AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1997
Securities Act File No. 333-
Investment Company Act File No. 811-2688
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRE-EFFECTIVE AMENDMENT NO. POST-EFFECTIVE AMENDMENT NO.
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
(609) 282-2800
(AREA CODE AND TELEPHONE NUMBER)
------------------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
NUMBER, STREET, CITY, STATE, ZIP CODE)
------------------------
ARTHUR ZEIKEL
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<CAPTION>
<S> <C> <C>
LEONARD B. MACKEY, JR., ESQ. JOHN A. MACKINNON, ESQ. PHILIP L. KIRSTEIN, ESQ.
ROGERS & WELLS BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
200 PARK AVENUE ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD
NEW YORK, NY 10166 NEW YORK, NY 10048-0557 PLAINSBORO, NJ 08536
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
after the Registration Statement becomes effective under the Securities Act
of 1933.
------------------------
No filing fee is required because an indefinite number of shares have
previously been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940 pursuant to a registration statement on Form N-1A (File
No. 2-57354). The notice required for such Rule for the Registrant's most
recent fiscal year end was filed on August 25, 1997. Pursuant to Rule 429,
this Registration Statement relates to shares previously registered on Form
N-1A (File No. 2-57354).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
=============================================================================
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
FORM N-14 PROXY STATEMENT AND
ITEM NO. PROSPECTUS CAPTION
--------- -------------------
PART A
------
Item 1. Beginning of
Registration Statement Registration Statement
and Outside Front Cover Page; Proxy
Cover Page of Statement and
Prospectus . . . . . Prospectus Cover Page
Item 2. Beginning and Outside
Back Cover Page of Table of Contents
Prospectus . . . . .
Item 3. Fee Table, Synopsis
Information and Risk Summary; Risk Factors
Factors . . . . . . . a n d S p e c i a l
Considerations
Item 4. Information about the Summary; The
Transaction . . . . . Reorganization--
Agreement and Plan of
Reorganization
Item 5. Information about the Proxy Statement and
Registrant . . . . . Prospectus Cover Page;
Summary; Comparison of
the State Funds and
Limited Maturity
Portfolio; Additional
Information
Item 6. Information about the
Company Being Acquired
Proxy Statement and
Prospectus Cover Page;
Summary; Comparison of
the State Funds and
Limited Maturity
Portfolio; Additional
Information
Item 7. Voting Information . Notice of Special
M e e t i n g o f
Stockholders;
Introduction; Summary;
Comparison of the
State Funds and
Limited Maturity
Portfolio; Information
Concerning the Special
Meeting; Additional
Information
Item 8. Interest of Certain Not Applicable
Persons and Experts .
Item 9. Additional Information
Required for
Reoffering by Persons Not Applicable
Deemed to be
Underwriters . . . .
PART B
------
Item 10. Cover Page . . . . . Cover Page
Item 11. Table of Contents . . Table of Contents
Item 12. Additional Information
about the Registrant General Information
Item 13. Additional Information
about the Company General Information
Being Acquired . . .
Item 14. Financial Statements Financial Statements
PART C
-----
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
(Proxy Card Front)
MERRILL LYNCH ARIZONA LIMITED MATURITY MUNICIPAL BOND FUND
OF MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and
Lawrence A. Rogers as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the shares of beneficial interest of Merrill Lynch
Arizona Limited Maturity Municipal Bond Fund of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust (the "Fund") held of record by the
undersigned on October 10, 1997 at a Special Meeting of Stockholders of the
Fund to be held on December 9, 1997, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(Continued and to be signed on the reverse side)
(Proxy Card Reverse)
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization between the Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust and Merrill Lynch Municipal Bond Fund, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney or as
executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please
sign in partnership name by authorized persons.
Dated: ___________________, 1997
X________________________________
Signature
X________________________________
Signature, if held jointly
PLEASE MARK BOXES /X/ OR (X) IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Proxy Card Front)
MERRILL LYNCH MASSACHUSETTS LIMITED MATURITY MUNICIPAL BOND FUND
OF MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and
Lawrence A. Rogers as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the shares of beneficial interest of Merrill Lynch
Massachusetts Limited Maturity Municipal Bond Fund of Merrill Lynch Multi-
State Limited Maturity Municipal Series Trust (the "Fund") held of record by
the undersigned on October 10, 1997 at a Special Meeting of Stockholders of
the Fund to be held on December 9, 1997, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(Continued and to be signed on the reverse side)
(Proxy Card Reverse)
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization between the Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust and Merrill Lynch Municipal Bond Fund, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney or as
executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please
sign in partnership name by authorized persons.
Dated: ___________________, 1997
X________________________________
Signature
X________________________________
Signature, if held jointly
PLEASE MARK BOXES /X/ OR (X) IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Proxy Card Front)
MERRILL LYNCH MICHIGAN LIMITED MATURITY MUNICIPAL BOND FUND
OF MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and
Lawrence A. Rogers as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the shares of beneficial interest of Merrill Lynch
Michigan Limited Maturity Municipal Bond Fund of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust (the "Fund") held of record by the
undersigned on October 10, 1997 at a Special Meeting of Stockholders of the
Fund to be held on December 9, 1997, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(Continued and to be signed on the reverse side)
(Proxy Card Reverse)
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization between the Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust and Merrill Lynch Municipal Bond Fund, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney or as
executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please
sign in partnership name by authorized persons.
Dated: ___________________, 1997
X________________________________
Signature
X________________________________
Signature, if held jointly
PLEASE MARK BOXES /X/ OR (X) IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Proxy Card Front)
MERRILL LYNCH NEW JERSEY LIMITED MATURITY MUNICIPAL BOND FUND
OF MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and
Lawrence A. Rogers as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the shares of beneficial interest of Merrill Lynch
New Jersey Limited Maturity Municipal Bond Fund of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust (the "Fund") held of record by the
undersigned on October 10, 1997 at a Special Meeting of Stockholders of the
Fund to be held on December 9, 1997, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(Continued and to be signed on the reverse side)
(Proxy Card Reverse)
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization between the Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust and Merrill Lynch Municipal Bond Fund, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney or as
executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please
sign in partnership name by authorized persons.
Dated: ___________________, 1997
X________________________________
Signature
X________________________________
Signature, if held jointly
PLEASE MARK BOXES /X/ OR (X) IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Proxy Card Front)
MERRILL LYNCH NEW YORK LIMITED MATURITY MUNICIPAL BOND FUND
OF MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and
Lawrence A. Rogers as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the shares of beneficial interest of Merrill Lynch
New York Limited Maturity Municipal Bond Fund of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust (the "Fund") held of record by the
undersigned on October 10, 1997 at a Special Meeting of Stockholders of the
Fund to be held on December 9, 1997, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(Continued and to be signed on the reverse side)
(Proxy Card Reverse)
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization between the Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust and Merrill Lynch Municipal Bond Fund, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney or as
executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please
sign in partnership name by authorized persons.
Dated: ___________________, 1997
X________________________________
Signature
X________________________________
Signature, if held jointly
PLEASE MARK BOXES /X/ OR (X) IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Proxy Card Front)
MERRILL LYNCH PENNSYLVANIA LIMITED MATURITY MUNICIPAL BOND FUND
OF MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and
Lawrence A. Rogers as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the shares of beneficial interest of Merrill Lynch
Pennsylvania Limited Maturity Municipal Bond Fund of Merrill Lynch Multi-
State Limited Maturity Municipal Series Trust (the "Fund") held of record by
the undersigned on October 10, 1997 at a Special Meeting of Stockholders of
the Fund to be held on December 9, 1997, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(Continued and to be signed on the reverse side)
(Proxy Card Reverse)
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization between the Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust and Merrill Lynch Municipal Bond Fund, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney or as
executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please
sign in partnership name by authorized persons.
Dated: ___________________, 1997
X________________________________
Signature
X________________________________
Signature, if held jointly
PLEASE MARK BOXES /X/ OR (X) IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 9, 1997
TO THE STOCKHOLDERS OF MERRILL LYNCH MULTI-STATE
LIMITED MATURITY MUNICIPAL SERIES TRUST
holding shares of
Merrill Lynch Arizona Limited Maturity Municipal Bond Fund
Merrill Lynch Massachusetts Limited Maturity Municipal Bond Fund
Merrill Lynch Michigan Limited Maturity Municipal Bond Fund
Merrill Lynch New Jersey Limited Maturity Municipal Bond Fund
Merrill Lynch New York Limited Maturity Municipal Bond Fund
Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Meeting") of Merrill Lynch Multi-State Limited Maturity Municipal Series
Trust (the "Trust") will be held at the offices of Merrill Lynch Asset
Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey, on Tuesday,
December 9, 1997 at 9:00 a.m., New York time, for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization
(the "Agreement and Plan of Reorganization") contemplating the
acquisition of substantially all of the assets of, and the assumption of
substantially all of the liabilities of, Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund, Merrill Lynch Massachusetts Limited
Maturity Municipal Bond Fund, Merrill Lynch Michigan Limited Maturity
Municipal Bond Fund, Merrill Lynch New Jersey Limited Maturity Municipal
Bond Fund, Merrill Lynch New York Limited Maturity Municipal Bond Fund
and Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund,
each a series of the Trust (collectively, the "State Funds") by Limited
Maturity Portfolio (the "Limited Maturity Portfolio"), a series of
Merrill Lynch Municipal Bond Fund, Inc. (the "Municipal Bond Fund"), in
exchange solely for an equal aggregate value of newly-issued shares of
Common Stock of Limited Maturity Portfolio ("Limited Maturity Portfolio
Common Stock"), the distribution of such Limited Maturity Portfolio
Common Stock to the holders of shares of beneficial interest of the
State Funds and the termination of the State Funds as series of the
Trust (collectively the "Reorganization"); and
(2) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
If the proposed Reorganization is approved by the stockholders at the
Meeting and effected by the State Funds, any stockholder (1) who files with
the applicable State Fund before the taking of the vote on the approval of
such Agreement and Plan of Reorganization, written objection to the proposed
Reorganization stating that he or she intends to demand payment for his or
her shares if the Reorganization takes place and (2) whose shares are not
voted in favor of such Agreement and Plan of Reorganization has or may have
the right to demand in writing from Limited Maturity Portfolio, within twenty
days after the date of mailing to him or her of notice in writing that the
Reorganization has become effective, payment for his or her shares and an
appraisal of the value thereof. Limited Maturity Portfolio and any such
stockholders shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 86 to 98, inclusive of chapter 156B of
the General Laws of Massachusetts. See "The Reorganization--Agreement and
Plan of Reorganization--Appraisal Rights" in the Proxy Statement,
particularly with respect to the intention of Limited Maturity Portfolio to
petition a court to determine whether this right of appraisal has been super-
seded by a rule of the Securities and Exchange Commission, in the event that
any stockholder elects to exercise such right.
The Board of Trustees of the Trust has fixed the close of business on
October 10, 1997 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Meeting or any adjournment
thereof.
A complete list of the stockholders of each State Fund entitled to vote
at the Meeting will be available and open to the examination of any
stockholder of such State Fund for any purpose germane to the Meeting during
ordinary business hours from and after November 25, 1997, at the offices of
the Trust, 800 Scudders Mill Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meeting. Stockholders who do
not expect to attend the Meeting in person are requested to complete, date
and sign the enclosed form of proxy applicable to their State Fund and return
it promptly in the envelope provided for that purpose. The enclosed proxy is
being solicited on behalf of the Board of Trustees of the Trust.
By Order of the Board of Trustees
Lawrence A. Rogers
Secretary
Plainsboro, New Jersey
Dated: ________, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED OCTOBER 7, 1997
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
SPECIAL MEETING OF STOCKHOLDERS
OF MERRILL LYNCH LIMITED MATURITY MUNICIPAL SERIES TRUST
DECEMBER 9, 1997
This Joint Proxy Statement and Prospectus (this "Proxy Statement and
Prospectus") is furnished in connection with the solicitation of proxies on
behalf of the Board of Trustees of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a Massachusetts business trust (the "Trust"), for use
at the Special Meeting of Stockholders (the "Meeting") called to approve or
disapprove the proposed reorganization whereby Limited Maturity Portfolio
(the "Limited Maturity Portfolio"), a series of Merrill Lynch Municipal Bond
Fund, Inc., a Maryland corporation (the "Municipal Bond Fund"), will acquire
substantially all of the assets, and will assume substantially all of the
liabilities, of Merrill Lynch Arizona Limited Maturity Municipal Bond Fund
(the "Arizona Fund"), Merrill Lynch Massachusetts Limited Maturity Municipal
Bond Fund (the "Massachusetts Fund"), Merrill Lynch Michigan Limited Maturity
Municipal Bond Fund (the "Michigan Fund"), Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund (the "New Jersey Fund"), Merrill Lynch New York
Limited Maturity Municipal Bond Fund (the "New York Fund") and Merrill Lynch
Pennsylvania Limited Maturity Municipal Bond Fund (the "Pennsylvania Fund"),
each a series of the Trust (collectively, the "State Funds"), in exchange
solely for an equal aggregate value of newly-issued shares of Common Stock of
Limited Maturity Portfolio ("Limited Maturity Portfolio Common Stock"), with
a par value of $.10 per share, the subsequent distribution of Limited
Maturity Portfolio Common Stock to the stockholders of the State Funds in
exchange for their shares of beneficial interest of the State Funds, each
with a par value of $.10 per share, and the termination of the State Funds as
series of the Trust (collectively, the "Reorganization").
This Proxy Statement and Prospectus serves as a prospectus of the
Municipal Bond Fund under the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the issuance of Limited Maturity
Portfolio Common Stock in the Reorganization.
Holders of Class A shares of each of the State Funds will be entitled to
receive Class A shares of Limited Maturity Portfolio Common Stock. Holders
of Class B, Class C and Class D shares of each of the State Funds will be
entitled to receive Class D shares of Limited Maturity Portfolio Common
Stock. The aggregate net asset value of Limited Maturity Portfolio Common
Stock to be received by each stockholder of each of the State Funds will
equal the aggregate net asset value of the State Fund shares owned by such
stockholder as set forth in the Agreement and Plan of Reorganization.
Both the Trust and the Municipal Bond Fund are open-end management
investment companies with similar, though not identical, investment
objectives. Specifically, each State Fund seeks to provide stockholders with
as high a level of income exempt from Federal income taxes and personal
income taxes imposed by the designated state (and, in certain instances,
state intangible personal property taxes, local personal income taxes and
local personal property taxes) as is consistent with prudent investment
management. Limited Maturity Portfolio seeks to provide stockholders with as
high a level of income exempt from Federal income taxes as is consistent with
prudent investment management. Each State Fund seeks to achieve its
objective by investing primarily in a portfolio of intermediate-term
investment grade obligations of the designated state or its political
subdivisions, agencies or instrumentalities, or certain other jurisdictions,
that pay interest exempt, in the opinion of bond counsel to the issuer, from
Federal income taxes and personal income taxes of the designated state and,
where applicable, state intangible personal property taxes, local personal
property taxes and local personal income taxes in the designated state.
Limited Maturity Portfolio seeks to achieve its objective by investing
primarily in a portfolio of short-term investment grade obligations issued
by or on behalf of states, territories and possessions of the United States
and the District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is exempt from Federal income
taxes. There can be no assurance that, after the Reorganization, Limited
Maturity Portfolio will achieve its investment objective.
The current prospectus relating to Municipal Bond Fund, dated October ,
1997 (the "Municipal Bond Fund Prospectus"), and the current prospectus
relating to the Trust, dated November 27, 1996 (the "Limited Maturity Trust
Prospectus"), accompany this Proxy Statement and Prospectus and are
incorporated herein by reference. A statement of additional information
relating to Municipal Bond Fund, dated October , 1997 (the "Municipal Bond
Fund Statement"), and a statement of additional information relating to the
Trust, dated November 27, 1996 (the "Limited Maturity Trust Statement"), have
been filed with the Securities and Exchange Commission (the "Commission").
Such statements may be obtained, without charge, by writing either Municipal
Bond Fund or the Trust at the address above, or by calling (1-800-___-____).
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT AND
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
This Proxy Statement and Prospectus sets forth concisely the information
about the Municipal Bond Fund that stockholders of the State Funds should
know before considering the Reorganization and should be retained for future
reference. The Trust has authorized the solicitation of proxies in
connection with the Reorganization solely on the basis of this Proxy
Statement and Prospectus and the accompanying documents.
A statement of additional information relating to the Reorganization
(the "Statement of Additional Information"), including historical financial
statements of the Trust and Municipal Bond Fund, is on file with the
Commission. It is available from Municipal Bond Fund, without charge, upon
oral request by calling the telephone number set forth above or upon written
request by writing Municipal Bond Fund at its principal executive offices.
The Statement of Additional Information, dated _______________, 1997, is
incorporated by reference into this Proxy Statement and Prospectus. The
Commission maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, the Limited Maturity Trust Prospectus,
the Limited Maturity Trust Statement, the Municipal Bond Fund Prospectus, the
Municipal Bond Fund Statement, other material incorporated by reference and
other information.
The address of the principal executive offices of both the Trust and
Municipal Bond Fund is 800 Scudders Mill Road, Plainsboro, New Jersey 08536,
and the telephone number is (609) 282-2800.
------------------------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS ________________, 1997.
TABLE OF CONTENTS
PAGE
----
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SUMMARY . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS AND SPECIAL CONSIDERATIONS . . . . . . . . . . . . . . . 16
Portfolio Management .. . . . . . . . . . . . . . . . . . . . . . . 17
COMPARISON OF THE STATE FUNDS AND LIMITED MATURITY PORTFOLIO . . . . 17
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . 17
Investment Objective and Policies . . . . . . . . . . . . . . . . . 28
Description of Municipal Bonds . . . . . . . . . . . . . . . . . . 30
Other Investment Policies . . . . . . . . . . . . . . . . . . . . . 31
Information Regarding Options and Futures Transactions . . . . . . . 31
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . 33
Portfolio Composition . . . . . . . . . . . . . . . . . . . . . . . 34
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . 36
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . 37
Additional Information . . . . . . . . . . . . . . . . . . . . . . . 38
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . 40
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . 40
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Stockholder Inquiries . . . . . . . . . . . . . . . . . . . . . . . 40
Dividends and Distributions .. . . . . . . . . . . . . . . . . . . . 40
Taxation of Limited Maturity Portfolio, State Funds and
Their Stockholders . . . . . . . . . . . . . . . . . . . . . . . 41
AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . . . . . . . . 42
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Terms of the Agreement and Plan of Reorganization . . . . . . . . . 43
Potential Benefits to Stockholders of the State Funds as a
Result of the Reorganization . . . . . . . . . . . . . . . . . 45
Tax Consequences of the Reorganization . . . . . . . . . . . . . . . 47
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . 48
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 49
INFORMATION CONCERNING THE SPECIAL MEETING . . . . . . . . . . . . . . . 51
Date, Time and Place of Meeting . . . . . . . . . . . . . . . . . . . . . 51
Solicitation, Revocation and Use of Proxies . . . . . . . . . . . . . . . 51
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . 52
Security Ownership of Certain Beneficial Owners and Management
of the State Funds and Limited Maturity Portfolio . . . . . . . . . . . . 52
Voting Rights and Required Vote . . . . . . . . . . . . . . . . . . . . . 52
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 53
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . 54
EXHIBIT I AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . . . . I-1
EXHIBIT II RATINGS OF MUNICIPAL BONDS . . . . . . . . . . . . . . . . II-1
EXHIBIT III SECTIONS 86 THROUGH 98 OF CHAPTER 156B OF THE
MASSACHUSETTS GENERAL LAWS (THE MASSACHUSETTS
BUSINESS CORPORATION LAW) . . . . . . . . . . . . . . . . III-1
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Trustees of the Trust with
respect to the State Funds for use at the Meeting to be held at the offices
of Merrill Lynch Asset Management, L.P. ("MLAM"), 800 Scudders Mill Road,
Plainsboro, New Jersey, on December 9, 1997, at 9:00 a.m., New York time.
The mailing address for the Trust is P.O. Box 9011, Princeton, New Jersey
08543-9011. The approximate mailing date of this Proxy Statement and
Prospectus is November __, 1997.
Any person giving a proxy may revoke it at any time prior to its
exercise by executing a superseding proxy, by giving written notice of the
revocation to the Secretary of the Trust at the address indicated above or by
voting in person at the Meeting. All properly executed proxies received
prior to the Meeting will be voted at the Meeting in accordance with the
instructions marked thereon or otherwise as provided therein. Unless
instructions to the contrary are marked, proxies will be voted "FOR" the
proposal to approve the Agreement and Plan of Reorganization between the
Trust on behalf of each of the State Funds and Municipal Bond Fund on behalf
of Limited Maturity Portfolio. Approval of the Agreement and Plan of
Reorganization will require the affirmative vote of stockholders representing
more than 50% of the outstanding shares of beneficial interest of each of the
State Funds voting separately as a class. See "Information Concerning the
Special Meeting."
The Board of Trustees of the Trust knows of no business other than that
discussed in the proposal above that will be presented for consideration at
the Meeting. If any other matter is properly presented, it is the intention
of the persons named in the enclosed proxy to vote in accordance with their
best judgment.
The class of stockholders solicited and entitled to vote on each
proposal is outlined in the chart below:
<TABLE>
<CAPTION>
Fund Proposal to Approve the Agreement and Plan of
Reorganization
- -------------------------------------- ----------------------------------------------------
<S> <C>
Arizona Fund* Yes
Massachusetts Fund* Yes
Michigan Fund* Yes
New Jersey Fund* Yes
New York Fund* Yes
Pennsylvania Fund* Yes
Limited Maturity Portfolio No
</TABLE>
* All classes of the Fund's shares of beneficial interest may vote on the
proposal together as a single class.
THE REORGANIZATION
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus and is qualified in its entirety by
reference to the more complete information contained herein and in the
Agreement and Plan of Reorganization, attached hereto as Exhibit I.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets, and
the assumption of substantially all of the liabilities, of each of the State
Funds by Limited Maturity Portfolio of the Municipal Bond Fund and the
subsequent distribution of Limited Maturity Portfolio Common Stock to the
holders of shares of beneficial interest of each of the State Funds and
(ii) the subsequent termination of each of the State Funds as series of the
Trust.
At a meeting of the Board of Trustees of the Trust held on September 26,
1997, the Board of Trustees of the Trust approved a proposal that Limited
Maturity Portfolio of the Municipal Bond Fund acquire substantially all of
the assets, and assume substantially all of the liabilities, of each of the
State Funds in exchange solely for Limited Maturity Portfolio Common Stock to
be distributed to the stockholders of each of the State Funds.
Based upon their evaluation of all relevant information, the Trustees of
the Trust determined that the Reorganization will potentially benefit the
holders of shares of beneficial interest of the State Funds. Specifically,
after the Reorganization, stockholders of each of the State Funds will remain
invested in an open-end fund that has an investment objective and policies
similar, but not identical, to those of the State Funds. In addition, it is
anticipated that stockholders of the State Funds will be subject to a reduced
overall operating expense ratio based on the combined assets of the surviving
entity after the Reorganization. See "The Reorganization--Agreement and Plan
of Reorganization--Potential Benefits to State Fund Stockholders as a Result
of the Reorganization."
In deciding to recommend the Reorganization, the Board of Trustees of
the Trust took into account the investment objective and policies of the
State Funds and of Limited Maturity Portfolio, the expenses incurred both due
to the Reorganization and on an ongoing basis by the new and existing
stockholders of Limited Maturity Portfolio and the potential benefits,
including economies of scale, to the holders of shares of beneficial interest
of the State Funds as a result of the Reorganization. The Trustees also
considered the effect of the Reorganization on the holders of the shares of
beneficial interest of Merrill Lynch California Limited Maturity Municipal
Bond Fund and Merrill Lynch Florida Limited Maturity Municipal Bond Fund, the
two series of the Trust that are not participating in the Reorganization.
The Board of Trustees of the Trust, including all of the Trustees who are not
"interested persons," as defined in the Investment Company Act, of the Trust
have determined that the Reorganization is in the best interests of each of
the State Funds and of the holders of shares of beneficial interest of the
State Funds and that the interests of such stockholders will not be diluted
as a result of effecting the Reorganization.
If all of the requisite approvals are obtained, it is anticipated that
the Reorganization will occur as soon as practicable after such approval,
provided that the State Funds and Limited Maturity Portfolio have obtained
prior to that time a favorable private letter ruling from the Internal
Revenue Service (the "IRS") concerning the tax consequences of the
Reorganization as set forth in the Agreement and Plan of Reorganization.
Under the Agreement and Plan of Reorganization, however, the Board of
Trustees of the Trust or the Board of Directors of Municipal Bond Fund may
cause the Reorganization to be postponed or abandoned should either Board
determine that it is in the best interests of the stockholders of either the
Trust or Municipal Bond Fund, respectively, to do so. The Agreement and Plan
of Reorganization may be terminated, and the Reorganization abandoned,
whether before or after approval by the stockholders of the State Funds, at
any time prior to the Exchange Date (as defined below), (i) by mutual consent
of the Board of Trustees of the Trust and the Board of Directors of Municipal
Bond Fund; (ii) by the Board of Trustees of the Trust if any condition to the
Trust's obligations has not been fulfilled or waived by such Board; or (iii)
by the Board of Directors of Municipal Bond Fund if any condition to
Municipal Bond Fund's obligations has not been fulfilled or waived by such
Board.
<TABLE>
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B STOCKHOLDERS OF THE STATE FUNDS, LIMITED MATURITY PORTFOLIO
AND THE COMBINED ENTITY AS OF JULY 31, 1997 (UNAUDITED)
<CAPTION>
Class A Shares (a) Class B Shares (b)
------------------------------ --------------------------------------
Actual Actual
------------------ ----------------------
All Limited All Limited
State Maturity Pro Forma State Maturity Pro Forma
Funds Portfolio Combined Funds Portfolio Combined
------- --------- --------- ----- --------- ---------
<S> <S> <S> <S> <S> <S> <S>
STOCKHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) . . . 1.00%(c) 1.00%(d) 1.00%(d) None None None
Sales Charge Imposed on
Dividend Reinvestment None None None None None None
Deferred Sales Charge
(as a percentage of
original purchase
price or redemption,
proceeds whichever
is lower) . . . . . . None(e) None(e) None(e) 1.0% 1.0% 1.0%
during the during the during the
first year, first year, first year,
decreasing to decreasing to decreasing to
0.0% 0.0% 0.0%
after the after the after the
first year(f) first year(f) first year(f)
Exchange Fee . . . . . . None None None None None None
ANNUAL FUND OPERATING
EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS):
Investment Advisory
Fees(g). . . . . . . . 0.35% 0.33% 0.33% 0.35% 0.33% 0.33%
12b-1 fees(h):
Account Maintenance
Fees . . . . . . . . None None None 0.15% 0.15% 0.15%
Distribution Fees . . None None None 0.20% 0.20% 0.20%
(Class B shares convert to Class D
automatically after approximately ten
years and cease being subject to
distribution fees)
</TABLE>
_______________________
(a) Class A shares are sold to a limited group of investors including
existing Class A stockholders and certain participants in fee-based
programs. See "The Reorganization--Comparison of the State Funds and
Limited Maturity Portfolio--Purchase of Shares."
(b) Class B shares convert to Class D shares automatically approximately ten
years after initial purchase. See "The Reorganization--Comparison of
the State Funds and Limited Maturity Portfolio--Purchase of Shares."
(c) Reduced for purchases of $25,000 and over and waived for purchases of
Class A shares by certain fee-based programs. Class A purchases of
$1,000,000 or more may not be subject to an initial sales charge. See
"The Reorganization--Comparison of the State Funds and Limited Maturity
Portfolio--Purchase of Shares."
(d) Reduced for purchases of $100,000 and over and waived for purchases of
Class A shares by certain fee-based programs. Class A purchases of
$1,000,000 or more may not be subject to an initial sales charge. See
"The Reorganization--Comparison of the State Funds and Limited Maturity
Portfolio--Purchase of Shares."
(e) Class A shares are not subject to a 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 contingent deferred sales charge ("CDSC") of
0.20% of amounts redeemed within the first year after purchase. Such
CDSC may be waived in connection with certain fee-based programs.
(f) The CDSC may be modified in connection with certain fee-based programs.
(g) See "The Reorganization--Comparison of the State Funds and Limited
Maturity Portfolio--Management."
(h) See "The Reorganization--Comparison of the State Funds and Limited
Maturity Portfolio--Purchase of Shares."
<TABLE>
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B STOCKHOLDERS OF THE STATE FUNDS, LIMITED
MATURITY PORTFOLIO AND THE COMBINED ENTITY AS OF JULY 31,1997 (UNAUDITED)
<CAPTION>
CLASS A SHARES (A)
-------------------------------------------------------------------------------------------------
ACTUAL
-------------------------------------------------------------------------------------
LIMITED
ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK PENNSYLVANIA MATURITY PRO FORMA
FUND FUND FUND FUND FUND FUND PORTFOLIO COMBINED
------- ------------- -------- ---------- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Expenses . . . 2.86% 2.17% 3.15% 1.30% 0.81% 1.40% 0.06% 0.06%
Total Fund Operating
Expenses(c) . . . . 3.21% 2.52% 3.50% 1.65% 1.16% 1.75% 0.39% 0.39%
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES (B)
-------------------------------------------------------------------------------------------------
ACTUAL
-------------------------------------------------------------------------------------
LIMITED
ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK PENNSYLVANIA MATURITY PRO FORMA
FUND FUND FUND FUND FUND FUND PORTFOLIO COMBINED
------- ------------- -------- ---------- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Expenses . . . 2.86% 2.14% 3.16% 1.30% 0.82% 1.41% 0.70% 0.70%
Total Fund Operating
Expenses(c) . . . . 3.56% 2.84% 3.86% 2.00% 1.52% 2.11% 0.75% 0.75%
</TABLE>
__________________________
(a) Class A shares are sold to a limited group of investors including
existing Class A stockholders and certain participants in fee-based
programs.
(b) Class B shares convert to Class D shares automatically approximately ten
years after initial purchase.
(c) Currently, FAM has voluntarily waived all of the advisory fees due from
each of the State Funds and has voluntarily reimbursed each of the State
Funds for a portion of other expenses (excluding Rule 12b-1 fees). The
Total Fund Operating Expenses in the fee table above have been restated
to assume the absence of any such waiver or reimbursement because FAM
may discontinue or reduce such waiver of fees and/or assumption of
expenses at any time without notice. The actual Total Fund Operating
Expenses, net of the waiver, is provided below as of July 31, 1997:
Advisory Fees Waived and Total Operating Expenses
Expenses Reimbursed After Waiver and Reimbursement
------------------------ ------------------------------
Class A Class B Class A Class B
------- ------- ------- -------
Arizona Fund 2.27% 2.26% 0.94% 1.30%
Massachusetts Fund 1.53% 1.49% 0.99% 1.35%
Michigan Fund 2.56% 2.55% 0.94% 1.31%
New Jersey Fund 0.71% 0.70% 0.94% 1.30%
New York Fund 0.46% 0.47% 0.70% 1.05%
Pennsylvania Fund 0.76% 0.76% 0.99% 1.35%
<TABLE>
CUMULATIVE EXPENSES PAID ON CLASS A AND CLASS B SHARES FOR THE PERIODS INDICATED:
EXAMPLE:
<CAPTION>
Class A Shares Class B Shares
----------------------------------- ----------------------------------
1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would pay the
following expenses
on a $1,000 invest-
ment, including the
maximum sales load
of $10.00 (Class A
shares only) and
assuming (1) the
Total Fund Operating
Expenses set forth
above for the rele-
vant portfolio,
(2) a 5% annual
return throughout
the periods and
(3) redemption at
the end of the
period:
Arizona Fund . . $42 $108 $176 $358 $46 $109 $185 $383
Massachusetts 35 88 143 293 39 88 150 317
Fund . . . . . .
Michigan Fund . 45 116 190 384 49 118 199 409
New Jersey Fund 27 62 99 204 30 63 108 233
New York Fund . 22 46 73 149 25 48 83 181
Pennsylvania
Fund . . . . . . 28 65 104 214 31 66 113 244
Limited Maturity
Portfolio . . . 14 22 32 59 18 24 42 93
Combined Entity+ 14 22 32 59 18 24 42 93
An investor would pay the
following expenses
on the same $1,000
investment assuming
no redemption at the
end of the period:
Arizona Fund . . $42 $108 $176 $358 $36 $109 $185 $383
Massachusetts
Fund . . . . . . 35 88 143 293 29 88 150 317
Michigan Fund . 45 116 190 384 39 118 199 409
New Jersey Fund 27 62 99 204 20 63 108 233
New York Fund . 22 46 73 149 15 48 83 181
Pennsylvania
Fund . . . . . . 28 65 104 214 21 66 113 244
Limited Maturity
Portfolio . . . 14 22 32 59 8 24 42 94
Combined Entity+ 14 22 32 59 8 24 42 94
</TABLE>
_____________________
+ Assuming the Reorganization had taken place on August 1, 1996 (the first
day of the year ended July 31, 1997).
<TABLE>
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D STOCKHOLDERS OF THE STATE FUNDS, LIMITED MATURITY PORTFOLIO
AND THE COMBINED ENTITY AS OF JULY 31, 1997 (UNAUDITED)
<CAPTION>
Class C Shares* Class D Shares
------------------------------ --------------------------------------
Actual Actual
------------------ ----------------------
All Limited All Limited
State Maturity Pro Forma State Maturity Pro Forma
Funds Portfolio Combined Funds Portfolio Combined
------- --------- --------- ----- --------- ---------
<S> <S> <S> <S> <S> <S> <S>
STOCKHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge Imposed
on Purchases
(as a percentage of
offering price) . . . . None None None 1.00%(a) 1.00%(b) 1.00%(b)
Sales Charge Imposed on
Dividend Reinvestment . None None None None None None
Deferred Sales Charge
(as a percentage of
original purchase price
or redemption proceeds,
whichever is lower) . . 1.0% 1.0% 1.0% None(c) None(c) None(c)
one one one
year(d) year(d) year(d)
Exchange Fee . . . . . . None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS):
Investment Advisory
Fees(e) . . . . . . . 0.35% 0.33% 0.33% 0.35% 0.33% 0.33%
12b-1 fees(f):
Account Maintenance
Fees . . . . . . . . 0.15% 0.15% 0.15% 0.10% 0.10% 0.10%
Distribution Fees . . 0.20% 0.20% 0.20% None None None
</TABLE>
______________________
(a) Reduced for purchases of $25,000 and over. Like Class A purchases,
certain Class D purchases of $1,000,000 or more may not be subject to an
initial sales charge. See "The Reorganization--Comparison of the State
Funds and Limited Maturity Portfolio--Purchase of Shares."
(b) Reduced for purchases of $100,000 and over. Like Class A purchases,
certain Class D purchases of $1,000,000 or more may not be subject to an
initial sales charge. See "The Reorganization--Comparison of the State
"Funds and Limited Maturity Portfolio--Purchase of Shares."
(c) Like Class A shares, Class D shares are not subject to a 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 0.20% of
amounts redeemed within the first year after purchase.
(d) The CDSC may be waived in connection with certain fee-based programs.
(e) See "The Reorganization--Comparison of the State Funds and Limited
Maturity Portfolio--Management."
(f) See "The Reorganization--Comparison of the State Funds and Limited
Maturity Portfolio--Purchase of Shares."
* Class C shares of the State Funds, Limited Maturity Portfolio and
the Combined Fund are, or will be available only through the
exchange privilege. See "The Reorganization--Comparison of the
State Funds and Limited Maturity Portfolio--Additional Information--
Stockholder Services."
<TABLE>
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D STOCKHOLDERS OF THE STATE FUNDS, LIMITED
MATURITY PORTFOLIO AND THECOMBINED ENTITY ASOF JULY 31, 1997(UNAUDITED)
<CAPTION>
CLASS C SHARES
-------------------------------------------------------------------------------------------------
ACTUAL
-------------------------------------------------------------------------------------
LIMITED
ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK PENNSYLVANIA MATURITY PRO FORMA
FUND FUND FUND FUND FUND FUND PORTFOLIO COMBINED
------- ------------- -------- ---------- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Expenses . . . 2.65% 1.99% 3.11% 1.10% 0.62% 1.32% 0.07% 0.07%
Total Fund Operating
Expenses(a) . . . . 3.35% 2.69% 3.81% 1.80% 1.32% 2.02% 0.75% 0.75%
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES
-------------------------------------------------------------------------------------------------
ACTUAL
-------------------------------------------------------------------------------------
LIMITED
ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK PENNSYLVANIA MATURITY PRO FORMA
FUND FUND FUND FUND FUND FUND PORTFOLIO COMBINED
------- ------------- -------- ---------- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Expenses . . . 2.89% 2.17% 3.08% 1.38% 0.86% 1.45% 0.05% 0.05%
Total Fund Operating
Expenses(a) . . . . 3.29% 2.62% 3.48% 1.78% 1.26% 1.85% 0.48% 0.48%
</TABLE>
_________________________
(a) Currently, FAM has voluntarily waived all of the advisory fees due from
each of the State Funds and has voluntarily reimbursed each of the State
Funds for a portion of other expenses (excluding Rule 12b-1 fees). The
Total Fund Operating Expenses in the fee table above have been restated
to assume the absence of any such waiver or reimbursement because FAM
may discontinue or reduce such waiver of fees and/or assumption of
expenses at any time without notice. The actual Total Fund Operating
Expenses, net of the waiver, is provided below as of July 31, 1997:
Advisory Fees Waived and Total Operating Expenses
Expenses Reimbursed After Waiver and Reimbursement
------------------------ ------------------------------
Class C Class D Class C Class D
------- ------- ------- -------
Arizona Fund 2.24% 2.25% 1.11% 1.04%
Massachusetts Fund 1.54% 1.53% 1.15% 1.09%
Michigan Fund 2.49% 2.44% 1.32% 1.04%
New Jersey Fund 0.70% 0.76% 1.10% 1.04%
New York Fund 0.46% 0.46% 0.86% 0.80%
Pennsylvania Fund 0.74% 0.76% 1.28% 1.09%
<TABLE>
CUMULATIVE EXPENSES PAID ON CLASS C AND CLASS D SHARES FOR THE PERIODS INDICATED:
EXAMPLE:
<CAPTION>
Class C Shares Class D Shares
----------------------------------- ----------------------------------
1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would pay the
following expenses on
a $1,000 investment,
including the maximum
sales load of $10.00
(Class D shares only)
and assuming (1) the
Total Fund Operating
Expenses set forth
above for the relevant
portfolio, (2) a 5%
annual return through-
out the periods and
(3) redemption at the
end of the period
(including any
applicable CDSC for
Class C shares):
Arizona Fund . . . $46 $109 $185 $383 $43 $110 $180 $365
Massachusetts Fund 39 88 150 317 36 90 147 301
Michigan Fund . . 49 118 199 409 45 116 189 382
New Jersey Fund . 30 63 108 233 28 65 105 217
New York Fund . . 25 48 83 181 23 50 78 161
Pennsylvania Fund 31 66 113 244 29 68 109 225
Limited Maturity
Portfolio . . . . 18 24 42 93 15 25 37 70
Combined Entity+ . 18 24 42 93 15 25 37 70
An investor would pay the
following expenses on
the same $1,000
investment assuming no
redemption at the end
of the period:
Arizona Fund . . . $36 $109 $185 $383 $43 $110 $180 $365
Massachusetts Fund 29 88 150 317 36 90 147 301
Michigan Fund . . 39 118 199 409 45 116 189 382
New Jersey Fund . 20 63 108 233 28 65 105 217
New York Fund . . 15 48 83 181 23 50 78 161
Pennsylvania Fund 21 66 113 244 29 68 109 225
Limited Maturity
Portfolio . . . . 8 24 42 93 15 25 37 70
Combined Entity+ . 8 24 42 93 15 25 37 70
</TABLE>
_____________________
+ Assuming the Reorganization had taken place on August 1, 1996 (the first
day of the year ended July 31, 1997).
The foregoing Fee Tables are intended to assist investors in
understanding the costs and expenses that a stockholder of each of the State
Funds and of Limited Maturity Portfolio will bear directly or indirectly
without giving effect to the Reorganization as compared to the costs and
expenses that would be borne by such investors taking into account the
Reorganization. The Examples set forth above assume reinvestment of all
dividends and distributions and utilize a 5% annual rate of return as
mandated by Commission regulations. THE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND
ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
ASSUMED FOR PURPOSES OF THE EXAMPLES. See "The Reorganization--Summary," "--
Agreement and Plan of Reorganization--Potential Benefits to Stockholders of
the State Funds as a Result of the Reorganization," "--Comparison of the
State Funds and Limited Maturity Portfolio--Management," "--Purchase of
Shares" and "--Redemption of Shares."
BUSINESS OF THE TRUST The Trust was organized under the laws of the
Commonwealth of Massachusetts on February 14, 1991
and commenced operations on November 26, 1993. The
Trust is a non-diversified open-end management
investment company. As of _____________, 1997, each
of the State Funds had net assets as follows:
Arizona Fund $______
Massachusetts Fund $______
Michigan Fund $______
New Jersey Fund $______
New York Fund $______
Pennsylvania Fund $______
BUSINESS OF MUNICIPAL Municipal Bond Fund was incorporated under the laws
BOND FUND of the State of Maryland on September 30, 1976
and commenced operations on October 21, 1977.
Limited Maturity Portfolio commenced operations on
November 2, 1979. Municipal Bond Fund is a
diversified, open-end management investment company.
As of ________, 1997, the three portfolios of
Municipal Bond Fund had aggregate net assets of
$___________; Limited Maturity Portfolio had net
assets of $_____________.
COMPARISON OF THE STATE Investment Objectives. Each State Fund seeks to
FUNDS AND LIMITED provide stockholders with as high a level of income
MATURITY PORTFOLIO exempt from Federal income taxes and personal income
taxes imposed by the designated state (and, in
certain instances, state intangible personal property
taxes, local personal property taxes and local
personal income taxes) as is consistent with prudent
investment management.
Limited Maturity Portfolio seeks to provide stockholders with as high a
level of income exempt from Federal income taxes as is consistent with
its investment policies and prudent investment management.
Investment Policies. Each State Fund seeks to achieve its objective
through a policy of investing primarily in a portfolio of intermediate
term investment grade obligations of the designated state or its
political subdivisions, agencies or instrumentalities, or certain other
jurisdictions, that pay interest exempt, in the opinion of bond counsel
to the issuer, from Federal income taxes and personal income taxes of
the designated state and, where applicable, state intangible personal
property taxes, local personal property taxes and local personal income
taxes in the designated state.
Limited Maturity Portfolio seeks to achieve its objective by investing
in a portfolio primarily of short-term investment grade obligations
issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest on which is
exempt from Federal income taxes.
Advisory Fees. The investment adviser for both the Trust and Municipal
Bond Fund is Fund Asset Management, L.P. ("FAM"). FAM is responsible
for the management of the investment portfolio of each of the State
Funds and of Limited Maturity Portfolio and for providing administrative
services to each of the State Funds and to Limited Maturity Portfolio.
The portfolio managers for the State Funds are Edward S. Andrews, Peter
J. Hayes and Helen M. Sheehan. Peter J. Hayes is the portfolio manager
for Limited Maturity Portfolio.
Pursuant to separate management agreements between the Trust and FAM on
behalf of each of the State Funds, each State Fund pays FAM a monthly
fee based upon the average daily net assets of that State Fund at the
annual rate of 0.35% of the average daily net assets of that State Fund.
Municipal Bond Fund's investment advisory agreement with FAM provides
that as compensation for FAM's services to Limited Maturity Portfolio,
FAM receives at the end of each month a fee determined based on the
annual rates set forth in the table below. These rates are applied to
the average daily net assets of each of the three portfolios of
Municipal Bond Fund to the extent that the aggregate of the average
daily net assets of the three combined portfolios of Municipal Bond Fund
exceeds $250 million, $400 million, $550 million and $1.5 billion,
respectively (each such amount being a breakpoint level). The portion
of the assets of a portfolio to which the rate at each breakpoint level
applies will be determined on a "uniform percentage" basis. The uniform
percentage applicable to a breakpoint level is determined by dividing
the amount of the aggregate of the average daily net assets of the three
combined portfolios of the Municipal Bond Fund that falls within that
breakpoint level by the aggregate of the average daily net assets of the
three combined portfolios. The amount of the fee for a portfolio at
each breakpoint level is determined by multiplying the average daily net
assets of that portfolio by the uniform percentage applicable to that
breakpoint level and multiplying the product by the advisory fee rate.
Aggregate of Average Rate of
Daily Net Assets of Advisory Fee
------------------
of the three Limited Maturity
combined Portfolios Portfolio
------------------- ------------------
Not exceeding $250 million 0.40%
In excess of $250 million but not
exceeding $400 million 0.375
In excess of $400 million but not
exceeding $550 million 0.35
In excess of $550 million but not
exceeding $1.5 billion 0.325
In excess of $1.5 billion 0.325
See "The Reorganization--Summary--Pro Forma Fee Tables" and "--
Comparison of the State Funds and Limited Maturity Portfolio--
Management."
Class Structure. Like each of the State Funds, Limited Maturity
Portfolio offers four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) System. The Class A, Class B, Class C and Class D
shares issued by Limited Maturity Portfolio are identical in all
respects to the Class A, Class B, Class C and Class D shares issued by
the State Funds except that they represent ownership interests in a
different investment portfolio. See "The Reorganization--Comparison of
the State Funds and Limited Maturity Portfolio--Purchase of Shares."
Overall Expense Ratio. The overall operating expense ratio for the year
ended July 31, 1997 was 0.39% for Limited Maturity Portfolio and for each
of the State Funds was as set forth below:
Before giving effect
to any waiver of After giving effect to
advisory fees or waiver of advisory fees
reimbursement of and reimbursement of
expenses expenses
--------------------- -----------------------
Arizona Fund 3.21% .94%
Massachusetts Fund 2.52% .99%
Michigan Fund 3.50% .94%
New Jersey Fund 1.65% .94%
New York Fund 1.16% .70%
Pennsylvania Fund 1.75% .99%
If the Reorganization had taken place on August 1, 1996 (the first day
of the year ended July 31, 1997), the overall operating expense ratio
for the combined entity on a pro forma basis would have been 0.39%.
The foregoing expense ratios do not take into account class specific
expenses resulting from distribution and account maintenance of Class A,
Class B, Class C or Class D shares. See "The Reorganization--Summary--
Pro Forma Fee Tables."
Purchase of Shares. Shares of Limited Maturity Portfolio are offered
continuously for sale to the public in substantially the same manner as
the shares of each of the State Funds. See "The Reorganization--
Comparison of the State Funds and Limited Maturity Portfolio--Purchase
of Shares."
Redemption of Shares. The redemption procedures for shares of Limited
Maturity Portfolio are the same as the redemption procedures for shares
of each of the State Funds. See "The Reorganization--Comparison of the
State Funds and Limited Maturity Portfolio--Redemption of Shares."
Dividends and Distributions. The policies of each State Fund with
respect to dividends and distributions are identical to those of Limited
Maturity Portfolio. See "The Reorganization--Comparison of the State
Funds and Limited Maturity Portfolio--Dividends and Distributions."
Net Asset Value. The State Funds and Limited Maturity Portfolio each
determines the net asset value of each class of its shares once daily
15 minutes after the close of business on the New York Stock Exchange
(the "NYSE") (generally, 4:00 p.m., New York time), on each day
during which the NYSE is open for trading. The State Funds and Limited
Maturity Portfolio each compute net asset value per share in the same
manner. See "The Reorganization--Comparison of the State Funds and
Limited Maturity Portfolio--Additional Information--Net Asset Value."
Voting Rights. The corresponding voting rights of the holders of shares
of beneficial interest of the Trust and shares of Common Stock of
Municipal Bond Fund are substantially the same. See "The
Reorganization--Comparison of the State Funds and Limited Maturity
Portfolio--Capital Stock."
Stockholder Services. Stockholder services, including exchange
privileges, available to the State Funds and Limited Maturity Portfolio
are identical. See "The Reorganization--Comparison of the State Funds
and Limited Maturity Portfolio--Additional Information--Stockholder
Services." An automatic dividend reinvestment plan is available both to
the holders of shares of beneficial interest of the Trust and the
holders of shares of Common Stock of Municipal Bond Fund. The plans are
identical. See "The Reorganization--Comparison of the State Funds and
Limited Maturity Portfolio--Automatic Dividend Reinvestment Plan."
Other stockholder services, including the provision of annual and
semi-annual reports, are the same for the Trust and Municipal Bond Fund.
See "The Reorganization--Comparison of the State Funds and Limited
Maturity Portfolio--Additional Information--Stockholder Services."
TAX CONSIDERATIONS The State Funds and Limited Maturity Portfolio have
jointly requested a private letter ruling from the IRS
with respect to the Reorganization to the effect that,
among other things, neither the State Funds nor Limited
Maturity Portfolio will recognize gain or loss on the
transaction and stockholders of the State Funds will not
recognize gain or loss on the exchange of their shares
of beneficial interest for shares of Limited Maturity
Portfolio Common Stock. The consummation of the
Reorganization is subject to the receipt of such ruling.
The Reorganization will not affect the status of Limited
Maturity Portfolio as a regulated investment company
("RIC") under the Internal Revenue Code of 1986, as
amended ("Code"). Each State Fund will liquidate
pursuant to the Reorganization.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Since the State Funds and Limited Maturity Portfolio invest primarily in
a portfolio of Municipal Bonds, any risks inherent in such investments are
equally applicable to the State Funds and Limited Maturity Portfolio and will
be similarly pertinent to the combined fund after the Reorganization. It is
expected that the Reorganization itself will not adversely affect the rights
of holders of shares of beneficial interest of the State Funds or shares of
Limited Maturity Portfolio Common Stock or create additional risks.
PORTFOLIO MANAGEMENT
Each State Fund ordinarily will invest at least 65% (80% in the case of
the New Jersey Fund) of its total assets in its respective State Municipal
Bonds and, therefore, is more susceptible to factors adversely affecting
issuers of Municipal Bonds in such state than is a tax-exempt mutual fund
that is not concentrated in issuers of a particular state's Municipal Bonds
to this degree, such as Limited Maturity Portfolio. Limited Maturity
Portfolio currently contemplates that it will not invest more than 25% of its
total assets (taken at market value) in Municipal Bonds of issuers that are
located in the same state. Certain special considerations and risk factors
specific to each State Fund are described in the Limited Maturity Trust
Prospectus. FAM does not believe that the current economic conditions
described in the Limited Maturity Trust Prospectus will have a significant
adverse effect on the ability of any State Fund to invest in investment grade
State Municipal Bonds.
MATURITY
Limited Maturity Portfolio may not invest in Municipal Bonds with a
remaining term exceeding four years. The State Funds invest primarily in
Municipal Bonds with remaining maturities of between one and ten years.
Because the State Funds hold Municipal Bonds with maturities which exceed the
permitted maturity for investments by Limited Maturity Portfolio, prior to
the Reorganization, the State Funds will dispose of all portfolio securities
that have maturities greater than four years. FAM believes that such
disposition will not affect the receipt of a favorable private letter ruling
from the IRS with respect to the tax-free status of the Reorganization.
COMPARISON OF THE STATE FUNDS AND LIMITED MATURITY PORTFOLIO
FINANCIAL HIGHLIGHTS
Limited Maturity Portfolio
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the
Municipal Bond Fund by Deloitte & Touche LLP, independent auditors.
Financial Statements for the year ended June 30, 1997 and the independent
auditors' report thereon are included in the Municipal Bond Fund Statement.
The following per share data and ratios have been derived from information
provided in the financial statements of the Municipal Bond Fund.
<TABLE>
<CAPTION>
Limited Maturity Portfolio
Class A
For the Year Ended June 30,
Increase (Decrease)
in Net Asset Value: 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- -------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of year . $9.92 $9.87 $10.01 $9.91 $9.75 $9.71 $9.73 $9.75 $9.83
---------- -------- --------- --------- --------- --------- --------- --------- --------- ---------
Investment income--
net . . . . . . . . .38 .38 .37 .41 .50 .57 .60 .58 .53
Realized and unrealized
gain (loss) (.01) .05 (.14) .10 .16 .04 (.02) (.02) (.07)
---------- -------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations. . . . . .37 .43 .23 .51 .66 .61 .58 .56 .46
---------- -------- --------- --------- --------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Investment income
--net . . . . . . (.38) (.38) (.37) (.41) (.50) (.57) (.60) (.58) (.53)
Realized gain on
investments
--net . . . . . . -- -- -- -- -- -- -- -- (.01)
---------- -------- --------- --------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions: (.38) (.38) (.37) (.41) (.50) (.57) (.60) (.58) (.54)
---------- -------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end
of year . . . . . . $9.91 $9.92 $9.87 $10.01 $9.91 $9.75 $9.71 $9.73 $9.75
========== ======== ========= ========= ========= ========= ========= ========= ========= =========
TOTAL INVESTMENT
RETURN:*
Based on net asset
value per share . . 3.75% 4.53% 2.30% 5.28% 6.93% 6.45% 6.16% 5.96% 4.83%
========== ======== ========= ========= ========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE NET
ASSETS:
Expenses. . . . . . .44% .41% .40% .41% .40% .40% .40% .41% .40%
========== ======== ========= ========= ========= ========= ========= ========= ========= =========
Investment income
--net . . . . . . . 3.83% 3.86% 3.68% 4.13% 5.02% 5.88% 6.21% 6.00% 5.42%
========== ======== ========= ========= ========= ========= ========= ========= ========= =========
SUPPLEMENTAL DATA:
Net assets, end of
year (in thousands) . $417,097 $536,474 $790,142 $846,736 $613,407 $350,549 $352,005 $385,794 $567,158
========== ======== ========= ========= ========= ========= ========= ========= ========= =========
Portfolio turnover . 88.32% 37.33% 45.67% 65.43% 96.32% 93.06% 106.44% 228.78% 146.01%
========== ======== ========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Limited Maturity Portfolio
Class B Class C Class D
--------------------------------------- ----------------------------- --------------------------
For the Year Ended For the Year Ended For the Year Ended
June 30, June 30, June 30,
----------------------------- --------------------- -----------------
For the For the For the
Period Period Period
Nov. 2, Oct. 21, Oct. 21,
1992+ to 1994+ to 1994+ to
Increase (Decrease) in June 30, June 30, June 30,
Net Asset Value: 1997 1996 1995 1994 1993 1997 1996 1995 1997 1996 1995
------ ------ ------ ------ -------- ----------- ------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period. . $ 9.92 $ 9.87 $10.01 $ 9.93 $ 9.92 $ 9.83 $ 9.93 $ 9.83
------ ------ ------ ------ -------- ----------- ------- --------- ------- ------- --------
Investment income-net . .35 .35 .33 .24 .34 .25 .37 .26
Realized and unrealized
gain (loss) on
investments-net. . . . (.01) .05 (.14) .08 (.04) .09 (.02) .10
Total from investment
operations . . . . . . .34 .40 .19 .32 .30 .34 .35 .36
Less dividends from
investment income-net. (.35) (.35) (.33) (.24) (.34) (.25) (.37) (.26)
Net asset value, end of
period . . . . . . . . $9.91 $9.92 $9.87 $10.01 $9.88 9.92 $ 9.91 $ 9.93
Total Investment
Return: **
Based on net asset
value per share. . . . 3.37% 4.14% 1.98% 3.26%# 2.97% 3.52%# 3.55% 3.73%#
RATIOS TO AVERAGE NET
ASSETS:
Expenses . . . . . . . .80% .78% .76% .76%* .80% .70%* .54% .53%*
Investment income-net . 3.46% 3.50% 3.33% 3.60%* 3.41% 3.61%* 3.71% 3.78%*
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands). $71,075 $129,581 $145,534 $95,179 $ 94 $3,965 $15,886 $11,258
Portfolio turnover . . 88.32% 37.33% 45.67% 65.43% 88.32% 37.33% 88.32% 37.33%
</TABLE>
________________
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
The State Funds
The financial information in the tables below has been audited in
conjunction with the annual audits of the financial statements of the Trust
by Deloitte & Touche LLP, independent auditors. Financial statements for the
year ended July 31, 1997 and the independent auditors' report thereon are
included in the Limited Maturity Trust Statement. The following per share
data and ratios have been derived from information provided in such audited
financial statements.
<TABLE>
<CAPTION>
Arizona Fund
----------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class D
----------------------------- ----------------------------- -------------------------- -------------------------
For the year ended For the year ended For the year ended For the year ended
July 31, July 31, July 31, July 31,
-------------------- -------------------- ----------------- ----------------
For the For the For the For the
period period period period
Nov. 26, Nov. 26, Oct. 21, Oct. 21,
1993+ to 1993+ to 1994+ to 1994+ to
July 31, July 31, July 31, July 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE)
IN NET
ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value,
beginning of
period . . . . $10.17 $ 9.97 $10.00 $10.16 $ 9.97 $10.00 $10.17 $9.89 $10.17 $9.89
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Investment
income-net. . .41 .43 .23 .37 .39 .23 .37 .29 .33
Realized and
unrealized
gain (loss)
on investments
--net . . . . (.09) .20 (.03) (.08) .19 (.03) (.09) .28 .40 .28
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Total from
investment
operations . . .32 .63 .20 .29 .58 .20 .28 .57 (.09) .61
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Less dividends
from investment
income-net . . (.41) (.43) (.23) (.37) (.39) (.23) (.37) (.29) .31 (.33)
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Net asset
value, end of
period . . . . $10.08 $10.17 $9.97 $10.08 $10.16 $9.97 $10.08 $10.17 (.40) $10.17
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
TOTAL
INVESTMENT
RETURN: **
Based on net
asset value per
share. . . . . 3.16% 6.47% 2.02%# 2.88% 5.99% 1.78%# 2.78% 5.90%# $10.08 6.34%#
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursements .74% .35% .02%* 1.09% .72% .38%* 1.03% 1.05%* 3.05% .55%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Expenses . . . 2.27% 2.05% 1.82%* 2.61% 2.44% 2.18%* 2.80% 2.79%* .90% 2.39%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Investment
income-net . . 4.01% 4.31% 3.37%* 3.65% 3.95% 3.02%* 3.86% 3.80%* 2.42% 4.31%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
SUPPLEMENTAL
DATA:
Net assets, end
of period
(in thousands) $813 $1,054 $2,103 $2,885 $5,191 $5,575 $ 135 $ 1 3.88% $ 19
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Portfolio
turnover. . . $ 619
43.53% 182.58% 142.37% 43.53%182.58% 142.37% 43.53% 182.58% 43.53% 182.58%
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
</TABLE>
________________
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
<TABLE>
<CAPTION>
Massachusetts Fund
----------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class D
----------------------------- ----------------------------- -------------------------- -------------------------
For the year ended For the year ended For the year ended For the year ended
July 31, July 31, July 31, July 31,
-------------------- -------------------- ----------------- ----------------
For the For the For the For the
period period period period
Nov. 26, Nov. 26, Oct. 21, Oct. 21,
1993+ to 1993+ to 1994+ to 1994+ to
July 31, July 31, July 31, July 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE)
IN NET
ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value,
beginning of
period . . $9.96 $9.95 $10.00 $9.96 $9.95 $10.00 $9.96 $9.82 $9.96 $9.82
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Investment
income
--net . . .40 .44 .25 .37 .40 .22 .39 .33 .39 .34
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Realized and
unrealized
gain (loss)
on invest-
ments--net -- .02 (.05) -- .02 (.05) (.01) .15 -- .15
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Total from
investment
operations .40 .46 .20 .37 .42 .17 .38 .48 .39 .49
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Less dividends
and
distributions:
Investment
income-net (.40) (.44) (.25) (.37) (.40) (.22) (.39) (.33) (.39) (.34)
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Realized gain
on investments
--net . . -- (.01) -- -- (.01) -- -- (.01) -- (.01)
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Total dividends
and distri-
butions. . (.40) (.45) (.25) (.37) (.41) (.22) (.39) (.34) (.39) (.35)
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Net asset value,
end of period $9.96 $9.96 $9.95 $9.96 $9.96 $9.95 $9.95 $9.96 $9.96 $9.96
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
TOTAL INVESTMENT
RETURN:**
Based on net
asset value
per share . 4.08% 4.79% 2.01%# 3.70% 4.41% 1.77%# 3.81% 5.00%# 3.97% 5.09%#
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net
of reimburse-
ments . . .77% .37% .03%* 1.16% .74% .38%* .94% .67%* .93% .70%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Expenses . 2.15% 1.71% 1.17%* 2.61% 2.08% 1.54%* 2.37% 2.23%* 2.42% 2.31%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Investment
income--net 4.04% 4.45% 3.69%* 3.66% 4.08% 3.28%* 3.88% 4.32%* 3.89% 4.21%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
SUPPLEMENTAL
DATA:
Net assets,
end of
period (in
thousands) $1,719 $4,453 $8,097 $4,557 $4,800 $8,046 $210 $413 $890 $253
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Portfolio
turnover . 22.71% 89.96% 57.80% 22.71% 89.96% 57.80% 22.71% 89.96% 22.71% 89.96%
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
</TABLE>
________________
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
<TABLE>
<CAPTION>
Michigan Fund
----------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class D
----------------------------- ----------------------------- -------------------------- -------------------------
For the year ended For the year ended For the year ended For the year ended
July 31, July 31, July 31, July 31,
-------------------- -------------------- ----------------- ----------------
For the For the For the For the
period period period period
Nov. 26, Nov. 26, Oct. 21, Oct. 21,
1993+ to 1993+ to 1994+ to 1994+ to
July 31, July 31, July 31, July 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE)
IN NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value,
beginning of
period. . . $9.98 $9.92 $10.00 $9.98 $9.92 $10.00 $9.98 $9.76 $9.76 $9.76
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Investment
income--net .41 .44 .24 .37 .40 .22 .36 .30 .40 .34
Realized and
unrealized
gain (loss)
on invest-
ments-net (.04) .06 (.08) (.04) .06 (.08) (.04) .22 (.03) .21
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Total from
investment
operations .37 .50 .16 .33 .46 .14 .32 .52 .37 .55
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Less dividends
from invest-
ment income
--net (.41) (.44) (.24) (.37) (.40) (.22) (.36) (.30) (.40) (.34)
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Net asset value,
end of period $9.94 $9.98 $9.92 $9.94 $9.98 $9.92 $9.94 $9.98 $9.94 $9.97
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value
per share . 3.71% 5.16% 1.66%# 3.32% 4.78% 1.42%# 3.20% 5.40%# 3.71% 5.72%#
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursements .74% .27% .02%* 1.10% .65% .38% 1.24% .96%* .87% .44%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Expenses . 2.78% 2.18% 2.01%* 3.14% 2.56% 2.38%* 3.31% 2.90%* 3.06% 2.38%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Investment
income--net 4.06% 4.42% 3.59%* 3.70% 4.09% 3.21%* 3.57% 3.80%* 3.94% 4.47%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
SUPPLEMENTAL
DATA:
Net assets,
end of period
(in thousands) $1,641 $2,302 $3,435 $1,842 $2,494 $2,411 $ 1 $ 1 $ 541 $ 254
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Portfolio
turnover . 32.92% 93.08% 204.15% 32.92% 93.08% 204.15% 32.92% 93.08% 32.92% 93.08%
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
</TABLE>
________________
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
<TABLE>
<CAPTION>
New Jersey Fund
----------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class D
----------------------------- ----------------------------- -------------------------- -------------------------
For the year ended For the year ended For the year ended For the year ended
July 31, July 31, July 31, July 31,
-------------------- -------------------- ----------------- ----------------
For the For the For the For the
period period period period
Nov. 26, Nov. 26, Oct. 21, Oct. 21,
1993+ to 1993+ to 1994+ to 1994+ to
July 31, July 31, July 31, July 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE)
IN NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value, begin-
ning of
period $10.15 $9.94 $10.00 $10.16 $9.95 $10.00 $9.20 $ 9.86 $10.16 $ 9.85
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Investment
income-net .41 .42 .23 .37 .38 .20 .34 .26 .40 .32
Realized and
unrealized
gain (loss)
on invest-
ments-net (.04) .21 (.06) (.05) .21 (.05) (.04) (.66) (.05) .31
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Total from
investment
operations .37 .63 .17 .32 .59 .15 .30 (.40) .35 .63
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Less dividends
from invest-
ment income
--net (.41) (.42) (.23) (.37) (.38) (.20) (.34) (.26) (.40) (.32)
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Net asset
value, end of
period. . $10.11 $10.15 $9.94 $10.11 $10.16 $9.95 $9.16 $9.20 $10.11 $10.16
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
TOTAL
INVESTMENT
RETURN:**
Based on net
asset value
per share . 3.68% 6.45% 1.73%# 3.21% 6.07% 1.59%# 3.24% (4.01)%# 3.48% 6.51%#
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net
of reimburse-
ments. . .76% .34% .03%* 1.10% .73% .38%* 1.00% .55%* .84% .62%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Expenses 1.78% 1.69% 1.14%* 2.12% 2.15% 1.52%* 2.04% 2.22%* 1.86% 2.07%
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Investment
income--net 4.02% 4.10% 3.45%* 3.67% 3.80% 3.04%* 3.82% 4.06%* 3.93% 4.17%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
SUPPLEMENTAL
DATA:
Net assets,
end of
period (in
thousands) $2,663 $2,401 $5,933 $5,152 $7,593 $7,885 $272 $ 1 $ 540 $ 437
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Portfolio
turnover . 6.57% 131.56% 205.04% 6.57% 131.56% 205.04% 6.57% 131.56% 6.57% 131.56%
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
</TABLE>
________________
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
<TABLE>
<CAPTION>
New York Fund
----------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class D
----------------------------- ----------------------------- -------------------------- -------------------------
For the year ended For the year ended For the year ended For the year ended
July 31, July 31, July 31, July 31,
-------------------- -------------------- ----------------- ----------------
For the For the For the For the
period period period period
Nov. 26, Nov. 26, Oct. 21, Oct. 21,
1993+ to 1993+ to 1994+ to 1994+ to
July 31, July 31, July 31, July 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE)
IN NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value, begin-
ning of period $10.05 $ 9.91 $10.00 $10.05 $ 9.91 $10.00 $10.05 $ 9.78 $10.05 $9.78
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Investment
income--net .43 .44 .25 .40 .41 .22 .42 .30 .42 .34
Realized and
unrealized
gain (loss)
on invest-
ments--net .01 .14 (.09) .01 .14 (.09) .01 .27 .01 .27
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Total from
investment
operations .44 .58 .16 .41 .55 .13 .43 .57 .43 .61
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Less dividends
from invest-
ment income
--net . . . (.43) (.44) (.25) (.40) (.41) (.22) (.42) (.30) (.42) (.34)
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Net asset
value, end
of period $10.06 $10.05 $9.91 $10.06 $10.05 $9.91 $10.06 $10.05 $10.06 $10.05
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share . . 4.46% 6.03% 1.61%# 4.08% 5.66% 1.37%# 4.28% 5.97%# 4.35% 6.37%#
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursements .50% .33% .03%* .87% .69% .38%* .71% .63%* .62% .48%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Expenses. . 1.38% 1.30% 1.24%* 1.75% 1.65% 1.60%* 1.59% 1.63%* 1.49% 1.48%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Investment
income--net 4.28% 4.49% 3.68%* 3.91% 4.11% 3.31%* 4.06% 4.21%* 4.16% 4.47%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
SUPPLEMENTAL
DATA:
Net assets,
end of period
(in thousands) $3,723 $4,811 $5,290 $10,071 $8,822 $9,743 $ 216 $ 38 $3,912 $2,306
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Portfolio
turnover. . 51.47% 139.16% 152.73% 51.47% 139.16% 152.73% 51.47% 139.16% 51.47% 139.16%
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
</TABLE>
________________
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
<TABLE>
<CAPTION>
Pennsylvania Fund
----------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class D
----------------------------- ----------------------------- -------------------------- -------------------------
For the year ended For the year ended For the year ended For the year ended
July 31, July 31, July 31, July 31,
-------------------- -------------------- ----------------- ----------------
For the For the For the For the
period period period period
Nov. 26, Nov. 26, Oct. 21, Oct. 21,
1993+ to 1993+ to 1994+ to 1994+ to
July 31, July 31, July 31, July 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period. . $10.10 $ 9.95 $10.00 $10.10 $ 9.95 $10.00 $10.10 $9.84 $10.10 $ 9.84
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Investment
income--net .41 .42 .23 .37 .39 .21 .38 .29 .40 .33
Realized and
unrealized
gain (loss)
on invest-
ments--net .01 .15 (.05) .01 .15 (.05) .05 .26 .01 .26
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Total from
investment
operations .42 .57 .18 .38 .54 .16 .43 .55 .41 .59
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Less dividends
from invest-
ment income
--net (.41) (.42) (.23) (.37) (.39) (.21) (.38) (.29) (.40) (.33)
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------- ------ ------ ---------
Net asset
value, end
of period. . $10.11 $10.10 $ 9.95 $10.11 $10.10 $ 9.95 $10.15 $10.10 $10.11 $10.10
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
TOTAL INVESTMENT
RETURN:**
Based on net
asset value
per share 4.18% 5.89% 1.85%# 3.80% 5.51% 1.61%# 4.28% 5.68%# 4.07% 6.10%#
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net
of reimburse-
ments .80% .38% .02%* 1.15% .73% .38%* .97% 1.05%* .96% .57%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Expenses. . 1.63% 1.90% 1.48%* 1.99% 2.25% 1.83%* 1.83% 2.55%* 1.71% 2.08%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Investment
income--net 4.01% 4.25% 3.46%* 3.65% 3.87% 3.05%* 3.84% 3.77%* 3.84% 4.30%*
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
SUPPLEMENTAL DATA:
Net assets, end
of period (in
thousands) $ 833 $ 943 $ 990 $6,264 $7,414 $9,532 $ 1 $ 1 $1,807 $ 382
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
Portfolio
turnover . . 30.90% 141.52% 237.47% 30.90% 141.52% 237.47% 30.90% 141.52% 30.90% 141.52%
====== ====== ====== ======== ====== ====== ====== ======== ====== ====== ========= ====== ====== =========
</TABLE>
________________
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
Set forth below for each State Fund and for Limited Maturity Portfolio
is the 30-day yield as of July 31, 1997, the tax-equivalent yield, which
treats income as exempt from Federal income taxes, and the maximum tax-
equivalent yield, which treats income as exempt from all Federal income and
applicable state taxes (and New York City taxes, in the case of the New York
Fund). All yields are calculated utilizing formulas specified by the
Commission.
<TABLE>
<CAPTION>
30 Day Federal Exempt Maximum
Yield as of Tax-Equivalent Tax-Equivalent
Fund Name Class 7/31/97 Yield * Yield
- --------- ------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Arizona Fund Class A 3.37% 5.58% 5.88%
Class B 3.04% 5.03% 5.31%
Class C 3.22% 5.33% 5.62%
Class D 3.27% 5.41% 5.71%
Massachusetts Fund Class A 3.59% 5.94% 6.37%
Class B 3.26% 5.40% 5.79%
Class C 3.47% 5.75% 6.16%
Class D 3.49% 5.78% 6.19%
Michigan Fund Class A 3.62% 5.99% 6.27%
Class B 3.28% 5.43% 5.68%
Class C 3.12% 5.17% 5.40%
Class D 3.52% 5.83% 6.10%
New Jersey Fund Class A 3.32% 5.50% 5.87%
Class B 2.99% 4.95% 5.29%
Class C 3.20% 5.30% 5.66%
Class D 3.22% 5.33% 5.69%
New York Fund Class A 3.86% 6.39% 7.21%
Class B 3.54% 5.86% 6.61%
Class C 3.72% 6.16% 6.94%
Class D 3.77% 6.24% 7.04%
Pennsylvania Fund Class A 3.41% 5.65% 5.81%
Class B 3.08% 5.10% 5.25%
Class C 3.15% 5.22% 5.37%
Class D 3.31% 5.48% 5.64%
Limited Maturity Portfolio Class A 3.78% 6.26% 6.26%
Class B 3.46% 5.73% 5.73%
Class C 3.45% 5.71% 5.71%
Class D 3.68% 6.09% 6.09%
</TABLE>
____________
* Figures are based on Federal tax rate of 39.6%.
INVESTMENT OBJECTIVE AND POLICIES
The structure, organization and investment policies of the State Funds
and Limited Maturity Portfolio are similar, but not identical. The State
Funds and Limited Maturity Portfolio are sometimes referred to herein
collectively as the "Funds" and individually as a "Fund". Certain of the
significant differences are discussed below.
The investment objective of each State Fund is to provide stockholders
with as high a level of income exempt from Federal income taxes, the
designated state's personal income taxes and, where applicable, state
intangible personal property tax, local personal income taxes and local
personal property taxes, as is consistent with prudent investment management.
The investment objective of Limited Maturity Portfolio is to provide
stockholders with as high a level of income exempt from Federal income taxes
as is consistent with its investment policies and prudent investment
management. There can be no assurance that after the Reorganization, Limited
Maturity Portfolio will achieve its investment objective.
Each State Fund seeks to achieve its objective by providing investors
with the opportunity to invest in a portfolio of securities consisting
primarily of intermediate-term investment grade obligations issued by or on
behalf of the designated state or its political subdivisions, agencies or
instrumentalities, and obligations of other qualifying issuers, such as
issuers located in Puerto Rico, the U.S. Virgin Islands and Guam. Limited
Maturity Portfolio seeks to achieve its objective by investing in a
diversified portfolio consisting primarily of short-term investment grade
obligations issued by or on behalf of states, territories and possessions of
the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest from which is
exempt from Federal income taxes (such obligations are herein referred to as
"Municipal Bonds"). The investment objective of each of the State Funds and
of Limited Maturity Portfolio is a fundamental policy that may not be changed
without a vote of a majority of that Fund's outstanding voting securities.
At times, the State Funds and Limited Maturity Portfolio may seek to hedge
their portfolios through the use of futures contracts and options
transactions thereon to reduce volatility in the net asset value of their
shares.
Each State Fund will maintain at all times, except during temporary
defensive periods, at least 65% of its total assets invested in its
respective State Municipal Bonds/F1/; the New Jersey Fund will maintain at
least 80% of its total assets invested in New Jersey State Municipal Bonds.
Limited Maturity Portfolio invests in a portfolio consisting primarily
of short-term investment grade Municipal Bonds. Municipal Bonds in Limited
Maturity Portfolio will be either Municipal Bonds with remaining maturities
of less than four years or short-term municipal notes, which typically are
issued with a maturity of not more than one year. Municipal notes include
tax anticipation notes, bond anticipation notes and revenue anticipation
notes. Interest rates on short-term Municipal Bonds may fluctuate more
widely from time to time than interest rates on long-term Municipal Bonds.
However, because of the shorter maturities, the market value of the Municipal
Bonds held by Limited Maturity Portfolio can be expected to fluctuate less as
a result of changes in interest rates.
Each State Fund will invest primarily in Municipal Bonds with remaining
maturities of between one and ten years, and may not invest in Municipal
Bonds with remaining maturities of greater than ten years. For cash
management and temporary defensive purposes, each State Fund may invest in
Municipal Bonds with remaining maturities of less than one year. It is
anticipated that, depending on market conditions, the dollar weighted average
maturity of each State Fund's portfolio will not exceed five years. For
purposes of these investment policies, a bond will be treated as having a
maturity earlier than its stated maturity date if such bond has technical
features which, in the judgment of FAM, will result in the bond being valued
in the market as though it has such earlier maturity. Interest rates on
shorter-term Municipal Bonds may fluctuate more widely from time to time than
interest rates on longer-term Municipal Bonds. However, because of their
limited maturities, the market value of the Municipal Bonds held by each
State Fund can be expected to fluctuate less as a result of changes in
interest rates.
_______________
/F1/ State Municipal Bonds are obligations that pay interest exempt from
Federal income taxes, state personal income taxes in the designated
state and, where applicable, local personal income taxes, local
personal property taxes and state intangible personal property taxes.
The investment grade Municipal Bonds in which the State Funds and
Limited Maturity Portfolio invest are those Municipal Bonds rated at the date
of purchase within the four highest ratings as determined by either Moody's
Investors Service, Inc. ("Moody's") (currently "Aaa", "Aa", "A" and "Baa"),
Standard & Poor's Ratings Services ("S&P") (currently AAA, AA, A and BBB) or
Fitch Investors Service, Inc. ("Fitch") (currently AAA, AA, A and BBB) or, if
unrated, are considered to be of comparable quality by FAM. See Exhibit II--
"Ratings of Municipal Bonds."
Limited Maturity Portfolio may invest in variable rate demand notes
("VRDNs") which are tax-exempt obligations containing a floating or variable
interest rate adjustment formula and an unconditional right of demand to
receive payment of the unpaid principal balance plus accrued interest upon a
short notice period not to exceed seven days. The interest rates are
adjustable at intervals ranging from daily to up to six months based on some
prevailing market rate for similar investments, such adjustment formula being
calculated to maintain the market value of the VRDN at approximately the par
value of the VRDN upon the adjustment date. The adjustments are typically
based upon the prime rate of a bank or some other appropriate interest rate
adjustment index.
Limited Maturity Portfolio may also invest in VRDNs in the form of
participation interests ("Participating VRDNs") in variable rate tax-exempt
obligations held by a financial institution, typically a commercial bank
("institution"). Participating VRDNs provide Limited Maturity Portfolio with
a specified undivided interest (up to 100%) in the underlying obligation and
the right to demand payment of the unpaid principal balance plus accrued
interest on the Participating VRDNs from the institution upon a specified
number of days' notice, not to exceed seven days. In addition, the
Participating VRDN is backed by an irrevocable letter of credit or guaranty
of the institution. Limited Maturity Portfolio has an undivided interest in
the underlying obligation and thus participates on the same basis as the
institution in such obligation except that the 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.
Limited Maturity Portfolio has been advised by its counsel that the
interest received on Participating VRDNs will be treated as interest from
tax-exempt obligations as long as Limited Maturity Portfolio does not invest
more than a limited amount (not more than 20%) of its total assets in such
investments and certain other conditions are met. It is contemplated that
Limited Maturity Portfolio will not invest more than a limited amount of its
total assets in Participating VRDNs. The State Funds may also invest in
VRDNs and Participating VRDNs. See the Municipal Bond Fund Prospectus for
information about investment in such securities.
Each State 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 S&P 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, a State Fund will rely on
FAM's judgment, analysis and experience in evaluating the creditworthiness of
the issuer of such securities. FAM 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 Objectives and Policies" in the
Limited Maturity Trust Statement for a more detailed discussion of the
pertinent risk factors involved in investing in "high yield" or "junk" bonds
and Exhibit II--"Ratings of Municipal Bonds" for additional information
regarding ratings of debt securities. None of the State Funds intends to
purchase debt securities that are in default or which FAM believes will be in
default.
On a temporary basis, each Fund may invest in short-term tax-exempt or
taxable securities (Limited Maturity Portfolio may only invest in taxable
securities), short-term U.S. Government securities, repurchase agreements or
cash. Such securities or cash will not exceed 20% of each Fund's net assets
except during interim periods pending investment of the net proceeds from
public offerings of the Fund's securities and temporary defensive periods
when, in the opinion of FAM, prevailing market or economic conditions
warrant.
Each State Fund is classified as non-diversified within the meaning of
the Investment Company Act, which means that it is not limited by such Act in
the proportion of its total assets that it may invest in securities of a
single issuer. However, each State Fund's investments are limited so as to
qualify the State Fund for the special tax treatment afforded RICs under the
Code. See "The Reorganization--Agreement and Plan of Reorganization--Tax
Consequences of the Reorganization." To qualify, among other requirements,
each State Fund limits its investments so that, at the close of each quarter
of the taxable year, (i) not more than 25% of the market value of the State
Fund's total assets are invested in the securities (other than U.S.
Government securities) of a single issuer, and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets are invested in the securities (other than U.S. Government
securities) of a single issuer. Limited Maturity Portfolio is classified as
diversified. A fund which elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% requirement with respect
to 75% of its total assets. To the extent that a State Fund assumes large
positions in the securities of a small number of issuers, that Fund's yield
may fluctuate to a greater extent than that of a diversified fund as a result
of changes in the financial condition or in the market's assessment of the
issuers.
DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds include debt obligations issued to obtain funds for
various public purposes, including construction of a wide range of public
facilities, refunding of outstanding obligations and obtaining funds for
general operating expenses and loans to other public institutions and
facilities. In addition, certain types of industrial development bonds are
issued by or on behalf of public authorities to finance various privately
operated facilities, including pollution control facilities. For purposes of
this Proxy Statement and Prospectus, such obligations are Municipal Bonds if
the interest paid thereon is exempt from Federal income tax, even though such
bonds may be "private activity bonds" as discussed below.
The two principal classifications of Municipal Bonds are "general
obligation" bonds and "revenue" or "special obligation" bonds. General
obligation bonds are secured by the issuer's pledge of faith, credit and
taxing power for the payment of principal and interest. Revenue or special
obligation bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds from a
special excise tax or other specific revenue source such as from the user of
the facility being financed. Industrial development bonds are in most cases
revenue bonds and generally do not constitute the pledge of the credit or
taxing power of the issuer of such bonds. The payment of the principal and
interest on such industrial development bonds depends solely on the ability
of the user of the facility financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment. Municipal Bonds also may include "moral
obligation" bonds, which normally are issued by special purpose public
authorities. If an issuer of moral obligation bonds is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question.
Each Fund may purchase Municipal Bonds classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities). Interest
received on certain tax-exempt securities that are classified as "private
activity bonds" may subject certain investors in a Fund to an alternative
minimum tax. There is no limitation on the percentage of each Fund's assets
that may be invested in Municipal Bonds that may subject certain investors to
an alternative minimum tax. See the discussion under "Taxes" in the
Municipal Bond Fund Prospectus and the Limited Maturity Trust Prospectus.
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 that may be enacted in the future may affect
the availability of Municipal Bonds for investment by the Funds.
OTHER INVESTMENT POLICIES
The State Funds and Limited Maturity Portfolio have each adopted certain
other policies as set forth below:
Borrowings. Notwithstanding a less restrictive fundamental policy
permitting borrowings of up to 331/3% of total assets, as a matter of
operating policy, the Municipal Bond Fund does not intend to have Limited
Maturity Portfolio (or any other portfolio) borrow amounts in excess of 10%
of the total assets of Limited Maturity Portfolio, taken at market value, and
then only from banks as a temporary measure for extraordinary or emergency
purposes such as the redemption of shares of Limited Maturity Portfolio. No
State Fund may borrow amounts in excess of 20% of its total assets, taken at
market value (excluding the amount borrowed), and then only from banks as a
temporary measure for extraordinary or emergency purposes such as to meet
redemption requests. Neither the State Funds nor Limited Maturity Portfolio
will purchase securities while borrowings are outstanding.
When-Issued Securities and Delayed Delivery Transactions. The State
Funds and Limited Maturity Portfolio may purchase or sell Municipal Bonds on
a delayed delivery basis or on a when-issued basis at fixed purchase or sale
terms. These transactions arise when securities are purchased or sold with
payment and delivery taking place in the future. The value of the obligation
on the delivery date may be more or less than its purchase price. A separate
account will be established with the respective fund's custodian consisting
of cash, cash equivalents or liquid securities having a market value at all
times at least equal to the amount of the commitment.
Indexed and Inverse Floating Obligations. The State Funds and Limited
Maturity Portfolio may utilize indexed and inverse floating obligations in
connection with their investment strategies. See the Municipal Bond Fund
Prospectus and Limited Maturity Trust Prospectus for a detailed discussion of
these policies. Limited Maturity Portfolio may not invest in such illiquid
obligations if such investments, together with other illiquid investments,
would exceed 10% of its total assets; for each of the State Funds, this
limitation is 15%.
Call Rights. Each State Fund may purchase, either directly from the
issuer or from a third party, a Municipal Bond issuer's contractual right to
call all or a portion of such Municipal Bond for mandatory tender for
purchase (a "Call Right"). A State Fund purchasing a Call Right may or may
not own the related Municipal Bond. A holder of a Call Right may exercise
such right to require a mandatory tender for the purchase of the related
Municipal Bonds, subject to certain conditions. A Call Right that is not
exercised prior to the maturity of the related Municipal Bond will expire
without value. The economic effect of holding both the Call Right and the
related Municipal Bond is identical to holding a Municipal Bond as a
non-callable security. A State Fund may not invest in such illiquid
obligations if such investments, together with other illiquid investments,
would exceed 15% of that Fund's total assets.
Forward Commitments. Limited Maturity Portfolio may purchase Municipal
Bonds on a forward commitment basis at fixed purchase terms. The purchase
will be recorded on the date Limited Maturity Portfolio enters into the
commitment and the value of the security will hereafter be reflected in the
calculation of Limited Maturity Portfolio's net asset value. The value of
the security on the delivery date may be more or less than its purchase
price. A separate account of Limited Maturity Portfolio will be established
with its custodian consisting of cash or liquid Municipal Bonds having a
market value at all times at least equal to the amount of the forward
commitment.
INFORMATION REGARDING OPTIONS AND FUTURES TRANSACTIONS
Financial Futures Contracts and Options Thereon. The State Funds and
Limited Maturity Portfolio are authorized to purchase and sell certain
financial futures contracts ("financial futures contracts") and options
thereon. Financial futures contracts and options thereon are used solely for
the purposes of hedging a Fund's investments in Municipal Bonds against
declines in value and hedging against increases in the cost of securities it
intends to purchase. A financial futures contract obligates the seller of a
contract to deliver and the purchaser of a contract to take delivery of the
type of financial instrument covered by the contract or, in the case of
index-based financial futures contracts, to make and accept a cash
settlement, at a specific future time for a specified price. A sale of
financial futures contracts or options thereon may provide a hedge against a
decline in the value of portfolio securities because such depreciation may be
offset, in whole or in part, by an increase in the value of the position in
the financial futures contracts or options. A purchase of financial futures
contracts or options thereon may provide a hedge against an increase in the
cost of securities intended to be purchased, because such appreciation may be
offset, in whole or in part, by an increase in the value of the position in
the financial futures contracts or options.
The purchase or sale of a financial futures contract or option thereon
differs from the purchase or sale of a security in that no price or premium
is paid or received. Instead, an amount of cash or securities acceptable to
the broker effecting the transaction equal to approximately 5% of the
contract amount must be deposited with the broker. This amount is known as
initial margin. Subsequent payments to and from the broker, called variation
margin, are made on a daily basis as the price of the financial futures
contract or option thereon fluctuates making the long and short positions in
the financial futures contract or option thereon more or less valuable.
Each Fund may purchase and sell financial futures contracts based on The
Bond Buyer Municipal Bond Index, a price-weighted measure of the market value
of 40 large tax-exempt issues, and purchase and sell put and call options on
such financial futures contracts for the purpose of hedging Municipal Bonds
that the Fund holds or anticipates purchasing against adverse changes in
interest rates.
Each State Fund also may purchase and sell financial futures contracts
on U.S. Government securities and write and purchase put and call options on
such financial futures contracts as a hedge against adverse changes in
interest rates as described more fully in the Limited Maturity Trust
Statement. With respect to U.S. Government securities, currently there are
financial futures contracts based on long-term U.S. Treasury bonds, U.S.
Treasury notes, GNMA Certificates and three-month U.S. Treasury bills.
Subject to policies adopted by the Trustees of the Trust, the State
Funds also may enter into other financial futures transactions, such as
financial futures contracts or options on other municipal bond indices which
may become available, if FAM and the Trustees of the Trust should determine
that there is normally a sufficient correlation between the prices of such
financial futures contracts or options thereon and the Municipal Bonds in
which a Fund invests to make such hedging appropriate.
Risk Factors in Financial Futures Contracts and Options Thereon.
Utilization of financial futures contracts and options thereon involves the
risk of imperfect correlation in movements in the price of financial futures
contracts and options thereon and movements in the price of the security that
is the subject of the hedge. If the price of the financial futures contract
or option thereon moves more or less than the price of the security that is
the subject of the hedge, a Fund will experience a gain or loss that will not
be completely offset by movements in the price of such security. There is a
risk of imperfect correlation where the securities underlying financial
futures contracts or options thereon have different maturities, ratings,
geographic compositions or other characteristics than the security being
hedged. In addition, the correlation may be affected by additions to or
deletions from the index that serves as a basis for a financial futures
contract or option thereon. Finally, in the case of financial futures
contracts on U.S. Government securities and options on such financial futures
contracts, the anticipated correlation of price movements between the U.S.
Government securities underlying the financial futures contracts or options
and Municipal Bonds may be adversely affected by economic, political,
legislative or other developments that have a disparate impact on the
respective markets for such securities.
Under regulations of the Commodity Futures Trading Commission, the
futures trading activities described herein will not result in a Fund's being
deemed a "commodity pool," as defined under such regulations, provided that
the Fund adheres to certain restrictions. In particular, the Fund may
purchase and sell futures contracts and options thereon (i) for bona fide
hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial
margin and premiums required to establish positions in such contracts and
options does not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
such contracts and options. Margin deposits may consist of cash or securities
acceptable to the broker and the relevant contract market.
When a Fund purchases a financial futures contract, or writes a put
option or purchases a call option thereon, it will maintain an amount of
cash, cash equivalents (e.g., commercial paper and daily tender adjustable
notes) or other liquid securities in a segregated account with the Fund's
custodian, so that the amount so segregated plus the amount of initial and
variation margin held in the account of its broker equals the market value of
the financial futures contract, thereby ensuring that the use of such
financial futures contract is unleveraged.
Although certain risks are involved in financial futures contracts and
options thereon, FAM believes that, because each Fund will engage in
transactions involving financial futures contracts and options thereon only
for hedging purposes, the options and futures portfolio strategies of a Fund
will not subject the Fund to certain risks frequently associated with
speculation in financial futures contracts and options thereon. A Fund may
be restricted in engaging in transactions involving financial futures
contracts and options thereon due to the Federal tax requirement that less
than 30% of its gross income in each taxable year be derived from the sale or
other disposition of securities held for less than three months. Under
recently enacted legislation, this requirement will no longer apply to
Limited Maturity Portfolio after its fiscal year ending June 30, 1998 or to
the Trust after its fiscal year ending July 31, 1998.
The volume of trading in the exchange markets with respect to Municipal
Bond options may be limited, and it is impossible to predict the amount of
trading interest that may exist in such options. In addition, there can be
no assurance that viable exchange markets will continue to be available.
Each Fund intends to enter into financial futures contracts and options
thereon, on an exchange or in the over-the-counter market, only if there
appears to be a liquid secondary market for such financial futures contracts
or options. There can be no assurance, however, that a liquid secondary
market will exist at any specific time. Thus, it may not be possible to
close a financial futures contract position or the related option. The
inability to close financial futures contract positions or the related
options also could have an adverse impact on a Fund's ability to hedge
effectively its portfolio. There is also the risk of loss by a Fund of
margin deposits or collateral in the event of bankruptcy of a broker with
which the Fund has an open position in a financial futures contract or the
related option.
The liquidity of a secondary market in a financial futures contract or
option thereon may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
financial futures contract 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 in the past have reached or exceeded the daily limit on a
number of consecutive trading days.
The successful use of financial futures contracts and options thereon
also depends on the ability of FAM to forecast correctly the direction and
extent of interest rate movements within a given time frame. To the extent
these rates remain stable during the period in which a financial futures
contract or related option is held by a Fund or moves in a direction opposite
to that anticipated, the Fund may realize a loss on the hedging transaction
that is not fully or partially offset by an increase in the value of
portfolio securities. As a result, a Fund's total return for such period may
be less than if it had not engaged in the hedging transaction. Furthermore,
each State Fund only will engage in hedging transactions from time to time
and may not necessarily be engaging in hedging transactions when movements in
interest rates occur.
INVESTMENT RESTRICTIONS
Other than as noted above under "The Reorganization--Comparison of the
State Funds and Limited Maturity Portfolio--Investment Objectives and
Policies" and "--Other Investment Policies," each of the State Funds and
Limited Maturity Portfolio have identical investment restrictions. See
"Investment Restrictions" in the Municipal Bond Fund Statement and
"Investment Restrictions" in the Limited Maturity Trust Statement.
PORTFOLIO COMPOSITION
Limited Maturity Portfolio
The following table sets forth certain information with respect to the
composition of Limited Maturity Portfolio's investment portfolio as of ,
1997.
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
- ---------- ---------------- --------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
AAA "Aaa" $ %
AA "Aa"
A "A"
BBB "Baa"
NR NR ---------------------
100.0%
=====================
</TABLE>
___________________
* Ratings: Using the higher of S&P's or Moody's rating. S&P's rating
categories may be modified further by a plus (+) or minus (-) in AA, A,
BBB, BB, B and C ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in "Aa", "A", "Baa", "Ba" and "B" ratings. See
Exhibit II--"Ratings of Municipal Bonds."
State Funds
The following tables set forth certain information with respect to the
composition of the investment portfolio of each of the State Funds as of ,
1997.
ARIZONA FUND
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
- ---------- ---------------- --------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
AAA "Aaa" $ %
AA "Aa"
A "A"
BBB "Baa"
NR NR ---------------------
100.0%
=====================
</TABLE>
___________________
* Ratings: Using the higher of S&P's or Moody's rating. S&P's rating
categories may be modified further by a plus (+) or minus (-) in AA, A,
BBB, BB, B and C ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in "Aa", "A", "Baa", "Ba" and "B" ratings. See
Exhibit II-- "Ratings of Municipal Bonds."
MASSACHUSETTS FUND
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
- ---------- ---------------- --------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
AAA "Aaa" $ %
AA "Aa"
A "A"
BBB "Baa"
NR NR ---------------------
100.0%
=====================
</TABLE>
___________________
* Ratings: Using the higher of S&P's or Moody's rating. S&P's rating
categories may be modified further by a plus (+) or minus (-) in AA, A,
BBB, BB, B and C ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in "Aa", "A", "Baa", "Ba" and "B" ratings. See
Exhibit II-- "Ratings of Municipal Bonds."
MICHIGAN FUND
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
- ---------- ---------------- --------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
AAA "Aaa" $ %
AA "Aa"
A "A"
BBB "Baa"
NR NR ---------------------
100.0%
=====================
</TABLE>
___________________
* Ratings: Using the higher of S&P's or Moody's rating. S&P's rating
categories may be modified further by a plus (+) or minus (-) in AA, A,
BBB, BB, B and C ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in "Aa", "A", "Baa", "Ba" and "B" ratings. See
Exhibit II-- "Ratings of Municipal Bonds."
NEW JERSEY FUND
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
- ---------- ---------------- --------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
AAA "Aaa" $ %
AA "Aa"
A "A"
BBB "Baa"
NR NR ---------------------
100.0%
=====================
</TABLE>
___________________
* Ratings: Using the higher of S&P's or Moody's rating. S&P's rating
categories may be modified further by a plus (+) or minus (-) in AA, A,
BBB, BB, B and C ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in "Aa", "A", "Baa", "Ba" and "B" ratings. See
Exhibit II-- "Ratings of Municipal Bonds."
NEW YORK FUND
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
- ---------- ---------------- --------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
AAA "Aaa" $ %
AA "Aa"
A "A"
BBB "Baa"
NR NR ---------------------
100.0%
=====================
</TABLE>
___________________
* Ratings: Using the higher of S&P's or Moody's rating. S&P's rating
categories may be modified further by a plus (+) or minus (-) in AA, A,
BBB, BB, B and C ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in "Aa", "A", "Baa", "Ba" and "B" ratings. See
Exhibit II-- "Ratings of Municipal Bonds."
PENNSYLVANIA FUND
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
- ---------- ---------------- --------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
AAA "Aaa" $ %
AA "Aa"
A "A"
BBB "Baa"
NR NR ---------------------
100.0%
=====================
</TABLE>
___________________
* Ratings: Using the higher of S&P's or Moody's rating. S&P's rating
categories may be modified further by a plus (+) or minus (-) in AA, A,
BBB, BB, B and C ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in "Aa", "A", "Baa", "Ba" and "B" ratings. See
Exhibit II-- "Ratings of Municipal Bonds."
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are the same for
each State Fund and Limited Maturity Portfolio. Subject to policies
established by the Board of Trustees of the Trust and the Board of Directors
of Municipal Bond Fund. FAM is primarily responsible for the execution of
the portfolio transactions for the State Funds and Limited Maturity
Portfolio. In executing such transactions, FAM seeks to obtain the best
results for each entity, taking into account such factors as price (including
the applicable brokerage commission or dealer spread), size of order,
difficulty of execution and operational facilities of the firm involved and
the firm's risk in positioning a block of securities. While FAM generally
seeks reasonably competitive commission rates, the State Funds and Limited
Maturity Portfolio do not necessarily pay the lowest commission or spread
available.
Neither any State Fund nor Limited Maturity Portfolio has any obligation
to deal with any broker or dealer in the execution of transactions in
portfolio securities. Subject to obtaining the best price and execution,
securities firms that provide supplemental investment research to FAM,
including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), may receive orders for transactions by a Fund. Information so
received will be in addition to, and not in lieu of, the services required to
be performed by FAM under its investment advisory agreements with the Trust
and the Municipal Bond Fund, and the expenses of FAM will not necessarily
be reduced as a result of the receipt of such supplemental information.
The securities in which each State Fund and Limited Maturity Portfolio
primarily invest are traded in the over-the-counter markets, and the State
Funds and Limited Maturity Portfolio normally deal directly with the dealers
who make markets in the securities involved, except in those circumstances
where better prices and execution are available elsewhere. Under the
Investment Company Act, except as permitted by exemptive order, persons
affiliated with a State Fund or Limited Maturity Portfolio are prohibited
from dealing with that fund as principals in the purchase and sale of
securities. Since transactions in the over-the-counter markets usually
involve transactions with dealers acting as principals for their own account,
a State Fund or Limited Maturity Portfolio will not deal with affiliated
persons, including Merrill Lynch and its affiliates, in connection with such
transactions, except that pursuant to an exemptive order obtained by FAM, a
State Fund or Limited Maturity Portfolio may engage in principal transactions
with Merrill Lynch in high quality, short-term, tax-exempt securities. An
affiliated person of a State Fund or Limited Maturity Portfolio may serve as
its broker in over-the-counter transactions conducted on an agency basis.
The Board of Trustees of the Trust and the Board of Directors of the
Municipal Bond Fund have considered the possibility of recapturing for the
benefit of the Trust or the Municipal Bond Fund brokerage commissions, dealer
spreads and other expenses of possible portfolio transactions, such as
underwriting commissions, by conducting portfolio transactions through
affiliated entities, including Merrill Lynch. For example, brokerage
commissions received by Merrill Lynch could be offset against the investment
advisory fees paid by the State Funds or Limited Maturity Portfolio to FAM.
After considering all factors deemed relevant, the respective Trustees and
Directors made a determination not to seek such recapture. The Boards will
reconsider this matter from time to time.
PORTFOLIO TURNOVER
Generally, neither the State Funds nor Limited Maturity Portfolio
purchases securities for short-term trading profits. However, any State Fund
or Limited Maturity Portfolio may dispose of securities without regard to the
time that they have been held when such action, for defensive or other
reasons, appears advisable to FAM. However, the Funds monitor their trading
so as to comply with the Federal tax requirement that less than 30% of gross
income be derived from the sale or other disposition of securities held for
less than three months. Under recently enacted legislation, this requirement
will no longer apply to Limited Maturity Portfolio after its fiscal year
ending June 30, 1998 or to the Trust after its fiscal year ending July 31,
1998. As a result of the investment policies of the State Funds and of
Limited Maturity Portfolio, their portfolio turnover rates may be higher than
that of other investment companies; however, it is extremely difficult to
predict portfolio turnover rates with any degree of accuracy. (The portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of
portfolio securities for the particular fiscal year by the monthly average of
the value of the portfolio securities owned by a fund during the particular
fiscal year. For purposes of determining this rate, all securities whose
maturities at the time of acquisition are one year or less are excluded.)
The portfolio turnover rate of Limited Maturity Portfolio for the fiscal
years ended June 30, 1997 and 1996 was 61.90% and 88.32%, respectively. For
the fiscal years ended July 31, 1997 and 1996, the portfolio turnover rates
for each of the State Funds were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended July 31,
------------------------------------
Fund 1997 1996
- ---- ----------- -------------
<S> <C> <C>
Arizona Fund . . . . . . . . . . . . . . . . . . . . . . . . . 43.53%
Massachusetts Fund . . . . . . . . . . . . . . . . . . . . . . 22.71
Michigan Fund . . . . . . . . . . . . . . . . . . . . . . . . . 32.92
New Jersey Fund . . . . . . . . . . . . . . . . . . . . . . . . 6.57
New York Fund . . . . . . . . . . . . . . . . . . . . . . . . . 51.47
Pennsylvania Fund . . . . . . . . . . . . . . . . . . . . . . . 30.90
</TABLE>
ADDITIONAL INFORMATION
Net Asset Value. The net asset value per share for each of the State
Funds and for Limited Maturity Portfolio is determined as of 15 minutes after
the close of business on the NYSE (generally, 4:00 p.m., New York time) on
each day during which the NYSE is open for trading. For purposes of
determining the net asset value of a share of beneficial interest of the
State Funds or a share of Common Stock of Limited Maturity Portfolio, the
value of the securities held plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) is divided by the total number of shares
outstanding at such time rounded to the nearest cent. Expenses, including
the fees payable to FAM, and any account maintenance and/or distribution fees
are accrued daily.
Stockholder Services. Limited Maturity Portfolio offers a number of
stockholder services and investment plans designed to facilitate investment
in its shares. In addition, U.S. stockholders of each class of shares of
Limited Maturity Portfolio have an exchange privilege with certain other
MLAM-advised mutual funds. Stockholder services, including exchange
privileges, available to stockholders of the State Funds and Limited Maturity
Portfolio are identical. For a description of these services, see
"Stockholder Services" in the Municipal Bond Fund Prospectus.
Custodian. The Bank of New York, 90 Washington Street, 12th Floor, New
York, New York 10286, acts as custodian of the cash and securities of the
State Funds and Limited Maturity Portfolio.
Transfer Agent, Dividend Disbursing Agent and Registrar. Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, serves as the transfer agent, dividend disbursing agent
and registrar with respect to each State Fund and Limited Maturity Portfolio
(the "Transfer Agent"), at the same rate, pursuant to separate registrar,
transfer agency and service agreements with the Trust on behalf of each of
the State Funds and with the Municipal Bond Fund on behalf of Limited
Maturity Portfolio.
Capital Stock. The Board of Trustees of the Trust is 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 $0.10 par value of different classes. Each of the State Funds
constitutes a series of the Trust. The shares of each series are divided
into four classes designated Class A, Class B, Class C and Class D shares.
The Municipal Bond Fund has an authorized capital of 3,850,000,000
shares of common stock, divided into three series, each of which is divided
into four classes, having a par value of $0.10 per share. The shares of each
series are divided into four classes, designated Class A, Class B, Class C
and Class D as follows:
<TABLE>
<CAPTION>
Limited
Insured National Maturity
Class Portfolio Portfolio Portfolio
- ----- ----------- ----------- -----------
<S> <C> <C> <C>
A . . . . . . . . . . . . 500,000,000 375,000,000 150,000,000
B . . . . . . . . . . . . 375,000,000 375,000,000 150,000,000
C . . . . . . . . . . . . 375,000,000 375,000,000 150,000,000
D . . . . . . . . . . . . 500,000,000 375,000,000 150,000,000
</TABLE>
The rights, preferences and expenses attributable to the Class A, Class
B, Class C and Class D shares of the State Funds are substantially the same
as those of the Class A, Class B, Class C and Class D shares of Limited
Maturity Portfolio.
MANAGEMENT
Directors. The Board of Directors of the Municipal Bond Fund currently
consists of six persons, five of whom are not "interested persons," as
defined in the Investment Company Act. The Directors are responsible for the
overall supervision of the operations of the Municipal Bond Fund and perform
the various duties imposed on
<PAGE>
the directors of investment companies by the Investment Company Act and under
applicable Maryland law. Arthur Zeikel is a Director of Municipal Bond Fund
and a Trustee of the Trust. There is otherwise no overlap between the
Boards.
The Directors of the Municipal Bond Fund are:
ARTHUR ZEIKEL*--President of FAM and its affiliate, MLAM; President and
Director of Princeton Services, Inc. ("Princeton Services"); Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co."); and Director of Merrill
Lynch Funds Distributor, Inc. (the "Distributor").
RONALD W. FORBES--Professor of Finance, School of Business, State
University of New York at Albany.
CYNTHIA A. MONTGOMERY--Professor of Competition and Strategy, Harvard
Business School.
CHARLES C. REILLY--Former Adjunct Professor, Columbia University
Graduate School of Business.
KEVIN A. RYAN--Professor of Education, Boston University; Founder and
current Director of The Boston University Center for Advancement of Ethics
and Character.
RICHARD R. WEST--Dean Emeritus, New York University Leonard N. Stern
School of Business Administration.
__________________
*Interested person, as defined in the Investment Company Act, of the
Municipal Bond Fund.
Management and Advisory Arrangements. Pursuant to separate management
agreements between the Trust and FAM on behalf of each State Fund, each State
Fund pays FAM a monthly fee at the annual rate of 0.35% of the average daily
net assets of that State Fund. The Municipal Bond Fund's investment advisory
agreement with FAM provides that as compensation for FAM's services to
Limited Maturity Portfolio, FAM receives at the end of each month a fee
determined based on the annual rates set forth in the table below. These fee
rates are applied to the average daily net assets of each of the three
portfolios of the Municipal Bond Fund to the extent that the aggregate of the
average daily net assets of the three combined portfolios of the Municipal
Bond Fund exceeds $250 million, $400 million, $550 million and $1.5 billion,
respectively (each such amount being a breakpoint level). The portion of the
assets of a portfolio to which the rate at each breakpoint level applies will
be determined on a "uniform percentage" basis. The uniform percentage
applicable to a breakpoint level is determined by dividing the amount of the
aggregate of the average daily net assets of the three combined portfolios of
the Municipal Bond Fund that falls within that breakpoint level by the
aggregate of the average daily net assets of the three combined portfolios.
The amount of the fee for a portfolio at each breakpoint level is determined
by multiplying the average daily net assets of that portfolio by the uniform
percentage applicable to that breakpoint level and multiplying that product
by the advisory fee rate.
<TABLE>
<CAPTION>
Rate of Advisory Fee
--------------------
Aggregate of average daily net assets of the three combined Limited Maturity
Portfolios of the Municipal Bond Fund Portfolio
- ------------------------------------------------------------------- --------------------
<S> <C>
Not exceeding $250 million . . . . . . . . . . . . . . . . . . . . 0.40%
In excess of $250 million but not exceeding $400 million . . . . . 0.375
In excess of $400 million but not exceeding $550 million . . . . . 0.35
In excess of $550 million but not exceeding $1.5 billion . . . . . 0.325
In excess of $1.5 billion . . . . . . . . . . . . . . . . . . . . . 0.325
</TABLE>
At July 31, 1997, the average daily net assets of the three portfolios
of Municipal Bond Fund aggregated approximately $3.9 billion. At that date,
the average daily net assets of Limited Maturity Portfolio were $415.5
million and the advisory fee rate of Limited Maturity Portfolio was 0.33%.
For the fiscal year ended June 30, 1997, FAM received $_________ from Limited
Maturity Portfolio as advisory fees.
PURCHASE OF SHARES
The class structure and purchase and distribution procedures for shares
of the State Funds is substantially the same as those of Limited Maturity
Portfolio. For a complete discussion of the four classes of shares and the
purchase and distribution procedures related thereto, see "Merrill Lynch
Select Pricing(Service Mark) System" and "Purchase of Shares" in either the
Municipal Bond Fund Prospectus or the Limited Maturity Trust Prospectus.
REDEMPTION OF SHARES
The procedure for redeeming shares of Limited Maturity Portfolio is
substantially the same as the procedure for redeeming shares of the State
Funds. For purposes of computing any CDSC that may be payable upon
disposition of Limited Maturity Portfolio Common Stock acquired by State Fund
stockholders in the Reorganization, the holding period of State Fund shares
outstanding on the date the Reorganization takes place will be tacked onto
the holding period of Limited Maturity Portfolio Common Stock acquired in the
Reorganization. Only Class A and Class D shares of Limited Maturity
Portfolio Common Stock will be issued in the Reorganization. Class A and
Class D shares are not subject to a 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 0.20% of amounts redeemed within the first
year after purchase. Such CDSC may be waived in connection with certain fee-
based programs and will be waived with respect to Class A or Class D shares
of Limited Maturity Portfolio Common Stock issued in the Reorganization.
VOTING RIGHTS
Stockholders of Limited Maturity Portfolio are entitled to one vote for
each share held and fractional votes for fractional shares held and will vote
on the election of Directors and any other matter submitted to a stockholder
vote. The Municipal Bond Fund does not intend to hold meetings of
stockholders in any year in which the Investment Company Act does not require
stockholders to act upon any of the following matters: (i) election of
Directors; (ii) approval of an investment advisory agreement; (iii) approval
of distribution arrangements; and (iv) ratification of selection of
independent accountants. Voting rights for Directors are not cumulative.
Limited Maturity Portfolio Common Stock to be issued to the State Funds in
the Reorganization and thereafter distributed to the State Fund stockholders
will be fully paid and non-assessable, will have no preemptive rights, and
will have the conversion rights described in this Prospectus and Proxy
Statement and in the Municipal Bond Fund Prospectus. Each share of Limited
Maturity Portfolio Common Stock is entitled to participate equally in
dividends and distributions declared with respect to Limited Maturity
Portfolio and in the net assets of Limited Maturity Portfolio on liquidation
or dissolution after satisfaction of outstanding liabilities, except that
Class B, Class C and Class D shares bear certain additional expenses. Rights
attributable to shares of the State Funds are substantially the same as those
described above.
STOCKHOLDER INQUIRIES
Stockholder inquiries with respect to the State Funds and Limited
Maturity Portfolio may be addressed by telephone at (609) 282-2800 or at the
address set forth on the cover page of this Proxy Statement and Prospectus.
DIVIDENDS AND DISTRIBUTIONS
The Trust's current policy with respect to dividends and distributions
is substantially the same as Municipal Bond Fund's policy. It is the
intention of the State Funds and of Limited Maturity Portfolio to distribute
all of their net investment income, if any. In addition, each of the State
Funds and Limited Maturity Portfolio declares and distributes all net
realized capital gains, if any, to stockholders at least annually. Capital
gains distributions will be automatically reinvested in shares unless the
stockholder elects to receive such distributions in cash.
See "Automatic Dividend Reinvestment Plan" below for information as to
electing either dividend reinvestment or cash payments. Any portions of
dividends and distributions which are taxable to stockholders are subject to
income tax whether they are reinvested in shares of such fund or received in
cash.
TAXATION OF LIMITED MATURITY PORTFOLIO, STATE FUNDS AND THEIR STOCKHOLDERS
The tax consequences associated with investment in shares of Limited
Maturity Portfolio Common Stock are substantially similar to the tax
consequences associated with investment in shares of the State Funds. Limited
Maturity Portfolio and the State Funds have elected and qualified for the
special tax treatment afforded RICs under the Code. Consequently, the Funds
(but not their stockholders) are not subject to Federal income tax on the
part of their net ordinary income and net realized capital gains which they
distribute to their Class A, Class B, Class C and Class D stockholders
(together, the "Stockholders"). The Funds have distributed substantially all
of such income in taxable years prior to the Reorganization and Limited
Maturity Portfolio intends to distribute substantially all of such income in
taxable years following the Reorganization.
Each Fund has qualified, and Limited Maturity Portfolio intends to
continue to qualify, 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 a 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 of the Code (relating generally to
obligations of a state or local governmental unit), the Fund is qualified to
pay exempt-interest dividends to its Stockholders. Exempt-interest dividends
are dividends or any part thereof paid by a Fund which are attributable to
interest on tax-exempt obligations and designated as exempt-interest
dividends in a written notice mailed to Stockholders within 60 days after the
close of its taxable year. To the extent that the dividends distributed to a
Fund's Stockholders are derived from interest income exempt from Federal
income tax under Code Section 103(a) and are properly designated as exempt-
interest dividends, they will be excludable from a Stockholder's gross income
for Federal income tax purposes. Exempt-interest dividends are included,
however, in determining the portion, if any, of a person's social security
benefits and railroad retirement benefits subject to Federal income taxes.
Interest on indebtedness incurred or continued to purchase or carry shares of
a RIC paying exempt-interest dividends such as the Limited Maturity
Portfolio, will not be deductible by the investor for purposes of Federal
income taxes or state personal income taxes, where applicable, to the extent
attributable to exempt-interest dividends. Stockholders are advised to
consult their tax advisers with respect to whether exempt-interest dividends
retain the exclusion under Code Section 103(a) if a Stockholder would be
treated as a "substantial user" or "related person" under Code Section 147(a)
with respect to property financed with the proceeds of an issue of
"industrial development bonds" or "private activity bonds", if any held by
the Limited Maturity Portfolio.
For investors in each of the State Funds, the portion of a Fund's
exempt-interest dividends paid from interest received by the Fund from the
municipal bonds of the designated State is also exempt from personal income
tax in the designated state. Stockholders subject to income taxation by
states other than the designated state realize a lower after tax rate of
return than Stockholders resident in the designated state since the dividends
distributed by the particular State Fund generally are not exempt, to any
significant degree, from income taxation by such other states. Stockholders
of the State Funds should be aware that after the Reorganization, the
distributions they receive from Limited Maturity Portfolio will be exempt
from Federal income tax but generally will not be exempt to any significant
degree from personal income tax at the state level.
To the extent that a Fund's distributions are derived from interest on
taxable securities 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 and state 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 a Stockholder has owned Fund shares, and for state income tax
purposes, generally are treated as capital gains which are taxed at ordinary
income tax rates. Recent legislation creates additional categories of
capital gains taxable at different rates. Although the legislation does not
explain how gain in these categories will be taxed to Stockholders of RICs,
it authorizes regulations applying the new categories of gain and the new
rates to sales of securities by RICs. In the absence of guidance, there is
some uncertainty as to the manner in which the categories of gain and related
rates will be passed through to Stockholders in capital gain dividends. It
is anticipated that IRS guidance permitting categories of gain and related
rates to be passed through to Stockholders would also require a Fund to
designate the amounts of various categories of capital gain income included
in capital gain dividends in a written notice sent to Stockholders.
Distributions by a Fund, whether from exempt-interest income, ordinary
income or capital gains, are not eligible for the dividends received
deduction allowed to corporations under the Code.
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 certain
investors in such bonds, including Stockholders of Limited Maturity
Portfolio, to an alternative minimum tax. The Funds report to Stockholders
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 a Fund will be included in adjusted current earnings, a
corporate stockholder may be required to pay alternative minimum tax on
exempt-interest dividends paid by a Fund.
Under certain provisions of the Code, some Stockholders may be subject
to a 31% withholding tax on certain ordinary income dividends and on capital
gain dividends and redemption payments ("backup withholding"). Generally,
Stockholders subject to backup withholding will be those for whom no taxpayer
identification number is on file with a Fund or who, to the Fund's knowledge,
have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct
and that such Stockholder is not otherwise subject to backup withholding.
Ordinary income dividends paid to Stockholders who are nonresident
aliens or foreign entities are subject to a 30% United States withholding tax
under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law.
A loss realized on a sale or exchange of shares of a Fund is disallowed
if other Fund shares are acquired (whether under the Automatic Dividend
Reinvestment Plan or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code provides that every Stockholder required to file a tax return
must include for information purposes on such return the amount of exempt-
interest dividends received from all sources (including the Funds) during the
taxable year.
AGREEMENT AND PLAN OF REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (attached hereto as
Exhibit I), Limited Maturity Portfolio will acquire substantially all of the
assets, and will assume substantially all of the liabilities, of the State
Funds, in exchange solely for an equal aggregate value of Limited Maturity
Portfolio Common Stock. Upon receipt by the Trust of such shares of Common
Stock, the Trust will distribute the shares to the stockholders of the State
Funds in exchange for their shares of beneficial interest of the State Funds,
as described below.
Generally, the assets transferred by each State Fund to Limited Maturity
Portfolio will equal all investments of such State Fund held in its portfolio
as of the Valuation Time (as defined in the Agreement and Plan of
Reorganization) and all other assets of such State Fund as of such time,
except for any cash or cash equivalents reserved by such State Fund to
discharge its unpaid or contingent liabilities existing at the Valuation
Time. Any unexpended portion of the foregoing funds retained by each State
Fund will be disbursed by such State Fund pro rata to its stockholders of
record as of the date of the Reorganization upon consummation of the
Reorganization as a final liquidating dividend.
The Trust will distribute Limited Maturity Portfolio Common Stock
received by it pro rata to the stockholders of each State Fund in exchange
for such stockholders' proportional interests in such State Fund.
Stockholders of each State Fund who hold Class A shares as of the Valuation
Time will receive Class A shares of Limited Maturity Portfolio Common Stock
and stockholders of each State Fund who hold Class B, Class C or Class D
shares as of the Valuation Time will receive Class D shares of Limited
Maturity Portfolio Common Stock; such shares of Limited Maturity Portfolio
Common Stock will have the same aggregate net asset value as each such
stockholder's interest in such State Fund as of the Valuation Time. (See
"Terms of the Agreement and Plan of Reorganization--Valuation of Assets and
Liabilities" below in this section for information concerning the calculation
of net asset value.) The distribution will be accomplished by opening new
accounts on the books of Limited Maturity Portfolio in the names of all
stockholders of each State Fund, including stockholders holding such State
Fund shares in certificate form, and transferring to each stockholder's
account Limited Maturity Portfolio Common Stock representing such
stockholder's interest previously credited to the account of such State Fund.
Stockholders holding State Fund shares in certificate form may receive
certificates representing Limited Maturity Portfolio Common Stock credited to
their account in respect of such State Fund shares by sending the
certificates to the Transfer Agent accompanied by a written request for such
exchange.
Since Limited Maturity Portfolio Common Stock would be issued at net
asset value in exchange for the net assets of each State Fund having a value
equal to the aggregate net asset value of those shares of such State Fund,
the net asset value per share of Limited Maturity Portfolio should remain
virtually unchanged solely as a result of the Reorganization. Thus, the
Reorganization should result in virtually no dilution of net asset value of
Limited Maturity Portfolio immediately following consummation of the
Reorganization. However, as a result of the Reorganization, a stockholder of
each State Fund likely would hold a reduced percentage of ownership in
Limited Maturity Portfolio than he or she did in such State Fund prior to the
Reorganization.
PROCEDURE
On September 26, 1997, the Board of Trustees of the Trust, including all
of the Trustees who are not "interested persons," as defined in the
Investment Company Act, of the Trust, approved the Agreement and Plan of
Reorganization and the submission of such Agreement and Plan of
Reorganization to the State Funds' stockholders for approval. The Board of
Directors of the Municipal Bond Fund, including all of the Directors who are
not "interested persons," approved the Agreement and Plan of Reorganization
on September 18, 1997.
If the stockholders of each State Fund approve the Reorganization at the
Meeting and certain conditions are met or waived, the Reorganization will
take place as early as possible in calendar year 1998.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT THE STOCKHOLDERS OF
THE STATE FUNDS APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary of the significant terms of the Agreement and
Plan of Reorganization. This summary is qualified in its entirety by
reference to the Agreement and Plan of Reorganization, attached hereto as
Exhibit I.
Valuation of Assets and Liabilities. The respective assets of the State
Funds and Limited Maturity Portfolio will be valued as of the Valuation Time.
The assets in each State Fund and in Limited Maturity Portfolio will be
valued according to the procedures set forth under "Additional Information--
Determination of Net Asset Value" in the Municipal Bond Fund Prospectus.
Purchase orders for any State Fund shares that have not been confirmed as of
the Valuation Time will be treated as assets of such State Fund for purposes
of the Reorganization; redemption requests that have not settled as of the
Valuation Time will be treated as liabilities for purposes of the
Reorganization.
Distribution of Limited Maturity Portfolio Common Stock. On the next
full business day following the Valuation Time (the "Exchange Date"), the
Municipal Bond Fund will issue to the Trust a number of shares of Limited
Maturity Portfolio Common Stock the aggregate net asset value of which will
equal the aggregate net asset value of shares of each of the State Funds as
of the Valuation Time. Each holder of shares of beneficial interest of each
State Fund will receive, in exchange for his or her proportionate interest in
such State Fund, Limited Maturity Portfolio Common Stock having the same
aggregate net asset value as the shares of such State Fund held by such
stockholder as of the Valuation Time. Holders of Class A shares of the State
Funds will receive Class A shares of Limited Maturity Portfolio Common Stock;
holders of Class B, Class C or Class D shares of the State Funds will receive
Class D shares of Limited Maturity Portfolio Common Stock.
Expenses. The expenses of the Reorganization that are directly
attributable to each State Fund and the conduct of its business will be
deducted from the assets of such State Fund as of the Valuation Time. The
expenses of the Reorganization that are directly attributable to Limited
Maturity Portfolio and the conduct of its business will be deducted from the
assets of Limited Maturity Portfolio as of the Valuation Time. These
expenses are expected to include the expenses incurred in preparing materials
to be distributed to the boards, legal fees incurred in preparing the board
materials, attending the board meetings and preparing the minutes and
accounting fees associated with the financial statements. The expenses of
the Reorganization that are attributable to the transaction itself will be
borne pro rata by each State Fund and Limited Maturity Portfolio,
respectively, according to its net assets as of the Valuation Time. These
expenses are expected to include expenses incurred in connection with the
preparation of the Agreement and Plan of Reorganization and the Registration
Statement on Form N-14 (including this Prospectus and Proxy Statement),
expenses in connection with obtaining the IRS ruling with respect to tax
matters, Commission filing fees, other filing fees and legal and audit fees
in connection with the Reorganization. Expenses associated with the
termination of each of the State Funds under Massachusetts law will be borne
by the Trust. (FAM has informed the Funds that it intends to pay all
expenses relating to the Reorganization.)
Required Approvals. Under the Trust's Declaration of Trust (as amended
to date) and relevant Massachusetts law, stockholder approval of the
Agreement and Plan of Reorganization requires the affirmative vote of
stockholders of each State Fund voting separately and representing a majority
of the outstanding shares of each State Fund entitled to be voted thereon.
Amendments and Conditions. The Agreement and Plan of Reorganization may
be amended at any time prior to the Exchange Date with respect to any of the
terms therein. The obligations of the Trust and Municipal Bond Fund pursuant
to the Agreement and Plan of Reorganization are subject to various
conditions, including a registration statement on Form N-14 being declared
effective by the Commission, approval of the Reorganization by the
stockholders of the State Funds, a favorable IRS ruling being received as to
tax matters, an opinion of counsel as to securities matters being received
and the continuing accuracy of various representations and warranties of the
Trust and Municipal Bond Fund being confirmed by the respective parties.
Postponement, Termination. Under the Agreement and Plan of
Reorganization, the Board of Trustees of the Trust and the Board of Directors
of the Municipal Bond Fund, respectively, may cause the Reorganization to be
postponed or abandoned should either Board determine that it is in the best
interests of the stockholders of any State Fund or Limited Maturity
Portfolio, respectively, to do so. The Agreement and Plan of Reorganization
may be terminated, and the Reorganization abandoned, at any time, whether
before or after adoption thereof by the stockholders of the State Funds,
prior to the Exchange Date, or the Exchange Date may be postponed: (i) by
mutual consent of the Board of Trustees of the Trust and the Board of
Directors of the Municipal Bond Fund; (ii) the Board of Trustees of the Trust
if any condition to the Trust's obligations has not been fulfilled or waived
by such Board; or (iii) by the Board of Directors of the Municipal Bond Fund
if any condition to the Municipal Bond Fund's obligations has not been
fulfilled or waived by such Board.
POTENTIAL BENEFITS TO STOCKHOLDERS OF THE STATE FUNDS AS A RESULT OF THE
REORGANIZATION
The Board of Trustees of the Trust has identified certain potential
benefits to stockholders of the State Funds that are likely to result from
the Reorganization. First, following the Reorganization, State Fund
stockholders will remain invested in an open-end fund that has an investment
objective similar to that of the State Funds, although not identical. In
addition, State Fund stockholders are likely to experience certain additional
benefits, including lower expenses per share, economies of scale and greater
flexibility in portfolio management.
Specifically, after the Reorganization, on a pro forma combined basis,
Limited Maturity Portfolio would pay an advisory fee to FAM at a lower annual
rate than that currently due from the State Funds. If the aggregate assets
of the three portfolios decreases, however, the advisory fee rate of the
Limited Maturity Portfolio could increase to a level that is higher than the
advisory fee rate currently applicable to the State Funds. Also, the total
operating expenses of Limited Maturity Portfolio after the Reorganization, as
a percentage of net assets, would be less than the current operating expenses
for each of the State Funds. However, since inception, FAM has voluntarily
waived the advisory fees payable by each of the State Funds and has
reimbursed each State Fund for a portion of its expenses (excluding 12b-1
plan fees). There can be no assurance that FAM will not discontinue or
modify this waiver of fees or reimbursement of expenses at any time. In
addition, certain fixed costs, such as costs of printing stockholder reports
and proxy statements, legal expenses, audit fees, registration fees, mailing
costs and other expenses, would be spread across a larger asset base, thereby
lowering the expense ratio borne by stockholders of the State Funds. To
illustrate the potential economies of scale, the table below shows, for the
year ended July 31, 1997, the total operating expense ratio for each
of the State Funds, the total operating expense ratio for Limited Maturity
Portfolio and the total operating expense ratio for Limited Maturity
Portfolio on a pro forma basis as if the Reorganization had taken place on
August 1, 1996 (the first day of the year ended July 31, 1997). All ratios
are exclusive of class-specific distribution and account maintenance fees.
<TABLE>
<CAPTION>
Pro Forma
--------------------------------
Total Based on Total
Operating Net Assets Operating
Expense as of Expense Based on
Ratio(%)(a) 7/31/97($) Ratio(%)(b) Net Assets($)
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Arizona Fund 3.21 3,357,395 -- --
Massachusetts Fund 2.52 5,135,751 -- --
Michigan Fund 3.50 4,251,345 -- --
New Jersey Fund 1.65 6,322,601 -- --
New York Fund 1.16 14,565,335 -- --
Pennsylvania Fund 1.75 7,738,657 -- --
Limited Maturity Portfolio 0.39 413,877,781 0.39 455,248,865
</TABLE>
___________________
(a) FAM has in the past voluntarily waived all of the advisory fees due from
each of the State Funds and voluntarily reimbursed each State Fund for a
portion of its other expenses (excluding Rule 12b-1 plan fees). The
Total Operating Expense Ratio does not give effect to any such waiver or
reimbursement because FAM may discontinue or reduce such waiver of fees
and/or assumption of expenses at any time without notice. The actual
Total Operating Expense Ratio for the year ended July 31, 1997,
net of the waiver of fees and/or assumption of expenses, would be:
Total Operating Expense Ratio
After Waiver and Reimbursement (%)
----------------------------------
Arizona Fund .94
Massachusetts Fund .99
Michigan Fund .94
New Jersey Fund .94
New York Fund .70
Pennsylvania Fund .99
(b) Assumes Reorganization had taken place on August 1, 1996 (the first day
of the year ended July 31, 1997).
The following table sets forth the average net assets of each of the
State Funds and of Limited Maturity Portfolio for each entity's last three
fiscal years.
<TABLE>
<CAPTION>
Net Assets($)
----------------------------------------------------------------------------------------
Arizona Massachusetts Michigan New Jersey New York Pennsylvania
Period Fund Fund Fund Fund Fund Fund
- ---------- --------- ------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended 3,357,395 5,135,751 4,251,345 6,322,601 14,565,335 7,738,657
7/31/97
Year ended 4,452,028 7,396,170 4,025,071 8,627,087 17,920,124 8,904,501
7/31/96
Year ended 6,264,816 9,917,613 5,052,036 10,431,607 15,977,490 8,740,557
7/31/95
</TABLE>
PERIOD LIMITED MATURITY PORTFOLIO($)
- ------------------ -----------------------------
Year ended 6/30/97 413,877,781
Year ended 6/30/96 504,151,614
Year ended 6/30/95 681,278,364
The preceding table illustrates that (i) the net assets of each of the
State Funds/1/ and of Limited Maturity Portfolio have generally been
decreasing over the past several years and (ii) in all cases, average net
assets for the most recent fiscal year, are below the net asset levels
achieved for the 1995 fiscal year. FAM anticipates that if this decrease in
net assets were to continue, the State Funds and Limited Maturity Portfolio
might experience increasingly higher operating expense ratios. Conversely,
FAM anticipates that the State Funds and Limited Maturity Portfolio as a
combined entity might experience certain economies of scale, which might in
turn result in a reduction in the entity's overall operating expense ratio.
The State Funds alone might experience the opposite result, that is, a higher
operating expense ratio due to continuing reductions in already relatively
small asset bases. Although there can be no assurance that the foregoing
would in fact occur, FAM believes that the economies of scale that may be
realized as a result of the Reorganization would be beneficial to
stockholders of each of the State Funds.
The Board of Trustees of the Trust also considered the difference in the
risks associated with certain of the investment strategies used by Limited
Maturity Portfolio that are not used by the State Funds.
Based on the foregoing, the Board concluded that the Reorganization
presents no significant risks or costs (including legal, accounting and
administrative costs) that would outweigh the benefits discussed above.
In approving the Reorganization, the Board of Trustees of the Trust
determined that the interests of existing stockholders of the State Funds
would not be diluted as a result of the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that
it qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. The State Funds and Limited Maturity
Portfolio have elected
- -----------------------------
/1/ The net assets of Michigan Fund showed an increase in 1997 over
1996; the net assets of the New York Fund and the Pennsylvania Fund
each showed an increase in 1996 over 1995.
and qualified for the special tax treatment afforded "regulated investment
companies" under the Code, and the Limited Maturity Portfolio intends to
continue to so qualify after the Reorganization. The State Funds and Limited
Maturity Portfolio have jointly requested a private letter ruling from the
IRS to the effect that for Federal income tax purposes: (i) the
Reorganization, as described, will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and each State Fund and Limited
Maturity Portfolio will be deemed a "party" to the Reorganization within the
meaning of Section 368(b) of the Code; (ii) in accordance with Section
361(a) of the Code, no gain or loss will be recognized to any State Fund as
a result of the asset transfer or on the distribution of Limited Maturity
Portfolio Common Stock to stockholders of each State Fund under Section
361(c)(1) of the Code; (iii) under Section 1032 of the Code, no gain or loss
will be recognized to Limited Maturity Portfolio as a result of receipt of
assets of the State Funds in exchange for shares of Limited Maturity
Portfolio; (iv) in accordance with Section 354(a)(1) of the Code, no gain or
loss will be recognized to the stockholders of any State Fund on the receipt
of Limited Maturity Portfolio Common Stock in exchange for their shares of
such State Fund; (v) in accordance with Section 362(b) of the Code, the tax
basis of the assets of each State Fund in the hands of Limited Maturity
Portfolio will be the same as the tax basis of such assets in the hands of
such State Fund immediately prior to the consummation of the Reorganization;
(vi) in accordance with Section 358 of the Code, immediately after the
Reorganization, the tax basis of Limited Maturity Portfolio Common Stock
received by the stockholders of each State Fund in the Reorganization will
be equal, in the aggregate, to the tax basis of the shares of each State
Fund surrendered in exchange; (vii) in accordance with Section 1223 of the
Code, a stockholder's holding period for Limited Maturity Portfolio Common
Stock will be determined by including the period for which such stockholder
held the shares of the State Fund exchanged therefor, provided that such
State Fund shares were held as a capital asset; (viii) in accordance with
Section 1223 of the Code, Limited Maturity Portfolio's holding period with
respect to the assets transferred by each State Fund will include the period
for which the assets were held by such State Fund; and (ix) the taxable year
of each State Fund will end on the effective date of the Reorganization, and
pursuant to Section 381(a) of the Code and regulations thereunder, Limited
Maturity Portfolio will succeed to and take into account certain tax
attributes of such State Fund, such as earnings and profits, capital loss
carryovers and method of accounting.
Stockholders of the State Funds should be aware that after the
Reorganization, the distributions they receive from Limited Maturity
Portfolio will be exempt from Federal income tax but generally will not be
exempt to any significant degree from personal income tax at the state level.
Stockholders should consult their tax advisers regarding the effect of
the Reorganization in light of their individual circumstances. As the
foregoing relates only to Federal income tax consequences, stockholders also
should consult their tax advisers as to the foreign, state and local tax
consequences of the Reorganization.
Status as a Regulated Investment Company. The Reorganization will not
affect the status of Limited Maturity Portfolio as a RIC under the Code.
Each State Fund will terminate as a series of the Trust pursuant to the
Reorganization.
APPRAISAL RIGHTS
A stockholder of any of the State Funds who does not vote in favor of
the Reorganization may have the right under Massachusetts law to object to
the Reorganization and demand payment for his or her shares from the
applicable State Fund and an appraisal thereof upon compliance with the
procedures specified in Section 85 through 98 of the Massachusetts Business
Corporation Law (the "Massachusetts Business Corporation Law"), which are set
forth in Exhibit III hereto. A vote against the Reorganization or the
execution of a proxy directing such a vote will not satisfy the requirements
of those provisions. A failure to vote against the Reorganization will not
constitute a waiver of such rights. The State Funds take the position that,
if available, this statutory right of appraisal may be exercised only by
stockholders of record.
Section 92 of the Massachusetts Business Corporation Law provides that
for purposes of payment to any stockholder who elects to exercise his or her
statutory right of appraisal, the value of shares of such stockholder is to
be determined as of the day preceding the date of the stockholders' vote
approving the Agreement and Plan of Reorganization. However, the
Commission's Division of Investment Management has taken the position that
such valuation procedures would constitute violation of Rule 22c-1 under the
Investment Company Act (the "forward pricing" rule which in substance
prohibits a registered investment company from redeeming its shares except at
a price based on the net asset value of such shares next computed after such
shares have been tendered for redemption) and that Rule 22c-1 supersedes
contrary provision of state statutes. Under the terms of the Agreement
and Plan of Reorganization, Limited Maturity Portfolio will assume the
obligations of each of the State Funds, if any, with respect to statutory
rights of appraisal. In the event that any stockholder elects to exercise
his or her statutory right of appraisal under Massachusetts law, it is the
present intention of Limited Maturity Portfolio to petition a court of
competent jurisdiction to determine whether such right of appraisal has been
superseded by the provisions of Rule 22c-1. In such event a dissenting
stockholder may not receive any payment until disposition of any such court
proceeding.
For federal income tax purposes, dissenting stockholders obtaining
payment for their shares will recognize gain or loss measured by the
difference between any such payment and the tax basis for their shares.
Stockholders are advised to consult their personal tax advisers as to the tax
consequences of dissenting.
Stockholders of the State Funds will, of course, continue to be able to
redeem their shares of the applicable State Fund at the current net asset
value until the close of business on the day three business days prior to the
effective date of the Reorganization. Redemption requests received by the
State Funds thereafter will be treated as requests for the redemption of
shares of Limited Maturity Portfolio received by the stockholder in the
Reorganization.
CAPITALIZATION
The following table sets forth as of July 31, 1997 (i) the
capitalization of each State Fund, (ii) the capitalization of Limited
Maturity Portfolio and (iii) the pro forma capitalization of Limited Maturity
Portfolio as adjusted to give effect to the Reorganization.
<TABLE>
PRO FORMA CAPITALIZATION OF THE STATE FUNDS, LIMITED MATURITY PORTFOLIO AND THE COMBINED FUND*
AS OF JULY 31, 1997
<CAPTION> Arizona Fund
-------------------------------------------------------------------
Class A Class B Class C Class D
---------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C>
Total Net Assets $709,319 $2,135,375 $36,084 $476,616
Shares Outstanding 69,741 209,967 3,546 46,841
Net Asset Value Per $10.17 $10.17 $10.18 $10.18
Share
Massachusetts Fund
-------------------------------------------------------------------
Class A Class B Class C Class D
---------------- ----------------- ---------------- ------------
Total Net Assets $1,355,818 $2,806,893 $274,926 $698,113
Shares Outstanding 135,068 279,567 27,406 69,563
Net Asset Value Per $10.04 $10.04 $10.03 $10.04
Share
Michigan Fund
-------------------------------------------------------------------
Class A Class B Class C Class D
---------------- ----------------- ---------------- ------------
Total Net Assets $1,368,163 $1,410,733 $1,228 $1,471,221
Shares Outstanding 135,575 139,786 122 145,888
Net Asset Value Per $10.09 $10.09 $10.09 $10.08
Share
New Jersey Fund
-------------------------------------------------------------------
Class A Class B Class C Class D
---------------- ----------------- ---------------- ------------
Total Net Assets $1,734,544 $4,108,454 $241,191 $238,412
Shares Outstanding 170,998 404,782 26,241 23,497
Net Asset Value Per $10.14 $10.15 $9.19 $10.15
Share
New York Fund
-------------------------------------------------------------------
Class A Class B Class C Class D
---------------- ----------------- ---------------- ------------
Total Net Assets $2,605,219 $8,209,327 $67,418 $3,683,372
Shares Outstanding 254,768 802,714 6,593 360,094
Net Asset Value Per $10.23 $10.23 $10.23 $10.23
Share
Pennsylvania Fund
-------------------------------------------------------------------
Class A Class B Class C Class D
---------------- ----------------- ---------------- ------------
Total Net Assets $5,134,207 $7,869 $1,860,855
$735,726
Shares Outstanding 71,902 501,850 766 181,770
Net Asset Value Per $10.23 $10.23 $10.27 $10.24
Share
Limited Maturity Portfolio
-------------------------------------------------------------------
Class A Class B Class C Class D
---------------- ----------------- ---------------- ------------
Total Net Assets $340,141,818 $53,107,866 $128,337 $20,499,724
Shares Outstanding 34,147,124 5,330,319 12,913 2,056,678
Net Asset Value Per $9.96 $9.96 $9.94 $9.97
Share
Combined Fund*
-------------------------------------------------------------------
Adjusted** Class A Class B Class C Class D
---------------- ----------------- ---------------- ------------
Total Net Assets $348,650,607 $76,912,855 $757,089 $28,928,313
Shares Outstanding 34,985,176 7,668,985 77,587 2,884,331
Net Asset Value Per $9.96 $9.96 $9.94 $9.97
Share
</TABLE>
___________________________
* Combined Fund refers to Limited Maturity Portfolio after giving effect
to the Reorganization.
** Total Net Assets and Net Asset Value Per Share include the aggregate
value of each State Fund's net assets which would have been transferred
to Limited Maturity Portfolio had the Reorganization been consummated on
July 31, 1997. Data does not take into account expenses incurred in
connection with the Reorganization or the actual number of shares that
would have been issued. No assurance can be given as to how many shares
of Limited Maturity Portfolio the stockholders of the State Funds will
receive on the date the Reorganization takes place, and the foregoing
should not be relied upon to reflect the number of shares of Limited
Maturity Portfolio that actually will be received on or after such date.
INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The Meeting will be held on December 9, 1997 at the offices of MLAM, 800
Scudders Mill Road, Plainsboro, New Jersey, at 9:00 a.m., New York time.
SOLICITATION, REVOCATION AND USE OF PROXIES
A stockholder executing and returning a proxy has the power to revoke it
at any time prior to its exercise by executing a superseding proxy or by
submitting a notice of revocation to the Secretary of the Trust. Although
mere attendance at the Meeting will not revoke a proxy, a stockholder present
at the Meeting may withdraw his proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will
be voted "FOR" the approval of the Agreement and Plan of Reorganization.
It is not anticipated that any matters other than the adoption of the
Agreement and Plan of Reorganization will be brought before the Meeting. If,
however, any other business properly is brought before the Meeting, proxies
will be voted in accordance with the judgment of the persons designated on
such proxies.
RECORD DATE AND OUTSTANDING SHARES
The Board of Trustees of the Trust has fixed the close of business on
October 10, 1997 as the record date (the "Record Date") for the determination
of stockholders entitled to notice of, and to vote at, the Meeting or any
adjournment thereof. Stockholders on the Record Date will be entitled to one
vote for each share held, with no shares having cumulative voting rights. As
of the Record Date, for each State Fund there were issued and outstanding the
number of shares of beneficial interest, par value $.10 per share, listed
below:
Arizona Fund __________
Massachusetts Fund __________
Michigan Fund __________
New Jersey Fund __________
New York Fund __________
Pennsylvania Fund __________
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF THE STATE FUNDS AND LIMITED MATURITY PORTFOLIO
To the knowledge of the management of the Trust, no person owned
beneficially 5% or more of the outstanding shares of any State Fund or of any
class of shares of any State Fund at the Record Date.
To the knowledge of the Municipal Bond Fund, at the date hereof, no
person or entity owns beneficially 5% or more of any class of shares of
Limited Maturity Portfolio or of all classes of Limited Maturity Portfolio in
the aggregate.
On the Record Date, the Trustees and officers of the Trust as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of
any State Fund. On the Record Date, Mr. Zeikel, a Trustee and officer of the
Trust, and the other officers of the Trust owned an aggregate of less than 1%
of the outstanding shares of Common Stock of ML & Co.
On the Record Date, the Directors and officers of the Municipal Bond
Fund as a group (12 persons) owned an aggregate of less than 1% of the
outstanding shares of Limited Maturity Portfolio Common Stock. On the Record
Date, Mr. Zeikel, a Director and officer of the Municipal Bond Fund, and the
other officers of Municipal Bond Fund owned an aggregate of less than 1% of
the outstanding shares of Common Stock of ML & Co.
VOTING RIGHTS AND REQUIRED VOTE
For purposes of this Proxy Statement and Prospectus, each share of each
class of each State Fund is entitled to one vote. Approval of the Agreement
and Plan of Reorganization requires the affirmative vote of stockholders
representing more than 50% of the outstanding shares of each State Fund. See
Exhibit III--"Sections 86 through 98 of Chapter 156B of the Massachusetts
General Laws (the Massachusetts Business Corporation Law)" for a discussion
of dissenters' rights under Massachusetts law.
For purposes of the Meeting, a quorum consists of a majority of the
shares entitled to vote at the Meeting, present in person or by proxy. If,
by the time scheduled for the Meeting, a quorum of the applicable State
Fund's stockholders is not present or if a quorum is present but sufficient
votes in favor of the Agreement and Plan of Reorganization are not received
from the stockholders of the applicable State Fund, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies from stockholders. Any such adjournment will require
the affirmative vote of a majority of the shares of the applicable State Fund
present in person or by proxy and entitled to vote at the session of the
Meeting to be adjourned. The persons named as proxies will vote in favor of
any such adjournment if they determine that adjournment and additional
solicitation are reasonable and in the interests of the applicable State
Fund's stockholders.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form
of proxy, the accompanying Notice and this Proxy Statement and Prospectus
will be borne by the State Funds and Limited Maturity Portfolio pro rata
according to the aggregate net assets of the State Fund or Limited Maturity
Portfolio on the date of the Reorganization. Such expenses are currently
estimated to be $____________.
The State Funds will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the
beneficial owners of shares of the State Funds and certain persons that the
State Funds may employ for their reasonable expenses in assisting in the
solicitation of proxies from such beneficial owners of shares of the State
Funds.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview
by officers of the Trust. The State Funds also may hire proxy solicitors at
their expense. It is expected that the cost of such supplementary
solicitation, if any, will be nominal.
Broker-dealer firms, including Merrill Lynch, holding State Fund shares
in "street name" for the benefit of their customers and clients will request
the instructions of such customers and clients on how to vote their shares on
each proposal before the Meeting. Broker-dealer firms, including Merrill
Lynch, will not be permitted to grant voting authority without instructions
with respect to the approval of the Agreement and Plan of Reorganization.
The Trust will include shares held of record by broker-dealers as to which
such authority has been granted in its tabulation of the total number of
shares present for purposes of determining whether the necessary quorum of
stockholders of each State Fund exists. Properly executed proxies that are
returned, but that are marked "abstain" or on which a broker-dealer has
declined to vote on any proposal ("broker non-votes") will be counted as
present for the purposes of determining a quorum. Since approval of the
Agreement and Plan of Reorganization requires the affirmative vote of
stockholders of each State Fund voting separately and representing a majority
of the outstanding shares of each State Fund, abstentions and broker
non-votes will have the same effect as a vote against the Agreement and Plan
of Reorganization.
This Proxy Statement and Prospectus does not contain all of the
information set forth in the registration statements and the exhibits
relating thereto that the Municipal Bond Fund has filed with the Commission
under the Securities Act and the Investment Company Act, to which reference
is hereby made.
The Trust and the Municipal Bond Fund both file reports and other
information with the Commission. Reports, proxy statements, registration
statements and other information filed by the Trust and the Municipal Bond
Fund can be inspected and copied at the public reference facilities of the
Commission in Washington, D.C. and at the New York Regional Office of the
Commission at Seven World Trade Center, New York, New York 10048. Copies of
such materials also can be obtained by mail from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site (http: //www.sec.gov) that contains the Statement of
Additional Information, the Limited Maturity Trust Prospectus, the Limited
Maturity Trust Statement, the Municipal Bond Fund Prospectus, the Municipal
Bond Fund Statement, other material incorporated by reference and other
information.
LEGAL PROCEEDINGS
There are no material legal proceedings to which the Trust or the
Municipal Bond Fund is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be
passed upon for the Trust by Brown & Wood LLP, One World Trade Center, New
York, New York and for the Municipal Bond Fund by Rogers & Wells, 200 Park
Avenue, New York, New York. Brown & Wood LLP will rely as to matters of
Massachusetts law on the opinion of Bingham, Dana & Gould. Rogers & Wells
will rely as to matters of Maryland law on the opinion of
___________________.
EXPERTS
The financial statements as of (____________________________) included
in this Proxy Statement and Prospectus have been so included in reliance on
the reports of Deloitte & Touche LLP, independent auditors, given on their
authority as experts in auditing and accounting. The principal business
address of Deloitte & Touche LLP is 117 Campus Drive, Princeton, New Jersey
08540.
STOCKHOLDER PROPOSALS
A stockholder proposal intended to be presented at any subsequent
meeting of stockholders of the Trust must be received by the Trust a
reasonable time before the Board of Trustees solicitation relating to such
meeting is to be made in order to be considered in the Trust's proxy
statement and form of proxy relating to that meeting.
By Order of the Board of Trustees
Lawrence A. Rogers
Secretary
<PAGE>
EXHIBIT I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of the _____ day of ________________, 1997, by and between Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust, a Massachusetts business
trust (the "Limited Maturity Trust"), and Merrill Lynch Municipal Bond Fund,
Inc., a Maryland corporation (the "Municipal Bond Fund").
PLAN OF REORGANIZATION
----------------------
The reorganization will comprise the acquisition by Limited Maturity
Portfolio (the "Limited Maturity Portfolio"), a series of the Municipal Bond
Fund, of substantially all of the assets, and the assumption of substantially
all of the liabilities, of Merrill Lynch Arizona Limited Maturity Municipal
Bond Fund (the "Arizona Fund"), Merrill Lynch Massachusetts Limited Maturity
Municipal Bond Fund (the "Massachusetts Fund"), Merrill Lynch Michigan
Limited Maturity Municipal Bond Fund (the "Michigan Fund"), Merrill Lynch New
Jersey Limited Maturity Municipal Bond Fund (the "New Jersey Fund"), Merrill
Lynch New York Limited Maturity Municipal Bond Fund (the "New York Fund") and
Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund (the
"Pennsylvania Fund"), each a series of the Limited Maturity Trust
(collectively, the "State Funds"), in exchange solely for an equal aggregate
value of newly issued shares of Limited Maturity Portfolio's common stock,
with a par value of $.10 per share, and the subsequent distribution of
Corresponding Shares (defined below) of Limited Maturity Portfolio to the
stockholders of the State Funds in exchange for their shares of beneficial
interest of the State Funds, each with a par value of $.10 per share, all
upon and subject to the terms hereinafter set forth (the "Reorganization").
In the course of the Reorganization, shares of Limited Maturity
Portfolio will be distributed to the stockholders of the State Funds as
follows: each holder of Class A shares of each of the State Funds will be
entitled to receive Class A shares of Limited Maturity Portfolio Common
Stock. Holders of Class B, Class C and Class D shares of each of the State
Funds will be entitled to receive Class D shares of Limited Maturity
Portfolio Common Stock. (The exchanged shares discussed above shall be
referred to as "Corresponding Shares"). The aggregate net asset value of
Limited Maturity Portfolio to be received by each stockholder of each of the
State Funds will equal the aggregate net asset value of the State Fund shares
owned by such stockholder on the Exchange Date (as defined in Section 7 of
this Agreement). In consideration therefor, on the Exchange Date, Limited
Maturity Portfolio shall acquire substantially all of the assets of each of
the State Funds and assume substantially all of the obligations and
liabilities then existing, whether absolute, accrued, contingent or otherwise
of each of the State Funds. It is intended that the Reorganization described
in this Plan shall be a reorganization within the meaning of Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the "Code"),
and any successor provision.
As promptly as practicable after the consummation of the Reorganization,
the Trustees of the Limited Maturity Trust shall take such action necessary
to terminate the designation of the series of the Limited Maturity Trust
representing each State Fund in accordance with the laws of the Commonwealth
of Massachusetts.
AGREEMENT
---------
In order to consummate the Reorganization and in consideration of the
premises and the covenants and agreements hereinafter set forth, and
intending to be legally bound, the Limited Maturity Trust and the Municipal
Bond Fund hereby agree as follows:
1. Representations and Warranties of the Limited Maturity Trust.
------------------------------------------------------------
The Limited Maturity Trust represents and warrants to, and agrees with,
the Municipal Bond Fund that:
(a) The Limited Maturity Trust is a trust with transferable
shares duly organized, validly existing and in good standing in conformity
with the laws of the Commonwealth of Massachusetts, and has the power to own
all of its assets and to carry out this Agreement. The Limited Maturity
Trust has all necessary Federal, state and local authorizations to carry on
its business as it is now being conducted and to carry out this Agreement.
(b) The Limited Maturity Trust is duly registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a non-
diversified, open-end management investment company (File No. 811-6282), and
such registration has not been revoked or rescinded and is in full force and
effect. The Limited Maturity Trust has elected and qualified each State Fund
for the special tax treatment afforded regulated investment companies
("RICs") under Sections 851-855 of the Code at all times since inception and
intends to continue to so qualify for the taxable year in which the Exchange
Date occurs.
(c) As used in this Agreement, the term "Investments" shall mean
(i) the investments of each of the State Funds shown on the schedule of its
investments as of the Valuation Time (as defined in Section 3(c) of this
Agreement) furnished to the Municipal Bond Fund, with such additions thereto
and deletions therefrom as may have arisen in the course of each State Fund's
business up to the Valuation Time; and (ii) all other assets owned by each
State Fund or liabilities incurred as of the Valuation Time, except that each
State Fund shall retain cash, bank deposits or cash equivalent securities in
an estimated amount necessary to (1) discharge its unpaid liabilities on its
books at the Valuation Time (including, but not limited to, its income
dividend and capital gains distributions, if any, payable for the period
prior to the Valuation Time), and (2) pay such contingent and other
liabilities as the Trustees of the Limited Maturity Trust reasonably shall
deem to exist against such State Fund, if any, at Valuation Time, for which
contingent and other appropriate liability reserves shall be established on
such State Fund's books. Each State Fund also shall retain any and all
rights which it may have over and against any other person which may have
accrued up to the Valuation Time. Any unexpended portion of the foregoing
funds retained by each State Fund shall be disbursed by such State Fund pro
rata to its stockholders upon consummation of the Reorganization as a final
liquidating dividend.
(d) The Limited Maturity Trust has full power and authority to
enter into and perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement has been duly authorized by all
necessary action of its Board of Trustees, and this Agreement constitutes a
valid and binding contract enforceable in accordance with its terms, subject
to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto.
(e) The Municipal Bond Fund has been furnished with a statement
of assets and liabilities and a schedule of investments of each State Fund,
each as of July 31, 1997, said financial statements having been examined by
Deloitte & Touche LLP, independent public accountants. An unaudited
statement of assets and liabilities of each State Fund and an unaudited
schedule of investments of each State Fund, each as of the Valuation Time,
will be furnished to the Municipal Bond Fund at or prior to the Exchange Date
for the purpose of determining the number of shares of Limited Maturity
Portfolio to be issued pursuant to Section 4 of this Agreement; and each will
fairly present the financial position of the applicable State Fund as of the
Valuation Time in conformity with generally accepted accounting principles
applied on a consistent basis.
(f) The Municipal Bond Fund has been furnished with the Limited
Maturity Trust's (Annual Report to Stockholders for the year ended July 31,
1997 and any subsequent Semi-Annual Report to Stockholders which may be
available, and the financial statements appearing in such reports fairly
present the financial position of the Limited Maturity Trust and of each
State Fund as of the respective dates indicated, in conformity with generally
accepted accounting principles applied on a consistent basis.)
(g) The Municipal Bond Fund has been furnished with the
prospectus and statement of additional information of the Limited Maturity
Trust with respect to the State Funds, dated November 27, 1996, and said
prospectus and statement of additional information do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(h) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Limited Maturity Trust,
threatened against it or any State Fund which assert liability on the part of
the Limited Maturity Trust or any State Fund or which materially affect their
financial condition or their ability to consummate the Reorganization.
Neither the Limited Maturity Trust nor any State Fund is charged with or, to
the best of the knowledge of the Limited Maturity Trust, threatened with any
violation or investigation of any possible violation of any provisions of any
Federal, state or local law or regulation or administrative ruling relating
to any aspect of its business.
(i) There are no material contracts outstanding to which the
Limited Maturity Trust is a party that have not been disclosed in the N-14
Registration Statement (as defined in subsection (o) below) or will not
otherwise be disclosed to the Municipal Bond Fund prior to the Valuation
Time.
(j) The Limited Maturity Trust is not a party to or obligated
under any provision of its Declaration of Trust, as amended, or its by-laws,
as amended, or any contract or other commitment or obligation, and is not
subject to any order or decree which would be violated by its execution of or
performance under this Agreement.
(k) No State Fund has any known liabilities of a material
amount, contingent or otherwise, other than those shown on its statements of
assets and liabilities referred to above, those incurred in the ordinary
course of its business as a series of an investment company since July 31,
199(7), and those incurred in connection with the Reorganization. As of the
Valuation Time, the Limited Maturity Trust will advise the Municipal Bond
Fund in writing of all known liabilities, contingent or otherwise, whether or
not incurred in the ordinary course of business, existing or accrued as of
such time with respect to each State Fund.
(l) The Limited Maturity Trust has filed, or has obtained
extensions to file, all Federal, state and local tax returns which are
required to be filed by it, and has paid or has obtained extensions to pay,
all Federal, state and local taxes shown on said returns to be due and owing
and all assessments received by it, up to and including the taxable year in
which the Exchange Date occurs. All tax liabilities of the Limited Maturity
Trust and of each State Fund have been adequately provided for on its books,
and no tax deficiency or liability of the Limited Maturity Trust or any State
Fund has been asserted and no question with respect thereto has been raised
by the Internal Revenue Service or by any state or local tax authority for
taxes in excess of those already paid, up to and including the taxable year
in which the Exchange Date occurs.
(m) At both the Valuation Time and the Exchange Date, the
Limited Maturity Trust will have full right, power and authority to sell,
assign, transfer and deliver the Investments. At the Exchange Date, subject
only to the delivery of the Investments as contemplated by this Agreement,
the Limited Maturity Trust will have good and marketable title to all of the
Investments, and the Municipal Bond Fund will acquire all of the Investments
free and clear of any encumbrances, liens or security interests and without
any restrictions upon the transfer thereof (except those imposed by the
Federal or state securities laws and those imperfections of title or
encumbrances as do not materially detract from the value or use of the
Investments or materially affect title thereto).
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Limited
Maturity Trust of the Reorganization, except such as may be required under
the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act or state
securities laws (which term as used herein shall include the laws of the
District of Columbia and Puerto Rico).
(o) The registration statement filed by the Municipal Bond Fund
on Form N-14 relating to the shares of Limited Maturity Portfolio to be
issued pursuant to this Agreement which includes the proxy statement of the
Limited Maturity Trust with respect to the State Funds and the prospectus of
the Municipal Bond Fund with respect to the transaction contemplated herein,
and any supplement or amendment thereto or to the documents therein (as
amended, the "N-14 Registration Statement"), on the effective date of the
N-14 Registration Statement, at the time of the stockholders' meeting
referred to in Section 6(a) of this Agreement and on the Exchange Date,
insofar as it relates to the State Funds (i) complied or will comply in all
material respects with the provisions of the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder, and (ii) did not or will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; and the prospectus included therein did
not or will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this subsection
shall apply only to statements in or omissions from the N-14 Registration
Statement made in reliance upon and in conformity with information furnished
by the Limited Maturity Trust with respect to the State Funds for use in the
N-14 Registration Statement as provided in Section 7 of this Agreement.
(p) The Limited Maturity Trust is authorized to create an
unlimited number of series and, with respect to each series, to issue an
unlimited number of shares of beneficial interest, par value $.10 per share,
of different classes, each outstanding share of which is fully paid, and
nonassessable and has full voting rights.
(q) The books and records of the Limited Maturity Trust with
respect to the State Funds made available to the Municipal Bond Fund and/or
its counsel are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of the State Funds.
(r) The Limited Maturity Trust will not sell or otherwise
dispose of any of the shares of Limited Maturity Portfolio to be received in
the Reorganization, except in distribution to the stockholders of the State
Funds.
(s) At or prior to the Exchange Date, the Limited Maturity Trust
will have obtained any and all regulatory, Trustee and stockholder approvals
with respect to each State Fund, necessary to effect the Reorganization as
set forth herein.
2. Representations and Warranties of the Municipal Bond Fund.
---------------------------------------------------------
The Municipal Bond Fund represents and warrants to, and agrees with, the
Limited Maturity Trust that:
(a) The Municipal Bond Fund is a corporation duly organized,
validly existing and in good standing in conformity with the laws of the
State of Maryland, and has the power to own all of its assets and to carry
out this Agreement. The Municipal Bond Fund has all necessary Federal, state
and local authorizations to carry on its business as it is now being
conducted and to carry out this Agreement.
(b) The Municipal Bond Fund is duly registered under the 1940
Act as a diversified, open-end management investment company (File No.
811-2688), and such registration has not been revoked or rescinded and is in
full force and effect. The Municipal Bond Fund has elected and qualified
Limited Maturity Portfolio for the special tax treatment afforded RICs under
Sections 851-855 of the Code at all times since inception, and intends to
continue to qualify the Fund both until consummation of the Reorganization
and thereafter.
(c) The Municipal Bond Fund has full power and authority to
enter into and perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement has been duly authorized by all
necessary action of its Board of Directors and this Agreement constitutes a
valid and binding contract enforceable in accordance with its terms, subject
to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto.
(d) The Limited Maturity Trust has been furnished with a
statement of assets and liabilities and a schedule of investments of Limited
Maturity Portfolio, each as of June 30, 1997, said financial statements
having been examined by Deloitte & Touche LLP, independent public
accountants. An unaudited statement of assets and liabilities of Limited
Maturity Portfolio and an unaudited schedule of investments of Limited
Maturity Portfolio, each as of the Valuation Time, will be furnished to the
Limited Maturity Trust at or prior to the Exchange Date for the purpose of
determining the number of shares of Limited Maturity Portfolio to be issued
pursuant to Section 4 of this Agreement; and each will fairly present the
financial position of Limited Maturity Portfolio as of the Valuation Time in
conformity with generally accepted accounting principles applied on a
consistent basis.
(e) The Limited Maturity Trust has been furnished with the
Municipal Bond Fund's (Annual Report to Stockholders for the year ended June
30, 1997 and any subsequent Semi-Annual Reports to Stockholders which may be
available, and the financial statements appearing therein fairly present the
financial position of the Municipal Bond Fund and Limited Maturity Portfolio
as of the respective dates indicated, in conformity with generally accepted
accounting principles applied on a consistent basis.)
(f) The Limited Maturity Trust has been furnished with the
prospectus and statement of additional information of the Municipal Bond Fund
with respect to Limited Maturity Portfolio, dated (October 25, 1996) and said
prospectus and statement of additional information do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(g) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Municipal Bond Fund,
threatened against it or Limited Maturity Portfolio which assert liability on
the part of the Municipal Bond Fund or Limited Maturity Portfolio or which
materially affect their financial condition or their ability to consummate
the Reorganization. Neither the Municipal Bond Fund nor Limited Maturity
Portfolio is charged with or, to the best of the knowledge of the Municipal
Bond Fund, threatened with any violation or investigation of any possible
violation of any provisions of any Federal, state or local law or regulation
or administrative ruling relating to any aspect of its business.
(h) There are no material contracts outstanding to which the
Municipal Bond Fund is a party that have not been disclosed in the N-14
Registration Statement or will not otherwise be disclosed to the Limited
Maturity Trust prior to the Valuation Time.
(i) The Municipal Bond Fund is not a party to or obligated under
any provision of its Articles of Incorporation, as amended, or its by-laws,
as amended, or any contract or other commitment or obligation, and is not
subject to any order or decree which would be violated by its execution of or
performance under this Agreement.
(j) Limited Maturity Portfolio has no known liabilities of a
material amount, contingent or otherwise, other than those shown on Limited
Maturity Portfolio's statements of assets and liabilities referred to above,
those incurred in the ordinary course of its business as a series of an
investment company since (June 30, 1997) and those incurred in connection
with the Reorganization. As of the Valuation Time, the Municipal Bond Fund
will advise the Limited Maturity Trust in writing of all known liabilities,
contingent or otherwise, whether or not incurred in the ordinary course of
business, existing or accrued as of such time with respect to Limited
Maturity Portfolio.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Municipal Bond
Fund of the Reorganization, except such as may be required under the 1933
Act, the 1934 Act, the 1940 Act or state securities laws.
(l) The N-14 Registration Statement, on its effective date, at
the time of the stockholders' meeting referred to in Section 6(a) of this
Agreement and at the Exchange Date, insofar as it relates to Limited Maturity
Portfolio (i) complied or will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) did not or will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading;
and the prospectus included therein did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations
and warranties in this subsection only shall apply to statements in or
omissions from the N-14 Registration Statement made in reliance upon and in
conformity with information furnished by the Municipal Bond Fund with respect
to Limited Maturity Portfolio for use in the N-14 Registration Statement as
provided in Section 7 of this Agreement.
(m) The Municipal Bond Fund is authorized to issue 3,850,000,000
shares of common stock, par value $.10 per share, divided into three series,
including Limited Maturity Portfolio, each of which is divided into four
classes, designated Class A, Class B, Class C and Class D Common Stock.
Class A, Class B, Class C and Class D of Limited Maturity Portfolio each
consist of 150,000,000 shares, each outstanding share of which is fully paid
and nonassessable and has full voting rights.
(n) Limited Maturity Portfolio shares to be issued to the
Limited Maturity Trust for distribution to the stockholders of the State
Funds pursuant to this Agreement will have been duly authorized and, when
issued and delivered pursuant to this Agreement, will be legally and validly
issued and will be fully paid and nonassessable and will have full voting
rights, and no stockholder of the Municipal Bond Fund will have any
preemptive right of subscription or purchase in respect thereof.
(o) At or prior to the Exchange Date, Limited Maturity Portfolio
shares to be transferred to the Limited Maturity Trust for distribution to
the stockholders of the State Funds on the Exchange Date will be (duly
qualified for offering to the public in all states of the United States in
which the sale of shares of Limited Maturity Portfolio presently are
qualified), and there are a sufficient number of such shares registered under
the 1933 Act and (with each pertinent state securities commission) to permit
the transfers contemplated by this Agreement to be consummated.
(p) At or prior to the Exchange Date, the Municipal Bond Fund
will have obtained any and all regulatory, Director and stockholder approvals
with respect to Limited Maturity Portfolio, necessary to issue the shares of
Limited Maturity Portfolio to the Limited Maturity Trust for distribution to
the stockholders of the State Funds.
3. The Reorganization.
------------------
(a) Subject to receiving the requisite approval of the
stockholders of each of the State Funds, and to the other terms and
conditions contained herein, the Limited Maturity Trust agrees to convey,
transfer and deliver to the Municipal Bond Fund for the benefit of Limited
Maturity Portfolio, and the Municipal Bond Fund agrees to acquire from the
Limited Maturity Trust for the benefit of Limited Maturity Portfolio, on the
Exchange Date all of the Investments (including interest accrued as of the
Valuation Time on debt instruments), and cause Limited Maturity Portfolio to
assume substantially all of the liabilities of each of the State Funds, in
exchange solely for that number of shares of Limited Maturity Portfolio
provided in Section 4 of this Agreement. Pursuant to this Agreement, as soon
as practicable the Limited Maturity Trust will distribute all shares of
Limited Maturity Portfolio received by it to the stockholders of each of the
State Funds in exchange for their corresponding State Fund shares. Such
distribution shall be accomplished by the opening of stockholder accounts on
the stock ledger records of Limited Maturity Portfolio in the amounts due the
stockholders of each of the State Funds based on their respective holdings in
such State Fund as of the Valuation Time.
(b) The Limited Maturity Trust will pay or cause to be paid to
the Municipal Bond Fund for the benefit of Limited Maturity Portfolio any
interest it receives on or after the Exchange Date with respect to the
Investments transferred to the Municipal Bond Fund for the benefit of Limited
Maturity Portfolio hereunder.
(c) The Valuation Time shall be 4:00 P.M., New York time, on
____________, 1997, or such earlier or later day and time as may be mutually
agreed upon in writing (the "Valuation Time").
(d) Limited Maturity Portfolio will acquire substantially all of
the assets of, and assume substantially all of the known liabilities of, each
of the State Funds, except that recourse for such liabilities will be limited
to the net assets of each of the State Funds acquired by Limited Maturity
Portfolio. The known liabilities of each of the State Funds as of the
Valuation Time shall be confirmed in writing to the Municipal Bond Fund by
the Limited Maturity Trust pursuant to Section 1(k) of this Agreement.
(e) The existence of each of the State Funds will terminate
following the distribution referred to in subparagraph (a) above and 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 and
cause a copy thereof to be filed in the Office of the Secretary of State of
The Commonwealth of Massachusetts.
4. Issuance and Valuation of Shares of the
Limited Maturity Portfolio in the Reorganization.
------------------------------------------------
Full shares of Limited Maturity Portfolio, and to the extent necessary,
any fractional shares of Limited Maturity Portfolio, of an aggregate net
asset value equal to the net asset value of the assets of each of the State
Funds acquired, determined as hereinafter provided, reduced by the amount of
liabilities of each State Fund assumed by Limited Maturity Portfolio, shall
be issued by the Municipal Bond Fund in exchange for such assets of each of
the State Funds. The net asset value of each of the State Funds and Limited
Maturity Portfolio shall be determined in accordance with the procedures
described in the Municipal Bond Fund Prospectus with respect to Limited
Maturity Portfolio as of the Valuation Time. Such valuation and
determination shall be made by the Municipal Bond Fund in cooperation with
the Limited Maturity Trust. The Municipal Bond Fund shall issue Class A
shares and Class D shares of Limited Maturity Portfolio to the Limited
Maturity Trust in certificates or share deposit receipts registered in the
name of the Limited Maturity Trust. The Limited Maturity Trust shall
redeliver such certificates to Merrill Lynch Financial Data Services, Inc.
and shall distribute the Class A and Class D shares of Limited Maturity
Portfolio so received to the stockholders of the State Funds as follows:
holders of Class A shares of each of the State Funds will receive Class A
shares of Limited Maturity Portfolio and holders of Class B, Class C and
Class D shares of each of the State Funds will receive Class D shares of
Limited Maturity Portfolio.
5. Payment of Expenses.
-------------------
(a) With respect to expenses incurred in connection with the
Reorganization, (i) the Municipal Bond Fund shall cause Limited Maturity
Portfolio to pay all expenses incurred which are attributable solely to
Limited Maturity Portfolio and the conduct of its business, (ii) the Limited
Maturity Trust shall cause each State Fund to pay all expenses incurred which
are attributable solely to each such State Fund and the conduct of its
business, and (iii) the Municipal Bond Fund and the Limited Maturity Trust
shall cause Limited Maturity Portfolio and the State Funds, respectively, to
pay, subsequent to the Exchange Date and pro rata according to net assets of
Limited Maturity Portfolio and each of the State Funds on the Exchange Date,
all expenses incurred in connection with the Reorganization, including, but
not limited to, all costs related to the preparation and distribution of the
N-14 Registration Statement. Such fees and expenses shall include legal,
accounting and state securities or blue sky fees, printing costs, filing
fees, portfolio transfer taxes (if any), and any similar expenses incurred in
connection with the Reorganization. The Limited Maturity Trust shall pay all
expenses associated with the termination of each of the State Funds under
Massachusetts law.
(b) If for any reason the Reorganization is not consummated, no
party shall be liable to any other party for any damages resulting therefrom,
including, without limitation, consequential damages.
6. Covenants of the Limited Maturity Trust and the Municipal Bond Fund.
-------------------------------------------------------------------
(a) The Limited Maturity Trust agrees to call special meetings
of stockholders of each of the State Funds as soon as is practicable after
the effective date of the N-14 Registration Statement for the purpose of
considering the Reorganization as described in this Agreement, and it shall
be a condition to the obligations of each of the parties hereto that the
holders of a majority of the shares of each of the State Funds issued and
outstanding and entitled to vote thereon, shall have approved this Agreement
at such a meeting at or prior to the Valuation Time.
(b) The Limited Maturity Trust and the Municipal Bond Fund each
covenants to operate the business of the State Funds and Limited Maturity
Portfolio, respectively, as presently conducted between the date hereof and
the Exchange Date.
(c) The Limited Maturity Trust agrees that following the
consummation of the Reorganization, (i) it will terminate each State Fund in
accordance with the laws of the Commonwealth of Massachusetts and any other
applicable law, (ii) it will not make any distributions of any shares of
Limited Maturity Portfolio other than to the stockholders of the State Funds
and without first paying or adequately providing for the payment of all of
the State Funds' liabilities not assumed by Limited Maturity Portfolio, if
any, and (iii) on and after the Exchange Date it shall not conduct any
business with respect to each of the State Funds except in connection with
such State Fund's termination.
(d) The Municipal Bond Fund will file the N-14 Registration
Statement with the Securities and Exchange Commission (the "Commission") and
will use its best efforts to provide that the N-14 Registration Statement
becomes effective as promptly as practicable. The Limited Maturity Trust and
the Municipal Bond Fund agree to cooperate fully with each other, and each
will furnish to the other the information relating to the State Funds and
Limited Maturity Portfolio, respectively, to be set forth in the N-14
Registration Statement as required by the 1933 Act, the 1934 Act, the 1940
Act, and the rules and regulations thereunder and (the state securities or
blue sky laws).
(e) The Limited Maturity Trust and the Municipal Bond Fund each
agrees that by the Exchange Date all of the Federal and other tax returns and
reports required to be filed on or before such date by the State Funds and
Limited Maturity Portfolio, respectively, shall have been filed and all taxes
shown as due on said returns either have been paid or adequate liability
reserves have been provided for the payment of such taxes. In connection
with this covenant, the funds agree to cooperate with each other in filing
any tax return, amended return or claim for refund, determining a liability
for taxes or a right to a refund of taxes or participating in or conducting
any audit or other proceeding in respect of taxes. The Municipal Bond Fund
agrees to retain for a period of ten (10) years following the Exchange Date
all returns, schedules and work papers and all material records or other
documents relating to tax matters of each State Fund for its taxable period
first ending after the Exchange Date and for all prior taxable periods. Any
information obtained under this subsection shall be kept confidential except
as otherwise may be necessary in connection with the filing of returns or
claims for refund or in conducting an audit or other proceeding. After the
Exchange Date, the Limited Maturity Trust shall prepare, or cause its agents
to prepare, any Federal, state or local tax returns, including any Forms
1099, required to be filed by or with respect to each State Fund with
respect to such State Fund's final taxable year ending with its termination
and for any prior periods or taxable years and further shall cause such tax
returns and Forms 1099 to be duly filed with the appropriate taxing
authorities. Notwithstanding the aforementioned provisions of this
subsection, any expenses incurred by the Limited Maturity Trust (other than
for payment of taxes) in connection with the preparation and filing of said
tax returns and Forms 1099 for any State Fund after the Exchange Date shall
be borne by such State Fund to the extent such expenses have been accrued by
such State Fund in the ordinary course without regard to the Reorganization;
any excess expenses shall be borne by Fund Asset Management, L.P. ("FAM") at
the time such tax returns and Forms 1099 are prepared.
(f) The Limited Maturity Trust agrees to mail to stockholders of
record of each State Fund entitled to vote at the special meeting of
stockholders at which action is to be considered regarding this Agreement, in
sufficient time to comply with requirements as to notice thereof, a combined
Proxy Statement and Prospectus which complies in all material respects with
the applicable provisions of Section 14(a) of the 1934 Act and Section 20(a)
of the 1940 Act, and the rules and regulations, respectively, thereunder.
(g) Following the consummation of the Reorganization, Limited
Maturity Portfolio expects to stay in existence and continue its business as
a series of an open-end management investment company registered under the
1940 Act.
7. Exchange Date.
-------------
(a) Delivery of the assets of the State Funds to be transferred,
together with any other Investments, and the shares of Limited Maturity
Portfolio to be issued, shall be made at the offices of Brown & Wood LLP, One
World Trade Center, New York, New York 10048, at 10:00 A.M. on the next full
business day following the Valuation Time, or at such other place, time and
date agreed to by the Limited Maturity Trust and the Municipal Bond Fund, the
date and time upon which such delivery is to take place being referred to
herein as the "Exchange Date." To the extent that any Investments, for any
reason, are not transferable on the Exchange Date, the Limited Maturity Trust
shall cause such Investments to be transferred to the Municipal Bond Fund's
account with The Bank of New York at the earliest practicable date
thereafter.
(b) The Limited Maturity Trust will deliver to the Municipal
Bond Fund on the Exchange Date confirmations or other adequate evidence as to
the tax basis of each of the Investments delivered to the Municipal Bond Fund
hereunder, certified by Deloitte & Touche LLP.
(c) As soon as practicable after the close of business on the
Exchange Date, the Limited Maturity Trust shall deliver to the Municipal Bond
Fund a list of the names and addresses of all of the stockholders of record
of each State Fund on the Exchange Date and the number of shares of such
State Fund owned by each such stockholder, certified to the best of their
knowledge and belief by the transfer agent for the Limited Maturity Trust or
by its President.
8. The Limited Maturity Trust Conditions.
-------------------------------------
The obligations of the Limited Maturity Trust hereunder shall be subject
to the following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the affirmative vote of the
holders of a majority of the shares of each of the State Funds, issued and
outstanding and entitled to vote thereon, voting separately as a class, and
by the Board of Directors of the Municipal Bond Fund; and that the Municipal
Bond Fund shall have delivered to the Limited Maturity Trust a copy of the
resolution approving this Agreement adopted by the Municipal Bond Fund's
Board of Directors, certified by the Secretary of the Municipal Bond Fund.
(b) That the Municipal Bond Fund shall have furnished to the
Limited Maturity Trust a statement of Limited Maturity Portfolio's assets and
liabilities, with values determined as provided in Section 4 of this
Agreement, together with a schedule of its investments, all as of the
Valuation Time, certified on the Municipal Bond Fund's behalf by its
President (or any Vice President) and its Treasurer, and a certificate signed
by the Municipal Bond Fund's President (or any Vice President) and its
Treasurer, dated as of the Exchange Date, certifying that as of the Valuation
Time and as of the Exchange Date there has been no material adverse change in
the financial position of Limited Maturity Portfolio since June 30, 199(7),
other than changes in its portfolio securities since that date or changes in
the market value of its portfolio securities.
(c) That the Municipal Bond Fund shall have furnished to the
Limited Maturity Trust a certificate signed by the Municipal Bond Fund's
President (or any Vice President) and its Treasurer, dated as of the Exchange
Date, certifying that, as of the Valuation Time and as of the Exchange Date
all representations and warranties of the Municipal Bond Fund made in this
Agreement are true and correct in all material respects with the same effect
as if made at and as of such dates, and that the Municipal Bond Fund has
complied with all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied at or prior to each of such dates.
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(e) That the Limited Maturity Trust shall have received an
opinion of (_________________), Maryland counsel to the Municipal Bond Fund,
in form satisfactory to the Limited Maturity Trust and dated the Exchange
Date, to the effect that (i) the Municipal Bond Fund is a corporation duly
organized, validly existing and in good standing in conformity with the laws
of the State of Maryland; (ii) the Corresponding Shares of Limited Maturity
Portfolio to be delivered to stockholders of the State Funds as provided for
by this Agreement are duly authorized and, upon delivery, will be validly
issued and outstanding and fully paid and nonassessable by the Municipal Bond
Fund, and no stockholder of the Municipal Bond Fund has any preemptive right
to subscription or purchase in respect thereof (pursuant to the Articles of
Incorporation, as amended, or the by-laws of the Municipal Bond Fund or, to
the best of such counsel's knowledge, otherwise); (iii) this Agreement has
been duly authorized, executed and delivered by the Municipal Bond Fund, and
represents a valid and binding contract, enforceable in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto; provided, that
such counsel shall express no opinion with respect to the application of
equitable principles in any proceeding, whether at law or in equity; (iv) the
execution and delivery of this Agreement does not, and the consummation of
the Reorganization will not, violate the Articles of Incorporation, as
amended, the by-laws of the Municipal Bond Fund or Maryland law; (v) no
consent, approval, authorization or order of any Maryland court or
governmental authority is required for the consummation by the Municipal Bond
Fund of the Reorganization, except such as have been obtained under Maryland
law; and (vi) such opinion is solely for the benefit of the Limited Maturity
Trust and its Trustees and officers. In giving the opinion set forth above,
(name of Maryland counsel) may state that it is relying on certificates
------------------------
of officers of the Limited Maturity Trust and the Municipal Bond Fund with
regard to matters of fact and certain certificates and written statements of
government officials with respect to the good standing of the Limited
Maturity Trust and the Municipal Bond Fund.
(f) That the Limited Maturity Trust shall have received an
opinion of Rogers & Wells, as counsel to the Municipal Bond Fund, in form
satisfactory to the Limited Maturity Trust and dated the Exchange Date, to
the effect that (i) no consent, approval, authorization or order of any
United States Federal court or governmental authority is required for the
consummation by the Municipal Bond Fund of the Reorganization, except such as
have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and the
published rules and regulations of the Commission thereunder and under state
securities or blue sky laws; (ii) the N-14 Registration Statement has become
effective under the 1933 Act, no stop order suspending the effectiveness of
the N-14 Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the 1933
Act, and the N-14 Registration Statement, and each amendment or supplement
thereto, as of their respective effective dates, appear on their face to be
appropriately responsive in all material respects to the requirements of the
1933 Act, the 1934 Act and the 1940 Act and the published rules and
regulations of the Commission thereunder; (iii) the descriptions in the N-14
Registration Statement of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the information
required to be shown; and (iv) such counsel does not know of any statutes,
legal or governmental proceedings or contracts or other documents related to
the Reorganization of a character required to be described in the N-14
Registration Statement which are not described therein or, if required to be
filed, filed as required; (v) the execution and delivery of this Agreement
does not, and the consummation of the Reorganization will not, violate any
material provision of any agreement (known to such counsel) to which the
Municipal Bond Fund is a party or by which the Municipal Bond Fund is bound;
(vi) the Municipal Bond Fund, to the knowledge of such counsel, is not
required to qualify to do business as a foreign corporation in any
jurisdiction except as may be required by state securities or blue sky laws,
and except where each has so qualified or the failure so to qualify would not
have a material adverse effect on the Municipal Bond Fund, or its
stockholders; (vii) such counsel does not have actual knowledge of any
material suit, action or legal or administrative proceeding pending or
threatened against the Municipal Bond Fund, the unfavorable outcome of which
would materially and adversely affect the Municipal Bond Fund; and (viii) all
corporate actions required to be taken by the Municipal Bond Fund to
authorize this Agreement and to effect the Reorganization have been duly
authorized by all necessary corporate actions on the part of the Municipal
Bond Fund. Such opinion also shall state that (x) while such counsel cannot
make any representation as to the accuracy or completeness of statements of
fact in the N-14 Registration Statement or any amendment or supplement
thereto, nothing has come to its attention that would lead it to believe
that, on the respective effective dates of the N-14 Registration Statement
and any amendment or supplement thereto, (1) the N-14 Registration Statement
or any amendment or supplement thereto contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(2) the prospectus included in the N-14 Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (y) such counsel does not
express any opinion or belief as to the financial statements or other
financial or statistical data relating to Limited Maturity Portfolio
contained or incorporated by reference in the N-14 Registration Statement.
In giving the opinion set forth above, Rogers & Wells may state that it is
relying on certificates of officers of the Municipal Bond Fund with regard to
matters of fact and certain certificates and written statements of
governmental officials with respect to the good standing of the Municipal
Bond Fund and on the opinion of ___________________ as to matters of Maryland
law.
(g) That the Municipal Bond Fund on behalf of Limited Maturity
Portfolio shall have received a private letter ruling from the Internal
Revenue Service to the effect that for Federal income tax purposes (i) the
transfer of substantially all of the Investments to Limited Maturity
Portfolio in exchange solely for shares of Limited Maturity Portfolio as
provided in this Agreement will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and each State Fund and Limited
Maturity Portfolio will be deemed to be a "party" to the Reorganization
within the meaning of Section 368(b); (ii) in accordance with Section 361(a)
of the Code, no gain or loss will be recognized to any State Fund as a result
of the asset transfer solely in exchange for shares of Limited Maturity
Portfolio or on the distribution of Limited Maturity Portfolio stock to
stockholders of the respective State Fund under Section 361(c)(1);
(iii) under Section 1032 of the Code, no gain or loss will be recognized to
Limited Maturity Portfolio on the receipt of assets of the State Funds in
exchange for shares of Limited Maturity Portfolio; (iv) in accordance with
Section 354(a)(1) of the Code, no gain or loss will be recognized to the
stockholders of any State Fund on the receipt of Corresponding Shares of
Limited Maturity Portfolio in exchange for their shares of such State Fund;
(v) in accordance with Section 362(b) of the Code, the tax basis of the
assets of each State Fund in the hands of Limited Maturity Portfolio will be
the same as the tax basis of such assets in the hands of such State Fund
immediately prior to the consummation of the Reorganization; (vi) in
accordance with Section 358 of the Code, immediately after the
Reorganization, the tax basis of the Corresponding Shares of Limited
Maturity Portfolio received by the stockholders of each State Fund in the
Reorganization will be equal, in the aggregate, to the tax basis of the
shares of such State Fund surrendered in exchange; (vii) in accordance with
Section 1223 of the Code, a stockholder's holding period for the
Corresponding Shares of Limited Maturity Portfolio will be determined by
including the period for which such stockholder held the shares of the State
Fund exchanged therefor, provided, that such State Fund shares were held as
a capital asset; (viii) in accordance with Section 1223 of the Code, Limited
Maturity Portfolio's holding period with respect to the assets transferred
by each State Fund will include the period for which the assets were held by
such State Fund; and (ix) the taxable year of each State Fund will end on
the effective date of the Reorganization, and pursuant to Section 381(a) of
the Code and regulations thereunder, Limited Maturity Portfolio will succeed
to and take into account certain tax attributes of such State Fund, such as
earnings and profits, capital loss carryovers and method of accounting.
(h) That all proceedings taken by the Municipal Bond Fund and
its counsel in connection with the Reorganization and all documents
incidental thereto shall be satisfactory in form and substance to the Limited
Maturity Trust.
(i) That the N-14 Registration Statement shall have become
effective under the 1933 Act, and no stop order suspending such effectiveness
shall have been instituted or, to the knowledge of the Municipal Bond Fund,
contemplated by the Commission.
(j) That the Limited Maturity Trust shall have received from
Deloitte & Touche LLP a letter dated as of the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to
the Exchange Date, in form and substance satisfactory to the Limited Maturity
Trust, to the effect that (i) they are independent public accountants with
respect to the Municipal Bond Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder; (ii) in their opinion,
the financial statements and supplementary information of Limited Maturity
Portfolio included or incorporated by reference in the N-14 Registration
Statement and reported on by them comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder; and (iii) on the basis of limited
procedures agreed upon by the Limited Maturity Trust and the Municipal Bond
Fund and described in such letter (but not an examination in accordance with
generally accepted auditing standards) consisting of a reading of any
unaudited interim financial statements and unaudited supplementary
information of Limited Maturity Portfolio included in the N-14 Registration
Statement, and inquiries of certain officials of the Municipal Bond Fund
responsible for financial and accounting matters, nothing came to its
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as
to form in all material respects with the applicable accounting requirements
of the 1933 Act and the published rules and regulations thereunder, (b) such
unaudited financial statements are not fairly presented in conformity with
generally accepted accounting principles, applied on a basis substantially
consistent with that of the audited financial statements, or (c) such
unaudited supplementary information is not fairly stated in all material
respects in relation to the unaudited financial statements taken as a whole;
and (iv) on the basis of limited procedures agreed upon by the Limited
Maturity Trust and the Municipal Bond Fund and described in such letter (but
not an examination in accordance with generally accepted auditing standards),
the information relating to Limited Maturity Portfolio appearing in the N-14
Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records
of the Municipal Bond Fund or from schedules prepared by officials of the
Municipal Bond Fund having responsibility for financial and reporting
matters and such information is in agreement with such records, schedules or
computations made therefrom.
(k) That the Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the 1940 Act, nor instituted or
threatened to institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of the Municipal Bond Fund or
would prohibit the Reorganization.
(l) That the Limited Maturity Trust shall have received from the
Commission such orders or interpretations as Brown & Wood LLP, as counsel to
the Limited Maturity Trust, deems reasonably necessary or desirable under the
1933 Act and the 1940 Act in connection with the Reorganization, provided,
that such counsel shall have requested such orders as promptly as
practicable, and all such orders shall be in full force and effect.
9. The Municipal Bond Fund Conditions.
----------------------------------
The obligations of the Municipal Bond Fund hereunder shall be subject to
the following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the Board of Trustees of the
Limited Maturity Trust and by the affirmative vote of the holders of a
majority of the shares of common stock of each State Fund issued and
outstanding and entitled to vote thereon, voting separately as a class; and
that the Limited Maturity Trust shall have delivered to the Municipal Bond
Fund a copy of the resolution approving this Agreement adopted by the Limited
Maturity Trust's Board of Trustees, and a certificate setting forth the vote
of the stockholders of each State Fund obtained, each certified by the
Secretary of the Limited Maturity Trust.
(b) That the Limited Maturity Trust shall have furnished to the
Municipal Bond Fund a statement of each State Fund's assets and liabilities,
with values determined as provided in Section 4 of this Agreement, together
with a schedule of investments with their respective dates of acquisition and
tax costs, all as of the Valuation Time, certified on the Limited Maturity
Trust's behalf by its President (or any Vice President) and its Treasurer,
and a certificate of both such officers, dated the Exchange Date, certifying
that as of the Valuation Time and as of the Exchange Date there has been no
material adverse change in the financial position of each State Fund since
July 31, 1997, other than changes in the Investments since that date or
changes in the market value of the Investments.
(c) That the Limited Maturity Trust shall have furnished to the
Municipal Bond Fund a certificate signed by the Limited Maturity Trust's
President (or any Vice President) and its Treasurer, dated the Exchange Date,
certifying that as of the Valuation Time and as of the Exchange Date all
representations and warranties of the Limited Maturity Trust made in this
Agreement are true and correct in all material respects with the same effect
as if made at and as of such dates and the Limited Maturity Trust has
complied with all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied at or prior to such dates.
(d) That the Limited Maturity Trust shall have delivered to the
Municipal Bond Fund a letter from Deloitte & Touche LLP, dated the Exchange
Date, stating that such firm has performed a limited review of the Federal,
state and local income tax returns of the Limited Maturity Trust with respect
to each State Fund for the period ended July 31, 1997 (which returns
originally were prepared and filed by the Limited Maturity Trust), and that
based on such limited review, nothing came to their attention which caused
them to believe that such returns did not properly reflect, in all material
respects, the Federal, state and local income taxes of the Limited Maturity
Trust for the period covered thereby; and that for the period from August 1,
1997, to and including the Exchange Date and for any taxable year of the
Limited Maturity Trust ending upon the termination of the last State Fund
to be so terminated, such firm has performed a limited review to ascertain
the amount of applicable Federal, state and local taxes, and has determined
that either such amount has been paid or reserves established for payment of
such taxes, this review to be based on unaudited financial data; and that
based on such limited review, nothing has come to their attention which
caused them to believe that the taxes paid or reserves set aside for payment
of such taxes were not adequate in all material respects for the
satisfaction of Federal, state and local taxes for the period from August 1,
1997, to and including the Exchange Date and for any taxable year of the
Limited Maturity Trust ending upon the termination of the last State Fund to
be so terminated or that the Limited Maturity Trust would not continue to
qualify as a regulated investment company for Federal income tax purposes.
(e) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(f) That the Municipal Bond Fund shall have received an opinion
of Bingham, Dana & Gould, Massachusetts counsel to the Limited Maturity
Trust, in form satisfactory to the Municipal Bond Fund and dated the Exchange
Date, to the effect that (i) the Limited Maturity Trust is a trust with
transferable shares duly organized, validly existing and in good standing in
conformity with the laws of the Commonwealth of Massachusetts; (ii) this
Agreement has been duly authorized, executed and delivered by the Limited
Maturity Trust, and represents a valid and binding contract, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
moratorium, fraudulent conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
provided, that such counsel shall express no opinion with respect to the
application of equitable principles in any proceeding, whether at law or in
equity; (iii) the Limited Maturity Trust has the power to sell, assign,
transfer and deliver the assets transferred by it hereunder and, upon
consummation of the Reorganization in accordance with the terms of this
Agreement, the Limited Maturity Trust will have duly transferred such assets
and liabilities in accordance with this Agreement; (iv) the execution and
delivery of this Agreement does not, and the consummation of the
Reorganization will not, violate the Declaration of Trust, as amended, the
by-laws of the Limited Maturity Trust or Massachusetts law; (v) no consent,
approval, authorization or order of any Massachusetts court or governmental
authority is required for the consummation by the Limited Maturity Trust of
the Reorganization, except such as have been obtained under Massachusetts
law; and (vi) such opinion is solely for the benefit of the Municipal Bond
Fund and its Directors and officers. In giving the opinion set forth above,
Bingham, Dana & Gould may state that it is relying on certificates of
officers of the Limited Maturity Trust and the Municipal Bond Fund with
regard to matters of fact and certain certificates and written statements of
government officials with respect to the good standing of the Limited
Maturity Trust and the Municipal Bond Fund.
(g) That the Municipal Bond Fund shall have received an opinion
of Brown & Wood LLP, as counsel to the Limited Maturity Trust, in form
satisfactory to the Municipal Bond Fund and dated the Exchange Date, with
respect to the matters specified in Section 8(f) of this Agreement and such
other matters as the Municipal Bond Fund reasonably may deem necessary or
desirable.
(h) That the Municipal Bond Fund shall have received a private
letter ruling from the Internal Revenue Service with respect to the matters
specified in Section 8(g) of this Agreement.
(i) That the Investments to be transferred to the Municipal Bond
Fund shall not include any assets or liabilities which the Municipal Bond
Fund, by reason of charter limitations or otherwise, may not properly acquire
or assume.
(j) That all proceedings taken by the Limited Maturity Trust and
its counsel in connection with the Reorganization and all documents
incidental thereto shall be satisfactory in form and substance to the
Municipal Bond Fund.
(k) That the N-14 Registration Statement shall have become
effective under the 1933 Act and no stop order suspending such effectiveness
shall have been instituted or, to the knowledge of the Limited Maturity
Trust, contemplated by the Commission.
(l) That the Municipal Bond Fund shall have received from
Deloitte & Touche LLP a letter dated as of the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to
the Exchange Date, in form and substance satisfactory to the Municipal Bond
Fund, to the effect that (i) they are independent public accountants with
respect to the Limited Maturity Trust within the meaning of the 1933 Act and
the applicable published rules and regulations thereunder; (ii) in their
opinion, the financial statements and supplementary information of each State
Fund included or incorporated by reference in the N-14 Registration Statement
and reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules
and regulations thereunder; (iii) on the basis of limited procedures agreed
upon by the Limited Maturity Trust and the Municipal Bond Fund and described
in such letter (but not an examination in accordance with generally accepted
auditing standards) consisting of a reading of any unaudited interim
financial statements and unaudited supplementary information of each State
Fund included in the N-14 Registration Statement, and inquiries of certain
officials of the Limited Maturity Trust responsible for financial and
accounting matters, nothing came to their attention that caused them to
believe that (a) such unaudited financial statements and related unaudited
supplementary information do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder, (b) such unaudited financial statements are
not fairly presented in conformity with generally accepted accounting
principles, applied on a basis substantially consistent with that of the
audited financial statements, or (c) such unaudited supplementary information
is not fairly stated in all material respects in relation to the unaudited
financial statements taken as a whole; and (iv) on the basis of limited
procedures agreed upon by the Limited Maturity Trust and the Municipal Bond
Fund and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the information relating to each
State Fund appearing in the N-14 Registration Statement, which information is
expressed in dollars (or percentages derived from such dollars) (with the
exception of performance comparisons, if any), if any, has been obtained from
the accounting records of the Limited Maturity Trust or from schedules
prepared by officials of the Limited Maturity Trust having responsibility for
financial and reporting matters and such information is in agreement with
such records, schedules or computations made therefrom.
(m) That the Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the 1940 Act, nor instituted or
threatened to institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of the Limited Maturity Trust
or would prohibit the Reorganization.
(n) That the Municipal Bond Fund shall have received from the
Commission such orders or interpretations as Rogers & Wells, as counsel to
the Municipal Bond Fund, deems reasonably necessary or desirable under the
1933 Act and the 1940 Act in connection with the Reorganization, provided,
that such counsel shall have requested such orders as promptly as
practicable, and all such orders shall be in full force and effect.
(o) That prior to the Exchange Date, the Limited Maturity Trust
shall have declared a dividend or dividends which, together with all such
previous dividends, shall have the effect of distributing to stockholders of
each State Fund all of such State Fund's investment company taxable income
for the period from ______________, 199___ to and including the Exchange
Date, if any (computed without regard to any deduction for dividends paid),
and all of such State Fund's net capital gain, if any, realized for the
period from _______________, 199___ to and including the Exchange Date.
10. Termination, Postponement and Waivers.
-------------------------------------
(a) Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated and the Reorganization abandoned
at any time (whether before or after adoption thereof by the stockholders of
each State Fund) prior to the Exchange Date, or the Exchange Date may be
postponed, (i) by mutual consent of the Board of Trustees of the Limited
Maturity Trust and the Board of Directors of the Municipal Bond Fund; (ii) by
the Board of Trustees of the Limited Maturity Trust if any condition of the
Limited Maturity Trust's obligations set forth in Section 8 of this Agreement
has not been fulfilled or waived by such Board; or (iii) by the Board of
Directors of the Municipal Bond Fund if any condition of the Municipal Bond
Fund's obligations set forth in Section 9 of this Agreement has not been
fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not
been consummated by ______________, 1997, this Agreement automatically shall
terminate on that date, unless a later date is mutually agreed to by the
Board of Trustees of the Limited Maturity Trust and the Board of Directors of
the Municipal Bond Fund.
(c) In the event of termination of this Agreement pursuant to
the provisions hereof, the same shall become void and have no further effect,
and there shall not be any liability on the part of either the Limited
Maturity Trust or the Municipal Bond Fund or persons who are their trustees,
directors, officers, agents or stockholders in respect of this Agreement.
(d) At any time prior to the Exchange Date, any of the terms or
conditions of this Agreement may be waived by the Board of Trustees of the
Limited Maturity Trust or the Board of Directors of the Municipal Bond Fund,
respectively (whichever is entitled to the benefit thereof), if, in the
judgment of such Board after consultation with its counsel, such action or
waiver will not have a material adverse effect on the benefits intended under
this Agreement to the stockholders of each State Fund and Limited Maturity
Portfolio, respectively, on behalf of which such action is taken. In
addition, the Board of Trustees of the Limited Maturity Trust and the Board
of Directors of the Municipal Bond Fund have delegated to FAM the ability to
make non-material changes to the transaction if it deems it to be in the best
interests of the Limited Maturity Trust and the Municipal Bond Fund to do so.
(e) The respective representations and warranties contained in
Sections 1 and 2 of this Agreement shall expire with, and be terminated by,
the consummation of the Reorganization, and neither the Limited Maturity
Trust nor the Municipal Bond Fund nor any of their officers, directors or
trustees, agents or stockholders shall have any liability with respect to
such representations or warranties after the Exchange Date. This provision
shall not protect any officer, director or trustee, agent or stockholder of
the Limited Maturity Trust or the Municipal Bond Fund against any liability
to the entity for which that officer, director or trustee, agent or
stockholder so acts or to its stockholders, to which that officer, director
or trustee, agent or stockholder otherwise would be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties in the conduct of such office.
(f) If any order or orders of the Commission with respect to
this Agreement shall be issued prior to the Exchange Date and shall impose
any terms or conditions which are determined by action of the Board of
Trustees of the Limited Maturity Trust and the Board of Directors of the
Municipal Bond Fund to be acceptable, such terms and conditions shall be
binding as if a part of this Agreement without further vote or approval of
the stockholders of the State Funds unless such terms and conditions shall
result in a change in the method of computing the number of shares of Limited
Maturity Portfolio to be issued to the Limited Maturity Trust for
distribution to the stockholders of the State Funds in which event, unless
such terms and conditions shall have been included in the proxy solicitation
materials furnished to the stockholders of the State Funds prior to the
meetings at which the Reorganization shall have been approved, this Agreement
shall not be consummated and shall terminate unless the Limited Maturity
Trust promptly shall call a special meeting of stockholders of each State
Fund at which such conditions so imposed shall be submitted for approval.
11. Indemnification.
---------------
(a) The Limited Maturity Trust hereby agrees to indemnify and
hold the Municipal Bond Fund harmless from all loss, liability and expense
(including reasonable counsel fees and expenses in connection with the
contest of any claim) which the Municipal Bond Fund may incur or sustain by
reason of the fact that (i) the Municipal Bond Fund shall be required to pay
any corporate obligation of the Limited Maturity Trust, whether consisting of
tax deficiencies or otherwise, based upon a claim or claims against the
Limited Maturity Trust or the State Funds which were omitted or not fairly
reflected in the financial statements to be delivered to the Municipal Bond
Fund in connection with the Reorganization; (ii) any representations or
warranties made by the Limited Maturity Trust in this Agreement should prove
to be false or erroneous in any material respect; (iii) any covenant of the
Limited Maturity Trust has been breached in any material respect; or (iv) any
claim is made alleging that (a) the N-14 Registration Statement included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or (b) the Proxy Statement and Prospectus delivered to the
stockholders of the State Funds and forming a part of the N-14 Registration
Statement included any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
insofar as such claim is based on written information furnished to the
Limited Maturity Trust by the Municipal Bond Fund.
(b) The Municipal Bond Fund hereby agrees to indemnify and hold
the Limited Maturity Trust harmless from all loss, liability and expenses
(including reasonable counsel fees and expenses in connection with the
contest of any claim) which the Limited Maturity Trust may incur or sustain
by reason of the fact that (i) any representations or warranties made by the
Municipal Bond Fund in this Agreement should prove false or erroneous in any
material respect, (ii) any covenant of the Municipal Bond Fund has been
breached in any material respect, or (iii) any claim is made alleging that
(a) the N-14 Registration Statement included any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, not misleading or
(b) the Proxy Statement and Prospectus delivered to stockholders of the State
Funds and forming a part of the N-14 Registration Statement included any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except insofar as such claim is
based on written information furnished to the Municipal Bond Fund by Limited
Maturity Portfolio.
(c) In the event that any claim is made against the Municipal
Bond Fund in respect of which indemnity may be sought by the Municipal Bond
Fund from the Limited Maturity Trust under Section 11(a) of this Agreement,
or in the event that any claim is made against the Limited Maturity Trust in
respect of which indemnity may be sought by the Limited Maturity Trust from
the Municipal Bond Fund under Section 11(b) of this Agreement, then the party
seeking indemnification (the "Indemnified Party"), with reasonable promptness
and before payment of such claim, shall give written notice of such claim to
the other party (the "Indemnifying Party"). If no objection as to the
validity of the claim is made in writing to the Indemnified Party by the
Indemnifying Party within thirty (30) days after the giving of notice
hereunder, then the Indemnified Party may pay such claim and shall be
entitled to reimbursement therefor, pursuant to this Agreement. If, prior to
the termination of such thirty-day period, objection in writing as to the
validity of such claim is made to the Indemnified Party, the Indemnified
Party shall withhold payment thereof until the validity of such claim is
established (i) to the satisfaction of the Indemnifying Party, or (ii) by a
final determination of a court of competent jurisdiction, whereupon the
Indemnified Party may pay such claim and shall be entitled to reimbursement
thereof, pursuant to this Agreement, or (iii) with respect to any tax claims,
within seven (7) calendar days following the earlier of (A) an agreement
between the Limited Maturity Trust and the Municipal Bond Fund that an
indemnity amount is payable, (B) an assessment of a tax by a taxing
authority, or (c) a "determination" as defined in Section 1313(a) of the
Code. For purposes of this Section 11, the term "assessment" shall have
the same meaning as used in Chapter 63 of the Code and Treasury Regulations
thereunder, or any comparable provision under the laws of the appropriate
taxing authority. In the event of any objection by the Indemnifying Party,
the Indemnifying Party promptly shall investigate the claim, and if it is
not satisfied with the validity thereof, the Indemnifying Party shall
conduct the defense against such claim. All costs and expenses incurred by
the Indemnifying Party in connection with such investigation and defense of
such claim shall be borne by it. These indemnification provisions are in
addition to, and not in limitation of, any other rights the parties may have
under applicable law.
12. Other Matters.
-------------
(a) Pursuant to Rule 145 under the 1933 Act, and in connection
with the issuance of any shares to any person who at the time of the
Reorganization is, to its knowledge, an affiliate of a party to the
Reorganization pursuant to Rule 145(c), the Municipal Bond Fund will cause to
be affixed upon the certificate(s) issued to such person (if any) a legend as
follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT TO MERRILL LYNCH MUNICIPAL BOND FUND, INC.
(OR ITS STATUTORY SUCCESSOR) OR ITS PRINCIPAL UNDERWRITER UNLESS
(I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION
IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to the Municipal
Bond Fund's transfer agent with respect to such shares. The Limited Maturity
Trust will provide the Municipal Bond Fund on the Exchange Date with the name
of any stockholder of any State Fund who is to the knowledge of the Limited
Maturity Trust an affiliate of it on such date.
(b) All covenants, agreements, representations and warranties
made under this Agreement and any certificates delivered pursuant to this
Agreement shall be deemed to have been material and relied upon by each of
the parties, notwithstanding any investigation made by them or on their
behalf.
(c) Any notice, report or demand required or permitted by any
provision of this Agreement shall be in writing and shall be made by hand
delivery, prepaid certified mail or overnight service, addressed to the
Limited Maturity Trust or the Municipal Bond Fund, in either case at 800
Scudders Mill Road, Plainsboro, New Jersey 08536, Attn: Arthur Zeikel,
President.
(d) This Agreement supersedes all previous correspondence and
oral communications between the parties regarding the Reorganization,
constitutes the only understanding with respect to the Reorganization, may
not be changed except by a letter of agreement signed by each party and shall
be governed by and construed in accordance with the laws of the State of New
York applicable to agreements made and to be performed in said state.
(e) A copy of the Limited Maturity Trust's Declaration of Trust
is on file with the Secretary of State of The Commonwealth of Massachusetts.
The Municipal Bond Fund acknowledges that the obligations of or arising out
of this instrument are not binding upon any of the Limited Maturity Trust's
trustees, officers, employees, agents or stockholders individually, but are
binding solely upon the assets and property of the Limited Maturity Trust.
The Municipal Bond Fund further acknowledges that the assets and liabilities
of each series of the Limited Maturity Trust are separate and distinct and
that the obligations of or arising out of this instrument are binding solely
upon the assets or property of the series on whose behalf the Limited
Maturity Trust has executed this Agreement.
(f) Copies of the Articles of Incorporation, as amended, of the
Municipal Bond Fund are on file with the Department of Assessments and
Taxation of the State of Maryland and notice is hereby given that this
instrument is executed on behalf of the Directors of the Municipal Bond Fund.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MERRILL LYNCH MULTI-STATE LIMITED
MATURITY MUNICIPAL SERIES TRUST
By: ____________________________________________
Attest:
_____________________________
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
By: ____________________________________________
Attest:
_____________________________
EXHIBIT II
RATINGS OF MUNICIPAL BONDS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") MUNICIPAL BOND
RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
BAA Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
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 payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: 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
MIG1/VMIG1, MIG2/VMIG2, MIG3/VMIG3 and MIG4/VMIG4; MIG1/VMIG1 denotes "best
quality...strong protection by established cash flows"; MIG2/VMIG2 denotes
"high quality" with ample margins of protection; MIG3/VMIG3 notes are of
"favorable quality...but...lacking the undeniable strength of the preceding
grades"; MIG4/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 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 ability of
rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization structure
with moderate reliance on debt and ample asset protection; broad margins in
earning coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("STANDARD & POOR'S")
MUNICIPAL DEBT RATINGS
A Standard & Poor's municipal debt rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific
financial program. It takes into consideration the creditworthiness of
guarantors, insurers or other forms of credit enhancement on the obligation.
The debt rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the obligors
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of payment -- capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to meet its financial commitment on the obligation is extremely
strong.
AA Debt rated "AA" differs from the highest-rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A Debt rated "A" is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB Debt rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
BB Debt rated "BB", "B", "CCC", "CC" and "C" are regarded as having
B significant speculative characteristics. "BB" indicates the least
CCC degree of speculation and "C" the highest degree of speculation. While
CC such bonds will likely have some quality and protective characteristics,
C these may be outweighed by large uncertainties or major exposures to
adverse conditions.
D Debt rated "D" is in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or
the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or Minus (--): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's Commercial Paper Rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no
more than 365 days. Ratings are graded into several categories, ranging from
"A" for the highest-quality obligations to "D" for the lowest. These
categories are as follows:
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period.
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 and 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.
DESCRIPTION OF STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS
A Standard & Poor's note rating reflects the liquidity factors and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating. The following criteria will be used
in making that assessment:
Amortization schedule -- the larger the final maturity relative to
other maturities, the more likely it will be treated as a note.
Source of payment -- the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. An issue determined
to possess a very strong capacity to pay debt service is given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the
term of the notes.
SP-3 Speculative capacity to pay principal and interest.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC. ("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 operating performance of the issuer and of any
guarantor, as well as the economic and political environment that might
affect the issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.
Bonds carrying the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect
small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of
any security for a particular investor or the tax-exempt nature or taxability
of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+".
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
Plus (+) or Minus (--): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the "AAA" category.
NR Indicates that Fitch does not rate the specific issue.
CONDITIONAL A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
SUSPENDED A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
WITHDRAWN A rating will be withdrawn when an issue matures or is called or
refinanced and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.
FITCHALERT Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designated as
"Positive", indicating a potential upgrade, "Negative", for
potential downgrade, or "Evolving", where ratings may be raised
or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
Ratings Outlook: An outlook is used to describe the most likely
direction of any rating change over the intermediate term. It is described
as "Positive" or "Negative". The absence of a designation indicates a stable
outlook.
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 particular security. The
ratings ("BB" to "C") represent Fitch's assessment of the likelihood of
timely payment of principal and interest in accordance with the terms of
obligation for bond issues not in default. For defaulted bonds, the rating
("DDD" to "D") is an assessment of the ultimate recovery value through
reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any
guarantor, as well as the economic and political environment that might
affect the issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service
requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business
and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD Bonds are in default on interest and/or principal payments. Such bonds
DD are extremely speculative and should be valued on the basis of their
D ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and
"D" represents the lowest potential for recovery.
Plus (+) or Minus (--): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the "DDD," "DD" or
"D" categories.
DESCRIPTION OF FITCH INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's 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 for issues assigned "F-1+" and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate;
however, near-term adverse changes could cause these securities to be
rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
D Default. Issues assigned this rating are in actual or imminent payment
default.
LOC The symbol "LOC" indicates that the rating is based on a letter of
credit issued by a commercial bank.
EXHIBIT III
SECTIONS 86 THROUGH 98 OF CHAPTER 156B
OF THE MASSACHUSETTS GENERAL LAWS
(THE MASSACHUSETTS BUSINESS CORPORATION LAW)
SECTION 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any section
of this chapter provides that a stockholder who objects to such action shall
have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have
such right unless (1) he files with the corporation before the taking of the
vote of the shareholders on such corporate action, written objection to the
proposed action stating that he intends to demand payment for his shares if
the action is taken and (2) his shares are not voted in favor of the proposed
action.
SECTION 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF
MEETING; FORM
The notice of the meeting of stockholders at which approval of such proposed
action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to
create any rights in any stockholder receiving the same to demand payment for
his stock, and the directors may authorize the inclusion in any such notice
of a statement of opinion by the management as to the existence or non-
existence of the right of the stockholders to demand payment for their stock
on account of the proposed corporate action. The notice may be in such form
as the directors or officers calling the meeting deem advisable, but the
following form of notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in writing
from the corporation (or, in the case of a consolidation or merger, the name
of the resulting or surviving corporation shall be inserted), within twenty
days after the date of mailing to him of notice in writing that the corporate
action has become effective, payment for his shares and an appraisal of the
value thereof. Such corporation and any such stockholder shall in such cases
have the rights and duties and shall follow the procedure set forth in
sections 88 to 98, inclusive, of chapter 156B of the General Laws of
Massachusetts."
SECTION 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which
he is a stockholder has become effective. The giving of such notice shall
not be deemed to create any rights in any stockholder receiving the same to
demand payment for his stock. The notice shall be sent by registered or
certified mail, addressed to the stockholder at his last known address as it
appears in the records of the corporation.
SECTION 89. DEMAND FOR PAYMENT: TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under subsection
(e) of section eighty-two, subsection (f) of section eighty-three, or section
eighty-eight, any stockholder to whom the corporation was required to give
such notice shall demand in writing from the corporation taking such action,
or in the case of a consolidation or merger from the resulting or surviving
corporation, payment for his stock, the corporation upon which such demand is
made shall pay to him the fair value of his stock within thirty days after
the expiration of the period during which such demand may be made.
SECTION 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county
where the corporation in which such objecting stockholder held stock had or
has its principal office in the commonwealth.
SECTION 91. PARTIES TO SUIT DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties respondent
all stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill
is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares
and with whom the corporation has not reached agreement as to the value
thereof, and services of the bill shall be made upon the corporation by
subpoena with a copy of the bill annexed. The corporation shall file with
its answer a duly verified list of all such other stockholders, and such
stockholders shall thereupon be deemed to have been added as parties to the
bill. The corporation shall give notice in such form and returnable on such
date as the court shall order to each stockholder party to the bill by
registered or certified mail, addressed to the last known address of such
stockholder as shown in the records of the corporation, and the court may
order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-
nine shall be deemed to have consented to the provisions of this section
relating to notice, and the giving of notice by the corporation to any such
stockholder in compliance with the order of the court shall be a sufficient
service of process on him. Failure to give notice to any stockholder making
demand shall not invalidate the proceedings as to other stockholders to whom
notice was properly given, and the court may at any time before the entry of
a final decree make supplementary orders of notice.
SECTION 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment
of such value, together with interest, if any, as hereinafter provided, to
the stockholders entitled thereto upon the transfer by them to the
corporation of the certificates representing such stock if certificated or,
if uncertificated, upon receipt of an instruction transferring such stock to
the corporation. For this purpose, the value of the shares shall be
determined as of the day preceding the date of the vote approving the
proposed corporate action and shall be exclusive of any element of value
arising from the expectation or accomplishment of the proposed corporate
action.
SECTION 93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report
the same to the court, all in accordance with the usual practice in suits in
equity in the superior court.
SECTION 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit their
certificates of stock to the corporation for notation thereon of the pendency
of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SECTION 95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as
provided in this chapter shall be paid by the corporation. Interest shall
be paid upon any award from the date of the vote approving the proposed
corporate action, and the court may on application of any interested party
determine the amount of interest to be paid in the case of any stockholder.
SECTION 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled
to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote approving the proposed corporate
action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting
or surviving corporation, deliver to it a written withdrawal of his
objections to and an acceptance of such corporate action.
Notwithstanding the provision of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SECTION 97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or
securities.
SECTION 98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground
that such corporate action will be or is illegal or fraudulent as to him.
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Proxy Statement and Prospectus of Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust (the "Trust") and
Merrill Lynch Municipal Bond Fund, Inc. (the "Municipal Bond Fund") dated
, 1997 (the "Proxy Statement and Prospectus"), which has been filed
with the Securities and Exchange Commission and can be obtained, without
charge, by calling at 1-800-___-____ or by writing to Municipal Bond Fund at
the above address. This Statement of Additional Information has been
incorporated by reference into the Proxy Statement and Prospectus.
Further information about Limited Maturity Portfolio is contained in and
incorporated by reference to the Municipal Bond Fund's Prospectus, dated
October ___, 1997 and Municipal Bond Fund's Statement of Additional
Information, dated October ___, 1997 which are incorporated by reference into
this Statement of Additional Information. The Municipal Bond Fund's
Statement of Additional Information accompanies this Statement of Additional
Information.
Further information about each of the State Funds is contained in and
incorporated by reference to the Trust's Prospectus, dated November 27, 1996,
and the Trust's Statement of Additional Information, dated November 27, 1996,
which are incorporated by reference into this Statement of Additional
Information. The Trust's Statement of Additional Information accompanies
this Statement of Additional Information.
The Commission maintains a web site (http://www.sec.gov) that contains
material incorporated by reference and other information.
The date of this Statement of Additional Information is , 1997
TABLE OF CONTENTS
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Limited Maturity Portfolio . . . . . . . . . . . . . . . . . . . . . F-1
The State Funds . . . . . . . . . . . . . . . . . . . . . . . . . . F-_
GENERAL INFORMATION
The stockholders of the Trust holding shares of Merrill Lynch Arizona
Limited Maturity Municipal Bond Fund, Merrill Lynch Massachusetts Limited
Maturity Municipal Bond Fund, Merrill Lynch Michigan Limited Maturity
Municipal Bond Fund, Merrill Lynch New Jersey Limited Maturity Municipal Bond
Fund, Merrill Lynch New York Limited Maturity Municipal Bond Fund and Merrill
Lynch Pennsylvania Limited Maturity Municipal Bond Fund (collectively
referred to herein as the "State Funds") are being asked to approve the
acquisition of substantially all of the assets of the State Funds, and the
assumption of substantially all of the liabilities of the State Funds by
Limited Maturity Portfolio (the "Limited Maturity Portfolio"), a series of
the Municipal Bond Fund in exchange solely for an equal aggregate value of
shares of Limited Maturity Portfolio and the subsequent termination of the
State Funds as series of the Trust (the "Reorganization"). The Municipal
Bond Fund is an open-end management investment company organized as a
Maryland corporation. A Special Meeting of Stockholders of the Trust to
consider the Reorganization will be held at 800 Scudders Mill Road,
Plainsboro, New Jersey, on Tuesday, December 9, 1997, at 9:00 a.m., New York
time.
For detailed information about the Reorganization, stockholders of the
State Funds should refer to the Proxy Statement and Prospectus. For further
information about Limited Maturity Portfolio, State Fund stockholders should
refer to Municipal Bond Fund's Statement of Additional Information, dated
October ___, 1997, which accompanies this Statement of Additional Information
and is incorporated by reference herein. For further information about the
State Funds, stockholders should refer to the Statement of Additional
Information of the Trust, dated November 27, 1996, which accompanies this
Statement of Additional Information and is incorporated by reference herein.
FINANCIAL STATEMENTS
In accordance with Part B, Item 14(a) of Form N-14, pro forma financial
statements reflecting consummation of the Reorganization have not been
prepared since the aggregate net asset value of the State Funds does not
exceed 10% of Limited Maturity Portfolio's net asset value, as of
_______________, 1997. Financial statements for each of the State Funds and
Limited Maturity Portfolio individually are set forth below.
LIMITED MATURITY PORTFOLIO
Audited financial statements and accompanying notes for the year ended
June 30, 1997, and the independent auditors' report thereon, dated August 15,
1997, of Limited Maturity Portfolio are contained in the Municipal Bond
Fund's Statement of Additional Information, dated October , 1997, which
accompanies this Statement of Additional Information and is incorporated by
reference herein.
STATE FUNDS
Audited financial statements and accompanying notes for the year ended
July 31, 1997, and the independent auditor's report thereon, dated
October , 1997, of the Trust (including statements for each State
Fund) are contained in the Trust's Statement of Additional Information, dated
November , 1997, which accompanies this Statement of Additional
Information and is incorporated by reference herein.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VI of the Registrant's Articles of Incorporation, Article VI of the
Registrant's By-Laws and the Registrant's Investment Advisory Agreement with
Fund Asset Management, Inc. (now known as Fund Asset Management, L.P.; the
"Investment Adviser") provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be provided to directors,
officers and controlling persons of each Fund, pursuant to the foregoing
provisions or otherwise, each Fund has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and, therefore, is
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by a Fund of expenses incurred or paid by
a director, officer or controlling person of the Registrant in connection
with any successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant, unless in the opinion of its
counsel the matter has been settled by controlling precedent, will submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Reference is made to (i) Section Six of the Purchase Agreement relating
to the Registrant's Common Stock, a form of which previously was filed as an
exhibit to the Common Stock Registration Statement (as defined below), and
(ii) Section Seven of the Purchase Agreement relating to the Registrant's
AMPS, a form of which previously was filed as an exhibit to the AMPS
Registration Statement (as defined below), for provisions relating to the
indemnification of the underwriter.
ITEM 16. EXHIBITS.
(1)(a) -- Articles of Incorporation (incorporated by reference to Exhibit
1 to Post-Effective Amendment No. 4 to Registrant's Registration
Statement on Form N-1, filed October 31, 1980 ("Post-Effective
Amendment No. 4")).
(1)(b) -- Articles of Amendment (incorporated by reference to Exhibit 1 to
Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A, filed October 12, 1988 ("Post-Effective
Amendment No. 13")).
(1)(c) -- Articles Supplementary to the Articles of Incorporation
increasing the authorized capital stock of the Insured Portfolio
(incorporated by reference to Exhibit 1(c) to Post-Effective
Amendment No. 15 to Registrant's Registration Statement on Form
N-1A, filed October 29, 1990).
(1)(d) -- Articles Supplementary to the Articles of Incorporation
establishing Class B Common Stock of Limited Maturity Portfolio
(incorporated by reference to Exhibit 1(d) to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on Form
N-1A, filed September 1, 1992).
(2) -- By-Laws of the Registrant (incorporated by reference to Exhibit 2
to Post-Effective Amendment No. 13).
(3) -- Not applicable.
(4) -- Form of Agreement and Plan of Reorganization between the
Registrant and Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust(a).
(5) -- Specimen certificates for Class A shares of Limited Maturity
Portfolio Series Common Stock of Registrant (incorporated by
reference to Exhibit 4 to Post-Effective Amendment No. 4).
(6) -- Advisory Agreement between the Registrant and Fund Asset
Management, Inc. (incorporated by reference to Exhibit 5 to
Post-Effective Amendment No. 4).
(7)(a) -- Form of Amended Class A Shares Distribution Agreement between
the Registrant and Merrill Lynch Funds Distributor, Inc.
(including Form of Selected Dealers Agreement) (incorporated by
reference to Exhibit 6 to Post-Effective Amendment No. 20 to the
Registrant's Registration Statement on Form N-1A, filed October
31, 1995 ("Post-Effective Amendment No. 20")).
(7)(b) -- Form of Class B Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc.(including
Form of Selected Dealers Agreement) (incorporated by reference
to Exhibit 6 to Post-Effective Amendment No. 20).
(7)(c) -- Form of Class C Shares Distribution Agreement between Registrant
and Merrill Lynch Funds Distributor, Inc. (incorporated by
reference to Exhibit 6 to Post-Effective Amendment No. 20).
(7)(d) -- Form of Class D Shares Distribution Agreement between Registrant
and Merrill Lynch Funds Distributor, Inc. (incorporated by
reference to Exhibit 6 to Post-Effective Amendment No. 20).
(8) -- None.
(9) -- Custodian Agreement between the Registrant and The Bank of New
York (incorporated by reference to Exhibit 8 to Post-Effective
amendment No. 13).
(10)(a) -- Amended and Restated Class B Shares Distribution Plan of
Registrant (including Class B Shares Distribution Plan Sub-
Agreement of the Registrant) (incorporated by reference to
Exhibit 15 to Post-Effective Amendment No. 20).
(10)(b) -- Form of Class C Shares Distribution Plan of Registrant
(including Class C Shares Distribution Plan Sub-Agreement)
(incorporated by reference to Exhibit 15 to Post-Effective
Amendment No. 20).
(10)(c) -- Form of Class D Shares Distribution Plan of Registrant
(including Class D Shares Distribution Plan Sub-Agreement)
(incorporated by reference to Exhibit 15 to Post-Effective
Amendment No. 20).
(11) -- Opinion and Consent of Rogers & Wells, counsel for the
Registrant(b).
(12) -- Private Letter Ruling from the Internal Revenue Service(b).
(13) -- Not applicable.
(14) -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant(b).
(15) -- Not applicable.
(16) -- Power of Attorney (Included on the signature page of this
Registration Statement).
(17)(a) -- Declaration pursuant to Rule 24f-2 under the Investment Company
Act of 1940 of the Registrant (incorporated by reference to
Registrant's Requisition Statement on Form N-1, filed September
16, 1977).
(17)(b) -- Prospectus dated (October ___, 1997,) and Statement of
Additional Information dated (October ___, 1997,) of the
Registrant (b).
(17)(c) -- Prospectus dated ___________, 1997, and Statement of Additional
Information dated __________, 1997, of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust (b).
_______________
(a) Included in Exhibit I to the Proxy Statement Prospectus contained in
this Registration Statement.
(b) To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The Registrant undertakes to suspend offering of the shares of
Common Stock covered hereby until it amends its Prospectus contained herein
if (1) subsequent to the effective date of this Registration Statement, its
net asset value per share of Common Stock declines more than 10 percent from
its net asset value per share of Common Stock as of the effective date of
this Registration Statement, or (2) its net asset value per share of Common
Stock increases to an amount greater than its net proceeds as stated in the
Prospectus contained herein.
(b) The Registrant undertakes that:
(1) For the purpose of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to
Rule 497(h) under the Securities Act shall be deemed to be a part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the Township of Plainsboro
and State of New Jersey, on the 6th day of October, 1997.
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
(Registrant)
/S/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn, Executive Vice President)
Each person whose signature appears below hereby authorizes Arthur
Zeikel, Terry K. Glenn and Gerald M. Richard, or any of them, as
attorney-in-fact, to sign on his or her behalf, individually and in each
capacity stated below, any amendments to this Registration Statement
(including post-effective amendments) and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
President (Principal Executive October 6, 1997
/S/ ARTHUR ZEIKEL Officer) and Director
- -----------------------------------
(Arthur Zeikel)
Treasurer (Principal Financial October 6, 1997
/S/ GERALD M. RICHARD and Accounting Officer)
- -----------------------------------
(Gerald M. Richard)
/S/ RONALD W. FORBES Director October 6, 1997
- -----------------------------------
(Ronald W. Forbes)
/S/ CYNTHIA MONTGOMERY Director October 6, 1997
- -----------------------------------
(Cynthia A. Montgomery)
/S/ CHARLES C. REILLY Director October 6, 1997
- -----------------------------------
(Charles C. Reilly)
/S/ KEVIN A. RYAN Director October 6, 1997
- -----------------------------------
(Kevin A. Ryan)
/S/ RICHARD R. WEST Director October 6, 1997
- -----------------------------------
(Richard R. West)
</TABLE>
