<PAGE>
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 JANUARY 5, 1998
TO THE STOCKHOLDERS OF MERRILL LYNCH MULTI-STATELIMITED 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 Monday,
January 5, 1998 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 (the "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 88 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 superseded by a rule of the
Securities and Exchange Commission, in the event that any stockholder elects
to exercise such right.
<PAGE>
The Board of Trustees of the Trust has fixed the close of business on
November 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 December 22, 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: November 24, 1997
<PAGE>
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 MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
JANUARY 5, 1998
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 (the "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, corporate income or 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 7,
1997 (the "Municipal Bond Fund Prospectus") accompanies this Proxy Statement
and Prospectus and is incorporated herein by reference. The Annual Report to
Stockholders of the Municipal Bond Fund for the fiscal year ended June 30,
1997 also accompanies this Proxy Statement and Prospectus. A statement of
additional information relating to Municipal Bond Fund, dated October 7, 1997
(the "Municipal Bond Fund Statement"), a prospectus relating to the Trust,
dated November 27, 1996 (the "Limited Maturity Trust Prospectus") 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 documents may be
obtained, without charge, by writing either Municipal Bond Fund or the Trust
at the address above, or by calling 1-800-456-4587, ext. 123.
--------------
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 pro forma combined 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 November 24, 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 regarding the Municipal Bond Fund and the Trust.
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 NOVEMBER 24, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION............................................................. 3
THE REORGANIZATION....................................................... 3
SUMMARY.................................................................. 3
RISK FACTORS AND SPECIAL CONSIDERATIONS.................................. 16
Portfolio Management................................................... 16
Maturity............................................................... 16
Tax Considerations..................................................... 16
COMPARISON OF THE STATE FUNDS AND LIMITED MATURITY PORTFOLIO............. 17
Financial Highlights................................................... 17
Investment Objective and Policies...................................... 25
Description of Municipal Bonds......................................... 28
Other Investment Policies.............................................. 28
Information Regarding Options and Futures Transactions................. 29
Investment Restrictions................................................ 31
Portfolio Composition.................................................. 32
Portfolio Transactions................................................. 34
Portfolio Turnover..................................................... 34
Additional Information................................................. 35
Management............................................................. 36
Purchase of Shares..................................................... 37
Redemption of Shares................................................... 37
Voting Rights.......................................................... 37
Stockholder Inquiries.................................................. 38
Dividends and Distributions............................................ 38
Taxation of Limited Maturity Portfolio, State Funds and Their
Stockholders.......................................................... 38
State of Organization.................................................. 40
AGREEMENT AND PLAN OF REORGANIZATION..................................... 41
General................................................................ 41
Procedure.............................................................. 42
Terms of the Agreement and Plan of Reorganization...................... 42
Potential Benefits to Stockholders of the State Funds as a Result of
the Reorganization.................................................... 43
Tax Consequences of the Reorganization................................. 45
Appraisal Rights....................................................... 46
Capitalization......................................................... 47
INFORMATION CONCERNING THE SPECIAL MEETING............................... 48
Date, Time and Place of Meeting........................................ 48
Solicitation, Revocation and Use of Proxies............................ 48
Record Date and Outstanding Shares..................................... 48
Security Ownership of Certain Beneficial Owners and Management of the
State Funds and Limited Maturity Portfolio............................ 49
Voting Rights and Required Vote........................................ 49
ADDITIONAL INFORMATION................................................... 50
LEGAL PROCEEDINGS........................................................ 51
LEGAL OPINIONS........................................................... 51
EXPERTS.................................................................. 51
STOCKHOLDER PROPOSALS.................................................... 51
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
</TABLE>
2
<PAGE>
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 January 5, 1998, 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 28, 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>
PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN
FUND OF REORGANIZATION
-------------------------------------------
<S> <C>
Arizona Fund* Yes
Massachusetts Fund* Yes
Michigan Fund* Yes
New Jersey Fund* Yes
New York Fund* Yes
Pennsylvania Fund* Yes
</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
3
<PAGE>
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 1940, as amended (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.
4
<PAGE>
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B STOCKHOLDERS OF THE STATE FUNDS,
LIMITED MATURITY PORTFOLIO
AND THE COMBINED ENTITY FOR THE YEAR ENDED JULY 31, 1997 (UNAUDITED)
<TABLE>
<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> <C> <C> <C> <C> <C> <C>
STOCKHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases
(as a percentage of of-
fering price).......... 1.00%(c) 1.00%(c) 1.00%(c) 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(d) None(d) None(d) 1.0% during 1.0% during 1.0% during
the first the first the first
year year, year,
decreasing decreasing decreasing
to 0.0% to 0.0% to 0.0%
after the after the after the
first year(e) first year(e) first
year(e)
Exchange Fee........... None None None None None None
</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 and cease being subject to distribution fees
and are subject to lower account maintenance fees. See "The
Reorganization--Comparison of the State Funds and Limited Maturity
Portfolio--Purchase of Shares."
(c) 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."
(d) Class A shares are not subject to a contingent deferred sales charge
("CDSC"), except that certain purchases of $1,000,000 or more which are
not subject to an initial sales charge may instead be subject to a CDSC of
0.20% of amounts redeemed within the first year after purchase. Such CDSC
may be waived in connection with certain fee-based programs.
(e) The CDSC may be modified in connection with certain fee-based programs.
5
<PAGE>
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B STOCKHOLDERS OF THE STATE FUNDS,
LIMITED
MATURITY PORTFOLIO AND THE COMBINED ENTITY FOR THE YEAR ENDED JULY 31, 1997
(UNAUDITED)--(CONTINUED)
<TABLE>
<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>
ANNUAL FUND OPERATING
EXPENSES (AS A PERCENT-
AGE OF AVERAGE NET AS-
SETS):
Investment Advisory
Fees(c)................ 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.33% 0.33%
12b-1 fees(d):
Account Maintenance
Fees................... None None None None None None None None
Distribution Fees...... None None None None None None None None
Other Expenses.......... 2.86% 2.17% 3.15% 1.30% 0.81% 1.40% 0.08% 0.08%
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating
Expenses(e)............. 3.21% 2.52% 3.50% 1.65% 1.16% 1.75% 0.41% 0.41%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES (b)
-----------------------------------------------------------------------------------
ACTUAL
-------------------------------------------------------------------------
LIMITED PRO FORMA
ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK PENNSYLVANIA MATURITY COMBINED
FUND FUND FUND FUND FUND FUND PORTFOLIO (f)
------- ------------- -------- ---------- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
Fees(c)................. 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.33% 0.33%
12b-1 fees(d):
Account Maintenance
Fees................... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Distribution Fees...... 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses.......... 2.86% 2.14% 3.16% 1.30% 0.82% 1.41% 0.08% 0.08%
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating
Expenses(e)............. 3.56% 2.84% 3.86% 2.00% 1.52% 2.11% 0.76% 0.76%
==== ==== ==== ==== ==== ==== ==== ====
</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 and cease being subject to distribution fees
and are subject to lower account maintenance fees.
(c) See "The Reorganization--Comparison of the State Funds and Limited
Maturity Portfolio--Management."
(d) See "The Reorganization--Comparison of the State Funds and Limited
Maturity Portfolio--Purchase of Shares."
(e) Currently, Fund Asset Management, L.P. ("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 for the year
ended July 31, 1997:
<TABLE>
<CAPTION>
ADVISORY FEES
WAIVED AND
EXPENSES TOTAL OPERATING EXPENSES AFTER
REIMBURSED WAIVER AND REIMBURSEMENT
--------------- --------------------------------
CLASS A CLASS B CLASS A CLASS B
------- ------- --------------- ---------------
<S> <C> <C> <C> <C>
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>
(f) Holders of Class B shares of the State Funds will receive Class D shares
of Limited Maturity Portfolio in the Reorganization and will be subject to
the expenses relating to Class D shares. See "Pro Forma Fee Table for
Class C and Class D Stockholders" on page 9.
6
<PAGE>
CUMULATIVE EXPENSES PAID ON CLASS A AND CLASS B SHARES FOR THE PERIODS
INDICATED:
EXAMPLE:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------- -------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 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 A shares only)
and assuming (1) the
Total Fund Operating
Expenses set forth above
for the relevant
portfolio, (2) a 5%
annual return throughout
the periods and (3)
redemption at the end of
the period (including
any applicable CDSC for
Class B shares):
Arizona Fund........... $42 $108 $176 $358 $46 $109 $185 $383
Massachusetts Fund..... 35 88 143 293 39 88 150 317
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 23 33 61 18 24 42 94
Combined Entity+....... 14 23 33 61 18 24 42 94
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 23 33 61 8 24 42 94
Combined Entity+....... 14 23 33 61 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).
7
<PAGE>
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D STOCKHOLDERS OF THE STATE FUNDS,
LIMITED MATURITY PORTFOLIO
AND THE COMBINED ENTITY FOR THE YEAR ENDED JULY 31, 1997 (UNAUDITED)
<TABLE>
<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> <C> <C> <C> <C> <C> <C>
STOCKHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price)........ None None None 1.00%(a) 1.00%(a) 1.00%(a)
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, 1.0% for 1.0% for 1.0% for
whichever is lower).... one year(c) one year(c) one year(c) None(b) None(b) None(b)
Exchange Fee........... None None None None None None
</TABLE>
- ----
(a) 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."
(b) 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.
(c) The CDSC may be waived in connection with certain fee-based programs.
* 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."
8
<PAGE>
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D STOCKHOLDERS OF THE STATE FUNDS,
LIMITED
MATURITY PORTFOLIO AND THE COMBINED ENTITY FOR THE YEAR ENDED JULY 31, 1997
(UNAUDITED)--(CONTINUED)
<TABLE>
<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(d)
------- ------------- -------- ---------- -------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING
EXPENSES (AS A PERCENT-
AGE OF AVERAGE NET AS-
SETS):
Investment Advisory
Fees(a)................ 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.33% 0.33%
12b-1 fees(b):
Account Maintenance
Fees................... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Distribution Fees...... 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses......... 2.65% 1.99% 3.11% 1.10% 0.62% 1.32% 0.08% 0.08%
----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses(c)............ 3.35% 2.69% 3.81% 1.80% 1.32% 2.02% 0.76% 0.76%
===== ===== ===== ===== ===== ===== ===== =====
<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>
ANNUAL FUND OPERATING
EXPENSES (AS A PERCENT-
AGE OF AVERAGE NET AS-
SETS):
Investment Advisory
Fees(a)................ 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.33% 0.33%
12b-1 fees(b):
Account Maintenance
Fees................... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Distribution Fees...... None None None None None None None None
Other Expenses......... 2.84% 2.17% 3.03% 1.33% 0.81% 1.40% 0.08% 0.08%
----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating
Expenses(c)............ 3.29% 2.62% 3.48% 1.78% 1.26% 1.85% 0.51% 0.51%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ----
(a) See "The Reorganization--Comparison of the State Funds and Limited
Maturity Portfolio--Management."
(b) See "The Reorganization--Comparison of the State Funds and Limited
Maturity Portfolio--Purchase of Shares."
(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 for the year ended July 31, 1997:
<TABLE>
<CAPTION>
ADVISORY FEES WAIVED
AND EXPENSES TOTAL OPERATING EXPENSES
REIMBURSED AFTER WAIVER AND REIMBURSEMENT
---------------------- --------------------------------
CLASS C CLASS D CLASS C CLASS D
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
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% 0.74% 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>
(d) Holders of Class C shares of the State Funds will receive Class D shares
of Limited Maturity Portfolio in the Reorganization and will be subject to
the expenses relating to Class D shares. See "Class D Shares."
9
<PAGE>
CUMULATIVE EXPENSES PAID ON CLASS C AND CLASS D SHARES FOR THE PERIODS
INDICATED:
EXAMPLE:
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
------------------------------- -------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 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 throughout
the periods and (3)
redemption at the end of
the period (including
any applicable CDSC for
Class C shares):
Arizona Fund........... $44 $103 $175 $364 $43 $110 $180 $365
Massachusetts Fund..... 37 84 142 302 36 91 148 302
Michigan Fund.......... 48 116 196 404 45 116 189 382
New Jersey Fund........ 28 57 97 212 28 65 105 217
New York Fund.......... 23 42 72 159 23 50 78 161
Pennsylvania Fund...... 31 63 109 235 29 68 109 225
Limited Maturity
Portfolio.............. 18 24 42 94 15 26 38 73
Combined Entity+....... 18 24 42 94 15 26 38 73
An investor would pay
the following expenses
on the same $1,000
investment assuming no
redemption at the end of
the period:
Arizona Fund........... $34 $103 $175 $364 $43 $110 $180 $365
Massachusetts Fund..... 27 84 142 302 36 91 148 302
Michigan Fund.......... 38 116 196 404 45 116 189 382
New Jersey Fund........ 18 57 97 212 28 65 105 217
New York Fund.......... 13 42 72 159 23 50 78 161
Pennsylvania Fund...... 21 63 109 235 29 68 109 225
Limited Maturity
Portfolio.............. 8 24 42 94 15 26 38 73
Combined Entity+....... 8 24 42 94 15 26 38 73
</TABLE>
- -----
+ Assuming the Reorganization had taken place on August 1, 1996 (the first day
of the year ended July 31, 1997).
10
<PAGE>
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 July 31,
1997, the State Funds had net assets as
follows:
<TABLE>
<S> <C>
Arizona Fund....... $ 3,357,395
Massachusetts
Fund.............. $ 5,135,751
Michigan Fund...... $ 4,251,345
New Jersey Fund.... $ 6,322,601
New York Fund...... $14,565,335
Pennsylvania Fund.. $ 7,738,657
</TABLE>
BUSINESS OF MUNICIPAL BOND
FUND Municipal Bond Fund was incorporated under the
laws 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 July 31, 1997, the three portfolios of
Municipal Bond Fund had aggregate net assets of
$4,031,606,977; Limited Maturity Portfolio had
net assets of $413,877,781.
COMPARISON OF THE STATE
FUNDS AND LIMITED MATURITY
PORTFOLIO
Investment Objectives. 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 property taxes and corporate income or
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
11
<PAGE>
income taxes of the designated state and, where
applicable, state intangible personal property
taxes, and corporate income or 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.
<TABLE>
<CAPTION>
ADVISORY FEE
RATE OF
AGGREGATE OF AVERAGE DAILY NET LIMITED MATURITY
ASSETS OF THE THREE COMBINED PORTFOLIOS PORTFOLIO
--------------------------------------- ----------------
<S> <C>
Not exceeding $250 million................ 0.40 %
In excess of $250 million but not exceed-
ing $400 million......................... 0.375
In excess of $400 million but not exceed-
ing $550 million......................... 0.35
In excess of $550 million but not exceed-
ing $1.5 billion......................... 0.325
In excess of $1.5 billion................. 0.325
</TABLE>
12
<PAGE>
See "The Reorganization--Summary--Pro Forma Fee
Tables" and "--Comparison of the State Funds
and Limited Maturity Portfolio--Management."
As of October 31, 1997, the three portfolios of
Municipal Bond Fund had aggregate net assets of
$3,934,278,239; Limited Maturity Portfolio had
net assets of $398,404,439. At this asset level
the advisory fee rate of Limited Maturity
Portfolio would be 0.33%.
Class Structure. Like each of the State Funds,
Limited Maturity Portfolio offers four classes
of shares under the Merrill Lynch Select
PricingSM 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
for Class A shares was 0.41% for Limited
Maturity Portfolio and for each of the State
Funds was as set forth below:
<TABLE>
<CAPTION>
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
-------------------- -----------------------
<S> <C> <C>
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%
</TABLE>
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 Class A shares for the combined entity on a
pro forma basis would have been 0.41%.
The above ratios would differ for Class B,
Class C and Class D shares as a result of class
specific distribution and account maintenance
expenditures. 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
13
<PAGE>
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
substantially the same. 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."
State of Organization. The Trust is organized
as a business trust under the laws of the
Commonwealth of Massachusetts and the Municipal
Bond Fund is organized as a corporation under
the laws of the State of Maryland. See "The
Reorganization--Comparison of the State Funds
and Limited Maturity Portfolio--State of
Organization" for a summary of certain
differences between the Trust's Declaration of
Trust, By-laws and Massachusetts law and the
Municipal Bond Fund's Articles of
Incorporation, By-laws and Maryland law.
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
14
<PAGE>
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 and will
terminate as a series of the Trust.
After the Reorganization, the distributions
received 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.
Currently, the portion of a State Fund's exempt
interest dividends paid from interest received
by the State Fund from municipal bonds of the
designated state is also exempt from personal
income tax in the designated state and, where
applicable, corporate income or local personal
income taxes. Currently, shares of a State Fund
may also be exempt from state intangible
personal property tax in the designated state.
15
<PAGE>
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.
TAX CONSIDERATIONS
The distributions to stockholders of Limited Maturity Portfolio are, and
after the Reorganization will be, exempt from Federal income tax but not, to
any significant degree, from personal income tax at the state level. The
distributions to stockholders of the State Funds, however, are currently
exempt from Federal income taxes and personal income taxes imposed by the
designated state (and, in certain instances, corporate income or local
personal income taxes) and may also provide exemption of State Fund shares
from state intangible personal property taxes. See "Comparison of the State
Funds and Limited Maturity Portfolio--Taxation of Limited Maturity Portfolio,
State Funds and Their Stockholders" and "Agreement and Plan of
Reorganization--Tax Consequences of the Reorganization."
Stockholders should consult their tax advisers regarding the effect of the
Reorganization on their investment.
16
<PAGE>
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. 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,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Asset Value:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of year............ $ 9.91 $ 9.92 $ 9.87 $ 10.01 $ 9.91 $ 9.75 $ 9.71 $ 9.73 $ 9.75 $ 9.83
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment income--net.. .39 .38 .38 .37 .41 .50 .57 .60 .58 .53
Realized and unrealized
gain (loss) on invest-
ments--net.............. .04 (.01) .05 (.14) .10 .16 .04 (.02) (.02) (.07)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. .43 .37 .43 .23 .51 .66 .61 .58 .56 .46
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and dis-
tributions:
Investment income--
net.................... (.39) (.38) (.38) (.37) (.41) (.50) (.57) (.60) (.58) (.53)
Realized gain on in-
vestments--net......... (.02) -- -- -- -- -- -- -- -- (.01)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and dis-
tributions: (.41) (.38) (.38) (.37) (.41) (.50) (.57) (.60) (.58) (.54)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year.................... $ 9.93 $ 9.91 $ 9.92 $ 9.87 $ 10.01 $ 9.91 $ 9.75 $ 9.71 $ 9.73 $ 9.75
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RE-
TURN:*
Based on net asset value
per share............... 4.40% 3.75% 4.53% 2.30% 5.28% 6.93% 6.45% 6.16% 5.96% 4.83%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ .39% .44% .41% .40% .41% .40% .40% .40% .41% .40%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Investment income--net.. 3.93% 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).......... $343,641 $417,097 $536,474 $790,142 $846,736 $613,407 $350,549 $352,005 $385,794 $567,158
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover...... 61.90% 88.32% 37.33% 45.67% 65.43% 96.32% 93.06% 106.44% 228.78% 146.01%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- ----
* Total investment returns exclude the effect of sales loads.
17
<PAGE>
<TABLE>
<CAPTION>
LIMITED MATURITY PORTFOLIO
------------------------------------------------------------------------------------------------------
CLASS B CLASS C CLASS D
---------------------------------------------- ------------------------- --------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
NOV. 2, FOR THE YEAR OCT. 21, FOR THE YEAR OCT. 21,
FOR THE YEAR ENDED JUNE 30, 1992+ TO ENDED JUNE 30, 1994+ TO ENDED JUNE 30, 1994+ TO
------------------------------------ JUNE 30, --------------- JUNE 30, ---------------- JUNE 30,
1997 1996 1995 1994 1993 1997 1996 1995 1997 1996 1995
------- ------- -------- -------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Asset Value:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value, begin-
ning of period......... $ 9.91 $ 9.92 $ 9.87 $ 10.01 $ 9.93 $ 9.88 $ 9.92 $ 9.83 $ 9.91 $ 9.93 $ 9.83
------- ------- -------- -------- ------- ------ ------- ------ ------- ------- -------
Investment income--net.. .36 .35 .35 .33 .24 .35 .34 .25 .38 .37 .26
Realized and unrealized
gain (loss) on
investments--net....... .05 (.01) .05 (.14) .08 .05 (.04) .09 .05 (.02) .10
------- ------- -------- -------- ------- ------ ------- ------ ------- ------- -------
Total from investment
operations............. .41 .34 .40 .19 .32 .40 .30 .34 .43 .35 .36
------- ------- -------- -------- ------- ------ ------- ------ ------- ------- -------
Less dividends and dis-
tributions:
Investment income--
net................... (.36) (.35) (.35) (.33) (.24) (.35) (.34) (.25) (.38) (.37) (.26)
Realized gain on in-
vestment--net......... (.02) -- -- -- -- (.02) -- -- (.02) -- --
------- ------- -------- -------- ------- ------ ------- ------ ------- ------- -------
Total dividends and dis-
tributions............. (.38) (.35) (.35) (.33) (.24) (.37) (.34) (.25) (.40) (.37) (.26)
------- ------- -------- -------- ------- ------ ------- ------ ------- ------- -------
Net asset value, end of
period................. $ 9.94 $ 9.91 $ 9.92 $ 9.87 $ 10.01 $ 9.91 $ 9.88 $ 9.92 $ 9.94 $ 9.91 $ 9.93
======= ======= ======== ======== ======= ====== ======= ====== ======= ======= =======
TOTAL INVESTMENT RE-
TURN:**
Based on net asset value
per share.............. 4.13% 3.37% 4.14% 1.98% 3.26%# 4.11% 2.97% 3.52%# 4.40% 3.55% 3.73%#
======= ======= ======== ======== ======= ====== ======= ====== ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ .75% .80% .78% .76% .76%* .75% .80% .70%* .48% .54% .53%*
======= ======= ======== ======== ======= ====== ======= ====== ======= ======= =======
Investment income--net.. 3.58% 3.46% 3.50% 3.33% 3.60%* 3.57% 3.41% 3.61%* 3.84% 3.71% 3.78%*
======= ======= ======== ======== ======= ====== ======= ====== ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of pe-
riod (in thousands).... $54,275 $71,075 $129,581 $145,534 $95,179 $ 108 $ 94 $3,965 $20,383 $15,886 $11,258
======= ======= ======== ======== ======= ====== ======= ====== ======= ======= =======
Portfolio turnover...... 61.90% 88.32% 37.33% 45.67% 65.43% 61.90% 88.32% 37.33% 61.90% 88.32% 37.33%
======= ======= ======== ======== ======= ====== ======= ====== ======= ======= =======
</TABLE>
- ------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
18
<PAGE>
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 Trust's Annual Report to Stockholders for the fiscal year ended July
31, 1997. 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
-------------------------------- -------------------------------- --------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
FOR THE YEAR ENDED NOV. 26, FOR THE YEAR ENDED NOV. 26, FOR THE YEAR OCT. 21,
JULY 31, 1993+ TO JULY 31, 1993+ TO ENDED JULY 31, 1994+ TO
---------------------- JULY 31, ---------------------- JULY 31, ---------------- JULY 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------- ------- --------
<S> <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.......... $10.08 $10.17 $ 9.97 $10.00 $10.08 $10.16 $ 9.97 $10.00 $ 10.08 $ 10.17 $ 9.89
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Investment
income-net...... .37 .41 .43 .23 .33 .37 .39 .20 .35 .37 .29
Realized and
unrealized gain
(loss) on
investments-
net............. .09 (.09) .20 (.03) .09 (.08) .19 (.03) .10 (.09) .28
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Total from
investment
operations...... .46 .32 .63 .20 .42 .29 .58 .17 .45 .28 .57
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Less dividends
from investment
income-net...... (.37) (.41) (.43) (.23) (.33) (.37) (.39) (.20) (.35) (.37) (.29)
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Net asset value,
end of period... $10.17 $10.08 $10.17 $ 9.97 $10.17 $10.08 $10.16 $ 9.97 $ 10.18 $ 10.08 $10.17
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
TOTAL INVESTMENT
RETURN: **
Based on net
asset value per
share........... 4.62% 3.16% 6.47% 2.02%# 4.25% 2.88% 5.99% 1.78%# 4.55% 2.78% 5.90%#
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursements.. .94% .74% .35% .02%* 1.30% 1.09% .72% .38%* 1.11% 1.03% 1.05%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
Expenses........ 3.21% 2.27% 2.05% 1.82%* 3.56% 2.61% 2.44% 2.18%* 3.35% 2.80% 2.79%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
Investment
income-net...... 3.64% 4.01% 4.31% 3.37%* 3.28% 3.65% 3.95% 3.02%* 3.48% 3.86% 3.80%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $709 $813 $1,054 $2,103 $2,135 $2,885 $5,191 $5,575 $36 $135 $1
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
Portfolio
turnover........ 38.21% 43.53% 182.58% 142.37% 38.21% 43.53% 182.58% 142.37% 38.21% 43.53% 182.58%
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
<CAPTION>
ARIZONA FUND
---------------------------
CLASS D
--------------------------
FOR THE
PERIOD
FOR THE YEAR OCT. 21,
ENDED JULY 31, 1994+ TO
---------------- JULY 31,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Increase
(Decrease) in
Net Asset Value:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 10.08 $ 10.17 $ 9.89
------- ------- ------
Investment
income-net...... .36 .40 .33
Realized and
unrealized gain
(loss) on
investments-
net............. .10 (.09) .28
------- ------- ------
Total from
investment
operations...... .46 .31 .61
------- ------- ------
Less dividends
from investment
income-net...... (.36) (.40) (.33)
------- ------- ------
Net asset value,
end of period... $ 10.18 $ 10.08 $10.17
======= ======= ======
TOTAL INVESTMENT
RETURN: **
Based on net
asset value per
share........... 4.62% 3.05% 6.34%#
======= ======= ======
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursements.. 1.04% .90% .55%*
======= ======= ======
Expenses........ 3.29% 2.42% 2.39%*
======= ======= ======
Investment
income-net...... 3.56% 3.88% 4.31%*
======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $477 $619 $19
======= ======= ======
Portfolio
turnover........ 38.21% 43.53% 182.58%
======= ======= ======
</TABLE>
- ----
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
19
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
--------------------------------- --------------------------------- ------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD FOR THE YEAR PERIOD
FOR THE YEAR ENDED NOV. 26, FOR THE YEAR ENDED NOV. 26, ENDED OCT. 21,
JULY 31, 1993+ TO JULY 31, 1993+ TO JULY 31, 1994+ TO
----------------------- JULY 31, ----------------------- JULY 31, -------------- JULY 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPER-
ATING PERFOR-
MANCE:
Net asset value,
beginning of
period......... $ 9.96 $ 9.96 $ 9.95 $10.00 $ 9.96 $ 9.96 $ 9.95 $10.00 $ 9.95 $ 9.96 $ 9.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment
income-net..... .39 .40 .44 .25 .36 .37 .40 .22 .38 .39 .33
Realized and
unrealized gain
(loss) on
investments-
net............ .08 -- ++ .02 (.05) .08 -- ++ .02 (.05) .08 (.01) .15
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from in-
vestment opera-
tions.......... .47 .40 .46 .20 .44 .37 .42 .17 .46 .38 .48
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less dividends
and distribu-
tions:
Investment
income-net..... (.39) (.40) (.44) (.25) (.36) (.37) (.40) (.22) (.38) (.39) (.33)
Realized gain on
investments-
net............ -- -- (.01) -- -- -- (.01) -- -- -- (.01)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends
and distribu-
tions.......... (.39) (.40) (.45) (.25) (.36) (.37) (.41) (.22) (.38) (.39) (.34)
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Net asset value,
end of period.. $10.04 $ 9.96 $ 9.96 $ 9.95 $10.04 $ 9.96 $ 9.96 $ 9.95 $10.03 $ 9.95 $ 9.96
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share.......... 4.86% 4.08% 4.79% 2.01%# 4.49% 3.70% 4.41% 1.77%# 4.70% 3.81% 5.00%#
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
RATIOS TO AVER-
AGE NET ASSETS:
Expenses, net of
reimbursement.. .99% .77% .37% .03%* 1.35% 1.16% .74% .38%* 1.15% .94% .67%*
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Expenses........ 2.52% 2.15% 1.71% 1.17%* 2.84% 2.61% 2.08% 1.54%* 2.69% 2.37% 2.23%*
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Investment in-
come-net....... 3.95% 4.04% 4.45% 3.69%* 3.58% 3.66% 4.08% 3.28%* 3.80% 3.88% 4.32%*
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)..... $1,356 $1,719 $4,453 $8,097 $2,807 $4,577 $4,800 $8,046 $ 275 $ 210 $ 413
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Portfolio turn-
over........... 22.93% 22.71% 89.96% 57.80% 22.93% 22.71% 89.96% 57.80% 22.93% 22.71% 89.96%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
MASSACHUSETTS FUND
--------------------------
CLASS D
-------------------------
FOR THE
FOR THE YEAR PERIOD
ENDED OCT. 21,
JULY 31, 1994+ TO
-------------- JULY 31,
1997 1996 1995
------ ------ --------
<S> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPER-
ATING PERFOR-
MANCE:
Net asset value,
beginning of
period......... $ 9.96 $ 9.96 $ 9.82
------ ------ ------
Investment
income-net..... .38 .39 .34
Realized and
unrealized gain
(loss) on
investments-
net............ .08 -- ++ .15
------ ------ ------
Total from in-
vestment opera-
tions.......... .46 .39 .49
------ ------ ------
Less dividends
and distribu-
tions:
Investment
income-net..... (.38) (.39) (.34)
Realized gain on
investments-
net............ -- -- (.01)
------ ------ ------
Total dividends
and distribu-
tions.......... (.38) (.39) (.35)
====== ====== ======
Net asset value,
end of period.. $10.04 $ 9.96 $ 9.96
====== ====== ======
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share.......... 4.76% 3.97% 5.09%#
====== ====== ======
RATIOS TO AVER-
AGE NET ASSETS:
Expenses, net of
reimbursement.. 1.09% .93% .70%*
====== ====== ======
Expenses........ 2.62% 2.42% 2.31%*
====== ====== ======
Investment in-
come-net....... 3.85% 3.89% 4.21%*
====== ====== ======
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)..... $ 698 $ 890 $ 253
====== ====== ======
Portfolio turn-
over........... 22.93% 22.71% 89.96%
====== ====== ======
</TABLE>
- ------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
++ Amount is less than $.01 per share.
20
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN FUND
------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
--------------------------------- --------------------------------- --------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
FOR THE YEAR ENDED NOV. 26, FOR THE YEAR ENDED NOV. 26, FOR THE YEAR OCT. 21,
JULY 31, 1993+ TO JULY 31, 1993+ TO ENDED JULY 31, 1994+ TO
----------------------- JULY 31, ----------------------- JULY 31, ----------------- JULY 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------- ------- --------
<S> <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.......... $ 9.94 $ 9.98 $ 9.92 $10.00 $ 9.94 $ 9.98 $ 9.92 $10.00 $ 9.94 $ 9.98 $9.76
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -----
Investment
income--net.... .39 .41 .44 .24 .36 .37 .40 .22 .36 .36 .30
Realized and
unrealized gain
(loss) on
investments--
net............ .15 (.04) .06 (.08) .15 (.04) .06 (.08) .15 (.04) .22
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -----
Total from
investment
operations...... .54 .37 .50 .16 .51 .33 .46 .14 .51 .32 .52
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -----
Less dividends
and
distributions:
Investment
income--net.... (.39) (.41) (.44) (.24) (.36) (.37) (.40) (.22) (.36) (.36) (.30)
In excess of
realized gain
on
investments--
net............ -- ++ -- -- -- -- ++ -- -- -- -- ++ -- --
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -----
Total dividends
and
distributions... (.39) (.41) (.44) (.24) (.36) (.37) (.40) (.22) (.36) (.36) (.30)
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ -----
Net asset value,
end of period... $10.09 $ 9.94 $ 9.98 $ 9.92 $10.09 $ 9.94 $ 9.98 $ 9.92 $ 10.09 $ 9.94 $9.98
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =====
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 5.61% 3.71% 5.16% 1.66%# 5.22% 3.32% 4.78% 1.42%# 5.22% 3.20% 5.40%#
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =====
RATIOS TO AVERAGE
NET ASSETS:
Expenses, net of
reimbursements.. .94% .74% .27% .02%* 1.31% 1.10% .65% .38%* 1.32% 1.24% .96%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =====
Expenses......... 3.50% 2.78% 2.18% 2.01%* 3.86% 3.14% 2.56% 2.38%* 3.81% 3.31% 2.90%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =====
Investment
income--net..... 3.93% 4.06% 4.42% 3.59%* 3.56% 3.70% 4.09% 3.21%* 3.56% 3.57% 3.80%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =====
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $1,368 $1,641 $2,302 $3,435 $1,411 $1,842 $2,494 $2,411 $ 1 $ 1 $ 1
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =====
Portfolio
turnover........ 13.24% 32.92% 93.08% 204.15% 13.24% 32.92% 93.08% 204.15% 13.24% 32.92% 93.08%
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =====
<CAPTION>
MICHIGAN FUND
--------------------------
CLASS D
--------------------------
FOR THE
PERIOD
FOR THE YEAR OCT. 21,
ENDED JULY 31, 1994+ TO
----------------- JULY 31,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Increase
(Decrease) in
Net Asset Value:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 9.94 $ 9.97 $9.76
------- ------ -----
Investment
income--net.... .38 .40 .34
Realized and
unrealized gain
(loss) on
investments--
net............ .14 (.03) .21
------- ------ -----
Total from
investment
operations...... .52 .37 .55
------- ------ -----
Less dividends
and
distributions:
Investment
income--net.... (.38) (.40) (.34)
In excess of
realized gain
on
investments--
net............ -- ++ -- --
------- ------ -----
Total dividends
and
distributions... (.38) (.40) (.34)
------- ------ -----
Net asset value,
end of period... $ 10.08 $ 9.94 $9.97
======= ====== =====
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 5.40% 3.71% 5.72%#
======= ====== =====
RATIOS TO AVERAGE
NET ASSETS:
Expenses, net of
reimbursements.. 1.04% .87% .44%*
======= ====== =====
Expenses......... 3.48% 3.06% 2.38%*
======= ====== =====
Investment
income--net..... 3.83% 3.94% 4.47%*
======= ====== =====
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $ 1,471 $ 541 $ 254
======= ====== =====
Portfolio
turnover........ 13.24% 32.92% 93.08%
======= ====== =====
</TABLE>
- ------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Amount is less than $.01 per share.
# Aggregate total investment return.
21
<PAGE>
<TABLE>
<CAPTION>
NEW JERSEY FUND
----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
-------------------------------- -------------------------------- --------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
FOR THE YEAR ENDED NOV. 26, FOR THE YEAR ENDED NOV. 26, FOR THE YEAR OCT. 21,
JULY 31, 1993+ TO JULY 31, 1993+ TO ENDED JULY 31, 1994+ TO
---------------------- JULY 31, ---------------------- JULY 31, ---------------- JULY 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------- ------- --------
<S> <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.......... $10.11 $10.15 $ 9.94 $10.00 $10.11 $10.16 $ 9.95 $10.00 $ 9.16 $ 9.20 $ 9.86
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Investment
income--net.... .38 .41 .42 .23 .35 .37 .38 .20 .33 .34 .26
Realized and
unrealized gain
(loss) on
investments--
net............ .03 (.04) .21 (.06) .04 (.05) .21 (.05) .03 (.04) (.66)
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Total from
investment
operations...... .41 .37 .63 .17 .39 .32 .59 .15 .36 .30 (.40)
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Less dividends
from investment
income--net..... (.38) (.41) (.42) (.23) (.35) (.37) (.38) (.20) (.33) (.34) (.26)
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Net asset value,
end of period... $10.14 $10.11 $10.15 $ 9.94 $10.15 $10.11 $10.16 $ 9.95 $ 9.19 $ 9.16 $ 9.20
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 4.19% 3.68% 6.45% 1.73%# 3.92% 3.21% 6.07% 1.59%# 4.06% 3.24% (4.01%)#
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
RATIOS TO AVERAGE
NET ASSETS:
Expenses, net of
reimbursements.. .94% .76% .34% .03%* 1.30% 1.10% .73% .38%* 1.10% 1.00% .55%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
Expenses......... 1.65% 1.78% 1.69% 1.14%* 2.00% 2.12% 2.15% 1.52%* 1.80% 2.04% 2.22%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
Investment
income--net..... 3.82% 4.02% 4.10% 3.45%* 3.46% 3.67% 3.80% 3.04%* 3.66% 3.82% 4.06%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $1,735 $2,663 $2,401 $5,933 $4,109 $5,152 $7,593 $7,885 $ 241 $ 272 $ 1
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
Portfolio
turnover........ 32.89% 6.57% 131.56% 205.04% 32.89% 6.57% 131.56% 205.04% 32.89% 6.57% 131.56%
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
<CAPTION>
NEW JERSEY FUND
--------------------------
CLASS D
--------------------------
FOR THE
PERIOD
FOR THE YEAR OCT. 21,
ENDED JULY 31, 1994+ TO
---------------- JULY 31,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Increase
(Decrease) in
Net Asset Value:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 10.11 $ 10.16 $ 9.85
------- ------- ------
Investment
income--net.... .37 .40 .32
Realized and
unrealized gain
(loss) on
investments--
net............ .04 (.05) .31
------- ------- ------
Total from
investment
operations...... .41 .35 .63
------- ------- ------
Less dividends
from investment
income--net..... (.37) (.40) (.32)
------- ------- ------
Net asset value,
end of period... $ 10.15 $ 10.11 $10.16
======= ======= ======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 4.18% 3.48% 6.51%#
======= ======= ======
RATIOS TO AVERAGE
NET ASSETS:
Expenses, net of
reimbursements.. 1.04% .84% .62%*
======= ======= ======
Expenses......... 1.78% 1.86% 2.07%*
======= ======= ======
Investment
income--net..... 3.75% 3.93% 4.17%*
======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $ 238 $ 540 $ 437
======= ======= ======
Portfolio
turnover........ 32.89% 6.57% 131.56%
======= ======= ======
</TABLE>
- ------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
22
<PAGE>
<TABLE>
<CAPTION>
NEW YORK FUND
-----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
-------------------------------- --------------------------------- --------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
FOR THE YEAR ENDED NOV. 26, FOR THE YEAR ENDED NOV. 26, FOR THE YEAR OCT. 21,
JULY 31, 1993+ TO JULY 31, 1993+ TO ENDED JULY 31, 1994+ TO
---------------------- JULY 31, ----------------------- JULY 31, ---------------- JULY 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995
------ ------ ------ -------- ------ ------- ------ -------- ------- ------- --------
<S> <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......... $10.06 $10.05 $ 9.91 $10.00 $10.06 $ 10.05 $ 9.91 $10.00 $ 10.06 $ 10.05 $ 9.78
------ ------ ------ ------ ------ ------- ------ ------ ------- ------- ------
Investment
income-net..... .43 .43 .44 .25 .39 .40 .41 .22 .41 .42 .30
Realized and
unrealized gain
(loss) on
investments-
net............ .17 .01 .14 (.09) .17 .01 .14 (.09) .17 .01 .27
------ ------ ------ ------ ------ ------- ------ ------ ------- ------- ------
Total from
investment
operations..... .60 .44 .58 .16 .56 .41 .55 .13 .58 .43 .57
------ ------ ------ ------ ------ ------- ------ ------ ------- ------- ------
Less dividends
from investment
income-net..... (.43) (.43) (.44) (.25) (.39) (.40) (.41) (.22) (.41) (.42) (.30)
------ ------ ------ ------ ------ ------- ------ ------ ------- ------- ------
Net asset value,
end of period.. $10.23 $10.06 $10.05 $ 9.91 $10.23 $ 10.06 $10.05 $ 9.91 $ 10.23 $ 10.06 $10.05
====== ====== ====== ====== ====== ======= ====== ====== ======= ======= ======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share.......... 6.09% 4.46% 6.03% 1.61%# 5.71% 4.08% 5.66% 1.37%# 5.91% 4.28% 5.97%#
====== ====== ====== ====== ====== ======= ====== ====== ======= ======= ======
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursements.. .70% .50% .33% .03%* 1.05% .87% .69% .38%* .86% .71% .63%*
====== ====== ====== ====== ====== ======= ====== ====== ======= ======= ======
Expenses........ 1.16% 1.38% 1.30% 1.24%* 1.52% 1.75% 1.65% 1.60%* 1.32% 1.59% 1.63%*
====== ====== ====== ====== ====== ======= ====== ====== ======= ======= ======
Investment
income-net..... 4.24% 4.28% 4.49% 3.68%* 3.88% 3.91% 4.11% 3.31%* 4.05% 4.06% 4.21%*
====== ====== ====== ====== ====== ======= ====== ====== ======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)..... $2,605 $3,723 $4,811 $5,290 $8,209 $10,071 $8,822 $9,743 $ 68 $ 214 $ 38
====== ====== ====== ====== ====== ======= ====== ====== ======= ======= ======
Portfolio
turnover....... 36.53% 51.47% 139.16% 152.73% 36.53% 51.47% 139.16% 152.73% 36.53% 51.47% 139.16%
====== ====== ====== ====== ====== ======= ====== ====== ======= ======= ======
<CAPTION>
NEW YORK FUND
--------------------------
CLASS D
--------------------------
FOR THE
PERIOD
FOR THE YEAR OCT. 21,
ENDED JULY 31, 1994+ TO
---------------- JULY 31,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Increase
(Decrease) in
Net Asset
Value:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period......... $ 10.06 $ 10.05 $ 9.78
------- ------- ------
Investment
income-net..... .42 .42 .34
Realized and
unrealized gain
(loss) on
investments-
net............ .17 .01 .27
------- ------- ------
Total from
investment
operations..... .59 .43 .61
------- ------- ------
Less dividends
from investment
income-net..... (.42) (.42) (.34)
------- ------- ------
Net asset value,
end of period.. $ 10.23 $ 10.06 $10.05
======= ======= ======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share.......... 5.98% 4.35% 6.37%#
======= ======= ======
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursements.. .80% .62% .48%*
======= ======= ======
Expenses........ 1.26% 1.49% 1.48%*
======= ======= ======
Investment
income-net..... 4.14% 4.16% 4.47%*
======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)..... $ 3,683 $ 3,912 $2,306
======= ======= ======
Portfolio
turnover....... 36.53% 51.47% 139.16%
======= ======= ======
</TABLE>
- ------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
23
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA FUND
----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
-------------------------------- -------------------------------- --------------------------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
FOR THE YEAR ENDED NOV. 26, FOR THE YEAR ENDED NOV. 26, FOR THE YEAR OCT. 21,
JULY 31, 1993+ TO JULY 31, 1993+ TO ENDED JULY 31, 1994+ TO
---------------------- JULY 31, ---------------------- JULY 31, ---------------- JULY 31,
1997 1996 1995 1994 1997 1996 1995 1994 1997 1996 1995
------ ------ ------ -------- ------ ------ ------ -------- ------- ------- --------
<S> <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.......... $10.11 $10.10 $ 9.95 $10.00 $10.11 $10.10 $ 9.95 $10.00 $ 10.15 $ 10.10 $ 9.84
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Investment
income--net.... .38 .41 .42 .23 .34 .37 .39 .21 .35 .38 .29
Realized and
unrealized gain
(loss) on
investments--
net............ .12 .01 .15 (.05) .12 .01 .15 (.05) .12 .05 .26
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Total from
investment
operations...... .50 .42 .57 .18 .46 .38 .54 .16 .47 .43 .55
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Less dividends
from investment
income--net..... (.38) (.41) (.42) (.23) (.34) (.37) (.39) (.21) (.35) (.38) (.29)
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Net asset value,
end of period... $10.23 $10.11 $10.10 $ 9.95 $10.23 $10.11 $10.10 $ 9.95 $ 10.27 $ 10.15 $10.10
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 5.04% 4.18% 5.89% 1.85%# 4.66% 3.80% 5.51% 1.61%# 4.68% 4.28% 5.68%#
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
RATIOS TO AVERAGE
NET ASSETS:
Expenses, net of
reimbursements.. .99% .80% .38% .02%* 1.35% 1.15% .73% .38%* 1.28% .97% 1.05%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
Expenses......... 1.75% 1.63% 1.90% 1.48%* 2.11% 1.99% 2.25% 1.83%* 2.02% 1.83% 2.55%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
Investment
income--net..... 3.74% 4.01% 4.25% 3.46%* 3.38% 3.65% 3.87% 3.05%* 3.46% 3.84% 3.77%*
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $ 736 $ 833 $ 943 $ 990 $5,134 $6,264 $7,414 $9,532 $ 8 $ 1 $ 1
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
Portfolio
turnover........ 20.88% 30.90% 141.52% 237.47% 20.88% 30.90% 141.52% 237.47% 20.88% 30.90% 141.52%
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= ======
<CAPTION>
PENNSYLVANIA FUND
--------------------------
CLASS D
--------------------------
FOR THE
PERIOD
FOR THE YEAR OCT. 21,
ENDED JULY 31, 1994+ TO
---------------- JULY 31,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Increase
(Decrease) in
Net Asset Value:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 10.11 $ 10.10 $ 9.84
------- ------- ------
Investment
income--net.... .37 .40 .33
Realized and
unrealized gain
(loss) on
investments--
net............ .13 .01 .26
------- ------- ------
Total from
investment
operations...... .50 .41 .59
------- ------- ------
Less dividends
from investment
income--net..... (.37) (.40) (.33)
------- ------- ------
Net asset value,
end of period... $ 10.24 $ 10.11 $10.10
======= ======= ======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 5.04% 4.07% 6.10%#
======= ======= ======
RATIOS TO AVERAGE
NET ASSETS:
Expenses, net of
reimbursements.. 1.09% .96% .57%*
======= ======= ======
Expenses......... 1.85% 1.71% 2.08%*
======= ======= ======
Investment
income--net..... 3.64% 3.84% 4.30%*
======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $ 1,861 $ 1,807 $ 382
======= ======= ======
Portfolio
turnover........ 20.88% 30.90% 141.52%
======= ======= ======
</TABLE>
- ------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
24
<PAGE>
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% 4.68% 4.94%
Class B 3.04% 4.22% 4.45%
Class C 3.22% 4.47% 4.72%
Class D 3.27% 4.54% 4.79%
Massachusetts Fund........... Class A 3.59% 4.99% 5.67%
Class B 3.26% 4.53% 5.15%
Class C 3.47% 4.82% 5.48%
Class D 3.49% 4.85% 5.51%
Michigan Fund................ Class A 3.62% 5.03% 5.26%
Class B 3.28% 4.56% 4.77%
Class C 3.12% 4.33% 4.53%
Class D 3.52% 4.89% 5.11%
New Jersey Fund.............. Class A 3.32% 4.61% 4.92%
Class B 2.99% 4.15% 4.44%
Class C 3.20% 4.44% 4.75%
Class D 3.22% 4.47% 4.78%
New York Fund................ Class A 3.86% 5.36% 6.04%
Class B 3.54% 4.92% 5.54%
Class C 3.72% 5.17% 5.82%
Class D 3.77% 5.24% 5.90%
Pennsylvania Fund............ Class A 3.41% 4.74% 4.89%
Class B 3.08% 4.28% 4.40%
Class C 3.15% 4.38% 4.50%
Class D 3.31% 4.60% 4.73%
Limited Maturity Portfolio... Class A 3.78% 5.25% 5.25%
Class B 3.46% 4.81% 4.81%
Class C 3.45% 4.79% 4.79%
Class D 3.68% 5.11% 5.11%
</TABLE>
- --------
* Figures are based on Federal tax rate of 28%.
** With respect to the State Funds, the figures represent the maximum tax-
equivalent yield for an individual who is a resident of the designated
state.
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
25
<PAGE>
intangible personal property tax, and corporate income or local personal
income 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/1/; 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.
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."
- --------
/1/ State Municipal Bonds are obligations that pay interest exempt from
Federal income taxes, state personal income taxes in the designated state
and, where applicable, corporate income or local personal income taxes
and/or state intangible personal property taxes.
26
<PAGE>
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
27
<PAGE>
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 33 1/3% 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
28
<PAGE>
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
29
<PAGE>
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
30
<PAGE>
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 State Funds
after their fiscal years 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.
31
<PAGE>
PORTFOLIO COMPOSITION
The following table sets forth certain information with respect to the
composition of the investment portfolio of Limited Maturity Portfolio and of
each of the State Funds as of July 31, 1997.
Limited Maturity Portfolio
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
---- ---------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA "Aaa" 27 $154,821 41.6%
AA "Aa" 22 116,609 31.3
A "A" 8 49,198 13.2
BBB "Baa" 2 17,742 4.8
NR NR 0 0 0
SP1 VMIG1/MIG1 6 33,664 9.1
--- -------- -----
65 $372,034 100.0%
=== ======== =====
</TABLE>
State Funds
Arizona Fund
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
---- -------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA "Aaa" 5 $1,251 54.2%
AA "Aa" 4 892 38.7
A "A" 1 163 7.1
BBB "Baa" 0 0 0
NR NR 0 0 0
--- ------ -----
10 $2,306 100.0%
=== ====== =====
</TABLE>
Massachusetts Fund
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
---- -------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA "Aaa" 9 $2,117 44.4%
AA "Aa" 3 646 13.5
A "A" 5 2,010 42.1
BBB "Baa" 0 0 0
NR NR 0 0 0
--- ------ -----
17 $4,773 100.0%
=== ====== =====
</TABLE>
Michigan Fund
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
---- -------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA "Aaa" 13 $2,644 64.3%
AA "Aa" 6 1,471 35.7
A "A" 0 0 0
BBB "Baa" 0 0 0
NR NR 0 0 0
--- ------ -----
19 $4,115 100.0%
=== ====== =====
</TABLE>
(footnote on next page)
32
<PAGE>
New Jersey Fund
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
---- -------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA "Aaa" 9 $3,838 89.8%
AA "Aa" 1 436 10.2
A "A" 0 0 0
BBB "Baa" 0 0 0
NR NR 0 0 0
--- ------ -----
10 $4,274 100.0%
=== ====== =====
</TABLE>
New York Fund
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
---- -------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA "Aaa" 8 $ 5,570 42.4%
AA "Aa" 6 3,748 28.5
A "A" 4 2,730 20.8
BBB "Baa" 2 1,092 8.3
NR NR 0 0 0
--- ------- -----
20 $13,140 100.0%
=== ======= =====
</TABLE>
Pennsylvania Fund
<TABLE>
<CAPTION>
VALUE
S&P* MOODY'S* NUMBER OF ISSUES (IN THOUSANDS) PERCENT
---- -------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA "Aaa" 5 $2,583 42.5%
AA "Aa" 3 1,709 28.1
A "A" 2 1,791 29.4
BBB "Baa" 0 0 0
NR NR 0 0 0
--- ------ -----
10 $6,083 100.0%
=== ====== =====
</TABLE>
- --------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations. S&P's rating categories may be modified further by a plus (+)
or minus (-) in AA, A, BBB, BB, B and C ratings. Moody's rating categories
may be modified further by a 1, 2 or 3 in "Aa," "A," "Baa," "Ba" and "B"
ratings. See Exhibit II--"Ratings of Municipal Bonds."
33
<PAGE>
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. In
addition, the Funds may not purchase securities, including Municipal Bonds,
during the existence of an underwriting syndicate of which Merrill Lynch is a
member or in a private placement in which Merrill Lynch serves as placement
agent except pursuant to procedures approved by the Board that either comply
with rules adopted by the Commission or interpretations of the Commission
staff. 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 State Funds after their fiscal years ending July 31, 1998. As a
result of the
34
<PAGE>
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............................................ 38.21% 43.53%
Massachusetts Fund...................................... 22.93 22.71
Michigan Fund........................................... 13.24 32.92
New Jersey Fund......................................... 32.89 6.57
New York Fund........................................... 36.53 51.47
Pennsylvania Fund....................................... 20.88 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
substantially the same. 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.
35
<PAGE>
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 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"); and Executive
Vice President of Merrill Lynch & Co., Inc. ("ML & Co.").
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--Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital, Inc.; former Senior Vice President
of Arnhold and S. Bleichroeder, Inc.
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
36
<PAGE>
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 PORTFOLIOS OF THE MUNICIPAL BOND LIMITED
FUND MATURITY 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 $1,552,369 from Limited Maturity
Portfolio in advisory fees.
As of October 31, 1997, the three portfolios of Municipal Bond Fund had
aggregate net assets of $3,934,278,239; Limited Maturity Portfolio had net
assets of $398,404,439. At this asset level, the advisory fee rate of Limited
Maturity Portfolio would be 0.33%.
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 SM 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
37
<PAGE>
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.
38
<PAGE>
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 and, where applicable, corporate income or local personal
income taxes. Currently, shares of a State Fund may also be exempt from state
intangible personal property 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. Not later than 60 days after the close of
its taxable year, each Fund will provide its shareholders with a written
notice designating the amounts of any exempt-interest dividends, ordinary
income dividends or capital gain dividends, as well as the amount of capital
gain dividends in the different categories of capital gain referred to above.
Distributions by a Fund, whether from exempt-interest income, ordinary income
or capital gains, are not eligible for the dividends received deduction
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
39
<PAGE>
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.
STATE OF ORGANIZATION
The Trust is a Massachusetts business trust and is governed by its
Declaration of Trust, By-laws and applicable Massachusetts law. The Municipal
Bond Fund is a Maryland corporation and is governed by its Articles of
Incorporation, By-laws and Maryland corporation law. Certain differences
between the two forms of organization are summarized below. Stockholders of
the State Funds entitled to vote at the Meeting may obtain a copy of the
Trust's Declaration of Trust and By-laws or Municipal Bond Fund's Articles of
Incorporation and By-laws, without charge, on written request to the Trust or
Municipal Bond Fund, as the case may be.
Shares of Capital Stock. The Declaration of Trust permits the Trustees to
issue an unlimited number of shares and to divide such shares into an
unlimited number of series or classes, all without stockholder approval. The
Trust currently has eight series (including the State Funds) each of which is
divided into four classes. The authorized capital stock of the Municipal Bond
Fund consists of 3,850,000,000 shares of Common Stock, divided into three
series (of which the Limited Maturity Portfolio is one), each of which is
divided into four classes. The Directors of the Municipal Bond Fund may,
without stockholder approval, increase the number of shares authorized and may
classify and reclassify the shares of the Municipal Bond Fund into additional
series or classes at a future date.
Voting Requirements. The By-laws of the Municipal Bond Fund and the Maryland
General Corporation Law (the "Maryland Code") provide that a special meeting
of stockholders must be called upon the written request of stockholders
representing 25% of the votes entitled to be cast at the meeting. The
Declaration of Trust provides that special meetings of stockholders must be
called upon the written request of holders of at least 10% of the outstanding
shares of any series of the Trust.
No amendments may be made to the Declaration of Trust, other than amendments
necessary to conform the Declaration to certain laws or regulations, to change
the name of the Trust, or to make certain non-material changes, without the
affirmative vote of the holders of not less than a majority of the Trust's
outstanding shares or of the affected series or class, as applicable. Under
the Articles of Incorporation of the Municipal Bond Fund and the Maryland
Code, the Articles of Incorporation of the Municipal Bond Fund may be amended
upon adoption of a resolution to that effect by the Directors of the Municipal
Bond Fund and approval of such resolution by the holders of a majority of the
outstanding shares of the Municipal Bond Fund.
Stockholder Meetings. Like the Trust, the Municipal Bond Fund will not be
required to hold annual meetings of its stockholders. The initial Board of
Trustees of the Trust and the initial Board of Directors of the Municipal Bond
Fund were elected by the sole stockholder of the Trust and the Municipal Bond
Fund, respectively, at the time of its organization and have served and will
continue to serve as Trustees or Directors until they resign, die or are
removed. The Trustees of the Trust may be removed for cause by a written
instrument signed by at least two-thirds of the remaining Trustees or by vote
of stockholders of the Trust holding not less than two-thirds of the shares
then outstanding, cast in person or by proxy at any meeting called for the
purpose. The By-laws of the Municipal Bond Fund permit removal of a Director
by the holders of a majority of the outstanding shares of the Municipal Bond
Fund.
Stockholder Liability. Under Massachusetts law, stockholders of the Trust
may, under certain circumstances, be held personally liable as partners for
the Trust's obligations. However, the risk of a stockholder incurring
financial loss on account of stockholder liability is limited to circumstances
in which both inadequate insurance existed and the Trust itself was unable to
meet its obligations. As a Maryland corporation, the stockholders of the
Municipal Bond Fund have no personal liability to the Municipal Bond Fund or
its creditors
40
<PAGE>
with respect to their stock, except that a stockholder may be liable to the
extent that (1) the subscription price or other agreed consideration for the
stock has not been paid; or (2) liability is imposed under any other provision
of Maryland law.
Liability of Directors and Trustees. Maryland law provides that in addition
to any other liabilities imposed by law, a Director may be liable to the
Municipal Bond Fund for voting or assenting to the declaration of any dividend
or other distribution of assets to Municipal Bond Fund stockholders that is
contrary to Maryland law if it is established that the Director did not act in
good faith, in a manner he or she reasonably believed to be in the best
interest of the Municipal Bond Fund, and with the care that an ordinarily
prudent person in a like position would use under similar circumstances. In
the event of any litigation against the Directors or officers of the Municipal
Bond Fund, Maryland law permits, and the Municipal Bond Fund's By-laws
require, the Municipal Bond Fund to indemnify a Director or officer for
certain expenses and to advance money for such expenses only if he or she
demonstrates that he or she acted in good faith and reasonably believed that
his or her conduct was in, or not opposed to, the best interest of the
Municipal Bond Fund and, with respect to a criminal proceeding, he or she had
no reasonable cause to believe such conduct was unlawful. Under the
Declaration of Trust, the Trustees would be personally liable only for willful
misfeasance, bad faith, gross negligence or reckless disregard of their
duties. Under the Declaration of Trust, Trustees, officers, agents and
employees will be indemnified against all liabilities and expenses (including
amounts paid in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by them in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which they may be involved or with which they may be
threatened, while in office or thereafter, by reason of their being or having
been such a Trustee, officer, employee or agent, except with respect to any
matter as to which they have been adjudicated to have acted in bad faith or
with willful misfeasance, gross negligence or reckless disregard of their
duties, provided, however, that as to any matter disposed of by a compromise
payment, pursuant to a consent decree or otherwise, no indemnification either
for that payment or for any other expenses may be provided unless the Trust
has received a written opinion from independent legal counsel approved by the
Trustees to the effect that if either the matter of willful misfeasance, gross
negligence or reckless disregard of duty, or the matter of good faith and
reasonable belief as to the best interests of the Trust, had been adjudicated,
it would have been adjudicated in favor of the person seeking indemnification.
The Trustees may make advance payments in connection with indemnification,
provided that the indemnified person has given a written undertaking to
reimburse the Trust in the event it is subsequently determined that he or she
is not entitled to such indemnification.
The foregoing is only a summary of certain of the differences between the
Municipal Bond Fund's Articles of Incorporation and By-laws and Maryland law
and the Trust's Declaration of Trust and By-laws and Massachusetts law. It is
not a complete list of differences. Stockholders should refer to the
provisions of such Articles of Incorporation, By-laws, Maryland law, and the
Declaration of Trust, By-laws and Massachusetts law directly for a more
thorough comparison.
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
41
<PAGE>
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 present at the meeting 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.
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<PAGE>
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 Agreement and Plan of Reorganization provides for the
allocation of the expenses of the Reorganization between the State Funds and
the Limited Maturity Portfolio. 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
43
<PAGE>
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 the Class A shares of each of the State Funds, of
Limited Maturity Portfolio and of 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).
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
TOTAL BASED ON TOTAL
OPERATING NET ASSETS OPERATING BASED ON
EXPENSE AS OF EXPENSE NET
RATIO(%)(a)(b) 7/31/97($) RATIO(%)(c) ASSETS($)
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Arizona Fund............ 3.21 3,357,395 -- --
Massachusetts Fund...... 2.52 5,135,751 -- --
Michigan Fund........... 3.50 4,251,345 -- --
New Jersey Fund......... 1.65 6,322,601 -- --
New York Fund........... 1.16 14,565,335 -- --
Pennsylvania Fund....... 1.75 7,738,657 -- --
Limited Maturity
Portfolio.............. 0.41 413,877,781 0.41 455,248,865
</TABLE>
- --------
(a) FAM has in the past voluntarily waived all of the advisory fees due from
each of the State Funds and voluntarily reimbursed each State Fund for a
portion of its other expenses (excluding Rule 12b-1 plan fees). The Total
Operating Expense Ratio does not give effect to any such waiver or
reimbursement because FAM may discontinue or reduce such waiver of fees
and/or assumption of expenses at any time without notice. The actual Total
Operating Expense Ratio for the year ended July 31, 1997, net of the
waiver of fees and/or assumption of expenses, would be:
<TABLE>
<CAPTION>
TOTAL OPERATING EXPENSE RATIO
AFTER WAIVER AND REIMBURSEMENT(%)
---------------------------------
<S> <C>
Arizona Fund............................... .94
Massachusetts Fund......................... .99
Michigan Fund.............................. .94
New Jersey Fund............................ .94
New York Fund.............................. .70
Pennsylvania Fund.......................... .99
</TABLE>
(b) Class A share ratios are shown because Class A shares are not subject to
class specific distribution and account maintenance fees.
(c) Assumes Reorganization had taken place on August 1, 1996 (the first day of
the year ended July 31, 1997).
The following table sets forth the approximate average net assets of each of
the State Funds and of Limited Maturity Portfolio for each entity's last three
fiscal years.
<TABLE>
<CAPTION>
NET ASSETS($)
--------------------------------------------------------------------
ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK PENNSYLVANIA
PERIOD FUND FUND FUND FUND FUND FUND
------ --------- ------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended 7/31/97...... 3,791,000 6,323,000 4,279,000 7,284,000 16,470,000 8,502,000
Year ended 7/31/96...... 6,131,000 8,782,000 4,689,000 9,649,000 16,570,000 8,627,000
Year ended 7/31/95...... 7,562,000 11,856,000 5,508,000 11,323,000 14,904,000 9,829,000
</TABLE>
<TABLE>
<CAPTION>
PERIOD LIMITED MATURITY PORTFOLIO($)
------ -----------------------------
<S> <C>
Year ended 6/30/97................................ 467,286,826
Year ended 6/30/96................................ 575,561,212
Year ended 6/30/95................................ 822,018,788
</TABLE>
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<PAGE>
The preceding table illustrates that (i) the net assets of each of the State
Funds (other than the New York Fund which experienced an increase in 1996 over
1995) and of Limited Maturity Portfolio have generally been decreasing over
the past several years and (ii) in all cases (other than the New York Fund),
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 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.
45
<PAGE>
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 Sections 86 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
provisions 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 five 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 Common Stock received by the stockholder
in the Reorganization.
46
<PAGE>
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.
PRO FORMA CAPITALIZATION OF THE STATE FUNDS, LIMITED MATURITY PORTFOLIO AND
THE COMBINED FUND*
AS OF JULY 31, 1997
<TABLE>
<CAPTION>
ARIZONA FUND
---------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Total Net Assets................. $ 709,319 $ 2,135,376 $ 36,084 $ 476,616
Shares Outstanding............... 69,741 209,967 3,545 46,841
Net Asset Value Per Share........ $ 10.17 $ 10.17 $ 10.18 $ 10.18
<CAPTION>
MASSACHUSETTS FUND
---------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Total Net Assets................. $ 1,355,818 $ 2,806,894 $274,926 $ 698,113
Shares Outstanding............... 135,068 279,567 27,406 69,563
Net Asset Value Per Share........ $ 10.04 $ 10.04 $ 10.03 $ 10.04
<CAPTION>
MICHIGAN FUND
---------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Total Net Assets................. $ 1,368,162 $ 1,410,732 $ 1,231 $ 1,471,220
Shares Outstanding............... 135,574 139,786 122 145,888
Net Asset Value Per Share........ $ 10.09 $ 10.09 $ 10.09 $ 10.08
<CAPTION>
NEW JERSEY FUND
---------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------ ----------- -------- -----------
<S> <C> <C> <C> <C>
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 Share........ $ 10.14 $ 10.15 $ 9.19 $ 10.15
<CAPTION>
NEW YORK FUND
---------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Total Net Assets................. $ 2,605,219 $ 8,209,327 $ 67,418 $ 3,683,371
Shares Outstanding............... 254,768 802,714 6,593 360,094
Net Asset Value Per Share........ $ 10.23 $ 10.23 $ 10.23 $ 10.23
<CAPTION>
PENNSYLVANIA FUND
---------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Total Net Assets................. $ 735,726 $ 5,134,207 $ 7,869 $ 1,860,855
Shares Outstanding............... 71,902 501,850 766 181,770
Net Asset Value Per Share........ $ 10.23 $ 10.23 $ 10.27 $ 10.24
<CAPTION>
LIMITED MATURITY PORTFOLIO
---------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Total Net Assets................. $340,141,818 $53,107,866 $128,373 $20,499,724
Shares Outstanding............... 34,147,124 5,330,319 12,913 2,056,678
Net Asset Value Per Share........ $ 9.96 $ 9.96 $ 9.94 $ 9.97
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
COMBINED FUND*
---------------------------------------------
ADJUSTED** CLASS A CLASS B CLASS C CLASS D
---------- ------------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Total Net Assets................. $348,647,168 $53,107,866 $128,373 $53,349,184
Shares Outstanding............... 35,000,983 5,330,319 12,913 5,352,369
Net Asset Value Per Share........ $ 9.96 $ 9.96 $ 9.94 $ 9.97
</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 January 5, 1998 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
November 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:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
ON THE RECORD
DATE
------------------
<S> <C>
Arizona Fund........................................... 344,230
Massachusetts Fund..................................... 431,791
Michigan Fund.......................................... 404,691
New Jersey Fund........................................ 609,963
New York Fund.......................................... 1,562,395
Pennsylvania Fund...................................... 706,519
</TABLE>
48
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE STATE
FUNDS AND LIMITED MATURITY PORTFOLIO
At the Record Date, Vincent Giordano, an officer of the Trust and of
Municipal Bond Fund, may be deemed to own beneficially 32,196 Class A shares
of the New Jersey Fund, representing 5.2% of the aggregate outstanding shares
of beneficial interest of the New Jersey Fund (18.9% of the New Jersey Fund
Class A shares outstanding). To the knowledge of the management of the Trust,
no other 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 Record Date, 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, except as set forth above, 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.
If, by the time scheduled for the Meeting, 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.
49
<PAGE>
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
$255,000. FAM has informed the Funds that it intends to pay all expenses
relating to the Reorganization.
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 vote at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview
by officers of the Trust. It is expected that the cost of such supplementary
solicitation, if any, will be nominal. The Funds have retained Tritech
Services, an affiliate of ML & Co., with offices at 4 Corporate Place,
Piscataway, New Jersey, to aid in the solicitation of proxies from holders of
shares held in nominee or "street" name at a cost to be borne by FAM of
approximately $12,000, plus out-of-pocket expenses.
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 regarding the Funds.
50
<PAGE>
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 LLP. Rogers & Wells will rely as to matters of
Maryland law on the opinion of Wilmer, Cutler & Pickering.
EXPERTS
The financial highlights of each of the State Funds and of Limited Maturity
Portfolio 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
51
<PAGE>
EXHIBIT I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 24th day of November, 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 (the "Limited Maturity Portfolio Common
Stock"), 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:
I-1
<PAGE>
(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
the 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
I-2
<PAGE>
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, 1997, 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
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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 Limited Maturity Portfolio 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
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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 7, 1997 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.
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<PAGE>
(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 February 13,
1998, 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.
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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 and accounting 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.
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(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 applicable state securities laws, if any.
(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.
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(c) As soon as practicable after the close of business on the Exchange Date,
Limited Maturity Trust shall deliver to 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 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 Municipal Bond Fund's behalf by its President (or
any Vice President) and its Treasurer, and a certificate signed by 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, 1997, other than changes
in its portfolio securities since that date or changes in the market value of
its portfolio securities.
(c) That Municipal Bond Fund shall have furnished to Limited Maturity Trust
a certificate signed by 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 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 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 as to
Maryland law of Wilmer, Cutler & Pickering, Maryland counsel to the Municipal
Bond Fund, in form satisfactory to Limited Maturity Trust and dated the
Exchange Date, to the effect that (i) 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 Municipal
Bond Fund, and no stockholder of 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 Municipal Bond Fund or, to the
best of such counsel's knowledge, otherwise); (iii) this Agreement has been
duly authorized, executed and delivered by 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 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 Municipal Bond Fund of the Reorganization,
except such as have been obtained under Maryland law; and (vi) such opinion is
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solely for the benefit of Limited Maturity Trust and its Trustees and
officers. In giving the opinion set forth above, Wilmer, Cutler & Pickering
may state that it is relying on certificates of officers of Limited Maturity
Trust and 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 Limited Maturity Trust and Municipal Bond Fund.
(f) That Limited Maturity Trust shall have received an opinion of Rogers &
Wells, as counsel to Municipal Bond Fund, in form satisfactory to 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 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 applicable state securities laws, if any; (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 Municipal Bond Fund is a party or by which Municipal Bond Fund is
bound; (vi) 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 laws, and except
where each has so qualified or the failure so to qualify would not have a
material adverse effect on 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 Municipal
Bond Fund, the unfavorable outcome of which would materially and adversely
affect Municipal Bond Fund; and (viii) all corporate actions required to be
taken by 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 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 Wilmer, Cutler & Pickering 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,
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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
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<PAGE>
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 beneficial interest of each of the State Funds 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
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<PAGE>
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 LLP, 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
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 LLP 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.
(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.
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<PAGE>
(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 August 1, 1997 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 August 1, 1997
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
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<PAGE>
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 August 31, 1998, 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
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<PAGE>
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 information with respect to 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 information with respect
to Limited Maturity Trust.
(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
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<PAGE>
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.
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<PAGE>
Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust
/s/ Terry K. Glenn
By: _________________________________
Attest:
/s/ Lawrence A. Rogers
_____________________________________
Merrill Lynch Municipal Bond Fund,
Inc.
/s/ Terry K. Glenn
By: _________________________________
Attest:
/s/ Lawrence A. Rogers
_____________________________________
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<PAGE>
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.
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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:
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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 degree
of speculation and "C" the highest degree of speculation. While such
CCC bonds will likely have some quality and protective characteristics,
CC these may be outweighed by large uncertainties or major exposures to
C 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".
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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.
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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.
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FITCHALERT Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designated as
"Positive", indicating a potential upgrade, "Negative", for
potential downgrade, or "Evolving", where ratings may be raised or
lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
Ratings Outlook: An outlook is used to describe the most likely direction of
any rating change over the intermediate term. It is described as "Positive" or
"Negative". The absence of a designation indicates a stable outlook.
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.
Bonds are in default on interest and/or principal payments. Such bonds
DDD are extremely speculative and should be valued on the basis of their
DD ultimate recovery value in liquidation or reorganization of the obligor.
D "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.
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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.
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EXHIBIT III
SECTIONS 86 THROUGH 98 OF CHAPTER 156B
OF THE MASSACHUSETTS GENERAL LAWS
(THE MASSACHUSETTS BUSINESS CORPORATION LAW)
(S) 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.
(S) 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM
The notice of the meeting of stockholders at which the 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."
(S) 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.
(S) 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.
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(S) 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.
(S) 91. PARTIES TO SUIT TO 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 service 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.
(S) 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.
(S) 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.
(S) 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.
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(S) 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.
(S) 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.
(S) 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.
(S) 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.
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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 November 24,
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 1-800-456-4587, ext. 123 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 7, 1997 and Municipal Bond Fund's Statement of Additional Information,
dated October 7, 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 regarding the Trust
and the Municipal Bond Fund.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS NOVEMBER 24, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information...................................................... 2
Financial Statements..................................................... 2
Pro Forma Combined Schedule of Investments for the Municipal Bond Fund
and the Trust as of July 31, 1997 (unaudited)........................... F-1
Pro Forma Combined Statement of Assets and Liabilities for the Municipal
Bond Fund and the Trust as of July 31, 1997 (unaudited)................. F-19
Pro Forma Combined Statement of Operations for the Municipal Bond Fund
and the Trust as of July 31, 1997 (unaudited)........................... F-23
</TABLE>
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 State Funds to consider the Reorganization will
be held at 800 Scudders Mill Road, Plainsboro, New Jersey, on Monday, January
5, 1998, 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 7, 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
Pro forma financial statements reflecting consummation of the Reorganization
are included herein.
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 7, 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 September 12,
1997, of the Trust (including statements for each State Fund) are contained in
the Trust's Annual Report for the fiscal year ended July 31, 1997, which
accompanies this Statement of Additional Information and is incorporated by
reference herein.
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PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES
TRUST
JULY 31, 1997
(UNAUDITED)
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
ALABAMA- A1+ NR* $ 2,400 Birmingham,
0.5% Alabama, Medical
Clinic Board
Revenue Bonds
(U.A.H.S.F.),
VRDN, 5.50% due
12/01/2026 (b).. $ 2,400 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
ARIZONA- A-1 P1 100 Apache County,
0.6% Arizona, IDA,
IDR (Tucson
Electric Power-
Springerville
Project), VRDN,
Series C, 3.75%
due 12/15/2018
(b)............. -- $ 100 -- -- -- --
A1+ VMIG1# 100 Arizona Health
Facilities
Authority
Revenue Bonds
(Arizona
Voluntary
Hospital
Federation),
VRDN, Series B,
3.70% due
10/01/2015
(b)(f).......... -- 100 -- -- -- --
AAA Aaa 200 Arizona State
Transportation
Board, Excise
Tax Revenue
Bonds (Maricopa
County Regional
Area Roads),
Series A, 5.75%
due 7/01/2004
(c)............. -- 217 -- -- -- --
NR* Aaa 100 Arizona Water
Infrastructure,
Finance
Authority
Revenue Bonds
(Water Quality
Financial
Assistance),
Series A, 4.50%
due 7/01/2003
(d)............. -- 101 -- -- -- --
AA- A1 200 Central Arizona
Water
Conservation
District,
Contract Revenue
Bonds (Central
Arizona
Project), Series
B, 6.50% due
5/01/2001 (a)... -- 220 -- -- -- --
NR* VMIG1# 120 Chandler,
Arizona, IDA,
IDR, Refunding
(SMP II, LP),
VRDN, 3.50% due
12/01/2015 (b).. -- 120 -- -- -- --
A1+ P1 100 Maricopa County,
Arizona,
Pollution
Control
Corporation,
PCR, Refunding
(Arizona Public
Service
Company), VRDN,
Series B, 3.55%
due 5/01/2029
(b)............. -- 100 -- -- -- --
AAA Aaa 480 Phoenix,
Arizona, Airport
Revenue
Refunding Bonds,
AMT, Series C,
5.70% due
7/01/2003 (d)... -- 512 -- -- -- --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- ------------------------------------------------------------------------------------
ALABAMA- A1+ NR* $ 2,400 Birmingham,
0.5% Alabama, Medical
Clinic Board
Revenue Bonds
(U.A.H.S.F.),
VRDN, 5.50% due
12/01/2026 (b).. -- $ 2,400
- ------------------------------------------------------------------------------------
ARIZONA- A-1 P1 100 Apache County,
0.6% Arizona, IDA,
IDR (Tucson
Electric Power-
Springerville
Project), VRDN,
Series C, 3.75%
due 12/15/2018
(b)............. -- 100
A1+ VMIG1# 100 Arizona Health
Facilities
Authority
Revenue Bonds
(Arizona
Voluntary
Hospital
Federation),
VRDN, Series B,
3.70% due
10/01/2015
(b)(f).......... -- 100
AAA Aaa 200 Arizona State
Transportation
Board, Excise
Tax Revenue
Bonds (Maricopa
County Regional
Area Roads),
Series A, 5.75%
due 7/01/2004
(c)............. -- 217
NR* Aaa 100 Arizona Water
Infrastructure,
Finance
Authority
Revenue Bonds
(Water Quality
Financial
Assistance),
Series A, 4.50%
due 7/01/2003
(d)............. -- 101
AA- A1 200 Central Arizona
Water
Conservation
District,
Contract Revenue
Bonds (Central
Arizona
Project), Series
B, 6.50% due
5/01/2001 (a)... -- 220
NR* VMIG1# 120 Chandler,
Arizona, IDA,
IDR, Refunding
(SMP II, LP),
VRDN, 3.50% due
12/01/2015 (b).. -- 120
A1+ P1 100 Maricopa County,
Arizona,
Pollution
Control
Corporation,
PCR, Refunding
(Arizona Public
Service
Company), VRDN,
Series B, 3.55%
due 5/01/2029
(b)............. -- 100
AAA Aaa 480 Phoenix,
Arizona, Airport
Revenue
Refunding Bonds,
AMT, Series C,
5.70% due
7/01/2003 (d)... -- 512
</TABLE>
F-1
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
ARIZONA AA- Aa $ 200 Phoenix,
(CONCLUDED) Arizona, Civic
Improvement
Corporation,
Water System
Revenue Bonds,
Junior Lien, 5%
due 7/01/2006... -- $ 208 -- -- -- --
AA+ Aa1 250 Phoenix,
Arizona,
Refunding, UT,
5.70% due
7/01/1999....... -- 258 -- -- -- --
A+ Aa 200 Pima County,
Arizona,
Refunding,
Series A, 5.60%
due 7/01/1999... -- 206 -- -- -- --
AAA Aaa 200 Pima County,
Arizona, Sewer
Revenue Bonds,
6.20% due
7/01/2002 (a)
(c)............. -- 220 -- -- -- --
A1+ P1 100 Pinal County,
Arizona, IDA,
PCR, (Magma
Copper/Newmont
Mining
Corporation),
VRDN, 3.70% due
12/01/2009 (b).. -- 100 -- -- -- --
A1+ NR* 100 Tempe, Arizona,
IDA, M/F Revenue
Bonds (Elliots
Crossing), VRDN,
3.754% due
10/01/2008 (b).. -- 100 -- -- -- --
A+ A1 150 Tucson, Arizona,
Street and
Highway User
Revenue
Refunding Bonds,
5.90%
7/01/2003....... -- 163 -- -- -- --
AAA Aaa 200 Yuma County,
Arizona, Jail
District Revenue
Bonds, 4.30% due
7/01/1999 (c)... -- 201 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
ARKANSAS- NR* Aa 460 Arkansas State
0.1% Student Loan
Authority
Revenue Bonds,
AMT, Senior
Series A-1,
5.50% due
12/01/1998...... $ 469 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
CALIFORNIA- SP1+ MIG1# 5,000 Los Angeles
5.5% County,
California,
Local
Educational
Agencies, COP,
TRAN, Series B,
4.50% due
9/30/1998 (e)... 5,032 -- -- -- -- --
SP1+ MIG1# 7,500 Los Angeles,
California,
Unified School
District, TRAN,
Series B, 4.50%
due 10/01/1998.. 7,552 -- -- -- -- --
SP1+ MIG1# 7,500 Sacramento,
California, GO,
UT, TRAN, 4.50%
due 9/30/1998... 7,554 -- -- -- -- --
SP1+ NR* 5,000 Santa Barbara
County,
California,
TRAN, Series A,
4.50% due
10/01/1998...... 5,034 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ARIZONA AA- Aa $ 200 Phoenix,
(CONCLUDED) Arizona, Civic
Improvement
Corporation,
Water System
Revenue Bonds,
Junior Lien, 5%
due 7/01/2006... -- $ 208
AA+ Aa1 250 Phoenix,
Arizona,
Refunding, UT,
5.70% due
7/01/1999....... -- 258
A+ Aa 200 Pima County,
Arizona,
Refunding,
Series A, 5.60%
due 7/01/1999... -- 206
AAA Aaa 200 Pima County,
Arizona, Sewer
Revenue Bonds,
6.20% due
7/01/2002 (a)
(c)............. -- 220
A1+ P1 100 Pinal County,
Arizona, IDA,
PCR, (Magma
Copper/Newmont
Mining
Corporation),
VRDN, 3.70% due
12/01/2009 (b).. -- 100
A1+ NR* 100 Tempe, Arizona,
IDA, M/F Revenue
Bonds (Elliots
Crossing), VRDN,
3.754% due
10/01/2008 (b).. -- 100
A+ A1 150 Tucson, Arizona,
Street and
Highway User
Revenue
Refunding Bonds,
5.90%
7/01/2003....... -- 163
AAA Aaa 200 Yuma County,
Arizona, Jail
District Revenue
Bonds, 4.30% due
7/01/1999 (c)... -- 201
- ----------------------------------------------------------------------------------------------------
ARKANSAS- NR* Aa 460 Arkansas State
0.1% Student Loan
Authority
Revenue Bonds,
AMT, Senior
Series A-1,
5.50% due
12/01/1998...... -- 469
- ----------------------------------------------------------------------------------------------------
CALIFORNIA- SP1+ MIG1# 5,000 Los Angeles
5.5% County,
California,
Local
Educational
Agencies, COP,
TRAN, Series B,
4.50% due
9/30/1998 (e)... -- 5,032
SP1+ MIG1# 7,500 Los Angeles,
California,
Unified School
District, TRAN,
Series B, 4.50%
due 10/01/1998.. -- 7,552
SP1+ MIG1# 7,500 Sacramento,
California, GO,
UT, TRAN, 4.50%
due 9/30/1998... -- 7,554
SP1+ NR* 5,000 Santa Barbara
County,
California,
TRAN, Series A,
4.50% due
10/01/1998...... -- 5,034
- ---------------------------------------------------------------------------------------------------
</TABLE>
F-2
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
CONNECTICUT- AAA Aaa $ 2,160 Bridgeport,
2.5% Connecticut,
Refunding, GO,
UT, Series A,
4.40% due
9/01/1998 (c)... $ 2,172 -- -- -- -- --
AAA Aaa 8,900 Connecticut
State Special
Assessment
Revenue
Refunding Bonds
(Unemployment
Compensation
Advance Fund),
Series A, 5.50%
due
5/15/2001 (c)... 9,329 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
DISTRICT OF A1+ VMIG1# 10,000 District of
COLUMBIA-2.2% Columbia,
General Fund
Recovery Bonds,
VRDN, Series B-
2, 5.25% due
6/01/2003 (b)... 10,000 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
FLORIDA-1.2% AAA Aaa 4,000 Florida School
Boards
Association
Inc., Lease
Revenue Bonds
(Orange County
School Board
Project) 6.80%
due 7/01/1998
(c)............. 4,109 -- -- -- -- --
A1+ VMIG1# 1,500 Hillsborough
County, Florida,
IDA, PCR,
Refunding (Tampa
Electric Company
Project), VRDN,
4% due 5/15/2018
(b)............. 1,500 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
GEORGIA-2.7% Burke County,
Georgia,
Development
Authority, PCR
(Plant Vogtle
Project):
A-1 VMIG1# 1,600 (Georgia Power
Company), VRDN,
2nd Series,
4.30% due
8/12/1997 (b).. 1,600 -- -- -- -- --
A NR* 6,410 (Oglethorpe
Power Company),
Series B, 3.95%
due 1/01/1999... 6,409 -- -- -- -- --
AAA Aaa 4,000 Georgia
Municipal
Electric
Authority,
General Power
Revenue
Refunding Bonds,
Series D, 6% due
1/01/2000 (c)... 4,178 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
HAWAII-1.9% AAA Aaa 3,200 Hawaii State,
GO, Refunding,
Series CO, 5%
due 3/01/2001
(f)............. 3,395 -- -- -- -- --
A+ Aa3 5,250 Hawaii State,
GO, UT, Series
CH, 4.75% due
11/01/1999...... 5,333 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
ILLINOIS-5.8% AA- NR* 10,000 Chicago,
Illinois, Board
of Education,
COP (School
Reform Equipment
Acquisition),
4.60% due
12/01/1999...... 10,085 -- -- -- -- --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------
CONNECTICUT- AAA Aaa $ 2,160 Bridgeport,
2.5% Connecticut,
Refunding, GO,
UT, Series A,
4.40% due
9/01/1998 (c)... -- $ 2,172
AAA Aaa 8,900 Connecticut
State Special
Assessment
Revenue
Refunding Bonds
(Unemployment
Compensation
Advance Fund),
Series A, 5.50%
due
5/15/2001 (c)... -- 9,329
- -----------------------------------------------------------------------------------------------------
DISTRICT OF A1+ VMIG1# 10,000 District of
COLUMBIA-2.2% Columbia,
General Fund
Recovery Bonds,
VRDN, Series B-
2, 5.25% due
6/01/2003 (b)... -- 10,000
- -----------------------------------------------------------------------------------------------------
FLORIDA-1.2% AAA Aaa 4,000 Florida School
Boards
Association
Inc., Lease
Revenue Bonds
(Orange County
School Board
Project) 6.80%
due 7/01/1998
(c)............. -- 4,109
A1+ VMIG1# 1,500 Hillsborough
County, Florida,
IDA, PCR,
Refunding (Tampa
Electric Company
Project), VRDN,
4% due 5/15/2018
(b)............. -- 1,500
- -----------------------------------------------------------------------------------------------------
GEORGIA-2.7% Burke County,
Georgia,
Development
Authority, PCR
(Plant Vogtle
Project):
A-1 VMIG1# 1,600 (Georgia Power
Company), VRDN,
2nd Series,
4.30% due
8/12/1997 (b).. -- 1,600
A NR* 6,410 (Oglethorpe
Power Company),
Series B, 3.95%
due 1/01/1999... -- 6,409
AAA Aaa 4,000 Georgia
Municipal
Electric
Authority,
General Power
Revenue
Refunding Bonds,
Series D, 6% due
1/01/2000 (c)... -- 4,178
- ----------------------------------------------------------------------------------------------------
HAWAII-1.9% AAA Aaa 3,200 Hawaii State,
GO, Refunding,
Series CO, 5%
due 3/01/2001
(f)............. -- 3,395
A+ Aa3 5,250 Hawaii State,
GO, UT, Series
CH, 4.75% due
11/01/1999...... -- 5,333
- ----------------------------------------------------------------------------------------------------
ILLINOIS-5.8% AA- NR* 10,000 Chicago,
Illinois, Board
of Education,
COP (School
Reform Equipment
Acquisition),
4.60% due
12/01/1999...... -- 10,085
</TABLE>
F-3
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ILLINOIS AA- Baa1 $ 5,000 Chicago,
(CONCLUDED) Illinois, School
Financing
Authority, 7.25%
due 6/01/1998... $ 5,106 -- -- -- -- --
AAA Aaa 3,000 Cook County,
Illinois, High
School District
No. 205, Revenue
Refunding Bonds
(Thorton
Township), UT,
5.60% due
6/01/1998
(f)(g).......... 3,046 -- -- -- -- --
Illinois State,
Refunding, UT:
AA Aa3 4,600 3.90% due
12/01/1998...... 4,597 -- -- -- -- --
AAA Aaa 3,500 5.125% due
12/01/1999 (f).. 3,588 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
KENTUCKY- Kentucky State
2.0% Property and
Buildings
Commission,
Revenue
Refunding Bonds:
A+ A 5,000 (Project No.
55), 4.10% due
9/01/1998....... 5,011 -- -- -- -- --
A+ A 4,000 (Project No.
56), 5% due
11/01/1998...... 4,051 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
LOUISIANA- A1+ VMIG1# 5,000 Louisiana State
5.4% Recovery
District Sales
Tax Revenue
Bonds, 4.25%
due 7/01/1998
(d)(g).......... 5,024 -- -- -- -- --
AAA Aaa 19,230 Louisiana State
Refunding,
Series A, 5.50%
due 8/01/1998
(f)............. 19,542 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS- NR* A1 285 Boston,
3.3% Massachusetts,
Economic
Development and
Industrial
Corporation,
Public Parking
Facility, Series
1990, 5% due
7/01/2015....... -- -- $ 290 -- -- --
AAA Aaa 250 Boston
Massachusetts,
GO, UT, Series A
5% due
11/01/2004 (f).. -- -- 259 -- -- --
AAA Aaa 300 Chelsea,
Massachusetts,
School Project
Loan Act of
1948, UT, 6% due
6/15/2002 (c)... -- -- 323 -- -- --
AAA Aaa 215 Fall River,
Massachusetts,
GO, 6.30% due
6/01/1988 (d)... -- -- 219 -- -- --
NR* Aa3 225 Framingham,
Massachusetts,
GO, 4.50% due
7/15/2005....... -- -- 227 -- -- --
AAA Aaa 200 Lynn,
Massachusetts,
Water and Sewer
Commission,
Refunding, 4.95%
due 12/01/2002
(f)............. -- -- 206 -- -- --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- ------------------------------------------------------------------------------------------------------
ILLINOIS AA- Baa1 $ 5,000 Chicago,
(CONCLUDED) Illinois, School
Financing
Authority, 7.25%
due 6/01/1998... -- $ 5,106
AAA Aaa 3,000 Cook County,
Illinois, High
School District
No. 205, Revenue
Refunding Bonds
(Thorton
Township), UT,
5.60% due
6/01/1998
(f)(g).......... -- 3,046
Illinois State,
Refunding, UT:
AA Aa3 4,600 3.90% due
12/01/1998...... -- 4,597
AAA Aaa 3,500 5.125% due
12/01/1999 (f).. -- 3,588
- ------------------------------------------------------------------------------------------------------
KENTUCKY- Kentucky State
2.0% Property and
Buildings
Commission,
Revenue
Refunding Bonds:
A+ A 5,000 (Project No.
55), 4.10% due
9/01/1998....... -- 5,011
A+ A 4,000 (Project No.
56), 5% due
11/01/1998...... -- 4,051
- ------------------------------------------------------------------------------------------------------
LOUISIANA- A1+ VMIG1# 5,000 Louisiana State
5.4% Recovery
District Sales
Tax Revenue
Bonds, 4.25%
due 7/01/1998
(d)(g).......... -- 5,024
AAA Aaa 19,230 Louisiana State
Refunding,
Series A, 5.50%
due 8/01/1998
(f)............. -- 19,542
- ------------------------------------------------------------------------------------------------------
MASSACHUSETTS- NR* A1 285 Boston,
3.3% Massachusetts,
Economic
Development and
Industrial
Corporation,
Public Parking
Facility, Series
1990, 5% due
7/01/2015....... -- 290
AAA Aaa 250 Boston
Massachusetts,
GO, UT, Series A
5% due
11/01/2004 (f).. -- 259
AAA Aaa 300 Chelsea,
Massachusetts,
School Project
Loan Act of
1948, UT, 6% due
6/15/2002 (c)... -- 323
AAA Aaa 215 Fall River,
Massachusetts,
GO, 6.30% due
6/01/1988 (d)... -- 219
NR* Aa3 225 Framingham,
Massachusetts,
GO, 4.50% due
7/15/2005....... -- 227
AAA Aaa 200 Lynn,
Massachusetts,
Water and Sewer
Commission,
Refunding, 4.95%
due 12/01/2002
(f)............. -- 206
</TABLE>
F-4
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS A+ A1 $ 100 Massachusetts
(CONTINUED) Bay
Transportation
Authority,
Massachusetts
General
Transportation
System, Series
A, 4.90% due
3/01/2004....... -- -- $ 102 -- -- --
AAA Aaa 250 Massachusetts
Education Loan
Authority,
Education Loan
Revenue
Refunding Bonds,
AMT, Issue E,
Series B, 5.50%
due 7/01/2001
(c)............. -- -- 261 -- -- --
A+ A1 750 Massachusetts
State GO,
Refunding Series
B, 6.25% due
8/01/2001....... -- -- 806 -- -- --
Massachusetts
State Health and
Educational
Facilities
Authority
Revenue Bonds:
A1+ VMIG1# 200 (Capital Asset
Program), VRDN,
Series B, 3.45%
due 7/01/2005
(b)(d).......... -- -- 200 -- -- --
A1+ VMIG1# 100 (Capital Asset
Program), VRDN,
Series C, 3.50%
due 7/01/2005
(b)(d)......... -- -- 100 -- -- --
AAA Aaa 200 Refunding
(Baystate
Medical Center),
Series D, 4.60%
due 7/01/2002
(f)............. -- -- 202 -- -- --
NR* MIG1# 100 Massachusetts
State Industrial
Finance Agency,
Health Care
Facility Revenue
Bonds (Beverly
Enterprises-
DEDHM), VRDN,
3.65% due
4/01/2009 (b)... -- -- 100 -- -- --
AAA Aaa 200 Massachusetts
State Industrial
Finance Agency,
Revenue
Refunding Bonds
(Worcester
Polytechnic),
Series II, 4.50%
due 9/01/2002
(d)............. -- -- 202 -- -- --
AA A1 300 Massachusetts
State Special
Obligation
Revenue Bonds
(Highway
Improvement
Loan), Series A,
5.90% due
6/01/2001....... -- -- 318 -- -- --
AAA Aaa 250 Massachusetts
State Water
Resource
Authority,
Series A, 6.75%
due
7/15/2002 (a)... -- -- 282 -- -- --
NR* Aaa 150 Nantucket,
Massachusetts,
GO, 5.75% due
7/15/2005 (d)... -- -- 163 -- -- --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------
MASSACHUSETTS A+ A1 $ 100 Massachusetts
(CONTINUED) Bay
Transportation
Authority,
Massachusetts
General
Transportation
System, Series
A, 4.90% due
3/01/2004....... -- $ 102
AAA Aaa 250 Massachusetts
Education Loan
Authority,
Education Loan
Revenue
Refunding Bonds,
AMT, Issue E,
Series B, 5.50%
due 7/01/2001
(c)............. -- 261
A+ A1 750 Massachusetts
State GO,
Refunding Series
B, 6.25% due
8/01/2001....... -- 806
Massachusetts
State Health and
Educational
Facilities
Authority
Revenue Bonds:
A1+ VMIG1# 200 (Capital Asset
Program), VRDN,
Series B, 3.45%
due 7/01/2005
(b)(d).......... -- 200
A1+ VMIG1# 100 (Capital Asset
Program), VRDN,
Series C, 3.50%
due 7/01/2005
(b)(d)......... -- 100
AAA Aaa 200 Refunding
(Baystate
Medical Center),
Series D, 4.60%
due 7/01/2002
(f)............. -- 202
NR* MIG1# 100 Massachusetts
State Industrial
Finance Agency,
Health Care
Facility Revenue
Bonds (Beverly
Enterprises-
DEDHM), VRDN,
3.65% due
4/01/2009 (b)... -- 100
AAA Aaa 200 Massachusetts
State Industrial
Finance Agency,
Revenue
Refunding Bonds
(Worcester
Polytechnic),
Series II, 4.50%
due 9/01/2002
(d)............. -- 202
AA A1 300 Massachusetts
State Special
Obligation
Revenue Bonds
(Highway
Improvement
Loan), Series A,
5.90% due
6/01/2001....... -- 318
AAA Aaa 250 Massachusetts
State Water
Resource
Authority,
Series A, 6.75%
due
7/15/2002 (a)... -- 282
NR* Aaa 150 Nantucket,
Massachusetts,
GO, 5.75% due
7/15/2005 (d)... -- 163
</TABLE>
F-5
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS NR* A1 $ 500 New England
(CONCLUDED) Education Loan
Marketing
Corporation,
Massachusetts
Student Loan
Revenue Bonds,
AMT, Sub-Issue
F, 6.60% due
9/01/2002....... -- -- $ 536 -- -- --
A- A1 10,160 New England
Education Loan
Marketing
Corporation
Refunding Bonds
Massachusetts
Student Loan),
Series D, 4.75%
due 7/01/1998... $ 10,226 -- -- -- -- --
AA Aa1 100 Peabody,
Massachusetts,
GO, Series A,
4.50% due
8/01/2000....... -- -- 101 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
MICHIGAN- AAA Aaa 200 Anchor Bay,
4.1% Michigan, School
District, UT,
6.30% due
5/01/2004 (d)... -- -- -- $ 222 -- --
AA Aa2 110 Ann Arbor
Michigan, School
District, Public
Schools,
Refunding, UT,
4.75%
due 5/01/2000... -- -- -- 112 -- --
AAA Aaa 105 Chelsea,
Michigan, School
District, UT,
6.75% due
5/01/2002 (f)... -- -- -- 116 -- --
AAA Aaa 150 Chippewa Valley,
Michigan,
Schools,
Refunding, UT,
4.90% due
5/01/2004 (f)... -- -- -- 154 -- --
AAA Aaa 250 Dearborn,
Michigan,
Economic
Development
Corporation,
Hospital Revenue
Bonds (Oakwood
Obligated
Group), Series
A, 6.95% due
8/15/2001 (a)(d).. -- -- -- 280 -- --
Detroit,
Michigan,
Distributable
State Aid (c):
AAA Aaa 8,000 7.20% due
5/01/2009 (a)... 8,583 -- -- -- -- --
AAA Aaa 200 Refunding, UT,
5.70% due
5/01/2001....... -- -- -- 210 -- --
AAA Aaa 250 Detroit,
Michigan, Water
Supply System,
Revenue
Refunding Bonds,
6.20%
due 7/01/2004
(f)............. -- -- -- 274 -- --
AAA Aaa 200 Eastern Michigan
University,
General Revenue
Refunding Bonds,
5.40% due
6/01/1998 (c)... -- -- -- 203 -- --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------
MASSACHUSETTS NR* A1 $ 500 New England
(CONCLUDED) Education Loan
Marketing
Corporation,
Massachusetts
Student Loan
Revenue Bonds,
AMT, Sub-Issue
F, 6.60% due
9/01/2002....... -- $ 536
A- A1 10,160 New England
Education Loan
Marketing
Corporation
Refunding Bonds
Massachusetts
Student Loan),
Series D, 4.75%
due 7/01/1998... -- 10,226
AA Aa1 100 Peabody,
Massachusetts,
GO, Series A,
4.50% due
8/01/2000....... -- 101
- -------------------------------------------------------------------------------------------------------
MICHIGAN- AAA Aaa 200 Anchor Bay,
4.1% Michigan, School
District, UT,
6.30% due
5/01/2004 (d)... -- 222
AA Aa2 110 Ann Arbor
Michigan, School
District, Public
Schools,
Refunding, UT,
4.75%
due 5/01/2000... -- 112
AAA Aaa 105 Chelsea,
Michigan, School
District, UT,
6.75% due
5/01/2002 (f)... -- 116
AAA Aaa 150 Chippewa Valley,
Michigan,
Schools,
Refunding, UT,
4.90% due
5/01/2004 (f)... -- 154
AAA Aaa 250 Dearborn,
Michigan,
Economic
Development
Corporation,
Hospital Revenue
Bonds (Oakwood
Obligated
Group), Series
A, 6.95% due
8/15/2001 (a)(d).. -- 280
Detroit,
Michigan,
Distributable
State Aid (c):
AAA Aaa 8,000 7.20% due
5/01/2009 (a)... -- 8,583
AAA Aaa 200 Refunding, UT,
5.70% due
5/01/2001....... -- 210
AAA Aaa 250 Detroit,
Michigan, Water
Supply System,
Revenue
Refunding Bonds,
6.20%
due 7/01/2004
(f)............. -- 274
AAA Aaa 200 Eastern Michigan
University,
General Revenue
Refunding Bonds,
5.40% due
6/01/1998 (c)... -- 203
</TABLE>
F-6
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
MICHIGAN AAA Aaa $ 200 Gull Lake,
(CONCLUDED) Michigan,
Community School
District, GO,
UT, 6.80% due
5/01/2001
(a)(f).......... -- -- -- $ 222 -- --
Michigan
Municipal Bond
Authority
Revenue Bonds:
AAA Aaa 200 (Local
Government Loan
Program),
Series C, 5.50%
due 5/01/2003
(d)............. -- -- -- 212 -- --
AA Aa2 450 Refunding
(Local
Government-
Qualified
School), Series
A, 6% due
5/01/2001....... -- -- -- 478 -- --
AA+ Aa1 200 (State
Revolving Fund),
7% due
10/01/2004
(g)............. -- -- -- 231 -- --
Michigan State
Building
Authority,
Revenue
Refunding Bonds,
Series I:
AA- A1 6,000 5.80% due
10/01/1998...... $ 6,128 -- -- -- -- --
AA- A1 200 6.40% due
10/01/2004...... -- -- -- 218 -- --
AA- A1 200 Michigan State
Comprehensive
Transportation,
Revenue
Refunding Bonds,
Series B, 5.625%
due 5/15/2003... -- -- -- 213 -- --
NR* Aaa 100 Michigan State
Hospital Finance
Authority
Revenue Bonds
(McLaren
Obligated
Group), Series
A, 7.50% due
9/15/2001 (a)... -- -- -- 114 -- --
AA Aa2 200 Michigan State
Recreation
Program, GO, 6%
due 11/01/2004.. -- -- -- 219 -- --
AAA Aaa 160 Michigan State,
Underground
Storage Tank
Financial
Assurance
Authority,
Revenue
Refunding Bonds,
Series I, 6% due
5/01/2004 (c)... -- -- -- 175 -- --
AAA Aaa 235 Royal Oak,
Michigan,
Refunding, UT,
4% due
10/01/1997 (c).. -- -- -- 235 -- --
- ------------------------------------------------------------------------------------------------------------------------
MINNESOTA- AAA Aaa 2,385 Metropolitan
1.2% Council,
Minnesota (St.
Paul
Metropolitan
Area Transit),
UT, Series C,
4.75% due
2/01/2000....... 2,427 -- -- -- -- --
AAA Aaa 2,965 Minnesota State,
HFA (Rental
Housing),
Refunding Bonds,
Series D, 4.50%
due 8/01/1999
(d)............. 2,991 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------
MICHIGAN AAA Aaa $ 200 Gull Lake,
(CONCLUDED) Michigan,
Community School
District, GO,
UT, 6.80% due
5/01/2001
(a)(f).......... -- $ 222
Michigan
Municipal Bond
Authority
Revenue Bonds:
AAA Aaa 200 (Local
Government Loan
Program),
Series C, 5.50%
due 5/01/2003
(d)............. -- 212
AA Aa2 450 Refunding
(Local
Government-
Qualified
School), Series
A, 6% due
5/01/2001....... -- 478
AA+ Aa1 200 (State
Revolving Fund),
7% due
10/01/2004
(g)............. -- 231
Michigan State
Building
Authority,
Revenue
Refunding Bonds,
Series I:
AA- A1 6,000 5.80% due
10/01/1998...... -- 6,128
AA- A1 200 6.40% due
10/01/2004...... -- 218
AA- A1 200 Michigan State
Comprehensive
Transportation,
Revenue
Refunding Bonds,
Series B, 5.625%
due 5/15/2003... -- 213
NR* Aaa 100 Michigan State
Hospital Finance
Authority
Revenue Bonds
(McLaren
Obligated
Group), Series
A, 7.50% due
9/15/2001 (a)... -- 114
AA Aa2 200 Michigan State
Recreation
Program, GO, 6%
due 11/01/2004.. -- 219
AAA Aaa 160 Michigan State,
Underground
Storage Tank
Financial
Assurance
Authority,
Revenue
Refunding Bonds,
Series I, 6% due
5/01/2004 (c)... -- 175
AAA Aaa 235 Royal Oak,
Michigan,
Refunding, UT,
4% due
10/01/1997 (c).. -- 235
- ---------------------------------------------------------------------------------------------------
MINNESOTA- AAA Aaa 2,385 Metropolitan
1.2% Council,
Minnesota (St.
Paul
Metropolitan
Area Transit),
UT, Series C,
4.75% due
2/01/2000....... -- 2,427
AAA Aaa 2,965 Minnesota State,
HFA (Rental
Housing),
Refunding Bonds,
Series D, 4.50%
due 8/01/1999
(d)............. -- 2,991
- ---------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI- NR* Aaa $10,000 Mississippi
2.2% Higher Education
Assistance
Corporation,
Student Loan
Revenue Bonds,
AMT, Series B,
4.80% due
9/01/1998....... $ 10,076 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
NEBRASKA- A+ A1 6,250 Nebraska Public
1.4% Power District
Revenue Bonds
(Consumer Public
Power District),
4.90% due
7/01/1998....... 6,309 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
NEW JERSEY- NR* Aaa 300 Bergen County,
4.4% New Jersey,
General
Improvement
Bonds, UT, 5.20%
due 10/01/1999.. -- -- -- -- $ 308 --
NR* NR* 400 East Orange, New
Jersey, BAN
(Water and
Sewer), GO, UT,
4.75% due
8/28/1997....... -- -- -- -- 400 --
AAA Aaa 600 Elizabeth, New
Jersey, General
Improvement and
Sewer Utility,
Refunding, GO,
UT, 6% due
8/15/2004 (c)... -- -- -- -- 659 --
SP1+ VMIG1# 300 Mercer County,
New Jersey,
Improvement
Authority
Revenue Bonds,
VRDN, 3.35% due
11/01/1998 (b).. -- -- -- -- 300 --
AA+ Aaa 400 Monmouth County,
New Jersey,
General
Improvement
Bonds, GO, UT,
6.625% due
8/01/2000....... -- -- -- -- 419 --
AAA Aaa 300 Morris County,
New Jersey,
General
Improvement
Bonds, GO,
4.625% due
8/15/2003....... -- -- -- -- 307 --
NR* NR* 195 New Brunswick,
New Jersey,
Temporary Notes,
UT, 4% due
12/09/1997...... -- -- -- -- 195 --
AAA Aaa 1,000 New Jersey EDA,
Market
Transition
Facility Revenue
Bonds, Senior
Lien, Series A,
7% due 7/01/2004
(d)............. -- -- -- -- 1,148 --
A1+ VMIG1# 300 New Jersey EDA,
Natural Gas
Facilities
Revenue Bonds
(NUI Corporation
Project), VRDN,
AMT, Series A,
3.30% due
6/01/2026
(b)(c).......... -- -- -- -- 300 --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------
MISSISSIPPI- NR* Aaa $10,000 Mississippi
2.2% Higher Education
Assistance
Corporation,
Student Loan
Revenue Bonds,
AMT, Series B,
4.80% due
9/01/1998....... -- $10,076
- ---------------------------------------------------------------------------------------------------
NEBRASKA- A+ A1 6,250 Nebraska Public
1.4% Power District
Revenue Bonds
(Consumer Public
Power District),
4.90% due
7/01/1998....... -- 6,309
- ---------------------------------------------------------------------------------------------------
NEW JERSEY- NR* Aaa 300 Bergen County,
4.4% New Jersey,
General
Improvement
Bonds, UT, 5.20%
due 10/01/1999.. -- 308
NR* NR* 400 East Orange, New
Jersey, BAN
(Water and
Sewer), GO, UT,
4.75% due
8/28/1997....... -- 400
AAA Aaa 600 Elizabeth, New
Jersey, General
Improvement and
Sewer Utility,
Refunding, GO,
UT, 6% due
8/15/2004 (c)... -- 659
SP1+ VMIG1# 300 Mercer County,
New Jersey,
Improvement
Authority
Revenue Bonds,
VRDN, 3.35% due
11/01/1998 (b).. -- 300
AA+ Aaa 400 Monmouth County,
New Jersey,
General
Improvement
Bonds, GO, UT,
6.625% due
8/01/2000....... -- 419
AAA Aaa 300 Morris County,
New Jersey,
General
Improvement
Bonds, GO,
4.625% due
8/15/2003....... -- 307
NR* NR* 195 New Brunswick,
New Jersey,
Temporary Notes,
UT, 4% due
12/09/1997...... -- 195
AAA Aaa 1,000 New Jersey EDA,
Market
Transition
Facility Revenue
Bonds, Senior
Lien, Series A,
7% due 7/01/2004
(d)............. -- 1,148
A1+ VMIG1# 300 New Jersey EDA,
Natural Gas
Facilities
Revenue Bonds
(NUI Corporation
Project), VRDN,
AMT, Series A,
3.30% due
6/01/2026
(b)(c).......... -- 300
</TABLE>
F-8
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NEW JERSEY NR* NR* $ 3,000 New Jersey, EDA,
(CONTINUED) Economic Growth
Revenue Bonds
(Greater Mercer
County), VRDN,
Series C, 4.25%
due
11/01/2011 (b).. $ 3,000 -- -- -- -- --
A1+ Aaa 200 New Jersey EDA,
Water Facilities
Revenue
Refunding Bonds
(United Water of
New Jersey, Inc.
Project), VRDN,
AMT, Series A,
3% due
11/01/2026 (b)(c).. -- -- -- -- $ 200 --
A1+ VMIG1# 200 New Jersey
Sports and
Exposition
Authority
Revenue Bonds
(State
Contract), VRDN,
Series C, 3.45%
due 9/01/2024
(b)(d).......... -- -- -- -- 200 --
AAA Aaa 5,715 New Jersey State
Educational
Facilities
Authority
Revenue Bonds
(Higher
Educational
Facilities Trust
Fund), Series A,
5.125% due
9/01/1999 (c)... 5,844 -- -- -- -- --
AAA Aaa 300 New Jersey State
Educational
Facilities
Authority
Revenue Bonds
(Princeton
University),
Series E, 4.05%
due 7/01/2000... -- -- -- -- 301 --
AA+ Aa1 4,250 New Jersey
State,
Refunding, UT,
Series O, 5.10%
due 2/15/2000... 4,361 -- -- -- -- --
NR* Aaa 200 New Jersey State
Transportation
Trust Fund
Authority
(Transportation
System), Series
A, 5.40% due
12/15/2002 (g).. -- -- -- -- 212 --
AAA VMIG1# 300 New Jersey State
Turnpike
Authority,
Turnpike Revenue
Refunding Bonds,
VRDN, Series D,
3.30% due
1/01/2018
(b)(f).......... -- -- -- -- 300 --
NR* Aa2 400 Ocean County,
New Jersey,
Utilities
Authority,
Wastewater
Revenue Bonds,
Series A, 6.125%
due 1/01/2003... -- -- -- -- 436 --
A1+ VMIG1# 300 Port Authority
of New York and
New Jersey,
Special
Obligation
Revenue Bonds
(Versatile
Structure
Obligation),
VRDN, Series 3,
3.55% due
6/01/2020 (b)... -- -- -- -- 300 --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NEW JERSEY NR* NR* $ 3,000 New Jersey, EDA,
(CONTINUED) Economic Growth
Revenue Bonds
(Greater Mercer
County), VRDN,
Series C, 4.25%
due
11/01/2011 (b).. -- $ 3,000
A1+ Aaa 200 New Jersey EDA,
Water Facilities
Revenue
Refunding Bonds
(United Water of
New Jersey, Inc.
Project), VRDN,
AMT, Series A,
3% due
11/01/2026 (b)(c).. -- 200
A1+ VMIG1# 200 New Jersey
Sports and
Exposition
Authority
Revenue Bonds
(State
Contract), VRDN,
Series C, 3.45%
due 9/01/2024
(b)(d).......... -- 200
AAA Aaa 5,715 New Jersey State
Educational
Facilities
Authority
Revenue Bonds
(Higher
Educational
Facilities Trust
Fund), Series A,
5.125% due
9/01/1999 (c)... -- 5,844
AAA Aaa 300 New Jersey State
Educational
Facilities
Authority
Revenue Bonds
(Princeton
University),
Series E, 4.05%
due 7/01/2000... -- 301
AA+ Aa1 4,250 New Jersey
State,
Refunding, UT,
Series O, 5.10%
due 2/15/2000... -- 4,361
NR* Aaa 200 New Jersey State
Transportation
Trust Fund
Authority
(Transportation
System), Series
A, 5.40% due
12/15/2002 (g).. -- 212
AAA VMIG1# 300 New Jersey State
Turnpike
Authority,
Turnpike Revenue
Refunding Bonds,
VRDN, Series D,
3.30% due
1/01/2018
(b)(f).......... -- 300
NR* Aa2 400 Ocean County,
New Jersey,
Utilities
Authority,
Wastewater
Revenue Bonds,
Series A, 6.125%
due 1/01/2003... -- 436
A1+ VMIG1# 300 Port Authority
of New York and
New Jersey,
Special
Obligation
Revenue Bonds
(Versatile
Structure
Obligation),
VRDN, Series 3,
3.55% due
6/01/2020 (b)... -- 300
</TABLE>
F-9
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NEW JERSEY AAA Aaa $ 125 Somerset County,
(CONCLUDED) New Jersey, GO,
UT, 5.875% due
12/01/2001...... -- -- -- -- $ 134 --
A1+ P1 200 Union County,
New Jersey,
Industrial
Pollution
Control
Financing
Authority,
Refunding Bonds
(Exxon Project),
3.10% due
10/01/2024...... -- -- -- -- 200 --
AA+ Aaa 340 Union County,
New Jersey,
Refunding, GO,
UT, 5.875% due
3/01/1999....... -- -- -- -- 350 --
- -------------------------------------------------------------------------------------------------------------------------
NEW MEXICO- AA Aa2 5,000 New Mexico State
1.1% Severance Tax
Revenue Bonds,
4.50% due
7/01/1999....... $ 5,051 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
NEW YORK- AAA Aaa 600 Clifton Park,
13.1% New York, Water
Authority, Water
System Revenue
Bonds, Series A,
6.375%
due 10/01/2002
(a)(f).......... -- -- -- -- -- $ 671
Nassau County,
New York,
General
Improvement
Bonds, UT (f):
AAA Aaa 400 Series O,
5.625% due
8/01/2004....... -- -- -- -- -- 430
AAA Aaa 700 Series Q, 5.10%
due 8/01/2003... -- -- -- -- -- 729
AAA Aaa 750 New York City,
New York, IDA,
Civic Facilities
Revenue Bonds
(USTA
National Tennis
Center Project),
6% due
11/15/2002 (e).. -- -- -- -- -- 819
New York City,
New York,
Municipal
Assistance
Corporation:
AA- Aa2 4,550 Refunding
Bonds, Series E,
5.50% due
7/01/2000....... 4,732 -- -- -- -- --
AA Aa2 800 Series 68,
7.10% due
7/01/2000....... -- -- -- -- 860
New York City,
New York,
Municipal Water
Finance
Authority, Water
and Sewer System
Revenue Bonds,
VRDN (b)(f):
A1+ VMIG1# 600 Series A, 3.60%
due 6/15/2025... -- -- -- -- -- 600
A1+ VMIG1# 1,600 Series G, 3.65%
due 6/15/2024... 1,500 -- -- -- -- 100
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------
NEW JERSEY AAA Aaa $ 125 Somerset County,
(CONCLUDED) New Jersey, GO,
UT, 5.875% due
12/01/2001...... -- $ 134
A1+ P1 200 Union County,
New Jersey,
Industrial
Pollution
Control
Financing
Authority,
Refunding Bonds
(Exxon Project),
3.10% due
10/01/2024...... -- 200
AA+ Aaa 340 Union County,
New Jersey,
Refunding, GO,
UT, 5.875% due
3/01/1999....... -- 350
- ---------------------------------------------------------------------------------------------------
NEW MEXICO- AA Aa2 5,000 New Mexico State
1.1% Severance Tax
Revenue Bonds,
4.50% due
7/01/1999....... -- 5,051
- ---------------------------------------------------------------------------------------------------
NEW YORK- AAA Aaa 600 Clifton Park,
13.1% New York, Water
Authority, Water
System Revenue
Bonds, Series A,
6.375%
due 10/01/2002
(a)(f).......... -- 671
Nassau County,
New York,
General
Improvement
Bonds, UT (f):
AAA Aaa 400 Series O,
5.625% due
8/01/2004....... -- 430
AAA Aaa 700 Series Q, 5.10%
due 8/01/2003... -- 729
AAA Aaa 750 New York City,
New York, IDA,
Civic Facilities
Revenue Bonds
(USTA
National Tennis
Center Project),
6% due
11/15/2002 (e).. -- 819
New York City,
New York,
Municipal
Assistance
Corporation:
AA- Aa2 4,550 Refunding
Bonds, Series E,
5.50% due
7/01/2000....... -- 4,732
AA Aa2 800 Series 68,
7.10% due
7/01/2000....... -- 860
New York City,
New York,
Municipal Water
Finance
Authority, Water
and Sewer System
Revenue Bonds,
VRDN (b)(f):
A1+ VMIG1# 600 Series A, 3.60%
due 6/15/2025... -- 600
A1+ VMIG1# 1,600 Series G, 3.65%
due 6/15/2024... -- 1,600
</TABLE>
F-10
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NEW YORK BBB+ Baa1 $ 610 New York City,
(CONTINUED) New York,
Refunding, UT,
Series A, 6% due
8/01/2000....... -- -- -- -- -- $ 641
A- A2 11,820 New York State
Crossover
Refunding, 7.80%
due 11/15/1998.. $ 12,391 -- -- -- -- --
New York State
Dormitory
Revenue Bonds:
AAA Aaa 500 (College and
University
Education
Loans), AMT,
6.30% due
7/01/2002 (d)... -- -- -- -- -- 547
BBB Baa1 6,675 (Consolidated
City University
System) Series
A, 4.50% due
7/01/1998....... 6,714 -- -- -- -- --
BBB Baa1 10,885 (Consolidated
City University
System), Series
A, 4.75% due
7/01/1999....... 11,028 -- -- -- -- --
AA Aa 700 Refunding
(Cornell
University), 5%
due 7/01/2005.. -- -- -- -- -- 732
AAA Aaa 3,000 (State
University
Educational)
Series A,
7.125% due
5/15/2017(a).... 3,220 -- -- -- -- --
A- Aa 400 New York State
Environmental
Facilities
Corporation,
PCR, State Water
Revolving Fund
(New York City
Municipal Water
Finance
Authority
Project), Series
E, 5.60% due
6/15/1999....... -- -- -- -- -- 412
A- A2 600 New York State
Environmental
Quality, GO, 6%
due 12/01/2004.. -- -- -- -- -- 658
New York State,
GO:
A- A2 505 6% due
7/15/2006....... -- -- -- -- -- 559
A- A2 735 Refunding,
Series B, 6.25%
due 8/15/2004.. -- -- -- -- -- 815
New York State
Local Government
Assistance
Corporation (a):
A A3 625 Series A, 7%
due 4/01/2001... -- -- -- -- -- 698
AAA Aaa 600 Series D, 7%
due 4/01/2002... -- -- -- -- -- 682
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- --------------------------------------------------------------------------------
NEW YORK BBB+ Baa1 $ 610 New York City,
(CONTINUED) New York,
Refunding, UT,
Series A, 6% due
8/01/2000....... -- $ 641
A- A2 11,820 New York State
Crossover
Refunding, 7.80%
due 11/15/1998.. -- 12,391
New York State
Dormitory
Revenue Bonds:
AAA Aaa 500 (College and
University
Education
Loans), AMT,
6.30% due
7/01/2002 (d)... -- 547
BBB Baa1 6,675 (Consolidated
City University
System) Series
A, 4.50% due
7/01/1998....... -- 6,714
BBB Baa1 10,885 (Consolidated
City University
System), Series
A, 4.75% due
7/01/1999....... -- 11,028
AA Aa 700 Refunding
(Cornell
University), 5%
due 7/01/2005.. -- 732
AAA Aaa 3,000 (State
University
Educational)
Series A,
7.125% due
5/15/2017(a).... -- 3,220
A- Aa 400 New York State
Environmental
Facilities
Corporation,
PCR, State Water
Revolving Fund
(New York City
Municipal Water
Finance
Authority
Project), Series
E, 5.60% due
6/15/1999....... -- 412
A- A2 600 New York State
Environmental
Quality, GO, 6%
due 12/01/2004.. -- 658
New York State,
GO:
A- A2 505 6% due
7/15/2006....... -- 559
A- A2 735 Refunding,
Series B, 6.25%
due 8/15/2004.. -- 815
New York State
Local Government
Assistance
Corporation (a):
A A3 625 Series A, 7%
due 4/01/2001... -- 698
AAA Aaa 600 Series D, 7%
due 4/01/2002... -- 682
</TABLE>
F-11
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS VALUE ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NEW YORK New York State
(CONCLUDED) Medical Care
Facilities
Finance Agency,
Revenue Bonds,
Series A:
AAA Aaa $ 725 (Mental Health
Services
Facilities),
7.75% due
2/15/2001 (a)... -- -- -- -- -- $ 825
AA Aa 650 (Secured
Mortgage
Program, Adult
Day Care), 6%
due 11/15/2003
(i)............. -- -- -- -- -- 702
AA NR* 675 New York State
Tax Exempt
Revenue Bonds
(Rochester
Museum of
Science), 5.60%
due 12/01/2015.. -- -- -- -- -- 679
AAA VMIG1# 100 New York State
Thruway
Authority,
General Revenue
Bonds, VRDN,
3.60% due
1/01/2024 (b)
(f)............. -- -- -- -- -- 100
BBB Aaa 5,000 New York State
Urban
Development
Corporation,
Revenue Bonds
(State
Facilities),
7.60 due
4/01/2020 (a)... $ 5,668 -- -- -- -- --
BBB Baa1 450 New York State
Urban
Development
Corporation,
Revenue
Refunding Bonds
(Center for
Industrial
Innovation
Project), 4.60%
due 1/01/1998... -- -- -- -- -- 451
AAA Aaa 760 Port Authority
of New York and
New Jersey,
Refunding, AMT
UT, Consolidated
97th Series,
7.10% due
7/15/2003 (f)... -- -- -- -- -- 867
A1+ VMIG1# 200 Syracuse, New
York, IDA, Civic
Facility Revenue
Bonds (Multi-
Model Syracuse
University
Project), VRDN,
3.50% due
3/01/2023 (b)... -- -- -- -- -- 200
Triborough
Bridge and
Tunnel
Authority, New
York, Revenue
Bonds:
A+ Aa 340 Series R, 6.90%
due 1/01/2000... -- -- -- -- -- 363
A1+ VMIG1# 200 Special
Obligation,
VRDN, 3.60% due
1/01/2024 (b)
(f)............. -- -- -- -- -- 200
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS VALUE ISSUE (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C>
- -----------------------------------------------------------------------------------
NEW YORK New York State
(CONCLUDED) Medical Care
Facilities
Finance Agency,
Revenue Bonds,
Series A:
AAA Aaa $ 725 (Mental Health
Services
Facilities),
7.75% due
2/15/2001 (a)... -- $ 825
AA Aa 650 (Secured
Mortgage
Program, Adult
Day Care), 6%
due 11/15/2003
(i)............. -- 702
AA NR* 675 New York State
Tax Exempt
Revenue Bonds
(Rochester
Museum of
Science), 5.60%
due 12/01/2015.. -- 679
AAA VMIG1# 100 New York State
Thruway
Authority,
General Revenue
Bonds, VRDN,
3.60% due
1/01/2024 (b)
(f)............. -- 100
BBB Aaa 5,000 New York State
Urban
Development
Corporation,
Revenue Bonds
(State
Facilities),
7.60 due
4/01/2020 (a)... -- 5,668
BBB Baa1 450 New York State
Urban
Development
Corporation,
Revenue
Refunding Bonds
(Center for
Industrial
Innovation
Project), 4.60%
due 1/01/1998... -- 451
AAA Aaa 760 Port Authority
of New York and
New Jersey,
Refunding, AMT
UT, Consolidated
97th Series,
7.10% due
7/15/2003 (f)... -- 867
A1+ VMIG1# 200 Syracuse, New
York, IDA, Civic
Facility Revenue
Bonds (Multi-
Model Syracuse
University
Project), VRDN,
3.50% due
3/01/2023 (b)... -- 200
Triborough
Bridge and
Tunnel
Authority, New
York, Revenue
Bonds:
A+ Aa 340 Series R, 6.90%
due 1/01/2000... -- 363
A1+ VMIG1# 200 Special
Obligation,
VRDN, 3.60% due
1/01/2024 (b)
(f)............. -- 200
- -----------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
OHIO-8.2% AAA Aaa $ 2,000 Cincinnati,
Ohio, City
School District,
TAN, Series B,
5% due
12/01/1998 (c).. $ 2,028 -- -- -- -- --
NR* Aa1 6,000 Franklin County,
Ohio, Hospital
Revenue
Refunding Bonds
(US Health
Corp.), Series
B, 4.50% due
12/01/2020...... 6,065 -- -- -- -- --
A+ VMIG1# 7,000 Ohio State Air
Quality
Development
Authority,
Revenue
Refunding Bonds
(Ohio Edison
Project), Series
A, 4.35% due
2/01/2014....... 7,021 -- -- -- -- --
AAA Aa1 12,400 Ohio State
Highway, GO,
Series V, 4.70%
due 5/15/2000... 12,623 -- -- -- -- --
AAA Aaa 3,500 Ohio State
Public
Facilities
Commission
(Higher
Education
Capital
Facilities),
Series II-A,
4.375% due
11/01/1999 (d).. 3,530 -- -- -- -- --
NR* Aaa 6,000 Student Loan
Funding
Corporation,
Cincinnati,
Ohio, Student
Loan Revenue
Refunding Bonds,
AMT, Series C,
5.70% due
7/01/1999....... 6,156 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
OKLAHOMA- AA Aa 2,400 Tulsa, Oklahoma,
0.5% GO, UT, 5.125%
due 5/01/1999... 2,448 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
OREGON-0.7% A1+ VMIG1# 3,000 Port Saint
Helens, Oregon,
PCR (Portland
General Electric
Company
Project), VRDN,
Series A, 3.35%
due 4/01/2010
(b)............. 3,000 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA- NR* VMIG1# 100 Allegheny
5.1% County,
Pennsylvania,
Hospital
Development
Authority
Revenue Bonds
(Presbyterian
University
Hospital), ACES,
Series B1, 3.60%
due 3/01/2018
(b)............. -- -- -- -- -- --
AAA Aaa 400 Beaver County,
Pennsylvania,
Hospital
Authority,
Revenue
Refunding Bonds
(Medical Center
of Beaver
County, Inc.),
5.70% due
7/01/1999 (a)... -- -- -- -- -- --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1A) (NOTE 1A)
<C> <C> <C> <C> <S> <C> <C>
- --------------------------------------------------------------------------------
OHIO-8.2% AAA Aaa $ 2,000 Cincinnati,
Ohio, City
School District,
TAN, Series B,
5% due
12/01/1998 (c).. -- $ 2,028
NR* Aa1 6,000 Franklin County,
Ohio, Hospital
Revenue
Refunding Bonds
(US Health
Corp.), Series
B, 4.50% due
12/01/2020...... -- 6,065
A+ VMIG1# 7,000 Ohio State Air
Quality
Development
Authority,
Revenue
Refunding Bonds
(Ohio Edison
Project), Series
A, 4.35% due
2/01/2014....... -- 7,021
AAA Aa1 12,400 Ohio State
Highway, GO,
Series V, 4.70%
due 5/15/2000... -- 12,623
AAA Aaa 3,500 Ohio State
Public
Facilities
Commission
(Higher
Education
Capital
Facilities),
Series II-A,
4.375% due
11/01/1999 (d).. -- 3,530
NR* Aaa 6,000 Student Loan
Funding
Corporation,
Cincinnati,
Ohio, Student
Loan Revenue
Refunding Bonds,
AMT, Series C,
5.70% due
7/01/1999....... -- 6,156
- --------------------------------------------------------------------------------
OKLAHOMA- AA Aa 2,400 Tulsa, Oklahoma,
0.5% GO, UT, 5.125%
due 5/01/1999... -- 2,448
- --------------------------------------------------------------------------------
OREGON-0.7% A1+ VMIG1# 3,000 Port Saint
Helens, Oregon,
PCR (Portland
General Electric
Company
Project), VRDN,
Series A, 3.35%
due 4/01/2010
(b)............. 3,000
- --------------------------------------------------------------------------------
PENNSYLVANIA- NR* VMIG1# 100 Allegheny
5.1% County,
Pennsylvania,
Hospital
Development
Authority
Revenue Bonds
(Presbyterian
University
Hospital), ACES,
Series B1, 3.60%
due 3/01/2018
(b)............. $ 100 100
AAA Aaa 400 Beaver County,
Pennsylvania,
Hospital
Authority,
Revenue
Refunding Bonds
(Medical Center
of Beaver
County, Inc.),
5.70% due
7/01/1999 (a)... 412 412
</TABLE>
F-13
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA- AA Aa $ 1,000 Bucks County,
(CONTINUED) Pennsylvania,
UT, Series A,
5.95% due
3/01/2000....... -- -- -- -- -- --
NR* NR* 300 Emmaus,
Pennsylvania,
General
Authority
Revenue Bonds,
VRDN, Sub-Series
E-9, 3.70% due
3/01/2024 (b)... -- -- -- -- -- --
A1+ NR* 300 Harrisburg,
Pennsylvania,
Authority
Revenue Bonds
(Pooled
Financing Fund),
VRDN, 3.85% due
7/01/2021 (b)... -- -- -- -- -- --
A1+ Aaa 150 Lehigh County,
Pennsylvania,
Authority Water
Revenue Bonds,
VRDN, 3.60% due
11/01/2004
(b)(f).......... -- -- -- -- -- --
NR* VMIG1# 300 Pennsylvania
Energy
Development
Authority,
Energy
Development
Revenue Bonds
(B&W Ebensburg
Project), VRDN,
AMT, 3.70% due
12/01/2011 (b).. -- -- -- -- -- --
Pennsylvania
State Higher
Educational
Facilities
Authority,
College and
University
Revenue
Refunding Bonds,
Series A: -- -- -- -- --
A+ Aa3 380 (Thomas
Jefferson
University),
5.75% due
8/15/1998....... -- -- -- -- -- --
AA Aa2 275 (University of
Pennsylvania),
4.70% due
9/01/1997...... -- -- -- -- -- --
AAA Aaa 8,675 Pennsylvania
State, Refunding
Bonds, GO, UT,
5.25% due
11/15/1998 (f).. $ 8,821 -- -- -- -- --
AAA Aaa 255 Pennsylvania
State Turnpike
Commission,
Turnpike Revenue
Refunding Bonds,
Series O, 5.35%
due 12/01/2002
(f)............. -- -- -- -- -- --
Philadelphia,
Pennsylvania,
Hospitals and
Higher Education
Facilities
Authority,
Hospital Revenue
Bonds:
A1+ VMIG1# 3,600 (Children's
Hospital of
Pennsylvania
Project), 3.65%
due 8/01/1997
(a)............. 3,600 -- -- -- -- --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1A) (NOTE 1A)
<C> <C> <C> <C> <S> <C> <C>
- --------------------------------------------------------------------------------
PENNSYLVANIA- AA Aa $ 1,000 Bucks County,
(CONTINUED) Pennsylvania,
UT, Series A,
5.95% due
3/01/2000....... $1,047 $ 1,047
NR* NR* 300 Emmaus,
Pennsylvania,
General
Authority
Revenue Bonds,
VRDN, Sub-Series
E-9, 3.70% due
3/01/2024 (b)... 300 300
A1+ NR* 300 Harrisburg,
Pennsylvania,
Authority
Revenue Bonds
(Pooled
Financing Fund),
VRDN, 3.85% due
7/01/2021 (b)... 300 300
A1+ Aaa 150 Lehigh County,
Pennsylvania,
Authority Water
Revenue Bonds,
VRDN, 3.60% due
11/01/2004
(b)(f).......... 150 150
NR* VMIG1# 300 Pennsylvania
Energy
Development
Authority,
Energy
Development
Revenue Bonds
(B&W Ebensburg
Project), VRDN,
AMT, 3.70% due
12/01/2011 (b).. 300 300
Pennsylvania
State Higher
Educational
Facilities
Authority,
College and
University
Revenue
Refunding Bonds,
Series A:
A+ Aa3 380 (Thomas
Jefferson
University),
5.75% due
8/15/1998....... 387 387
AA Aa2 275 (University of
Pennsylvania),
4.70% due
9/01/1997...... 275 275
AAA Aaa 8,675 Pennsylvania
State, Refunding
Bonds, GO, UT,
5.25% due
11/15/1998 (f).. -- 8,821
AAA Aaa 255 Pennsylvania
State Turnpike
Commission,
Turnpike Revenue
Refunding Bonds,
Series O, 5.35%
due 12/01/2002
(f)............. 269 269
Philadelphia,
Pennsylvania,
Hospitals and
Higher Education
Facilities
Authority,
Hospital Revenue
Bonds:
A1+ VMIG1# 3,600 (Children's
Hospital of
Pennsylvania
Project), 3.65%
due 8/01/1997
(a)............. -- 3,600
</TABLE>
F-14
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA- NR* Aaa $ 1,000 (Children's
(CONCLUDED) Hospital of
Philadelphia
Project), Series
A, 6.50% due
2/15/2002 (a)... -- -- -- -- -- --
A- NR* 650 (Children's
Seashore House),
Series B, 7% due
8/15/2003....... -- -- -- -- -- --
SP1+ MIG1# 300 Philadelphia,
Pennsylvania,
TRAN, Series A,
4.50% due
6/30/1998....... -- -- -- -- --
AAA Aaa 4,145 Pittsburgh,
Pennsylvania,
Refunding, UT,
Series A, 5% due
3/01/2000 (d)... $ 4,235 -- -- -- -- --
AAA Aaa 400 Union County,
Pennsylvania,
Higher
Educational
Facilities
Financing
Authority,
Revenue
Refunding Bonds
(Bucknell
University), 6%
due 4/01/2002
(d)............. -- -- -- -- -- --
AAA Aaa 325 Washington
County,
Pennsylvania,
Lease Authority,
Municipal
Facility Pooled
Capital Revenue
Bonds (Shadyside
Hospital
Project), Series
C, Sub-Series
C1-A, 7.45% due
6/15/2000
(a)(c)(g)....... -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
SOUTH AA A1 8,250 Greenville
CAROLINA- County, South
1.8% Carolina, School
District, UT, 4%
due 3/01/1999... 8,261 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
TENNESSEE- AA NR* 11,885 Clarksville,
2.6% Tennessee,
Public Building
Authority,
Revenue
Refunding Bonds
(Pooled Loan
Program), 4.40%
due 12/01/1998.. 11,945 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
TEXAS-6.1% Brazos, Texas,
Higher Education
Authority Inc.,
Student Loan
Revenue
Refunding Bonds,
AMT:
NR* Aaa 2,200 Senior Lien,
Series A-2,
5.45% due
6/01/1998...... 2,225 -- -- -- -- --
NR* Aa 5,135 Series C-1,
5.60% due
11/01/1997...... 5,155 -- -- -- -- --
AA Aa 2,900 Fort Worth,
Texas, Water and
Sewer Revenue
Bonds, 5.90% due
2/15/2001....... 3,067 -- -- -- -- --
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1A) (NOTE 1A)
<C> <C> <C> <C> <S> <C> <C>
- -------------------------------------------------------------------------------------------
PENNSYLVANIA- NR* Aaa $ 1,000 (Children's
(CONCLUDED) Hospital of
Philadelphia
Project), Series
A, 6.50% due
2/15/2002 (a)... $1,109 $ 1,109
A- NR* 650 (Children's
Seashore House),
Series B, 7% due
8/15/2003....... 724 724
SP1+ MIG1# 300 Philadelphia,
Pennsylvania,
TRAN, Series A,
4.50% due
6/30/1998....... 301 301
AAA Aaa 4,145 Pittsburgh,
Pennsylvania,
Refunding, UT,
Series A, 5% due
3/01/2000 (d)... -- 4,235
AAA Aaa 400 Union County,
Pennsylvania,
Higher
Educational
Facilities
Financing
Authority,
Revenue
Refunding Bonds
(Bucknell
University), 6%
due 4/01/2002
(d)............. 430 430
AAA Aaa 325 Washington
County,
Pennsylvania,
Lease Authority,
Municipal
Facility Pooled
Capital Revenue
Bonds (Shadyside
Hospital
Project), Series
C, Sub-Series
C1-A, 7.45% due
6/15/2000
(a)(c)(g)....... 363 363
- -------------------------------------------------------------------------------------------
SOUTH AA A1 8,250 Greenville
CAROLINA- County, South
1.8% Carolina, School
District, UT, 4%
due 3/01/1999... -- 8,261
- -------------------------------------------------------------------------------------------
TENNESSEE- AA NR* 11,885 Clarksville,
2.6% Tennessee,
Public Building
Authority,
Revenue
Refunding Bonds
(Pooled Loan
Program), 4.40%
due 12/01/1998.. -- 11,945
- -------------------------------------------------------------------------------------------
TEXAS-6.1% Brazos, Texas,
Higher Education
Authority Inc.,
Student Loan
Revenue
Refunding Bonds,
AMT:
NR* Aaa 2,200 Senior Lien,
Series A-2,
5.45% due
6/01/1998...... -- 2,225
NR* Aa 5,135 Series C-1,
5.60% due
11/01/1997...... -- 5,155
AA Aa 2,900 Fort Worth,
Texas, Water and
Sewer Revenue
Bonds, 5.90% due
2/15/2001....... -- 3,067
</TABLE>
F-15
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
TEXAS Harris County,
(CONCLUDED) Texas, Health
Facilities
Development
Corporation,
Hospital Revenue
Bonds, VRDN (b):
A1+ NR* $ 9,000 (Methodist
Hospital), 5.50%
due 12/01/2025.. $ 9,000 -- -- -- -- --
A1+ NR* 1,000 (Saint Luke's
Episcopal
Hospital),
Series B, 5.50%
due 2/15/2016
(a)............. 1,000 -- -- -- -- --
AAA Aaa 2,600 Houston, Texas,
Water and Sewer
Systems, Revenue
Refunding Bonds,
Junion Lien,
Series C, 5.90%
due 12/01/1999
(c)............. 2,707 -- -- -- -- --
NR* Aaa 2,455 Panhandle-
Plains, Texas,
Higher Education
Authority Inc.,
Student Loan
Revenue
Refunding Bonds,
Series C, 4.15%
due 9/01/1997... 2,456 -- -- -- -- --
A+ A2 2,000 Texas Municipal
Power Agency,
Revenue
Refunding Bonds,
GO, Series A,
4.25% due
9/01/1997....... 2,001 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
UTAH-1.0% AAA Aaa 4,700 Utah State,
Building and
Highway Revenue
Bonds, GO, UT,
4.40% due
7/01/1999....... 4,742 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
VIRGINIA-2.2% AAA Aaa 7,060 Virginia State,
GO, UT, 5% due
6/01/2001....... 7,303 -- -- -- -- --
AA Aa 2,555 Virginia State
Transportation
Board,
Transportation
Contract Revenue
Bonds (US Route
58 Corridor),
Series B, 5% due
5/15/2000....... 2,618 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
WASHINGTON- AAA Aaa 5,000 Seattle,
3.2% Washington,
Metropolitan
Seattle
Municipality
Sewer Revenue
Bonds, Series U,
6.60% due
1/01/2032
(a)(f).......... 5,483 -- -- -- -- --
Washington
State, Refunding
Bonds, Motor
Vehicle Fuel
Tax:
AA Aa+ 2,000 Series R-94B,
4.20% due
9/01/1998....... 2,007 -- -- -- -- --
AA Aa+ 2,285 Series R-96A,
5% due
7/01/1998....... 2,310 -- -- -- -- --
AA Aa+ 4,655 Series R-96B,
5% due
7/01/1998....... 4,705 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS AMOUNT ISSUE (NOTE 1A) (NOTE 1A)
<C> <C> <C> <C> <S> <C> <C>
- --------------------------------------------------------------------------------
TEXAS Harris County,
(CONCLUDED) Texas, Health
Facilities
Development
Corporation,
Hospital Revenue
Bonds, VRDN (b):
A1+ NR* $ 9,000 (Methodist
Hospital), 5.50%
due 12/01/2025.. -- $ 9,000
A1+ NR* 1,000 (Saint Luke's
Episcopal
Hospital),
Series B, 5.50%
due 2/15/2016
(a)............. -- 1,000
AAA Aaa 2,600 Houston, Texas,
Water and Sewer
Systems, Revenue
Refunding Bonds,
Junion Lien,
Series C, 5.90%
due 12/01/1999
(c)............. -- 2,707
NR* Aaa 2,455 Panhandle-
Plains, Texas,
Higher Education
Authority Inc.,
Student Loan
Revenue
Refunding Bonds,
Series C, 4.15%
due 9/01/1997... -- 2,456
A+ A2 2,000 Texas Municipal
Power Agency,
Revenue
Refunding Bonds,
GO, Series A,
4.25% due
9/01/1997....... -- 2,001
- -----------------------------------------------------------------------------------
UTAH-1.0% AAA Aaa 4,700 Utah State,
Building and
Highway Revenue
Bonds, GO, UT,
4.40% due
7/01/1999....... -- 4,742
- -----------------------------------------------------------------------------------
VIRGINIA-2.2% AAA Aaa 7,060 Virginia State,
GO, UT, 5% due
6/01/2001....... -- 7,303
AA Aa 2,555 Virginia State
Transportation
Board,
Transportation
Contract Revenue
Bonds (US Route
58 Corridor),
Series B, 5% due
5/15/2000....... -- 2,618
- -----------------------------------------------------------------------------------
WASHINGTON- AAA Aaa 5,000 Seattle,
3.2% Washington,
Metropolitan
Seattle
Municipality
Sewer Revenue
Bonds, Series U,
6.60% due
1/01/2032
(a)(f).......... -- 5,483
Washington
State, Refunding
Bonds, Motor
Vehicle Fuel
Tax:
AA Aa+ 2,000 Series R-94B,
4.20% due
9/01/1998....... -- 2,007
AA Aa+ 2,285 Series R-96A,
5% due
7/01/1998....... -- 2,310
AA Aa+ 4,655 Series R-96B,
5% due
7/01/1998....... -- 4,705
- -----------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY
TOTAL --------- --------- ------------- --------- --------- ---------
S&P MOODY'S FACE VALUE VALUE VALUE VALUE VALUE VALUE
STATE RATINGS RATINGS VALUE ISSUE (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
WISCONSIN- NR* VMIG1# $ 4,000 Mequon,
7.8% Wisconsin, BAN,
4.10% due
11/01/1998...... $ 4,001 -- -- -- -- --
AA+ Aa1 6,510 Milwaukee,
Wisconsin,
Metropolitan
Sewer District,
GO, UT, Series A
4.25% due
10/01/2000...... 6,548 -- -- -- -- --
A A1 2,795 Wisconsin
Housing and
Economic
Development
Authority,
Housing Revenue
Refunding Bonds,
Series C, 4.30%
due 11/01/1997.. 2,800 -- -- -- -- --
AA Aa2 4,385 Wisconsin State,
GO, Series C,
5.50% due
5/01/2000....... 4,550 -- -- -- -- --
AAA NR* 5,720 Wisconsin State
Health and
Educational
Facilities
Authority
Revenue Bonds
(Medical College
of Wisconsin),
Series D, 7.35%
due 12/01/15.... 6,372 -- -- -- -- --
AA Aa2 11,000 Wisconsin State,
GO, UT,
Refunding,
Series 3, 4.25%
due 11/01/1999.. 11,068 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
PUERTO RICO- A1+ VMIG1# 100 Puerto Rico
0.4% Commonwealth,
Government
Development
Bank, Refunding,
VRDN,
3.25% due
12/01/2015 (b).. -- $ 100 -- -- -- --
A- Baa1 1,000 Puerto Rico
Municipal
Finance Agency,
GO, UT, Series
A, 5.80% due
7/01/2004....... -- -- -- -- -- --
Puerto Rico
Public Buildings
Authority,
Guaranteed
Public Education
and Health
Facilities:
A Baa1 250 Refunding,
Series K, 6.60%
due 7/01/2004.. -- -- $ 276 -- -- --
AAA Aaa 200 Series L,
6.875% due
7/01/2002 (a)... -- -- -- $ 227 -- --
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRO FORMA
PENNSYLVANIA FOR
LIMITED COMBINED
MATURITY FUND
TOTAL ------------ ---------
S&P MOODY'S FACE VALUE VALUE
STATE RATINGS RATINGS VALUE ISSUE (NOTE 1A) (NOTE 1A)
<C> <C> <C> <C> <S> <C> <C>
- ------------------------------------------------------------------------------------
WISCONSIN- NR* VMIG1# $ 4,000 Mequon,
7.8% Wisconsin, BAN,
4.10% due
11/01/1998...... -- $ 4,001
AA+ Aa1 6,510 Milwaukee,
Wisconsin,
Metropolitan
Sewer District,
GO, UT, Series A
4.25% due
10/01/2000...... -- 6,548
A A1 2,795 Wisconsin
Housing and
Economic
Development
Authority,
Housing Revenue
Refunding Bonds,
Series C, 4.30%
due 11/01/1997.. -- 2,800
AA Aa2 4,385 Wisconsin State,
GO, Series C,
5.50% due
5/01/2000....... -- 4,550
AAA NR* 5,720 Wisconsin State
Health and
Educational
Facilities
Authority
Revenue Bonds
(Medical College
of Wisconsin),
Series D, 7.35%
due 12/01/15.... -- 6,372
AA Aa2 11,000 Wisconsin State,
GO, UT,
Refunding,
Series 3, 4.25%
due 11/01/1999.. -- 11,068
- -------------------------------------------------------------------------------------
PUERTO RICO- A1+ VMIG1# 100 Puerto Rico 100
0.4% Commonwealth,
Government
Development
Bank, Refunding,
VRDN,
3.25% due
12/01/2015 (b).. --
A- Baa1 1,000 Puerto Rico
Municipal
Finance Agency,
GO, UT, Series
A, 5.80% due
7/01/2004....... $1,067 1,067
Puerto Rico
Public Buildings
Authority,
Guaranteed
Public Education
and Health
Facilities:
A Baa1 250 Refunding,
Series K, 6.60%
due 7/01/2004.. -- 276
AAA Aaa 200 Series L,
6.875% due
7/01/2002 (a)... -- 227
- -------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR MERRILL LYNCH MUNICIPAL BOND
FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST--(CONTINUED)
JULY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW NEW
LIMITED ARIZONA MASSACHUSETTS MICHIGAN JERSEY YORK PENNSYLVANIA
MATURITY LIMITED LIMITED LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY MATURITY MATURITY
--------- --------- ------------- --------- --------- --------- ------------
VALUE VALUE VALUE VALUE VALUE VALUE VALUE
(NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a) (NOTE 1a)
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Total $418,216 $3,026 $5,173 $4,115 $6,669 $14,340 $7,534
Investments
(Cost
$454,952)--
100.8%..........
Liabilities in
Excess of Other
Assets --
(0.8%)..........
Net Assets --
100.0%.........
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PRO FORMA
FOR
COMBINED
FUND
----------
VALUE
(NOTE 1A)
- ----------------------------------------------------------------
<S> <C>
Total
Investments
(Cost
$454,952)--
100.8%.......... $459,073
Liabilities in
Excess of Other
Assets --
(0.8%).......... (3,824)
Net Assets -- ----------
100.0%......... $455,249
==========
- ----------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Prerefunded.
(b) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31,
1997.
(c) AMBAC Insured.
(d) MBIA Insured.
(e) FSA Insured.
(f) FGIC Insured.
(g) Escrowed to maturity.
(h) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1997.
(i) SONYMA Insured.
* Not rated.
# Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
F-18
<PAGE>
The following unaudited pro forma Combined Statement of Assets and
Liabilities for the Combined Fund has been derived from the Statements of
Assets and Liabilities of the Funds at July 31, 1997 and such information has
been adjusted to give effect to the Reorganization as if the Reorganization
had occurred at July 31, 1997. The pro forma Combined Statement of Assets and
Liabilities is presented for informational purposes only and does not purport
to be indicative of the financial condition that actually would have resulted
if the Reorganization had been consummated at July 31, 1997. The pro forma
Combined Statement of Assets and Liabilities should be read in conjunction
with the Funds' financial statements and related notes thereto which are
incorporated by reference in this Statement of Additional Information.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
-------------------------------------------------------------
LIMITED ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY
MATURITY LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY
------------ ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value*
(Note 1a).............. $418,215,979 $3,025,568 $5,173,140 $4,115,441 $6,668,628
Cash.................... 59,153 323,206 59,786 90,032 50,867
Receivables:
Interest............... 4,495,525 15,409 60,377 58,775 85,004
Capital shares sold.... 380,598 -- -- -- --
Securities sold........ 100,281 101,366 -- -- 52,156
Investment advisor
(Note 2).............. -- 16,241 21,354 23,142 2,475
Deferred organization
expenses (Note 1e)..... -- -- 2,615 2,302 3,758
Prepaid registration
fees and other assets
(Note 1e).............. 35,641 11,380 7,698 243 7,803
------------ ---------- ---------- ---------- ----------
Total assets............ 423,287,177 3,493,170 5,324,970 4,289,935 6,870,691
------------ ---------- ---------- ---------- ----------
LIABILITIES:
Payables:
Securities purchased... 6,556,147 101,467 101,326 -- 441,227
Capital shares
redeemed.............. 2,176,323 -- 36,244 -- 68,809
Dividends to
shareholders (Note
1f)................... 434,370 2,974 5,338 4,454 5,671
Investment adviser
(Note 2).............. 117,997 -- -- -- --
Distributor (Note 2)... 17,816 680 942 548 1,286
Accrued expenses and
other liabilities 106,743 30,654 45,369 33,588 31,097
------------ ---------- ---------- ---------- ----------
Total liabilities....... 9,409,396 135,775 189,219 38,590 548,090
------------ ---------- ---------- ---------- ----------
NET ASSETS:
Net assets.............. $413,877,781 $3,357,395 $5,135,751 $4,251,345 $6,322,601
============ ========== ========== ========== ==========
NET ASSETS CONSIST OF:
Class A Common Stock,
$0.10 par value+....... $ 3,414,712 $ 6,974 $ 13,507 $ 13,557 $ 17,100
Class B Common Stock,
$0.10 par value++...... 533,032 20,997 27,957 13,979 40,478
Class C Common Stock,
$0.10 par value+++..... 1,291 355 2,741 12 2,624
Class D Common Stock,
$0.10 par value++++.... 205,668 4,684 6,956 14,589 2,350
Paid-in capital in
excess of par.......... 411,724,853 3,221,545 5,218,428 4,198,169 6,241,536
Undistributed
(accumulated) realized
capital gains (losses)
on investments--net
(Note 5)............... (4,763,818) 16,274 (300,979) (150,077) (167,187)
Accumulated
distributions in excess
of realized gain on
investments--net (Note
1f).................... -- -- -- (1,779) --
Unrealized appreciation
on investments--net.... 2,762,043 86,566 167,141 162,895 185,700
------------ ---------- ---------- ---------- ----------
Net assets.............. $413,877,781 $3,357,395 $5,135,751 $4,251,345 $6,322,601
============ ========== ========== ========== ==========
NET ASSET VALUE:
Class A:
Net assets............. $340,141,818 $ 709,319 $1,355,818 $1,368,162 $1,734,544
------------ ---------- ---------- ---------- ----------
Shares outstanding..... 34,147,124 69,741 135,068 135,574 170,998
------------ ---------- ---------- ---------- ----------
Net asset value and
redemption price per
share................. $ 9.96 $ 10.17 $ 10.04 $ 10.09 $ 10.14
============ ========== ========== ========== ==========
Class B:
Net assets............. $ 53,107,866 $2,135,376 $2,806,894 $1,410,732 $4,108,454
------------ ---------- ---------- ---------- ----------
Shares outstanding..... 5,330,319 209,967 279,567 139,786 404,782
------------ ---------- ---------- ---------- ----------
Net asset value and
redemption price per
share................. $ 9.96 $ 10.17 $ 10.04 $ 10.09 $ 9.19
============ ========== ========== ========== ==========
Class C:
Net assets............. $ 128,373 $ 36,084 $ 274,926 $ 1,231 $ 241,191
------------ ---------- ---------- ---------- ----------
Shares outstanding..... 12,913 3,545 27,406 122 26,241
------------ ---------- ---------- ---------- ----------
Net asset value and
redemption price per
share................. $ 9.94 $ 10.18 $ 10.03 $ 10.09 $ 9.19
============ ========== ========== ========== ==========
</TABLE>
F-19
<PAGE>
(continued)
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
-----------------------------------------------------------
LIMITED ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY
MATURITY LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY
------------ ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Class D:
Net assets............. $ 20,499,724 $ 476,616 $ 698,113 $1,471,220 $ 238,412
------------ ---------- ---------- ---------- ----------
Shares outstanding..... 2,056,678 46,841 69,563 145,888 23,497
------------ ---------- ---------- ---------- ----------
Net asset value and
redemption price per
share................. $ 9.97 $ 10.18 $ 10.04 $ 10.08 $ 10.15
============ ========== ========== ========== ==========
- --------
* Identified cost....... $415,453,936 $2,939,002 $5,005,999 $3,952,546 $6,482,928
============ ========== ========== ========== ==========
+ Authorized shares-
Class A................ 150,000,000
++ Authorized shares-
Class B................ 150,000,000
+++ Authorized shares-
Class C................ 150,000,000
++++ Authorized shares-
Class D................ 150,000,000
</TABLE>
See Notes to Financial Statements.
F-20
<PAGE>
The following unaudited pro forma Combined Statement of Assets and
Liabilities for the Combined Fund has been derived from the Statements of
Assets and Liabilities of the Funds at July 31, 1997 and such information has
been adjusted to give effect to the Reorganization as if the Reorganization
had occurred at July 31, 1997. The pro forma Combined Statement of Assets and
Liabilities is presented for informational purposes only and does not purport
to be indicative of the financial condition that actually would have resulted
if the Reorganization had been consummated at July 31, 1997. The pro forma
Combined Statement of Assets and Liabilities should be read in conjunction
with the Funds' financial statements and related notes thereto which are
incorporated by reference in this Statement of Additional Information.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)--
(CONTINUED)
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
-------------------------------------------------------
NEW YORK PENNSYLVANIA PRO FORMA
LIMITED LIMITED FOR COMBINED
MATURITY MATURITY ADJUSTMENTS FUND
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value*
(Note 1a);............. $14,340,013 $7,534,238 $459,073,007
Cash.................... 63,618 30,350 $ 16,314 (1) 693,326
Receivables:
Interest............... 190,115 117,057 5,022,262
Capital shares sold.... 12,515 84,550 477,663
Securities sold........ -- 100,010 353,813
Investment advisor
(Note 2).............. 5,218 9,090 77,520
Deferred organization
expenses (Note 1e)..... 4,123 3,516 (16,314)(1) --
Prepaid registration
fees and other assets
(Note 1e).............. 7,385 5,267 75,417
----------- ---------- ------------ ------------
Total assets............ 14,622,987 7,884,078 -- 465,773,008
----------- ---------- ------------ ------------
LIABILITIES:
Payables:
Securities purchased... -- 100,000 7,300,167
Capital shares
redeemed.............. 619 4,035 2,286,030
Dividends to
shareholders (Note
1f)................... 15,836 7,338 16,274 (2) 492,255
Investment adviser
(Note 2).............. -- -- 117,997
Distributor (Note 2)... 2,764 1,677 25,713
Accrued expenses and
other liabilities...... 38,433 32,371 318,255
----------- ---------- ------------ ------------
Total liabilities....... 57,652 145,421 16,274 10,540,417
----------- ---------- ------------ ------------
NET ASSETS:
Net assets.............. $14,565,335 $7,738,657 $ (16,274) $455,232,591
=========== ========== ============ ============
NET ASSETS CONSIST OF:
Class A Common Stock,
$0.10 par value+....... $ 25,477 $ 7,190 $ 1,581 (3) $ 3,500,098
Class B Common Stock,
$0.10 par value++...... 80,271 50,185 (233,867)(3) 533,032
Class C Common Stock,
$0.10 par value+++..... 659 77 (6,468)(3) 1,291
Class D Common Stock,
$0.10 par value++++.... 36,009 18,177 246,804 (3) 535,237
Paid-in capital in
excess of par.......... 14,108,036 7,509,162 (8,050)(3) 452,213,679
Undistributed
(accumulated) realized
capital gains (losses)
on
investments-net (Note
5)..................... (224,431) (63,042) (16,274) (5,669,534)
Accumulated
distributions in excess
of realized gain on
investments-net (Note
1f).................... -- -- (1,779)
Unrealized appreciation
on investments-net..... 539,314 216,908 4,120,567
----------- ---------- ------------ ------------
Net assets.............. $14,565,335 $7,738,657 $ (16,274) $455,232,591
=========== ========== ============ ============
NET ASSET VALUE:
Class A:
Net assets............. $ 2,605,219 $ 735,726 $ (3,438)(3) $348,647,168
----------- ---------- ------------ ------------
Shares outstanding..... 254,768 71,902 15,808 (3) 35,000,983
----------- ---------- ------------ ------------
Net asset value and
redemption price per
share................. $ 10.23 $ 10.23 $ 9.96
=========== ========== ============
Class B:
Net assets............. $ 8,209,327 $5,134,207 $(23,804,990)(3) $ 53,107,866
----------- ---------- ------------ ------------
Shares outstanding..... 802,714 501,850 (2,338,666)(3) 5,330,319
----------- ---------- ------------ ------------
Net asset value and
redemption price per
share................. $ 10.23 $ 10.23 $ 9.96
=========== ========== ============
Class C:
Net assets............. $ 67,418 $ 7,869 $ (628,719)(3) $ 128,373
----------- ---------- ------------ ------------
Shares outstanding..... 6,593 766 (64,673)(3) 12,913
----------- ---------- ------------ ------------
Net asset value and
redemption price per
share................. $ 10.23 $ 10.27 $ 9.94
=========== ========== ============
</TABLE>
F-21
<PAGE>
(continued)
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
-----------------------------------------------------
NEW YORK PENNSYLVANIA PRO FORMA
LIMITED LIMITED FOR COMBINED
MATURITY MATURITY ADJUSTMENTS FUND
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Class D:
Net assets.............. $ 3,683,371 $1,860,855 $24,420,873 (3) $ 53,349,184
----------- ---------- ----------- ------------
Shares outstanding...... 360,094 181,770 2,468,038 (3) 5,352,369
----------- ---------- ----------- ------------
Net asset value and
redemption price per
share.................. $ 10.23 $ 10.24 9.97
=========== ========== ============
- --------
*Identified cost......... $13,800,699 $7,317,330 $454,952,440
----------- ---------- ------------
</TABLE>
(1) Reimbursement of the remaining unamortized deferred organization costs by
the original shareholder.
(2) Reflects payment of undistributed capital gains.
(3) Reflects the estimated conversion ratio. Holders of Class B and Class C
will receive shares of Class D of the Combined Fund.
See Notes to Financial Statements.
F-22
<PAGE>
The following unaudited pro forma combined statement of operations for the
Combined Fund has been derived from the statements of operations of the Funds
for the twelve months ended July 31, 1997, and such information has been
adjusted to give effect to the Reorganization as if the Reorganization has
occurred on August 1, 1996. The pro forma combined statement of operations is
presented for informational purposes only and does not purport to be
indicative of the results of operations that actually would have resulted if
the Reorganization had been consummated on August 1, 1996 nor which may result
from future operations. The pro forma combined statement of operations should
be read in conjunction with the Funds' financial statements and related notes
thereto which are incorporated by reference in this Statement of Additional
Information.
MERRILL LYNCH MUNICIPAL BOND FUND, INC AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED JULY 31, 1997
--------------------------------------------------------
LIMITED ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY
MATURITY LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY
----------- -------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE
1D):
Interest and
amortization of premium
and discount earned..... $19,889,679 $173,856 $312,359 $208,473 $347,105
EXPENSES:
Investment advisory fees
(Note 2)................ 1,528,848 13,268 22,132 14,977 25,494
Account maintenance and
distribution fees--Class
B (Note 2).............. 217,923 8,883 13,723 5,934 15,927
Accounting services
(Note 2)................ 40,044 33,811 48,536 41,011 26,609
Professional fees....... 20,115 34,098 44,247 39,131 35,447
Registration fees (Note
le)..................... 6,444 22,601 21,398 22,074 16,112
Transfer agent fees--
Class A (Note 2)........ 79,565 503 606 634 805
Printing and shareholder
reports................. 26,442 5,160 6,388 5,905 --
Custodian fees.......... 42,801 2,727 2,369 1,853 3,205
Transfer agent fees--
Class B (Note 2)........ 18,000 1,885 2,061 952 2,147
Directors' fees and
expenses................ 5,437 2,403 3,557 2,071 3,919
Pricing services........ 11,589 2,247 2,512 3,369 1,913
Account maintenance
fees--Class D (Note 2).. 17,953 373 717 1,085 409
Amortization of
organization expenses
(Note le)............... -- -- 1,984 1,743 2,852
Transfer agent fees--
Class D (Note 2)........ 3,589 239 307 442 164
Account maintenance and
distribution fees--Class
C (Note 2).............. 608 157 402 1 402
Transfer agent fees--
Class C (Note 2)........ 66 81 130 4 118
Other................... 4,924 2,695 2,069 14,366 1,694
----------- -------- -------- -------- --------
Total expenses before
reimbursement........... 2,024,348 131,131 173,138 155,552 137,217
Reimbursement of
expenses................ -- (85,705) (95,062) (107,880) (51,282)
----------- -------- -------- -------- --------
Total expenses after
reimbursement........... 2,024,348 45,426 78,076 47,672 85,935
----------- -------- -------- -------- --------
Investment income--net.. 17,865,331 128,430 234,283 160,801 261,170
----------- -------- -------- -------- --------
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED JULY 31, 1997
-------------------------------------------------------
LIMITED ARIZONA MASSACHUSETTS MICHIGAN NEW JERSEY
MATURITY LIMITED LIMITED LIMITED LIMITED
PORTFOLIO MATURITY MATURITY MATURITY MATURITY
----------- -------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C>
REALIZED & UNREALIZED
GAIN (LOSS) ON
INVESTMENTS--NET (NOTES
1D & 3):
Realized gain (loss) on
investments............ 1,679,262 87,712 51,279 21,697 126,030
Change in unrealized
appreciation on
investments--net....... 624,270 (58,065) (12,363) 38,238 (105,889)
----------- -------- -------- -------- --------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. $20,168,863 $158,077 $273,199 $220,736 $281,311
=========== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-24
<PAGE>
The following unaudited pro forma combined statement of operations for the
Combined Fund has been derived from the statements of operations of the Funds
for the twelve months ended July 31, 1997, and such information has been
adjusted to give effect to the Reorganization as if the Reorganization has
occurred on August 1, 1996. The pro forma combined statement of operations is
presented for informational purposes only and does not purport to be
indicative of the results of operations that actually would have resulted if
the Reorganization had been consummated on August 1, 1996 nor which may result
from future operations. The pro forma combined statement of operations should
be read in conjunction with the Funds' financial statements and related notes
thereto which are incorporated by reference in this Statement of Additional
Information.
MERRILL LYNCH MUNICIPAL BOND FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
PRO FORMA COMBINED STATEMENT OF OPERATIONS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED JULY 31, 1997
-------------------------------------------------
PRO FORMA
NEW YORK PENNSYLVANIA FOR
LIMITED LIMITED COMBINED
MATURITY MATURITY ADJUSTMENTS(1) FUND
-------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1D):
Interest and amortization of
premium and discount
earned...................... $812,885 $402,719 $22,147,076
EXPENSES:
Investment advisory fees
(Note 2).................... 57,645 29,758 1,692,122
Account maintenance and
distribution fees-Class B
(Note 2).................... 32,533 20,568 315,491
Accounting services (Note
2).......................... 34,860 42,078 (220,000) 46,949
Professional fees........... 34,696 38,410 (206,951) 39,193
Registration fees (Note
1e)......................... 20,605 16,392 125,626
Transfer agent fees-Class A
(Note 2).................... 848 280 83,241
Printing and shareholder
reports..................... 19,539 4,570 (33,000) 35,004
Custodian fees.............. 3,614 2,902 59,471
Transfer agent fees-Class B
(Note 2).................... 3,545 2,641 31,231
Directors' fees and
expenses.................... 8,418 4,231 (21,000) 9,036
Pricing services............ 3,925 2,379 27,934
Account maintenance fees-
Class D (Note 2)............ 4,216 1,831 26,584
Amortization of organization
expenses (Note 1e).......... 3,123 2,668 12,370
Transfer agent fees-Class D
(Note 2).................... 1,276 651 6,668
Account maintenance and
distribution fees-Class C
(Note 2).................... 234 7 1,811
Transfer agent fees-Class C
(Note 2).................... 75 9 483
Other....................... -- 2,196 27,944
-------- -------- --------- -----------
Total expenses before
reimbursement............... 229,152 171,571 (480,951) 2,541,158
Reimbursement of expenses... (76,880) (64,142) 480,951 --
-------- -------- --------- -----------
Total expenses after
reimbursement............... 152,272 107,429 -- 2,541,158
-------- -------- --------- -----------
Investment income-net....... 660,613 295,290 -- 19,605,918
-------- -------- --------- -----------
REALIZED & UNREALIZED GAIN
ON INVESTMENTS-NET
(NOTES 1D & 3):
Realized gain on
investments................. 36,848 37,824 2,040,652
Change in unrealized
appreciation on investments-
net......................... 214,688 56,086 756,965
-------- -------- --------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $912,149 $389,200 $ -- $22,403,535
======== ======== ========= ===========
</TABLE>
- ----
(1) Reflects the anticipated savings of the combination.
See Notes to Financial Statements.
F-25
<PAGE>
MERRILL LYNCH MUNICIPAL BOND FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Municipal Bond Fund, Inc. ("the Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such
adjustments are of a normal recurring nature. The Fund's Portfolios offer four
classes of shares under the Merrill Lynch Select PricingSM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares of Class B
and Class C may be subject to a contingent deferred sales charge. All classes
of shares have identical voting, dividend, liquidation and other rights and
the same terms and conditions, except that Class B, Class C and Class D shares
bear certain expenses related to the account maintenance of such shares, and
Class B and Class C shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Municipal bonds and money market securities
are traded primarily in the over-the-counter markets and are valued at the
most recent bid price or yield equivalent as obtained from dealers that make
markets in such securities. Positions in future contracts and options thereon,
which are traded on exchanges, are valued at closing prices as of the close of
such exchanges. Assets for which market quotations are not readily available
are valued at fair value on a consistent basis using methods determined in
good faith by the combined Portfolios' Board of Directors, including
valuations furnished by a pricing service retained by the Fund, which may
utilize a matrix system for valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The combined portfolio may engage in
various portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may arise due
to changes in the value of the contract or if the counterparty does not
perform under the contract.
. Financial futures contracts--The combined Portfolio may purchase or sell
interest rate futures contracts and options on such futures contracts for
the purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the combined
Portfolio deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant
to the contract, the combined Portfolio agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as variation margin and
are recorded by the combined Portfolio as unrealized gains or losses.
When the contract is closed, the combined Portfolio records a realized
gain or loss equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed.
(c) Income taxes--It is the combined Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--Deferred
organization expenses are charged to expense on a straight-line basis over a
five-year period. Prepaid registration fees are charged to expenses as the
related shares are issued.
F-26
<PAGE>
MERRILL LYNCH MUNICIPAL BOND FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(f) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded
on the ex-dividend dates. Distributions in excess of realized capital gains
are due primarily to differing tax treatments for post-October losses.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The combined Portfolio has entered into an Investment Advisory Agreement
with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The
combined Portfolio has also entered into a Distribution Agreement and
Distribution Plans with Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolios and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operation of the Fund. For such services, the Limited
Maturity Portfolio pays a monthly fee based upon the aggregate daily value of
the net assets of the Portfolio and the Fund's Insured Portfolio and National
Portfolio at the following annual rates: 0.40% of these Portfolios' aggregate
average daily net assets not exceeding $250 million; 0.375% of such average
daily net assets in excess of $250 million but not exceeding $400 million;
0.35% of such average daily net assets in excess of $400 million but not
exceeding $550 million; and 0.325% of such average daily net assets in excess
of $550 million. Also, Arizona Limited Maturity, Massachusetts Limited
Maturity, Michigan Limited Maturity, New Jersey Limited Maturity, New York
Limited Maturity, and Pennsylvania Limited Maturity pay a monthly fee at the
annual rate of 0.35% of that Fund's average daily net assets.
For the twelve months ended July 31, 1997 FAM had voluntarily waived
management fees and reimbursed each Portfolio for additional expenses as
follows:
<TABLE>
<CAPTION>
ARIZONA MASSACHUSETTS MICHIGAN
LIMITED MATURITY LIMITED MATURITY LIMITED MATURITY
---------------- ---------------- ----------------
<S> <C> <C> <C>
Management fee.......... $13,268 $22,132 $14,977
Additional expenses..... $72,437 $72,930 $92,903
<CAPTION>
NEW JERSEY NEW YORK PENNSYLVANIA
LIMITED MATURITY LIMITED MATURITY LIMITED MATURITY
---------------- ---------------- ----------------
<S> <C> <C> <C>
Management fee.......... $25,494 $57,645 $29,758
Additional expenses..... $25,788 $19,235 $34,384
</TABLE>
Pursuant to the distribution plans (the "Distribution Plans") adopted by the
combined Portfolio in accordance with Rule 12b-1 under the Investment Company
Act of 1940, the combined Portfolio pays the Distributor ongoing account
maintenance and distribution fees. The fees are accrued daily and paid monthly
at annual rates based upon the average daily net assets of the shares as
follows:
<TABLE>
<CAPTION>
ACCOUNT MAINTENANCE FEES DISTRIBUTION FEES
------------------------ -----------------
<S> <C> <C>
Class B....................... 0.15% 0.20%
Class C....................... 0.15% 0.20%
Class D....................... 0.10%
</TABLE>
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides
account maintenance and distribution services to the combined Portfolio. The
ongoing account maintenance fee compensates the Distributor and MLPF&S for
F-27
<PAGE>
MERRILL LYNCH MUNICIPAL BOND FUND, INC. AND
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
providing account maintenance services to Class B, Class C and Class D
shareholders. The ongoing distribution fee compensates the Distributor and
MLPF&S for providing shareholder and distribution-related services to Class B
and Class C shareholders.
For the twelve months ended July 31, 1997, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer concessions on sales
of the combined Portfolio's Class A and Class D shares as follows:
<TABLE>
<CAPTION>
LIMITED ARIZONA MASSACHUSETTS
MATURITY LIMITED LIMITED
PORTFOLIO MATURITY MATURITY
--------- -------- -------------
<S> <C> <C> <C>
Class A:
MLFD.................................... $ 1,097 $ 7 $ --
MLPF&S.................................. 9,522 194 --
Class D:
MLFD.................................... $ 1,630 $ 199 $ 9
MLPF&S.................................. 18,560 2,172 205
</TABLE>
<TABLE>
<CAPTION>
NEW
MICHIGAN JERSEY NEW YORK PENNSYLVANIA
LIMITED LIMITED LIMITED LIMITED
MATURITY MATURITY MATURITY MATURITY
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Class A:
MLFD............................. $ 8 $-- $ -- $ --
MLPF&S........................... 68 -- 5 --
Class D:
MLFD............................. $ 46 $ 2 $ 70 $ 5
MLPF&S........................... 350 48 767 210
</TABLE>
MLPF&S received contingent deferred sales charges relating to transactions
in Class B shares of beneficial interest as follows:
<TABLE>
<CAPTION>
CLASS B SHARES
--------------
<S> <C>
Limited Maturity Portfolio.... $ 3,200
Arizona Limited Maturity...... 427
Massachusetts Limited
Maturity..................... 3,151
Michigan Limited Maturity..... 397
New Jersey Limited Maturity... 4,461
New York Limited Maturity..... 18,743
Pennsylvania Limited
Maturity..................... 878
</TABLE>
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the combined Portfolio's transfer agent.
Accounting services are provided to the combined Portfolio by FAM at cost.
Certain officers and/or directors of the combined Portfolio are officers
and/or directors of FAM, PSI, MLFD, MLFDS, and/or ML & Co.
F-28
