park, N.Y. 10987
Eric Alfred Pietrzak 95 Corona Avenue January 29, 1981
Pelham, N.Y. 10803
Angus Washburn Smith 12 Masterton Road October 15, 1982
Bronxville, N.Y. 10708
Elisabeth Lyon Smith 12 Masterton Road October 15, 1982
Bronxville, N.Y. 10708
|
11.2. Termination.
(a) The Trust may be terminated by the affirmative vote of the holders of not less than two-thirds of the Shares of each Series of the Trust at any meeting of Shareholders or by an instrument in writing, without a meeting, signed by a majority of the Trustees and consented to by the holders of not less than two-thirds of such Shares. Any Series may be so terminated by vote or written consent of not less than two-thirds of the Shares of such Series. Upon the termination of the Trust or any Series,
(i) The Trust or such Series shall carry on no business except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust or such Series and all of the powers of the Trustees under this Declaration shall continue until the affairs of the Trust or such Series shall have been wound up, including the power to fulfill or discharge the
27.
contracts of the Trust or such Series, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining Trust Property to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business; provided that any sale, conveyance, assignment, exchange, transfer or other disposition of all or substantially all the Trust Property shall require approval of the principal terms of the transaction and the nature and amount of the consideration by vote or consent of the holders of a majority of the Shares entitled to vote.
(iii) After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and refunding agreements, as they deem necessary for their protection, the Trustees may distribute the remaining Trust Property of any Series, in cash or in kind or partly each, among the Shareholders of such Series according to their respective rights.
(b) After termination of the Trust or any Series and distribution to the Shareholders as herein provided, a majority of the Trustees shall execute and lodge among the records of the Trust an instrument in writing setting forth the fact of such termination. Upon termination of the Trust, the Trustees shall thereupon be discharged from all further liabilities and duties hereunder, and the rights and interests of all Shareholders shall thereupon cease. Upon termination of any Series, the Trustees shall thereunder be discharged from all further liabilities and duties with respect to such Series, and the rights and interests of all Shareholders of such Series shall thereupon cease.
(a) This Declaration may be amended by the affirmative vote of the holders of not less than a majority of the Shares at any meeting of Shareholders or by an instrument in writing, without a meeting, signed by a majority of the Trustees and consented to by the holders of not less than a majority of such Shares. The Shareholders of each Series shall have the right to vote separately on amendments to this Declaration to the extent provided by Section 10.1. The Trustees may also amend this Declaration without the vote or consent of Shareholders if they deem it necessary to conform this Declaration to the requirements of applicable federal laws or regulations or the requirements of the regulated investment company provisions of the Internal Revenue Code, but the Trustees shall not be liable for failing so to do.
(b) No amendment may be made, under Section 11.3(a) above, which would change any rights with respect to any Shares of the Trust by reducing the amount payable thereon upon liquidation of the Trust or by diminishing or eliminating any voting rights pertaining thereto, except with the vote or consent of the holders of two-thirds of the Shares of each Series. Nothing contained in this Declaration shall permit the amendment of this Declaration to impair the
28.
exemption from personal liability of the Shareholders, Trustees, officers, employees and agents of the Trust or to permit assessments upon Shareholders.
(c) A certification in recordable form signed by a majority of the Trustees setting forth an amendment and reciting that it was duly adopted by the Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as amended, in recordable form, and executed by a majority of the Trustees, shall be conclusive evidence of such amendment when lodged among the records of the trust.
Notwithstanding any other provision hereof, until such time as a Registration Statement under the Securities Act of 1933, as amended, covering the first public offering of Shares of the Trust shall have become effective, this Declaration of Trust may be terminated or amended in any respect by the affirmative vote of a majority of the Trustees or by an instrument signed by a majority of the Trustees.
29.
and any such corporation, trust, partnership, association or other organization if and to the extent permitted by law, as provided under the law then in effect. Nothing contained herein shall be construed as requiring approval of Shareholders for the Trustees to organize or assist in organizing one or more corporations, trusts, partnerships, associations or other organizations and selling, conveying or transferring a portion of the Trust Property to such organizations or entities.
30.
ARTICLE XII
31.
Trustees, or (h) the existence of any fact or facts which in any manner relate to the affairs of the Trust or any Series, shall be conclusive evidence as to the matters so certified in favor of any person dealing with the Trustees and their successors.
(a) The provisions of this Declaration are severable, and if the Trustees shall determine, with the advice of counsel, that any of such provisions is in conflict with 1940 Act, the regulated investment company provisions of the Internal Revenue Code or with other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of this Declaration; provided, however, that such determination shall not affect any of the remaining provisions of this Declaration or render invalid or improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of this Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as of the day and year first above written.
/s/ Philip L. Kirstein -------------------------------- Philip L. Kirstein 9 Liberty Street Ossining, New York 10562 /s/ Gerald M. Richard -------------------------------- Gerald M. Richard 6 Fawn Drive Belle Mead, New Jersey 08502 /s/ Robert Harris -------------------------------- Robert Harris 22 Zeloof Drive West Windsor, New Jersey 08646 /s/ William E. Aldrich -------------------------------- William E. Aldrich 111 Windsor Road Needham, Massachusetts 02192 |
32.
EXHIBIT 99.1(b)
MERRILL LYNCH MULTI-STATE TAX-EXEMPT SERIES TRUST
The undersigned, constituting a majority of the Trustees of Merrill Lynch Multi-State Tax-Exempt Series Trust (the "Trust"), a Massachusetts business trust which is a series trust consisting of four series as of the date hereof, including Merrill Lynch Michigan Municipal Bond Fund, Merrill Lynch New York Municipal Bond Fund, Merrill Lynch Ohio Municipal Bond Fund, and Merrill Lynch Pennsylvania Municipal Bond Fund, hereby certify that the Trustees of the Trust have duly adopted the following amendment to the Declaration of Trust of the Fund dated the 2nd day of August, 1985.
VOTED: That the Declaration of Trust dated August 2, 1985 be and it hereby is
amended to change the name of the Trust from "Merrill Lynch Multi-State
Tax-Exempt Series Trust" to "Merrill Lynch Multi-State Municipal Bond
Series Trust" in the following manner:
1.1. Name. The name of the trust created hereby (the "Trust",
----
which term shall be deemed to include any Series of the Trust when the
context requires) shall be "Merrill Lynch Multi-State Municipal Bond
Series Trust", and so far as may be practicable the Trustees shall
conduct the activities of the Trust, execute all documents and sue or
be sued under that name, which name (and the word "Trust" wherever
|
hereinafter used) shall refer to the Trustees as Trustees, and not individually, and shall not refer to the officers, agents, employees or Shareholders of the Trust or any Series thereof. Each Series of the Trust which shall be established and designated by the Trustees pursuant to Section 6.2 shall conduct its activities under such name as the Trustees shall determine and set forth in the instrument establishing such Series. Should the Trustees determine that the use of the name of the Trust or any such Series is not advisable, they may select such other name for the Trust or such Series as they deem proper and the Trust or Series may conduct its activities under such other name. Any name change
shall become effective upon the execution by a majority of the then Trustees of an instrument setting forth the new name. Any such instrument shall have the status of an amendment to this Declaration.
IN WITNESS WHEREOF, the undersigned, constituting a majority of the Trustees of the Trust, have signed this Certificate in duplicate original counterparts and have caused a duplicate original to be lodged among the records of the Trust as required by Article X of the Declaration of Trust, as of the 18th day of September, 1987.
/s/ Arthur Zeikel -------------------------------------- Arthur Zeikel 279 Watchung Fork Westfield, New Jersey 07090 /s/ Kenneth J. Axelson -------------------------------------- Kenneth S. Axelson 307 Gross Neck Road Waldoboro, Maine 04572 /s/ Andre F. Perold -------------------------------------- Andre F. Perold 174 Allen Avenue Waban, Massachusetts 02168 /s/ Robert F. Vandell -------------------------------------- Robert F. Vandell 106 Cavalier Charlottesville, Virginia 22906 |
EXHIBIT 99.1(c)
MERRILL LYNCH MULTI-STATE MUNICIPAL BOND SERIES TRUST
The undersigned, constituting a majority of the Trustees of Merrill Lynch Multi-State Municipal Bond Series Trust (the "Trust"), a Massachusetts business trust which is a series trust consisting of four series as of the date hereof, including Merrill Lynch Michigan Municipal Bond Fund, Merrill Lynch New York Municipal Bond Fund, Merrill Lynch Ohio Municipal Bond Fund, and Merrill Lynch Pennsylvania Municipal Bond Fund, hereby certify that the Trustees of the Trust have duly adopted the following amendment to the Declaration of Trust of the Fund dated the 2nd day of August, 1985, as amended.
Voted: That the Declaration of Trust dated August 2, 1985, as amended, be and
it hereby is amended to change the name of the Trust from "Merrill
Lynch Multi-State Municipal Bond Series Trust" to "Merrill Lynch
Multi-State Municipal Series Trust" in the following manner:
1.1. Name. The name of the trust created hereby (the "Trust", which
term shall be deemed to include any Series of the Trust when the
context requires) shall be "Merrill Lynch Multi-State Municipal Series
Trust", and so far as may be practicable the Trustees shall conduct
the activities of the Trust, execute all documents and sue or be sued
under that name, which name (and the word "Trust" wherever hereinafter
|
used) shall refer to the Trustees as Trustees, and not individually,
and shall not refer to the officers, agents, employees or Shareholders
of the Trust or any Series thereof. Each Series of the Trust which
shall be established and designated by the Trustees pursuant to
Section 6.2 shall conduct its activities under such name as the
Trustees shall determine and set forth in the instrument establishing
such Series. Should the Trustees determine that the use of the name of
the Trust or any such Series is not advisable, they may select such
other name for the Trust or such Series as they deem proper and the
Trust or Series may conduct its activities under such other name. Any
name change shall become effective upon the execution by a majority of
the then Trustees of an instrument setting forth the new name. Any
such instrument shall have the status of an amendment to this
Declaration.
IN WITNESS WHEREOF, the undersigned, constituting a majority of the Trustees of the Trust, have signed this Certificate in duplicate original counterparts and have caused a duplicate original to be lodged amount the records of the Trust as required
by Article X of the Declaration of Trust, as of the 21st day of December, 1987.
/s/ Arthur Zeikel ----------------------------------------- Arthur Zeikel 279 Watchung Fork Westfield New Jersey 07090 /s/ Kenneth S. Axelson ----------------------------------------- Kenneth S. Axelson 307 Gross Neck Road Waldoboro, Maine 04572 /s/ Andre F. Perold ----------------------------------------- Andre F. Perold 56 Burnstable Road West Newton, Massachussetts 02165 /s/ Robert F. Vandell ----------------------------------------- Robert F. Vandell 106 Cavalier Charlottesville, Virginia 22906 /s/ Herbert I. London ----------------------------------------- Herbert I. London Washington Square Village New York, New York 10012 /s/ Joseph L. May ----------------------------------------- Joseph L. May 2305 Hampton Avenue Nashville, Tennessee 37215 |
EXHIBIT 99.1(d)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
The Undersigned, constituting a majority of the Trustees of Merrill Lynch Multi-State Municipal Series Trust (the "Trust"), a Massachusetts business trust, hereby certify that the Trustees of the Trust have duly adopted the following amendment, as approved by a majority of the shareholders of the Trust, to the Declaration of Trust, as amended, of the Trust, dated the 2nd day of August, 1985 (the "Declaration").
VOTED: Section 1.2 of Article 1 of the Declaration be, and it hereby is, amended in its entirety to read as follows:
VOTED: That Section 6.2 of Article VI of the Declaration be, and it hereby is, amended in its entirety to read as follows:
2.
conditions under which the several Series shall have separate voting rights. All references to Shares in this Declaration shall be deemed to be shares of any or all Series as the context may require.
The Trustees, in their discretion without a vote of the Shareholders, may divide the shares of beneficial interest of any Series into classes. In such event, each class of a Series shall represent interests in the Trust Property of a Series and have identical voting, dividend, liquidation and other rights and the same terms and conditions except that expenses related directly or indirectly to the distribution of the Shares of a class of a Series may be borne solely by such class (as shall be determined by the Trustees) and, as provided in Section 10.1, a class of a Series may have exclusive voting rights with respect to matters relating to the expenses being borne solely by such class. The bearing of such expenses solely by a class of Shares of a Series shall be appropriately reflected (in the manner determined by the Trustees) in the net asset value, dividend and liquidation rights of the Shares of such class of a Series. The division of the Shares of a Series into classes and the terms and conditions pursuant to which the Shares of the classes of a Series will be issued must be made in compliance with the 1940 Act. No division of Shares of a Series into classes shall result in the creation of a class of Shares having a preference as to dividends or distributions or a preference in the event of any liquidation, termination or winding up of the Trust.
If the Trustee shall divide the Shares into two or more Series, the following provisions shall be applicable:
(a) the number of Shares of each Series and of each class of a Series that may be issued shall be unlimited. The Trustees may classify or reclassify any unissued Shares or any Shares previously issued and required of any Series into one or more Series that may be established and designated from time to time. The Trustees may hold as treasury Shares (of the same or some other Series), reissue for such consideration and on such terms as they may determine, or cancel any Shares of any Series required by the Trust at their discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust Property of each Series that may be established shall be governed by Section 3.2 of this Declaration.
(c) All consideration received by the Trust for the issue or sale of Shares of a particular Series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds
3.
thereof, including any proceeds derived from the sale, exchange or liquidation or such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to that Series for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Trust. In the event that there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular Series, the Trustee shall allocate them among any one or more of the Series established and designated from time to time in such manner and on such basis as they, in their sole discretion, deem fair and equitable. Each such allocation by the Trustees shall be conclusive and binding upon the shareholders of all Series for all purposes.
(d) The assets belonging to each particular Series shall be charged with the liabilities of the Trust in respect of that Series only and all expenses, costs, charges and reserves attributable to that Series and shall not be charged with the liabilities, expenses, costs, charges and reserves attributable to other Series, and any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular Series shall be allocated and charged by the Trustees to and among any one or more of the Series established and designated from time to time in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the holders of all Series for all purposes. The Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions with respect to any one or more Series shall be governed by Section 9.2 of this Declaration. Dividends and distributions on Shares of a particular Series may be paid with such frequency as the Trustees may determine, to the holders of Shares of that Series, from such of the income and capital gains, accrued or realized, from the assets belonging to that Series, as the Trustees may determine, after providing for actual and accrued liabilities belonging to that Series. All dividends and distributions on Shares of a particular Series shall be distributed pro rata to the holders of that Series in proportion to the number of Shares of that Series held by such holders at the date and time of record established for the payment of such dividends or distributions, except that such dividends and distributions
4.
shall appropriately reflect expenses related directly or indirectly to the distribution of Shares of a class of such Series.
The establishment and designation of any Series of Shares shall be effective upon the execution by a majority of the then Trustees of an instrument setting forth the establishment and designation of such Series. Such instrument shall also set forth any rights and preferences of such Series which are in addition to the rights and preferences of Shares set forth in this Declaration. At any time that there are no Shares outstanding of any particular Series previously established and designated, the Trustees may by an instrument executed by a majority of their number abolish that Series and the establishment and designation thereof. Each instrument referred to in this paragraph shall have the status of an amendment to this Declaration.
VOTED: That Sections 9.1, 9.2 and 9.4 of Article IX of the Declaration be, and they hereby are, amended in their entirety to read as follows:
5.
among the Shareholders of record at the time of declaring a distribution or among the Shareholders of record at such later date as the Trustees shall determine. The Trustees may always retain from the net profits such amount as they may deem necessary to pay the debts or expenses of the Trust or to meet obligations of the Trust, or as they deem desirable to use in the conduct of its affairs or to retain for future requirements or extensions of the business. The Trustees may adopt and offer to Shareholders of any Series such dividend reinvestment plans, cash dividend payout plans or related plans as the Trustees shall deem appropriate for such Series.
Inasmuch as the computation of net income and gains for Federal income tax purposes may vary from the computation thereof on the books, the above provisions shall be interpreted to give the Trustees the power in their discretion to distribute for any fiscal year as ordinary dividends and as capital gains distributions, respectively, additional amounts sufficient to enable the Trust to avoid or reduce liability for taxes.
VOTED: That Sections 10.1 and 10.2 of Article X of the Declaration be, and they hereby are, amended in their entirety to read as follows:
6.
divided into classes as provided in Article VI hereof, the Shares of each class shall have identical voting rights except that the Trustees, in their discretion, may provide a class of a Series with exclusive voting rights with respect to matters related to expenses being borne solely by such class.
VOTED: That Section 11.2 of Article XI of the Declaration be, and it hereby is, amended in its entirety to read as follows:
7.
(i) The Trust or such Series shall carry on no business except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust or such Series and all of the powers of the Trustees under this Declaration shall continue until the affairs of the Trust or such Series shall have been wound up, including the power to fulfill or discharge the contracts of the Trust or such Series, collects its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining Trust Property to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business; provided that any sale, conveyance, assignment, exchange, transfer or other disposition of all or substantially all the Trust Property shall require approval of the principal terms of the transaction and the nature and amount of the consideration by vote or consent of the holders of a majority of the Shares entitled to vote.
(iii) After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and refunding agreements, as they deem necessary for their protection, the Trustees may distribute the remaining Trust Property of any Series, in cash or in kind or partly each, among the Shareholders of such Series and each class of such Series, according to their respective rights taking into account the proper allocation of expenses being borne solely by any Series or any class of Shares of a Series.
(b) After termination of the Trust or a Series and distribution to the Shareholders as herein provided, a majority of the Trustees shall execute and lodge among the records of the Trust an instrument in writing setting forth the fact of such termination. Upon termination of the Trust, the Trustees shall thereupon be discharged from all further liabilities and duties hereunder, and the rights and interests of all Shareholders shall thereupon cease. Upon termination of any Series, the Trustees shall thereupon be discharged from all further liabilities and duties with respect to such Series, and the rights and interests of all Shareholders of such Series shall thereupon cease.
8.
IN WITNESS WHEREOF, the undersigned, constituting a majority of the Trustees, have signed this certificate in duplicate original counterparts and have caused a duplicate original to be lodged among the records of the Trust as required by Article XI, Section 11.3(c) of the Declaration of Trust as of the 3rd day of October, 1988.
/s/ Kenneth G. Axelson /s/ Andre F. Perold
- ----------------------------- -------------------------------
Kenneth G. Axelson Andre F. Perold
307 Gross Neck Road 56 Barnstable Road
Waldoboro, Maine 04572 West Newton, Massachusetts 02165
/s/ Herbert I. London /s/ Arthur Zeikel
- ----------------------------- -------------------------------
Herbert I. London Arthur Zeikel
2 Washington Square Village 279 Watchung Fork
New York, New York 10012 Westfield, New Jersey 07090
/s/ Joseph L. May
- -----------------------------
Joseph L. May
2305 Hampton Avenue
Nashville, Tennessee 37215
9.
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Exhibit 99.1(e)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
Certification Of Amendment
To Declaration Of Trust
and
Establishment and Designation of Classes
The undersigned, constituting a majority of the Trustees of Merrill Lynch Multi-State Municipal Series Trust (the "Trust"), a Massachusetts business trust, hereby certify that the Trustees of the Trust have duly adopted the following amendments, as approved by a majority of the shareholders of the Trust, to the Trust's Declaration of Trust.
VOTED: That the second paragraph of Section 6.2 of Article VI of the Declaration of Trust be, and it hereby is, amended by adding the following:
The Trustees may provide that shares of a class will be exchanged for shares of another class without any act or deed on the part of the holder of shares of the class being exchanged, whether or not shares of such class are issued and outstanding, all on terms and conditions as the Trustees may specify. The Trustees may redesignate a class or series of shares of beneficial interest or a portion of a class or series of shares of beneficial interest whether or not shares of such class or series are issued and outstanding, provided that such redesignation does not substantially adversely affect the preference, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such issued and outstanding shares of beneficial interest.
VOTED: That Section 6.3 of Article VI of the Declaration of Trust be, and it hereby is, amended in its entirety to read as follows:
every description and the right to conduct any business hereinbefore described are vested exclusively in the Trustees, and the Shareholders shall have no interest therein other than the beneficial interest conferred by their Shares with respect to a particular Series, and they shall have no right to call for any partition or division of any property, profits, rights or interests of the Trust nor can they be called upon to share or assume any losses of the Trust or suffer an assessment of any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights in this Declaration specifically set forth. The Shares shall not entitle the holder to preference, preemptive, appraisal, conversion or exchange rights (except for rights of appraisal specified in Section 11.4 and except as may be specified by the Trustees in connection with the division of shares into classes or the redesignation of classes or portions of classes in accordance with Section 6.2).
VOTED: That Section 10.1 of Article X of the Declaration of Trust be, and it hereby is, amended in its entirety to read as follows:
The undersigned, being a majority of the Trustees of the Trust, acting pursuant to Section 6.1 of the Declaration of Trust, do hereby divide the shares of beneficial interest of each series of the Trust to create four classes of shares, within the meaning of said Section 6.1, as follows:
1. The four classes of shares are designated "Class A Shares," "Class B Shares," "Class C Shares," and "Class D Shares."
2. Class A Shares, Class B Shares, Class C Shares and Class D Shares shall be entitled to all of the rights and preferences accorded to Shares under the Declaration of Trust.
3. The purchase price, the method of determination of net asset value, the price, terms and manner of redemption, and the relative dividend rights of holders of Class A Shares, Class B Shares, Class C Shares and Class D Shares shall be established by the Trustees of the Trust in accordance with the provisions of the Declaration of Trust and shall be set forth in the currently effective prospectus and statement of additional information of the Trust relating to each series of the Trust, as amended from time to time, contained in the Trust's registration statement under the Securities Act of 1933, as amended.
4. Class A Shares, Class B Shares, Class C Shares and Class D Shares shall vote together as a single class except that shares of a class may vote separately on matters affecting only that class and shares of a class not affected by a matter will not vote on that matter.
5. A class of shares of any series of the Trust may be terminated by the Trustees by written notice to the Shareholders of the class.
IN WITNESS WHEREOF, the undersigned, constituting a majority of the Trustees of the Trust, have signed this certificate in duplicate original counterparts and have caused a duplicate original to be lodged among the records of the Trust as required by Article XI, Section 11.3(c) of the Declaration of Trust, as of the 17th day of October, 1994.
/s/ Kenneth S. Axelson /s/ Herbert I. London
- ---------------------- ---------------------
Kenneth S. Axelson Herbert I. London
75 Jameson Point Road 2 Washington Square Village
Rockland, ME 04841 Apartment 12B
New York, NY 10012
/s/ Robert R. Martin /s/ Joseph L. May
- ---------------------- ---------------------
Robert R. Martin Joseph L. May
513 Grand Hill 2136 Golf Club Lane
St. Paul, MN 55102 Nashville, TN 37215
/s/ Andre F. Perold /s/ Arthur Zeikel
- ---------------------- ---------------------
Andre F. Perold Arthur Zeikel
56 Barnstable Road 300 Woodland Avenue
West Newton, MA 02165 Westfield, NJ 07090
|
The Declaration of Trust establishing Merrill Lynch Multi-State Municipal Series Trust, dated August 2, 1985, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name of the Trust, "Merrill Lynch Multi-State Municipal Series Trust," refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of Merrill Lynch Multi-State Municipal Series Trust shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise in connection with the affairs of said Trust, but the "Trust Property" only shall be liable.
EXHIBIT 99.2
BY-LAWS
OF
MERRILL LYNCH MULTI-STATE TAX-EXEMPT SERIES TRUST
These By-Laws are made and adopted pursuant to Section 2.6 of the Declaration of Trust establishing MERRILL LYNCH MULTI-STATE TAX-EXEMPT SERIES TRUST, dated August 2, 1985, as from time to time amended (hereinafter called the "Declaration"). All words and terms capitalized in these By-Laws shall have the meaning or meanings set forth for such words or terms in the Declaration.
1.
eleven (11) months from the date of its execution, unless a longer period is expressly stated in such proxy.
2.
Shareholders shall not affect the validity of the appointment of Inspectors of Election. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the Trustees in advance of the convening of the meeting or at the meeting by the person acting as chairman. The Inspectors of Election shall determine the number of Shares outstanding, the Shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, shall receive votes, ballots or consents, shall hear and determine all challenges and questions in any way arising in connection with the right to vote, shall count and tabulate all votes or consents, determine the results, and do such other acts as may be proper to conduct the election or vote with fairness to all Shareholders. If there are three Inspectors of Election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. On request of the Chairman, if any, of the meeting, or of any Shareholder or his proxy, the Inspectors of Election shall make a report in writing of any challenge or question or matter determined by them and shall execute a certificate of any facts found by them.
3.
and correct by the Secretary or other proper agent of the Trust, as of the record date of the meeting or the date of closing of transfer books, as the case may be. Such list of Shareholders shall contain the name of each Shareholder in alphabetical order and the address and number of Shares owned by such Shareholder. Shareholders shall have such other rights and procedures of inspection of the books and records of the Trust as are granted to shareholders of a Massachusetts business corporation.
4.
delivered personally. If notice is given by mail, it shall be mailed not later than 48 hours preceding the meeting and if given by telegram or personally, such telegram shall be sent or delivery made not later than 48 hours preceding the meeting. Notice by telephone shall constitute personal delivery for these purposes. Notice of a meeting of Trustees may be waived before or after any meeting by signed written waiver. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Trustees need be stated in the notice or waiver of notice of such meeting, and no notice need be given of action proposed to be taken by unanimous written consent. The attendance of a Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Trustee attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
5.
6.
majority of the Trustees. This provision shall not prevent the making of a contract of employment for a definite term with any officer and shall have no effect upon any cause of action which any officer may have as a result of removal in breach of a contract of employment. Any officer may resign at any time by notice in writing signed by such officer and delivered or mailed to the Chairman, if any, President, or Secretary, and such resignation shall take effect immediately upon receipt by the Chairman, if any, President, or Secretary, or at a later date according to the terms of such notice in writing.
7.
a corporation. In the absence of the Chairman, if any, the President shall preside at all meetings of the Shareholders and of the Trustees. The President shall be, ex officio, a member of all standing committees, except as otherwise provided in the resolutions or instruments creating any such committees. Subject to direction of the Trustees, the Chairman, if any, and the President shall each have power in the name and on behalf of the Trust to execute any and all loan documents, contracts, agreements, deeds, mortgages, and other instruments in writing, and to employ and discharge employees and agents of the Trust. Unless otherwise directed by the Trustees, the Chairman, if any, and the President shall each have full authority and power, on behalf of all of the Trustees, to attend and to act and to vote, on behalf of the Trust at any meetings of business organizations in which the Trust holds an interest, or to confer such powers upon any other persons, by executing any proxies duly authorizing such persons. The Chairman, if any, and the President shall have such further authorities and duties as the Trustees shall from time to time determine. In the absence or disability of the President, the Vice-Presidents in order of their rank as fixed by the Trustees or, if more than one and not ranked, the Vice- President designated by the Trustees, shall perform all of the duties of the President, and when so acting shall have all the powers of and be subject to all of the restrictions upon the President. Subject to the direction of the Trustees, and of the President,
8.
each Vice-President shall have the power in the name and on behalf of the Trust to execute any and all loan documents, contracts, agreements, deeds, mortgages and other instruments in writing, and, in addition, shall have such other duties and powers as shall be designated from time to time by the Trustees or by the President.
9.
president all powers and duties normally incident to his office. He may endorse for deposit or collection all notes, checks and other instruments payable to the Trust or to its order. He shall deposit all funds of the Trust in such depositories as the Trustees shall designate. He shall be responsible for such disbursement of the funds of the Trust as may be ordered by the Trustees or the President. He shall keep accurate account of the books of the Trust's transactions which shall be the property of the Trust, and which together with all other property of the Trust in his possession, shall be subject at all times to the inspection and control of the Trustees. Unless the Trustses shall otherwise determine, the Treasurer shall be the principal accounting officer of the Trust and shall also be the principal financial officer of the Trust. He shall have such other duties and authorities as the Trustees shall from time to time determine. Notwithstanding anything to the contrary herein contained, the Trustees may authorize any adviser, administrator, manager or transfer agent to maintain bank accounts and deposit and disburse funds of any Series of the Trust on behalf of such Series.
10.
shall assist that officer in the duties of his office. Each officer, employee and agent of the Trust shall have such other duties and authority as may be conferred upon him by the Trustees or delegated to him by the President.
11.
12.
thereof for all purposes and shall not be required to take any notice of any right or claim of right of any other person.
The Declaration of Trust establishing Merrill Lynch Multi-State Tax-Exempt Series Trust, dated August 2, 1985, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name Merrill Lynch Multi-State Tax-Exempt Series Trust refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of Merrill Lynch Multi-State Tax-Exempt Series Trust shall be held to any personal liability, nor shall resort be had to
13.
their private property for the satisfaction of any obligation or claim or otherwise in connection with the affairs of said Merrill Lynch Multi-state Tax- Exempt Series Trust but the Trust Property only shall be liable.
14.
EXHIBIT 99.5(a)
MANAGEMENT AGREEMENT
AGREEMENT made this [DATE] day of [MONTH], 199[YEAR], by and between MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST, a Massachusetts business trust (hereinafter referred to as the "Trust"), and FUND ASSET MANAGEMENT, L.P., a Delaware limited partnership (hereinafter referred to as the "Manager").
WHEREAS, the Trust is engaged in business as an open-end investment company registered under the Investment Company Act of 1940, as amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to establish separate series relating to separate portfolios of securities, each of which will offer separate classes of shares; and
WHEREAS, the Trustees have established and designated the MERRILL LYNCH
[STATE] MUNICIPAL BOND FUND (the "Fund") as a series of the Trust; and
WHEREAS, the Manager is engaged principally in rendering management and investment advisory services and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust desires to retain the Manager to render management and investment advisory services to the Trust and the Fund in the manner and on the terms hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment advisory services to the Trust and the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, the Trust and the Manager hereby agree as follows:
The Trust hereby employs the Manager to act as an investment manager and investment adviser of the Fund and to furnish or arrange for affiliates to furnish, the management and investment advisory services described below, subject to policies of, review by and overall control of the Trustees, for the period and on the terms and conditions set forth in this Agreement. The Manager hereby accepts such employment and agrees during such period, at its own expense, to render, or arrange for the rendering of, such services and to assume the obligations herein set forth for the compensation provided for herein. The Manager and its affiliates shall for all purposes herein be deemed to be independent contractors and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Trust
or the Fund in any way or otherwise be deemed agents of the Trust or the Fund.
obligations hereunder and furnish advice and recommendations with respect to such other aspects of the business and affairs of the Trust and the Fund as it shall determine to be desirable.
until similarly notified that such determination has been revoked. The Manager shall take, on behalf of the Fund, all actions which it deems necessary to implement the investment policies determined as provided above, and in particular to place all orders for the purchase or sale of portfolio securities for the Fund's account with brokers or dealers selected by it, and to this end the Manager is authorized as the agent of the Trust to give instructions to the custodian of the Fund as to deliveries of securities and payments of cash for the account of the Fund. In connection with the selection of such brokers or dealers and the placing of such orders with respect to assets of the Fund, the Manager is directed at all times to seek to obtain execution and price within the policy guidelines determined by the Trustees as set forth in the Prospectus and Statement of Additional Information. Subject to this requirement and the provisions of the Investment Company Act, the Securities Exchange Act of 1934, as amended, and other applicable provisions of law, the Manager may select brokers or dealers with which it or the Trust is affiliated.
membership of the partnership within a reasonable time after such change.
ARTICLE II
expenses properly payable by the Trust and the Fund. It also is understood that the Trust will reimburse the Manager for its costs in providing accounting services to the Trust and the Fund. The Distributor will pay certain of the expenses of the Fund incurred in connection with the continuous offering of Fund shares.
possible after completion of the computations contemplated by subsection (b) hereof. During any period when the determination of net asset value is suspended by the Trustees, the net asset value as of the last business day prior to such suspension shall for this purpose be deemed to be the net asset value at the close of each succeeding business day until it is again determined.
limitations shall be applicable as an offset against the monthly payment of the management fee due to the Manager. Should two or more such expense limitations be applicable as of the end of the last business day of the month, that expense limitation which results in the largest reduction in the Manager's fee shall be applicable.
The Manager shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the management of the Trust and the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this Article IV, the term "Manager" shall include any affiliates of the Manager performing services for the Trust or the Fund contemplated hereby and directors, officers and employees of the Manager and such affiliates.
The services of the Manager to the Trust and the Fund are not to be deemed to be exclusive, and the Manager and any person controlled by or under common control with the Manager (for purposes of Article V referred to as "affiliates") are free to
render services to others. It is understood that Trustees, officers, employees and shareholders of the Trust and the Fund are or may become interested in the Manager and its affiliates, as directors, officers, employees and shareholders or otherwise, and that directors, officers, employees and shareholders of the Manager and its affiliates are or may become similarly interested in the Trust and the Fund, and that the Manager may become interested in the Trust and the Fund as a shareholder or otherwise.
This Agreement shall become effective as of the date first above written and shall remain in force until [DATE] and thereafter, but only for so long as such continuance is specifically approved at least annually by (i) the Trustees, or by the vote of a majority of the outstanding voting securities of the Fund, and (ii) by the vote of a majority of those Trustees who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees or by vote of a majority of the outstanding voting securities of the Fund, or by the Manager, on sixty days' written notice to the other party. This
Agreement shall terminate automatically in the event of its assignment.
This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of (i) a majority of the outstanding voting securities of the Fund, and (ii) a majority of those Trustees who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
The terms "vote of a majority of the outstanding voting securities", "assignment", "affiliated person" and "interested person", when used in this Agreement, shall have the respective meanings specified in the Investment Company Act and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the Investment Company Act.
This Agreement shall be construed in accordance with laws of the State of New York and the applicable provisions of the Investment Company Act. To the extent that the applicable laws of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the latter shall control.
The Declaration of Trust establishing Merrill Lynch Multi-State Municipal Series Trust, dated August 2, 1985, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name "Merrill Lynch Multi-State Municipal Series Trust" refers to the trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of Merrill Lynch Multi-State Municipal Series Trust shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise in connection with the affairs of said Merrill Lynch Multi-State Municipal Series Trust, but the "Trust Property" only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written.
MERRILL LYNCH MULTI-STATE
MUNICIPAL SERIES TRUST
FUND ASSET MANAGEMENT, L.P.
EXHIBIT 99.6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the [DATE] day of [MONTH], 199[YEAR], between MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST, a Massachusetts business trust (the "Trust"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended to date (the "Investment Company Act"), as an open-end investment company and it is affirmatively in the interest of the Trust to offer its shares for sale continuously; and
WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to establish separate series (the "Series") relating to separate portfolios of securities, each of which will offer separate classes of shares of beneficial interest, par value $0.10 per share (collectively referred to as "shares") to selected groups of purchasers; and
WHEREAS, the Trustees have established and designated the Merrill Lynch
[STATE] Municipal Bond Fund (the "Fund") as a series of the Trust; and
WHEREAS, the Distributor is a securities firm engaged in the business of selling shares of investment companies either directly to purchasers or through other securities dealers; and
WHEREAS, the Trust and the Distributor wish to enter into an agreement with each other with respect to the subscription offering and the continuous offering of the Class B shares of beneficial interest of the Fund.
NOW, THEREFORE, the parties agree as follows:
(a) The Trust may, upon written notice to the Distributor, from time to time designate other principal underwriters and distributors of Class B shares with respect to areas other than the United States as to which the Distributor may have expressly waived in writing its right to act as such. If such designation is deemed exclusive, the right of the Distributor under this Agreement to sell Class B shares in the areas so designated shall terminate, but this Agreement shall remain otherwise in full effect until terminated in accordance with the other provisions hereof.
(b) The exclusive rights granted to the Distributor to purchase Class B shares from the Trust shall not apply to Class B shares issued in connection with the merger or consolidation of any other investment company or personal holding company with the Trust or the acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding Class B shares of any such company by the Trust.
(c) Such exclusive rights also shall not apply to Class B shares issued pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive rights also shall not apply to Class B shares issued pursuant to any reinstatement privilege afforded redeeming shareholders.
(b) After the Fund commences operations, the Trust will commence an offering of Class B shares of the Fund and thereafter the Distributor shall have the right to buy from the Trust the Class B shares needed, but not more than the Class B shares
needed (except for clerical errors in transmission), to fill unconditional orders for Class B shares of the Fund placed with the Distributor by investors or securities dealers. The price which the Distributor shall pay for the Class B shares so purchased from the Trust shall be the net asset value, determined as set forth in Section 3(d) hereof.
(c) The Class B shares are to be resold by the Distributor to investors at net asset value, as set forth in Section 3(d) hereof, or to securities dealers having agreements with the Distributor upon the terms and conditions set forth in Section 7 hereof.
(d) The net asset value of Class B shares of the Fund shall be determined by the Trust or any agent of the Trust in accordance with the method set forth in the prospectus and statement of additional information relating to the Fund and guidelines established by the Board of Trustees.
(e) The Trust shall have the right to suspend the sale of Class B shares at times when redemption is suspended pursuant to the conditions set forth in Section 4(b) hereof. The Trust shall also have the right to suspend the sale of Class B shares if trading on the New York Stock Exchange shall have been suspended, if a banking moratorium shall have been declared by Federal or New York authorities, or if there shall have been some other event, which, in the judgment of the Trust, makes it impracticable or inadvisable to sell the shares.
(f) The Trust, or any agent of the Trust designated in writing by the Trust, shall be promptly advised of all purchase orders for Class B shares received by the Distributor. Any order may be rejected by the Trust; provided, however, that the Trust will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of Class B shares. The Trust (or its agent) will confirm orders upon their receipt, will make appropriate book entries and, upon receipt by the Trust (or its agent) of payment therefor, will deliver deposit receipts or certificates for such Class B shares pursuant to the instructions of the Distributor. Payment shall be made to the Trust in New York Clearing House funds. The Distributor agrees to cause such payment and such instructions to be delivered promptly to the Trust (or its agent).
prospectus and statement of additional information relating to the Fund. All payments by the Trust hereunder shall be made in the manner set forth below.
The Trust shall pay the total amount of the redemption price as defined in the above paragraph pursuant to the instructions of the Distributor on or before the seventh business day subsequent to its having received the notice of redemption in proper form. The proceeds of any redemption of shares shall be paid by the Trust as follows: (i) any applicable contingent deferred sales charge shall be paid to the Distributor and (ii) the balance shall be paid to or for the account of the shareholder, in each case in accordance with the applicable provisions of the prospectus and statement of additional information.
shares of the Fund, and this shall include, upon request by the Distributor, one certified copy of all financial statements prepared for the Trust by independent public accountants. The Trust shall make available to the Distributor such number of copies of its prospectus and statement of additional information relating to the Fund as the Distributor shall reasonably request.
(b) The Trust shall take, from time to time, but subject to the necessary approval of the shareholders, all necessary action to fix the number of authorized shares and such steps as may be necessary to register the same under the Securities Act of l933, as amended (the "Securities Act"), to the end that there will be available for sale such number of Class B shares as the Distributor reasonably may be expected to sell.
(c) The Trust shall use its best efforts to qualify and maintain the qualification of an appropriate number of Class B shares for sale under the securities laws of such states as the Distributor and the Trust may approve. Any such qualification may be withheld, terminated or withdrawn by the Trust at any time in its discretion. As provided in Section 8(c) hereof, the expense of qualification and maintenance of qualification shall be borne by the Trust. The Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Trust in connection with such qualification.
(d) The Trust will furnish, in reasonable quantities upon request by the Distributor, copies of annual and interim reports relating to the Fund.
(b) In selling the Class B shares of the Fund, the Distributor shall use its best efforts in all respects duly to conform with the requirements of all Federal and state laws relating to the sale of such securities. Neither the Distributor nor any selected dealer, as defined in Section 7 hereof, nor any other person is authorized by the Trust to give any information or to make any representations, other than those contained in the registration statement or related prospectus and statement of additional information and any sales literature specifically approved by the Trust.
(c) The Distributor shall adopt and follow procedures, as approved by the officers of the Trust, for the confirmation of sales to investors and selected dealers, the collection of amounts payable by investors and selected dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National Association of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to time exist.
(b) Within the United States, the Distributor shall offer and sell Class B shares only to such selected dealers as are members in good standing of the NASD.
shareholders (including but not limited to the expense of setting in type any such registration statements, prospectuses, statements of additional information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to selected dealers as reimbursement for their expenses associated with payments of sales commissions to financial consultants. In addition, after the prospectuses, statements of additional information and annual and interim reports have been prepared and set in type, the Distributor shall bear the costs and expenses of printing and distributing any copies thereof which are to be used in connection with the offering of Class B shares to selected dealers or investors pursuant to this Agreement. The Distributor shall bear the costs and expenses of preparing, printing and distributing any other literature used by the Distributor or furnished by it for use by selected dealers in connection with the offering of the Class B shares for sale to the public and any expenses of advertising incurred by the Distributor in connection with such offering. It is understood and agreed that, so long as the Fund's Class B Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act remains in effect, any expenses incurred by the Distributor hereunder may be paid from amounts recovered by it from the Fund under such Plan.
(c) The Trust shall bear the cost and expenses of qualification of the
Class B shares for sale pursuant to this Agreement, and, if necessary or
advisable in connection therewith, of qualifying the Trust as a broker or
dealer, in such states of the United States or other jurisdictions as shall be
selected by the Trust and the Distributor pursuant to Section 5(c) hereof and
the cost and expenses payable to each such state for continuing qualification
therein until the Trust decides to discontinue such qualification pursuant to
Section 5(c) hereof.
information furnished to the Trust in connection therewith by or on behalf of the Distributor; provided, however, that in no case (i) is the indemnity of the Trust in favor of the Distributor and any such controlling persons to be deemed to protect such Distributor or any such controlling persons thereof against any liability to the Trust or its security holders to which the Distributor or any such controlling persons would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their obligations and duties under this Agreement; or (ii) is the Trust to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any such controlling persons, unless the Distributor or such controlling persons, as the case may be, shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Distributor or such controlling persons (or after the Distributor or such controlling persons shall have received notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Trust will be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Trust elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Distributor or such controlling person or persons, defendant or defendants in the suit. In the event the Trust elects to assume the defense of any such suit and retain such counsel, the Distributor or such controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses, as incurred, of any additional counsel retained by them, but, in case the Trust does not elect to assume the defense of any such suit, it will reimburse the Distributor or such controlling person or persons, defendant or defendants in the suit, for the reasonable fees and expenses, as incurred, of any counsel retained by them. The Trust shall promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or Trustees in connection with the issuance or sale of any of the Class B shares.
(b) The Distributor shall indemnify and hold harmless the Trust and each of its Trustees and officers and each person, if any, who controls the Trust against any loss, liability, claim, damage or expense, as incurred, described in the foregoing indemnity contained in subsection (a) of this Section, but only with respect to statements or omissions made in reliance upon, and in conformity with, information furnished to the Trust in writing by or on behalf of the Distributor for use in connection with the registration statement or related prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to shareholders. In case any action shall be brought against the Trust or any person so indemnified, in respect of which indemnity may be sought against the Distributor, the Distributor shall have the rights and duties given to the Trust, and the Trust and each person so indemnified shall have the rights and duties given to the Distributor by the provisions of subsection (a) of this Section 9.
This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees or by vote of a majority of the outstanding Class B voting securities of the Fund, or by the Distributor, on sixty days' written notice to the other party. This Agreement shall terminate automatically in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities," "assignment," "affiliated person" and "interested
person," when used in this Agreement, shall have the respective meanings specified in the Investment Company Act.
held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise in connection with the affairs of said Trust, but the "Trust Property" only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
MERRILL LYNCH MULTI-STATE MUNICIPAL
SERIES TRUST
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
MERRILL LYNCH [STATE] MUNICIPAL BOND FUND
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
CLASS B SHARES OF BENEFICIAL INTEREST
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Multi-State Municipal Series Trust, a Massachusetts
business trust (the "Trust"), pursuant to which it acts as the distributor for
the sale of Class B shares of beneficial interest, par value $0.10 per share
(herein referred to as "Class B shares"), of the Trust relating to Merrill Lynch
[STATE] Municipal Bond Fund (the "Fund"), and as such has the right to
distribute Class B shares of the Fund for resale. The Trust is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the Fund's Class B shares being
offered to the public are registered under the Securities Act of 1933, as
amended (the "Securities Act"). Such Class B Shares and certain of the terms on
which they are being offered are more fully described in the enclosed Prospectus
and Statement of Additional Information. You have received a copy of the Class
B Shares Distribution Agreement (the "Distribution Agreement") between ourself
and the Trust and reference is made herein to certain provisions of such
Distribution Agreement. This Agreement relates solely to the subscription
period described in Section 3(a) of such Distribution Agreement. Subject to the
foregoing, as principal, we offer to sell to you, as a member of the Selected
Dealers Group, Class B shares of the Fund upon the following terms and
conditions:
1. The subscription period referred to in Section 3(a) of the Distribution Agreement will continue through [DATE]. The subscription period may be extended upon agreement between the Trust and the Distributor. Subject to the provisions of such Section and the conditions contained herein, we will sell to you on the fifth business day following the termination of the subscription period, or such other date as we may advise (the "Closing Date"), such number of Class B shares as to which you have placed orders with us not later than 5:00 P.M. on the second full business day preceding the Closing Date.
2. In all sales of these Class B shares to the public you shall act as dealer for your own account, and in no transaction shall you have any authority to act as agent for the Trust, for us or for any other member of the Selected Dealers Group.
3. You shall not place orders for any of the Class B shares unless you have already received purchase orders for such Class B shares at the applicable public offering prices and subject to the terms hereof and of the Distribution Agreement. All orders are subject to acceptance by the Distributor or the Trust in the sole discretion of either. The minimum initial and subsequent purchase requirements are as set forth in the Prospectus, as amended from time to time. You agree that you will not offer or sell any of the Class B shares except under circumstances that will result in compliance with the applicable Federal and state securities laws and that in connection with sales and offers to sell Class B shares you will furnish to each person to whom any such sale or offer is made a copy of the Prospectus and, if requested, the Statement of Additional Information (as then amended or supplemented) relating to the Fund and will not furnish to any person any information relating to the Class B shares of the Fund which is inconsistent in any respect with the information contained in the Prospectus and Statement of Additional Information (as then amended or supplemented) or cause any advertisement to be published in any newspaper or posted in any public place without our consent and the consent of the Trust.
4. Payment for Class B shares purchased by you is to be made by Federal funds wire or by certified or official bank check at the office of Merrill Lynch Funds Distributor, Inc., Box 9011 Princeton, New Jersey 08543- 9011, payable to the order of Merrill Lynch Funds Distributor, Inc., against delivery by us of non-negotiable share deposit receipts ("Receipts") issued by Financial Data Services, Inc., as shareholder servicing agent, acknowledging the deposit with it of the Class B shares so purchased by you. You agree that as promptly as practicable after the delivery of such Class B shares you will issue appropriate written transfer instructions to the Trust or to the shareholder servicing agent as to the purchasers to whom you sold the Class B shares.
5. No person is authorized to make any representations concerning Class B shares of the Fund except those contained in the current Prospectus and Statement of Additional Information relating to the Fund and in such printed information subsequently issued by us or the Trust as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class B shares through us you shall rely solely on the representations contained in the Prospectus and Statement of Additional Information and supplemental information above mentioned. Any printed information which we furnish you other than the Fund's Prospectus and Statement of Additional Information, periodic reports and proxy solicitation material are our sole responsibility and not the responsibility of the Trust, and you agree that the Trust shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith.
6. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus and, if requested, the Statement of Additional Information at or prior to the time of offering or sale and you agree thereafter to deliver to such purchasers copies of the annual and interim reports and proxy solicitation materials relating to the Fund. You further agree to endeavor to obtain Proxies from such purchasers. Additional copies of the Prospectus and Statement of Additional Information, annual or interim reports and proxy solicitation materials of the Trust will be supplied to you in reasonable quantities upon request.
7. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Class B shares entirely. Each party hereto has the right to cancel this Agreement upon notice to the other party.
8. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the continuous offering. We shall be under no liability to you except for lack of good faith and for obligations expressly assumed by us herein. Nothing contained in this paragraph is intended to operate as, and the provisions of this paragraph shall not in any way whatsoever constitute, a waiver by you of compliance with any provision of the Securities Act or of the rules and regulations of the Commission issued thereunder.
9. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Rules of Fair Practice of such Association.
10. Upon application to us, we will inform you as to the states in which we believe the Class B shares have been qualified for sale under, or are exempt from the requirements of, the respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Class B shares in any jurisdiction. We will file with the Department of State in New York a Further State Notice with respect to the Class B shares, if necessary.
11. All communications to us should be sent to the address below. Any notice to you shall be duly given if mailed or telegraphed to you at the address specified by you below.
12. You agree that you will not sell any Class B shares of the Trust to any account over which you exercise discretionary authority.
13. This Agreement shall terminate at the close of business on the Closing Date, unless earlier terminated, provided, however, this Agreement shall continue after termination for the purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: -------------------------------------------
MERRILL LYNCH [STATE] MUNICIPAL BOND FUND
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
CLASS B SHARES OF BENEFICIAL INTEREST
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement with Merrill Lynch Multi-State Municipal Series Trust, a Massachusetts business trust (the "Trust"), pursuant to which it acts as the distributor for the sale of Class B shares of beneficial interest, par value $0.10 per share (herein referred to as the "Class B shares"), of the Trust relating to Merrill Lynch [STATE] Municipal Bond Fund (the "Fund"), and as such has the right to distribute Class B shares of the Fund for resale. The Trust is an open-end investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the Fund's Class B shares being offered to the public are registered under the Securities Act of 1933, as amended (the "Securities Act"). You have received a copy of the Class B shares Distribution Agreement (the "Distribution Agreement") between ourself and the Trust and reference is made herein to certain provisions of such Distribution Agreement. The terms "Prospectus" and "Statement of Additional Information" as used herein refer to the prospectus and statement of additional information, respectively, on file with the Securities and Exchange Commission (the "Commission") which is part of the most recent effective registration statement pursuant to the Securities Act. As principal, we offer to sell to you, as a member of the Selected Dealers Group, Class B shares of the Fund upon the following terms and conditions:
1. In all sales of these Class B shares to the public you shall act as dealer for your own account, and in no transaction shall you have any to act as agent for the Trust, for us or for any other member of the Selected Dealers Group.
2. Orders received from you will be accepted through us only at the public offering price applicable to each order, as set forth in the current Prospectus and Statement of Additional Information relating to the Fund. The procedure relating to the handling of orders shall be subject to Section 4 hereof and instructions which we or the Trust shall forward from time to
time to you. All orders are subject to acceptance or rejection by the Distributor or the Trust in the sole discretion of either. The minimum initial and subsequent purchase requirements are as set forth in the current Prospectus and Statement of Additional Information relating to the Fund.
3. You shall not place orders for any of the Class B shares unless you have already received purchase orders for such Class B shares at the applicable public offering prices and subject to the terms hereof and of the Distribution Agreement. You agree that you will not offer or sell any of the Class B shares except under circumstances that will result in compliance with the applicable Federal and state securities laws and that in connection with sales and offers to sell Class B shares you will furnish to each person to whom any such sale or offer is made a copy of the Prospectus and, if requested, the Statement of Additional Information (as then amended or supplemented) and will not furnish to any person any information relating to the Class B shares of the Fund, which is inconsistent in any respect with the information contained in the Prospectus and Statement of Additional Information (as then amended or supplemented) or cause any advertisement to be published in any newspaper or posted in any public place without our consent and the consent of the Trust.
4. As a selected dealer, you are hereby authorized (i) to place orders directly with the Trust for Class B shares of the Fund to be resold by us to you subject to the applicable terms and conditions governing the placement of orders by us set forth in Section 3 of the Distribution Agreement, and (ii) to tender Class B shares directly to the Trust or its agent for redemption subject to the applicable terms and conditions set forth in Section 4 of the Distribution Agreement.
5. You shall not withhold placing orders received from your customers so as to profit yourself as a result of such withholding: e.g., by a change in the "net asset value" from that used in determining the offering price to your customers.
6. No person is authorized to make any representations concerning Class B shares of the Fund except those contained in the current Prospectus and Statement of Additional Information relating to the Fund and in such printed information subsequently issued by us or the Trust as information supplemental to such Prospectus and Statement of Additional Information. In purchasing Class B shares through us you shall rely solely on the representations contained in the Prospectus and Statement of Additional Information and supplemental information above
mentioned. Any printed information which we furnish you other than the Prospectus, Statement of Additional Information, periodic reports and proxy solicitation material are our sole responsibility and not the responsibility of the Trust, and you agree that the Trust shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus and, if requested, the Statement of Additional Information at or prior to the time of offering or sale and you agree thereafter to deliver to such purchasers copies of the annual and interim reports and proxy solicitation materials relating to the Fund. You further agree to endeavor to obtain proxies from such purchasers. Additional copies of the Prospectus and Statement of Additional Information, annual or interim reports and proxy solicitation materials will be supplied to you in reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Class B shares entirely. Each party hereto has the right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the continuous offering. We shall be under no liability to you except for lack of good faith and for obligations expressly assumed by us herein. Nothing contained in this paragraph is intended to operate as, and the provisions of this paragraph shall not in any way whatsoever constitute, a waiver by you of compliance with any provision of the Securities Act or of the rules and regulations of the Commission issued thereunder.
10. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Rules of Fair Practice of such Association.
11. Upon application to us, we will inform you as to the states in which we believe the Class B shares have been qualified for sale under, or are exempt from the requirements of, the respective securities laws of such states, but we assume no responsibility or obligation as to your right to sell Class B shares in any jurisdiction. We will file with the Department of State in New York a Further State Notice with respect to the Class B shares, if necessary.
12. All communications to us should be sent to the address below. Any notice to you shall be duly given if mailed or telegraphed to you at the address specified by you below.
13. Your first order placed pursuant to this Agreement for the purchase of Class B shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
| ARTICLE 6 |
| SERIES: |
| NUMBER: 1 |
| NAME: MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND CLASS A |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD START | AUG 01 1994 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 142049537 |
| INVESTMENTS AT VALUE | 148558194 |
| RECEIVABLES | 2574995 |
| ASSETS OTHER | 88164 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 151221353 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 423453 |
| TOTAL LIABILITIES | 423453 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 146714207 |
| SHARES COMMON STOCK | 2081959 |
| SHARES COMMON PRIOR | 2568115 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (2162659) |
| OVERDISTRIBUTION GAINS | 262305 |
| ACCUM APPREC OR DEPREC | 6508657 |
| NET ASSETS | 23040067 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 9772807 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1798471 |
| NET INVESTMENT INCOME | 7974336 |
| REALIZED GAINS CURRENT | (2162672) |
| APPREC INCREASE CURRENT | 2862358 |
| NET CHANGE FROM OPS | 8674022 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 1403188 |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 252327 |
| NUMBER OF SHARES REDEEMED | 808932 |
| SHARES REINVESTED | 70449 |
| NET CHANGE IN ASSETS | (7859093) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 262305 |
| GROSS ADVISORY FEES | 827537 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1798471 |
| AVERAGE NET ASSETS | 24514382 |
| PER SHARE NAV BEGIN | 11.00 |
| PER SHARE NII | .62 |
| PER SHARE GAIN APPREC | .07 |
| PER SHARE DIVIDEND | .62 |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 11.07 |
| EXPENSE RATIO | .77 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| SERIES: |
| NUMBER: 2 |
| NAME: MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND CLASS B |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD START | AUG 01 1994 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 142049537 |
| INVESTMENTS AT VALUE | 146558194 |
| RECEIVABLES | 2574995 |
| ASSETS OTHER | 88164 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 151221353 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 423453 |
| TOTAL LIABILITIES | 423453 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 146714207 |
| SHARES COMMON STOCK | 11138512 |
| SHARES COMMON PRIOR | 11860884 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (2162659) |
| OVERDISTRIBUTION GAINS | 262305 |
| ACCUM APPREC OR DEPREC | 6508657 |
| NET ASSETS | 123260463 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 9772807 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1798471 |
| NET INVESTMENT INCOME | 7974336 |
| REALIZED GAINS CURRENT | (2162672) |
| APPREC INCREASE CURRENT | 2862358 |
| NET CHANGE FROM OPS | 8674022 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 6445060 |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1773889 |
| NUMBER OF SHARES REDEEMED | 2786964 |
| SHARES REINVESTED | 296703 |
| NET CHANGE IN ASSETS | (7859093) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 262305 |
| GROSS ADVISORY FEES | 827537 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1798471 |
| AVERAGE NET ASSETS | 123637955 |
| PER SHARE NAV BEGIN | 11.00 |
| PER SHARE NII | .56 |
| PER SHARE GAIN APPREC | .07 |
| PER SHARE DIVIDEND | .56 |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 11.07 |
| EXPENSE RATIO | 1.28 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| SERIES: |
| NUMBER: 3 |
| NAME: MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND CLASS C |
| PERIOD TYPE | OTHER |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD START | OCT 21 1994 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 142049537 |
| INVESTMENTS AT VALUE | 148558194 |
| RECEIVABLES | 2574995 |
| ASSETS OTHER | 88164 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 151221353 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 423453 |
| TOTAL LIABILITIES | 423453 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 146714207 |
| SHARES COMMON STOCK | 168748 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (2162659) |
| OVERDISTRIBUTION GAINS | 262305 |
| ACCUM APPREC OR DEPREC | 6508657 |
| NET ASSETS | 1867794 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 9772807 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1798471 |
| NET INVESTMENT INCOME | 7974336 |
| REALIZED GAINS CURRENT | (2162672) |
| APPREC INCREASE CURRENT | 2862358 |
| NET CHANGE FROM OPS | 8674022 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 36471 |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 190095 |
| NUMBER OF SHARES REDEEMED | 23509 |
| SHARES REINVESTED | 2162 |
| NET CHANGE IN ASSETS | (7859093) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 262305 |
| GROSS ADVISORY FEES | 827537 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1798471 |
| AVERAGE NET ASSETS | 938519 |
| PER SHARE NAV BEGIN | 10.68 |
| PER SHARE NII | .43 |
| PER SHARE GAIN APPREC | .39 |
| PER SHARE DIVIDEND | .43 |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 11.07 |
| EXPENSE RATIO | 1.38 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
| ARTICLE 6 |
| SERIES: |
| NUMBER: 4 |
| NAME: MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND CLASS D |
| PERIOD TYPE | OTHER |
| FISCAL YEAR END | JUL 31 1995 |
| PERIOD START | OCT 21 1994 |
| PERIOD END | JUL 31 1995 |
| INVESTMENTS AT COST | 142049537 |
| INVESTMENTS AT VALUE | 148558194 |
| RECEIVABLES | 2574995 |
| ASSETS OTHER | 88164 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 151221353 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 423453 |
| TOTAL LIABILITIES | 423453 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 146714207 |
| SHARES COMMON STOCK | 237400 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | (2162659) |
| OVERDISTRIBUTION GAINS | 262305 |
| ACCUM APPREC OR DEPREC | 6508657 |
| NET ASSETS | 2629576 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 9772807 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1798471 |
| NET INVESTMENT INCOME | 7974336 |
| REALIZED GAINS CURRENT | (2162672) |
| APPREC INCREASE CURRENT | 2862358 |
| NET CHANGE FROM OPS | 8674022 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 89617 |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 241068 |
| NUMBER OF SHARES REDEEMED | 9937 |
| SHARES REINVESTED | 6269 |
| NET CHANGE IN ASSETS | (7859093) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 262305 |
| GROSS ADVISORY FEES | 827537 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1798471 |
| AVERAGE NET ASSETS | 2060634 |
| PER SHARE NAV BEGIN | 10.68 |
| PER SHARE NII | .47 |
| PER SHARE GAIN APPREC | .40 |
| PER SHARE DIVIDEND | .47 |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 11.08 |
| EXPENSE RATIO | .87 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
EXHIBIT 99.1(f)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
Amended and Restated
Establishment and Designation
Merrill Lynch Pennsylvania Municipal Bond Fund
The undersigned, being a majority of the Trustees of Merrill Lynch Multi-State Municipal Series Trust, a Massachusetts business trust (the "Trust"), acting pursuant to Section 6.2 of the Declaration of Trust, as amended, dated August 2, 1985 (the "Declaration") of the Trust, do hereby divide the shares of beneficial interest of the Trust, par value $.10 per share ("Shares"), to create a separate Series, within the meaning of said Section 6.2, as follows:
1. The Series is designated the "Merrill Lynch Pennsylvania Municipal Bond Fund" (referred to herein as the "Fund").
2. Shares of the Fund shall be entitled to all of the rights and preferences accorded to Shares under the Declaration.
3. The purchase price of Shares of the Fund, the method of determination of net asset value of the Fund, the price, terms and manner of redemption of Shares of the Fund, and the relative dividend rights of holders of Shares of the Fund shall be established by the Trustees of the Trust in accordance with the provisions of the Declaration and shall be set forth in the currently effective prospectus and statement of additional information of the Trust relating to shares of the Fund, as amended from time to time, under the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, the undersigned have signed this instrument in duplicate original counterparts and have caused a duplicate original to be lodged among the records of the Trust this 31st day of July, 1990.
/s/ Kenneth S. Axelson /s/ Herbert I. London
- --------------------------------- --------------------------------
Kenneth S. Axelson Herbert I. London
75 Jameson Point Road New York University -
Rockland, Maine 04841 Gallatin Division
715 Broadway
New York, New York 10003
/s/ Joseph L. May /s/ Andre F. Perold
- --------------------------------- --------------------------------
Joseph L. May Andre F. Perold
P.O. Box 3050 Dillon House 34
Nashville, Tennessee 37215 Soldiers Field Road
Boston, Massachusetts 02163
/s/ Arthur Zeikel
- ---------------------------------
Arthur Zeikel
Box 9011
Princeton, New Jersey 08543-9011
|
The Declaration of Trust establishing Merrill Lynch Multi-State Municipal Series Trust, dated August 2, 1985, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name of "Merrill Lynch Multi-State Municipal Series Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of Merrill Lynch Multi- State Municipal Series Trust shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise in connection with the,affairs of said Trust but the Trust Property only shall be liable.
2.
EXHIBIT 99.1(g)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
Establishment and Designation
of
Class A Shares and Class B Shares of
Beneficial Interest of the
Series Designated Merrill Lynch
Pennsylvania Municipal Bond Fund of the Trust
The undersigned, being a majority of the Trustees of Merrill Lynch Multi- State Municipal Series Trust, a Massachusetts business trust (the "Trust"), acting pursuant to Section 6.2 of the Declaration of Trust, as amended, dated August 2, 1985 (the "Declaration") of the Trust, do hereby divide the shares of beneficial interest of the Series designated "Merrill Lynch Pennsylvania Municipal Bond Fund" (the "Fund") of the Trust, par value $.10 per share ("Shares"), to create two classes of Shares, within the meaning of said Section 6.2, as follows:
1. The two classes of Shares are designated "Class A Shares" and "Class B Shares".
2. Class A Shares and Class B Shares shall be entitled to all of the rights and preferences accorded to Shares under the Declaration.
3. The purchase price of Class A Shares and Class B Shares, the method of determination of net asset value of Class A Shares and Class B Shares, the price, terms and manner of redemption of Class A Shares and Class B Shares, and the relative dividend rights of holders of Class A Shares and Class B Shares shall be established by the Trustees of the Trust in accordance with the provisions of the Declaration and shall be set forth in the currently effective prospectus and statement of additional information of the Trust relating to the Fund, as amended from time to time, under the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, the undersigned, have signed this instrument in duplicate original counterparts and have caused a duplicate original to be lodged among the records of the Trust this 31st day of July, 1990.
/s/ Kenneth S. Axelson /s/ Andre F. Perold
- --------------------------------- --------------------------------
Kenneth S. Axelson Andre F. Perold
75 Jameson Point Road Dillon House 34
Rockland, Maine 04841 Soldiers Field Road
Boston, Massachusetts 02163
/s/ Herbert I. London /s/ Arthur Zeikel
- --------------------------------- --------------------------------
Herbert I. London Arthur Zeikel
New York University - Box 9011
Gallatin Division Princeton, New Jersey 08543-9011
715 Broadway
New York, New York 10003
/s/ Joseph L. May
- ---------------------------------
Joseph L. May
P.O. Box 3050
Nashville, Tennessee 37219
|
The Declaration of Trust establishing Merrill Lynch Multi-State Municipal Series Trust, dated August 2, 1985, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name of "Merrill Lynch Multi-State Municipal Series Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of Merrill Lynch Multi- State Municipal Series Trust shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise in connection with the affairs of said Trust but the Trust Property only shall be liable.
2.
EXHIBIT 99.10
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NY 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
November 13, 1995
Merrill Lynch Pennsylvania Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust
P.O. Box 9011
Princeton, New Jersey 08543-9011
Dear Sirs:
This opinion is furnished in connection with the registration by Merrill Lynch Multi-State Municipal Series Trust, a Massachusetts business trust (the "Trust"), of 1,214,480 shares of beneficial interest, par value $0.10 per share (the "Shares"), of the Merrill Lynch Pennsylvania Municipal Bond Fund, a series of the Trust, under the Securities Act of 1933 pursuant to a registration statement on Form N-1A (File No. 33-35442), as amended (the "Registration Statement").
As counsel for the Trust, we are familiar with the proceedings taken by it in connection with the authorization, issuance and sale of the Shares. In addition, we have examined and are familiar with the Declaration of Trust of the Trust, as amended, the By-Laws of the Trust and such other documents as we have deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon issuance and sale in the manner referred to in the Registration Statement for consideration not less than the par value thereof, will be legally issued, fully paid and nonassessable shares of beneficial interest, except that shareholders of the Trust may under certain circumstances be held personally liable for the Trust's obligations.
In rendering this opinion, we have relied as to matters of Massachusetts law upon an opinion of Bingham, Dana & Gould rendered to the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Prospectus and Statement of Additional Information constituting parts thereof.
Very truly yours,
/s/ Brown & Wood |
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Pennsylvania Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust:
We consent to the use in Post-Effective Amendment No. 6 to Registration Statement NO. 33-35442 or our report dated September 1, 1995 appearing in the Statement of Additional Information, which is a part of such Registration Statement, and to the reference to us under the caption "Financial Highlights" appearing in the Prospectus, which also is a part of such Registration Statement.
Deloitte & Touche LLP
Princeton, New Jersey
November 13, 1995
EXHIBIT 99.13
CERTIFICATE OF SOLE SHAREHOLDER
Fund Asset Management, Inc., the holder of 5,000 Class A shares of beneficial interest, par value $0.10 per share, and 5,000 Class B shares of beneficial interest, par value $0.10 per share, of Merrill Lynch Pennsylvania Municipal Bond Fund (the "Fund") of Merrill Lynch Multi-State Municipal Series Trust (the "Trust"), a Massachusetts business trust, does hereby confirm to the Trust its representation that it purchased such shares for investment purposes, with no present intention of redeeming or reselling any portion thereof, and does further agree that if it redeems any portion of such shares prior to the amortization of the Fund's organizational expenses, the proceeds thereof will be reduced by the proportionate amount of unamortized organizational expenses which the number of shares being redeemed bears to the number of shares initially purchased.
FUND ASSET MANAGEMENT, INC.
Dated: August 10, 1990
EXHIBIT 99.16(a)
PENNSYLVANIA MUNI BOND CLASS A (8/31/90-01/31/91)
AVERAGE ANNUAL AND TOTAL RETURNS
SINCE SINCE
INCEPTION INCEPTION
AUG ANNUAL TOTAL
RETURN RETURN*
--------- -----------
Initial Investment $1,000.00 $1,000.00
Divided by Max. Offer. Price 10.42
---------
Divided by Net Asset Value 10.00
---------
Equals Shares Purchased 95.97 100.00
Plus Shares Acquired through
Dividend Reinvestment 2.69 2.77
--------- ---------
Equals Shares Held
at 01/31/91 98.66 102.77
Multiplied by Net Asset
Value at 01/31/91 10.14 10.14
--------- ---------
Equals Ending Redeemable
Value at $1,000
Investment (ERV) at 01/31/91 $1,000.40 $1,042.10
Divided by $1,000 (P) 1.0004 1.0421
Subtract 1 0.0004 0.0421
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) 0.04%
=========
Expressed as a percentage
equals the Aggregate Total
Return for the Period 4.21%
==========
ERV divided by P 1.0004
Raise to the power of 2.3556
Equals 1.0010
Subtract 1 0.0010
Expressed as a percentage
equals the Average
Annualized Total Return 0.10%
=========
|
*Does not include sales charge for the period.
30 DAYS STANDARDIZED YIELD FOR PERIOD
ENDING JANUARY 31, 1991
PENNSYLVANIA MUNICIPAL BOND-CLASS A
Long term income generally based on yield to
maturity times market value of each security $36,690
Plus short term income accrued for the past
thirty days 3,230
------------
Equals Total Income 39,920
------------
Less expenses for the past thirty days (1,795)
------------
Equals net monthly income for yield calculation 38,126
------------
Average shares outstanding for 30 days 687,081
Times the Maximum Offering Price 10.54
------------
Equals total dollars $7,241,831
============
Net monthly income divided by total dollars equals 0.005264635
Add 1 1.005264635
Raise to the power of 6 1.032006426
Subtract 1 0.032006426
Times 2 0.064012858
Expressed as a percentage equals the
Standardized Yield for 30 day period 6.40%
======
Tax Rate 0.31%
X = 1 minus Tax Rate 0.69%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 9.28%
============
|
EXHIBIT 99.16(b)
PENNSYLVANIA MUNI CLASS B (08/31/90-01/91)
AVERAGE ANNUAL AND TOTAL RETURNS
SINCE SINCE
INCEPTION INCEPTION
AVG ANNUAL TOTAL
RETURN RETURN*
---------- ---------
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 10.00 10.00
--------- ---------
Equals Shares Purchased 100.00 100.00
Plus Shares Acquired through
Dividend Reinvestment 2.62 2.56
--------- ---------
Equals Shares Held at 01/31/91 102.62 102.56
Multiplied by Net Asset Value at 01/31/91 10.14 10.14
--------- ---------
Equals Ending Value before deduction
for contingent deferred sales charge 1,040.60 1,040.00
Less deferred sales charge (40.60) 0.00
--------- ---------
Equals Ending Redeemable Value of a
$1,000 Investment (ERV) $1,000.00 $1,040.00
--------- ---------
Divided by $1,000 (P) 1.0000 1.0400
Subtract 1 0.0000 0.0400
Expresses as a percentage equals the
Aggregate Total Return for the Period (T) 0.00%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 4.00%
=========
ERV divided by P 1.0000
Raise to the power of 2.3356
Equals 1.0000
Subtract 1 0.0000
Expressed as a percentage equals the
Average Annualized Total Return 0.00%
=========
|
* Does not include sales charge for the period.
30 DAYS STANDARDIZED YIELD FOR PERIOD
ENDING JANUARY 31, 1991
PENNSYLVANIA MUNICIPAL BOND - CLASS B
Long term income generally based on yield to
maturity times market value of each security $ 74,257
Plus short term income accrued for the past thirty days 6,537
-----------
Equals Total Income 80,795
Less expenses for the past thirty days (9,496)
-----------
Equals net monthly income for yield calculation 71,298
-----------
Average shares outstanding for 30 days 1,390,471
Times the Net Asset Value 10.12
-----------
Equals total dollars $14,071,571
===========
Net monthly income divided by total dollars equals 0.005066839
Add 1 1.005066839
Raise to the power of 6 1.030788735
Subtract 1 0.030788735
Times 2 0.061577471
Expressed as a percentage equals the
standardized yield for the 30 day period 6.16%
===========
Tax Rate 0.31%
X = 1 minus Tax Rate 0.69%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 8.93%
===========
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EXHIBIT 99.16(c)
Pennsylvania Municipal Bond Fund - Class C
10/21/94 - 7/31/95 Since Since
Inception Inception
Average Annual Total
Total Return Return*
------------ ---------
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 10.68 10.68
--------- ---------
Equals Shares Purchased 93.633 93.633
Plus Shares Acquired through
Dividend Reinvestment 3.690 3.690
--------- ---------
Equals Shares Held at 7/31/95 97.323 97.323
Multiplied by Net Asset Value at 7/31/95 11.08 11.08
--------- ---------
Equals Ending Value before deduction
for contingent deferred sales charge 1,078.34 1,078.34
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,068.34 1,078.34
--------- ---------
Divided by $1,000 (P) 1.0683 1.0783
Subtract 1 0.0683 0.0783
Expresses as a percentage equals the
Aggregate Total Return for the Period (T) 6.83%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 7.83%
=========
ERV divided by P 1.0683
Raise to the power of 1.2898
Equals 1.0890
Subtract 1 0.0890
Expressed as a percentage equals the
Average Annualized Total Return 8.90%
=========
|
* Does not include sales charge for the period.
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
PENNSYLVANIA MUNICIPAL BOND FUND - CLASS C
Long term income generally based on yield to
maturity times market value of each security $8,566
------------
Plus short term income accrued for the past
thirty days 680
------------
Equals Total Income 9,247
Less expenses for the past thirty days -2,105
------------
Equals net monthly income for yield calculation 7,142
------------
Average shares outstanding for 30 days 169,816
Times the Net Asset Value 11.07
------------
Equals total dollars $1,879,868
============
|
Net monthly income divided by total dollars equals 0.003799251
Add 1 1.003799251
Raise to the power of 6 1.023013122
Subtract 1 0.023013122
Times 2 0.046026244
Expressed as a percentage equals the
standardized yield for the 30 day period 4.60%
======
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 6.39%
============
|
EXHIBIT 99.16(d)
Pennsylvania Municipal Bond Fund - Class D
10/21/94 - 7/31/95 Since Since
Inception Inception
Average Annual Total
Total Return Return*
------------ ---------
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 11.13
---------
Divided by Net Asset Value 10.68
---------
Equals Shares Purchased 89.888 93.633
Plus Shares Acquired through
Dividend Reinvestment 3.909 4.074
--------- ---------
Equals Shares Held at 7/31/95 93.796 97.706
Multiplied by Net Asset Value at 7/31/95 11.09 11.09
--------- ---------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 7/31/95 1,040.20 1,083.56
Divided by $1,000 (P) 1.0402 1.0836
Subtract 1 0.0402 0.0836
Expresses as a percentage equals the
Aggregate Total Return for the Period (T) 4.02%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 8.36%
=========
ERV divided by P 1.0402
Raise to the power of 1.2898
Equals 1.0522
Subtract 1 0.0522
Expressed as a percentage equals the
Average Annualized Total Return 5.22%
=========
|
* Does not include sales charge for the period.
30 DAYS STANDARDIZED YIELD
FOR PERIOD ENDING 7-31-95
PENNSYLVANIA MUNICIPAL BOND FUND - CLASS D
Long term income generally based on yield to
maturity times market value of each security $11,895
------------
Plus short term income accrued for the past
thirty days 945
------------
Equals Total Income 12,839
Less expenses for the past thirty days -1,812
------------
Equals net monthly income for yield calculation 11,027
------------
Average shares outstanding for 30 days 235,636
Times the Maximum Offering Price 11.54
------------
Equals total dollars $2,719,237
============
Net monthly income divided by total dollars equals 0.004055328
Add 1 1.004055328
Raise to the power of 6 1.024579993
Subtract 1 0.024579993
Times 2 0.049159985
Expressed as a percentage equals the
Standardized Yield for 30 day period 4.92%
======
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 6.83%
============
|