<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1995
SECURITIES ACT FILE NO. 33-44500
INVESTMENT COMPANY ACT FILE NO. 811-4375
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 5 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 115 [X]
(Check appropriate box or boxes)
----------------
MERRILL LYNCH OHIO MUNICIPAL BOND FUND
OF MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
----------------
COPIES TO:
COUNSEL FOR THE TRUST: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD FUND ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: THOMAS R. SMITH, JR., ESQ.
BRIAN M. KAPLOWITZ, ESQ.
----------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
----------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED FOR THE REGISTRANT'S MOST RECENT FISCAL YEAR WAS
FILED ON SEPTEMBER 22, 1995.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT OF MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial In-
terest
(par value $0.10 per
share)................. 216,505 $11.27 $290,000 $100
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*(1) The calculation of the maximum aggregate offering price is made pursuant
to Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 1,935,490 Shares of Beneficial Interest.
(3) 1,744,717 of the Shares described in (2) above have been used for
reduction pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment
Company Act of 1940 in previous filings during Registrant's current fiscal
year.
(4) 190,773 of the Shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH OHIO MUNICIPAL BOND FUND OF
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<C> <S> <C>
PART A
Item 1. Cover Page.............. Cover Page
Item 2. Synopsis................ Fee Table
Condensed Financial
Item 3. Information............. Financial Highlights; Performance Data
Item 4. General Description of
Registrant.............. Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund.. Fee Table; Management of the Trust;
Inside Back Cover Page
Item 5A. Management's Discussion
of Fund Performance.... Not Applicable
Item 6. Capital Stock and Other
Securities.............. Cover Page; Merrill Lynch Select
PricingSM System; Additional
Information
Item 7. Purchase of Securities
Being Offered........... Cover Page; Fee Table; Merrill Lynch
Select Pricing SM System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or
Repurchase.............. Fee Table; Merrill Lynch Select
PricingSM System; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal
Proceedings............. Not Applicable
PART B
Item 10. Cover Page.............. Cover Page
Item 11. Table of Contents....... Back Cover Page
Item 12. General Information and
History................. Additional Information
Item 13. Investment Objective and
Policies................ Investment Objective and Policies
Item 14. Management of the Fund.. Management of the Trust
Item 15. Control Persons and
Principal Holders of
Securities............. Management of the Trust; General
Information--Additional Information
Item 16. Investment Advisory and
Other Services.......... Management of the Trust; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and
Other Practices......... Portfolio Transactions
Item 18. Capital Stock and Other
Securities.............. General Information--Description of
Series and Shares
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered.......... Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status.............. Distributions and Taxes
Item 21. Underwriters............ Purchase of Shares
Item 22. Calculation of
Performance Data........ Performance Data
Item 23. Financial Statements.... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
- ----------
NOVEMBER 21, 1995
MERRILL LYNCH OHIO MUNICIPAL BOND FUND
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Ohio Municipal Bond Fund (the "Fund") is a mutual fund seeking
to provide shareholders with as high a level of income exempt from Federal and
Ohio income taxes as is consistent with prudent investment management. The
Fund invests primarily in a portfolio of long-term, investment grade
obligations issued by or on behalf of the State of Ohio, its political
subdivisions, agencies and instrumentalities and of other qualifying issuers,
such as issuers located in Puerto Rico, the Virgin Islands and Guam, the
interest on which, in the opinion of bond counsel to the issuer, is exempt
from Federal and Ohio income taxes ("Ohio Municipal Bonds"). Dividends paid by
the Fund are exempt from Federal and Ohio income taxes to the extent they are
derived from Ohio Municipal Bonds. The Fund may invest in certain tax-exempt
securities classified as "private activity bonds" that may subject certain
investors in the Fund to an alternative minimum tax. At times, the Fund may
seek to hedge its portfolio through the use of futures transactions and
options. There can be no assurance that the investment objective of the Fund
will be realized. For more information on the Fund's investment objective and
policies, see "Investment Objective and Policies" on page 9.
----------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select PricingSM System" on page 4.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], or from securities dealers which have entered into dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000
and the minimum subsequent purchase is $50. Merrill Lynch may charge its
customers a processing fee (presently $4.85) for confirming purchases and
repurchases. Purchases and redemptions directly through the Fund's Transfer
Agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares".
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
This Prospectus is a concise statement of information about the Fund that is
relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional information
about the Fund, dated November 21, 1995 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission (the
"Commission") and is available, without charge, by calling or by writing
Merrill Lynch Multi-State Municipal Series Trust (the "Trust") at the above-
referenced telephone number or address. The Statement of Additional
Information is hereby incorporated by reference into this Prospectus. The Fund
is a separate series of the Trust, an open-end management investment company
organized as a Massachusetts business trust.
----------------
FUND ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ---------- --------------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EX-
PENSES:
Maximum Sales
Charge Imposed
on Purchases
(as a percent-
age of offer-
ing price).... 4.00%(c) None None 4.00%(c)
Sales Charge
Imposed on
Dividend
Reinvestments.. None None None None
Deferred Sales
Charge (as a
percentage of
original pur-
chase price or
redemption
proceeds,
whichever is
lower)........ None(d) 4.0% during the first 1% for one year None(d)
year, decreasing 1.0%
annually thereafter to
0.0% after the
fourth year
Exchange Fee... None None None None
ANNUAL FUND OP-
ERATING EX-
PENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)(e):
Investment Ad-
visory
Fees(f)....... 0.55% 0.55% 0.55% 0.55%
Rule 12b-1
Fees(g):
Account Mainte-
nance Fees.... None 0.25% 0.25% 0.10%
Distribution
Fees.......... None 0.25% 0.35% None
(Class B shares convert
to
Class D shares
automatically
after approximately ten
years,
cease being subject to
distribution fees and
become
subject to lower account
maintenance fees)
Other Expenses:
Custodial
Fees.......... .01% .01% .01% .01%
Shareholder
Servicing
Costs(h)...... .07% .08% .08% .07%
Miscellaneous.. .26% .26% .26% .26%
----- ----- ----- -----
Total Other
Expenses..... .34% .35% .35% .34%
----- ----- ----- -----
Total Fund Op-
erating Ex-
penses+....... .89% 1.40% 1.50% .99%
===== ===== ===== =====
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders and certain investment programs. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares"--
page 23.
(b) Class B shares convert to Class D shares automatically approximately 10
years after initial purchase. See "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares"--page 24.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain investment programs. Class A and Class D
purchases of $1,000,000 or more are not subject to an initial sales
charge. See "Purchases of Shares--Initial Sales Charge Alternatives--Class
A and Class D Shares"--page 23.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a
CDSC of 1.0% if redeemed within the first year after purchase.
(e) Information for Class A and Class B shares is stated for the fiscal year
ended July 31, 1995. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending July 31, 1996.
2
<PAGE>
(f) See "Management of the Trust--Management and Advisory Arrangements"--page
19.
(g) See "Purchase of Shares--Distribution Plans"--page 28.
(h) See "Management of the Trust--Transfer Agency Services"--page 20.
+ As of July 31, 1995, the Manager has voluntarily waived a portion of its
management fees due from the Fund. The fee table has been restated to assume
the absence of any such waiver because the Manager may discontinue or reduce
such waiver of fees at any time without notice. During the fiscal year ended
July 31, 1995, the Manager waived management fees totaling .03% for Class A
shares and .03% for Class B shares after which the Fund's total expense
ratio net of reimbursement was .86% for Class A shares and 1.37% for Class B
shares. During the period October 21, 1994 (commencement of operations) to
July 31, 1995 the Manager did not waive management fees with respect to
Class C and Class D shares.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
--------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
An investor would pay the
following expenses on a
$1,000 investment
including the maximum $40
initial sales charge
(Class A and Class D
shares only) and assuming
(1) the Total Fund
Operating Expenses for
each class set forth
above, (2) a 5% annual
return throughout the
periods and (3) redemption
at the end of the period:
Class A.................. $ 49 $ 67 $ 87 $ 145
Class B.................. $ 54 $ 64 $ 77 $ 168
Class C.................. $ 25 $ 47 $ 82 $ 179
Class D.................. $ 50 $ 70 $ 93 $ 156
An investor would pay the
following expenses on the
same $1,000 investment
assuming no redemption at
the end of the period:
Class A.................. $ 49 $ 67 $ 87 $ 145
Class B.................. $ 14 $ 44 $ 77 $ 168
Class C.................. $ 15 $ 47 $ 82 $ 179
Class D.................. $ 50 $ 70 $ 93 $ 156
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by the
regulations of the Commission. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND ACTUAL
EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR
PURPOSES OF THE EXAMPLE. Class B and Class C shareholders who hold their shares
for an extended period of time may pay more in Rule 12b-1 distribution fees
than the economic equivalent of the maximum front-end sales charge permitted
under the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. ("NASD"). Merrill Lynch may charge its customers a processing fee
(presently $4.85) for confirming purchases and repurchases. Purchases and
redemptions directly through the Fund's Transfer Agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares".
3
<PAGE>
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
PricingSM System. The shares of each class may be purchased at a price equal to
the next determined net asset value per share subject to the sales charges and
ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select PricingSM System is used by more than 50
mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM") or its
affiliate, Fund Asset Management, L.P. ("FAM" or the "Manager"). Funds advised
by MLAM or FAM are referred to herein as "MLAM-advised mutual funds".
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The deferred sales charges and account maintenance fees that are imposed on
Class B and Class C shares, as well as the account maintenance fees that are
imposed on the Class D shares, are imposed directly against those classes and
not against all assets of the Fund and, accordingly, such charges will not
affect the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Fund for each class
of shares will be calculated in the same manner at the same time and will
differ only to the extent that account maintenance and distribution fees and
any incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Each class has different exchange privileges. See
"Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The distribution-
related revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements for
each class of shares under the Merrill Lynch Select PricingSM System, followed
by a more detailed description of each class and a discussion of the factors
that investors should consider in determining the method of purchasing shares
under the Merrill Lynch Select PricingSM System that the investor believes is
most beneficial under his particular circumstances. More detailed information
as to each class of shares is set forth under "Purchase of Shares".
4
<PAGE>
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE/(1)/ FEE FEE CONVERSION FEATURE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 4.00% initial No No No
sales charge/(2)(3)/
- ------------------------------------------------------------------------------------
B CDSC for a period of 4 years, 0.25% 0.25% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% ten years/(4)/
- ------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.35% No
- ------------------------------------------------------------------------------------
D Maximum 4.00% initial 0.10% No No
sales charge/(3)/
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead may be subject to a CDSC of 1.0% if redeemed within one
year. See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares was modified. Also,
Class B shares of certain other MLAM-advised mutual funds into which
exchanges may be made have an eight year conversion period. If Class B
shares of the Fund are exchanged for Class B shares of another MLAM-
advised mutual fund, the conversion period applicable to the Class B
shares acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the shares
acquired.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors that currently own Class A shares in a shareholder account
are entitled to purchase additional Class A shares in that account.
In addition, Class A shares will be offered to Merrill Lynch & Co.,
Inc. ("ML & Co.") and its subsidiaries (the term "subsidiaries", when
used herein with respect to ML & Co., includes MLAM, the Manager and
certain other entities directly or indirectly wholly-owned and
controlled by ML & Co.) and their directors and employees and to
members of the Boards of MLAM-advised mutual funds. The maximum
initial sales charge is 4.00%, which is reduced for purchases of
$25,000 and over. Purchases of $1,000,000 or more may not be subject
to an initial sales charge, but if the initial sales charge is
waived, such purchases may be subject to a CDSC of 1.0% if the shares
are redeemed within one year after purchase. Sales charges also are
reduced under a right of accumulation which takes into account the
investor's holdings of all classes of all MLAM-advised mutual funds.
See "Purchase of Shares--Initial Sales Charge Alternatives--Class A
and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%,
an ongoing distribution fee of 0.25% of the Fund's average net assets
attributable to Class B shares, as well as a CDSC if they are
redeemed within four years of purchase. Approximately ten years after
issuance, Class B shares will convert
5
<PAGE>
automatically into Class D shares of the Fund, which are subject to a
lower account maintenance fee of 0.10% and no distribution fee. Class B
shares of certain other MLAM-advised mutual funds into which exchanges
may be made convert into Class D shares automatically after approximately
eight years. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, as
will the Class D account maintenance fee of the acquired fund upon the
conversion, and the holding period for the shares exchanged will be
tacked onto the holding period for the shares acquired. Automatic
conversion of Class B shares into Class D shares will occur at least once
a month on the basis of the relative net asset values of the shares of
the two classes on the conversion date, without the imposition of any
sales load, fee or other charge. Conversion of Class B shares to Class D
shares will not be deemed a purchase or sale of the shares for Federal
income tax purposes. Shares purchased through reinvestment of dividends
on Class B shares also will convert automatically to Class D shares. The
conversion period for dividend reinvestment shares is modified as
described under "Purchase of Shares--Deferred Sales Charge Alternatives--
Class B and Class C Shares--Conversion of Class B Shares to Class D
Shares".
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.35% of the Fund's average net
assets attributable to Class C shares. Class C shares are also subject
to a CDSC if they are redeemed within one year of purchase. Although
Class C shares are subject to a 1.0% CDSC for only one year (as
compared to four years for Class B shares), Class C shares have no
conversion feature and, accordingly, an investor that purchases Class
C shares will be subject to distribution fees that will be imposed on
Class C shares for an indefinite period subject to annual approval by
the Fund's Board of Trustees and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.10% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. Purchases of $1,000,000 or more may not be subject
to an initial sales charge, but if the initial sales charge is waived
such purchases may be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. The schedule of initial sales
charges and reductions for the Class D shares is the same as the
schedule for Class A shares. Class D shares also will be issued upon
conversion of Class B shares as described above under "Class B" above.
See "Purchase of Shares--Initial Sales Charge Alternatives--Class A
and Class D Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
PricingSM System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative
particularly attractive
6
<PAGE>
because similar sales charge reductions are not available with respect to the
deferred sales charges imposed in connection with purchases of Class B or Class
C shares. Investors not qualifying for reduced initial sales charges who expect
to maintain their investment for an extended period of time also may elect to
purchase Class A or Class D shares, because over time the accumulated ongoing
account maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the account
maintenance fee. Although some investors that previously purchased Class A
shares may no longer be eligible to purchase Class A shares of other MLAM-
advised mutual funds, those previously purchased Class A shares, together with
Class B, Class C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for reduced initial sales charges
on new initial sales charge purchases. In addition, the ongoing Class B and
Class C account maintenance and distribution fees will cause Class B and Class
C shares to have higher expense ratios, pay lower dividends and have lower
total returns than the initial sales charge shares. The ongoing Class D account
maintenance fees will cause Class D shares to have a higher expense ratio, pay
lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be particularly
appealing to investors who do not qualify for a reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution fees potentially may be offset to the extent any
return is realized on the additional funds initially invested in Class B or
Class C shares. In addition, Class B shares will be converted into Class D
shares of the Fund after a conversion period of approximately ten years, and
thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend
to hold their shares for an extended period of time. Investors in Class B
shares should take into account whether they intend to redeem their shares
within the CDSC period and, if not, whether they intend to remain invested
until the end of the conversion period and thereby take advantage of the
reduction in ongoing fees resulting from the conversion into Class D shares.
Other investors, however, may elect to purchase Class C shares if they
determine that it is advantageous to have all their assets invested initially
and they are uncertain as to the length of time they intend to hold their
assets in MLAM-advised mutual funds. Although Class C shareholders are subject
to a shorter CDSC period at a lower rate, they are subject to higher
distribution fees and forgo the Class B conversion feature, making their
investment subject to account maintenance and distribution fees for an
indefinite period of time. In addition, while both Class B and Class C
distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, the Class B distribution fees are further limited under a
voluntary waiver of asset-based sales charges. See "Purchase of Shares--
Limitations on the Payment of Deferred Sales Charges".
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in connection
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the year ended July
31, 1995 and the independent auditors' report thereon are included in the
Statement of Additional Information. The following per share data and ratios
have been derived from information provided in the Fund's audited financial
statements. Financial information is presented for Class C and Class D shares
only for the period October 21, 1994 (commencement of operations) to July 31,
1995. Further information about the performance of the Fund is contained in the
Fund's most recent annual report to shareholders which may be obtained, without
charge, by calling or by writing the Trust at the telephone number or address
on the front cover of this Prospectus.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------------------------------- --------------------------------------- -------- --------
FOR THE FOR THE
PERIOD PERIOD FOR THE PERIOD
FOR THE YEAR FEBRUARY 28, FOR THE YEAR FEBRUARY 28, OCTOBER 21, 1994+
ENDED JULY 31, 1992+ TO ENDED JULY 31, 1992+ TO TO JULY 31,
----------------------- JULY 31, ------------------------- JULY 31, ------------------
1995 1994 1993 1992 1995 1994 1993 1992 1995 1995
------- ------ ------ ------------ ------- ------- ------- ------------ -------- --------
<S> <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..... $ 10.50 $11.02 $10.56 $10.00 $ 10.50 $ 11.02 $ 10.56 $ 10.00 $ 10.09 $ 10.09
------- ------ ------ ------ ------- ------- ------- ------- -------- --------
Investment income--net.. .55 .56 .58 .25 .49 .50 .52 .23 .37 .41
Realized and unrealized
gain (loss) on
investments--net........ .06 (.43) .49 .56 .06 (.43) .49 .56 .47 .47
------- ------ ------ ------ ------- ------- ------- ------- -------- --------
Total from investment
operations.............. .61 .13 1.07 .81 .55 .07 1.01 .79 .84 .88
------- ------ ------ ------ ------- ------- ------- ------- -------- --------
Less dividends and
distributions:
Investment income--net.. (.55) (.56) (.58) (.25) (.49) (.50) (.52) (.23) (.37) (.41)
Realized gain on
investments--net........ -- -- (.03) -- -- -- (.03) -- -- --
In excess of realized
gain on investments--
net..................... -- (.09) -- -- -- (.09) -- -- -- --
------- ------ ------ ------ ------- ------- ------- ------- -------- --------
Total dividends and
distributions........... (.55) (.65) (.61) (.25) (.49) (.59) (.55) (.23) (.37) (.41)
------- ------ ------ ------ ------- ------- ------- ------- -------- --------
Net asset value, end of
period.................. $ 10.56 $10.50 $11.02 $10.56 $ 10.56 $ 10.50 $ 11.02 $ 10.56 $ 10.56 $ 10.56
======= ====== ====== ====== ======= ======= ======= ======= ======== ========
TOTAL INVESTMENT
RETURN**:
Based on net asset value
per share............... 6.03% 1.10% 10.51% 8.21%# 5.49% .59% 9.95% 7.98%# 8.50%# 8.93%#
======= ====== ====== ====== ======= ======= ======= ======= ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
account maintenance and
distribution fees and
net of reimbursement.... .86% .65% .51% .16%* .87% .66% .52% .17%* .90%* .89%*
======= ====== ====== ====== ======= ======= ======= ======= ======== ========
Expenses, net of
reimbursement........... .86% .65% .51% .16%* 1.37% 1.16% 1.02% .67%* 1.50%* .99%*
======= ====== ====== ====== ======= ======= ======= ======= ======== ========
Expenses................ .89% .89% 1.04% 1.36%* 1.40% 1.39% 1.55% 1.86%* 1.50%* .99%*
======= ====== ====== ====== ======= ======= ======= ======= ======== ========
Investment income--net.. 5.30% 5.12% 5.44% 5.75%* 4.79% 4.61% 4.93% 5.26%* 4.62%* 5.17%*
======= ====== ====== ====== ======= ======= ======= ======= ======== ========
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands)... $ 7,270 $9,373 $8,446 $4,209 $64,068 $65,610 $53,341 $26,244 $ 874 $ 3,234
======= ====== ====== ====== ======= ======= ======= ======= ======== ========
Portfolio Turnover...... 169.34% 44.83% 41.51% 13.21% 169.34% 44.83% 41.51% 13.21% 169.34% 169.34%
======= ====== ====== ====== ======= ======= ======= ======= ======== ========
</TABLE>
- ----
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
8
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide shareholders with as high
a level of income exempt from Federal and Ohio income taxes as is consistent
with prudent investment management. The Fund seeks to achieve its objective
while providing investors with the opportunity to invest in a portfolio of
securities consisting primarily of long-term obligations issued by or on behalf
of the State of Ohio, its political subdivisions, agencies and
instrumentalities and obligations of other qualifying issuers, such as issuers
located in Puerto Rico, the Virgin Islands and Guam, which pay interest exempt,
in the opinion of bond counsel to the issuer, from Federal and Ohio income
taxes. Obligations exempt from Federal income taxes are referred to herein as
"Municipal Bonds" and obligations exempt from both Federal and Ohio income
taxes are referred to as "Ohio Municipal Bonds." Unless otherwise indicated,
references to Municipal Bonds shall be deemed to include Ohio Municipal Bonds.
The Fund at all times, except during temporary defensive periods, will maintain
at least 65% of its total assets invested in Ohio Municipal Bonds. The
investment objective of the Fund as set forth in the first sentence of this
paragraph is a fundamental policy and may not be changed without shareholder
approval.
Municipal Bonds may include several types of bonds. The Fund may also invest
in variable rate demand obligations ("VRDOs"). The interest on Municipal Bonds
may bear a fixed rate or be payable at a variable or floating rate. At least
80% of the Municipal Bonds purchased by the Fund primarily will be what are
commonly referred to as "investment grade" securities, which are obligations
rated at the time of purchase within the four highest quality ratings as
determined by either Moody's Investors Service, Inc. ("Moody's") (currently
Aaa, Aa, A and Baa), Standard & Poor's Ratings Corporation ("Standard &
Poor's") (currently AAA, AA, A and BBB) or Fitch Investors Service, Inc.
("Fitch") (currently AAA, AA, A and BBB). If Municipal Bonds are unrated, such
securities will possess creditworthiness comparable, in the opinion of the
Manager, to obligations in which the Fund may invest. Municipal Bonds rated in
the fourth highest rating category, while considered "investment grade", have
certain speculative characteristics and are more likely to be downgraded to
non-investment grade than obligations rated in one of the top three rating
categories. See Appendix II--"Ratings of Municipal Bonds"--in the Statement of
Additional Information for more information regarding ratings of debt
securities. An issue of rated Municipal Bonds may cease to be rated or its
rating may be reduced below "investment grade" subsequent to its purchase by
the Fund. If an obligation is downgraded below investment grade, the Manager
will consider factors such as price, credit risk, market conditions, financial
condition of the issuer and interest rates to determine whether to continue to
hold the obligation in the Fund's portfolio.
The Fund may invest up to 20% of its total assets in Municipal Bonds that are
rated below Baa by Moody's or below BBB by Standard & Poor's or Fitch, or which
in the Manager's judgment, possess similar credit characteristics. Such
securities, sometimes referred to as "high-yield" or "junk" bonds, are
predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the security and generally
involve a greater volatility of price than securities in higher rating
categories. The market prices of high-yielding, lower-rated securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty, which may follow periods of rising
interest rates. In purchasing such securities, the Fund will rely on the
Manager's judgment, analysis and experience in evaluating the creditworthiness
of the issuer of such securities. The Manager will take into consideration,
among other things, the issuer's financial resources, its sensitivity to
economic conditions and
9
<PAGE>
trends, its operating history, the quality of its management and regulatory
matters. See "Investment Objective and Policies" in the Statement of Additional
Information for a more detailed discussion of the pertinent risk factors
involved in investing in "high yield" or "junk" bonds and Appendix II--"Ratings
of Municipal Bonds"--in the Statement of Additional Information for additional
information regarding ratings of debt securities. The Fund does not intend to
purchase debt securities that are in default or which the Manager believes will
be in default.
Certain Municipal Bonds may be entitled to the benefits of letters of credit
or similar credit enhancements issued by financial institutions. In such
instances, the Trustees and the Manager will take into account in assessing the
quality of such bonds not only the creditworthiness of the issuer of such bonds
but also the creditworthiness of the financial institution.
The Fund's investments may also include VRDOs and VRDOs in the form of
participation interests ("Participating VRDOs") in variable rate tax-exempt
obligations held by a financial institution. The VRDOs in which the Fund will
invest are tax-exempt obligations which contain a floating or variable interest
rate adjustment formula and an unconditional right of demand on the part of the
holder thereof to receive payment of the unpaid principal balance plus accrued
interest on a short notice period not to exceed seven days. Participating VRDOs
provide the Fund with a specified undivided interest (up to 100%) of the
underlying obligation and the right to demand payment of the unpaid principal
balance plus accrued interest on the Participating VRDOs from the financial
institution on a specified number of days' notice, not to exceed seven days.
There is, however, the possibility that because of default or insolvency, the
demand feature of VRDOs or Participating VRDOs may not be honored. The Fund has
been advised by its counsel that the Fund should be entitled to treat the
income received on Participating VRDOs as interest from tax-exempt obligations.
VRDOs that contain an unconditional right of demand to receive payment of the
unpaid principal balance plus accrued interest on a notice period exceeding
seven days may be deemed illiquid securities. A VRDO with a demand notice
period exceeding seven days will therefore be subject to the Fund's restriction
on illiquid investments unless, in the judgment of the Trustees, such VRDO is
liquid. The Trustees may adopt guidelines and delegate to the Manager the daily
function of determining and monitoring liquidity of such VRDOs. The Trustees,
however, will retain sufficient oversight and be ultimately responsible for
such determinations.
The Fund ordinarily does not intend to realize investment income not exempt
from Federal and Ohio income taxes. However, to the extent that suitable Ohio
Municipal Bonds are not available for investment by the Fund, the Fund may
purchase Municipal Bonds issued by other states, their agencies and
instrumentalities, the interest income on which is exempt, in the opinion of
bond counsel, from Federal, but not Ohio, taxation. The Fund also may invest in
securities not issued by or on behalf of a state or territory or by an agency
or instrumentality thereof, if the Fund nevertheless believes such securities
to be exempt from Federal income taxation ("Non-Municipal Tax-Exempt
Securities"). Non-Municipal Tax-Exempt Securities may also include securities
issued by other investment companies that invest in municipal bonds, to the
extent such investments are permitted by the Investment Company Act of 1940, as
amended (the "1940 Act"). Other Tax-Exempt Non-Municipal Securities could
include trust certificates or other instruments evidencing interests in one or
more long-term municipal securities.
10
<PAGE>
Under normal circumstances, except when acceptable securities are unavailable
as determined by the Manager, the Fund will invest at least 65% of its total
assets in Ohio Municipal Bonds. For temporary defensive periods or to provide
liquidity, the Fund has the authority to invest as much as 35% of its total
assets in tax-exempt or taxable money market obligations with a maturity of one
year or less (such short-term obligations being referred to herein as
"Temporary Investments"), except that taxable Temporary Investments shall not
exceed 20% of the Fund's net assets. The Temporary Investments, VRDOs and
Participating VRDOs in which the Fund may invest also will be in the following
rating categories at the time of purchase: MIG-1/VMIG-1 through MIG-4/VMIG-4
for notes and VRDOs and Prime-1 through Prime-3 for commercial paper (as
determined by Moody's), SP-1+ through SP-2 for notes and A-1+ through A-3 for
VRDOs and commercial paper (as determined by Standard & Poor's), or F-1+
through F-3 for notes, VRDOs and commercial paper (as determined by Fitch) or,
if unrated, of comparable quality in the opinion of the Manager. The Fund at
all times will have at least 80% of its net assets invested in securities the
interest on which is exempt from Federal taxation. However, interest received
on certain otherwise tax-exempt securities which are classified as "private
activity bonds" (in general, bonds that benefit non-governmental entities) may
be subject to Federal alternative minimum tax. The percentage of the Fund's net
assets invested in "private activity bonds" will vary during the year. See
"Distributions and Taxes". In addition, the Fund reserves the right to invest
temporarily a greater portion of its assets in Temporary Investments for
defensive purposes, when, in the judgment of the Manager, market conditions
warrant. The investment objective of the Fund is a fundamental policy of the
Fund which may not be changed without a vote of a majority of the outstanding
shares of the Fund. The Fund's hedging strategies, which are described in more
detail under "Financial Futures Transactions and Options," are not fundamental
policies and may be modified by the Trustees of the Trust without the approval
of the Fund's shareholders.
POTENTIAL BENEFITS
Investment in shares of the Fund offers several benefits. The Fund offers
investors the opportunity to receive income exempt from Federal and Ohio income
taxes by investing in a professionally managed portfolio consisting primarily
of long-term Ohio Municipal Bonds. The Fund also provides liquidity because of
its redemption features and relieves the investor of the burdensome
administrative details involved in managing a portfolio of tax-exempt
securities. The benefits are at least partially offset by the expenses involved
in operating an investment company. Such expenses primarily consist of the
management fee and operational costs and, in the case of certain classes of
shares, the account maintenance and distribution costs.
SPECIAL AND RISK CONSIDERATIONS RELATING TO MUNICIPAL BONDS
The risks and special considerations involved in investments in Municipal
Bonds vary with the types of instruments being acquired. Investments in Non-
Municipal Tax-Exempt Securities may present similar risks, depending on the
particular product. Certain instruments in which the Fund may invest may be
characterized as derivative instruments. See "Description of Municipal Bonds"
and "Financial Futures Transactions and Options".
Moreover, the Fund ordinarily will invest at least 65% of its total assets in
Ohio Municipal Bonds, and therefore it is more susceptible to factors adversely
affecting issuers of Ohio Municipal Bonds than is a municipal bond mutual fund
that is not concentrated in issuers of Ohio Municipal Bonds to this degree. The
Ohio State General Revenue Fund had positive fund and cash balances at the end
of the 1995 Fiscal Year of
11
<PAGE>
$928 million and $1,312.2 million, respectively. Economic activity in the
State, as in many other industrially developed states, tends to be more
cyclical than in some other states and in the nation as a whole. Currently, the
State of Ohio's general obligation bonds are rated AA, Aa and AA by Fitch,
Moody's and Standard & Poor's, respectively. The Manager does not believe that
the current economic conditions in Ohio will have a significant adverse effect
on the Fund's ability to invest in high quality Ohio Municipal Bonds. See
"Description of Municipal Bonds" in the Statement of Additional Information and
see also Appendix I --"Economic and Financial Conditions in Ohio"--in the
Statement of Additional Information.
DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds include debt obligations issued to obtain funds for various
public purposes, including construction and equipping of a wide range of public
facilities (including water, sewer, gas, electricity, solid waste, health care,
transportation, education and housing facilities), refunding of outstanding
obligations and obtaining funds for general operating expenses and loans to
other public institutions and facilities. In addition, certain types of
industrial development bonds ("IDBs") are issued by or on behalf of public
authorities to finance various privately operated facilities, including certain
facilities for local furnishing of electric energy or gas, sewage facilities,
solid waste disposal facilities and other specialized facilities. For purposes
of this Prospectus, such obligations are referred to as Municipal Bonds if the
interest paid thereon is exempt from Federal income tax and as Ohio Municipal
Bonds if the interest thereon is exempt from both Federal income tax and Ohio
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" bonds which latter category includes IDBs and, for bonds
issued after August 15, 1986, private activity bonds. General obligation bonds
are secured by the issuer's pledge of its faith, credit and taxing power for
the payment of principal and interest. The taxing power of any governmental
entity may be limited, however, by provisions of state constitutions or laws,
and an entity's creditworthiness will depend on many factors, including
potential erosion of the tax base due to population declines, natural
disasters, declines in the state's industrial base or inability to attract new
industries, economic limits on the ability to tax without eroding the tax base,
state legislative proposals or voter initiatives to limit ad valorem real
property taxes, and the extent to which the entity relies on Federal or state
aid, access to capital markets or other factors beyond the state or entity's
control. Accordingly, the capacity of the issuer of a general obligation bond
as to the timely payment of interest and the repayment of principal when due is
affected by the issuer's maintenance of its tax base.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as payments from the
user of the facility being financed; accordingly, the timely payment of
interest and the repayment of principal in accordance with the terms of the
revenue or special obligation bond is a function of the economic viability of
such facility or such revenue source. The Fund will not invest in IDBs where
the entity supplying the revenues from which the issuer is paid, including
predecessors, has a record of less than three years of continuous business
operations if such investments, together with investments in other unseasoned
issuers, would exceed 5% of the Fund's total assets. Investments involving
entities with less than three years of continuous business operations may pose
somewhat greater risks due to the lack of a substantial operating history for
such entities. The Manager believes, however, that the potential benefits of
such investments outweigh the potential risks, particularly given the Fund's
limitations on such investments.
12
<PAGE>
The Fund may purchase IDBs and private activity bonds. IDBs and private
activity bonds are tax-exempt securities issued by states, municipalities or
public authorities to provide funds, usually through a loan or lease
arrangement, to a private entity for the purpose of financing construction or
improvement of a facility to be used by the entity. Such bonds are secured
primarily by revenues derived from loan repayments or lease payments due from
the entity which may or may not be guaranteed by a parent company or otherwise
secured. Therefore, an investor should be aware that repayment of such bonds
depends on the revenues of a private entity and be aware of the risks that such
an investment may entail. Continued ability of an entity to generate sufficient
revenues for the payment of principal and interest on such bonds will be
affected by many factors including the size of the entity, capital structure,
demand for its products or services, competition, general economic conditions,
government regulation and the corporation's dependence on revenues for the
operation of the particular facility being financed. The Fund may invest more
than 25% of its total assets in IDBs and private activity bonds. The Fund may
also invest in so called "moral obligation" bonds which are normally issued by
special purpose public authorities. If an issuer of moral obligation bonds is
unable to meet its obligations, repayment of such bonds becomes a moral
commitment, but not a legal obligation, of the state or municipality in
question.
The Fund may invest in Municipal Bonds (and Non-Municipal Tax-Exempt
Securities) the return on which is based on a particular index of value or
interest rates. For example, the Fund may invest in Municipal Bonds that pay
interest based on an index of Municipal Bond interest rates or based on the
value of gold or some other commodity. The principal amount payable upon
maturity of certain Municipal Bonds also may be based on the value of an index.
To the extent the Fund invests in these types of Municipal Bonds, the Fund's
return on such Municipal Bonds will be subject to risk with respect to the
value of the particular index. Interest and principal payable on Municipal
Bonds must also be based on relative changes among particular indices. Also,
the Fund may invest in so-called "inverse floating obligations" or "residual
interest bonds" on which the interest rates typically decline as market rates
increase and increase as market rates decline. The Fund's return on such types
of Municipal Bonds (and Non-Municipal Tax-Exempt Securities) will be subject to
risk with respect to the value of the particular index, which may include
reduced or eliminated interest payments and losses of invested principal. Such
securities have the effect of providing a degree of investment leverage, since
they may increase or decrease in value in response to changes, as an
illustration, in market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed-rate long term tax exempt securities increase
or decrease in response to such changes. As a result, the market values of such
securities will generally be more volatile than the market values of fixed-rate
tax exempt securities. To seek to limit the volatility of these securities, the
Fund may purchase inverse floating obligations with shorter term maturities or
which contain limitations on the extent to which the interest rate may vary.
Certain investments in such obligations may be illiquid. The Fund may not
invest in such illiquid obligations if such investments, together with other
illiquid investments, would exceed 15% of the Fund's total assets. The Manager
believes, however, that indexed and inverse floating obligations represent
flexible portfolio management instruments for the Fund which allow the Fund to
seek potential investment rewards, hedge other portfolio positions or vary the
degree of investment leverage relatively efficiently under different market
conditions.
Also included within the general category of Municipal Bonds are
participation certificates issued by government authorities or entities to
finance the acquisition or construction of equipment, land and/or facilities.
The certificates represent participations in a lease, an installment purchase
contract or a conditional
13
<PAGE>
sales contract (hereinafter collectively called "lease obligations") relating
to such equipment, land or facilities. Although lease obligations do not
constitute general obligations of the issuer for which the issuer's unlimited
taxing power is pledged, a lease obligation is frequently backed by the
issuer's covenant to budget for, appropriate and make the payments due under
the lease obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the issuer has no obligation to make
lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional securities. Certain
investments in lease obligations may be illiquid. The Fund may not invest in
illiquid lease obligations if such investments, together with all other
illiquid investments would exceed 15% of the Fund's total assets. The Fund may,
however, invest without regard to such limitation in lease obligations which
the Manager, pursuant to guidelines which have been adopted by the Board of
Trustees and subject to the supervision of the Board, determines to be liquid.
The Manager will deem lease obligations to be liquid if they are publicly
offered and have received an investment grade rating of Baa or better by
Moody's, or BBB or better by Standard & Poor's or Fitch. Unrated lease
obligations, or those rated below investment grade, will be considered liquid
if the obligations come to the market through an underwritten public offering
and at least two dealers are willing to give competitive bids. In reference to
the obligations rated below investment grade, the Manager must, among other
things, also review the creditworthiness of the municipality obligated to make
payment under the lease obligation and make certain specified determinations
based on such factors as the existence of a rating or credit enhancement such
as insurance, the frequency of trades or quotes for the obligation and the
willingness of dealers to make a market in the obligation.
Federal tax legislation has limited the types and volume of bonds the
interest on which qualifies for a Federal income tax exemption. As a result,
this legislation and legislation which may be enacted in the future may affect
the availability of Municipal Bonds for investment by the Fund.
CALL RIGHTS
The Fund may purchase a Municipal Bond issuer's right to call all or a
portion of such Municipal Bond for mandatory tender for purchase (a "Call
Right"). A holder of a Call Right may exercise such right to require a
mandatory tender for the purchase of related Municipal Bonds, subject to
certain conditions. A Call Right that is not exercised prior to the maturity of
the related Municipal Bond will expire without value. The economic effect of
holding both the Call Right and the related Municipal Bond is identical to that
of holding a Municipal Bond as a non-callable security. Certain investments in
such obligations may be illiquid. The Fund may not invest in such illiquid
obligations if such investments, together with other illiquid investments,
would exceed 15% of the Fund's total assets.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase or sell Municipal Bonds on a delayed delivery basis or
a when-issued basis at fixed purchase terms. These transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future. The purchase will be recorded on the date the Fund enters
into the commitment and the value of the obligation will thereafter be
reflected in the calculation of the
14
<PAGE>
Fund's net asset value. The value of the obligation on the delivery date may be
more or less than its purchase price. A separate account of the Fund will be
established with its custodian consisting of cash, cash equivalents or high
grade, liquid Municipal Bonds having a market value at all times at least equal
to the amount of the forward commitment.
FINANCIAL FUTURES TRANSACTIONS AND OPTIONS
The Fund is authorized to purchase and sell certain exchange traded financial
futures contracts ("financial futures contracts") solely for the purpose of
hedging its investments in Municipal Bonds against declines in value and to
hedge against increases in the cost of securities it intends to purchase.
However, any transactions involving financial futures or options (including
puts and calls associated therewith) will be in accordance with the Fund's
investment policies. A financial futures contract obligates the seller of a
contract to deliver and the purchaser of a contract to take delivery of the
type of financial instrument covered by the contract, or in the case of index-
based futures contracts to make and accept a cash settlement, at a specific
future time for a specified price. A sale of financial futures contracts may
provide a hedge against a decline in the value of portfolio securities because
such depreciation may be offset, in whole or in part, by an increase in the
value of the position in the financial futures contracts. A purchase of
financial futures contracts may provide a hedge against an increase in the cost
of securities intended to be purchased, because such appreciation may be
offset, in whole or in part, by an increase in the value of the position in the
futures contracts. Distributions, if any, of net long-term capital gains from
certain transactions in futures or options are taxable at long-term capital
gains rates for Federal income tax purposes, regardless of the length of time
the shareholder has owned Fund shares. See "Distributions and Taxes--Taxes."
The Fund may deal in financial futures contracts traded on the Chicago Board
of Trade based on The Bond Buyer Municipal Bond Index, a price-weighted measure
of the market value of 40 large, recently issued tax-exempt bonds. There can be
no assurance, however, that a liquid secondary market will exist to terminate
any particular financial futures contract at any specific time. If it is not
possible to close a financial futures position entered into by the Fund, the
Fund would continue to be required to make daily cash payments of variation
margin in the event of adverse price movements. In such a situation, if the
Fund has insufficient cash, it may have to sell portfolio securities to meet
daily variation margin requirements at a time when it may be disadvantageous to
do so. The inability to close financial futures positions also could have an
adverse impact on the Fund's ability to hedge effectively. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a financial futures contract.
The Fund may purchase and sell financial futures contracts on U.S. Government
securities and write and purchase put and call options on such futures
contracts as a hedge against adverse changes in interest rates as described
more fully in the Statement of Additional Information. With respect to U.S.
Government securities, currently there are financial futures contracts based on
long-term U.S. Treasury bonds, Treasury notes, Government National Mortgage
Association ("GNMA") Certificates and three-month U.S. Treasury bills.
Subject to policies adopted by the Trustees, the Fund also may engage in
other financial futures contracts transactions and options thereon, such as
financial futures contracts or options on other municipal bond indexes which
may become available if the Manager of the Fund and the Trustees of the Trust
should
15
<PAGE>
determine that there is normally a sufficient correlation between the prices of
such futures contracts and the Municipal Bonds in which the Fund invests to
make such hedging appropriate.
Utilization of futures transactions and options thereon involves the risk of
imperfect correlation in movements in the price of futures contracts and
movements in the price of the security which is the subject of the hedge. If
the price of the futures contract moves more or less than the price of the
security that is the subject of the hedge, the Fund will experience a gain or
loss which will not be completely offset by movements in the price of such
security. There is a risk of imperfect correlation where the securities
underlying futures contracts have different maturities, ratings or geographic
mixes than the security being hedged. In addition, the correlation may be
affected by additions to or deletions from the index which serves as a basis
for a financial futures contract. Finally, in the case of futures contracts on
U.S. Government securities and options on such futures contracts, the
anticipated correlation of price movements between the U.S. Government
securities underlying the futures or options and Municipal Bonds may be
adversely affected by economic, political, legislative or other developments
which have a disparate impact on the respective markets for such securities.
Under regulations of the Commodity Futures Trading Commission, the futures
trading activities described herein will not result in the Fund being deemed to
be a "commodity pool", as defined under such regulations, provided that the
Fund adheres to certain restrictions. In particular, the Fund may purchase and
sell futures contracts and options thereon (i) only for bona fide hedging
purposes, and (ii) for non-hedging purposes, if the aggregate initial margins
and premiums required to establish positions in such contracts and options does
not exceed 5% of the liquidation value of the Fund's portfolio assets after
taking into account unrealized profits and unrealized losses on any such
contracts and options. (However, as stated above, the Fund intends to engage in
options and futures transactions only for hedging purposes.) Manager deposits
may consist of cash or securities acceptable to the broker and the relevant
contract market.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., high grade commercial paper and daily tender adjustable
notes) or short-term, high-grade, fixed-income securities in a segregated
account with the Fund's custodian, so that the amount so segregated plus the
amount of initial and variation margin held in the account of its broker equals
the market value of the futures contracts, thereby ensuring that the use of
such futures contract is unleveraged. It is not anticipated that transactions
in futures contracts will have the effect of increasing portfolio turnover.
Although certain risks are involved in options and futures transactions, the
Manager believes that, because the Fund will engage in futures transactions
only for hedging purposes, the futures portfolio strategies of the Fund will
not subject the Fund to certain risks frequently associated with speculation in
futures transactions. The Fund must meet certain Federal income tax
requirements under the Internal Revenue Code of 1986, as amended (the "Code"),
in order to qualify for the special tax treatment afforded regulated investment
companies, including a requirement that less than 30% of its gross income be
derived from the sale or other disposition of securities held for less than
three months. Additionally, the Fund is required to meet certain
diversification requirements under the Code.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by commodity exchanges
which limit the amount of fluctuation in a futures
16
<PAGE>
contract price during a single trading day. Once the daily limit has been
reached in the contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open futures positions. Prices have
in the past moved beyond the daily limit on a number of consecutive trading
days.
The successful use of transactions in futures also depends on the ability of
the Manager to forecast correctly the direction and extent of interest rate
movements within a given time frame. To the extent these rates remain stable
during the period in which a futures contract is held by the Fund or moves in a
direction opposite to that anticipated, the Fund may realize a loss on the
hedging transaction which is not fully or partially offset by an increase in
the value of portfolio securities. As a result, the Fund's total return for
such period may be less than if it had not engaged in the hedging transaction.
Furthermore, the Fund will only engage in hedging transactions from time to
time and may not necessarily be engaging in hedging transactions when movements
in interest rates occur.
Reference is made to the Statement of Additional Information for further
information on financial futures contracts and certain options thereon.
REPURCHASE AGREEMENTS
As Temporary Investments, the Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S.
Government securities or an affiliate thereof. Under such agreements, the
seller agrees, upon entering into the contract, to repurchase the security from
the Fund at a mutually agreed upon time and price, thereby determining the
yield during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period. The Fund may not invest
in repurchase agreements maturing in more than seven days if such investments,
together with the Fund's other illiquid investments, exceed 15% of the Fund's
total assets. In the event of default by the seller under a repurchase
agreement, the Fund may suffer time delays and incur costs or possible losses
in connection with the disposition of the underlying securities.
INVESTMENT RESTRICTIONS
The Fund's investment activities are subject to further restrictions that are
described in the Statement of Additional Information. Investment restrictions
and policies which are fundamental policies may not be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the 1940 Act. Among its fundamental policies, the
Fund may not: (i) invest more than 25% of its assets, taken at market value at
the time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and instrumentalities)
(For purposes of this restriction, states, municipalities and their political
subdivisions are not considered to be part of any industry); and (ii) borrow
money, except that (a) the Fund may borrow from banks (as defined in the 1940
Act) in amounts up to 33 1/3% of its total assets (including the amount
borrowed), (b) the Fund may borrow up to an additional 5% of its total assets
for temporary purposes, (c) the Fund may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities
and (d) the Fund may purchase securities on margin to the extent permitted by
applicable law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as set
forth in the Prospectus and Statement of Additional Information, as they may be
amended from time to time,
17
<PAGE>
in connection with hedging transactions, short sales, when-issued and forward
commitment transactions and similar investment strategies.
Among its non-fundamental policies, the Fund may not (i) purchase securities
of other investment companies, except to the extent such purchases are
permitted by applicable law; (ii) invest in securities which cannot be readily
resold because of legal or contractual restrictions or which cannot otherwise
be marketed, redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities [This restriction (ii) shall not apply to securities which mature
within seven days or securities which the Board of Trustees of the Trust has
otherwise determined to be liquid pursuant to applicable law]; and (iii) invest
in securities of companies having a record, together with predecessors, of less
than three years of continuous operation, if more than 5% of the Fund's total
assets would be invested in such securities. This restriction (iii) shall not
apply to mortgaged-backed securities, asset-backed securities or obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund is classified as non-diversified within the meaning of the 1940 Act,
which means that the Fund is not limited by the 1940 Act in the proportion of
its assets that it may invest in obligations of a single issuer. However, the
Fund's investments will be limited so as to qualify for the special tax
treatment afforded regulated investment companies under the Code. See
"Distributions and Taxes--Taxes". To qualify, among other requirements, the
Trust will limit the Fund's investments so that, at the close of each quarter
of the taxable year, (i) not more than 25% of the market value of the Fund's
total assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5%
of the market value of its total assets will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. For purposes of this restriction, the Fund will
regard each state and each political subdivision, agency or instrumentality of
such state and each multi-state agency of which such state is a member and each
public authority which issues securities on behalf of a private entity as a
separate issuer, except that if the security is backed only by the assets and
revenues of a non-government entity then the entity with the ultimate
responsibility for the payment of interest and principal may be regarded as the
sole issuer. These tax-related limitations may be changed by the Trustees of
the Trust to the extent necessary to comply with changes to the Federal tax
requirements. A fund which elects to be classified as "diversified" under the
1940 Act must satisfy the foregoing 5% and 10% requirements with respect to 75%
of its total assets. To the extent that the Fund assumes large positions in the
obligations of a small number of issuers, the Fund's total return may fluctuate
to a greater extent than that of a diversified company as a result of changes
in the financial condition or in the market's assessment of the issuers.
Investors are referred to the Statement of Additional Information for a
complete description of the Fund's investment restrictions.
MANAGEMENT OF THE TRUST
TRUSTEES
The Trustees of the Trust consist of six individuals, five of whom are not
"interested persons" of the Trust as defined in the 1940 Act. The Trustees are
responsible for the overall supervision of the operations of the Trust and the
Fund and perform the various duties imposed on the directors or trustees of
investment companies by the 1940 Act.
18
<PAGE>
The Trustees are:
Arthur Zeikel*--President of the Manager; President and Director of Princeton
Services, Inc.; Executive Vice President of ML & Co.; Executive Vice President
of Merrill Lynch; Director of the Distributor.
James H. Bodurtha--Chairman and Chief Executive Officer, China Enterprise
Management Corporation.
Herbert I. London--John M. Olin Professor of Humanities, New York University.
Robert R. Martin--Director, WTC Industries, Inc.
Joseph L. May--Attorney in private practice.
Andre F. Perold--Professor, Harvard Business School.
- --------
* Interested person, as defined in the Investment Company Act of 1940, of the
Trust.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, which is an affiliate of MLAM and is owned and controlled by ML
& Co., a financial services holding company, acts as the manager for the Fund
and provides the Fund with management services. The Manager or MLAM acts as the
investment adviser for more than 130 other registered investment companies.
MLAM also provides investment advisory services to individual and institutional
accounts. As of September 30, 1995, the Manager and MLAM had a total of
approximately $189.4 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Manager.
Subject to the direction of the Trustees, the Manager is responsible for the
actual management of the Fund's portfolio and constantly reviews the Fund's
holdings in light of its own research analysis and that from other relevant
sources. The responsibility for making decisions to buy, sell or hold a
particular security rests with the Manager. The Manager performs certain of the
other administrative services and provides all the office space, facilities,
equipment and necessary personnel for management of the Fund.
Robert H. Moore, III, is the Portfolio Manager of the Fund. He has been a
Vice President of MLAM since 1994, Vice President and Portfolio Manager at
Society Asset Management from 1993 to 1994, and Vice President and Portfolio
Manager at Ameritrust Trust Department from 1989 to 1993.
Pursuant to the management agreement between the Manager and the Trust on
behalf of the Fund (the "Management Agreement"), the Manager is entitled to
receive from the Fund a monthly fee based upon the average daily net assets of
the Fund at the following annual rates: 0.55% of the average daily net assets
not exceeding $500 million; 0.525% of the average daily net assets exceeding
$500 million but not exceeding $1.0 billion; and 0.50% of the average daily net
assets exceeding $1.0 billion. For the year ended July 31, 1995, the total fee
paid by the Fund to the Manager was $402,455, (based upon average net assets of
approximately $73.8 million), of which $19,871 was voluntarily waived.
19
<PAGE>
The Management Agreement obligates the Trust on behalf of the Fund to pay
certain expenses incurred in the Fund's operations, including, among other
things, the management fee, legal and audit fees, unaffiliated Trustees' fees
and expenses, registration fees, custodian and transfer agency fees, accounting
and pricing costs, and certain of the costs of printing proxies, shareholder
reports, prospectuses and statements of additional information. Accounting
services are provided to the Fund by the Manager and the Fund reimburses the
Manager for its costs in connection with such services. The Manager may waive
all or a portion of its management fee and may voluntarily assume all or a
portion of the Fund's expenses. For the year ended July 31, 1995, the Fund
reimbursed the Manager $32,847 for accounting services. For the fiscal year
ended July 31, 1995, the ratio of total expenses, net of account maintenance
and distribution fees and net of reimbursement, to average net assets was .86%
for the Class A shares and .87% for the Class B shares; for the period October
21, 1994 (commencement of operations) to July 31, 1995, the annualized ratio of
total expenses, net of account maintenance and distribution fees, to average
net assets was .90% for Class C shares and .89% for Class D shares.
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics under Rule
17j-1 of the 1940 Act which incorporates the Code of Ethics of the Manager
(together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Manager include a ban on acquiring any securities in a "hot" initial public
offering and a prohibition from profiting on short-term trading in securities.
In addition, no employee may purchase or sell any security which at the time is
being purchased or sold (as the case may be), or to the knowledge of the
employee is being considered for purchase or sale, by any fund advised by the
Manager. Furthermore, the Codes provide for trading "blackout periods" which
prohibit trading by investment personnel of the Fund within periods of trading
by the Fund in the same (or equivalent) security (15 or 30 days depending upon
the transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which is
a wholly-owned subsidiary of ML & Co., acts as the Trust's transfer agent
pursuant to a transfer agency, dividend disbursing agency and shareholder
servicing agency agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of
shareholder accounts. Pursuant to the Transfer Agency Agreement, the Fund pays
the Transfer Agent an annual fee of $11.00 per Class A or Class D shareholder
account and $14.00 per Class B or Class C shareholder account, and the Transfer
Agent is entitled to reimbursement from the Fund for out-of-pocket expenses
incurred by the Transfer Agent under the Transfer Agency Agreement. For the
year ended July 31, 1995, the Fund paid the Transfer Agent a total fee of
$54,904 pursuant to the Transfer Agency Agreement for providing transfer agency
services. At September 30, 1995, the Fund had 248
20
<PAGE>
Class A shareholder accounts, 2,306 Class B shareholder accounts, 58 Class C
shareholder accounts and 31 Class D shareholder accounts. At this level of
accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $36,165, plus out of pocket expenses.
PURCHASE OF SHARES
The Distributor, an affiliate of the Manager, MLAM and Merrill Lynch, acts
as the distributor of the shares of the Fund. Shares of the Fund are offered
continuously for sale by the Distributor and other eligible securities dealers
(including Merrill Lynch). Shares of the Fund may be purchased from securities
dealers or by mailing a purchase order directly to the Transfer Agent. The
minimum initial purchase is $1,000 and the minimum subsequent purchase is $50.
The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon
the class of shares selected by the investor under the Merrill Lynch Select
Pricing SM System, as described below. The applicable offering price for
purchase orders is based upon the net asset value of the Fund next determined
after receipt of the purchase orders by the Distributor. As to purchase orders
received by securities dealers prior to the close of business on the New York
Stock Exchange (generally 4:00 P.M., New York time), which includes orders
received after the close of business on the previous day, the applicable
offering price will be based on the net asset value determined as of 15
minutes after the close of business on the New York Stock Exchange on that
day, provided the Distributor in turn receives the order from the securities
dealer prior to 30 minutes after the close of business on the New York Stock
Exchange, on that day. If the purchase orders are not received by the
Distributor prior to 30 minutes after the close of business on the New York
Stock Exchange, such orders shall be deemed received on the next business day.
The Trust or the Distributor may suspend the continuous offering of the Fund's
shares of any class at any time in response to conditions in the securities
markets or otherwise and may thereafter resume such offering from time to
time. Any order may be rejected by the Distributor or the Trust. Neither the
Distributor nor the dealers are permitted to withhold placing orders to
benefit themselves by a price change. Merrill Lynch may charge its customers a
processing fee (presently $4.85) to confirm a sale of shares to such
customers. Purchases directly through the Fund's Transfer Agent are not
subject to the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing SM System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the
investment thereafter being subject to a CDSC and ongoing distribution fees
and higher account maintenance fees. A discussion of the factors that
investors should consider in determining the method of purchasing shares under
the Merrill Lynch Select Pricing SM System is set forth under "Merrill Lynch
Select Pricing SM System" on page 4.
21
<PAGE>
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The deferred sales charges and account maintenance fees that are imposed on
Class B and Class C shares, as well as the account maintenance fees that are
imposed on Class D shares, will be imposed directly against those classes and
not against all assets of the Fund and, accordingly, such charges will not
affect the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Fund for each
class of shares will be calculated in the same manner at the same time and
will differ only to the extent that account maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Class B, Class C and Class D shares each have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
adopted with respect to such class pursuant to which account maintenance
and/or distribution fees are paid. See "Distribution Plans" below. Each class
has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in
that the sales charges applicable to each class provide for the financing of
the distribution of the shares of the Fund. The distribution-related revenues
paid with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised
that only Class A and Class D shares may be available for purchase through
securities dealers, other than Merrill Lynch, which are eligible to sell
shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing SM System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE/(1)/ FEE FEE CONVERSION FEATURE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 4.00% initial sales No No No
charge/(2)(3)/
- ---------------------------------------------------------------------------------------
B CDSC for a period of 4 years, 0.25% 0.25% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% ten years/(4)/
- ---------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.35% No
- ---------------------------------------------------------------------------------------
D Maximum 4.00% initial 0.10% No No
sales charge/(3)/
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
22
<PAGE>
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC if redeemed within one
year.
(4) The conversion period for dividend reinvestment shares was modified. Also,
Class B shares of certain other MLAM-advised mutual funds into which
exchanges may be made have an eight year conversion period. If Class B
shares of the Fund are exchanged for Class B shares of another MLAM-
advised mutual fund, the conversion period applicable to the Class B
shares acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the shares
acquired.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DISCOUNT TO
AS PERCENTAGE AS PERCENTAGE* SELECTED DEALERS
OF OFFERING OF THE NET AS PERCENTAGE OF THE
AMOUNT OF PURCHASE PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ ------------- --------------- --------------------
<S> <C> <C> <C>
Less than $25,000. ........ 4.00% 4.17% 3.75%
$25,000 but less than
$50,000................... 3.75 3.90 3.50
$50,000 but less than
$100,000.................. 3.25 3.36 3.00
$100,000 but less than
$250,000.................. 2.50 2.56 2.25
$250,000 but less than
$1,000,000................ 1.50 1.52 1.25
$1,000,000 and over**...... 0.00 0.00 0.00
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994 (the date Class D
shares were initially offered to the public). If the sales charge is waived
in connection with a purchase of $1,000,000 or more, such purchases will be
subject to a CDSC of 1% if the shares are redeemed within one year after
purchase. Class A purchases made prior to October 21, 1994 may be subject
to a CDSC if the shares are redeemed within one year of purchase at the
following annual rates: 0.75% on purchases of $1,000,000 to $2,500,000;
0.40% on purchases of $2,500,001 to $3,500,000; 0.25% on purchases of
$3,500,001 to $5,000,000; and 0.20% on purchases of more than $5,000,000 in
lieu of paying an initial sales charge. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and
Class D shares of the Fund will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act
of 1933, as amended (the "Securities Act"). During the fiscal year ended July
31, 1995, the Fund sold 181,071 Class A shares for aggregate net proceeds of
$1,870,062. The gross sales charges for the sale of Class A shares of the Fund
for that year were $2,561, of which $310 and $2,251 were received by the
Distributor and Merrill Lynch, respectively. For the fiscal year ended July
31, 1995, the Distributor received no CDSCs with respect to redemption within
one year after purchase of Class A shares purchased subject to front-end sales
charge waivers. For the period October 21, 1994 (commencement of operations)
to July 31, 1995, the Fund sold 303,361 Class D shares for an aggregate net
proceeds of $3,004,430. The gross sales charge for the sale of Class D shares
of the Fund for the period were $737, of which $112 and $625 were received by
the Distributor and Merrill Lynch, respectively. For the period October 21,
1994 (commencement of operations) to July 31, 1995, the Distributor received
no
23
<PAGE>
CDSCs with respect to redemption within one year after purchase of Class D
shares purchased subject to a front-end sales charge waiver.
Eligible Class A Investors. Class A shares are offered to a limited group of
investors and also will be issued upon reinvestment of dividends on outstanding
Class A shares. Investors that currently own Class A shares of the Fund in a
shareholder account are entitled to purchase additional Class A shares of the
Fund in that account. Class A shares are available at net asset value to
corporate warranty insurance reserve fund programs provided that the program
has $3 million or more initially invested in MLAM-advised mutual funds. Also
eligible to purchase Class A shares at net asset value are participants in
certain investment programs including TMA SM Managed Trusts to which Merrill
Lynch Trust Company provides discretionary trustee services and certain
purchases made in connection with the Merrill Lynch Mutual Fund Adviser
program. In addition, Class A shares are offered at net asset value to ML &
Co., and its subsidiaries and their directors and employees and to members of
the Boards of MLAM-advised investment companies, including the Trust. Certain
persons who acquired shares of certain MLAM-advised closed-end funds who wish
to reinvest the net proceeds from a sale of their closed-end fund shares of
common stock in shares of the Fund also may purchase Class A shares of the Fund
if certain conditions set forth in the Statement of Additional Information are
met. For example, Class A shares of the Fund and certain other MLAM-advised
mutual funds are offered at net asset value to shareholders of Merrill Lynch
Senior Floating Rate Fund, Inc. who wish to reinvest the net proceeds from a
sale of certain of their shares of common stock of Merrill Lynch Senior
Floating Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges
also may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors".
Class A and Class D shares are offered at net asset value to certain Employer
Sponsored Retirement or Savings Plans and to Employee Access Accounts SM
available through employers which provide such plans.
Class D shares are offered at net asset value, without a sales charge, to an
investor who has a business relationship with a Merrill Lynch financial
consultant if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares of the Fund are offered at net asset value to shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock of Merrill
Lynch Municipal Strategy Fund, Inc. in shares of the Fund.
Additional information concerning these reduced initial sales charges is set
forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
24
<PAGE>
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately ten years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Fund and
thereafter will be subject to lower continuing fees. See "Conversion of Class B
Shares to Class D Shares" below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and Class B and Class C
shares are subject to distribution fees of 0.25% and 0.35%, respectively, of
net assets as discussed below under "Distribution Plans". The proceeds from the
account maintenance fees are used to compensate Merrill Lynch for providing
continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for
selling Class B and Class C shares, from the dealer's own funds. The
combination of the CDSC and the ongoing distribution fee facilitates the
ability of the Fund to sell the Class B and Class C shares without a sales
charge being deducted at the time of purchase. Approximately ten years after
issuance, Class B shares will convert automatically into Class D shares of the
Fund, which are subject to a lower account maintenance fee and no distribution
fee. Class B shares of certain other MLAM-advised mutual funds into which
exchanges may be made convert into Class D shares automatically after
approximately eight years. If Class B shares of the Fund are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and the
holding period for the shares exchanged will be tacked onto the holding period
for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C shares
is limited by the NASD asset-based sales charge rule. See "Limitations on the
Payment of Deferred Sales Charges" below. The proceeds from the ongoing account
maintenance fees are used to compensate Merrill Lynch for providing continuing
account maintenance activities. Class B shareholders of the Fund exercising the
exchange privilege described under "Shareholder Services--Exchange Privilege"
will continue to be subject to the Fund's CDSC schedule, if such schedule is
higher than the CDSC schedule relating to the Class B shares acquired as a
result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which are
redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
25
<PAGE>
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B
CDSC AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE PAYMENT MADE CHARGE
-------------------------------- -------------
<S> <C>
0-1.......................................................... 4.0%
1-2.......................................................... 3.0%
2-3.......................................................... 2.0%
3-4.......................................................... 1.0%
4 and thereafter............................................. None
</TABLE>
For the fiscal year ended July 31, 1995, the Distributor received CDSCs of
$150,198 with respect to redemption of Class B shares, all of which were paid
to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the calculation
will be determined in the manner that results in the lowest applicable rate
being charged. Therefore, it will be assumed that the redemption is first of
shares held for over four years or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the four-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as redemption.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share (at a cost of $1,000) and in the third year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired
10 additional shares upon dividend reinvestment. If at such time the investor
makes his first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to CDSC because of dividend reinvestment. With respect to the
remaining 40 shares, the CDSC is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the Merrill Lynch Mutual
Fund Adviser ("MFA") program, the time period that such Class A shares are held
in the MFA program will be included in determining the holding period of Class
B shares reacquired upon termination of participation in the MFA program (see
"Shareholder Services--Exchange Privilege").
The Class B CDSC is waived on redemptions of shares following the death or
disability (as defined in the Internal Revenue Code of 1986, as amended) of a
shareholder. Additional information concerning the waiver of the Class B CDSC
is set forth in the Statement of Additional Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which are
redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a
percentage of the dollar amount subject thereto. The charge will be assessed on
an amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from
26
<PAGE>
reinvestment of dividends or capital gains distributions. For the period
October 21, 1994 (commencement of operations) to July 31, 1995, the Distributor
received CDSCs of $123 with respect to redemptions of Class C shares, all of
which were paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the one-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately ten years
(the "Conversion Period"), Class B shares will be converted automatically into
Class D shares of the Fund. Class D shares are subject to an ongoing account
maintenance fee of 0.10% of net assets but are not subject to the distribution
fee that is borne by Class B shares. Automatic conversion of Class B shares
into Class D shares will occur at least once each month (on the "Conversion
Date") on the basis of the relative net asset values of the shares of the two
classes on the Conversion Date, without the imposition of any sales load, fee
or other charge. Conversion of Class B shares to Class D shares will not be
deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion Period, or vice versa, the
Conversion Period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
27
<PAGE>
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the 1940 Act (each, a "Distribution
Plan") with respect to the account maintenance and/or distribution fees paid by
the Fund to the Distributor with respect to such classes. The Class B and Class
C Distribution Plans provide for the payment of account maintenance fees and
distribution fees, and the Class D Distribution Plan provides for the payment
of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual
rates of 0.25%, 0.25% and 0.10%, respectively, of the average daily net assets
of the Fund attributable to shares of the relevant class in order to compensate
the Distributor and Merrill Lynch (pursuant to a sub-agreement) in connection
with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.25% and
0.35%, respectively, of the average daily net assets of the Fund attributable
to the shares of the relevant class in order to compensate the Distributor and
Merrill Lynch (pursuant to a sub-agreement) for providing shareholder and
distribution services, and bearing certain distribution-related expenses of the
Fund, including payments to financial consultants for selling Class B and Class
C shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C
shares through dealers without the assessment of an initial sales charge and at
the same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
For the year ended July 31, 1995, the Fund paid the Distributor $317,043
pursuant to the Class B Distribution Plan (based on average net assets subject
to such Distribution Plan of approximately $63.4 million), all of which were
paid to Merrill Lynch for providing account maintenance and distribution-
related activities and services in connection with Class B shares. During the
period October 21, 1994 (commencement of operations) to July 31, 1995, the Fund
paid the Distributor $1,984 pursuant to the Distribution Plan relating to Class
C shares (based on average net assets subject to such Distribution Plan of
approximately $429,632), all of which were paid to Merrill Lynch for providing
account maintenance and distribution-related activities and services in
connection with Class C shares. During the period October 21, 1994
(commencement of operations) to July 31, 1995, the Fund paid the Distributor
$1,854 pursuant to the Distribution Plan relating to Class D shares (based on
average net assets subject to such Distribution Plan of approximately $2.4
million), all of which were paid to Merrill Lynch for providing account
maintenance services in connection with Class D shares. At September 30, 1995,
the net assets of the Fund subject to the Class B Distribution Plan aggregated
approximately $64.5 million. At this asset level, the annual fee payable
pursuant to the Class B Distribution Plan would aggregate approximately
$322,676. At September 30, 1995, the net assets of the Fund subject to the
Class C Distribution Plan aggregated approximately $1.2 million. At this asset
level, the annual fee payable pursuant to the Class C Distribution Plan would
aggregate approximately $6,922. At September 30, 1995, the net assets of the
Fund subject to the Class D Distribution Plan aggregated approximately $2.8
million. At this asset level, the annual fee payable pursuant to the Class D
Distribution Plan would aggregate approximately $2,848.
28
<PAGE>
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Trustees for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs,
and the expenses consist of financial consultant compensation. As of December
31, 1994, for Class B shares, the fully allocated accrual revenues incurred by
the Distributor and Merrill Lynch exceeded fully allocated accrual expenses for
such period by approximately $1,262,000 (2.12% of Class B net assets at that
date). As of December 31, 1994, direct cash expenses for the period since the
commencement of operations exceeded direct cash revenues by $79,739 (.13% of
Class B net assets at that date). As of July 31, 1995, direct cash revenues for
the period since the commencement of operations exceeded direct cash expenses
by $80,927 (.14% of Class B net assets at that date). As of July 31, 1995,
direct cash expenses for the period since October 21, 1994 (commencement of
operations) exceeded direct cash revenues by $1,737 (.79% of Class C net assets
at that date).
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Trustees of the Fund will approve the continuance of the Distribution
Plans from year to year. However, the Distributor intends to seek annual
continuation of the Distribution Plans. In their review of the Distribution
Plans, the Trustees will be asked to take into consideration expenses incurred
in connection with the account maintenance and/or distribution of each class of
shares separately. The initial sales charges, the account maintenance fee, the
distribution fee and/or the CDSCs received with respect to one class will not
be used to subsidize the sale of shares of another class. Payments of the
distribution fee on Class B shares will terminate upon conversion of those
Class B shares into Class D shares as set forth under "Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class
D Shares."
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the
distribution fee and the CDSC borne by the Class B and Class C shares, but not
the account maintenance fee. The maximum sales charge rule is applied
separately to each class. As applicable to the Fund, the maximum sales charge
rule limits the aggregate of distribution fee payments and CDSCs payable by the
Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares,
computed separately (defined to exclude shares issued pursuant to dividend
reinvestments and
29
<PAGE>
exchanges) plus (2) interest on the unpaid balance for the respective class,
computed separately at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In
certain circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances
payments in excess of the amount payable under the NASD formula will not be
made.
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Trustees of the Trust will approve the continuance of the Distribution
Plans from year to year. However, the Distributor intends to seek annual
continuation of the Distribution Plans. In their review of the Distribution
Plans, the Trustees, will be asked to take into consideration expenses incurred
in connection with the account maintenance and/or distribution of each class of
shares separately. The initial sales charges, the account maintenance fee, the
distribution fee and/or the CDSCs received with respect to one class will not
be used to subsidize the sale of shares of another class. Payments of the
distribution fee on Class B shares will terminate upon conversion of those
Class B shares into Class D shares as set forth under "Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class
D Shares".
REDEMPTION OF SHARES
The Trust is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset
value per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no
charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption. The value
of shares at the time of redemption may be more or less than the shareholder's
cost, depending on the market value of the securities held by the Fund at such
time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering
the shares directly to the Transfer Agent, Merrill Lynch Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption
requests delivered other than by mail should be delivered to Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. Proper notice of redemption in the case of shares deposited with
the Transfer Agent may be accomplished by a written letter requesting
redemption. Proper notice of redemption in the case of shares for which
certificates have been issued may be accomplished by a written letter as noted
above accompanied by certificates for the shares
30
<PAGE>
to be redeemed. Redemption requests should not be sent to the Trust. The notice
in either event requires the signature(s) of all persons in whose name(s) the
shares are registered, signed exactly as such name(s) appear(s) on the Transfer
Agent's register. The signature(s) on the redemption request must be guaranteed
by an "eligible guarantor institution" as such is defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, the existence and validity of
which may be verified by the Transfer Agent through the use of industry
publications. Notarized signatures are not sufficient. In certain instances,
the Transfer Agent may require additional documents such as, but not limited
to, trust instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. For shareholders
redeeming directly with the Transfer Agent, payments will be mailed within
seven days of receipt of a proper notice of redemption.
At various times the Trust may be requested to redeem Fund shares for which
it has not yet received good payment (e.g., cash, Federal funds or certified
check drawn on a United States bank). The Trust may delay or cause to be
delayed the mailing of a redemption check until such time as it has assured
itself that good payment has been collected for the purchase of such Fund
shares, which will not exceed 10 days.
REPURCHASE
The Trust also will repurchase Fund shares through a shareholder's listed
securities dealer. The Trust normally will accept orders to repurchase Fund
shares by wire or telephone from dealers for their customers at the net asset
value next computed after receipt of the order by the dealer, provided that the
request for repurchase is received by the dealer prior to the close of business
on the New York Stock Exchange (generally, 4:00 P.M., New York time) on the day
received, and such request is received by the Trust from such dealer not later
than 30 minutes after the close of business on the New York Stock Exchange, on
the same day. Dealers have the responsibility of submitting such repurchase
requests to the Fund not later than 30 minutes after the close of business on
the New York Stock Exchange, in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Trust (other than any applicable CDSC).
Securities firms which do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Trust. Merrill Lynch may charge
its customers a processing fee (presently $4.85) to confirm a repurchase of
shares of such customers. Redemptions directly through the Fund's Transfer
Agent are not subject to the processing fee. The Trust reserves the right to
reject any order for repurchase, which right of rejection might adversely
affect shareholders seeking redemption through the repurchase procedure.
However, a shareholder whose order for repurchase is rejected by the Trust may
redeem Fund shares as set forth above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a one-
time privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement
31
<PAGE>
is received and cannot exceed the amount of the redemption proceeds. The
reinstatement privilege is a one-time privilege and may be exercised by the
Class A or Class D shareholder only the first time such shareholder makes a
redemption.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services and investment plans
designed to facilitate investment in shares of the Fund. Full details as to
each of such services, copies of the various plans described below and
instructions as to how to participate in the various services or plans, or to
change options with respect thereto can be obtained from the Trust by calling
the telephone number on the cover page hereof or from the Distributor or
Merrill Lynch.
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements will also show any other activity in the account since the
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestments of ordinary income dividends and
long-term capital gains distributions. A shareholder may make additions to his
Investment Account at any time by mailing a check directly to the Transfer
Agent. Shareholders may also maintain their accounts through Merrill Lynch.
Upon the transfer of shares out of a Merrill Lynch brokerage account, an
Investment Account in the transferring shareholder's name will be opened
automatically at the Transfer Agent. Shareholders considering transferring
their Class A or Class D shares from Merrill Lynch to another brokerage firm
or financial institution should be aware that, if the firm to which the Class
A or Class D shares are to be transferred will not take delivery of shares of
the Fund, a shareholder either must redeem the Class A or Class D shares
(paying any applicable CDSC) so that the cash proceeds can be transferred to
the account at the new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class A or Class D shares.
Shareholders interested in transferring their Class B or Class C shares from
Merrill Lynch and who do not wish to have an Investment Account maintained for
such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage
firm for the benefit of the shareholder at the Transfer Agent.
Exchange Privilege. Shareholders of each class of shares of the Fund have an
exchange privilege with certain other MLAM-advised mutual funds. There is
currently no limitation on the number of times a shareholder may exercise the
exchange privilege. The exchange privilege may be modified or terminated at
any time in accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing SM System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-
advised mutual fund if the shareholder holds any Class A shares of the second
fund in his account in which the exchange is made at the time of the exchange
or is otherwise eligible to purchase Class A shares of the second fund. If the
Class A shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, and the shareholder does not hold Class A shares of
the second fund in his account at the time of the exchange and is not
otherwise eligible to acquire
32
<PAGE>
Class A shares of the second fund, the shareholder will receive Class D shares
of the second fund as a result of the exchange. Class D shares also may be
exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares
of the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the relative
net asset values per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the same
class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC are exchangeable on the basis
of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Fund. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is "tacked" to the holding period of the newly acquired shares of the
other Fund.
Class A, Class B, Class C and Class D shares also are exchangeable for shares
of certain MLAM-advised money market funds specifically designated as available
for exchange by holders of Class A, Class B, Class C or Class D shares. The
period of time that Class A, Class B, Class C or Class D shares are held in a
money market fund, however, will not count toward satisfaction of the holding
period requirement for reduction of any CDSC imposed on such shares, if any,
and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services--Exchange
Privilege" in the Statement of Additional Information.
The Fund's exchange privilege is modified with respect to purchases of Class
A and Class D shares under the Merrill Lynch Mutual Fund Adviser ("MFA")
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D
shares of a MLAM-advised mutual fund for Class A or Class D shares of the Fund
will be made solely on the basis of the relative net asset values of the shares
being exchanged. Therefore, there will not be a charge for any difference
between the sales charge previously paid on the shares of the other MLAM-
advised mutual funds and the sales charge payable on the shares of the Fund
being acquired in the exchange under the MFA program.
Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of the Fund, without a sales charge, at
33
<PAGE>
the net asset value per share at the close of business on the monthly payment
date for such dividends and distributions. A shareholder may at any time, by
written notification or by telephone (1-800-MER-FUND) to the Transfer Agent,
elect to have subsequent dividends or both dividends and capital gains
distributions paid in cash, rather than reinvested, in which event payment will
be mailed or direct deposited monthly. Cash payments can also be directly
deposited to the shareholder's bank account. No CDSC will be imposed upon
redemption of shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account through
automatic payment by check or through automatic payment by direct deposit to
his bank account on either a monthly or quarterly basis. Alternatively, a Class
A or Class D shareholder whose shares are held within a CMA(R) or CBA(R)
account may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the CMA(R)/CBA(R) Systematic Redemption
Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C or
Class D shares may be made to an investor's Investment Account by prearranged
charges of $50 or more to his or her regular bank account. The Fund's Automatic
Investment Program is not available to shareholders whose shares are held in a
brokerage account with Merrill Lynch. Alternatively, investors who maintain
CMA(R) or CBA(R) accounts may arrange to have periodic investments made in the
Fund in their CMA(R) account or in certain related accounts in amounts of $100
or more through the CMA(R)/CBA(R) Automated Investment Program.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities of the Fund. Municipal
Bonds and other securities in which the Fund invests are traded primarily in
the over-the-counter market. Where possible, the Trust deals directly with the
dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. It is
the policy of the Trust to obtain the best net results in conducting portfolio
transactions for the Fund, taking into account such factors as price (including
the applicable dealer spread), the size, type and difficulty of the
transactions involved, the firm's general execution and operations facilities,
and the firm's risk in positioning the securities involved and the provision of
supplemental investment research by the firm. While reasonably competitive
spreads or commissions are sought, the Fund will not necessarily be paying the
lowest spread or commission available. The sale of shares of the Fund may be
taken into consideration as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Fund. The portfolio securities of the
Fund generally are traded on a net basis and normally do not involve either
brokerage commissions or transfer taxes. The cost of portfolio securities
transactions of the Fund primarily consists of dealer or underwriter spreads.
Under the 1940 Act, persons affiliated with the Trust, including Merrill Lynch,
are prohibited from dealing with the Trust as a principal in the purchase and
sale of securities unless such trading is permitted by an exemptive order
issued by the Commission. The Trust has obtained an exemptive order permitting
it to engage in certain principal transactions with Merrill Lynch involving
high quality short-term municipal bonds subject to certain conditions. In
addition, the Trust may not purchase securities, including Municipal Bonds, for
the Fund during the existence of any underwriting syndicate of which Merrill
Lynch is a member except pursuant to procedures approved by the Trustees of
34
<PAGE>
the Trust which comply with rules adopted by the Commission. The Trust has
applied for an exemptive order permitting it to, among other things, (i)
purchase high quality tax-exempt securities from Merrill Lynch when Merrill
Lynch is a member of an underwriting syndicate and (ii) purchase tax-exempt
securities from and sell tax-exempt securities to Merrill Lynch in secondary
market transactions. Affiliated persons of the Trust may serve as its broker in
over-the-counter transactions conducted for the Fund on an agency basis only.
Portfolio Turnover. Generally, the Fund does not purchase securities for
short-term trading profits. However, the Fund may dispose of securities without
regard to the time they have been held when such action, for defensive or other
reasons, appears advisable to the Manager. As a result of the investment
policies of the Fund, the Fund's portfolio turnover may be higher than that of
other investment companies; however, it is extremely difficult to predict
portfolio turnover rates with any degree of accuracy. Higher portfolio turnover
may contribute to higher transactional costs and negative tax consequences,
such as an increase in capital gain dividends or in ordinary income dividends
of accrued market discount, as well as greater difficulty meeting the
requirement for qualification as a regulated investment company that less than
30% of its gross income be derived from the sale or other disposition of
securities held for less than three months. See "Distributions and Taxes--
Taxes".
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The net investment income of the Fund is declared as dividends daily prior to
the determination of the net asset value which is calculated 15 minutes after
the close of business on the New York Stock Exchange (generally 4:00 P.M., New
York time) on that day. The net investment income of the Fund for dividend
purposes consists of interest earned on portfolio securities, less expenses, in
each case computed since the most recent determination of the net asset value.
Expenses of the Fund, including the management fees and the account maintenance
and distribution fees, are accrued daily. Dividends of net investment income
are declared daily and reinvested monthly in the form of additional full and
fractional shares of the Fund at net asset value as of the close of business on
the "payment date" unless the shareholder elects to receive such dividends in
cash. Shares will accrue dividends as long as they are issued and outstanding.
Shares are issued and outstanding from the settlement date of a purchase order
to the day prior to the settlement date of a redemption order.
All net realized long- or short-term capital gains, if any, are declared and
distributed to the Fund's shareholders at least annually. Capital gains
distributions will be reinvested automatically in shares unless the shareholder
elects to receive such distributions in cash.
The per share dividends and distributions on each class of shares will be
reduced as a result of any account maintenance, distribution and transfer
agency fees applicable to that class.
See "Shareholder Services" for information as to how to elect either dividend
reinvestment or cash payments. Portions of dividends and distributions which
are taxable to shareholders as described below are subject to income tax
whether they are reinvested in shares of the Fund or received in cash.
TAXES
The Trust intends to continue to qualify the Fund for the special tax
treatment afforded regulated investment companies ("RICs") under the Internal
Revenue Code of 1986, as amended (the "Code"). If it so
35
<PAGE>
qualifies, in any taxable year in which it distributes at least 90% of its
taxable net income and 90% of its tax-exempt net income (see below), the Fund
(but not its shareholders) will not be subject to Federal income tax to the
extent that it distributes its net investment income and net realized capital
gains. The Trust intends to cause the Fund to distribute substantially all of
such income.
To the extent that the dividends distributed to the Fund's Class A, Class B,
Class C and Class D shareholders (together, the "shareholders") are derived
from interest income exempt from Federal tax under Code Section 103(a) and are
properly designated as "exempt-interest dividends" by the Trust, they will be
excludable from a shareholder's gross income for Federal income tax purposes.
Exempt-interest dividends are included, however, in determining the portion, if
any, of a person's social security benefits and railroad retirement benefits
subject to Federal income taxes. The portion of such exempt-interest dividends
paid from interest received by the Fund from Ohio Municipal Bonds also will be
exempt from Ohio personal income taxes. Shareholders subject to income taxation
by states other than Ohio will realize a lower after-tax rate of return than
Ohio shareholders since the dividends distributed by the Fund generally will
not be exempt, to any significant degree, from income taxation by such other
states. The Trust will inform shareholders annually as to the portion of the
Fund's distributions which constitutes exempt-interest dividends and the
portion which is exempt from Ohio personal income taxes. Interest on
indebtedness incurred or continued to purchase or carry Fund shares is not
deductible for Federal or Ohio income tax purposes to the extent attributable
to exempt-interest dividends. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by industrial
development bonds or private activity bonds held by the Fund should consult
their tax advisors before purchasing Fund shares.
Distributions treated as investment income or as capital gains for Federal
income tax purposes, including exempt-interest dividends, may be subject to
local taxes imposed by certain cities within Ohio. Additionally, the value of
shares of the Fund will be included in (i) the net worth measure of the issued
and outstanding shares of corporations and financial institutions for purposes
of computing the Ohio corporate franchise tax, (ii) the value of the gross
estate for purposes of the Ohio estate tax, (iii) the value of capital and
surplus for purposes of the Ohio domestic insurance company franchise tax and
(iv) the value of shares of and capital employed by dealers in intangibles for
purposes of the Ohio tax on dealers in intangibles. Investors should consult
their tax advisers with respect to the application of such taxes to the receipt
of Fund dividends, holding of shares in the Fund and as to their Ohio tax
situation in general.
Exempt-interest dividends paid to a corporate shareholder will be subject to
Ohio corporation excise tax, and shares of the Fund will be included in the net
worth base of such tax.
To the extent that the Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered ordinary income for Federal income tax purposes. Distributions, if
any, from an excess of net long-term capital gains over net short-term capital
losses derived from the sale of securities or from certain transactions in
futures or options ("capital gain dividends") are taxable as long-term capital
gains for Federal income tax purposes, regardless of the length of time the
shareholder has owned Fund shares. Such capital gain dividends are also subject
to the Ohio personal income tax unless they are attributable to the sale of
certain Ohio Municipal Bonds issued pursuant to legislation which specifically
exempts capital gains on their sale from Ohio income taxation. Distributions by
the Fund, whether from
36
<PAGE>
exempt-interest income, ordinary income or capital gains, will not be eligible
for the dividends received deduction allowed to corporations under the Code.
All or a portion of the Fund's gain from the sale or redemption of tax-exempt
obligations purchased at a market discount will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming the shares are held as a capital asset).
Any loss upon the sale or exchange of Fund shares held for six months or less
will be treated as long-term capital loss to the extent of any capital gain
dividends received by the shareholder. In addition, such loss will be
disallowed to the extent of any exempt-interest dividends received by the
shareholder. If the Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Fund and received by its shareholders on December 31 of
the year in which such dividend was declared.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. The alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
tax preference, which could subject investors in such bonds, including
shareholders of the Fund, to an alternative minimum tax. The Fund will purchase
such "private activity bonds", and the Trust will report to shareholders within
60 days after the Fund's taxable year-end the portion of its dividends declared
during the year which constitutes an item of tax preference for alternative
minimum tax purposes. The Code further provides that corporations are subject
to an alternative minimum tax based, in part, on certain differences between
taxable income as adjusted for other tax preferences and the corporation's
"adjusted current earnings", which more closely reflect a corporation's
economic income. Because an exempt-interest dividend paid by the Fund will be
included in adjusted current earnings, a corporate shareholder may be required
to pay alternative minimum tax on exempt-interest dividends paid by the Fund.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent any sales charge paid to the Fund
on the exchanged shares reduces any sales charge such shareholder would have
owed upon purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new
shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
37
<PAGE>
Under certain Code provisions, some shareholders may be subject to a 31%
withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
The Code provides that every person required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Fund) during the taxable
year.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code, Treasury regulations and Ohio tax laws presently in
effect. For the complete provisions, reference should be made to the pertinent
Code sections, the Treasury regulations promulgated thereunder and the
applicable Ohio income tax laws. The Code and the Treasury regulations, as well
as the Ohio income tax laws, are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Shareholders are urged to consult their tax advisers regarding the
availability of any exemptions from state and local taxes (other than those
imposed by Ohio) and with specific questions as to Federal, foreign, state or
local taxes.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return, yield
and tax-equivalent yield for various specified time periods in advertisements
or information furnished to present or prospective shareholders. Average annual
total return, yield and tax-equivalent yield are computed separately for
Class A, Class B, Class C and Class D shares in accordance with formulas
specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including any CDSC that would be applicable to a
complete redemption of the investment at the end of the specified period such
as in the case of Class B and Class C shares and the maximum sales charge in
the case of Class A and Class D shares. Dividends paid by the Fund with respect
to all shares, to the extent any dividends are paid, will be calculated in the
same manner at the same time on the same day and will be in the same amount,
except that account maintenance fees and distribution charges and any
incremental transfer agency costs relating to each class of shares will be
borne exclusively by that class. The Fund will include performance data for all
classes of shares of the Fund in any advertisement or information including
performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return
38
<PAGE>
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual
or annualized total return data generally will be lower than average annual
total return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time. In advertisements distributed to investors whose
purchases are subject to reduced sales charges in the case of Class A shares or
waiver of the CDSC in the case of Class B shares or to reduced sales charges in
the case of Class A or Class D shares, the performance data may take into
account the reduced, and not the maximum, sales charge or may not take into
account the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or waiver of the CDSC, a lower amount of expenses is
deducted. See "Purchase of Shares". The Fund's total return may be expressed
either as a percentage or as a dollar amount in order to illustrate such total
return on a hypothetical $1,000 investment in the Fund at the beginning of each
specified period.
Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average daily number of shares outstanding during the period that were
entitled to receive dividends multiplied by the maximum offering price per
share on the last day of the period. Tax-equivalent yield quotations will be
computed by dividing (a) the part of the Fund's yield that is tax-exempt by (b)
one minus a stated tax rate and (c) adding the result to that part, if any, of
the Fund's yield that is not tax-exempt. The yield for the 30-day period ended
July 31, 1995 was 4.89% for Class A shares, 4.58% for Class B shares, 4.47% for
Class C shares and 4.79% for Class D shares and the tax-equivalent yield for
the same period (based on a Federal income tax rate of 28%) was 6.79% for Class
A shares, 6.36% for Class B shares, 6.21% for Class C shares and 6.65% for
Class D shares.
Total return, yield and tax-equivalent yield figures are based on the Fund's
historical performance and are not intended to indicate future performance. The
Fund's total return, yield and tax-equivalent yield will vary depending on
market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and the amount of realized and unrealized net capital gains
or losses during the period. The value of an investment in the Fund will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost.
On occasion, the Fund may compare its performance to performance data
published by Lipper Analytical Services, Inc., Morningstar Publications, Inc.
("Morningstar") and CDA Investment Technology, Inc. or to data contained in
publications such as Money Magazine, U.S. News & World Report, Business Week,
Forbes Magazine and Fortune Magazine. From time to time, the Fund may include
the Fund's Morningstar risk-adjusted performance ratings in advertisements or
supplemental sales literature. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.
ADDITIONAL INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily 15 minutes after the close of business on the New York Stock
Exchange (approximately 4:00 P.M., New York time), on each day
39
<PAGE>
during which the New York Stock Exchange is open for trading. The net asset
value per share is computed by dividing the sum of the value of the securities
held by the Fund plus any cash or other assets minus all liabilities by the
total number of shares outstanding at such time, rounded to the nearest cent.
Expenses, including the fees payable to the Manager and the Distributor, are
accrued daily.
The per share net asset value of Class A shares will generally be higher than
the per share net asset value of shares of the other classes, reflecting the
daily expense accruals of the account maintenance and transfer agency fees
applicable with respect to the Class B and Class C shares and the daily expense
accruals of the account maintenance fees applicable with respect to Class D
shares. Moreover, the per share net asset value of the Class D shares generally
will be higher than the per share net asset value of the Class B and Class C
shares, reflecting the daily expense accruals of the distribution fees
applicable with respect to Class B and Class C shares. It is expected, however,
that the per share net asset value of the classes will tend to converge
(although not necessarily meet) immediately after the payment of dividends or
distributions which will differ by approximately the amount of the expense
accrual differentials between the classes.
ORGANIZATION OF THE TRUST
The Trust is an unincorporated business trust organized on August 2, 1985
under the laws of Massachusetts. On October 1, 1987, the Trust changed its name
from "Merrill Lynch Multi-State Tax-Exempt Series Trust" to "Merrill Lynch
Multi-State Municipal Bond Series Trust" and on December 22, 1987 the Trust
changed its name to "Merrill Lynch Multi-State Municipal Series Trust." The
Trust is an open-end management investment company comprised of separate series
("Series"), each of which is a separate portfolio offering shares to selected
groups of purchasers. Each of the Series is to be managed independently in
order to provide to shareholders who are residents of the state to which such
Series relates as high a level of income exempt from Federal, and in certain
cases, state and local income taxes as is consistent with prudent investment
management. The Trustees are authorized to create an unlimited number of Series
and, with respect to each Series, to issue an unlimited number of full and
fractional shares of beneficial interest of $.10 par value of different
classes. Shareholder approval is not required for the authorization of
additional Series or classes of a Series of the Trust. At the date of this
Prospectus, the shares of the Fund are divided into Class A, Class B, Class C
and Class D shares. Class A, Class B, Class C and Class D shares represent
interests in the same assets of the Fund and are identical in all respects
except that Class B, Class C and Class D shares bear certain expenses related
to the account maintenance associated with such shares, and Class B and Class C
shares bear certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating to account
maintenance and distribution expenditures as applicable. See "Purchase of
Shares". The Trust has received an order (the "Order") from the Commission
permitting the issuance and sale of multiple classes of shares. The Trustees of
the Trust may classify and reclassify any Series into additional classes at a
future date. The Order permits the Fund to issue additional classes of any
Series if the Board of Trustees deems such issuance to be in the best interest
of the Trust.
Shareholders are entitled to one vote for each full share and to fractional
votes for fractional shares held in the election of Trustees (to the extent
hereinafter provided) and on other matters submitted to the vote of
shareholders. There normally will be no meeting of shareholders for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees.
40
<PAGE>
Shareholders may, in accordance with the terms of the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Also, the Trust will be required to call a special meeting
of shareholders of a Series in accordance with the requirements of the 1940 Act
to seek approval of new management and advisory arrangements, of a material
increase in distribution fees or of a change in the fundamental policies,
objectives or restrictions of a Series. Except as set forth above, the Trustees
shall continue to hold office and appoint successor Trustees. Each issued and
outstanding share is entitled to participate equally in dividends and
distributions declared by the respective Series and in net assets of such
Series upon liquidation or dissolution remaining after satisfaction of
outstanding liabilities except that, as noted above, Class B, Class C and Class
D shares bear certain additional expenses. The obligations and liabilities of a
particular Series are restricted to the assets of that Series and do not extend
to the assets of the Trust generally. The shares of each Series, when issued,
will be fully-paid and non-assessable by the Trust.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
matter please call your Merrill Lynch financial consultant or Merrill Lynch
Financial Data Services, Inc. at 800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust at the address or
telephone number set forth on the cover page of this Prospectus.
----------------
The Declaration of Trust establishing the Trust, dated August 2, 1985, a copy
of which together with all amendments thereto (the "Declaration"), is on file
in the office of the Secretary of the Commonwealth of Massachusetts, provides
that the name "Merrill Lynch Multi-State Municipal Series Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally. No Trustee, shareholder, officer, employee or agent of the Trust
shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim of the Trust
but the "Trust Property" only shall be liable.
41
<PAGE>
[This Page Intentionally Left Blank]
42
<PAGE>
MERRILL LYNCH OHIO MUNICIPAL BOND FUND -- AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Ohio Municipal Bond Fund and establish an Investment Account
as described in the Prospectus. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of
paper if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
Name...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address..............................
...................................... Name and Address of Employer ........
(Zip Code)
Occupation........................... .....................................
...................................... .....................................
...................................... .....................................
...................................... .....................................
...................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
(in the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-Term Capital Gains
SELECT [_] Reinvest SELECT [_] Reinvest
ONE: [_] Cash ONE: [_] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] Check
or [_] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Ohio Municipal Bond Fund
Authorization Form.
Specify type of account (check one): [_] checking [_] savings
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ...................... Account Number ............................
Bank Address ..................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor ........................................................
Signature of Depositor ............................... Date...................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
43
<PAGE>
MERRILL LYNCH OHIO MUNICIPAL BOND FUND -- AUTHORIZATION FORM (PART 1) --
(CONTINUED)
- -------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
[ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed in the Prospectus
under "Distribution and Taxes--Taxes") either because I have not been notified
that I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that I am
no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
...................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
..................., 19......
Dear Sir/Madam: Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Ohio Municipal Bond Fund or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13-month period which will
equal or exceed:
[_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Ohio Municipal
Bond Fund Prospectus.
I agree to the terms and conditions of the Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Ohio Municipal Bond Fund held as security.
By: ................................. ......................................
Signature of Owner Signature of Co-Owner
(If registered in joint
names, both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name............................. (2) Name..............................
Account Number....................... Account Number........................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp We hereby authorize Merrill Lynch
[ ] Funds Distributor, Inc. to act as
our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases made under a Letter of
Intention or Systematic Withdrawal
Plan. We guarantee the share-
holder's signature.
...................................
Dealer Name and Address
[ ] By: ...............................
Authorized Signature of Dealer
This form, when completed, should
be mailed to: [ ][ ][ ]
Branch Code
Merrill Lynch Ohio Municipal Bond Fund
[ ][ ][ ][ ]
F/C No. ................
c/o Merrill Lynch Financial Data F/C Last Name
Services, Inc.
P.O. Box 45289 [ ][ ][ ] [ ][ ][ ][ ][ ]
Jacksonville, Florida 32232-5289 Dealer's Customer A/C No.
44
<PAGE>
MERRILL LYNCH OHIO MUNICIPAL BOND FUND -- AUTHORIZATION FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Name of Owner...................... [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security No. or
Name of Co-Owner (if any).......... Taxpayer Identification
Number
Address............................ Account Number ....................
(if existing account)
....................................
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for quarterly,
of [_] Class A or [_] Class D shares in Merrill Lynch Ohio Municipal Bond Fund
at cost or current offering price. Withdrawals to be made either (check one)
[_] Monthly on the 24th day of each month, or [_] Quarterly on the 24th day of
March, June, September and December. If the 24th falls on a weekend or
holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on____________or as soon as possible thereafter.
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): [_] $
or [_] % of the current value of [_] Class A or [_] Class D shares in the
account.
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a)I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of..........................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (please print)......................................................
Address .......................................................................
..........................................................................
Signature of Owner................................ Date..................
Signature of Co-Owner (if any)............................................
(b) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING
OR TERMINATING THIS SERVICE.
Specify type of account (check one) [_] checking [_] savings
Name on your Account...........................................................
Bank Name......................................................................
Bank Number........................ Account Number............................
Bank Address...................................................................
........................................................................
Signature of Depositor................................. Date..................
Signature of Depositor.........................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
45
<PAGE>
MERRILL LYNCH OHIO MUNICIPAL BOND FUND -- AUTHORIZATION FORM (PART 2) --
(CONTINUED)
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described
below each month to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Ohio Municipal Bond Fund subject to the terms set forth
below. In the event that I am not eligible to purchase Class A shares, I
understand that Class D shares will be purchased.
AUTHORIZATION TO HONOR ACH DEBITS
MERRILL LYNCH FINANCIAL DATA
SERVICES, INC.
You are hereby authorized to draw an DRAWN BY MERRILL LYNCH FINANCIAL
ACH debit each month on my bank DATA SERVICES, INC.
account for investment in Merrill
Lynch Ohio Municipal Bond Fund, as
indicated below: To...........................Bank
(Investor's Bank)
Amount of each ACH debit $........ Bank Address.....................
Account number ...................
City...... State.... Zip Code....
Please date and invest ACH debits on
the 20th of each month
beginning _____ or as soon thereafter As a convenience to me, I hereby
(Month) request and authorize you to pay and
as possible. charge to my account ACH debits
drawn on my account by and payable
to Merrill Lynch Financial Data
Services, Inc. I agree that your
I agree that you are drawing these rights in respect to each such debit
ACH debits voluntarily at my request shall be the same as if it were a
and that you shall not be liable for check drawn on you and signed
any loss arising from any delay in personally by me. This authority is
preparing or failure to prepare any to remain in effect until revoked
such debit. If I change banks or personally by me in writing. Until
desire to terminate or suspend this you receive such notice, you shall
program, I agree to notify you be fully protected in honoring any
promptly in writing. I hereby such debit. I further agree that if
authorize you to take any action to any such debit be dishonored,
correct erroneous ACH debits of my whether with or without cause and
bank account or purchases of fund whether intentionally or
shares including liquidating shares inadvertently, you shall be under no
of the Fund and crediting my bank liability.
account. I further agree that if a
check or debit is not honored upon ............ .....................
presentation, Merrill Lynch Financial Date Signature of
Data Services, Inc. is authorized to Depositor
discontinue immediately the Automatic
Investment Plan and to liquidate ............ .....................
sufficient shares held in my account Bank Signature of Depositor
to offset the purchase made with the Account (If joint account,
dishonored debit. Number both must sign)
............. .....................
Date Signature of
Depositor
......................
Signature of Depositor
(If joint account,
both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
46
<PAGE>
MANAGER
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Merrill Lynch Select PricingSM System...................................... 4
Financial Highlights....................................................... 8
Investment Objective and Policies.......................................... 9
Potential Benefits........................................................ 11
Special and Risk Considerations Relating to Municipal Bonds............... 11
Description of Municipal Bonds............................................ 12
Call Rights............................................................... 14
When-Issued Securities and Delayed Delivery Transactions.................. 14
Financial Futures Transactions and Options................................ 15
Repurchase Agreements..................................................... 17
Investment Restrictions................................................... 17
Management of the Trust.................................................... 18
Trustees.................................................................. 18
Management and Advisory Arrangements...................................... 19
Code of Ethics............................................................ 20
Transfer Agency Services.................................................. 20
Purchase of Shares......................................................... 21
Initial Sales Charge Alternatives--Class A and
Class D Shares........................................................... 23
Deferred Sales Charge Alternatives--Class B and Class C Shares............ 24
Distribution Plans........................................................ 28
Limitations on the Payment of Deferred Sales Charges...................... 29
Redemption of Shares....................................................... 30
Redemption................................................................ 30
Repurchase................................................................ 31
Reinstatement Privilege--Class A and
Class D Shares........................................................... 31
Shareholder Services....................................................... 32
Portfolio Transactions..................................................... 34
Distributions and Taxes.................................................... 35
Distributions............................................................. 35
Taxes..................................................................... 35
Performance Data........................................................... 38
Additional Information..................................................... 39
Determination of Net Asset Value.......................................... 39
Organization of the Trust................................................. 40
Shareholder Reports....................................................... 41
Shareholder Inquiries..................................................... 41
Authorization Form......................................................... 43
</TABLE>
Code #16154-1195
LOGO MERRILL LYNCH
Merrill Lynch Ohio
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
[ART]
PROSPECTUS
November 21, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH OHIO MUNICIPAL BOND FUND
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Ohio Municipal Bond Fund (the "Fund") is a series of Merrill
Lynch Multi-State Municipal Series Trust (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust. The investment
objective of the Fund is to provide shareholders with as high a level of income
exempt from Federal and Ohio personal income taxes as is consistent with
prudent investment management. The Fund invests primarily in a portfolio of
long-term investment grade obligations issued by or on behalf of the State of
Ohio, its political subdivisions, agencies and instrumentalities and
obligations of other qualifying issuers, such as issuers located in Puerto
Rico, the Virgin Islands and Guam, which pay interest exempt, in the opinion of
bond counsel to the issuer, from Federal and Ohio income taxes ("Ohio Municipal
Bonds"). There can be no assurance that the investment objective of the Fund
will be realized.
Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances.
----------------
The Statement of Additional Information of the Fund is not a prospectus and
should be read in conjunction with the prospectus of the Fund, dated November
21, 1995 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "Commission") and can be obtained, without charge, by
calling or by writing the Fund at the above telephone number or address. This
Statement of Additional Information has been incorporated by reference into the
Prospectus.
----------------
FUND ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
----------------
The date of this Statement of Additional Information is November 21, 1995.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide shareholders with as high
a level of income exempt from Federal and Ohio personal income taxes as is
consistent with prudent investment management. The Fund seeks to achieve its
objective by investing primarily in a portfolio of long-term obligations issued
by or on behalf of Ohio, its political subdivisions, agencies and
instrumentalities and obligations of other qualifying issuers, such as issuers
located in Puerto Rico, the Virgin Islands and Guam, which pay interest exempt,
in the opinion of bond counsel to the issuer, from Federal and Ohio personal
income taxes. Obligations exempt from Federal income taxes are referred to
herein as "Municipal Bonds" and obligations exempt from both Federal and Ohio
income taxes are referred to as "Ohio Municipal Bonds." Unless otherwise
indicated, references to Municipal Bonds shall be deemed to include Ohio
Municipal Bonds. The Fund anticipates that at all times, except during
temporary defensive periods, it will maintain at least 65% of its total assets
invested in Ohio Municipal Bonds. At times, the Fund will seek to hedge its
portfolio through the use of futures transactions to reduce volatility in the
net asset value of Fund shares. Reference is made to "Investment Objective and
Policies" in the Prospectus for a discussion of the investment objective and
policies of the Fund.
Municipal Bonds (defined below) may include general obligation bonds of the
State and its political subdivisions, revenue bonds to finance utility systems,
highways, bridges, port and airport facilities, colleges, hospitals, housing
facilities, etc., and industrial development bonds ("IDBs") or private activity
bonds. The interest on such obligations may bear a fixed rate or be payable at
a variable or floating rate. The Municipal Bonds purchased by the Fund will be
primarily what are commonly referred to as "investment grade" securities, which
are obligations rated at the time of purchase within the four highest quality
ratings as determined by either Moody's Investors Service, Inc. ("Moody's")
(currently Aaa, Aa, A and Baa), Standard & Poor's Ratings Group ("Standard &
Poor's") (currently AAA, AA, A and BBB) or Fitch Investors Service, Inc.
("Fitch") (currently AAA, AA, A and BBB). If unrated, such securities will
possess creditworthiness comparable, in the opinion of the manager of the Fund,
Fund Asset Management, L.P. (the "Manager" or "FAM"), to other obligations in
which the Fund may invest.
The Fund ordinarily does not intend to realize investment income not exempt
from Federal and Ohio income taxes. However, to the extent that suitable Ohio
Municipal Bonds are not available for investment by the Fund, the Fund may
purchase Municipal Bonds issued by other states, their agencies and
instrumentalities, the interest income on which is exempt, in the opinion of
bond counsel, from Federal, but not Ohio, taxation. The Fund also may invest in
securities not issued by or on behalf of a state or territory or by an agency
or instrumentality thereof, if the Fund nevertheless believes such securities
to be exempt from Federal income taxation ("Non-Municipal Tax-Exempt
Securities"). Non-Municipal Tax-Exempt Securities may include securities issued
by other investment companies that invest in municipal bonds, to the extent
permitted by applicable law. Other Non-Municipal Tax-Exempt Securities could
include trust certificates or other derivative instruments evidencing interests
in one or more Municipal Bonds.
Except when acceptable securities are unavailable as determined by the
Manager, the Fund, under normal circumstances, will invest at least 65% of its
total assets in Ohio Municipal Bonds. For temporary periods or to provide
liquidity, the Fund has the authority to invest as much as 35% of its assets in
tax-exempt or taxable money market obligations with a maturity of one year or
less (such short-term obligations being referred to herein as "Temporary
Investments"), except that taxable Temporary Investments, together with such
other investments as are not exempt from Ohio taxation, shall not exceed 20% of
the Fund's net assets.
2
<PAGE>
The Fund at all times will have at least 80% of its net assets invested in
securities exempt from Federal income taxation. However, interest received on
certain otherwise tax-exempt securities which are classified as "private
activity bonds" (in general bonds that benefit non-governmental entities) may
be subject to an alternative minimum tax. The Fund may purchase such private
activity bonds. See "Distributions and Taxes". In addition, the Fund reserves
the right to invest temporarily a greater portion of its assets in Temporary
Investments for defensive purposes, when, in the judgment of the Manager,
market conditions warrant. The investment objectives of the Fund set forth in
this paragraph are fundamental policies of the Fund which may not be changed
without a vote of a majority of the outstanding shares of the Fund. The Fund's
hedging strategies are not fundamental policies and may be modified by the
Trustees of the Trust without the approval of the Fund's shareholders.
Municipal Bonds may at times be purchased or sold on a delayed delivery basis
or a when-issued basis. These transactions arise when securities are purchased
or sold by the Fund with payment and delivery taking place in the future, often
a month or more after the purchase. The payment obligation and the interest
rate are each fixed at the time the buyer enters into the commitment. The Fund
will make only commitments to purchase such securities with the intention of
actually acquiring the securities, but the Fund may sell these securities prior
to the settlement date if it is deemed advisable. Purchasing Municipal Bonds on
a when-issued basis involves the risk that the yields available in the market
when the delivery takes place may actually be higher than those obtained in the
transaction itself. If yields so increase, the value of the when-issued
obligation generally will decrease. The Fund will maintain a separate account
at its custodian bank consisting of cash, cash equivalents or high-grade,
liquid Municipal Bonds or Temporary Investments (valued on a daily basis) equal
at all times to the amount of the when-issued commitment.
The Fund may invest in Municipal Bonds (and Non-Municipal Tax-Exempt
Securities) the return on which is based on a particular index of value or
interest rates. For example, the Fund may invest in Municipal Bonds that pay
interest based on an index of Municipal Bond interest rates or based on the
value of gold or some other commodity. The principal amount payable upon
maturity of certain Municipal Bonds also may be based on the value of an index.
Also, the Fund may invest in so-called "inverse floating obligations" or
"residual interest bonds" on which the interest rates typically decline as
market rates increase and increase as market rates decline. To the extent the
Fund invests in these types of Municipal Bonds, the Fund's return on such
Municipal Bonds will be subject to risk with respect to the value of the
particular index, which may include reduced or eliminated interest payments and
losses of invested principal. Such securities have the effect of providing a
degree of investment leverage, since they may increase or decrease in value in
response to changes, as an illustration, in market interest rates at a rate
which is a multiple (typically two) the rate at which fixed-rate long-term tax
exempt securities increase or decrease in response to such changes. As a
result, the market values of such securities will generally be more volatile
than the market values of fixed-rate tax exempt securities. To seek to limit
the volatility of these securities, the Fund may purchase inverse floating
obligations with shorter term maturities or which contain limitations on the
extent to which the interest rate may vary. Certain investments in such
obligations may be illiquid. The Fund may not invest in such illiquid
obligations if such investments, together with other illiquid investments,
would exceed 15% of the Fund's total assets. The Manager believes, however,
that indexed and inverse floating obligations represent flexible portfolio
management instruments for the Fund which allow the Fund to seek potential
investment rewards, hedge other portfolio positions or vary the degree of
investment leverage relatively efficiently under different market conditions.
3
<PAGE>
The Fund may purchase a Municipal Bond issuer's right to call all or a
portion of such Municipal Bond for mandatory tender for purchase (a "Call
Right"). A holder of a Call Right may exercise such right to require a
mandatory tender for the purchase of related Municipal Bonds, subject to
certain conditions. A Call Right that is not exercised prior to the maturity of
the related Municipal Bond will expire without value. The economic effect to
holding both the Call Right and the related Municipal Bond is identical to
holding a Municipal Bond as a non-callable security. Certain investments in
such obligations may be illiquid. The Fund may not invest in such illiquid
obligations if such investments, together with other illiquid investments,
would exceed 15% of the Fund's total assets.
The Fund may invest up to 20% of its total assets in Municipal Bonds which
are rated below Baa by Moody's or below BBB by Standard & Poor's or Fitch or
which, in the Manager's judgment, possess similar credit characteristics ("high
yield securities"). See Appendix II--"Ratings of Municipal Bonds" for
additional information regarding ratings of debt securities. The Manager
considers the ratings assigned by Standard & Poor's, Moody's or Fitch as one of
several factors in its independent credit analysis of issuers.
High yield securities are considered by Standard & Poor's, Moody's and Fitch
to have varying degrees of speculative characteristics. Consequently, although
high yield securities can be expected to provide higher yields, such securities
may be subject to greater market price fluctuations and risk of loss of
principal than lower yielding, higher rated debt securities. Investments in
high yield securities will be made only when, in the judgment of the Manager,
such securities provide attractive total return potential relative to the risk
of such securities, as compared to higher quality debt securities. The Fund
generally will not invest in debt securities in the lowest rating categories
(those rated CC or lower by Standard & Poor's or Fitch or Ca or lower by
Moody's) unless the Manager believes that the financial condition of the issuer
or the protection afforded the particular securities is stronger than would
otherwise be indicated by such low ratings. The Fund does not intend to
purchase debt securities that are in default or which the Manager believes will
be in default.
Issuers or obligors of high yield securities may be highly leveraged and may
not have available to them more traditional methods of financing. Therefore,
the risks associated with acquiring the securities of such issuers or obligors
generally are greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers of high yield securities may be more likely to experience
financial stress, especially if such issuers are highly leveraged. During
periods of economic recession, such issuers may not have sufficient revenues to
meet their interest payment obligations. The issuer's ability to service its
debt obligations also may be adversely affected by specific issuer
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer is significantly greater for the holders of high yield
securities because such securities may be unsecured and may be subordinated to
other creditors of the issuer.
High yield securities frequently have call or redemption features that would
permit an issuer to repurchase the security from the Fund. If a call were
exercised by the issuer during a period of declining interest rates, the Fund
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends
to shareholders.
The Fund may have difficulty disposing of certain high yield securities
because there may be a thin trading market for such securities. Because not all
dealers maintain markets in all high yield securities, there is no established
secondary market for many of these securities, and the Fund anticipates that
such securities
4
<PAGE>
could be sold only to a limited number of dealers or institutional investors.
To the extent that a secondary trading market for high yield securities does
exist, it generally is not as liquid as the secondary market for higher rated
securities. Reduced secondary market liquidity may have an adverse impact on
market price and the Fund's ability to dispose of particular issues when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain securities also may make it
more difficult for the Fund to obtain accurate market quotations for purposes
of valuing the Fund's portfolio. Market quotations generally are available on
many high yield securities only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
It is expected that a significant portion of the high yield securities
acquired by the Fund will be purchased upon issuance, which may involve
special risks because the securities so acquired are new issues. In such
instances the Fund may be a substantial purchaser of the issue and therefore
have the opportunity to participate in structuring the terms of the offering.
Although this may enable the Fund to seek to protect itself against certain of
such risks, the considerations discussed herein would nevertheless remain
applicable.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield securities are likely to adversely
affect the Fund's net asset value. In addition, the Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default on
a portfolio holding or participate in the restructuring of the obligation.
DESCRIPTION OF MUNICIPAL BONDS AND TEMPORARY INVESTMENTS
Set forth below is a description of Municipal Bonds and Temporary
Investments which the Fund may invest. A more complete discussion concerning
futures and options transactions is set forth under "Investment Objective and
Policies" in the Prospectus. Information with respect to ratings assigned to
tax-exempt obligations which the Fund may purchase is set forth in Appendix
II--"Ratings of Municipal Bonds"-- to this Statement of Additional
Information.
DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds include debt obligations issued to obtain funds for various
public purposes, including construction of a wide range of public facilities,
refunding of outstanding obligations and obtaining funds for general operating
expenses and loans to other public institutions and facilities. In addition,
certain types of bonds are issued by or on behalf of public authorities to
finance various privately owned or operated facilities, including certain
facilities for local furnishing of electric energy or gas, sewage facilities,
solid waste disposal facilities and other specialized facilities. Such
obligations are included within the term Municipal Bonds if the interest paid
thereon is, in the opinion of bond counsel, excluded from gross income for
Federal income tax purposes and, in the case of Ohio Municipal Bonds, exempt
from Ohio personal income taxes. Other types of IDBs or private activity
bonds, the proceeds of which are used for the construction, equipment or
improvement of privately operated industrial or commercial facilities, may
constitute Municipal Bonds, although the current Federal tax laws place
substantial limitations on the size of such issues.
5
<PAGE>
The two principal classifications of Municipal Bonds are "general obligation"
bonds and "revenue" bonds which latter category includes IDBs and, for bonds
issued after August 15, 1986, private activity bonds. General obligation bonds
are secured by the issuer's pledge of faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special or limited tax or other specific revenue
source such as payments from the user of the facility being financed. IDBs or
private activity bonds, are in most cases revenue bonds and generally do not
constitute the pledge of the credit or taxing power of the issuer of such
bonds. Generally, the payment of the principal and interest on such bonds
depends solely on the ability of the user of the facility financed by the bonds
to meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment, unless a line of credit,
bond insurance or other security is furnished. The Fund also may invest in
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If an issuer of moral obligation bonds is unable to meet its
obligations, the repayment of the bond becomes a moral commitment, but not a
legal obligation, of the state or municipality in question.
Also included within the general category of Municipal Bonds are
participation certificates issued by government authorities or entities to
finance the acquisition or construction of equipment, land and/or facilities.
The certificates represent participations in a lease, an installment purchase
contract or a conditional sales contract (hereinafter collectively called
"lease obligations") relating to such equipment, land or facilities. Although
lease obligations do not constitute general obligations of the issuer for which
the issuer's unlimited taxing power is pledged, a lease obligation is
frequently backed by the issuer's covenant to budget for, appropriate and make
the payments due under the lease obligation. Certain investments in lease
obligations may be illiquid. The Fund may not invest in illiquid lease
obligations if such investments, together with all other illiquid investments,
would exceed 15% of the Fund's total assets. The Fund may, however, invest
without regard to such limitation in lease obligations which the Manager,
pursuant to guidelines which have been adopted by the Board of Trustees and
subject to the supervision of the Board, determines to be liquid. The Manager
will deem lease obligations to be liquid if they are publicly offered and have
received an investment grade rating of Baa or better by Moody's, or BBB or
better by Standard & Poor's or Fitch. Unrated lease obligations, or those rated
below investment grade, will be considered liquid if the obligations come to
the market through an underwritten public offering and at least two dealers are
willing to give competitive bids. In reference to the latter, the Manager must,
among other things, also review the creditworthiness of the municipality
obligated to make payment under the lease obligation and make certain specified
determinations based on such factors as the existence of a rating or credit
enhancement such as insurance, the frequency of trades or quotes for the
obligation and the willingness of dealers to make a market in the obligation.
Yields on Municipal Bonds are dependent on a variety of factors, including
the general condition of the money market and of the municipal bond market, the
size of a particular offering, the financial condition of the issuer, the
general conditions of the Municipal Bond market, the maturity of the
obligation, and the rating of the issue. The ability of the Fund to achieve its
investment objective also is dependent on the continuing ability of the issuers
of the bonds in which the Fund invests to meet their obligations for the
payment of interest and principal when due. There are variations in the risks
involved in holding Municipal Bonds, both within a particular classification
and between classifications, depending on numerous factors. Furthermore, the
rights of owners of Municipal Bonds and the obligations of the issuer of such
Municipal Bonds may be
6
<PAGE>
subject to applicable bankruptcy, insolvency and similar laws and court
decisions affecting the rights of creditors generally and to general equitable
principles, which may limit the enforcement of certain remedies.
DESCRIPTION OF TEMPORARY INVESTMENTS
The Fund may invest in short-term tax-free and taxable securities subject to
the limitations set forth under "Investment Objective and Policies." The tax-
exempt money market securities may include municipal notes, municipal
commercial paper, municipal bonds with a remaining maturity of less than one
year, variable rate demand notes and participations therein. Municipal notes
include tax anticipation notes, bond anticipation notes and grant anticipation
notes. Anticipation notes are sold as interim financing in anticipation of tax
collection, bond sales, government grants or revenue receipts. Municipal
commercial paper refers to short-term unsecured promissory notes generally
issued to finance short-term credit needs. The taxable money market securities
in which the Fund may invest as Temporary Investments consist of U.S.
Government securities, U.S. Government agency securities, domestic bank or
savings institution certificates of deposit and bankers' acceptances, short-
term corporate debt securities such as commercial paper, and repurchase
agreements. These Temporary Investments must have a stated maturity not in
excess of one year from the date of purchase.
Variable rate demand obligations ("VRDOs") are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand on the part of the holder thereof to receive
payment of the unpaid principal balance plus accrued interest upon a short
notice period not to exceed seven days. There is, however, the possibility that
because of default or insolvency the demand feature of VRDOs and Participating
VRDOs, described below, may not be honored. The interest rates are adjustable
at intervals (ranging from daily to up to one year) to some prevailing market
rate for similar investments, such adjustment formula being calculated to
maintain the market value of the VRDO at approximately the par value of the
VRDOs on the adjustment date. The adjustments typically are set at a rate
determined by the remarketing agent or based upon the prime rate of a bank or
some other appropriate interest rate adjustment index. The Fund may invest in
all types of tax-exempt instruments currently outstanding or to be issued in
the future which satisfy the short-term maturity and quality standards of the
Fund.
The Fund also may invest in VRDOs in the form of participation interests
("Participating VRDOs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank. Participating VRDOs provide
the Fund with a specified undivided interest (up to 100%) of the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the Participating VRDOs from the financial institution upon
a specified number of days' notice, not to exceed seven days. In addition, a
Participating VRDO is backed by an irrevocable letter of credit or guaranty of
the financial institution. The Fund would have an undivided interest in the
underlying obligation and thus participate on the same basis as the financial
institution in such obligation except that the financial institution typically
retains fees out of the interest paid on the obligation for servicing the
obligation, providing the letter of credit and issuing the repurchase
commitment. The Fund has been advised by its counsel that the Fund should be
entitled to treat the income received on Participating VRDOs as interest from
tax-exempt obligations.
VRDOs that contain an unconditional right of demand to receive payment of the
unpaid principal balance plus accrued interest on a notice period exceeding
seven days may be deemed to be illiquid securities.
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A VRDO with a demand notice period exceeding seven days will therefore be
subject to the Fund's restriction on illiquid investments unless, in the
judgment of the Trustees, such VRDO is liquid. The Trustees may adopt
guidelines and delegate to the Manager the daily function of determining and
monitoring liquidity of such VRDOs. The Trustees, however, will retain
sufficient oversight and will be ultimately responsible for such determination.
The Trust has established the following standards with respect to money
market securities and VRDOs in which the Fund invests. Commercial paper
investments at the time of purchase must be rated "A-1+" through "A-3" by
Standard & Poor's, "Prime-1" through "Prime-3" by Moody's or "F-1+" through "F-
3" by Fitch or, if not rated, issued by companies having an outstanding debt
issue rated at least "A" by Standard & Poor's, Fitch or Moody's. Investments in
corporate bonds and debentures (which must have maturities at the date of
purchase of one year or less) must be rated at the time of purchase at least
"A" by Standard & Poor's, Moody's or Fitch. Notes and VRDOs at the time of
purchase must be rated SP-1+/A-1 through SP-2/A-3 by Standard & Poor's, MIG-
l/VMIG-1 through MIG-4/VMIG-4 by Moody's or F-1+ through F-3 by Fitch.
Temporary Investments, if not rated, must be of comparable quality to
securities rated in the above rating categories, in the opinion of the Manager.
The Fund may not invest in any security issued by a commercial bank or a
savings institution unless the bank or institution is organized and operating
in the United States, has total assets of at least one billion dollars and is a
member of the Federal Deposit Insurance Corporation ("FDIC"), except that up to
10% of total assets may be invested in certificates of deposit of small
institutions if such certificates are fully insured by the FDIC.
REPURCHASE AGREEMENTS
The Fund may invest in securities pursuant to repurchase agreements.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government securities or an
affiliate thereof. Under such agreements, the seller agrees, upon entering into
the contract, to repurchase the security from the Fund at a mutually agreed
upon time and price, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations during such period. In the case of repurchase agreements, the
prices at which the trades are conducted do not reflect accrued interest on the
underlying obligations. Such agreements usually cover short periods, such as
under one week. Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities transferred to
the purchaser. In a repurchase agreement, the Fund will require the seller to
provide additional collateral if the market value of the securities falls below
the repurchase price at any time during the term of the repurchase agreement.
In the event of default by the seller under a repurchase agreement construed to
be a collateralized loan, the underlying securities are not owned by the Fund
but only constitute collateral for the seller's obligation to pay the
repurchase price. Therefore, the Fund may suffer time delays and incur costs or
possible losses in connection with the disposition of the collateral. In the
event of a default under such a repurchase agreement, instead of the
contractual fixed rate of return, the rate of return to the Fund will depend on
intervening fluctuations of the market value of such security and the accrued
interest on the security. In such event, the Fund would have rights against the
seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. The Fund may not
invest in repurchase agreements maturing in more than seven days if such
investments, together with other illiquid securities, would exceed 15% of the
Fund's total assets.
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In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold." Therefore,
amounts earned under such agreements will not be considered tax-exempt
interest.
FINANCIAL FUTURES TRANSACTIONS AND OPTIONS
Reference is made to the discussion concerning futures transactions under
"Investment Objective and Policies" in the Prospectus. Set forth below is
additional information concerning these transactions.
As described in the Prospectus, the Fund may purchase and sell exchange
traded financial futures contracts ("financial futures contracts") to hedge its
portfolio of Municipal Bonds against declines in the value of such securities
and to hedge against increases in the cost of securities the Fund intends to
purchase. However, any transactions involving financial futures or options (or
puts and calls associated therewith) will be in accordance with the Fund's
investment policies and limitations. See "Investment Objective and Policies--
Investment Restrictions" in the Prospectus. To hedge its portfolio, the Fund
may take an investment position in a futures contract which will move in the
opposite direction from the portfolio position being hedged. While the Fund's
use of hedging strategies is intended to moderate capital changes in portfolio
holdings and thereby reduce the volatility of the net asset value of Fund
shares, the Fund anticipates that its net asset value will fluctuate. Set forth
below is information concerning futures transactions.
Description of Futures Contracts. A futures contract is an agreement between
two parties to buy and sell a security, or in the case of an index-based
futures contract, to make and accept a cash settlement for a set price on a
future date. A majority of transactions in futures contracts, however, do not
result in the actual delivery of the underlying instrument or cash settlement,
but are settled through liquidation, i.e., by entering into an offsetting
transaction. Futures contracts have been designed by boards of trade which have
been designated "contracts markets" by the Commodity Futures Trading Commission
("CFTC").
The purchase or sale of a futures contract differs from the purchase or sale
of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount must be
deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the
purchaser and seller under the futures contract. Subsequent payments to and
from the broker, called "variation margin", are required to be made on a daily
basis as the price of the futures contract fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
"mark to the market". At any time prior to the settlement date of the futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker and the purchaser realizes a loss or gain.
In addition, a nominal commission is paid on each completed sale transaction.
The Fund may deal in financial futures contracts based on a long-term
municipal bond index developed by the Chicago Board of Trade ("CBT") and The
Bond Buyer (the "Municipal Bond Index"). The Municipal Bond Index is comprised
of 40 tax-exempt municipal revenue and general obligations bonds. Each bond
included in the Municipal Bond Index must be rated A or higher by Moody's or
Standard & Poor's and must have a remaining maturity of 19 years or more. Twice
a month new issues satisfying the eligibility
9
<PAGE>
requirements are added to, and an equal number of old issues are deleted from,
the Municipal Bond Index. The value of the Municipal Bond Index is computed
daily according to a formula based on the price of each bond in the Municipal
Bond Index, as evaluated by six dealer-to-dealer brokers.
The Municipal Bond Index futures contract is traded only on the CBT. Like
other contract markets, the CBT assures performance under futures contracts
through a clearing corporation, a nonprofit organization managed by the
exchange membership which also is responsible for handling daily accounting of
deposits or withdrawals of margin.
As described in the Prospectus, the Fund may purchase and sell financial
futures contracts on U.S. Government securities as a hedge against adverse
changes in interest rates as described below. With respect to U.S. Government
securities, currently there are financial futures contracts based on long-term
U.S. Treasury bonds, Treasury notes, Government National Mortgage Association
Certificates and three-month U.S. Treasury bills. The Fund may purchase and
write call and put options on futures contracts on U.S. Government securities
in connection with its hedging strategies.
Subject to policies adopted by the Trustees, the Fund also may engage in
other futures contracts transactions such as futures contracts on other
municipal bond indices which may become available if the Manager and the
Trustees should determine that there is normally a sufficient correlation
between the prices of such futures contracts and the Municipal Bonds in which
the Fund invests to make such hedging appropriate.
Futures Strategies. The Fund may sell a financial futures contract (i.e.,
assume a short position) in anticipation of a decline in the value of its
investments in Municipal Bonds resulting from an increase in interest rates or
otherwise. The risk of decline could be reduced without employing futures as a
hedge by selling such Municipal Bonds and either reinvesting the proceeds in
securities with shorter maturities or by holding assets in cash. This strategy,
however, entails increased transaction costs in the form of dealer spreads and
typically would reduce the average yield of the Fund's portfolio securities as
a result of the shortening of maturities. The sale of futures contracts
provides an alternative means of hedging against declines in the value of its
investments in Municipal Bonds. As such values decline, the value of the Fund's
positions in the futures contracts will tend to increase, thus offsetting all
or a portion of the depreciation in the market value of the Fund's Municipal
Bond investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions, commissions on futures
transactions are lower than transaction costs incurred in the purchase and sale
of Municipal Bonds. In addition, the ability of the Fund to trade in the
standardized contracts available in the futures markets may offer a more
effective defensive position than a program to reduce the average maturity of
the portfolio securities due to the unique and varied credit and technical
characteristics of the municipal debt instruments available to the Fund.
Employing futures as a hedge also may permit the Fund to assume a defensive
posture without reducing the yield on its investments beyond any amounts
required to engage in futures trading.
When the Fund intends to purchase Municipal Bonds, the Fund may purchase
futures contracts as a hedge against any increase in the cost of such Municipal
Bonds, resulting from an increase in interest rates or otherwise, that may
occur before such purchases can be effected. Subject to the degree of
correlation between the Municipal Bonds and the futures contracts, subsequent
increases in the cost of Municipal Bonds should be reflected in the value of
the futures held by the Fund. As such purchases are made, an equivalent
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<PAGE>
amount of futures contracts will be closed out. Due to changing market
conditions and interest rate forecasts, however, a futures position may be
terminated without a corresponding purchase of portfolio securities.
Call Options on Futures Contracts. The Fund also may purchase and sell
exchange traded call and put options on financial futures contracts on U.S.
Government securities. The purchase of a call option on a futures contract is
analogous to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the futures contract on which
it is based, or on the price of the underlying debt securities, it may or may
not be less risky than ownership of the futures contract or underlying debt
securities. Like the purchase of a futures contract, the Fund will purchase a
call option on a futures contract to hedge against a market advance when the
Fund is not fully invested.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration is below
the exercise price, the Fund will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred in
the Fund's portfolio holdings.
Put Options on Futures Contracts. The purchase of options on a futures
contract is analogous to the purchase of protective put options on portfolio
securities. The Fund will purchase put options on futures contracts to hedge
the Fund's portfolio against the risk of rising interest rates.
The writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the securities which are deliverable upon exercise
of the futures contract. If the futures price at expiration is higher than the
exercise price, the Fund will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of Municipal
Bonds which the Fund intends to purchase.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option will be
included in initial margin. The writing of an option on a futures contract
involves risks similar to those relating to futures contracts.
----------------
The Trust has received an order from the Commission exempting it from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act of
1940, as amended (the "1940 Act"), in connection with its strategy of investing
in futures contracts. Section 17(f) relates to the custody of securities and
other assets of an investment company and may be deemed to prohibit certain
arrangements between the Trust and commodities brokers with respect to initial
and variation margin. Section 18(f) of the 1940 Act prohibits an open-end
investment company such as the Trust from issuing a "senior security" other
than a borrowing from a bank. The staff of the Securities and Exchange
Commission has in the past indicated that a futures contract may be a "senior
security" under the 1940 Act.
Restrictions on Use of Futures Transactions. Regulations of the CFTC
applicable to the Fund require that all of the Fund's futures transactions
constitute bona fide hedging transactions and that the Fund purchase and sell
futures contracts and options thereon (i) for bona fide hedging purposes, and
(ii) for non-hedging purposes, if the aggregate initial margin and premiums
required to establish positions in such contracts and options does not exceed
5% of the liquidation value of the Fund's portfolio assets after taking
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<PAGE>
into account unrealized profits and unrealized losses on any such contracts and
options. (However, the Fund intends to engage in options and futures
transactions only for hedging purposes.) Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When the Fund purchases futures contracts or a call option with respect
thereto or writes a put option on a futures contract, an amount of cash, cash
equivalents or short-term, high-grade, fixed income securities will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures is unleveraged.
Risk Factors in Futures Transactions and Options. Investment in futures
contracts involves the risk of imperfect correlation between movements in the
price of the futures contract and the price of the security being hedged. The
hedge will not be fully effective when there is imperfect correlation between
the movements in the prices of two financial instruments. For example, if the
price of the futures contract moves more than the price of the hedged security,
the Fund will experience either a loss or gain on the futures contract which is
not completely offset by movements in the price of the hedged securities. To
compensate for imperfect correlations, the Fund may purchase or sell futures
contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the futures contracts. Conversely, the Fund may purchase or sell fewer
futures contracts if the volatility of the price of the hedged securities is
historically less than that of the futures contracts.
The particular municipal bonds comprising the index underlying the Municipal
Bond Index financial futures contract may vary from the Municipal Bonds held by
the Fund. As a result, the Fund's ability to hedge effectively all or a portion
of the value of its Municipal Bonds through the use of such financial futures
contracts will depend in part on the degree to which price movements in the
index underlying the financial futures contract correlate with the price
movements of the Municipal Bonds held by the Fund. The correlation may be
affected by disparities in the average maturity, ratings, geographical mix or
structure of the Fund's investments as compared to those comprising the
Municipal Bond Index, and general economic or political factors. In addition,
the correlation between movements in the value of the Municipal Bond Index may
be subject to change over time as additions to and deletions from the Municipal
Bond Index alter its structure. The correlation between futures contracts on
U.S. Government securities and the Municipal Bonds held by the Fund may be
adversely affected by similar factors and the risk of imperfect correlation
between movements in the prices of such futures contracts and the prices of the
Municipal Bonds held by the Fund may be greater.
The Fund expects to liquidate a majority of the futures contracts it enters
into through offsetting transactions on the applicable contract market. There
can be no assurance, however, that a liquid secondary market will exist for any
particular futures contract at any specific time. Thus, it may not be possible
to close out a futures position. In the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin. In such situations, if the Fund has insufficient cash, it may be
required to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. The inability
to close out futures positions also could have an adverse impact on the Fund's
ability to hedge effectively its investments in Municipal Bonds. The Fund will
enter into a futures position only if, in the judgment of the Manager, there
appears to be an actively traded secondary market for such futures contracts.
12
<PAGE>
The successful use of transactions in futures and related options also
depends on the ability of the Manager to forecast correctly the direction and
extent of interest rate movements within a given time frame. To the extent
interest rates remain stable during the period in which a futures contract or
option is held by the Fund or such rates move in a direction opposite to that
anticipated, the Fund may realize a loss on the hedging transaction which is
not fully or partially offset by an increase in the value of portfolio
securities. As a result, the Fund's total return for such period may be less
than if it had not engaged in the hedging transaction.
Because of low initial margin deposits made on the opening of a futures
position, futures transactions involve substantial leverage. As a result,
relatively small movements in the price of the futures contracts can result in
substantial unrealized gains or losses. Because the Fund will engage in the
purchase and sale of futures contracts solely for hedging purposes, however,
any losses incurred in connection therewith should, if the hedging strategy is
successful, be offset in whole or in part by increases in the value of
securities held by the Fund or decreases in the price of securities the Fund
intends to acquire.
The amount of risk the Fund assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option on
a futures contract also entails the risk that changes in the value of the
underlying futures contract will not be reflected fully in the value of the
option purchased.
Municipal Bond Index futures contracts were approved for trading in 1986.
Trading in such futures contracts may tend to be less liquid than that in other
futures contracts. The trading of futures contracts also is subject to certain
market risks, such as inadequate trading activity, which could at times make it
difficult or impossible to liquidate existing positions.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental restrictions
and policies relating to the investment of its assets and its activities. The
fundamental policies set forth below may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities (which
for this purpose and under the 1940 Act means the lesser of (i) 67% of the
Fund's shares present at a meeting, at which more than 50% of the outstanding
shares of the Fund are represented or (ii) more than 50% of the Fund's
outstanding shares). The Fund may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances, repurchase agreements or any similar
instruments shall not
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<PAGE>
be deemed to be the making of a loan, and except further that the Fund may
lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law and the
guidelines set forth in the Fund's Prospectus and Statement of Additional
Information, as they may be amended from time to time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the 1940 Act) in amounts up to 33 1/3 of its total assets
(including the amount borrowed), (ii) the Fund may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) the Fund
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) the Fund may purchase
securities on margin to the extent permitted by applicable law. The Fund
may not pledge its assets other than to secure such borrowings or, to the
extent permitted by the Fund's investment policies as set forth in its
Prospectus and Statement of Additional Information, as they may be amended
from time to time, in connection with hedging transactions, short sales,
when-issued and forward commitment transactions and similar investment
strategies.
7. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act in
selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the proposed non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent that such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except to
the extent permitted by applicable law. The Fund currently does not intend
to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed, redeemed
or put to the issuer or to a third party, if at the time of acquisition
more than 15% of its total assets would be invested in such securities.
This restriction shall not apply to securities which mature within seven
days or securities which the Board of Trustees of the Fund has otherwise
determined to be liquid pursuant to applicable law.
d. Invest in warrants if, at the time of acquisition, its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's net assets; included within such limitation, but not to exceed
2% of the Fund's net assets, are warrants which are not listed on the New
York Stock Exchange or American Stock Exchange or a major foreign exchange.
For purposes of this restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such
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<PAGE>
securities. This restriction will not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those individual
officers and Trustees of the Fund, the officers and general partner of the
Investment Adviser, the directors of such general partner or the officers
and directors of any subsidiary thereof each owning beneficially more than
one-half of one percent of the securities of such issuer own in the
aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (6) above, borrow
amounts in excess of 20% of its total assets, taken at market value
(including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes.
In addition, to comply with Federal income tax requirements for qualification
as a "regulated investment company," the Fund's investments will be limited in
a manner such that, at the close of each quarter of each fiscal year, (a) no
more than 25% of the Fund's total assets are invested in the securities of a
single issuer, and (b) with regard to at least 50% of the Fund's total assets,
no more than 5% of its total assets are invested in the securities of a single
issuer. For purposes of this restriction, the Fund will regard each state and
each political subdivision, agency or instrumentality of such state and each
multi-state agency of which such state is a member and each public authority
which issues securities on behalf of a private entity as a separate issuer,
except that if the security is backed only by the assets and revenues of a non-
government entity then the entity with the ultimate responsibility for the
payment of interest and principal may be regarded as the sole issuer. These
tax-related limitations may be changed by the Trustees of the Trust to the
extent necessary to comply with changes to the Federal tax requirements.
----------------
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Trust, the Trust is prohibited from
engaging in certain transactions involving Merrill Lynch except pursuant to a
permissive order or otherwise in compliance with the provisions of the 1940 Act
and the rules and regulations thereunder. Included among such restricted
transactions are purchases from or sales to Merrill Lynch of securities in
transactions in which it acts as principal and purchases of securities from
underwriting syndicates of which Merrill Lynch is a member.
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MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust, including their ages and
their principal occupations for at least the last five years, are set forth
below. Unless otherwise noted, the address of each Trustee and executive
officer is P.O. Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel(63)--President and Trustee(1)(2)--President of the Manager
(which term, as used herein, includes the Manager's corporate predecessors)
since 1977; President of MLAM (which term, as used herein, includes MLAM's
corporate predecessors) since 1977; President and Director of Princeton
Services, Inc. ("Princeton Services") since 1993; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Executive Vice President of
Merrill Lynch, Pierce Fenner & Smith Incorporated ("Merrill Lynch") since 1990
and a Senior Vice President thereof from 1985 to 1990; Director of Merrill
Lynch Funds Distributor, Inc. ("MLFD" or the "Distributor").
James H. Bodurtha (51)--Trustee(2)--124 Long Pond Road, Plymouth,
Massachusetts 02360. Chairman and Chief Executive Officer, China Enterprise
Management Corporation since 1993; Chairman, Berkshire Corporation since 1980;
Partner, Squire, Sanders & Dempsey from 1980 to 1993.
Herbert I. London (56)--Trustee(2)--Gallatin Division, 113-115 University
Place, New York, New York 10003. Dean, Gallatin Division of New York University
from 1978 to 1993; Professor, New York University since 1973; John M. Olin
Professor of Humanities, New York University, since 1993; Distinguished Fellow,
Herman Kahn Chair, Hudson Institute from 1984 to 1985; Trustee, Hudson Naval
Institute since 1980; Director, Damon Corporation since 1991; Overseer, Center
for Naval Analyses from 1983 to 1993.
Robert R. Martin (68)--Trustee(2)--513 Grand Hill, St. Paul, Minnesota 55102.
Director, WTC Industries, Inc. since 1994; Chairman thereof in 1994; Chairman
and Chief Executive Officer, Kinnard Investments, Inc. from 1990 to 1993;
Executive Vice President, Dain Bosworth from 1974 to 1989; Director, Carnegie
Capital Management from 1977 to 1985 and Chairman thereof in 1979; Director,
Securities Industry Association from 1981 to 1982 and Public Securities
Association from 1979 to 1980; Trustee, Northland College since 1992.
Joseph L. May (66)--Trustee(2)--424 Church Street, Suite 2000, Nashville,
Tennessee 37219. Attorney in private practice since 1984; President, May and
Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983;
Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May
Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.
Andre F. Perold (43)--Trustee(2)--Morgan Hall, Soldiers Field, Boston,
Massachusetts 02163. Professor, Harvard Business School since 1989 and
Associate Professor from 1983 to 1989; Trustee, The Common Fund, since 1989;
Director, Quantec Limited since 1991 and Teknekron Software Systems since 1994.
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Terry K. Glenn (55)--Executive Vice President(1)(2)--Executive Vice
President of the Manager and MLAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of MLFD since 1986 and
Director thereof since 1991.
Robert H. Moore, III (32)--Portfolio Manager(1)(2)--Vice President of MLAM
since 1994; Vice President and Portfolio Manager of Society Asset Management
from 1993 to 1994; Vice President and Portfolio Manager of Ameritrust Trust
Department from 1989 to 1993.
Vincent R. Giordano (51)--Vice President(1)(2)--Portfolio Manager of the
Manager and MLAM since 1977 and Senior Vice President of the Manager and MLAM
since 1984; Vice President of MLAM from 1980 to 1984; Senior Vice President of
Princeton Services since 1993.
Kenneth A. Jacob--Vice President(1)(2)--Vice President of the Manager and
MLAM since 1984.
Donald C. Burke (35)--Vice President(1)(2)--Vice President and Director of
Taxation of MLAM since 1990; Employee at Deloitte & Touche LLP from 1982 to
1990.
Gerald M. Richard (46)--Treasurer(1)(2)--Senior Vice President and Treasurer
of the Manager and MLAM since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; Treasurer of MLFD since 1984 and Vice President
thereof since 1981.
Jerry Weiss (37)--Secretary(1)(2)--Vice President of MLAM since 1990;
Attorney in private practice from 1982 to 1990.
- --------
(1) Interested person, as defined in the 1940 Act, of the Trust.
(2) Such Trustee or officer is a director or officer of certain other
investment companies for which the Manager or MLAM acts as investment
adviser or manager.
At September 30, 1995, the Trustees and officers of the Trust as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of
Common Stock of ML&Co. and owned an aggregate of less than 1% of the
outstanding shares of the Fund.
COMPENSATION OF TRUSTEES
The Trust pays each Trustee not affiliated with the Manager a fee of $10,000
per year plus $1,000 per meeting attended, together with such Trustee's actual
out-of-pocket expenses relating to attendance at meetings. The Trust also
compensates members of its Audit Committee and Nominating Committee, which
consists of all the non-affiliated Trustees, an annual fee of $2,000 per year
plus $500 per committee meeting attended. The Trust reimburses each
unaffiliated Trustee for his out-of-pocket expenses relating to attendance at
Board and Committee meetings. The fees and expenses of the Trustees are
allocated to the respective series of the Trust on the basis of asset size.
For the fiscal year ended July 31, 1995, fees and expenses paid to the
unaffiliated Trustees aggregated $3,551.
17
<PAGE>
The following table sets forth for the fiscal year ended July 31, 1995,
compensation paid by the Fund to the non-affiliated Trustees and for the
calendar year ended December 31, 1994, the aggregate compensation paid by all
investment companies (including the Fund) advised by FAM and its affiliate,
MLAM ("FAM/MLAM Advised Funds") to the non-affiliated Trustees:
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
PENSION OR FROM FUND AND
RETIREMENT OTHER
BENEFITS FAM/MLAM
ACCRUED AS ADVISED FUNDS
COMPENSATION PART OF FUND'S PAID TO
NAME OF TRUSTEE FROM FUND EXPENSES TRUSTEE(1)
- --------------- ------------ -------------- -------------
<S> <C> <C> <C>
James H. Bodurtha..................... $156 None $168,250*
Herbert I. London..................... $713 None $168,250
Robert R. Martin...................... $713 None $168,250
Joseph L. May......................... $713 None $168,250
Andre F. Perold....................... $713 None $168,250
</TABLE>
- --------
(1) In addition to the Trust, the Trustees serve on the boards of other
FAM/MLAM Advised Funds as follows: Mr. Bodurtha (46 funds); Mr. London (46
funds); Mr. Martin (46 funds); Mr. May (46 funds); and Mr. Perold (46
funds).
* $168,250 represents the amount Mr. Bodurtha would have received if he had
been a Trustee for the entire calendar year ended December 31, 1994. Mr.
Bodurtha was elected to the Trust's Board of Trustees effective June 23,
1995.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Trust--Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities may be held by, or be appropriate investments for, the Fund as
well as other funds or investment advisory clients of the Manager or its
affiliates. Because of different objectives or other factors, a particular
security may be bought for one or more clients when one or more clients are
selling the same security. If the Manager or its affiliate purchases or sells
securities for the Fund or other funds for which they act as manager or for
their advisory clients and such sales or purchases arise for consideration at
or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds and clients in a manner deemed equitable
to all. To the extent that transactions on behalf of more than one client of
the Manager or its affiliates during the same period may increase the demand
for securities being purchased or the supply of securities being sold, there
may be an adverse effect on price.
Pursuant to a management agreement between the Trust on behalf of the Fund
and the Manager (the "Management Agreement"), the Manager receives for its
services to the Fund monthly compensation based upon the average daily net
assets of the Fund at the following annual rates: 0.55% of the average daily
net assets not exceeding $500 million; 0.525% of the average daily net assets
exceeding $500 million but not exceeding $1.0 billion; and 0.50% of the average
daily net assets exceeding $1.0 billion. For the fiscal year ended July 31,
1994, the total advisory fees paid by the Fund to the Manager aggregated
$389,433, of which $165,672 was voluntarily waived. For the fiscal year ended
July 31, 1995, the total advisory fees paid by the Fund to the Manager was
$402,455 of which $19,871 was voluntarily waived.
18
<PAGE>
California imposes limitations on the expenses of the Fund. These annual
expense limitations require that the Manager reimburse the Fund in an amount
necessary to prevent the aggregate ordinary operating expenses (excluding
taxes, brokerage fees and commissions, distribution fees and extraordinary
charges such as litigation costs) from exceeding in any fiscal year 2.5% of the
Fund's first $30,000,000 of average net assets, 2.0% of the next $70,000,000 of
average net assets and 1.5% of the remaining average net assets. The Manager's
obligation to reimburse the Fund is limited to the amount of the management
fee. Expenses not covered by the limitation are interest, taxes, brokerage
commissions and other items such as extraordinary legal expenses. No fee
payment will be made to the Manager during any fiscal year which will cause
such expenses to exceed expense limitations at the time of such payment. No fee
reimbursements were made during the years ended July 31, 1993, 1994 and 1995,
pursuant to these operating expense limitations.
The Management Agreement obligates the Manager to provide investment advisory
services and to pay all compensation of and furnish office space for officers
and employees of the Trust connected with investment and economic research,
trading and investment management of the Trust, as well as the compensation of
all Trustees of the Trust who are affiliated persons of the ML&Co. or any of
its affiliates. The Fund pays all other expenses incurred in its operation and
a portion of the Trust's general administrative expenses allocated on the basis
of the asset size of the respective series of the Trust ("Series"). Expenses
that will be borne directly by the Series include, among other things,
redemption expenses, expenses of portfolio transactions, expenses of
registering the shares under Federal and state securities laws, pricing costs
(including the daily calculation of net asset value), expenses of printing
shareholder reports, prospectuses and statements of additional information
(except to the extent paid by the Distributor as described below), fees for
legal and auditing services, Commission fees, interest, certain taxes, and
other expenses attributable to a particular Series. Expenses which will be
allocated on the basis of asset size of the respective Series include fees and
expenses of unaffiliated Trustees, state franchise taxes, costs of printing
proxies and other expenses related to shareholder meetings, and other expenses
properly payable by the Trust. The organizational expenses of the Trust were
paid by the Trust, and as additional Series are added to the Trust, the
organizational expenses are allocated among the Series (including the Fund) in
a manner deemed equitable by the Trustees. Depending upon the nature of a
lawsuit, litigation costs may be assessed to the specific Series to which the
lawsuit relates or allocated on the basis of the asset size of the respective
Series. The Trustees have determined that this is an appropriate method of
allocation of expenses. Accounting services are provided to the Fund by the
Manager and the Fund reimburses the Manager for its costs in connection with
such services. For the year ended July 31, 1995, the Fund reimbursed the
Manager $32,847 for accounting services. As required by the Fund's distribution
agreements, the Distributor will pay the promotional expenses of the Fund
incurred in connection with the offering of shares of the Fund. Certain
expenses in connection with the account maintenance and distribution of Class B
shares will be financed by the Fund pursuant to the Distribution Plan in
compliance with Rule 12b-1 under the 1940 Act. See "Purchase of Shares--
Distribution Plan".
The Manager is a limited partnership, the partners of which are ML&Co. and
Princeton Services are "controlling persons" of the Manager is defined under
the 1940 Act because of their ownership of its voting securities or their power
to exercise a controlling influence over its management policies.
Duration and Termination. Unless earlier terminated as described herein, the
Management Agreement will remain in effect from year to year if approved
annually (a) by the Trustees of the Trust or by a majority
19
<PAGE>
of the outstanding shares of the Fund and (b) by a majority of the Trustees who
are not parties to such contract or interested persons (as defined in the 1940
Act) of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party
thereto or by vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class
A, Class B, Class C and Class D share of the Fund represents identical
interests in the investment portfolio of the Fund and has the same rights,
except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
Class B, Class C and Class D shares each have exclusive voting rights with
respect to the Rule 12b-1 distribution plan adopted with respect to such class
pursuant to which account maintenance and/or distribution fees are paid. Each
class has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
The Merrill Lynch Select PricingSM System is used by more than 50 mutual
funds advised by MLAM or its affiliate, the Manager. Funds advised by MLAM or
the Manager are referred to herein as "MLAM-advised mutual funds."
The Fund has entered into four separate distribution agreements with the
Distributor in connection with the subscription and continuous offering of each
class of shares of the Fund (the "Distribution Agreements"). The Distribution
Agreements obligate the Distributor to pay certain expenses in connection with
the offering of each class of shares of the Fund. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, the Distributor pays for the printing
and distribution of copies thereof used in connection with the offering to
dealers and prospective investors. The Distributor also pays for other
supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Management Agreement described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The gross sales charges for the sale of Class A Shares for the fiscal year
ended July 31, 1993 were $55,821 of which the Distributor received $4,011 and
Merrill Lynch received $51,810. The gross sales charges for the sale of Class A
shares for the year ended July 31, 1994 were $40,014 of which the Distributor
received $3,919 and Merrill Lynch received $36,095. The gross sales charges for
the sale of Class A shares for the fiscal year ended July 31, 1995 were $2,561,
of which the Distributor received $310 and Merrill Lynch received $2,251. The
gross sales charges for Class D shares for the period October 21, 1995
(commencement of operations) to July 31, 1995 were $737 of which the
Distributor received $112 and Merrill Lynch received $625.
20
<PAGE>
The term "purchase", as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the 1940 Act, but does not include purchases by any such
company which has not been in existence for at least six months or which has no
purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or broker-
dealer or clients of an investment adviser.
Closed-End Investment Option. Class A shares of the Fund and other MLAM-
advised mutual funds ("Eligible Class A shares") are offered at net asset value
to shareholders of certain closed-end funds advised by the Manager or MLAM who
purchased such closed-end fund shares prior to October 21, 1994 and wish to
reinvest the net proceeds of a sale of their closed-end fund shares of common
stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such
shares on or after October 21, 1994 and wish to reinvest the net proceeds from
a sale of their closed-end fund shares are offered Class A shares (if eligible
to buy Class A shares) or Class D shares of the Fund and other MLAM-advised
mutual funds ("Eligible Class D Shares"), if the following conditions are met.
First, the sale of closed-end fund shares must be made through Merrill Lynch,
and the net proceeds therefrom must be immediately reinvested in Eligible Class
A or Class D shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing dividends
from shares of common stock acquired in such offering. Third, the closed-end
fund shares must have been continuously maintained in a Merrill Lynch
securities account. Fourth, there must be a minimum purchase of $250 to be
eligible for the investment option. Class A shares of the Fund are offered at
net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. ("Senior Floating Rate Fund") who wish to reinvest the net proceeds from a
sale of certain of their shares of common stock of Senior Floating Rate Fund in
shares of the Fund. In order to exercise this investment option, Senior
Floating Rate Fund shareholders must sell their Senior Floating Rate Fund
shares to the Senior Floating Rate Fund in connection with a tender offer
conducted by the Senior Floating Rate Fund and reinvest the proceeds
immediately in the Fund. This investment option is available only with respect
to the proceeds of Senior Floating Rate Fund shares as to which no Early
Withdrawal Charge (as defined in the Senior Floating Rate Fund prospectus) is
applicable. Purchase orders from Senior Floating Rate Fund shareholders wishing
to exercise this investment option will be accepted only on the day that the
related Senior Floating Rate Fund tender offer terminates and will be effected
at the net asset value of the Fund at such day. Similarly, Class D shares of
the Fund are offered at net asset value to shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. ("Municipal Strategy Fund") who wish to purchase
shares of the Fund with the net proceeds from a sale of certain of their shares
of common stock of Municipal Strategy Fund pursuant to a tender offer by
Municipal Strategy Fund. This investment option is available only with respect
to the proceeds of Municipal Strategy Fund shares as to which no CDSC (as
defined in the Municipal Strategy Fund prospectus) is applicable.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase shares
of the Fund subject to an initial sales charge at the
21
<PAGE>
offering price applicable to the total of (a) the public offering price of the
shares then being purchased plus (b) an amount equal to the then current net
asset value or cost, whichever is higher, of the purchaser's combined holdings
of all classes of shares of the Fund and of other MLAM-advised mutual funds.
For any such right of accumulation to be made available, the Distributor must
be provided at the time of purchase, by the purchaser or the purchaser's
securities dealer, with sufficient information to permit confirmation of
qualification. Acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time. Shares held in the name of a nominee or custodian under pension, profit-
sharing, or other employee benefit plans may not be combined with other shares
to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent. The Letter of Intention
is not available to employee benefit plans for which Merrill Lynch provides
plan participant record-keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares.
However, its execution will result in the purchaser paying a lower sales charge
at the appropriate quantity purchase level. A purchase not originally made
pursuant to a Letter of Intention may be included under a subsequent Letter of
Intention executed within 90 days of such purchase if the Distributor is
informed in writing of this intent within such 90-day period. The value of
Class A and Class D shares of the Fund and of other MLAM-advised mutual funds
presently held, at cost or maximum offering price (whichever is higher), on the
date of the first purchase under the Letter of Intention, may be included as a
credit toward the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied only to new
purchases. If the total amount of shares does not equal the amount stated in
the Letter of Intention (minimum of $25,000), the investor will be notified and
must pay, within 20 days of the expiration of such Letter, the difference
between the sales charge on the Class A or Class D shares purchased at the
reduced rate and the sales charge applicable to the shares actually purchased
through the Letter. Class A or Class D shares equal to at least five percent of
the intended amount will be held in escrow during the 13-month period (while
remaining registered in the name of the purchaser) for this purpose. The first
purchase under the Letter of Intention must be at least five percent of the
dollar amount of such Letter. If a purchase during the term of such Letter
would otherwise be subject to a further reduced sales charge based on the right
for accumulation, the purchaser will be entitled on that purchase and
subsequent purchases to that further reduced percentage sales charge, but there
will be no retroactive reduction of the sales charges on any previous purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a MLAM-
advised money market fund into the Fund that creates a sales charge will count
toward completing a new or existing Letter of Intention from the Fund.
Employee Access AccountsSM. Class A or Class D shares are offered at net
asset value to Employee Access Accounts available through employers that
provide employer sponsored retirement or savings plans that are eligible to
purchase such shares at net asset value. The initial minimum for such accounts
is $500, except that the initial minimum for shares purchased for such accounts
pursuant to the Automatic Investment Program is $50.
22
<PAGE>
TMASM Managed Trusts. Class A shares are offered at net asset value to TMASM
Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services.
Purchase Privilege of Certain Persons. Trustees of the Trust, members of the
Boards of other MLAM-advised investment companies, ML & Co., and its
subsidiaries, (the term "subsidiaries", when used herein with respect to ML &
Co., includes MLAM, the Manager and certain other entities directly or
indirectly wholly-owned and controlled by ML & Co), and their directors and
employees and any trust, pension, profit-sharing or other benefit plan for such
persons, may purchase Class A shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor also must establish that such redemption had
been made within 60 days prior to the investment in the Fund, and the proceeds
from the redemption had been maintained in the interim in cash or a money
market fund.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: First, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and such fund
was subject to a sales charge either at the time of purchase or on a deferred
basis. Second, such purchase of Class D shares must be made within 90 days
after such notice.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: First, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of such shares of
other mutual funds and that such shares have been outstanding for a period of
no less than six months; and second, such purchase of Class D shares must be
made within 60 days after the redemption and the proceeds from the redemption
must be maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation
with a personal holding company or a public or private investment company. The
value of the assets or company acquired in a tax-free transaction may be
adjusted in appropriate cases to reduce possible adverse tax consequences to
the Fund which might result from an acquisition of assets having net unrealized
appreciation which is disproportionately higher at the time of acquisition than
the realized or unrealized appreciation of the Fund. The issuance of Class D
shares for consideration other than cash is limited to bona fide
reorganizations, statutory mergers or other acquisitions of portfolio
securities which (i) meet the investment objectives and policies of the Fund;
(ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall at
all times remain within its control); and (iii) are liquid securities, the
value of which is readily ascertainable, which are not
23
<PAGE>
restricted as to transfer either by law or liquidity of market (except that the
Fund may acquire through such transactions restricted or illiquid securities to
the extent the Fund does not exceed the applicable limits on acquisition of
such securities set forth under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
1940 Act (each a "Distribution Plan") with respect to the account maintenance
and/or distribution fees paid by the Fund to the Distributor with respect to
such classes.
Payments of account maintenance fees and/or distribution fees are subject to
the provisions of Rule 12b-1 under the 1940 Act. Among other things, each
Distribution Plan provides that the Distributor shall provide and the Trustees
shall review quarterly reports of the disbursement of the account maintenance
fees and/or distribution fees paid to the Distributor. In their consideration
of each Distribution Plan, the Trustees must consider all factors they deem
relevant, including information as to the benefits of the Distribution Plan to
the Fund and its related class of shareholders. Each Distribution Plan further
provides that, so long as the Distribution Plan remains in effect, the
selection and nomination of Trustees who are not "interested persons" of the
Trust, as defined in the 1940 Act (the "Independent Trustees"), shall be
committed to the discretion of the Independent Trustees then in office. In
approving each Distribution Plan in accordance with Rule 12b-1, the Independent
Trustees concluded that there is reasonable likelihood that each Distribution
Plan will benefit the Fund and its related class of shareholders. Each
Distribution Plan can be terminated at any time, without penalty, by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
majority of the outstanding related class of voting securities of the Fund. A
Distribution Plan cannot be amended to increase materially the amount to be
spent by the Fund without the approval of the related class of shareholders,
and all material amendments are required to be approved by the vote of
Trustees, including a majority of the Independent Trustees who have no direct
or indirect financial interest in such Distribution Plan, cast in person at a
meeting called for that purpose. Rule 12b-1 further requires that the Trust
preserve copies of each Distribution Plan and any report made pursuant to such
plan for a period of not less than six years from the date of such Distribution
Plan or such report, the first two years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by Class B and Class C shares but not the account maintenance fee. The
maximum sales charge rule is applied separately to each class. As applicable to
the Fund, the maximum sales charge rule limits the aggregate of distribution
fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales
of Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately,
at the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection
24
<PAGE>
with the Class B shares, the Distributor has voluntarily agreed to waive
interest charges on the unpaid balance in excess of 0.50% of eligible gross
sales. Consequently, the maximum amount payable to the Distributor (referred to
as the "voluntary maximum") in connection with the Class B shares is 6.75% of
eligible gross sales. The Distributor retains the right to stop waiving the
interest charges at any time. To the extent payments would exceed the voluntary
maximum, the Fund will not make further payments of the distribution fee with
respect to Class B shares, and any CDSCs will be paid to the Fund rather than
to the Distributor; however, the Fund will continue to make payments of the
account maintenance fee. In certain circumstances the amount payable pursuant
to the voluntary maximum may exceed the amount payable under the NASD formula.
In such circumstances payment in excess of the amount payable under the NASD
formula will not be made.
The following table sets forth comparative information as of July 31, 1995
with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule, with respect to the Class B shares, the Distributor's voluntary maximum
for the period February 28, 1992 (commencement of operations) to July 31, 1995.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JULY 31, 1995
------------------------------------------------------------------------------
(IN THOUSANDS)
AMOUNT
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES (1) CHARGES BALANCE (2) PAYABLE DISTRIBUTOR (3) BALANCE LEVEL (4)
CLASS B --------- --------- ----------- ------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule as
Adopted................ $71,280 $4,455 $831 $5,286 $762 $4,524 $160
Under Distributor's
Voluntary Waiver....... $71,280 $4,455 $356 $4,811 $762 $4,049 $160
CLASS C (IN THOUSANDS)
Under NASD Rules as
Adopted................ $ 812 $ 51 $ 1 $ 52 $ 1 $ 51 $ 3
</TABLE>
- --------
(1) Purchase price of all eligible Class B shares sold since February 28, 1992
(commencement of operations) other than shares acquired through dividend
reinvestment and the exchange privilege. Purchase price of all eligible
Class C shares sold since October 21, 1994 (commencement of operations)
other than shares acquired through dividend reinvestment and exchange
privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made prior to July 6, 1993 under the Prior Plan
at the .30% rate, .25% of average daily net assets has been treated as a
distribution fee and .25% of average daily net assets has been deemed to
have been a service fee and not subject to the NASD maximum sales charge
rule.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the voluntary maximum or the NASD
maximum.
25
<PAGE>
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period during which trading on the New
York Stock Exchange is restricted as determined by the Commission or such
Exchange is closed (other than customary weekend and holiday closings), for any
period during which an emergency exists as defined by the Commission as a
result of which disposal of portfolio securities or determination of the net
asset value of the Fund is not reasonably practicable, and for such other
periods as the Commission may by order permit for the protection of
shareholders of the Fund.
DEFERRED SALES CHARGE--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares," while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares following the death or
disability of a Class B shareholder. Redemptions for which the waiver applies
are any partial or complete redemption following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended (the "Code")) of a
Class B shareholder (including one who owns the Class B shares as joint tenant
with his or her spouse), provided the redemption is requested within one year
of the death or initial determination of disability. For the period February
28, 1992 (commencement of operations) to July 31, 1992 and the years ended July
31, 1993, 1994 and 1995, the Distributor received CDSCs of $10,424, $62,688,
$111,978 and $150,198, respectively, with respect to Class B shares, all of
which were paid to Merrill Lynch. For the period October 21, 1994 (commencement
of operations) to July 31, 1995, the Distributor received CDSCs of $123, with
respect to Class C shares, all of which was paid to Merrill Lynch.
The CDSC is also waived for any Class B shares that were acquired and held at
the time of redemption by Employee Access Accounts available through employers
that provide Eligible 401(k) Plans. The initial minimum for such accounts is
$500, except that the initial minimum for shares purchased for such accounts
pursuant to the Automatic Investment Program is $50.
PORTFOLIO TRANSACTIONS
Reference is made to "Investment Objective and Policies--Other Investment
Policies and Practices" in the Prospectus.
Under the 1940 Act, persons affiliated with the Trust are prohibited from
dealing with the Fund as a principal in the purchase and sale of securities
unless such trading is permitted by an exemptive order issued by the
Commission. Since over-the-counter transactions are usually principal
transactions, affiliated persons of the Trust, including Merrill Lynch, may not
serve as dealer in connection with transactions with the Fund. The Trust has
obtained an exemptive order permitting it to engage in certain principal
transactions with Merrill Lynch involving high quality short-term municipal
bonds subject to certain conditions. For the period February 28, 1992, the
Fund's commencement of operations, to July 31, 1992, the Fund's fiscal year
end, the
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<PAGE>
Fund engaged in no transactions pursuant to such order. For the year ended July
31, 1993, the Fund engaged in no transactions pursuant to such order. For the
year ended July 31, 1994 and 1995, the Fund engaged in no transactions pursuant
to such order. The Trust has applied for an exemptive order permitting it to,
among other things, (i) purchase high quality tax-exempt securities from
Merrill Lynch when Merrill Lynch is a member of an underwriting syndicate and
(ii) purchase tax-exempt securities from and sell tax-exempt securities to
Merrill Lynch in secondary market transactions. Affiliated persons of the Trust
may serve as its broker in over-the-counter transactions conducted for the Fund
on an agency basis only. Affiliated persons of the Trust may serve as broker
for the Fund in over-the-counter transactions conducted on an agency basis.
Certain court decisions have raised questions as to the extent to which
investment companies should seek exemptions under the 1940 Act in order to seek
to recapture underwriting and dealer spreads from affiliated entities. The
Trustees have considered all factors deemed relevant, and have made a
determination not to seek such recapture at this time. The Trustees will
reconsider this matter from time to time.
As a non-fundamental restriction, the Trust will prohibit the purchase or
retention by the Fund of securities of any issuer of the officers and trustees
of the Trust, the officers and general partner of the Manager, the directors of
such general partner or the officers and directors of any subsidiary thereof
each owning beneficially more than one-half of one percent of the securities of
an issuer together own beneficially more than five percent of the securities of
that issuer. In addition, under the 1940 Act, the Fund may not purchase
securities from any underwriting syndicate of which Merrill Lynch is a member
except pursuant to an exemptive order or rules adopted by the Commission. Rule
10f-3 under the 1940 Act sets forth conditions under which the Fund may
purchase municipal bonds in such transactions. The rule sets forth requirements
relating to, among other things, the terms of an issue of municipal bonds
purchased by the Fund, the amount of municipal bonds which may be purchased in
any one issue and the assets of the Fund which may be invested in a particular
issue.
The Fund does not expect to use any particular dealer in the execution of
transactions but, subject to obtaining the best net results, dealers who
provide supplemental investment research (such as information concerning tax-
exempt securities, economic data and market forecasts) to the Manager may
receive orders for transactions by the Fund. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Manager under its Management Agreement and the expenses of the Manager will not
necessarily be reduced as a result of the receipt of such supplemental
information.
The Trust has no obligation to deal with any broker in the execution of
transactions for the Fund's portfolio securities. In addition, consistent with
the Rules of Fair Practice of the NASD, and policies established by the
Trustees of the Trust, the Manager may consider sales of shares of the Fund as
a factor in the selection of brokers or dealers to execute portfolio
transactions for the Fund.
Generally, the Fund does not purchase securities for short-term trading
profits. However, the Fund may dispose of securities without regard to the time
they have been held when such action, for defensive or other reasons, appears
advisable to its Manager. As a result of the investment policies described in
the Prospectus, under certain market conditions the Fund's portfolio turnover
may be higher than that of other investment companies; however, it is extremely
difficult to predict portfolio turnover rates with any degree of accuracy.
Higher portfolio turnover may contribute to higher transactional costs and
negative tax consequences, such as an increase in capital gain dividends or in
ordinary income dividends of accrued market discount, as well as greater
difficulty meeting the requirement for qualification as a regulated investment
company that less
27
<PAGE>
than 30% of its gross income be derived from the sale or other disposition of
securities held for less than three months. See "Distributions and Taxes." (The
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of portfolio securities for the particular fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
particular fiscal year. For purposes of determining this rate, all securities
whose maturities at the time of acquisition are one year or less are excluded.)
The portfolio turnover for the period February 28, 1992 (commencement of
operations) to July 31, 1992 was 13.21%. The portfolio turnover for the fiscal
years ended July 31, 1993, July 31, 1994 and July 31, 1995 was 41.51%, 44.83%
and 169.34%, respectively. High portfolio turnover involves corresponding
greater transaction costs in the form of dealer spending and brokerage
commissions, which are borne directly by the Fund. Such turnover also has
certain tax consequences for the Fund. See "Distributions and Taxes."
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts which
they manage unless the member (i) has obtained prior express authorization from
the account to effect such transactions, (ii) at least annually furnishes the
account with a statement setting forth the aggregate compensation received by
the member in effecting such transactions, and (iii) complies with any rules
the Commission has prescribed with respect to the requirements of clauses (i)
and (ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a
broker for the Fund in any of its portfolio transactions executed on any such
securities exchange of which it is a member, appropriate consents have been
obtained from the Fund and annual statements as to aggregate compensation will
be provided to the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of all classes of the Fund is determined once
daily, Monday through Friday, as of 15 minutes after the close of business on
the New York Stock Exchange (generally 4:00 P.M., New York time), on each day
during which the New York Stock Exchange is open for trading. The New York
Stock Exchange is not open on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Net asset value per share is computed by dividing the sum of the value of the
securities held by the Fund plus any cash or other assets minus all liabilities
by the total number of shares outstanding at such time, rounded to the nearest
cent. Expenses, including the fees payable to the Manager and any account
maintenance and/or distribution fees, are accrued daily. The per share net
asset value of the Class B, Class C and Class D shares generally will be lower
than the per share net asset value of the Class A shares reflecting the daily
expense accruals of the account maintenance, distribution and higher transfer
agency fees applicable with respect to the Class B and Class C shares and the
daily expense accruals of the account maintenance fees applicable with respect
to Class D shares. Moreover the per share net asset value of the Class B and
Class C shares generally will be lower than the per shares net asset value of
its Class D shares reflecting the daily expense accruals of the distribution
fees and higher transfer agency fees applicable with respect to the Class B and
Class C shares of the Fund. It is expected, however, that per share net asset
value of the four classes eventually will tend to converge (although not
necessarily meet) immediately after the payment of dividends, which will differ
by approximately the amount of the expense accrual differentials between the
classes.
The Municipal Bonds and other portfolio securities in which the Fund invests
are traded primarily in over-the-counter municipal bond and money markets and
are valued at the last available bid price in the
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<PAGE>
over-the-counter market or on the basis of yield equivalents as obtained from
one or more dealers that make markets in the securities. One bond is the "yield
equivalent" of another bond when, taking into account market price, maturity,
coupon rate, credit rating and ultimate return of principal, both bonds will
theoretically produce an equivalent return to the bondholder. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their settlement prices as of the close of such exchanges. Short-term
investments with a remaining maturity of 60 days or less are valued on an
amortized cost basis, which approximates market value. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Trustees of the
Trust, including valuations furnished by a pricing service retained by the
Trust, which may utilize a matrix system for valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services described below which are
designed to facilitate investment in shares of the Fund. Full details as to
each of such services and copies of the various plans described below can be
obtained from the Trust, the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long- term capital gain distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his Investment Account at
any time by mailing a check directly to the Transfer Agent.
Share certificates are issued only for full shares and only upon the specific
request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares so that the cash proceeds can be
transferred to the account at the new firm or such shareholder must continue to
maintain an Investment Account at the Transfer Agent for those Class A or Class
D shares. Shareholders interested in transferring their Class B or Class C
shares from Merrill Lynch and who do not wish to have an Investment Account
maintained for such shares at the Transfer Agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder. If the new brokerage
firm is willing to accommodate the shareholder in this manner, the shareholder
must request that he or she be issued certificates for his or her shares and
then must turn the certificates over to the new firm for re-registration as
described in the preceding sentence.
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<PAGE>
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if an eligible Class A investor as described in the
Prospectus) or Class B, Class C or Class D shares at the applicable public
offering price either through the shareholder's securities dealer, or by mail
directly to the Transfer Agent, acting as agent for such securities dealers.
Voluntary accumulation also can be made through a service known as the
Automatic Investment Plan whereby the Fund is authorized through pre-authorized
checks or automated clearing house debits of $50 or more to charge the regular
bank account of the shareholder on a regular basis to provide systematic
additions to the Investment Account of such shareholder. The Fund's Automatic
Investment Plan is not available to shareholders whose shares are held in
brokerage accounts with Merrill Lynch. Alternatively, investors who maintain
CMA(R) or CBA(R) accounts may arrange to have periodic investments made in the
Fund in their CMA(R) or CBA(R) account or in certain related accounts in
amounts of $100 or more through the CMA(R) or CBA(R) Automated Investment
Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund as of the close of
business on the monthly payment date for such dividends and distributions.
Shareholders may elect in writing to receive either their income dividends or
capital gains distributions, or both, in cash, in which event payment will be
mailed or direct deposited on or about the payment date. Cash payments can also
be direct deposited to the shareholder's bank account.
Shareholders may, at any time, notify the Transfer Agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or capital gains distributions reinvested in shares of the Fund or vice
versa and, commencing ten days after the receipt by the Transfer Agent of such
notice, such instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Fund having a value, based on cost or the
current offering price, of $5,000 or more, and monthly withdrawals are
available for shareholders with Class A or Class D shares with such a value of
$10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D shares
are redeemed from those on deposit in the shareholder's account to provide the
withdrawal payment specified by the shareholder. The shareholder may specify
either a dollar amount or a percentage of the value of his Class A or Class D
shares. Redemptions will be made at net asset value as determined 15 minutes
after the close of business on the New York Stock Exchange (generally 4:00
P.M., New York time) on the 24th day of each month or the 24th day of the last
month of each quarter, whichever is applicable. If the Exchange is not open for
business on such date, the Class A or Class D shares will be redeemed at the
close of business on the following business day. The check for the withdrawal
payment will be mailed, or the direct deposit for the withdrawal payment will
be made, on the next business day following redemption. When a shareholder is
making systematic
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<PAGE>
withdrawals, dividends and distributions on all Class A or Class D shares in
the Investment Account are reinvested automatically in the Fund's Class A or
Class D shares, respectively. A shareholder's Systematic Withdrawal Plan may
be terminated at any time, without charge or penalty, by the shareholder, the
Trust, the Transfer Agent or the Distributor. Withdrawal payments should not
be considered as dividends, yield or income. Each withdrawal is a taxable
event. If periodic withdrawals continuously exceed reinvested dividends, the
shareholder's original investment may be reduced correspondingly. Purchases of
additional Class A or Class D shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of sales charges and tax
liabilities. The Trust will not knowingly accept purchase orders for Class A
or Class D shares of the Fund from investors who maintain a Systematic
Withdrawal Plan unless such purchase is equal to at least one year's scheduled
withdrawals or $1,200, whichever is greater. Periodic investments may not be
made into an Investment Account in which the shareholder has elected to make
systematic withdrawals.
Alternatively, a Class A or Class D shareholder whose shares are held within
a CMA(R) or CBA(R) account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the CMA(R)/CBA(R)
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$25. The proceeds of systematic redemptions will be posted to the
shareholder's account five business days after the date the shares are
redeemed. Monthly systematic redemptions will be made at net asset value on
the first Monday of each month, bimonthly systematic redemptions will be made
at net asset value on the first Monday of every other month, and quarterly,
semiannual or annual redemptions are made at net asset value on the first
Monday of months selected at the shareholder's option. If the first Monday of
the month is a holiday, the redemption will be processed at net asset value on
the next business day. The CMA(R)/CBA(R) Systematic Redemption Program is not
available if Fund shares are being purchased within the account pursuant to
the CMA(R)/CBA(R) Automated Investment Program. For more information on the
CMA(R)/CBA(R) Systematic Redemption Program, eligible shareholders should
contact their Financial Consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select Pricing SM System, Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in his account in
which the exchange is made at the time of the exchange or is otherwise
eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-
advised mutual fund, and the shareholder does not hold Class A shares of the
second fund in his account at the time of the exchange and is not otherwise
eligible to acquire Class A shares of the second fund, the shareholder will
receive Class D shares of the second fund as a result of the exchange. Class D
shares also may be exchanged for Class A shares of a second MLAM-advised
mutual fund at any time as long as, at the time of the exchange, the
shareholder holds Class A shares of the second fund in the account in which
the exchange is made or is otherwise eligible to purchase Class A shares of
the second fund. Class B, Class C and Class D shares are exchangeable with
shares of the same class of other MLAM-advised mutual funds. For purposes of
computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares
of the Fund is "tacked" to the holding period of the newly acquired shares of
the
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other Fund as more fully described below. Class A, Class B, Class C and Class D
shares also are exchangeable for shares of certain MLAM-advised money market
funds specifically designated below as available for exchange by holders of
Class A, Class B, Class C or Class D shares. Shares with a net asset value of
at least $100 are required to qualify for the exchange privilege, and any
shares utilized in an exchange must have been held by the shareholder for 15
days. It is contemplated that the exchange privilege may be applicable to other
new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the outstanding Class A or Class D shares and the sales charge payable at the
time of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares in the
initial purchase and any subsequent exchange. Class A or Class D shares issued
pursuant to dividend reinvestment are sold on a no-load basis in each of the
funds offering Class A or Class D shares. For purposes of the exchange
privilege, Class A and Class D shares acquired through dividend reinvestment
shall be deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was
paid. Based on this formula, Class A and Class D shares generally may be
exchanged into the Class A or Class D shares of the other funds or into shares
of the Class A and Class D money market funds with a reduced or without a sales
charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its outstanding
Class B or Class C shares for Class B or Class C shares, respectively, of
another MLAM-advised mutual funds ("new Class B or Class C shares") on the
basis of relative net asset value per Class B or Class C share, without the
payment of any contingent deferred sales charge that might otherwise be due on
redemption of the outstanding shares. Class B shareholders of the Fund
exercising the exchange privilege will continue to be subject to the Fund's
CDSC schedule if such schedule is higher than the deferred sales charge
schedule relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Fund acquired through
use of the exchange privilege will be subject to the Fund's CDSC schedule if
such schedule is higher than the CDSC schedule relating to the Class B shares
of the fund from which the exchange has been made. For purposes of computing
the sales charge that may be payable on a disposition of the new Class B or
Class C shares, the holding period for the outstanding Class B or Class C
shares is "tacked" to the holding period of the new Class B or Class C shares.
For example, an investor may exchange Class B shares of the Fund for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held
the Fund's Class B shares for two and a half years. The 2% CDSC that generally
would apply to a redemption would not apply to the exchange. Three years later
the investor may decide to redeem the Class B shares of Special Value Fund and
receive cash. There will be no CDSC due on this redemption, since by "tacking"
the two and a half year holding period of the Fund's Class B shares to the
three year holding period for the Special Value Fund Class B shares, the
investor will be deemed to have held the new Class B shares for more than five
years.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Manager or its affiliates, but the period of time
that Class B or Class C shares are held in a money market
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<PAGE>
fund will not count towards satisfaction of the holding period requirement for
purposes of reducing the CDSC or, with respect to Class B shares, towards
satisfaction of the conversion period. However, shares of a money market fund
which were acquired as a result of an exchange for Class B or Class C shares of
the Fund may, in turn, be exchanged back into Class B or Class C shares,
respectively, of any fund offering such shares, in which event the holding
period for Class B or Class C shares of the fund will be aggregated with
previous holding periods for purposes of reducing the CDSC. Thus, for example,
an investor may exchange Class B shares of the Fund for shares of Merrill Lynch
Institutional Fund ("Institutional Fund") after having held the Class B shares
for two and a half years and three years later decide to redeem the shares of
Institutional Fund for cash. At the time of this redemption, the 2% CDSC that
would have been due had the Class B shares of the Fund been redeemed for cash
rather than exchanged for shares of Institutional Fund will be payable. If,
instead of such redemption the shareholder exchanged such shares for Class B
shares of a fund which the shareholder continues to hold for an additional two
and a half years, any subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
Merrill Lynch Adjustable Rate
Securities Fund, Inc. ............
High current income consistent with a
policy of limiting the degree of fluctu-
ation in net asset value of fund shares
resulting from movements in interest
rates through investment primarily in a
portfolio of adjustable rate securities
consisting principally of mortgage-
backed securities.
Merrill Lynch Americas Income
Fund, Inc. ....................... A high level of current income, consis-
tent with prudent investment risk, by
investing primarily in debt securities
denominated in a currency of a country
located in the Western Hemisphere (i.e.,
North and South America and the sur-
rounding waters).
Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund...... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and Arizona income taxes as
is consistent with prudent investment
management through investment in a port-
folio primarily of intermediate-term in-
vestment grade Arizona Municipal Bonds.
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<PAGE>
Merrill Lynch Arizona Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is as high a level of
income exempt from Federal and Arizona
income taxes as is consistent with pru-
dent investment management.
Merrill Lynch Arkansas Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Arkansas income taxes as is consistent
with prudent investment management.
Merrill Lynch Asset Growth Fund,
Inc. ............................. High total investment return, consistent
with prudent risk, from investment in
United States and foreign equity, debt
and money market securities the combina-
tion of which will be varied both with
respect to types of securities and mar-
kets in response to changing market and
economic trends.
Merrill Lynch Asset Income Fund,
Inc. ............................. A high level of current income through
investment primarily in United States
fixed income securities.
Merrill Lynch Balanced Fund for
Investment and Retirement,
Inc. ........................ As high a level of total investment re-
turn as is consistent with a reasonable
and relatively low level of risk through
investment in common stocks and other
types of securities, including fixed in-
come securities and convertible
securities.
Merrill Lynch Basic Value Fund, Capital appreciation and, secondarily,
Inc. ............................. income by investing in securities, pri-
marily equities, that are undervalued
and therefore represent basic investment
value.
Merrill Lynch California Insured
Municipal Bond Fund............... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
California income taxes as is consistent
with prudent investment management
through investment in a portfolio pri-
marily of insured California Municipal
Bonds.
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Merrill Lynch California Limited
Maturity Municipal Bond Fund...... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and California income taxes
as is consistent with prudent investment
management through investment in a port-
folio primarily of intermediate-term in-
vestment grade California Municipal
Bonds.
Merrill Lynch California Municipal
Bond Fund......................... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
California income taxes as is consistent
with prudent investment management.
Merrill Lynch Capital Fund, The highest total investment return con-
Inc. ............................. sistent with prudent risk through a
fully managed investment policy utiliz-
ing equity, debt and convertible securi-
ties.
Merrill Lynch Colorado Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Colorado income taxes as is consistent
with prudent investment management.
Merrill Lynch Connecticut
Municipal Bond Fund............... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Colorado income taxes as is consistent
with prudent investment management.
Merrill Lynch Corporate Bond Fund,
Inc. ............................. Current income from three separate diver-
sified portfolios of fixed income secu-
rities.
Merrill Lynch Developing Capital
Markets Fund, Inc. ...............
Long-term capital appreciation through
investment in securities, principally
equities, of issuers in countries having
smaller capital markets.
Merrill Lynch Dragon Fund, Inc. ... Capital appreciation by investing primar-
ily in equity and debt securities of is-
suers domiciled in developing countries
located in Asia and the Pacific Basin.
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Merrill Lynch Eurofund.............
Capital appreciation primarily through
investment in equity securities of cor-
porations domiciled in Europe.
Merrill Lynch Federal Securities
Trust............................. High current return through investments
in U.S. Government and Government agency
securities, including GNMA mortgage-
backed certificates and other mortgage-
backed Government securities.
Merrill Lynch Florida Limited
Maturity Municipal Bond Fund...... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal income taxes as is consis-
tent with prudent investment management
while seeking to offer shareholders the
opportunity to own securities exempt
from Florida intangible personal prop-
erty taxes through investment in a port-
folio primarily of intermediate-term in-
vestment grade Florida Municipal Bonds.
Merrill Lynch Florida Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal in-
come taxes as is consistent with prudent
investment management while at the same
time offering shares, the value of which
is exempt from Florida intangible per-
sonal property taxes.
Merrill Lynch Fund For Tomorrow,
Inc. ............................. Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially po-
sitioned to benefit from demographic and
cultural changes as they affect consumer
markets.
Merrill Lynch Fundamental Growth
Fund, Inc. .......................
Long-term growth of capital through in-
vestment in a diversified portfolio of
equity securities placing particular em-
phasis on companies that have exhibited
above-average growth rate in earnings.
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Merrill Lynch Fundamental
Value Portfolio (available only
for exchanges by certain
individual retirement accounts
for which Merrill Lynch acts as
custodian)................... A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide capital
appreciation and income by investing in
securities, with at least 65% of the
portfolio's assets being invested in eq-
uities.
Merrill Lynch Global Allocation
Fund, Inc. ....................... High total investment return, consistent
with prudent risk, through a fully man-
aged investment policy utilizing United
States and foreign equity, debt and
money market securities, the combination
of which will be varied from time to
time both with respect to the types of
securities and markets in response to
changing market and economic trends.
Merrill Lynch Global Bond Fund for
Investment and Retirement.........
High total investment return from invest-
ment in a global portfolio of debt in-
struments denominated in various curren-
cies and multinational currency units.
Merrill Lynch Global Convertible
Fund, Inc. ....................... High total return from investment primar-
ily in an international diversified
portfolio of convertible debt securi-
ties, convertible preferred stock and
"synthetic" convertible securities con-
sisting of a combination of debt securi-
ties or preferred stock and warrants or
options.
Merrill Lynch Global Holdings,
Inc. (residents of Arizona must
meet investor suitability
standards)........................
The highest total investment return con-
sistent with prudent risk through world-
wide investment in an internationally
diversified portfolio of securities.
Merrill Lynch Global
Opportunity Portfolio (available
only for exchanges by certain
individual retirement accounts
for which Merrill Lynch acts as
custodian)................... A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide a high to-
tal investment return through an invest-
ment policy utilizing United States and
foreign equity, debt and money market
securities, the combination of which
will vary depending upon changing market
and economic trends.
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<PAGE>
Merrill Lynch Global Resources
Trust............................. Long-term growth and protection of capi-
tal from investment in securities of do-
mestic and foreign companies that pos-
sess substantial natural resource as-
sets.
Merrill Lynch Global SmallCap
Fund, Inc. ....................... Long-term growth of capital by investing
primarily in equity securities of compa-
nies with relatively small market capi-
talizations located in various foreign
countries and in the United States.
Merrill Lynch Global Utility Fund,
Inc. ............................. Capital appreciation and current income
through investment of at least 65% of
its total assets in equity and debt se-
curities issued by domestic and foreign
companies which are primarily engaged in
the ownership or operation of facilities
used to generate, transmit or distribute
electricity, telecommunications, gas or
water.
Merrill Lynch Growth Fund for
Investment and Retirement......... Growth of capital and, secondarily, in-
come from investment in a diversified
portfolio of equity securities placing
principal emphasis on those securities
which management of the fund believes to
be undervalued.
Merrill Lynch Healthcare Fund,
Inc. (residents of Wisconsin must
meet investor suitability
standards)........................ Capital appreciation through worldwide
investment in equity securities of com-
panies that derive or are expected to
derive a substantial portion of their
sale from products and services in
healthcare.
Merrill Lynch International Equity
Fund.............................. Capital appreciation and, secondarily,
income by investing in a diversified
portfolio of equity securities of is-
suers located in countries other than
the United States.
Merrill Lynch Latin America Fund,
Inc. ............................. Capital appreciation by investing primar-
ily in Latin American equity and debt
securities.
Merrill Lynch Maryland Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Maryland income taxes as is consistent
with prudent investment management.
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Merrill Lynch Massachusetts
Limited Maturity Municipal Bond A portfolio of Merrill Lynch Multi-State
Fund.............................. Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and Massachusetts income
taxes as is consistent with prudent in-
vestment management through investment
in a portfolio primarily of intermedi-
ate-term investment grade Massachusetts
Municipal Bonds.
Merrill Lynch Massachusetts
Municipal Bond Fund............... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal, New
York State and New York City income
taxes as is consistent with prudent in-
vestment management.
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund...... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and Michigan income taxes
as is consistent with prudent investment
management through investment in a port-
folio primarily of intermediate-term in-
vestment grade Michigan Municipal Bonds.
Merrill Lynch Michigan Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Michigan income taxes as is consistent
with prudent investment management.
Merrill Lynch Minnesota Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Minnesota personal income taxes as is
consistent with prudent investment man-
agement.
Merrill Lynch Municipal Bond Fund,
Inc. ............................. Tax-exempt income from three separate di-
versified portfolios of municipal bonds.
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<PAGE>
Merrill Lynch Municipal
Intermediate Term Fund............ Currently the only portfolio of Merrill
Lynch Municipal Series Trust, a series
fund, whose objective is to provide as
high a level as possible of income ex-
empt from Federal income taxes by in-
vesting in investment grade obligations
with a dollar weighted average maturity
of five to twelve years.
Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund...... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and New Jersey income taxes
as is consistent with prudent investment
management through a portfolio primarily
of intermediate-term investment grade
New Jersey Municipal Bonds.
Merrill Lynch New Jersey Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
New Jersey income taxes as is consistent
with prudent investment management.
Merrill Lynch New Mexico Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
New Mexico income taxes as is consistent
with prudent investment management.
Merrill Lynch New York Limited
Maturity Municipal Bond Fund...... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal, New York State and New
York City income taxes as is consistent
with prudent investment management
through investment in a portfolio pri-
marily of intermediate-term investment
grade New York Municipal Bonds.
Merrill Lynch New York Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal, New
York State and New York City income
taxes as is consistent with prudent in-
vestment management.
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<PAGE>
Merrill Lynch North Carolina
Municipal Bond Fund............... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
North Carolina income taxes as is con-
sistent with prudent investment manage-
ment.
Merrill Lynch Oregon Municipal
Bond Fund......................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Oregon income taxes as is consistent
with prudent investment management.
Merrill Lynch Pacific Fund, Capital appreciation by investing in eq-
Inc. ............................. uity securities of corporations domi-
ciled in Far Eastern and Western Pacific
countries, including Japan, Australia,
Hong Kong and Singapore.
Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund...... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income exempt
from Federal and Pennsylvania personal
income taxes as is consistent with pru-
dent investment management through in-
vestment in a portfolio of intermediate-
term investment grade Pennsylvania Mu-
nicipal Bonds.
Merrill Lynch Pennsylvania
Municipal Bond Fund............... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Pennsylvania personal income taxes as is
consistent with prudent investment man-
agement.
Merrill Lynch Phoenix Fund, Long-term growth of capital by investing
Inc. ............................. in equity and fixed income securities,
including tax-exempt securities, of is-
suers in weak financial condition or ex-
periencing poor operating results be-
lieved to be undervalued relative to the
current or prospective condition of such
issuer.
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<PAGE>
Merrill Lynch Quality Bond
Portfolio (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)................... A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide a high
level of current income through invest-
ment in a diversified portfolio of debt
obligations, such as corporate bonds and
notes, convertible securities, preferred
stocks and governmental obligations.
Merrill Lynch Short-Term Global
Income Fund, Inc. ................ As high a level of current income as is
consistent with prudent investment man-
agement from a global portfolio of high
quality debt securities denominated in
various currencies and multinational
currency units and having remaining ma-
turities not exceeding three years.
Merrill Lynch Special Value
Fund, Inc. ....................... Long-term growth of capital from invest-
ments in securities, primarily common
stocks, of relatively small companies
believed to have special investment
value and emerging growth companies re-
gardless of size.
Merrill Lynch Strategic Dividend
Fund.............................. Long-term total return from investment in
dividend-paying common stocks which
yield more than Standard & Poor's 500
Composite Stock Price Index.
Merrill Lynch Technology Fund, Capital appreciation through worldwide
Inc. ............................. investment in equity securities of com-
panies that derive or are expected to
derive a substantial portion of their
sales from products and services in
technology.
Merrill Lynch Texas Municipal Bond
Fund.............................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal in-
come taxes as is consistent with prudent
investment management by investing pri-
marily in a portfolio of long-term, in-
vestment grade municipal obligations is-
sued by the State of Texas, its politi-
cal subdivisions, agencies and instru-
mentalities.
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<PAGE>
Merrill Lynch U.S. Government
Securities Portfolio (available
only for exchanges by certain
individual retirement accounts
for which Merrill Lynch acts as
custodian)................... A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide a high
current return through investments in
U.S. Government and government agency
securities, including GNMA mortgage-
backed certificates and other mortgage-
backed government securities.
Merrill Lynch Utility Income
Fund, Inc. ....................... High current income through investment in
equity and debt securities issued by
companies which are primarily engaged in
the ownership or operation of facilities
used to generate, transmit or distribute
electricity, telecommunications, gas or
water.
Merrill Lynch World Income
Fund, Inc. ....................... High current income by investing in a
global portfolio of fixed income securi-
ties denominated in various currencies,
including multinational currency units.
Class A Share Money Market Funds:
Merrill Lynch Ready Assets Trust... Preservation of capital, liquidity and
the highest possible current income con-
sistent with the foregoing objectives
from the short-term money market securi-
ties in which the fund invests.
Merrill Lynch Retirement Reserves
Money Fund (available only if the
exchange occurs within certain
retirement plans)................. Currently the only portfolio of Merrill
Lynch Retirement Series Trust, a series
fund, whose objectives are to provide
current income, preservation of capital
and liquidity available from investing
in a diversified portfolio of short-term
money market securities.
Merrill Lynch U.S.A. Government
Reserves.......................... Preservation of capital, current income
and liquidity available from investing
in direct obligations of the U.S. Gov-
ernment and repurchase agreements relat-
ing to such securities.
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<PAGE>
Merrill Lynch U.S. Treasury Money
Fund.............................. Preservation of capital, liquidity and
current income through investment exclu-
sively in a diversified portfolio of
short-term marketable securities which
are direct obligations of the U.S. Trea-
sury.
Class B, Class C and Class D Share Money Market Funds:
A portfolio of Merrill Lynch Funds for
Merrill Lynch Government Fund...... Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and se-
curity of principal from investment in
securities issued or guaranteed by the
U.S. Government, its agencies and in-
strumentalities and in repurchase agree-
ments secured by such obligations.
Merrill Lynch Institutional Fund... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide maximum
current income consistent with liquidity
and the maintenance of a high quality
portfolio of money market securities.
Merrill Lynch Institutional Tax-
Exempt Fund....................... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income exempt from Federal income taxes,
preservation of capital and liquidity
available from investing in a diversi-
fied portfolio of short-term, high qual-
ity municipal bonds.
Merrill Lynch Treasury Fund........ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and se-
curity of principal from investment in
direct obligations of the U.S. Treasury
and up to 10% of its total assets in re-
purchase agreements secured by such ob-
ligations.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to made.
To exercise the exchange privilege, shareholders should contact their Merrill
Lynch financial consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed
44
<PAGE>
Exchange Application. This exchange privilege may be modified or terminated at
any time in accordance with the rules of the Commission. The Fund reserves the
right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares to
the general public at any time and may thereafter resume such offering from
time to time. The exchange privilege is available only to U.S. shareholders in
states where the exchange legally may be made.
DISTRIBUTIONS AND TAXES
The Trust intends to continue to qualify the Fund for the special tax
treatment afforded regulated investment companies ("RICs") under the Internal
Revenue Code of 1986, as amended (the "Code"). If it so qualifies, in any
taxable year in which it distributes at least 90% of its taxable net income and
90% of its tax-exempt net income (see below), the Fund (but not its
shareholders) will not be subject to Federal income tax to the extent that it
distributes its net investment income and net realized capital gains. The Trust
intends to cause the Fund to distribute substantially all of such income.
As discussed in the Fund's Prospectus, the Trust has established other series
in addition to the Fund (together with the Fund, the "Series"). Each Series of
the Trust is treated as a separate corporation for Federal income tax purposes.
Each Series therefore is considered to be a separate entity in determining its
treatment under the rules for RICs described in the Prospectus. Losses in one
Series do not offset gains in another Series, and the requirements (other than
certain organizational requirements) for qualifying for RIC status are
determined for each Series at the Series level rather than at the Trust level.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year-end, plus certain undistributed
amounts from previous years. The required distributions, however, are based
only on the taxable income of a RIC. The excise tax, therefore, generally will
not apply to the tax-exempt income of a RIC, such as the Fund, that pays
exempt-interest dividends.
The Trust intends to qualify the Fund to pay "exempt-interest dividends" as
defined in Section 852(b)(5) of the Code. Under such section if, at the close
of each quarter of the Fund's taxable year, at least 50% of the value of its
total assets consists of obligations exempt from Federal income tax ("tax-
exempt obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Fund shall be qualified
to pay exempt-interest dividends to its Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). Exempt-interest dividends are
dividends or any part thereof paid by the Fund which are attributable to
interest on tax-exempt obligations and designated by the Trust as exempt-
interest dividends in a written notice mailed to the Fund's shareholders within
60 days after the close of the Fund's taxable year. For this purpose, the Fund
will allocate interest from tax-exempt obligations (as well as ordinary income,
capital gains and tax preference items, discussed below) among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Commission's exemptive order permitting the
issuance and sale of multiple classes of shares) that is based on
45
<PAGE>
the gross income that is allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year or such other method as the Internal
Revenue Service may prescribe. To the extent that the dividends distributed to
the Fund's shareholders are derived from interest income exempt from Federal
income tax under Code Section 103(a) and are properly designated as exempt-
interest dividends, they will be excludable from a shareholder's gross income
for Federal or Ohio 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, such as the Fund, will not be deductible by the investor for
Federal or Ohio income tax purposes to the extent attributable to exempt-
interest dividends. Shareholders are advised to consult their tax advisers with
respect to whether exempt-interest dividends retain the exclusion under Code
Section 103(a) if a shareholder would be treated as a "substantial user" or
"related person" under Code Section 147(a) with respect to property financed
with the proceeds of an issue of "industrial development bonds" or "private
activity bonds", if any, held by the Fund.
The portion of the Fund's exempt-interest dividends paid from interest
received by the Fund from Ohio Municipal Bonds also will be exempt from Ohio
personal income taxes. Shareholders subject to income taxation by states other
than Ohio will realize a lower after tax rate of return than Ohio shareholders
since the dividends distributed by the Fund generally will not be exempt, to
any significant degree, from income taxation by such other states. The Trust
will inform shareholders annually regarding the portion of the Fund's
distributions which constitutes exempt-interest dividends and the portion which
is exempt from Ohio personal income taxes. The Fund will allocate exempt-
interest dividends among Class A, Class B, Class C and Class D shareholders for
Ohio income tax purposes based on a method similar to that described above for
Federal income tax purposes.
Distributions from investment income and capital gains of the Fund, including
exempt-interest dividends, will be subject to Ohio corporation excise tax, and
may also be subject to tax in states other than Ohio and local taxes in cities
other than those in Ohio.
Distributions treated as investment income or as capital gains for Federal
income tax purposes, including exempt-interest dividends, may be subject to
local taxes imposed by certain cities within Ohio. Additionally, the value of
shares of the Fund will be included in (i) the net worth measure of the issued
and outstanding shares of corporations and financial institutions for purposes
of computing the Ohio corporate franchise tax, (ii) the value of the gross
estate for purposes of the Ohio estate tax, (iii) the value of capital and
surplus for purposes of the Ohio domestic insurance company franchise tax and
(iv) the value of shares of and capital employed by dealers in intangibles for
purposes of the Ohio tax on dealers in intangibles. Accordingly, investors in
the Fund, including, in particular, corporate investors which may be subject to
the Ohio corporate excise tax, should consult their tax advisers with respect
to the application of such taxes to an investment in the Fund, the receipt of
Fund dividends, holding of shares in the Fund and as to their Ohio tax
situation in general.
To the extent that the Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered ordinary income for Federal and Ohio income tax purposes.
Distributions,
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<PAGE>
if any, from an excess of net long-term capital gains over net short-term
capital losses derived from the sale of securities or from certain transactions
in futures or options ("capital gain dividends") are taxable as long-term
capital gains for Federal income tax purposes, regardless of the length of time
the shareholder has owned Fund shares. Distributions by the Fund, whether from
exempt-interest income, ordinary income or capital gains, will not be eligible
for the dividends received deduction allowed to corporations under the Code.
All or a portion of the Fund's gain from the sale or redemption of tax-exempt
obligations purchased at a market discount will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming the shares are held as a capital asset).
Any loss upon the sale or exchange of Fund shares held for six months or less
will be treated as long-term capital loss to the extent of capital gain
dividends received by the shareholder. In addition, such loss will be
disallowed to the extent of any exempt-interest dividends received by the
shareholder. If the Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Fund and received by its shareholders on December 31 of
the year in which such dividend was declared.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. The alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference", which could subject investors in such bonds, including
shareholders of the Fund, to an alternative minimum tax. The Fund will purchase
such "private activity bonds", and the Trust will report to shareholders within
60 days after the Fund's taxable year-end the portion of the Fund's dividends
declared during the year which constitutes an item of tax preference for
alternative minimum tax purposes. The Code further provides that corporations
are subject to an alternative minimum tax based, in part, on certain
differences between taxable income as adjusted for other tax preferences and
the corporation's "adjusted current earnings," which more closely reflect a
corporation's economic income. Because an exempt-interest dividend paid by the
Fund will be included in adjusted current earnings, a corporate shareholder may
be required to pay alternative minimum tax on exempt-interest dividends paid by
the Fund.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent any sales charge paid to the Fund
on the exchanged shares reduces any sales charge such shareholder would have
owed upon purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new
shares.
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<PAGE>
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult
their own tax advisers concerning the applicability of the United States
withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
The Code provides that every person required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Fund) during the taxable
year.
ENVIRONMENTAL TAX
The Code imposes a deductible tax (the "Environmental Tax") on a
corporation's modified alternative minimum taxable income (computed without
regard to the alternative tax net operating loss deduction and the deduction
for the Environmental Tax) at a rate of $12 per $10,000 (0.12%) of alternative
minimum taxable income in excess of $2,000,000. The Environmental Tax is
imposed for taxable years beginning after December 31, 1986, and before January
1, 1996. The Environmental Tax is imposed even if the corporation is not
required to pay an alternative minimum tax because the corporation's regular
income tax liability exceeds its minimum tax liability. The Code provides,
however, that a RIC, such as the Fund, is not subject to the Environmental Tax.
However, exempt-interest dividends paid by the Fund that create alternative
minimum taxable income for corporate shareholders (as described above) may
subject corporate shareholders of the Fund to the Environmental Tax.
TAX TREATMENT OF OPTION AND FUTURES TRANSACTIONS
The Fund may purchase or sell municipal bond index futures contracts and
interest rate futures contracts on U.S. Government securities ("financial
futures contracts"). The Fund may also purchase and write call and put options
on such financial futures contracts. In general, unless an election is
available to the Fund or an exception applies, such options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
Federal income tax purposes at the end of each taxable year, i.e., each such
option or financial futures contract will be treated as sold for its fair
market value on the last day of the taxable year, and any gain or loss
attributable to Section 1256 contracts will be 60% long-term and 40% short-term
capital gain or
48
<PAGE>
loss. Application of these rules to Section 1256 contracts held by the Fund may
alter the timing and character of distributions to shareholders. The mark-to-
market rules outlined above, however, will not apply to certain transactions
entered into by the Fund solely to reduce the risk of changes in price or
interest rates with respect to its investments.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's transactions in financial futures contracts and related
options. Under Section 1092, the Fund may be required to postpone recognition
for tax purposes of losses incurred in certain closing transactions in
financial futures contracts and related options.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Fund may be restricted in effecting closing transactions within three months
after entering into an options or financial futures contract.
OHIO INCOME TAX
Under present Ohio law, the Fund is not subject to any Ohio income taxation
or taxation measured by the capital assets of the Fund provided that the
appropriate annual report is timely filed with the Tax Commissioner of Ohio.
----------------
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code, Treasury regulations and Ohio tax laws presently in
effect. For the complete provisions, reference should be made to the pertinent
Code sections, the Treasury regulations promulgated thereunder and the
applicable Ohio income tax laws. The Code and the Treasury regulations, as well
as the Ohio tax laws, are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Shareholders are urged to consult their own tax advisers regarding the
availability of any exemptions from state or local taxes (other than those
imposed by Ohio) and with specific questions as to Federal, foreign, state or
local taxes.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data, as well as yield and tax-equivalent yield, in
advertisements or information furnished to present or prospective shareholders.
From time to time, the Fund may include the Fund's Morningstar risk-adjusted
Performance Ratings in advertisements or supplemental sales literature. Total
return, yield and tax-equivalent yield figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return yield and tax equivalent yield are determined
separately for Class A, Class B, Class C and Class D shares in accordance with
formulas specified by the Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital
49
<PAGE>
gains or losses on portfolio investments over such periods) that would equate
the initial amount invested to the redeemable value of such investment at the
end of each period. Average annual total return is computed assuming all
dividends and distributions are reinvested and taking into account all
applicable recurring and nonrecurring expenses, including the maximum sales
charge in the case of Class A and Class D shares and the CDSC that would be
applicable to a complete redemption of the investment at the end of the
specified period in the case of the Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted
and (2) the maximum applicable sales charges will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time.
50
<PAGE>
Set forth below is the total return, yield and tax equivalent yield
information for Class A, Class B, Class C and Class D shares of the Fund for
the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES* CLASS D SHARES*
-------------------------- ---------------------------- -------------------------- ----------------------------
REDEEMABLE REDEEMABLE REDEEMABLE REDEEMABLE
EXPRESSED AS VALUE OF A EXPRESSED AS A VALUE OF A EXPRESSED AS VALUE OF A EXPRESSED AS A VALUE OF A
A PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL A PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT
$1,000 AT THE END OF $1,000 AT THE END OF $1,000 AT THE END OF $1,000 AT THE END OF
INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
------------ ------------- -------------- ------------- ------------ ------------- -------------- -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1995... 1.79% $1,017.90 1.49% $1,014.90
Inception
(February 28,
1992) to July
31, 1995........ 6.25% $1,230.50 6.74% $1,249.90
Inception
(October 21,
1994) to July
31, 1995........ 9.77% $1,075.00 5.94% $1,045.80
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended July
31, 1995........ 6.03% $1,060.30 5.49% $1,054.90
Year ended July
31, 1994........ 1.10% $1,011.00 0.59% $1,005.90
Year ended July
31, 1993........ 10.51% $1,105.10 9.95% $1,099.50
Inception
(February 28,
1992) to July
31, 1992........ 8.21% $1,082.10 7.98% $1,079.80
Inception
(October 21,
1994) to July
31, 1995........ 8.50% $1,085.00 8.93% $1,089.30
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception
(February 28,
1992) to July
31, 1995........ 23.05% $1,230.50 24.99% $1,249.90
Inception
(October 21,
1994) to July
31, 1995........ 7.50% $1,075.00 4.58% $1,045.80
<CAPTION>
YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 days ended
July 31, 1995... 4.89% 4.58% 4.47% 4.79%
<CAPTION>
TAX EQUIVALENT YIELD**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 days ended
July 31, 1995... 6.79% 6.36% 6.21% 6.65%
</TABLE>
- ----
* Information as to Class C and Class D shares is presented only for the
period October 21, 1994 (commencement of operations) to July 31, 1995. Prior
to October 21, 1994, no Class C or Class D shares had been publicly issued.
** Based on a Federal income tax rate of 28%.
51
<PAGE>
In order to reflect the reduced sales the reduced sales charges in the case
of Class A or Class D shares or the waiver of the CDSC in the case of Class B
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares," respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may take into account the
contingent deferred sales charge and therefore may reflect greater total return
since, due to the reduced sales charge or the waiver of sales charges, a lower
amount of expenses is deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust provides that the Trust shall be comprised of
separate Series each of which will consist of a separate portfolio which will
issue separate shares. The Trust is presently comprised of the Fund, Merrill
Lynch Arizona Municipal Bond Fund, Merrill Lynch Arkansas Municipal Bond Fund,
Merrill Lynch Colorado Municipal Bond Fund, Merrill Lynch Connecticut Municipal
Bond Fund, Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch Maryland
Municipal Bond Fund, Merrill Lynch Massachusetts Municipal Bond Fund, Merrill
Lynch Michigan Municipal Bond Fund, Merrill Lynch Minnesota Municipal Bond
Fund, Merrill Lynch New Jersey Municipal Bond Fund, Merrill Lynch New Mexico
Municipal Bond Fund, Merrill Lynch New York Municipal Bond Fund, Merrill Lynch
North Carolina Municipal Bond Fund, Merrill Lynch Oregon Municipal Bond Fund,
Merrill Lynch Pennsylvania Municipal Bond Fund and Merrill Lynch Texas
Municipal Bond Fund. The Trustees are authorized to create an unlimited number
of Series and, with respect to each Series, to issue an unlimited number of
full and fractional shares of beneficial interest, par value $.10 per share, of
different classes and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial
interests in the Series. Shareholder approval is not necessary for the
authorization of additional Series or classes of a Series of the Trust. At the
date of this Statement of Additional Information, the shares of the Fund are
divided into Class A, Class B, Class C and Class D shares. Class A, Class B,
Class C and Class D shares represent an interest in the same assets of the Fund
and are identical in all respects except that the Class B, Class C and Class D
shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and/or distribution expenditures.
The Trust has received an order (the "Order") from the Commission permitting
the issuance and sale of multiple classes of shares. The Order permits the
Trust to issue additional classes of shares of any Series if the Board of
Trustees deems such issuance to be in the best interest of the Trust. The Board
of Trustees of the Trust may classify and reclassify the shares of any Series
into additional classes at a future date.
All shares of the Trust have equal voting rights, except that only shares of
the respective Series are entitled to vote on matters concerning only that
Series and, as noted above, Class B, Class C and Class D shares will have
exclusive voting rights with respect to matters relating to the account
maintenance and/or distribution expenses being borne solely by such class. Each
issued and outstanding share is entitled to one vote and to participate equally
in dividends and distributions declared by the Fund and in the net assets of
such Series upon liquidation or dissolution remaining after satisfaction of
outstanding liabilities, except that, as noted above, expenses related to the
account maintenance and/or distribution of the Class B, Class C and Class D
shares are borne solely by such class. There normally will be no meetings of
shareholders for the purposes of electing Trustees unless and until such time
as less than a majority of the Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting
52
<PAGE>
for the election of Trustees. Shareholders may, in accordance with the terms of
the Declaration of Trust, cause a meeting of shareholders to be held for the
purpose of voting on the removal of Trustees. Also, the Trust will be required
to call a special meeting of shareholders in accordance with the requirements
of the 1940 Act to seek approval of new management and advisory arrangements,
of a material increase in distribution fees or of a change in the fundamental
policies, objectives or restrictions of a Series.
The obligations and liabilities of a particular Series are restricted to the
assets of that Series and do not extend to the assets of the Trust generally.
The shares of each Series, when issued, will be fully paid and nonassessable,
have no preference, preemptive, conversion, exchange or similar rights, and are
freely transferable. Holders of shares of any Series are entitled to redeem
their shares as set forth elsewhere herein and in the Prospectus. Shares do not
have cumulative voting rights and the holders of more than 50% of the shares of
the Trust voting for the election of Trustees can elect all of the Trustees if
they choose to do so and in such event the holders of the remaining shares
would not be able to elect any Trustees. No amendments may be made to the
Declaration of Trust without the affirmative vote of a majority of the
outstanding shares of the Trust.
The Manager provided the initial capital for the Fund by purchasing 10,000
shares of the Fund for $100,000. Such shares were acquired for investment and
can only be disposed of by redemption. The organizational expenses of the Fund
(estimated at approximately $47,600) were paid by the Fund and are amortized
over a period not exceeding five years. The proceeds realized by the Manager
(or any subsequent holder) upon the redemption of any of the shares initially
purchased by it will be reduced by the proportionate amount of unamortized
organizational expenses which the number of shares redeemed bears to the number
of shares initially purchased. Such organizational expenses include certain of
the initial organizational expenses of the Trust which have been allocated to
the Fund by the Trustees. If additional Series are added to the Trust, the
organizational expenses will be allocated among the Series in a manner deemed
equitable by the Trustees.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund based on the value of the Fund's net
assets and number of shares outstanding on July 31, 1995, as calculated, is set
forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Net Assets.......................... $7,269,939 $64,068,057 $873,714 $3,234,315
========== =========== ======== ==========
Number of Shares Outstanding........ 688,246 6,065,383 82,726 306,321
========== =========== ======== ==========
Net Asset Value Per Share (net
assets divided by number of shares
outstanding)....................... $ 10.56 $ 10.56 $ 10.56 $ 10.56
Sales Charge (for Class A and Class
D shares: 4.00% of offering price
(4.17% of net asset value per
share))*........................... .44 ** ** .44
---------- ----------- -------- ----------
Offering Price...................... $ 11.00 $ 10.56 $ 10.56 $ 11.00
========== =========== ======== ==========
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares" in the
Prospectus.
53
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Fund. The independent
auditors are responsible for auditing the annual financial statements of the
Fund.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts
02101, acts as the custodian of the Fund's assets. The custodian is responsible
for safeguarding and controlling the Fund's cash and securities, handling the
delivery of securities and collecting interest on the Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Trust's transfer agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
"Management of the Trust--Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust.
REPORT TO SHAREHOLDERS
The fiscal year of the Fund ends on July 31 of each year. The Trust sends to
shareholders of the Fund at least semiannually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Trust has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, to which reference is hereby made.
The Declaration of Trust establishing the Trust dated August 2, 1985, a copy
of which, together with all amendments thereto (the "Declaration") is on file
in the office of the Secretary of the Commonwealth of Ohio, provides that the
name "Merrill Lynch Multi-State Municipal Series Trust" refers to the Trustees
under the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability; nor shall resort be had to their
private property for the satisfaction of any obligation or claim of the Trust
but the "Trust Property" only shall be liable.
To the knowledge of the Trust, no person or entity owned beneficially 5% or
more of the Fund's shares on November 1, 1995.
54
<PAGE>
APPENDIX I
ECONOMIC AND FINANCIAL CONDITIONS IN OHIO
The following information is a brief summary of factors affecting the economy
of the State and does not purport to be a complete description of such factors.
Other factors will affect issuers. The summary is based primarily upon one or
more publicly available offering statements relating to debt offerings of state
issuers, however, it has not been updated nor will it be updated during the
year. The Trust has not independently verified the information.
The State of Ohio (the "State") operates on a fiscal biennium for its
appropriations and expenditures. The State finances the majority of its
operations through the State's General Revenue Fund (the "GRF"). The GRF is
funded mainly by the State's personal income tax, sales and use tax, various
other taxes and grants from the Federal government. The State is precluded by
law from ending a fiscal year or a biennium in a deficit position. In 1981 the
State created the Budget Stabilization Fund ("BSF") for purposes of cash
management.
The GRF ending fund and cash balances for the State's 1984-85 through 1994-95
bienniums were as follows:
<TABLE>
<CAPTION>
ENDING FUND ENDING CASH
BEGINNING ENDING BALANCE BALANCE
BIENNIUM JULY 1 JUNE 30 (IN THOUSANDS) (IN THOUSANDS)
-------- --------- ------- -------------- --------------
<S> <C> <C> <C> <C>
1984-85.................... 1983 1985 $297,600 $ 849,900
1986-87.................... 1985 1987 226,300 632,700
1988-89.................... 1987 1989 475,100 784,268
1990-91.................... 1989 1991 135,365 326,576
1992-93.................... 1991 1993 111,013 393,634
1994-95.................... 1993 1995 928,000 1,312,200
</TABLE>
Based on year-to date financial results and a then current economic forecast
for the State, both in light of the continuing uncertain nationwide economic
situation, the State's Office of the Budget and Management ("OBM") projected a
Fiscal Year 1992 imbalance in GRF resources and expenditures which was
subsequently timely addressed. As an initial action, the Governor of the State
ordered most State agencies to reduce GRF appropriations spending in the final
six months of Fiscal Year 1992 by a total of approximately $184,000,000. (Debt
service and lease rental obligations were not affected by the order). Then,
with General Assembly authorization, in June 1992 the entire $100,400,000 BSF
balance and additional amounts from certain other funds were transferred to the
GRF. Other administration revenue and spending actions resolved the remaining
GRF imbalance for Fiscal Year 1992.
As a first step toward addressing a projected Fiscal Year 1993 GRF shortfall,
then estimated by OBM at approximately $520,000,000, the Governor ordered,
effective July 1, 1992, selected reductions in Fiscal Year 1993 GRF
appropriations spending totaling $300,000,000. Those selected GRF reductions
included appropriations for higher education but expressly excluded
appropriations for debt service (including lease rental appropriations) and for
primary and secondary education. Subsequent executive and legislative actions--
including tax revisions that produced an additional $194,500,000 and additional
appropriations spending
55
<PAGE>
reductions totalling approximately $50,000,000--provided for positive biennium-
ending GRF balances and a better basis for appropriations for the next
biennium.
The GRF budget for the 1994-95 biennium provided for total GRF expenditures
of approximately $30.7 billion, with Fiscal Year 1994 expenditures 9.2% higher
than in Fiscal Year 1993, and Fiscal Year 1995 expenditures 6.6% higher than in
Fiscal Year 1994.
As noted above, the GRF ended the 1994-95 biennium with a fund balance of
$928 million and cash balance of $1,312.2 million. As steps toward BSF
replenishment, OBM deposited $21 million in the BSF (being the amount of the
GRF ending balance as of June 30, 1993 in excess of $90 million), and
transferred another $260.3 million to the BSF at the end of Fiscal Year 1994
and $535.2 million in July 1995, for a current balance in the BSF of $828.3
million. In addition to the transfer to the BSF, the General Appropriations Act
for the 1996-97 biennium transferred $322.8 million to a variety of funds
(including school assistance funds and, in anticipation of possible federal
programs changes, a human services stabilization fund), leaving an unreserved
and undesignated balance in the GRF of $70 million.
The General Appropriations Act for the 1996-97 biennium provides for total
GRF biennial expenditures of approximately $33.5 billion, an increase over
those for the 1994-95 fiscal biennium. Authorized expenditures in Fiscal Year
1996 are higher than in Fiscal Year 1995 and for Fiscal Year 1997 are higher
than in Fiscal Year 1996.
Necessary GRF debt service and lease-rental appropriations for the entire
biennium were requested in the Governor's proposed budget and incorporated in
the related appropriations bill as introduced and in the versions as passed by
the House and the Senate and in the act as passed and signed.
Because the schedule of GRF cash receipts and disbursements do not precisely
coincide, temporary GRF cash flow deficiencies may occur in some months of a
Fiscal Year. Statutory provisions provide for effective management of these
temporary GRF cash deficiencies by permitting the adjustment of payment
schedules (as was done during some prior Fiscal Years) and the use of a "Total
Operating Fund" ("TOF"). The State has not and does not do external revenue
anticipation borrowing.
The TOF includes the total consolidated cash balances, revenues,
disbursements and transfers of the GRF and several other specified funds
(including the BSF). The TOF cash balance at June 30, 1994 was $3.1099 billion.
Those cash balances are consolidated only for the purpose of meeting cash flow
requirements, and, except for the GRF, a positive cash balance must be
maintained for each discrete fund included in the TOF. The GRF is permitted to
incur a temporary cash deficiency by drawing upon the available consolidated
cash balance in the TOF. The amount of that permitted GRF cash deficiency at
any time is limited to 10% of GRF revenues for the then preceding Fiscal Year
(raised from 7% by December 1992 legislation in order to better avoid the need
for even short delays in payments).
The State has encountered (and planned for) GRF cash flow deficiencies in all
recent Fiscal Years. For example, cash flow deficiencies occurred in ten months
of Fiscal Year 1992, with the highest month requiring a drawdown of $743.14
million from the TOF, in ten months of Fiscal Year 1993, with the highest month
requiring a drawdown of $768.64 million from the TOF, in six months of Fiscal
Year 1994, with the highest month requiring a drawdown of $500.64 million from
the TOF, and in four months of Fiscal Year 1995, with the highest month
requiring a drawdown of $337.96 million from the TOF.
56
<PAGE>
All cash flow deficiencies have been within the TOF limitations discussed
above. Often, the GRF balancing steps described above ameliorated deficiencies
in later months of a Fiscal Year, significantly assisting in producing the
projected positive year-end GRF balances.
The State's Constitution directs or restricts the use of certain revenues.
Highway fees and excise taxes, including gasoline taxes, are limited in use to
highway-related purposes including the payment of interest on certain
securities issued for purposes related to the State's highways. Not less than
50% of the receipts from State income and estate and inheritance taxes must be
returned to the political subdivisions and school districts where such receipts
originated. Since 1987 all net State lottery profits are allocated to
elementary, secondary, vocational and special education program purposes.
Litigation contesting the Ohio system of school funding is pending on appeal,
with defendants being the State and several State agencies and officials. In
August 1995 a court of appeals reversed the trial court's findings for
plaintiff districts.
Among other relief the plaintiffs had sought was essentially a declaratory
judgment that the State's statutory system of funding public elementary and
secondary education violates various provisions of the Ohio Constitution, with
a remedy requested being decrees as may be required to compel the State and the
General Assembly to devise and enact a constitutionally acceptable system of
school funding. The trial court in July 1994 concluded that certain provisions
of current law (including those relating to the Foundation Program, and certain
school district borrowing authorizations) violated provisions of the Ohio
Constitution, and directed the State "forthwith to provide for and fund a
system of funding public elementary and secondary education in compliance with
the Ohio Constitution." The State appealed, and the trial court granted a stay
of its findings and conclusions, and a stay of its orders except for
requirements that officials prepare and present to the General Assembly
proposals for a school funding system complying with the court-specified
criteria and except for periodic reports to the court on steps taken to
eliminate wealth-based disparities among districts.
In prior litigation, the Ohio Supreme Court in 1979 upheld what was
essentially the then existing Foundation Program against similar claims that
the school funding system violated provisions of the Ohio Constitution.
Applying that 1979 decision to the present case, the court of appeals found no
constitutional violation, and reversed the trial court's negative rulings and
vacated its remedial orders.
The plaintiff coalition has announced an intent to appeal the court of
appeals decision to the Ohio Supreme Court. It is not possible at this time to
state whether the suit will ultimately be successful if appealed or, should
plaintiffs prevail on appeal, the effect on the State's present school funding
system, including the amount of and criteria for State basic aid allocations to
school districts. It cannot be predicted if the 1979 Supreme Court decision
will be considered by the Supreme Court, as it was by the court of appeals, to
be determinative of any or all of the issues raised in this current litigation.
Federal courts have ruled that the State shared joint liability with the
local school districts for segregation in public schools in Cincinnati,
Cleveland, Columbus, Dayton and Lorain. Subsequent trial court orders directed
that remedial costs be shared equally by the State and the respective local
districts. For that purpose $75,752,659 was expended in the 1992-93 biennium,
$119,382,294 was expended in the 1994-95 biennium, and $144,759,340 has been
expended for the current biennium.
57
<PAGE>
The State's Constitution expressly provides that the State General Assembly
has no power to pass laws impairing the obligations of contracts.
At the present time, the State does not levy any ad valorem taxes on real or
tangible personal property. Local taxing districts and political subdivisions
currently levy such taxes. The State's Constitution limits the amount of the
aggregate levy of ad valorem property taxes, without a vote of the electors or
municipal charter provision, to 1% of true value in money. Statutes also limit
the amount of the aggregate levy, without a vote or charter provision.
Economic activity in the State, as in many other industrially developed
states, tends to be more cyclical than in some other states and in the nation
as a whole. Although manufacturing (including auto-related manufacturing)
remains an important part of the State's economy, the greatest growth in Ohio
employment in recent years, consistent with national trends, has been in the
nonmanufacturing area. Ohio ranked third in the nation in 1990 gross state
product derived from manufacturing. Manufacturing income was 27.5% of total
Ohio gross state product, compared to 17.1% of that total being from
"services". In addition, agriculture and "agribusiness" continue as important
elements of the Ohio economy. Ohio continues as a major "headquarters" state.
Of the top 500 corporations (based on 1994 sales) as reported in 1995 by
Fortune magazine, 48 had headquarters in Ohio, placing Ohio fifth as
"headquarters" state for corporations. Payroll employment in Ohio, in the
diversifying employment base, showed a steady upward trend until 1979, then
decreased until 1982. It reached an all-time high in the summer of 1993 after a
slight decrease early in 1992 and then decreased slightly, but is now at a new
high. Growth in recent years has been concentrated among nonmanufacturing
industries, with manufacturing employment tapering off since its 1969 peak.
Nonmanufacturing industries now employ approximately 78.6% of all payroll
workers (non-agricultural) in Ohio. Historically, the average monthly
unemployment rate in Ohio has been higher than the average figures for the
United States, although for 1994 the average monthly unemployment rate in Ohio
was 5.5% as compared to a national average of 6.1% in the United States.
Ohio's 1990 decennial census population of over 10,840,000 indicated a 0.5%
population growth since 1980 and Ohio as ranking seventh among the states in
population. In 1980 it ranked sixth. The State's 1993 population was estimated
at 11,091,000.
Currently, the State's general obligation bonds are rated Aa, AA and AA by
Moody's, Standard & Poor's and Fitch, respectively.
58
<PAGE>
APPENDIX II
RATINGS OF MUNICIPAL BONDS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND
RATINGS
<TABLE>
<C> <S>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payment or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
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.
</TABLE>
59
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
Short-term Notes: The four ratings of Moody's for short-term notes are MIG
1/VMIG1, MIG 2/VMIG2, MIG 3/VMIG3 and MIG 4/VMIG4; MIG 1/VMIG1 denotes "best
quality . . . strong protection by established cash flows"; MIG 2/VMIG2 denotes
"high quality" with ample margins of protection; MIG 3/VMIG3 notes are of
"favorable quality . . . but . . . lacking the undeniable strength of the
preceding grades"; MIG 4/VMIG4 notes are of "adequate quality . . .
[p]rotection commonly regarded as required of an investment security is present
.. . . there is specific risk."
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa--judged
to be the best quality, carry the smallest degree of investment risk; Aa--
judged to be of high quality by all standards; A--possess many favorable
investment attributes and are to be considered as upper medium grade
obligations; Baa--considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well established
access to a range of financial markets and assured sources of alternate
liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
60
<PAGE>
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("STANDARD & POOR'S") MUNICIPAL
DEBT RATINGS
A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-by capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
<TABLE>
<C> <S>
AAA Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher rated categories.
BB Bonds rated "BB", "B", "CCC" and "CC" are regarded, on balance, as
B predominately speculative with respect to capacity to pay interest
CCC and repay principal in accordance with the terms of the obligations.
CC "BB" indicates the lowest degree of speculation and "C" the highest
C degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
</TABLE>
61
<PAGE>
<TABLE>
<C> <S>
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during
such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
</TABLE>
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S CORPORATE BOND RATINGS
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt
rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong. Debt rated "AA" has a
very strong capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree. Debt rated "A" has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than a debt of a higher rated category. Debt rated "BBB" is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in higher
rated categories.
The ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's Commercial Paper Rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into several categories, ranging from "A-1"
for the highest quality obligations to "D" for the lowest. These categories are
as follows:
<TABLE>
<C> <S>
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
</TABLE>
62
<PAGE>
<TABLE>
<C> <S>
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.
</TABLE>
A Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
A Standard & Poor's municipal note rating reflects the liquidity concerns and
market access risks unique to such notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating. The following criteria will be used in
making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
--Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
<TABLE>
<C> <S>
SP-1 A very strong or strong capacity to pay principal and interest. Issues
that possess overwhelming safety characteristics will be given a "+"
designation.
SP-2 A satisfactory capacity to pay principal and interest.
SP-3 A speculative capacity to pay principal and interest.
</TABLE>
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuers belongs to a group of securities that is not rated as
a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Standard & Poor's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date information to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
63
<PAGE>
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S ("FITCH") INVESTMENT GRADE BOND
RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same ratings 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.
<TABLE>
<C> <S>
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 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.
</TABLE>
64
<PAGE>
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
Credit Trend Indicator: Credit trend indicators show whether credit
fundamentals are improving, stable, declining, or uncertain, as follows:
Improving (UP ARROW)
Stable (LEFT ARROW/RIGHT ARROW)
Declining (DOWN ARROW)
Uncertain (UP ARROW/DOWN ARROW)
Credit trend indicators are not predictions that any rating change will
occur, and have a longer-term time frame than issues placed on FitchAlert.
<TABLE>
<C> <S>
NR Indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
Suspended A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is called or
refinanced and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designated as
"Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evolving," where ratings may be raised
or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
</TABLE>
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.
65
<PAGE>
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.
<TABLE>
<C> <S>
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.
</TABLE>
DDD, DD and D Bonds are in default of interest and/or principal payments.
Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents the
lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD", "DD", or "D" categories.
DESCRIPTION OF FITCH 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:
<TABLE>
<C> <S>
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
</TABLE>
66
<PAGE>
<TABLE>
<C> <S>
F-1 Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated "F-1+'.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+' and "F-1'
categories.
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.
</TABLE>
67
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Ohio Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Ohio Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust as of July 31, 1995, the
related statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the three-year period then ended
and for the period February 28, 1992 (commencement of operations) to July 31,
1992. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Ohio
Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust as of
July 31, 1995, the results of its operations, the changes in its net assets,
and the financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 6, 1995
68
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Ohio Municipal Bond Fund's
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below and at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
IDR Industrial Development Revenue Bonds
LEVRRS Leveraged Reverse Rate Securities
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Ohio--92.3%
<C> <C> <C> <S> <C>
AAA Aaa $ 1,500 Adams County, Ohio, Local School District Improvement Bonds (Ohio Valley),
UT, 7% due 12/01/2015 (d) $ 1,745
NR* Baa1 900 Ashtabula County, Ohio, IDR, Refunding (Ashland Oil Inc. Project), Series A,
6.90% due 5/01/2010 933
NR* A 4,000 Barberton, Ohio, Hospital Facilities Revenue Bonds (Barberton Citizens
Hospital Co. Project), 7.25% due 1/01/2012 4,248
AAA Aaa 1,000 Buckeye Valley, Ohio, Local School District Revenue Bonds (Delaware County),
Series A, UT, 6.85% due 12/01/2015 (d) 1,133
A1 NR* 3,500 Cincinnati and Hamilton County, Ohio, Port Authority, IDR (Multi-Color Corp.
Project), VRDN, 3.90% due 11/01/2000 (a) 3,500
NR* NR* 710 Cincinnati, Ohio, Student Loan Funding Corporation, Revenue Refunding
Bonds, AMT, Sub-Series B, 6.75% due 1/01/2007 723
A NR* 3,000 Cuyahoga County, Ohio, Health Care Facilities Revenue Bonds (Benjamin Rose
Institute Project), Series A, 5.30% due 12/01/2025 2,955
NR* VMIG1++ 300 Cuyahoga County, Ohio, Hospital Revenue Improvement Bonds (Cleveland
University Hospital, VRDN, 3.85% due 1/01/2016 (a) 300
NR* NR* 1,400 Cuyahoga County, Ohio, IDR (Cleveland E Excel), VRDN, AMT, 4.10% due
3/01/2019 (a) 1,400
AA A1 2,000 Delaware County, Ohio, Sewer Improvement Revenue Bonds,
5.25% due 12/01/2015 1,856
A- A 1,220 Erie County, Ohio, Hospital Improvement Revenue Refunding Bonds
(Firelands Community Hospital Project), 6.75% due 1/01/2015 1,242
Hamilton County, Ohio, Health System Revenue Refunding Bonds:
NR* VMIG1++ 600 (Franciscan Sisters Poor Health), VRDN, Series A, 3.85% due 3/01/2017 (a) 600
BBB Baa1 3,000 Refunding (Providence Hospital-Franciscan), 6.875% due 7/01/2015 2,960
AAA Aaa 1,200 Huron County, Ohio, Human Services Building Revenue Bonds, 7.25%
due 12/01/2013 (d) 1,362
NR* Aaa 5,530 Kent, Ohio, M/F Housing Mortgage Revenue Bonds (Silver Meadows), AMT,
7.30% due 12/20/2036 (e) 5,913
AAA Aaa 2,110 Kings Local School District Revenue Bonds, UT, 7.50% due 12/01/2016 (c) 2,578
NR* Aa 1,830 Lakewood, Ohio, Revenue Bonds, Series A, 5.50% due 12/01/2015 1,752
Lakota, Ohio, Local School District Revenue Bonds, GO, UT (b):
AAA Aaa 1,000 7% due 12/01/2008 1,163
AAA Aaa 1,740 7% due 12/01/2010 2,012
AAA NR* 1,660 Loveland, Ohio, City School District, GO, UT, 6.65% due 12/01/2015 (d) 1,777
</TABLE>
69
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Ohio (concluded)
<C> <C> <C> <S> <C>
BBB+ NR* $ 3,350 Lucas County, Ohio, Hospital Revenue Bonds (Flower Hospital),
6.125% due 12/01/2013 $ 3,131
AAA Aaa 1,500 Mahoning County, Ohio, Hospital Facilities Revenue Refunding Bonds
(YHA Inc. Project), Series A, 7% due 10/15/2014 (d) 1,647
BBB+ A3 2,000 Moraine, Ohio, Solid Waste Disposal Revenue Bonds (General Motors Corp.
Project), AMT, 6.75% due 7/01/2014 2,156
AAA Aaa 3,000 North Canton City, Ohio, School District Improvement Bonds, GO, UT,
6.70% due 12/01/2019 (b) 3,303
AAA NR* 1,000 Ohio HFA, Residential Mortgage Revenue Bonds, AMT, Series B-2, 6.70%
due 3/01/2025 (e) 1,027
AAA Aaa 1,185 Ohio HFA, S/F Mortgage Revenue Bonds, AMT, Series B, 6.903%
due 3/24/2031 (e) 1,215
Ohio State Air Quality Development Authority Revenue Bonds:
NR* NR* 400 (Honda America Manufacturing), VRDN, 3.95% due 1/01/1997 (a) 400
AAA Aaa 1,505 PCR, Refunding (Ohio-Edison), Series B, 7.10% due 6/01/2018 (c) 1,654
NR* Baa1 1,000 Refunding (Ashland Oil Inc. Project), 6.85% due 4/01/2010 1,023
AA- Aa3 4,200 Refunding (Coll-Dayton Power & Light Project), Series B, 6.40%
due 8/15/2027 4,295
AA- Aa 1,410 Ohio State Higher Educational Facilities, Revenue Refunding Bonds
(Case Western Reserve University), 6.25% due 10/01/2016 1,497
AAA Aaa 1,925 Ohio State Public Facilities Commission Revenue Refunding Bonds (Higher
Education Capital Facilities), Series II-A, 5.20% due 5/01/2002 (b) 1,984
AAA Aaa 2,825 South Western City, Ohio (Franklin and Pickway Counties), School District
Revenue Bonds, UT, 5% due 12/01/2013 (d) 2,578
AAA Aaa 200 University of Toledo, Ohio, General Receipts Refunding Bonds, Series A, 5.90%
due 6/01/2020 (c) 197
AAA Aaa 2,000 Westerville, Ohio, Minerva Park and Blendon Joint Township, Hospital
District Revenue Refunding Bonds (Saint Ann's Hospital), Series B, 7%
due 9/15/2012 (b) 2,207
AAA Aaa 725 Whitehall, Ohio, Revenue Bonds, 5.65% due 12/01/2010 (b) 713
NR* A1 475 Wood County, Ohio, Sewer District Water Assessment Improvement Bonds,
Issue II, 6.55% due 12/01/2014 505
Guam--4.0%
BBB NR* 3,000 Guam Power Authority Revenue Bonds, Series A, 6.75% due 10/01/2024 3,035
Puerto Rico--2.5%
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Bonds, LEVRRS,
8.018% due 7/01/2023 (f)(g) 1,857
Total Investments (Cost--$72,249)--98.8% 74,576
Other Assets Less Liabilities--1.2% 870
-------
Net Assets--100.0% $75,446
=======
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate
in effect at July 31, 1995.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)GNMA Collateralized.
(f)FSA Insured.
(g)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is
the rate in effect at July 31, 1995.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
70
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1995
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$72,248,576) (Note 1a) $ 74,575,974
Cash 483,837
Receivables:
Securities sold $ 2,692,571
Interest 907,675
Beneficial interest sold 74,703 3,674,949
------------
Deferred organization expenses (Note 1e) 18,645
Prepaid registration fees and other assets (Note 1e) 14,270
------------
Total assets 78,767,675
------------
Liabilities: Payables:
Securities purchased 2,970,450
Beneficial interest redeemed 160,995
Dividends to shareholders (Note 1f) 68,636
Investment adviser (Note 2) 33,274
Distributor (Note 2) 26,351 3,259,706
------------
Accrued expenses and other liabilities 61,944
------------
Total liabilities 3,321,650
------------
Net Assets: Net assets $ 75,446,025
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 68,825
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 606,538
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 8,273
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 30,632
Paid-in capital in excess of par 74,227,750
Accumulated realized capital losses on investments--net (Note 5) (1,392,366)
Accumulated distributions in excess of realized capital gains--net (431,025)
Unrealized appreciation on investments--net 2,327,398
------------
Net assets $ 75,446,025
============
Net Asset Value: Class A--Based on net assets of $7,269,939 and 688,246 shares
of beneficial interest outstanding $ 10.56
============
Class B--Based on net assets of $64,068,057 and 6,065,383 shares
of beneficial interest outstanding $ 10.56
============
Class C--Based on net assets of $873,714 and 82,726 shares
of beneficial interest outstanding $ 10.56
============
Class D--Based on net assets of $3,234,315 and 306,321 shares
of beneficial interest outstanding $ 10.56
============
See Notes to Financial Statements.
</TABLE>
71
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1995
<C> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 4,511,797
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 402,455
Account maintenance and distribution fees--Class B (Note 2) 317,043
Professional fees 66,161
Printing and shareholder reports 56,036
Transfer agent fees--Class B (Note 2) 48,452
Accounting services (Note 2) 32,847
Registration fees (Note 1e) 12,961
Amortization of organization expenses (Note 1e) 11,836
Custodian fees 7,443
Pricing fees 5,846
Transfer agent fees--Class A (Note 2) 4,977
Trustees' fees and expenses 3,551
Account maintenance and distribution fees--Class C (Note 2) 1,984
Account maintenance fees--Class D (Note 2) 1,854
Transfer agent fees--Class D (Note 2) 1,211
Transfer agent fees--Class C (Note 2) 264
Other 3,889
------------
Total expenses before reimbursement 978,810
Reimbursement of expenses (Note 2) (19,871)
------------
Total expenses after reimbursement 958,939
------------
Investment income--net 3,552,858
------------
Realized & Realized loss on investments--net (1,392,365)
Unrealized Change in unrealized appreciation/depreciation
Gain (Loss) on on investments--net 1,835,744
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 3,996,237
============
See Notes to Financial Statements.
</TABLE>
72
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1995 1994
<C> <S> <C> <C>
Operations: Investment income--net $ 3,552,858 $ 3,310,756
Realized loss on investments--net (1,392,365) (276,074)
Change in unrealized appreciation/depreciation on
investments--net 1,835,744 (2,899,454)
------------ ------------
Net increase in net assets resulting from operations 3,996,237 135,228
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (402,108) (470,881)
Shareholders Class B (3,039,531) (2,839,875)
(Note 1f): Class C (15,289) --
Class D (95,930) --
In excess of realized gain on investments--net:
Class A -- (76,803)
Class B -- (515,879)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (3,552,858) (3,903,438)
------------ ------------
Beneficial Interest Net increase in net assets derived from beneficial interest
Transactions transactions 20,090 16,963,612
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 463,469 13,195,402
Beginning of year 74,982,556 61,787,154
------------ ------------
End of year $ 75,446,025 $ 74,982,556
============ ============
See Notes to Financial Statements.
</TABLE>
73
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Period
The following per share data and ratios have been derived Feb. 28,
from information provided in the financial statements. 1992++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992
<C> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.50 $ 11.02 $ 10.56 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income--net .55 .56 .58 .25
Realized and unrealized gain (loss) on
investments--net .06 (.43) .49 .56
-------- -------- -------- --------
Total from investment operations .61 .13 1.07 .81
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.55) (.56) (.58) (.25)
Realized gain on investments--net -- -- (.03) --
In excess of realized gain on investments--net -- (.09) -- --
-------- -------- -------- --------
Total dividends and distributions (.55) (.65) (.61) (.25)
-------- -------- -------- --------
Net asset value, end of period $ 10.56 $ 10.50 $ 11.02 $ 10.56
======== ======== ======== ========
Total Investment Based on net asset value per share 6.03% 1.10% 10.51% 8.21%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement .86% .65% .51% .16%*
Average ======== ======== ======== ========
Net Assets: Expenses .89% .89% 1.04% 1.36%*
======== ======== ======== ========
Investment income--net 5.30% 5.12% 5.44% 5.75%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 7,270 $ 9,373 $ 8,446 $ 4,209
Data: ======== ======== ======== ========
Portfolio turnover 169.34% 44.83% 41.51% 13.21%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
74
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived Feb. 28,
from information provided in the financial statements. 1992++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992
<C> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.50 $ 11.02 $ 10.56 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income--net .49 .50 .52 .23
Realized and unrealized gain (loss) on
investments--net .06 (.43) .49 .56
-------- -------- -------- --------
Total from investment operations .55 .07 1.01 .79
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.49) (.50) (.52) (.23)
Realized gain on investments--net -- -- (.03) --
In excess of realized gain on investments--net -- (.09) -- --
-------- -------- -------- --------
Total dividends and distributions (.49) (.59) (.55) (.23)
-------- -------- -------- --------
Net asset value, end of period $ 10.56 $ 10.50 $ 11.02 $ 10.56
======== ======== ======== ========
Total Investment Based on net asset value per share 5.49% .59% 9.95% 7.98%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, excluding account maintenance and
Average distribution fees and net of reimbursement .87% .66% .52% .17%*
Net Assets: ======== ======== ======== ========
Expenses, net of reimbursement 1.37% 1.16% 1.02% .67%*
======== ======== ======== ========
Expenses 1.40% 1.39% 1.55% 1.86%*
======== ======== ======== ========
Investment income--net 4.79% 4.61% 4.93% 5.26%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 64,068 $ 65,610 $ 53,341 $ 26,244
Data: ======== ======== ======== ========
Portfolio turnover 169.34% 44.83% 41.51% 13.21%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
75
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
July 31, 1995
Increase (Decrease) in Net Asset Value: Class C Class D
<C> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.09 $ 10.09
Operating -------- --------
Performance: Investment income--net .37 .41
Realized and unrealized gain on investments--net .47 .47
-------- --------
Total from investment operations .84 .88
-------- --------
Less dividends from investment income--net (.37) (.41)
-------- --------
Net asset value, end of period $ 10.56 $ 10.56
======== ========
Total Investment Based on net asset value per share 8.50%+++ 8.93%+++
Return:** ======== ========
Ratios to Expenses, excluding account maintenance and
Average distribution fees and net of reimbursement .90%* .89%*
Net Assets: ======== ========
Expenses, net of reimbursement 1.50%* .99%*
======== ========
Expenses 1.50%* .99%*
======== ========
Investment income--net 4.62%* 5.17%*
======== ========
Supplemental Net assets, end of period (in thousands) $ 874 $ 3,234
Data: ======== ========
Portfolio turnover 169.34% 169.34%
======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
76
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Ohio Municipal Bond Fund (the "Fund") is part of
Merrill Lynch Multi-State Municipal Series Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940 as a
non-diversified, open-end management investment company. The Fund
offers four classes of shares under the Merrill Lynch Select Pricing
SM System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
77
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. The Investment Advisory Agreement obligates
FAM to reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. FAM's obligation to reimburse the Fund
is limited to the amount of the management fee. No fee payment will
be made to the Investment Adviser during any fiscal year which will
cause such expenses to exceed expense limitations at the time of
payment. For the year ended July 31, 1995, FAM earned fees of
$402,455, of which $19,871 was voluntarily waived.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1995, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $310 $2,251
Class D $112 $ 625
MLPF&S received contingent deferred sales charges of $150,198
relating to transactions in Class B Shares of beneficial interest
and $123 relating to transactions in Class C Shares of beneficial
interest for the Fund for the year ended July 31, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a
wholly-owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1995 were $114,346,888 and $115,944,053,
respectively.
78
<PAGE>
Net realized and unrealized gains (losses) as of July 31, 1995 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (638,995) $ 2,327,398
Short-term investments (320,617) --
Financial futures contracts (432,753) --
----------- -----------
Total $(1,392,365) $ 2,327,398
=========== ===========
As of July 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $2,327,398, of which $2,425,949 related to
appreciated securities and $98,551 related to depreciated
securities. The aggregate cost of investments at July 31, 1995 for
Federal income tax purposes was $72,248,576.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $20,090 and $16,963,612 for the years ended July
31, 1995 and July 31, 1994, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares
for the Year Ended Dollar
July 31, 1995 Shares Amount
Shares sold 181,071 $ 1,870,062
Shares issued to shareholders
in reinvestment of dividends 17,661 181,209
----------- -----------
Total issued 198,732 2,051,271
Shares redeemed (403,178) (4,123,436)
----------- -----------
Net decrease (204,446) $(2,072,165)
=========== ===========
Class A Shares
for the Year Ended Dollar
July 31, 1994 Shares Amount
Shares sold 337,482 $ 3,657,739
Shares issued to shareholders
in reinvestment of dividends
and distributions 26,056 285,141
----------- -----------
Total issued 363,538 3,942,880
Shares redeemed (237,374) (2,563,654)
----------- -----------
Net increase 126,164 $ 1,379,226
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 1,171,885 $12,053,962
Shares issued to shareholders
in reinvestment of dividends 169,857 1,744,620
----------- -----------
Total issued 1,341,742 13,798,582
Automatic conversion of
shares (600) (6,397)
Shares redeemed (1,524,736) (15,586,483)
----------- -----------
Net decrease (183,594) $(1,794,298)
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 1,957,432 $21,477,219
Shares issued to shareholders
in reinvestment of dividends
and distributions 180,104 1,968,660
----------- -----------
Total issued 2,137,536 23,445,879
Shares redeemed (729,706) (7,861,493)
----------- -----------
Net increase 1,407,830 $15,584,386
=========== ===========
Class C Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 88,400 $ 911,000
Shares issued to shareholders
in reinvestment of dividends 1,135 11,864
----------- -----------
Total issued 89,535 922,864
Shares redeemed (6,809) (71,984)
----------- -----------
Net increase 82,726 $ 850,880
=========== ===========
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 303,361 $ 3,004,430
Automatic conversion of shares 600 6,397
Shares issued to shareholders
in reinvestment of dividends 3,127 32,727
----------- -----------
Total issued 307,088 3,043,554
Shares redeemed (767) (7,881)
----------- -----------
Net increase 306,321 $ 3,035,673
=========== ===========
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At July 31, 1995, the Fund had a net capital loss of approximately
$750,000, all of which expires in 2003. This amount will be
available to offset like amounts of any future taxable gains.
79
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................... 2
Description of Municipal Bonds and Temporary Investments................... 5
Description of Municipal Bonds............................................ 5
Description of Temporary Investments...................................... 7
Repurchase Agreements..................................................... 8
Financial Futures Transactions and Options................................ 9
Investment Restrictions.................................................... 13
Management of the Trust.................................................... 16
Trustees and Officers..................................................... 16
Compensation of Trustees.................................................. 17
Management and Advisory Arrangements...................................... 18
Purchase of Shares......................................................... 20
Initial Sales Charge Alternatives--Class A and
Class D Shares........................................................... 20
Reduced Initial Sales Charges............................................. 21
Distribution Plans........................................................ 24
Limitations on the Payment of Deferred Sales Charges...................... 24
Redemption of Shares....................................................... 26
Deferred Sales Charge--Class B and Class C Shares......................... 26
Portfolio Transactions..................................................... 26
Determination of Net Asset Value........................................... 28
Shareholder Services....................................................... 29
Investment Account........................................................ 29
Automatic Investment Plans................................................ 30
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 30
Systematic Withdrawal Plans--Class A and
Class D Shares........................................................... 30
Exchange Privilege........................................................ 31
Distributions and Taxes.................................................... 45
Environmental Tax......................................................... 48
Tax Treatment of Option and Futures Transactions.......................... 48
Ohio Income Tax........................................................... 49
Performance Data........................................................... 49
General Information........................................................ 52
Description of Shares..................................................... 52
Computation of Offering Price Per Share................................... 53
Independent Auditors...................................................... 54
Custodian................................................................. 54
Transfer Agent............................................................ 54
Legal Counsel............................................................. 54
Report to Shareholders.................................................... 54
Additional Information.................................................... 54
Appendix I--Economic and Financial Conditions in Ohio...................... 55
Appendix II--Ratings of Municipal Bonds.................................... 59
Independent Auditors' Report............................................... 68
Financial Statements....................................................... 69
</TABLE>
Code # 16155-1195
LOGO MERRILL LYNCH
Merrill Lynch Ohio
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
November 21, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a)FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for each of the years in the three-year period
ended July 31, 1995 and for the period February 28, 1992
(commencement of operations) through July 31, 1992.
Contained in Part B:
Schedule of Investments as of July 31, 1995.
Statement of Assets and Liabilities as of July 31, 1995.
Statement of Operations for the year ended July 31, 1995.
Statements of Changes in Net Assets for each of the years in the two-
year period ended July 31, 1995.
Financial Highlights for each of the years in the three-year period
ended July 31, 1995 and for the period February 28, 1992
(commencement of operations) to July 31, 1992.
(b)EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1(a) --Declaration of Trust of the Registrant, dated August 2, 1985.(a)
(b) --Amendment to Declaration of Trust, dated September 18, 1987.(a)
(c) --Amendment to Declaration of Trust, dated December 21, 1987.(a)
(d) --Amendment to Declaration of Trust, dated October 3, 1988.(a)
(e) --Amendment to Declaration of Trust, dated October 17, 1994 and
instrument establishing Class C and Class D shares of beneficial
interest.
(f) --Instrument establishing Merrill Lynch Ohio Municipal Bond Fund (the
"Fund") as a series of Registrant.(a)
(g) --Instrument establishing Class A and Class B shares of beneficial
interest of the Fund.(a)
2 --By-Laws of Registrant.(a)
3 --None.
4 --Portions of the Declaration of Trust, Establishment and Designation
and By-Laws of the Registrant defining the rights of holders of the
Fund as a series of the Registrant.(b)
5(a) --Form of Management Agreement between Registrant and Fund Asset
Management, L.P.(a)
(b) --Supplement to Management Agreement between Registrant and Fund Asset
Management, L.P.(e)
6(a) --Form of Revised Class A Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc. (including Form
of Selected Dealers Agreement).(e)
(b) --Form of Class B Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.(a)
(c) --Form of Class C Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(e)
(d) --Form of Class D Shares Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(e)
(e) --Letter Agreement between the Fund and Merrill Lynch Funds
Distributor, Inc., dated September 15, 1993, in connection with the
Merrill Lynch Mutual Fund Adviser program.(c)
7 --None.
8 --Form of Custody Agreement between Registrant and State Street Bank &
Trust Company.(d)
9 --Form of Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Merrill Lynch
Financial Data Services, Inc.(f)
10 --Opinion of Brown & Wood, counsel for the Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
12 --None.
13 --Certificate of Fund Asset Management, Inc.(a)
14 --None.
15(a) --Form of Amended and Restated Class B Shares Distribution Plan of the
Registrant and Amended and Restated Class B Shares Distribution Plan
Sub-Agreement.(g)
(b) --Form of Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of Registrant.(e)
(c) --Form of Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of Registrant.(e)
16(a) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class A
Shares.(a)
(b) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class B
Shares.(a)
(c) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class C
Shares.
(d) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class D
Shares.
17(a) --Financial Data Schedule for Class A Shares.
(b) --Financial Data Schedule for Class B Shares.
(c) --Financial Data Schedule for Class C Shares.
(d) --Financial Data Schedule for Class D Shares.
</TABLE>
- --------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
(b) Reference is made to Article II, Section 2.3 and Articles V, VI, VIII, IX,
X and XI of the Registrant's Declaration of Trust, as amended, filed as
Exhibits 1(a), 1(b), 1(c), 1(d) and 1(e) with Post-Effective Amendment No.
5 to the Registrant's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "Registration Statement"); to the
Certificates of Establishment and Designation establishing the Fund as a
series of the Registrant and establishing Class A and Class B shares of
beneficial interest of the Fund, filed as Exhibits 1(f) and 1(g),
respectively, with Post-Effective Amendment No. 5 to the Registration
Statement; and to Articles I, V and VI of the Registrant's By-Laws, filed
as Exhibit 2 with Post-Effective Amendment No. 5 to the Registration
Statement.
(c) Filed on November 8, 1993 as an Exhibit to Post-Effective Amendment No. 3
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(d) Incorporated by reference to Exhibit 8 to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A under the Securities Act
of 1933, as amended, filed on October 14, 1994, relating to shares of
Merrill Lynch Minnesota Municipal Bond Fund series of the Registrant (File
No. 33-44734).
(e) Filed on October 19, 1994 as an Exhibit to Post-Effective Amendment No. 4
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(f) Incorporated by reference to Exhibit 9 to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A under the Securities Act
of 1933, as amended, filed on October 20, 1995, relating to shares of
Merrill Lynch Arizona Municipal Bond Fund series of the Registrant (File
No. 33-41311).
(g) Incorporated by reference to Exhibit 15(a) to Post-Effective Amendment No.
4 to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended, filed on October 26, 1995, relating to shares of
Merrill Lynch Michigan Municipal Bond Fund series of the Registrant (File
No. 33-55576).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any other
person.
C-2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1995*
-------------- -------------------
<S> <C>
Class A Shares of beneficial interest, par value
$0.10 per share................................... 248
Class B Shares of beneficial interest, par value
$0.10 per share................................... 2,306
Class C Shares of beneficial interest, par value
$0.10 per share................................... 58
Class D Shares of beneficial interest, par value
$0.10 per share................................... 31
</TABLE>
- --------
* The number of holders includes holders of record plus beneficial owners whose
shares are held of record by Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
ITEM 27. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees and
agents (including persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties and as
counsel fees) reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he may be involved or with which he may be threatened, while in office
or thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties; provided, however, that as to
any matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of good faith and reasonable belief
as to the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any Person under
these provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no person may satisfy any right in indemnity or
reimbursement granted herein or in Section 5.1 or to which he may be otherwise
entitled except out of the property of the Trust, and no Shareholder shall be
personally liable to any Person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance payments in
connection with indemnification under this Section 5.3, provided that the
indemnified person shall have given a written undertaking to reimburse the
Trust in the event it is subsequently determined that he is not entitled to
such indemnification."
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act of 1940, as amended, may be concerned,
such payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount of the
advance which exceeds the amount which it is ultimately determined he is
entitled to receive from the Registrant by reason of indemnification; and (iii)
(a) such promise must be secured by a surety bond, other suitable insurance or
an equivalent form of security which assures that any repayments may be
obtained by the Registrant without delay or litigation, which bond, insurance
or other form of security must be provided by the recipient of the advance, or
(b) a majority of a quorum of the Registrant's disinterested, non-party
Trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts that the recipient of
the advance ultimately will be found entitled to indemnification.
In Section 9 of the Distribution Agreements relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "1933 Act"), against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus
and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to Trustees, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission
C-3
<PAGE>
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or
controlling person or the principal underwriter in connection with the shares
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Manager" or "FAM") acts as the investment
adviser for the following open-end investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.
and The Municipal Fund Accumulation Program, Inc.; and the following closed-end
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., MuniAssets
Fund, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund II, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New
York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio, II, Inc., Senior Strategic Income Fund,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc.
and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the Manager,
acts as the investment adviser for the following open-end investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Balanced Fund for Investment and Retirement, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund,
Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation
Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings,
Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund,
Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Institutional Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury
Money Fund, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable
Series Funds, Inc. and the following closed-end investment companies:
Convertible Holdings, Inc. Merrill Lynch High Income Municipal Bond Fund, Inc.
and Merrill Lynch Senior Floating Rate Fund, Inc.
C-4
<PAGE>
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Institutional Intermediate Fund
is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The
address of the Manager, MLAM, Princeton Services, Inc. ("Princeton Services")
and Princeton Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. The address of the Fund's transfer agent, Merrill Lynch
Financial Data Services, Inc. ("MLFDS"), is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
August 1, 1993 for his or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is
Executive Vice President and Mr. Richard is Treasurer of substantially all of
the investment companies described in the preceding paragraphs and Messrs.
Giordano, Harvey, Hewitt, Kirstein and Monagle are directors, trustees or
officers of one or more of such companies.
Officers and partners of FAM are set forth as follows:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
<C> <C> <S>
ML & Co. ............... Limited Partner Financial Services Holding
Company; Limited Partner of
MLAM
Princeton Services...... General Partner General Partner of MLAM
Arthur Zeikel........... President President of MLAM; President
and Director of Princeton
Services; Director of MLFD;
Executive Vice President of
ML & Co.; Executive Vice
President of Merrill Lynch
Terry K. Glenn.......... Executive Vice Executive Vice President of
President MLAM; Executive Vice
President and Director of
Princeton Services;
President and Director of
MLFD; Director of FDS;
President of Princeton
Administrators, L.P.
Vincent R. Giordano..... Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of MLAM
Norman R. Harvey........ Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President,
President, General General Counsel and
Counsel and Secretary of MLAM; Senior
Secretary Vice President, General
Counsel, Secretary and
Director of Princeton
Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and
and Controller Controller of MLAM; Senior
Vice President and
Controller of Princeton
Services
Joseph T. Monagle, Senior Vice President Senior Vice President of
Jr. ................... MLAM; Senior Vice President
of Princeton Services
Richard L. Reller....... Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
<C> <C> <S>
Gerald M. Richard....... Senior Vice President Senior Vice President and
and Treasurer Treasurer of MLAM; Senior
Vice President and
Treasurer of Princeton
Services; Vice President
and Treasurer of MLFD
Ronald L. Welburn....... Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each of
the open-end investment companies referred to in the first two paragraphs of
Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
Convertible Holdings, Inc., The Corporate Fund Accumulation Program, Inc.,
MuniAssets Fund, Inc. and The Municipal Fund Accumulation Program, Inc. and
MLFD also acts as the principal underwriter for the following closed-end
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Brady, Breen, Crook, Fatseas, Graczyk and Wasel is One Financial Center, 15th
Floor, Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICES POSITION(S) AND OFFICES
NAME WITH MLFD WITH REGISTRANT
---- ----------------------- -----------------------
<S> <C> <C>
Terry K. Glenn........... President and Director Executive Vice President
Arthur Zeikel............ Director President and Trustee
Philip L. Kirstein....... Director None
William E. Aldrich....... Senior Vice President None
Robert W. Crook.......... Senior Vice President None
Kevin P. Boman........... Vice President None
Michael J. Brady......... Vice President None
William M. Breen......... Vice President None
Sharon Creveling......... Vice President and Assistant None
Treasurer
Mark A. DeSario.......... Vice President None
James T. Fatseas......... Vice President None
Stanley Graczyk.......... Vice President None
Debra W. Landsman-Yaros.. Vice President None
Michelle T. Lau.......... Vice President None
Gerald M. Richard........ Vice President and Treasurer Treasurer
Salvatore Venezia........ Vice President None
William Wasel............ Vice President None
Robert Harris............ Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and Merrill Lynch Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
C-6
<PAGE>
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Trust--
Management and Advisory Arrangements" in the Prospectus constituting Part A of
the Registration Statement and under "Management of the Trust--Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, Registrant is not a party to any
management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Plainsboro, and the
State of New Jersey, on the 20th day of November, 1995.
Merrill Lynch Multi-State Municipal
Series Trust
(Registrant)
/s/ Terry K. Glenn
By: _________________________________
(TERRY K. GLENN, EXECUTIVE VICE
PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date(s) indicated.
SIGNATURE TITLE DATE
Arthur Zeikel* President and
- ------------------------------------- Trustee
(ARTHUR ZEIKEL) (Principal Executive Officer)
Gerald M. Richard* Treasurer (Principal Financial
- ------------------------------------- and Accounting
(GERALD M. RICHARD) Officer)
James H. Bodurtha* Trustee
- -------------------------------------
(JAMES H. BODURTHA)
Herbert I. London* Trustee
- -------------------------------------
(HERBERT I. LONDON)
Robert R. Martin* Trustee
- -------------------------------------
(ROBERT R. MARTIN)
Joseph L. May* Trustee
- -------------------------------------
(JOSEPH L. MAY)
Andre F. Perold* Trustee
- -------------------------------------
(ANDRE F. PEROLD)
/s/ Terry K. Glenn
*By: ________________________________ November 20,
(TERRY K. GLENN, ATTORNEY-IN-FACT) 1995
C-8
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of Merrill Lynch Multi-State Municipal Series Trust
hereby authorizes Arthur Zeikel, Terry K. Glenn and Gerald M. Richard, or any
of them, as attorney-in-fact, to sign on his behalf, in the capacity stated
below, any amendments to the Registration Statement (including post-effective
amendments) on Form N-1A of Merrill Lynch Ohio Municipal Bond Fund, and to file
the same, with all exhibits thereto, with the Securities and Exchange
Commission.
SIGNATURE TITLE DATE
/s/ James H. Bodurtha Trustee
- ------------------------------------- November 17,
(JAMES H. BODURTHA) 1995
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
1(a) --Declaration of Trust of the Registrant, dated August 2,
1985. (a)
(b) --Amendment to Declaration of Trust, dated September 18,
1987. (a)
(c) --Amendment to Declaration of Trust, dated December 21, 1987.
(a)
(d) --Amendment to Declaration of Trust, dated October 3, 1988.
(a)
(e) --Amendment to Declaration of Trust, dated October 17, 1994
and instrument establishing Class C and Class D shares of
beneficial interest.
(f) --Instrument establishing Merrill Lynch Ohio Municipal Bond
Fund (the "Fund") as a series of Registrant. (a)
(g) --Instrument establishing Class A and Class B shares of
beneficial interest of
the Fund. (a)
2 --By-Laws of the Registrant. (a)
5(a) --Form of Management Agreement between Registrant and Fund
Asset
Management, L.P. (a)
6(b) --Form of Class B Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc. (a)
10 --Opinion of Brown & Wood, counsel for the Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
13 --Certificate of Fund Asset Management, Inc. (a)
16(a) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22 relating to Class A shares. (a)
(b) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22 relating to Class B shares. (a)
(c) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22 relating to Class C shares.
(d) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22 relating to Class D shares.
17(a) --Financial Data Schedule for Class A shares.
(b) --Financial Data Schedule for Class B shares.
(c) --Financial Data Schedule for Class C shares.
(d) --Financial Data Schedule for Class D shares.
</TABLE>
- --------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE>
EXHIBIT 99.1(a)
DECLARATION OF TRUST
OF
MERRILL LYNCH MULTI-STATE
TAX-EXEMPT SERIES TRUST
THE DECLARATION OF TRUST of Merrill Lynch Multi-State Tax-Exempt Series
Trust is made the 2nd day of August, 1985 by the parties signatory hereto, as
trustees (such persons, so long as they shall continue in office in accordance
with the terms of this Declaration of Trust, and all other persons who at the
time in question have been duly elected or appointed as trustees in accordance
with the provisions of this Declaration of Trust and are then in office, being
hereinafter called the "Trustees").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust assets
be divided into transferable shares of beneficial interest which may, at the
discretion of the Trustees, be divided into separate series as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust, all money and property contributed to the trust fund to manage and
dispose of the same for the benefit of the holders from time to time of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof, to wit:
<PAGE>
ARTICLE I
The Trust
---------
1.1. Name. The name of the trust created hereby (the "Trust", which
----
term shall be deemed to include any Series of the Trust when the context
requires) shall be "Merrill Lynch Multi-State Tax-Exempt Series Trust", and so
far as may be practicable the Trustees shall conduct the activities of the
Trust, execute all documents and sue or be sued under that name, which name (and
the word "Trust" wherever hereinafter used) shall refer to the Trustees as
Trustees, and not individually, and shall not refer to the officers, agents,
employees or Shareholders of the Trust or any Series thereof. Each Series of the
Trust which shall be established and designated by the Trustees pursuant to
Section 6.2 shall conduct its activities under such name as the Trustees shall
determine and set forth in the instrument establishing such Series. Should the
Trustees determine that the use of the name of the Trust or any Series is not
advisable, they may select such other name for the Trust or such Series as they
deem proper and the Trust or Series may conduct its activities under such other
name. Any name change shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth the new name. Any such instrument
shall have the status of an amendment to this Declaration.
1.2. Definitions. As used in this Declaration, the following terms
-----------
shall have the following meanings:
The terms "Affiliated Person", "Assignment", "Commission", "Interested
----------------- ---------- ---------- ----------
Person", "Majority Shareholder Vote" (the 67% or 50% requirement of the third
- ------ -------------------------
sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable) and
"Principal Underwriters" shall have the meanings given them in the 1940 Act.
----------------------
"Declaration" shall mean this Declaration of Trust as amended from
------------
time to time. References in this Declaration to "Declaration", "hereof",
----------- ------
"herein" and "hereunder" shall be deemed to refer to the Declaration rather
------ ---------
than the article or section in which such words appear.
"Fundamental Policies" shall mean the investment restrictions set
--------------------
forth in the Prospectus of any Series and designated as fundamental policies
therein.
"Person" shall mean and include individuals, corporations, partnerships,
------
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
"Prospectus" shall mean the currently effective Prospectus of any
----------
Series of the Trust under the Securities Act of 1933, as amended, including the
Statement of Additional Information incorporated by reference therein.
"Series" shall mean the separate series that may be established and
------
designated pursuant to Section 6.2.
2.
<PAGE>
"Shareholders" shall mean as of any particular time all holders of
------------
record of outstanding Shares at such time.
"Shares" shall mean the equal proportionate transferable units of
------
interest into which the beneficial interest in any Series of the Trust shall be
divided from time to time and includes fractions of Shares as well as whole
Shares. All references to Shares shall be deemed to be Shares of any or all
Series as the context may require.
"Trustees" shall mean the signatories to this Declaration of Trust, so
--------
long as they shall continue in office in accordance with the terms hereof, and
all other persons who at the time in question have been duly elected or
appointed and have qualified as trustees in accordance with the provisions
hereof and are then in office, are herein referred to as the "Trustees", and
reference in this Declaration of Trust to a Trustee or Trustees shall refer to
such person or persons in their capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
--------------
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust, any Series thereof or the Trustees.
The "1940 Act" refers to the Investment Company Act of 1940 and the
--------
regulations promulgated thereunder, as amended from time to time.
3.
<PAGE>
ARTICLE II
Trustees
--------
2.1. Number and Qualification. The number of Trustees shall be fixed
------------------------
from time to time by written instrument signed by a majority of the Trustees
then in office, provided, however, that the number of Trustees shall in no event
be less than three or more than fifteen (except prior to the first public
offering of Shares). Any vacancy created by an increase in Trustees may, to the
extent permitted by the 1940 Act, be filled by the appointment of an individual
having the qualifications described in this Article made by a written instrument
signed by a majority of the Trustees then in office. Any such appointment shall
not become effective, however, until the individual named in the written
instrument of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of this Declaration of Trust. No
reduction in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as provided in
Section 2.3 hereof, the Trustees in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration of Trust. A Trustee shall be an
individual at least 21 years of age who is not under legal disability. Trustees
need not own Shares.
2.2. Term of Office. The Trustees shall hold office during the
--------------
lifetime of this Trust, and until its termination as hereinafter provided;
except (a) that any Trustee may resign his trust by written instrument signed by
him and delivered to the other Trustees, which shall take effect upon such
delivery or upon such later date as is specified therein; (b) that any trustee
may be removed at any time by written instrument, signed by at least two-thirds
of the number of Trustees prior to such removal, specifying the date when such
removal shall become effective; (c) that any Trustee who requests in writing to
be retired or, who had become incapacitated by illness or injury may be retired
by written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) a Trustee may be removed at any special meeting
of the shareholders by a vote of two-thirds of the outstanding Shares. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Trust or the remaining Trustees any
Trust Property held in the name of the resigning or removed Trustee. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence.
2.3. Vacancies. The term of office of a Trustee shall terminate and a
---------
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of a Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of
4.
<PAGE>
this Declaration of Trust. In the case of a vacancy, the Shareholders, acting at
any meeting of Shareholders held in accordance with Section 10.2 hereof, or, to
the extent permitted by the 1940 Act, a majority of the Trustees continuing in
office acting by written instrument or instruments, may fill such vacancy; and
any Trustee so elected by the Trustees shall hold office as provided ln this
Declaration.
2.4. Meetings. Meetings of the Trustees shall be held from time to
--------
time upon the call of the Chairman, if any, the President, the Secretary or any
two Trustees. Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be mailed or otherwise given not
less than 48 hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been
lawfully called or convened. The Trustees may act with or without a meeting. A
quorum for all meetings of the Trustees shall be a majority of the Trustees.
Unless provided otherwise in this Declaration of Trust, any action of the
Trustees may be taken at a meeting by vote of a majority of the Trustees present
(a quorum being present) or without a meeting by written consents of a majority
of the Trustees.
Any committee of the Trustees, including an executive committee, if any,
may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided
otherwise in this Declaration, any action of any such committee may be taken at
a meeting by vote of a majority of the members present (a quorum being present)
or without a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust within the meaning of
Section 1.2 hereof or otherwise interested in any action to be taken may be
counted for quorum purposes under this Section and shall be entitled to vote to
the extent permitted by the 1940 Act.
To the extent permitted by the 1940 Act, all or any one or more Trustees
may participate in a meeting of the Trustees or any committee thereof by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other and participation
in a meeting pursuant to such communications systems shall constitute presence
in person at such meeting.
2.5. Officers. The Trustees shall annually elect a President, a
--------
Secretary and a Treasurer and may elect a Chairman. The Trustees may elect or
appoint or authorize the Chairman, if any, or President to appoint such other
officers or agents with such powers as the Trustees may deem to be advisable.
The Chairman and President shall be and the Secretary and Treasurer may, but
need not, be a Trustee.
5.
<PAGE>
2.6. By-Laws. The Trustees may adopt and from time to time amend or
-------
repeal the By-Laws for the conduct of the business of the Trust.
6.
<PAGE>
ARTICLE III
Powers of Trustees
------------------
3.1. General. The Trustees shall have exclusive and absolute control
-------
over the Trust Property and over the business of the Trust or any Series thereof
to the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees may perform such acts as in their
sole discretion are proper for conducting the business of the Trust or any
Series thereof. The enumeration of any specific power herein shall not be
construed as limiting the aforesaid power. Such powers of the Trustees may be
exercised without order of or resort to any court.
3.2. Investments. The Trustees shall have power, subject to the
-----------
Fundamental Policies, to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
deal in or dispose of negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, reverse repurchase agreements and other
securities, including, without limitation, those issued, guaranteed or sponsored
by any state, territory or possession of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or by
the United States Government or its agencies or instrumentalities, or
international instrumentalities, or by any bank, savings institution,
corporation or other business entity organized under the laws of the United
States and, to the extent provided in the Prospectus and not prohibited by the
Fundamental Policies, organized under foreign laws; and to exercise any and all
rights, powers and privileges of ownership or interest in respect of any and all
such investments of every kind and description, including, without limitation,
the right to consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations or corporations to exercise
any of said rights, powers and privileges in respect of any of said instruments;
and the Trustees shall be deemed to have the foregoing powers with respect to
any additional securities in which any Series of the Trust may invest should the
investment policies set forth in the Prospectus or the Fundamental Policies be
amended.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust or any Series, nor shall the
Trustees be limited by any law limiting the investments which may be made by
fiduciaries.
7.
<PAGE>
3.3. Legal Title. Legal title to all the Trust Property shall be
-----------
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust or any Series thereof,
or in the name of any other Person as nominee, on such terms as the Trustees may
determine, provided that the interest of the Trust or any Series thereof therein
is appropriately protected.
The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each Person who may hereafter become a Trustee upon
his due election and qualification. Upon the resignation, removal or death of a
Trustee he shall automatically cease to have any right, title or interest in any
of the Trust Property, and the right, title and interest of such Trustee in the
Trust Property shall vest automatically in the remaining Trustees. Such vesting
and cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered.
3.4. Issuance and Repurchase of Securities. The Trustees shall have
-------------------------------------
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in, Shares, including
shares in fractional denominations, and, subject to the more detailed provisions
set forth in Articles VIII and IX, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
applicable Series of the Trust whether capital or surplus or otherwise, to the
full extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.
3.5. Borrow Money. Subject to the Fundamental Policies, the Trustees
------------
shall have power to borrow money or otherwise obtain credit and to secure the
same by mortgaging, pledging or otherwise subjecting as security the assets of
the Trust or any Series thereof, including the lending of portfolio securities,
and to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other person, firm, association or corporation.
3.6. Delegation; Committees. The Trustees shall have power, consistent
----------------------
with their continuing exclusive authority over the management of the Trust and
the Trust Property, to delegate from time to time to such of their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Trustees or otherwise as the Trustees may deem expedient, to the same
extent as such delegation is permitted to directors of a Massachusetts business
corporation and is permitted by the 1940 Act.
3.7. Collection and Payment. The Trustees shall have power to
----------------------
collect all property due to the Trust or any Series thereof; to pay all claims,
including taxes, against the Trust Property; to prosecute, defend, compromise or
abandon any claims relating to the Trust Property; to foreclose any security
interest securing any obligations, by virtue of which any property is owed to
the Trust or any Series thereof; and to enter into releases, agreements and
other instrument.
8.
<PAGE>
3.8. Expenses. The Trustees shall have power to incur and pay any
--------
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration of Trust, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and
Trustees. The Trustees may pay themselves such compensation for special
services, including legal, underwriting, syndicating and brokerage services, as
they in good faith may deem reasonable and reimbursement for expenses
reasonably incurred by themselves on behalf of the Trust.
3.9. Miscellaneous Powers. The Trustees shall have the power to: (a)
--------------------
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust or any Series thereof; (b) enter into
joint ventures, partnerships and any other combinations or associations; (c)
purchase, and pay for out of Trust Property, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisors,
distributors, selected dealers or independent contractors of the Trust or any
Series thereof against all claims arising by reason of holding any such
position or by reason of any action taken or omitted by any such Person in such
capacity, whether or not constituting negligence, or whether or not the Trust
would have the power to indemnify such Person against such liability; (d)
establish pension, profit-sharing, share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (e) make donations, irrespective of benefit to the Trust, for
charitable, religious, educational, scientific, civic or similar purposes; (f)
to the extent permitted by law, indemnify any Person with whom the Trust or any
Series thereof has dealings, including any advisor, administrator, manager,
distributor and selected dealers with respect to any Series, to such extent as
the Trustees shall determine; (g) guarantee indebtedness or contractual
obligations of others; (h) determine and change the fiscal year of the Trust
and the method in which its accounts shall be kept; and (i) adopt a seal for
the Trust but the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust.
3.10. Further Powers. The Trustees shall have power to conduct the
--------------
business of the Trust or any Series thereof and carry on its operations in any
and all of its branches and maintain offices both within and without the
Commonwealth of Massachusetts, in any and all states of the United States of
America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or instrumentalities
of the United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust or any Series thereof
although such things are not herein specifically mentioned. Any determination as
to what is in the interests of the Trust or any Series thereof made by the
Trustees in good faith shall be conclusive. In construing the provisions of this
Declaration, the presumption shall be in favor of a grant of power to the
Trustees. The Trustees will not be required to obtain any court order to deal
with the Trust Property.
9.
<PAGE>
ARTICLE IV
Advisory, Management and Distribution Arrangements
--------------------------------------------------
4.1. Advisory and Management Arrangements. Subject to a Majority
------------------------------------
Shareholder Vote of the applicable Series, as required by the 1940 Act, the
Trustees may in their discretion from time to time enter into advisory or
management contracts whereby the other party to such contract shall undertake
to furnish the Trustees such advisory and management services, with respect to
a Series as the Trustees shall from time to time consider desirable and all
upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provisions of this Declaration of Trust, the
Trustees may authorize any advisor or manager (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of portfolio securities of any Series of
the Trust on behalf of the Trustees or may authorize any officer, employee or
Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of any such advisor, administrator or manager (and all without
further action by the Trustees). Any such purchases, sales, loans and
exchanges shall be deemed to have been authorized by all of the Trustees.
4.2. Distribution Arrangements. The Trustees may in their discretion
-------------------------
from time to time enter into a contract, providing for the sale of the Shares of
the Trust or any Series of the Trust to net the Trust not less than the par
value per share, whereby the Trust may either agree to sell the Shares to the
other party to the contract or appoint such other party its sales agent for such
Shares. In either case, the contract shall be on such terms and conditions as
the Trustees may in their discretion determine not inconsistent with the
provisions of this Article IV or the By-Laws; and such contract may also provide
for the repurchase or sale of Shares by such other party as principal or as
agent of the Trust and may provide that such other party may enter into selected
dealer agreements with registered securities dealers to further the purpose of
the distribution or repurchase of the Shares.
4.3. Parties to Contract. Any contract of the character described in
-------------------
Section 4.1 and 4.2 of this Article IV or in Article VII hereof may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder, or member of such other party to the contract, and no such
contract shall be invalidated or rendered voidable by reason of the existence
of any such relationship, nor shall any person holding such relationship be
liable merely by reason of such relationship for any loss or expense to the
Trust under or by reason of said contract or accountable for any profit
realized directly or indirectly therefrom, provided that the contract when
entered into was reasonable and fair and not inconsistent with the provisions
of this Article IV or the By-Laws. The same person (including a firm,
corporation, trust, or association) may be the other party to contracts entered
into pursuant to Sections 4.1 and 4.2 above or Article VII, and any individual
may be financially interested or
10.
<PAGE>
otherwise affiliated with persons who are parties to any or all of the contracts
mentioned in this Section 4.3.
4.4. Provisions and Amendments. Any contract entered into pursuant to
-------------------------
Sections 4.1 and 4.2 of this Article IV shall be consistent with and subject to
the requirements of Section 15 of the 1940 Act with respect to its continuance
in effect, its termination, and the method of authorization and approval of
such contract or renewal thereof, and no amendment to any contract entered into
pursuant to Section 4.1 shall be effective unless assented to by a Majority
Shareholder Vote of the applicable Series.
11.
<PAGE>
ARTICLE V
Limitations of Liability of Shareholders,
Trustees and Others
-----------------------------------------
5.1. No Personal Liability of Shareholders, Trustees, etc. No
-----------------------------------------------------
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust or any Series thereof. No Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever to any Person, other than
the Trust or its Shareholders, in connection with Trust Property or the affairs
of the Trust or any Series thereof, save only that arising from his bad faith,
willful misfeasance, gross negligence or reckless disregard of his duty to such
Person; and all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust or any Series thereof. If any Shareholder, Trustee, officer, employee,
or agent, as such, of the Trust, is made a party to any suit or proceeding to
enforce any such liability, he shall not on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each Shareholder harmless
from and against all claims and liabilities, to which such Shareholder may
become subject by reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses reasonably incurred
by him in connection with any such claim or liability. The rights accruing to a
Shareholder under this Section 5.1 shall not exclude any other right to which
such Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
5.2. Non-Liability of Trustees, etc. No Trustee, officer, employee or
------------------------------
agent of the Trust shall be liable to the Trust, any Series, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties.
5.3. Mandatory Indemnification. The Trust shall indemnify each of its
-------------------------
Trustees, officers, employees, and agents (including persons who serve at its
request as directors, officers or trustees of another organization in which it
has any interest, as a shareholder, creditor or otherwise) against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which he may be involved or
with which he may be threatened, while in office or thereafter, by reason of
his being or having been such a trustee, officer, employee or agent, except
with respect to any matter as to which he shall have been adjudicated to have
acted in bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties; provided, however, that as to any matter disposed of by a
compromise
12.
<PAGE>
payment by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless the Trust shall have received a written opinion from independent
legal counsel approved by the Trustees to the effect that if either the matter
of willful misfeasance, gross negligence or reckless disregard of duty, or the
matter of good faith and reasonable belief as to the best interests of the
Trust, had been adjudicated, it would have been adjudicated in favor of such
person. The rights accruing to any Person under these provisions shall not
exclude any other right to which he may be lawfully entitled; provided that no
Person may satisfy any right of indemnity or reimbursement granted herein or in
Section 5.1 or to which he may be otherwise entitled except out of the property
of the Trust, and no Shareholder shall be personally liable to any Person with
respect to any claim for indemnity or reimbursement or otherwise. The Trustees
may make advance payments in connection with indemnification under this Section
5.3, provided that the indemnified person shall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he is not
entitled to such indemnification.
5.4. No Bond Required of Trustees. No Trustee shall, as such, be
----------------------------
obligated to give any bond or security or other security for the performance of
any of his duties hereunder.
5.5. No Duty of Investigation; Notice in Trust Instruments, etc. No
----------------------------------------------------------
purchaser, lender, transfer agent or other person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
undertaking, instrument, certificate, Share, other security of the Trust or any
Series, and every other act or thing whatsoever executed in connection with the
Trust or any Series shall be conclusively taken to have been executed or done
by the executors thereof only in their capacity as Trustees under this
Declaration of Trust or in their capacity as officers, employees or agents of
the Trust. Every written obligation, contract, undertaking, instrument,
certificate, Share, other security of the Trust or any Series made or issued by
the Trustees or by any officers, employees or agents of the Trust, in their
capacity as such, shall contain an appropriate recital to the effect that the
Shareholders, Trustees, officers, employees and agents of the Trust shall not
personally be bound by or liable thereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder,
and appropriate references shall be made therein to the Declaration of Trust,
and may contain any further recital which they may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
of the Trustees, Shareholders, officers, employees or agents of the Trust. The
Trustees may maintain insurance for the protection of the Trust Property, its
Shareholders, Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgment shall deem advisable.
13.
<PAGE>
5.6. Reliance on Experts, etc. Each Trustee and officer or employee of
-------------------------
the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by any advisor, administrator, manager,
distributor, selected dealer, accountant, appraiser or other expert or
consultant selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
14.
<PAGE>
ARTICLE VI
Shares of Beneficial Interest
-----------------------------
6.1. Beneficial Interest. The interest of the beneficiaries hereunder
-------------------
shall be divided into transferable shares of beneficial interest with par value
$.10 per share. The number of such shares of beneficial interest authorized
hereunder is unlimited. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split of
Shares, shall be fully paid and nonassessable.
6.2. Series Designation. The Trustees, in their discretion from time
------------------
to time, may authorize the division of Shares into two or more Series, each
Series relating to a separate portfolio of investments. The different Series
shall be established and designated, and the variations in the relative rights
and preferences as between the different Series shall be fixed and determined,
by the Trustees; provided, that all Shares shall be identical except that there
may be variations between different Series as to purchase price, determination
of net asset value, the price, terms and manner of redemption, special and
relative rights as to dividends and on liquidation, conversion rights, and
conditions under which the several Series shall have separate voting rights. All
references to Shares in this Declaration shall be deemed to be shares of any or
all Series as the context may require.
If the Trustees shall divide the Shares into two or more Series, the
following provisions shall be applicable:
(a) The number of Shares of each Series that may be issued shall be
unlimited. The Trustees may classify or reclassify any unissued Shares or any
Shares previously issued and reacquired of any Series into one or more Series
that may be established and designated from time to time. The Trustees may
hold as treasury Shares (of the same or some other Series), reissue for such
consideration and on such terms as they may determine, or cancel any Shares of
any Series reacquired by the Trust at their discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust
Property of each Series that may be established shall be governed by Section 3.2
of this Declaration.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
investment of such proceeds in whatever form the same may be, shall irrevocably
belong to that Series for all purposes, subject only to the rights of creditors,
and shall be so recorded upon the books of account of the Trust. In the event
that there are any assets, income, earnings, profits, and proceeds thereof,
funds, or payments which are not readily identifiable as belonging to any
particular Series, the
15.
<PAGE>
Trustees shall allocate them among any one or more of the Series established
and designated from time to time in such manner and on such basis as they, in
their sole discretion, deem fair and equitable. Each such allocation by the
Trustees shall be conclusive and binding upon the shareholders of all Series
for all purposes.
(d) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series only and all
expenses, costs, charges and reserves attributable to that Series and shall not
be charged with the liabilities, expenses, costs, charges and reserves
attributable to other Series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular Series shall be allocated and charged by the Trustees to and
among any one or more of the Series established and designated from time to time
in such manner and on such basis as the Trustees in their sole discretion deem
fair and equitable. Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon the holders of all
Series for all purposes. The Trustees shall have full discretion, to the extent
not inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
with respect to any one or more Series shall be governed by Section 9.2 of this
Trust. Dividends and distributions on Shares of a particular Series may be paid
with such frequency as the Trustees may determine, to the holders of Shares of
that Series, from such of the income and capital gains, accrued or realized,
from the assets belonging to that Series, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that Series. All
dividends and distributions on Shares of a particular Series shall be
distributed pro rata to the holders of that Series in proportion to the number
of Shares of that Series held by such holders at the date and time of record
established for the payment of such dividends or distributions.
The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an
instrument setting forth the establishment and designation of such Series.
Such instrument shall also set forth any rights and preferences of such Series
which are in addition to the rights and preferences of Shares set forth in this
Declaration. At any time that there are no Shares outstanding of any
particular Series previously established and designated, the Trustees may by an
instrument executed by a majority of their number abolish that Series and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
6.3. Rights of Shareholders. The ownership of the Trust Property of
----------------------
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares
with respect to a particular Series, and they shall have no right to call for
any
16.
<PAGE>
partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to share or assume any losses of the Trust or
suffer an assessment of any kind by virtue of their ownership of Shares. The
Shares shall be personal property giving only the rights in this Declaration
specifically set forth. The Shares shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights (except for rights of
appraisal specified in Section 11.4).
6.4. Trust Only. It is the intention of the Trustees to create only
----------
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the Shareholders
either by themselves or with the Trustees, partners or members of a joint stock
association.
6.5. Issuance of Shares. The Trustees, in their discretion, may from
------------------
time to time without vote of the Shareholders issue Shares with respect to any
Series that may have been established pursuant to Section 6.2, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount not less than par value and type of
consideration, including cash or property, at such time or times (including,
without limitation, each business day in accordance with the maintenance of a
constant net asset value per share as set forth in Section 9.3 hereof), and on
such terms as the Trustees may deem best, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with
the assumption of, liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares. The Trustees may from time
to time divide or combine the Shares of any Series into a greater or lesser
number without thereby changing the proportionate beneficial interests in such
Series of the Trust. Reductions in the number of outstanding Shares may be made
pursuant to the constant net asset value per share formula set forth in Section
9.3. Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and/or 1/1,000ths of a Share or multiples thereof.
6.6. Register of Shares. A register shall be kept at the Trust or any
------------------
transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addresses of the Shareholders and
the number of Shares (with respect to each Series that may have been
established) held by them respectively and a record of all transfers thereof.
Separate registers shall be established and maintained for each Series of the
Trust. Each such register shall be conclusive as to who are the holders of the
Shares of the applicable Series and who shall be entitled to receive dividends
or distributions or otherwise to exercise or enjoy the rights of Shareholders.
No Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein provided, until he has
given his address to a transfer agent or such other officer or agent of the
Trustees as shall keep the register for entry thereon. It is not contemplated
that certificates will be issued for the Shares; however, the Trustees, in
their discretion, may au-
17.
<PAGE>
thorize the issuance of share certificates and promulgate appropriate rules and
regulations as to their use.
6.7. Transfer Agent and Registrar. The Trustee shall have power to
----------------------------
employ a transfer agent or transfer agents, and a registrar or registrars, with
respect to the Shares of the various Series. The transfer agent or transfer
agents may keep the applicable register and record therein the original issues
and transfers, if any, of the said Shares of the applicable Series. Any such
transfer agent and registrars shall perform the duties usually performed by
transfer agents and registrars of certificates of stock in a corporation, except
as modified by the Trustees.
6.8. Transfer of Shares. Shares shall be transferable on the records
------------------
of the Trust only by the record holder thereof or by his agent thereto duly
authorized in writing, upon delivery to the Trustees or a transfer agent of the
Trust of a duly executed instrument of transfer, together with such evidence of
the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded on
the applicable register of the Trust. Until such record is made, the Shareholder
of record shall be deemed to be the holder of such Shares for all purposes
hereof and neither the Trustees nor any transfer agent or registrar nor any
officer, employee or agent of the Trust shall be affected by any notice of the
proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the applicable register of Shares as the holder of
such Shares upon production of the proper evidence thereof to the Trustees or a
transfer agent of the Trust, but until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes hereof
and neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
6.9. Notices. Any and all notices to which any Shareholder hereunder
-------
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record at his
last known address as recorded on the applicable register of the Trust.
18.
<PAGE>
ARTICLE VII
Custodians
----------
7.1 Appointment and Duties. The Trustees shall at all times employ
----------------------
a custodian or custodians, meeting the qualifications for custodians for
portfolio securities of investment companies contained in the 1940 Act, as
custodian with respect to each Series of the Trust. It is contemplated that
separate custodians may be employed for the different Series of the Trust. Any
custodian, acting with respect to one or more Series, shall have authority as
agent of the Trust or the Series with respect to which it is acting, but subject
to such restrictions, limitations and other requirements, if any, as may be
contained in the By-Laws of the Trust and the 1940 Act:
(1) to hold the securities owned by the Trust or the Series
and deliver the same upon written order;
(2) to receive and receipt for any moneys due to the Trust or
the Series and deposit the same in its own banking department (if a
bank) or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and
accounts of the Trust or the Series and furnish clerical and accounting
services; and
(5) if authorized to do so by the Trustees, to compute the net
income of the Trust or the Series,
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder vote of
the Series with respect to which the custodian is acting, the custodian shall
deliver and pay over all property of the Trust held by it as specified in such
vote.
The Trustees may also authorize each custodian to employ one or more
subcustodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall meet the qualifications for custodians
contained in the 1940 Act.
7.2. Central Certificate System. Subject to such rules,
--------------------------
regulations and order as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust or the
Series in a system for the central handling of securities established by a
national securities exchange or a national securities association registered
with the Commission under the Securities Exchange Act of 1934, or such other
person as may be permitted by the Commission, or otherwise in accordance with
the 1940
19.
<PAGE>
Act, pursuant to which system all securities of any particular class or
series or any issuer deposited within the system are treated as fungible and may
be transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
20.
<PAGE>
ARTICLE VIII
Redemption
----------
8.1. Redemptions. All outstanding Shares of any Series of the Trust
-----------
may be redeemed at the option of the holders thereof, upon and subject to the
terms and conditions provided in this Article VIII. The Trust shall, upon
application of any Shareholder or pursuant to authorization from any Shareholder
of a particular Series, redeem or repurchase from such Shareholder outstanding
Shares of such Series for an amount per share determined by the application of a
formula adopted for such purpose by the Trustees with respect to such Series
(which formula shall be consistent with the 1940 Act); provided that (a) such
amount per share shall not exceed the cash equivalent of the proportionate
interest of each share in the assets of the Series of the Trust at the time of
the purchase or redemption and (b) if so authorized by the Trustees, the Trust
may, at any time and from time to time, charge fees for effecting such
redemption, at such rates as the Trustees may establish, as and to the extent
permitted under the 1940 Act, and may, at any time and from time to time,
pursuant to such Act, suspend such right of redemption. The procedures for
effecting redemption shall be as set forth in the Prospectus with respect to the
applicable Series from time to time.
8.2. Redemption of Shares; Disclosure of Holding. If the Trustees
-------------------------------------------
shall, at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption a number, or principal amount, of Shares or other securities of
the Trust sufficient, in the opinion of the Trustees, to maintain or bring the
direct or indirect ownership of Shares or other securities of the Trust into
conformity with the requirements for such qualification and (ii) to refuse to
transfer or issue Shares or other securities of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust in question would in
the opinion of the Trustees result in such disqualification. The redemption
shall be effected at a redemption price determined in accordance with Section
8.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or
to comply with the requirements of any other taxing authority.
8.3. Redemptions of Accounts of Less than $1,000. Due to the
-------------------------------------------
relatively high cost of maintaining investment accounts of less than $1,000, the
Trustees shall have the power to redeem shares at a redemption price determined
in accordance with Section 8.1 if at any time the total investment in such
account does not have a value of at least $1,000; provided, however, that the
Trustees
21.
<PAGE>
may not exercise such power with respect to Shares of any Series if the
Prospectus of such Series does not describe such power. In the event the
Trustees determine to exercise their power to redeem Shares provided in this
Section 8.3, shareholders shall be notified that the value of their account is
less than $1,000 and allowed 60 days to make an additional investment before
redemption is processed.
8.4. Redemptions Pursuant to Constant Net Asset Value Formula. The
--------------------------------------------------------
Trust may also reduce the number of outstanding Shares of any Series pursuant to
the provisions of Section 9.3.
22.
<PAGE>
ARTICLE IX
Determination of Net Asset Value,
Net Income and Distributions
---------------------------------
9.1. Net Asset Value. The net asset value of each outstanding Share
---------------
of each Series of the Trust shall be determined at such time or times on such
days as the Trustees may determine, in accordance with the 1940 Act, with
respect to each Series. The method of determination of net asset value shall be
determined by the Trustees and shall be as set forth in the Prospectus with
respect to the applicable Series. The power and duty to make the daily
calculations for any Series may be delegated by the Trustees to the adviser,
administrator, manager, custodian, transfer agent or such other person as the
Trustees may determine. The Trustees may suspend the daily determination of net
asset value to the extent permitted by the 1940 Act.
9.2. Distributions to Shareholders. The Trustees shall from time
-----------------------------
to time distribute ratably among the Shareholders of any Series such proportion
of the net profits, surplus (including paid-in surplus), capital, or assets with
respect to such Series held by the Trustees as they may deem proper. Such
distribution may be made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof), and the Trustees may
distribute ratably among the Shareholders of any Series additional Shares of
such Series in such manner, at such times, and on such terms as the Trustees may
deem proper. Such distributions may be among the Shareholders of record at the
time of declaring a distribution or among the Shareholders of record at such
later date as the Trustees shall determine. The Trustees may always retain from
the net profits such amount as they may deem necessary to pay the debts or
expenses of the Trust or to meet obligations of the Trust, or as they may deem
desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business. The Trustees may adopt and offer to
Shareholders of any Series such dividend reinvestment plans, cash dividend
payout plans or related plans as the Trustees shall deem appropriate for such
Series.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
9.3. Constant Net Asset Value; Reduction of Outstanding Shares. The
---------------------------------------------------------
Trustees shall have the power to determine the net income of any Series of the
Trust on each day the net asset value of such Series is determined as provided
in Section 9.1 and at each such determination declare such net income for such
Series as dividends with the result that the net asset value per share of the
Series of the Trust shall remain at a constant dollar value. The determination
of net income end the resultant declaration of dividends shall be as set forth
in the Prospectus. In such event fluctuations in value may be reflected in the
23.
<PAGE>
number of outstanding Shares in each Shareholder's account. It is expected
that each Series of the Trust will have a positive net income at the time of
each determination. If for any reason such net income is a negative amount,
the Trust may offset such amount against dividends accrued in the account of
the Shareholder of the applicable Series. If and to the extent such negative
amount exceeds such accrued dividends, the Trust shall have authority to reduce
the number of the outstanding Shares of the Series. Such reduction will be
effected by having each Shareholder proportionately contributing to the Series
capital the necessary Shares that represent the amount of the excess upon such
determination. Each Shareholder will be deemed to have agreed to such
contribution in these circumstances by his investment in the Series of the
trust. This procedure will permit the net asset value per share of the Series
of the Trust to be maintained at a constant dollar value per share.
The Trustees, by resolution, may discontinue or amend the practice of
maintaining the net asset value per share at a constant dollar amount with
respect to any Series at any time and such modification shall be evidenced by
appropriate changes in the Prospectus.
9.4. Power to Modify Foregoing Procedures. Notwithstanding any of the
------------------------------------
foregoing provisions of this Article IX, the Trustees may prescribe, in
absolute discretion, such other bases and times for determining the per share
net asset value of the Trust's Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, or any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by said Commission, all as in effect now or
hereafter amended or modified.
24.
<PAGE>
ARTICLE X
Shareholders
------------
10.1. Voting Powers. The Shareholders shall have power to vote (i)
--------------
for the removal of Trustees as provided in Section 2.2; (ii) with respect to any
advisory or management contract of a Series as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in Section 11.3;
and (iv) with respect to such additional matters relating to the Trust as may be
required or authorized by the 1940 Act or other applicable law or by this
Declaration or by the By-Laws of the Trust.
10.2. Meetings of Shareholders. Special meetings of the Shareholders
------------------------
may be called at any time by a majority of the Trustees and shall be called by
any Trustee upon written request of Shareholders of any Series holding in the
aggregate not less than 10% of the outstanding Shares of such Series having
voting rights, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting shall be held within or without the
Commonwealth of Massachusetts on such day and at such time as the Trustees shall
designate. The holders of one-third of outstanding Shares of each Series present
in person or by proxy shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act or other
applicable law or by this Declaration or the By-Laws of the Trust. If a quorum
is present at a meeting of a particular Series, the affirmative vote of a
majority of the Shares of such Series represented at the meeting constitutes the
action of the Shareholders, unless the 1940 Act, other applicable law, this
Declaration or the By-Laws of the Trust requires a greater number of affirmative
votes.
10.3. Notice of Meetings. Notice of all meetings of the Shareholders,
------------------
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his registered address, mailed st least
10 days and not more than 60 days before the meeting. Only the business stated
in the notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice.
10.4. Record Date for Meetings. For the purpose of determining the
------------------------
Shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding 30 days, as the Trustees may determine; or without closing the
transfer books the Trustees may fix a date not more than 60 days prior to the
date of any meeting of Shareholders or daily dividends or other action as a
record date for the determination of the Persons to be treated as Shareholders
of record for such purposes, except for dividend payments which shall be
governed by Section 9.2 hereof.
10.5. Proxies, etc. At any meeting of Shareholders, any holder of
------------
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Sec-
25.
<PAGE>
retary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each full Share shall be
entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy ln respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person as regards the charge or management of such Share,
he may vote by his guardian or such other person appointed or having such
control, and such vote may be given in person or by proxy.
10.6. Reports. The Trustees shall cause to be prepared with respect
-------
to each Series at least annually a report of operations containing a balance
sheet and statement of income and undistributed income of the applicable Series
of the Trust prepared in conformity with generally accepted accounting
principles and an opinion of an independent public accountant on such financial
statements. It is contemplated that separate reports may be prepared for the
various Series. Copies of such reports shall be mailed to all Shareholders of
record of the applicable Series within the time required by the 1940 Act, and in
any event within a reasonable period preceding the annual meeting of
Shareholders. The Trustees shall, in addition, furnish to the Shareholders at
least annually, interim reports containing an unaudited balance sheet of the
Series as of the end of such period and an unaudited statement of income and
surplus for the period from the beginning of the current fiscal year to the end
of such period.
10.7. Inspection of Records. The records of the Trust shall be open
---------------------
to inspection by Shareholders to the same extent as is permitted shareholders of
a Massachusetts business corporation.
10.8. Shareholder Action by Written Consent. Any action which may be
-------------------------------------
taken by Shareholders may be taken without a meeting if a majority of
Shareholders of each Series entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of this
Declaration) consent to the action in writing and the written consents are filed
with the records of the meetings of Shareholders. Such consent shall he treated
for all purposes as a vote taken at a meeting of Shareholders.
26.
<PAGE>
ARTICLE XI
Duration; Termination of Trust;
Amendment; Mergers, Etc.
-------------------------------
11.1. Duration. Subject to possible termination in accordance with
--------
the provisions of Section 11.2 hereof, the Trust created hereby shall continue
until the expiration of 20 years after the death of the last survivor of the
initial Trustees named herein and the following named persons:
Name Address Date of Birth
---- ------- -------------
Avery Moores Bruno 25 Rutgers Place September 19, 1983
Scarsdale, N.Y. 10583
Avery Daniel Katz 435 E. 70th Street July 20, 1984
New York, N.Y. 10021
Lindsay Rider MacKinnon Mountain Farm Road January 27, 1981
Tuxedo Park, N.Y. 10987
Eric Alfred Pietrzak 95 Corona Avenue January 29, 1981
Pelham, N.Y. 10803
Angus Washburn Smith 12 Masterton Road October 15, 1982
Bronxville, N.Y. 10708
Elisabeth Lyon Smith 12 Masterton Road October 15, 1982
Bronxville, N.Y. 10708
11.2. Termination.
(a) The Trust may be terminated by the affirmative vote of the
holders of not less than two-thirds of the Shares of each Series of the Trust at
any meeting of Shareholders or by an instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the holders of not less
than two-thirds of such Shares. Any Series may be so terminated by vote or
written consent of not less than two-thirds of the Shares of such Series. Upon
the termination of the Trust or any Series,
(i) The Trust or such Series shall carry on no business
except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust or such Series and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or such Series
shall have been wound up, including the power to fulfill or discharge
the
27.
<PAGE>
contracts of the Trust or such Series, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any
part of the remaining Trust Property to one or more persons at public or
private sale for consideration which may consist in whole or in part of
cash, securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by vote or
consent of the holders of a majority of the Shares entitled to vote.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property of any Series, in
cash or in kind or partly each, among the Shareholders of such Series
according to their respective rights.
(b) After termination of the Trust or any Series and distribution to
the Shareholders as herein provided, a majority of the Trustees shall execute
and lodge among the records of the Trust an instrument in writing setting forth
the fact of such termination. Upon termination of the Trust, the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Shareholders shall thereupon cease. Upon
termination of any Series, the Trustees shall thereunder be discharged from all
further liabilities and duties with respect to such Series, and the rights and
interests of all Shareholders of such Series shall thereupon cease.
11.3. Amendment Procedure.
-------------------
(a) This Declaration may be amended by the affirmative vote of the
holders of not less than a majority of the Shares at any meeting of Shareholders
or by an instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than a majority of such
Shares. The Shareholders of each Series shall have the right to vote separately
on amendments to this Declaration to the extent provided by Section 10.1. The
Trustees may also amend this Declaration without the vote or consent of
Shareholders if they deem it necessary to conform this Declaration to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Internal Revenue Code, but
the Trustees shall not be liable for failing so to do.
(b) No amendment may be made, under Section 11.3(a) above, which would
change any rights with respect to any Shares of the Trust by reducing the
amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares of each Series. Nothing
contained in this Declaration shall permit the amendment of this Declaration to
impair the
28.
<PAGE>
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon Shareholders.
(c) A certification in recordable form signed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration of Trust may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
11.4. Merger, Consolidation and Sale of Assets. The Trust may merge
----------------------------------------
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for the purpose by the affirmative vote of the holders of not less than two-
thirds of the Shares of each Series, or by an instrument or instruments in
writing without a meeting, consented to by the holders of not less than two-
thirds of such Shares of each Series, and any such merger, consolidation, sale,
lease or exchange shall be deemed for all purposes to have been accomplished
under and pursuant to the statutes of the Commonwealth of Massachusetts. Any
Series may so merge, consolidate or effect a sale or exchange of assets by the
vote or written consent of not less than two-thirds of the Shares of such
Series. In respect of any such merger, consolidation, sale or exchange of
assets, any Shareholder shall be entitled to rights of appraisal of his Shares
to the same extent as a shareholder of a Massachusetts business corporation in
respect of a merger, consolidation, sale or exchange of assets of a
Massachusetts business corporation, and such rights shall be his exclusive
remedy in respect of his dissent from any such action.
11.5. Incorporation. With the approval of the holders of a majority
-------------
of the Shares, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
holds or is about to acquire shares or any other interest. The Trustees may also
cause a merger or consolidation between the Trust or any successor thereto
29.
<PAGE>
and any such corporation, trust, partnership, association or other organization
if and to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organizations or entities.
30.
<PAGE>
ARTICLE XII
Miscellaneous
-------------
12.1. Filing. This Declaration and any amendment hereto shall be
------
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and may
also be filed or recorded ln such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action as duly taken in a manner
provided herein, and unless such amendment or such certificate sets forth some
later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated Declaration, containing the original
Declaration and all amendments theretofore made, may be executed from time to
time by a majority of the Trustees and shall, upon filing with the Secretary of
the Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments thereto.
12.2. Resident Agent. The Trust shall maintain a resident agent in
--------------
the Commonwealth of Massachusetts, which agent shall initially be CT Corporation
System, 10 Post Office Square, Boston, Massachusetts 02109. The Trustees may
designate a successor resident agent, provided, however, that such appointment
shall not become effective until written notice thereof is delivered to the
office of the Secretary of the Commonwealth.
12.3. Governing Law. This Declaration is executed by the Trustees
-------------
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State and reference shall be specifically made to the business
corporation law of the Commonwealth of Massachusetts as to the construction of
matters not specifically covered herein or as to which an ambiguity exists.
12.4. Counterparts. This Declaration may be simultaneously executed
------------
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
12.5. Reliance by Third Parties. Any certificate executed by an
-------------------------
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the name of the Trust or any Series thereof, (c) the
establishment of any Series, (d) the due authorization of the execution of any
instrument or writing, (e) the form of any vote passed at a meeting of Trustees
or Shareholders, (f) the fact that the number of Trustees or Shareholders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (g) the form of any By-Laws adopted by or the
identity of any officers elected by the
31.
<PAGE>
Trustees, or (h) the existence of any fact or facts which in any manner relate
to the affairs of the Trust or any Series, shall be conclusive evidence as to
the matters so certified in favor of any person dealing with the Trustees and
their successors.
12.6. Provisions in Conflict With Law or Regulations.
----------------------------------------------
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
/s/ Philip L. Kirstein
--------------------------------
Philip L. Kirstein
9 Liberty Street
Ossining, New York 10562
/s/ Gerald M. Richard
--------------------------------
Gerald M. Richard
6 Fawn Drive
Belle Mead, New Jersey 08502
/s/ Robert Harris
--------------------------------
Robert Harris
22 Zeloof Drive
West Windsor, New Jersey 08646
/s/ William E. Aldrich
--------------------------------
William E. Aldrich
111 Windsor Road
Needham, Massachusetts 02192
32.
<PAGE>
EXHIBIT 99.1(b)
MERRILL LYNCH MULTI-STATE TAX-EXEMPT SERIES TRUST
The undersigned, constituting a majority of the Trustees of Merrill Lynch
Multi-State Tax-Exempt Series Trust (the "Trust"), a Massachusetts business
trust which is a series trust consisting of four series as of the date hereof,
including Merrill Lynch Michigan Municipal Bond Fund, Merrill Lynch New York
Municipal Bond Fund, Merrill Lynch Ohio Municipal Bond Fund, and Merrill Lynch
Pennsylvania Municipal Bond Fund, hereby certify that the Trustees of the Trust
have duly adopted the following amendment to the Declaration of Trust of the
Fund dated the 2nd day of August, 1985.
VOTED: That the Declaration of Trust dated August 2, 1985 be and it hereby is
amended to change the name of the Trust from "Merrill Lynch Multi-State
Tax-Exempt Series Trust" to "Merrill Lynch Multi-State Municipal Bond
Series Trust" in the following manner:
1.1. Name. The name of the trust created hereby (the "Trust",
----
which term shall be deemed to include any Series of the Trust when the
context requires) shall be "Merrill Lynch Multi-State Municipal Bond
Series Trust", and so far as may be practicable the Trustees shall
conduct the activities of the Trust, execute all documents and sue or
be sued under that name, which name (and the word "Trust" wherever
hereinafter used) shall refer to the Trustees as Trustees, and not
individually, and shall not refer to the officers, agents, employees or
Shareholders of the Trust or any Series thereof. Each Series of the
Trust which shall be established and designated by the Trustees
pursuant to Section 6.2 shall conduct its activities under such name as
the Trustees shall determine and set forth in the instrument
establishing such Series. Should the Trustees determine that the use of
the name of the Trust or any such Series is not advisable, they may
select such other name for the Trust or such Series as they deem proper
and the Trust or Series may conduct its activities under such other
name. Any name change
<PAGE>
shall become effective upon the execution by a majority of the then
Trustees of an instrument setting forth the new name. Any such
instrument shall have the status of an amendment to this Declaration.
IN WITNESS WHEREOF, the undersigned, constituting a majority of the Trustees
of the Trust, have signed this Certificate in duplicate original counterparts
and have caused a duplicate original to be lodged among the records of the Trust
as required by Article X of the Declaration of Trust, as of the 18th day of
September, 1987.
/s/ Arthur Zeikel
--------------------------------------
Arthur Zeikel
279 Watchung Fork
Westfield, New Jersey 07090
/s/ Kenneth J. Axelson
--------------------------------------
Kenneth S. Axelson
307 Gross Neck Road
Waldoboro, Maine 04572
/s/ Andre F. Perold
--------------------------------------
Andre F. Perold
174 Allen Avenue
Waban, Massachusetts 02168
/s/ Robert F. Vandell
--------------------------------------
Robert F. Vandell
106 Cavalier
Charlottesville, Virginia 22906
-2-
<PAGE>
EXHIBIT 99.1(c)
MERRILL LYNCH MULTI-STATE MUNICIPAL BOND SERIES TRUST
The undersigned, constituting a majority of the Trustees of Merrill Lynch
Multi-State Municipal Bond Series Trust (the "Trust"), a Massachusetts business
trust which is a series trust consisting of four series as of the date hereof,
including Merrill Lynch Michigan Municipal Bond Fund, Merrill Lynch New York
Municipal Bond Fund, Merrill Lynch Ohio Municipal Bond Fund, and Merrill Lynch
Pennsylvania Municipal Bond Fund, hereby certify that the Trustees of the Trust
have duly adopted the following amendment to the Declaration of Trust of the
Fund dated the 2nd day of August, 1985, as amended.
Voted: That the Declaration of Trust dated August 2, 1985, as amended, be and
it hereby is amended to change the name of the Trust from "Merrill
Lynch Multi-State Municipal Bond Series Trust" to "Merrill Lynch
Multi-State Municipal Series Trust" in the following manner:
1.1. Name. The name of the trust created hereby (the "Trust", which
term shall be deemed to include any Series of the Trust when the
context requires) shall be "Merrill Lynch Multi-State Municipal Series
Trust", and so far as may be practicable the Trustees shall conduct
the activities of the Trust, execute all documents and sue or be sued
under that name, which name (and the word "Trust" wherever hereinafter
used) shall refer to the Trustees as Trustees, and not individually,
and shall not refer to the officers, agents, employees or Shareholders
of the Trust or any Series thereof. Each Series of the Trust which
shall be established and designated by the Trustees pursuant to
Section 6.2 shall conduct its activities under such name as the
Trustees shall determine and set forth in the instrument establishing
such Series. Should the Trustees determine that the use of the name of
the Trust or any such Series is not advisable, they may select such
other name for the Trust or such Series as they deem proper and the
Trust or Series may conduct its activities under such other name. Any
name change shall become effective upon the execution by a majority of
the then Trustees of an instrument setting forth the new name. Any
such instrument shall have the status of an amendment to this
Declaration.
IN WITNESS WHEREOF, the undersigned, constituting a majority of the Trustees
of the Trust, have signed this Certificate in duplicate original counterparts
and have caused a duplicate original to be lodged amount the records of the
Trust as required
<PAGE>
by Article X of the Declaration of Trust, as of the 21st day of December, 1987.
/s/ Arthur Zeikel
-----------------------------------------
Arthur Zeikel
279 Watchung Fork
Westfield New Jersey 07090
/s/ Kenneth S. Axelson
-----------------------------------------
Kenneth S. Axelson
307 Gross Neck Road
Waldoboro, Maine 04572
/s/ Andre F. Perold
-----------------------------------------
Andre F. Perold
56 Burnstable Road
West Newton, Massachussetts 02165
/s/ Robert F. Vandell
-----------------------------------------
Robert F. Vandell
106 Cavalier
Charlottesville, Virginia 22906
/s/ Herbert I. London
-----------------------------------------
Herbert I. London
Washington Square Village
New York, New York 10012
/s/ Joseph L. May
-----------------------------------------
Joseph L. May
2305 Hampton Avenue
Nashville, Tennessee 37215
-2-
<PAGE>
EXHIBIT 99.1(d)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
The Undersigned, constituting a majority of the Trustees of Merrill
Lynch Multi-State Municipal Series Trust (the "Trust"), a Massachusetts business
trust, hereby certify that the Trustees of the Trust have duly adopted the
following amendment, as approved by a majority of the shareholders of the Trust,
to the Declaration of Trust, as amended, of the Trust, dated the 2nd day of
August, 1985 (the "Declaration").
VOTED: Section 1.2 of Article 1 of the Declaration be, and it hereby is,
amended in its entirety to read as follows:
1.2 Definitions. As used in this Declaration, the following terms
-----------
shall have the following meanings:
The terms "Affiliated Person", "Assignment", "Commission", "Interested
----------------- ---------- ---------- ----------
Person", "Majority Shareholder Vote" (the 67% or more than 50% requirement of
- ------ -------------------------
the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings given them in
---------------------
the 1940 Act.
"Declaration" shall mean this Declaration as amended from time to
-----------
time. Reference in this Declaration to "Declaration", "hereof", "herein" and
----------- ------ ------
"hereunder" shall be deemed to refer to the Declaration rather than the article
---------
or section in which such words appear.
"Fundamental Policies" shall mean the investment restrictions set
--------------------
forth in the Prospectus of any Series and designated as fundamental policies
therein.
"Person" shall mean and include individuals, corporations,
------
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"Prospectus" shall mean the currently effective Prospectus of any
----------
Series of the Trust under the Securities Act of 1933, as amended, including the
Statement of Additional Information incorporated by reference therein.
<PAGE>
"Series" shall mean the separate series that may be established and
------
designated pursuant to Section 6.2.
"Shareholders" shall mean as of any particular time all holders of
------------
record or outstanding shares at such time.
"Shares" shall mean the equal proportionate transferable units of
------
interest into which the beneficial interest in any Series the Trust shall be
divided from time to time and includes fractions of shares as well as whole
shares. As provided in Article VI hereof, a Series of the Trust may issue
separate classes of Shares; all references to Shares shall be deemed to be
shares of any or all series or a single class of a Series or all classes of a
Series as the context may require.
"Trustees" shall mean the signatories to this Declaration, so long as
--------
they shall continue in office in accordance with the terms hereof, and all other
persons who at the time in question have been duly elected or appointed and have
qualified as trustees in accordance with the provisions hereof and are then in
office, are herein referred to as the "Trustees", and reference in this
Declaration to a Trustee or Trustees shall refer to such person or persons in
their capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
--------------
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust, any Series thereof or the Trustees.
The "1940 Act" refers to the Investment Company Act of 1940, as
--------
amended from time to time, and shall include the rules and regulations and any
relevant order of exemption promulgated thereunder by the Securities and
Exchange Commission.
VOTED: That Section 6.2 of Article VI of the Declaration be, and it hereby is,
amended in its entirety to read as follows:
6.2. Series Designation. The Trustee, in their discretion from time to
------------------
time, may authorize the division of Shares into two or more Series, each Series
relating to a separate portfolio of investments. The different Series shall be
established and designated, and the variations in the relative rights and
preferences as between the different Series shall be fixed and determined, by
the Trustees; provided that all Shares shall be identical except that there may
be variations between different Series as to purchase price, determination of
net asset value, the price, terms and manner of redemption, special and relative
rights as to dividends and on liquidation, conversion rights, and
2.
<PAGE>
conditions under which the several Series shall have separate voting rights. All
references to Shares in this Declaration shall be deemed to be shares of any or
all Series as the context may require.
The Trustees, in their discretion without a vote of the Shareholders,
may divide the shares of beneficial interest of any Series into classes. In such
event, each class of a Series shall represent interests in the Trust Property of
a Series and have identical voting, dividend, liquidation and other rights and
the same terms and conditions except that expenses related directly or
indirectly to the distribution of the Shares of a class of a Series may be borne
solely by such class (as shall be determined by the Trustees) and, as provided
in Section 10.1, a class of a Series may have exclusive voting rights with
respect to matters relating to the expenses being borne solely by such class.
The bearing of such expenses solely by a class of Shares of a Series shall be
appropriately reflected (in the manner determined by the Trustees) in the net
asset value, dividend and liquidation rights of the Shares of such class of a
Series. The division of the Shares of a Series into classes and the terms and
conditions pursuant to which the Shares of the classes of a Series will be
issued must be made in compliance with the 1940 Act. No division of Shares of a
Series into classes shall result in the creation of a class of Shares having a
preference as to dividends or distributions or a preference in the event of any
liquidation, termination or winding up of the Trust.
If the Trustee shall divide the Shares into two or more Series, the
following provisions shall be applicable:
(a) the number of Shares of each Series and of each class of a Series
that may be issued shall be unlimited. The Trustees may classify or reclassify
any unissued Shares or any Shares previously issued and required of any Series
into one or more Series that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Series required by the Trust at their
discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust
Property of each Series that may be established shall be governed by Section 3.2
of this Declaration.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds
3.
<PAGE>
thereof, including any proceeds derived from the sale, exchange or liquidation
or such assets, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to that
Series for all purposes, subject only to the rights of creditors, and shall be
so recorded upon the books of account of the Trust. In the event that there are
any assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Series, the
Trustee shall allocate them among any one or more of the Series established and
designated from time to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such allocation by the Trustees
shall be conclusive and binding upon the shareholders of all Series for all
purposes.
(d) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series only and all
expenses, costs, charges and reserves attributable to that Series and shall not
be charged with the liabilities, expenses, costs, charges and reserves
attributable to other Series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular Series shall be allocated and charged by the Trustees to and
among any one or more of the Series established and designated from time to time
in such manner and on such basis as the Trustees in their sole discretion deem
fair and equitable. Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon the holders of all
Series for all purposes. The Trustees shall have full discretion, to the extent
not inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
with respect to any one or more Series shall be governed by Section 9.2 of this
Declaration. Dividends and distributions on Shares of a particular Series may be
paid with such frequency as the Trustees may determine, to the holders of Shares
of that Series, from such of the income and capital gains, accrued or realized,
from the assets belonging to that Series, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that Series. All
dividends and distributions on Shares of a particular Series shall be
distributed pro rata to the holders of that Series in proportion to the number
of Shares of that Series held by such holders at the date and time of record
established for the payment of such dividends or distributions, except that such
dividends and distributions
4.
<PAGE>
shall appropriately reflect expenses related directly or indirectly to the
distribution of Shares of a class of such Series.
The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth the establishment and designation of such Series. Such instrument
shall also set forth any rights and preferences of such Series which are in
addition to the rights and preferences of Shares set forth in this Declaration.
At any time that there are no Shares outstanding of any particular Series
previously established and designated, the Trustees may by an instrument
executed by a majority of their number abolish that Series and the establishment
and designation thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration.
VOTED: That Sections 9.1, 9.2 and 9.4 of Article IX of the Declaration be, and
they hereby are, amended in their entirety to read as follows:
9.1. Net Asset Value. The net asset value of each outstanding Share of
---------------
each Series of the Trust shall be determined at such time or time on such days
as the Trustees may determine, in accordance with the 1940 Act, with respect to
each Series. The method of determination of net asset value of Shares of each
class of a Series shall be determined by the Trustees and shall be as set forth
in the Prospectus with respect to the applicable Series with any expenses being
borne solely by a class Shares being reflected in the net asset value of such
Shares. The power and duty to make the daily calculations for any Series may be
delegated by the Trustees to the adviser, administrator, manager, custodian,
transfer agent or such other person as the Trustees may determine. The Trustee
may suspend the daily determination of net asset value to the extent permitted
by the 1940 Act.
9.2. Distributions to Shareholders. The Trustees shall from time to
-----------------------------
time distribute ratably among the shareholders of any Series such proportion of
the net profits, surplus (including paid-in-surplus), capital, or assets with
respect to such Series held by the Trustees as they deem proper with any
expenses being borne solely by a class of Shares of any Series being reflected
in the net profits or other assets being distributed to such class. Such
distribution may be made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof), and the Trustees may
distribute ratably among the shareholders of any Series additional Shares of
such Series issuable hereunder in such manner, at such times, and on such terms
as the Trustees may deem proper. Such distributions may be
5.
<PAGE>
among the Shareholders of record at the time of declaring a distribution or
among the Shareholders of record at such later date as the Trustees shall
determine. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they deem desirable to use in the conduct of its
affairs or to retain for future requirements or extensions of the business. The
Trustees may adopt and offer to Shareholders of any Series such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate for such Series.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
9.4. Power to Modify Foregoing Procedures. Notwithstanding any of the
------------------------------------
foregoing provisions of this Article IX, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per share
net asset value of the Trust's Shares or net income, or the declaration and
payment of dividends and distributions as they deem necessary or desirable or to
enable the Trust to comply with any provision of the 1940 Act, including any
rule or regulation adopted pursuant to Section 22 of the 1940 Act by the
Commission or any securities association registered under the Securities
Exchange Act of 1934, all as in effect now or hereafter amended or modified.
VOTED: That Sections 10.1 and 10.2 of Article X of the Declaration be, and they
hereby are, amended in their entirety to read as follows:
10.1. Voting Powers. The Shareholders shall have power to vote (i) for
-------------
the removal of Trustees as provided in Section 2.2; (ii) with respect to any
advisory or management contract of a Series as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in Section 11.3;
(iv) with respect to such additional matters relating to the Trust as may be
required or authorized by the 1940 Act, the laws of the Commonwealth of
Massachusetts or other applicable law or by this Declaration or the By-Laws of
the Trust; and (v) with respect to such additional matters relating to the Trust
as may be properly submitted for Shareholder approval. If the Shares of a Series
shall be
6.
<PAGE>
divided into classes as provided in Article VI hereof, the Shares of each class
shall have identical voting rights except that the Trustees, in their
discretion, may provide a class of a Series with exclusive voting rights with
respect to matters related to expenses being borne solely by such class.
10.2. Meetings of Shareholders. Special meetings of the Shareholders
------------------------
may be called at any time by a majority of the Trustees and shall be called by
any Trustee upon written request of Shareholders of any Series holding in the
aggregate not less than 10% of the outstanding Shares of such Series having
voting rights, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting shall be held within or without the
Commonwealth of Massachusetts on such day and at such time as the Trustees shall
designate. The holders of one-third of the outstanding Shares of each Series
present in person or by proxy shall constitute a quorum for the transaction of
any business, except as may otherwise be required by the 1940 Act, the laws of
the Commonwealth of Massachusetts or other applicable law or by this Declaration
or the By-Laws of the Trust. If a quorum is present at a meeting of a particular
Series, the affirmative vote of a majority of the Shares of each Series
represented at the meeting constitutes the action of the Shareholders, unless
the 1940 Act, the laws of the Commonwealth of Massachusetts or other applicable
law, the Declaration or by the By-Laws of the Trust requires a greater number of
affirmative votes. If the Shares of any Series shall be divided into classes
with a class having exclusive voting rights with respect to certain matters, the
aforesaid quorum and voting requirements with respect to action to be taken by
the Shareholders of the class of such Series on such matters shall be applicable
only to the Shares of such class.
VOTED: That Section 11.2 of Article XI of the Declaration be, and it hereby is,
amended in its entirety to read as follows:
11.2. Termination.
-----------
(a) The Trust may be terminated by the affirmative vote of the holders
of not less than two-third of the Shares of each Series of the Trust at any
meeting of Shareholders or by an instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the holders of not less
than two-thirds of such Shares. Any Series may be so terminated by vote or
written consent of not less than two-thirds of the Shares of such Series. Upon
the termination of the Trust or any Series,
7.
<PAGE>
(i) The Trust or such Series shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
or such Series and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or such Series shall have been
wound up, including the power to fulfill or discharge the contracts of the Trust
or such Series, collects its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining Trust Property to one or
more persons at public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any kind, discharge or
pay its liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange, transfer or
other disposition of all or substantially all the Trust Property shall require
approval of the principal terms of the transaction and the nature and amount of
the consideration by vote or consent of the holders of a majority of the Shares
entitled to vote.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property of any Series, in cash or in kind or
partly each, among the Shareholders of such Series and each class of such
Series, according to their respective rights taking into account the proper
allocation of expenses being borne solely by any Series or any class of Shares
of a Series.
(b) After termination of the Trust or a Series and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination. Upon termination of the Trust, the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Shareholders shall thereupon cease. Upon
termination of any Series, the Trustees shall thereupon be discharged from all
further liabilities and duties with respect to such Series, and the rights and
interests of all Shareholders of such Series shall thereupon cease.
8.
<PAGE>
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees, have signed this certificate in duplicate original counterparts and
have caused a duplicate original to be lodged among the records of the Trust as
required by Article XI, Section 11.3(c) of the Declaration of Trust as of the
3rd day of October, 1988.
/s/ Kenneth G. Axelson /s/ Andre F. Perold
- ----------------------------- -------------------------------
Kenneth G. Axelson Andre F. Perold
307 Gross Neck Road 56 Barnstable Road
Waldoboro, Maine 04572 West Newton, Massachusetts 02165
/s/ Herbert I. London /s/ Arthur Zeikel
- ----------------------------- -------------------------------
Herbert I. London Arthur Zeikel
2 Washington Square Village 279 Watchung Fork
New York, New York 10012 Westfield, New Jersey 07090
/s/ Joseph L. May
- -----------------------------
Joseph L. May
2305 Hampton Avenue
Nashville, Tennessee 37215
9.
<PAGE>
Exhibit 99.1(e)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
Certification Of Amendment
To Declaration Of Trust
and
Establishment and Designation of Classes
The undersigned, constituting a majority of the Trustees of Merrill
Lynch Multi-State Municipal Series Trust (the "Trust"), a Massachusetts business
trust, hereby certify that the Trustees of the Trust have duly adopted the
following amendments, as approved by a majority of the shareholders of the
Trust, to the Trust's Declaration of Trust.
VOTED: That the second paragraph of Section 6.2 of Article VI of the
Declaration of Trust be, and it hereby is, amended by adding the
following:
The Trustees may provide that shares of a class will be exchanged for shares
of another class without any act or deed on the part of the holder of shares of
the class being exchanged, whether or not shares of such class are issued and
outstanding, all on terms and conditions as the Trustees may specify. The
Trustees may redesignate a class or series of shares of beneficial interest or
a portion of a class or series of shares of beneficial interest whether or not
shares of such class or series are issued and outstanding, provided that such
redesignation does not substantially adversely affect the preference,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such issued
and outstanding shares of beneficial interest.
VOTED: That Section 6.3 of Article VI of the Declaration of Trust be, and it
hereby is, amended in its entirety to read as follows:
6.3. Rights of Shareholders. The ownership of the Trust Property of
----------------------
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares
with respect to a particular Series, and they shall have no right to call for
any partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to share or assume any losses of the Trust or
suffer an assessment of any kind by virtue of their ownership of Shares. The
Shares
<PAGE>
shall be personal property giving only the rights in this Declaration
specifically set forth. The Shares shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights (except for rights of
appraisal specified in Section 11.4 and except as may be specified by the
Trustees in connection with the division of shares into classes or the
redesignation of classes or portions of classes in accordance with Section 6.2).
VOTED: That Section 10.1 of Article X of the Declaration of Trust be, and it
hereby is, amended in its entirety to read as follows:
10.1. Voting Powers. The Shareholders shall have power to vote (i) for
-------------
the removal of Trustees as provided in Section 2.2; (ii) with respect to any
advisory or management contract of a Series as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in Section 11.3;
(iv) with respect to such additional matters relating to the Trust as may be
required or authorized by the 1940 Act, the laws of the Commonwealth of
Massachusetts or other applicable law or by this Declaration or the By-Laws of
the Trust; and (v) with respect to such additional matters relating to the
Trust as may be properly submitted for Shareholder approval. If the Shares of
a Series shall be divided into classes as provided in Article VI hereof, the
Shares of each class shall have identical voting rights except that the
Trustees, in their discretion, may provide a class of a Series with exclusive
voting rights with respect to matters related to expenses being borne solely by
such class whether or not shares of such class are issued and outstanding.
2
<PAGE>
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 6.1 of the Declaration of Trust, do hereby divide the
shares of beneficial interest of each series of the Trust to create four
classes of shares, within the meaning of said Section 6.1, as follows:
1. The four classes of shares are designated "Class A Shares," "Class B
Shares," "Class C Shares," and "Class D Shares."
2. Class A Shares, Class B Shares, Class C Shares and Class D Shares
shall be entitled to all of the rights and preferences accorded to
Shares under the Declaration of Trust.
3. The purchase price, the method of determination of net asset value,
the price, terms and manner of redemption, and the relative dividend
rights of holders of Class A Shares, Class B Shares, Class C Shares
and Class D Shares shall be established by the Trustees of the Trust
in accordance with the provisions of the Declaration of Trust and
shall be set forth in the currently effective prospectus and
statement of additional information of the Trust relating to each
series of the Trust, as amended from time to time, contained in the
Trust's registration statement under the Securities Act of 1933, as
amended.
4. Class A Shares, Class B Shares, Class C Shares and Class D Shares
shall vote together as a single class except that shares of a class
may vote separately on matters affecting only that class and shares
of a class not affected by a matter will not vote on that matter.
5. A class of shares of any series of the Trust may be terminated by
the Trustees by written notice to the Shareholders of the class.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees of the Trust, have signed this certificate in duplicate original
counterparts and have caused a duplicate original to be lodged among the
records of the Trust as required by Article XI, Section 11.3(c) of the
Declaration of Trust, as of the 17th day of October, 1994.
/s/ Kenneth S. Axelson /s/ Herbert I. London
- ---------------------- ---------------------
Kenneth S. Axelson Herbert I. London
75 Jameson Point Road 2 Washington Square Village
Rockland, ME 04841 Apartment 12B
New York, NY 10012
/s/ Robert R. Martin /s/ Joseph L. May
- ---------------------- ---------------------
Robert R. Martin Joseph L. May
513 Grand Hill 2136 Golf Club Lane
St. Paul, MN 55102 Nashville, TN 37215
/s/ Andre F. Perold /s/ Arthur Zeikel
- ---------------------- ---------------------
Andre F. Perold Arthur Zeikel
56 Barnstable Road 300 Woodland Avenue
West Newton, MA 02165 Westfield, NJ 07090
The Declaration of Trust establishing Merrill Lynch Multi-State
Municipal Series Trust, dated August 2, 1985, a copy of which, together with all
amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name of the
Trust, "Merrill Lynch Multi-State Municipal Series Trust," refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of
Merrill Lynch Multi-State Municipal Series Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of said Trust, but the "Trust Property" only shall be liable.
4
<PAGE>
EXHIBIT 99.2
- --------------------------------------------------------------------------------
BY-LAWS
OF
MERRILL LYNCH MULTI-STATE TAX-EXEMPT SERIES TRUST
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH MULTI-STATE TAX-EXEMPT SERIES TRUST
-------------------------------------------------
BY-LAWS
-------
These By-Laws are made and adopted pursuant to Section 2.6 of the
Declaration of Trust establishing MERRILL LYNCH MULTI-STATE TAX-EXEMPT SERIES
TRUST, dated August 2, 1985, as from time to time amended (hereinafter called
the "Declaration"). All words and terms capitalized in these By-Laws shall have
the meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I
---------
Shareholder Meetings
--------------------
Section 1.1. Chairman. The Chairman, if any, shall act as chairman at all
--------
meetings of the Shareholders; in his absence, the President shall act as
chairman; and in the absence of the Chairman and President, the Trustee or
Trustees present at each meeting may elect a temporary chairman for the meeting,
who may be one of themselves.
Section 1.2. Proxies; Voting. Shareholders may vote either in person or by
---------------
duly executed proxy and each full share represented at the meeting shall have
one vote, all as provided in Article X of the Declaration. No proxy shall be
valid after
1.
<PAGE>
eleven (11) months from the date of its execution, unless a longer period is
expressly stated in such proxy.
Section 1.3. Closing of Transfer Books and Fixing Record Dates. For the
-------------------------------------------------
purpose of determining the Shareholders who are entitled to notice of or to
vote or act at any meeting, including any adjournment thereof, or who are
entitled to participate in any dividends, or for any other proper purpose, the
Trustees may from time to time close the transfer books or fix a record date in
the manner provided in Section 10.4 of the Declaration. If the Trustees do not
prior to any meeting of Shareholders so fix a record date or close the transfer
books, then the date of mailing notice of the meeting or the date upon which the
dividend resolution is adopted, as the case may be, shall be the record date.
Section 1.4. Inspectors of Election. In advance of any meeting of
----------------------
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the Chairman, if any, of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, Appoint Inspectors of Election of
the meeting. The number of Inspectors shall be either one or three. If appointed
at the meeting on the request Of one or more Shareholders or proxies, a majority
of Shares Present shall determine whether one or three Inspectors are to be
appointed, but failure to allow such determination by the
2.
<PAGE>
Shareholders shall not affect the validity of the appointment of Inspectors of
Election. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. The Inspectors of Election shall determine the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all votes
or consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Shareholders. If there are
three Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. On request
of the Chairman, if any, of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
Section 1.5. Records at Shareholder Meetings. At each Meeting of the
-------------------------------
Shareholders there shall be open for inspection the minutes of the last previous
Shareholder Meeting of the Trust and a list of the Shareholders of the Trust,
certified to be true
3.
<PAGE>
and correct by the Secretary or other proper agent of the Trust, as of the
record date of the meeting or the date of closing of transfer books, as the case
may be. Such list of Shareholders shall contain the name of each Shareholder in
alphabetical order and the address and number of Shares owned by such
Shareholder. Shareholders shall have such other rights and procedures of
inspection of the books and records of the Trust as are granted to shareholders
of a Massachusetts business corporation.
ARTICLE II
----------
Trustees
--------
Section 2.1. Annual and Regular Meetings. The Trustees shall hold an annual
---------------------------
meeting for the election of officers and the transaction of other business which
may come before such meeting, an such date as shall be fixed by the Trustees
from time to time. Regular meetings of the Trustees may be held without call or
notice at such place or places and times as the Trustees may by resolution
provide from time to time.
Section 2.2. Special Meetings. Special Meetings of the Trustees shall be
----------------
held upon the call of the Chairman, if any, the President, the Secretary or any
two Trustees, at such time, on such day, and at such place, as shall be
designated in the notice of the meeting.
Section 2.3. Notice. Notice of a meeting shall be given by mail or by
------
telegram (which term shall include a cablegram) or
4.
<PAGE>
delivered personally. If notice is given by mail, it shall be mailed not later
than 48 hours preceding the meeting and if given by telegram or personally, such
telegram shall be sent or delivery made not later than 48 hours preceding the
meeting. Notice by telephone shall constitute personal delivery for these
purposes. Notice of a meeting of Trustees may be waived before or after any
meeting by signed written waiver. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Trustees need be stated in the
notice or waiver of notice of such meeting, and no notice need be given of
action proposed to be taken by unanimous written consent. The attendance of a
Trustee at a meeting shall constitute a waiver of notice of such meeting except
where a Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened.
Section 2.4. Chairman; Records. The Chairman, if any, shall act as chairman
-----------------
at all meetings of the Trustees; in his absence the President shall act as
chairman; and, in the absence of the Chairman and the President, the Trustees
present shall elect one of their number to act as temporary chairman. The
results of all actions taken at a meeting of the Trustees, or by unanimous
written consent of the Trustees, shall be recorded by the Secretary.
5.
<PAGE>
ARTICLE III
-----------
Officers
--------
Section 3.1. Officers of the Trust. The officers of the Trust shall consist
---------------------
of a Chairman, if any, a President, a Secretary, a Treasurer and such other
officers or assistant officers, including Vice-Presidents, as may be elected by
the Trustees. Any two or more of the offices may be held by the same person,
except that the same person may not be both President and Secretary. The
Trustees may designate a Vice-President as an Executive Vice-President and may
designate the order in which the other Vice-Presidents may act. The Chairman and
the President shall be Trustees, but no other officer of the Trust need be a
Trustee.
Section 3.2. Election and Tenure. At the initial organization meeting and
-------------------
thereafter at each annual meeting of the Trustees, the Trustees shall elect the
Chairman, if any, President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry cut the business
of the Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and qualified.
The Trustees may fill any vacancy in office or add any additional officers at
any time.
Section 3.3. Removal of Officers. Any officer may be removed at any time,
-------------------
with or without cause, by action of a
6.
<PAGE>
majority of the Trustees. This provision shall not prevent the making of a
contract of employment for a definite term with any officer and shall have no
effect upon any cause of action which any officer may have as a result of
removal in breach of a contract of employment. Any officer may resign at any
time by notice in writing signed by such officer and delivered or mailed to the
Chairman, if any, President, or Secretary, and such resignation shall take
effect immediately upon receipt by the Chairman, if any, President, or
Secretary, or at a later date according to the terms of such notice in writing.
Section 3.4. Bonds and Surety. Any officer may be required by the Trustees
----------------
to be bonded for the faithful performance of his duties in such amount and with
such sureties as the Trustees may determine.
Section 3.5. Chairman, President, and Vice-Presidents. The
----------------------------------------
Chairman, if any, shall, if present, preside at all meetings of the Shareholders
and of the Trustees and shall exercise and Perform such other powers and duties
as may be from time to time assigned to him by the Trustees. Subject to such
supervisory Powers, if any, as may be given by the Trustees to the Chairman if
any, the President shall be the chief executive officer of the Trust and,
subject to the control of the Trustees, shall have general supervision,
direction and control of the business of the Trust and of its employees and
shall exercise such general powers of management as are usually vested in the
office of President of
7.
<PAGE>
a corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Shareholders and of the Trustees. The President
shall be, ex officio, a member of all standing committees, except as otherwise
provided in the resolutions or instruments creating any such committees. Subject
to direction of the Trustees, the Chairman, if any, and the President shall each
have power in the name and on behalf of the Trust to execute any and all loan
documents, contracts, agreements, deeds, mortgages, and other instruments in
writing, and to employ and discharge employees and agents of the Trust. Unless
otherwise directed by the Trustees, the Chairman, if any, and the President
shall each have full authority and power, on behalf of all of the Trustees, to
attend and to act and to vote, on behalf of the Trust at any meetings of
business organizations in which the Trust holds an interest, or to confer such
powers upon any other persons, by executing any proxies duly authorizing such
persons. The Chairman, if any, and the President shall have such further
authorities and duties as the Trustees shall from time to time determine. In the
absence or disability of the President, the Vice-Presidents in order of their
rank as fixed by the Trustees or, if more than one and not ranked, the Vice-
President designated by the Trustees, shall perform all of the duties of the
President, and when so acting shall have all the powers of and be subject to all
of the restrictions upon the President. Subject to the direction of the
Trustees, and of the President,
8.
<PAGE>
each Vice-President shall have the power in the name and on behalf of the Trust
to execute any and all loan documents, contracts, agreements, deeds, mortgages
and other instruments in writing, and, in addition, shall have such other duties
and powers as shall be designated from time to time by the Trustees or by the
President.
Section 3.6. Secretary. The Secretary shall keep the minutes of all meetings
---------
of, and record all votes of, Shareholders, Trustees and the Executive
Committee, if any. He shall be custodian of the seal of the Trust, if any, and
he (and any other person so authorized by the Trustees) shall affix the seal
or, if permitted, a facsimile thereof, to any instrument executed by the Trust
which would be sealed by a Massachusetts corporation executing the same or a
similar instrument and shall attest the seal and the signature or signatures of
the officer or officers executing such instrument on behalf of the Trust. The
Secretary shall also perform any other duties commonly incident to such office
in a Massachusetts business corporation, and shall have such other authorities
and duties as the Trustees shall from time to time determine.
Section 3.7. Treasurer. Except as otherwise directed by the Trustees, the
---------
Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable and other valuable papers and documents of the Trust, and shall
have and exercise under the supervision of the Trustees and of the
9.
<PAGE>
president all powers and duties normally incident to his office. He may endorse
for deposit or collection all notes, checks and other instruments payable to the
Trust or to its order. He shall deposit all funds of the Trust in such
depositories as the Trustees shall designate. He shall be responsible for such
disbursement of the funds of the Trust as may be ordered by the Trustees or the
President. He shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust, and which together with
all other property of the Trust in his possession, shall be subject at all times
to the inspection and control of the Trustees. Unless the Trustses shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Trust and shall also be the principal financial officer of the Trust. He
shall have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser, administrator, manager or transfer agent to
maintain bank accounts and deposit and disburse funds of any Series of the Trust
on behalf of such Series.
Section 3.8. Other Officers and Duties. The Trustees may elect such other
-------------------------
officers and assistant officers as they shall from time to time determine to be
necessary or desirable in order to conduct the business of the Trust. Assistant
officers shall act generally in the absence of the officer whom they assist and
10.
<PAGE>
shall assist that officer in the duties of his office. Each officer, employee
and agent of the Trust shall have such other duties and authority as may be
conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
----------
Miscellaneous
-------------
Section 4.1. Depositories. In accordance with Section 7.1 of the
------------
Declaration, the funds of the Trust shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any adviser,
administrator or manager), as the Trustees may from time to time authorize.
Section 4.2. Signatures. All contracts and other instruments shall be
----------
executed on behalf of the Trust by such officer, officers, agent or agents, as
provided in these By-Laws or as the Trustees may from time to time by resolution
provide.
Section 4.3. Seal. The seal of the Trust, if any, or any Series of the
----
Trust, if any, may be affixed to any document, and the seal and its attestation
may be lithographed, engraved or otherwise printed on any document with the same
force and effect as if it had been imprinted and attested manually in the same
manner and with the same effect as if done by a Massachusetts business
corporation.
11.
<PAGE>
ARTICLE V
---------
Stock Transfers
---------------
Section 5.1. Certificates. Certificates representing Shares of any Series of
-----------
the Trust shall not be issued.
Section 5.2. Transfer Agents, Registrars and the Like. As provided in
----------------------------------------
Section 6.7 of the Declaration, the Trustees shall have authority to employ and
compensate such transfer agents and registrars with respect to the Shares of the
various Series of the Trust as the Trustees shall deem necessary or desirable.
In addition, the Trustees shall have power to employ and compensate such
dividend disbursing agents, warrant agents and agents for the reinvestment of
dividends as they shall deem necessary or desirable. Any of such agents shall
have such power and authority as is delegated to any of them by the Trustees.
Section 5.3. Transfer of Shares. The Shares of the Trust Shall be
------------------
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section 6.8
of the Declaration. The Trust, or its transfer agents, shall be authorized to
refuse any transfer unless and until presentation of such evidence as may be
reasonably required to show that the requested transfer is proper.
Section 5.4. Registered Shareholders. The Trust may deem and treat the
-----------------------
holder of record of any Share as the absolute owner
12.
<PAGE>
thereof for all purposes and shall not be required to take any notice of any
right or claim of right of any other person.
ARTICLE VI
----------
Amendment of By Laws
--------------------
Section 6.1. Amendment and Repeal of By-Laws. In accordance with
-------------------------------
Section 2.6 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. Action by the
Trustees with respect to the By-Laws shall be taken by an affirmative vote of a
majority of the Trustees. The Trustees shall in no event adopt By-Laws which are
in conflict with the Declaration, and any apparent inconsistency shall be
construed in favor of the related provisions in the Declaration.
The Declaration of Trust establishing Merrill Lynch Multi-State Tax-Exempt
Series Trust, dated August 2, 1985, a copy of which, together with all
amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Merrill
Lynch Multi-State Tax-Exempt Series Trust refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of Merrill Lynch Multi-State
Tax-Exempt Series Trust shall be held to any personal liability, nor shall
resort be had to
13.
<PAGE>
their private property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of said Merrill Lynch Multi-state Tax-
Exempt Series Trust but the Trust Property only shall be liable.
14.
<PAGE>
EXHIBIT 99.5(a)
MANAGEMENT AGREEMENT
AGREEMENT made this [DATE] day of [MONTH], 199[YEAR], by and between
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST, a Massachusetts business
trust (hereinafter referred to as the "Trust"), and FUND ASSET MANAGEMENT,
L.P., a Delaware limited partnership (hereinafter referred to as the "Manager").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to
establish separate series relating to separate portfolios of securities, each
of which will offer separate classes of shares; and
WHEREAS, the Trustees have established and designated the MERRILL LYNCH
[STATE] MUNICIPAL BOND FUND (the "Fund") as a series of the Trust; and
WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
<PAGE>
WHEREAS, the Trust desires to retain the Manager to render management
and investment advisory services to the Trust and the Fund in the manner and on
the terms hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Trust and the Fund on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Manager hereby agree as follows:
ARTICLE I
---------
Duties of the Manager
---------------------
The Trust hereby employs the Manager to act as an investment manager and
investment adviser of the Fund and to furnish or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to policies of, review by and overall control of the Trustees, for the
period and on the terms and conditions set forth in this Agreement. The
Manager hereby accepts such employment and agrees during such period, at its
own expense, to render, or arrange for the rendering of, such services and to
assume the obligations herein set forth for the compensation provided for
herein. The Manager and its affiliates shall for all purposes herein be deemed
to be independent contractors and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust
2
<PAGE>
or the Fund in any way or otherwise be deemed agents of the Trust or the Fund.
(a) Management Services. The Manager shall perform (or arrange for its
-------------------
affiliates to perform) the management and administrative services necessary for
the operation of the Trust and the Fund including administering shareholder
accounts and handling shareholder relations. The Manager shall provide the
Trust and Fund with office space, equipment and facilities and such other
services as the Manager, subject to review by the Trustees, from time to time
shall determine to be necessary or useful to perform its obligations under this
Agreement. The Manager, also on behalf of the Trust and the Fund, shall
conduct relations with custodians, depositories, transfer agents, dividend
disbursing agents, other shareholder service agents, accountants, attorneys,
underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and
such other persons in any such other capacity deemed to be necessary or
desirable. The Manager generally shall monitor the Trust's and the Fund's
compliance with investment policies and restrictions as set forth in the
currently effective prospectus and statement of additional information relating
to the shares of the Fund under the Securities Act of 1933, as amended (the
"Prospectus" and "Statement of Additional Information", respectively). The
Manager shall make reports to the Trustees of its performance of
3
<PAGE>
obligations hereunder and furnish advice and recommendations with respect to
such other aspects of the business and affairs of the Trust and the Fund as it
shall determine to be desirable.
(b) Investment Advisory Services. The Manager shall provide the Trust
----------------------------
with such investment research, advice and supervision as the latter may from
time to time consider necessary for the proper supervision of the assets of the
Fund, shall furnish continuously an investment program for the Fund and shall
determine from time to time which securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held in the
various money market securities or cash, subject always to the restrictions of
the Declaration of Trust and By-Laws of the Trust, as amended from time to
time, the provisions of the Investment Company Act and the statements relating
to the Fund's investment objective, investment policies and investment
restrictions as the same are set forth in the Prospectus and Statement of
Additional Information. The Manager also shall make decisions for the Trust as
to the manner in which voting rights, rights to consent to corporate action and
any other rights pertaining to the Fund's portfolio securities shall be
exercised. Should the Trustees at any time, however, make any definite
determination as to investment policy and notify the Manager thereof in
writing, the Manager shall be bound by such determination for the period, if
any, specified in such notice or
4
<PAGE>
until similarly notified that such determination has been revoked. The Manager
shall take, on behalf of the Fund, all actions which it deems necessary to
implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers or dealers selected by it, and to this end
the Manager is authorized as the agent of the Trust to give instructions to the
custodian of the Fund as to deliveries of securities and payments of cash for
the account of the Fund. In connection with the selection of such brokers or
dealers and the placing of such orders with respect to assets of the Fund, the
Manager is directed at all times to seek to obtain execution and price within
the policy guidelines determined by the Trustees as set forth in the Prospectus
and Statement of Additional Information. Subject to this requirement and the
provisions of the Investment Company Act, the Securities Exchange Act of 1934,
as amended, and other applicable provisions of law, the Manager may select
brokers or dealers with which it or the Trust is affiliated.
(c) Notice Upon Change in Partners of Investment Adviser.
----------------------------------------------------
The Investment Adviser is a limited partnership and its limited partners are
Merrill Lynch & Co., Inc. and Fund Asset Management, Inc. and its general
partner is Princeton Services, Inc. The Investment Adviser will notify the
Fund of any change in the
5
<PAGE>
membership of the partnership within a reasonable time after such change.
ARTICLE II
Allocation of Charges and Expenses
----------------------------------
(a) The Manager. The Manager assumes and shall pay for maintaining the
-----------
staff and personnel necessary to perform its obligations under this Agreement,
and, at its own expense, shall provide the office space, equipment and
facilities which it is obligated to provide under Article I hereof, and shall
pay all compensation of officers of the Trust and all Trustees who are
affiliated persons of the Manager.
(b) The Trust. The Trust assumes and shall pay or cause to be paid all
---------
other expenses of the Trust and the Fund (except for the expenses paid by the
Distributor), including, without limitation: redemption expenses, expenses of
portfolio transactions, expenses of registering shares under federal and state
securities laws, pricing costs (including the daily calculation of net asset
value), expenses of printing shareholder reports, prospectuses and statements
of additional information, Securities and Exchange Commission fees, interest,
taxes, fees and actual out-of-pocket expenses of Trustees who are not
affiliated persons of the Manager, fees for legal and auditing services,
litigation expenses, costs of printing proxies and other expenses related to
shareholder meetings, and other
6
<PAGE>
expenses properly payable by the Trust and the Fund. It also is understood that
the Trust will reimburse the Manager for its costs in providing accounting
services to the Trust and the Fund. The Distributor will pay certain of the
expenses of the Fund incurred in connection with the continuous offering of Fund
shares.
ARTICLE III
-----------
Compensation of the Manager
---------------------------
(a) Investment Management Fee. For the services rendered, the
-------------------------
facilities furnished and expenses assumed by the Manager, the Trust shall pay to
the Manager at the end of each calendar month a fee based upon the average daily
value of the net assets of the Fund, as determined and computed in accordance
with the description of the determination of net asset value contained in the
Prospectus and Statement of Additional Information, at the annual rate of 0.[ ]
of 1.0% (.[ ]%) of the average daily net assets of the Fund, commencing on the
day following effectiveness hereof. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day
of a month, compensation for the part of the month that this Agreement is in
effect shall be prorated in a manner consistent with the calculation of the fee
as set forth above. Subject to the provisions of subsection (b) hereof,
payment of the Manager's compensation for the preceding month shall be made as
promptly as
7
<PAGE>
possible after completion of the computations contemplated by subsection (b)
hereof. During any period when the determination of net asset value is
suspended by the Trustees, the net asset value as of the last business day prior
to such suspension shall for this purpose be deemed to be the net asset value at
the close of each succeeding business day until it is again determined.
(b) Expense Limitations. In the event that the operating expenses of
-------------------
the Fund, including amounts payable to the Manager pursuant to subsection (a)
hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed the expense limitations applicable to the Fund imposed by
applicable state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, the Manager shall reduce its
management fee by the extent of such excess and, if required pursuant to any
such laws or regulations, will reimburse the Fund in the amount of such excess,
provided, however, to the extent permitted by law, there shall be excluded from
such expenses the amount of any interest, taxes, brokerage commissions and
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by the Trust with respect to the Fund. Whenever the expenses of the
Fund exceed a pro rata portion of the applicable annual expense limitations,
the estimated amount of reimbursement under such
8
<PAGE>
limitations shall be applicable as an offset against the monthly payment of the
management fee due to the Manager. Should two or more such expense limitations
be applicable as of the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Manager's fee shall be
applicable.
ARTICLE IV
----------
Limitation of Liability of the Manager
--------------------------------------
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the management of the Trust and the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article IV, the term "Manager" shall include any affiliates of the Manager
performing services for the Trust or the Fund contemplated hereby and directors,
officers and employees of the Manager and such affiliates.
ARTICLE V
---------
Activities of the Manager
-------------------------
The services of the Manager to the Trust and the Fund are not to be
deemed to be exclusive, and the Manager and any person controlled by or under
common control with the Manager (for purposes of Article V referred to as
"affiliates") are free to
9
<PAGE>
render services to others. It is understood that Trustees, officers, employees
and shareholders of the Trust and the Fund are or may become interested in the
Manager and its affiliates, as directors, officers, employees and shareholders
or otherwise, and that directors, officers, employees and shareholders of the
Manager and its affiliates are or may become similarly interested in the Trust
and the Fund, and that the Manager may become interested in the Trust and the
Fund as a shareholder or otherwise.
ARTICLE VI
----------
Duration and Termination of this Contract
-----------------------------------------
This Agreement shall become effective as of the date first above written
and shall remain in force until [DATE] and thereafter, but only for so long as
such continuance is specifically approved at least annually by (i) the
Trustees, or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) by the vote of a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, or by the Manager, on sixty days' written notice to the
other party. This
10
<PAGE>
Agreement shall terminate automatically in the event of its assignment.
ARTICLE VII
-----------
Amendment of this Agreement
---------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of (i) a majority of the outstanding voting
securities of the Fund, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
ARTICLE VIII
------------
Definitions of Certain Terms
----------------------------
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
the Investment Company Act.
ARTICLE IX
----------
Governing Law
-------------
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein,
11
<PAGE>
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
ARTICLE X
---------
Personal Liability
------------------
The Declaration of Trust establishing Merrill Lynch Multi-State
Municipal Series Trust, dated August 2, 1985, a copy of which, together with all
amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name "Merrill
Lynch Multi-State Municipal Series Trust" refers to the trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of Merrill Lynch Multi-State
Municipal Series Trust shall be held to any personal liability, nor shall resort
be had to their private property for the satisfaction of any obligation or claim
or otherwise in connection with the affairs of said Merrill Lynch Multi-State
Municipal Series Trust, but the "Trust Property" only shall be liable.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
MERRILL LYNCH MULTI-STATE
MUNICIPAL SERIES TRUST
By
---------------------------------
Title:
FUND ASSET MANAGEMENT, L.P.
By
---------------------------------
Title:
13
<PAGE>
EXHIBIT 99.6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the [DATE] day of [MONTH], 199[YEAR], between
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST, a Massachusetts business trust
(the "Trust"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation
(the "Distributor").
W I T N E S S E T H :
-------------------
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended to date (the "Investment Company Act"), as an open-end
investment company and it is affirmatively in the interest of the Trust to offer
its shares for sale continuously; and
WHEREAS, the Trustees of the Trust (the "Trustees") are authorized to
establish separate series (the "Series") relating to separate portfolios of
securities, each of which will offer separate classes of shares of beneficial
interest, par value $0.10 per share (collectively referred to as "shares") to
selected groups of purchasers; and
WHEREAS, the Trustees have established and designated the Merrill Lynch
[STATE] Municipal Bond Fund (the "Fund") as a series of the Trust; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
<PAGE>
WHEREAS, the Trust and the Distributor wish to enter into an agreement
with each other with respect to the subscription offering and the continuous
offering of the Class B shares of beneficial interest of the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Trust hereby appoints
------------------------------
the Distributor as the principal underwriter and distributor of the Trust to
sell Class B shares of beneficial interest of the Fund (sometimes herein
referred to as "Class B shares") to the public and hereby agrees during the term
of this Agreement to sell shares of the Fund to the Distributor upon the terms
and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Trust to act as principal underwriter and
distributor of Class B shares of the Fund, except that:
(a) The Trust may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class B shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class B shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
2
<PAGE>
(b) The exclusive rights granted to the Distributor to purchase Class B
shares from the Trust shall not apply to Class B shares issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Trust or the acquisition by purchase or otherwise of
all (or substantially all) the assets or the outstanding Class B shares of any
such company by the Trust.
(c) Such exclusive rights also shall not apply to Class B shares issued
pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive rights also shall not apply to Class B shares issued
pursuant to any reinstatement privilege afforded redeeming shareholders.
Section 3. Purchase of Class B Shares from the Trust.
-----------------------------------------
(a) Prior to the continuous offering of the Class B shares, commencing on a
date agreed upon by the Trust and the Distributor, it is contemplated that the
Distributor will solicit subscriptions for Class B shares during a subscription
period which shall last for such period as may be agreed upon by the parties
hereto. The subscriptions will be payable within five business days after the
termination of the subscription period, at which time the Fund will commence
operations.
(b) After the Fund commences operations, the Trust will commence an
offering of Class B shares of the Fund and thereafter the Distributor shall
have the right to buy from the Trust the Class B shares needed, but not more
than the Class B shares
3
<PAGE>
needed (except for clerical errors in transmission), to fill unconditional
orders for Class B shares of the Fund placed with the Distributor by investors
or securities dealers. The price which the Distributor shall pay for the Class B
shares so purchased from the Trust shall be the net asset value, determined as
set forth in Section 3(d) hereof.
(c) The Class B shares are to be resold by the Distributor to investors
at net asset value, as set forth in Section 3(d) hereof, or to securities
dealers having agreements with the Distributor upon the terms and conditions set
forth in Section 7 hereof.
(d) The net asset value of Class B shares of the Fund shall be
determined by the Trust or any agent of the Trust in accordance with the method
set forth in the prospectus and statement of additional information relating to
the Fund and guidelines established by the Board of Trustees.
(e) The Trust shall have the right to suspend the sale of Class B
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Trust shall also have the right to suspend the
sale of Class B shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by Federal or New
York authorities, or if there shall have been some other event, which, in the
judgment of the Trust, makes it impracticable or inadvisable to sell the shares.
4
<PAGE>
(f) The Trust, or any agent of the Trust designated in writing by the
Trust, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Trust; provided,
however, that the Trust will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Trust (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Trust (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class B shares pursuant to
the instructions of the Distributor. Payment shall be made to the Trust in New
York Clearing House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Trust (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by the Trust. (a)
-------------------------------------------------------
Any of the outstanding Class B shares may be tendered for redemption at any
time, and the Trust agrees to repurchase or redeem the Class B shares so
tendered in accordance with its obligations as set forth in Article VIII of its
Declaration of Trust, as amended from time to time, and in accordance with the
applicable provisions set forth in the prospectus and statement of additional
information relating to the Fund. The price to be paid to redeem or repurchase
the Class B shares shall be equal to the net asset value calculated in
accordance with the provisions of Section 3(d) hereof, less the redemption fee
or other charge, if any, set forth in the
5
<PAGE>
prospectus and statement of additional information relating to the Fund. All
payments by the Trust hereunder shall be made in the manner set forth below.
The Trust shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Trust as follows: (i) any applicable contingent deferred sales
charge shall be paid to the Distributor and (ii) the balance shall be paid to or
for the account of the shareholder, in each case in accordance with the
applicable provisions of the prospectus and statement of additional information.
(b) Redemption of Class B shares or payment may be suspended at times
-----------
when the New York Stock Exchange is closed, when trading on said Exchange is
closed, when trading on said Exchange is restricted, when an emergency exists as
a result of which disposal by the Trust of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust fairly
to determine the value of the net assets of the Fund, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Trust. (a) The Trust shall furnish to the
-------------------
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of Class B
6
<PAGE>
shares of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Trust by independent
public accountants. The Trust shall make available to the Distributor such
number of copies of its prospectus and statement of additional information
relating to the Fund as the Distributor shall reasonably request.
(b) The Trust shall take, from time to time, but subject to the
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act of l933, as amended (the "Securities Act"), to the end
that there will be available for sale such number of Class B shares as the
Distributor reasonably may be expected to sell.
(c) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class B shares for sale under the
securities laws of such states as the Distributor and the Trust may approve.
Any such qualification may be withheld, terminated or withdrawn by the Trust at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Trust.
The Distributor shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualification.
7
<PAGE>
(d) The Trust will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports relating to the Fund.
Section 6. Duties of the Distributor. (a) The Distributor shall
-------------------------
devote reasonable time and effort to effect sales of Class B shares of the
Fund, but shall not be obligated to sell any specific number of shares. The
services of the Distributor to the Trust hereunder are not to be deemed
exclusive and nothing herein contained shall prevent the Distributor from
entering into like arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby.
(b) In selling the Class B shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Trust to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Trust.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Trust, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
8
<PAGE>
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements. (a) The Distributor shall have
--------------------------
the right to enter into selected dealer agreements with securities dealers of
its choice ("selected dealers") for the sale of Class B shares; provided, that
the Trust shall approve the forms of agreements with dealers. Class B shares
sold to selected dealers shall be for resale by such dealers only at net asset
value determined as set forth in Section 3(d) hereof. The form of agreement
with selected dealers to be used during the subscription period described in
Section 3(a) is attached hereto as Exhibit A and the initial form of agreement
with selected dealers to be used in the continuous offering of the shares is
attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
Class B shares only to such selected dealers as are members in good standing of
the NASD.
Section 8. Payment of Expenses. (a) The Trust shall bear all costs
-------------------
and expenses of the Fund, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
registration statements and/or prospectuses and statements of additional
information under the Investment Company Act, the Securities Act, and all
amendments and supplements thereto, and preparing and mailing annual and interim
reports and proxy materials to Class B
9
<PAGE>
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof which are to be
used in connection with the offering of Class B shares to selected dealers or
investors pursuant to this Agreement. The Distributor shall bear the costs and
expenses of preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in connection
with the offering of the Class B shares for sale to the public and any expenses
of advertising incurred by the Distributor in connection with such offering. It
is understood and agreed that, so long as the Fund's Class B Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act remains in effect, any
expenses incurred by the Distributor hereunder may be paid from amounts
recovered by it from the Fund under such Plan.
10
<PAGE>
(c) The Trust shall bear the cost and expenses of qualification of the
Class B shares for sale pursuant to this Agreement, and, if necessary or
advisable in connection therewith, of qualifying the Trust as a broker or
dealer, in such states of the United States or other jurisdictions as shall be
selected by the Trust and the Distributor pursuant to Section 5(c) hereof and
the cost and expenses payable to each such state for continuing qualification
therein until the Trust decides to discontinue such qualification pursuant to
Section 5(c) hereof.
Section 9. Indemnification. (a) The Trust shall indemnify and hold
---------------
harmless the Distributor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage
or expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class B shares, which
may be based upon the Securities Act, or on any other statute or at common law,
on the ground that the registration statement or related prospectus and
statement of additional information relating to the Fund, as from time to time
amended and supplemented, or an annual or interim report to Class B
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with,
11
<PAGE>
information furnished to the Trust in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the indemnity of the
Trust in favor of the Distributor and any such controlling persons to be deemed
to protect such Distributor or any such controlling persons thereof against any
liability to the Trust or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of the reckless disregard of their obligations and duties under
this Agreement; or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Trust in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Trust will be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense of any
suit brought to
12
<PAGE>
enforce any such liability, but if the Trust elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Trust elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses, as
incurred, of any additional counsel retained by them, but, in case the Trust
does not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses, as incurred, of any counsel
retained by them. The Trust shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any of the Class B
shares.
(b) The Distributor shall indemnify and hold harmless the Trust and
each of its Trustees and officers and each person, if any, who controls the
Trust against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance upon,
and in conformity with, information furnished to the Trust in writing by or on
behalf of the Distributor for use in connection with the registration statement
or related prospectus and statement of additional information, as from time to
time
13
<PAGE>
amended, or the annual or interim reports to shareholders. In case any action
shall be brought against the Trust or any person so indemnified, in respect of
which indemnity may be sought against the Distributor, the Distributor shall
have the rights and duties given to the Trust, and the Trust and each person so
indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until [DATE] and thereafter, but only so long as such continuance is
specifically approved at least annually by (i) the Trustees, or by the vote of
a majority of the outstanding Class B voting securities of the Fund, and (ii)
by the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by vote of a majority of the outstanding Class B
voting securities of the Fund, or by the Distributor, on sixty days' written
notice to the other party. This Agreement shall terminate automatically in the
event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested
14
<PAGE>
person," when used in this Agreement, shall have the respective meanings
specified in the Investment Company Act.
Section 11. Amendment of this Agreement. This Agreement may be amended
---------------------------
by the parties only if such amendment is specifically approved by (i) the
Trustees, or by the vote of a majority of outstanding Class B voting securities
of the Fund,and (ii) by the vote of a majority of those Trustees of the Trust
who are not parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such approval.
Section 12. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York,
or any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
Section 13. Personal Liability. The Declaration of Trust establishing
------------------
Merrill Lynch Multi-State Municipal Series Trust, dated August 2, 1985, a copy
of which, together with all amendments thereto (the "Declaration"), is on file
in the office of the Secretary of the Commonwealth of Massachusetts, provides
that the name "Merrill Lynch Multi-State Municipal Series Trust" refers to the
trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of said
Trust shall be
15
<PAGE>
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of said Trust, but the "Trust Property" only shall
be liable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH MULTI-STATE MUNICIPAL
SERIES TRUST
By
------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
------------------------------------
Title:
16
<PAGE>
EXHIBIT A
---------
MERRILL LYNCH [STATE] MUNICIPAL BOND FUND
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
CLASS B SHARES OF BENEFICIAL INTEREST
SELECTED DEALERS AGREEMENT
FOR SUBSCRIPTION PERIOD
-----------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Multi-State Municipal Series Trust, a Massachusetts
business trust (the "Trust"), pursuant to which it acts as the distributor for
the sale of Class B shares of beneficial interest, par value $0.10 per share
(herein referred to as "Class B shares"), of the Trust relating to Merrill Lynch
[STATE] Municipal Bond Fund (the "Fund"), and as such has the right to
distribute Class B shares of the Fund for resale. The Trust is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the Fund's Class B shares being
offered to the public are registered under the Securities Act of 1933, as
amended (the "Securities Act"). Such Class B Shares and certain of the terms on
which they are being offered are more fully described in the enclosed Prospectus
and Statement of Additional Information. You have received a copy of the Class
B Shares Distribution Agreement (the "Distribution Agreement") between ourself
and the Trust and reference is made herein to certain provisions of such
Distribution Agreement. This Agreement relates solely to the subscription
period described in Section 3(a) of such Distribution Agreement. Subject to the
foregoing, as principal, we offer to sell to you, as a member of the Selected
Dealers Group, Class B shares of the Fund upon the following terms and
conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through [DATE]. The subscription period may
be extended upon agreement between the Trust and the Distributor. Subject to the
provisions of such Section and the conditions contained herein, we will sell to
you on the fifth business day following the termination of the subscription
period, or such other date as we may advise (the "Closing Date"), such number of
Class B shares as to which you have placed orders with us not later than 5:00
P.M. on the second full business day preceding the Closing Date.
<PAGE>
2. In all sales of these Class B shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any authority
to act as agent for the Trust, for us or for any other member of the Selected
Dealers Group.
3. You shall not place orders for any of the Class B shares unless you
have already received purchase orders for such Class B shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the
Trust in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the Prospectus, as amended from time
to time. You agree that you will not offer or sell any of the Class B shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class B shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) relating to the Fund
and will not furnish to any person any information relating to the Class B
shares of the Fund which is inconsistent in any respect with the information
contained in the Prospectus and Statement of Additional Information (as then
amended or supplemented) or cause any advertisement to be published in any
newspaper or posted in any public place without our consent and the consent of
the Trust.
4. Payment for Class B shares purchased by you is to be made by Federal
funds wire or by certified or official bank check at the office of
Merrill Lynch Funds Distributor, Inc., Box 9011 Princeton, New Jersey 08543-
9011, payable to the order of Merrill Lynch Funds Distributor, Inc., against
delivery by us of non-negotiable share deposit receipts ("Receipts") issued by
Financial Data Services, Inc., as shareholder servicing agent, acknowledging the
deposit with it of the Class B shares so purchased by you. You agree that as
promptly as practicable after the delivery of such Class B shares you will issue
appropriate written transfer instructions to the Trust or to the shareholder
servicing agent as to the purchasers to whom you sold the Class B shares.
5. No person is authorized to make any representations concerning Class
B shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information relating to the Fund and in such printed
information subsequently issued by us or the Trust as information supplemental
to such
A-2
<PAGE>
Prospectus and Statement of Additional Information. In purchasing Class
B shares through us you shall rely solely on the representations contained in
the Prospectus and Statement of Additional Information and supplemental
information above mentioned. Any printed information which we furnish you other
than the Fund's Prospectus and Statement of Additional Information, periodic
reports and proxy solicitation material are our sole responsibility and not the
responsibility of the Trust, and you agree that the Trust shall have no
liability or responsibility to you in these respects unless expressly assumed in
connection therewith.
6. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials relating to the Fund. You further
agree to endeavor to obtain Proxies from such purchasers. Additional copies of
the Prospectus and Statement of Additional Information, annual or interim
reports and proxy solicitation materials of the Trust will be supplied to you
in reasonable quantities upon request.
7. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class B shares entirely. Each party hereto
has the right to cancel this Agreement upon notice to the other party.
8. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act or of the rules and regulations of the
Commission issued thereunder.
9. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such Association.
10. Upon application to us, we will inform you as to the states in
which we believe the Class B shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no
A-3
<PAGE>
responsibility or obligation as to your right to sell Class B shares in any
jurisdiction. We will file with the Department of State in New York a Further
State Notice with respect to the Class B shares, if necessary.
11. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
12. You agree that you will not sell any Class B shares of the Trust to
any account over which you exercise discretionary authority.
13. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: -------------------------------------------
By:
---------------------------------------------------
Address:
---------------------------------------------
----------------------------------------------
Date:
------------------------------------------------
A-4
<PAGE>
EXHIBIT B
---------
MERRILL LYNCH [STATE] MUNICIPAL BOND FUND
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
CLASS B SHARES OF BENEFICIAL INTEREST
SELECTED DEALERS AGREEMENT
-------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Multi-State Municipal Series Trust, a Massachusetts
business trust (the "Trust"), pursuant to which it acts as the distributor for
the sale of Class B shares of beneficial interest, par value $0.10 per share
(herein referred to as the "Class B shares"), of the Trust relating to Merrill
Lynch [STATE] Municipal Bond Fund (the "Fund"), and as such has the right to
distribute Class B shares of the Fund for resale. The Trust is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the Fund's Class B shares being
offered to the public are registered under the Securities Act of 1933, as
amended (the "Securities Act"). You have received a copy of the Class B shares
Distribution Agreement (the "Distribution Agreement") between ourself and the
Trust and reference is made herein to certain provisions of such Distribution
Agreement. The terms "Prospectus" and "Statement of Additional Information" as
used herein refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission (the
"Commission") which is part of the most recent effective registration statement
pursuant to the Securities Act. As principal, we offer to sell to you, as a
member of the Selected Dealers Group, Class B shares of the Fund upon the
following terms and conditions:
1. In all sales of these Class B shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any
to act as agent for the Trust, for us or for any other member of the Selected
Dealers Group.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information relating to the Fund. The
procedure relating to the handling of orders shall be subject to Section 4
hereof and instructions which we or the Trust shall forward from time to
<PAGE>
time to you. All orders are subject to acceptance or rejection by the
Distributor or the Trust in the sole discretion of either. The minimum initial
and subsequent purchase requirements are as set forth in the current Prospectus
and Statement of Additional Information relating to the Fund.
3. You shall not place orders for any of the Class B shares unless you
have already received purchase orders for such Class B shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class B shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class B shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish
to any person any information relating to the Class B shares of the Fund, which
is inconsistent in any respect with the information contained in the Prospectus
and Statement of Additional Information (as then amended or supplemented) or
cause any advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Trust.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Trust for Class B shares of the Fund to be resold by us to
you subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement, and (ii) to
tender Class B shares directly to the Trust or its agent for redemption subject
to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class
B shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information relating to the Fund and in such printed
information subsequently issued by us or the Trust as information supplemental
to such Prospectus and Statement of Additional Information. In purchasing Class
B shares through us you shall rely solely on the representations contained in
the Prospectus and Statement of Additional Information and supplemental
information above
B-2
<PAGE>
mentioned. Any printed information which we furnish you other than the
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the responsibility of
the Trust, and you agree that the Trust shall have no liability or
responsibility to you in these respects unless expressly assumed in connection
therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials relating to the Fund. You further
agree to endeavor to obtain proxies from such purchasers. Additional copies of
the Prospectus and Statement of Additional Information, annual or interim
reports and proxy solicitation materials will be supplied to you in reasonable
quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class B shares entirely. Each party hereto
has the right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act or of the rules and regulations of the
Commission issued thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
11. Upon application to us, we will inform you as to the states in
which we believe the Class B shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class B shares, if necessary.
B-3
<PAGE>
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
13. Your first order placed pursuant to this Agreement for the purchase
of Class B shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
------------------------------------------
By:
-------------------------------------------------
Address:
--------------------------------------------
-----------------------------------------------------
Date:
------------------------------------------
B-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRILL LYNCH OHIO MUNICIPAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 72248576
<INVESTMENTS-AT-VALUE> 74575974
<RECEIVABLES> 3674949
<ASSETS-OTHER> 516752
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 78767675
<PAYABLE-FOR-SECURITIES> 2970450
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351200
<TOTAL-LIABILITIES> 3321650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74942018
<SHARES-COMMON-STOCK> 688246
<SHARES-COMMON-PRIOR> 892692
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1392366)
<OVERDISTRIBUTION-GAINS> 431025
<ACCUM-APPREC-OR-DEPREC> 2327398
<NET-ASSETS> 7269939
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4511797
<OTHER-INCOME> 0
<EXPENSES-NET> 958939
<NET-INVESTMENT-INCOME> 3552858
<REALIZED-GAINS-CURRENT> (1392365)
<APPREC-INCREASE-CURRENT> 1835744
<NET-CHANGE-FROM-OPS> 3996237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 402108
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 181071
<NUMBER-OF-SHARES-REDEEMED> 403178
<SHARES-REINVESTED> 17661
<NET-CHANGE-IN-ASSETS> 463469
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 431025
<GROSS-ADVISORY-FEES> 402455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 978810
<AVERAGE-NET-ASSETS> 7580074
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MERRILL LYNCH OHIO MUNICIPAL BOND FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 72248576
<INVESTMENTS-AT-VALUE> 74575974
<RECEIVABLES> 3674949
<ASSETS-OTHER> 516752
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 78767675
<PAYABLE-FOR-SECURITIES> 2970450
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351200
<TOTAL-LIABILITIES> 3321650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74942018
<SHARES-COMMON-STOCK> 6065383
<SHARES-COMMON-PRIOR> 6248977
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1392366)
<OVERDISTRIBUTION-GAINS> 431025
<ACCUM-APPREC-OR-DEPREC> 2327398
<NET-ASSETS> 64068057
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4511797
<OTHER-INCOME> 0
<EXPENSES-NET> 958939
<NET-INVESTMENT-INCOME> 3552858
<REALIZED-GAINS-CURRENT> (1392365)
<APPREC-INCREASE-CURRENT> 1835744
<NET-CHANGE-FROM-OPS> 3996237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3039531
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1171885
<NUMBER-OF-SHARES-REDEEMED> 1525336
<SHARES-REINVESTED> 169857
<NET-CHANGE-IN-ASSETS> 463469
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 431025
<GROSS-ADVISORY-FEES> 402455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 978810
<AVERAGE-NET-ASSETS> 63408701
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> .49
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MERRILL LYNCH OHIO MUNICIPAL BOND FUND CLASS C
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 72248576
<INVESTMENTS-AT-VALUE> 74575974
<RECEIVABLES> 3674949
<ASSETS-OTHER> 516752
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 78767675
<PAYABLE-FOR-SECURITIES> 2970450
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351200
<TOTAL-LIABILITIES> 3321650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74942018
<SHARES-COMMON-STOCK> 82726
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1392366)
<OVERDISTRIBUTION-GAINS> 431025
<ACCUM-APPREC-OR-DEPREC> 2327398
<NET-ASSETS> 873714
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4511797
<OTHER-INCOME> 0
<EXPENSES-NET> 958939
<NET-INVESTMENT-INCOME> 3552858
<REALIZED-GAINS-CURRENT> (1392365)
<APPREC-INCREASE-CURRENT> 1835744
<NET-CHANGE-FROM-OPS> 3996237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15289
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 88400
<NUMBER-OF-SHARES-REDEEMED> 6809
<SHARES-REINVESTED> 1135
<NET-CHANGE-IN-ASSETS> 463469
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 431025
<GROSS-ADVISORY-FEES> 402455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 978810
<AVERAGE-NET-ASSETS> 429632
<PER-SHARE-NAV-BEGIN> 10.09
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> .47
<PER-SHARE-DIVIDEND> .37
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> MERRILL LYNCH OHIO MUNICIPAL BOND FUND CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 72248576
<INVESTMENTS-AT-VALUE> 74575974
<RECEIVABLES> 3674949
<ASSETS-OTHER> 516752
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 78767675
<PAYABLE-FOR-SECURITIES> 2970450
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351200
<TOTAL-LIABILITIES> 3321650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74942018
<SHARES-COMMON-STOCK> 306321
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1392366)
<OVERDISTRIBUTION-GAINS> 431025
<ACCUM-APPREC-OR-DEPREC> 2327398
<NET-ASSETS> 2324315
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4511797
<OTHER-INCOME> 0
<EXPENSES-NET> 958939
<NET-INVESTMENT-INCOME> 3552858
<REALIZED-GAINS-CURRENT> (1392365)
<APPREC-INCREASE-CURRENT> 1835744
<NET-CHANGE-FROM-OPS> 3996237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 95930
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 303961
<NUMBER-OF-SHARES-REDEEMED> 767
<SHARES-REINVESTED> 3127
<NET-CHANGE-IN-ASSETS> 463469
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 431025
<GROSS-ADVISORY-FEES> 402455
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 978810
<AVERAGE-NET-ASSETS> 2408313
<PER-SHARE-NAV-BEGIN> 10.09
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> .47
<PER-SHARE-DIVIDEND> .41
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.1(f)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
Establishment and Designation
Merrill Lynch Ohio Municipal Bond Fund
The undersigned, being a majority of the Trustees of Merril
Lynch Multi-State Municipal Series Trust, a Massachusetts business
trust (the "Trust"), acting pursuant to Section 6.2 of the
Declaration of Trust, as amended, dated August 2, 1985 (the
"Declaration") of the Trust, do hereby divide the shares of
beneficial interest of the Trust, par value $.10 per share
("Shares"), to create a separate Series, within the meaning of
said Section 6.2, as follows:
1. The Series is designated the "Merrill Lynch Ohio
Municipal Bond Fund" (referred to herein as the
"Fund").
2. Shares of the Fund shall be entitled to all of the
rights and preferences accorded to Shares under the
Declaration.
3. The purchase price of Shares of the Fund, the method of
determination of net asset value of the Fund, the price,
terms and manner of redemption of Shares of the Fund,
and the relative dividend rights of holders of Shares of
the Fund shall be established by the Trustees of the
Trust in accordance with the provisions of the
Declaration and shall be set forth in the currently
effective prospectus and statement of additional
information of the Trust relating to shares of the Fund,
as amended from time to time, under the Securities Act
of 1933, as amended.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this
instrument in duplicate original counterparts and have caused a
duplicate original to be lodged among the records of the Trust
this 20th day of December, 1991.
/s/ Kenneth L. Axelson /s/ Herbert I. London
---------------------- ---------------------
Kenneth L. Axelson Herbert I. London
75 Jameson Point Road New York University -
Rockland, Maine 04841 Gallatin Division
715 Broadway
New York, New York 10003
/s/ Joseph L. May /s/ Andre F. Perold
----------------- -------------------
Joseph L. May Andre F. Perold
P.O. Box 3050 Dillon House 34
Nashville, Tennessee 37215 Soldiers Field Road
Boston, Massachusetts 02163
/s/ Arthur Zeikel
-----------------
Arthur Zeikel
Box 9011
Princeton, Now Jersey 08543-9011
The Declaration of Trust establishing Merrill Lynch Multi-
State Municipal Series Trust, dated August 2, 1985, a copy of
which, together with all amendments thereto (the "Declaration")
is on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name of "Merrill Lynch Multi-
State Municipal Series Trust" refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or
agent of Merrill Lynch Multi-State Municipal series Trust shall be
held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim
or otherwise in connection with the affairs of said Trust but the
Trust Property only shall be liable.
<PAGE>
EXHIBIT 99.1(g)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
Establishment and Designation
of
Class A Shares and Class B Shares
Beneficial Interest of the
Series Designated Merrill Lynch
Ohio Municipal Bond Fund of the Trust
The undersigned, being a majority of the Trustees of Merrill
Lynch Multi-State Municipal Series Trust, a Massachusetts business
trust (the "Trust"), acting pursuant to Section 6.2 of the
Declaration of Trust, as amended, dated August 2, 1985 (the
"Declaration") of the Trust, do hereby divide the shares of
beneficial interest of the Series designated "Merrill Lynch Ohio
Municipal Bond Fund" (the "Fund") of the Trust, par value $.l0 per
share ("Shares") to create two classes of Shares within the
meaning of said Section 6.2, as follows:
1. The two classes of Shares are designated "Class A
Shares" and "Class B Shares".
2. Class A Shares and Class B Shares shall be entitled to
all of the rights and preferences accorded to Shares
under the Declaration.
3. The purchase price of Class A Shares and Class B
Shares, the method of determination of net asset value
of Class A Shares and Class B Shares, the price, terms
and manner of redemption of Class A Shares and Class B
Shares, and the relative dividend rights of holders of
Class A Shares and Class B Shares shall be established
by the Trustees of the Trust in accordance with the
provisions of the Declaration and shall be set forth in
the currently effective prospectus and statement of
additional information of the Trust relating to the
Fund, as amended from time to time, under the
Securities Act of 1933, as amended.
<PAGE>
IN WITNESS WHEREOF, the undersigned, have signed this
instrument in duplicate original counterparts and have caused a
duplicate original to be lodged among the record of the Trust this
24th day of December, 1991.
/s/ Kenneth S. Axelson /s/ Andre F. Perold
---------------------- -------------------
Kenneth S. Axelson Andre F. Perold
75 Jameson Point Road Dillon House 34
Rockland, Maine 04841 Soldiers Field Road
Boston, Massachusetts 02163
/s/ Herbert I. London /s/ Arthur Zeikel
--------------------- -----------------
Herbert I. London Arthur Zeikel
New York University Box 9011
Gallatin Division Princeton, New Jersey 08543-9011
715 Broadway
New York, New York 10003
/s/ Joseph L. May
-----------------
Joseph L. May
P.O. Box 3050
Nashville, Tennessee 37219
The Declaration of Trust establishing Merrill Lynch Multi-
State Municipal Series Trust, dated August 2, 1985, a copy of
which, together with all amendments thereto (the "Declaration")
is on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name of "Merrill Lynch Multi-
State Municipal Series Trust" refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or
agent of Merrill Lynch Multi-State Municipal Series Trust shall be
held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim
or otherwise in connection with the affairs of said Trust but the
Trust property only shall be liable.
<PAGE>
EXHIBIT 99.10
BROWN & WOOD
One World Trade Center
New York, New York 10048-0557
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
November 20, 1995
Merrill Lynch Ohio Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust
P.O. Box 9011
Princeton, New Jersey 08543-9011
Dear Sirs:
This opinion is furnished in connection with the registration by
Merrill Lynch Multi-State Municipal Series Trust, a Massachusetts business trust
(the "Trust"), 216,505 of shares of beneficial interest, par value $0.10 per
share (the "Shares"), of the Merrill Lynch Ohio Municipal Bond Fund, a series of
the Trust, under the Securities Act of 1933 pursuant to a registration statement
on Form N-1A (File No. 33-44500) as amended (the "Registration Statement").
As counsel for the Trust, we are familiar with the proceedings taken
by it in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Declaration of Trust of the
Trust, as amended, the By-Laws of the Trust and such other documents as we have
deemed relevant to the matters referred to in this opinion.
<PAGE>
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and nonassessable shares of beneficial interest, except that shareholders
of the Trust may under certain circumstances be held personally liable for the
Trust's obligations.
In rendering this opinion, we have relied as to matters of
Massachusetts law upon an opinion of Bingham, Dana & Gould rendered to the
Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus and
Statement of Additional Information constituting parts thereof.
Very truly yours,
/s/ BROWN & WOOD
2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Ohio Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust:
We consent to the use in Post-Effective Amendment No. 5 to Registration
Statement No. 33-44500 of our report dated September 6, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
November 20, 1995
<PAGE>
EXHIBIT 99.13
CERTIFICATE OF SOLE SHAREHOLDER
Fund Asset Management, Inc. ("FAMI"), the holder of 5,000
Class A shares of beneficial interest, par value $0.10 per share,
and 5,000 Class B shares of beneficial interest, par value $0.10
per share, of Merrill Lynch Ohio Municipal Bond Fund (the "Fund")
of Merrill Lynch Multi-State Municipal Series Trust (the
"Trust"), a Massachusetts business trust, does hereby confirm to
the Trust its representation that it purchased such shares for
investment purposes, with no present intention of redeeming or
reselling any portion thereof, and does further agree that if it
redeems any portion of such shares prior to the amortization of
the Fund's organizational expenses, the proceeds thereof will be
reduced by the proportionate amount of unamortized organizational
expenses which the number of shares being redeemed bears to the
number of shares initially purchased and outstanding at the time
of redemption. FAMI further agrees that in the event such shares
are sold or otherwise transferred to any other party, that prior
to such sale or transfer FAMI will obtain on behalf of the Fund
an agreement from such other party to comply with the foregoing
as to the reduction of redemption proceeds and to obtain a
similar agreement from any transferee of such party.
FUND ASSET MANAGEMENT, INC.
By: /s/ Mark B. Goldfus
--------------------
Mark B. Goldfus
Vice President
Dated: January 14, 1992
<PAGE>
EXHIBIT 99.16(a)
OHIO MUNICIPAL BOND FUND CLASS A (MAY 31, 1992)
AVERAGE ANNUAL AND TOTAL RETURNS
<TABLE>
<CAPTION>
Since
Inception Since
Avg. Inception
Annual Total
Return Return*
--------- ---------
<S> <C> <C>
Initial Investment........................................................ $1,000.00 $1,000.00
Divided by Max. Offer. Price.............................................. 10.42
---------
Divided by Net Asset Value................................................ 10.00
---------
Equals Shares Purchased................................................... 95.97 100.00
Plus Shares Acquired through Dividend Reinvestment........................ 1.45 1.48
--------- ---------
Equals Shares Held at 5/31/92............................................. 97.42 101.48
Multiplied by Net Asset Value at 5/31/92.................................. 10.14 10.14
--------- ---------
Equals Ending Redeemable Value at $1,000 Investment (ERV) at 5/31/92...... 987.80 1,029.00
Divided by $1,000 (P)..................................................... 0.9878 1.0290
Subtract I................................................................ -0.0122 0.0290
Expressed as a percentage equals the Aggregate Total Return for the Period
(T)..................................................................... -1.22%
=========
Expressed as a percentage equals the Aggregate Total Return for the Period 2.90%
=========
ERV divided by P.......................................................... .9878
Raise to the power of..................................................... 3.9683
Equals.................................................................... .9530
Subtract 1................................................................ -.0470
Expressed as a percentage equals the Average Annualized Total Return...... -4.70%
=========
</TABLE>
- ----------------
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD FOR PERIOD
ENDING MAY 31, 1992
OHIO MUNICIPAL BOND FUND - CLASS A
<TABLE>
<S> <C>
Long term income generally based on yield to maturity times market
value of each security......................................... $ 16,748.86
Plus short term income accrued for the past thirty days........... 365.89
-------------
Equals Total Income............................................... 17,114.75
Less expenses for the past thirty days............................ 141.92
-------------
Equals net monthly income for yield calculation................... 16,972.83
-------------
Average shares outstanding for 30 days............................ 318,997.73
Times the Net Asset Value......................................... 10.56
-------------
Equals total dollars.............................................. $3,368,616.03
=============
Net monthly income divided by total dollars equals................ .005039
-------------
Add 1............................................................. 1.005039
-------------
Raise to the power of 6........................................... 1.030617
-------------
Subtract 1........................................................ 0.030617
-------------
Times 2........................................................... 0.061234
-------------
Expressed as a percentage equals the standardized yield for the 30
day period...................................................... 6.12%*
====
Tax Rate.......................................................... 28%
x = 1 minus Tax Rate.............................................. 72%
Standard Yield divided by x equals Tax Equivalent Yield for 30 day
period.......................................................... 8.50%*
====
</TABLE>
- -------------
* The SEC standardized 30 day yield for Ohio Municipal Bond - Class A would be
4.86% without voluntary reimbursement. The tax equivalent yield would be
6.75%.
<PAGE>
EXHIBIT 99.16(b)
OHIO MUNICIPAL BOND FUND CLASS B (MAY 31, 1992)
AVERAGE ANNUAL AND TOTAL RETURNS
<TABLE>
<CAPTION>
Since
Inception Since
Avg. Inception
Annual Total
Return Return*
--------- ---------
<S> <C> <C>
Initial Investment........................................ $1,000.00 $1,000.00
Divided by Net Asset Value................................ 10.00 10.00
--------- ---------
Equals Shares Purchased................................... 100.00 100.00
Plus Shares Acquired through Dividend Reinvestment........ 1.16 1.35
--------- ---------
Equals Shares Held at 5/31/92............................. 101.16 101.35
Multiplied by Net Asset Value at 5/31/92.................. 10.14 10.14
--------- ---------
Equals Ending Value before deduction for contingent
deferred sales charge................................... 1,025.76 1,027.70
Less deferred sales charge................................ -(38.06)
--------- ---------
Equals Ending Redeemable Value at a $1,000 Invest-
ment (ERV).............................................. 987.70 1,027.70
--------- ---------
Divided by $1,000 (P)..................................... 0.9877 1.0277
Subtract 1................................................ -0.0123 0.0277
Expressed as a percentage equals the Aggregate Total
Return for the Period (T)................................ -1.23%
=========
Expressed as a percentage equals the Aggregate Total
Return for the Period.................................... 2.77%
=========
ERV divided by P.......................................... .9877
Raise to the power of..................................... 3.9683
Equals.................................................... .9526
Subtract 1................................................ -0.0474
Expressed as a percentage equals the Average Annual-
ized Total Return....................................... -4.74%
=========
</TABLE>
- --------------
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD FOR PERIOD
ENDING MAY 31, 1992
OHIO MUNICIPAL BOND FUND - CLASS B
<TABLE>
<S> <C>
Long term income generally based on yield to maturity times
market value of each security................................... $ 99,123.99
Plus short term income accrued for the past thirty days............ 2,165.41
--------------
Equals Total Income................................................ 101,289.40
Less expenses for the past thirty days............................. 8,792.04
--------------
Equals net monthly income for yield calculation.................... 92,497.36
--------------
Average shares outstanding for 30 days............................. 1,887,814.22
Times the Net Asset Value.......................................... 10.14
--------------
Equals total dollars............................................... $19,142,436.19
==============
Net monthly income divided by total dollars equals................. .004832
--------------
Add 1.............................................................. 1.004832
--------------
Raise to the power of 6............................................ 1.0293445
--------------
Subtract 1......................................................... 0.0293445
--------------
Times 2............................................................ 0.058690
--------------
Expressed as a percentage equals the standardized yield for the 30
day period........................................................ 5.87%*
====
Tax Rate........................................................... 28%
x = 1 minus Tax Rate............................................... 72%
Standard Yield divided by x equals Tax Equivalent Yield for 30 day
period............................................................ 8.15%*
====
</TABLE>
- -------------
* The SEC standardized 30 day yield for Ohio Municipal Bond - Class B would be
4.56% without voluntary reimbursement. The tax equivalent yield would be
6.33%.
<PAGE>
EXHIBIT 99.16(c)
Merrill Lynch Ohio Municipal Bond Fund of Merrill Lynch
Multi-State Municipal Series Trust - Class C
10/21/94 - 7/31/95
Since Since
Inception Inception
Average Annual Total
Total Return Return*
------------ ----------
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 10.09 10.09
--------- ---------
Equals Shares Purchased 99.108 99.108
Plus Shares Acquired through
Dividend Reinvestment 3.539 3.539
--------- ---------
Equals Shares Held at 7/31/95 102.647 102.647
Multiplied by Net Asset Value at 7/31/95 10.57 10.57
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,084.98 1,084.98
Less Deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1000 Investment (ERV) at 7/31/95 1,074.98 1,084.98
--------- ---------
Divided by $1,000 (P) 1.0750 1.0850
Subtract 1 0.0750 1.0850
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 7.50%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 8.50%
=========
ERV divided by P 1.0750
Raise to the power of 1.2898
Equals 1.0977
Subtract 1 0.0977
Expressed as a percentage equals the
Average Annualized Total Return 9.77%
=========
*Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
Merrill Lynch Ohio Municipal Bond Fund of Merrill Lynch
Multi-State Municipal Series Trust - Class C
Long term income generally based on yield to
maturity times market value of each security $3,884
Plus short term income accrued for the past
thirty days 393
--------------
Equals Total Income 4,277
Less expenses for the past thirty days -1,043
--------------
Equals net monthly income for yield calculation 3,234
--------------
Average shares outstanding for 30 days 82,962
Times the Net Asset Value 10.56
--------------
Equals total dollars $876,077
==============
Net monthly income divided by total dollars equals 0.003691447
Add 1 1.003691447
Raise to the power of 6 1.022354090
Subtract 1 0.022354090
Times 2 0.044708180
Expressed as a percentage equals the
standardized yield for the 30 day period 4.47%
=========
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 6.21%
=========
<PAGE>
EXHIBIT 99.16(d)
Merrill Lynch Ohio Municipal Bond Fund of Merrill Lynch
Multi-State Municipal Series Trust - Class D
10/21/94 - 7/31/95
Since Since
Inception Inception
Average Annual Total
Total Return Return*
------------ ----------
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 10.51
---------
Divided by Net Asset Value 10.09
---------
Equals Shares Purchased 99.144 99.108
Plus Shares Acquired through
Dividend Reinvestment 3.792 3.950
--------- ---------
Equals Shares Held at 7/31/95 98.936 103.058
Multiplied by Net Asset Value at 7/31/95 10.57 10.57
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,045.75 1,089.32
--------- ---------
Divided by $1,000 (P) 1.0458 1.0893
Subtract 1 0.0458 0.0893
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.58%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 8.93%
=========
ERV divided by P 1.0458
Raise to the power of 1.2898
Equals 1.0594
Subtract 1 0.0594
Expressed as a percentage equals the
Average Annualized Total Return 5.94%
=========
*Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
Merrill Lynch Ohio Municipal Bond Fund of Merrill Lynch
Multi-State Municipal Series Trust - Class D
Long term income generally based on yield to
maturity times market value of each security $14,222
Plus short term income accrued for the past
thirty days 1,439
--------------
Equals Total Income 15,661
Less expenses for the past thirty days -2,454
--------------
Equals net monthly income for yield calculation 13,207
--------------
Average shares outstanding for 30 days 303,841
Times the Maximum Offering Price 11.00
--------------
Equals total dollars $3,342,250
==============
Net monthly income divided by total dollars equals 0.003951508
Add 1 1.003951508
Raise to the power of 6 1.023944505
Subtract 1 0.023944505
Times 2 0.047889009
Expressed as a percentage equals the
standardized yield for the 30 day period 4.79%
=========
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 days period 6.65%
=========
