<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1995
SECURITIES ACT FILE NO. 33-50861
INVESTMENT COMPANY ACT FILE NO. 811-6156
POST-EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT AS STATED BELOW
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
/X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / PRE-EFFECTIVE AMENDMENT NO.
/X/ POST-EFFECTIVE AMENDMENT NO. 2
AND/OR
/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ AMENDMENT NO. 7
------------------------
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS 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 HIGH INCOME MUNICIPAL BOND FUND, INC.
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:
PHILIP L. KIRSTEIN, ESQ. THOMAS R. SMITH, JR., ESQ.
MERRILL LYNCH ASSET MANAGEMENT, L.P. BROWN & WOOD
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
------------------------
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS IN
THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND RELATES TO REGISTRATION
STATEMENT NO. 33-36472, AS AMENDED, PREVIOUSLY FILED BY THE REGISTRANT ON FORM
N-2 ON NOVEMBER 12, 1992 AND DECLARED EFFECTIVE ON DECEMBER 29, 1992. THIS
REGISTRATION STATEMENT ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 5 TO
REGISTRATION STATEMENT NO. 33-36472, AND SUCH POST-EFFECTIVE AMENDMENT SHALL
HEREAFTER BECOME EFFECTIVE CONCURRENTLY WITH THE EFFECTIVENESS OF THIS
REGISTRATION STATEMENT AND IN ACCORDANCE WITH SECTION 8(C) OF THE SECURITIES ACT
OF 1933. THE REGISTRATION STATEMENT AND THE REGISTRATION STATEMENT AMENDED
HEREBY ARE COLLECTIVELY REFERRED TO HEREUNDER AS THE "REGISTRATION STATEMENT".
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<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(C)
<TABLE>
<CAPTION>
ITEM NUMBER, FORM N-2 CAPTION IN PROSPECTUS
- --------------------- ---------------------
<C> <S> <C>
PART A -- INFORMATION REQUIRED IN A PROSPECTUS
1. Outside Front Cover Page................. Cover Page
2. Inside Front and Outside Back Cover
Pages................................... Cover Page
3. Fee Table and Synopsis................... Prospectus Summary; Fund Expenses
4. Financial Highlights..................... Financial Highlights
5. Plan of Distribution..................... Prospectus Summary; Purchase of Shares
6. Selling Shareholders..................... Not Applicable
7. Use of Proceeds.......................... Investment Objective and Policies
8. General Description of the Registrant.... The Fund; Prospectus Summary
9. Management............................... Directors and Officers; Investment Advisory
and Administrative Arrangements
10. Capital Stock, Long-Term Debt and Other
Securities.............................. Description of Capital Stock; Automatic
Dividend Reinvestment Plan
11. Defaults and Arrears on Senior
Securities.............................. Not Applicable
12. Legal Proceedings........................ Not Applicable
13. Table of Contents of the Statement of
Additional Information.................. Not Applicable
PART B -- INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
14. Cover Page............................... Not Applicable
15. Table of Contents........................ Not Applicable
16. General Information and History.......... The Fund
17. Investment Objective and Policies........ Investment Objective and Policies; Investment
Restrictions
18. Management............................... Directors and Officers; Investment Advisory
and Administrative Arrangements
19. Control Persons and Principal Holders of
Securities.............................. Investment Advisory and Administrative
Arrangements Securities
20. Investment Advisory and Other Services... Investment Advisory and Administrative
Arrangements; Custodian; Transfer Agent,
Dividend Disbursing Agent and Shareholder
Servicing Agent; Independent Auditors
21. Brokerage Allocation and Other
Practices............................... Portfolio Transactions
22. Tax Status............................... Taxes
23. Financial Statements..................... Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
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> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 6, 1995
PROSPECTUS
DECEMBER , 1995
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
COMMON STOCK
------------------------
Merrill Lynch High Income Municipal Bond Fund, Inc. (the "Fund") is a
continuously offered, non-diversified, closed-end management investment company
seeking to provide shareholders with high current income exempt from Federal
income taxes by investing primarily in a portfolio of medium to lower grade or
unrated municipal obligations with remaining maturities of greater than one
year, the interest on which is exempt from Federal income taxes in the opinion
of bond counsel to the issuer. The Fund may invest in certain tax-exempt
securities which are classified as "private activity bonds" which 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 options and futures
transactions. There can be no assurance that the investment objective of the
Fund will be realized.
INVESTMENTS IN MEDIUM TO LOWER RATED MUNICIPAL OBLIGATIONS GENERALLY PROVIDE
A HIGHER YIELD THAN HIGHER RATED MUNICIPAL OBLIGATIONS OF SIMILAR MATURITY BUT
ARE SUBJECT TO GREATER MARKET RISK AND ARE ALSO SUBJECT TO A GREATER DEGREE OF
RISK WITH RESPECT TO THE ABILITY OF THE ISSUER TO MEET ITS PRINCIPAL AND
INTEREST OBLIGATIONS. As a result, an investment in the Fund may be speculative
in that it involves a high degree of risk and should not constitute a complete
investment program. In addition, the Fund should be considered a long-term
investment and not a vehicle for trading purposes. See "Risk Factors".
Shares of Common Stock of the Fund are offered on a best efforts basis at a
price equal to the next determined net asset value per share without a front-end
sales charge. As of the date of this Prospectus, net asset value per share is
$10.17. 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"). Merrill Lynch may charge its customers a
processing fee (presently $4.85) for confirming purchases and repurchases.
Purchases directly through the Fund's transfer agent are not subject to the
postage and handling charge. The minimum initial purchase is $1,000 and the
minimum subsequent purchase in the continuous offering is $50. See "Purchase of
Shares". In connection with an exemption the Fund has obtained from the
Securities and Exchange Commission relating to its tender offers, the Fund will
not offer its shares during the five business days preceding the termination of
a tender offer. See "Tender Offers".
No market presently exists for the Fund's Common Stock and it is not
currently expected that a secondary market will develop. Since the Fund's Common
Stock may not be considered readily marketable, the Board of Directors of the
Fund presently intends to consider the making of tender offers on a quarterly
basis to purchase all or a portion of the Common Stock of the Fund from
shareholders at the net asset value per share. In the event that tender offers
are not made, however, shareholders may find that their shares of Common Stock
are not marketable. See "Tender Offers". Shares of Common Stock purchased by the
Fund pursuant to tender offers which have been held for less than three years
will be subject to an "Early Withdrawal Charge" which will not exceed 3.0% of
the original purchase amount for such Common Stock, which will be paid to the
Fund's distributor. See "Early Withdrawal Charge".
Merrill Lynch Asset Management, L.P., an affiliate of Merrill Lynch, acts as
investment adviser and administrator for the Fund. The address of the Fund is
800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its telephone number
is (609) 282-2800. This Prospectus sets forth concisely information about the
Fund that a prospective investor ought to know before purchasing shares.
Investors are advised to read this Prospectus carefully and retain it for future
reference.
------------------------
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.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
PRICE TO SALES PROCEEDS TO
PUBLIC(1) LOAD(2) FUND(3)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ None $
- ------------------------------------------------------------------------------------------------------------------
Total(3).................................. $ None $
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Common Stock is offered on a best efforts basis at a price equal to net
asset value, which from November 2, 1990 (commencement of operations) to the
date of this prospectus, has ranged from $ to $ per share.
(2) Because the Distributor will pay all offering expenses (other than
registration fees) and sales commissions to selected dealers (primarily
Merrill Lynch) from its own assets, all of the proceeds of the offering will
be available to the Fund for investment in portfolio securities. See
"Purchase of Shares".
(3) These amounts (a) do not take into account (i) organizational expenses of
the Fund, in the amount of $138,404, which are being amortized over a
five-year period from November 9, 1990 and charged as expenses against the
income of the Fund or (ii) prepaid registration fees, in the amount of
approximately $56,000, which will be charged to income as the related shares
are issued, and (b) assume all shares currently registered are sold pursuant
to a continuous offering.
------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
THE FUND
Merrill Lynch High Income Municipal Bond Fund, Inc. (the "Fund") is a
continuously offered, non-diversified, closed-end fund. See "The Fund".
THE OFFERING
Shares of Common Stock of the Fund may be offered by Merrill Lynch Funds
Distributor, Inc. (the "Distributor"), and other securities dealers which have
entered into selected dealer agreements with the Distributor, including Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch").
The Fund will offer its Common Stock at a price equal to the next
determined net asset value per share without a front-end sales charge. The
minimum initial purchase is $1,000 and the minimum subsequent purchase is $50.
The Fund reserves the right to waive or modify the initial and subsequent
minimum investment requirements at any time. See "Purchase of Shares".
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide shareholders with high
current income exempt from Federal income taxes by investing primarily in a
portfolio of medium to lower grade or unrated municipal obligations with
remaining maturities of greater than one year, the interest on which is exempt
from Federal income taxes in the opinion of bond counsel to the issuer. See
"Investment Objective and Policies".
INVESTMENT ADVISER AND ADMINISTRATOR
Merrill Lynch Asset Management, L.P. (the "Investment Adviser" or "MLAM")
is the Fund's investment adviser and is responsible for the management of the
Fund's investment portfolio and for providing administrative services to the
Fund. For its advisory services, the Fund pays the Investment Adviser a monthly
fee at the annual rate of 0.95 of 1% of the Fund's average daily net assets. For
administrative services, the Fund pays the Investment Adviser a monthly fee at
the annual rate of 0.25 of 1% of the Fund's average daily net assets. While the
aggregate of the advisory and administrative fees is higher than that paid by
most other investment companies, it is similar to that paid by other
continuously offered closed-end funds. The Investment Adviser is owned and
controlled by Merrill Lynch & Co., Inc. As of September 30, 1995, the Investment
Adviser or its affiliate, Fund Asset Management, L.P. had a total of
approximately $189.4 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Investment
Adviser. See "Investment Advisory and Administrative Arrangements".
DISTRIBUTIONS
The Fund intends to declare dividends daily and to pay dividends monthly
and to distribute substantially all of its net investment income to holders of
Common Stock. Net capital gains, if any, will be distributed at least annually
to holders of Common Stock.
2
<PAGE> 5
TENDER OFFERS
No market presently exists for the Fund's Common Stock and it is not
currently anticipated that a secondary market will develop. In view of this, the
Board of Directors of the Fund intends to consider the making of tender offers
on a quarterly basis to purchase Common Stock of the Fund from shareholders at a
price per share equal to the net asset value per share of the Common Stock
determined at the close of business on the day an offer terminates. The Board of
Directors is under no obligation to authorize the making of a tender offer and
no assurance can be given that in any particular quarter a tender offer will be
made. If a tender offer is not made, shareholders may be unable to sell their
shares. Shares of Common Stock which have been held for less than three years
and which are purchased by the Fund pursuant to tender offers will be subject to
an early withdrawal charge. See "Early Withdrawal Charge". In addition, Merrill
Lynch charges its customers a processing fee (presently, $4.85) to confirm a
repurchase of shares from such customers pursuant to a Tender Offer. Tenders
made directly through the Fund's Transfer Agent are not subject to the postage
and handling charge.
SPECIAL CONSIDERATIONS AND RISK FACTORS
The Fund invests in medium to lower grade or unrated municipal obligations
and has been structured as a "non-diversified" closed-end investment company. In
addition, the Fund will concentrate its investments in obligations of issuers in
the health care industry. As a result, investment in the Fund involves special
considerations. See "Risk Factors".
The Fund expects that there will be no secondary market for its Common
Stock. Moreover, Merrill Lynch and other selected dealers are prohibited under
applicable law from making a market in the Fund's Common Stock while the Fund is
making either a public offering of or a tender offer to purchase its Common
Stock. To the extent a secondary market does develop, however, investors should
be aware that the shares of closed-end funds frequently trade in the secondary
market at a discount. Should there be a secondary market for the Fund's shares
of Common Stock, the market price of the shares may vary from net asset value.
Because of the lack of a secondary market and the early withdrawal charge,
the Fund is designed primarily for long-term investors and should not be
considered a vehicle for trading purposes.
The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors and could
have the effect of depriving holders of Common Stock an opportunity to sell
their shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund. See "Description of Capital
Stock -- Certain Provisions of the Articles of Incorporation".
The Fund is authorized to borrow money in amounts of up to 33% of the value
of its total assets at the time of such borrowings to finance the purchase of
its own shares pursuant to tender offers, if any, or for temporary,
extraordinary or emergency purposes. Borrowings by the Fund (commonly known as
"leveraging") create an opportunity for greater total return but, at the same
time, may increase the Fund's expenses. See "Risk Factors".
3
<PAGE> 6
RISK FACTORS
Emphasis on Health Care Industry. At least 25% of the Fund's assets will
be concentrated in obligations of issuers in the health care industry.
Accordingly, the Fund will be more susceptible to factors affecting that
industry than will be a municipal bond mutual fund that does not concentrate its
investments in such industry. In view of this, an investment in the Fund should
be made with an understanding of the characteristics of investments in the
health care industry and the risks that such investments may entail. See
"Investment Objective and Policies -- Description of Municipal Bonds".
Lower-Rated Securities. Investment in the Fund's shares involves special
risk considerations because a substantial portion of the portfolio will consist
of high yielding, medium to lower grade and unrated securities ("high yield
securities"). See "Investment Objective and Policies". Because investments in
high yield securities entail a somewhat higher risk of loss of income or
principal than investments in higher rated securities, an investment in the Fund
should not constitute a complete investment program and may not be appropriate
for all investors.
The market values of high yield securities tend to reflect individual
issuer developments to a greater extent than do higher rated securities, which
react primarily to fluctuations in the general level of interest rates. High
yield securities also tend to be more sensitive to economic conditions and
generally will involve more credit risk than securities in the higher rating
categories. Securities rated in the medium and lower rating categories by
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") and Fitch Investors Service, Inc. ("Fitch"), sometimes referred to
as "junk" bonds, are considered, on balance, to be predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. Even securities rated BBB by S&P or by Fitch or Baa
by Moody's, ratings which are considered investment grade, may possess some
speculative characteristics.
Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risk
associated with acquiring the securities of such issuers generally is 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. In addition, the market for high yield securities
is relatively new and has not weathered a major economic recession, and it is
unknown what effect such a recession might have on such securities. During such
periods, such issuers may not have sufficient revenues to meet their interest
payment obligations. The issuer's ability to serve 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. In its selection of high yield securities, however, the Investment
Adviser will give preference to securities that are secured and not subordinated
to other creditors.
High yield securities may have call or redemption features which would
permit an issuer to repurchase the securities 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 securities with lower yielding
securities, thus decreasing the net investment income to the Fund and dividends
to shareholders. Under ordinary circumstances, the Investment Adviser will give
preference to securities which have, at a minimum, ten year call protection.
4
<PAGE> 7
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
retail secondary market for many of these securities, and the Fund anticipates
that such securities could be sold only to a limited number of dealers or
institutional investors. To the extent that a secondary trading market for high
yield securities does exist, it is generally 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
high yield 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 are generally 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.
The Fund acquires a significant portion of its high yield securities upon
issuance, which involves 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 special 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 affect adversely the
Fund's net asset value. In addition, the Fund may incur additional expenses to
the extent it is required to seek recovery upon a default on a portfolio holding
or participate in the restructuring of the obligation.
The following table sets forth the average monthly dollar-weighted market
value by S&P rating category of the obligations held by the Fund during the
fiscal year ended August 31, 1995:
<TABLE>
<S> <C>
RATED OBLIGATIONS............................................. 62.99%
AAA: 7.78%; A: 3.95%; BBB: 27.16%; BB: 22.56% and B: 1.54%.
UNRATED OBLIGATIONS*.......................................... 37.01%
</TABLE>
- ---------------
* Obligations which are not rated by S&P. Such obligations may be rated by
nationally recognized statistical rating organizations other than S&P, or may
not be rated by any of such organizations. With respect to the percentage of
the Fund's assets invested in such securities, the Fund's Investment Adviser
believes that 1.62% are of comparable quality to obligations rated AAA, 2.40%
are of comparable quality to obligations rated BBB, 26.26% are of comparable
quality to obligations rated BB, 6.73% are of comparable quality to
obligations rated B. This determination is based on the Investment Adviser's
own internal evaluation and does not necessarily reflect how such securities
would be rated by S&P if it were to rate the securities.
In addition, the Fund may invest in certain types of investments, such as
"inverse floating obligations" or "residual interest bonds," the market values
of which will generally be more volatile than the market values of fixed rate
Municipal Bonds. See "Investment Objective and Policies -- Description of
Municipal Bonds."
Non-Diversified Status. The Fund has registered as a "non-diversified"
investment company so that it will be able to invest more than 5% of the value
of its assets in the obligations of a single issuer subject to the
diversification requirements of subchapter M of the Internal Revenue Code of
1986, as amended (the
5
<PAGE> 8
"Code"), applicable to the Fund. To the extent the Fund invests a relatively
high percentage of its assets in obligations of a limited number of issuers, the
Fund may be more susceptible than a more widely diversified fund to any single
economic, political or regulatory occurrence or to changes in an issuer's
financial condition or in the market's assessment of the issuers.
Leverage. The Fund is authorized to borrow money in amounts of up to 33%
of the value of its total assets at the time of such borrowings to finance the
purchase of its own shares pursuant to tender offers, if any, or for temporary,
extraordinary or emergency purposes. Borrowings by the Fund (commonly known as
"leveraging") create an opportunity for greater total return but, at the same
time, such borrowings may increase the Fund's expenses. The Fund may be required
to maintain specified minimum available balances in cash or cash equivalents in
connection with borrowings (which may be higher than the Fund would otherwise
maintain) or to pay a commitment or other fee to maintain a line of credit;
either of these requirements will increase the cost of borrowing over the stated
interest rate. As a result, the use of leverage may diminish the investment
performance of the Fund compared with what it would have been without leverage.
The Fund's willingness to borrow, as opposed to selling portfolio securities,
may depend on several factors, including market conditions and interest rates.
6
<PAGE> 9
FEE TABLE
The following table is intended to assist Fund investors in understanding
the various costs and expenses associated with investing in the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES(A)
-----------------------------------
<S> <C>
Sales Load (as a percentage of offering price)...................................... None
Dividend Reinvestment Plan Fees..................................................... None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)(B)
----------------------------------------------------------
<S> <C>
Investment Advisory Fee............................................................. 0.95%
Administrative Fee.................................................................. 0.25
Other Expenses...................................................................... 0.32
----
Total Annual Expenses............................................................... 1.52%
====
</TABLE>
- ---------------
(a) Shareholders tendering shares within three years of their purchase may be
subject to the Early Withdrawal Charge. See "Early Withdrawal
Charge" -- page 25.
(b) See "Investment Advisory and Administrative Arrangements" -- page 28.
<TABLE>
<CAPTION>
EXAMPLE 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 assuming (1) total annual expenses of 1.52%, (2) a
5% annual return throughout the periods and (3) tender at the
end of the period............................................ $ 45* $58* $83 $181
An investor would pay the following expenses on a $1,000
investment assuming no tender at the end of the period....... $ 15 $48 $83 $181
==== === === ====
</TABLE>
- ---------------
* Reflects the Early Withdrawal Charge.
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 expenses set forth under "Other expenses" are based on estimated
amounts through the end of the Fund's current fiscal year. The Example set forth
above assumes reinvestment of all dividends and distributions and utilizes a 5%
annual rate of return as mandated by Securities and Exchange Commission
regulations. The Example should not be considered a representation of future
expenses or annual rate of return, and actual expenses or annual rate of return
may be more or less than those assumed for purposes of the Example. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and repurchases directly through the
Transfer Agent are not subject to the processing fee.
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. Financial statements for the year
ended August 31, 1995 and the independent auditors' report thereon are set forth
herein under "Financial Statements".
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
FOR THE
PERIOD
NOVEMBER 2,
FOR THE YEAR ENDED AUGUST 31, 1990+ TO
INCREASE (DECREASE) IN NET ASSET -------------------------------------------- AUGUST 31,
VALUE: 1995 1994 1993 1992 1991
- -------------------------------------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period......................... $ 10.92 $ 11.44 $ 10.74 $ 10.29 $ 10.00
-------- -------- -------- -------- ---------
Investment income -- net......... .65 .65 .68 .71 .63
Realized and unrealized gain
(loss) on investments -- net... .23 (.45) .75 .50 .29
-------- -------- -------- -------- ---------
Total from investment
operations..................... .88 .20 1.43 1.21 .92
-------- -------- -------- -------- ---------
Less Dividends and Distributions:
Investment income -- net......... (.65) (.65) (.68) (.71) (.63)
Realized gain on investments..... (.15) (.07) (.05) (.05) --
In excess of realized gain on
investments -- net............. (.03) -- -- -- --
-------- -------- -------- -------- ---------
Total dividends and
distributions.................. (.83) (.72) (.73) (.76) (.63)
-------- -------- -------- -------- ---------
Net asset value, end of period... $ 10.97 $ 10.92 $ 11.44 $ 10.74 $ 10.29
======== ======== ======== ======== =========
Total Investment Return*:
Based on net asset value per
share.......................... 8.74% 1.75% 13.83% 12.29% 9.43%++
======== ======== ======== ======== =========
Ratios to Average Net Assets:
Expenses, net of reimbursement... 1.52% 1.48% 1.37% 1.30% .84%**
======== ======== ======== ======== =========
Expenses......................... 1.52% 1.48% 1.47% 1.55% 1.76%**
======== ======== ======== ======== =========
Investment income -- net......... 6.11% 5.81% 6.17% 6.85% 7.43%**
======== ======== ======== ======== =========
Supplemental Data:
Net assets, end of period (in
thousands)..................... $198,575 $212,958 $216,922 $170,735 $ 114,628
======== ======== ======== ======== =========
Portfolio turnover............... 21.28% 28.51% 28.74% 31.74% 75.92%
======== ======== ======== ======== =========
</TABLE>
- ---------------
* Total investment returns exclude the effects of sales loads. The Fund is a
continuously offered closed-end Fund, the shares of which are offered at net
asset value; no separate market exists for such shares.
** Annualized.
+ Commencement of Operations.
++ Aggregate total investment return.
8
<PAGE> 11
THE FUND
Merrill Lynch High Income Municipal Bond Fund, Inc. (the "Fund") is a
continuously offered non-diversified, closed-end, management investment company.
The Fund was incorporated under the laws of the State of Maryland on August 16,
1990, and has registered as an investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund's principal office is located
at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its telephone
number is (609) 282-2800.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide shareholders with high
current income exempt from Federal income taxes by investing primarily in a
portfolio of medium to lower grade or unrated municipal obligations, the
interest on which is exempt from Federal income taxes in the opinion of bond
counsel to the issuer. The Fund will seek to achieve its objective by investing
at least 80% of its assets, except during temporary defensive periods, in a
portfolio of obligations with remaining maturities of greater than one year
issued by or on behalf of states, territories and possessions of the United
States and their political subdivisions, agencies or instrumentalities paying
interest which, in the opinion of bond counsel to the issuer, is exempt from
Federal income taxes ("Municipal Bonds"). The Fund at all times, except during
temporary defensive periods, will maintain at least 75% of its assets in
Municipal Bonds which are rated in any one of the medium and lower rating
categories of a nationally recognized statistical rating organization or are
unrated. In the case of Moody's Investors Service ("Moody's"), Standard & Poor's
Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch"), these ratings
are currently Baa (Moody's) or BBB (S&P or Fitch) or lower, respectively. These
are fundamental policies of the Fund and, therefore, may not be changed without
a vote of a majority of the outstanding shares of the Fund. The Fund presently
contemplates that it will not invest more than 25% of its total assets (taken at
market value) in Municipal Bonds whose issuers are located in the same state.
There can be no assurance that the investment objective of the Fund will be
realized.
Investment in shares of the Fund offers several benefits. The Fund offers
investors the opportunity to receive income exempt from Federal income taxes by
investing in a professionally managed portfolio of high-yielding Municipal
Bonds. Additionally, investment research and credit analysis relating to the
municipal securities in which the Fund seeks to invest are not readily
available. Moreover, many of these securities are not widely traded and the
execution of transactions in such securities requires expertise. Consequently,
the professional portfolio management which is provided by the Investment
Adviser is particularly important in the sector of the municipal securities
market in which the Fund invests. The Fund also relieves the investor of the
burdensome administrative details involved in managing a portfolio of Municipal
Bonds. The benefits are at least partially offset by the expenses involved in
operating an investment company. Such expenses primarily consist of the advisory
and administrative fees and operational costs.
Investments in lower rated Municipal Bonds generally provide a higher yield
than higher rated tax-exempt securities of similar maturity but are subject to
greater market risk and are also subject to a greater degree of risk with
respect to the ability of the issuer to meet its principal and interest
obligations. See the Appendix to this Prospectus for a description of Moody's,
S&P's and Fitch's ratings of Municipal Bonds.
The Fund will seek to reduce risk through diversification, credit analysis
and monitoring of current developments and trends in both the economy and
financial markets. The Investment Adviser will use various means to research the
stability and/or potential for improvement of various municipal issuers in
connection
9
<PAGE> 12
with the proposed purchase of their securities by the Fund. Evaluation of each
Municipal Bond may include the analysis of financial performance, debt
structure, economic factors and the administrative structure of the issuer.
Additionally, the priority of liens and the overall structure of the particular
issue may be factors which will determine suitability for purchase. Further
investigation may be performed and may include, among other things, discussions
with project management, corporate officers and industry experts as well as site
inspections, area analysis, and project and financial projection analysis. All
purchases and sales also may be subject to the review of market data, economic
projections and the performance of the financial markets. Certain economic
indicators also may be monitored. Additionally, the Investment Adviser will vary
the average maturity of the Fund's portfolio securities based upon the
Investment Adviser's assessment of economic and market conditions.
The Fund expects that there will be no secondary market for its Common
Stock. Moreover, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and other selected dealers are prohibited under applicable law from
making a market in the Fund's Common Stock while the Fund is making either a
public offering of or a tender offer to purchase its Common Stock. To the extent
a secondary market does develop, however, investors should be aware that the
shares of closed-end investment companies frequently trade at a discount from
their net asset value. The net asset value of the shares of a closed-end
investment company, such as the Fund, which invests primarily in fixed income,
tax-exempt securities, changes as the general levels of interest rates
fluctuate. When interest rates decline, the value of a fixed income portfolio
can be expected to rise. Conversely, when interest rates rise, the value of a
fixed income portfolio can be expected to decline.
The Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by such Act in the proportion of
its assets that it may invest in securities of a single issuer. However, the
Fund's investments will be limited so as to qualify the Fund as a "regulated
investment company" for purposes of the Code. See "Taxes". To qualify, among
other requirements, the Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities (other than U.S.
Government securities) of a single issuer and (ii) with respect to 50% of the
market value of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities (other than U.S. Government
securities) of a single issuer. A fund which elects to be classified as
"diversified" under the 1940 Act must satisfy the foregoing 5% requirement with
respect to 75% of its total assets. To the extent that the Fund assumes large
positions in the securities of a small number of issuers, the Fund's net asset
value 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.
DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds include primarily debt obligations issued to obtain funds
for various public purposes, including construction and equipping of a wide
range of public facilities, refunding of outstanding obligations and obtaining
funds for general operating expenses and loans to other public or private
institutions for the construction of facilities. In addition, certain types of
industrial development bonds are issued by or on behalf of public authorities to
finance various privately-operated facilities and certain local facilities,
including pollution control facilities. For purposes of this Prospectus, such
obligations are Municipal Bonds if the
10
<PAGE> 13
interest paid thereon is exempt from Federal income tax, even though such bonds
may be "private activity bonds" as discussed below.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" or "special obligation" bonds. General obligation
bonds are secured by the issuer's pledge of faith, credit, and taxing power for
the payment of principal and interest. The taxing power of any governmental
entity may be limited, however, by provisions of state constitutions or laws,
and an entity's credit 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's or entity's control. Revenue or special
obligation bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as from the user of the
facility being financed. Industrial development bonds are in most cases revenue
bonds and generally are not secured by a pledge of the credit or taxing power of
the issuer of such bonds. The payment of the principal and interest on such
industrial development bonds depends solely on the ability of the user of the
facility financed by the bonds to meet its financial obligations, and the
pledge, if any, of real and personal property so financed as security for such
payment. Municipal Bonds also may include "moral obligation" bonds which
normally are issued by special purpose public authorities. If an issuer of moral
obligation bonds is unable to meet its obligations, the repayment of such bonds
becomes a moral commitment but not a legal obligation of the state or
municipality in question.
The Fund may purchase Municipal Bonds classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities). Interest
received on certain tax-exempt securities which are classified as "private
activity bonds" may subject certain investors in the Fund to an alternative
minimum tax. There is no limitation on the percentage of the Fund's assets that
may be invested in Municipal Bonds which may subject certain investors to an
alternative minimum tax. See "Taxes".
Federal tax legislation has limited the types and volume of bonds
qualifying for the Federal income tax exemption of interest. 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.
The Fund may invest a relatively high percentage of its assets in Municipal
Bonds issued by entities which may be located in the same geographic area, or
which may pay their interest obligations from the revenues derived from similar
projects such as hospitals, multi-family housing, nursing homes, continuing care
facilities, commercial facilities (including hotels), electric utility systems
or industrial companies. This may make the Fund more susceptible to similar
economic, political, or regulatory occurrences. As the similarity in issuers
increases, the potential for fluctuation of the net asset value of shares of the
Fund also increases. Also, it is anticipated that a significant percentage of
the Municipal Bonds in the Fund's portfolio will be issued by entities or
secured by facilities with a relatively short operating history. Therefore,
investors should also be aware of the risks which these investments might
entail, as discussed below. See also "Industrial Development Bonds" below.
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
11
<PAGE> 14
risk with respect to the value of the particular index or interest rate which
serves as the basis for calculating the interest rate on such Municipal Bonds.
Such securities may 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 exempt securities. Certain investments in such obligations may be
illiquid.
Health Care Revenue Bonds. These securities include Municipal Bonds issued
to finance hospitals, nursing homes and continuing care facilities and which are
generally secured by the revenues of particular facilities. The ability of the
issuers of such securities to meet their obligations is dependent upon, among
other things, the revenues, costs and occupancy levels of the subject facilities
and the competitive nature of these industries. In addition, a major portion of
hospital and nursing home revenues typically is derived from Federal or state
programs such as Medicare and Medicaid and from various insurers. Changes in the
compensation and reimbursement formulae of these governmental programs or in the
rates paid by insurers may reduce revenues available for the payment of
principal of or interest on such bonds. New governmental legislation or
regulations and other factors, such as the inability to obtain sufficient
malpractice insurance, may also adversely affect the revenues or costs of these
issuers. Moreover, in the case of life care facilities, since a portion of
housing, medical care and other services may be financed by an initial lump-sum
deposit paid by occupants of the facility, there may be risk if the facility
does not maintain adequate financial resources to secure estimated actuarial
liabilities.
A number of legislative proposals concerning health care have been
introduced in Congress in recent years or have been reported to be under
consideration. These proposals span a wide range of topics, including cost
controls, national health insurance, incentives for competition in the provision
of health care services, tax incentives and penalties related to health care
insurance premiums, and promotion of prepaid health care plans. The Fund is
unable to predict the effect of any of these proposals, if enacted.
Single Family Housing Bonds and Multifamily Housing Bonds. Single family
housing bonds and multifamily housing bonds are obligations of state and local
housing authorities that have been issued in connection with a variety of single
and multifamily housing projects. Economic developments, including fluctuations
in interest rates, increasing construction and operating costs, increasing real
estate taxes and declining occupancy rates, and real estate investment risks may
have an adverse effect upon the revenues of such projects and such housing
authorities. Multifamily housing bonds may be subject to mandatory redemption
prior to maturity, including redemption from non-completion of the project or
upon receipt of FHA or certain other insurance proceeds. Bonds issued by state
or local units or authorities and payable from revenues from single family
residential mortgages may be subject to mandatory redemption prior to maturity,
including redemption from mortgage loan prepayments and undisbursed bond
proceeds reserved for the purpose of purchasing mortgage loans. Housing bonds
may also be subject to changes in creditworthiness due to potential weaknesses
of mortgage insurance companies providing various policies; fluctuations in the
valuation of invested funds and the strengths of banks and other entities which
may provide investment agreements; and smaller than expected mortgage portfolios
due to the inability to originate mortgages. To the extent the Fund invests in
housing bonds issued by an entity or entities located in the same geographic
area, the Fund may be subject to the risks associated with the general economy
of such area.
12
<PAGE> 15
Public Power Revenue Bonds. General problems of the electric utility
industry include difficulty in financing large construction programs during an
inflationary period; restrictions on operations and increased costs and delays
attributable to environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the availability of
fuel for electric generation at reasonable prices, including among other
considerations the potential rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing, regulation and operation
of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive materials and
the disposal of radioactive waste; and the effects of energy conservation.
Certain of the issuers of these bonds may own or operate nuclear generating
facilities. Federal, state and municipal governmental authorities may from time
to time review and revise existing requirements and impose additional
requirements governing the licensing, construction and operation of nuclear
power plants. In addition, the licensing of certain nuclear power plants nearing
completion of construction or constructed has been delayed indefinitely by the
refusal of state and local officials to cooperate in emergency planning
exercises that are a prerequisite to licensing. Each of the problems referred to
above could adversely affect the ability of the issuer of public power revenue
bonds to make payments of principal and/or interest on such bonds. Certain
municipal utilities or agencies may have entered into contractual arrangements
with investor-owned utilities and large industrial users and consequently may be
dependent in varying degrees on the performance of such contracts for payment of
bond debt service. Also, the enforceability against municipalities of
"take-and-pay" and "take-or-pay" contracts which contracts secure bonds issued
by other municipal issuers has been successfully challenged in recent years.
Transportation Revenue Bonds. Bonds in this category include bonds issued
for airport facilities, bridges, turnpikes, port facilities, railroad systems,
or mass transit systems. Generally, airport facility revenue bonds are payable
from and secured by the revenues derived from the ownership and operation of a
particular airport. Payment on other transportation bonds is often dependent
primarily or solely on revenues from financed facilities, including user fees,
charges, tolls and rents. Such revenues may be adversely affected by increased
construction and maintenance costs or taxes, decreased use, competition from
alternative facilities, scarcity of fuel, reduction or loss of rents or the
impact of environmental considerations. Other transportation bonds may be
dependent primarily or solely on Federal, state or local assistance including
motor fuel and motor vehicle taxes, fees and licenses, and therefore may be
subject to fluctuations in such assistance.
Water and Sewage Revenue Bonds. Bonds in this category include securities
issued to finance public water supply, treatment and distribution facilities,
and sewage collection, treatment and disposal facilities. Repayment of these
bonds is dependent primarily on revenues derived from the billing of
residential, commercial and industrial customers for water and sewer services,
as well as, in some instances, connection fees and hook-up charges. Such revenue
bonds may be adversely affected by the lack of availability of Federal and state
grants and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in this category
include securities issued to finance facilities for removal and disposal of
solid waste. Repayment of these bonds is dependent on factors which may include
revenues from appropriations from a governmental entity, the financial condition
of the private project corporation* and revenues derived from the collection of
charges for disposal of solid waste. In addition, construction of such
facilities may be subject to cost overruns and the actual costs of operating
such
- ---------------
* For purposes of the description of users of facilities, all references to
"corporations" shall be deemed to include any other nongovernmental person or
entity.
13
<PAGE> 16
facilities may exceed the costs anticipated at the time the bonds were
issued. Repayment of resource recovery bonds may also be dependent to various
degrees on revenues from the sale of electric energy or steam. Bonds in this
category may be subject to mandatory redemption in the event of project
noncompletion, if the project is rendered uneconomical, if the project fails to
meet certain performance criteria, or if it is considered an environmental
hazard.
Pollution Control Facility Revenue Bonds. Bonds in the pollution control
facilities category include securities issued on behalf of private corporations
including utilities, to provide facilities for the treatment of air, water and
solid waste pollution. Repayment of these bonds is dependent upon income from
the specified pollution control facility and/or the financial condition of the
project corporation. In addition, governmental entities may from time to time
impose additional restrictions or regulations which could adversely affect the
cost or operation of the facility. The Fund will not acquire more than 5% of the
outstanding voting securities of more than one public utility company as defined
by the Public Utility Holding Company Act of 1935.
Educational Facility Revenue Bonds. Educational facility revenue bonds
include debt of state and private colleges, universities and systems, and
parental and student loan obligations for dormitories, classrooms, libraries,
research and training facilities and student aid. The ability of universities
and colleges to meet their obligations is dependent on various factors,
including the revenues, costs and enrollment levels of the institutions. In
addition, their ability may be affected by declines in Federal, state and alumni
financial support, fluctuations in interest rates and construction costs,
increased maintenance and energy costs, failure or inability to raise tuition or
room charges and adverse results of endowment fund investments.
Tax Increment Bonds. Tax increment bonds are issued to finance various
public improvements and redevelopment projects in blighted areas. Interest on
such bonds is payable from increases in real property taxes attributable to
increases in assessed value resulting from the redevelopment of the blighted
project area. Repayment risks include, among other things, a reduction in
taxable value in the project areas, reduction in tax rates, delinquencies in tax
payments or a general shortfall in forecasted tax revenues.
Commercial Facility Revenue Bonds. The Fund may also invest in bonds for
other commercial facilities (including hotels) and industrial enterprises. The
viability of such facilities depends on, among other things, general economic
factors affecting those industries and affecting those geographic areas in which
such facilities are situated, as well as the ability of the individual
management of those facilities to maximize earnings and to remain competitive
within its service area.
Industrial Development Bonds ("IDBs"). The Fund reserves the right to
invest a portion of its assets in IDBs. IDBs are tax-exempt securities issued by
states, municipalities or public authorities and are issued to provide funds,
usually through a loan or lease arrangement, to a private corporation for the
purpose of financing construction or improvement of a facility to be used by the
corporation. Such bonds are secured primarily by revenues derived from loan
repayments or lease payments due from the corporation which may or may not be
guaranteed by a parent company or otherwise secured. In view of this, an
investor should be aware that repayment of such bonds depends on the revenues of
a private corporation and be aware of the risks that such an investment may
entail. Continued ability of a corporation to generate sufficient revenues for
the payment of principal and interest on such bonds will be affected by many
factors including the size of the corporation, capital structure, demand for
products or services, competition, general economic conditions, government
regulation and the corporation's dependence for revenues on the operation of the
particular facility being financed.
14
<PAGE> 17
IDBs are often issued to provide funds for corporations from the industries
described above and, consequently, are subject to similar risks. IDBs are also
issued to provide funds to industrial companies. Investment in particular
industries may expose the Fund to risks associated with such industries.
Also included within the general category of Municipal Bonds are
participation certificates issued by government authorities or entities to
finance the acquisition or construction of equipment, land and/or facilities.
The certificates represent participations in a lease, an installment purchase
contract or a conditional sales contract (hereinafter collectively called "lease
obligations") relating to such equipment, land or facilities. Although lease
obligations do not constitute general obligations of the issuer for which the
issuer's unlimited taxing power is pledged, a lease obligation is frequently
backed by the issuer's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the issuer has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional securities.
The Fund may also 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
could include trust certificates or other instruments evidencing interests in
one or more long-term municipal securities. Non-Municipal Tax-Exempt Securities
also may include securities issued by other investment companies that invest in
municipal bonds, to the extent such investments are permitted by the 1940 Act.
OTHER INVESTMENT POLICIES
The Fund has the authority to invest as much as 25% of its assets in
Municipal Bonds in the higher rating categories of nationally recognized
statistical rating organizations (ratings of A or higher by Moody's, S&P or
Fitch). In addition, the Fund reserves the right to temporarily invest more than
20% of its assets in short-term municipal securities, or short-term taxable
money market securities (including commercial paper, certificates of deposit and
repurchase agreements) for defensive purposes when, in the opinion of the
Investment Adviser, prevailing market or financial conditions warrant. Taxable
commercial paper must be rated A-1+ through A-3 by S&P, Prime-1 through Prime-3
by Moody's, F-1+ through F-3 by Fitch or have credit characteristics equivalent
to such ratings in the opinion of the Investment Adviser. The short-term
tax-exempt municipal obligations will also be in the highest rating categories
as determined either by Moody's (currently, MIG-1 through MIG-2 for notes and
Prime-1 through Prime-3 for commercial paper), S&P (currently, SP-1+ through
SP-3 for notes and A-1+ through A-3 for commercial paper), or Fitch (currently,
F-1 and F-2 for notes and F-1 for commercial paper). Certificates of deposit
must be issued by depository institutions with total assets of at least $1
billion, except that the Fund may invest in certificates of deposit of smaller
institutions if such certificates of deposit are Federally insured. In
connection with an exemption the Fund has obtained from the Securities and
Exchange Commission relating to its tender offers, the Fund will not purchase
non-investment grade or unrated Municipal Bonds in secondary market transactions
during the five business days preceding the termination of a tender offer. See
"Tender Offers".
15
<PAGE> 18
The Fund also has adopted certain other policies as set forth below:
Leverage. The Fund is authorized to borrow money in amounts of up to 33%
of the value of its total assets at the time of such borrowings to finance the
purchase of its own shares pursuant to tender offers, if any, or for temporary,
extraordinary or emergency purposes. Borrowings by the Fund (commonly known as
"leveraging") create an opportunity for greater total return since the Fund will
not be required to sell portfolio securities to purchase tendered shares but, at
the same time, such borrowings may increase the Fund's expenses. In this regard,
borrowed funds are subject to interest costs that may offset or exceed the
return earned on the securities which otherwise may have been sold by the Fund.
See "Risk Factors".
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell Municipal Bonds on a delayed delivery basis or when-issued
basis at fixed purchase or sale terms. These transactions arise when securities
are purchased or sold by the Fund with payment and delivery taking place in the
future. The purchase will be recorded on the date the Fund enters into the
commitment and the value of the obligation will thereafter be reflected in the
calculation of the Fund's net asset value. The value of the obligation on the
delivery date may be more or less than its purchase price. A separate account of
the Fund will be established with its custodian consisting of cash, cash
equivalents or liquid, high grade Municipal Bonds having a market value at all
times at least equal to the amount of the forward commitment.
Repurchase Agreements. The Fund may invest in Municipal Bonds and U.S.
Government 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. Under such agreements, the bank or
primary dealer agrees, upon entering into the contract, to repurchase the
security 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
more than 10% of its total assets in repurchase agreements maturing in more than
seven days. 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 disposal of the collateral. Income from repurchase agreements
distributed to shareholders will be taxable as ordinary income to shareholders.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain financial
futures contracts. While the Fund's use of hedging strategies is intended to
reduce the volatility of the net asset value of Fund shares, the Fund's net
asset value will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund will engage in hedging
activities from time to time and may not necessarily be engaging in hedging
activities when movements in interest rates occur.
Certain Federal income tax requirements may limit the Fund's ability to
engage in hedging transactions. Gains from transactions in options and futures
contracts distributed to shareholders will be taxable as ordinary income or, in
certain circumstances, as long-term capital gains to shareholders. See
"Taxes -- Tax Treatment of Options and Futures Transactions".
The following is a description of the options and futures transactions in
which the Fund may engage, limitations on the use of such transactions and risks
associated therewith. The investment policies with respect
16
<PAGE> 19
to the hedging transactions of the Fund are not fundamental policies and may be
modified by the Board of Directors of the Fund without the approval of the
Fund's shareholders.
Writing Covered Call Options. The Fund may write (i.e., sell) covered call
options with respect to Municipal Bonds it owns, thereby giving the holder of
the option the right to buy the underlying security covered by the option from
the Fund at the stated exercise price until the option expires. The Fund writes
only covered options, which means that so long as the Fund is obligated as the
writer of a call option, it will own the underlying securities subject to the
option. The Fund may not write covered call options on underlying securities in
an amount exceeding 15% of the market value of its total assets.
The Fund will receive a premium from writing a call option, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as a writer continues. Covered call options serve as a partial hedge
against a decline in the price of the underlying security. The Fund may engage
in closing transactions in order to terminate outstanding options that it has
written.
Purchase of Options. The Fund may purchase put options in connection with
its hedging activities. By buying a put the Fund has a right to sell the
underlying security at the exercise price, thus limiting the Fund's risk of loss
through a decline in the market value of the security until the put expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be
terminated by entering into a closing sale transaction. In certain
circumstances, the Fund may purchase call options on securities held in its
portfolio on which it has written call options, or on securities which it
intends to purchase. The Fund will not purchase options on securities if, as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Financial Futures Contracts and Options. The Fund is authorized to
purchase and sell certain financial futures contracts ("financial futures
contracts") and options thereon 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. 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.
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 U.S. Treasury bills equal to approximately 5% of the contract
amount must be deposited with the broker. This amount is known as initial
margin. Subsequent payments to and from the broker, called variation margin, are
made on a daily basis as the price of the futures contract fluctuates making the
long and short positions in the futures contract more or less valuable.
17
<PAGE> 20
The Fund may purchase and sell financial futures contracts based on The
Bond Buyer Municipal Bond Index, a price-weighted measure of the market value of
40 large recently issued tax-exempt bonds, and purchase and sell put and call
options on such futures contracts for the purpose of hedging Municipal Bonds
which the Fund holds or anticipates purchasing against adverse changes in
interest rates. The Fund also may purchase and sell financial futures contracts
on U.S. Government securities and purchase and sell put and call options on such
futures contracts for such hedging purposes. With respect to U.S. Government
securities, currently there are financial futures contracts based on long-term
U.S. Treasury bonds, Treasury notes, GNMA Certificates and three-month U.S.
Treasury bills.
Subject to policies adopted by the Directors, the Fund also may engage in
transactions in other financial futures contracts transactions and options
thereon, such as financial futures contracts or options on other municipal bond
indices which may become available if the Investment Adviser and the Directors
of the Fund 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.
Over-the-Counter Options. The Fund may engage in options and futures
transactions on exchanges and in the over-the-counter markets. In general,
exchange-traded contracts are third-party contracts (i.e., performance of the
parties' obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. Over-the-counter options ("OTC
options") transactions are two-party contracts with price and terms negotiated
by the buyer and seller. See "Restrictions on OTC Options" below for information
as to restrictions on the use of OTC options.
Restrictions on OTC Options. The Fund will engage in OTC options only with
member banks of the Federal Reserve System and primary dealers in United States
Government securities or with affiliates of such banks or dealers which have
capital of at least $50 million or whose obligations are guaranteed by an entity
having capital of at least $50 million. OTC options and assets used to cover OTC
options written by the Fund are considered by the staff of the Securities and
Exchange Commission to be illiquid. The illiquidity of such options or assets
may prevent a successful sale of such options or assets, result in a delay of
sale, or reduce the amount of proceeds that might otherwise be realized. As a
result, the Fund will acquire only those OTC options for which the Investment
Adviser believes the Fund can receive on each business day at least two
independent bids or offers (one of which will be from an entity other than a
party to the option).
Risk Factors in Options and Futures Transactions. Utilization of futures
transactions 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,
geographic compositions or other characteristics than the security being hedged.
In addition, the correlation may be affected by additions to or deletions from
the index which serves as a basis for a financial futures contract. 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.
18
<PAGE> 21
Under regulations of the Commodity Futures Trading Commission (the "CFTC"),
the futures trading activities described herein will not result in the Fund
being deemed a "commodity pool", as defined under such regulations, provided
that the Fund adheres to certain restrictions. In particular, the Fund may
purchase and sell futures contracts and options thereon only for bona fide
hedging purposes, as defined under CFTC regulations, and may not purchase or
sell any such futures contracts or options if, immediately thereafter, the sum
of the amount of initial margin deposits on the Fund's existing futures position
and premiums paid for outstanding options would exceed 5% of the market value of
its net assets. Margin deposits may consist of cash or securities acceptable to
the broker and the relevant contract market.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., 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 contract, 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 Investment Adviser believes that, because the Fund will engage in options
and futures transactions only for hedging purposes, the options and futures
portfolio strategies of the Fund will not subject the Fund to certain risks
frequently associated with speculation in options and futures transactions. The
Fund must meet certain Federal income tax requirements under 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 volume of trading in the exchange markets with respect to Municipal
Bond options may be limited, and it is impossible to predict the amount of
trading interest that may exist in such options. In addition, there can be no
assurance that viable exchange markets will continue.
The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a liquid
secondary market for such options or futures or, in the case of OTC options, the
Investment Adviser believes the Fund can receive on each business day at least
two independent bids or offers. There can be no assurance, however, that a
liquid secondary market will exist at any specific time. Thus, it may not be
possible to close an options or futures transaction. The inability to close
options and futures positions also could have an adverse impact on the Fund's
ability to effectively hedge its portfolio. There is also the risk of loss by
the Fund of margin deposits or collateral in the event of bankruptcy of a broker
with whom the Fund has an open position in an option or futures contract.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by commodity exchanges
which limit the amount of fluctuation in a futures contract price during a
single trading day. Once the daily limit has been reached in the contract, no
trades may be entered into at a price beyond the limit, thus preventing the
liquidation of open futures positions. Prices have in the past moved beyond the
daily limit on a number of consecutive trading days.
The successful use of these transactions also depends on the ability of the
Investment Adviser to forecast correctly the direction and extent of interest
rate movements within a given time frame. To the extent these
19
<PAGE> 22
rates remain stable during the period in which a futures contract is held by the
Fund or 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. 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.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund and 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 shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). The Fund may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter's or dealer's commission or profit, other
than customary broker's commission, is involved and only if immediately
thereafter not more than 10% of the Fund's total assets would be invested
in such securities.
3. Purchase or sell real estate, commodities or commodity contracts;
provided that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein and the Fund may purchase and sell financial futures
contracts and options thereon.
4. Issue senior securities or borrow money, except as permitted by
Section 18 of the 1940 Act.
5. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
6. Make loans to other persons except that the Fund may purchase
Municipal Bonds and other debt securities and enter into repurchase
agreements in accordance with its investment objective, policies and
limitations.
7. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities (the deposit or payment by the Fund of
initial or variation margin in connection with financial futures contracts
and options thereon is not considered the purchase of a security on
margin).
8. Make short sales of securities or maintain a short position or
invest in put, call, straddle or spread options, except that the Fund may
write, purchase and sell options and futures on Municipal Bonds, United
States Government obligations and related indices or otherwise in
connection with bona fide hedging activities.
20
<PAGE> 23
9. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in securities of issuers in a single industry,
except that the Fund will invest 25% or more of its assets in Municipal
Bonds issued to finance projects in the health care industry. (For purposes
of this restriction, states, municipalities and their political
subdivisions are not considered to be part of any industry.)
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Directors, provide that the Fund may not:
1. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in the Municipal Bonds of any one state.
2. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund except
as may be necessary in connection with borrowings mentioned in (4) above or
except as may be necessary in connection with transactions in financial
futures contracts and options thereon.
If a percentage restriction on investment policies or the investment or use
of assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.
The Investment Adviser of the Fund and Merrill Lynch share a common parent,
Merrill Lynch & Co., Inc. Because of the affiliation of Merrill Lynch with the
Fund, the Fund is prohibited from engaging in certain transactions involving
Merrill Lynch except pursuant to an exemptive order of the Securities and
Exchange Commission or otherwise in compliance with the provisions of the 1940
Act and the rules and regulations thereunder. Included among such restricted
transactions will be purchases from or sales to Merrill Lynch of securities in
transactions in which it acts as principal. An exemptive order has been obtained
which permits the Fund to effect principal transactions with Merrill Lynch in
high quality, short-term, tax-exempt securities subject to conditions set forth
in such order. The Fund does not presently intend to request an order permitting
other principal transactions with Merrill Lynch. See "Portfolio Transactions".
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Investment Adviser and Merrill Lynch, acts as the distributor of shares
of Common Stock of the Fund. The Fund is engaged in a continuous offering of its
shares of Common Stock through the Distributor and other securities dealers
which have entered into selected dealer agreements with the Distributor,
including Merrill Lynch. Shares of the Fund may be purchased from the
Distributor or selected dealers, including Merrill Lynch, 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. In connection with an
exemption the Fund has obtained from the Securities and Exchange Commission
relating to its tender offers, the Fund will not offer its shares during the
five business days preceding the termination of a tender offer. See "Tender
Offers".
To permit the Fund to invest the net proceeds from the sale of its shares
of Common Stock in an orderly manner, the Fund may, from time to time, suspend
the sale of its shares of Common Stock, except for sales to existing holders of
Common Stock and dividend reinvestments.
21
<PAGE> 24
Due to the administrative complexities associated with the continuous
offering, administrative errors may result in the Distributor or an affiliate
inadvertently acquiring nominal numbers (in no event in excess of 5% of the
shares of Common Stock) of shares of Common Stock which it may wish to resell.
Such shares of Common Stock will not be subject to any investment restriction
and may be resold pursuant to this Prospectus.
The Fund offers its shares at a public offering price equal to the next
determined net asset value per share without a front-end sales charge. The
applicable offering price for purchase orders is based on the net asset value of
the Fund next determined after receipt of the purchase order by the Distributor.
As to purchase orders received by securities dealers prior to the close of
business on the New York Stock Exchange (the "NYSE") (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 NYSE 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 NYSE on that day. If the
purchase orders are not received by the Distributor prior to 30 minutes after
the close of business on the NYSE, such orders shall be deemed received on the
next business day. Any order may be rejected by the Distributor or the Fund. The
Fund or the Distributor may suspend the continuous offering of the Fund's shares
to the general public at any time in response to conditions in the securities
markets or otherwise and may thereafter resume such offering from time to time.
Neither the Distributor nor the dealers are permitted to withhold placing orders
to benefit themselves by a price change. The Distributor is required to advise
the Fund promptly of all purchase orders and cause payments for shares of Common
Stock to be delivered promptly to the Fund. Merrill Lynch charges its customers
a postage and handling charge (presently $4.85) to confirm a purchase of shares
by such customers. Purchases directly through the Fund's Transfer Agent are not
subject to the postage and handling charge.
The Distributor compensates Merrill Lynch and other selected dealers at a
rate of 3.0% of amounts purchased. If the shares remain outstanding after one
year from the date of their original purchase, the Distributor will compensate
Merrill Lynch and such dealers at an annual rate equal to 0.25% of the value of
Fund shares sold by Merrill Lynch and such dealers and remaining outstanding.
These amounts do not represent an expense to the Fund and its shareholders since
the payments made by the Distributor will be made from its own assets, which may
include amounts received by the Distributor as early withdrawal charges. See
"Early Withdrawal Charge". The compensation paid to selected dealers and the
Distributor, including the compensation paid at the time of purchase, the
quarterly payments mentioned above and the early withdrawal charge, if any, will
not in the aggregate exceed the applicable limit (presently, 8%), as determined
from time to time by the National Association of Securities Dealers, Inc.
("NASD"). For the years ended August 31, 1993, 1994 and 1995, the Distributor
paid approximately $1.4 million, $1.0 million and $408,920, respectively, to
Merrill Lynch in connection with the sale of shares of Common Stock of the Fund.
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, without charge, at the Fund's transfer agent, dividend disbursing
agent and shareholder servicing agent. Shareholders should be aware that it will
not be possible to transfer their shares from Merrill Lynch to another brokerage
firm or financial institution. Shareholders interested in transferring their
brokerage accounts from Merrill Lynch and who do not wish to have an account
maintained for such shares at the Fund's transfer agent must tender the shares
for repurchase
22
<PAGE> 25
by the Fund as described under "Tender Offers" so that the cash proceeds can be
transferred to the account at the new firm.
Shares of the Fund's Common Stock may be purchased by residents of Texas
only if such investors have (i) a net worth of not less than $75,000 or (ii) a
net worth of not less than $40,000 and an annual gross income of not less than
$40,000.
TENDER OFFERS
In recognition of the possibility that a secondary market for the Fund's
shares will not exist, the Fund may take actions which will provide liquidity to
shareholders. The Fund may from time to time make offers to purchase its shares
of Common Stock from all beneficial holders of the Fund's Common Stock at a
price per share equal to the net asset value per share of the Common Stock
determined at the close of business on the day an offer terminates ("Tender
Offer"). Commencing with the second quarter of Fund operations, the Board of
Directors has considered the making of Tender Offers on a quarterly basis, and
the Board of Directors intends to continue this practice. There can be no
assurance, however, that the Board of Directors will decide to undertake the
making of a Tender Offer. Subject to the Fund's investment restriction with
respect to borrowings, the Fund may borrow money to finance the repurchase of
shares pursuant to any Tender Offers. See "Investment Restrictions".
The Fund expects that ordinarily there will be no secondary market for the
Fund's Common Stock and that periodic tenders will be the only source of
liquidity for Fund shareholders. Nevertheless, if a secondary market develops
for the Common Stock of the Fund, the market price of the shares may vary from
net asset value from time to time. Such variance may be affected by, among other
factors, relative demand and supply of shares and the performance of the Fund,
especially as it affects the yield on and net asset value of the Common Stock of
the Fund. A Tender Offer for shares of Common Stock of the Fund at net asset
value is expected to reduce any spread between net asset value and market price
that may otherwise develop. However, there can be no assurance that such action
would result in the Fund's Common Stock trading at a price which equals or
approximates net asset value.
Although the Board of Directors believes that the Tender Offers generally
would be beneficial to holders of the Fund's Common Stock, the acquisition of
shares of Common Stock by the Fund will decrease the total assets of the Fund
and therefore have the likely effect of increasing the Fund's expense ratio
(assuming such acquisition is not offset by the issuance of additional shares of
Common Stock). Furthermore, if the Fund borrows to finance the making of Tender
Offers, interest on such borrowing will reduce the Fund's net investment income.
It is the Board's announced policy, which may be changed by the Board, not
to purchase shares pursuant to a Tender Offer if (1) such purchases would impair
the Fund's status as a regulated investment company under the Code (which would
make the Fund a taxable entity, causing the Fund's income to be taxed at the
corporate level in addition to the taxation of shareholders who receive
dividends from the Fund); (2) the Fund would not be able to liquidate portfolio
securities in a manner which is orderly and consistent with the Fund's
investment objective and policies in order to purchase Common Stock tendered
pursuant to the Tender Offer; or (3) there is, in the Board's judgment, any (a)
legal action or proceeding instituted or threatened challenging the Tender Offer
or otherwise materially adversely affecting the Fund, (b) declaration of a
banking moratorium by Federal or state authorities or any suspension of payment
by banks in the United
23
<PAGE> 26
States or New York State, which is material to the Fund, (c) limitation imposed
by Federal or state authorities on the extension of credit by lending
institutions, (d) commencement of war, armed hostilities or other international
or national calamity directly or indirectly involving the United States which is
material to the Fund, or (e) other event or condition which would have a
material adverse effect on the Fund or its shareholders if shares of Common
Stock tendered pursuant to the Tender Offer were purchased. Thus, there can be
no assurance that the Board will proceed with any Tender Offer. The Board of
Directors may modify these conditions in light of circumstances existing at the
time. If the Board of Directors determines to purchase the Fund's shares of
Common Stock pursuant to a Tender Offer, such purchases could significantly
reduce the asset coverage of any borrowing or outstanding senior securities. The
Fund may not purchase shares of Common Stock to the extent such purchases would
result in the asset coverage with respect to such borrowing or senior securities
being reduced below the asset coverage requirement set forth in the 1940 Act.
Accordingly, in order to purchase all shares of Common Stock tendered, the Fund
may have to repay all or part of any then outstanding borrowing or redeem all or
part of any then outstanding senior securities to maintain the required asset
coverage. See "Other Investment Policies -- Leverage". In addition, the amount
of shares of Common Stock for which the Fund makes any particular Tender Offer
may be limited for the reasons set forth above or in respect of other concerns
related to liquidity of the Fund's portfolio.
The Fund has been granted an exemption by the Securities and Exchange
Commission relating to Tender Offers which is based on representations by the
Fund that no secondary market for shares of the Fund's Common Stock is expected
to develop. The exemption is conditioned on (1) the absence of a secondary
market, (2) the Fund suspending the offering of its shares during the five
business days preceding the termination of a Tender Offer and (3) the Fund
refraining from purchasing non-investment grade and unrated Municipal Bonds in
secondary market transactions during such five business day period. In the event
that circumstances arise under which the Fund does not conduct the Tender Offers
regularly, the Board of Directors would consider alternative means of providing
liquidity for holders of Common Stock. Such action would include an evaluation
of any secondary market that then existed and a determination of whether such
market provided liquidity for holders of Common Stock. If the Board of Directors
determines that such market, if any, fails to provide liquidity for the holders
of Common Stock, the Board expects that it will consider all then available
alternatives to provide such liquidity. Among the alternatives which the Board
of Directors may consider is the listing of the Fund's Common shares on a major
domestic stock exchange or on the NASDAQ National Market System in order to
provide such liquidity. The Board of Directors also may consider causing the
Fund to repurchase its shares from time to time in open-market or private
transactions when it can do so on terms that represent a favorable investment
opportunity. In any event, the Board of Directors expects it will cause the Fund
to take whatever action it deems necessary or appropriate to provide liquidity
for the holders of Common Stock in light of the facts and circumstances existing
at such time.
To consummate a Tender Offer in order to repurchase its shares of Common
Stock, the Fund may be required to liquidate portfolio securities, and realize
gains or losses, at a time when the Investment Adviser would otherwise consider
it disadvantageous to do so. In such event gains may be realized on securities
held for less than three months. In order to qualify as a regulated investment
company under the Code, the Fund must limit such gains and, accordingly, the
amount of gain that the Fund could realize in the ordinary course of its
portfolio management from sales of other securities held for less than three
months would be reduced. This may adversely affect the Fund's yield. See
"Taxes".
24
<PAGE> 27
Each Tender Offer will be made and shareholders notified in accordance with
the requirements of the Securities Exchange Act of 1934 and the 1940 Act, either
by publication or mailing or both. The offering documents will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder. The repurchase of tendered shares by the Fund is a
taxable event. See "Taxes". The Fund will pay all costs and expenses associated
with the making of any Tender Offer. An Early Withdrawal Charge will be imposed
on most shares accepted for tender which have been held for less than three
years. See "Early Withdrawal Charge". In addition, Merrill Lynch charges its
customers a postage and handling charge (presently, $4.85) to confirm a
repurchase of shares from such customers pursuant to a Tender Offer. Tenders
made directly through the Fund's Transfer Agent are not subject to the postage
and handling charge.
Shareholders of the Fund have an investment option consisting of the right
to reinvest the net proceeds from a sale of shares of the Fund's Common Stock
(the "Original Shares") pursuant to a tender offer by the Fund in Class D
initial sales charge shares of certain MLAM-sponsored open-end investment
companies ("Eligible Class D Shares") at their net asset value, without the
imposition of the initial sales charge, if the conditions set forth below are
satisfied. First, net proceeds from the sale of the Original Shares in the
tender offer must be immediately reinvested in Eligible Class D Shares. Second,
the investment option is available only with respect to the proceeds of shares
of the Fund's Common Stock as to which no Early Withdrawal Charge is applicable.
Before taking advantage of this investment option, shareholders of the Fund
should obtain a currently effective prospectus of the mutual fund which they
intend to purchase. To exercise this investment option, shareholders should
consult their Merrill Lynch financial consultant.
EARLY WITHDRAWAL CHARGE
An Early Withdrawal Charge to recover distribution expenses incurred by the
Distributor will be charged against the shareholder's investment account and
paid to the Distributor in connection with most shares of Common Stock held for
less than three years which are accepted by the Fund for repurchase pursuant to
a Tender Offer in the manner described below. The Early Withdrawal Charge will
be imposed on those shares of Common Stock accepted for tender based on an
amount equal to the lesser of the then current net asset value of the shares of
Common Stock or the cost of the shares of Common Stock being tendered.
Accordingly, the Early Withdrawal Charge is not imposed on increases in the net
asset value above the initial purchase price. In addition, the Early Withdrawal
Charge is not imposed on shares derived from reinvestments of dividends or
capital gains distributions. The Early Withdrawal Charge imposed will vary
depending on the length of time the Common Stock has been owned since purchase
(separate purchases shall not be aggregated for these purposes), as set forth in
the following table:
<TABLE>
<CAPTION>
YEAR OF REPURCHASE AFTER PURCHASE EARLY WITHDRAWAL CHARGE
--------------------------------- -----------------------
<S> <C>
First........................................................... 3.0%
Second.......................................................... 2.0%
Third........................................................... 1.0%
Fourth and following............................................ 0%
</TABLE>
In determining whether an Early Withdrawal Charge is applicable to a tender
of shares of Common Stock, the calculation will be determined in the manner that
results in the lowest possible amount being charged. Therefore, it will be
assumed that the tender is first of shares of Common Stock held for over three
25
<PAGE> 28
years and shares of Common Stock acquired pursuant to reinvestment of dividends
or distributions and then of shares of Common Stock held longest during the
three-year period. The Early Withdrawal Charge will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase.
EXAMPLE:
Assume an investor purchased 1,000 shares of Common Stock (at a cost of
$10,000) and in the second year after purchase, the net asset value per share is
$12.00 and, during such time, the investor has acquired 100 additional shares of
Common Stock upon dividend reinvestment. If at such time the investor makes his
first redemption of 500 shares of Common Stock (proceeds of $6,000), 100 shares
will not be subject to the Early Withdrawal Charge because of dividend
reinvestment. With respect to the remaining 400 shares of Common Stock, the
Early Withdrawal Charge is applied only to the original cost of $10 per share
and not to the increase in net asset value of $2.00 per share. Therefore, $4,000
of the $6,000 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase).
For the years ended August 31, 1993, 1994 and 1995, the amount paid to the
Distributor in Early Withdrawal Charges aggregated $246,377, $191,033 and
$130,764, respectively.
DIRECTORS AND OFFICERS
Information about the Directors and executive officers of the Fund, their
ages and their principal occupations for at least the last five years are set
forth below. Unless otherwise noted, the address of each Director and executive
officer is P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (63) -- President and Director(1)(2) -- President of the
Investment Adviser (which term as used herein includes its corporate
predecessor) since 1977; President of Fund Asset Management, L.P. ("FAM", which
term as used herein includes its corporate predecessor) since 1977; President
and Director of Princeton Services, Inc. ("Princeton Services") since 1993;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML&Co.") since 1990;
Executive Vice President of Merrill Lynch since 1990 and Senior Vice President
thereof from 1985 to 1990; Director of the Distributor.
RONALD W. FORBES (55) -- Director(2) -- 1400 Washington Avenue, Albany, New
York 12222. Professor of Finance, School of Business, State University of New
York at Albany since 1989 and Associate Professor prior thereto; Member, Task
Force on Municipal Securities Markets, Twentieth Century Fund.
CYNTHIA A. MONTGOMERY (43) -- Director(2) -- Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 20163. Professor, Harvard Business
School since 1989; Associate Professor, J.L. Kellogg Graduate School of
Management, Northwestern University from 1985 to 1989; Assistant Professor,
Graduate School of Business Administration, The University of Michigan from 1979
to 1985; Director, UNUM Corporation.
CHARLES C. REILLY (64) -- Director(2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business, 1990; Adjunct
Professor, Wharton School, The University of Pennsylvania, 1990; Partner, Small
Cities Cable Television since 1986.
26
<PAGE> 29
KEVIN A. RYAN (63) -- Director(2) -- 127 Commonwealth Avenue, Chestnut
Hill, Massachusetts 02167. Founder, current Director and Professor of The Boston
University Center for the Advancement of Ethics and Character; Professor of
Education at Boston University from 1982 to 1994; formerly taught on the
faculties of The University of Chicago, Stanford University and The Ohio State
University.
RICHARD R. WEST (57) -- Director(2) -- 287 Genoa Springs Drive, Genoa,
Nevada 89411. Professor of Finance since 1984, and Dean from 1984 to 1993, New
York University Leonard N. Stern School of Business Administration; Professor of
Finance, Amos Tuck School of Business Administration from 1976 to 1984 and Dean
from 1976 to 1983; Director, Vornado, Inc. (real estate investment trust), Bowne
& Co., Inc. (financial printer), Smith-Corona Corporation (manufacturer of
typewriters and word processors) and Alexander's Inc. (real estate company).
TERRY K. GLENN (55) -- Executive Vice President(1)(2) -- Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President of the Distributor
since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
DONALD C. BURKE (35) -- Vice President(1)(2) -- Vice President and Director
of Taxation of MLAM since 1990; employee of Deloitte & Touche LLP from 1982 to
1990.
VINCENT R. GIORDANO (51) -- Senior Vice President(1)(2) -- Senior Vice
President of the Investment Adviser and FAM since 1984; Portfolio Manager of the
Investment Adviser and FAM since 1977 and Vice President of the Investment
Adviser from 1980 to 1984.
GERALD M. RICHARD (46) -- Treasurer(1)(2) -- Senior Vice President and
Treasurer of the Investment Adviser and FAM since 1984; Vice President of the
Distributor since 1981 and Treasurer since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; employee of the Distributor since
1978.
ROBERT HARRIS (43) -- Secretary(1)(2) -- Vice President of the Investment
Adviser since 1984; Secretary of the Distributor since 1982.
- ---------------
(1) Interested person, as defined in the 1940 Act, of the Fund.
(2) Such Director or officer is a director, officer or member of the advisory
board of certain other investment companies for which the Investment Adviser
or FAM acts as investment adviser.
At September 30, 1995, the Directors and officers of the Fund as a group
(11 persons) owned an aggregate of less than 1% of the outstanding Common Stock
of ML&Co. At such date, Mr. Zeikel, an officer and Director of the Fund, and the
other officers of the Fund, owned less than 1% of the outstanding shares of
common stock of ML&Co.
COMPENSATION OF DIRECTORS
The Fund pays each Director not affiliated with the Investment Adviser an
annual fee of $2,000 per year plus $400 per meeting attended, together with such
Director's actual out-of-pocket expenses relating to attendance at meetings. The
Fund also pays members of its audit committee, which consists of all of the
Directors not affiliated with the Investment Adviser, an annual fee of $1,000;
the chairman of the audit committee receives an additional annual fee of $1,000.
For the year ended August 31, 1995, fees and expenses paid to the unaffiliated
Directors of the Fund aggregated $26,422.
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<PAGE> 30
The following table sets forth for the fiscal year ended August 31, 1995
compensation paid by the Fund to the non-interested Directors and for the
calendar year ended December 31, 1994 the aggregate compensation paid by all
investment companies advised by MLAM and its affiliate, FAM ("MLAM/FAM Advised
Funds") to the non-interested Directors.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
FROM FUND AND
PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS PART FUNDS PAID TO
NAME OF DIRECTOR FROM FUND OF FUND EXPENSE DIRECTORS(1)
---------------- ------------ ------------------------ ----------------
<S> <C> <C> <C>
Ronald W. Forbes........................... $4,600 None $154,400
Cynthia A. Montgomery...................... $4,600 None $133,817
Charles C. Reilly.......................... $4,600 None $276,900
Kevin A. Ryan.............................. $4,600 None $154,400
Richard R. West............................ $5,600 None $300,900
</TABLE>
- ---------------
(1) In addition to the Fund, the Directors serve on the boards of other MLAM/FAM
Advised Funds as follows: Mr. Forbes (36 funds); Ms. Montgomery (36 funds);
Mr. Reilly (53 funds); Mr. Ryan (36 funds); and Mr. West (53 funds).
INVESTMENT ADVISORY AND ADMINISTRATIVE ARRANGEMENTS
Merrill Lynch Asset Management, L.P. (the "Investment Adviser"), which is
owned and controlled by ML&Co., a financial services holding company and the
parent of Merrill Lynch, provides the Fund with investment advisory and
administrative services. The Investment Adviser or FAM, acts as the investment
adviser for more than 130 registered investment companies and also offers
investment advisory services to individuals and institutions. As of September
30, 1995, the Investment Adviser and FAM had a total of approximately $189.4
billion in investment company and other assets under management, including
accounts of certain affiliates of the Investment Adviser. The Investment Adviser
is a limited partnership the partners of which are ML&Co., Merrill Lynch
Investment Management, Inc. and Princeton Services. The principal business
address of the Investment Adviser is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
The investment advisory agreement with the Investment Adviser (the
"Investment Advisory Agreement") provides that, subject to the direction of the
Board of Directors of the Fund, the Investment Adviser is responsible for the
actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Investment
Adviser, subject to review by the Board of Directors.
The Investment Adviser provides the portfolio management for the Fund. Such
portfolio management will consider analyses from various sources, make the
necessary investment decisions, and place orders for transactions accordingly.
The Investment Adviser also will be responsible for the performance of certain
management services for the Fund. Theodore R. Jaeckel, Jr. has served as the
Portfolio Manager of the Fund since 1995 and is primarily responsible for the
Fund's day-to-day management. He has served as Vice President of the Investment
Adviser since 1991.
For the services provided by the Investment Adviser under the Investment
Advisory Agreement, the Fund pays a monthly fee at an annual rate of 0.95 of 1%
of the Fund's average daily net assets (i.e., the average daily value of the
total assets of the Fund, minus the sum of accrued liabilities of the Fund and
28
<PAGE> 31
accumulated dividends on the shares of preferred stock, if any). For purposes of
this calculation, average daily net assets is determined at the end of each
month on the basis of the average net assets of the Fund for each day during the
month.
Under the terms of an administration agreement with the Fund (the
"Administration Agreement"), the Investment Adviser also performs or arranges
for the performance of the administrative services (i.e., services other than
investment advice and related portfolio activities) necessary for the operation
of the Fund, including paying all compensation of and furnishing office space
for officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the
compensation of all Directors of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, expenses
for legal and auditing services, taxes, costs of printing proxies, listing fees,
if any, stock certificates and shareholder reports, charges of the Custodian and
the Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing Agent,
expenses of registering the shares under Federal and state securities laws, fees
and expenses with respect to any issuance of preferred shares or any borrowing,
Securities and Exchange Commission fees, fees and expenses of unaffiliated
Directors, accounting and pricing costs, insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, mailing and other
expenses properly payable by the Fund. Accounting services are provided to the
Fund by the Investment Adviser, and the Fund reimburses the Investment Adviser
for its costs in connection with such services. For the years ended August 31,
1993, 1994 and 1995, the reimbursement for such services aggregated $53,421,
$39,397 and $49,486, respectively.
For the administrative services rendered to the Fund and the facilities
furnished, the Fund pays the Investment Adviser a monthly fee at an annual rate
of 0.25 of 1% of the Fund's average daily net assets determined in the same
manner as the fee payable by the Fund under the Investment Advisory Agreement.
The combined advisory and administration fees are greater than the advisory fees
paid by most funds, but are similar in amount to the fees paid by other
continuously offered, closed-end funds.
For the year ended August 31, 1993, the fee paid by the Fund to the
Investment Adviser pursuant to the Investment Advisory Agreement was $1,791,108
and the fee paid by the Fund to the Investment Adviser pursuant to the
Administration Agreement was $471,341 (based on average daily net assets of
approximately $188.5 million). The Investment Adviser voluntarily reimbursed the
Fund $188,538 of the combined advisory and administration fees payable by the
Fund which resulted in an effective fee rate of 1.10% for the period. For the
year ended August 31, 1994, the fee paid by the Fund to the Investment Adviser
pursuant to the Investment Advisory Agreement was $2,111,003 and the fee paid by
the Fund pursuant to the Administration Agreement was $555,227 (based on average
daily net assets of approximately $222.2 million). The Investment Adviser
voluntarily reimbursed to the Fund $3,563 of such amount. For the year ended
August 31, 1995, the fee paid by the Fund to the Investment Adviser pursuant to
the Investment Advisory Agreement was $1,923,921 and the fee paid by the Fund
pursuant to the Administration Agreement was $506,295 (based on average daily
net assets of approximately $202.5 million). The Investment Adviser did not
reimburse any portion of such amount to the Fund.
Certain states impose limitations on the expenses of the Fund. California's
limitations require that the Investment Adviser reimburse the Fund in an amount
necessary to prevent the ordinary operating expenses of the Fund (excluding
interest, taxes, distribution fees, brokerage fees and commissions and
extraordinary charges such as litigation costs) from exceeding 2.5% of the
Fund's first $30 million of average daily net assets,
29
<PAGE> 32
2.0% of the next $70 million of average daily net assets and 1.5% of the
remaining average daily net assets. Under Ohio's limitations, the Investment
Adviser must reimburse the Fund in an amount necessary to prevent the Fund's
aggregate annual expenses (subject to the exclusions set forth above with the
exception of distribution fees) from exceeding 2.0% of the Fund's average daily
net assets. The Investment Adviser's obligation to reimburse the Fund is limited
to the amount of the investment advisory fee. No fee payment will be made to the
Investment Adviser during any fiscal year which will cause such expenses to
exceed the most restrictive expense limitation applicable at the time of such
payment.
Unless earlier terminated as described below, the Investment Advisory and
Administrative Agreements will remain in effect from year to year if approved
annually (a) by the Board of Directors of the Fund or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Directors 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 the vote of the shareholders of the Fund.
Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Investment Adviser or its affiliate act as an adviser. 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 purchases or
sales of securities by the Investment Adviser for the Fund or other funds for
which it acts as investment adviser or for advisory clients arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more than
one client of the Investment Adviser or its affiliate 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.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the 1940 Act which incorporates the Code of Ethics of the Investment
Adviser (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on fund
investment personnel.
The Codes require that all employees of the Investment Adviser 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
Investment Adviser 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 Investment Adviser. 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).
30
<PAGE> 33
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which
is a wholly-owned subsidiary of ML&Co., acts as the Fund'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 tender 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 $14.00 per shareholder account, and the Transfer Agent is
entitled to certain nominal miscellaneous charges and reimbursement for
out-of-pocket expenses incurred by it under the Transfer Agency Agreement. For
the year ended August 31, 1995, the Fund's payments to the Transfer Agent
pursuant to the Transfer Agency Agreement, including reimbursement for
out-of-pocket expenses, aggregated $124,881. At September 30, 1995, the Fund had
7,233 shareholder accounts. At this level of accounts, the annual fee payable to
the Transfer Agent would aggregate approximately $101,000, plus out-of-pocket
expenses.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), size
of order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive commission rates, the
Fund does not necessarily pay the lowest commission or spread available. For the
years ended August 31, 1993, 1994 and 1995, the Fund did not pay any brokerage
commissions.
The Fund has no obligation to deal with any broker or dealer in the
execution of transactions in portfolio securities. Subject to obtaining the best
price and execution, securities firms which provide supplemental investment
research to the Investment Adviser, including Merrill Lynch, 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 Investment Adviser
under the Investment Advisory Agreement and the expenses of the Investment
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information.
The securities in which the Fund will invest are traded in the
over-the-counter markets, and the Fund intends to deal directly with the dealers
who make markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Under the 1940 Act, except
as permitted by exemptive order, persons affiliated with the Fund are prohibited
from dealing with the Fund as principal in the purchase and sale of securities.
Since transactions in the over-the-counter market usually involve transactions
with dealers acting as principals for their own accounts, the Fund will not deal
with affiliated persons, including Merrill Lynch and its affiliates, in
connection with such transactions except that, pursuant to an exemptive order
obtained by the Investment Adviser, the Fund may engage in principal
transactions with Merrill Lynch in high quality, short-term, tax-exempt
securities. See "Investment Restrictions". For the years ended August 31, 1993,
1994 and 1995, the Fund engaged in no transactions pursuant to such order.
However, affiliated persons of the Fund may serve as its brokers in
over-the-counter transactions conducted on an agency basis.
31
<PAGE> 34
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 its Investment Adviser. While it is not possible to predict
turnover rates with any certainty, at present it is anticipated that the Fund's
annual portfolio turnover rate, under normal circumstances after the Fund's
portfolio is invested in accordance with its investment objective, will be less
than 100%. The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during the particular fiscal year. For purposes of determining this rate, all
securities whose maturities at the time of acquisition are one year or less are
excluded. For the years ended August 31, 1993, 1994 and 1995, the Fund's
portfolio turnover rate was 28.74%, 28.51% and 21.28%, respectively.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to continue to distribute all its net investment income.
Dividends from such net investment income are paid monthly. All net realized
long- or short-term capital gains, if any, will be distributed to the Fund's
shareholders at least annually. See "Automatic Dividend Reinvestment Plan" for
information concerning the manner in which dividends and distributions may be
automatically reinvested in shares of the Fund. Dividends and distributions are
taxable to shareholders as discussed below whether they are reinvested in shares
of the Fund or received in cash.
TAXES
GENERAL
The Fund intends to continue to qualify 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 Fund intends to distribute
substantially all of such income.
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 Fund intends to qualify to pay "exempt-interest" dividends as defined
in Section 852(b)(5) of the Code. Under such section, if, at the close of each
quarter of its 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 will be qualified
to pay exempt-interest dividends to its shareholders. Exempt-interest dividends
are dividends
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<PAGE> 35
or any part thereof paid by the Fund which are attributable to interest on
tax-exempt obligations and designated by the Fund as exempt-interest dividends
in a written notice mailed to the Fund's shareholders within 60 days after the
close of its taxable year. To the extent that the dividends distributed to the
Fund's shareholders are derived from interest income exempt from Federal income
tax under Code Section 103(a) and are properly designated as exempt-interest
dividends, they will be excludable from a shareholder's gross income for Federal
income tax purposes. Exempt-interest dividends are included, however, in
determining the portion, if any, of a person's social security benefits and
railroad retirement benefits subject to Federal income taxes. Interest on
indebtedness incurred or continued to purchase or carry shares of a RIC paying
exempt-interest dividends, such as the Fund, will not be deductible by the
investor for Federal income tax purposes, to the extent attributable to
exempt-interest dividends. Shareholders are advised to consult their tax
advisers with respect to whether exempt-interest dividends retain the exclusion
under Code Section 103(a) if such 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.
To the extent that the Fund's distributions are derived from interest on
its taxable investments or from an excess of net short-term capital gains over
net long-term capital losses ("ordinary income dividends"), such distributions
are considered ordinary income for Federal income tax purposes. Distributions,
if any, from an excess of net long-term capital gains over net short-term
capital losses derived from the sale of securities or from certain transactions
in futures or options ("capital gain dividends") are taxable as long-term
capital gains for Federal income tax purposes, regardless of the length of time
the shareholder has owned Fund shares. Distributions by the Fund, whether from
exempt-interest income, ordinary income or capital gains, will not be eligible
for the dividends received deduction allowed to corporations under the Code.
All or a portion of the Fund's gain from the sale or redemption of
tax-exempt obligations purchased at a market discount will be treated as
ordinary income rather than capital gain. This rule may increase the amount of
ordinary income dividends received by shareholders. Any loss upon the sale or
exchange of 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. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are held as a
capital asset). If the Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the RIC 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. This 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 intends to
purchase such "private activity bonds" and will report to shareholders within 60
days after its 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
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<PAGE> 36
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.
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.
The value of shares acquired pursuant to the Fund's dividend reinvestment
plan will generally be excluded from gross income to the extent that the cash
amount reinvested would be excluded from gross income. If, when the Fund's
shares are trading at a premium over net asset value, the Fund issues shares
pursuant to the dividend reinvestment plan which have a greater fair market
value than the amount of cash reinvested, it is possible that all or a portion
of such discount (which may not exceed 5% of the fair market value of the Fund's
shares) could be viewed as a taxable distribution. If the discount is viewed as
a taxable distribution, it is also possible that the taxable character of this
discount would be allocable to all the shareholders, including shareholders who
do not participate in the dividend reinvestment plan. Thus, shareholders who do
not participate in the dividend reinvestment plan might be required to report as
ordinary income a portion of their distributions equal to their allocable share
of the discount.
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 Code provisions, some taxpayers 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 Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such 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.
OFFERS TO PURCHASE SHARES
Under current law, a holder of Common Stock, who, pursuant to any Tender
Offer, tenders all shares of Common Stock owned by such shareholder and any
shares considered to be owned by such shareholder under attribution rules
contained in the Code will realize a taxable gain or loss depending upon such
shareholder's basis in the shares. Such gain or loss will be treated as capital
gain or loss if the shares are held as capital assets and will be long-term or
short-term depending upon the shareholder's holding period for the shares.
Different tax consequences may apply to tendering and nontendering holders of
Common Stock in connection
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<PAGE> 37
with a Tender Offer, and these consequences will be disclosed in the related
offering documents. For example, if a tendering holder of Common Stock tenders
less than all shares owned by or attributed to such shareholder, and if the
distribution to such shareholder does not otherwise qualify as a sale or
exchange, the proceeds received will be treated as a taxable dividend or, if the
Fund has insufficient earnings and profits, a return of capital or capital gain,
depending on the shareholder's basis in the tendered shares. Also, there is a
remote risk that non-tendering holders of Common Stock may be considered to have
received a deemed distribution which may be a taxable dividend in whole or in
part. Holders of Common Stock may wish to consult their tax advisers prior to
tendering. Likewise, if holders of Common Stock whose shares are acquired by the
Fund in the open market sell less than all shares owned by or attributed to
them, a risk exists that these shareholders will be subject to taxable dividend
treatment and a remote risk exists that the remaining shareholders may be
considered to have received a deemed distribution.
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 tax
preferences for corporate shareholders (as described above) may subject
corporate shareholders of the Fund to the Environmental Tax.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase or sell municipal bond index futures contracts and
interest rate futures contracts on U.S. Government securities ("financial
futures contracts"). The Fund may also purchase and write call and put options
on such financial futures contracts. In general, unless an election is available
to the Fund or an exception applies, such options and 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 such Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of the mark-to-market rules to Section 1256 contracts held by the
Fund may alter the timing and character of distributions to shareholders. The
mark-to-market rules outlined above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of changes in
price or interest rates with respect to its investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's transactions in financial futures contracts and related
options. Under Section 1092, the Fund may be required to postpone recognition
for tax purposes of losses incurred in certain closing transactions in financial
futures contracts or the related options.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly,
35
<PAGE> 38
the Fund may be restricted in effecting closing transactions within three months
after entering into an option or financial futures contract.
STATE AND LOCAL TAXES
The exemption from Federal income tax for exempt-interest dividends does
not necessarily result in an exemption for such dividends under the income or
other tax laws of any state or local taxing authority. Shareholders are advised
to consult their own tax advisers concerning state and local tax matters.
------------------------
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations 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 or local taxes and with specific
questions as to Federal, foreign, state or local taxes.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund at the net asset value per share next
determined on the payable date of such dividend or distribution. A shareholder
may at any time, by request to his Merrill Lynch financial consultant or by
written notification to the Transfer Agent, elect to have subsequent dividends
or capital gains distributions, or both, paid in cash, rather than reinvested,
in which event payment will be mailed on or about the payment date.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal income tax that may be payable (or required to be
withheld) on such dividends or distributions. See "Taxes".
NET ASSET VALUE
The net asset value per share of Common Stock is determined once daily as
of 15 minutes after the close of business on the NYSE (generally, 4:00 p.m., New
York time), on each day during which the NYSE is open for trading. The NYSE is
not open on New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. For purposes of
determining the net asset value of a share of Common Stock, the value of the
securities held by the Fund plus any cash or other assets (including interest
accrued but not yet received) minus all liabilities (including accrued expenses)
is divided by the total number of shares of Common Stock outstanding at such
time. Expenses, including the fees payable to the Investment Adviser, are
accrued daily.
The Municipal Bonds in which the Fund invests are traded primarily in the
over-the-counter markets. In determining net asset value, the Fund utilizes the
valuations of portfolio securities furnished by a pricing service approved by
the Board of Directors. The pricing service typically values portfolio
securities at the bid price or the yield equivalent when quotations are readily
available. Municipal Bonds for which quotations are not readily available are
valued at fair market value on a consistent basis as determined by the pricing
service
36
<PAGE> 39
using a matrix system to determine valuations. The procedures of the pricing
service and its valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors. The Board of Directors has
determined in good faith that the use of a pricing service is a fair method of
determining the valuation of portfolio securities. Obligations with remaining
maturities of 60 days or less are valued at amortized cost, unless this method
no longer produces fair valuations. Positions in futures contracts are valued at
closing prices for such contracts established by the exchange on which they are
traded, or if market quotations are not readily available, are valued at fair
value on a consistent basis using methods determined in good faith by the Board
of Directors.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issued 200,000,000 shares of capital stock, par
value $.10 per share, all of which shares are initially classified as Common
Stock. The Board of Directors is authorized, however, to classify and reclassify
any unissued shares of each class or series of capital stock by setting or
changing in any one or more respects the designation and number of shares of any
such class or series, and the nature, rates, amounts and times at which and the
conditions under which dividends shall be payable on, and the voting,
conversion, redemption and liquidation rights of, such class or series and any
other preferences, rights, restrictions and qualifications applicable thereto.
Shares of Common Stock when issued and outstanding, will be fully paid and
non-assessable. Shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders upon liquidation of the
Fund. Shareholders are entitled to one vote for each share held.
The Fund will send unaudited reports at least semi-annually and audited
financial statements to all of its shareholders of record. The following table
sets forth the authorized shares of the Fund, the number of shares held by the
Fund for its own account and the total number of shares outstanding as of
September 30, 1995, exclusive of that held by the Fund.
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AS OF SEPTEMBER 30,
1995 (EXCLUSIVE OF
AMOUNT HELD AMOUNT HELD BY
AMOUNT BY FUND ON FUND FOR OWN
CLASS OF SHARES AUTHORIZED OWN ACCOUNT ACCOUNT)
--------------- ---------- ----------- ------------------
<S> <C> <C> <C>
Common Stock............................. 200,000,000 -- 18,226,100
</TABLE>
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors and could
have the effect of depriving shareholders of an opportunity to sell their shares
at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. A Director elected by holders of capital
stock may be removed from office only for cause by vote of the holders of at
least 66 2/3% of the shares of capital stock of the Fund entitled to be voted on
the matter.
37
<PAGE> 40
In addition, the Articles of Incorporation require the favorable vote of
the holders of at least 66 2/3% of the Fund's shares of capital stock, then
entitled to be voted, voting as a single class, to approve, adopt or authorize
the following:
(i) a merger or consolidation or statutory share exchange of the Fund
with other corporations;
(ii) a sale of all or substantially all of the Fund's assets (other
than in the regular course of the Fund's investment activities); or
(iii) a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of two-thirds of the total number of Directors fixed in accordance with the
by-laws, in which case the affirmative vote of a majority of the Fund's shares
of capital stock is required.
The Board of Directors has determined that the 66 2/3% voting requirements
described in the foregoing paragraph and under "Certain Provisions of the
Articles of Incorporation", which are greater than the minimum requirements
under Maryland law or the 1940 Act, are in the best interests of shareholders
generally. Reference should be made to the Articles of Incorporation on file
with the Securities and Exchange Commission for the full text of these
provisions.
PERFORMANCE DATA
From time to time the Fund may include its yield and/or total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders.
The yield of the Fund refers to the income generated by an investment in
the Fund over a stated period. Yield is calculated by annualizing the
distribution over a stated period and dividing the product by the average per
share net asset value. For the year ended August 31, 1995, the Fund earned
$0.651 per share income dividends, representing a net annualized yield of 5.93%,
based on a month-end per share net asset value of $10.97.
The Fund also may quote annual total return and aggregate total return
performance data. Total return quotations for the specified periods will be
computed by finding the rate of return (based on net investment income and any
capital gains or losses on portfolio investments over such periods) that would
equate the initial amount invested to the value of such investment at the end of
the period. For the year ended August 31, 1995, the annual total return of the
Fund was 8.64%, based on the change in per share net asset value from $10.92 to
$10.97, and assuming reinvestment of $0.680 per share income dividends and
$0.148 per share capital gains distributions.
The calculation of yield and total return does not reflect the imposition
of any Early Withdrawal Charges or the amount of any shareholder's tax
liability.
Yield and total return figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
yield is expected to fluctuate, and its total return will vary depending on
market conditions, the Municipal Bonds and other securities comprising the
Fund's portfolio, the Fund's operating expenses and the amount of net realized
and unrealized capital gains or losses during the period.
38
<PAGE> 41
On occasion, the Fund may compare its yield and tax-equivalent yield to
yield data published by Lipper Analytical Services, Inc. or performance data
published by Morningstar Publications, Inc., Money Magazine, U.S. News & World
Report, Business Week, CDA Investment Technology, Inc., Forbes Magazine and
Fortune Magazine. Yield comparisons should not be considered indicative of the
Fund's yield and tax-equivalent yield or relative performance for any future
period.
CUSTODIAN
The Fund's securities and cash are held under a Custody Agreement with The
Bank of New York, 90 Washington Street, New York, New York 10286.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND SHAREHOLDER SERVICING AGENT
The Transfer Agent for the shares of the Fund is Merrill Lynch Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289, a wholly
owned subsidiary of ML&Co.
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 and/or mutual fund account numbers.
If you have any questions regarding this please call your Merrill Lynch
financial consultant or Merrill Lynch Financial Data Services, Inc. at
800-637-3863.
LEGAL OPINIONS
Certain legal matters in connection with the Common Stock offered hereby
will be passed on for the Fund by Brown & Wood, One World Trade Center, New
York, New York 10048-0557.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
have been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the shareholders of the Fund.
The independent auditors are responsible for auditing the financial statements
of the Fund.
39
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch High Income Municipal Bond Fund,
Inc. as of August 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
four-year period then ended and the period November 2, 1990 (commencement of
operations) to August 31, 1991. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
31, 1995 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch High
Income Municipal Bond Fund, Inc. as of August 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 29, 1995
40
<PAGE> 43
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--0.5% B+ NR* $ 1,000 Brewton, Alabama, Industrial Development Board, PCR,
Refunding (Container Corporation American Project),
8% due 4/01/2009 $ 1,049
Arizona--3.2% NR* Aaa 2,920 Arizona Health Facilities Authority, Hospital Systems Revenue
Refunding Bonds (Saint Luke's Health Systems), 7.25% due
11/01/2003 (d) 3,455
NR* NR* 1,280 Pima County, Arizona, IDA, Revenue Bonds (La Hacienda
Project), 9.50% due 12/01/2016 1,296
AA P1 1,500 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont
Mining Corporation), VRDN, 3.55% due 12/01/2009 (a) 1,500
California-- NR* NR* 1,500 Long Beach, California, Redevelopment Agency, M/F Housing
0.7% Revenue Bonds (Pacific Court Apartments), AMT, Issue B,
6.80% due 9/01/2013 1,380
Colorado-- BBB+ Baa1 2,000 Colorado Health Facilities Authority, Hospital Revenue Bonds
7.8% (P/SL Healthcare System Project), Series A, 6.875% due
2/15/2023 2,232
Denver, Colorado, City and County Airport Revenue Bonds:
BB Baa 2,000 AMT, Series A, 7.50% due 11/15/2023 2,149
BB Baa 900 AMT, Series A, 8% due 11/15/2025 993
BB Baa 2,000 AMT, Series B, 7.50% due 11/15/2025 2,073
BB Baa 2,000 AMT, Series D, 7.75% due 11/15/2013 2,430
BB Baa 1,250 Series A, 7.50% due 11/15/2012 1,349
BB Baa 2,000 Series A, 7.25% due 11/15/2025 2,138
NR* NR* 2,000 Mountain Village Metropolitan District, Colorado, Refunding
Bonds (San Miguel County), UT, 8.10% due 12/01/2011 2,173
Connecticut-- NR* NR* 1,925 New Haven, Connecticut, Facilities Revenue Bonds (Hill Health
1.0% Corporation Project), 9.25% due 5/01/2017 2,089
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listing of Merrill Lynch High Income Municipal Bond Fund,
Inc.'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)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
INFLOS Inverse Floating Rate Municipal Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UT Unlimited Tax
VRDN variable Rate Demand Notes
41
<PAGE> 44
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Florida--0.7% BB NR* $ 960 Jacksonville, Florida, Port Authority, IDA, Revenue Refunding
Bonds (United States Gypsum Corporate Project), 7.25% due
10/01/2014 $ 983
NR* VMIG1++ 100 Palm Beach County, Florida, Water and Sewer Revenue Bonds,
VRDN, 3.55% due 10/01/2011 (a) 100
A1 VMIG1++ 300 Pinellas County, Florida, Health Facilities Authority, Revenue
Refunding Bonds (Pooled Hospital Loan Program), DATES,
3.55% due 12/01/2015 (a) 300
Georgia--3.5% NR* NR* 2,520 Atlanta, Georgia, Urban Residential Finance Authority, College
Facilities Revenue Bonds (Morris Brown College Project), 9.50%
due 6/01/2011 2,804
NR* NR* 2,000 Atlanta, Georgia, Urban Residential Finance Authority, M/F
Housing Mortgage Revenue Bonds (Northside Plaza Apartments
Project), 9.75% due 11/01/2020 2,113
NR* NR* 2,000 Hancock County, Georgia, COP, 8.50% due 4/01/2015 2,065
Hawaii--0.9% AAA NR* 1,750 Hawaii State Department of Budget and Finance, Special
Purpose Mortgage Revenue Bonds (Citizens Utility Company),
RIB, Series 91-B, 9.085% due 11/01/2021 (g) 1,853
Illinois--4.7% Chicago, Illinois, O'Hare International Airport, Special
Facilities Revenue Bonds:
BB+ Baa2 4,000 Refunding (American Airlines Inc. Project), 8.20% due
12/01/2024 4,565
BB Baa2 450 (United Airlines, Inc.), AMT, Series B, 8.95% due 5/01/2018 508
BBB+ NR* 2,000 Illinois Educational Facilities Authority Revenue Bonds
(Chicago Osteopathic Health System), 7.25% due 5/15/2022 2,044
NR* Baa1 1,250 Illinois Health Facilities Authority Revenue Bonds (Holy Cross
Hospital Project), 6.75% due 3/01/2024 1,216
BBB NR* 1,000 Lansing, Illinois, Sales Tax, Tax Increment Revenue Refunding
Bonds (Landing Redevelopment), 7% due 12/01/2008 1,074
Indiana--1.6% A NR* 1,500 Indiana Bond Bank, Special Hospital Program Revenue Bonds
(Hendricks Community Hospital), Series A, 7.125% due 4/01/2013 1,613
BB- Ba3 1,500 Indiana State Development Financing Authority, PCR, Refunding
(Inland Steel Company Project Number 12), 6.85% due 12/01/2012 1,527
Iowa--0.8% NR* NR* 1,500 Iowa Finance Authority, Health Care Facilities Revenue Bonds
(Mercy Health Initiatives Project), 9.95% due 7/01/2019 1,583
Kentucky--2.2% AAA Aaa 4,000 Louisville, Kentucky, Hospital Revenue Bonds, INFLOS, 9.045%
due 10/01/2014 (b)(g) 4,375
Louisiana--4.1% NR* Baa3 3,500 Lake Charles, Louisiana, Harbor and Terminal District, Port
Facilities Revenue Refunding Bonds (Trunkline LNG Company
Project), 7.75% due 8/15/2022 3,901
BBB+ Baa 1,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Woman's Hospital Foundation Project), 7.25% due 10/01/2022 1,016
BB- NR* 3,000 Port New Orleans, Louisiana, IDR, Refunding (Continental Grain
Company Project), 7.50% due 7/01/2013 3,111
</TABLE>
42
<PAGE> 45
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Massachusetts-- NR* NR* $ 1,200 Boston, Massachusetts, Industrial Development Financing
8.9% Authority, Solid Waste Disposal Facility Revenue Bonds
(Jet-A-Way Project), AMT, 10.50% due 1/01/2011 $ 1,339
NR* Ba 1,060 Lawrence, Massachusetts, GO, 9.875% due 12/15/1998 1,227
Massachusetts Health and Educational Facilities Authority
Revenue Bonds (New England Memorial Hospital):
NR* Ba 3,000 Refunding, Series B, 6.125% due 7/01/2013 2,453
NR* NR* 1,930 Series C, 7% due 4/01/2014 1,723
NR* NR* 905 Massachusetts Health and Educational Facilities Authority
Revenue Bonds (North Adams Regional Hospital), Series B,
8% due 7/01/1998 980
NR* B1 1,675 Massachusetts Industrial Finance Agency Revenue Bonds
(Bay Cove Human Services Inc.), 8.375% due 4/01/2019 1,802
BB+ Ba1 1,600 Massachusetts Industrial Finance Agency Revenue Bonds
(Vinfen Corporate Issue), 7.10% due 11/15/2018 1,584
NR* NR* 1,000 Massachusetts Industrial Finance Agency, Solid Waste Disposal
Revenue Bonds (Molten Metal Technology Project), 8.25% due
8/01/2014 1,031
NR* NR* 5,000 Massachusetts Port Authority, Special Project Revenue Bonds
(Harborside Hyatt Project), AMT, 10% due 3/01/2026 5,592
Michigan-- BBB Ba1 2,900 Detroit, Michigan, GO, UT, Series A, 8.70% due 4/01/2000 (d) 3,440
1.7%
Minnesota-- BBB- Baa 2,000 Saint Paul, Minnesota, Housing and Redevelopment Authority,
1.1% Hospital Revenue Bonds (Healtheast Project), Series D, 9.75%
due 11/01/2017 2,235
Missouri-- BBB- NR* 2,935 Joplin, Missouri, IDA, Hospital Facilities Revenue Refunding
5.4% and Improvement Bonds (Tri-State Osteopathic Project), 8.25%
due 12/15/2014 3,000
Missouri Health and Educational Facilities Authority Revenue
Bonds (Southwest Baptist University Project):
BB NR* 905 9.50% due 10/01/2001 1,023
BB NR* 3,690 9.50% due 10/01/2011 4,253
AAA Aaa 2,000 Phelps County, Missouri, Hospital Revenue Bonds (Phelps
County Regional Medical Center), 8.30% due 3/01/2000 (d) 2,342
Nevada--0.4% BBB+ NR* 750 Las Vegas, Nevada, Downtown Redevelopment Agency, Tax
Increment Revenue Bonds (Fremont Street Project), Series A,
6.10% due 6/15/2014 726
New Hampshire-- BBB+ Baa1 1,845 New Hampshire Higher Educational and Health Facilities
3.7% Authority Revenue Bonds (Saint Joseph Hospital), 7.50% due
1/01/2016 1,903
BB+ Baa3 5,140 New Hampshire, IDA, PCR (Public Service Company New
Hampshire Project), Series B, 7.50% due 5/01/2021 5,454
New Jersey-- NR* Ba 2,150 Atlantic County, New Jersey, Utilities Authority, Solid Waste
8.4% Revenue Bonds, 7.125% due 3/01/2016 2,174
BBB+ Ba 4,000 Camden County, New Jersey, Pollution Control Financing
Authority, Solid Waste Resource Recovery Revenue Bonds,
Series D, 7.25% due 12/01/2010 4,081
New Jersey Health Care Facilities, Financing Authority
Revenue Bonds:
NR* NR* 4,760 (Riverwood Center Issue), Series A, 9.90% due 7/01/2021 5,331
BBB- Baa 4,700 (Saint Elizabeth Hospital), Series B, 8.25% due 7/01/2020 5,074
</TABLE>
43
<PAGE> 46
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New Mexico-- A A2 $ 1,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
0.5% Corporate Project), 6.50% due 4/01/2013 $ 1,032
New York-- BBB+ Baa1 5,260 New York City, New York, GO, UT, Series C, Sub-Series C-1,
2.8% 7.50% due 8/01/2021 5,618
Ohio--2.4% NR* Ba2 2,325 Defiance County, Ohio, Economic Development Revenue Bonds
(Kroger Co. Project), 8% due 10/15/2015 2,519
AAA Aaa 2,000 Ohio, HFA, S/F Mortgage Revenue Bonds, RIB, AMT, Series A-2,
9.538% due 3/24/2031 (c)(g) 2,112
Oklahoma-- BB NR* 985 Blaine County, Oklahoma, Industrial Authority, IDA, Revenue
0.5% Bonds (United States Gypsum Corp. Project), 7.25% due 10/01/2010 1,031
Oregon--1.6% NR* NR* 1,000 Western Generation Agency, Oregon, Cogeneration Project
Revenue Bonds (Wauna Cogeneration Project), AMT, Series B,
7.40% due 1/01/2016 1,039
B+ NR* 1,955 Yamhill County, Oregon, PCR, Refunding (Smurfit Newsprint
Corporate Project), 8% due 12/01/2003 2,027
Pennsylvania-- NR* NR* 2,000 Lehigh County, Pennsylvania, General Purpose Authority
12.4% Revenue Bonds (Wiley House), 8.75% due 11/01/2014 2,038
BBB- NR* 5,000 McKean County, Pennsylvania, Hospital Authority Revenue
Bonds (Bradford Hospital Project), 8.875% due 10/01/2020 6,020
Montgomery County, Pennsylvania, IDA, Revenue Refunding Bonds:
NR* NR* 1,500 (1st Mortgage--Meadowood Corporation Project), Series A,
10.25% due 12/01/2020 1,662
NR* Ba 3,400 (Pennsburg Nursing and Rehabilitation Center), 7.625% due
7/01/2018 3,456
NR* NR* 2,000 Pennsylvania Economic Development Financing Authority, IDR
(GEHL Company Inc. Project), AMT, Series F, 9% due 9/01/2010 2,157
NR* NR* 5,000 Pennsylvania Economic Development Financing Authority,
Recycling Revenue Bonds (Ponderosa Fibres Project), AMT,
Series A, 9.25% due 1/01/2022 5,287
BBB- NR* 1,000 Pennsylvania Economic Development Financing Authority,
Resource Recovery Revenue Bonds (Colver Project), AMT,
Series D, 7.15% due 12/01/2018 1,025
NR* NR* 3,000 Washington County, Pennsylvania, Hospital Authority, Revenue
Refunding Bonds (Canonsburg General Hospital Project), 7.35%
due 6/01/2013 3,031
Rhode Island-- BBB+ NR* 1,500 Rhode Island Health and Educational Building Corporation,
1.5% Hospital Revenue Bonds (South County Hospital), 7.25% due
11/01/2011 1,551
NR* Ba 1,260 West Warwick, Rhode Island, GO, UT, Series A, 6.80% due
7/15/1998 1,325
Tennessee-- NR* NR* 4,265 Knox County, Tennessee, Health, Educational and Housing
4.2% Facilities Board, Hospital Facilities Revenue Bonds (Baptist
Health System of East Tennessee), 8.60% due 4/15/2016 4,624
BBB- Baa1 3,500 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds
(Calhoun Newsprint), AMT, 7.40% due 12/01/2022 3,741
</TABLE>
44
<PAGE> 47
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Texas--6.7% BB+ Baa2 $ 3,000 Dallas-Fort Worth, Texas, International Airport Facilities
Improvement Corporation Revenue Bonds (American Airlines,
Inc.), AMT, 7.25% due 11/01/2030 $ 3,118
BBB- Ba1 4,870 Jefferson County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Baptist Healthcare
System Project), 8.875% due 6/01/2021 5,346
BB Ba 3,270 Odessa, Texas, Junior College District, Revenue Refunding
Bonds, Series A, 8.125% due 12/01/2018 3,305
NR* VMIG1++ 500 Southwest Higher Education Authority Incorporated, Texas,
Revenue Refunding Bonds (Southern Methodist University),
VRDN, 3.50% due 7/01/2015 (a) 500
NR* NR* 1,845 Swisher County, Texas, Jail Facilities Financing Corporation
Revenue Bonds (Criminal Detention Center), 9.75% due
8/01/2009 (f) --
BBB Baa2 1,000 West Side Calhoun County, Texas, Navigation District, Solid
Waste Revenue Bonds (Union Carbide Chemicals and Plastics),
AMT, 8.20% due 3/15/2021 1,108
Utah--2.4% BBB+ Baa2 1,300 Carbon County, Utah, Solid Waste Disposal Revenue Refunding
Bonds (Laidlaw Inc. - ECDC Project), AMT, Series A, 7.50% due
2/01/2010 1,384
AAA Aaa 3,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC
Hospitals, Inc.), INFLOS, 9.211% due 5/15/2020 (e)(g) 3,292
Vermont--0.8% NR* NR* 1,500 Vermont Educational and Health Buildings Financing Agency,
Revenue Refunding Bonds (College of St. Joseph Project), 8.50%
due 11/01/2024 1,577
Wisconsin--1.2% NR* Ba3 2,350 Walworth, Wisconsin, IDA, Revenue Refunding Bonds (United
States Gypsum Corp. Project), 7.25% due 5/01/2010 2,398
Total Investments (Cost--$180,774)--98.3% 195,147
Other Assets Less Liabilities--1.7% 3,428
--------
Net Assets--100.0% $198,575
========
<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 August 31, 1995.
(b)MBIA Insured.
(c)GNMA Collateralized.
(d)Prerefunded.
(e)AMBAC Insured.
(f)Non-income producing security.
(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 August 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>
45
<PAGE> 48
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of August 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$180,773,886) (Note 1a) $195,147,439
Cash 135,000
Receivables:
Interest $ 4,037,207
Capital shares sold 43,743 4,080,950
------------
Deferred organization expenses (Note 1e) 7,409
Prepaid registration fees and other assets (Note 1e) 10,152
------------
Total assets 199,380,950
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 446,050
Investment adviser (Note 2) 161,945
Administration (Note 2) 42,617 650,612
------------
Accrued expenses and other liabilities 155,465
------------
Total liabilities 806,077
------------
Net Assets: Net assets $198,574,873
============
Net Assets Common stock, $.10 par value, 200,000,000 shares authorized $ 1,809,646
Consist of: Paid-in capital in excess of par 185,699,710
Accumulated realized capital losses on investments--net (2,713,001)
Accumulated distributions in excess of realized capital gains--net (595,035)
Unrealized appreciation on investments--net 14,373,553
------------
Net assets--Equivalent to $10.97 per share based on 18,096,461
shares of capital outstanding $198,574,873
============
See Notes to Financial Statements.
</TABLE>
46
<PAGE> 49
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended August 31, 1995
<S> <S> <C>
Investment Income Interest and amortization of premium and discount earned $ 15,451,765
(Note 1d):
Expenses: Investment advisory fees (Note 2) 1,923,921
Administrative fees (Note 2) 506,295
Professional fees 152,333
Transfer agent fees (Note 2) 124,881
Printing and shareholder reports 63,356
Advertising 57,409
Registration fees (Note 1e) 51,811
Accounting services (Note 2) 49,486
Amortization of organization expenses (Note 1e) 43,665
Listing fees 34,342
Directors' fees and expenses 26,422
Custodian fees 20,612
Pricing services 12,973
Other 5,875
------------
Total expenses 3,073,381
------------
Investment income--net 12,378,384
------------
Realized & Realized loss on investments--net (2,713,001)
Unrealized Change in unrealized appreciation on investments--net 6,520,321
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 16,185,704
(Notes 1b, 1d & 3): ============
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended August 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 12,378,384 $ 12,911,107
Realized gain (loss) on investments--net (2,713,001) 3,571,349
Change in unrealized appreciation on investments--net 6,520,321 (12,998,193)
------------ ------------
Net increase in net assets resulting from operations 16,185,704 3,484,263
------------ ------------
Dividends & Investment income--net (12,378,384) (12,911,107)
Distributions Realized gain on investments--net (2,796,951) (1,365,806)
To Shareholders In excess of realized gain on investments--net (595,035) --
(Note 1f): ------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (15,770,370) (14,276,913)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (14,798,840) 6,828,611
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (14,383,506) (3,964,039)
Beginning of year 212,958,379 216,922,418
------------ ------------
End of year $198,574,873 $212,958,379
============ ============
See Notes to Financial Statements.
</TABLE>
47
<PAGE> 50
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived Nov. 2,
from information provided in the financial statements. 1990++ to
For the Year Ended August 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.92 $ 11.44 $ 10.74 $ 10.29 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .65 .65 .68 .71 .63
Realized and unrealized gain (loss) on
investments--net .23 (.45) .75 .50 .29
-------- -------- -------- -------- --------
Total from investment operations .88 .20 1.43 1.21 .92
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.65) (.65) (.68) (.71) (.63)
Realized gain on investments--net (.15) (.07) (.05) (.05) --
In excess of realized gain on investments--net (.03) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.83) (.72) (.73) (.76) (.63)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.97 $ 10.92 $ 11.44 $ 10.74 $ 10.29
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 8.74% 1.75% 13.83% 12.29% 9.43%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.52% 1.48% 1.37% 1.30% .84%*
Net Assets: ======== ======== ======== ======== ========
Expenses 1.52% 1.48% 1.47% 1.55% 1.76%*
======== ======== ======== ======== ========
Investment income--net 6.11% 5.81% 6.17% 6.85% 7.43%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $198,575 $212,958 $216,922 $170,735 $114,628
Data: ======== ======== ======== ======== ========
Portfolio turnover 21.28% 28.51% 28.74% 31.74% 75.92%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads. The
Fund is a continuously offered closed-end fund, the shares of which
are offered at net asset value. Therefore, no separate market
exists.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
48
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Merrill Lynch High Income Municipal Bond Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
continuously offered, non-diversified, closed-end management
investment company. 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. Options, which
are traded on exchanges, are valued at their last sale price as of
the close of such exchanges or, lacking any sales, at the last
available bid price. 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
Directors of the Fund, including valuations furnished by a pricing
service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general
supervision of the Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell interest
rate futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and 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
49
<PAGE> 52
on the ex-dividend dates. Distributions in excess of realized capital
gains are due primarily to differing tax treatments for futures
transactions and post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect whollyowned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.95% of
the Fund's average daily net assets.
The Fund also has entered into an Administrative Services Agreement
with MLAM whereby MLAM will receive a fee equal to an annual rate of
0.25% of the Fund's average daily net assets, in return for the
performance of administrative services (other than investment advice
and related portfolio activities) necessary for the operation of the
Fund. The Investment Advisory Agreement obligates MLAM to reimburse
the Fund to the extent the Fund's expenses (excluding interest,
taxes, distribution fees, brokerage fees and commissions, and
extraordinary items) exceed (a) 2.0% of the Fund's average daily net
assets or (b) 2.5% of the Fund's first $30 million of average net
assets, 2.0% of the next $70 million of average daily net assets,
and 1.5% of the average net assets in excess thereof. MLAM's
obligation to reimburse the Fund is limited to the amount of the
investment advisory fee. No fee payment will be made to MLAM
during any fiscal year which will cause such expenses to exceed
the most restrictive expense limitation applicable at the time
of such payment.
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 MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, MLFDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1995 were $41,657,329 and $58,801,563,
respectively.
Net realized and unrealized gains (losses) as of August 31, 1995
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (678,301) $14,373,553
Short-term investments (156,729) --
Financial futures contracts (1,877,971) --
----------- -----------
Total $(2,713,001) $14,373,553
=========== ===========
As of August 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $14,373,553, of which $14,520,979
related to appreciated securities and $147,426 related to
depreciated securities. The aggregate cost of investments at August
31, 1995 for Federal income tax purposes was $180,773,886.
4. Capital Shares Transactions:
Transactions in capital shares were as follows:
For the Year Ended Dollar
August 31, 1995 Shares Amount
Shares sold 1,405,923 $ 15,030,501
Shares issued to share-
holders in reinvestment of
dividends and distributions 630,887 6,628,373
---------- ------------
Total issued 2,036,810 21,658,874
Shares tendered (3,446,599) (36,457,714)
---------- ------------
Net decrease (1,409,789) $(14,798,840)
========== ============
For the Year Ended Dollar
August 31, 1994 Shares Amount
Shares sold 2,811,953 $ 31,764,655
Shares issued to share-
holders in reinvestment of
dividends and distributions 526,098 5,902,562
----------- ------------
Total issued 3,338,051 37,667,217
Shares tendered (2,797,604) (30,838,606)
----------- ------------
Net increase 540,447 $ 6,828,611
=========== ============
50
<PAGE> 53
APPENDIX
RATINGS OF MUNICIPAL OBLIGATIONS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
("MOODY'S") MUNICIPAL BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered to be medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal 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 bonds 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.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the
51
<PAGE> 54
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and a modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Short-term Notes: The four ratings of Moody's for short-term notes are MIG
1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality . . . but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk but having protection . . . and not
distinctly or predominantly speculative".
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation
-- 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
effect 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.
If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no
52
<PAGE> 55
representations and gives no opinion on the legal validity or enforceability of
any support arrangement. You are cautioned to review with your counsel any
questions regarding particular support arrangements.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") MUNICIPAL DEBT RATINGS
A S&P 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 S&P from other sources S&P considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or for other
reasons.
The ratings are based, in varying degrees, on the following considerations:
I. -- Likelihood of default capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. -- Nature of and provisions of the obligation;
III. -- Protection afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest high-rated issues only in small degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher-rated categories.
Debt rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB -- Debt rated "BB" has less near-term vulnerability to default than
other speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
53
<PAGE> 56
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated "B" has a greater vulnerability to default but presently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated "CCC" has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.
CC -- The rating "CC" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC rating.
C -- The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed but debt
service payments are continued.
CI -- The rating "CI" is reserved to income bonds on which no interest is
being paid.
D -- Debt rated "D" is in default. The D rating category is also used when
interest payments or principal repayments are expected to be in default at the
payment date, and payment of interest and/or repayment of principal is in
arrears. The D rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit collateral is
insured by the Federal Savings & Loan Insurance Corp. or the Federal Deposit
Insurance Corp. and interest is adequately collateralized.
*: Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
54
<PAGE> 57
Debt Obligations of Issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
A S&P 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 four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Ratings are applicable to both
taxable and tax-exempt commercial paper. The four categories are as follows:
A -- Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with the designation 1, 2 and 3 to indicate the relative degree of
safety.
A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
A-3 -- Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P by the
issuer and obtained by S&P 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.
Commencing on July 27, 1984, S&P instituted a new rating category with
respect to certain municipal note issues with a maturity of less than three
years. The new note ratings and symbols are:
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.
S&P may continue to rate note issues with a maturity greater than three
years in accordance with the same rating scale currently employed for municipal
bond ratings.
55
<PAGE> 58
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 issuer belongs to a group of securities that are 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 S&P publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date information to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S ("FITCH") INVESTMENT GRADE BOND
RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial condition
and operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
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.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
56
<PAGE> 59
Trend Indicator: Trend indicators show whether credit fundamentals are
improving, stable, declining, or uncertain, as follows:
<TABLE>
<S> <C>
Improving
Stable W
Declining
Uncertain
Z
</TABLE>
Trend indicators are not predictions that any rating change will occur.
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.
Withdrawn: A rating may be withdrawn at Fitch's discretion when an issuer
fails to furnish proper and timely information, when an issue matures, or is
called or refinanced.
FitchAlert: Ratings are placed on FitchAlert to notify investors of the
occurrence of an event that is likely to result in a rating change and the
likely direction of such change. These are designated as "Positive" indicating a
potential upgrade; "Negative" for potential downgrade, or "Evolving" where
ratings may be raised or lowered. FitchAlert is relatively short-term, and
should be resolved within three to 12 months. Once Fitch completes its analysis
of the event, appropriate rating action will be taken and the issue will be
removed from FitchAlert. Ratings will also be placed on FitchAlert to notify
investors of an upcoming event that is likely to result in a rating change
(e.g., court or regulatory action that could result in material liability of an
issuer or impair the enforceability of debt obligations). In these instances,
FitchAlert will indicate the effect that various possible results might have on
the rating.
DESCRIPTION OF FITCH HIGH YIELD BOND RATINGS
Fitch high yield bond ratings provide a guide to investors in determining
the credit risk associated with a security. The rating is an assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. Bonds in default are rated
"DDD", "DD", or "D".
The rating takes into consideration special features of the issue, the
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
It should be noted that issues that have the same rating are of similar but
not necessarily identical credit quality since rating categories cannot fully
reflect the differences in degrees of credit risk.
BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified that
could assist the obligor in satisfying its debt service requirements.
57
<PAGE> 60
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D -- Bonds are in actual or imminent 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 recovery.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD", "DD", or "D" categories.
DESCRIPTION OF FITCH SHORT-TERM RATINGS
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the investment grade short-term rating places greater emphasis than bond ratings
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2 -- Good Credit Quality. Issues carrying 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 carrying this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse change is likely to cause these securities
to be rated below investment grade.
F-4 -- Weak Credit Quality. Issues carrying 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.
58
<PAGE> 61
D -- Default. Issues carrying this rating are in actual or imminent payment
default.
LOC -- The symbol, LOC, indicates that the rating is based on a letter of
credit.
INS -- The symbol, INS, indicates that the rating is based on an insurance
policy or financial guaranty issued by an insurance company.
59
<PAGE> 62
[This Page Has Been Left Blank Intentionally]
60
<PAGE> 63
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. -- AUTHORIZATION FORM
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase .......... shares of Merrill Lynch
High Income Municipal Bond Fund, Inc. and establish an Investment Account as
described in the Prospectus.
Basis for establishing an Investment Account:
I enclose a check for $............. payable to Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). (Subsequent
investments $50 or more.) I understand that this purchase will be executed at
the applicable offering price next to be determined after this Application is
received by you.
Until you are notified by me in writing, the following options with
respect to dividends and distributions are elected:
<TABLE>
<S> <C> <C>
---------------------------------- -------------------------------------
Distribution ELECT / / reinvest dividends ELECT / / reinvest capital gains
Options ONE / / pay dividends in cash ONE / / pay capital gains in cash
---------------------------------- -------------------------------------
</TABLE>
If no election is made, dividends and capital gains will be reinvested
automatically at net asset value without a sales charge.
------------------------
(PLEASE PRINT)
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
................................................................................
(Zip Code)
Occupation................... Name and Address of Employer......................
..................................................
..................................................
----------------------------
/ / / / / / / / / /
----------------------------
Social Security No.
or Taxpayer Identification No.
..........................., 19....
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security No. or Taxpayer Identification No. and (2) that I am not
subject to backup withholding (as discussed in the Prospectus under "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 INVESTMENT COMPANIES.
If I am a resident of Texas, I further certify that I have (i) a net worth of
not less than $75,000 or (ii) a net worth of not less than $40,000 and an annual
gross income of not less than $40,000.
Signature of Owner..............................................................
Signature of Co-Owner (if any)..................................................
In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.
- --------------------------------------------------------------------------------
2. FOR DEALER ONLY
Branch Office, Address, Stamp.
- ---- ----
- ---- ----
This form when completed should be mailed to:
Merrill Lynch High Income Municipal Bond Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We guarantee the shareholder's signature.
................................................................................
Dealer Name and Address
By..............................................................................
Authorized Signature of Dealer
- ---------- -------------
/ / / / / / / / /
- ---------- ------------- .................
Branch Code F/C No. F/C Last Name
- ---------- -------------
/ / / / / / / / /
- ---------- -------------
Dealer's Customer A/C No.
61
<PAGE> 64
[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
<PAGE> 65
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY STATE
OR JURISDICTION OF THE UNITED STATES OR ANY COUNTRY WHERE SUCH OFFER WOULD BE
UNLAWFUL.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 4
Fee Table............................. 7
Financial Highlights.................. 8
The Fund.............................. 9
Investment Objective and Policies..... 9
Investment Restrictions............... 20
Purchase of Shares.................... 21
Tender Offers......................... 23
Early Withdrawal Charge............... 25
Directors and Officers................ 26
Investment Advisory and Administrative
Arrangements........................ 28
Portfolio Transactions................ 31
Dividends and Distributions........... 32
Taxes................................. 32
Automatic Dividend Reinvestment
Plan................................ 36
Net Asset Value....................... 36
Description of Capital Stock.......... 37
Performance Data...................... 38
Custodian............................. 39
Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing
Agent............................... 39
Legal Opinions........................ 39
Independent Auditors.................. 39
Independent Auditors' Report.......... 40
Financial Statements.................. 41
Appendix--Ratings of Municipal
Obligations......................... 51
Authorization Form.................... 61
Code #11263-1295
</TABLE>
(LOGO)
Merrill Lynch
High Income Municipal
Bond Fund, Inc.
PROSPECTUS
December , 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 66
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
graph paper and Merrill Lynch
logo including stylized market
bull
<PAGE> 67
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<C> <S>
(1) Financial Statements
Schedule of Investments as of August 31, 1995.
Statement of Assets and Liabilities as of August 31, 1995.
Statement of Operations for the year ended August 31, 1995.
Statements of Changes in Net Assets for each of the years in the two-year period
ended August 31, 1995.
Financial Highlights for each of the years in the four-year period ended August 31,
1995 and for the period November 2, 1990 (commencement of operations) to August 31,
1991.
(2) Exhibits:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
LETTER DESCRIPTION
-------- ---------------------------------------------------------------------------
<S> <C>
(a) -- Articles of Incorporation of Registrant.(a)
(b) -- Form of By-Laws of Registrant.(a)
(c) -- Not applicable.
(d) (1) -- Portions of the Articles of Incorporation and By-Laws of the Registrant
defining the rights of holders of shares of the Registrant.(b)
(2) -- Specimen certificate for shares of Common Stock of Registrant.(a)
(e) -- Not applicable.
(f) -- Not applicable.
(g) (1) -- Investment Advisory Agreement between Registrant and Merrill Lynch Asset
Management, L.P.(a)
(2) -- Administration Agreement between Registrant and Merrill Lynch Asset
Management, L.P.(a)
(h) (1) -- Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(a)
(2) -- Form of Selected Dealer Agreement.(a)
(i) -- Not applicable.
(j) -- Custodian Contract between Registrant and The Bank of New York.(a)
(k) (1) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and Merrill Lynch Financial Data
Services, Inc.(a)
(2) -- Agreement between Merrill Lynch & Co., Inc. and Registrant relating to the
use by Registrant of the Merrill Lynch Name.(a)
(l) -- Not applicable.
(m) -- Not applicable.
(n) -- Consent of Deloitte & Touche LLP, independent auditors for Registrant.
(o) -- Not applicable.
(p) -- Certificate of Merrill Lynch Asset Management, L.P.(a)
(q) -- Not applicable.
(r) -- Financial data schedule.
</TABLE>
- ---------------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
(Footnotes continued on following page)
C-1
<PAGE> 68
(Footnotes continued from preceding page)
(b) Reference is made to Article V, Article VI (Sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article X, Article XI, Article XII and Article
XIII of the Registrant's Articles of Incorporation, filed as Exhibit (a) to
the Registrant's Registration Statement under the Securities Act of 1933,
as amended (the "Registration Statement"); and to Article II, Article III
(Sections 1, 3, 5, and 17), Article VI, Article VII, Article XII, Article
XIII and Article XIV of the Registrant's By-Laws, filed as Exhibit (b) to
the Registrant's Registration Statement.
ITEM 25. MARKETING ARRANGEMENTS.
Previously provided as Exhibits 7(a) and 7(b) to the Registrant's
Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Previously provided in connection with Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF HOLDERS
TITLE OF CLASS SEPTEMBER 30, 1995
-------------- -------------------
<S> <C>
Shares of common stock, par value $0.10 per share........................... 7,233
</TABLE>
- ---------------
Note: The number of holders shown above includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch").
ITEM 29. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreement.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
C-2
<PAGE> 69
Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a defense
to the action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to receive from
the Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Directors, 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 Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify Merrill Lynch Funds
Distributor, Inc. (the "Distributor") and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933 (the "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 Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the 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 Director, 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 Act and will be governed by the final adjudication of
such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P. (the "Investment Adviser" or "MLAM"),
acts as 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 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 Puerto Rico Tax-Exempt Fund, Inc., Merrill
Lynch Ready Assets Trust, Merrill Lynch Retirement Asset Builder Program, Inc.,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money
Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income
Fund, Inc. and Merrill Lynch Variable Series Funds, Inc. and the following
closed-end investment companies: Convertible Holdings, Inc. and Merrill Lynch
Senior Floating Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment
Adviser, acts as the investment adviser for the following open-end investment
companies: CBA Money Fund, CMA Government Securities
C-3
<PAGE> 70
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., Muni Assets 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,
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.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds for
Institutions Series, Merrill Lynch Institutional Tax-Exempt Fund and Merrill
Lynch Institutional Intermediate Fund is One Financial Center, 15th Floor,
Boston Massachusetts 02110-2646. The address of the Investment Adviser and FAM
is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of 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 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 director of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person has been engaged since
September 1, 1993 for his, her 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 all or
substantially all of the investment companies described in the preceding
paragraph. Messrs. Zeikel, Glenn and Richard also hold the same position with
all or substantially all of the investment companies advised by FAM as they do
with those advised by the Investment Adviser. Messrs. Giordano, Harvey, Hewitt,
Kirstein and Monagle are directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------- -------------------------------------
<S> <C> <C>
Merrill Lynch & Co., Inc...... Limited Partner Financial Services Holding Company;
Limited Partner of FAM
Princeton Services, Inc.,
("Princeton Services")...... General Partner General Partner of FAM
Arthur Zeikel................. President President of FAM; President and
Director of Princeton Services;
Director of Merrill Lynch Funds
Distributor, Inc., ("MLFD"),
Executive Vice President of ML&Co.;
Executive Vice President of Merrill
Lynch
</TABLE>
C-4
<PAGE> 71
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------- -------------------------------------
<S> <C> <C>
Terry K. Glenn................ Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
Director of Financial Data
Services, Inc.; President of
Princeton Administrators
Vincent R. Giordano........... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Elizabeth Griffin............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Norman R. Harvey.............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
N. John Hewitt................ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Philip L. Kirstein............ Senior Vice President Senior Vice President, General
Counsel and Secretary of FAM; Senior
Vice President, Secretary General
Counsel, Director and Secretary of
Princeton Services; Director of
MLFD
Ronald M. Kloss............... Senior Vice President and Senior Vice President and Controller
Controller of FAM; Senior Vice President and
Controller of Princeton Services
Stephen M.M. Miller........... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.
Joseph T. Monagle, Jr......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Richard L. Reller............. Senior Vice President First Vice President of FAM; First
Vice President of Princeton Services
Gerald M. Richard............. Senior Vice President and Senior Vice President and Treasurer
Treasurer of FAM; Senior Vice President and
Treasurer of Princeton Services;
Vice President and Treasurer of
MLFD
Ronald L. Welburn............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Anthony Wiseman............... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
</TABLE>
ITEM 31. 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 will be maintained at the offices of the Registrant, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536 and MLFDS, 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
ITEM 32. MANAGEMENT SERVICES.
Not Applicable.
ITEM 33. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
C-5
<PAGE> 72
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering hereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
C-6
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Township of
Plainsboro and State of New Jersey, on the 6th day of November, 1995.
MERRILL LYNCH HIGH INCOME
MUNICIPAL BOND FUND, INC.
(Registrant)
By /s/ TERRY K. GLENN
........................................
(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 dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------------- ---------------------------- -----------------
<C> <C> <S>
ARTHUR ZEIKEL* President (Principal
....................................... Executive Officer) and
(Arthur Zeikel) Director
GERALD M. RICHARD* Treasurer (Principal
....................................... Financial and Accounting
(Gerald M. Richard) Officer)
RONALD W. FORBES* Director
.......................................
(Ronald W. Forbes)
CYNTHIA A. MONTGOMERY* Director
.......................................
(Cynthia A. Montgomery)
CHARLES C. REILLY* Director
.......................................
(Charles C. Reilly)
KEVIN A. RYAN* Director
.......................................
(Kevin A. Ryan)
RICHARD R. WEST* Director
.......................................
(Richard R. West)
*By /s/ TERRY K. GLENN November 6, 1995
.......................................
(Terry K. Glenn, Attorney-in-Fact)
</TABLE>
C-7
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
LETTER DESCRIPTION
- ------- -----------
<C> <C> <S>
(a) -- Articles of Incorporation of Registrant.(a)
(b) -- Form of By-Laws of Registrant.(a)
(g)(1) -- Form of Investment Advisory Agreement between Registrant and MLAM.(a)
(2) -- Form of Administration Agreement between Registrant and MLAM.(a)
(h)(1) -- Form of Distribution Agreement between Registrant and the Distributor.(a)
(2) -- Form of Selected Dealer Agreement.(a)
(j) -- Form of Custodian Contract between Registrant and The Bank of New York.(a)
(k)(1) -- Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and MLFDS.(a)
(2) -- Form of Agreement between ML&Co. and Registrant relating to the use by
Registrant of the "Merrill Lynch" Name.(a)
(n) -- Consent of Deloitte & Touche LLP, independent auditors for Registrant.
(p) -- Certificate of MLAM.(a)
(r) -- Financial Data Schedule.
</TABLE>
- ---------------
(a) Refiled pursuant to the EDGAR phase-in requirements.
<PAGE> 1
Ex-99.a
ARTICLES OF INCORPORATION
OF
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
ARTICLE I
THE UNDERSIGNED, Lawrence H. Kaplan, whose post office
address is c/o Brown & Wood, One World Trade Center, 58th Floor,
New York, New York 10048, being at least eighteen (18) years of
age,, does hereby act as an incorporator, under and by virtue of
the General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a
corporation.
ARTICLE II
NAME
The name of the Corporation is MERRILL LYNCH HIGH INCOME
MUNICIPAL BOND FUND, INC. (the "Corporation").
ARTICLE III
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed
is to act as a closed-end, management investment company under
the federal Investment Company Act of 1940, as amended, and to
<PAGE> 2
exercise and enjoy all of the powers, rights and privileges
granted to, or conferred upon, corporations by the General Laws
of the State of Maryland now or hereafter in force.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust
Incorporated., 32 South Street, Baltimore, Maryland 21202. The
name of the resident agent of the Corporation in this State is
The Corporation Trust Incorporated, a corporation of this State,
and the post office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock which the
Corporation shall have authority to issue is Two Hundred Million
(200,000,000) shares, all of one class called Common Stock, of
the par value of Ten Cents ($0.10) per share and of the aggregate
par value of Twenty Million Dollars ($20,000,000).
(2) The Board of Directors may classify and reclassify any
unissued shares of capital stock into one or more additional or
other classes or series as may be established from time to time
by setting or changing in any one or more respects the
2.
<PAGE> 3
designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications
or terms of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the
number of authorized shares of any existing class or series.
(3) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, the holders of each class
or series of capital stock shall be entitled to dividends and
distributions in such amounts and at such times as may be
determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series
of capital stock may vary among such classes and series.
(4) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, on each matter submitted to
a vote of stockholders, each holder of a share of capital stock
of the Corporation shall be entitled to one vote for each share
standing in such holder's name on the books of the Corporation,
irrespective of the class or series thereof, and all shares of
all classes and series shall vote together as a single class;
provided, however, that as to any matter with respect to which a
separate vote of any class or series is required by the
Investment Company Act of 1940, as amended, and in effect from
time to time, or any rules, regulations or orders issued
3.
<PAGE> 4
thereunder, or the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall
apply in addition to a general vote of all classes and series as
described above.
(5) Notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of
the votes of all classes or series of capital stock of the
corporation (or of any class or series entitled to vote thereon
as a separate class or series) to take or authorize any action,
the corporation is hereby authorized (subject to the requirements
of the Investment Company Act of 1940, as amended, and in effect
from time to time, and any rules, regulations and orders issued
thereunder) to take such action upon the concurrence of a
majority of the aggregate number of shares of capital stock of
the Corporation entitled to vote thereon (or a majority of the
aggregate number of shares of a class or series entitled to vote
thereon as a separate class or series).
(6) Unless otherwise expressly provided in the charter of
the Corporation, including any Articles Supplementary creating
any class or series of capital stock, in the event of any
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of all classes and
series of capital stock of the Corporation shall be entitled,
4.
<PAGE> 5
after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining
net assets of the Corporation.
(7) Any fractional shares shall carry proportionately all
the rights of a whole share, excepting any right to receive a
certificate evidencing such fractional share, but including,
without limitation, the right to vote and the right to receive
dividends.
(8) All persons who shall acquire capital stock in the
Corporation shall acquire the same subject to the provisions of
the charter and By-Laws of the Corporation. As used in the
charter of the Corporation, the terms "charter" and "Articles of
Incorporation" shall mean and include the Articles of
Incorporation of the Corporation as amended, supplemented and
restated from time to time by Articles of Amendment, Articles
Supplementary, Articles of Restatement or otherwise.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE COR-
PORATION AND OF THE DIRECTORS AND
STOCKHOLDERS
(1) The number of directors of the Corporation shall be
three (3), which number may be increased pursuant to the By-Laws
of the Corporation but shall never be less than three (3). The
5.
<PAGE> 6
names of the directors who shall act until the first annual
meeting or until their successors are duly elected and qualify
are:
Philip L. Kirstein
Robert Harris
Susan B. Baker
(2) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares
of capital stock, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable,
subject to such limitations as may be set forth in these Articles
of incorporation or in the By-Laws of the corporation or in the
General Laws of the State of Maryland.
(3) Each director and each officer of the Corporation shall
be indemnified by the Corporation to the full extent permitted by
the General Laws of the State of Maryland, subject to the
requirements of the Investment Company Act of 1940, as amended.
No amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided
to directors and officers under this provision in connection with
any act or omission that occurred prior to such amendment or
repeal.
(4) To the fullest extent permitted by the General Laws of
the State of Maryland, subject to the requirements of the
Investment Company Act of 1940, as amended, no director or
officer of the Corporation shall be personally liable to the
6.
<PAGE> 7
Corporation or its security holders for money damages. No
amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided
to directors and officers under this provision in connection with
any act or omission that occurred prior to such amendment or
repeal.
(5) The Board of Directors of the Corporation may make,
alter or repeal from time to time any of the By-Laws of the
Corporation except any particular By-Law which is specified as
not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of
1940, as amended.
(6) A director elected by the holders of capital stock may
be removed for cause (but not without cause), but only by action
taken by the holders of at least seventy-five percent (75%) of
the shares of capital stock then entitled to vote in an election
to fill that directorship.
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No shareholder of the Corporation shall by reason of his
holding shares of capital stock have any preemptive or preferen-
tial right to purchase or subscribe to any shares of capital
stock of the Corporation, now or hereafter to be authorized, or
any notes, debentures, bonds or other securities convertible into
7.
<PAGE> 8
shares of capital stock, now or hereafter to be authorized,
whether or not the issuance of any such shares, or notes, deben-
tures, bonds or other securities would adversely affect the
dividend or voting rights of such shareholder; and the Board of
Directors may issue shares of any class of the Corporation, or
any notes, debentures, bonds, other securities convertible into
shares of an class, either whole or in part, to the existing
shareholders.
ARTICLE VIII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting
practice by or pursuant to the direction of the Board of Direc-
tors, as to the amount of assets, obligations or liabilities of
the Corporation, as to the amount of net income of the Corpor-
ation from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, as to
the amount of any reserves or charges set up and the propriety
thereof, as to the time of or purpose for creating reserves or as
to the use, alteration or cancellation of any reserves or charges
(whether or not any obligation or liability for which such
reserves or charges shall have been created, shall have been paid
or discharged or shall be then or thereafter required to be paid
or discharged), as to the price of any security owned by the
8.
<PAGE> 9
Corporation or as to any other matters relating to the issuance,
sale, redemption or other acquisition or disposition of securi-
ties or shares of capital stock of the Corporation, and any
reasonable determination made in good faith by the Board of
Directors as to whether any transaction constitutes a purchase of
securities on "margin", a sale of securities "short", or an
underwriting of the sale of, or a participation in any under-
writing or selling group in connection with the public distri-
bution of, any securities, shall be final and conclusive, an
shall be binding upon the corporation and all holders of its
capital stock, past, present and future, and shares of the capi-
tal stock of the Corporation are issued and sold on the condition
and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such
determinations shall be binding as aforesaid. No provision of
these Articles of Incorporation shall be effective to (a) require
a waiver of compliance with any provision of the Securities Act
of 1933, as amended, or the Investment Company Act of 1940, as
amended, or of any valid rule, regulation or order of the Securi-
ties and Exchange Commission thereunder or (b) protect or purport
to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
9.
<PAGE> 10
ARTICLE IX
PRIVATE PROPERTY OF STOCKHOLDERS
The private property of stockholders shall not be subject to
the payment of corporate debts to any extent whatsoever.
ARTICLE X
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE XI
MERGER, SALE OF ASSETS, LIQUIDATION
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, a favorable vote
of the holders of at least seventy-five percent (75%) of the
outstanding shares of capital stock of the Corporation entitled
to be voted on the matter shall be required to approve, adopt or
authorize (i) a merger or consolidation or statutory share
exchange of the Corporation with any other corporation, (ii) a
sale of all or substantially all of the assets of the Corporation
(other than in the regular course of its investment activities),
or (iii) a liquidation or dissolution of the Corporation, unless
such action has previously been approved, adopted or authorized
by the affirmative vote of at least two-thirds of the total
number of directors fixed in accordance with the By-Laws of the
10.
<PAGE> 11
corporation, in which case the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the
corporation entitled to vote thereon shall be required.
ARTICLE XII
CONSENT OF STOCKHOLDERS
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, any action taken
by the written consent of the holders of the outstanding shares
of the capital stock of the Corporation must be taken by
unanimous written consent of the holders of the outstanding
shares of capital stock of the Corporation entitled to be voted
on the matter.
ARTICLE XIII
AMENDMENT
The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of Incorpor-
ation, in the manner now or hereafter prescribed by statute,
including any amendment which alters the contract rights, as
expressly set forth in the charter, of any outstanding stock and
substantially adversely affects the stockholders' rights and all
rights conferred upon stockholders herein are granted subject to
this reservation. Notwithstanding any other provisions of these
Articles of Incorporation or the By-Laws of the Corporation (and
11.
<PAGE> 12
notwithstanding the fact that a lesser percentage may be
specified by law, these Articles of Incorporation or the By-Laws
of the Corporation), the amendment or repeal of Section (5) of
Article V, Section (1), Section (3), Section (4), Section (5) and
Section (6) of Article VI, Article IX, Article X, Article XI,
Article XII or this Article XIII, of these Articles of
incorporation shall require the affirmative vote of the holders
of at least seventy-five percent (75%) of the outstanding shares
of capital stock of the Corporation entitled to be voted on the
matter.
IN WITNESS WHEREOF, the undersigned incorporator of MERRILL
LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. hereby executes the
foregoing Articles of Incorporation and acknowledges the same to
be his act and further acknowledges that, to the best of his
knowledge, the matters and facts set forth therein are true in
all material respects under the penalties of perjury.
Dated the 14th day of August 1990.
/s/ Lawrence H. Kaplan
12.
<PAGE> 1
EX. 99.B
BY-LAWS
OF
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation
shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office of
the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 3. Other Offices. The Corporation may have such other offices in
such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The Corporation shall not be required to hold
an annual meeting of its stockholders in any year in which none of the
following is required to be acted on by the holders of the capital stock under
the Investment Company Act of 1940, as amended: (a) election of directors, (b)
approval of the Corporation's investment advisory agreement; (c) ratification
of the selection of independent public accountants; and (d)
<PAGE> 2
approval of the Corporation's distribution agreement. In the event that the
Corporation shall be required to hold an annual meeting of stockholders by the
Investment Company Act of 1940, as amended, such meeting shall be held: (a) at
a date and time set by the Board of Directors in accordance with the Investment
Company Act of 1940, as amended, if the purpose of the meeting is to elect
directors or to approve an investment advisory agreement or distribution
agreement; and (b) on a date fixed by the board of directors during the month
of _______________ (i) in the fiscal year immediately following the fiscal year
in which independent accountants were appointed if the purpose of the meeting
is to ratify the selection of such independent accountants, or (ii) in any
fiscal year if an annual meeting is to be held for any reason other than as
specified in the foregoing. Any stockholders' meeting held in accordance with
the preceding sentence shall for all purposes constitute the annual meeting of
stockholders for the fiscal year of the Corporation in which the meeting is
held. At any such meeting, the stockholders shall elect directors to hold the
offices of any directors who have held office for more than one year or who
have been elected by the board of directors to fill vacancies which result from
any cause.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law or by the Articles of Incorporation, may be
called for any purpose or purposes by a majority of the Board of Directors, the
President, or on the
-2-
<PAGE> 3
written request of the holders of at least 10% of the outstanding shares of
capital stock of the Corporation entitled to vote at such meeting.
Section 3. Place of Meetings. Meetings of the stockholders shall be held
at such place within the United States as the Board of Directors may from time
to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the special meeting, shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of the meeting. Notice by
mail shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original
-3-
<PAGE> 4
record date, notice of such adjourned meeting need not be given if the time and
place to which the meeting shall be adjourned were announced at the meeting at
which the adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders, the holders of a
majority of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided by statute or by the
Articles of Incorporation. In the absence of a quorum no business may be
transacted, except that the holders of a majority of the shares of stock
present in person or by proxy and entitled to vote may adjourn the meeting from
time to time, without notice other than announcement thereat except as
otherwise required by these By-Laws, until the holders of the requisite amount
of shares of stock shall be so present. At any such adjourned meeting at
which a quorum may be present any business may be transacted which might have
been transacted at the meeting as originally called. The absence from any
meeting, in person or by proxy, of holders of the number of shares of stock of
the Corporation in excess of a majority thereof which may be required by the
laws of the State of Maryland, the Investment Company Act of 1940, as amended,
or other applicable statute, the Articles of Incorporation, or these By-Laws,
for action upon any given matter shall not prevent action at such meeting upon
any other matter or matters which may properly come before the meeting, if
there
-4-
<PAGE> 5
shall be present thereat, in person or by proxy, holders of the number of
shares of stock of the Corporation required for action in respect of such other
matter or matters.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, shall act
as a chairman of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the chairman of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth day before the
meeting.
-5-
<PAGE> 6
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders shall be
authorized by a majority of the total votes cast at a meeting of stockholders
by the holders of shares present in person or represented by proxy and entitled
to vote on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable,
any such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, it there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than
ninety nor less
-6-
<PAGE> 7
than ten days before the date of the meeting of the stockholders. All persons
who were holders of record of shares at such time, and not others, shall be
entitled to vote at such meeting and any adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take
and sign an oath to execute faithfully the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors shall determine the number of shares outstanding and the voting
powers of each, the number of shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, here and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote thereat, the inspectors
shall make a report in writing of any challenge, request or matter determined
by them and shall execute a certif-
-7-
<PAGE> 8
icate of any fact found by them. No director or candidate for the office of
director shall act as inspector of an election of directors. Inspectors need
not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote
thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Articles
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation
may be exercised by or under authority of the Board of Directors except as
conferred on or reserved to the stockholders by law or by the Articles of
Incorporation or these By-Laws.
-8-
<PAGE> 9
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three nor more than fifteen except
that the Corporation may have two directors if there is no stock outstanding,
or so long as there are less than three stockholders. Any vacancy created by
an increase in Directors may be filled in accordance with Section 6 of this
Article III. No reduction in the number of directors shall have the effect of
removing any director from office prior to the expiration of his term unless
such director is specifically removed pursuant to Section 5 of this Article III
at the time of such decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
annually, by written ballot at a meeting of stockholders held for that purpose;
provided, however, that if no meeting of the stockholders of the Corporation is
required to be held in a particular year pursuant to Section 1 of Article II of
these By-Laws, directors shall be elected at the next meeting held. The term
of office of each director shall be from the time of his election and
qualification until the election of directors next succeeding his election and
until his successor shall have been elected and shall have qualified, or until
his death, or
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until he shall have resigned, or have been removed as hereinafter provided in
these By-Laws, or as otherwise provided by statute or the Articles of
Incorporation.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman
of the Board or the President or the Secretary. Any such resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed for cause (but not without cause) by the stockholders by a vote of a
majority of the votes entitled to be cast for the election of directors.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any
other cause, shall be filled by a vote of the majority of the Board of
Directors then in office even though such majority is less than a quorum,
provided that no vacancies shall be filled by action of the remaining
directors, if after the filling of said vacancy or vacancies, less than
two-thirds of the directors then holding office shall have been elected by the
stockholders of the Corporation. In the event that at any time there is a
vacancy in any office of a director which vacancy may not be filled by the
remaining directors, a
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special meeting of the stockholders shall be hold as promptly as possible and
in any event within sixty days, for the purpose of filling said vacancy or
vacancies. Any directors elected or appointed to fill a vacancy shall hold
office only until the next meeting of stockholders of the Corporation and until
a successor shall have been chosen and qualifies or until his earlier
resignation or removal.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meeting. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be called
by two or more directors of the Corporation or by the Chairman of the Board or
the President.
Section 10. Telephone Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act of 1940, as amended, participation in a meeting by
these means constitutes presence in person at the meeting.
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Section 11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before
the time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the
meeting, sign a written waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any meeting need not
state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended,
or other applicable statute, the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. In the
absence
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of a quorum at any meeting of the Board, a majority of the directors present
thereat may adjourn such meeting to another time and place until a quorum shall
be present thereat. Notice of the time and place of any such adjourned meeting
shall be given to the directors who were not present at the time of the
adjournment and, unless such time and place were announced at the meeting at
which the adjournment was taken, to the other directors. At any adjourned
meeting at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
of inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his absence or inability to act, any person appointed by the
Chairman) shall act as secretary of the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting if all members of the
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Board or committee, as the case may be, consent thereto in writing, and the
writings or writing are filed with the minutes of the proceedings of the Board
or committee.
Section 16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the Prospectus of the Corporation included in the registration statement of
the Corporation relating to the initial public offering of its capital stock,
as filed with the Securities and Exchange Commisision (or as such investment
policies and restrictions may be modified by the Board of Directors, or, if
required, by majority vote of the stockholders of the Corporation in accordance
with the Investment Company Act of 1940, as amended) and as required by the
Investment Company Act of 1940,, as amended. The Board however, may delegate
the duty of management of the assets and the administration of its day to day
operations to an individual or corporate management company and/or investment
adviser pursuant to a written contract or contracts which have obtained the
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requisite approvals, including the requisite approvals of renewals thereof, of
the Board of Directors and/or the stockholders of the Corporation in accordance
with the provisions of the Investment Company Act of 1940, as amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolution adopted by
a majority of the entire board, designate an Executive Committee consisting of
two or more of the directors of the corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:
(a) the submission to stockholders of any action requiring authorization
of stockholders pursuant to statute or the Articles of Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the Board
or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken by the Board of Directors by the Investment Company Act of 1940, as
amended;
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(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and
(h) the approval of any merger or share exchange which does not
require stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the
Board of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The
Board may designate a chairman of any committee and such chairman or any two
members of any committee may fix the time and place of
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its meetings unless the Board shall otherwise provide. In the absence or
disqualification of any member of any committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. The Board shall have the power at any time to change the
membership of any committee, to fill all vacancies, to designate alternate
members to replace any absent or disqualified member, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority or power of the Board in the management of
the business or affairs of the Corporation.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors may elect or appoint
one or more Vice Presidents and may also appoint such other officers, agents
and employees as it may deem necessary or proper. Any two or more offices may
be held by the same person, except the offices of
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President and Vice President, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity. Such officers shall be elected
by the Board of Directors each year at a meeting of the Board of Directors,
each to hold office for the ensuing year and until his successor shall have
been duly elected and shall have qualified, or until his death, or until he
shall have resigned, or have been removed, as hereinafter provided in these
By-Laws. The Board may from time to time elect, or delegate to the President
the power to appoint, such officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable for the business
of the Corporation. Such officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board or by the
appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, President or the Secretary. Any such resignation shall take effect
at the time specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt; and, unless
otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may he removed by the Board of Directors with or
without cause at any time, and the Board may dele-
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gate such power of removal as to agents and employees not elected or appointed
by the Board of Directors. Such removal shall be without prejudice to such
person's contract rights, if any, but the appointment of any person as an
officer, agent or employee of the Corporation shall not of itself create
contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive officer
of the Corporation. In the absence of the Chairman of the Board (or if there
be none), he shall preside at all meetings of the stockholders and of the Board
Directors. He shall have, subject to the control of the Board of Directors,
general charge of the business and affairs of the Corporation. He may employ
and discharge employees and agents of the Corporation, except such as shall be
appointed by the Board, and he may delegate these powers.
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Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from
time to time prescribe.
Section 9. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation, except those which the Corporation has placed in
the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank or trust company
or member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit of
the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment of
its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the Board
or the President.
Section 10. Secretary. The Secretary shall
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(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
or the President.
Section 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them,
of such officer upon any other officer or upon any director.
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ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indemnified by the
Corporation to the full extent permitted under the General Laws of the State of
Maryland, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office, the decision by the Corporation to indemnity such person
must be based upon the reasonable determination of independent legal counsel or
the vote of a majority of a quorum of the directors who are neither "interested
persons," as defined in Section 2(a)(19) of the Investment Company Act of 1940,
as amended, nor parties to the proceeding ("non-party independent directors"),
after review of the facts, that such officer or director is not guilty of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in
connection with proceedings to which he
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is a party in the manner and to the full extent permitted under the General
Laws of the State of Maryland; provided, however, that the person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification by
the Corporation has been met and a written undertaking to repay any such
advance, if it should ultimately be determined that the standard of conduct has
not been met, and provided further that at least one of the following
additional conditions is met: (a) the person seeking indemnification shall
provide a security in form and amount acceptable to the Corporation for his
undertaking; (b) the Corporation is insured against losses arising by reason of
the advance; (c) a majority of a quorum of non-party independent directors, or
independent legal counsel in a written opinion, shall determine, based on a
review of facts readily available to the Corporation at the time the advance is
proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his activities as officer or
director of the Corporation. The Corporation, however, may not purchase
insurance on behalf of any officer or director of the Corporation that protects
or purports to protect such person from liability to the Corporation or to its
stockholders to which such officer or director would otherwise be
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subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
The Corporation may indemnify, make advances or purchase insurance to the
extent provided in this Article VI on behalf of an employee or agent who is not
an officer or director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates
for, fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate
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shall be issued, it may be issued by the Corporation with the same effect as
if such officer, transfer agent or registrar were still in office at the date
of issue.
Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such
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owner, and the Corporation shall not be bound to recognize any equitable or
legal claim to or interest in any such share or shares on the part of any other
person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate.
Anything herein to the contrary
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notwithstanding, the Board, in its absolute discretion, may refuse to issue any
such new certificate, except pursuant to legal proceedings under the laws of
the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors, the
name of the Corporation, the year of its incorpora-
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tion and the words "Corporate Seal" and "Maryland." Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the ______ day of ______ .
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safe keeping
of the securities and investments of the Corporation shall contain provisions
complying with the Investment Company Act of 1940, as amended, and the general
rules and regulations thereunder.
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ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as
the Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation
by the signature of the President or a Vice President or the Treasurer or
pursuant to any procedure approved by the Board of Directors, subject to
applicable law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify the
financial statements of the Corporation which are filed with the Securities and
Exchange Commission shall be selected annually by the Board of Directors and,
if required by the provisions of the Investment Company Act of 1940, as
amended, ratified by the stockholders.
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ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed to
each stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders, if any, and, within 20 days after the
meeting (or, in the absence of an annual meeting, within 20 days after the end
of the month of _______ following the end of the fiscal year), be placed on
file at the Corporation's principal office. Each such report shall show the
assets and liabilities of the Corporation as of the close of the annual or
quarterly period covered by the report and the securities in which the funds of
the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required by the
Investment Company Act of 1940, as amended, and shall set forth such other
matters as the Board or such firm of independent public accountants shall
determine.
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ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders by a favorable vote of the holders of at least seventy-five
percent (75%) of the outstanding shares of capital stock of the Corporation
entitled to be voted on the matter, provided that notice of the proposed
amendment, alteration or repeal be contained in the notice of such special
meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors, except any particular By-Law which
is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.
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Ex-99.g(1)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 14th day of September 1990, by and
between MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC., a
Maryland corporation (hereinafter referred to as the "Fund"), and
MERRILL LYNCH ASSET MANAGEMENT, INC., a Delaware corporation
(hereinafter referred to as the "Investment Adviser") .
W I T N E S S E T H:
WHEREAS, the Fund intends to engage in business as a
closed-end, non-diversified, management investment company and is
registered as such under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company
Act"); and
WHEREAS, the Investment Adviser is engaged principally in
rendering management and investment advisory services and is
registered as an investment adviser under the Investment
Adviser's Act of 1940; and
WHEREAS, the Fund desires to retain the Investment Adviser
to provide management and investment advisory services to the
Fund in the manner and on the terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide
management and investment advisory services to the Fund on the
terms and conditions hereinafter set forth;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, the Fund and the Investment
Adviser hereby agree as follows:
ARTICLE I
Duties of the Investment Adviser
The Fund hereby employs the Investment Adviser to act as
investment adviser of the Fund and to furnish, or arrange for
affiliates to furnish, the investment advisory services described
below, subject to the polices of, review by and overall control
of the Board of Directors of the Fund, for the period and on the
terms and conditions set forth in this Agreement. The Investment
Adviser 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
Investment Adviser 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 Fund in any way or otherwise be deemed
agents of the Fund.
(a) Administrative Services. The Investment Adviser shall
perform (or arrange for the performance by affiliates of) the
management and administrative services necessary for the
operation of the Fund including administering shareholder
2.
<PAGE> 3
accounts and handling shareholder relations pursuant to an
Administration Agreement of even date herewith.
(b) Investment Advisory Services. The Investment Adviser
shall provide the Fund 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 securities in which the
Fund invests or cash, subject always to the restrictions of the
Articles of Incorporation and By-Laws of the Fund, as amended
from time to time, the provisions of the Investment Company Act
and the statements relating to the Fund's investment objectives,
investment policies and investment restrictions as the same are
set forth in filings made by the Fund under the Federal
securities laws. The Investment Adviser shall make decisions for
the Fund 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
Board of Directors at any time, however, make any definite
determination as to investment policy and notify the Investment
Adviser thereof in writing, the Investment Adviser shall be bound
by such determination for the period, if any, specified in such-
notice or until similarly notified that such determination has
3.
<PAGE> 4
been revoked. The Investment Adviser 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 that end, the Investment Adviser
is authorized as the agent of the Fund 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 Investment Adviser
is directed at all times to seek to obtain execution and prices
within the policy guidelines determined by the Board of Directors
and set forth in filings made by the Fund under the Federal
securities laws. 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
Investment Adviser may select brokers or dealers with which it or
the Fund is affiliated.
ARTICLE II
Allocation of Charges and Expenses
(a) The Investment Adviser. The Investment Adviser
assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement, and
shall at its own expense, provide the office space, facilities,
4.
<PAGE> 5
equipment and necessary personnel which it is obligated to
provide under Article I hereof, and shall pay all compensation of
officers of the Fund and all Directors of the Fund who are
affiliated persons of the Investment Adviser.
(b) The Fund. The Fund assumes and shall pay or cause to
be paid all other expenses of the Fund including, without
limitation: taxes, expenses for legal and auditing services,
costs of printing proxies, stock certificates, shareholder
reports, prospectuses, charges of the custodian, any sub-
custodian and transfer agent, expenses of portfolio transactions,
Securities and Exchange Commission fees, expenses of registering
the shares under Federal, state and foreign laws, fees and actual
out-of-pocket expenses of Directors who are not affiliated
persons of the Investment Adviser, accounting and pricing costs
(including the calculation of the net asset value), insurance,,
interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by
the Fund. It is also understood that the Fund will reimburse the
Investment Adviser for its costs in providing accounting services
to the Fund.
ARTICLE III
Compensation of the Investment Adviser
(a) Investment Advisory Fee. For the services rendered,
the facilities furnished and expenses assumed by the Investment
Adviser, the Fund shall pay to the Investment Adviser at the end
5.
<PAGE> 6
of each calendar month a fee based on the average daily value of
the net assets of the Fund at the annual rate of 0.95 of 1.0% of
the average daily net assets of the Fund, commencing on the day
following effectiveness hereof, as determined and computed in
accordance with the description of the determination of net asset
value contained in the Prospectus of the Fund. 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 that
part of the month 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 Investment Adviser's compensation for the
preceding month shall be made as promptly as 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 Board of Directors, the average net
asset value of a share for the day prior to such suspension shall
for this purpose be deemed to be the net asset value each
succeeding day until it is again determined.
(b) Expense Limitations. In the event the operating
expenses of the Fund, including amounts payable to the Investment
Adviser 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
6.
<PAGE> 7
limitations may be raised, lowered or waived from time to time,
the Investment Adviser shall reduce its investment advisory 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 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 limitations
shall be applicable as an offset against the monthly payment of
the fee due to the Investment Adviser. Should two or more' such
expenses limitations be applicable as at the end of the last
business day of the month, that expense limitation which results
in the largest reduction in the Investment Adviser's fee shall be
applicable.
ARTICLE IV
Limitation of Liability of the Investment Adviser
The Investment Adviser 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
Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of
7.
<PAGE> 8
reckless disregard of its obligations and duties hereunder. As
used in this Article IV, the term "Investment Adviser" shall
include any affiliates of the Investment Adviser performing
services for the Fund contemplated hereby and directors, officers
and employees of the Investment Adviser and such affiliates.
ARTICLE V
Activities of the Investment Adviser
The services of the Investment Adviser to the Fund are not
to be deemed to be exclusive: the Investment Adviser and any
person controlled by or under common control with the Investment
Adviser (for purposes of this Article V referred to as
"affiliates") are free to render services to others. It is
understood that Board of Directors, officers, employees and
shareholders of the Fund are or may become interested in the
Investment Adviser and its affiliates, as directors, officers,
employees, partners, and shareholders or otherwise and that
directors, officers, employees, partners, and shareholders of the
Investment Adviser and its affiliates are or may become similarly
interested in the Fund, and that the Investment Adviser and
directors, officers, employees, partners, and shareholders of its
affiliates may become interested in the Fund as shareholders or
otherwise.
8.
<PAGE> 9
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first
above written and shall remain in force until August 31, 1992 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Board of Directors of the
Fund, or by the vote of a majority of the outstanding voting
securities of the Fund, and (ii) a majority of those Directors
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 Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund, or by
the Investment Adviser, on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the
event of its assignment.
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (i) the vote of a majority
of outstanding voting securities of the Fund, and (ii) a majority
of those Directors who are not parties to this Agreement or
9.
<PAGE> 10
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
said 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,
conflict with the applicable provisions of the Investment Company
Act, the latter shall control.
10.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH HIGH INCOME MUNICIPAL
BOND FUND, INC.
By /s/ Arthur Zeikel
ATTEST: /s/ Robert Harris
Secretary
MERRILL LYNCH ASSET MANAGEMENT, INC.
By /s/ Terry K. Glenn
ATTEST: /s/ Philip L. Kirstein
Secretary
11.
<PAGE> 1
Ex-99.g(2)
ADMINISTRATION AGREEMENT
AGREEMENT made this 14th day of September, 1990, by and
between MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. , a
Maryland corporation (the "Fund'), and MERRILL LYNCH ASSET
MANAGEMENT, INC., a Delaware corporation ("MLAM" or the
"Administrator");
W I T N E S S E T H
WHEREAS, the Fund intends to engage in business as a closed-
end, non-diversified, management investment company and is
registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act") ; and
WHEREAS, the Fund and MLAM are entering into an investment
advisory agreement (the "Investment Advisory Agreement") pursuant
to which MLAM will provide investment advice to the Fund and be
responsible for the portfolio management of the Fund; and
WHEREAS, the Fund desires to retain MLAM to render
administrative services in the manner and on the terms and
conditions hereafter set forth; and
WHEREAS, MLAM desires to be retained to perform services on
said terms and conditions.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the Fund and MLAM agree as
follows:
1. Duties of the Administrator. The Fund hereby retains
MLAM to act as administrator of the Fund, subject to the
supervision and direction of the Board of Directors of the Fund,
as hereinafter set forth. MLAM shall perform or arrange for the
performance of the administrative services (i.e., services other
than investment advice and related portfolio activities) necessary
for the operation of the Fund and, without limiting the generality
of the foregoing, shall (i) prepare and file reports and other
documents required by U.S. Federal, state and other applicable
laws and regulations and by stock exchanges on which Fund shares
are listed; (ii) prepare proxy materials and periodic reports to
Fund shareholders; (iii) respond to inquiries from Fund
shareholders; (iv) calculate, or arrange for the calculation of,
the net asset value of the Fund's shares (it being understood that
the Fund will reimburse the Administrator for its costs in
providing such accounting services to the Fund) ; (v) oversee the
performance of administrative and professional services rendered
to the Fund by others, including its custodian, transfer agent,
dividend disbursing agent and shareholder servicing agent, as well
as accounting, auditing and other services; (vi) provide the Fund
with the services of persons competent to perform such
administrative and clerical functions as are necessary to provide
2.
<PAGE> 3
effective operation of the Fund, and (vii) provide the Fund with
administrative office and data processing facilities.
2. Expenses of the Administrator. MLAM assumes and shall
pay for maintaining the staff and personnel necessary to perform
its obligations under this Agreement, and shall at its own
expense, provide office space, facilities, equipment and necessary
personnel which it is obligated to provide under paragraph I
hereof, except that the Fund shall pay the expenses of legal
counsel retained by MLAM as may be necessary or appropriate for
the MLAM'S Is performance of its duties and responsibilities under
this Agreement. All other expenses of the Fund shall be paid as
set forth in the Investment Advisory Agreement.
3. Compensation of the Administrator. For the services
rendered to the Fund by MLAM pursuant to this Agreement, the Fund
shall pay to the Administrator a monthly fee at an annual rate of
0.25 of 1% of the Fund's average daily net assets as determined
and computed in accordance with the description of the
determination of net asset value contained in the Prospectus of
the Fund. Such fee shall be payable in arrears on the last day of
each calendar month for services performed hereunder during such
month. If the Fund's initial registration statement is declared
effective by the Securities and Exchange Commission after the
beginning of a month or this agreement terminates prior to the end
of a month, such fee shall be prorated according to the proportion
which such portion of the month bears to the full month.
3.
<PAGE> 4
4. Limitation of Liability of the Administrator,
Indemnification.
(a) The Administrator shall not be liable to the Fund for
any error of judgment or mistake of law or for any loss arising
out of any act or omission by the Administrator in the performance
of its duties hereunder. Nothing herein contained shall be
construed to protect the Administrator against any liability to
the Fund, its shareholders or any sub-investment adviser to which
the Administrator shall otherwise be subject by reasons of willful
misfeasance, bad faith, or gross negligence in the performance of
its duties, or by reckless disregard of its obligations and duties
hereunder.
(b) The Administrator may, with respect to questions of law,
apply for and obtain the advice and opinion of counsel to the Fund
or of its own counsel, at the expense of the Fund, and shall be
fully protected with respect to any action taken or omitted by it
in good faith in conformity with such advice or opinion.
(c) The Fund agrees to indemnify and hold harmless the
Administrator from and against all charges, claims, expenses
(including legal fees) and liabilities reasonably incurred by the
Administrator in connection with the performance of its duties
hereunder, except such as may arise from the Administrator's
willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reckless disregard of its
4.
<PAGE> 5
obligations and duties hereunder. Such expenses shall be paid by
the Fund in advance of the final disposition of such matter upon
invoice by the Administrator and receipt by the Fund of an
undertaking from the Administrator to repay such amounts if it
shall ultimately be established that the Administrator is not
entitled to indemnification hereunder by virtue of the
Administrator's willful misfeasance, bad faith, gross negligence
in the performance of its duties or by reckless disregard of its
obligations and duties hereunder.
(d) As used in this Paragraph 4, the term "Administrator"
shall include any affiliates of the Administrator performing
services for the Fund contemplated hereby and directors, officers,
agents and employees of the Administrator and such affiliates.
5. Activities of the Administrator. The services of the
Administrator under this Agreement are not to be deemed exclusive,
and the Administrator and any person controlled by or under common
control with the Administrator shall be free to render similar
services to others.
6. Duration and Termination of this Agreement. This
Agreement shall become effective as of the date first above
written and shall remain in force until terminated as provided
herein. This Agreement may be terminated at any time, without the
payment of any penalty, by the Fund or the Administrator, on sixty
days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
5.
<PAGE> 6
7. Amendments of this Agreement. This Agreement may be
amended by the parties hereto only if such amendment is
specifically approved by the Board of Directors of the Fund and
such amendment is set forth in a written instrument executed by
each of the parties hereto.
8. 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 1940 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 1940 Act, the latter shall
control.
9. Counterparts. This Agreement may be executed by the
parties hereto in counterparts and if executed in more than one
counterpart the separate instruments shall constitute one
agreement.
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH HIGH INCOME MUNICIPAL
BOND FUND,
By:/s/ Arthur Zeikel
ATTEST /s/ Robert Harris
Secretary
MERRILL LYNCH ASSET MANGEMENT, INC.
By:/s/ Terry K. Glenn
ATTEST /s/ Philip L. Kistein
secretary
7.
<PAGE> 1
Ex-99.h(1)
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 14th day of September 1990, between
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC., a Maryland
corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR,
INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as a
closed-end, non-diversified, management investment company and it
is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either direct-
ly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Fund's shares in order to promote the growth of the Fund
and facilitate the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund
hereby appoints the Distributor as the principal underwriter and
distributor of the Fund to sell shares of common stock of the
<PAGE> 2
Fund (sometimes herein referred to as the "shares") to the public
and hereby agrees during the term of this Agreement to sell
shares of the Fund to the Distributor on the terms and conditions
herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the shares, except that:
(a) The Fund may, on written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of its 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 shares in the areas so designated shall termi-
nate, but this Agreement shall remain otherwise in full effect
until terminated in accordance with the other provisions hereof.
(b) The exclusive rights granted to the Distributor to
purchase shares from the Fund shall not apply to shares of the
Fund issued in connection with the merger or consolidation of any
other investment company or personal holding company with the
Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any
such company by the Fund.
2.
<PAGE> 3
(c) Such exclusive rights also shall not apply to shares
issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
Section 3. Purchase of Shares from the Fund.
(a) Prior to the continuous offering of the shares, com-
mencing on a date agreed on by the Fund and the Distributor, it
is contemplated that the Distributor will solicit subscriptions
for shares during a subscription period which shall last for such
period as may be agreed upon by the parties hereto. The sub-
scriptions 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 Fund will
commence an offering of its shares and thereafter the Distributor
shall have the right to buy from the Fund the shares needed, but
not more than the shares needed (except for clerical errors in
transmission) to fill unconditional orders for shares of the Fund
placed with the Distributor by investors or securities dealers.
The price which the Distributor shall pay for the shares so
purchased from the Fund shall be the net asset value, determined
as set forth in Section 3(d) hereof.
(c) The shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(d) here-
of, or to securities dealers having agreements with the Distri-
3.
<PAGE> 4
butor upon the terms and conditions set forth in Section 7 here-
of.
(d) The net asset value of shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance
with the method set forth in the prospectus of the Fund and
guidelines established by the Board of Directors.
(e) The Fund shall have the right to suspend the sale of
its shares at times when repurchase is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Fund shall also
have the right to suspend the sale of its 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 Fund, makes it impracticable or
inadvisable to sell the shares.
(f) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for shares received by the Distributor. Any order may be
rejected by the Fund; provided, however, that the Fund will not
arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appro-
priate book entries and, upon receipt by the Fund (or its agent)
of payment therefor, will deliver deposit receipts or certifi-
cates for such shares pursuant to the instructions of the Distri-
4.
<PAGE> 5
butor. Payment shall be made to the Fund in New York Clearing
House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase of Shares by the Fund.
(a) Any of the outstanding shares may be tendered for
repurchase pursuant to a tender offer made by the Fund, and the
Fund agrees to repurchase the shares so tendered in accordance
with the requirements of the Securities Exchange Act of 1934, as
amended, and the rules thereunder and the applicable tender offer
provisions set forth in the prospectus of the Fund. The price to
be paid to repurchase the shares shall be equal to the net asset
value calculated in accordance with the provisions of Section
3(d) hereof, less the Early Withdrawal Charge (as defined in the
prospectus of the Fund), if any, set forth in the prospectus of
the Fund. All payments by the Fund hereunder shall be made in
the manner set forth below.
The Fund shall pay the total amount of the repurchase price
as defined in the above paragraph pursuant to the-instructions of
the Distributor or return the tendered shares promptly following
the termination or withdrawal of the tender offer.
The proceeds of any repurchase of shares shall be paid by the
Fund as follows: (i) any applicable Early Withdrawal Charge
shall be paid to the Distributor and (ii) the balance shall be
5.
<PAGE> 6
paid to or for the account of the shareholder, in each case in
accordance with the applicable provisions of the prospectus.
(b) Repurchases of shares pursuant to a tender offer or
payment may be suspended at such times as may be determined by
the Board of Directors of the Fund as set forth in the prospectus
of the Fund.
Section 5. Duties of the Fund.
(a) The Fund 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 shares of the Fund, and this shall include, upon
request by the Distributor, one certified copy of all financial
statements prepared for the Fund by independent auditors. The
Fund shall make available to the Distributor such number of
copies of its prospectus as the Distributor shall reasonably
request.
(b) The Fund 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 1933,
as amended (the "Securities Act"), to the end that there will be
available for sale such number of shares as the Distributor
reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its shares
6.
<PAGE> 7
for sale under the Secrities laws of such states as the Distri-
butor and the Fund may approve. Any such qualification may be
withheld, terminated or withdrawn by the Fund 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 Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and
effort to effect sales of shares of the Fund, but shall not be
obligated to sell any specific number of shares. The services of
the Distributor to the Fund hereunder are not to be deemed exclu-
sive and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment com-
panies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the 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 se-
lected dealer nor any other person is authorized by the Fund to
7.
<PAGE> 8
give any information or to make any representations, other than
those contained in the registration statement or related prospec-
tus and any sales literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, 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 neces-
sary 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 the shares; provided, that
the Fund shall approve the forms of agreements with dealers.
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
8.
<PAGE> 9
and sell shares only to such selected dealers as are members in
good standing of the NASD.
Section B. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the
Fund, including fees and disbursements of its counsel and audi-
tors, in connection with the preparation and filing of any re-
quired registration statements and/or prospectuses under the
Investment Company Act and the Securities Act, and all amendments
and supplements thereto, and in connection with any fees and
expenses incurred with respect to any filings with the NASD and
preparing and mailing annual and interim reports and proxy mate-
rials to shareholders (including but not limited to the expense
of setting in type any such registration statements, prospec-
tuses, 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 con-
sultants. In addition, after the prospectuses 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 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
9.
<PAGE> 10
for use by selected dealers in connection with the offering of
the shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the shares for sale pursuant to this Agreement, and, if
necessary or advisable in connection therewith, of qualifying the
Fund as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Fund 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 Fund decides to discontinue such qualification
pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor 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 shares, which may be based on
the Securities Act, or on any other statute or at common law, on
the ground that the registration statement or related prospectus,
as from time to time amended and supplemented, or an annual or
interim report to shareholders of the Fund, includes an untrue
statement of a material fact or omits to state a material fact
10.
<PAGE> 11
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,
information furnished to the Fund in connection therewith by or
on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of the Fund 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 Fund or its shareholders 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 Fund 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 Fund 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 Fund of any such claim shall not relieve it from any
liability which it may have to the person against whom such
11.
<PAGE> 12
action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any
such liability, but if the Fund 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
Fund 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 Fund 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 Fund shall promptly notify the
Distributor of the commencement of any litigation or proceedings
against it or any of its officers or Directors in connection with
the issuance or sale of any of the shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense, as incurred, described in the foregoing
indemnity contained in subsection (a) of this Section, but only
12.
<PAGE> 13
with respect to statements or omissions made in reliance upon,
and in conformity with, information furnished to the Fund in
writing by or on behalf of the Distributor for use in connection
with the registration statement or related prospectus, as from
time to time amended, or the annual or interim reports to
shareholders. In case any action shall be brought against the
Fund 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 Fund, and the Fund 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 August 31, 1992 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Directors, 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 Directors 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 Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the
13.
<PAGE> 14
Distributor, on sixty days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities," "assignment," "affiliated person" and "interested
person," when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 11. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors, or by the vote of a majority
of outstanding voting securities of the Fund, and (ii) by the
vote of a majority of those Directors of the Fund 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 Agree-
ment 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
14.
<PAGE> 15
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.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH HIGH INCOME MUNICIPAL
BOND FUND, INC.
By /s/ Arthur Zeikel
ATTEST /s/ Robert Harris
Secretary
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /S/ Terry K. Glenn
ATTEST /s/ Robert Harris
Secretary
15.
<PAGE> 1
Ex-99.h(2)
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch High Income Municipal Bond
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to
which it acts as the distributor for the sale of shares Of Common
stock, par value $0.10 per share (herein referred to as the
"shares"), of the Fund, and as such has the right to distribute
shares of the Fund for resale. The Fund is a closed-end
investment company registered under the Investment Company Act of
1940, as amended, and its shares being offered to the public are
registered under the Securities Act of 1933, as amended. You
have received a copy of the Distribution Agreement (the
"Distribution Agreement") between ourself and the Fund and
reference is made herein to certain provisions of such
Distribution Agreement. The term "Prospectus" as used herein
refers to the prospectus on file with the Securities and Exchange
commission which is part of the most recent effective registra-
tion statement pursuant to the Securities Act of 1933, as
amended. As principal, we offer to sell to you, as a member of
the Selected Dealers Group, shares of the Fund upon the following
terms and conditions:
1. In all sales of these 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 Fund, 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 of the Fund. The procedure
relating to the handling of orders shall be subject to Section 5
hereof and instructions which we or the Fund shall forward from
time to time to you. All orders are subject to acceptance or
rejection by the Distributor or the Fund in the sole discretion
of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus of the
Fund.
3. With respect to each sale of shares by you to the
public, the Distributor shall pay you, from its own assets, a fee
<PAGE> 2
at the rate of 2.5% of the amount purchased. If shares sold by
you remain outstanding after one year from the date of their
original purchase, the Distributor will compensate you at an
annual rate, paid quarterly, equal to 0.25% of the average daily
net asset value of shares sold by you and remaining outstanding.
4. You shall not place orders for any of the shares unless
you have already received purchase orders for such 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 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 shares you will furnish to each person to whom any such sale
or offer is made a copy of the Prospectus (as then amended or
supplemented) and will not furnish to any person any information
relating to the shares of the Fund, which is inconsistent in any
respect with the information contained in the Prospectus (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 Fund. You further agree that
you shall not make a market in the Fund's shares while 'the Fund
is making either a public offering of or a tender offer to
purchase its shares.
5. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for shares of the Fund to be
resold by us to you subject to the applicable terms and condi-
tions governing the placement of orders by us set forth in Sec-
tion 3 of the Distribution Agreement, and (ii) to tender shares
directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
6. 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.
7. No person is authorized to make any representations
concerning shares of the Fund except those contained in the
current Prospectus of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental
to such Prospectus. In purchasing shares through us you shall
rely solely on the representations contained in the Prospectus
and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's
Prospectus, periodic reports and proxy solicitation material are
our sole responsibility and not the responsibility of the Fund,
and you agree that the Fund shall have no liability or
2.
<PAGE> 3
responsibility to you in these respects unless expressly assumed
in connection therewith.
8. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus 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 of the Fund. you
further agree to endeavor to obtain proxies from such purchasers.
Additional copies of the Prospectus, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to
you in reasonable quantities upon request.
9. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of the shares entirely.
Each party hereto has the right to cancel this Agreement upon
notice to the other party.
10. 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 of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange commission issued thereunder.
11. 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, including in
particular, the provisions of Article III, Sections 8, 24, 25 and
36 of such Rules, to the extent applicable.
12. Upon application to us, we will inform you as to the
states in which we believe the shares have been qualified for
sale under, or are exempt from the requirements of, the respec-
tive securities laws of such states, but we assume no responsi-
bility or obligation as to your right to sell shares in any
jurisdiction. we will file with the Department of State in New
York a Further State Notice with respect to the shares, if neces-
sary.
13. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or tele-
graphed to you at the address specified by you below.
3.
<PAGE> 4
14. Your first order placed pursuant to this Agreement for
the purchase of shares of the Fund will represent your acceptance
of this Agreement.
MERRIL LYNCH FUND DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: [SIG]
-----------------------------------------
Address:
------------------------------------
--------------------------------------------
Date:
---------------------------------------
4.
<PAGE> 5
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch High Income Municipal Bond
Fund, Inc., a Maryland corporation (the "Fund") , pursuant to
which it acts as the distributor for the sale of shares Of common
stock, par value $0.10 per share (herein referred to as
"shares") , of the Fund, and as such has the right to distribute
shares of the Fund for resale. The Fund is a closed-end
investment company registered under the Investment Company Act of
1940, as amended, and its shares being offered to the public are
registered under the Securities Act of 1933, as amended. Such
shares and certain of the terms on which they are being offered
are more fully described in the enclosed Prospectus. You have
received a copy of the Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund 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, 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 October 26,
1990. The subscription period may be extended upon agreement
between the Fund 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 shares as to which you have
placed orders with us not later than 5:00 P.M. on the second full
business day preceding the Closing Date.
2. In all sales of these 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 Fund, for us or
for any other member of the Selected Dealers Group.
<PAGE> 6
3. With respect to each sale of shares by you to the
public, the Distributor shall pay you, from its own assets, a fee
at the rate of 2.5% of the amount purchased. If shares sold by
you remain outstanding after one year from the date of their
original purchase, the Distributor will compensate you at an
annual rate, paid quarterly, equal to 0.25% of the average daily
net asset value of shares sold by you and remaining Outstanding.
4. You shall not place orders for any of the shares unless
you have already received purchase orders for such 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 Fund in the sole discretion
of either. The minimum initial and subsequent purchase require-
ments are as set forth in the Prospectus, as amended from time to
time.
5. You agree that you will not offer or sell any of the
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 shares you will furnish
to each person to whom any such sale or offer is made a copy of
the Prospectus (as then amended or supplemented) and will not
furnish to any person any information relating to the shares of
the Fund which is inconsistent in any respect with the
information contained in the Prospectus (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 Fund. You further agree that you shall not
make a market in the Fund's shares while the Fund is making a
public offering of such shares.
6. Payment for shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch
Funds Distributor, Inc., Box 9011, Princeton, New Jersey 08543-
9011, on such date as we may advise, in New York Clearing House
funds 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 shares so purchased by you. You agree that as promptly as
practicable after the delivery of such shares you will issue
appropriate written transfer instructions to the Fund or to the
shareholder servicing agent as to the purchasers to whom you sold
the shares.
7. No person is authorized to make any representations
concerning shares of the Fund except those contained in the
current Prospectus of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental
2.
<PAGE> 7
to such Prospectus. In purchasing shares through us you shall
rely solely on the representations contained in the Prospectus
and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's
Prospectus, periodic reports and proxy solicitation material are
our sole responsibility and not the responsibility of the Fund,
and you agree that the Fund shall have no liability or
responsibility to you in these respects unless expressly assumed
in connection therewith.
8. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus 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 of the Fund. You
further agree to endeavor to obtain Proxies from such purchasers.
Additional copies of the Prospectus, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to
you in reasonable quantities upon request.
9. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of the shares entirely.
Each party hereto has the right to cancel this Agreement upon
notice to the other party.
10. 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 of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
11. 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, including in
particular, the provisions of Article III, Sections 8, 24, 25 and
36 of such Rules, to the extent applicable.
12. Upon application to us, we will inform you as to the
states in which we believe the shares have been qualified for
sale under, or are exempt from the requirements of, the respec-
tive securities laws of such states, but we assume no responsi-
bility or obligation as to your right to sell shares in any
jurisdiction. We will file with the Department of State in New
3.
<PAGE> 8
York a Further State Notice with respect to the shares, if neces-
sary.
13. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or tele-
graphed to you at the address specified by you below.
14. You agree that you will not sell any shares of the Fund
to any account over which you exercise discretionary authority.
15. This Agreement shall terminate at the close of business
on the Closing Date, unless earlier terminated, provided, how-
ever, this Agreement shall continue after termination for the
purpose of settlement of accounts hereunder.
MERR LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: [SIG]
--------------------------------------------
Address:
---------------------------------------
-----------------------------------------------
Date:
------------------------------------------
4.
<PAGE> 1
Ex-99.j
CUSTODY AGREEMENT
Agreement made as of this 14th day of September, 1990,
between MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND INC. a
Maryland corporation organized and existing under the laws of
the. State of Maryland having its principal office and place of
business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536
(hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New
York corporation authorized to do a banking business, having its
principal office and place of business at 48 Wall Street, New
York, New York 10015 (hereinafter called the "Custodian")
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter
set forth, the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1. "Authorized Person" shall be deemed to include any
person, whether or not such person is an Officer or employee of
the Fund, duly authorized by the Board of Directors of the Fund
to give Oral Instructions and Written Instructions on behalf of
the Fund and listed in the Certificate annexed hereto as Ap-
pendix A or such other Certificate as may be received. by the
Custodian from time to time.
2. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and federal
agency securities, its successor or successors and its nominee
or nominees.
3. "Call Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract options entitling the
holder, upon timely exercise and payment of the exercise price,
as specified therein, to purchase from the writer thereof the
specified underlying Securities.
4. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this
Agreement to be given to the Custodian which is actually
received by the Custodian and signed on behalf of the Fund by
any two officers.
5. "Clearing Member" shall mean a registered
broker-dealer which is a clearing member under the rules of
<PAGE> 2
O.C.C. and a member of a national securities exchange qualified
to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a
clearing member.
6. "Collateral Account" shall mean a segregated account
so denominated which is specifically allocated to a Series and
pledged to the Custodian as security for, and in consideration
of, the Custodiants issuance of (a) any Put Option guarantee
letter or similar document described in paragraph 8 of Article V
herein, or (b) any receipt described in Article V or VIII
herein.
7. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment of
the exercise price, as specified therein, to purchase from the
writer thereof the specified underlying Securities (excluding
Futures Contracts) which are owned by the writer thereof and
subject to appropriate restrictions.
8. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and
Exchange Commission, its successor or successors and its nominee
or nominees. The term "Depository" shall further mean and
include any other person authorized to act as a depository under
the Investment Company Act of 1940, its successor or successors
and its nominee or nominees, specifically identified in a certi-
fied copy of a resolution of the Fund's Board of Directors
specifically approving deposits therein by the Custodian.
9. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including,
without limitation, U.S. Treasury Bills, U.S. Treasury Notes,
U.S. Treasury Bonds, domestic bank certificates of deposit, and
Eurodollar certificates of deposit, during a specified month at
an agreed upon price.
10. "Futures Contract" shall mean a Financial Futures
Contract and/or Stock Index Futures Contracts.
11. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
12. "margin Account" shall mean a segregated account in
the name of a broker, dealer, futures commission merchant, or a
Clearing Member, or in the name of the Fund for the benefit of a
broker, dealer, futures commission merchant, or Clearing Member,
or otherwise, in accordance with an agreement between the Fund,
the Custodian and a broker, dealer, futures commission merchant
or a Clearing Member (a "Margin Account Agreement"), separate
and distinct from the custody account, in which certain Securi-
ties and/or money of the Fund shall be deposited and withdrawn
from time to time in connection with such transactions as the
Fund may from time to time determine. Securities held in the
Book-Entry System or the Depository shall be deemed to have been
2
<PAGE> 3
deposited in, or withdrawn from, a Margin Account upon the
custodian's effecting an appropriate entry in its books and
records.
13. "Money Market Security" shall be deemed to include,
without limitation, certain Reverse Repurchase Agreements, debt
obligations issued or guaranteed as to interest and principal by
the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public
authority, commercial paper, certificates of deposit and bank-
ers' acceptances, repurchase agreements with respect to the same
and bank time deposits, where the purchase and sale of such
securities normally requires settlement in federal funds on the
same day as such purchase or sale.
14. "O.C.C." shall mean the Options Clearing Corpora-
tion, a clearing agency registered under Section 17A of the
Securities Exchange Act of 1934, its successor or successors,
and its nominee or nominees.
15. "Officers" shall be deemed to include the President,
any Vice President, the Secretary, the Treasurer, the Control-
ler, any Assistant Secretary, any Assistant Treasurer, and any
other person or persons, whether or not any such other person is
an officer of the Fund, duly authorized by the Board of Direc-
tors of the Fund to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund and listed in the
Certificate annexed hereto as Appendix B or such other
Certificate as may be received by the Custodian from time to
time.
16. "Option" shall mean a Call option, Covered Call Op-
tion, Stock Index Option and/or a Put Option.
17. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Authorized Person or
from a person reasonably believed by the Custodian to be an
Authorized Person.
18. "Put Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract options entitling the
holder, upon timely exercise and tender of the specified
underlying Securities, to sell such Securities to the writer
thereof for the exercise price.
19. "Reverse Repurchase Agreement" shall mean an agree-
ment pursuant to which the Fund sells Securities and agrees to
repurchase such Securities at a described or specified date and
Price.
20. "Security" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Options,
Stock Index Options, Stock Index Futures Contracts, Stock Index
3
<PAGE> 4
Futures Contract Options, Financial Futures Contracts, Financial
Futures Contract Options, Reverse Repurchase Agreements, common
stocks and other securities having characteristics similar to
common stocks, preferred stocks, debt obligations issued by
state or municipal governments and by public authorities,
(including, without limitation, general obligation bonds,
revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obliga-
tions, and any certificates, receipts, warrants or other instru-
ments representing rights to receive, purchase, sell or
subscribe for the same, or evidencing or representing any other
rights or interest therein, or any property or assets.
21. "Senior Security Account" shall mean an account
maintained and specifically allocated to a Series under the
terms of this Agreement as a segregated account, by recordation
or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically al-
located to such Series shall be deposited and withdrawn from
time to time in accordance with Certificates received by the
Custodian in connection with such transactions as the Fund may
from time to time determine.
22. "Series" shall mean the various portfolios, if any,
of the Fund as described from time to time in the current and
effective prospectus for the Fund.
23. "Shares" shall mean the shares of capital stock of
the Fund, each of which is, in the case of a Fund having Series,
allocated to a particular Series.
24. "Stock Index Futures Contract" shall mean a
bilateral agreement pursuant to which the parties agree to take
or make delivery of an amount of cash equal to a specified dol-
lar amount times the difference between the value of a
particular stock index at the close of the last business day of
the contract and the price at which the futures contract is
originally struck.
25. "Stock Index Option" shall mean an exchange traded
option entitling the holder, upon timely exercise, to receive an
amount of cash determined by reference to the difference between
the exercise price and the value of the index on the date of
exercise.
26. "Written Instructions" shall mean written communica-
tions actually received by the Custodian from an Authorized
Person or from a person reasonably believed by the Custodian to
be an Authorized Person by telex or any other such system
whereby the receiver of such communications is able to verify by
codes or otherwise with a reasonable degree of certainty the
identity of the sender of such communication.
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<PAGE> 5
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the
Custodian as custodian of the Securities and moneys at any time
owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to
be delivered to the Custodian all Securities and all moneys
owned by it, at any time during the period of this Agreement,
and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The
Custodian shall segregate, keep and maintain the assets of the
Series separate and apart. The Custodian will not be
responsible for any Securities and moneys not actually received
by it. The Custodian will be entitled to reverse any credits
made on the Fund's behalf where such credits have been previ-
ously made and moneys are not finally collected. The Fund shall
deliver to the Custodian a certified resolution of the Board of
Directors of the Fund, substantially in the form of Exhibit A
hereto, approving, authorizing and instructing the Custodian on
a continuous and on-going basis to deposit in the Book-Entry
System all Securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated and
to utilize the Book-Entry System to the extent possible in con-
nection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of Securi-
ties specifically allocated to a Series in the Depository, the
Fund shall deliver to the Custodian a certified resolution of
the Board of Directors of the Fund, substantially in the form of
Exhibit B hereto, approving, authorizing and instructing the
Custodian on a continuous and ongoing basis until instructed to
the contrary by a Certificate actually received by the Custodian
to deposit in the Depository all Securities specifically al-
located to such Series eligible for deposit therein, and to
utilize the Depository to the extent possible with respect to
such Securities in connection with its performance hereunder,
including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and
moneys deposited in either the Book-Entry System or the
Depository will be represented in accounts which include only
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<PAGE> 6
assets held by the Custodian for customers, including, but not
limited to, accounts in which the Custodian acts in a fiduciary
or representative capacity and will be specifically allocated on
the Custodian's books to the separate account for the applicable
Series. Prior to the Custodian's accepting, utilizing and act-
ing with respect to Clearing Member confirmations for Options
and transactions in Options for a Series as provided in this
Agreement, the Custodian shall have received a certified resolu-
tion of the Fund's Board of Directors, substantially in the form
of Exhibit C hereto, approving, authorizing and instructing the
Custodian on a continuous and on-going basis, until instructed
to the contrary by a Certificate actually received by the
custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such
series.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the
separate account for each Series all moneys received by it for
the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed
by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name
and address of the person to whom the payment is to be made, than
series account from which payment is to be made and the purpose
for which payment is to be made; or
(c) In payment of the fees and in reimbursement of
the expenses and liabilities of the Custodian attributable to
such Series.
3. Promptly after the close of business on each day,
the Custodian shall furnish the Fund with confirmations and a
summary, on a per Series basis, of all transfers to or from the
account of the Fund for a Series, either hereunder or with any
co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to
the account of the Fund for a Series, the Custodian shall also
by book-entry or otherwise identify as belonging to such Series
a quantity of Securities in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or
shown on the Custodian's account on the books of the Book-Entry
System or the Depository. At least monthly and from time to
time, the Custodian shall furnish the Fund with a detailed
statement, on a per Series basis, of the Securities and moneys
held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the
Custodian hereunder, which are issued or issuable only in bearer
form, except such Securities as are held in the Book-Entry
System, shall be held by the Custodian in that form; all other
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<PAGE> 7
Securities held hereunder may be registered in the name of the
Fund, in the name of any duly appointed registered nominee of
the Custodian as the Custodian may from time to time determine,
or in the name of the Book-Entry System or the Depository or
their successor or successors, or their nominee or nominees.
The Fund agrees to furnish to the Custodian appropriate instru-
ments to enable the Custodian to hold or deliver in proper form
for transfer, or to register in the name of its registered
nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which
may from time to time be registered in the name of the Fund.
The Custodian shall hold all such Securities specifically al-
located to a Series which are not held in the Book-Entry System
or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any
other person or persons.
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate,
the Custodian by itself, or through the use of the Book-Entry
System or the Depository with respect to Securities held
hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with
preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount pay-
able upon such Securities which are called, but only if either
(i) the Custodian receives a written notice of such call, or
(ii) notice of such call appears in one or more of the publica-
tions listed in Appendix C annexed hereto, which may be amended
at any time by the Custodian without the prior notification or
consent of the Fund;
(c) Present for payment and collect the amount pay-
able upon all Securities which mature;
(d) Surrender Securities in temporary form for
definitive Securities;
(e) Execute, as custodian, any necessary declara-
tions or certificates of ownership under the Federal Income Tax
Laws or the laws or regulations of any other taxing authority
now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System
or the Depository with respect to Securities therein deposited,
for the account of a Series, all rights and similar securities
issued with respect to any Securities held by the Custodian for
such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System
or the Depository, shall:
7
<PAGE> 8
(a) Execute and deliver to such persons as may be,
designated in such Certificate proxies, consents, authoriza-
tions, and any other instruments whereby the authority of the
Fund as owner of any Securities held by the Custodian hereunder
for the Series specified in such Certificate may be exercised;
(b) Deliver any Securities held by the Custodian
hereunder for the series specified in such Certificate in
exchange for other Securities or cash issued or paid in con-
nection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold
hereunder specifically allocated to such Series any cash or
other Securities received in exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any
protective committee, reorganization committee or other person
in connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically al-
located to such Series such certificates of deposit, interim
receipts or other instruments or documents as may be issued to
it to evidence such delivery;
(d) Make such transfers or exchanges of the assets
of the Series specified in such Certificate, and take such other
steps as shall be stated in such Certificate to be for the
purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger consolidation or recapitalization of the
Fund; and
(e) Present for payment and collect the amount pay-
able upon Securities not described in preceding paragraph 5(b)
of this Article which may be called as specified in the
Certificate.
7. Notwithstanding any provision elsewhere contained
herein, the custodian shall not be required to obtain possession
of any instrument or certificate representing any Futures
Contract, any option, or any Futures Contract Option until after
it shall have determined, or shall have received a Certificate
from the Fund stating, that any such instruments or certificates
are available. The Fund shall deliver to the Custodian such a
Certificate no later than the business day preceding the avail-
ability of any such instrument or certificate. Prior to such
availability, the Custodian shall comply with Section 17(f) of
the Investment Company Act of 1940, as amended, in connection
with the purchase, sale, settlement, closing out or writing of
Futures Contracts, Options, or Futures Contract Options by mak-
ing payments or deliveries specified in Certificates received by
the Custodian in connection with any such purchase, sale, writ-
ing, settlement or closing out upon its receipt from a broker,
dealer, or futures commission merchant of a statement or
8
<PAGE> 9
confirmation reasonably believed by the Custodian to be in the
form customarily used by brokers, dealers, or future commission
merchants with respect to such Futures Contracts, options, or
Futures Contract Options, as the case may be, confirming that
such Security is held by such broker, dealer or futures com-
mission merchant, in book-entry form or otherwise, in the name
of the Custodian (or any nominee of the Custodian) as custodian
for the Fund, provided, however, that notwithstanding the
foregoing, payments to or deliveries from the Margin Account,
and payments with respect to Securities to which a Margin Ac-
count relates, shall be made in accordance with the terms and
conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall,
notwithstanding any provision in this Agreement to the contrary,
make payment for any Futures Contract, Option, or Futures
Contract option for which such instruments or such certificates
are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures
contract, Option or Futures Contract Option for which such
instruments or such certificates are available only against
receipt by the Custodian of payment therefor. Any such instru-
ment or certificate delivered to the Custodian shall be held by
the Custodian hereunder in accordance with, and subject to, the
provisions of this Agreement.
ARTICLE IV
PURCHASE AND, SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the
Fund, other than a purchase of an Option, a Futures Contract, or
a Futures Contract option, the Fund shall deliver to the
custodian (i) with respect to each purchase of Securities which
are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a
Certificate, oral Instructions or Written Instructions, specify-
ing with respect to each such purchase: (a) the Series to which
such Securities are to be specifically allocated; (b) the name
of the issuer and the title of the Securities; (c) the number of
shares or the principal amount purchased and accrued interest,
if any; (d) the date of purchase and settlement; (e) the
purchase price per unit; (f) the total amount payable upon such
purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing
broker, if any; and (h) the name of the broker to whom payment
is to be made. The Custodian shall, upon receipt of Securities
purchased by or for the Fund, pay to the broker specified in the
Certificate out of the moneys held for the account of such
Series the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set forth
in such Certificate, oral Instructions or Written Instructions.
9
<PAGE> 10
2. Promptly after each sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures
Contract Option, or any Reverse Repurchase Agreement, the Fund
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a
Certificate, Oral Instructions or Written Instructions, specify-
ing with respect to each such sale: (a) the Series to which such
securities were specifically allocated; (b) the name of the is-
suer and the title of the Security; (c) the number of shares or
principal amount sold, and accrued interest, if any; (d) the
date of sale; (e) the sale price per unit; (f) the total amount
payable to the Fund upon such sale; (g) the name of the broker
through whom or the person to whom the sale was made, and the
name of the clearing broker, if any; and (h) the name of the
broker to whom the Securities are to be delivered. The
Custodian shall deliver the Securities specifically allocated to
such Series to the broker specified in the Certificate against
payment of the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as
set forth in such Certificate, Oral Instructions or Written
Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any option by the
Fund, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each option purchased: (a) the Series
to which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the name of the issuer and the title
and number of shares subject to such option or, in the case of a
Stock Index Option, the stock index to which such option relates
and the number of Stock Index Options purchased; (d) the expira-
tion date; (e) the exercise price; (f) the dates of purchase and
settlement; (g) the total amount payable by the Fund in connec-
tion with such purchase; (h) the name of the Clearing Member
through whom such option was purchased; and (i) the name of the
broker to whom payment is to be made. The Custodian shall pay,
upon receipt of a Clearing Member's statement confirming the
purchase of such Option held by such clearing Member for the
account of the Custodian (or any duly appointed and registered
nominee of the Custodian) as custodian for the Fund, out of
moneys held for the account of the Series to which such Option
is to be specifically allocated, the total amount payable upon
such purchase to the Clearing Member through whom the purchase
was made, provided that the same conforms to the total amount
payable as set forth in such Certificate.
2. Promptly after the sale of any option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver
to the Custodian a Certificate specifying with respect to each
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<PAGE> 11
such sale: (a) the Series to which such option was specifically
allocated; (b) the type of Option (put or call) ; (c) the name of
the issuer and the title and number of shares subject to such
option or, in the case of a Stock Index option, the stock index
to which such option relates and the number of Stock Index Op-
tions sold; (d) the date of sale; (e) the sale price; (f) the
date of settlement; (g) the total amount payable to the Fund
upon such sale; and (h) the name of the Clearing Member through
whom the sale was made. The Custodian shall consent to the
delivery of the Option sold by the Clearing Member which previ-
ously supplied the confirmation described in preceding paragraph
1 of this Article with respect to such option against payment to
the Custodian of the total amount payable to the Fund, provided
that the same conforms to the total amount payable as set forth
in such Certificate.
3. Promptly after the exercise by the Fund of any Call
option purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying
with respect to such Call Option: (a) the Series to which such
call Option was specifically allocated; (b) the name of the is-
suer and the title and number of shares subject to the Call Op-
tion; (c) the expiration date; (d) the date of exercise and
settlement; (e) the exercise price per share; (f) the total
amount to be paid by the Fund upon such exercise; and (g) the
name of the Clearing Member through whom such Call Option was
exercised. The Custodian shall, upon receipt of the Securities
underlying the Call Option which was exercised, pay out of the
moneys held for the account of the Series to which such Call
option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised,
provided that the same conforms to the total amount payable as
set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying
with respect to such Put Option: (a) the Series to which such
Put Option was specifically allocated; (b) the name of the is-
suer and the title and number of shares subject to the Put Op-
tion; (c) the expiration date; (d) the date of exercise and
settlement; (e) the exercise price per share; (f) the total
amount to be paid to the Fund upon such exercise; and (g) the
name of the Clearing Member through whom such Put Option was
exercised. The Custodian shall, upon receipt of the amount pay-
able upon the exercise of the Put Option, deliver or direct the
Depository to deliver the Securities specifically allocated to
such Series, provided the same conforms to the amount payable to
the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock
Index Option purchased by the Fund pursuant to paragraph 1
hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the
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<PAGE> 12
Series to which such Stock Index option was specifically al-
located; (b) the type of Stock Index option (put or call); (c)
the number of options being exercised; (d) the stock index to
which such option relates; (e) the expiration date; (f) the
exercise price; (g) the total amount to be received by the Fund
in connection with such exercise; and (h) the Clearing Member
from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Covered Call option: (a) the
series for which such Covered Call Option was written; (b) the
name of the issuer and the title and number of shares for which
the Covered Call option was written and which underlie the same;
(c) the expiration date; (d) the exercise price; (e) the premium
to be received by the Fund; (f) the date such Covered Call Op-
tion was written; and (g) the name of the Clearing Member
through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the
premium specified in the Certificate with respect to such
Covered Call Option, such receipts as are required in accordance
with the customs prevailing among Clearing Members dealing in
Covered Call Options and shall impose, or direct the, Depository
to impose, upon the underlying securities specified in the
Certificate specifically allocated to such Series such restric-
tions as may be required by such receipts. Notwithstanding the
foregoing the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any
receipts for Securities in the possession of the Custodian and
not deposited with the Depository underlying a Covered Call op-
tion.
7. Whenever a Covered Call option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate instructing the Custodian to deliver, or to direct
the Depository to deliver, the Securities subject to such
Covered Call option and specifying: (a) the Series for which
such Covered Call Option was written; (b) the name of the issuer
and the title and number of shares subject to the Covered Call
Option; (c) the clearing Member to whom the underlying Securi-
ties are to be delivered; and (d) the total amount payable to
the Fund upon such delivery. Upon the return and/or cancella-
tion of any receipts delivered pursuant to paragraph 6 of this
Article, the Custodian shall deliver, or direct the Depository
to deliver, the underlying Securities as specified in the
Certificate against payment of the amount to be received as set
forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying
with respect to such Put option: (a) the Series for which such
Put option was written; (b) the name of the issuer and the title
and number of shares for which the Put option is written and
which underlie the same; (c) the expiration date; (d) the
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<PAGE> 13
exercise price; (e) the premium, to be received by the Fund; (f)
the date such Put Option is written; (g) the name of the, Clear-
ing Member through whom the premium is to be received and to
whom a Put Option guarantee letter is to be delivered; (h) the
amount of cash, and/or the amount and kind of securities, if
any, specifically allocated to such Series to be deposited in
the Senior Security Account for such Series; and (i) the amount
of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral
Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the
Certificate, issue a Put Option guarantee letter substantially
in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said
Certificate. Notwithstanding the foregoing, the Custodian shall
be under no obligation to issue any Put Option guarantee letter
or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put option written by the Fund and
described in the preceding paragraph is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying
Securities are to be received; (d) the total amount payable by
the Fund upon such delivery; (e) the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of
Securities, specifically allocated to such Series, if any, to be
withdrawn from the Senior security Account. Upon the return
and/or cancellation of any Put Option guarantee letter or
similar document issued by the Custodian in connection with such
Put Option, the Custodian shall pay out of the moneys held for
the account of the Series to which such Put option was
specifically allocated the total amount payable to the Clearing
Member specified in the Certificate as set forth in such
Certificate against delivery of such Securities, and shall make
the withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the
Series for which such Stock Index option was written; (b)
whether such Stock Index option is a put or a call; (c) the
number of options written;(d) the stock index to which such
Option relates; (e) the expiration date; (f) the exercise price;
(g) the Clearing Member through whom such option was written;
(h) the premium to be received by the Fund; (i) the amount of
cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the
Senior Security Account for such Series; (j) the amount of cash
and/or the amount and kind of Securities, if any, specifically
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<PAGE> 14
allocated to such Series to be deposited in the Collateral Ac-
count for such Series; and (k) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to
such Series to be deposited in a Margin Account, and the name in
which such account is to be or has been established. The
Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security
Account specified in the Certificate, and either (1) deliver
such receipts, if any, which the Custodian has specifically
agreed to issue, which are in accordance with the customs
prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the
Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to such Stock Index Option:
(a) the Series for which such Stock Index Option was written;
(b) such information as may be necessary to identify the Stock
Index Option being exercised; (c) the Clearing Member through
whom such Stock Index Option is being exercised; (d) the total
amount payable upon such exercise, and whether such amount is to
be paid by or to the Fund; (e) the amount of cash and/or amount
and kind of Securities, if any,, to be withdrawn from the Margin
Account; and (f) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Senior Security
Account for such Series; and the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the
Collateral Account for such Series. Upon the return and/or
cancellation of the receipt, if any, delivered pursuant to the
preceding paragraph of this Article, the Custodian shall pay out
of the moneys held for the account of the Series to which such
Stock Index Option was specifically allocated to the Clearing
Member specified in the Certificate the total amount payable, if
any, as specified therein.
12. Whenever the Fund purchases any option identical to
a previously written option described in paragraphs, 6, 8 or 10
of this Article in a transaction expressly designated as a
"Closing Purchase Transaction" in order to liquidate its posi-
tion as a writer of an option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the
Option being purchased: (a) that the transaction is a Closing
Purchase Transaction; (b) the Series for which the option was
written; (c) the name of the issuer and the title and number of
shares subject to the Option, or, in the case of a Stock Index
Option, the stock index to which such Option relates and the
number of Options held; (d) the exercise price; (e) the premium
to be paid by the Fund; (f) the expiration date; (g) the type of
Option (put or call); (h) the date of such purchase; (i) the
name of the Clearing Member to whom the premium is to be paid;
and (j) the amount of cash and/or the amount and kind of Securi-
ties, if any, to be withdrawn from the Collateral Account, a
14
<PAGE> 15
specified Margin Account, or the Senior Security Account for
such Series. Upon the Custodian's payment of the premium and
the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option
being liquidated through the Closing Purchase Transaction, the
Custodian shall remove, or direct the Depository to remove, the
previously imposed restrictions on the Securities underlying the
Call Option.
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any option
purchased or written by the Fund and described in this Article,
the Custodian shall delete such Option. from the statements
delivered to the Fund pursuant to paragraph 3 Article III
herein, and upon the return and/or cancellation of any receipts
issued by the Custodian, shall make such withdrawals from the
Collateral Account, and the Margin Account and/or the Senior
Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures
Contract, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Futures Contract, (or with
respect to any number of identical Futures Contract(s)): (a) the
Series for which the Futures Contract is being entered; (b) the
category of Futures Contract (the name of the underlying stock
index or financial instrument); (c) the number of identical
Futures Contracts entered into; (d) the delivery or settlement
date of the Futures Contract(s); (e) the date the Futures
Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short)
on such Futures Contract(s); (g) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in the
senior Security Account for such Series; (h) the name of the
broker, dealer, or futures commission merchant through whom the
Futures Contract was entered into; and (i) the amount of fee or
commission, if any, to be paid and the name of the broker,
dealer, or futures commission merchant to whom such amount is to
be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of
the Margin Account Agreement. The custodian shall make payment
out of the moneys specifically allocated to such Series of the
fee or commission, if any, specified in the Certificate and
deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or futures
commission merchant with respect to an outstanding Futures
15
<PAGE> 16
Contract, shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment
from a broker, dealer, or futures commission merchant to the
Fund with respect to an outstanding Futures Contract, shall be
received and dealt with by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement
is made on such Futures Contract, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the Futures Contract and
the Series to which the same relates; (b) with respect to a
Stock Index Futures Contract, the total cash settlement amount
to be paid or received, and with respect to a Financial Futures
Contract, the Securities and/or amount of cash to be delivered
or received; (c) the broker, dealer, or futures commission
merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be
withdrawn from the Senior Security Account for such Series. The
Custodian shall make the payment or delivery specified in the
Certificate, and delete such Futures Contract from the state-
ments delivered to the Fund pursuant to paragraph 3 of Article
III herein.
4. Whenever the Fund shall enter into a Futures
Contract to offset a Futures Contract held by the Custodian
hereunder, the Fund shall deliver to the Custodian a Certificate
specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b)
the Futures Contract being offset. The Custodian shall make
payment out of the money specifically allocated to such series
of the fee or commission, if any, specified in the Certificate
and delete the Futures Contract being offset from the statements
delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Ac-
count for such Series as may be specified in such Certificate.
The withdrawals, if any, to be made from the Margin Account
shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract
Option by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to such Futures
Contract Option: (a) the Series to which such option is
specifically allocated; (b) the type of Futures Contract Option
(put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract
underlying the Futures contract Option purchased; (d) the
16
<PAGE> 17
expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the amount of premium to be paid by
the Fund upon such purchase; (h) the name of the broker or
futures commission merchant through whom such option was
purchased; and (i) the name of the broker, or futures commission
merchant, to whom payment is to be made. The Custodian shall
pay out of the moneys specifically allocated to such Series, the
total amount to be paid upon such purchase to the broker or
futures commissions merchant through whom the purchase was made,
provided that the same conforms to the amount set forth in such
Certificate.
2. Promptly after the sale of any Futures Contract Op-
tion purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) Series to which
such Futures Contract Option was specifically allocated; (b) the
type of Future Contract option (put or call) ; (c) the type of
Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Contract
option; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker of futures commission
merchant through whom the sale was made. The Custodian shall
consent to the cancellation of the Futures Contract Option being
closed against payment to the Custodian of the total amount pay-
able to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract option purchased by the
Fund pursuant to paragraph 1 is exercised by the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing: (a) the Series to which such Futures Contract option was
specifically allocated; (b) the particular Futures Contract Op-
tion (put or call) being exercised; (c) the type of Futures
Contract underlying the Futures Contract option; (d) the date of
exercise; (e) the name of the broker or futures commission
merchant through whom the Futures Contract option is exercised;
(f) the net total amount if any, payable by the Fund; (g) the
amount, if any, to be received by the Fund; and (h) the amount
of cash and/or the amount and kind of Securities to be deposited
in the Senior Security Account for such Series. The Custodian
shall make, out of the moneys and Securities specifically al-
located to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract option: (a) the
Series for which such Futures Contract option was written; (b)
the type of Futures Contract option (put or call) (c) the type
17
<PAGE> 18
of Futures Contract and such other information as may be neces-
sary to identify the Futures Contract underlying the Futures
Contract Option; (d) the expiration date; (e) the exercise
price; (f) the premium to be received by the Fund; (g) the name
of the broker or futures commission merchant through whom the
premium is to be received; and (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in the
Senior Security Account for such Series. The Custodian shall,
upon receipt of the premium specified in the Certificate, make
out of the moneys and Securities specifically allocated to such
Series the deposits into the Senior Security Account, if any, as
specified in the Certificate. The deposits, if any, to be made
to the Margin Account shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
5. Whenever a Futures Contract Option written by the
Fund which is a call is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the
Series to which such Futures Contract Option was specifically
allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract
option; (d) the name of the broker or futures commission
merchant through whom such Futures Contract Option was
exercised; (e) the net total amount, if any, payable to the Fund
upon such exercise; (f) the net total amount, if any, payable by
the Fund upon such exercise; and (g) the amount of cash and/or
the amount and kind of Securities to be deposited in the Senior
Security Account for such Series. The Custodian shall, upon its
receipt of the net total amount payable to the Fund, if any,
specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified
in the Certificate. The deposits, if any, to be made to the
Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written
by the Fund and which is a put is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying: (a)
the Series to which such Option was specifically allocated; (b)
the particular Futures Contract Option exercised; (c) the type
of Futures Contract underlying such Futures Contract option; (d)
the name of the broker or futures commission merchant through
whom such Futures Contract Option is exercised; (e) the net
total amount, if any, payable to the Fund upon such exercise;
(f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash
to be withdrawn from or deposited in, the Senior security Ac-
count for such Series, if any. The Custodian shall, upon its
receipt of the net total amount payable to the Fund, if any,
specified in the Certificate, make out of the moneys and Securi-
ties specifically allocated to such Series, the payments, if
any, and the deposits, if any, into the Senior Security Account
as specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by
18
<PAGE> 19
the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract
option identical to a previously written Futures Contract Option
described in this Article in order to liquidate its position as
a writer of such Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with
respect to the Futures Contract Option being purchased: (a) the
Series to which such Option is specifically allocated; (b) that
the transaction is a closing transaction; (c) the type of Future
Contract and such other information as may be necessary to
identify the Futures Contract underlying the Futures option
Contract; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the name of the broker or
futures commission merchant to whom the premium is to be paid;
and (h) the amount of cash and/or the amount and kind of Securi-
ties, if any, to be withdrawn from the Senior Security Account
for such Series. The Custodian shall effect the withdrawals
from the Senior Security Account specified in the Certificate.
The withdrawals, if any, to be made from the Margin Account
shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Option
written or purchased by the Fund and described in this Article,
the Custodian shall (a) delete such Futures Contract option from
the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security
Account as may be specified in a Certificate. The deposits to
and/or withdrawals from the Margin Account, if any, shall be
made by the Custodian in accordance with the terms and condi-
tions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this Article
shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the
Fund, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series for which such short sale
was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and
accrued interest or dividends, if any; (d) the dates of the sale
and settlement; (e) the sale price per unit; (f) the total
amount credited to the Fund upon such sale, if any, (g) the
amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in
19
<PAGE> 20
which such Margin Account has been or is to be established; (h)
the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in a Senior security Account, and (i) the
name of the broker through whom such short sale was made. The
custodian shall upon its receipt of a statement from such broker
confirming such sale and that the total amount credited to the
Fund upon such sale, if any, as specified in the Certificate is
held by such broker for the account of the Custodian (or any
nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the
Senior Security Account specified in the Certificate.
2. In connection with the closing-out of any short
sale, the Fund shall promptly deliver to the Custodian a
certificate specifying with respect to each such closing out:
(a) the Series for which such transaction is being made; (b) the
name of the issuer and the title of the Security; (c) the number
of shares or the principal amount, and accrued interest or
dividends, if any, required to effect such closing-out to be
delivered to the broker; (d) the dates of closing-out and
settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net
total amount payable to the broker upon. such closing-out; (h)
the amount of cash and the amount and kind of securities to be
withdrawn, if any, from the Margin Account; (i) the amount of
cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of
the broker through whom the Fund is effecting such closing-out.
The Custodian shall, upon receipt of the net total amount pay-
able to the Fund upon such closing-out, and the return and/ or
cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the
moneys held for the account of the Fund to the broker the net
total amount payable to the broker, and make the withdrawals-
from the Margin Account and the Senior Security Account, as the
same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the
Custodian hereunder, the Fund shall deliver to the Custodian a
Certificate, or in the event such Reverse Repurchase Agreement
is a Money Market Security, a Certificate, Oral Instructions, or
Written Instructions specifying: (a) the Series for which the
Reverse Repurchase Agreement is entered; (b) the total amount
payable to the Fund in connection with such Reverse Repurchase
Agreement and specifically allocated to such Series; (c) the
broker or dealer through or with whom the Reverse Repurchase
Agreement is entered; (d) the amount and kind of Securities to
be delivered by the Fund to such broker or dealer; (e) the date
of such Reverse Repurchase Agreement; and (f) the amount of cash
20
<PAGE> 21
and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a senior security
Account for such Series in connection with such Reverse
Repurchase Agreement. The Custodian shall, upon receipt of the
total amount payable to the Fund specified in the Certificate,
oral Instructions, or Written Instructions make the delivery to
the broker or dealer, and the deposits, if any, to the Senior
Security Account, specified in such Certificate, Oral Instruc-
tions, or Written Instructions.
2. Upon the termination of a Reverse Repurchase Agree-
ment described in preceding paragraph 1 of this Article, the
Fund shall promptly deliver a Certificate or, in the event such
Reverse Repurchase Agreement is a Money Market Security, a
Certificate, Oral Instructions, or Written Instructions to the
Custodian specifying: (a) the Reverse Repurchase Agreement being
terminated and the Series for which same was entered; (b) the
total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series
in connection with such termination; (d) the date of termina-
tion; (e) the name of the broker or dealer with or through whom
the Reverse Repurchase Agreement is to be terminated; and (f)
the amount of cash and/or the amount and kind of Securities to
be withdrawn from the Senior Securities Account for such Series.
The Custodian shall, upon receipt of the amount and kind of
Securities to be received by the Fund specified in the
Certificate, Oral Instructions, or Written Instructions, make
the payment to the broker or dealer, and the withdrawals, if
any, from the Senior Security Account, specified in such
Certificate, Oral Instructions, or Written Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian
hereunder, the Fund shall deliver or cause to be delivered to
the Custodian a Certificate specifying with respect to each such
loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the title
of the Securities, (c) the number of shares or the principal
amount loaned, (d) the date of loan and delivery, (e) the total
amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the
premium, if any, separately identified, and (f) the name of the
broker, dealer, or financial institution to which the loan was
made. The Custodian shall deliver the securities thus
designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount
designated as to be delivered against the loan of Securities.
The Custodian may accept payment in connection with a delivery
otherwise than through the Book-Entry System or Depository only
21
<PAGE> 22
in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clear-
ing House funds and may deliver Securities in accordance with
the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of
Securities by the Fund, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with respect
to each such loan termination and return of securities: (a) the
Series to which the loaned securities are specifically al-
located; (b) the name of the issuer and the title of the Securi-
ties to be returned, (c) the number of shares or the principal
amount to be returned, (d) the date of termination, (e) the
total amount to be delivered by the Custodian (including the
cash collateral for such securities minus any offsetting credits
as described in said Certificate), and (f) the name of the
broker, dealer, or financial institution from which the Securi-
ties will be returned. The Custodian shall receive all Securi-
ties returned from the broker, dealer, or financial institution
to which such Securities were loaned and upon receipt thereof
shall pay, out of the moneys held for the account of the Fund,
the total amount payable upon such return of Securities as set
forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such
deposits to, or withdrawals from, a senior security Account as
specified in a Certificate received by the Custodian. Such
Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be deposited in, or withdrawn from, such Senior
Security Account for such Series. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and the number of shares or the principal
amount of any particular Securities to be deposited by the
Custodian into, or withdrawn from, a Senior Securities Account,
the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from
a Margin Account to the broker, dealer, futures commission
merchant or Clearing Member in whose name, or for whose benefit,
the account was established as specified in the Margin Account
Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Margin
Account shall be dealt with in accordance with the terms and
conditions of the Margin Account Agreement.
22
<PAGE> 23
4. The Custodian shall have a continuing lien and
security interest in and to any property at any time held by the
Custodian in any Collateral Account described herein. In ac-
cordance with applicable law the Custodian may enforce its lien
and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put option guarantee letter
or similar document or any receipt issued hereunder by the
Custodian. In the event the Custodian should realize on any
such property net proceeds which are less than the Custodian's
obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed
the Custodian by the Fund within the. scope of Article XIV
herein.
5. On each business day the Custodian shall furnish the
Fund with a statement with respect to each Margin Account in
which money or Securities are held specifying as of the close of
business on the previous business day: (a) the name of the
Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker,
dealer, or futures commission merchant specified in the name of
a Margin Account a copy of the statement furnished the Fund with
respect to such margin Account.
6. Promptly after the close of business on each busi-
ness day in which cash and/or Securities are maintained in a
Collateral Account for any Series, the Custodian shall furnish
the Fund with a statement with respect to such Collateral Ac-
count specifying the amount of cash and/or the amount and kind
Of Securities held therein. No later than the close of business
next succeeding the delivery to the Fund of such statement, the
Fund shall furnish to the Custodian a Certificate or Written
instructions specifying the then market value of the Securities
described in such statement. In the event such then market
value is indicated to be less than the Custodian's obligation
with respect to any outstanding Put option guarantee letter or
similar document, the Fund shall promptly specify in a
Certificate the additional cash and/or Securities to be
deposited in such Collateral Account to eliminate such
deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of
the resolution of the Board of Directors of the Fund, certified
by the Secretary or any Assistant Secretary, either (i) setting
forth with respect to the Series specified therein the date of
the declaration of a dividend or distribution, the date of pay-
ment thereof, the record date as of which shareholders entitled
to payment shall be determined, the amount payable per Share of
23
<PAGE> 24
such Series to the shareholders of record as of that date and
the total amount payable to the Dividend Agent and any
sub-dividend agent or co-dividend agent of the Fund on the pay-
ment date, or (ii) authorizing with respect to the Series
specified therein the declaration of dividends and distributions
on a daily basis and authorizing the Custodian to rely on Oral
Instructions, Written Instructions or a Certificate setting
forth the date of the declaration of such dividend or distribu-
tion, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per Share of such Series to the shareholders of record
as of that date and the total amount payable to the Dividend
Agent on the payment date.
2. Upon the payment date specified in such resolution,
Oral Instructions, Written Instructions or Certificate, as the
case may be, the Custodian shall pay out of the moneys held for
the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent
of the Fund with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall
deliver to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade
date, and price; and
(b) The amount of money to be received by the
Custodian for the sale of such Shares and specifically allocated
to the separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent,
the Custodian shall credit such money to the separate account in
the name of the Series for which such money was received.
3. Upon issuance of any Shares of any Series described
in the foregoing provisions of this Article, the Custodian shall
pay, out of the money held for the account of such Series, all
original issue or other taxes required to be paid by the Fund in
connection with such issuance upon the receipt of a Certificate
specifying the amount to be paid.
4. Whenever the Fund desires the Custodian to make
payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to
the Custodian:
(a) A resolution by the Board of Directors of the
Fund directing the Transfer Agent to redeem the
Shares; and
24
<PAGE> 25
(b) A Certificate specifying the number and Series
of Shares redeemed; and
(c) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice
setting forth the Series and number of Shares received by the
Transfer Agent for redemption and that such Shares are in good
form for redemption, the Custodian shall make payment to the
Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the
Certificate issued pursuant to the foregoing paragraph 4 of this
Article.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion,
advance funds on behalf of any Series which results in an
overdraft because the moneys held by the Custodian in the
separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities
specifically allocated to such Series, as set forth in a
Certificate, Oral Instructions, or Written Instructions or which
results in an overdraft in the separate account of such Series
for some other reason, or if the Fund is for any other reason
indebted to the Custodian with respect to a Series, including
any indebtedness to The Bank of New York under the Fund Is -Cash
Management and Related Services Agreement, (except a borrowing
for investment or for temporary or emergency purposes using
Securities as collateral pursuant to a separate agreement and
subject to the provisions of paragraph 2 of this Article), such
overdraft or indebtedness shall be deemed to be a loan made by
the Custodian to the Fund for such Series payable on demand and
shall bear interest from the date incurred at a rate per annum
(based on a 360-day year for the actual number of days involved)
equal to 1/2% over Custodiants prime commercial lending rate in
effect from time to time, such rate to be adjusted on the effec-
tive date of any change in such prime commercial lending rate
but in no event to be less than 6% per annum. In addition, the
Fund hereby agrees that the Custodian shall have a continuing
lien and security interest in and to any property specifically
allocated to such Series at any time held by it for the benefit
of such Series or in which the Fund may have an interest I which
is then in the Custodian's possession or control or in posses-
sion or control of any third party acting in the custodian's
behalf. The Fund authorizes the Custodian, in its sole discre-
tion, at any time to charge any such overdraft or indebtedness
together with interest due thereon against any balance of ac-
count standing to such Series' credit on the Custodian's books.
In addition, the Fund hereby covenants that on each Business Day
25
<PAGE> 26
on which either it intends to enter a reverse repurchase agree-
ment and/or otherwise borrow from a third party, or which next
succeeds a Business Day on which at the close of business the
Fund had outstanding a reverse repurchase agreement or such a
borrowing, it shall prior to 9 a.m. advise the Custodian, in
writing, of each such borrowing" shall specify the series to
which the same relates, and shall not incur any indebtedness not
so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian
by any bank (including, if the borrowing is pursuant to a
separate agreement, the Custodian) from which it borrows money
for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for
such borrowings, a notice or undertaking in the form currently
emploved by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly deliver to the Custodian
a Certificate specifying with respect to each such borrowing:
(a) the Series to which such borrowing relates; (b) the name of
the bank, (c) the amount and terms of the borrowing, which may
be set forth by incorporating by reference an attached promis-
sory note, duly endorsed by the Fund, or other loan agreement,
(d) the time and date, if known, on which the loan is to be
entered into, (e) the date on which the loan becomes due and
payable, (f) the total amount payable to the Fund on the borrow-
ing date, (g) the market value of Securities to be delivered as
collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any
particular Securities and (h) a statement specifying whether
such loan is for investment purposes or for temporary or
emergency purposes and that such loan is in conformance with the
Investment Company Act of 1940 and the Fund's prospectus. The
Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory
note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to
the total amount payable as set forth in the Certificate. The
Custodian may, at the option of the lending bank, keep such col-
lateral in its possession, but such collateral shall be subject
to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The custodian shall deliver
such Securities as additional collateral as may be specified in
a Certificate to collateralize further any transaction described
in this paragraph. The Fund shall cause all Securities released
from collateral status to be returned directly to the Custodian,
and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount
of any particular Securities to be delivered as collateral by
the custodian, the Custodian shall not be under any obligation
to deliver any Securities.
26
<PAGE> 27
ARTICLE XV
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the
custodian nor its nominee shall be liable for any loss or dam-
age, including counsel fees, resulting from its action or omis-
sion to act or otherwise, either hereunder or under any Margin
Account Agreement, except for any such loss or damage arising
out of its own negligence, misfeasance or willful misconduct.
The Custodian may, with respect to questions of law arising
hereunder or under any Margin Account Agreement, apply for and
obtain the advice and opinion of counsel to the Fund or of its
own counsel, at the expense of the Fund, and shall be fully
protected with respect to anything done or omitted by it in good
faith in conformity with such advice or opinion. The Custodian
shall be liable to the Fund for any loss or damage resulting
from the use of the Book-Entry System or any Depository arising
by reason of any negligence, misfeasance or willful misconduct
on the part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing,
the Custodian shall be under no obligation to inquire into, and
shall not be liable for:
(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality of
the purchase, sale or writing thereof, or the propriety of the
amount paid or received therefor;
(b) The legality of the sale or redemption 'of any
Shares, or the propriety of the amount to be received or paid
therefor;
(c) The legality of the declaration or payment of
any dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securi-
ties, nor shall the Custodian be under any duty or obligation to
see to it that any cash collateral delivered to it by a broker,
dealer, or financial institution or held by it at any time as a
result of such loan of portfolio Securities of the Fund is
adequate collateral for the Fund against any loss it might
sustain as a result of such loan. The Custodian specifically,
but not by way of limitation, shall not be under any duty or
obligation periodically to check or notify the Fund that the
amount of such cash collateral held by it for the Fund is suf-
ficient collateral for the Fund, but such duty or obligation
shall be the sole responsibility of the Fund. In addition, the
Custodian shall be under no duty or obligation to see that any
broker, dealer or financial institution to which portfolio
Securities of the Fund are lent pursuant to Article XIV of this
27
<PAGE> 28
Agreement makes payment to it of any dividends or interest which
are payable to or for the account of the Fund during the period
of such loan or at the termination of, such loan, provided,
however, that the Custodian shall promptly notify the Fund in
the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of
money and/or Securities held in any Margin Account, Senior
Security Account or Collateral Account in connection with
transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer,
futures commission merchant or Clearing Member makes payment to
the Fund of any variation margin payment or similar payment
which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see
that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the
amount the Fund is entitled to receive, or to notify the Fund of
the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered
to be the Custodian of, any money, whether or not represented by
any check, draft, or other instrument for the payment of money,
received by it on behalf of the Fund until the Custodian actu-
ally receives and collects such money directly or by the final
crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall
not be liable for ascertaining or acting upon any calls, conver-
sions, exchange offers, tenders, interest rate changes or
similar matters relating to Securities held in the Depository,
unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any.
responsibility or liability for the failure of the Depository to
collect, or for the late collection or late crediting by the
Depository of any amount payable upon Securities deposited in
the Depository which may mature or be redeemed, retired, called
or otherwise become payable. However, upon receipt of a
Certificate from the Fund of an overdue amount on Securities
held in the Depository the Custodian shall make a claim against
the Depository on behalf of the Fund, except that the Custodian
shall not be under any obligation to appear in, prosecute or
defend any action suit or proceeding in respect to any Securi-
ties held by the Depository which in its opinion may involve it
in expense or liability, unless indemnity satisfactory to it
against all expense and liability be furnished as often as may
be required.
5. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount due to
the Fund from the Transfer Agent of the Fund nor to take any
action to effect payment or distribution by the Transfer Agent
of the Fund of any amount paid by the Custodian to the Transfer
Agent of the Fund in accordance with this Agreement.
28
<PAGE> 29
6. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or
if payment is refused after due demand or presentation, unless
and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any
such action.
7. The Custodian may appoint one or more banking
institutions as Depository or Depositories, as Sub-Custodian or
Sub-Custodians, or as Co-Custodian or Co-Custodians including,
but not limited to, banking institutions located in foreign
countries, of Securities and moneys at any time owned by the
Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the
Custodian, the Fund and the appointed institution.
8. The Custodian shall not be under any duty or obliga-
tion (a) to ascertain whether any Securities at any time
delivered to, or held by it, for the account of the Fund and
specifically allocated to a Series are such as properly may be
held by the Fund or such Series under the provisions of its then
current prospectus, or (b) to ascertain whether any transactions
by the Fund, whether or not involving the Custodian, are such
transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the
Fund agrees to pay to the Custodian all out-of-pocket expenses
and such compensation as may be agreed upon from time to time
between the Custodian and the Fund. The Custodian may charge
such compensation and any expenses with respect to a Series
incurred by the Custodian in the performance of its duties
pursuant to such agreement against any money specifically al-
located to such Series. Unless and until the Fund instructs the
Custodian by a Certificate to apportion any loss, damage, li-
ability or expense among the Series in a specified manner, the
Custodian shall also be entitled to charge against any money
held by it for the account of a Series such Series' pro rata
share (based on such Series net asset value at the time of the
charge to the aggregate net asset value of all Series at that
time) of the amount of any loss, damage, liability or expense,
including counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement. The
expenses for which the Custodian shall be entitled to reimburse-
ment hereunder shall include, but are not limited to, the
expenses of sub-custodians and foreign branches of the Custodian
incurred in settling outside of New York City transactions
involving the purchase and sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be a
Certificate. The Custodian shall be entitled to rely upon any
29
<PAGE> 30
Oral Instructions and any Written Instructions actually received
by the Custodian hereinabove provided for. The Fund agrees to
forward to the Custodian a certificate or facsimile thereof
confirming such Oral Instructions or Written Instructions in
such manner so that such Certificate or facsimile thereof is
received by the Custodian, whether by hand delivery, telecopier
or other similar device, or otherwise, by the close of business
of the same day that such Oral Instructions or Written Instruc-
tions are given to the Custodian. The Fund agrees that the fact
that such confirming instructions are not received by the
Custodian shall in no way affect the validity of the transac-
tions or enforceability of the transactions hereby authorized by
the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions or Writ-
ten Instructions given to the Custodian hereunder concerning
such transactions provided such instructions reasonably appear
to have been received from an Authorized Person.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian and
reasonably believed by the Custodian to be given in accordance
with the terms and conditions of any Margin Account Agreement.
Without limiting the generality of the foregoing, the Custodian
shall be under no duty to inquire into, and shall not be liable
for, the accuracy of any statements or representations contained
in any such instrument or other notice including, without
limitation, any specification of any amount to be paid to a
broker, dealer, futures commission merchant or Clearing member.
12. The books and records pertaining to the Fund which
are in the possession of the Custodian shall be the property of
the Fund. Such books and records shall be prepared and
maintained as required by the Investment Company Act of 1940, as
amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representa-
tives, shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be
provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its
expenses of providing such copies. Upon reasonable request of
the Fund, the Custodian shall provide in hard copy or on micro-
film, whichever the Custodian elects, any records included in
any such delivery which are maintained by the Custodian on a
computer disc, or are similarly maintained, and the Fund shall
reimburse the Custodian for its expenses of providing such hard
copy or microfilm.
13. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting
control of the Book-Entry System, the Depository or O.C.C., and
with such reports on its own systems of internal accounting
control as the Fund may reasonably request from time to time.
30
<PAGE> 31
14. The Fund agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims,
losses and demands whatsoever, including attorney's fees,
howsoever arising or incurred because of or in connection with
this Agreement, except to the extent such liability, claims,
losses and demands arise out of or in connection with the
Custodian's own negligence, misfeasance or willful misconduct.
15. Subject to the foregoing provisions of this Agree-
ment, the Custodian may deliver and receive Securities, and
receipts with respect to such Securities, and arrange for pay-
ments to be made and received by the Custodian in accordance
with the customs prevailing from time to time among brokers or
dealers in such Securities. When the Custodian is instructed to
deliver securities against payment, delivery of such Securities
and receipt of payment therefor may not be completed
simultaneously. The Fund assumes all responsibility and li-
ability for all credit risks involved in connection with the
Custodian's delivery of Securities pursuant to instructions of
the Fund, which responsibility and liability shall continue
until final payment in full has been received by the Custodian.
16. The Custodian shall have no duties or
responsibilities whatsoever except such duties and
responsibilities as are specifically set forth in this Agree-
ment, and no covenant or obligation shall be implied in this
Agreement against the Custodian.
ARTICLE XVI
TERMINATION
1. Either of the parties hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less
than ninety (90) days after the date of giving of such notice.
In the event such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Directors
of the Fund, certified by the Secretary or any Assistant
Secretary, electing to terminate this Agreement and designating
a successor custodian or custodians, each of which shall be a
bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. In the event such
notice is given by the Custodian, the Fund shall, on or before
the termination date, deliver to the Custodian a copy of a
resolution of the Board of Directors of the Fund, certified by
the Secretary or any Assistant Secretary, designating a
successor custodian or custodians. In the absence of such
designation by the Fund, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less
than $2,000,000 aggregate capital, surplus and undivided
profits. Upon the date set forth in such notice this Agreement
shall terminate, and the Custodian shall upon receipt of a
notice of acceptance by the successor custodian on that date
31
<PAGE> 32
deliver directly to the successor custodian all Securities and
moneys then owned by the Fund and held by it as Custodian, after
deducting all fees, expenses and other amounts for the payment
or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the
Fund or the Custodian in accordance with the preceding
paragraph, the Fund shall upon the date specified in the notice
of termination of this Agreement and upon the delivery by the
Custodian of all Securities (other than securities held in the
Book-Entry System which cannot be delivered to the Fund) and
moneys then owned by the Fund be deemed to be its own custodian
and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities
hereunder in accordance with this Agreement.
ARTICLE XVII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed
by two of the present Officers of the Fund under its corporate
seal, setting forth the names and the signatures of the present
Authorized Persons. The Fund agrees to furnish to the Custodian
a new Certificate in similar form in the event that any such
present Authorized Person ceases to be an Authorized Person or
in the event that other or additional Authorized Persons are
elected or appointed. Until such new Certificate shall be
received, the Custodian shall be fully protected in acting under
the provisions of this Agreement upon Oral Instructions or
signatures of the present Authorized Persons as set forth in the
last delivered Certificate.
2. Annexed hereto as Appendix B is a Certificate signed
by two of the present officers of the Fund under its corporate
seal, setting forth the names and the signatures of the present
officers of the Fund. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event any
such present officer ceases to be an officer of the Fund, or in
the event that other or additional officers are elected or ap-
pointed. Until such new Certificate shall be received, the
custodian shall be fully protected in acting under the provi-
sions of this Agreement upon the signatures of the Officers as
set forth in the last delivered Certificate.
3. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Custodian, shall be sufficiently given if addressed to the
Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10015, or at such other
place as the custodian may from time to time designate in writ-
ing.
32
<PAGE> 33
4. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Fund
shall be sufficiently given if addressed to the Fund and mailed
or delivered to it at its office at the address for the Fund
first above written, or at such other place as the Fund may from
time to time designate in writing.
5. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties
with the same formality as this Agreement and approved by a
resolution of the Board of Directors of the Fund.
6. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of the
Custodian, or by the Custodian without the written consent of
the Fund, authorized or approved by a resolution of the Fund's
Board of Directors.
7. This Agreement shall be construed in accordance with
the laws of the State of New York without giving effect to
conflict of laws principles thereof. Each party hereby consents
to the jurisdiction of a state or federal court situated in New
York City, New York in connection with any dispute arising
hereunder.
8. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but such counterparts shall, together, constitute only one
instrument.
33
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective corporate Officers,
thereunto duly authorized and their respective corporate seals
to be hereunto affixed, as of the day and year first above writ-
ten.
MERRILL LYNCH HIGH INCOME
MUNICIPAL BOND FUND, INC.
By /s/ Gerald M. Richard
Attest /s/ Robert Harris
THE BANK OF NEW YORK
[SEAL] By: /s/ [SIG]
Attest: /s/ [SIG]
34
<PAGE> 35
APPENDIX A
I, Robert Harris, Secretary of MERRILL LYNCH HIGH INCOME MUNICIPAL
BOND FUND, INC., a Maryland corporation, do hereby certify that:
The following individuals have been duly authorized by the
Board of Directors of the Fund in conformity with the Fund's
Articles of Incorporation and By-Laws to give oral Instructions
and Written Instructions on behalf of the Fund, and the signatures
set forth opposite their respective names are their true and
correct signatures:
Name Signature
/s/ Arthur Zeikel
/s/ Philip L. Kirstein
/s/ Terry K. Glenn
/s/ Mark B. Goldfus
/s/ Michael J. Hennewinkel
/s/ Robert Harris
/s/ Gerald M. Richard
/s/ Edgar C. Geiger, Jr.
/s/ Vincent R. Giordano
/s/ Kenneth Jacob
/s/ Joseph Darcy
/s/ Kevin Schiatta
/s/ Peter J. Hayes
<PAGE> 36
/s/ Daniela Durao
/s/ Dolores Mathis
/s/ Paula Nazin
/s/ Kathy Thatcher
/s/ Donna Franc
/s/ Helen Marie Sheehan
/s/ Fred K. Stuebe
/s/ William Bock
Witness my hand, as of this 14th day of September, 1990.
/s/ Robert Harris
Secretary
Merrill Lynch High Income
Municipal Bond Fund, Inc.
<PAGE> 37
APPENDIX B
I, Arthur Zeikel, President, and I, Robert Harris, Secretary,
of MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC., a Maryland
corporation (the "Fund"), of hereby certify that:
The following individuals serve in the following positions
with the Fund and each has been duly elected or appointed by the Board
of Directors of the Fund to each such position and qualified therefor
in conformity with the Fund's Articles of Incorporation and By-Laws,
and the signatures set forth opposite their respective names are their
true and correct signatures:
Name Position Signature
/s/ Arthur Zeikel President
Executive
/s/ Terry K. Glenn Vice President
/s/ Vincent R. Giordano Vice President
/s/ Gerald M. Richard Treasurer
/s/ Robert Harris Secretary
Witness our hands, as of this 14th day of September, 1990.
/s/ Arthur Zeikel /s/ Robert Harris
President Secretary
Merrill Lynch High Income Merrill Lynch High Income
Municipal Bond Fund, Inc. Municipal Bond Fund, Inc.
<PAGE> 38
EXHIBIT A
CERTIFICATION
The undersigned, Robert Harris, hereby certifies that he is
the duly elected and acting Secretary of MERRILL LYNCH HIGH INCOME
MUNICIPAL BOND FUND, INC. a Maryland corporation (the "Fund"), and
further certifies that the following resolution was adopted by the
Board of Directors of the Fund at a meeting duly held on September
14, 1990, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
of the Fund, be , and hereby is, authorized and
instructed on a continuous and ongoing basis to
deposit in the Book-Entry System, as defined in Rule
17f-4 under the Investment Company Act of 1940, all
portfolio securities of the Fund eligible for deposit
therein, and to utilize the Book-Entry System to the
extent possible in connection with its performance
thereunder, including, without limitation, in
connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. as of the
14th day of September, 1990.
/s/ Robert Harris
<PAGE> 39
EXHIBIT B
CERTIFICATION
The undersigned, Robert Harris, hereby certifies that he is
the duly elected and acting Secretary of MERRILL LYNCH HIGH INCOME
MUNICIPAL BOND FUND, INC. a Maryland corporation (the "Fund"), and
further certifies that the following resolution was adopted by the
Board of Directors of the Fund at a meeting duly held on September
14, 1990, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, the Bank of New York, as Custodian
of the Fund, be and hereby is, authorized and
instructed on a continuous and ongoing basis until such
time as it receives a certificate to the contrary
signed by two officers of the Fund, to deposit in a
registered clearing agency which acts as a securities
depository, as provided in Rule 17f-4 under the
Investment Company Act of 1940, all securities eligible
for deposit therein, and to utilize such system to the
extent possible in connection with its performance
thereunder, including, without limitation, in
connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. as of the
14th day of September, 1990.
/s/Robert Harris
<PAGE> 40
EXHIBIT C
CERTIFICATION
The undersigned, Robert Harris, hereby certifies that he is
the duly elected and acting Secretary of MERRILL LYNCH HIGH INCOME
MUNICIPAL BOND FUND, INC. a Maryland corporation (the "Fund"), and
further certifies that the following resolution was adopted by the
Board of Directors of the Fund at a meeting duly held on September
14, 1990, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is full force
and effect as of the date hereof.
RESOLVED, that the subcustodian arrangements
between the Bank of New York and Banker's Trust
company, between the Bank of New York and Morgan
Guaranty Trust Co., and between the Bank of New York
and Chemical Bank be, and they hereby are, approved.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC. as of the
14th day of September, 1990.
/s/ Robert Harris
<PAGE> 1
EX-99.k(1)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the 14th day of September 1990, by
and between MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC., a
Maryland corporation (the "Fund"), and FINANCIAL DATA SERVICES,
INC., a New Jersey Corporation ("FDS") .
WITNESSETH:
WHEREAS, the Fund wishes to appoint FDS to be the Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
for the Fund on, and subject to, the terms and provisions of this
Agreement, and FDS is desirous of accepting such appointment on,
and subject to, such terms and provisions:
NOW, THEREFORE, in consideration of mutual covenants con-
tained in this Agreement, the Fund and FDS agree as follows:
1. Appointment of FDS as Transfer Agent, Dividend Dis-
bursing Agent and Shareholder Servicing Agent.
(a) The Fund hereby appoints FDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund on, and subject to, the terms and provisions of this
Agreement.
(b) FDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund, and agrees to act as such on, and subject to, the terms and
provisions of the Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act
of 1940, as amended from time to time, and any rule or
regulation thereunder;
(II) The term "Account" means any account of a Share-
holder, or, if the shares are held in an account in the name
of MLPF&S for benefit of an identified customer, such ac-
<PAGE> 2
count, including a Plan Account, any account under a plan (by
whatever name referred to in the Prospectus) pursuant to the
Self-Employed Individuals Retirement Act of 1962 ("Keogh Act
Plan") and any plan (by whatever name referred to in the
Prospectus) in conjunction with section 401 of the Internal
Revenue Code ("Corporation Master Plan")
(III) The term "application" means an application made
by a Shareholder or prospective Shareholder respecting the
opening of an Account;
(IV) The term "MLFD" means Merrill Lynch Funds
Distributor, Inc., a Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a Delaware corporation;
(VI) The term "Officer's Instruction" means an
instruction in writing given on behalf of the Fund to FDS,
and signed on behalf of the Fund by the President, any Vice
President, the Secretary or the Treasurer of the Fund;
(VII) The term "Prospectus" means the Prospectus of
the Fund, as from time to time in effect;
(VIII) The term "Shares" means shares of Common Stock
of the Fund; and
(IX) The term "Shareholder" means the holder of
record of Shares.
3. Duties of FDS as Transfer Agent Dividend Disbursing
Agent and Shareholder Servicing Agent.
(a) Subject to the succeeding provisions of the Agreement,
FDS hereby agrees to perform the following functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
for the Fund;
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing
Accounts;
(III) Acting as agent of the Fund and/or MLPF&S,
maintaining such records as may permit the imposition of such
early withdrawal charges as may be described in the
Prospectus, including such reports as may be reasonably
requested by the Fund with respect to such Shares as may be
subject to an early withdrawal charge;
2.
<PAGE> 3
(IV) Upon the repurchase pursuant to a tender of
Shares subject to such an early withdrawal charge,
calculating and deducting from the tender offer proceeds
thereof the amount of such charge in the manner set forth in
the Prospectus.
(V) Processing tender offers;
(VI) Examining and approving legal transfers;
(VII) Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to,
procedures and conditions adopted by the Fund;
(VIII) Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;
(IX) Acting as agent for the Fund and/or MLPF&S,
furnishing such appropriate periodic statements relating to
Accounts, together with additional enclosures, including
appropriate income tax information and income tax forms duly
completed, as required by applicable law;
(X) Acting as agent for the Fund and/or MLPF&S,
mailing annual, semi-annual and quarterly reports prepared by
or on behalf of the Fund, and mailing new Prospectuses on
their issue to Shareholders as required by applicable law;
(XI) Furnishing such periodic statements of trans-
actions effected by FDS, reconciliations, balances and
summaries as the Fund may reasonably request;
(XII) Maintaining such books and records relating to
transactions effected by FDS as are required by the Act, or
by any other applicable provision of law, rule or regulation,
to be maintained by the Fund or its transfer agent with
respect to such transactions, and preserving, or causing to
be preserved any such books and records for such periods as
may be required by any such law, rule or regulation and as
may be agreed on from time to time between FDS and the Fund.
In addition, FDS agrees to maintain and preserve master files
and historical computer tapes on a daily basis in multiple
separate locations a sufficient distance apart to insure
preservation of at least one copy of such information;
(XIII) Withholding taxes on non-resident alien
Accounts, preparing and filing U.S. Treasury Department Form
1099 and other appropriate forms as required by applicable
law with respect to dividends and distributions; and
3.
<PAGE> 4
(XIV) Reinvesting dividends for full and fractional
shares and disbursing cash dividends, as applicable.
(b) FDS agrees to act as proxy agent in connection with the
holding of annual, if any, and special meetings of Shareholders,
mailing such notices, proxies and proxy statements in connection
with the holding of such meetings as may be required by applicable
law, receiving and tabulating votes cast by proxy and
communicating to the Fund the results of such tabulation accom-
panied by appropriate certificates, and preparing and furnishing
to the Fund certified lists of Shareholders as of such date, in
such form and containing such information as may be required by
the Fund.
(c) FDS agrees to deal with, and answer in a timely manner,
all correspondence and inquires relating to the functions of FDS
under this Agreement with respect to Accounts.
(d) FDS agrees to furnish to the Fund such information and
at such intervals as is necessary for the Fund to comply with the
registration and/or the reporting requirements (including
applicable escheat laws) of the Securities and Exchange Commis-
sion, Blue Sky authorities or other governmental authorities.
(e) FDS agrees to provide to the Fund such information as
may reasonably be required to enable the Fund to reconcile the
number of outstanding Shares between FDS's records and the account
books of the Fund.
(f) Notwithstanding anything in the foregoing provisions of
this paragraph, FDS agrees to perform its functions thereunder
subject to such modification (whether in respect of particular
cases or in any particular class of cases) as may from time to
time be contained in an officer's Instruction.
4. Compensation.
The charges for services described in this Agreement, in-
cluding "out-of-pocket" expenses, will be set forth in the Sche-
dule of Fees attached hereto.
5. Right of Inspection.
FDS agrees that it will in a timely manner make available to,
and permit, any officer, accountant, attorney or authorized agent
of the Fund to examine and make transcripts and copies (including
photocopies and computer or other electronical information storage
media and print outs) of any and all of its books and records
which relate to any transaction or function performed by FDS under
or pursuant to this Agreement.
4.
<PAGE> 5
6. Confidential Relationship.
FDS agrees that it will, on behalf of itself and its officers
and employees, treat all transactions contemplated by this
Agreement, and all information germane thereto, as confidential
and not to be disclosed to any person (other than the Shareholder
concerned, or the Fund, or as may be disclosed in the examination
of any books or records by any person lawfully entitled to examine
the same) except as may be authorized by the Fund by way of an
officer's Instruction.
7. Indemnification.
The Fund shall indemnify and hold FDS harmless from any loss,
costs, damage and reasonable expenses, including reasonable
attorney's fees (provided that such attorney is appointed with the
Fund's consent, which consent shall not be unreasonably withheld),
incurred by it resulting from any claim, demand, action, or suit
in connection with the performance of its duties hereunder, pro-
vided that this indemnification shall not apply to actions or
omissions of FDS in cases of willful misconduct, failure to act in
good faith or negligence by FDS, it's officers, employees or
agents, and further provided, that prior to confessing any claim
against it which may be subject to this indemnification, FDS shall
give the Fund reasonable opportunity to defend against said claim
in its own name or in the name of FDS. An action taken by FDS on
any officer's Instruction reasonably believed by it to have been
properly executed shall not constitute willful misconduct, failure
to act in good faith or negligence under this Agreement.
8. Regarding FDS.
(a) FDS hereby agrees to hire, purchase, develop and
maintain such dedicated personnel, facilities, equipment, soft-
ware, resources and capabilities as may be reasonably determined
by the Fund to be necessary for the satisfactory performance of
the duties and responsibilities of FDS. FDS warrants and
represents that its officers and supervisory personnel charged
with carrying out its functions as Transfer Agent, Dividend Dis-
bursing Agent and Shareholder Servicing Agent, for the Fund possess
the special skill and technical knowledge appropriate for that
purpose. FDS shall at all times exercise due care and diligence
in the performance of its functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund.
FDS agrees that, in determining whether it has exercised due care
and diligence, its conduct shall be measured by the standard
applicable to persons possessing such special skill and technical
knowledge.
5.
<PAGE> 6
(b) FDS warrants and represents that it is duly authorized
and permitted to act as Transfer Agent, Dividend Disbursing Agent,
and Shareholder Servicing Agent under all applicable laws and that
it will immediately notify the Fund of any revocation of such
authority or permission or of the commencement of any proceeding
or other action which may lead to such revocation.
9. Termination.
(a) This Agreement shall become effective as of the date
first above written and shall thereafter continue from year to
year. This Agreement may be terminated by the Fund or FDS
(without penalty to the Fund or FDS) provided that the terminating
party gives the other party written notice of such termination at
least sixty (60) days in advance, except that the Fund may
terminate this Agreement immediately on written notice to FDS if
the authority or permission of FDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent has been
revoked or if any proceeding or other action which the Fund
reasonably believes will lead to such revocation has been com-
menced.
(b) Upon termination of this Agreement, FDS shall deliver
all unissued and cancelled stock certificates representing Shares
remaining in its possession, and all Shareholder records, books,
stock ledgers, instruments and other documents (including compu-
terized or other electronically stored information) made or accu-
mulated in the performance of its duties as Transfer Agent, Dis-
bursing Agent and Shareholder Servicing Agent for the Fund along
with a certified locator document clearly indicating the complete
contents therein, to such successor as may be specified in a
notice of termination or Officer's Instruction; and the Fund
assumes all responsibility for failure thereafter to produce any
paper, record or documents so delivered and identified in the
locator document, if and when required to be produced.
10. Amendment.
Except to the extent that the performance by FDS or its
functions under this Agreement may from time to time be modified
by an Officer's Instruction, this Agreement may be amended or
modified only by further written Agreement between the parties.
11. Governing Law.
This Agreement shall be governed by the laws of the State of
New Jersey.
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective duly authorized offi-
cers and their respective corporate seals hereunto duly affixed
and attested, as of the day and year above written.
MERRILL LYNCH HIGH INCOME MUNICIPAL
BOND FUND, INC.
By /s/ Arthur Zeikel
ATTEST /s/ Robert Harris
Secretary
FINANCIAL DATA SERVICES, INC.
By /s/ Robert C. Doan
ATTEST: /s/ [SIG]
Secretary
7.
<PAGE> 1
Ex-99.k(2)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of the 14th day of September 1990, by,
between MERRILL LYNCH & CO., INC., a Delaware corporation
("ML&Co."), and MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND,
INC., a Maryland corporation (the "Fund");
W I T N E S S E T H
WHEREAS, ML&CO. was incorporated under the laws of the State
of Delaware on March 27, 1973 under the corporate name "Merrill
Lynch & Co., Inc." and has used such name at all times
thereafter;
WHEREAS, ML&CO. was duly qualified as a foreign corporation
under the laws of the State of New York on April 25, 1973 and has
remained so qualified at all times thereafter;
WHEREAS, the Fund was incorporated under the laws of the
state of Maryland on August 16, 1990; and
WHEREAS, the Fund desires to qualify as a. foreign
corporation under the laws of the State of New York and the State
of New Jersey, respectively, and has requested ML&CO. to give its
consent to the use of the name "Merrill Lynch" in the Fund's
corporate name.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and of the
covenants hereinafter contained, ML&CO. and the Fund hereby agree
as follows:
1. ML&CO. hereby grants the Fund a non-exclusive license to
use the words "Merrill Lynch" in its corporate name.
2. ML&CO. hereby consents to the qualification of the Fund
as a foreign corporation under the laws of the State of New York
and the State of New Jersey, respectively, with the words
"Merrill Lynch" in its corporate name and agrees to execute such
formal consents as may be necessary in connection with such
filing.
3. The non-exclusive license hereinabove referred to has
been given and is given by ML&CO. on the condition that it may at
any time, in its sole and absolute discretion, Withdraw the non-
exclusive license to the use of the words "Merrill Lynch" in the
name of the Fund; and, as soon as practicable after receipt by
the Fund of written notice of the withdrawal Of such non-
exclusive license, and in no event later than ninety days
thereafter, the Fund will change its name so that such name will
not thereafter include the words "Merrill Lynch" or any variation
thereof.
4. ML&CO. reserves and shall have the right to grant to any
other company, including without limitation, any other investment
company, the right to use the words "Merrill Lynch" or variations
2.
<PAGE> 3
thereof in its name and no consent or permission of the Fund
shall be necessary; but, if required by an applicable law of any
state, the Fund will forthwith grant all requisite consents.
5. The Fund will not grant to any other company the right
to use a name similar to that of the Fund or ML&CO. without the
written consent of ML&CO.
6. Regardless of whether the Fund should hereafter change
its name and eliminate the words "Merrill Lynch" or any variation
thereof from such name, the Fund hereby grants to ML&CO. the
right to cause the incorporation of other corporations or the
organization of voluntary associations which may have names
similar to that of the Fund or to that to which the Fund may
change its name and to own all or any portion of the shares of
such other corporations or associations and to enter into
contractual relationships with such other corporations or
associations, subject to any requisite approval of a majority of
the Fund's shareholders and the Securities and Exchange
commission and subject to the payment of a reasonable amount to
be determined at the time of use, and the Fund agrees to give and
execute any such formal consents or agreements as may be
necessary in connection therewith.
7. This Agreement may be amended at anytime by a writing
signed by the parties hereto.
3.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH & CO., INC.
By /s/ [SIG]
Executive Vice President
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND
FUND, INC.
By /s/ Arthur Zeikel
President
4.
<PAGE> 1
Ex-99.p
CERTIFICATE OF SOLE STOCKHOLDER
Merrill Lynch Asset Management, Inc., the holder of 10,000
shares of common stock, par value $0.10 per share, of Merrill
Lynch High Income Municipal Bond Fund, Inc., a Maryland
corporation (the "Fund"), does hereby confirm to the Fund 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 the unamortized organizational
expenses which the number of shares being redeemed bears to the
number of shares initially purchased.
MERRILL LYNCH ASSET MANAGEMENT, INC.
By /s/ Robert Harris, Vice President
Dated: October 19, 1990
<PAGE> 1
EXHIBIT N
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.:
We consent to the use in Post-Effective Amendment No. 2 to Registration
Statement No. 33-50861 of our report dated September 29, 1995 and to the
references to us under the caption "Financial Highlights," which appears in the
Prospectus, which is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
November 2, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000867189
<NAME> MERRILL LYNCH HIGH INCOME MUNICIPAL BOND FUND, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 180773886
<INVESTMENTS-AT-VALUE> 195147439
<RECEIVABLES> 4080950
<ASSETS-OTHER> 152561
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 199380950
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 806077
<TOTAL-LIABILITIES> 806077
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 187509356
<SHARES-COMMON-STOCK> 18096461
<SHARES-COMMON-PRIOR> 19506250
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> (2713001)
<OVERDISTRIBUTION-GAINS> 595035
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<REALIZED-GAINS-CURRENT> (2713001)
<APPREC-INCREASE-CURRENT> 6520321
<NET-CHANGE-FROM-OPS> 16185704
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12378384
<DISTRIBUTIONS-OF-GAINS> 3391986
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1405923
<NUMBER-OF-SHARES-REDEEMED> 3446599
<SHARES-REINVESTED> 630887
<NET-CHANGE-IN-ASSETS> (14383506)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2796951
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1923921
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3073381
<AVERAGE-NET-ASSETS> 202518049
<PER-SHARE-NAV-BEGIN> 10.92
<PER-SHARE-NII> .65
<PER-SHARE-GAIN-APPREC> .23
<PER-SHARE-DIVIDEND> .65
<PER-SHARE-DISTRIBUTIONS> .18
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.97
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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