<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1995
SECURITIES ACT FILE NO. 33-50417
INVESTMENT COMPANY ACT FILE NO. 811-6282
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 3 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 11 [X]
(Check appropriate box or boxes)
----------------
MERRILL LYNCH MULTI-STATE LIMITED MATURITY
MUNICIPAL SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (Zip Code)
(Address of Principal Executive Office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
----------------
COPIES TO:
THOMAS R. SMITH, JR., ESQ. PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD FUND ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, N.J. 08543-9011
----------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
----------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF
BENEFICIAL INTEREST UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2
UNDER THE INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR
THE REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED SEPTEMBER 22, 1995. PURSUANT
TO RULE 24f-2(b)(2), THE REGISTRANT HAS NOT FILED A NOTICE WITH RESPECT TO THE
MERRILL LYNCH OHIO LIMITED MATURITY MUNICIPAL BOND FUND, A SERIES OF THE
REGISTRANT, BECAUSE NO SECURITIES OF SUCH SERIES WERE SOLD DURING THE MOST
RECENT FISCAL YEAR.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
AMOUNT OF PROPOSED MAXIMUM
SHARES MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER UNIT PRICE* FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest
(par value $.10 per share)
Arizona Fund................ 195,538 $10.30 $290,000 $100
Florida Fund................ 118,652 10.18 290,000 100
Massachusetts Fund.......... 686,874 10.13 290,000 100
Michigan Fund............... 121,542 10.13 290,000 100
New Jersey Fund............. 416,514 10.30 290,000 100
Pennsylvania Fund........... 245,588 10.30 290,000 100
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*(1) The calculation of the maximum aggregate offering price for the Arizona,
Florida, Massachusetts, Michigan, New Jersey and Pennsylvania Funds is
made pursuant to Rule 24e-2(b) under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased by each of the
Arizona, Florida, Massachusetts, Michigan, New Jersey and Pennsylvania
Funds during the Registrant's previous fiscal year was 531,126, 2,326,150,
1,009,895, 301,707, 988,538 and 438,957 shares, respectively.
(3) 363,743, 2,235,985, 351,648, 208,792, 600,179 and 221,524 of the shares of
the Arizona, Florida, Massachusetts, Michigan, New Jersey and Pennsylvania
Funds, respectively, described in (2) above have been used for reduction
pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment Company
Act of 1940 in previous filings during the Registrant's current fiscal
year.
(4) 167,383, 90,165, 658,247, 92,915, 388,359 and 217,433 shares of the
Arizona, Florida, Massachusetts, Michigan, New Jersey and Pennsylvania
Funds, respectively, redeemed during the Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
----------- --------
<C> <S> <C>
PART A
Item 1. Cover Page............... Cover Page
Item 2. Synopsis................. Fee Table
Item 3. Condensed Financial
Information............. Financial Highlights; Performance Data
Item 4. General Description of
Registrant.............. Cover Page; Investment Objectives and
Policies; Additional Information
Item 5. Management of the Fund... Fee Table; Investment Objectives and
Policies; Management of the Trust;
Portfolio Transactions; Inside Back
Cover Page
Item 5A. Management's Discussion
of Fund Performance..... Not Applicable
Item 6. Capital Stock and Other
Securities.............. Cover Page; Merrill Lynch Select
PricingSM System; Additional
Information
Item 7. Purchase of Securities
Being Offered........... Cover Page; Fee Table; Merrill Lynch
Select PricingSM System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase. Fee Table; Merrill Lynch Select
PricingSM System; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal
Proceedings............. Not Applicable
PART B
Item 10. Cover Page............... Cover Page
Item 11. Table of Contents........ Back Cover Page
Item 12. General Information and
History................. Additional Information
Item 13. Investment Objectives and
Policies................ Investment Objectives and Policies;
Investment Restrictions
Item 14. Management of the Fund... Management of the Trust
Item 15. Control Persons and
Principal Holders of
Securities.............. Management of the Trust; General
Information
Item 16. Investment Advisory and
Other Services.......... Management of the Trust; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and
Other Practices......... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other
Securities.............. General Information--Description of
Series and Shares
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered........... Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status............... Distributions and Taxes
Item 21. Underwriters............. Purchase of Shares
Item 22. Calculation of
Performance Data........ Performance Data
Item 23. Financial Statements..... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
NOVEMBER 21, 1995
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
Merrill Lynch Arizona Limited Maturity Merrill Lynch Michigan Limited
Municipal Bond Fund Maturity
Municipal Bond Fund
Merrill Lynch California Limited Merrill Lynch New Jersey Limited
Maturity Maturity
Municipal Bond Fund Municipal Bond Fund
Merrill Lynch Florida Limited Maturity Merrill Lynch New York Limited
Municipal Bond Fund Maturity
Municipal Bond Fund
Merrill Lynch Massachusetts Limited Merrill Lynch Pennsylvania Limited
Maturity Maturity
Municipal Bond Fund Municipal Bond Fund
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust (the
"Trust") consists of eight separate series: Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund (the "Arizona Fund"), Merrill Lynch California
Limited Maturity Municipal Bond Fund (the "California Fund"), Merrill Lynch
Florida Limited Maturity Municipal Bond Fund (the "Florida Fund"), Merrill
Lynch Massachusetts Limited Maturity Municipal Bond Fund (the "Massachusetts
Fund"), Merrill Lynch Michigan Limited Maturity Municipal Bond Fund (the
"Michigan Fund"), Merrill Lynch New Jersey Limited Maturity Municipal Bond
Fund (the "New Jersey Fund"), Merrill Lynch New York Limited Maturity
Municipal Bond Fund (the "New York Fund"), and Merrill Lynch Pennsylvania
Limited Maturity Municipal Bond Fund (the "Pennsylvania Fund"). Each series of
the Trust is referred to herein as a "Fund". Each Fund seeks to provide
shareholders with as high a level of income exempt from Federal income taxes
and personal income taxes imposed by the designated state (and, in certain
instances, state intangible personal property taxes and local personal income
taxes) as is consistent with prudent investment management. Under normal
market conditions, each Fund invests primarily in a portfolio of intermediate-
term investment grade obligations of the designated state or its political
subdivisions, agencies or instrumentalities, or certain other jurisdictions,
that pay interest exempt, in the opinion of bond counsel to the issuer, from
Federal income taxes and personal income taxes of the designated state and,
where applicable, local personal income taxes in the designated state. The
obligations in which the Funds invest have remaining maturities of between one
and ten years, and it is anticipated that, depending on market conditions, the
dollar weighted average maturity of each Fund's portfolio will not exceed five
years. The Funds may invest in certain tax-exempt securities classified as
"private activity bonds" that may subject certain investors in the Funds to an
alternative minimum tax. At times, a Fund may seek to hedge its portfolio
through the use of futures and options transactions. There can be no assurance
that the investment objective of any Fund will be realized. For more
information on each Fund's investment objectives and policies, please see
"Investment Objectives and Policies" on page 15.
(continued on following page)
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
This Prospectus is a concise statement of information about the Trust and
each Fund that is relevant to making an investment in a Fund. This Prospectus
should be retained for future reference. A statement containing additional
information about the Trust and each Fund, dated November 21, 1995 (the
"Statement of Additional Information"), has been filed with the Securities and
Exchange Commission and is available, without charge, by calling or by writing
the Trust at the above telephone number or address. The Statement of
Additional Information is hereby incorporated by reference into this
Prospectus.
---------------
FUND ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
(continued from prior page)
Pursuant to the Merrill Lynch Select Pricing SM System, each Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select PricingSM System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances. See "Merrill Lynch Select Pricing SM System" on page 7.
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 selected dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000
and the minimum subsequent purchase is $50. Merrill Lynch may charge its
customers a processing fee (presently $4.85) for confirming purchases and
repurchases. Purchases and redemptions directly through the Trust's Transfer
Agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares".
Unless otherwise indicated, the information set forth in this Prospectus is
applicable to each Fund. Management of the Trust has considered the
possibility that the use of a combined prospectus may subject a Fund or Funds
to liability for an alleged misstatement relating to another Fund or Funds.
Management believes this possibility is remote.
Each Fund has qualified its shares for sale under the securities laws of
certain states, and shares of a Fund may be purchased only in jurisdictions in
which such shares are qualified for purchase. This Prospectus does not
constitute an offering of shares of any Fund in any state or jurisdiction in
which such offering may not lawfully be made. An investor considering
purchasing shares of a Fund should consult his or her Merrill Lynch financial
consultant to determine whether shares of such Fund are available for purchase
in his or her state.
2
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Funds follows:
<TABLE>
<CAPTION>
ALL FUNDS
----------------------------------------------------------------
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ---------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Im-
posed on Pur-
chases (as a
percentage of
offering
price)....... 1.0%(c) None None 1.0%(c)
Sales Charge
Imposed on
Dividend
Reinvestments. None None None None
Deferred Sales
Charge (as a
percentage of
original
purchase
price or
redemption
proceeds,
whichever is
lower)....... None(d) 1.0% during the first 1.0% during the first None(d)
year, year,
decreasing to 0.0% decreasing to 0.0%
after after
Exchange Fee.. None the first year the first year None
</TABLE> None None
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders and certain investment programs. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares"--
page 32.
(b) Class B shares convert to Class D shares automatically approximately ten
years after initial purchase. See "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares"--page 34.
(c) Reduced for purchases of $100,000 and over. Class A or Class D purchases
of $1,000,000 or more may not be subject to an initial sales charge. See
"Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class
D Shares"--page 32.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a
CDSC of 0.20% of amounts redeemed within the first year after purchase.
(continued on next page)
3
<PAGE>
<TABLE>
<CAPTION>
ARIZONA FUND CALIFORNIA FUND FLORIDA FUND
-------------------------------- -------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS D CLASS A CLASS B CLASS C CLASS D CLASS A CLASS B CLASS C CLASS D
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)(E):
Management
Fees(f)........ 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35%
Rule 12b-1
Fees(g)
Account Mainte-
nance Fees..... None 0.15% 0.15% 0.10% None 0.15% 0.15% 0.10% None 0.15% 0.15% 0.10%
Distribution
Fees........... None 0.20%* 0.20% None None 0.20%* 0.20% None None 0.20%* 0.20% None
Other Expenses.. 1.70% 1.74% 1.74% 1.70% 1.09% 1.10% 1.10% 1.09% 0.68% 0.68% 0.68% 0.68%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund
Operating
Expenses**..... 2.05% 2.44% 2.44% 2.15% 1.44% 1.80% 1.80% 1.54% 1.03% 1.38% 1.38% 1.13%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
MASSACHUSETTS FUND
--------------------------------
CLASS A CLASS B CLASS C CLASS D
------- -------- ------- -------
<S> <C> <C> <C> <C>
ANNUAL FUND
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)(E):
Management
Fees(f)........ 0.35% 0.35% 0.35% 0.35%
Rule 12b-1
Fees(g)
Account Mainte-
nance Fees..... None 0.15% 0.15% 0.10%
Distribution
Fees........... None 0.20%* 0.20% None
Other Expenses.. 1.36% 1.38% 1.38% 1.36%
------- -------- ------- -------
Total Fund
Operating
Expenses**..... 1.71% 2.08% 2.08% 1.81%
======= ======== ======= =======
</TABLE>
- -------
(e) Information for Class A and Class B shares is stated for the fiscal year
ended July 31, 1995. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending July 31, 1996.
(f) See "Management of the Trust--Management and Advisory Arrangements"--page
28.
(g) See "Purchase of Shares--Distribution Plans"--page 37.
* Class B shares convert to Class D shares automatically after approximately
ten years and cease being subject to distribution fees.
** As of July 31, 1995, the Manager has voluntarily waived all of the
management and other fees due from each of the Funds and has voluntarily
reimbursed each of the Funds for a portion of certain other expenses
(excluding Rule 12b-1 fees). The Total Fund Operating Expenses in the fee
table above have been restated to assume the absence of any such waiver or
reimbursement because the Manager may discontinue or reduce such waiver of
fees and/or assumption of expenses at any time without notice. The actual
Total Fund Operating Expenses, net of the waiver, is provided below for the
year ended July 31, 1995 for Class A and Class B shares and for the period
October 21, 1994 (commencement of operations) to July 31, 1995 for Class C
and Class D shares.
<TABLE>
<CAPTION>
MANAGEMENT FEES TOTAL OPERATING
WAIVED AND EXPENSES AFTER
EXPENSES WAIVER AND
REIMBURSED REIMBURSEMENT
------------------------------- -------------------------------
CLASS A CLASS B CLASS C CLASS D CLASS A CLASS B CLASS C CLASS D
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona Fund............ 1.70% 1.72% 1.74% 1.84% .35% .72% 1.05% .55%
California Fund......... 1.04% 1.04% 1.16% 1.15% .40% .76% .82% .66%
Florida Fund............ .64% .63% .58% .52% .39% .75% 1.09% .67%
Massachusetts Fund...... 1.34% 1.34% 1.56% 1.61% .37% .74% .67% .70%
Michigan Fund........... 1.91% 1.91% 1.94% 1.94% .27% .65% .96% .44%
New Jersey Fund......... 1.35% 1.42% 1.67% 1.45% .34% .73% .55% .62%
New York Fund........... .97% .96% 1.00% 1.00% .33% .69% .63% .48%
Pennsylvania Fund....... 1.52% 1.52% 1.50% 1.51% .38% .73% 1.05% .57%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN FUND NEW JERSEY FUND NEW YORK FUND
- --------------------------------- -------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS D CLASS A CLASS B CLASS C CLASS D CLASS A CLASS B CLASS C CLASS D
- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35%
None 0.15% 0.15% 0.10% None 0.15% 0.15% 0.10% None 0.15% 0.15% 0.10%
None 0.20%* 0.20% None None 0.20%* 0.20% None None 0.20%* 0.20% None
1.83% 1.86% 1.86% 1.83% 1.34% 1.45% 1.45% 1.34% 0.95% 0.95% 0.95% 0.95%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
2.18% 2.56% 2.56% 2.28% 1.69% 2.15% 2.15% 1.79% 1.30% 1.65% 1.65% 1.40%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
PENNSYLVANIA FUND
- ---------------------------------
CLASS A CLASS B CLASS C CLASS D
- ------- -------- ------- -------
<C> <C> <C> <C>
0.35% 0.35% 0.35% 0.35%
None 0.15% 0.15% 0.10%
None 0.20%* 0.20% None
1.55% 1.55% 1.55% 1.55%
- ------- -------- ------- -------
1.90% 2.25% 2.25% 2.00%
======= ======== ======= =======
</TABLE>
5
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD INDICATED
---------------------------------------------------------------
ARIZONA FUND CALIFORNIA FUND
------------------------------- -------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor in each Fund would pay the following
expenses on a $1,000 investment including the maximum
$10.00 initial sales charge (Class A and Class D shares
only) and assuming (1) the Total Fund Operating Expenses
for each class set forth above, (2) a 5% annual return
throughout the period, and (3) redemption at the end of
the period:
Class A................................................ $31 $74 $119 $246 $25 $55 $ 88 $181
Class B ............................................... $35 $76 $130 $278 $28 $57 $ 97 $212
Class C................................................ $35 $76 $130 $278 $28 $57 $ 97 $212
Class D................................................ $32 $77 $124 $256 $26 $58 $ 93 $192
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A................................................ $31 $74 $119 $246 $25 $55 $ 88 $181
Class B ............................................... $25 $76 $130 $278 $18 $57 $ 97 $212
Class C................................................ $25 $76 $130 $278 $18 $57 $ 97 $212
Class D................................................ $32 $77 $124 $256 $26 $58 $ 93 $192
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD INDICATED
---------------------------------------------------------------
FLORIDA FUND MASSACHUSETTS FUND
------------------------------- -------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor in each Fund would pay the following
expenses on a $1,000 investment including the maximum
$10.00 initial sales charge (Class A and Class D shares
only) and assuming (1) the Total Fund Operating Expenses
for each class set forth above, (2) a 5% annual return
throughout the period, and (3) redemption at the end of
the period:
Class A................................................ $20 $42 $66 $135 $27 $63 $102 $210
Class B ............................................... $24 $44 $76 $166 $31 $65 $112 $241
Class C................................................ $24 $44 $76 $166 $31 $65 $112 $241
Class D................................................ $21 $46 $72 $146 $28 $66 $107 $221
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A................................................ $20 $42 $66 $135 $27 $63 $102 $210
Class B ............................................... $14 $44 $76 $166 $21 $65 $112 $241
Class C................................................ $14 $44 $76 $166 $21 $65 $112 $241
Class D................................................ $21 $46 $72 $146 $28 $66 $107 $221
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND NEW JERSEY FUND
------------------------------- -------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor in each Fund would pay the following
expenses on a $1,000 investment including the maximum
$10.00 initial sales charge (Class A and Class D shares
only) and assuming (1) the Total Fund Operating Expenses
for each class set forth above, (2) a 5% annual return
throughout the period, and (3) redemption at the end of
the period:
Class A................................................ $32 $78 $126 $259 $27 $63 $101 $208
Class B ............................................... $36 $80 $136 $290 $32 $67 $115 $248
Class C................................................ $36 $80 $136 $290 $32 $67 $115 $248
Class D................................................ $33 $81 $131 $269 $28 $66 $106 $218
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A................................................ $32 $78 $126 $259 $27 $63 $101 $208
Class B ............................................... $26 $80 $136 $290 $22 $67 $115 $248
Class C................................................ $26 $80 $136 $290 $22 $67 $115 $248
Class D................................................ $33 $81 $131 $269 $28 $66 $106 $218
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND PENNSYLVANIA FUND
------------------------------- -------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor in each Fund would pay the following
expenses on a $1,000 investment including the maximum
$10.00 initial sales charge (Class A and Class D shares
only) and assuming (1) the Total Fund Operating Expenses
for each class set forth above, (2) a 5% annual return
throughout the period, and (3) redemption at the end of
the period:
Class A................................................ $23 $51 $81 $165 $29 $69 $112 $230
Class B ............................................... $27 $52 $90 $195 $33 $70 $120 $258
Class C................................................ $27 $52 $90 $195 $33 $70 $120 $258
Class D................................................ $24 $54 $86 $176 $30 $72 $117 $240
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A................................................ $23 $51 $81 $165 $29 $69 $112 $230
Class B ............................................... $17 $52 $90 $195 $23 $70 $120 $258
Class C................................................ $17 $52 $90 $195 $23 $70 $120 $258
Class D................................................ $24 $54 $86 $176 $30 $72 $117 $240
</TABLE>
- -------
6
<PAGE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that shareholders in the Funds will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission (the "Commission") regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C
shareholders of any Fund who hold their shares for an extended period of time
may pay more in Rule 12b-1 distribution fees than the economic equivalent of
the maximum front-end sales charges permitted under the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. ("NASD"). Merrill Lynch
may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the
Trust's Transfer Agent are not subject to the processing fee. See "Purchase of
Shares" and "Redemption of Shares".
MERRILL LYNCH SELECT PRICING SM SYSTEM
Each of the Funds offers four classes of shares under the Merrill Lynch
Select Pricing SM System. Class A, Class B and Class D shares may be purchased
at a price equal to the next determined net asset value per share subject to
the sales charges and ongoing fee arrangements described below. Shares of Class
A and Class D are sold to investors choosing the initial sales charge
alternatives, and shares of Class B are sold to investors choosing the deferred
sales charge alternative. Class C shares are not offered for sale by the Funds
but are available for exchange with Class C shares of other MLAM-advised mutual
funds. The Merrill Lynch Select Pricing SM System is used by more than 50
mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM") or Fund
Asset Management, L.P. ("FAM" or the "Manager"), an affiliate of MLAM. Funds
advised by MLAM or FAM are referred to herein as "MLAM-advised mutual funds".
Each Class A, Class B, Class C or Class D share of each of the Funds
represents an identical interest in the investment portfolio of that Fund and
has the same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees and Class B and Class C shares
bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The deferred sales charges and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account maintenance fees
that are imposed on Class D shares, are imposed directly against those classes
and not against all assets of the Fund issuing the shares and, accordingly,
such charges will not affect the net asset value of any other class or have any
impact on investors choosing another sales charge option. Dividends paid by a
Fund for each class of shares will be calculated in the same manner at the same
time and will differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Each class has different
exchange privileges. See "Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of that Fund. The distribution-
related revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares.
7
<PAGE>
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select PricingSM System that the investor
believes is most beneficial under his particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of
Shares".
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE/(1)/ FEE FEE CONVERSION FEATURE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 1.00% initial No No No
sales charge/(2)//(3)/
- --------------------------------------------------------------------------------------------
B 1.00% CDSC for one year 0.15% 0.20% B shares convert to
D shares automatically
after approximately
ten years/(4)/
- --------------------------------------------------------------------------------------------
C/(5)/ 1.00% CDSC for one year 0.15% 0.20% No
- --------------------------------------------------------------------------------------------
D Maximum 1.00% initial 0.10% No No
sales charge/(3)/
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors".
(3) Reduced for purchases of $100,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 0.20% CDSC for one year. See
"Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares was modified. Also,
Class B shares of certain other MLAM-advised mutual funds into which
exchanges may be made have an eight year conversion period. If Class B
shares of a Fund are exchanged for Class B shares of another MLAM-advised
mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the shares
exchanged will be tacked on to the holding period for the shares acquired.
(5) Class C shares will be issued only upon exchange for Class C shares of
another MLAM-advised mutual fund. See "Shareholder Services--Exchange
Privilege".
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors that currently own Class A shares in a shareholder account
are entitled to purchase additional Class A shares in that account.
Other eligible investors include participants in certain investment
programs. In addition, Class A shares will be offered to Merrill
Lynch & Co., Inc. ("ML&Co.") and its subsidiaries (the term
"subsidiaries" when used herein with respect to ML&Co. includes MLAM,
FAM and certain other entities directly or indirectly wholly owned
and controlled by ML&Co.) and their directors and employees, and to
members of the Boards of MLAM-advised mutual funds. The maximum
initial sales charge is 1.00%, which is reduced for purchases of
$100,000 and over. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived,
such purchases will be subject to a CDSC of 0.20% if the shares are
redeemed within one year after purchase. Sales charges also are
reduced
8
<PAGE>
under a right of accumulation which takes into account the investor's
holdings of all classes of all MLAM-advised mutual funds. See "Purchase
of Shares--Initial Sales Charge Alternatives--Class A and Class D
Shares".
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.15%
and an ongoing distribution fee of 0.20%, of the Fund's average net
assets attributable to the Class B shares, as well as a CDSC if they
are redeemed within one year of purchase. Approximately ten years
after issuance, Class B shares of a Fund will convert automatically
into Class D shares of that Fund, which are subject to a lower
account maintenance fee than Class B shares and no distribution fee;
Class B shares of certain other MLAM-advised mutual funds into which
exchanges may be made convert into Class D shares automatically after
approximately eight years. If Class B shares of a Fund are exchanged
for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged
will be tacked on to the holding period for the shares acquired.
Automatic conversion of Class B shares into Class D shares will occur
at least once each month on the basis of the relative net asset
values of the shares of the two classes on the conversion date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes.
Shares purchased through reinvestment of dividends on Class B shares
also will convert automatically to Class D shares. The conversion
period for dividend reinvestment shares is modified as described
under "Purchase of Shares--Deferred Sales Charge Alternatives--Class
B and Class C Shares--Conversion of Class B Shares to Class D
Shares".
Class C: Class C shares of the Funds are not available for purchase but will
be issued only pursuant to the exchange privilege to holders of Class
C shares of other MLAM-advised mutual funds who elect to exchange
Class C shares of such other MLAM-advised mutual fund for Class C
shares of one of the Funds. Class C shares are subject to an ongoing
account maintenance fee of 0.15% and an ongoing distribution fee of
0.20% of the Fund's average net assets attributable to Class C
shares. Although, like Class B shares, Class C shares are subject to
a 1.0% CDSC for one year, Class C shares have no conversion feature
and, accordingly, an investor that acquires Class C shares will be
subject to distribution fees and higher account maintenance fees that
will be imposed on Class C shares for an indefinite period subject to
annual approval by the Trust's Board of Trustees and regulatory
limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.10% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC
when they are redeemed. Purchases of $1,000,000 or more may not be
subject to an initial sales charge but if the initial sales charge is
waived, such purchase may be subject to a CDSC of 0.20% if the shares
are redeemed within one year after purchase. The schedule of initial
sales charges and reductions for Class D shares is the same as the
schedule for Class A shares. Class D shares also will be issued upon
conversion of Class B shares as described above under "Class B". See
"Purchase of Shares--Initial Sales Charge Alternatives--Class A and
Class D Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
PricingSM System that the investor believes is most beneficial under his
particular circumstances.
9
<PAGE>
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative
particularly attractive because similar sales charge reductions are not
available with respect to the deferred sales charges imposed in connection with
purchases of Class B shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors that previously
purchased Class A shares may no longer be eligible to purchase Class A shares
of other MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward a
right of accumulation which may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause Class B and
Class C shares to have higher expense ratios, pay lower dividends and have
lower total returns than the initial sales charge shares. The ongoing Class D
account maintenance fees will cause Class D shares to have a higher expense
ratio, pay lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternative. Because no initial sales charges are
deducted at the time of purchase, Class B shares provide the benefit of putting
all of the investor's dollars to work from the time the investment is made. The
deferred sales charge alternative may be particularly appealing to investors
who do not qualify for a reduction in initial sales charges. Both Class B and
Class C shares are subject to ongoing account maintenance fees and distribution
fees; however, the ongoing account maintenance and distribution fees
potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares of a Fund will be converted into Class D shares of that Fund
after a conversion period of approximately ten years, and thereafter investors
will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend
to hold their shares for an extended period of time. Investors in Class B
shares should take into account whether they intend to redeem their shares
within the CDSC period and, if not, whether they intend to remain invested
until the end of the conversion period and thereby take advantage of the
reduction in ongoing fees resulting from the conversion into Class D shares.
Although Class C shareholders are subject to the same CDSC period and rate as
Class B shareholders, Class C shares have no conversion feature, and therefore
are subject to account maintenance and distribution fees for an indefinite
period of time. In addition, while both Class B and Class C distribution fees
are subject to the limitations on asset-based sales charges imposed by the
NASD, the Class B distribution fees are further limited under a voluntary
waiver of asset-based sales charges. See "Purchase of Shares--Limitations on
the Payment of Deferred Sales Charges".
10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the tables below has been audited in connection
with the annual audit of the financial statements of the Trust by Deloitte &
Touche LLP, independent auditors. Financial statements for the year ended July
31, 1995 and the independent auditors' report thereon are included in the
Statement of Additional Information. The following per share data and ratios
have been derived from information provided in such audited financial
statements. Financial information is presented for Class C and Class D shares
only for the period October 21, 1994 (commencement of operations) to July 31,
1995. Further information about the performance of the Funds is contained in
the Trust's most recent annual report to shareholders which may be obtained,
without charge, by calling or writing the Trust at the telephone number or
address on the front cover of this Prospectus.
<TABLE>
<CAPTION>
ARIZONA FUND
----------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------------ ------------------ -------- --------
FOR THE FOR THE FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD PERIOD PERIOD
YEAR NOV. 26, YEAR NOV. 26, OCT. 21, OCT. 21,
ENDED 1993+ TO ENDED 1993+ TO 1994+ TO 1994+ TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............. $ 9.97 $ 10.00 $ 9.97 $ 10.00 $ 9.89 $ 9.89
------- ------- ------- ------- ------- -------
Investment in-
come--net....... .43 .23 .39 .20 .29 .33
Realized and
unrealized gain
(loss) on
investments--
net............. .20 (.03) .19 (.03) .28 .28
------- ------- ------- ------- ------- -------
Total from in-
vestment opera-
tions............ .63 .20 .58 .17 .57 .61
------- ------- ------- ------- ------- -------
Less dividends
from investment
income (net) and
distributions.... (.43) (.23) (.39) (.20) (.29) (.33)
------- ------- ------- ------- ------- -------
Net asset value,
end of period.... $ 10.17 $ 9.97 $ 10.16 $ 9.97 $ 10.17 $ 10.17
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share............ 6.47% 2.02%# 5.99% 1.78%# 5.90%# 6.34%#
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding account
maintenance and
distribution fees
and net of
reimbursement.... .35% .02%* .37% .03%* .90%* .45%*
======= ======= ======= ======= ======= =======
Expenses, net of
reimbursement.... .35% .02%* .72% .38%* 1.05%* .55%*
======= ======= ======= ======= ======= =======
Expenses......... 2.05% 1.82%* 2.44% 2.18%* 2.79%* 2.39%*
======= ======= ======= ======= ======= =======
Investment in-
come--net........ 4.31% 3.37%* 3.95% 3.02%* 3.80%* 4.31%*
======= ======= ======= ======= ======= =======
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)....... $ 1,054 $ 2,103 $ 5,191 $ 5,575 $ 1 $ 19
======= ======= ======= ======= ======= =======
Portfolio turn-
over............. 182.58% 142.37% 182.58% 142.37% 182.58% 182.58%
======= ======= ======= ======= ======= =======
<CAPTION>
CALIFORNIA FUND
-----------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------------- ------------------- --------- ---------
FOR THE FOR THE FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD PERIOD PERIOD
YEAR NOV. 26, YEAR NOV. 26, OCT. 21, OCT. 21,
ENDED 1993+ TO ENDED 1993+ TO 1994+ TO 1994+ TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............. $ 9.88 $ 10.00 $ 9.88 $ 10.00 $ 9.76 $ 9.76
--------- --------- --------- --------- --------- ---------
Investment in-
come--net....... .42 .24 .39 .21 .31 .33
Realized and
unrealized gain
(loss) on
investments--
net............. .11 (.12) .11 (.12) .23 .23
--------- --------- --------- --------- --------- ---------
Total from in-
vestment opera-
tions............ .53 .12 .50 .09 .54 .56
--------- --------- --------- --------- --------- ---------
Less dividends
from investment
income (net) and
distributions.... (.42) (.24) (.39) (.21) (.31) (.33)
--------- --------- --------- --------- --------- ---------
Net asset value,
end of period.... $ 9.99 $ 9.88 $ 9.99 $ 9.88 $ 9.99 $ 9.99
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share............ 5.60% 1.23%# 5.23% .99%# 5.60%# 5.85%#
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding account
maintenance and
distribution fees
and net of
reimbursement.... .40% .02%* .41% .03%* .67%* .56%*
========= ========= ========= ========= ========= =========
Expenses, net of
reimbursement.... .40% .02%* .76% .38%* .82%* .66%*
========= ========= ========= ========= ========= =========
Expenses......... 1.44% 1.16%* 1.80% 1.52%* 1.98%* 1.81%*
========= ========= ========= ========= ========= =========
Investment in-
come--net........ 4.36% 3.54%* 4.00% 3.19%* 4.04%* 4.28%*
========= ========= ========= ========= ========= =========
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)....... $ 3,527 $ 3,804 $10,363 $11,430 $ 64 $ 1,771
========= ========= ========= ========= ========= =========
Portfolio turn-
over............. 124.72% 130.10% 124.72% 130.10% 124.72% 124.72%
========= ========= ========= ========= ========= =========
</TABLE>
- ----
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
11
<PAGE>
<TABLE>
<CAPTION>
FLORIDA FUND
----------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------------ ------------------ -------- --------
FOR THE FOR THE FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD PERIOD PERIOD
YEAR NOV. 26, YEAR NOV. 26, OCT. 21, OCT. 21,
ENDED 1993+ TO ENDED 1993+ TO 1994+ TO 1994+ TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............ $ 9.87 $ 10.00 $ 9.88 $ 10.00 $ 9.76 $ 9.76
------- ------- ------- ------- ------- -------
Investment in-
come--net...... .43 .24 .40 .21 .29 .33
Realized and
unrealized gain
(loss) on
investments--
net............ .15 (.13) .14 (.12) .25 .25
------- ------- ------- ------- ------- -------
Total from in-
vestment opera-
tions........... .58 .11 .54 .09 .54 .58
------- ------- ------- ------- ------- -------
Less dividends
and
distributions:
Investment
income--net..... (.43) (.24) (.40) (.21) (.29) (.33)
Realized gain on
investments--
net............. -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total dividends
and distribu-
tions........... (.43) (.24) (.40) (.21) (.29) (.33)
------- ------- ------- ------- ------- -------
Net asset value,
end of period... $ 10.02 $ 9.87 $ 10.02 $ 9.88 $ 10.01 $ 10.01
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share........... 6.05% 1.12%# 5.57% .99%# 5.65%# 6.07%#
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
account
maintenance and
distribution
fees and net of
reimbursement... .39% .02%* .40% .03%* .94%* .57%*
======= ======= ======= ======= ======= =======
Expenses, net of
reimbursement... .39% .02%* .75% .38%* 1.09%* .67%*
======= ======= ======= ======= ======= =======
Expenses......... 1.03% .86%* 1.38% 1.23%* 1.67%* 1.19%*
======= ======= ======= ======= ======= =======
Investment in-
come--net....... 4.39% 3.54%* 4.05% 3.19%* 3.83%* 4.23%*
======= ======= ======= ======= ======= =======
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)...... $ 9,849 $14,868 $16,213 $18,179 $ 1 $7,210
======= ======= ======= ======= ======= =======
Portfolio turn-
over............ 138.97% 136.71% 138.97% 136.71% 138.97% 138.97%
======= ======= ======= ======= ======= =======
<CAPTION>
MASSACHUSETTS FUND
-----------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
----------------- ----------------- -------- --------
FOR THE FOR THE FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD PERIOD PERIOD
YEAR NOV. 26, YEAR NOV. 26, OCT. 21, OCT. 21,
ENDED 1993+ TO ENDED 1993+ TO 1994+ TO 1994+ TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............ $ 9.95 $10.00 $ 9.95 $10.00 $ 9.82 $ 9.82
-------- -------- -------- -------- -------- --------
Investment in-
come--net...... .44 .25 .40 .22 .33 .34
Realized and
unrealized gain
(loss) on
investments--
net............ .02 (.05) .02 (.05) .15 .15
-------- -------- -------- -------- -------- --------
Total from in-
vestment opera-
tions........... .46 .20 .42 .17 .48 .49
-------- -------- -------- -------- -------- --------
Less dividends
and
distributions:
Investment
income--net..... (.44) (.25) (.40) (.22) (.33) (.34)
Realized gain on
investments--
net............. (.01) -- (.01) -- (.01) (.01)
-------- -------- -------- -------- -------- --------
Total dividends
and distribu-
tions........... (.45) (.25) (.41) (.22) (.34) (.35)
-------- -------- -------- -------- -------- --------
Net asset value,
end of period... $ 9.96 $ 9.95 $ 9.96 $ 9.95 $ 9.96 $ 9.96
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share........... 4.79% 2.01%# 4.41% 1.77%# 5.00%# 5.09%#
======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
account
maintenance and
distribution
fees and net of
reimbursement... .37% .03%* .39% .03%* .52%* .60%*
======== ======== ======== ======== ======== ========
Expenses, net of
reimbursement... .37% .03%* .74% .38%* .67%* .70%*
======== ======== ======== ======== ======== ========
Expenses......... 1.71% 1.17%* 2.08% 1.54%* 2.23%* 2.31%*
======== ======== ======== ======== ======== ========
Investment in-
come--net....... 4.45% 3.69%* 4.08% 3.28%* 4.32%* 4.21%*
======== ======== ======== ======== ======== ========
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)...... $4,453 $8,097 $4,800 $8,046 $ 413 $ 253
======== ======== ======== ======== ======== ========
Portfolio turn-
over............ 89.96% 57.80% 89.96% 57.80% 89.96% 89.96%
======== ======== ======== ======== ======== ========
</TABLE>
- ------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
12
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN FUND
-------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
----------------- ----------------- -------- --------
FOR THE FOR THE FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD PERIOD PERIOD
YEAR NOV. 26, YEAR NOV. 26, OCT. 21, OCT. 21,
ENDED 1993+ TO ENDED 1993+ TO 1994+ TO 1994+ TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............ $ 9.92 $ 10.00 $ 9.92 $ 10.00 $ 9.76 $ 9.76
------ ------- ------ ------- ------ ------
Investment in-
come--net...... .44 .24 .40 .22 .30 .34
Realized and
unrealized gain
(loss) on
investments--
net............ .06 (.08) .06 (.08) .22 .21
------ ------- ------ ------- ------ ------
Total from in-
vestment opera-
tions........... .50 .16 .46 .14 .52 .55
------ ------- ------ ------- ------ ------
Less dividends
from investment
income--net..... (.44) (.24) (.40) (.22) (.30) (.34)
------ ------- ------ ------- ------ ------
Net asset value,
end of period... $ 9.98 $ 9.92 $ 9.98 $ 9.92 $ 9.98 $ 9.97
====== ======= ====== ======= ====== ======
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share........... 5.16% 1.66%# 4.78% 1.42%# 5.40%# 5.72%#
====== ======= ====== ======= ====== ======
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
account
maintenance and
distribution
fees and net of
reimbursement... .27% .02%* .30% .03%* .81%* .34%*
====== ======= ====== ======= ====== ======
Expenses, net of
reimbursement... .27% .02%* .65% .38%* .96%* .44%*
====== ======= ====== ======= ====== ======
Expenses......... 2.18% 2.01%* 2.56% 2.38%* 2.90%* 2.38%*
====== ======= ====== ======= ====== ======
Investment in-
come--net....... 4.42% 3.59%* 4.09% 3.21%* 3.80%* 4.47%*
====== ======= ====== ======= ====== ======
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)...... $2,302 $ 3,435 $2,494 $ 2,411 $ 1 $ 254
====== ======= ====== ======= ====== ======
Portfolio turn-
over............ 93.08% 204.15% 93.08% 204.15% 93.08% 93.08%
====== ======= ====== ======= ====== ======
<CAPTION>
NEW JERSEY FUND
-----------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------------- ------------------- --------- ---------
FOR THE FOR THE FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD PERIOD PERIOD
YEAR NOV. 26, YEAR NOV. 26, OCT. 21, OCT. 21,
ENDED 1993+ TO ENDED 1993+ TO 1994+ TO 1994+ TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............ $ 9.94 $ 10.00 $ 9.95 $ 10.00 $ 9.86 $ 9.85
--------- --------- --------- --------- --------- ---------
Investment in-
come--net...... .42 .23 .38 .20 .26 .32
Realized and
unrealized gain
(loss) on
investments--
net............ .21 (.06) .21 (.05) (.66) .31
--------- --------- --------- --------- --------- ---------
Total from in-
vestment opera-
tions........... .63 .17 .59 .15 (.40) .63
--------- --------- --------- --------- --------- ---------
Less dividends
from investment
income--net..... (.42) (.23) (.38) (.20) (.26) (.32)
--------- --------- --------- --------- --------- ---------
Net asset value,
end of period... $ 10.15 $ 9.94 $ 10.16 $ 9.95 $ 9.20 $ 10.16
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share........... 6.45% 1.73%# 6.07% 1.59%# (4.01)%# 6.51%#
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
account
maintenance and
distribution
fees and net of
reimbursement... .34% .03%* .38% .03%* .40%* .52%*
========= ========= ========= ========= ========= =========
Expenses, net of
reimbursement... .34% .03%* .73% .38%* .55%* .62%*
========= ========= ========= ========= ========= =========
Expenses......... 1.69% 1.14%* 2.15% 1.52%* 2.22%* 2.07%*
========= ========= ========= ========= ========= =========
Investment in-
come--net....... 4.10% 3.45%* 3.80% 3.04%* 4.06%* 4.17%*
========= ========= ========= ========= ========= =========
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)...... $ 2,401 $ 5,933 $ 7,593 $ 7,885 $ 1 $ 437
========= ========= ========= ========= ========= =========
Portfolio turn-
over............ 131.56% 205.04% 131.56% 205.04% 131.56% 131.56%
========= ========= ========= ========= ========= =========
</TABLE>
- ------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
13
<PAGE>
<TABLE>
<CAPTION>
NEW YORK FUND
----------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------------ ------------------ -------- --------
FOR THE FOR THE FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD PERIOD PERIOD
YEAR NOV. 26, YEAR NOV. 26, OCT. 21, OCT. 21,
ENDED 1993+ TO ENDED 1993+ TO 1994+ TO 1994+ TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............ $ 9.91 $ 10.00 $ 9.91 $ 10.00 $ 9.78 $ 9.78
------- ------- ------- ------- ------- -------
Investment in-
come--net...... .44 .25 .41 .22 .30 .34
Realized and
unrealized gain
(loss) on
investments--
net............ .14 (.09) .14 (.09) .27 .27
------- ------- ------- ------- ------- -------
Total from in-
vestment opera-
tions........... .58 .16 .55 .13 .57 .61
------- ------- ------- ------- ------- -------
Less dividends
from investment
income--net..... (.44) (.25) (.41) (.22) (.30) (.34)
------- ------- ------- ------- ------- -------
Net asset value,
end of period... $ 10.05 $ 9.91 $ 10.05 $ 9.91 $ 10.05 $ 10.05
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share........... 6.03% 1.61% 5.66% 1.37%# 5.97%# 6.37%#
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
account
maintenance and
distribution
fees and net of
reimbursement... .33% .03%* .34% .03%* .48%* .38%*
======= ======= ======= ======= ======= =======
Expenses, net of
reimbursement... .33% .03%* .69% .38%* .63%* .48%*
======= ======= ======= ======= ======= =======
Expenses......... 1.30% 1.24%* 1.65% 1.60%* 1.63%* 1.48%*
======= ======= ======= ======= ======= =======
Investment in-
come--net....... 4.49% 3.68%* 4.11% 3.31%* 4.21%* 4.47%*
======= ======= ======= ======= ======= =======
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)...... $ 4,811 $ 5,290 $ 8,822 $ 9,743 $ 38 $ 2,306
======= ======= ======= ======= ======= =======
Portfolio turn-
over............ 139.16% 152.73% 139.16% 152.73% 139.16% 139.16%
======= ======= ======= ======= ======= =======
<CAPTION>
PENNSYLVANIA FUND
-----------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------------------- ------------------- --------- ---------
FOR THE FOR THE FOR THE FOR THE
FOR THE PERIOD FOR THE PERIOD PERIOD PERIOD
YEAR NOV. 26, YEAR NOV. 26, OCT. 21, OCT. 21,
ENDED 1993+ TO ENDED 1993+ TO 1994+ TO 1994+ TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1995 1994 1995 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of pe-
riod............ $ 9.95 $ 10.00 $ 9.95 $ 10.00 $ 9.84 $ 9.84
--------- --------- --------- --------- --------- ---------
Investment in-
come--net...... .42 .23 .39 .21 .29 .33
Realized and
unrealized gain
(loss) on
investments--
net............ .15 (.05) .15 (.05) .26 .26
--------- --------- --------- --------- --------- ---------
Total from in-
vestment opera-
tions........... .57 .18 .54 .16 .55 .59
--------- --------- --------- --------- --------- ---------
Less dividends
from investment
income--net..... (.42) (.23) (.39) (.21) (.29) (.33)
--------- --------- --------- --------- --------- ---------
Net asset value,
end of period... $ 10.10 $ 9.95 $ 10.10 $ 9.95 $ 10.10 $ 10.10
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT
RETURN:**
Based on net as-
set value per
share........... 5.89% 1.85%# 5.51% 1.61%# 5.68%# 6.10%#
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
account
maintenance and
distribution
fees and net of
reimbursement... .38% .02%* .38% .03%* .90%* .47%*
========= ========= ========= ========= ========= =========
Expenses, net of
reimbursement... .38% .02%* .73% .38%* 1.05%* .57%*
========= ========= ========= ========= ========= =========
Expenses......... 1.90% 1.48%* 2.25% 1.83%* 2.55%* 2.08%*
========= ========= ========= ========= ========= =========
Investment in-
come--net....... 4.25% 3.46%* 3.87% 3.05%* 3.77%* 4.30%*
========= ========= ========= ========= ========= =========
SUPPLEMENTAL DA-
TA:
Net assets, end
of period (in
thousands)...... $ 943 $ 990 $ 7,414 $ 9,532 $ 1 $ 382
========= ========= ========= ========= ========= =========
Portfolio turn-
over............ 141.52% 237.47% 141.52% 237.47% 141.52% 141.52%
========= ========= ========= ========= ========= =========
</TABLE>
- ------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
14
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is to provide shareholders with as
high a level of income exempt from Federal income taxes, the designated
state's personal income taxes and, where applicable, local personal income
taxes, as is consistent with prudent investment management. Each Fund seeks to
achieve its objective while providing investors with the opportunity to invest
in a portfolio of securities consisting primarily of intermediate-term
investment grade obligations issued by or on behalf of the designated state or
its political subdivisions, agencies or instrumentalities, and obligations of
other qualifying issuers, such as issuers located in Puerto Rico, the Virgin
Islands and Guam. Such obligations pay interest exempt, in the opinion of bond
counsel to the issuer, from Federal income taxes, the designated state's
personal income taxes and, in certain instances, local personal income taxes.
Obligations that pay interest exempt from Federal income taxes are referred to
herein as "Municipal Bonds". Obligations that pay interest exempt from Federal
income taxes, the designated state's personal income taxes and, where
applicable, local personal income taxes, and obligations that would not
subject shareholders to intangible personal property taxes in the designated
state are referred to herein as "State Municipal Bonds". Unless otherwise
indicated, references to Municipal Bonds shall be deemed to include State
Municipal Bonds. Each Fund will maintain at all times, except during temporary
defensive periods, at least 65% of its total assets invested in its respective
State Municipal Bonds; the New Jersey Fund will maintain at least 80% of its
total assets invested in New Jersey State Municipal Bonds. The investment
objective of each Fund as set forth in this paragraph is a fundamental policy
of that Fund and may not be changed without shareholder approval. At times, a
Fund may seek to hedge its portfolio through the use of futures transactions
to reduce volatility in the net asset value of Fund shares.
Each Fund will invest primarily in Municipal Bonds with remaining maturities
of between one and ten years, and may not invest in Municipal Bonds with
remaining maturities of greater than ten years. For cash management and
temporary defensive purposes, each Fund may invest in Municipal Bonds with
remaining maturities of less than one year. It is anticipated that, depending
on market conditions, the dollar weighted average maturity of each Fund's
portfolio will not exceed five years. For purposes of these investment
policies, a bond will be treated as having a maturity earlier than its stated
maturity date if such bond has technical features which, in the judgment of
the Manager will result in the bond being valued in the market as though it
has such earlier maturity. Interest rates on shorter-term Municipal Bonds may
fluctuate more widely from time to time than interest rates on longer-term
Municipal Bonds. However, because of their limited maturities, the market
value of the Municipal Bonds held by each Fund can be expected to fluctuate
less as a result of changes in interest rates.
Municipal Bonds may include several types of bonds. The interest on
Municipal Bonds may bear a fixed rate or be payable at a variable or floating
rate. The Funds also may invest in variable rate demand obligations ("VRDOs")
and participations therein, described below, and short-term tax-exempt
municipal obligations such as tax anticipation notes. The Municipal Bonds
purchased by the Funds primarily will be what are commonly referred to as
"investment grade" securities, which are obligations rated at the time of
purchase within the four highest quality ratings as determined by either
Moody's Investors Service, Inc. ("Moody's") (currently Aaa, Aa, A and Baa),
Standard & Poor's Ratings Group ("Standard & Poor's") (currently AAA, AA, A
and BBB) or Fitch Investors Service, Inc. ("Fitch") (currently AAA, AA, A and
BBB). If Municipal Bonds are unrated, such securities will possess
creditworthiness comparable, in the opinion of the Manager, to investment
grade obligations. Municipal Bonds rated in the fourth highest rating
category, while considered investment grade, have certain speculative
characteristics and are more likely to be downgraded to non-investment grade
than obligations rated in one of the top three rating categories.
15
<PAGE>
See Appendix I--"Ratings of Municipal Bonds"--in the Statement of Additional
Information for more information regarding ratings of debt securities. An issue
of rated Municipal Bonds may cease to be rated or its rating may be reduced
below investment grade subsequent to its purchase by a Fund. If an obligation
is downgraded below investment grade, the Manager will consider factors such as
price, credit risk, market conditions, financial condition of the issuer,
interest rates and any state or local tax limitations to determine whether to
continue to hold the obligation in a Fund's portfolio.
Each Fund may invest up to 20% of its total assets in Municipal Bonds that
are rated below Baa by Moody's or below BBB by Standard & Poor's or Fitch. Such
securities, sometimes referred to as "high yield" or "junk" bonds, are
predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the security and generally
involve a greater volatility of price than securities in higher rating
categories. The market prices of high-yielding, lower-rated securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty, which may follow periods of rising
interest rates. In purchasing such securities, a Fund will rely on the
Manager's judgment, analysis and experience in evaluating the creditworthiness
of the issuer of such securities. The Manager will take into consideration,
among other things, the issuer's financial resources, its sensitivity to
economic conditions and trends, its operating history, the quality of its
management and regulatory matters. See "Investment Objectives and Policies" in
the Statement of Additional Information for a more detailed discussion of the
pertinent risk factors involved in investing in "high yield" or "junk" bonds
and Appendix I--"Ratings of Municipal Bonds"--in the Statement of Additional
Information for additional information regarding ratings of debt securities.
None of the Funds intends to purchase debt securities that are in default or
which the Manager believes will be in default.
Certain Municipal Bonds may be entitled to the benefits of letters of credit
or similar credit enhancements issued by financial institutions. In such
instances, the Trustees and the Manager will take into account in assessing the
quality of such bonds not only the creditworthiness of the issuer of such bonds
but also the creditworthiness of the financial institution.
Each Fund's investments also may include VRDOs and VRDOs in the form of
participation interests ("Participating VRDOs") in variable rate tax-exempt
obligations held by a financial institution. The VRDOs in which the Funds will
invest are tax-exempt obligations which contain a floating or variable interest
rate adjustment formula and an unconditional right of demand on the part of the
holder thereof to receive payment of the unpaid principal balance plus accrued
interest on a short notice period not to exceed seven days. Participating VRDOs
provide the Funds with a specified undivided interest (up to 100%) of the
underlying obligation and the right to demand payment of the unpaid principal
balance plus accrued interest on the Participating VRDOs from the financial
institution on a specified number of days' notice, not to exceed seven days.
There is, however, the possibility that because of a default or insolvency, the
demand feature of VRDOs or Participating VRDOs may not be honored. The Trust
has been advised by its counsel that the Funds should be entitled to treat the
income received on Participating VRDOs as interest from tax-exempt obligations.
VRDOs that contain an unconditional right of demand to receive payment of the
unpaid principal balance plus accrued interest on a notice period exceeding
seven days may be deemed illiquid securities. A VRDO with a demand notice
period exceeding seven days therefore will be subject to each Fund's
restriction on illiquid investments unless, in the judgment of the Trustees,
such VRDO is liquid. The Trustees may adopt guidelines and delegate to the
Manager the daily function of determining and monitoring liquidity of such
VRDOs. The Trustees, however, will retain sufficient oversight and be
ultimately responsible for such determinations.
16
<PAGE>
The Funds ordinarily do not intend to realize investment income not exempt
from Federal income taxes, state personal income taxes and, where applicable,
local personal income taxes, or to hold investments that would subject
shareholders to intangible personal property taxes in the designated state.
However, to the extent that suitable Municipal Bonds of a designated state are
not available for investment by the Fund in that state, the Fund may purchase
Municipal Bonds issued by other states or their agencies or instrumentalities,
the interest on which is exempt, in the opinion of bond counsel to the issuer,
from Federal, but not state, taxation. The Funds also may invest in securities
not issued by or on behalf of a state or territory or by an agency or
instrumentality thereof, if the Manager nevertheless believes such securities
to be exempt from Federal income taxation ("Non-Municipal Tax-Exempt
Securities"). Non-Municipal Tax-Exempt Securities may include securities issued
by other investment companies that invest in municipal bonds, to the extent
such investments are permitted by the 1940 Act. Other Non-Municipal Tax-Exempt
Securities could include trust certificates or other derivative instruments
evidencing interests in one or more intermediate-term municipal securities.
Under normal circumstances, except when acceptable securities are unavailable
as determined by the Manager, each Fund will invest at least 65% of its total
assets in State Municipal Bonds; except that under normal circumstances the New
Jersey Fund will invest at least 80% of its total assets in New Jersey State
Municipal Bonds. For temporary defensive purposes or to provide liquidity, each
Fund has the authority to invest in taxable or tax-exempt money market
obligations with maturities of one year or less (such short-term obligations
being referred to herein as "Temporary Investments"), except that taxable
Temporary Investments shall not exceed 20% of a Fund's net assets. The
Temporary Investments, VRDOs and Participating VRDOs in which the Funds may
invest also will be in the following rating categories at the time of purchase:
MIG-1/VMIG-1 through MIG-4/VMIG-4 for notes and VRDOs and Prime-1 through
Prime-3 for commercial paper (as determined by Moody's), SP-1+ through SP-2 for
notes and A-1+ through A-3 for VRDOs and commercial paper (as determined by
Standard & Poor's), or F-1+ through F-3 for notes, VRDOs and commercial paper
(as determined by Fitch) or, if unrated, of comparable quality in the opinion
of the Manager. Each Fund at all times will have at least 80% of its net assets
invested in securities the interest on which is exempt from Federal taxation.
However, interest received on certain otherwise tax-exempt securities which are
classified as "private activity bonds" (in general, bonds that benefit non-
governmental entities), may be subject to a Federal alternative minimum tax.
The percentage of each Fund's net assets invested in "private activity bonds"
will vary during the year. See "Distributions and Taxes". In addition, each
Fund reserves the right to invest temporarily a greater portion of its assets
in Temporary Investments for defensive purposes when, in the judgment of the
Manager, market conditions warrant. The investment objective of each Fund is a
fundamental policy of that Fund which may not be changed without a vote of a
majority of the outstanding shares of the Fund, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). Each Fund's hedging
strategies, which are described in more detail under "Financial Futures
Contracts and Options Thereon", are not fundamental policies and may be
modified by the Trustees of the Trust without the approval of the Fund's
shareholders.
POTENTIAL BENEFITS
Investment in shares of a Fund offers several benefits. Each Fund offers
investors the opportunity to receive income exempt from Federal income taxes,
the designated state's personal income taxes and, where applicable, local
personal income taxes, by investing in a professionally managed portfolio
consisting primarily of intermediate-term State Municipal Bonds. Shares of
certain Funds also may be exempt from
17
<PAGE>
intangible personal property taxes in the designated state. Each Fund also
provides liquidity because of its redemption features and relieves the investor
of the burdensome administrative details involved in managing a portfolio of
tax-exempt securities. The benefits of investing in each Fund are at least
partially offset by the expenses involved in operating an investment company.
Such expenses primarily consist of the management fee and operational costs,
and in the case of Class B, Class C and Class D shares of a Fund, the account
maintenance costs for that Fund relating to that class of shares and in the
case of Class B and Class C shares, the distribution costs of that Fund
relating to that class of shares.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The risks and special considerations involved in investments in Municipal
Bonds vary with the types of instruments being acquired. Investments in Non-
Municipal Tax-Exempt Securities, as defined herein, may present similar risks,
depending on the particular product. See "Description of Municipal Bonds".
Certain instruments in which the Funds may invest may be characterized as
derivative instruments. See "Indexed and Inverse Floating Obligations",
"Synthetic Short-Term Municipal Bonds" and "Financial Futures Contracts and
Options Thereon".
Moreover, each Fund ordinarily will invest at least 65% (80% in the case of
the New Jersey Fund) of its total assets in its respective State Municipal
Bonds and, therefore, it is more susceptible to factors adversely affecting
issuers of Municipal Bonds in such state than is a tax-exempt mutual fund that
is not concentrated in issuers of State Municipal Bonds to this degree. Because
each Fund's portfolio will be comprised primarily of intermediate-term,
investment grade securities, each Fund is expected to be less subject to market
and credit risks than a fund that invests in longer-term or lower quality State
Municipal Bonds. Set forth below are special considerations and risk factors
specific to each Fund. The Manager does not believe that the current economic
conditions described below for each state will have a significant adverse
effect on the related Fund's ability to invest in investment grade State
Municipal Bonds.
The Arizona Fund. Over the past several decades, the State's economy has
grown faster than most other regions of the country, as measured by nearly
every major indicator of economic growth, including population, employment, and
aggregate personal income. Although the rate of growth in these and other areas
slowed considerably during the late 1980s and early 1990s, the State's efforts
to diversify its economy have enabled it to realize, and then sustain, moderate
growth in more recent years. In 1994, however, several agricultural irrigation
districts were unable to service their bonded debt and filed for bankruptcy,
and the Arizona Supreme Court ruled that the State's current system for
financing public education was unconstitutional, requiring the legislature to
modify the current public school financing system. See Appendix A, "Economic
and Financial Conditions in Arizona", in the Statement of Additional
Information.
The California Fund. Since the start of the 1990-91 fiscal year, the State of
California has faced the worst economic, fiscal and budget conditions since the
1930's. On July 5, 1994, all three of the rating agencies rating the State of
California's long-term debt lowered their ratings of the State of California's
general obligation bonds. Moody's lowered its rating from "Aa" to "A1".
Standard & Poor's lowered its rating from "A+" to "A" and termed its outlook as
"stable", and Fitch lowered its rating from "AA" to "A". No assurance can be
given that such ratings will not be lowered in the future. Although a steady
upturn has been underway since 1994, pre-recession job levels are not expected
to be reached until later in the decade. See Appendix B, "Economic and
Financial Conditions in California", in the Statement of Additional
Information.
The Florida Fund. Many different social, environmental and economic factors
may affect the financial condition of Florida and its political subdivisions.
From time to time Florida and its political subdivisions
18
<PAGE>
have encountered financial difficulties. Florida is highly dependent upon sales
and use taxes which account for approximately 67% of its General Fund revenues.
The structure of personal income in Florida is also different from the rest of
the nation in that it has a proportionally greater retirement age population
which is dependent upon transfer payments (social security, pension benefits,
etc.). Such transfer payments can be affected by Federal legislation. Florida's
economic growth is also highly dependent upon other factors such as changes in
population growth, tourism, interest rates and hurricane activity. Finally, two
recent amendments to the Florida Constitution may limit the State's ability to
raise revenues. In combination, the two amendments may have an adverse effect
on the finances of Florida and its political subdivisions. As of the date of
this Prospectus, no state personal income tax is imposed in Florida; however,
the Florida Fund seeks to provide its shareholders both with income exempt from
Federal income taxes and with shares exempt from Florida intangible personal
property taxes. See "Distributions and Taxes--State" herein and Appendix C,
"Economic and Financial Conditions in Florida", in the Statement of Additional
Information for important information regarding the State of Florida.
The Massachusetts Fund. The Commonwealth of Massachusetts is experiencing a
moderate economic recovery. The budgeted operating funds of the Commonwealth
ended fiscal 1993 and fiscal 1994 with a surplus of revenues and other sources
over expenditures and other uses, and with aggregate ending fund balances in
1993 of approximately $562.5 million and in 1994 of approximately $589.3
million. As of the date of this Prospectus and according to the Executive
Office for Administration and Finance, fiscal 1995 is expected to end with
positive budgetary fund balances totaling approximately $629.3 million.
Currently, Massachusetts' general obligation bonds are rated by Standard &
Poor's, Fitch and Moody's as A+, A+ and A1, respectively. Ratings have been
lowered on short-term debt and some state agency obligations. From time to
time, the rating agencies may further change their ratings in response to
budgetary matters or other economic indicators. See Appendix D, "Economic and
Financial Conditions in Massachusetts", in the Statement of Additional
Information.
The Michigan Fund. In recent years, the State of Michigan has reported its
financial results in accordance with generally accepted accounting principles.
For the fiscal years ended September 30, 1990 and 1991, the State reported
negative year-end General Fund balances of $310.3 million and $169.4 million,
respectively, but ended the 1992 fiscal year with its General Fund in balance.
The State reported a balance in the General Fund as of September 30, 1993 of
$26.0 million after a transfer of $283 million to the Budget Stabilization Fund
described below. In each of the three fiscal years ending with the fiscal year
ended September 30, 1993, the State undertook mid-year actions to address
projected year-end budget deficits. In the 1991 through 1993 fiscal years, the
State experienced cash shortfalls which necessitated short-term borrowings and
the deferral of certain scheduled cash payments to local units of government.
The State borrowed $700 million for cash flow purposes in the 1992 fiscal year
and $900 million in the 1993 fiscal year. The State has a Budget Stabilization
Fund which had an accrued balance of $20.1 million as of September 30, 1992,
and, after a transfer of $283 million on an accrual basis upon completion of
the State's financial reports, an ending balance of $303 million as of
September 30, 1993. Currently, Moody's rates the State's general obligation
bonds A1. Standard & Poor's rating on the State's general obligation bonds is
AA. The State's economy could continue to be affected by changes in the auto
industry, notably consolidations and plant closings resulting from competitive
pressures and overcapacity. See Appendix E, "Economic and Financial Conditions
in Michigan", in the Statement of Additional Information.
The New Jersey Fund. The State of New Jersey and certain of its public
authorities have undergone recent financial difficulties. Although there is
evidence that the State's economy is improving, a return to the
19
<PAGE>
economic boom of the 1980's is unlikely and growth is likely to be slower than
in the rest of the nation. New Jersey is reliant on Federal assistance and
ranks high among the states in the amount of Federal aid received. Currently,
the State's general obligation bonds are rated AA+ by Standard & Poor's, Aa1 by
Moody's and AA+ by Fitch. See Appendix F, "Economic and Financial Conditions in
New Jersey", in the Statement of Additional Information.
The New York Fund. In recent years, New York State, New York City and other
New York public bodies have encountered financial difficulties, and New York
City is currently encountering financial difficulties which could have an
adverse effect with respect to the performance of the Fund. Currently, Moody's,
Standard & Poor's and Fitch rate New York City's general obligation bonds Baa1,
BBB+ and A-, respectively, and Moody's, Standard & Poor's and Fitch rate New
York State's general obligation bonds A, A- and A+, respectively. See Appendix
G, "Economic and Financial Conditions in New York", in the Statement of
Additional Information.
The Pennsylvania Fund. From time to time Pennsylvania and certain of its
political subdivisions have encountered financial difficulties which have
adversely affected their respective credit standings. For example, the
financial condition of the City of Philadelphia had impaired its ability to
borrow and resulted in its obligations generally being downgraded by the major
rating services to below investment grade. Other factors which may negatively
affect economic conditions in Pennsylvania include adverse changes in
employment rates, Federal revenue sharing or laws with respect to tax-exempt
financing. Currently, Pennsylvania's general obligation bonds are rated AA- by
Standard & Poor's and Fitch and A1 by Moody's. See Appendix H, "Economic and
Financial Conditions in Pennsylvania", in the Statement of Additional
Information.
DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds include debt obligations issued by or on behalf of a state or
its agencies, instrumentalities, municipalities or political subdivisions to
obtain funds for various public purposes, including construction and equipping
of a wide range of public facilities (including water, sewer, gas, electricity,
solid waste disposal, health care, transportation, education and housing
facilities), refunding of outstanding obligations and obtaining of funds for
general operating expenses and loans to other public institutions and
facilities. In addition, certain types of industrial development bonds or
private activity bonds are issued by or on behalf of public authorities to
finance or refinance various privately operated facilities, including certain
facilities for the local furnishing of electric energy or gas, sewage
facilities, solid waste disposal facilities and other specialized facilities.
For purposes of this Prospectus, such obligations are referred to as Municipal
Bonds if the interest paid thereon is, in the opinion of bond counsel to the
issuer, excluded from gross income for Federal income tax purposes ("exempt
from Federal income tax"). Such obligations are referred to herein as State
Municipal Bonds if such obligations pay interest exempt, in the opinion of bond
counsel to the issuer, from Federal income taxes, the designated state's
personal income taxes and, where applicable, local personal income taxes, and
would not subject shareholders to intangible personal property taxes in the
designated state. Such bonds may be "private activity bonds" as discussed
below.
The two principal classifications of Municipal Bonds are "general obligation"
bonds and "revenue" bonds, which latter category includes industrial
development bonds ("IDBs") and, for bonds issued after August 15, 1986, private
activity bonds. General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the repayment of principal and the
payment of interest. The taxing power of any governmental entity may be
limited, however, by provisions of state constitutions or laws. An entity's
creditworthiness and its capacity to make timely payment of interest and
repayment of principal on a general
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obligation bond when due will depend on many factors, including potential
erosion of the tax base due to population declines, natural disasters, declines
in the state's industrial base or inability to attract new industries, economic
limits on the ability to tax without eroding the tax base, state legislative
proposals or voter initiatives to limit ad valorem real property taxes and the
extent to which the entity relies on Federal or state aid, access to capital
markets or other factors beyond the state or entity's control.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as payments from the
user of the facility being financed; accordingly, the timely payment of
interest and the repayment of principal in accordance with the terms of the
revenue or special obligation bond is a function of the economic viability of
such facility or such revenue source. A Fund will not invest in revenue bonds
where the entity supplying the revenues from which the issuer is paid,
including predecessors, has a record of less than three years of continuous
business operations if such investments, together with investments in other
unseasoned issuers, would exceed 5% of its total assets (taken at market value
at the time of each investment). Investments involving entities with less than
three years of continuous business operations may pose somewhat greater risks
due to the lack of a substantial operating history for such entities. The
Manager believes, however, that such investments will not adversely affect the
Funds, particularly given each Fund's limitations on such investments.
The Funds may purchase IDBs or private activity bonds. IDBs or private
activity bonds are tax-exempt securities issued by states, municipalities or
public authorities to provide funds, usually through a loan or lease
arrangement, to a private entity for the purpose of financing construction or
improvement of a facility to be used by the entity. Such bonds are secured
primarily by revenues derived from loan repayments or lease payments due from
the entity which may or may not be guaranteed by a parent company or otherwise
secured. Normally, IDBs and private activity bonds are not secured by a pledge
of the taxing power of the issuer of such bonds. Therefore, an investor should
be aware that repayment of such bonds depends on the revenues of a private
entity and should be aware of the risks that such an investment may entail.
Continued ability of an entity to generate sufficient revenues for the
repayment of principal and the payment of interest on such bonds will be
affected by many factors including the size of the entity, its capital
structure, demand for its products or services, competition, general economic
conditions, governmental regulation and the entity's dependence on revenues for
the operation of the particular facility being financed. Each Fund also may
invest in so-called "moral obligation" bonds, which are normally issued by
special purpose authorities. If an issuer of moral obligation bonds is unable
to meet its obligations, repayment of such bonds becomes a moral commitment,
but not a legal obligation, of the state or municipality in question. Each Fund
may purchase obligations of state and local housing authorities the proceeds of
which are used to purchase single-family mortgage loans or to finance the
construction of multi-family housing projects. Economic developments, including
fluctuations in interest rates, increasing construction and operating costs,
and reductions in Federal housing subsidy programs may adversely affect the
revenues of housing authorities. Furthermore, adverse economic conditions may
result in an increasing rate of default of mortgagors on the underlying
mortgage loans. Single-family mortgage revenue bonds also are subject to
extraordinary mandatory redemption at par at any time, in whole or in part,
from the proceeds derived from prepayments of underlying mortgage loans and
from the unused proceeds of the issue within a stated period which may be
within one year of the date of issue.
Municipal Lease Obligations. 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
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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
frequently is 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 repossession might prove difficult.
These securities represent a type of financing that has not yet developed the
depth of marketability associated with more conventional securities. Certain
investments in lease obligations may be illiquid. A Fund may not invest in
illiquid lease obligations if such investments, together with other illiquid
investments, would exceed 15% of the Fund's total assets. A Fund, however, may
invest without regard to such limitation in lease obligations which the
Manager, pursuant to guidelines which have been adopted by the Board of
Trustees and subject to the supervision of the Board, determines to be liquid.
The Manager will deem lease obligations liquid if they are publicly offered and
have received an investment grade rating of Baa or better by Moody's, or BBB or
better by Standard & Poor's or Fitch. Unrated lease obligations, or those rated
below investment grade, will be considered liquid if the obligations come to
the market through an underwritten public offering and at least two dealers are
willing to give competitive bids. In reference to obligations rated below
investment grade, the Manager, among other things, also must review the
creditworthiness of the municipality obligated to make payment under the lease
obligation and make certain specified determinations based on such factors as
the existence of a rating or credit enhancement such as insurance, the
frequency of trades or quotes for the obligation and the willingness of dealers
to make a market in the obligation.
Federal tax legislation has limited the types and volume of bonds the
interest on which qualifies for a Federal income tax exemption. As a result,
this legislation and legislation which may be enacted in the future may affect
the availability of Municipal Bonds for investment by the Funds.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
The Funds may purchase or sell Municipal Bonds on a delayed delivery basis or
on a when-issued basis at fixed purchase terms. These transactions arise when
securities are purchased or sold by a Fund with payment and delivery taking
place in the future. The purchase will be recorded on the date a Fund enters
into the commitment and the value of the obligation thereafter will 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 each Fund will be established with its respective custodian
consisting of cash, cash equivalents or high grade, liquid municipal securities
having a market value at all times at least equal to the amount of the forward
commitment.
INDEXED AND INVERSE FLOATING OBLIGATIONS
The Funds may invest in Municipal Bonds the return on which is based on a
particular index of value or interest rates. For example, a Fund may invest in
Municipal Bonds that pay interest based on an index of Municipal Bond interest
rates or based on the value of gold or some other product. The principal amount
payable upon maturity of certain Municipal Bonds also may be based on the value
of an index. To the extent a Fund invests in these types of Municipal Bonds,
the Fund's return on such Municipal Bonds will be subject to risk with respect
to the value of the particular index. Interest and principal payable on the
Municipal Bonds may also be based on relative changes among particular indices.
Also, a Fund may invest in so-called "inverse floating obligations" or
"residual interest bonds" on which the interest rates typically vary inversely
with a
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short-term floating rate (which may be reset periodically by a dutch auction, a
remarketing agent, or by reference to a short-term tax-exempt interest rate
index). The Funds may purchase original issue inverse floating rate bonds in
both the primary and secondary markets and also may purchase in the secondary
market synthetically-created inverse floating rate bonds evidenced by custodial
or trust receipts. Generally, interest rates on inverse floating rate bonds
will decrease when short-term rates increase, and will increase when short-term
rates decrease. Such securities have the effect of providing a degree of
investment leverage, since they may increase or decrease in value in response
to changes, as an illustration, in market interest rates at a rate which is a
multiple (typically two) of the rate at which fixed-rate, long-term, tax-exempt
securities increase or decrease in response to such changes. As a result, the
market values of such securities generally will be more volatile than the
market values of fixed-rate, tax-exempt securities. To seek to limit the
volatility of these securities, a Fund may purchase inverse floating
obligations with shorter term maturities or which contain limitations on the
extent to which the interest rate may vary. The Manager believes that indexed
and inverse floating obligations represent a flexible portfolio management
instrument for a Fund which allows the Manager to vary the degree of investment
leverage relatively efficiently under different market conditions. Certain
investments in such obligations may be illiquid. A Fund may not invest in such
illiquid obligations if such investments, together with other illiquid
investments, would exceed 15% of that Fund's total assets.
SYNTHETIC SHORT-TERM MUNICIPAL BONDS
Each Fund may invest in a variety of synthetic short-term municipal bonds
("Synthetic Bonds"). Synthetic Bonds are typically structured by a bank,
broker-dealer or other financial institution, and generally consist of a trust
or partnership through which the Fund holds an interest in one or more long-
term municipal bonds which are assets of the applicable entity ("Underlying
Bonds") coupled with a conditional right to sell ("put") the Fund's interest in
the Underlying Bonds at par plus accrued interest to a financial institution (a
"Liquidity Provider"). Typically, a Synthetic Bond is structured as a trust or
partnership which provides for pass-through tax-exempt income. There are
currently three principal types of Synthetic Bond structures: (1) "Tender
Option Bonds", which are instruments that grant the holder thereof the right to
put an Underlying Bond at par plus accrued interest at specified intervals to a
Liquidity Provider; (2) "Swap Products", in which the trust or partnership
swaps the payments due on an Underlying Bond with a swap counterparty who
agrees to pay a floating municipal money market interest rate; and (3)
"Partnerships", which allocate to the partners income, expenses, capital gains
and losses in accordance with a governing partnership agreement. Each of the
Funds may also invest in other forms of Synthetic Bonds.
Investments in Synthetic Bonds raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in other Municipal
Bonds. There is some risk that certain issues could be resolved in a manner
which could adversely impact the performance of the Funds. For example, the
tax-exempt treatment of the interest paid to holders of Synthetic Bonds is
premised on the legal conclusion that the holders of such Synthetic Bonds have
an ownership interest in the Underlying Bonds. While the Fund receives an
opinion of legal counsel to the effect that the income from each Synthetic Bond
is tax-exempt to the same extent as the Underlying Bond, the Internal Revenue
Service (the "IRS") has not issued a ruling on this subject. Were the IRS to
issue an adverse ruling, there is a risk that the interest paid on such
Synthetic Bonds would be deemed taxable. A Synthetic Bond with a put notice
period exceeding seven days will be subject to each Fund's restriction on
illiquid investments unless, in the judgment of the Trustees, such Synthetic
Bond is liquid.
CALL RIGHTS
Each Fund may purchase, either directly from the issuer or from a third
party, a Municipal Bond issuer's contractual right to call all or a portion of
such Municipal Bond for mandatory tender for purchase (a "Call
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Right"). A Fund purchasing a Call Right may or may not own the related
Municipal Bond. A holder of a Call Right may exercise such right to require a
mandatory tender for the purchase of related Municipal Bonds, subject to
certain conditions. A Call Right that is not exercised prior to the maturity of
the related Municipal Bond will expire without value. The economic effect of
holding both the Call Right and the related Municipal Bond is identical to that
of holding a Municipal Bond as a non-callable security. Certain investments in
such obligations may be illiquid. A Fund may not invest in such illiquid
obligations if such investments, together with other illiquid investments,
would exceed 15% of that Fund's total assets.
FINANCIAL FUTURES CONTRACTS AND OPTIONS THEREON
Each Fund is authorized to purchase and sell certain exchange-traded
financial futures contracts ("financial futures contracts") and options
thereon. The purchase or sale of an option on a financial futures contract is
analogous to the purchase or sale of an option on an individual security.
Financial futures contracts and options thereon are used solely for the
purposes of hedging a Fund's investments in Municipal Bonds against declines in
value and hedging against increases in the cost of securities it intends to
purchase. However, a Fund's transactions involving financial futures contracts
or options thereon (which options may include both puts and calls) will be in
accordance with its investment policies and limitations. A financial futures
contract obligates the seller of a contract to deliver and the purchaser of a
contract to take delivery of the type of financial instrument covered by the
contract, or in the case of index-based financial futures contracts, to make
and accept a cash settlement at a specific future time for a specified price. A
sale of financial futures contracts or options thereon may provide a hedge
against a decline in the value of portfolio securities because such
depreciation may be offset, in whole or in part, by an increase in the value of
the position in the financial futures contracts. A purchase of financial
futures contracts or options thereon may provide a hedge against an increase in
the cost of securities intended to be purchased, because such appreciation may
be offset, in whole or in part, by an increase in the value of the position in
the financial futures contracts or options thereon. Distributions, if any, of
net long-term capital gains from certain transactions in futures or options are
taxable at long-term capital gains rates for Federal income tax purposes,
regardless of the length of time the shareholder has owned Fund shares. See
"Distributions and Taxes--Taxes".
Each Fund may deal in financial futures contracts traded on the Chicago Board
of Trade based on The Bond Buyer Municipal Bond Index, a price-weighted measure
of the market value of 40 large, recently issued tax-exempt bonds. There can be
no assurance, however, that a liquid secondary market will exist to terminate
any particular financial futures contract or option thereon at any specific
time. If it is not possible to close a financial futures position or the
related option entered into by a Fund, the Fund would continue to be required
to make daily cash payments of variation margin in the event of adverse price
movements. In such a situation, if the Fund has insufficient cash, it may have
to sell portfolio securities to meet daily variation margin requirements at a
time when it may be disadvantageous to do so. The inability to close financial
futures contracts or related option positions also could have an adverse impact
on a Fund's ability to hedge effectively. There is also the risk of loss by a
Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a financial futures contract or option thereon.
Each Fund may purchase and sell financial futures contracts on U.S.
Government securities and write and purchase put and call options on such
financial futures contracts as a hedge against adverse changes in interest
rates as described more fully in the Statement of Additional Information. With
respect to U.S. Government securities, currently there are financial futures
contracts based on long-term U.S. Treasury bonds, U.S. Treasury notes,
Government National Mortgage Association ("GNMA") Certificates and three-month
U.S. Treasury bills.
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Subject to policies adopted by the Trustees, the Funds also may enter into
other financial futures transactions, such as financial futures contracts or
options on other municipal bond indices which may become available, if the
Manager of the Funds and the Trustees of the Trust should determine that there
is normally a sufficient correlation between the prices of such financial
futures contracts or options thereon and the Municipal Bonds in which a Fund
invests to make such hedging appropriate.
Utilization of financial futures contracts and options thereon involves the
risk of imperfect correlation in movements in the price of financial futures
contracts or options thereon and movements in the price of the security which
is the subject of the hedge. If the price of the financial futures contract or
option thereon moves more or less than the price of the security that is the
subject of the hedge, a Fund will experience a gain or loss 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 financial futures
contracts or options thereon have different maturities, ratings or geographic
mixes than the security being hedged. In addition, the correlation may be
affected by additions to or deletions from the index which serves as a basis
for a financial futures contract or option thereon. Finally, in the case of
financial futures contracts on U.S. Government securities and options on such
financial futures contracts, the anticipated correlation of price movements
between the U.S. Government securities underlying the financial futures or
options, and Municipal Bonds may be adversely affected by economic, political,
legislative or other developments which have a disparate impact on the
respective markets for such securities.
Under regulations of the Commodity Futures Trading Commission, the futures
trading activities described herein will not result in a Fund being deemed to
be a "commodity pool", as defined under such regulations, provided that the
Fund adheres to certain restrictions. In particular, a Fund may purchase and
sell financial futures contracts and options thereon (i) for bona fide hedging
purposes, and (ii) for non-hedging purposes, if the aggregate initial margin
and premiums required to establish positions in such contracts and options does
not exceed 5% of the liquidation value of the Fund's portfolio assets after
taking into account unrealized profits and unrealized losses on any such
contracts and options. As stated above, each Fund intends to engage in options
and futures transactions only for hedging purposes. Margin deposits may consist
of cash or securities acceptable to the broker and the relevant contract
market.
When a Fund purchases a financial futures contract, or writes a put option or
purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., high grade commercial paper and daily tender adjustable
notes) or short-term, high-grade, fixed-income securities in a segregated
account with the Fund's custodian, so that the amount so segregated plus the
amount of initial and variation margin held in the account of its broker equals
the market value of the financial futures contract or option thereon, thereby
ensuring that the use of such financial futures contract or option is
unleveraged. It is not anticipated that transactions in financial futures
contracts or options thereon will have the effect of increasing portfolio
turnover.
Although certain risks are involved in options and futures transactions, the
Manager believes that, because the Funds will engage in financial futures
transactions only for hedging purposes, the futures portfolio strategies of the
Funds will not subject the Funds to certain risks frequently associated with
speculation in futures transactions. The Funds must meet certain Federal income
tax requirements under the Internal Revenue Code of 1986, as amended (the
"Code"), in order to qualify for the special tax treatment afforded regulated
investment companies, including a requirement that less than 30% of its gross
income be derived from the sale or other disposition of securities held for
less than three months. Additionally, each Fund is required to meet certain
diversification requirements under the Code.
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The liquidity of a secondary market in a financial futures contract or
related option may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
financial futures contract price during a single trading day. Once the daily
limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. Prices in the past have reached or exceeded the daily limit on a
number of consecutive trading days.
The successful use of financial futures contracts and options thereon also
depends on the ability of the Manager to forecast correctly the direction and
extent of interest rate movements within a given time frame. To the extent
these rates remain stable during the period in which a financial futures
contract or related option is held by a 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, a Fund's total return for such period may be less than
if it had not engaged in the hedging transaction. Furthermore, each Fund only
will engage in hedging transactions from time to time and may not necessarily
be engaging in hedging transactions when movements in interest rates occur.
Reference is made to the Statement of Additional Information for further
information on financial futures contracts and certain options thereon.
REPURCHASE AGREEMENTS
As Temporary Investments, the Funds may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S.
Government securities or an affiliate thereof. Under such agreements, the
seller agrees, upon entering into the contract, to repurchase the security from
the Fund at a mutually agreed upon time and price, thereby determining the
yield during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period. A Fund may not invest in
repurchase agreements maturing in more than seven days if such investments,
together with the Fund's other illiquid investments, would exceed 15% of that
Fund's total assets. In the event of a default by the seller under a repurchase
agreement, a Fund may suffer time delays and incur costs or possible losses in
connection with the disposition of the underlying securities.
Certain Funds may be subject to state and local restrictions which prohibit
certain types of investments and investment strategies, including some of the
investments and investment strategies discussed herein.
INVESTMENT RESTRICTIONS
Each Fund has adopted a number of restrictions and policies relating to the
investment of the Fund's assets and its activities, which are fundamental
policies of the Fund and may not be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities, as defined in the
1940 Act. As a fundamental policy, no Fund may borrow amounts in excess of 20%
of its total assets taken at market value (including the amount borrowed), and
then only from banks as a temporary measure for extraordinary or emergency
purposes, including to meet redemptions or settle securities transactions. In
addition, no Fund may invest more than 25% of its total assets (taken at market
value at the time of each investment) in securities of issuers in any
particular industry (other than U.S. Government securities or Government agency
securities, Municipal Bonds and Non-Municipal Tax-Exempt Securities).
Investment restrictions and policies that are non-fundamental policies may be
changed by the Board of Trustees without shareholder approval. As a non-
fundamental policy, no Fund may invest in securities
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which cannot be readily resold because of legal or contractual restrictions or
which are not readily marketable, including individually negotiated loans that
constitute illiquid investments and illiquid lease obligations, and in
repurchase agreements maturing in more than seven days, if, regarding all such
securities taken together, more than 15% of its total assets (taken at market
value at the time of each investment) would be invested in such securities. In
addition, no Fund may invest more than 10% of its total assets (taken at market
value at the time of each investment) in revenue bonds where the entity
supplying the revenues from which the issue is to be paid, and the guarantor of
the obligation, including predecessors, each has a record of less than three
years' continuous business operation.
Each Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by the 1940 Act in the proportion
of its assets that it may invest in obligations of a single issuer. However,
each Fund's investments will be limited so as to qualify as a "regulated
investment company" for purposes of the Code. See "Distributions and Taxes--
Taxes". To qualify, among other requirements, the Trust will limit each Fund's
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of the Fund's total assets will be invested
in the securities of a single issuer, and (ii) with respect to 50% of the
market value of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of a single issuer and the Fund
will not own more than 10% of the outstanding voting securities of a single
issuer. For purposes of this restriction, each Fund will regard each state and
each political subdivision, agency or instrumentality of such state and each
multi-state agency of which such state is a member and each public authority
which issues securities on behalf of a private entity, as a separate issuer,
except that if the security is backed only by the assets and revenues of a non-
government entity then the entity with the ultimate responsibility for the
payment of interest and principal may be regarded as the sole issuer. These
tax-related limitations may be changed by the Trustees of the Trust to the
extent necessary to comply with changes to the Federal tax requirements. A Fund
which elects to be classified as "diversified" under the 1940 Act must satisfy
the foregoing 5% and 10% requirements with respect to 75% of its total assets.
To the extent that a Fund assumes large positions in the obligations of a small
number of issuers, that Fund's total return may fluctuate to a greater extent
than that of a diversified company as a result of changes in the financial
condition or in the market's assessment of the issuers.
Investors are referred to the Statement of Additional Information for a
complete description of each Fund's investment restrictions.
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MANAGEMENT OF THE TRUST
TRUSTEES
The Trustees of the Trust consist of six individuals, five of whom are not
"interested persons" of the Trust as defined in the 1940 Act. The Trustees are
responsible for the overall supervision of the operations of the Trust and the
Funds and perform the various duties imposed on the directors or trustees of
investment companies by the 1940 Act.
The Trustees are:
Arthur Zeikel*--President of the Manager and of MLAM; President and Director
of Princeton Services, Inc.; Executive Vice President of ML & Co.; Executive
Vice President of Merrill Lynch; Director of the Distributor.
James H. Bodurtha--Chairman and Chief Executive Officer, China Enterprise
Management Corporation.
Herbert I. London--John M. Olin Professor of Humanities, New York University.
Robert R. Martin--Director, WTC Industries, Inc.
Joseph L. May--Attorney in private practice.
Andre F. Perold--Professor, Harvard Business School.
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* Interested person, as defined in the 1940 Act, of the Trust.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, which is an affiliate of MLAM and is owned and controlled by
ML&Co., a financial services holding company and the parent of Merrill Lynch,
acts as the manager for the Trust and provides each Fund with management
services. The Manager or MLAM acts as the investment adviser for over 125 other
registered investment companies. MLAM also offers portfolio management and
portfolio analysis services to individuals and institutions. As of September
30, 1995, the Manager and MLAM had a total of approximately $189.4 billion in
investment company and other portfolio assets under management, including
accounts of certain affiliates of the Manager.
Subject to the direction of the Trustees, the Manager is responsible for the
actual management of each Fund's portfolio and constantly reviews each Fund's
holdings in light of its own research analysis and that from other relevant
sources. The responsibility for making decisions to buy, sell or hold a
particular security rests with the Manager. The Manager performs certain of the
other administrative services and provides all the office space, facilities,
equipment and necessary personnel for management of the Funds.
Joseph Andrews, Peter J. Hayes and Marie Sheehan are the Portfolio Managers
for each Fund. Joseph Andrews has been a Portfolio Manager and Vice President
of the Manager and of MLAM since 1991. Peter J. Hayes has been a Portfolio
Manager and Vice President of the Manager and of MLAM since 1989.
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Marie Sheehan has been a Portfolio Manager and Vice President of the Manager
and of MLAM since 1991.
Pursuant to separate management agreements between the Manager and the Trust
on behalf of each Fund (each a "Management Agreement"), the Manager is entitled
to receive from each Fund a monthly fee based upon the average daily net assets
of that Fund at the annual rate of 0.35% of the average daily net assets of
that Fund. Information about fees paid by each Fund is contained in the table
below.
Each Management Agreement obligates the related Fund to pay certain expenses
incurred in that Fund's operations, including, among other things, the
management fee, legal and audit fees, unaffiliated Trustees' fees and expenses,
registration fees, custodian and transfer agency fees, accounting and pricing
costs, and certain of the costs of printing proxies, shareholder reports,
prospectuses and statements of additional information. Accounting services are
provided to the Trust by the Manager, and each Fund reimburses the Manager for
its proportionate costs in connection with such services. The Manager may waive
all or a portion of its management fee for any Fund and may assume voluntarily
all or a portion of each Fund's expenses. Information about the amounts
reimbursed by each Fund is contained in the table below.
Set forth in the table below is information for each Fund pertaining to the
Fund's investment advisory arrangements for the year ended July 31, 1995 for
Class A and Class B shares and for the period October 21, 1994 (commencement of
operations) to July 31, 1995 for Class C and Class D shares:
<TABLE>
<CAPTION>
RATIO OF TOTAL EXPENSES
EXCLUDING ACCOUNT
MAINTENANCE AND
DISTRIBUTION
FEES AND NET OF
REIMBURSEMENT, TO
AVERAGE NET ASSETS
---------------------------------
REIMBURSEMENT
BASED ON OF MANAGER
MANAGEMENT AVERAGE NET FOR
FEE ASSETS OF ACCOUNTING
FUND $ APPROX. ($) SERVICES ($) CLASS A CLASS B CLASS C* CLASS D*
- ---- ---------- ------------ ------------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona Fund............ 26,468 7.6 million 36,140 .35% .37% .90% .45%
California Fund......... 52,287 15.2 million 50,033 .40% .41% .67% .56%
Florida Fund............ 112,421 32.5 million 32,012 .39% .40% .94% .57%
Massachusetts Fund...... 41,496 11.9 million 49,502 .37% .39% .52% .60%
Michigan Fund........... 19,277 5.6 million 19,568 .27% .30% .81% .34%
New Jersey Fund......... 39,629 11.4 million 36,998 .34% .38% .40% .52%
New York Fund........... 52,164 15.0 million 3,623 .33% .34% .48% .38%
Pennsylvania Fund....... 34,403 9.9 million 15,577 .38% .38% .90% .47%
</TABLE>
- --------
*Annualized.
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics under Rule
17j-1 of the Act which incorporates the Code of Ethics of the Manager
(together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
29
<PAGE>
The Codes require that all employees of the Manager preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Manager include a ban on acquiring any securities in a "hot" initial public
offering and a prohibition from profiting on short-term trading in securities.
In addition, no employee may purchase or sell any security which at the time is
being purchased or sold (as the case may be), or to the knowledge of the
employee is being considered for purchase or sale, by any fund advised by the
Manager. Furthermore, the Codes provide for trading "blackout periods" which
prohibit trading by investment personnel of the Funds within periods of trading
by the Funds in the same (or equivalent) security (15 or 30 days depending upon
the transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which is
a wholly-owned subsidiary of ML&Co., acts as the Trust's transfer agent
pursuant to a transfer agency, dividend disbursing agency and shareholder
servicing agency agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares of each Fund and the opening and maintenance
of shareholder accounts. Pursuant to the Transfer Agency Agreement, each Fund
pays the Transfer Agent an annual fee of $11.00 per Class A or Class D
shareholder account, and $14.00 per Class B or Class C shareholder account, and
the Transfer Agent is entitled to reimbursement from the Fund for out-of-pocket
expenses incurred by the Transfer Agent on behalf of such Fund under the
Transfer Agency Agreement. The table below sets forth information about the
fees paid by each Fund for transfer agency services for the year ended July 31,
1995.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
------------------------------------------
NUMBER OF
SHAREHOLDER
ACCOUNTS
-------------------------------
TRANSFER TRANSFER
AGENCY FEE AGENCY FEE
FUND PAID CLASS A CLASS B CLASS C CLASS D DUE
- ---- ---------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund.............. $ 5,476 40 129 3 5 $2,343
California Fund........... $ 6,249 44 178 6 17 $3,247
Florida Fund.............. $11,779 81 334 3 31 $5,950
Massachusetts Fund........ $ 7,471 35 175 8 9 $3,046
Michigan Fund............. $ 4,416 44 104 3 10 $2,092
New Jersey Fund........... $ 6,832 55 161 3 14 $3,055
New York Fund............. $ 7,492 60 254 6 17 $4,487
Pennsylvania Fund......... $ 8,531 31 214 4 15 $3,558
</TABLE>
PURCHASE OF SHARES
The Distributor, an affiliate of both the Manager and Merrill Lynch, acts as
the Distributor of the shares of each Fund. Shares of each Fund are offered
continuously for sale by the Distributor and other eligible securities dealers
(including Merrill Lynch). Class A, Class B and Class D shares of the Funds may
be purchased from securities dealers or by mailing a purchase order directly to
the Transfer Agent. Class C shares of the Funds are not available for purchase
but will be issued only pursuant to the exchange privilege to holders of Class
C shares of other MLAM-advised mutual funds who elect to exchange Class C
shares of
30
<PAGE>
such other MLAM-advised mutual fund for Class C shares of one of the Funds.
The minimum initial purchase for shares of each Fund is $1,000 and the minimum
subsequent purchase is $50.
Each Fund offers its Class A, Class B, Class C and Class D shares at a
public offering price equal to the next determined net asset value per share
plus sales charges imposed either at the time of purchase or on a deferred
basis depending upon the class of shares selected by the investor under the
Merrill Lynch Select Pricing SM System, as described below. The applicable
offering price for purchase orders is based upon the net asset value of the
respective Fund next determined after receipt of the purchase orders by the
Distributor. As to purchase orders received by securities dealers prior to the
close of business on the New York Stock Exchange (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. The Trust or the Distributor may
suspend the continuous offering of a Fund's shares of any class at any time in
response to conditions in the securities markets or otherwise and may
thereafter resume such offering from time to time. Any order may be rejected
by the Distributor or the Trust. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $4.85) to
confirm a sale of shares to such customers. Purchases directly through the
Trust's Transfer Agent are not subject to the processing fee.
Each of the Funds issues four classes of shares under the Merrill Lynch
Select Pricing SM System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives and shares of
Class B are sold to investors choosing the deferred sales charge alternative.
Investors should determine whether under their particular circumstances it is
more advantageous to incur an initial sales charge or to have the entire
initial purchase price invested in the Fund with the investment thereafter
being subject to a CDSC, ongoing distribution fees and higher account
maintenance fees. A discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing SM System is set forth under "Merrill Lynch Select Pricing SM System"
on page 7.
Each Class A, Class B, Class C and Class D share of each of the Funds
represents identical interests in the investment portfolio of that Fund and
has the same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees, and Class B and Class C
shares bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The deferred sales charges and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account maintenance fees
that are imposed on Class D shares, will be imposed directly against those
classes and not against all assets of the Fund and, accordingly, such charges
will not affect the net asset value of any other class or have any impact on
investors choosing another sales charge option. Dividends paid by the Funds
for each class of shares will be calculated in the same manner at the same
time and will differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-
1
31
<PAGE>
distribution plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid. See "Distribution Plans" below.
Each class has different exchange privileges. See "Shareholder Services--
Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in
that the sales charges applicable to each class provide for the financing of
the distribution of the shares of the Funds. The distribution-related revenues
paid with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised
that only Class A and Class D shares may be available for purchase through
securities dealers, other than Merrill Lynch, which are eligible to sell
shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing SM System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE/(1)/ FEE FEE CONVERSION FEATURE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 1.00% initial No No No
sales charge/(2)//(3)/
- ---------------------------------------------------------------------------------------
B 1.0% CDSC for one year 0.15% 0.20% B shares convert to
D shares automatically
after approximately
ten years/(4)/
- ---------------------------------------------------------------------------------------
C/(5)/ 1.0% CDSC for one year 0.15% 0.20% No
- ---------------------------------------------------------------------------------------
D Maximum 1.00% initial 0.10% No No
sales charge/(3)/
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $100,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 0.20% CDSC if redeemed within one
year.
(4) The conversion period for dividend reinvestment shares was modified. Also,
Class B shares of certain other MLAM-advised mutual funds into which
exchanges may be made have an eight year conversion period. If Class B
shares of a Fund are exchanged for Class B shares of another MLAM-advised
mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the shares
exchanged will be tacked on to the holding period for the shares acquired.
(5) Class C shares will be issued only upon exchange for Class C shares of
another MLAM-advised mutual fund. See "Shareholder Services--Exchange
Privilege".
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares of each Fund for
purchasers choosing the initial sales charge alternatives is the next
determined net asset value plus varying sales charges (i.e., sales loads), as
set forth below.
32
<PAGE>
<TABLE>
<CAPTION>
SALES LOAD SALES LOAD DISCOUNT TO SELECTED
AS PERCENTAGE* AS PERCENTAGE* DEALERS AS
OF OFFERING OF THE NET PERCENTAGE* OF THE
AMOUNT OF PURCHASE PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ -------------- --------------- --------------------
<S> <C> <C> <C>
Less than $100,000......... 1.00% 1.01% .95%
$100,000 but less than
$250,000.................. .75 .76 .70
$250,000 but less than
$500,000.................. .50 .50 .45
$500,000 but less than
$1,000,000................ .30 .30 .27
$1,000,000 and over**...... .00 .00 .00
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** Class A and Class D purchases of $1 million or more will be subject to a
CDSC of 0.20% if the shares are redeemed within one year after purchase.
The charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and
Class D shares of a Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act of
1933, as amended.
The following table sets forth information about the number of Class A
shares sold by each Fund for the year ended July 31, 1995 and the number of
Class D shares sold by each Fund for the period October 21, 1994 (commencement
of operations) through July 31, 1995, the aggregate net proceeds from such
sales, the gross sales charges and the amounts of such charges received by the
Distributor and Merrill Lynch for Class A shares and Class D shares, and the
amount of CDSCs the Distributor received (all of which were paid to Merrill
Lynch) with respect to redemption within one year of purchase of Class A
shares purchased subject to front-end sales charge waivers. No CDSCs were
received by the Distributor with respect to redemption within one year of
purchase of Class D shares purchased subject to front-end sales charge
waivers.
<TABLE>
<CAPTION>
NO. OF AGGREGATE PAID TO
SHARES NET GROSS SALES PAID TO MERRILL
SOLD PROCEEDS ($) CHARGES ($) DISTRIBUTOR ($) LYNCH ($) CDSCS RECEIVED ON
--------------- ------------------- -------------- ----------------- -------------- REDEMPTION OF
CLASS CLASS CLASS CLASS A
CLASS A CLASS D CLASS A CLASS D CLASS A D CLASS A D CLASS A D SHARES ($)
------- ------- --------- --------- ------- ------ -------- -------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona Fund...... 34,228 1,801 339,577 17,929 1,026 98 101 3 925 95 0
California Fund... 81,782 299,589 801,557 2,938,426 754 2,145 83 115 671 2,030 0
Florida Fund...... 189,974 835,832 1,875,261 8,301,886 2,628 12,063 154 1,099 2,474 10,964 2,894
Massachusetts
Fund............. 113,925 32,116 1,124,479 317,241 1,544 64 284 33 1,260 31 10,565
Michigan Fund..... 28,337 64,155 279,211 622,185 915 888 56 91 859 797 0
New Jersey Fund... 147,003 69,049 1,452,568 691,844 451 2,108 30 222 421 1,886 0
New York Fund..... 189,338 271,406 1,861,355 2,697,692 5,190 3,877 157 232 5,033 3,645 0
Pennsylvania Fund. 33,049 37,328 326,744 367,223 79 1,198 9 49 70 1,149 0
</TABLE>
Eligible Class A Investors. Class A shares are offered to a limited group of
investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of a
Fund in a shareholder account are entitled to purchase additional Class A
shares of that Fund in that account. Class A shares are available at net asset
value to corporate warranty insurance reserve fund programs provided that the
program has $3 million or more initially invested in MLAM-advised mutual
funds. Also eligible to purchase Class A shares at net asset value are
participants in certain investment programs including TMA SM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services and
certain purchases made in connection with the Merrill Lynch Mutual Fund
Adviser ("MFA") program. In addition, Class A shares are offered at net asset
value to ML & Co. and its subsidiaries
33
<PAGE>
and their directors and employees and to members of the Boards of MLAM-advised
investment companies, including the Trust. Certain persons who acquired shares
of certain MLAM-advised closed-end funds who wish to reinvest the net proceeds
from a sale of their closed-end fund shares of common stock in shares of the
Funds also may purchase Class A shares of the Funds if certain conditions set
forth in the Statement of Additional Information are met. For example, Class A
shares of the Funds and certain other MLAM-advised mutual funds are offered at
net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc., who wish to reinvest the net proceeds from a sale of certain of their
shares of common stock of Merrill Lynch Senior Floating Rate Fund, Inc. in
shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges
also may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors".
Class A and Class D shares are offered at net asset value to certain Employer
Sponsored Retirement or Savings Plans and to Employee Access AccountsSM
available through employers which provide such plans.
Class D shares are offered at net asset value, without sales charge, to an
investor who has a business relationship with a Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares of the Funds are offered at net asset value to shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock of Merrill
Lynch Municipal Strategy Fund, Inc. in shares of the Funds.
Additional information concerning these reduced initial sales charges is set
forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
The public offering price of Class B shares for investors choosing the
deferred sales charge alternative is the next determined net asset value per
share without the imposition of a sales charge at the time of purchase. Class C
shares of the Funds are not available for purchase but will be issued only
pursuant to the exchange privilege to holders of Class C shares of other MLAM-
advised mutual funds who elect to exchange Class C shares of such other MLAM-
advised mutual funds for Class C shares of one of the Funds. See "Shareholder
Services--Exchange Privilege". As discussed below, Class B and Class C shares
are subject to a one year 1.0% CDSC. Approximately ten years after Class B
shares of a Fund are issued, such Class B shares, together with shares issued
upon dividend reinvestment with respect to those shares, are automatically
converted into Class D shares of that Fund and thereafter will be subject to
lower continuing fees. See "Conversion of Class B Shares to Class D Shares"
below. Both Class B and Class C shares are subject to an account maintenance
fee of 0.15% of net assets and a distribution fee of 0.20% of net assets as
discussed below under "Distribution Plans". The proceeds from the ongoing
account maintenance fees are used to compensate Merrill Lynch for providing
continuing account maintenance activities.
34
<PAGE>
Class B and Class C shares are not subject to an initial sales charge;
therefore, Merrill Lynch compensates its financial consultants for selling
Class B and Class C shares of MLAM-advised mutual funds at the time of purchase
from its own funds. See "Distribution Plans".
Proceeds from the CDSCs and the distribution fee of a Fund are paid to the
Distributor and are used in whole or in part by the Distributor to defray the
expenses of dealers (including Merrill Lynch) related to providing
distribution-related services to that Fund in connection with the sale of its
Class B shares, such as the payment of compensation to financial consultants
for selling Class B shares of that Fund from its own funds. The combination of
the CDSC and the ongoing distribution fee facilitates the ability of a Fund to
sell its Class B shares without a sales charge being deducted at the time of
purchase.
Approximately ten years after issuance, Class B shares of each of the Funds
will convert automatically into Class D shares of the same Fund, which are
subject to a lower account maintenance fee and no distribution fee; Class B
shares of certain other MLAM-advised mutual funds into which exchanges may be
made convert into Class D shares automatically after approximately eight years.
If Class B shares of one of the Funds are exchanged for Class B shares of
another MLAM-advised mutual fund, the conversion period applicable to the Class
B shares acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked on to the holding period for the shares
acquired.
Imposition of the CDSC and the distribution fee on Class B shares is limited
by the NASD asset-based sales charge rule. See "Limitations on the Payment of
Deferred Sales Charges" below. Class B shareholders of a Fund exercising the
exchange privilege described under "Shareholder Services--Exchange Privilege"
will continue to be subject to that Fund's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B shares acquired as a
result of the exchange.
Contingent Deferred Sales Charges--Class B and Class C Shares. Class B and
Class C shares of a Fund which are redeemed within one year after acquisition
may be subject to a CDSC at the rates set forth below charged as a percentage
of the dollar amount subject thereto. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the shares
being redeemed. Accordingly, no CDSC will be imposed on increases in net asset
value above the initial purchase price. In addition, no CDSC will be assessed
on shares derived from reinvestment of dividends or capital gains
distributions.
The following table sets forth the rates of the Class B and Class C CDSCs for
all Funds:
<TABLE>
<CAPTION>
CDSC AS
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEARS SINCE PURCHASE PAYMENT MADE CHARGE
--------------------------------- -------------
<S> <C>
0-1.......................................................... 1.0%
1 and thereafter............................................. None
</TABLE>
For the fiscal year ended July 31, 1995, the Distributor received CDSCs from
the Funds with respect to redemptions of Class B shares, all of which were paid
to Merrill Lynch, as follows:
35
<PAGE>
<TABLE>
<CAPTION>
CDSCS RECEIVED
BY DISTRIBUTOR
--------------
FUND
----
<S> <C>
Arizona Fund.............................................. $ 13,587
California Fund........................................... $ 5,805
Florida Fund.............................................. $202,558
Massachusetts Fund........................................ $ 10,430
Michigan Fund............................................. $ 3,977
New Jersey Fund........................................... $ 6,305
New York Fund............................................. $ 6,435
Pennsylvania Fund......................................... $ 7,971
</TABLE>
For the period October 21, 1994 (commencement of operations) to July 31,
1995, the Distributor received no CDSCs with respect to redemptions of Class C
shares.
In determining whether a CDSC is applicable to a redemption of Class B or
Class C shares, the calculation will be made in the manner that results in the
lowest applicable rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over one year or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares held
longest during the one-year period. The charge will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase. A transfer of shares from a shareholder's account to another account
will be assumed to be made in the same order as a redemption.
The Class B CDSC is waived on redemptions of shares following the death or
disability (as defined in the Internal Revenue Code of 1986, as amended) of a
shareholder. Additional information concerning the waiver of the Class B CDSC
is set forth in the Statement of Additional Information.
Conversion of Class B Shares to Class D Shares. After approximately ten years
(the "Conversion Period"), Class B shares of a Fund will be converted
automatically into Class D shares of the same Fund. Class D shares are subject
to an ongoing account maintenance fee of 0.10% of net assets which is lower
than the account maintenance fee borne by the Class B shares, and Class D
shares are not subject to the distribution fee that is borne by Class B shares.
Automatic conversion of Class B shares into Class D shares will occur at least
once each month (on the "Conversion Date") on the basis of the relative net
asset values of the shares of the two classes on the Conversion Date, without
the imposition of any sales load, fee or other charge. Conversion of Class B
shares to Class D shares will not be deemed a purchase or sale of the shares
for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of a Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of that
Fund held in the account on the Conversion Date will be converted to Class D
shares of that Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual
36
<PAGE>
funds will convert approximately ten years after initial purchase. If, during
the Conversion Period, a shareholder exchanges Class B shares with an eight-
year Conversion Period for Class B shares with a ten-year Conversion Period, or
vice versa, the Conversion Period applicable to the Class B shares acquired in
the exchange will apply, and the holding period for the shares exchanged will
be tacked on to the holding period for the shares acquired.
DISTRIBUTION PLANS
The Trust has adopted a separate distribution plan on behalf of each of the
Funds for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
1940 Act (each a "Distribution Plan") with respect to the account maintenance
and/or distribution fees paid by the Funds to the Distributor with respect to
such classes. The Class B and Class C Distribution Plans provide for the
payment of account maintenance fees and distribution fees, and the Class D
Distribution Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual
rate of 0.15% (in the case of Class B and Class C shares) or 0.10% (in the case
of Class D shares) of the average daily net assets of the Fund attributable to
shares of the relevant class in order to compensate the Distributor and Merrill
Lynch (pursuant to a sub-agreement) in connection with account maintenance
activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.20% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C
shares through dealers without the assessment of an initial sales charge and at
the same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Funds in that the deferred sales charges provide for the
financing of the distribution of the Funds' Class B and Class C shares.
The payments under each of the Distribution Plans are based on a percentage
of average daily net assets attributable to the shares of the related Fund
regardless of the amount of expenses incurred, and, accordingly, distribution-
related revenues from the Distribution Plans may be more or less than
distribution-related expenses. Information with respect to the distribution-
related revenues and expenses of each Fund is presented to the Trustees for
their consideration in connection with their deliberations as to the
continuance of each of the Class B and Class C Distribution Plans. This
information is presented separately for each Fund annually as of December 31 of
each year on a "fully allocated accrual" basis and quarterly on a "direct
expense and revenue/cash" basis. On the fully allocated accrual basis, a Fund's
revenues consist of the account maintenance fees, distribution fees, the CDSCs
and certain other related revenues of that Fund, and expenses consist of
financial consultant compensation, branch office and regional operation center
selling and transaction processing expenses, advertising, sales promotion and
market expenses, corporate overhead and interest expense of that Fund. On the
direct expense and revenue/cash basis, revenues consist of the account
maintenance fees, distribution fees and CDSCs of that Fund, and the expenses
consist of financial consultant compensation of that Fund.
37
<PAGE>
The table below sets forth information with respect to Class B shares of the
Funds concerning direct cash revenues and expenses for the periods November 26,
1993 (commencement of operations) through December 31, 1994 and through July
31, 1995 and fully allocated accrual revenues and expenses incurred by the
Distributor and Merrill Lynch for the period November 26, 1993 (commencement of
operations) through December 31, 1994.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT BY
WHICH FULLY AMOUNT BY
AMOUNT BY WHICH ALLOCATED ACCRUAL WHICH DIRECT
DIRECT CASH EXPENSES % OF CASH EXPENSES % OF
EXPENSES EXCEEDED EXCEEDED FULLY CLASS B EXCEEDED DIRECT CLASS B
DIRECT CASH % OF CLASS B ALLOCATED ACCRUAL NET ASSETS CASH REVENUES NET ASSETS
REVENUES AS OF NET ASSETS AT REVENUES AS OF AT AS OF AT
FUND 7/31/95 ($) 7/31/95 12/31/94 ($) 12/31/94 12/31/94 ($) 12/31/94
- ---- ----------------- ------------- ----------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund............ (6,164)* 0.12% 47,000 0.77% 8,395 0.14%
California Fund......... 11,101 0.11% 107,000 1.09% 27,885 0.29%
Florida Fund............ (195,960)* 1.21% 171,000 0.75% 29,488 0.13%
Massachusetts Fund...... 8,962 0.19% 82,000 1.52% 19,273 0.36%
Michigan Fund........... (2,104)* 0.08% 25,000 0.96% 4,365 0.17%
New Jersey Fund......... 5,403 0.07% 76,000 1.07% 16,148 0.23%
New York Fund........... 2,072 0.02% 93,000 1.07% 17,804 0.20%
Pennsylvania Fund....... 1,118 0.02% 88,000 1.02% 17,788 0.21%
</TABLE>
- --------
*Direct cash revenues exceeded direct cash expenses.
The table below sets forth information with respect to Class C shares of the
Funds concerning direct cash revenues and expenses for the periods October 21,
1994 (commencement of operations) through December 31, 1994 and through July
31, 1995 and fully allocated accrual revenues and expenses incurred by the
Distributor and Merrill Lynch for the period October 21, 1994 (commencement of
operations) through December 31, 1994.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT BY
WHICH FULLY AMOUNT BY
AMOUNT BY WHICH ALLOCATED ACCRUAL WHICH DIRECT
DIRECT CASH EXPENSES % OF CASH EXPENSES % OF
REVENUES EXCEEDED EXCEEDED FULLY CLASS C EXCEEDED DIRECT CLASS C
DIRECT CASH % OF CLASS C ALLOCATED ACCRUAL NET ASSETS CASH REVENUES NET ASSETS
EXPENSES AS OF NET ASSETS AT REVENUES AS OF AT AS OF AT
FUND 7/31/95 ($) 7/31/95 12/31/94 ($) 12/31/94 12/31/94 ($) 12/31/94
- ---- ----------------- ------------- ----------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund............ 1 0.09% -- -- 0 0
California Fund......... 29 0.05% -- -- 0 0
Florida Fund............ 1 0.09% -- -- 0 0
Massachusetts Fund...... 267 0.06% -- -- 46 0.03%
Michigan Fund........... 1 0.09% -- -- 0 0
New Jersey Fund......... 28 2.69% -- -- 3 0.03%
New York Fund........... 8 0.02% -- -- 0 0
Pennsylvania Fund....... 1 0.09% -- -- 0 0
</TABLE>
The Funds have no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and
38
<PAGE>
there is no assurance that the Trustees of the Trust will approve the
continuance of the Distribution Plans from year to year. However, the
Distributor intends to seek annual continuation of the Distribution Plans. In
their review of the Distribution Plans, the Trustees will be asked to take into
consideration expenses incurred in connection with the account maintenance
and/or distribution of each class of shares separately. The initial sales
charges, the account maintenance fee, the distribution fee and/or the CDSCs
received with respect to one class will not be used to subsidize the sale of
shares of another class. Payments of the distribution fee on Class B shares
will terminate upon conversion of those Class B shares into Class D shares as
set forth under "Purchase of Shares--Deferred Sales Charge Alternatives--Class
B and Class C Shares--Conversion of Class B Shares to Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the
distribution fee and the CDSC borne by the Class B shares of each of the Funds,
but not the account maintenance fee. The maximum sales charge rule is applied
separately to each class. As applicable to each Fund, the maximum sales charge
rule limits the aggregate of distribution fee payments and CDSCs payable by
each Fund to (1) 6.25% of eligible gross sales of Class B shares of that Fund
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges) plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC of that Fund). In connection with the Class B
shares, the Distributor has voluntarily agreed to waive interest charges on the
unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the
maximum amount payable to the Distributor in connection with each Fund
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales of that Fund. The Distributor retains the
right to stop waiving the interest charges at any time. To the extent a Fund's
payments would exceed the voluntary maximum, such Fund will not make further
payments of the distribution fee with respect to Class B shares and any CDSCs
will be paid to the Fund rather than to the Distributor; however, such Fund
will continue to make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary maximum may exceed
the amount payable under the NASD formula. In such circumstances payments in
excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Trust is required to redeem for cash all shares of the Funds upon receipt
of a written request in proper form. The redemption price is the net asset
value per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no
charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption. The value
of shares at the time of redemption may be more or less than the shareholder's
cost, depending on the market value of the securities held by a Fund at such
time.
REDEMPTION
A shareholder wishing to redeem shares of a Fund may do so by tendering the
shares directly to the Transfer Agent, Merrill Lynch Financial Data Services,
Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to Merrill Lynch Financial
Data
39
<PAGE>
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Proper notice of redemption in the case of shares deposited with the Transfer
Agent may be accomplished by a written letter requesting redemption. Proper
notice of redemption in the case of shares of a Fund for which certificates
have been issued may be accomplished by a written letter as noted above
accompanied by certificates for the shares to be redeemed. Redemption requests
should not be sent to the Trust or any Fund. The notice in either event
requires the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as such name(s) appear(s) on the Transfer Agent's
register. The signature(s) on the redemption request must be guaranteed by an
"eligible guarantor institution" as such term is defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, the existence and validity of
which may be verified by the Transfer Agent through the use of industry
publications. Notarized signatures are not sufficient. In certain instances,
the Transfer Agent may require additional documents such as, but not limited
to, trust instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. For shareholders
redeeming directly with the Transfer Agent, payments will be mailed within
seven days of receipt of a proper notice of redemption.
At various times the Trust may be requested to redeem shares of a Fund for
which it has not yet received good payment (e.g., cash, Federal funds or
certified check drawn on a United States bank). The Trust may delay or cause to
be delayed the mailing of a redemption check until such time as it has assured
itself that good payment has been collected for the purchase of such Fund
shares, which may take up to 10 days.
REPURCHASE
The Trust also will repurchase shares of a Fund through a shareholder's
listed securities dealer. The Trust normally will accept orders to repurchase
Fund shares by wire or telephone from dealers for their customers at the net
asset value next computed after receipt of the order by the dealer, provided
that the request for repurchase is received by the dealer prior to the close of
business on the NYSE (generally, 4:00 p.m., New York time) on the day received
and is received by a Fund from such dealer not later than 30 minutes after the
close of business on the NYSE on the same day. Dealers have the responsibility
of submitting such repurchase requests to the Trust not later than 30 minutes
after the close of business on the NYSE in order to obtain that day's closing
price.
The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Trust (other than any applicable CDSC);
securities firms which do not have selected dealer agreements with the
Distributor, however, may impose a charge on the shareholder for transmitting
the notice of repurchase to the Trust. Merrill Lynch may charge its customers a
processing fee (presently $4.85) to confirm a repurchase of shares of such
customers. Redemptions directly through a Fund's Transfer Agent are not subject
to the processing fee. The Trust reserves the right to reject any order for
repurchase, which right of rejection might adversely affect shareholders
seeking redemption through the repurchase procedure. However, a shareholder
whose order for repurchase is rejected by the Trust may redeem Fund shares as
set forth above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares of a Fund have
a one-time privilege to reinstate their accounts by purchasing Class A or Class
D shares of that Fund at net asset value without a sales charge up to the
dollar amount redeemed. The reinstatement privilege may be exercised by sending
a notice of exercise along with a check for the amount to be reinstated to the
Transfer Agent within 30 days
40
<PAGE>
after the date the request for redemption was accepted by the Transfer Agent
or the Distributor. The reinstatement will be made at the net asset value per
share next determined after the notice of reinstatement is received and cannot
exceed the amount of the redemption proceeds. The reinstatement is a one-time
privilege and may be exercised by the Class A or Class D shareholder only the
first time such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services and investment plans
designed to facilitate investment in shares of the Funds. Full details as to
each of such services, copies of the various plans described below, and
instructions as to how to participate in the various services or plans, or to
change options with respect thereto can be obtained from the Trust by calling
the telephone number on the cover page hereof or from the Distributor or
Merrill Lynch. Included in such services are the following:
Investment Account. Each shareholder whose account (an "Investment Account")
is maintained at the Transfer Agent has an Investment Account and will receive
statements, at least quarterly, from the Transfer Agent. These statements will
serve as transaction confirmations for automatic investment purchases and the
reinvestment of ordinary income dividends, and long-term capital gain
distributions. The statements will also show any other activity in the account
since the preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of ordinary income dividends and
long-term capital gain distributions. A shareholder may make additions to his
or her Investment Account at any time by mailing a check directly to the
Transfer Agent. Shareholders also may maintain their accounts through Merrill
Lynch. Upon the transfer of shares out of a Merrill Lynch brokerage account,
an Investment Account in the transferring shareholder's name will be opened
automatically at the Transfer Agent. Shareholders considering transferring
their Class A or Class D shares of a Fund from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class A or Class D shares are to be transferred will not take
delivery of shares of the Fund, a shareholder either must redeem the Class A
or Class D shares (paying any applicable CDSC) so that the cash proceeds can
be transferred to the account at the new firm or such shareholder must
continue to maintain an Investment Account at the Transfer Agent for those
Class A or Class D shares. Shareholders interested in transferring their Class
B or Class C shares of a Fund from Merrill Lynch and who do not wish to have
an Investment Account maintained for such shares at the Transfer Agent may
request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the
shareholder at the Transfer Agent.
Exchange Privilege. Shareholders of each class of shares of each of the
Funds have an exchange privilege with certain other MLAM-advised mutual funds.
There is currently no limitation on the number of times a shareholder may
exercise the exchange privilege. The exchange privilege may be modified or
terminated in accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing SM System, Class A shareholders may
exchange Class A shares of a Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class
A shareholder wants to exchange Class A shares for shares of a second MLAM-
advised mutual fund, and the shareholder does not hold Class A shares of the
second fund in his account at the time of the exchange and is not otherwise
eligible to acquire
41
<PAGE>
Class A shares of the second fund, the shareholder will receive Class D shares
of the second fund as a result of the exchange. Class D shares also may be
exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares
of the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the relative
net asset values per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the same
class of other MLAM-advised mutual funds.
Shares of the Funds which are subject to a CDSC are exchangeable on the basis
of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of that Fund. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is tacked on to the holding period of the newly acquired shares of the
other fund.
Class A, Class B, Class C and Class D shares also are exchangeable for shares
of certain MLAM-advised money market funds specifically designated as available
for exchange by holders of Class A, Class B, Class C or Class D shares. The
period of time that Class A, Class B, Class C or Class D shares are held in a
money market fund, however, will not count toward satisfaction of the holding
period requirement for reduction of any CDSC imposed on such shares, if any,
and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of a Fund exercising the exchange privilege will
continue to be subject to that Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of a Fund acquired through use of the exchange privilege will be subject
to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares of the MLAM-advised mutual fund from which the
exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services--Exchange
Privilege" in the Statement of Additional Information.
A Fund's exchange privilege is modified with respect to purchases of Class A
and Class D shares under the MFA program. First, the initial allocation of
assets is made under the MFA program. Then, any subsequent exchange under the
MFA program of Class A or Class D shares of a MLAM-advised mutual fund for
Class A or Class D shares of any of the Funds will be made solely on the basis
of the relative net asset values of the shares being exchanged. Therefore,
there will not be a charge for any difference between the sales charge
previously paid on the shares of the other MLAM-advised mutual fund and the
sales charge payable on the shares of the Fund being acquired in the exchange
under the MFA program.
Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of a Fund, without a sales charge, at the net asset value
per share of that Fund at the close of business on the monthly payment date for
such
42
<PAGE>
dividends and distributions. A shareholder, at any time, by written
notification or by telephone (1-800-MER-FUND) to the Transfer Agent, may elect
to have subsequent dividends or both dividends and capital gains distributions
paid in cash, rather than reinvested, in which event payment will be mailed on
or about the payment date. Cash payments also can be directly deposited to the
shareholder's bank account. No CDSC will be imposed upon redemption of shares
issued as a result of the automatic reinvestment of dividends or capital gains
distributions.
Systematic Withdrawal Plans. A Class A or Class D shareholder of a Fund may
elect to receive systematic withdrawal payments from his or her Investment
Account through automatic payment by check or through automatic payment by
direct deposit to his or her bank account on either a monthly or quarterly
basis. Alternatively, a Class A or Class D shareholder whose shares are held
within a CMA(R) or CBA(R) Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the
CMA(R)/CBA(R) Systematic Redemption Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
and Class D shares may be made to an investor's Investment Account by
prearranged charges of $50 or more to his or her regular bank account. The
Automatic Investment Program of each Fund is not available to shareholders
whose shares are held in a brokerage account with Merrill Lynch. Alternatively,
an investor who maintains a CMA(R) or CBA(R) account may arrange to have
periodic investments made in a Fund in that CMA(R) or CBA(R) account or in
certain related accounts in amounts of $100 or more through the CMA(R)/CBA(R)
Automated Investment Program.
PORTFOLIO TRANSACTIONS
Subject to the policies established by the Trustees of the Trust, the Manager
is primarily responsible for the execution of the Fund's portfolio
transactions. Municipal Bonds and other securities in which the Funds invest
are traded primarily in the over-the-counter market. Where possible, the Trust
deals directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. It is the policy of the Trust to obtain the best net results in
conducting portfolio transactions for the Funds, taking into account such
factors as price (including the applicable dealer spread), the size, type and
difficulty of the transactions involved, the firm's general execution and
operations facilities, and the firm's risk in positioning the securities
involved and the provision of supplemental investment research by the firm.
While reasonably competitive spreads or commissions are sought, the Funds will
not necessarily be paying the lowest spread or commission available. The sale
of shares of the Funds may be taken into consideration as a factor in the
selection of brokers or dealers to execute portfolio transactions for the
Funds. The portfolio securities of the Funds generally are traded on a
principal basis and normally do not involve either brokerage commissions or
transfer taxes. The cost of portfolio securities transactions of the Funds
primarily consists of dealer or underwriter spreads. Under the 1940 Act,
persons affiliated with the Trust, including Merrill Lynch, are prohibited from
dealing with the Trust or any Fund as principals in the purchase and sale of
securities unless such trading is permitted by an exemptive order issued by the
Commission. The Trust has obtained an exemptive order permitting it and each
Fund to engage in certain principal transactions with Merrill Lynch involving
high quality short-term municipal securities, subject to certain conditions. In
addition, the Trust may not purchase securities, including Municipal Bonds, for
the Funds during the existence of any underwriting syndicate of which Merrill
Lynch is a member except pursuant to procedures approved by the Trustees of the
Trust which comply with rules adopted by the Commission. The Trust has applied
for an exemptive order permitting it to, among other things, (i) purchase
43
<PAGE>
high quality tax-exempt securities from Merrill Lynch when Merrill Lynch is a
member of an underwriting syndicate and (ii) purchase tax-exempt securities
from and sell tax-exempt securities to Merrill Lynch in secondary market
transactions. An affiliated person of the Trust may serve as its broker in
over-the-counter transactions conducted for the Funds on an agency basis only.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The net investment income of each Fund is declared as dividends, prior to the
determination of the net asset value which is calculated 15 minutes after the
close of business on the NYSE (generally 4:00 p.m., New York time) on that day.
The net investment income of each Fund for dividend purposes consists of
interest earned on portfolio securities, less expenses, in each case computed
since the most recent determination of the net asset value. Expenses of each
Fund, including the management fees and account maintenance fees and
distribution fees with respect to Class B and Class C shares of that Fund and
account maintenance fees with respect to Class D shares of that Fund, are
accrued daily. Dividends of net investment income of a Fund are declared daily
and reinvested monthly in the form of additional full and fractional shares of
that Fund at net asset value unless the shareholder elects to receive such
dividends in cash. Shares will accrue dividends as long as they are issued and
outstanding. Shares are issued and outstanding from the settlement date of a
purchase order to the day prior to the settlement date of a redemption order.
All net realized long- or short-term capital gains of a Fund, if any, are
declared and distributed to that Fund's shareholders at least annually. Capital
gains distributions will be reinvested automatically in shares of a Fund unless
the shareholder elects to receive such distributions in cash.
The per share dividends and distributions on each class of shares of a Fund
will be reduced as a result of any account maintenance, distribution and
transfer agency fees applicable to that class. See "Additional Information--
Determination of Net Asset Value".
See "Shareholder Services" for information as to how to elect either dividend
reinvestment or cash payments. Portions of dividends and distributions which
are taxable to shareholders as described below are subject to income tax
whether they are reinvested in shares of a Fund or received in cash.
TAXES
Federal. The Trust intends to continue to qualify each Fund for the special
tax treatment afforded regulated investment companies ("RICs") under the
Internal Revenue Code of 1986, as amended (the "Code"). If a Fund so qualifies,
in any taxable year in which it distributes at least 90% of its taxable net
income and 90% of its tax-exempt net income (see below), the Fund (but not its
shareholders) will not be subject to Federal income tax to the extent that it
distributes its net investment income and net realized capital gains. The Trust
intends to cause each Fund to distribute substantially all of such income.
To the extent that the dividends distributed to a Fund's Class A, Class B,
Class C and Class D shareholders (together, the "shareholders") are derived
from interest income exempt from Federal income tax under Code Section 103(a)
and are properly designated as "exempt-interest dividends" by the Trust, they
will be excludable from a shareholder's gross income for Federal income tax
purposes. Exempt-interest dividends are included, however, in determining the
portion, if any, of a person's social security benefits and
44
<PAGE>
railroad retirement benefits subject to Federal income taxes. The Trust will
inform shareholders annually as to the portion of each Fund's distributions
which constitutes exempt-interest dividends and which is exempt from Federal
income tax. Interest on indebtedness incurred or continued to purchase or carry
Fund shares is not deductible for Federal income tax purposes to the extent
attributable to exempt-interest dividends. Persons who may be "substantial
users" (or "related persons" of substantial users) of facilities financed by
industrial development bonds or private activity bonds held by a Fund should
consult their tax advisers before purchasing Fund shares.
To the extent that a 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 each Fund's gain from the sale or redemption of tax-
exempt obligations purchased at a market discount will be treated as ordinary
income rather than capital gain. This rule may increase the amount of ordinary
income dividends received by shareholders. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are held as a
capital asset). Any loss upon the sale or exchange of shares held for six
months or less will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder. In addition, such loss will
be disallowed to the extent of any exempt-interest dividends received by the
shareholder. If a Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Fund and received by its shareholders on December 31 of
the year in which such dividend was declared.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. The alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference", which could subject investors in such bonds, including
shareholders of a Fund, to an alternative minimum tax. Each Fund will purchase
such "private activity bonds" and the Trust will report to shareholders within
60 days after each Fund's taxable year-end the portion of its dividends
declared during the year which constitutes an item of tax preference for
alternative minimum tax purposes. The Code further provides that corporations
are subject to an alternative minimum tax based, in part, on certain
differences between taxable income as adjusted for other tax preferences and
the corporation's "adjusted current earnings", which more closely reflect a
corporation's economic income. Because an exempt-interest dividend paid by a
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
such Fund.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's
45
<PAGE>
basis in the Class B shares converted, and the holding period of the acquired
Class D shares will include the holding period for the converted Class B
shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent any sales charge paid to the Fund
on the exchanged shares reduces any sales charge the shareholder would have
owed upon purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new
shares.
A loss realized on a sale or exchange of shares of a Fund will be disallowed
if other Fund shares are acquired (whether through the automatic reinvestment
of dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
Under certain Code provisions, some shareholders may be subject to a 31%
withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
The Code provides that every person required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including each Fund), during the taxable
year.
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 specific
questions as to Federal, foreign, state or local taxes.
State. The State Municipal Bonds in which each Fund will invest consist of
obligations with remaining maturities of between one and ten years which are
issued by or on behalf of the designated state or its political subdivisions,
agencies or instrumentalities, and obligations of other qualifying issuers,
such as issuers located in Puerto Rico, the Virgin Islands and Guam. State
Municipal Bonds pay interest which is exempt, in the opinion of bond counsel to
the issuer, from Federal income taxes, personal income taxes in the designated
state and, in certain instances, franchise and local personal income taxes. In
certain states, State Municipal Bonds are exempt from intangible personal
property taxes in the designated state.
Exempt-interest dividends paid by a Fund and attributable to interest income
from State Municipal Bonds of a designated state generally will be exempt from
income taxation to shareholders otherwise subject to personal income taxation
by such designated state. Shareholders subject to income taxation by states
other than the Fund's designated state will realize a lower after-tax rate of
return than shareholders in that state since the dividends distributed by a
Fund generally will not be exempt, to any significant degree, from income
46
<PAGE>
taxation by any state other than that Fund's designated state. The Trust will
inform shareholders annually as to the portion of a Fund's distributions which
constitutes exempt-interest dividends and the portion which is not subject to
state and, if applicable, city income or franchise taxes. Interest on
indebtedness incurred or continued to purchase or carry Fund shares generally
will not be deductible for state personal income tax purposes to the extent
attributable to interest income exempt from personal income taxation by the
designated state.
The foregoing description relates generally to state personal income tax
issues; investors should consult with their tax advisers with respect to such
taxes as well as state corporate income or franchise taxes and any state or
local income taxes not described above, as well as to the availability of any
exemptions from state or local income taxes. Additional considerations relating
to income taxation in the various states is set forth under "Distributions and
Taxes" in the Statement of Additional Information.
PERFORMANCE DATA
From time to time each Fund may include its average annual total return,
yield and tax-equivalent yield for various specified time periods in
advertisements or information furnished to present or prospective shareholders.
Average annual total return, yield and tax-equivalent yield are computed in
accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including any CDSC that would be applicable to a
complete redemption of the investment at the end of the specified period such
as in the case of Class B and Class C shares of that Fund and the maximum sales
charge in the case of Class A and Class D shares of that Fund. Dividends paid
by each Fund with respect to all shares, to the extent any dividends are paid,
will be calculated in the same manner at the same time on the same day and will
be in the same amount, except that account maintenance fees and distribution
charges and any incremental transfer agency costs relating to each class of
shares will be borne exclusively by that class. Each Fund will include
performance data for all classes of shares of that Fund in any advertisement or
information including performance data of that Fund.
The Funds also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual
or annualized total return data generally will be lower than average annual
total return data since the average annual rates of return reflect compounding
and aggregate total return data generally will be higher than average annual
total return data since the aggregate rates of return reflect compounding over
a longer period of time. In advertisements distributed to investors whose
purchases are subject to waiver of the CDSC in the case of Class B and Class C
shares or to reduced sales charges in the case of Class A and Class D shares,
performance data may take into account the reduced, and not the maximum, sales
charge or may not take into account the CDSC and therefore may reflect greater
47
<PAGE>
total return since, due to the reduced sales charges or waiver of the CDSC, a
lower amount of expenses is deducted. See "Purchase of Shares". A Fund's total
return may be expressed either as a percentage or as a dollar amount in order
to illustrate such total return on a hypothetical $1,000 investment in the Fund
at the beginning of each specified period.
Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average daily number of shares outstanding during the period that were
entitled to receive dividends multiplied by (c) the maximum offering price per
share on the last day of the period. Tax-equivalent yield quotations will be
computed by dividing (a) the part of the Fund's yield that is tax-exempt by (b)
one minus a stated tax rate and (c) adding the result to that part, if any, of
the Fund's yield that is not tax-exempt.
The following sets forth the yield for the Class A, Class B, Class C and
Class D shares of each of the Funds for the 30-day period ended July 31, 1995.
The table also sets forth the tax-equivalent yield (based on a Federal income
tax rate of 28%) for the Class A, Class B, Class C and Class D shares of each
of the Funds for the same period.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------------------- --------------------- --------------------- ---------------------
30-DAY TAX-EQUIVALENT 30-DAY TAX-EQUIVALENT 30-DAY TAX-EQUIVALENT 30-DAY TAX-EQUIVALENT
YIELD YIELD YIELD YIELD YIELD YIELD YIELD YIELD
------ -------------- ------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona Fund............ 3.86% 5.36% 3.54% 4.92% 3.51% 4.88% 3.77% 5.24%
California Fund......... 3.75% 5.21% 3.43% 4.76% 3.61% 5.01% 3.65% 5.07%
Florida Fund............ 3.86% 5.36% 3.54% 4.92% 3.51% 4.88% 3.77% 5.24%
Massachusetts Fund...... 3.99% 5.54% 3.67% 5.10% 3.87% 5.38% 3.89% 5.40%
Michigan Fund........... 4.24% 5.89% 3.90% 5.42% 3.87% 5.38% 4.14% 5.75%
New Jersey Fund......... 3.72% 5.17% 3.40% 4.72% 3.47% 4.82% 3.63% 5.04%
New York Fund........... 4.13% 5.74% 3.81% 5.29% 3.99% 5.54% 4.04% 5.61%
Pennsylvania Fund....... 4.03% 5.60% 3.72% 5.17% 3.70% 5.14% 3.94% 5.47%
</TABLE>
Total return, yield and tax-equivalent yield figures are based on a Fund's
historical performance and are not intended to indicate future performance. A
Fund's total return, yield and tax-equivalent yield will vary depending on
market conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and the amount of realized and unrealized net capital gain
or losses during the period. The value of an investment in a Fund will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost. Investors' tax-equivalent yields may differ from
those listed above because of the application of state and local income and
intangibles taxes and Federal income tax rates which are higher or lower than
28%.
On occasion, a Fund may compare its performance to performance data published
by Lipper Analytical Services, Inc., Morningstar Publications, Inc.
("Morningstar") and CDA Investment Technology, Inc., or to data contained in
publications such as Money Magazine, U.S. News & World Report, Business Week,
Forbes Magazine and Fortune Magazine. From time to time, a Fund may include its
Morningstar risk-adjusted performance ratings in advertisements or supplemental
sales literature. As with other performance data, performance comparisons
should not be considered indicative of a Fund's relative performance for any
future period.
48
<PAGE>
ADDITIONAL INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value of all of the classes of shares of each Fund is
determined by the Manager once daily 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 net asset value per share is computed by dividing
the sum of the value of the securities held by a Fund plus any cash or other
assets minus all liabilities by the total number of shares outstanding at such
time, rounded to the nearest cent. Expenses, including the fees payable to the
Manager and the Distributor, are accrued daily.
The net asset value per share of the shares of all classes of a Fund are
expected to be equivalent. Under certain circumstances, however, the per share
net asset value of Class A shares of that Fund will be higher than the per
share net asset value of shares of the other classes, reflecting the daily
expense accruals of the account maintenance, distribution and higher transfer
agency fees applicable with respect to Class B and Class C shares and the daily
expense accruals of the account maintenance fees applicable with respect to
Class D shares; moreover, the per share net asset value of Class D shares
generally will be higher than the per share net asset value of Class B and
Class C shares, reflecting the daily expense accruals of the distribution fees
and the higher account maintenance and transfer agency fees applicable with
respect to Class B and Class C shares. It is expected, however, that the per
share net asset value of the classes will tend to converge (although not
necessarily meet) immediately after the payment of dividends or distributions,
which will differ by approximately the amount of the expense accrual
differentials between the classes.
ORGANIZATION OF THE TRUST
The Trust is an unincorporated business trust organized on February 14, 1991
under the laws of Massachusetts. The Trust is an open-end management investment
company comprised of separate series ("Series"), each of which is a separate
portfolio offering shares to selected groups of purchasers. Each of the Series
is managed independently in order to provide to shareholders who are residents
of the state to which such Series relates as high a level of income exempt from
Federal and, in certain cases, state and local personal income taxes as is
consistent with prudent investment management. The Trustees are authorized to
create an unlimited number of Series and, with respect to each Series, to issue
an unlimited number of full and fractional shares of beneficial interest of
$.10 par value of different classes. Shareholder approval is not required for
the authorization of additional Series or classes of a Series of the Trust. At
the date of this Prospectus, the shares of each Fund are divided into four
classes designated Class A, Class B, Class C and Class D shares. Each share of
Class A, Class B, Class C and Class D represents an interest in the same assets
of a Fund and have identical voting, dividend, liquidation and other rights and
the same terms and conditions except that Class B, Class C and Class D shares
bear certain expenses related to the account maintenance associated with such
shares, and Class B and Class C shares bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to such expenditures, as applicable. See "Purchase
of Shares". The Trust has received an order (the "Order") from the Commission
permitting the issuance and sale of multiple classes of shares. The Trustees of
the Trust may classify and reclassify the shares of any Series into additional
classes at a future date. The Order permits the Trust to issue additional
classes of shares of any Series if the Board of Trustees deems such issuance to
be in the best interest of the Trust.
Shareholders are entitled to one vote for each full share and to fractional
votes for fractional shares held in the election of Trustees (to the extent
hereinafter provided) and on other matters submitted to the vote of
49
<PAGE>
shareholders. All shares of the Trust have equal voting rights, except that
only shares of the respective Series are entitled to vote on matters concerning
only that Series and, as noted above, only Class B, Class C and Class D shares
of a Series will have exclusive voting rights with respect to matters relating
to the account maintenance and distribution expenditures being borne solely by
such class. There normally will be no meeting of shareholders for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Shareholders, in accordance with the terms of the Declaration of
Trust, may cause a meeting of shareholders to be held for the purpose of voting
on the removal of Trustees. Also, the Trust will be required to call a special
meeting of shareholders of a Series in accordance with the requirements of the
1940 Act to seek approval of new management and advisory arrangements, of a
material increase in distribution fees or of a change in the fundamental
policies, objectives or restrictions of a Series. Except as set forth above,
the Trustees shall continue to hold office and appoint successor Trustees. Each
issued and outstanding share is entitled to participate equally in dividends
and distributions declared by the respective Series and in net assets of such
Series upon liquidation or dissolution remaining after satisfaction of
outstanding liabilities except that, as noted above, the Class B, Class C and
Class D shares of a Series bear certain additional expenses. The obligations
and liabilities of a particular Series are restricted to the assets of that
Series and do not extend to the assets of the Trust generally. The shares of
each Series, when issued, will be fully-paid and non-assessable by the Trust.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Merrill Lynch Financial Data
Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. Shareholders having any questions regarding
this matter should call their Merrill Lynch financial consultant or Merrill
Lynch Financial Data Services, Inc. at 800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust at the address or
telephone number set forth on the cover page of this Prospectus.
The Declaration of Trust establishing the Trust, dated February 14, 1991, a
copy of which together with all amendments thereto (the "Declaration") is on
file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust" refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any personal
liability, nor shall resort be had to such person's private property for the
satisfaction of any obligation or claim of the Trust, but the "Trust Property"
(as defined in the Declaration) only shall be liable.
50
<PAGE>
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST --
AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)*
[_] Class A shares [_] Class B shares [_] Class D shares
of
[_] Merrill Lynch Arizona Limited [_] Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund Maturity Municipal Bond Fund
[_] Merrill Lynch California Limited [_] Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund Maturity Municipal Bond Fund
[_] Merrill Lynch Florida Limited [_] Merrill Lynch New York Limited
Maturity Municipal Bond Fund Maturity Municipal Bond Fund
[_] Merrill Lynch Massachusetts [_] Merrill Lynch Pennsylvania
Limited Maturity Municipal Bond Fund Limited Maturity Municipal Bond Fund
(THE FUND SELECTED ABOVE IS HEREIN REFERRED TO AS THE "FUND")
and establish an Investment Account as described in the Prospectus. In the
event that I am not eligible to purchase Class A shares, I understand that
Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Merrill Lynch Financial
Data Services, Inc. as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of
paper if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
(Please Print)
Name...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address............................................. Date............. , 19...
...............................................................................
(Zip Code)
Occupation........................... Name and Address of Employer ........
.....................................
.....................................
..................................... .....................................
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. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTION
Ordinary Income Dividends Long-Term Capital Gains
SELECT [_] Reinvest SELECT [_] Reinvest
ONE: [_] Cash ONE: [_] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] Check
or [_] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust Authorization Form.
Specify type of account (check one): [_] checking [_] savings
Name on your Account ..........................................................
Bank Name .....................................................................
Bank Number ...................... Account Number ............................
Bank Address ..................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor ........................................................
Signature of Depositor ............................... Date...................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
51
<PAGE>
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST --
AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- -------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
[ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed in the Prospectus
under "Distributions and Taxes--Taxes") either because I have not been
notified that I am subject thereto as a result of a failure to report all
interest or dividends, or the Internal Revenue Service ("IRS") has notified me
that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
..................., 19......
Date of Initial Purchase
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of the
Fund or any other investment company with an initial sales charge or deferred
sales charge for which the Merrill Lynch Funds Distributor, Inc. acts as
distributor over the next 13 month period which will equal or exceed:
[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc. my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Multi-State Limited Maturity Municipal Series
Trust held as security.
By: ................................. .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name............................. (2) Name.............................
Account Number....................... Account Number.......................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
- - - our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases made under a Letter of
Intention or Systematic Withdrawal
Plan. We guarantee the Shareholder's
signature.
.....................................
Dealer Name and Address
- - - By: .................................
This form when completed, should Authorized Signature of Dealer
be mailed to:
Merrill Lynch Multi-State Limited [ ][ ][ ] [ ][ ][ ][ ]
Maturity Municipal Series Trust Branch Code F/C No.
...............
F/C Last Name
c/o Merrill Lynch Financial Data [ ][ ][ ] [ ][ ][ ][ ][ ]
Services, Inc. Dealer's Customer Account No.
P.O. Box 45289
Jacksonville, Florida 32232-5289
52
<PAGE>
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST --
AUTHORIZATION FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
(Please Print) [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security No.
Name of Owner...................... or Taxpayer Identification Number
First Name Initial Last Name
Name of Co-Owner (if any)..........
First Name Initial Last Name
Address............................ Account Number ....................
(if existing account)
...................................
(Zip Code)
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [_] Class A or [_] Class D shares in (choose one)
[_] Merrill Lynch Michigan Limited
[_] Merrill Lynch Arizona Limited Maturity Municipal Bond Fund
Maturity Municipal Bond Fund
[_] Merrill Lynch California Limited [_] Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund Maturity Municipal Bond Fund
[_] Merrill Lynch Florida Limited [_] Merrill Lynch New York Limited
Maturity Municipal Bond Fund Maturity Municipal Bond Fund
[_] Merrill Lynch Massachusetts [_] Merrill Lynch Pennsylvania
Limited Maturity Municipal Bond Fund Limited Maturity Municipal Bond Fund
(THE FUND SELECTED ABOVE IS HEREIN REFERRED TO AS THE "FUND")
at cost or current offering price. Withdrawals to be made either (check
one) [_] Monthly on the 24th day of each month, or [_] Quarterly on the 24th
day of March, June, September and December. If the 24th falls on a weekend or
holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on or as soon as possible thereafter.
-------
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): [_] $
-----
or [_] % of the current value of [_] Class A or [_] Class D shares in the
----
account.
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a)I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of..........................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (please print)......................................................
Address .......................................................................
..........................................................................
Signature of Owner................................ Date..................
Signature of Co-Owner (if any)............................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING
OR TERMINATING THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name on your Account...........................................................
Bank Name......................................................................
Bank Number........................ Account Number............................
Bank Address...................................................................
........................................................................
Signature of Depositor................................. Date..................
Signature of Depositor.........................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
53
<PAGE>
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST --
AUTHORIZATION FORM (PART 2) -- (CONTINUED)
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described
below each month to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class D shares
of the Fund subject to the terms set forth below. In the event that I am not
eligible to purchase Class A shares, I understand that Class D shares will be
purchased.
AUTHORIZATION TO HONOR ACH DEBITS
MERRILL LYNCH FINANCIAL DATA
SERVICES, INC.
You are hereby authorized to draw an DRAWN BY MERRILL LYNCH FINANCIAL
ACH debit each month on my bank DATA SERVICES, INC.
account for investment in the Fund
as indicated below:
To...............................Bank
Amount of each ACH debit $........ (Investor's Bank)
Bank Address.........................
Account No. ......................
Please date and invest ACH debits on City...... State...... Zip Code......
the 20th of each month
beginning or as soon thereafter As a convenience to me, I hereby
----- request and authorize you to pay and
(Month) charge to my account ACH debits
as possible. drawn on my account by and payable
to Merrill Lynch Financial Data
I agree that you are drawing these Services, Inc. I agree that your
ACH debits voluntarily at my request rights in respect to each such debit
and that you shall not be liable for shall be the same as if it were a
any loss arising from any delay in check drawn on you and signed
preparing or failure to prepare any personally by me. This authority is
such debit. If I change banks or to remain in effect until revoked by
desire to terminate or suspend this me in writing. Until you receive
program, I agree to notify you such notice, you shall be fully
promptly in writing. I hereby protected in honoring any such
authorize you to take any action to debit. I further agree that if any
correct erroneous ACH debits of my such debit be dishonored, whether
bank account or purchases of Fund with or without cause and whether
shares including liquidating shares intentionally or inadvertently, you
of the Fund and credit my bank shall be under no liability.
account. I further agree that if a
debit is not honored upon ............ .....................
presentation, Merrill Lynch Financial Date Signature of
Data Services, Inc. is authorized to Depositor
discontinue immediately the Automatic
Investment Plan and to liquidate ............ .....................
sufficient shares held in my account Bank Signature of Depositor
to offset the purchase made with the Account (If joint account,
dishonored debit. Number both must sign)
............ .....................
Date Signature of
Depositor
......................
Signature of Depositor
(If joint account,
both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
54
<PAGE>
MANAGER
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
The Bank of New York
90 Washington Street
12th Floor
New York, New York 10005
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 3
Merrill Lynch Select PricingSM System...................................... 7
Financial Highlights....................................................... 11
Investment Objectives and Policies......................................... 15
Potential Benefits........................................................ 17
Risk Factors and Special Considerations................................... 18
Description of Municipal Bonds............................................ 20
When-Issued Securities and Delayed Delivery
Transactions............................................................. 22
Indexed and Inverse Floating Obligations.................................. 22
Synthetic Short-Term Municipal Bonds...................................... 23
Call Rights............................................................... 23
Financial Futures Contracts and Options Thereon........................... 24
Repurchase Agreements..................................................... 26
Investment Restrictions................................................... 26
Management of the Trust.................................................... 28
Trustees.................................................................. 28
Management and Advisory Arrangements...................................... 28
Code of Ethics............................................................ 29
Transfer Agency Services.................................................. 30
Purchase of Shares......................................................... 30
Initial Sales Charge Alternatives--Class A and Class D Shares............. 32
Deferred Sales Charge Alternatives--Class B and Class C Shares............ 34
Distribution Plans........................................................ 37
Limitations on the Payment of Deferred Sales Charges...................... 39
Redemption of Shares....................................................... 39
Redemption................................................................ 39
Repurchase................................................................ 40
Reinstatement Privilege--Class A and Class D Shares....................... 40
Shareholder Services....................................................... 41
Portfolio Transactions..................................................... 43
Distributions and Taxes.................................................... 44
Distributions............................................................. 44
Taxes..................................................................... 44
Performance Data........................................................... 47
Additional Information..................................................... 49
Determination of Net Asset Value.......................................... 49
Organization of the Trust................................................. 49
Shareholder Reports....................................................... 50
Shareholder Inquiries..................................................... 50
Authorization Form......................................................... 51
</TABLE>
Code # 16925--1195
[LOGO] MERRILL LYNCH
Merrill Lynch Multi-State
Limited Maturity
Municipal Series Trust
Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund
Merrill Lynch California Limited
Maturity Municipal Bond Fund
Merrill Lynch Florida Limited
Maturity Municipal Bond Fund
Merrill Lynch Massachusetts Limited
Maturity Municipal Bond Fund
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund
Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund
Merrill Lynch New York Limited
Maturity Municipal Bond Fund
Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund
[ART]
PROSPECTUS
November 21, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH MULTI-STATE LIMITED MATURITY MUNICIPAL SERIES TRUST
Merrill Lynch Arizona Limited Maturity Merrill Lynch Michigan Limited
Municipal Bond Fund Maturity
Municipal Bond Fund
Merrill Lynch California Limited Merrill Lynch New Jersey Limited
Maturity Maturity
Municipal Bond Fund Municipal Bond Fund
Merrill Lynch Florida Limited Maturity Merrill Lynch New York Limited
Municipal Bond Fund Maturity
Municipal Bond Fund
Merrill Lynch Massachusetts Limited Merrill Lynch Pennsylvania Limited
Maturity Maturity
Municipal Bond Fund Municipal Bond Fund
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust (the
"Trust"), an open-end management investment company organized as a
Massachusetts business trust, consists of eight separate series: Merrill Lynch
Arizona Limited Maturity Municipal Bond Fund (the "Arizona Fund"), Merrill
Lynch California Limited Maturity Municipal Bond Fund (the "California Fund"),
Merrill Lynch Florida Limited Maturity Municipal Bond Fund (the "Florida
Fund"), Merrill Lynch Massachusetts Limited Maturity Municipal Bond Fund (the
"Massachusetts Fund"), Merrill Lynch Michigan Limited Maturity Municipal Bond
Fund (the "Michigan Fund"), Merrill Lynch New Jersey Limited Maturity
Municipal Bond Fund (the "New Jersey Fund"), Merrill Lynch New York Limited
Maturity Municipal Bond Fund (the "New York Fund"), and Merrill Lynch
Pennsylvania Limited Maturity Municipal Bond Fund (the "Pennsylvania Fund")
(together, the "Funds"). The investment objective of each Fund is to provide
shareholders with as high a level of income exempt from Federal income taxes
and personal income taxes imposed by the designated state (and, in certain
instances, local personal income taxes) as is consistent with prudent
investment management. Under normal market conditions, each Fund invests
primarily in a portfolio of intermediate-term investment grade obligations of
the designated state or its political subdivisions, agencies or
instrumentalities, or certain other jurisdictions, that pay interest exempt,
in the opinion of bond counsel to the issuer, from Federal income taxes and
personal income taxes of the designated state and, where applicable, local
personal income taxes. There can be no assurance that the investment objective
of any Fund will be realized.
Pursuant to the Merrill Lynch Select Pricing SM System each Fund offers four
classes of shares each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances.
The Statement of Additional Information of the Trust and each Fund is not a
prospectus and should be read in conjunction with the prospectus of the Trust
and each Fund, dated November 21, 1995 (the "Prospectus"), which has been
filed with the Securities and Exchange Commission and can be obtained, without
charge, by calling or by writing the Trust at the above telephone number or
address. This Statement of Additional Information has been incorporated by
reference into the Prospectus. Capitalized terms used but not defined herein
have the same meanings as in the Prospectus.
---------------
FUND ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
---------------
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS NOVEMBER 21, 1995
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is to provide shareholders with as high
a level of income exempt from Federal income taxes, the designated state's
personal income taxes and, where applicable, local personal income taxes, as is
consistent with prudent investment management. Each Fund seeks to achieve its
objective by investing primarily in a portfolio of intermediate-term investment
grade obligations issued by or on behalf of the designated state or its
political subdivisions, agencies or instrumentalities, and obligations of other
qualifying issuers, such as issuers located in Puerto Rico, the Virgin Islands
and Guam. Such obligations pay interest exempt, in the opinion of bond counsel
to the issuer, from Federal income taxes, the designated state's personal
income taxes, and, in certain instances, local personal income taxes.
Obligations that pay interest exempt from Federal income taxes are referred to
herein as "Municipal Bonds". Obligations that pay interest exempt from Federal
income taxes, the designated state's personal income taxes and, where
applicable, local personal income taxes, and obligations that would not subject
shareholders to intangible personal property taxes in the designated state are
referred to herein as "State Municipal Bonds". Unless otherwise indicated,
references to Municipal Bonds shall be deemed to include State Municipal Bonds.
Each Fund anticipates that at all times, except during temporary defensive
periods, it will maintain at least 65% of its total assets invested in its
respective State Municipal Bonds; the New Jersey Fund will maintain at least
80% of its total assets invested in New Jersey State Municipal Bonds. At times,
a Fund may seek to hedge its portfolio through the use of futures transactions
to reduce volatility in the net asset value of Fund shares. Reference is made
to "Investment Objectives and Policies" in the Prospectus for a discussion of
the investment objective and policies of each Fund.
Each Fund will invest only in Municipal Bonds with remaining maturities of
between one and ten years. It is anticipated that, depending on market
conditions, the dollar weighted average maturity of each Fund's portfolio will
not exceed five years. For purposes of these investment policies, an obligation
will be treated as having a maturity earlier than its stated maturity date if
such obligation has technical features which, in the judgment of Fund Asset
Management, L.P. (the "Manager") will result in the obligation being valued in
the market as though it has such earlier maturity. Interest rates on shorter-
term Municipal Bonds may fluctuate more widely from time to time than interest
rates on longer-term Municipal Bonds. However, because of their limited
maturities, the market value of the Municipal Bonds held by each Fund can be
expected to fluctuate less as a result of changes in interest rates.
Municipal Bonds may include general obligation bonds of a state and its
political subdivisions, revenue bonds of utility systems, highways, bridges,
port and airport facilities, colleges, hospitals, housing facilities, etc., and
industrial development bonds or private activity bonds. The interest on such
obligations may bear a fixed rate or be payable at a variable or floating rate.
The Municipal Bonds purchased by each Fund will be primarily what are commonly
referred to as "investment grade" securities, which are obligations rated at
the time of purchase within the four highest quality ratings as determined by
either Moody's Investors Service, Inc. ("Moody's") (currently Aaa, Aa, A and
Baa), Standard & Poor's Ratings Group ("Standard & Poor's") (currently AAA, AA,
A and BBB) or Fitch Investors Service, Inc. ("Fitch") (currently AAA, AA, A and
BBB). If unrated, such securities will possess creditworthiness comparable, in
the opinion of the Manager, to investment grade obligations.
Certain Municipal Bonds may be entitled to the benefits of letters of credit
or similar credit enhancements issued by financial institutions. In such
instances, the Trustees and the Manager will take into account in assessing the
quality of such obligations not only the creditworthiness of the issuer of such
obligations but also the creditworthiness of the financial institution. In
evaluating the creditworthiness of the financial institution, the Trustees and
the Manager will consider factors such as whether the letter of credit or
similar credit enhancement being issued is conditional or unconditional.
The Funds ordinarily do not intend to realize investment income not exempt
from Federal income taxes, the designated state's personal income taxes and,
where applicable, local personal income taxes, or to hold investments that
would subject shareholders to intangible personal property taxes in the
designated state.
2
<PAGE>
However, to the extent that suitable State Municipal Bonds are not available
for investment by a Fund, a Fund may purchase Municipal Bonds issued by other
states or their agencies or instrumentalities, the interest income on which is
exempt, in the opinion of bond counsel to the issuer, from Federal but not the
designated state's taxation. Each Fund also may invest in securities not issued
by or on behalf of a state or territory or by an agency or instrumentality
thereof, if the Fund nevertheless believes such securities to be exempt from
Federal income taxation ("Non-Municipal Tax-Exempt Securities"). Non-Municipal
Tax-Exempt Securities may include securities issued by other investment
companies that invest in municipal bonds, to the extent permitted by applicable
law. Other Non-Municipal Tax-Exempt Securities could include trust certificates
or other instruments evidencing interests in one or more long-term municipal
securities.
Except when acceptable securities are unavailable as determined by the
Manager, each Fund, under normal circumstances, will invest at least 65% (80%
in the case of the New Jersey Fund) of its total assets in its respective State
Municipal Bonds. For temporary defensive purposes or to provide liquidity, each
Fund has the authority to invest in tax-exempt or taxable money market
obligations with maturities of one year or less (such short-term obligations
being referred to herein as "Temporary Investments"), except that taxable
Temporary Investments shall not exceed 20% of a Fund's net assets. Each Fund at
all times will have at least 80% of its net assets invested in securities
exempt from Federal income taxation. However, interest received on certain
otherwise tax-exempt securities which are classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities) may be
subject to an alternative minimum tax. Each Fund may purchase such private
activity bonds. See "Distributions and Taxes". In addition, each Fund reserves
the right to invest temporarily a greater portion of its assets in Temporary
Investments for defensive purposes, when, in the judgment of the Manager,
market conditions warrant. The investment objective of each Fund set forth in
this paragraph is a fundamental policy of the Fund which may not be changed
without a vote of a majority of the outstanding shares of the Fund as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). A Fund's
hedging strategies are not fundamental policies and may be modified by the
Trustees of the Trust without the approval of the Fund's shareholders.
Municipal Bonds at times may be purchased or sold on a delayed delivery basis
or on a when-issued basis. These transactions arise when securities are
purchased or sold by a Fund with payment and delivery taking place in the
future, often a month or more after the purchase. The payment obligation and
the interest rate are each fixed at the time the buyer enters into the
commitment. A Fund only will make commitments to purchase such securities with
the intention of actually acquiring the securities, but a Fund (subject to any
state or local personal income tax limitations) may sell these securities prior
to the settlement date if it is deemed advisable. Purchasing Municipal Bonds on
a when-issued basis involves the risk that the yields available in the market
when the delivery takes place actually may be higher than those obtained in the
transaction itself; if yields so increase, the value of the when-issued
obligations generally will decrease. Each Fund will maintain a separate account
at its custodian bank consisting of cash, cash equivalents or high-grade,
liquid municipal securities or Temporary Investments (valued on a daily basis)
equal at all times to the amount of the when-issued commitment.
The Funds may invest in Municipal Bonds the return on which is based on a
particular index of value or interest rates. For example, the Funds may invest
in Municipal Bonds that pay interest based on an index of Municipal Bond
interest rates or based on the value of gold or some other product. The
principal amount payable upon maturity of certain Municipal Bonds also may be
based on the value of an index. To the extent the Funds invest in these types
of Municipal Bonds, their return on such Municipal Bonds will be subject to
risk with respect to the value of the particular index, which may include
reduced or eliminated interest payments and losses of invested principal. Also,
the Funds may invest in so-called "inverse floating obligations" or "residual
interest bonds" on which the interest rates typically vary inversely with a
short-term floating rate (which may be reset periodically by a dutch auction,
by a remarketing agent or by reference to a short-term tax-exempt interest rate
index). The Funds may purchase original issue inverse floating rate bonds in
both the primary and secondary markets and also may purchase in the secondary
market synthetically-created inverse floating rate bonds evidenced by custodial
or trust receipts. Generally, interest rates on inverse
3
<PAGE>
floating rate bonds will decrease when short-term rates increase, and will
increase when short-term rates decrease. Such securities have the effect of
providing a degree of investment leverage, since they may increase or decrease
in value in response to changes, as an illustration, in market interest rates
at a rate which is a multiple (typically two) of the rate at which fixed-rate,
long-term, tax-exempt securities increase or decrease in response to such
changes. As a result, the market values of such securities generally will be
more volatile than the market values of fixed-rate, tax-exempt securities. To
seek to limit the volatility of these securities, the Funds may purchase
inverse floating obligations with shorter term maturities or which contain
limitations on the extent to which the interest rate may vary. The Manager
believes that indexed and inverse floating obligations represent flexible
portfolio management instruments for the Funds which allow the Funds to seek
potential investment rewards, hedge other portfolio positions or vary the
degree of investment leverage relatively efficiently under different market
conditions. Certain investments in such obligations may be illiquid. A Fund may
not invest in such illiquid obligations if such investments, together with
other illiquid investments, would exceed 15% of that Fund's total assets.
The Funds may purchase a Municipal Bond issuer's right to call all or a
portion of such Municipal Bond for mandatory tender for purchase (a "Call
Right"). A holder of a Call Right may exercise such right to require a
mandatory tender for the purchase of related Municipal Bonds, subject to
certain conditions. A Call Right that is not exercised prior to the maturity of
the related Municipal Bond will expire without value. The economic effect of
holding both the Call Right and the related Municipal Bond is identical to
holding a Municipal Bond as a non-callable security. Certain investments in
such obligations may be illiquid. A Fund may not invest in such illiquid
obligations if such investments, together with other illiquid investments,
would exceed 15% of that Fund's total assets.
A Fund may invest up to 20% of its total assets in Municipal Bonds which are
rated below Baa by Moody's or below BBB by Standard & Poor's or Fitch or which,
in the Manager's judgment, possess similar credit characteristics ("high yield
securities"). See Appendix I--"Ratings of Municipal Bonds"--for additional
information regarding ratings of debt securities. The Manager considers the
ratings assigned by Standard & Poor's, Moody's or Fitch as one of several
factors in its independent credit analysis of issuers.
High yield securities are considered by Standard & Poor's, Moody's and Fitch
to have varying degrees of speculative characteristics. Consequently, although
high yield securities can be expected to provide higher yields, such securities
may be subject to greater market price fluctuations and risk of loss of
principal than lower yielding, higher rated debt securities. Investments in
high yield securities will be made only when, in the judgment of the Manager,
such securities provide attractive total return potential relative to the risk
of such securities, as compared to higher quality debt securities. The Funds
generally will not invest in debt securities in the lowest rating categories
(those rated CC or lower by Standard & Poor's or Fitch or Ca or lower by
Moody's) unless the Manager believes that the financial condition of the issuer
or the protection afforded the particular securities is stronger than otherwise
would be indicated by such low ratings.
Issuers or obligors of high yield securities may be highly leveraged and may
not have available to them more traditional methods of financing. Therefore,
the risks associated with acquiring the securities of such issuers or obligors
generally are greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers or obligors of high yield securities may be more likely to
experience financial stress, especially if such issuers or obligors are highly
leveraged. During periods of economic recession, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be adversely affected by
specific issuer developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
The risk of loss due to default by the issuer is significantly greater for the
holders of high yield securities because such securities may be unsecured and
may be subordinated to other creditors of the issuer.
4
<PAGE>
High yield securities frequently have call or redemption features that would
permit an issuer to repurchase the security from a Fund. If a call were
exercised by the issuer during a period of declining interest rates, a Fund
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends
to shareholders.
The Funds may have difficulty disposing of certain high yield securities
because there may be a thin trading market for such securities. Because not all
dealers maintain markets in all high yield securities, there is no established
secondary market for many of these securities, and the Funds anticipate that
such securities could be sold only to a limited number of dealers or
institutional investors. To the extent that a secondary trading market for high
yield securities does exist, it generally is not as liquid as the secondary
market for higher rated securities. Reduced secondary market liquidity may have
an adverse impact on market price and a Fund's ability to dispose of particular
issues when necessary to meet the Fund's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for certain securities also may make
it more difficult for a Fund to obtain accurate market quotations for purposes
of valuing the Fund's portfolio. Market quotations generally are available on
many high yield securities only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
It is expected that a significant portion of the high yield securities
acquired by a Fund will be purchased upon issuance, which may involve special
risks because the securities so acquired are new issues. In such instances the
Fund may be a substantial purchaser of the issue and therefore have the
opportunity to participate in structuring the terms of the offering. Although
this may enable a Fund to seek to protect itself against certain of such risks,
the considerations discussed herein would nevertheless remain applicable.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of high yield securities are likely to affect adversely a
Fund's net asset value. In addition, a Fund may incur additional expenses to
the extent that it is required to seek recovery upon a default on a portfolio
holding or participate in the restructuring of the obligation.
DESCRIPTION OF MUNICIPAL BONDS AND OTHER INVESTMENTS
Set forth below is a description of the Municipal Bonds and other instruments
in which each Fund may invest. A more complete discussion concerning futures
and options transactions and Municipal Bonds is set forth under "Investment
Objectives and Policies" in the Prospectus. Information with respect to ratings
assigned to tax-exempt obligations which the Funds may purchase is set forth in
Appendix I to this Statement of Additional Information.
DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds include debt obligations issued to obtain funds for various
public purposes, including construction of a wide range of public facilities,
refunding of outstanding obligations and obtaining of funds for general
operating expenses and loans to other public institutions and facilities. In
addition, certain types of industrial development bonds or private activity
bonds are issued by or on behalf of public authorities to finance or refinance
various privately owned or operated facilities, including certain facilities
for the local furnishing of electric energy or gas, sewage facilities, solid
waste disposal facilities and other specialized facilities. For purposes of
this Statement of Additional Information, such obligations are referred to as
Municipal Bonds if the interest paid thereon, in the opinion of bond counsel to
the issuer, is excluded from gross income for Federal income tax purposes
("exempt from Federal income tax"). Such obligations are referred to herein as
State Municipal Bonds if the interest paid thereon is exempt, in the opinion of
bond counsel to the issuer, from Federal income taxes, the designated state's
personal income taxes and, where applicable, local personal income taxes, and
if the Fund's investment in such obligations would not subject
5
<PAGE>
Fund shareholders to intangible personal property taxes in the designated
state. Other types of industrial development bonds or private activity bonds,
the proceeds of which are used for the construction, equipment or improvement
of privately operated industrial or commercial facilities, may constitute
Municipal Bonds, although the current Federal tax laws place substantial
limitations on the size of such issues.
The two principal classifications of Municipal Bonds are "general obligation"
bonds and "revenue" bonds. General obligation bonds are secured by the issuer's
pledge of faith, credit and taxing power for the repayment of principal and the
payment of interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special or limited tax or other specific revenue source such as
payments from the user of the facility being financed. Industrial development
bonds ("IDBs") and private activity bonds, are in most cases revenue bonds and
generally do not constitute the pledge of the credit or taxing power of the
issuer of such bonds. Generally, the repayment of the principal of and the
payment of interest on such bonds depends solely on the ability of the user of
the facility financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment, unless a line of credit, bond insurance or other security is
furnished. The Funds may invest in Municipal Bonds that are so-called "moral
obligation" bonds, which normally are issued by special purpose public
authorities and are payable from specific revenue sources. If an issuer of
moral obligation bonds is unable to meet its obligations, repayment of such
bonds becomes a moral commitment, but not a legal obligation, of the state or
municipality in question.
Municipal Lease Obligations. 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 frequently is 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. Certain investments in lease obligations may be illiquid. A Fund
may not invest in illiquid lease obligations if such investments, together with
all other illiquid investments, would exceed 15% of the Fund's total assets. A
Fund, however, may invest without regard to such limitation in lease
obligations which the Manager, pursuant to the guidelines which have been
adopted by the Board of Trustees and subject to the supervision of the Board of
Trustees, determines to be liquid. The Manager will deem lease obligations
liquid if they are publicly offered and have received an investment grade
rating of Baa or better by Moody's, or BBB or better by Standard & Poor's or
Fitch. Unrated lease obligations, or those rated below investment grade, will
be considered liquid if the obligations come to the market through an
underwritten public offering and at least two dealers are willing to give
competitive bids. In reference to the latter, the Manager, among other things,
also must review the creditworthiness of the municipality obligated to make
payment under the lease obligation and make certain specified determinations
based on such factors as the existence of a rating or credit enhancement such
as insurance, the frequency of trades or quotes for the obligation and the
willingness of dealers to make a market in the obligation.
Yields on Municipal Bonds are dependent on a variety of factors, including
the general condition of the money market and of the municipal bond market, the
size of a particular offering, the financial condition of the issuer, the
general conditions of the Municipal Bond market, the maturity of the
obligation, and the rating of the issue. The ability of a Fund to achieve its
investment objective also is dependent on the continuing ability of the issuers
of the bonds in which the Fund invests to meet their obligations for the
payment of interest and repayment of principal when due. There are variations
in the risks involved in holding Municipal Bonds, both within a particular
classification and between classifications, depending on numerous factors.
6
<PAGE>
Furthermore, the rights of owners of Municipal Bonds and the obligations of the
issuer of such Municipal Bonds may be subject to applicable bankruptcy,
insolvency and similar laws and court decisions affecting the rights of
creditors generally and to general equitable principles, which may limit the
enforcement of certain remedies.
DESCRIPTION OF TEMPORARY INVESTMENTS AND VARIABLE RATE DEMAND OBLIGATIONS
The Fund may invest in Temporary Investments subject to the limitations set
forth under "Investment Objectives and Policies". The tax-exempt money market
securities may include municipal notes, municipal commercial paper, municipal
bonds with a remaining maturity of less than one year, variable rate demand
notes and participations therein. Municipal notes include tax anticipation
notes, bond anticipation notes and grant anticipation notes. Anticipation notes
are sold as interim financing in anticipation of tax collection, bond sales,
government grants or revenue receipts. Municipal commercial paper refers to
short-term unsecured promissory notes generally issued to finance short-term
credit needs. The taxable money market securities in which the Fund may invest
as Temporary Investments consist of U.S. Government securities, U.S. Government
agency securities, domestic bank or savings institution certificates of deposit
and bankers' acceptances, short-term corporate debt securities such as
commercial paper, and repurchase agreements. These Temporary Investments must
have a stated maturity not in excess of one year from the date of purchase.
The Funds also may invest in variable rate demand obligations ("VRDOs").
VRDOs are tax-exempt obligations which contain a floating or variable interest
rate adjustment formula and an unconditional right of demand on the part of the
holder thereof to receive payment of the unpaid principal balance plus accrued
interest upon a short notice period not to exceed seven days. There is,
however, the possibility that because of default or insolvency the demand
feature of VRDOs and Participating VRDOs, described below, may not be honored.
The interest rates are adjustable at intervals (ranging from daily to up to one
year) to some prevailing market rate for similar investments, such adjustment
formula being calculated to maintain the market value of the VRDOs at
approximately the par value of the VRDOs on the adjustment date. The
adjustments typically are set at a rate determined by the remarketing agent or
based upon the prime rate of a bank or some other appropriate interest rate
adjustment index. The Funds may invest in all types of tax-exempt instruments
currently outstanding or to be issued in the future which satisfy the short-
term maturity and quality standards of the Funds.
The Funds also may invest in VRDOs in the form of participation interests
("Participating VRDOs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank. Participating VRDOs provide
the Funds with a specified undivided interest (up to 100%) of the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the Participating VRDOs from the financial institution upon
a specified number of days' notice, not to exceed seven days. In addition, a
Participating VRDO is backed by an irrevocable letter of credit or guaranty of
the financial institution. The Funds would have an undivided interest in the
underlying obligation and thus participate on the same basis as the financial
institution in such obligation except that the financial institution typically
retains fees out of the interest paid on the obligation for servicing the
obligation, providing the letter of credit and issuing the repurchase
commitment. The Trust has been advised by its counsel that the Funds should be
entitled to treat the income received on Participating VRDOs as interest from
tax-exempt obligations.
VRDOs that contain an unconditional right of demand to receive payment of the
unpaid principal balance plus accrued interest on a notice period exceeding
seven days may be deemed to be illiquid securities. A VRDO with a demand notice
period exceeding seven days therefore will be subject to a Fund's restriction
on illiquid investments unless, in the judgment of the Trustees, such VRDO is
liquid. The Trustees may adopt guidelines and delegate to the Manager the daily
function of determining and monitoring liquidity of such VRDOs. The Trustees,
however, will retain sufficient oversight and will be ultimately responsible
for such determination.
7
<PAGE>
The Trust has established the following standards with respect to money
market securities and VRDOs in which the Funds invest. Commercial paper
investments at the time of purchase must be rated A-1+ through A-3 by Standard
& Poor's, Prime-1 through Prime-3 by Moody's or F-1+ through F-3 by Fitch or,
if not rated, issued by companies having an outstanding debt issue rated at
least A by Standard & Poor's, Fitch or Moody's. Investments in corporate bonds
and debentures (which must have maturities at the date of purchase of one year
or less) must be rated at the time of purchase at least A by Standard & Poor's,
Moody's or Fitch. Notes and VRDOs at the time of purchase must be rated SP-
1+/A-1 through SP-2/A-3 by Standard & Poor's, MIG-l/VMIG-1 through MIG-4/VMIG-4
by Moody's or F-1+ through F-3 by Fitch. Temporary Investments, if not rated,
must be of comparable quality to securities rated in the above rating
categories in the opinion of the Manager. A Fund may not invest in any security
issued by a commercial bank or a savings institution unless the bank or
institution is organized and operating in the United States, has total assets
of at least one billion dollars and is a member of the Federal Deposit
Insurance Corporation (the "FDIC"), except that up to 10% of a Fund's total
assets may be invested in certificates of deposit of small institutions if such
certificates are insured fully by the FDIC.
REPURCHASE AGREEMENTS
As Temporary Investments, the Funds may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S.
Government securities or an affiliate thereof. Under such agreements, the
seller agrees, upon entering into the contract, to repurchase the security from
the Fund at a mutually agreed upon time and price, thereby determining the
yield during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period. In repurchase
agreements, the prices at which the trades are conducted do not reflect accrued
interest on the underlying obligations. Such agreements usually cover short
periods, such as under one week. Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by the securities
transferred to the purchaser. In the case of a repurchase agreement, a Fund
will require the seller to provide additional collateral if the market value of
the securities falls below the repurchase price at any time during the term of
the repurchase agreement. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by a Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, a Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. In the event of a default under such a
repurchase agreement, instead of the contractual fixed rate of return, the rate
of return to a Fund will depend on intervening fluctuations of the market value
of such security and the accrued interest on the security. In such event, a
Fund would have rights against the seller for breach of contract with respect
to any losses arising from market fluctuations following the failure of the
seller to perform. A Fund may not invest in repurchase agreements maturing in
more than seven days if such investments, together with all other illiquid
investments, would exceed 15% of that Fund's total assets.
In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold". Therefore,
amounts earned under such agreements will not be considered tax-exempt
interest.
FINANCIAL FUTURES CONTRACTS AND OPTIONS
Reference is made to the discussion concerning futures and options
transactions under "Investment Objectives and Policies" in the Prospectus. Set
forth below is additional information concerning these transactions.
As described in the Prospectus, each Fund may purchase and sell exchange-
traded financial futures contracts ("financial futures contracts") and options
thereon to hedge its portfolio of Municipal Bonds against declines in the value
of such securities and to hedge against increases in the cost of securities a
Fund intends to purchase. However, any transactions involving financial futures
or options (which options may include
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both puts and calls) will be in accordance with a Fund's investment policies
and limitations. To hedge its portfolio, a Fund may take an investment position
in a financial futures contract or option thereon which will move in the
opposite direction from the portfolio position being hedged. While a Fund's use
of hedging strategies is intended to moderate capital changes in portfolio
holdings and thereby reduce volatility of the net asset value of Fund shares,
each Fund anticipates that its net asset value will fluctuate. Set forth below
is information concerning financial futures contracts and options thereon.
Description of Financial Futures Contracts. A financial futures contract is
an agreement between two parties to buy and sell a security, or in the case of
an index-based futures contract, to make and accept a cash settlement for a set
price on a future date. A majority of transactions in financial futures
contracts, however, do not result in the actual delivery of the underlying
instrument or cash settlement, but are settled through liquidation, i.e., by
entering into an offsetting transaction. Financial futures contracts have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission (the "CFTC").
The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or received.
Instead, an amount of cash or securities acceptable to the broker and the
relevant contract market, which varies, but is generally about 5% of the
contract amount, must be deposited with the broker. This amount is known as
"initial margin" and represents a "good faith" deposit assuring the performance
of both the purchaser and seller under the financial futures contract.
Subsequent payments to and from the broker, called "variation margin", are
required to be made on a daily basis as the price of the financial futures
contract fluctuates making the long and short positions in the financial
futures contract more or less valuable, a process known as "mark to the
market". At any time prior to the settlement date of the financial futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the financial futures contract. A
final determination of variation margin is then made, additional cash is
required to be paid to or released by the broker, and the purchaser realizes a
loss or gain. In addition, a nominal commission is paid on each completed sale
transaction.
The Funds may enter into financial futures contracts based on a long-term
municipal bond index developed by the Chicago Board of Trade (the "CBT") and
The Bond Buyer (the "Municipal Bond Index"). The Municipal Bond Index is
comprised of 40 tax-exempt municipal revenue bonds and general obligation
bonds. Each bond included in the Municipal Bond Index must be rated A or higher
by Moody's or Standard & Poor's and must have a remaining maturity of 19 years
or more. Twice a month new issues satisfying the eligibility requirements are
added to, and an equal number of old issues are deleted from, the Municipal
Bond Index. The value of the Municipal Bond Index is computed daily according
to a formula based on the price of each bond in the Municipal Bond Index, as
evaluated by six dealer-to-dealer brokers.
The Municipal Bond Index financial futures contract is traded only on the
CBT. Like other contract markets, the CBT assures performance under financial
futures contracts through a clearing corporation, a nonprofit organization
managed by the exchange membership which also is responsible for handling daily
accounting of deposits or withdrawals of margin.
As described in the Prospectus, the Funds may purchase and sell financial
futures contracts on U.S. Government securities as a hedge against adverse
changes in interest rates as described below. With respect to U.S. Government
securities, currently there are financial futures contracts based on long-term
U.S. Treasury bonds, U.S. Treasury notes, Government National Mortgage
Association ("GNMA") Certificates and three-month U.S. Treasury bills. The
Funds may purchase and write call and put options on financial futures
contracts on U.S. Government securities in connection with their hedging
strategies.
Subject to policies adopted by the Trustees, the Funds also may enter into
other financial futures contracts and options thereon, such as financial
futures contracts or options on other municipal bond or interest rate indices
which may become available if the Manager and the Trustees should determine
that there
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is normally a sufficient correlation between the prices of such financial
futures contracts or options thereon and the Municipal Bonds in which the Funds
invest to make such hedging appropriate.
Financial Futures Strategies. A Fund may sell a financial futures contract
(i.e., assume a short position) in anticipation of a decline in the value of
its investments in Municipal Bonds resulting from an increase in interest rates
or otherwise. The risk of decline could be reduced without employing futures as
a hedge by selling such Municipal Bonds and either reinvesting the proceeds in
securities with shorter maturities or by holding assets in cash. This strategy,
however, entails increased transaction costs in the form of dealer spreads and
typically would reduce the average yield of a Fund's portfolio securities as a
result of the shortening of maturities. The sale of financial futures contracts
provides an alternative means of hedging against declines in the value of a
Fund's investments in Municipal Bonds. As such values decline, the value of a
Fund's positions in the financial futures contracts will tend to increase, thus
offsetting all or a portion of the depreciation in the market value of the
Fund's Municipal Bond investments which are being hedged. While a Fund will
incur commission expenses in selling and closing out financial futures
positions, commissions on financial futures contracts are lower than
transaction costs incurred in the purchase and sale of Municipal Bonds. In
addition, the ability of a Fund to trade in the standardized contracts
available in the financial futures contract markets may offer a more effective
defensive position than a program to reduce the average maturity of the
portfolio securities due to the unique and varied credit and technical
characteristics of the municipal debt instruments available to a Fund.
Employing financial futures contracts as a hedge also may permit a Fund to
assume a defensive posture without reducing the yield on its investments beyond
any amounts required to engage in financial futures contract trading.
When the Funds intend to purchase Municipal Bonds, the Funds may purchase
financial futures contracts as a hedge against any increase in the cost of such
Municipal Bonds resulting from a decrease in interest rates or otherwise, that
may occur before such purchases can be effected. Subject to the degree of
correlation between the Municipal Bonds and the financial futures contracts,
subsequent increases in the cost of Municipal Bonds should be reflected in the
value of the financial futures contracts held by the Funds. As such purchases
are made, an equivalent amount of financial futures contracts will be closed
out. Due to changing market conditions and interest rate forecasts, however, a
financial futures contract position may be terminated without a corresponding
purchase of portfolio securities.
Call Options on Financial Futures Contracts. The Funds also may purchase and
sell exchange-traded call and put options on financial futures contracts on
U.S. Government securities. The purchase of a call option on a financial
futures contract is analogous to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the futures
contract on which it is based, or the price of the underlying debt securities,
it may or may not be less risky than ownership of the financial futures
contract or underlying debt securities. Like the purchase of a financial
futures contract, a Fund will purchase a call option on financial futures
contracts to hedge against a market advance when such Fund is not fully
invested.
The writing of a call option on a financial futures contract constitutes a
partial hedge against declining prices of the securities which are deliverable
upon exercise of the financial futures contract. If the futures price at
expiration is below the exercise price, a Fund will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in such Fund's portfolio holdings.
Put Options on Financial Futures Contracts. The purchase of a put option on a
financial futures contract is analogous to the purchase of a protective put
option on portfolio securities. A Fund will purchase put options on financial
futures contracts to hedge such Fund's portfolio against the risk of rising
interest rates.
The writing of a put option on a financial futures contract constitutes a
partial hedge against increasing prices of the securities which are deliverable
upon exercise of the financial futures contract. If the futures price at
expiration is higher than the exercise price, a Fund will retain the full
amount of the option premium
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which provides a partial hedge against any increase in the price of Municipal
Bonds which such Fund intends to purchase.
The writer of an option on a financial futures contract is required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to financial futures contracts. Premiums received from the writing
of an option will be included in initial margin. The writing of an option on a
financial futures contract involves risks similar to those relating to
financial futures contracts.
----------------
The Trust has received an order from the Securities and Exchange Commission
(the "Commission") exempting it from the provisions of Section 17(f) and
Section 18(f) of the 1940 Act, in connection with its strategy of investing in
financial futures contracts. Section 17(f) relates to the custody of securities
and other assets of an investment company and may be deemed to prohibit certain
arrangements between the Trust and commodities brokers with respect to initial
and variation margin. Section 18(f) of the 1940 Act prohibits an open-end
investment company such as the Trust from issuing a "senior security" other
than a borrowing from a bank. The staff of the Commission in the past has
indicated that a financial futures contract may be a "senior security" under
the 1940 Act.
Restrictions on Use of Financial Futures Transactions. Regulations of the
CFTC applicable to each Fund require that all of a Fund's financial futures
transactions constitute bona fide hedging transactions and that a Fund purchase
and sell futures contracts and options thereon (i) for bona fide hedging
purposes, and (ii) for non-hedging purposes, if the aggregate initial margin
and premiums required to establish positions in such contracts and options does
not exceed 5% of the liquidation value of the Fund's portfolio assets after
taking into account unrealized profits and unrealized losses on any such
contracts and options. Each Fund intends to engage in options and futures
transactions only for hedging purposes. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When a Fund purchases a financial futures contract or a call option with
respect thereto or writes a put option on a futures contract, an amount of
cash, cash equivalents or short-term, high-grade, fixed-income securities will
be deposited in a segregated account with the Fund's custodian so that the
amount so segregated, plus the amount of initial and variation margin held in
the account of its broker, equals the market value of the financial futures
contract or related option, thereby ensuring that the use of such futures
transaction is unleveraged.
Risk Factors in Financial Futures Contracts and Options Thereon. Investment
in financial futures contracts and options thereon involves the risk of
imperfect correlation between movements in the price of the financial futures
contract and the price of the security being hedged. The hedge will not be
fully effective when there is imperfect correlation between the movements in
the prices of two financial instruments. For example, if the price of a
financial futures contract moves more than the price of the hedged security, a
Fund will experience either a loss or gain on the financial futures contract
which is not offset completely by movements in the price of the hedged
securities. To compensate for imperfect correlations, a Fund may purchase or
sell financial futures contracts or options thereon in a greater dollar amount
than the hedged securities if the volatility of the hedged securities is
historically greater than the volatility of the futures transaction.
Conversely, a Fund may purchase or sell fewer financial futures contracts or
options thereon if the volatility of the price of the hedged securities is
historically less than that of the futures transaction.
The particular municipal bonds comprising the index underlying the Municipal
Bond Index financial futures contract may vary from the Municipal Bonds held by
a Fund. As a result, a Fund's ability to hedge effectively all or a portion of
the value of its Municipal Bonds through the use of financial futures contracts
or options thereon will depend in part on the degree to which price movements
in the index underlying the financial futures contract correlate with the price
movements of the Municipal Bonds held by a Fund. The correlation may be
affected by disparities in the average maturity, ratings, geographical mix or
structure of a Fund's investments as compared to those comprising the Municipal
Bond Index, and general economic or
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political factors. In addition, the correlation between movements in the value
of the Municipal Bond Index may be subject to change over time as additions to
and deletions from the Municipal Bond Index alter its structure. The
correlation between financial futures contracts on U.S. Government securities
or options thereon and the Municipal Bonds held by a Fund may be affected
adversely by similar factors and the risk of imperfect correlation between
movements in the prices of financial futures contracts or options thereon and
the prices of the Municipal Bonds held by a Fund may be greater.
Each Fund expects to liquidate a majority of the financial futures contracts
it enters into through offsetting transactions on the applicable contract
market. There can be no assurance, however, that a liquid secondary market will
exist for any particular financial futures contract at any specific time. Thus,
it may not be possible to close out a futures position. In the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. In such situations, if a Fund has insufficient
cash, it may be required to sell portfolio securities to meet daily variation
margin requirements at a time when it may be disadvantageous to do so. The
inability to close out financial futures positions also could have an adverse
impact on a Fund's ability to hedge effectively its investments in Municipal
Bonds. A Fund will enter into a financial futures position only if, in the
judgment of the Manager, there appears to be an actively traded secondary
market for such financial futures contracts or options thereon.
The successful use of transactions in financial futures and related options
also depends on the ability of the Manager to forecast correctly the direction
and extent of interest rate movements within a given time frame. To the extent
interest rates remain stable during the period in which a financial futures
contract or option is held by a Fund or such rates move in a direction opposite
to that anticipated, a 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, a Fund's total return for such period may be less than
if it had not engaged in the hedging transaction.
Because of low initial margin deposits made on the opening of a financial
futures position, financial futures transactions involve substantial leverage.
As a result, relatively small movements in the price of the financial futures
contracts or related options can result in substantial unrealized gains or
losses. Because a Fund will engage in the purchase and sale of financial
futures contracts or related options solely for hedging purposes, however, any
losses incurred in connection therewith should, if the hedging strategy is
successful, be offset in whole or in part by increases in the value of
securities held by a Fund or decreases in the price of securities a Fund
intends to acquire.
The amount of risk a Fund assumes when it purchases an option on a financial
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option on a financial futures contract also entails the risk that changes in
the value of the underlying financial futures contract will not be reflected
fully in the value of the option purchased.
Municipal Bond Index financial futures contracts only recently have been
approved for trading and therefore have little trading history. It is possible
that trading in such financial futures contracts will be less liquid than that
in other futures contracts. The trading of financial futures contracts also is
subject to certain market risks, such as inadequate trading activity, which
could at times make it difficult or impossible to liquidate existing positions.
INVESTMENT RESTRICTIONS
The Trust has adopted a number of restrictions and policies relating to the
investment of the assets of each Fund and its activities, which are fundamental
policies of each Fund and may not be changed without the approval of the
holders of a majority of such Fund's outstanding voting securities (which for
this purpose and under the 1940 Act means the lesser of (i) 67% of a Fund's
shares present at a meeting at which more than 50% of the outstanding shares of
that Fund are represented or (ii) more than 50% of such Fund's outstanding
shares).
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Under the fundamental investment restrictions, each Fund may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S. Government
and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, a Fund may invest in securities directly or indirectly secured
by real estate or interests therein or issued by companies which invest in real
estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar instruments
shall not be deemed to be the making of a loan, and except further that a Fund
may lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law and the
guidelines set forth in the Trust's Prospectus and Statement of Additional
Information, as they may be amended from time to time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) a Fund may borrow from banks (as defined in
the 1940 Act) in amounts up to 33 1/3% of its total assets (including the
amount borrowed), (ii) a Fund may borrow up to an additional 5% of its total
assets for temporary purposes, (iii) a Fund may obtain such short-term credit
as may be necessary for the clearance of purchases and sales of portfolio
securities and (iv) a Fund may purchase securities on margin to the extent
permitted by applicable law. A Fund may not pledge its assets other than to
secure such borrowings or, to the extent permitted by the Trust's investment
policies as set forth in its Prospectus and Statement of Additional
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
7. Underwrite securities of other issuers except insofar as a Fund
technically may be deemed an underwriter under the Securities Act of 1933, as
amended (the "Securities Act") in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to the
extent that a Fund may do so in accordance with applicable law and the Trust's
Prospectus and Statement of Additional Information, as they may be amended from
time to time, and without registering as a commodity pool operator under the
Commodity Exchange Act.
Under the non-fundamental investment restrictions, a Fund may not:
a. Purchase securities of other investment companies, except to the extent
such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except to the
extent permitted by applicable law. None of the Funds currently intends to
engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which cannot otherwise be marketed, redeemed or put
to the issuer or a third party, if at the time of acquisition more than 15% of
its total assets would be invested in such securities. This restriction shall
not apply to securities which mature within seven days or securities which the
Board of Trustees of the Trust has otherwise determined to be liquid pursuant
to applicable law.
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d. Invest in warrants if, at the time of acquisition, its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of that
Fund's net assets; included within such limitation, but not to exceed 2% of
that Fund's net assets, are warrants which are not listed on the New York Stock
Exchange or American Stock Exchange or a major foreign exchange. For purposes
of this restriction, warrants acquired by a Fund in units or attached to
securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more than 5%
of that Fund's total assets would be invested in such securities. This
restriction shall not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those individual
officers and Trustees of the Trust, the officers and general partner of the
Manager, the directors of such general partner or the officers and directors of
any subsidiary thereof each owning beneficially more than one-half of one
percent of the securities of such issuer own in the aggregate more than 5% of
the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in oil,
gas or other mineral leases, or exploration or development programs, except
that a Fund may invest in securities issued by companies that engage in oil,
gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except to the extent permitted in the Trust's Prospectus and Statement
of Additional Information, as they may be amended from time to time.
i. Notwithstanding fundamental investment restriction (6) above, borrow
amounts in excess of 20% of its total assets, taken at market value (including
the amount borrowed), and then only from banks as a temporary measure for
extraordinary or emergency purposes [Usually only "leveraged" investment
companies may borrow in excess of 5% of their assets; however, each Fund will
not borrow to increase income but only to meet redemption requests which might
otherwise require untimely disposition of portfolio securities, such as the
redemption of Fund shares. No Fund will purchase securities while borrowings
are outstanding. Interest paid on such borrowings will reduce net income].
----------------
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Trust, each Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the 1940 Act involving only usual
and customary commissions or transactions pursuant to an exemptive order under
the 1940 Act. Included among such restricted transactions will be purchases
from or sales to Merrill Lynch of securities in transactions in which it acts
as a principal and purchases of securities from underwriting syndicates of
which Merrill Lynch is a member. See "Portfolio Transactions". An exemptive
order has been obtained which permits the Trust to effect principal
transactions with Merrill Lynch in high quality, short-term, tax-exempt
securities subject to conditions set forth in such order.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
Information about the Trustees, executive officers and the portfolio managers
of the Trust, including their ages and their principal occupations for at least
the last five years, is set forth below. Unless otherwise noted, the address of
each Trustee and executive officer is P.O. Box 9011, Princeton, New Jersey
08543-9011.
Arthur Zeikel (63)--President and Trustee(1)(2)--President of the Manager
(which term, as used herein, includes the Manager's corporate predecessors)
since 1977; President of MLAM (which term as used herein includes its corporate
predecessors) since 1977; President and Director of Princeton Services, Inc.
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("Princeton Services") since 1993; Executive Vice President of Merrill Lynch &
Co., Inc. ("ML&Co.") since 1990; Executive Vice President of Merrill Lynch
since 1990 and a Senior Vice President thereof from 1985 to 1990; Director of
Merrill Lynch Funds Distributor, Inc. ("MLFD" or the "Distributor").
James H. Bodurtha (51)--Trustee(2)--124 Long Pond Road, Plymouth,
Massachusetts 02360. Chairman and Chief Executive Officer, China Enterprise
Management Corporation since 1993; Vice President, Bank House International
Management Corporation since 1993; Chairman, Berkshire Corporation since 1980;
Partner, Squire, Sanders & Dempsey from 1990 to 1993.
Herbert I. London (56)--Trustee(2)--113-115 University Place, New York, New
York 10003. John M. Olin Professor of Humanities, New York University since
1993; Professor, New York University since 1973; Dean, Gallatin Division of New
York University from 1978 to 1993; Distinguished Fellow, Herman Kahn Chair,
Hudson Institute from 1984 to 1985; Trustee, Hudson Institute since 1980;
Director, Damon Corporation since 1991; Overseer, Center for Naval Analyses
from 1983 to 1993.
Robert R. Martin (68)--Trustee(2)--513 Grand Hill, St. Paul, Minnesota 55102.
Director, WTC Industries, Inc. since 1994 and Chairman thereof in 1994;
Chairman and Chief Executive Officer, Kinnard Investments, Inc. from 1990 to
1993; Executive Vice President, Dain Bosworth, Inc. from 1974 to 1989;
Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof in
1979; Director, Securities Industry Association from 1981 to 1982 and Public
Securities Association from 1979 to 1980; Trustee, Northland College since
1992.
Joseph L. May (66)--Trustee(2)--424 Church Street, Suite 2000, Nashville,
Tennessee 37219. Attorney in private practice since 1984; President, May and
Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983;
Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May
Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.
Andre F. Perold (43)--Trustee(2)--Morgan Hall, Soldiers Field, Boston,
Massachusetts 02163. Professor, Harvard Business School since 1989 and
Associate Professor from 1983 to 1989; Trustee, The Common Fund, since 1989;
Director, Quantec Limited since 1991 and Teknekron Software Systems since 1994.
Terry K. Glenn (55)--Executive Vice President(1)(2)--Executive Vice President
of the Manager and of MLAM since 1983; Executive Vice President and Director of
Princeton Services since 1993; President of the Distributor since 1986 and
Director thereof since 1991.
Vincent R. Giordano (51)--Senior Vice President and Portfolio Manager(1)(2)--
Portfolio Manager of the Manager and MLAM since 1977 and Senior Vice President
of the Manager and MLAM since 1984; Vice President of MLAM from 1980 to 1984;
Senior Vice President of Princeton Services since 1993.
Joseph Andrews (35)--Vice President and Portfolio Manager(1)(2)--Vice
President of the Manager and of MLAM since 1991.
Peter J. Hayes (36)--Vice President and Portfolio Manager(1)(2)--Vice
President of MLAM since 1989 and Assistant Vice President of MLAM from 1987 to
1989.
Marie Sheehan (35)--Vice President and Portfolio Manager(1)(2)--Vice
President of the Manager and of MLAM since 1991.
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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.
Gerald M. Richard (46)--Treasurer(1)(2)--Senior Vice President and Treasurer
of the Manager and MLAM since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; Treasurer of the Distributor since 1984 and a
Vice President thereof since 1981.
Robert Harris (43)--Secretary(1)(2)--Vice President of MLAM since 1984;
Secretary of the Distributor since 1982.
- --------
(1) Interested person, as defined in the 1940 Act, of the Trust.
(2) Such Trustee or officer is a director, trustee or officer of certain other
investment companies for which the Manager or MLAM acts as investment
adviser or manager.
At September 29, 1995, the Trustees and officers of the Trust as a group (14
persons) owned an aggregate of less than 1% of the outstanding shares of
Common Stock of ML&Co. and owned an aggregate of less than 1% of the
outstanding shares of any Fund, except that an officer of the Trust owns Class
A shares representing approximately 11.16% of the New Jersey Fund Class A
shares (2.84% of the aggregate outstanding shares of the New Jersey Fund).
COMPENSATION OF TRUSTEES
The Trust pays each Trustee not affiliated with the Manager a fee of $5,000
per year plus $500 per meeting attended, together with such Trustee's actual
out-of-pocket expenses relating to attendance at meetings. The Trust also pays
members of its Audit Committee, which consists of all of the non-affiliated
Trustees, an additional fee of $1,000 per year plus $250 per meeting attended.
Fees and expenses paid to unaffiliated Trustees aggregated $53,459 for the
year ended July 31, 1995, and were allocated to each Fund on the basis of the
relative asset size of each Fund: Arizona Fund, $3,352; California Fund,
$6,326; Florida Fund, $14,121; Massachusetts Fund, $6,108; Michigan Fund,
$2,616; New Jersey Fund, $5,828; New York Fund, $6,409 and Pennsylvania Fund,
$8,699.
The following table sets forth for the fiscal year ended July 31, 1995,
compensation paid by the Trust to the non-affiliated Trustees and for the
calendar year ended December 31, 1994, the aggregate compensation paid by all
investment companies (including the Trust) advised by FAM and its affiliate,
MLAM ("FAM/MLAM Advised Funds") to the non-affiliated Trustees:
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
PENSION OR FROM TRUST AND
RETIREMENT OTHER
BENEFITS FAM/MLAM
ACCRUED AS ADVISED FUNDS
COMPENSATION PART OF TRUST'S PAID TO
NAME OF TRUSTEE FROM TRUST EXPENSES TRUSTEE/(1)/
- --------------- ------------ --------------- --------------
<S> <C> <C> <C>
James H. Bodurtha.................. $9,750* None $168,250*
Herbert I. London.................. $9,750 None $168,250
Robert R. Martin................... $9,750 None $168,250
Joseph L. May...................... $9,750 None $168,250
Andre F. Perold.................... $9,750 None $168,250
</TABLE>
- --------
/(1)/ In addition to the Trust, the Trustees serve on the boards of other
FAM/MLAM Advised Funds as follows: Mr. Bodurtha (46 funds); Mr. London (46
funds); Mr. Martin (46 funds); Mr. May (46 funds); and Mr. Perold (46
funds).
* $9,750 and $168,250 represent the amounts Mr. Bodurtha would have received
if he had been a Trustee for the entire calendar year ended December 31,
1994. Mr. Bodurtha was elected to the Trust's Board of Trustees effective
June 1995.
16
<PAGE>
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Trust--Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Funds.
Securities held by the Funds also may be held by, or be appropriate
investments for, other funds or investment advisory clients of the Manager or
its affiliates (collectively, the "clients"). Because of different objectives
or other factors, a particular security may be bought for one or more clients
when one or more clients are selling the same security. If the Manager or its
affiliates purchase or sell securities for the Funds or other funds for which
they act as manager or for their advisory clients and such sales or purchases
arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Manager or its affiliates during the same
period may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
Pursuant to separate management agreements between the Trust on behalf of
each Fund and the Manager (each a "Management Agreement"), the Manager receives
for its services to each Fund monthly compensation based upon the average daily
net assets of that Fund at the annual rate of 0.35% of the average daily net
assets of that Fund.
California imposes limitations on the expenses of each Fund. These annual
expense limitations require that the Manager reimburse each Fund in an amount
necessary to prevent that Fund's aggregate ordinary operating expenses
(excluding taxes, brokerage fees and commissions, distribution fees and
extraordinary charges such as litigation costs) from exceeding in any fiscal
year 2.5% of the Fund's first $30,000,000 of average net assets, 2.0% of the
next $70,000,000 of average net assets and 1.5% of the remaining average net
assets. The Manager's obligation to reimburse the Funds is limited to the
amount of the management fee. Expenses not covered by this limitation are
interest, taxes, brokerage commissions and other items such as extraordinary
legal expenses. No fee payment will be made to the Manager by any Fund during
any fiscal year which will cause such expenses of that Fund to exceed expense
limitations at the time of such payment.
The table below sets forth for the year ended July 31, 1995, the total
advisory fee paid by each Fund to the Manager:
<TABLE>
<CAPTION>
FUND FEE AMOUNT ($)
---- --------------
<S> <C>
Arizona Fund................................................. 26,468
California Fund.............................................. 52,287
Florida Fund................................................. 112,421
Massachusetts Fund........................................... 41,496
Michigan Fund................................................ 19,277
New Jersey Fund.............................................. 39,629
New York Fund................................................ 52,164
Pennsylvania Fund............................................ 34,403
</TABLE>
The Manager was not required to reimburse any of the Funds pursuant to the
applicable expense limitation provisions during the period from November 26,
1993 (commencement of operations) to July 31, 1994 or during the year ended
July 31, 1995.
Each Management Agreement obligates the Manager to provide investment
advisory services to the related Fund and to pay all compensation of and
furnish office space for officers and employees of the Trust connected with
investment and economic research, trading and investment management of the
Trust, as well as the fees of all Trustees of the Trust who are affiliated
persons of ML&Co. or any of its affiliates. Each Fund pays all other expenses
incurred in its operation and a portion of the Trust's general administrative
expenses allocated pro rata on the basis of the asset size of the respective
Series of the Trust ("Series"),
17
<PAGE>
including the Funds and any additional Series added in the future. Expenses
that will be borne directly by the Series include, among other things,
redemption expenses, expenses of portfolio transactions, expenses of
registering the shares under Federal and state securities laws, pricing costs
(including the daily calculation of net asset value), expenses of printing
shareholder reports, prospectuses and statements of additional information
(except to the extent paid by the Distributor as described below), fees for
legal and auditing services, Commission fees, interest, certain taxes, and
other expenses attributable to a particular Series. Expenses which will be
allocated on the basis of asset size of the respective Series include fees and
expenses of unaffiliated Trustees, state franchise taxes, costs of printing
proxies and other expenses related to shareholder meetings, and other expenses
properly payable by the Trust. The organizational expenses of the Trust were
paid by the Trust, and as additional Series are added to the Trust, the
organizational expenses are allocated among the Series in a manner deemed
equitable by the Trustees. Depending upon the nature of a lawsuit, litigation
costs may be assessed to the specific Series to which the lawsuit relates or
allocated on the basis of the asset size of the respective Series. The
Trustees have determined that this is an appropriate method of allocation of
expenses. Accounting services are provided to the Funds by the Manager and
each Fund reimburses the Manager for the Manager's costs in connection with
such services. For the fiscal year ended July 31, 1995, each Fund paid the
Manager the following amount for accounting services: Arizona Fund, $36,140;
California Fund, $50,033; Florida Fund, $32,012; Massachusetts Fund, $49,502;
Michigan Fund, $19,568; New Jersey Fund, $36,998; New York Fund, $3,623 and
Pennsylvania Fund, $15,577. As required by the Funds' distribution agreements,
the Distributor will pay the promotional expenses of the Funds incurred in
connection with the offering of shares of the Funds. Certain expenses in
connection with account maintenance and the distribution of Class B, Class C
and Class D shares will be financed by the Funds pursuant to Distribution
Plans in compliance with Rule 12b-1 under the 1940 Act. See "Purchase of
Shares--Distribution Plans".
The Manager is a limited partnership, the partners of which are ML&Co. and
Princeton Services. ML&Co. and Princeton Services are "controlling persons" of
the Manager as defined under the 1940 Act because of their ownership of the
Manager's voting securities or their power to exercise a controlling influence
over the Manager's management or policies.
Duration and Termination. Unless earlier terminated as described below, the
Management Agreements will remain in effect from year to year if approved
annually (a) by the Trustees of the Trust or by a majority of the outstanding
shares of the Funds and (b) by a majority of the Trustees who are not parties
to such contract or interested persons (as defined in the 1940 Act) of any
such party. Such contracts are not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or by
vote of the shareholders of the Funds.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of shares of each Fund.
Each Fund issues four classes of shares under the Merrill Lynch Select
Pricing SM System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives and shares of Class B are sold
to investors choosing the deferred sales charge alternative. Class C shares of
the Funds are not available for purchase but will be issued only pursuant to
the exchange privilege to holders of Class C shares of other MLAM-advised
mutual funds who elect to exchange Class C shares of such other MLAM-advised
mutual fund for Class C shares of one of the Funds. Each Class A, Class B,
Class C and Class D share of each Fund represents an identical interest in the
investment portfolio of that Fund and has the same rights, except that Class
B, Class C and Class D shares of a Fund bear the expenses of the ongoing
account maintenance fees, and Class B and Class C shares bear the expenses of
the deferred sales charge arrangements of that Fund and the additional
incremental transfer agency costs resulting from the deferred sales charge
18
<PAGE>
arrangements. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect
to such class pursuant to which account maintenance and/or distribution fees
are paid. Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege".
The Merrill Lynch Select Pricing SM System is used by more than 50 mutual
funds advised by the Manager or its affiliate, MLAM. Funds advised by the
Manager or MLAM are referred to herein as "MLAM-advised mutual funds".
On behalf of each Fund, the Trust entered into a separate distribution
agreement with the Distributor in connection with the continuous offerings of
each class of shares of such Fund (each a "Distribution Agreement"). Each
Distribution Agreement obligates the Distributor to pay certain expenses in
connection with the offering of each class of shares of the related Fund.
After the prospectuses, statements of additional information and periodic
reports have been prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies thereof used in
connection with the offering to dealers and prospective investors. The
Distributor also pays for other supplementary sales literature and advertising
costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Management Agreements described
above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The gross sales charges and the amounts of such charges received by the
Distributor and Merrill Lynch for Class A shares for each of the Funds for the
year ended July 31, 1995 are set forth below:
<TABLE>
<CAPTION>
CLASS A AMOUNT AMOUNT CDSCS
GROSS SALES PAID TO PAID TO PAID TO
FUND CHARGES DISTRIBUTOR MERRILL LYNCH DISTRIBUTOR
---- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Arizona Fund.................. $ 1,026 $ 101 $ 925 --
California Fund............... $ 754 $ 83 $ 671 --
Florida Fund.................. $ 2,628 $ 154 $ 2,474 $ 2,894
Massachusetts Fund............ $ 1,544 $ 284 $ 1,260 $10,565
Michigan Fund................. $ 915 $ 56 $ 859 --
New Jersey Fund............... $ 451 $ 30 $ 421 --
New York Fund................. $ 5,190 $ 157 $ 5,033 --
Pennsylvania Fund............. $ 79 $ 9 $ 70 --
The gross sales charges and the amounts of such charges received by the
Distributor and Merrill Lynch for Class D shares for each of the Funds for the
period October 21, 1994 (commencement of operations) to July 31, 1995 are set
forth below:
<CAPTION>
CLASS D AMOUNT AMOUNT CDSCS
GROSS SALES PAID TO PAID TO PAID TO
FUND CHARGES DISTRIBUTOR MERRILL LYNCH DISTRIBUTOR
---- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Arizona Fund.................. $ 98 $ 3 $ 95 --
California Fund............... $ 2,145 $ 115 $ 2,030 --
Florida Fund.................. $12,063 $1,099 $10,964 --
Massachusetts Fund............ $ 64 $ 33 $ 31 --
Michigan Fund................. $ 888 $ 91 $ 797 --
New Jersey Fund............... $ 2,108 $ 222 $ 1,886 --
New York Fund ................ $ 3,877 $ 232 $ 3,645 --
Pennsylvania Fund............. $ 1,198 $ 49 $ 1,149 --
</TABLE>
The term "purchase", as used in the Prospectus and in this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of a Fund, refers to a single purchase by an
19
<PAGE>
individual, or to concurrent purchases, which in the aggregate are at least
equal to the prescribed amounts, by an individual, his or her spouse and their
children under the age of 21 years purchasing shares for his or her or their
own account and to single purchases by a trustee or other fiduciary purchasing
shares for a single trust estate or single fiduciary account although more than
one beneficiary is involved. The term "purchase" also includes purchases by any
"company", as that term is defined in the 1940 Act, but does not include
purchases by any such company which has not been in existence for at least six
months or which has no purpose other than the purchase of shares of the Fund or
shares of other registered investment companies at a discount; provided,
however, that it shall not include purchases by any group of individuals whose
sole organizational nexus is that the participants therein are credit
cardholders of a company, policyholders of an insurance company, customers of
either a bank or broker-dealer or clients of an investment adviser.
REDUCED INITIAL SALES CHARGES--CLASS A AND CLASS D SHARES
Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase shares
of a Fund subject to an initial sales charge at the offering price applicable
to the total of (a) the public offering price of the shares then being
purchased plus (b) an amount equal to the then current net asset value or cost,
whichever is higher, of the purchaser's combined holdings of all classes of
shares of a Fund and of other MLAM-advised mutual funds. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $100,000 or more of the Class A or Class D shares of a Fund or any
other MLAM-advised mutual funds within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Trust's transfer agent. The Letter of Intention
is not available to employee benefit plans for which Merrill Lynch provides
plan participant record keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares of any
Fund; however, its execution will result in the purchaser paying a lower sales
charge at the appropriate quantity purchase level. A purchase not originally
made pursuant to a Letter of Intention may be included under a subsequent
Letter of Intention executed within 90 days of such purchase if the Distributor
is informed in writing of this intent within such 90-day period. The value of
Class A and Class D shares of a Fund and of other MLAM-advised mutual funds
presently held, at cost or maximum offering price (whichever is higher), on the
date of the first purchase under the Letter of Intention, may be included as a
credit toward the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied only to new
purchases. If the total amount of shares does not equal the amount stated in
the Letter of Intention (minimum of $100,000), the investor will be notified
and must pay, within 20 days of the expiration of such Letter, the difference
between the sales charge on the Class A or Class D shares of the Fund purchased
at the reduced rate and the sales charge applicable to the shares of the Fund
actually purchased through the Letter. Class A or Class D shares of the Fund
equal to at least five percent of the intended amount will be held in escrow
during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If during
the term of such Letter, a purchase brings the total amount invested to an
amount equal to or in excess of the amount indicated in the Letter, the
purchaser will be entitled on that purchase and subsequent purchases to the
reduced percentage sales charge which would be applicable to a single purchase
equal to the total dollar value of the Class A or Class D shares then being
purchased under such Letter, but there will be no retroactive reduction of the
sales charges on any previous purchase. The value of any shares redeemed or
otherwise disposed of by the purchaser prior to termination or completion of
the Letter of Intention will be deducted from the total purchases made under
20
<PAGE>
such Letter. An exchange from a MLAM-advised money market fund into a Fund that
creates a sales charge will count toward completing a new or existing Letter of
Intention to the Fund.
Employee Access AccountsSM. Class A or Class D shares are offered at net
asset value to Employee Access AccountsSM available through employers that
provide employer sponsored retirement or savings plans that are eligible to
purchase such shares at net asset value. The initial minimum for such accounts
is $500, except that the initial minimum for shares purchased for such accounts
pursuant to the Automatic Investment Program is $50.
TMA SM Managed Trusts. Class A shares are offered to TMA SM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services at
net asset value.
Purchase Privilege of Certain Persons. Trustees of the Trust, members of the
Boards of other MLAM-advised investment companies, ML&Co. and its subsidiaries
(the term "subsidiaries" when used herein with respect to ML&Co. includes MLAM,
FAM and certain other entities directly or indirectly wholly owned or
controlled by ML&Co.), and their directors and employees, and any trust,
pension, profit-sharing or other benefit plan for such persons, may purchase
Class A shares of a Fund at net asset value. Under such programs, a Fund
realizes economies of scale and reduction of sales-related expenses by virtue
of familiarity with the Fund.
Class D shares of each Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor also must establish that such redemption had
been made within 60 days prior to the investment in the Fund, and the proceeds
from the redemption had been maintained in the interim in cash or a money
market fund.
Class D shares of the Fund are also offered at net asset value, without sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of shares of such
other mutual fund and that such shares have been outstanding for a period of no
less than six months; and second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the redemption must
be maintained in the interim in cash or a money market fund.
Class D shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund sponsored by a non-
Merrill Lynch company for which Merrill Lynch has served as a selected dealer
and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and the shares
of such other fund were subject to a sales charge either at the time of
purchase or on a deferred basis; and second, such purchase of Class D shares
must be made within 90 days after such notice.
Closed-End Fund Investment Option. Class A shares of each Fund and other
MLAM-advised mutual funds ("Eligible Class A shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or
MLAM who purchased such closed-end fund shares prior to October 21, 1994, the
date the Merrill Lynch Select PricingSM System commenced operations, and wish
to reinvest the net proceeds of a sale of their closed-end fund shares of
common stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such
shares on or
21
<PAGE>
after October 21, 1994 and wish to reinvest the net proceeds from a sale of
their closed-end fund shares are offered Class A shares (if eligible to
purchase Class A shares) or Class D shares of each Fund and other MLAM-advised
mutual funds ("Eligible Class D shares"), if the following conditions are met.
First, the sale of closed-end fund shares must be made through Merrill Lynch,
and the net proceeds therefrom must be reinvested immediately in Eligible Class
A or Class D shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing dividends
from shares of common stock acquired in such offering. Third, the closed-end
fund shares must have been maintained continuously in a Merrill Lynch
securities account. Fourth, there must be a minimum purchase of $250 to be
eligible for the investment option. Class A shares of each Fund are offered at
net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. ("Senior Floating Rate Fund") who wish to reinvest the net proceeds from a
sale of certain of their shares of common stock of Senior Floating Rate Fund in
shares of the Fund. In order to exercise this investment option, Senior
Floating Rate Fund shareholders must sell their Senior Floating Rate Fund
shares to Senior Floating Rate Fund in connection with a tender offer conducted
by Senior Floating Rate Fund and reinvest the proceeds immediately in the Fund.
This investment option is available only with respect to the proceeds of Senior
Floating Rate Fund shares as to which no Early Withdrawal Charge (as defined in
the Senior Floating Rate Fund prospectus) is applicable. Purchase orders from
Senior Floating Rate Fund shareholders wishing to exercise this investment
option will be accepted only on the day that the related Senior Floating Rate
Fund tender offer terminates and will be effected at the net asset value of the
Fund on such day. Similarly, Class D shares of the Funds are offered at net
asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc.
("Municipal Strategy Fund") who wish to purchase shares of a Fund with the net
proceeds from a sale of certain of their shares of common stock of Municipal
Strategy Fund pursuant to a tender offer by Municipal Strategy Fund. This
investment option is available only with respect to the proceeds of Municipal
Strategy Fund shares as to which no CDSC (as defined in the Municipal Strategy
Fund prospectus) is applicable.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares of a Fund may be reduced to the net asset value per Class D
share of that Fund in connection with the acquisition of the assets of or
merger or consolidation with a personal holding company or a public or private
investment company. The value of the assets or company acquired in a tax-free
transaction may be adjusted in appropriate cases to reduce possible adverse tax
consequences to each Fund which might result from an acquisition of assets
having net unrealized appreciation which is disproportionately higher at the
time of acquisition than the realized or unrealized appreciation of each Fund.
The issuance of Class D shares for consideration other than cash is limited to
bona fide reorganizations, statutory mergers or other acquisitions of portfolio
securities which (i) meet the investment objectives and policies of the related
Fund; (ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of a Fund's portfolio securities shall at
all times remain within its control); and (iii) are liquid securities, the
value of which is readily ascertainable, which are not restricted as to
transfer either by law or liquidity of market (except that a Fund may acquire
through such transactions restricted or illiquid securities to the extent the
Fund does not exceed the applicable limits for that Fund on acquisition of such
securities set forth under "Investment Objectives and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans of each Fund for Class B, Class C and Class D shares pursuant to Rule
12b-1 under the 1940 Act (each a "Distribution Plan") with respect to the
account maintenance and/or distribution fees paid by the Funds to the
Distributor with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are subject
to the provisions of Rule 12b-1 under the 1940 Act. Among other things, each
Distribution Plan provides that the Distributor shall
22
<PAGE>
provide and the Trustees shall review quarterly reports of the disbursement of
the account maintenance fees and/or distribution fees paid by each Fund to the
Distributor. In their consideration of each of the Distribution Plans, the
Trustees must consider all factors they deem relevant, including information as
to the benefits of each Distribution Plan to its Fund and its related class of
shareholders. Each Distribution Plan further provides that, so long as the
Distribution Plan remains in effect, the selection and nomination of Trustees
who are not "interested persons" of the Trust, as defined in the 1940 Act (the
"Independent Trustees"), shall be committed to the discretion of the
Independent Trustees then in office. In separately approving each Distribution
Plan in accordance with Rule 12b-1, the Independent Trustees concluded that
there is a reasonable likelihood that such Distribution Plan will benefit the
related Fund and its related class of shareholders. Any Distribution Plan can
be terminated at any time, without penalty, by the vote of a majority of the
Independent Trustees or by the vote of the holders of a majority of the
outstanding related class of voting securities of the related Fund. No
Distribution Plan can be amended to increase materially the amount to be spent
by the related Fund without approval by the related class of shareholders of
that Fund, and all material amendments are required to be approved by the vote
of Trustees, including a majority of the Independent Trustees who have no
direct or indirect financial interest in the Distribution Plan, cast in person
at a meeting called for that purpose. Rule 12b-1 further requires that the
Trust preserve copies of each Distribution Plan and any report made pursuant to
such plan for a period of not less than six years from the date of such
Distribution Plan or such report, the first two years in an easily accessible
place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the
contingent deferred sales charge ("CDSC") borne by the Class B shares of each
Fund but not the account maintenance fee. The maximum sales charge rule is
applied separately to each class. As applicable to each Fund, the maximum sales
charge rule limits the aggregate of distribution fee payments and CDSCs payable
by each Fund to (1) 6.25% of eligible gross sales of Class B shares of that
Fund (defined to exclude shares issued pursuant to dividend reinvestments and
exchanges) plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC of that Fund). In connection with the Class B
shares, the Distributor has voluntarily agreed to waive interest charges on the
unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the
maximum amount payable to the Distributor in connection with each Fund
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales of that Fund. The Distributor retains the
right to stop waiving the interest charges at any time. To the extent a Fund's
payments would exceed the voluntary maximum, such Fund will not make further
payments of the distribution fee with respect to Class B shares, and any CDSCs
will be paid to the Fund rather than to the Distributor; however, such Fund
will continue to make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary maximum may exceed
the amount payable under the NASD formula. In such circumstances payment in
excess of the amount payable under the NASD formula will not be made.
The following table sets forth comparative information as of July 31, 1995
with respect to the Class B shares of each of the Funds indicating the maximum
allowable payments that can be made under the NASD maximum sales charge rule
and the Distributor's voluntary maximum for the period November 26, 1993
(commencement of operations) to July 31, 1995. No information is presented for
the Class C shares of the Funds because Class C shares are not available for
purchase but will be issued only pursuant to the exchange privilege to holders
of Class C shares of other MLAM-advised mutual funds who elect to exchange
Class C shares of such other MLAM-advised mutual fund for Class C shares of one
of the Funds.
23
<PAGE>
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JULY 31, 1995
------------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID CURRENT NET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE ASSET LEVEL(4)
-------- --------- ----------- ------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona Fund
Under NASD Rule as
Adopted................ $ 6,506 $ 407 $ 50 $ 457 $ 33 $ 424 $10
Under Distributor's
Voluntary Waiver....... $ 6,506 $ 407 $ 33 $ 440 $ 33 $ 406 $10
California Fund
Under NASD Rule as
Adopted................ $11,325 $ 708 $ 95 $ 803 $ 47 $ 756 $21
Under Distributor's
Voluntary Waiver....... $11,325 $ 708 $ 57 $ 765 $ 47 $ 717 $21
Florida Fund
Under NASD Rule as
Adopted................ $20,293 $1,268 $165 $1,433 $281 $1,152 $32
Under Distributor's
Voluntary Waiver....... $20,293 $1,268 $101 $1,369 $281 $1,088 $32
Massachusetts Fund
Under NASD Rule as
Adopted................ $ 8,857 $ 554 $ 75 $ 629 $ 45 $ 584 $10
Under Distributor's
Voluntary Waiver....... $ 8,857 $ 554 $ 44 $ 598 $ 45 $ 553 $10
Michigan Fund
Under NASD Rule as
Adopted................ $ 3,031 $ 189 $ 25 $ 214 $ 16 $ 199 $ 5
Under Distributor's
Voluntary Waiver....... $ 3,031 $ 189 $ 15 $ 204 $ 16 $ 189 $ 5
New Jersey Fund
Under NASD Rule as
Adopted................ $10,043 $ 628 $ 77 $ 705 $ 38 $ 667 $15
Under Distributor's
Voluntary Waiver....... $10,043 $ 628 $ 50 $ 678 $ 38 $ 640 $15
New York Fund
Under NASD Rule as
Adopted................ $10,344 $ 646 $ 87 $ 733 $ 47 $ 687 $18
Under Distributor's
Voluntary Waiver....... $10,344 $ 646 $ 52 $ 698 $ 47 $ 652 $18
Pennsylvania Fund
Under NASD Rule as
Adopted................ $ 9,833 $ 615 $ 85 $ 700 $ 45 $ 654 $15
Under Distributor's
Voluntary Waiver....... $ 9,833 $ 615 $ 49 $ 664 $ 45 $ 619 $15
</TABLE>
- --------
(1) Purchase price of all eligible Class B shares sold since November 26, 1993
(commencement of operations) other than shares acquired through dividend
reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. See
"Purchase of Shares--Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the voluntary maximum or the NASD
maximum.
24
<PAGE>
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of shares of each Fund.
The right to redeem shares of any Fund or to receive payment with respect to
any such redemption may be suspended only for any period during which trading
on the New York Stock Exchange is restricted as determined by the Commission
or such Exchange is closed (other than customary weekend and holiday
closings), for any period during which an emergency exists, as defined by the
Commission, as a result of which disposal of portfolio securities or
determination of the net asset value of a Fund is not reasonably practicable,
and for such other periods as the Commission may by order permit for the
protection of shareholders of the Funds.
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares", while Class B shares
redeemed within one year of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of Class B shares following
the death or disability of a Class B shareholder. Redemptions for which the
waiver applies are any partial or complete redemption following the death or
disability (as defined in the Internal Revenue Code of 1986, as amended (the
"Code")) of a Class B shareholder (including one who owns the Class B shares
as joint tenant with his or her spouse), provided the redemption is requested
within one year of the death or initial determination of disability.
For the year ended July 31, 1995, the Distributor received CDSCs from the
Funds with respect to redemptions of Class B shares, all of which were paid to
Merrill Lynch as follows:
<TABLE>
<CAPTION>
CDSCS RECEIVED
BY DISTRIBUTOR
FUND
- ---- --------------
<S> <C>
Arizona Fund..................................................... $ 13,587
California Fund.................................................. $ 5,805
Florida Fund..................................................... $202,558
Massachusetts Fund............................................... $ 10,430
Michigan Fund.................................................... $ 3,977
New Jersey Fund.................................................. $ 6,305
New York Fund.................................................... $ 6,435
Pennsylvania Fund................................................ $ 7,971
</TABLE>
For the period October 21, 1994 (commencement of operations) to July 31,
1995, the Distributor received no CDSCs with respect to redemptions of Class C
shares.
The CDSC is also waived for any Class B shares that were acquired and held
at the time of redemption by Employee Access Accounts SM available through
employers that provide a retirement plan qualified under Section 401(k) of the
Code with a salary reduction feature offering a menu of investments to plan
participants. The initial minimum for such accounts is $500, except that the
initial minimum for shares purchased for such accounts pursuant to the
Automatic Investment Program is $50.
PORTFOLIO TRANSACTIONS
Reference is made to "Investment Objectives and Policies" and "Portfolio
Transactions" in the Prospectus.
Under the 1940 Act, persons affiliated with the Trust are prohibited from
dealing with the Trust or any Fund as principals in the purchase and sale of
securities unless such trading is permitted by an exemptive order issued by
the Commission. Since over-the-counter transactions are usually principal
transactions, affiliated persons of the Trust, including Merrill Lynch, may
not serve as dealers in connection with transactions with the Funds absent an
exemptive order from the Commission. The Trust has obtained an
25
<PAGE>
exemptive order permitting it to engage in certain principal transactions with
Merrill Lynch involving high quality short-term municipal bonds subject to
certain conditions. The table below sets forth for the year ended July 31, 1995
information about the transactions engaged in by the Funds pursuant to this
order.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JULY 31, 1995
--------------------------
NUMBER OF AGGREGATE
FUND TRANSACTIONS DOLLAR AMOUNT
- ---- ------------ -------------
<S> <C> <C>
Arizona Fund......................................... 2 $ 600,000
California Fund...................................... 5 $1,800,000
Florida Fund......................................... 0 $ 0
Massachusetts Fund................................... 1 $ 200,000
Michigan Fund........................................ 0 $ 0
New Jersey Fund...................................... 4 $1,100,000
New York Fund........................................ 0 $ 0
Pennsylvania Fund.................................... 3 $1,300,000
</TABLE>
The Trust has applied for an exemptive order permitting it to, among other
things, (i) purchase high quality tax-exempt securities from Merrill Lynch when
Merrill Lynch is a member of an underwriting syndicate and (ii) purchase tax-
exempt securities from and sell tax-exempt securities to Merrill Lynch in
secondary market transactions. Affiliated persons of the Trust may serve as its
broker in over-the-counter transactions conducted for the Fund on an agency
basis only. Certain court decisions have raised questions as to the extent to
which investment companies should seek exemptions under the 1940 Act in order
to seek to recapture underwriting and dealer spreads from affiliated entities.
The Trustees have considered all factors deemed relevant, and have made a
determination not to seek such recapture at this time. The Trustees will
reconsider this matter from time to time.
As a non-fundamental restriction, the Trust will prohibit the purchase or
retention by any Fund of the securities of any issuer if the officers and
Trustees of the Trust, the officers and general partner of the Manager, the
directors of such general partner or the officers and directors of any
subsidiary thereof each owning beneficially more than one-half of one per cent
of the securities of an issuer together own beneficially more than five per
cent of the securities of that issuer. In addition, under the 1940 Act, the
Funds may not purchase securities during the existence of any underwriting
syndicate of which Merrill Lynch is a member except pursuant to an exemptive
order or rules adopted by the Commission. Rule 10f-3 under the 1940 Act sets
forth conditions under which a Fund may purchase municipal bonds in such
transactions. The rule sets forth requirements relating to, among other things,
the terms of an issue of municipal bonds purchased by a Fund, the amount of
municipal bonds which may be purchased in any one issue and the assets of a
Fund which may be invested in a particular issue.
The Funds do not expect to use any particular dealer in the execution of
transactions but, subject to obtaining the best net results, dealers who
provide supplemental investment research (such as information concerning tax-
exempt securities, economic data and market forecasts) to the Manager may
receive orders for transactions by the Funds. Information so received will be
in addition to and not in lieu of the services required to be performed by the
Manager under its Management Agreement and the expenses of the Manager will not
necessarily be reduced as a result of the receipt of such supplemental
information.
The Funds have no obligation to deal with any broker in the execution of
transactions for its portfolio securities. In addition, consistent with the
Rules of Fair Practice of the NASD and policies established by the Trustees of
the Trust, the Manager may consider sales of shares of the Funds as a factor in
the selection of brokers or dealers to execute portfolio transactions for the
Funds.
Generally, the Funds do not purchase securities for short-term trading
profits. However, a Fund may dispose of securities without regard to the time
they have been held when such action, for defensive or other reasons, appears
advisable to the Manager. As a result of the investment policies of the Funds,
each Fund's portfolio turnover may be higher than that of other investment
companies; however, it is extremely difficult
26
<PAGE>
to predict portfolio turnover rates with any degree of accuracy. Higher
portfolio turnover may contribute to higher transactional costs and negative
tax consequences, such as an increase in capital gain dividends or in ordinary
income dividends of accrued market discount, as well as greater difficulty
meeting the requirement for qualification as a regulated investment company
that less than 30% of its gross income be derived from the sale or other
disposition of securities held for less than three months. See "Distributions
and Taxes--Federal" on page 39.
For the year ended July 31, 1995, the portfolio turnover rate for each of the
Funds was the following:
<TABLE>
<CAPTION>
FUND TURNOVER RATE
- ---- -------------
<S> <C>
Arizona Fund...................................................... 182.58%
California Fund................................................... 124.72%
Florida Fund...................................................... 138.97%
Massachusetts Fund................................................ 89.96%
Michigan Fund..................................................... 93.08%
New Jersey Fund................................................... 131.56%
New York Fund..................................................... 139.16%
Pennsylvania Fund................................................. 141.52%
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of each Fund is determined
by the Manager once daily, Monday through Friday, as of 15 minutes after the
close of business on the New York Stock Exchange (generally, 4:00 p.m., New
York time) on each day during which the New York Stock Exchange is open for
trading. The New York Stock Exchange is not open on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share of a Fund is computed by dividing
the sum of the value of the securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of shares outstanding at such
time, rounded to the nearest cent. Expenses, including the fees payable to the
Manager and Distributor, are accrued daily. The net asset value per share of
each class of shares of a Fund are expected to be equivalent. The per share net
asset value of a Fund's Class B, Class C and Class D shares generally will be
lower than the per share net asset value of its Class A shares, reflecting the
daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares of
the Fund and the daily expense accruals of the account maintenance fees
applicable with respect to Class D shares; moreover the per share net asset
value of Class B and Class C shares generally will be lower than the per share
net asset value of its Class D shares, reflecting the daily expense accruals of
the distribution fees and the higher account maintenance and transfer agency
fees applicable with respect to Class B and Class C shares of the Fund. Even
under those circumstances, the per share net asset value of the four classes
will tend to converge (although not necessarily meet) immediately after the
payment of dividends, which will differ by approximately the amount of the
expense accrual differentials between the classes.
The Municipal Bonds and other portfolio securities in which the Funds invest,
are traded primarily in over-the-counter municipal bond and money markets and
are valued at the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers that make
markets in the securities. One bond is the "yield equivalent" of another bond
when, taking into account market price, maturity, coupon rate, credit rating
and ultimate return of principal, both bonds theoretically will produce an
equivalent return to the bondholder. Financial futures contracts and options
thereon, which are traded on exchanges, are valued at their settlement prices
as of the close of such exchanges. Short-term investments with a remaining
maturity of 60 days or less are valued on an amortized cost basis, which
approximates market value. Securities and assets for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Trustees of the Trust,
27
<PAGE>
including valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of the pricing
service and its valuations are reviewed by the officers of the Trust under the
general supervision of the Trustees.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services described below which are
designed to facilitate investment in shares of the Funds. Full details as to
each of such services can be obtained from the Trust, the Distributor or
Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends, and long-term capital gain distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders also will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends, and long-term capital gain
distributions. A shareholder may make additions to his or her Investment
Account at any time by mailing a check directly to the Transfer Agent.
Share certificates are issued only for full shares and only upon the specific
request of the shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the relevant Fund, a
shareholder either must redeem the Class A or Class D shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the account at
the new firm or such shareholder must continue to maintain an Investment
Account at the Transfer Agent for those Class A or Class D shares. Shareholders
interested in transferring their Class B or Class C shares from Merrill Lynch
and who do not wish to have an Investment Account maintained for such shares at
the Transfer Agent may request their new brokerage firm to maintain such shares
in an account registered in the name of the brokerage firm for the benefit of
the shareholder at the Transfer Agent. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that
he or she be issued certificates for his or her shares, and then must turn the
certificates over to the new firm for re-registration as described in the
preceding sentence.
AUTOMATIC INVESTMENT PLANS
A shareholder of a Fund may make additions to an Investment Account at any
time by purchasing Class A shares (if he or she is an eligible Class A investor
as described in the Prospectus) or Class B or Class D shares at the applicable
public offering price either through the shareholder's securities dealer, or by
mail directly to the Transfer Agent, acting as agent for such securities
dealers. Voluntary accumulation also can be made through a service known as the
Automatic Investment Plan whereby each Fund is authorized through pre-
authorized checks or automated clearing house debits of $50 or more to charge
the regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder. The
Automatic Investment Plan of each Fund is not available to shareholders whose
shares are held in brokerage accounts with Merrill Lynch. Alternatively, an
investor who maintains a CMA(R) or CBA(R) account may arrange to have periodic
investments made in a Fund in such CMA(R) or CBA(R) account or in certain
related accounts in amounts of $100 or more through the CMA(R)/CBA(R) Automated
Investment Program.
28
<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the respective Fund. Such
reinvestment will be at the net asset value of shares of the respective Fund as
of the close of business on the monthly payment date for such dividends and
distributions. Shareholders may elect in writing to receive either their income
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date.
Shareholders, at any time, may notify the Transfer Agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or capital gains distributions reinvested in shares of the respective Fund
or vice versa and, commencing ten days after the receipt by the Transfer Agent
of such notice, such instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or a quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of a Fund having a value, based on cost or the
current offering price, of $5,000 or more, and monthly withdrawals are
available for shareholders with Class A or Class D shares with such a value of
$10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D shares
are redeemed from those on deposit in the shareholder's account to provide the
withdrawal payment specified by the shareholder. The shareholder may specify
either a dollar amount or a percentage of the value of his or her Class A or
Class D shares. Redemptions will be made at net asset value as determined 15
minutes after the close of business on the New York Stock Exchange (generally
4:00 p.m., New York time) on the 24th day of each month or the 24th day of the
last month of each quarter, whichever is applicable. If the Exchange is not
open for business on such date, the Class A or Class D shares will be redeemed
at the close of business on the following business day. The check for the
withdrawal payment will be mailed, or the direct deposit for the withdrawal
payment will be made, on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and distributions on
all Class A or Class D shares in the Investment Account are reinvested
automatically in the respective Fund's Class A or Class D shares. A
shareholder's Systematic Withdrawal Plan may be terminated at any time, without
charge or penalty, by either the shareholder, the Trust, the Transfer Agent or
the Distributor. Withdrawal payments should not be considered as dividends,
yield or income. Each withdrawal is a taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the shareholder's original investment
may be reduced correspondingly. Purchases of additional Class A or Class D
shares concurrent with withdrawals are ordinarily disadvantageous to the
shareholder because of sales charges and tax liabilities. The Trust will not
knowingly accept purchase orders for Class A or Class D shares of a Fund from
investors who maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
Alternatively, a Class A or Class D shareholder whose shares are held within
a CMA(R) or CBA(R) Account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the CMA(R)/CBA(R)
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$25. The proceeds of systematic redemptions will be posted to the shareholder's
account five business days after the date the shares are redeemed. Monthly
systematic redemptions will be made at net asset value on the first Monday of
each month, bimonthly systematic redemptions will be made at net asset value on
the first Monday of every other month, and quarterly, semiannual or annual
redemptions are made at net asset value on the first Monday of months selected
at the shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
CMA(R)/CBA(R) Systematic Redemption Program is not available if Fund shares are
being purchased within the account
29
<PAGE>
pursuant to the Automated Investment Program. For more information on the
CMA(R)/CBA(R) Systematic Redemption Program, eligible shareholders should
contact their Financial Consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of each of the Funds have an exchange
privilege with certain other MLAM-advised mutual funds listed below. Under the
Merrill Lynch Select PricingSM System, Class A shareholders may exchange Class
A shares of a Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in his account in
which the exchange is made at the time of the exchange or is otherwise eligible
to purchase Class A shares of the second fund. If the Class A shareholder wants
to exchange Class A shares for shares of a second MLAM-advised mutual fund, and
the shareholder does not hold Class A shares of the second fund in his account
at the time of the exchange and is not otherwise eligible to acquire Class A
shares of the second fund, the shareholder will receive Class D shares of the
second fund as a result of the exchange. Class D shares also may be exchanged
for Class A shares of a second MLAM-advised mutual fund at any time as long as,
at the time of the exchange, the shareholder holds Class A shares of the second
fund in the account in which the exchange is made or is otherwise eligible to
purchase Class A shares of the second fund. Class B, Class C and Class D shares
are exchangeable with shares of the same class of other MLAM-advised mutual
funds. For purposes of computing the CDSC that may be payable upon a
disposition of the shares acquired in the exchange, the holding period for the
previously owned shares of a Fund is tacked onto the holding period of the
newly acquired shares of the other fund as more fully described below. Class A,
Class B, Class C and Class D shares are also exchangeable for shares of certain
MLAM-advised money market funds specifically designated below as available for
exchange by holders of Class A, Class B, Class C or Class D shares. Shares with
a net asset value of at least $100 are required to qualify for the exchange
privilege, and any shares utilized in an exchange must have been held by the
shareholder for 15 days. It is contemplated that the exchange privilege may be
applicable to other new mutual funds whose shares may be distributed by the
Distributor.
Exchanges of Class A or Class D shares outstanding of each of the Funds
("outstanding Class A or Class D shares") for Class A or Class D shares of
another MLAM-advised mutual fund ("new Class A or Class D shares") are
transacted on the basis of relative net asset value per Class A or Class D
share, respectively, plus an amount equal to the difference, if any, between
the sales charge previously paid on the outstanding Class A or Class D shares
and the sales charge payable at the time of the exchange on the new Class A or
Class D shares. With respect to outstanding Class A or Class D shares as to
which previous exchanges have taken place, the "sales charge previously paid"
shall include the aggregate of the sales charges paid with respect to such
Class A or Class D shares in the initial purchase and any subsequent exchange.
Class A or Class D shares issued pursuant to dividend reinvestment are sold on
a no-load basis in each of the funds offering Class A or Class D shares. For
purposes of the exchange privilege, Class A and Class D shares acquired through
dividend reinvestment will be exchanged into the Class A or Class D shares of
the other funds or into shares of the Class A and Class D money market funds
without a sales charge.
In addition, each of the Funds with Class B or Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its outstanding
Class B or Class C shares for Class B or Class C shares, respectively, of
another MLAM-advised mutual fund ("new Class B or Class C shares") on the basis
of relative net asset value per Class B or Class C share, without the payment
of any CDSC that might otherwise be due on redemption of the outstanding
shares. Class B and Class C shareholders of each Fund exercising the exchange
privilege will continue to be subject to the Fund's CDSC schedule if such
schedule is higher than the deferred sales charge schedule relating to the new
Class B or Class C shares acquired through use of the exchange privilege. In
addition, Class B and Class C shares of each Fund acquired through use of the
exchange privilege will be subject to that Fund's CDSC schedule if such
schedule is higher than the deferred sales charge schedule relating to the
Class B or Class C shares of the fund from which the exchange has been made.
For purposes of computing the sales load that may be payable on a disposition
of the new Class B or Class C shares, the holding period for the outstanding
Class B or Class C shares is "tacked" to the holding period of the new Class B
or Class C shares. For example, an investor may exchange Class B or Class C
30
<PAGE>
shares of a Fund for those of Merrill Lynch Special Value Fund, Inc. ("Special
Value Fund") after having held the Fund's Class B shares for six months. The 1%
CDSC that generally would apply to a redemption would not apply to the
exchange. Three and a half years later the investor may decide to redeem the
Class B shares of Special Value Fund and receive cash. There will be no CDSC
due on this redemption, since by tacking the six month holding period of the
Fund's Class B shares onto the three and a half year holding period for the
Special Value Fund Class B shares, the investor will be deemed to have held the
new Class B shares for four years.
Shareholders also may exchange shares from any of the Funds into shares of a
money market fund advised by the Manager or its affiliates, but the period of
time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC or with respect to Class B shares, towards satisfaction of
the conversion period. However, shares of a money market fund which were
acquired as a result of an exchange for Class B or Class C shares of a Fund
may, in turn, be exchanged back into Class B or Class C shares of any fund
offering such shares, in which event the holding period for Class B or Class C
shares, respectively, of the fund will be aggregated with previous holding
periods for purposes of reducing the CDSC. Thus, for example, an investor may
exchange Class B shares of a Fund for shares of Merrill Lynch Institutional
Fund ("Institutional Fund") after having held the Fund's Class B shares for six
months and three years later decide to redeem the shares of Institutional Fund
for cash. At the time of this redemption, the 1% CDSC that would have been due
had the Class B shares of the Fund been redeemed for cash rather than exchanged
for shares of Institutional Fund will be payable. If, instead of such
redemption, the shareholder exchanged such shares for Class B shares of a fund
with a four-year CDSC period which the shareholder continued to hold for an
additional three and a half years, any subsequent redemption will not incur a
CDSC.
Merrill Lynch Mutual Fund Adviser Program. Class A shareholders of the Funds
that participate in the Merrill Lynch Mutual Fund Adviser ("MFA") Program may
exchange Class A shares of a Fund for Class A shares of the funds listed below
at net asset value. Once the initial allocation of assets is made under the MFA
program, any subsequent exchange under the MFA program of Class A shares of a
fund for Class A shares of one of the Funds will be made on the basis of the
relative net asset values of the shares being exchanged with no additional
charges for any difference between the sales charge previously paid on Fund
shares exchanged and the sales charge payable on fund shares acquired in the
exchange.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
Merrill Lynch Adjustable Rate
Securities Fund, Inc. ............
High current income consistent with a
policy of limiting the degree of fluctu-
ation in net asset value of fund shares
resulting from movements in interest
rates, through investment primarily in a
portfolio of adjustable rate securities.
Merrill Lynch Americas Income
Fund, Inc. .......................
A high level of current income, consis-
tent with prudent investment risk, by
investing primarily in debt securities
denominated in a currency of a country
located in the Western Hemisphere (i.e.,
North and South America and the sur-
rounding waters).
Merrill Lynch Arizona Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Arizona income taxes as is consistent
with prudent investment management.
31
<PAGE>
Merrill Lynch Arkansas Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Arkansas income taxes as is consistent
with prudent investment management.
Merrill Lynch Asset Growth Fund,
Inc. .............................
High total investment return, consistent
with prudent risk, from investment in
United States and foreign equity, debt
and money market securities the combina-
tion of which will be varied both with
respect to types of securities and mar-
kets in response to changing market and
economic trends.
Merrill Lynch Asset Income Fund, A high level of current income through
Inc. ............................. investment primarily in United States
fixed income securities.
Merrill Lynch Balanced Fund for
Investment and Retirement, Inc. .. As high a level of total investment re-
turn as is consistent with a reasonable
and relatively low level of risk through
investment in common stock and other
types of securities, including fixed-in-
come securities and convertible securi-
ties.
Merrill Lynch Basic Value Fund, Capital appreciation and, secondarily,
Inc. ............................. income through investment in securities,
primarily equities, that are undervalued
and therefore represent basic investment
value.
Merrill Lynch California Insured
Municipal Bond Fund...............
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide sharehold-
ers with as high a level of income ex-
empt from Federal and California income
taxes as is consistent with prudent in-
vestment management through investment
in a portfolio primarily of insured
California Municipal Bonds.
Merrill Lynch California Municipal
Bond Fund.........................
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
California income taxes as is consistent
with prudent investment management.
Merrill Lynch Capital Fund, Inc. .. The highest total investment return con-
sistent with prudent risk through a
fully managed investment policy utiliz-
ing equity, debt and convertible securi-
ties.
Merrill Lynch Colorado Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Colorado income taxes as is consistent
with prudent investment management.
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Merrill Lynch Connecticut
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Connecticut income taxes as is consis-
tent with prudent investment management.
Merrill Lynch Corporate Bond Fund,
Inc. .............................
Current income from three separate diver-
sified portfolios of fixed-income secu-
rities.
Merrill Lynch Developing Capital
Markets Fund, Inc. ...............
Long-term capital appreciation through
investment in securities, principally
equities, of issuers in countries having
smaller capital markets.
Merrill Lynch Dragon Fund, Inc. ... Capital appreciation primarily through
investment in equity and debt securities
of issuers domiciled in developing coun-
tries located in Asia and the Pacific
Basin.
Merrill Lynch Eurofund ............ Capital appreciation primarily through
investment in equity securities of cor-
porations domiciled in Europe.
Merrill Lynch Federal Securities
Trust ............................
High current return through investments
in U.S. Government and Government agency
securities, including GNMA mortgage-
backed certificates and other mortgage-
backed Government securities.
Merrill Lynch Florida Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal in-
come taxes as is consistent with prudent
investment management while seeking to
offer shareholders the opportunity to
own securities exempt from Florida in-
tangible personal property taxes.
Merrill Lynch Fund for Tomorrow,
Inc. .............................
Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially po-
sitioned to benefit from demographic and
cultural changes as they affect consumer
markets.
Merrill Lynch Fundamental Growth
Fund, Inc. .......................
Long-term growth of capital through in-
vestment in a diversified portfolio of
equity securities placing particular em-
phasis on companies that have exhibited
an above-average growth rate in earn-
ings.
Merrill Lynch Fundamental Value
Portfolio......................... A portfolio of Merrill Lynch Asset
(available only for Builder Program, Inc., a series fund,
exchanges by certain individual whose objective is to provide capital
retirement accounts for which appreciation and income by investing in
Merrill Lynch acts as custodian) securities, with at least 65% of the
portfolio's assets being invested in eq-
uities.
33
<PAGE>
Merrill Lynch Global Allocation
Fund, Inc. .......................
High total return, consistent with pru-
dent risk, through a fully managed in-
vestment policy utilizing United States
and foreign equity, debt and money mar-
ket securities, the combination of which
will be varied from time to time both
with respect to the types of securities
and markets in response to changing mar-
ket and economic trends.
Merrill Lynch Global Bond Fund for
Investment and Retirement.........
High total investment return from invest-
ment in a global portfolio of debt in-
struments denominated in various curren-
cies and multi-national currency units.
Merrill Lynch Global Convertible
Fund, Inc. .......................
High total return from investment primar-
ily in an internationally diversified
portfolio of convertible debt securi-
ties, convertible preferred stock and
"synthetic" convertible securities con-
sisting of a combination of debt securi-
ties or preferred stock and warrants or
options.
Merrill Lynch Global Holdings,
Inc. (residents of Arizona must
meet investor suitability
standards)........................
The highest total investment return con-
sistent with prudent risk through world-
wide investment in an internationally
diversified portfolio of securities.
Merrill Lynch Global Opportunity
Portfolio......................... A portoflio of Merrill Lynch Asset
(available only for Builder Program Inc., a series fund,
exchanges by certain individual whose objective is to provide a high to-
retirement accounts for which tal investment return through an invest-
Merrill Lynch acts as custodian) ment policy utilizing United States and
foreign equity, debt and money market
securities, the combination of which
will vary depending upon changing market
and economic trends.
Merrill Lynch Global Resources Long-term growth and protection of capi-
Trust............................. tal from investment in securities of do-
mestic and foreign companies that pos-
sess substantial natural resource as-
sets.
Merrill Lynch Global SmallCap
Fund, Inc. .......................
Long-term growth of capital by investing
primarily in equity securities of compa-
nies with relatively small market capi-
talizations located in various foreign
countries and in the United States.
Merrill Lynch Global Utility Fund,
Inc. .............................
Capital appreciation and current income
through investment of at least 65% of
its total assets in equity and debt se-
curities issued by domestic and foreign
companies primarily engaged in the own-
ership or operation of facilities used
to generate, transmit or distribute
electricity, telecommunications, gas or
water.
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<PAGE>
Merrill Lynch Growth Fund for
Investment and Retirement.........
Growth of capital and, secondarily, in-
come from investment in a diversified
portfolio of equity securities placing
principal emphasis on those securities
which management of the fund believes to
be undervalued.
Merrill Lynch Healthcare Fund, Capital appreciation through worldwide
Inc............................... investment in equity securities of com-
(residents of Wisconsin panies that derive or are expected to
must meet investor suitability derive a substantial portion of their
standards) sales from products and services in
healthcare.
Merrill Lynch International Equity
Fund..............................
Capital appreciation and, secondarily,
income by investing in a diversified
portfolio of equity securities of
issuers located in countries other than
the United States.
Merrill Lynch Latin America
Fund, Inc. .......................
Capital appreciation by investing primar-
ily in Latin American equity and debt
securities.
Merrill Lynch Maryland Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide investors
with as high a level of income exempt
from Federal and Maryland income taxes
as is consistent with prudent investment
management.
Merrill Lynch Massachusetts
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Massachusetts income taxes as is consis-
tent with prudent investment management.
Merrill Lynch Michigan Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Michigan income taxes as is consistent
with prudent investment management.
Merrill Lynch Minnesota Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Minnesota personal income taxes as is
consistent with prudent investment man-
agement.
Merrill Lynch Municipal Bond
Fund, Inc. .......................
Tax-exempt income from three separate di-
versified portfolios of municipal bonds.
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<PAGE>
Merrill Lynch Municipal
Intermediate Term Fund............
Currently the only portfolio of Merrill
Lynch Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from Fed-
eral income taxes as possible by invest-
ing in investment grade obligations with
a dollar weighted average maturity of
five to twelve years.
Merrill Lynch New Jersey Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
New Jersey income taxes as is consistent
with prudent investment management.
Merrill Lynch New Mexico Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
New Mexico income taxes as is consistent
with prudent investment management.
Merrill Lynch New York Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal, New
York State and New York City income
taxes as is consistent with prudent in-
vestment management.
Merrill Lynch North Carolina
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
North Carolina income taxes as is con-
sistent with prudent investment manage-
ment.
Merrill Lynch Ohio Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Ohio income taxes as is consistent with
prudent investment management.
Merrill Lynch Oregon Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Oregon income taxes as is consistent
with prudent investment management.
Merrill Lynch Pacific Fund, Inc. .. Capital appreciation by investing in eq-
uity securities of corporations domi-
ciled in Far Eastern and Western Pacific
countries, including Japan, Australia,
Hong Kong and Singapore.
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<PAGE>
Merrill Lynch Pennsylvania
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Pennsylvania personal income taxes as is
consistent with prudent investment man-
agement.
Merrill Lynch Phoenix Fund, Inc. .. Long-term growth of capital by investing
in equity and fixed-income securities,
including tax-exempt securities, of is-
suers in weak financial condition or ex-
periencing poor operating results be-
lieved to be undervalued relative to the
current or prospective condition of such
issuer.
Merrill Lynch Quality Bond A portfolio of Merrill Lynch Asset
Portfolio..... (available only for Builder Program, Inc., a series fund,
exchanges by certain individual whose objective is to provide a high
retirement accounts for which level of current income through invest-
Merrill Lynch acts as custodian) ment in a diversified portfolio of debt
obligations, such as corporate bonds and
notes, convertible securities, preferred
stocks and governmental obligations.
Merrill Lynch Short-Term Global
Income Fund, Inc. ................
As high a level of current income as is
consistent with prudent investment man-
agement from a global portfolio of high
quality debt securities denominated in
various currencies and multinational
currency units and having remaining ma-
turities not exceeding three years.
Merrill Lynch Special Value Fund,
Inc. .............................
Long-term growth of capital from invest-
ments in securities, primarily common
stock, of relatively small companies be-
lieved to have special investment value
and emerging growth companies regardless
of size.
Merrill Lynch Strategic Dividend
Fund..............................
Long-term total return from investment in
dividend-paying common stocks which
yield more than Standard & Poor's 500
Composite Stock Price Index.
Merrill Lynch Technology Fund, Capital appreciation through worldwide
Inc. ............................. investment in equity securities of com-
panies that derive or are expected to
derive a substantial portion of their
sales from products and services in
technology.
Merrill Lynch Texas Municipal Bond
Fund..............................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal in-
come taxes as is consistent with prudent
investment management by investing pri-
marily in a portfolio of long-term, in-
vestment grade obligations issued by the
State of Texas, its political subdivi-
sions, agencies and instrumentalities.
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<PAGE>
Merrill Lynch U.S. Government
Securities Portfolio.............. A portfolio of Merrill Lynch Asset
(available only for exchanges Builder Program, Inc., a series fund,
by certain individual retirement whose objective is to provide a high
accounts for which Merrill Lynch current return through investments in
acts as custodian) U.S. Government and government agency
securities, including GNMA mortgage-
backed certificates and other mortgage-
backed government securities.
Merrill Lynch Utility Income Fund,
Inc. .............................
High current income through investment in
equity and debt securities issued by
companies which are primarily engaged in
the ownership or operation of facilities
used to generate, transmit or distribute
electricity, telecommunications, gas or
water.
Merrill Lynch World Income
Fund, Inc. .......................
High current income by investing in a
global portfolio of fixed-income securi-
ties denominated in various currencies,
including multinational currencies.
Class A Share Money Market Funds:
Merrill Lynch Ready Assets Trust...
Preservation of capital, liquidity and
the highest possible current income con-
sistent with the foregoing objectives
from the short-term money market securi-
ties in which the fund invests.
Merrill Lynch Retirement Reserves
Money Fund (available only if the
exchange occurs within certain
retirement plans).................
Currently the only portfolio of Merrill
Lynch Retirement Series Trust, a series
fund, whose objectives are to provide
current income, preservation of capital
and liquidity available from investing
in a diversified portfolio of short-term
money market securities.
Merrill Lynch U.S.A. Government
Reserves..........................
Preservation of capital, current income
and liquidity available from investing
in direct obligations of the U.S. Gov-
ernment and repurchase agreements relat-
ing to such securities.
Merrill Lynch U.S. Treasury Money
Fund..............................
Preservation of capital, liquidity and
current income through investment exclu-
sively in a diversified portfolio of
short-term marketable securities which
are direct obligations of the U.S. Trea-
sury.
Class B, Class C and Class D Share Money Market Funds:
Merrill Lynch Government Fund...... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and se-
curity of principal from investment in
securities issued or guaranteed by the
U.S. Government, its agencies and
instrumentalities and in repurchase
agreements secured by such obligations.
38
<PAGE>
Merrill Lynch Institutional Fund... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide maximum
current income consistent with liquidity
and the maintenance of a high quality
portfolio of money market securities.
Merrill Lynch Institutional
Tax-Exempt Fund...................
A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income exempt from Federal income taxes,
preservation of capital and liquidity
available from investing in a diversi-
fied portfolio of short-term, high qual-
ity municipal bonds.
Merrill Lynch Treasury Fund........ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and se-
curity of principal from investment in
direct obligations of the U.S. Treasury
and up to 10% of its total assets in re-
purchase agreements secured by such ob-
ligations.
Before effecting an exchange, shareholders of a Fund should obtain a
currently effective prospectus of the fund into which the exchange is to be
made.
To exercise the exchange privilege, a shareholder should contact his or her
Merrill Lynch financial consultant, who will advise the relevant Fund of the
exchange. Shareholders of the Funds, and shareholders of the other funds
described above, with shares for which certificates have not been issued, may
exercise the exchange privilege by wire through their securities dealers. Each
Fund reserves the right to require a properly completed Exchange Application.
This exchange privilege may be modified or terminated at any time in accordance
with the rules of the Commission. Each Fund reserves the right to limit the
number of times an investor may exercise the exchange privilege. Certain funds
may suspend the continuous offering of their shares at any time and thereafter
may resume such offering from time to time. The exchange privilege is available
only to U.S. shareholders in states where the exchange legally may be made.
DISTRIBUTIONS AND TAXES
FEDERAL
The Trust intends to continue to qualify each Fund for the special tax
treatment afforded regulated investment companies ("RICs") under the Internal
Revenue Code of 1986, as amended (the "Code"). If a Fund so qualifies, in any
taxable year in which it distributes at least 90% of its taxable net income and
90% of its tax-exempt net income (see below), the Fund (but not its
shareholders) will not be subject to Federal income tax to the extent that it
distributes its net investment income and net realized capital gains. The Trust
intends to cause each Fund to distribute substantially all of such income.
As discussed in the Prospectus for the Trust, the Trust has established a
number of series, each referred to herein as a "Fund". Each Fund is treated as
a separate corporation for Federal income tax purposes. Each Fund therefore is
considered to be a separate entity in determining its treatment under the rules
for RICs described in the Prospectus. Losses in one Fund do not offset gains in
another Fund, and the requirements (other than certain organizational
requirements) for qualifying for RIC status are determined at the Fund level
rather than at the Trust level.
39
<PAGE>
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 RICs, such as the Funds, that pay exempt-
interest dividends.
The Trust intends to qualify each Fund to pay "exempt-interest dividends" as
defined in Section 852(b)(5) of the Code. Under such section if, at the close
of each quarter of a Fund's taxable year, at least 50% of the value of its
total assets consists of obligations exempt from Federal income tax ("tax-
exempt obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), a Fund shall be qualified
to pay exempt-interest dividends to its Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). Exempt-interest dividends are
dividends or any part thereof paid by a Fund which are attributable to interest
on tax-exempt obligations and designated by the Trust as exempt-interest
dividends in a written notice mailed to each Fund's shareholders within 60 days
after the close of such Fund's taxable year. For this purpose, the Funds will
allocate interest from tax-exempt obligations (as well as ordinary income,
capital gains and tax preference items, discussed below) among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Commission's exemptive order permitting the
issuance and sale of multiple classes of shares) that is based on the gross
income allocable to Class A, Class B, Class C and Class D shareholders during
the taxable year, or such other method as the Internal Revenue Service may
prescribe. To the extent that the dividends distributed to a 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, subject to the possible application of the Federal
alternative minimum tax as described below. Exempt-interest dividends are
included, however, in determining the portion, if any, of a person's social
security benefits and railroad retirement benefits subject to Federal income
taxes. The Trust will inform shareholders annually regarding the portion of
each Fund's distributions which constitutes exempt-interest dividends. Interest
on indebtedness incurred or continued to purchase or carry shares of RICs
paying exempt-interest dividends, such as the Funds, will not be deductible by
the investor for Federal income tax purposes to the extent attributable to
exempt-interest dividends. Shareholders are advised to consult their tax
advisers with respect to whether exempt-interest dividends retain the exclusion
under Code Section 103(a) if a shareholder would be treated as a "substantial
user" or "related person" under Code Section 147(a) with respect to property
financed with the proceeds of an issue of "industrial development bonds" or
"private activity bonds", if any, held by a Fund.
To the extent that a 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 a 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 a Fund's
earnings and profits will first reduce
40
<PAGE>
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 a Fund pays a dividend in January which
was declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. The alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference", which could subject investors in such bonds, including
shareholders of a Fund, to an alternative minimum tax. Each Fund will purchase
such "private activity bonds" and the Trust will report to shareholders within
60 days after such Fund's taxable year-end the portion of the Fund's dividends
declared during the year which constitutes an item of tax preference for
alternative minimum tax purposes. The Code further provides that corporations
are subject to an alternative minimum tax based, in part, on certain
differences between taxable income as adjusted for other tax preferences and
the corporation's "adjusted current earnings", which more closely reflect a
corporation's economic income. Because exempt-interest dividends paid by a 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 a
Fund.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent any sales charge paid to the Fund
on the exchanged shares reduces any sales charge the shareholder would have
owed upon purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new
shares.
A loss realized on a sale or exchange of shares of a Fund will be disallowed
if other Fund shares are acquired (whether through the automatic reinvestment
of dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult
their own tax advisers concerning the applicability of the United States
withholding tax.
Under certain Code provisions, some shareholders may be subject to a 31%
withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
The Code provides that every person required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Funds) during the taxable
year.
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<PAGE>
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 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 RICs, such as the Funds, are
not subject to the Environmental Tax. However, exempt-interest dividends paid
by the Funds that create alternative minimum taxable income for corporate
shareholders (as described above) may subject corporate shareholders of such
Funds to the Environmental Tax.
TAX TREATMENT OF FINANCIAL FUTURES CONTRACTS AND OPTIONS THEREON
Each Fund may purchase or sell municipal bond index futures contracts and
interest rate futures contracts on U.S. Government securities ("financial
futures contracts"). Each Fund also may purchase and write call and put options
on such financial futures contracts. In general, unless an election is
available to a Fund or an exception applies, such options and financial futures
contracts that are "Section 1256 contracts" will be "marked-to-market" for
Federal income tax purposes at the end of each taxable year, i.e., each such
option or financial futures contract will be treated as sold for its 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 these rules to Section 1256
contracts held by a 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 a Fund's transactions in financial futures contracts and related
options. Under Section 1092, a 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 a
Fund's gross income be derived from gains from the sale or other disposition of
securities held for less than three months. Accordingly, the Funds may be
restricted in effecting closing transactions within three months after entering
into an option or financial futures contract.
----------------
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 specific
questions as to Federal, foreign, state or local taxes.
STATE
Arizona. Exempt-interest dividends from the Arizona Fund will not be subject
to Arizona income tax for shareholders who are Arizona residents to the extent
that the dividends are attributable to interest earned on Arizona State
Municipal Bonds. To the extent that the Arizona 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, such distributions
are considered ordinary income for Arizona income tax purposes. Such
distributions are not eligible for the dividends received deduction for
corporations. Distributions, if any, of net long-term
42
<PAGE>
capital gains from the sale of securities or from certain transactions in
futures or options are taxable as ordinary income for Arizona purposes.
Inasmuch and for so long as the Arizona Fund is registered as a diversified
management company under the 1940 Act, the Arizona Fund will not be subject to
Arizona corporate income taxes, except to the extent of its "unrelated business
income", as defined in Section 512 of the Code, if any, which would be taxed to
the Fund (but not its shareholders) at the Arizona corporate income tax rate
(currently 9.3%) or $50, whichever is greater.
California. Exempt-interest dividends from the California Fund will not be
subject to California personal income taxes for California resident individuals
to the extent attributable to interest from California State Municipal Bonds,
and such exempt-interest dividends will also be excludable from the income base
used in calculating the California corporate income tax to the extent
attributable to interest from California State Municipal Bonds. However,
exempt-interest dividends paid to a corporate shareholder subject to California
state corporate franchise tax will be taxable as ordinary income. Distributions
of long-term capital gains will be treated as capital gains which are taxed at
ordinary income rates for California state income tax purposes.
Florida. The Florida Fund has received a ruling from the Florida Department
of Revenue that if on the last business day of any calendar year the Florida
Fund's assets consist solely of assets exempt from Florida intangible personal
property tax, shares of the Florida Fund will be exempt from Florida intangible
personal property tax in the following year. The Florida Department of Revenue
has the authority to revoke or modify a previously issued ruling; however, if a
ruling is revoked or modified, the revocation or modification is prospective
only. Thus, if the ruling is not revoked or modified and if 100% of the Florida
Fund's assets on the last business day of each calendar year consists of assets
exempt from Florida intangible personal property tax, shares of the Florida
Fund owned by Florida residents will be exempt from Florida intangible personal
property tax. Assets exempt from Florida intangible personal property tax
include obligations of the State of Florida and its political subdivisions;
obligations of the United States Government or its agencies; and cash. If
shares of the Florida Fund are subject to Florida intangible personal property
tax because less than 100% of the Florida Fund's assets on the last business
day of the calendar year consists of assets exempt from Florida intangible
personal property tax, only the portion of the net asset value of the Florida
Fund that is attributable to obligations of the U.S. Government will be exempt
from taxation. The Florida Fund anticipates that on the last business day of
each calendar year the Florida Fund's assets will consist solely of assets
exempt from Florida intangible personal property tax.
Dividends paid by the Florida Fund to individuals who are Florida residents
are not subject to personal income taxation by Florida, because Florida does
not impose a personal income tax. Distributions of investment income and
capital gains by the Florida Fund will be subject to Florida corporate income
tax, state taxes in states other than Florida and local taxes in cities other
than those in Florida. Shareholders subject to taxation by states other than
Florida may realize a lower after-tax rate of return than Florida shareholders
since the dividends distributed by the Florida Fund may not be exempt, to any
significant degree, from income taxation by such other states.
If the Florida Fund does not have a taxable nexus to Florida, such as through
the location within the state of the Trust's or the Florida Fund's activities
or those of the Manager, under present Florida law, the Florida Fund is not
subject to Florida corporate income taxation. Additionally, if the Florida
Fund's assets do not have a taxable situs in Florida as of January 1 of each
calendar year, the Florida Fund will not be subject to Florida intangible
personal property tax. If the Florida Fund has a taxable nexus to Florida or
the Florida Fund's assets have a taxable situs in Florida, the Florida Fund
will be subject to Florida taxation.
Massachusetts. Under existing Massachusetts law, as long as the Massachusetts
Fund qualifies as a separate "regulated investment company" under the Code, (i)
the Massachusetts Fund will not be liable for any personal income or any
corporate excise tax in the Commonwealth of Massachusetts and (ii) shareholders
of the Massachusetts Fund who are subject to Massachusetts personal income
taxation will not be required to include in their Massachusetts taxable income
(a) that portion of their "exempt-interest dividends" (as defined in Section
852(b)(5) of the Code) from the Massachusetts Fund which the Massachusetts Fund
clearly
43
<PAGE>
identifies as directly attributable to interest received by the Massachusetts
Fund on Massachusetts State Municipal Bonds or (b) that portion of their
dividends which is identified as attributable to interest received by the
Massachusetts Fund on obligations of the United States or its agencies or
possessions that are exempt from state taxation (collectively, "Massachusetts-
exempt dividends").
Any capital gains distributed by the Massachusetts Fund to a shareholder
otherwise subject to Massachusetts personal income taxation (except for capital
gains on certain Massachusetts State Municipal Bonds which are specifically
exempt by statute), or gains realized by such a shareholder on a redemption or
sale of shares of the Massachusetts Fund, will be subject to Massachusetts
personal income taxation. The portion of any deduction (e.g., an interest
deduction) otherwise available to a shareholder subject to Massachusetts
personal income taxation which relates or is allocable to Massachusetts-exempt
dividends will not be deductible for Massachusetts personal income tax
purposes.
In the case of any corporate shareholder otherwise subject to the
Massachusetts corporate excise tax, distributions received from the
Massachusetts Fund, and any gain on the sale or other disposition of
Massachusetts Fund Shares, will be includable in the corporation's
Massachusetts gross income and taxed accordingly. Similarly, the value of
shares held in the Massachusetts Fund will be taken into account in calculating
the property component of the Massachusetts corporate excise tax. Interest on
indebtedness incurred or continued to purchase or carry Fund shares will not be
deductible in calculating the income component of the Massachusetts corporate
excise tax.
Michigan. Shareholders who are subject to the Michigan income tax or single
business tax will not be subject to the Michigan income tax or single business
tax on exempt-interest dividends from the Michigan Fund to the extent they are
attributable to interest from Michigan State Municipal Bonds or on dividends
that are attributable to interest from obligations of the United States or its
possessions. To the extent the distributions from the Michigan Fund are
attributable to sources other than Michigan State Municipal Bonds or
obligations of the United States or its possessions, such distributions,
including, but not limited to, long- or short-term capital gains, will not be
exempt from Michigan income tax or the single business tax. For purposes of
Michigan income tax laws, shareholders will have a taxable event upon
redemption or sale of their shares of the Michigan Fund to the extent the
transaction constitutes a taxable event for federal income tax purposes.
In 1986, the Michigan Department of Treasury issued a Bulletin stating that
holders of interests in regulated investment companies who are subject to the
Michigan intangibles tax will be exempt from the tax to the extent that the
company's investment portfolio consists of items such as Michigan State
Municipal Bonds. In addition, shares owned by certain financial institutions or
by certain other persons subject to the Michigan single business tax are not
subject to the Michigan intangibles tax. The Intangibles Tax is being phased-
out, with reductions of twenty-five percent (25%) in 1994 and 1995, fifty
percent (50%) in 1996, and seventy-five percent (75%) in 1997, with total
repeal effective January 1, 1988.
New Jersey. To the extent distributions from the New Jersey Fund are derived
from interest or gains on New Jersey State Municipal Bonds, such distributions
will be exempt from New Jersey personal income tax. In order to pass through
tax-exempt interest for New Jersey personal income tax purposes, the New Jersey
Fund, among other requirements, must have not less than 80% of the aggregate
principal amount of its investments invested in New Jersey State Municipal
Bonds at the close of each quarter of the tax year (the "80% Test"). For
purposes of calculating whether the 80% Test is satisfied, financial options,
futures, forward contracts and similar financial instruments relating to
interest-bearing obligations are excluded from the principal amount of the New
Jersey Fund's investments. The New Jersey Fund intends to comply with this
requirement so as to enable it to pass through tax-exempt interest. In the
event the New Jersey Fund does not so comply, distributions by the New Jersey
Fund will be taxable to shareholders for New Jersey personal income tax
purposes. Interest on indebtedness incurred or continued to purchase or carry
New Jersey Fund shares is not deductible either for Federal income tax purposes
or New Jersey personal income
44
<PAGE>
tax purposes to the extent attributable to exempt-interest dividends.
Distributions from the New Jersey Fund derived from interest or gains on New
Jersey State Municipal Bonds and paid to a corporate shareholder will be
subject to the New Jersey corporation business (franchise) tax or, if
applicable, the New Jersey corporation income tax.
Under present New Jersey law, a RIC, such as the New Jersey Fund, pays a flat
tax of $250 per year. The New Jersey Fund might be subject to the New Jersey
corporation business (franchise) tax for any taxable year in which it does not
qualify as a RIC.
New York. The portion of the exempt-interest dividends equal to the
proportion which the New York Fund's interest on New York State Municipal Bonds
bears to all of the New York Fund's tax-exempt interest (whether or not
distributed) will be exempt from New York State and New York City personal
income taxes. To the extent the New York Fund's distributions are derived from
interest on taxable investments, from gain from the sale of investments or from
tax-exempt interest that is not attributable to New York State Municipal Bonds,
they will constitute taxable income for New York State and New York City
personal income tax purposes. Distributions from investment income and capital
gains of the New York Fund, including exempt-interest dividends paid to a
corporate shareholder, will be subject to New York State corporate franchise
and New York City corporation income tax.
Pennsylvania. To the extent distributions from the Pennsylvania Fund are
derived from interest on Pennsylvania State Municipal Bonds, such distributions
will also be exempt from the Pennsylvania personal income tax. However,
distributions attributable to capital gains derived by the Pennsylvania Fund as
well as distributions derived from income from investments other than
Pennsylvania State Municipal Bonds will be taxable for purposes of the
Pennsylvania personal income tax. In the case of residents of the City of
Philadelphia, distributions which are derived from interest on Pennsylvania
State Municipal Bonds or which are designated as capital gain dividends for
Federal income tax purposes will be exempt from the Philadelphia School
District investment income tax.
Shares of the Pennsylvania Fund will be exempt from Pennsylvania county
personal property taxes to the extent the Pennsylvania Fund's portfolio
securities consist of Pennsylvania State Municipal Bonds on the annual
assessment date.
It is unclear at this time whether an investment in the Pennsylvania Fund by
a corporate shareholder will qualify as an exempt asset for purposes of
apportionment of the Pennsylvania capital stock/foreign franchise tax. To the
extent exempt-interest dividends are excluded from taxable income for Federal
corporate income tax purposes (determined before net operating loss carryovers
and special deductions), they will not be subject to the Pennsylvania corporate
net income tax.
The above discussion is a general and abbreviated summary of the relevant
state and local tax provisions presently in effect. Shareholders are urged to
consult their tax advisers regarding specific questions as to state or local
taxes.
PERFORMANCE DATA
From time to time each Fund may include its average annual total return and
other total return data, as well as yield and tax-equivalent yield, in
advertisements or information furnished to present or prospective shareholders.
From time to time, the Fund may include the Fund's Morningstar risk-adjusted
ratings in advertisements or supplemental sales literature. Total return and
yield and tax-equivalent yield figures are based on a Fund's historical
performance and are not intended to indicate future performance. Average annual
total return, yield and tax-equivalent yield are determined separately for
Class A, Class B, Class C and Class D shares of each Fund in accordance with
formulas specified by the Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital
45
<PAGE>
gains or losses on portfolio investments over such periods) that would equate
the initial amount invested to the redeemable value of such investment at the
end of each period. Average annual total return is computed assuming all
dividends and distributions are reinvested and taking into account all
applicable recurring and nonrecurring expenses, including the maximum sales
charge in the case of Class A and Class D shares of a Fund and the CDSC that
would be applicable to a complete redemption of the investment at the end of
the specified period in the case of Class B and Class C shares of that Fund.
The Funds also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted
and (2) the maximum applicable sales charges will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time.
46
<PAGE>
Set forth below is the total return, yield and tax-equivalent yield
information (based on a Federal tax rate of 28%) for the Class A, Class B,
Class C and Class D shares of each of the Funds for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------- ----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
OF A OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT AT BASED ON A INVESTMENT AT
HYPOTHETICAL THE END OF HYPOTHETICAL THE END OF
$1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Arizona Fund
- ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 5.41% $1,054.10 4.99% $1,049.90
Inception
(November 26,
1993) to July
31, 1995........ 4.43% $1,075.40 4.63% $1,078.80
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 6.47% $1,064.70 5.99% $1,059.90
Inception
(November 26,
1993) to July
31, 1994........ 2.02% $1,020.20 1.78% $1,017.80
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995........ 7.54% $1,075.40 7.88% $1,078.80
Inception
(October 21,
1994) to July
31, 1995........
Yield*.......... 3.86% 3.54%
Tax-Equivalent
Yield*.......... 5.36% 4.92%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES+
--------------------------- ---------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF THE $1,000 THE END OF THE
INVESTMENT PERIOD INVESTMENT PERIOD
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Arizona Fund
- ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 6.36% $1,049.00 6.86% $1,052.80
Inception
(November 26,
1993) to July
31, 1995........
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 5.90% $1,059.00 6.34% $1,063.40
Inception
(November 26,
1993) to July
31, 1994........
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995........
Inception
(October 21,
1994) to July
31, 1995........ 4.90% $1,049.00 5.28% $1,052.80
Yield*.......... 3.51% 3.77%
Tax-Equivalent
Yield*.......... 4.88% 5.24%
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------- ----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
OF A OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT AT BASED ON A INVESTMENT AT
HYPOTHETICAL THE END OF HYPOTHETICAL THE END OF
$1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
California Fund
- ---------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 4.54% $1,045.40 4.23% $1,042.30
Inception
(November 26,
1993) to July
31, 1995........ 3.44% $1,058.30 3.70% $1,062.70
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 5.60% $1,056.00 5.23% $1,052.30
Inception
(November 26,
1993) to July
31, 1994........ 1.23% $1,012.30 0.99% $1,009.90
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995........ 5.83% $1,058.30 6.27% $1,062.70
Inception
(October 21,
1994) to July
31, 1995........
Yield*.......... 3.75% 3.43%
Tax-Equivalent
Yield*.......... 5.21% 4.76%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES+
--------------------------- ---------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF THE $1,000 THE END OF THE
INVESTMENT PERIOD INVESTMENT PERIOD
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
California Fund
- ---------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 5.98% $1,046.00 6.23% $1,048.00
Inception
(November 26,
1993) to July
31, 1995........
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 5.60% $1,056.00 5.85% $1,058.50
Inception
(November 26,
1993) to July
31, 1994........
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995........
Inception
(October 21,
1994) to July
31, 1995........ 4.60% $1,046.00 4.80% $1,048.00
Yield*.......... 3.61% 3.65%
Tax-Equivalent
Yield*.......... 5.01% 5.07%
</TABLE>
(Footnotes on page 50)
47
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------- ----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
OF A OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT AT BASED ON A INVESTMENT AT
HYPOTHETICAL THE END OF HYPOTHETICAL THE END OF
$1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Florida Fund
- ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995........... 4.99% $1,049.90 4.57% $1,045.70
Inception
(November 26,
1993) to July
31, 1995....... 3.63% $1,061.70 3.89% $1,066.10
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995........... 6.05% $1,060.50 5.57% $1,055.70
Inception
(November 26,
1993) to July
31, 1994....... 1.12% $1,011.20 0.99% $1,009.90
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995....... 6.17% $1,061.70 6.61% $1,066.10
Inception
(October 21,
1994) to July
31, 1995.......
Yield*.......... 3.86% 3.54%
Tax-Equivalent
Yield*.......... 5.36% 4.92%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES+
--------------------------- ---------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF THE $1,000 THE END OF THE
INVESTMENT PERIOD INVESTMENT PERIOD
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Florida Fund
- ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995........... 6.04% $1,046.50 6.51% $1,050.10
Inception
(November 26,
1993) to July
31, 1995.......
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995........... 5.65% $1,056.50 6.07% $1,060.70
Inception
(November 26,
1993) to July
31, 1994.......
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995.......
Inception
(October 21,
1994) to July
31, 1995....... 4.65% $1,046.50 5.01% $1,050.10
Yield*.......... 3.51% 3.77%
Tax-Equivalent
Yield*......... 4.88% 5.24%
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------- ----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
OF A OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT AT BASED ON A INVESTMENT AT
HYPOTHETICAL THE END OF HYPOTHETICAL THE END OF
$1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Massachusetts
Fund
- -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995........... 3.74% $1,037.40 3.41% $1,034.10
Inception
(November 26,
1993) to July
31, 1995....... 3.43% $1,058.20 3.69% $1,062.60
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995........... 4.79% $1,047.90 4.41% $1,044.10
Inception
(November 26,
1993) to July
31, 1994....... 2.01% $1,020.10 1.77% $1,017.70
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995....... 5.82% $1,058.20 6.26% $1,062.60
Inception
(October 21,
1994) to July
31, 1995.......
Yield*.......... 3.99% 3.67%
Tax-Equivalent
Yield*......... 5.54% 5.10%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES+
--------------------------- ---------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF THE $1,000 THE END OF THE
INVESTMENT PERIOD INVESTMENT PERIOD
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Massachusetts
Fund
- -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995........... 5.19% $1,040.00 5.24% $1,040.40
Inception
(November 26,
1993) to July
31, 1995.......
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995........... 5.00% $1,050.00 5.09% $1,050.90
Inception
(November 26,
1993) to July
31, 1994.......
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995.......
Inception
(October 21,
1994) to July
31, 1995....... 4.00% $1,040.00 4.04% $1,040.40
Yield*.......... 3.87% 3.89%
Tax-Equivalent
Yield*......... 5.38% 5.40%
</TABLE>
(Footnotes on page 50)
48
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
----------------------------------- -----------------------------------
EXPRESSED AS REDEEMABLE VALUE EXPRESSED AS REDEEMABLE VALUE
A PERCENTAGE OF A HYPOTHETICAL A PERCENTAGE OF A HYPOTHETICAL
BASED ON A $1,000 INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END OF HYPOTHETICAL AT THE END OF
$1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Michigan Fund
- -------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995........... 4.10% $1,041.00 3.78% $1,037.80
Inception
(November 26,
1993) to July
31, 1995....... 3.44% $1,058.30 3.69% $1,062.60
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Fiscal year
ended July 31,
1995........... 5.16% $1,051.60 4.78% $1,047.80
Inception
(November 26,
1993) to July
31, 1994....... 1.66% $1,016.60 1.42% $1,014.20
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception
(November 26,
1993) to July
31, 1995....... 5.83% $1,058.30 6.26% $1,062.60
Inception
(October 21,
1994) to July
31, 1995.......
Yield*.......... 4.24% 3.90%
Tax-Equivalent
Yield*......... 5.89% 5.42%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES+
--------------------------- ---------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF THE $1,000 THE END OF THE
INVESTMENT PERIOD INVESTMENT PERIOD
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Michigan Fund
- -------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Fiscal year
ended July 31,
1995........... 5.71% $1,044.00 6.05% $1,046.60
Inception
(November 26,
1993) to July
31, 1995.......
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Fiscal year
ended July 31,
1995........... 5.40% $1,054.00 5.72% $1,057.20
Inception
(November 26,
1993) to July
31, 1994.......
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception
(November 26,
1993) to July
31, 1995.......
Inception
(October 21,
1994) to July
31, 1995....... 4.40% $1,044.00 4.66% $1,046.60
Yield*.......... 3.87% 4.14%
Tax-Equivalent
Yield*......... 5.38% 5.75%
</TABLE>
<TABLE>
<CAPTION>
New Jersey Fund
- ---------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Fiscal year
ended July 31,
1995........... 5.38% $1,053.80 5.07% $1,050.70
Inception
(November 26,
1993) to July
31, 1995....... 4.23% $1,072.00 4.55% $1,077.50
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Fiscal year
ended July 31,
1995........... 6.45% $1,064.50 6.07% $1,060.70
Inception
(November 26,
1993) to July
31, 1994....... 1.73% $1,017.30 1.59% $1,015.90
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception
(November 26,
1993) to July
31, 1995....... 7.20% $1,072.00 7.75% $1,077.50
Inception
(October 21,
1994) to July
31, 1995.......
Yield*.......... 3.72% 3.40%
Tax-Equivalent
Yield*......... 5.17% 4.72%
</TABLE>
<TABLE>
<CAPTION>
New Jersey Fund
- ---------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Fiscal year
ended July 31,
1995........... (6.32)% $ 950.60 7.08% $1,054.50
Inception
(November 26,
1993) to July
31, 1995.......
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Fiscal year
ended July 31,
1995........... (4.01)% $ 959.90 6.51% $1,065.10
Inception
(November 26,
1993) to July
31, 1994.......
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception
(November 26,
1993) to July
31, 1995.......
Inception
(October 21,
1994) to July
31, 1995....... (4.94)% $ 950.60 5.45% $1,054.50
Yield*.......... 3.47% 3.63%
Tax-Equivalent
Yield*......... 4.82% 5.04%
</TABLE>
(Footnotes on page 50)
49
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------- -----------------------------------
REDEEMABLE VALUE
OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS REDEEMABLE VALUE
A PERCENTAGE $1,000 A PERCENTAGE OF A HYPOTHETICAL
BASED ON A INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END OF HYPOTHETICAL AT THE END OF
$1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
New York Fund
- -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 4.97% $1,049.70 4.66% $1,046.60
Inception
(November 26,
1993) to July
31, 1995........ 3.92% $1,066.60 4.18% $1,071.10
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 6.03% $1,060.30 5.66% $1,056.60
Inception
(November 26,
1993) to July
31, 1994........ 1.61% $1,016.10 1.37% $1,013.70
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995........ 6.66% $1,066.60 7.11% $1,071.10
Inception
(October 21,
1994) to July
31, 1995........
Yield*.......... 4.13% 3.81%
Tax-Equivalent
Yield*.......... 5.74% 5.29%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES+
--------------------------- ---------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF THE $1,000 THE END OF THE
INVESTMENT PERIOD INVESTMENT PERIOD
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
New York Fund
- -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 6.45% $1,049.70 6.90% $1,053.10
Inception
(November 26,
1993) to July
31, 1995........
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 5.97% $1,059.70 6.37% $1,063.70
Inception
(November 26,
1993) to July
31, 1994........
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995........
Inception
(October 21,
1994) to July
31, 1995........ 4.97% $1,049.70 5.31% $1,053.10
Yield*.......... 3.99% 4.04%
Tax-Equivalent
Yield*.......... 5.54% 5.61%
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------- -----------------------------------
REDEEMABLE VALUE
OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS REDEEMABLE VALUE
A PERCENTAGE $1,000 A PERCENTAGE OF A HYPOTHETICAL
BASED ON A INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END OF HYPOTHETICAL AT THE END OF
$1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Pennsylvania Fund
- -----------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 4.83% $1,048.30 4.51% $1,045.10
Inception
(November 26,
1993) to July
31, 1995........ 3.98% $1,067.70 4.24% $1,072.10
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 5.89% $1,058.90 5.51% $1,055.10
Inception
(November 26,
1993) to July
31, 1994........ 1.85% $1,018.50 1.61% $1,016.10
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995........ 6.77% $1,067.70 7.21% $1,072.10
Inception
(October 21,
1994) to July
31, 1995........
Yield*.......... 4.03% 3.72%
Tax-Equivalent
Yield*.......... 5.60% 5.17%
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES+
--------------------------- ---------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF THE $1,000 THE END OF THE
INVESTMENT PERIOD INVESTMENT PERIOD
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Pennsylvania Fund
- -----------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 6.08% $1,046.80 6.54% $1,050.30
Inception
(November 26,
1993) to July
31, 1995........
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Fiscal year
ended July 31,
1995............ 5.68% $1,056.80 6.10% $1,061.00
Inception
(November 26,
1993) to July
31, 1994........
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(November 26,
1993) to July
31, 1995........
Inception
(October 21,
1994) to July
31, 1995........ 4.68% $1,046.80 5.03% $1,050.30
Yield*.......... 3.70% 3.94%
Tax-Equivalent
Yield*.......... 5.14% 5.47%
</TABLE>
- ----
+ Information as to Class C and Class D shares is presented only for the
period October 21, 1994 (commencement of operations) to July 31, 1995. Prior
to October 21, 1994, no Class C or Class D shares had been publicly issued.
* 30 days ended on July 31, 1995. Tax-equivalent yield based on a Federal
income tax rate of 28%.
50
<PAGE>
In order to reflect the reduced sales charges in the case of Class A or Class
D shares or the waiver of the CDSC in the case of Class B or Class C shares
applicable to certain investors, as described under "Purchase of Shares" and
"Redemption of Shares", respectively, the total return data quoted by a Fund in
advertisements directed to such investors may take into account the reduced,
and not the maximum, sales charge or may take into account the CDSC and
therefore may reflect greater total return since, due to the reduced sales
charge or the waiver of sales charges, a lower amount of expenses is deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust, dated February 14, 1991, of the Trust, as amended
(the "Declaration"), provides that the Trust shall be comprised of separate
Series, each of which will consist of a separate portfolio which will issue
separate shares. The Trust is presently comprised of the Arizona Fund, the
California Fund, the Florida Fund, the Massachusetts Fund, the Michigan Fund,
the New Jersey Fund, the New York Fund and the Pennsylvania Fund. The Trustees
are authorized to create an unlimited number of Series and, with respect to
each Series, to issue an unlimited number of full and fractional shares of
beneficial interest, par value $.10 per share, of different classes and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Series.
Shareholder approval is not necessary for the authorization of additional
Series or classes of a Series of the Trust. At the date of this Statement of
Additional Information, the shares of each Fund are divided into Class A, Class
B, Class C and Class D shares. Class A, Class B, Class C and Class D shares
represent interests in the same assets of the relevant Fund and have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D shares bear certain
expenses related to the account maintenance and/or distribution of such shares
and have exclusive voting rights with respect to matters relating to such
account maintenance and/or distribution expenditures. See "Purchase of Shares".
The Trust has received an order from the Commission permitting the issuance and
sale of multiple classes of shares of beneficial interest. The Board of
Trustees of the Trust may classify and reclassify the shares of any Series into
additional classes at a future date.
All shares of the Trust have equal voting rights, except that only shares of
the respective Series are entitled to vote on matters concerning only that
Series and, as noted above, Class B, Class C and Class D shares have exclusive
voting rights with respect to matters relating to the account maintenance
and/or distribution expenses being borne solely by such class. Each issued and
outstanding share is entitled to one vote and to participate equally in
dividends and distributions declared by a Series and in the net assets of such
Series upon liquidation or dissolution remaining after satisfaction of
outstanding liabilities, except that, as noted above, expenses related to the
account maintenance and/or distribution of the Class B, Class C and Class D
shares are borne solely by such class. There normally will be no meeting of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Shareholders, in accordance
with the terms of the Declaration, may cause a meeting of shareholders to be
held for the purpose of voting on the removal of Trustees. Also, the Trust will
be required to call a special meeting of shareholders in accordance with the
requirements of the 1940 Act to seek approval of new management and advisory
arrangements, of a material increase in distribution fees or of a change in the
fundamental policies, objectives or restrictions of a Series.
The obligations and liabilities of a particular Series are restricted to the
assets of that Series and do not extend to the assets of the Trust generally.
The shares of each Series, when issued, will be fully paid and
51
<PAGE>
nonassessable, have no preference, preemptive, conversion, exchange or similar
rights, and will be freely transferable. Holders of shares of any Series are
entitled to redeem their shares as set forth elsewhere herein and in the
Prospectus. Shares do not have cumulative voting rights and the holders of more
than 50% of the shares of the Trust voting for the election of Trustees can
elect all of the Trustees if they choose to do so and in such event the holders
of the remaining shares would not be able to elect any Trustees. No amendments
may be made to the Declaration without the affirmative vote of a majority of
the outstanding shares of the Trust.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of each Fund based on the Funds' net assets and
number of shares outstanding on July 31, 1995 is set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Arizona Fund
Net Assets......................... $1,054,046 $ 5,191,042 $ 1,149 $ 18,579
========== =========== ======== ==========
Number of Shares Outstanding....... 103,693 510,697 113 1,827
========== =========== ======== ==========
Net Asset Value Per Share (net
assets divided by number of shares
outstanding)...................... $ 10.17 $ 10.16 $ 10.17 $ 10.17
Sales Charge (for Class A and Class
D shares; 1.00% of offering price
(1.01% of net asset value per
share))*.......................... $ .10 $ ** $ ** $ .10
---------- ----------- -------- ----------
Offering Price..................... $ 10.27 $ 10.16 $ 10.17 $ 10.27
========== =========== ======== ==========
California Fund
Net Assets......................... $3,526,712 $10,362,511 $ 64,309 $1,770,948
========== =========== ======== ==========
Number of Shares Outstanding....... 352,970 1,037,238 6,437 177,258
========== =========== ======== ==========
Net Asset Value Per Share (net
assets divided by number of shares
outstanding)...................... $ 9.99 $ 9.99 $ 9.99 $ 9.99
Sales Charge (for Class A and Class
D shares; 1.00% of offering price
(1.01% of net asset value per
share))*.......................... $ .10 $ ** $ ** $ .10
---------- ----------- -------- ----------
Offering Price..................... $ 10.09 $ 9.99 $ 9.99 $ 10.09
========== =========== ======== ==========
Florida Fund
Net Assets......................... $9,849,207 $16,212,708 $ 1,131 $7,210,213
========== =========== ======== ==========
Number of Shares Outstanding....... 983,379 1,618,761 113 720,201
========== =========== ======== ==========
Net Asset Value Per Share (net
assets divided by number of shares
outstanding)...................... $ 10.02 $ 10.02 $ 10.01 $ 10.01
Sales Charge (for Class A and Class
D shares; 1.00% of offering price
(1.01% of net asset value per
share))*.......................... $ .10 $ ** $ ** $ .10
---------- ----------- -------- ----------
Offering Price..................... $ 10.12 $ 10.02 $ 10.01 $ 10.11
========== =========== ======== ==========
Massachusetts Fund
Net Assets......................... $4,452,799 $ 4,799,691 $412,541 $ 252,582
========== =========== ======== ==========
Number of Shares Outstanding....... 446,975 481,748 41,429 25,369
========== =========== ======== ==========
Net Asset Value Per Share (net
assets divided by number of shares
outstanding)...................... $ 9.96 $ 9.96 $ 9.96 $ 9.96
Sales Charge (for Class A and Class
D shares; 1.00% of offering price
(1.01% of net asset value per
share))*.......................... $ .10 $ ** $ ** $ .10
---------- ----------- -------- ----------
Offering Price..................... $ 10.06 $ 9.96 $ 9.96 $ 10.06
========== =========== ======== ==========
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
---------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Michigan Fund
Net Assets........................... $2,302,328 $2,494,402 $ 1,128 $ 254,178
========== ========== ======= ==========
Number of Shares Outstanding......... 230,742 250,006 113 25,485
========== ========== ======= ==========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding)........................ $ 9.98 $ 9.98 $ 9.98 $ 9.97
Sales Charge (for Class A and Class D
shares; 1.00% of offering price
(1.01% of net asset value per
share))*............................ $ .10 $ ** $ ** $ .10
---------- ---------- ------- ----------
Offering Price....................... $ 10.08 $ 9.98 $ 9.98 $ 10.07
========== ========== ======= ==========
New Jersey Fund
Net Assets........................... $2,400,567 $7,592,897 $ 1,040 $ 437,103
========== ========== ======= ==========
Number of Shares Outstanding......... 236,440 747,358 113 43,022
========== ========== ======= ==========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding)........................ $ 10.15 $ 10.16 $ 9.20 $ 10.16
Sales Charge (for Class A and Class D
shares; 1.00% of offering price
(1.01% of net asset value per
share))*............................ $ .10 $ ** $ ** $ .10
---------- ---------- ------- ----------
Offering Price....................... $ 10.25 $ 10.16 $ 9.20 $ 10.26
========== ========== ======= ==========
New York Fund
Net Assets........................... $4,811,410 $8,821,861 $38,358 $2,305,861
========== ========== ======= ==========
Number of Shares Outstanding......... 478,754 877,793 3,817 229,378
========== ========== ======= ==========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding)........................ $ 10.05 $ 10.05 $ 10.05 $ 10.05
Sales Charge (for Class A and Class D
shares; 1.00% of offering price
(1.01% of net asset value per
share))*............................ $ .10 $ ** $ ** $ .10
---------- ---------- ------- ----------
Offering Price....................... $ 10.15 $ 10.05 $ 10.05 $ 10.15
========== ========== ======= ==========
Pennsylvania Fund
Net Assets........................... $ 943,403 $7,414,019 $ 1,141 $ 381,994
========== ========== ======= ==========
Number of Shares Outstanding......... 93,398 734,063 113 37,804
========== ========== ======= ==========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding)........................ $ 10.10 $ 10.10 $ 10.10 $ 10.10
Sales Charge (for Class A and Class D
shares; 1.00% of offering price
(1.01% of net asset value per
share))*............................ $ .10 $ ** $ ** $ .10
---------- ---------- ------- ----------
Offering Price....................... $ 10.20 $ 10.10 $ 10.10 $ 10.20
========== ========== ======= ==========
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares within one year of
purchase.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Trust. The independent
auditors are responsible for auditing the annual financial statements of each
Fund.
CUSTODIAN
The Bank of New York, 90 Washington Street, 12th Floor, New York, New York
10005, acts as the custodian of the Trust's assets. The custodian is
responsible for establishing a separate account for each Fund, safeguarding
and controlling each Fund's cash and securities, handling the delivery of
securities and collecting interest on each Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484, acts as the Trust's
transfer agent. The Transfer Agent is responsible for the issuance, transfer
and redemption of Fund shares and the opening, maintenance and servicing of
Fund shareholder accounts. See "Management of the Trust--Transfer Agency
Services" in the Prospectus.
53
<PAGE>
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of each Fund ends on July 31 of each year. The Trust sends to
shareholders of each Fund at least semi-annually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all of the information set forth in the Registration Statement and the exhibits
relating thereto, which the Trust has filed with the Commission, Washington,
D.C., under the Securities Act and the 1940 Act, to which reference is hereby
made.
The Declaration, a copy of which is on file in the office of the Secretary of
the Commonwealth of Massachusetts, provides that the name "Merrill Lynch Multi-
State Limited Maturity Municipal Series Trust" refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of the Trust shall be held
to any personal liability; nor shall resort be had to any such person's private
property for the satisfaction of any obligation or claim of the Trust but the
"Trust Property" (as defined in the Declaration) only shall be liable.
To the knowledge of the Trust, the following persons or entities owned
beneficially 5% or more of a Fund's shares on November 16, 1995.
<TABLE>
<CAPTION>
PERCENT OF
NAME ADDRESS CLASS
--------------------------- ----------------------------- -------------
<S> <C> <C> <C>
Arizona Fund............ William and Mary June Ross 445 N. Wilmot Rd. #232 8.3% Class B
Tucson, AZ 85711
California Fund......... Bernard Lipinsky and 700 Front St. #2501 42.9% Class A
Dorris Lipinsky Trustees San Diego, CA 92101 8.8% Class B
Coleman & Co. Security Window 68.3% Class D
Attn: Anna Monohan 2 World Trade Center
97th Floor
New York, NY 10048
Florida Fund............ Est. of Edward J. McBride P.O. Box 880 43.9% Class D
Fort Myers, FL 33902
Massachusetts Fund...... Heatbath Corporation P.O. Box 2978 41.1% Class A
Attn: Mary Simpson Springfield, MA 01101
Michigan Fund........... Thomas O. Muller, III 21 S. End Ave. 18.2% Class A
#1E PH Regatta
New York, NY 10280
Maurice Schell 6393 Green Rd. 11.7% Class A
Haslett, MI 48840
New Jersey Fund......... Charles & Helen Hershkowitz 152 Warren Ave. 7.1% Class B
Bridgewater, NJ 08807
New York Fund........... Morris M. Greenberg 601 Stratford Rd. 55.1% Class D
North Baldwin, NY 11510
Pennsylvania Fund....... A.J. Clegg 1400 N. Providence Rd . #3010 14.7% Class B
Rose Tree Corp. Center II Media, PA 19063
</TABLE>
54
<PAGE>
APPENDIX A
ECONOMIC AND FINANCIAL CONDITIONS IN ARIZONA
The following information is a brief summary of factors affecting the economy
of the state and does not purport to be a complete description of such factors.
Other factors will affect issuers. The summary is based primarily upon one or
more publicly available offering statements relating to debt offerings of state
issuers; however, it has not been updated nor will it be updated during the
year. The Trust has not independently verified this information.
Over the past several decades, the State's economy has grown faster than most
other regions of the country, as measured by nearly every major indicator of
economic growth, including population, employment, and aggregate personal
income. Although the rate of growth in these and other areas slowed
considerably during the late 1980s and early 1990s, the State's efforts to
diversify its economy have enabled it to realize, and then sustain, moderate
growth in more recent years. While jobs in industries such as mining and
agriculture have diminished in relative importance to the State's economy over
the past two decades, substantial growth has occurred in the areas of
aerospace, high technology, light manufacturing, and the service industry.
Other important industries that contributed to the State's growth in past
years, such as construction and real estate, have rebounded from substantial
declines during the late 1980s and early 1990s, and, like the rest of the
State, have experienced positive growth.
Arizona's strong economy, warm climate, and reasonable cost of living have
encouraged many people to move to the State in recent years. Between 1985 and
1990, the State ranked fifth in the country in population growth, and Maricopa
County, the State's most populous county, had the single largest population
inflow (in absolute terms) of any county in the country during that period.
Since 1991, as a result of both the State's relatively good economy and the
troubles experienced in surrounding areas like California, the State's
population has grown by approximately 287,000, or 7.6%. The net 115,000 people
who moved to the State in 1994 put the State's aggregate population over
4,000,000 for the first time. Population growth in 1995 is expected to equal or
exceed the 1994 levels.
Part of the State's popularity in recent years can be attributed to the
favorable job climate. Building upon the moderate job growth sustained since
the early 1990s, the State's employment figures reached near-record levels in
1994, rising 6.4% from 1993 as the State recorded more than 99,000 new jobs.
The industries that created the most jobs in 1994 included construction, where
employment rose 21.9%, and manufacturing (including the aircraft and missile
sectors), which was up 9.2%. Transportation, communications, public utilities,
trade, finance, insurance, and real estate also experienced job growth.
Overall, the service sector of the economy, which represents more than 28% of
all jobs in the State, grew by 6.4%, while only mining and government showed
declines. The 1994 results are not expected to be matched in 1995, partly due
to a decline in single-family home construction, but a relatively sound United
States economy, a potential economic upswing in California (which historically
has been a prime market for Arizona goods and services), and continued growth
in manufacturing and high technology should enable the State to realize
moderate gains in job growth in 1995. The 1994 unemployment rate was 6.3%.
The State's economic growth in recent times has enabled Arizonans to realize
substantial gains in personal income. While the State's per capita personal
income generally varies between 5% and 15% below the national average due to
such factors as the chronic poverty on the State's Indian reservations, the
State's relatively high numbers of retirees and children, and the State's
below-average wage scale, the State's aggregate personal income grew nearly
22.8% between 1991 and 1994 to approximately $77.094 billion, which translated
into a gain in real personal income of 14.8% to $60.980 billion. Among other
things, the gains in per capita personal income helped create a retail sales
boom in 1994. According to Arizona Department of Revenue figures (which measure
taxable retail sales in specified categories), retail sales were up 12.3% in
1994, led by major gains in sales of durable goods. The current rate of growth
in the retail sales area may not be sustainable over the long term, but
continued strength in employment growth and personal income should produce
good, though more modest, results in 1995.
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The State government's fiscal situation has improved substantially in recent
years. After experiencing several years of budget shortfalls requiring mid-year
adjustments, the State had budget surpluses of approximately $86 million, $107
million, and $270 million in fiscal years 1993, 1994, and 1995, respectively.
The State's positive economic outlook enabled the Legislature to enact a two-
year, $431 million tax cut, the largest in the State's history. Signed into law
in March 1995, the fiscal year 1996 budget and tax package provides for a $200
million cut in personal income taxes this year, a $200 million cut in property
taxes next year, and eliminates income taxes for families of four making less
than $20,000 per year. Businesses will also receive some tax relief. While
voter approval of Proposition 108 in November 1992, which requires a 2/3
majority vote in both houses of the Legislature to pass a tax or fee increase,
constrains the State's ability to raise additional revenue, the State has
placed some of its excess operating revenues in a rainy-day fund, which has a
current balance of more than $100 million.
In July 1994, a sharply divided Arizona Supreme Court ruled that the State's
current system for financing public education itself created substantial
disparities in facilities among school districts and therefore violated the
provisions of Article XI, (S) 1 of the Arizona Constitution, which requires the
Legislature to establish and maintain "a general and uniform public school
system." The Court remanded the case to the trial court "to determine whether,
within a reasonable time, legislative action has been taken [to correct this
situation]." In response to a subsequent motion for clarification, the Supreme
Court ordered that, pending such legislative action or further order of the
Supreme Court, "which would have prospective application only," the public
school system "continue under existing statutes, and the validity and
enforceability of past and future acts, bonded indebtedness and obligations
incurred under applicable statutes, as long as they are in force and effect,
are assured." In May 1995, a court dismissed a taxpayer's challenge to a school
district bond issue that was authorized at an election subsequent to the
Supreme Court decision on the ground that the Supreme Court decision
contemplated and approved such bond issues pending legislative action or
further court order. A joint legislative committee is expected to issue
recommendations regarding a new system of public school financing later in
1995.
Maricopa County is the State's most populous county. Within Maricopa County's
boundaries lie the City of Phoenix, the State's largest city and the seventh
largest city in the United States, and the Cities of Scottsdale, Tempe, Mesa,
Glendale, Chandler, and Peoria, as well as the Towns of Paradise Valley and
Gilbert. Maricopa County accounts for 58% of the State's population, 63% of its
wage and salary employment, and 65% of its aggregate personal income. Between
1992 and 1994, Maricopa County's population rose more than 5.2% to
approximately 2,355,000; over the same period, the unemployment rate fell from
6.4% to 4.7%. These factors enabled Maricopa County residents to realize an
increase in aggregate personal income of 14.9% which, in turn, contributed to
significant increases in retail sales and construction.
Good transportation facilities, a substantial pool of available labor, a
variety of support industries and a warm climate have helped make Maricopa
County a major business center in the southwestern United States. Once
dependent primarily on agriculture, Maricopa County has substantially
diversified its economic base. Currently, the service sector, including
transportation, communications, public utilities, hospitality and
entertainment, trade, finance, insurance, real estate, and government, is the
leading source of employment in Maricopa County, creating more than 14,000 new
jobs in 1994. In addition, several large, publicly-traded companies, such as
The Dial Corp., Phelps Dodge, and MicroAge, have their headquarters in Maricopa
County, while others, such as Motorola, Intel, and Honeywell, conduct major
operations there. Already home to a variety of professional sports teams,
including the Phoenix Suns and Arizona Cardinals, the County was recently
awarded one of two new major league baseball franchises. The Arizona
Diamondbacks are expected to begin play in 1998 upon completion of a new
stadium in downtown Phoenix.
Despite the overall economic growth in recent years, Maricopa County's
expenditures exceeded its revenues from 1990 through 1993, and the County ended
its 1994 fiscal year with a $66.53 million budget deficit, as compared to a
total County budget of approximately $1.2 billion. The County responded by
instituting a new business plan involving budget cuts, a hiring freeze, and
other restructuring moves that enabled it to pay off the deficit by the June
1995 fiscal year end. Subsequently, Moody's assigned its highest
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short-term obligation rating and Standard & Poor's Corp. its second highest to
an August 1995 issue of the County's tax anticipation notes. Also in August
1995, Standard & Poor's removed its "negative outlook" qualifier on the
County's long-term A rating.
Pima County is the State's second most populous county, and includes the City
of Tucson. Pima County is home to approximately 730,000 people, or 18% of the
State's population. Traditionally, Pima County's economy has been based
primarily upon manufacturing, mining, government, agriculture, tourism,
education, and finance. Hughes Aircraft, which transferred its Hughes Missile
Systems division to Tucson from Canoga Park, California, several years ago, and
several large mining companies, including Magma Copper, ASARCO, and Phelps
Dodge, anchor the non-public sector of the Tucson economy, employing more than
14,000 people. More recently, the County, and Tucson in particular, has become
a base for more than 300 computer software companies, as well as a number of
companies operating in the areas of environmental technology, bioindustry, and
telecommunications. The 16% growth in manufacturing employment during 1994 and
an unemployment rate of less than 5% reflect the County's current strong
economy.
In 1994, two special purpose irrigation districts, formed for the purpose of
issuing bonds to finance the purchase of Colorado River water from the Central
Arizona Project ("CAP"), filed for bankruptcy under Chapter 9 of the United
States Bankruptcy Code due to the districts' inability to collect tax revenue
in amounts and at times sufficient to service their bonded debt. The financial
problems that led to the districts' default arose from a combination of the
unexpectedly high cost of constructing the CAP and delivering the water to the
districts, plummeting land values associated with the increased property taxes
assessed to finance the districts' debt, and the refusal by many land owners in
the districts to shoulder the increased tax burden. In June 1995, a bankruptcy
plan was confirmed in the New Magma Irrigation and Drainage District case which
gave back to bondholders 57 cents of their principal and placed an additional
42 cents on the dollar in new 8 percent bonds maturing in seven years. A third
irrigation district has experienced similar financial difficulties, although no
bankruptcy filing has been made to date.
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APPENDIX B
ECONOMIC AND FINANCIAL CONDITIONS IN CALIFORNIA
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
ECONOMIC CONDITIONS
The economy of the State of California (sometimes referred to as the "State")
is the largest among the 50 states and one of the largest in the world. Total
employment is about 14 million, with major employment in the agriculture,
manufacturing, high technology, services, trade, entertainment and construction
sectors. Total gross domestic product of about $835 billion in 1994 was larger
than all but six nations in the world.
California's July 1, 1994 population of over 32 million represented over 12
percent of the total United States population. The official 1990 Census
population was 29,760,021 as of April 1, 1990, which represented an increase of
over 6 million persons, or 26 percent, during the decade of the 1980's. As of
the April 1, 1990 census, the median age of California's population was 31.5
years, younger than the 1990 U.S. median of 32.9 years.
California's population is concentrated in metropolitan areas. As of the
April 1, 1990 Census, 96 percent resided in the 23 Metropolitan Statistical
Areas in the State. Overall, California's population per square mile was 191 in
1990. As of July 1, 1994, 69 percent of the population of the State was located
in the two consolidated Metropolitan Statistical Areas in California. The 5-
county Los Angeles area accounted for 48 percent, with 15.6 million residents.
The 10-county San Francisco Bay Area represented 21 percent, with a population
of 6.7 million.
Recent studies indicate changes in the State's population dynamics. Since
1990, population growth has shifted to depend on births and foreign
immigration. Net movements within the U.S. were negative during the State's
economic recession in 1991-94, but domestic immigration to the State has
increased as the State's economy has improved. The population is expected to
become more ethnically diverse into the next century, with the Latino and Asian
populations growing faster than other groups.
California. Starting in mid-1990, the State entered a sustained economic
recession, somewhat later than the rest of the nation. It was the most severe
recession in the State since the 1930's, with job losses estimated at over
800,000, particularly in the manufacturing (predominately aerospace), services
and construction sectors. The greatest effects were felt in Southern
California. A significant portion of these losses are linked to post-Cold War
cuts in the federal defense budget and military base closures. The trough of
the recession is estimated to have occurred in late 1993, again later than for
the nation as a whole. Although a steady recovery has been underway since 1994,
pre-recession employment levels are not expected to be reached until later in
the decade.
Northridge Earthquake. On January 17, 1994, a major earthquake measuring an
estimated 6.8 on the Richter Scale struck the Los Angeles metropolitan area,
centered in the Northridge area of the City of Los Angeles. Significant
property damage, estimated at $15-20 billion, occurred to private and public
facilities in a four-county area including northern Los Angeles County, Ventura
County and parts of Orange and San Bernardino Counties. These counties were
declared as State and federal disaster areas by January 18. Much of this damage
will be compensated by insurance or government aid; although the remaining
losses total several billion dollars, this amount is small compared to the
overall wealth of the region. The effects of the earthquake are not expected to
have a material impact on the State's overall economic performance.
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The State. In the years following enactment of the federal Tax Reform Act of
1986, and conforming changes to the State's tax laws, taxpayer behavior became
much more difficult to predict, and the State experienced a series of fiscal
years in which revenue came in significantly higher or lower than original
estimates. The 1989-90 Fiscal Year ended with revenues below estimates, so that
the State's budget reserve (the Special Fund for Economic Uncertainties or
"SFEU") was fully depleted by June 30, 1990. This date essentially coincided
with the start of the current recession, which severely affected State General
Fund revenues, and increased expenditures above initial budget appropriations
due to greater health and welfare costs. The State's budget problems in recent
years have also been caused by a structural imbalance which has been identified
by the current and previous Administrations. The largest General Fund
Programs--K-14 education, health, welfare and corrections--were increasing
faster than the revenue base, driven by the State's rapid population growth.
These pressures will continue as population trends maintain strong demand for
health and welfare services, as the school age population continues to grow,
and as the State's corrections program responds to a "Three Strikes" law
enacted in 1994, which requires mandatory life prison terms for certain third-
time felony offenders.
As a result of these factors and others, from the late 1980's until 1992-93,
the State had a period of budget imbalance. During this period, expenditures
exceeded revenues in four out of six years, and the State accumulated and
sustained a budget deficit in the SFEU approaching $2.8 billion at its peak at
June 30, 1993. Starting in the 1990-91 Fiscal Year and for each fiscal year
thereafter, each budget required multibillion dollar actions to bring projected
revenues and expenditures into balance and to close large "budget gaps" which
were identified. Despite budget actions by the Legislature, the effects of the
recession led to large, unanticipated deficits in the budget reserve, the SFEU,
as compared to projected positive balances. By the 1993-94 Fiscal Year, the
accumulated deficit was so large that it was impractical to budget to retire it
in one year, so a two-year program was implemented, using the issuance of
revenue anticipation warrants to carry a portion of the deficit over the end of
the fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95.
Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. The State's cash condition became so serious in late spring of
1992 that the State Controller was required to issue revenue anticipation
warrants maturing in the following fiscal year in order to pay the State's
continuing obligations. The State was forced to rely increasingly on external
debt markets to meet its cash needs, as a succession of notes and warrants were
issued in the period from June 1992 to July 1994, often needed to pay
previously maturing notes or warrants. These borrowings were used also in part
to spread out the repayment of the accumulated budget deficit over the end of a
fiscal year.
The 1994-95 Fiscal Year represented the fourth consecutive year the Governor
and Legislature were faced with a very difficult budget environment to produce
a balanced budget. Many program cuts and budgetary adjustments had already been
made in the last three years. The Governor's Budget Proposal, as updated in May
and June, 1994, recognized that the accumulated deficit could not be repaid in
one year, and proposed a two-year solution. The budget proposal set forth
revenue and expenditure forecasts and revenue and expenditure proposals which
result in operating surpluses for the budget for both 1994-95 and 1995-96, and
lead to the elimination of the accumulated budget deficit, estimated at about
$1.8 billion at June 30, 1994, by June 30, 1996.
Reports by the Department of Finance in May, 1995 indicate that, with
economic recovery well underway in the State, General Fund revenues for the
entire 1994-95 Fiscal Year were above projections, and expenditures were below
projections because of slower than anticipated health/welfare caseload growth
and school enrollments. The aggregate effect improved the budget picture by
about $500 million, leaving an estimated budget deficit of about $630 million
at June 30, 1995.
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Analysis of the federal Fiscal Year 1995 budget by the Department of Finance
indicates that about $98 million was appropriated for California to offset
costs of incarceration of illegal immigrants, less than the $356 million which
was assumed in the State's 1994-95 Budget Act. Because of timing considerations
in applying for these federal funds, the Department of Finance estimates that
about $33 million of these funds will have been received during the State's
1994-95 Fiscal Year, with the balance received in the current fiscal year. It
does not appear that the federal budget contains any of the additional $400
million in funding for refugee assistance and health costs which were also
assumed in the 1994-95 Budget Act.
Pursuant to the Budget Adjustment Law (the "Law"), the State Controller was
required to make a report by November 15, 1994 on whether the projected cash
resources for the General Fund as of June 30, 1995 would decrease more than
$430 million from the amount projected by the State in its Official Statement
in July, 1994 for the sale of $4,000,000,000 of Revenue Anticipation Warrants.
On November 15, 1994, the State Controller issued the report on the State's
cash position required by the Law. The report indicated that the cash position
of the General Fund on June 30, 1995 would be $581 million better than was
estimated in the July, 1994 cash flow projections and therefore, no budget
adjustment procedures will be invoked for the 1994-95 Fiscal Year.
The second step in the process was for the Director of Finance to include
updated cash-flow statements for the 1994-95 and 1995-96 Fiscal Years in the
May revision to the 1995-96 Fiscal Year budget proposal and for the State
Controller to either concur with these updated statements or provide a report
to the Governor and the Legislature identifying specific corrections,
objections or concerns and the State Controller's estimate of the cash
condition of the General Fund for the 1994-95 and 1995-96 Fiscal Years. On June
1, 1995, the State Controller issued a report assessing the May 1995 Revision
of the Governor's Budget (the "May Revision"). The May Revision had projected
that by June 30, 1996, the General Fund would have about $1.8 billion in
borrowable resources. The State Controller noted that this estimate was based
on a number of assumptions, which might not be fulfilled, including a
relatively high estimate of economic growth, reliance on a level of federal
funds that might not be forthcoming and federal government actions regarding
welfare and health waivers that might not be approved, and possible costs from
ongoing litigation. The State Controller projected that, in a "worst-case"
scenario where all the May Revision estimates were found to be too optimistic,
the $1.8 billion cushion of cash resources could disappear and a $500 million
deficit would result, forcing the "trigger" to be pulled on October 15.
The third step in the process occurred on October 15, 1995, when the State
Controller, in conjunction with the Legislative Analyst's Office, reviewed the
estimated cash condition of the General Fund for the 1995-96 Fiscal Year. The
State Controller estimates that the General Fund would not have negative
internal cash resources on June 30, 1996 (i.e., external borrowing would be
needed to pay all obligations due). If a cash shortfall had been identified by
the State Controller, the State Legislature would have been required to enact
legislation providing for sufficient General Fund expenditure reductions,
revenue increases, or both.
1995-96 Budget Act--On January 10, 1995, the Governor presented his 1995-96
Fiscal Year Budget Proposal (the "Proposed Budget"). Two of the principal
features of the Proposed Budget were a phased, 15% cut in personal income and
corporate taxes, and a further expansion of the "realignment" process to
transfer more responsibility and funding sources for certain health and welfare
programs to local governments. Neither of these proposals was approved by the
Legislature. As a result of the improving economy, with resulting improved
revenue and caseload estimates, the State entered the 1995-96 Budget
negotiations with the smallest nominal "budget gap" to be closed in many years.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995. The
Budget Act projects General Fund revenues and transfers of $44.1 billion, a 3.5
percent increase from the prior year. Expenditures are budgeted at $43.4
billion, a 4 percent increase. The Department of Finance projects that, after
repaying the last of the carryover budget deficit, there will be a positive
balance of $28 million in the budget reserve, the SFEU at June 30, 1996. The
Budget Act also projects Special Fund revenues of $12.7 billion and
appropriates Special Fund expenditures of $13.4 billion.
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The Department of Finance projects cash flow borrowings in the 1995-96 Fiscal
Year will be the smallest in many years, comprising about $2 billion of notes
to be issued in April, 1996, and maturing by June 30, 1996. With full payment
of $4 billion of revenue anticipation warrants on April 25, 1996, the
Department sees no further need for borrowing over the end of the fiscal year.
The available internal borrowable cash resources of the General Fund at June
30, 1996 are projected at almost $2 billion.
Orange County Bankruptcy. On December 6, 1994, Orange County, California (the
"County"), together with its pooled investment funds (the "Funds") filed for
protection under Chapter 9 of the federal Bankruptcy Code, after reports that
the Funds had suffered significant market losses in their investments, causing
a liquidity crisis for the Funds and the County. More than 180 other public
entities, most of which, but not all, are located in the County, were also
depositors in the Funds. The County has reported the Funds' loss at about $1.69
billion, or about 23% of their initial deposits of approximately $7.5 billion.
Many of the entities which deposited moneys in the Funds, including the County,
faced interim and/or extended cash flow difficulties because of the bankruptcy
filing and may be required to reduce programs or capital projects.
On May 2, 1995, the United States Bankruptcy Court approved a settlement
agreement covering claims of the other participating entities against the
County and the Funds. Most participants have received in cash 80% (90% for
school districts) of their Funds' investment; the balance is to be paid in the
future. The County succeeded in deferring, by consent of the holders thereof,
until June 30, 1996, the repayment of $800 million of short-term obligations
due in July and August, 1995; these notes are, however, considered to be in
default by Moody's and Standard & Poor's. On June 27, 1995, County voters
turned down a proposal for a temporary 0.5% increase in the local sales tax to
replace revenues lost after the Funds' investment losses. The County is now in
the process of developing an alternative financial plan. It is anticipated that
a recovery plan (the "Plan") including, among others, the County and Fund
participants will be arrived at in the near future. The Plan has been approved
by the State Legislature and the Governor.
The State has no existing obligation with respect to any outstanding
obligations or securities of the County or any of the other participating
entities. However, in the event the County is unable to maintain County
administered State programs because of insufficient resources, it may be
necessary for the State to intervene, although no prediction can be made what,
if any, action may occur.
LOCAL GOVERNMENTS
The primary units of local government in California are the counties, ranging
in population from 1,300 (Alpine) to over 9,000,000 (Los Angeles). Counties are
responsible for the provision of many basic services, including indigent health
care, welfare, courts, jails and public safety in unincorporated areas. There
are also about 480 incorporated cities, and thousands of other special
districts formed for education, utility and other services. The fiscal
condition of local governments has been constrained since the enactment of
"Proposition 13" in 1978, which reduced and limited the future growth of
property taxes, and limited the ability of local governments to impose other
taxes. Counties, in particular, have had fewer options to raise revenues than
many other local government entities, and have been required to maintain many
services.
In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. Under the pressure of the recent recession, the Legislature has
eliminated the remnants of this post-Proposition 13 aid to entities other than
K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected.
CONSTITUTIONAL AND STATUTORY LIMITATIONS; RECENT INITIATIVES; PENDING
LITIGATION
Article XIIIA of the California Constitution (which resulted from the voter-
approved Proposition 13 in 1978) limits the taxing powers of California public
agencies. Article XIIIA provides that the maximum ad valorem tax on real
property cannot exceed 1% of the "full cash value" of the property, and
effectively
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prohibits the levying of any other ad valorem property tax for general
purposes. However, on May 3, 1986, Proposition 46, an amendment to Article
XIIIA, was approved by the voters of the State of California, creating a new
exemption under Article XIIIA permitting an increase in ad valorem taxes on
real property in excess of 1% for bonded indebtedness approved by two-thirds
of the voters voting on the proposed indebtedness. "Full cash value" is
defined as "the County Assessor's valuation of real property as shown on the
1975-76 tax bill under "full cash value" or, thereafter, the appraised value
of real property when purchased, newly constructed, or a change in ownership
has occurred after the 1975 assessment." The "full cash value" is subject to
annual adjustment to reflect increases (not to exceed 2%) or decreases in the
consumer price index or comparable local data, or to reflect reductions in
property value caused by damage, destruction or other factors.
Article XIIIB of the California Constitution limits the amount of
appropriations of the State and of local governments to the amount of
appropriations of the entity for the prior year, adjusted for changes in the
cost of living, population and the services that the local government has
financial responsibility for providing. To the extent the revenues of the
State and/or local government exceed its appropriations, the excess revenues
must be rebated to the public either directly or through a tax decrease.
Expenditures for voter-approved debt services are not included in the
appropriations limit.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) required that any tax for general
governmental purposes imposed by local governments be approved by a majority
of the electorate of the government entity, (ii) required that any special tax
(defined as taxes levied for other than general government purposes) imposed
by a local government entity be approved by a two-thirds vote of the voters
within that jurisdiction, (iii) restricted the use of revenues from a special
tax to the purposes or for the service for which the special tax is imposed,
(iv) prohibited the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIIA, (v) prohibited the
imposition of transaction taxes and sales taxes on the sale of real property
by local governments, (vi) required that any tax imposed by a local government
on or after August 1, 1985 be ratified by a majority vote of the electorate
within two years of the adoption of the initiative or be terminated by
November 15, 1988, (vii) required that, in the event a local government fails
to comply with the provisions of this measure, a reduction in the amount of
property tax revenues allocated to such local government occurs in an amount
equal to the revenues received by such entity attributable to the tax levied
in violation of the initiative, and (viii) permitted those provisions to be
amended exclusively by the voters of the State of California.
On September 28, 1995 the California Supreme Court upheld the
constitutionality of the provision requiring a two-thirds vote in order for a
local government to impose a "special tax." Although the Supreme Court has yet
to rule on the provision requiring a majority vote for a "general tax," it
appears the Supreme Court is favorably disposed to uphold that portion of
Proposition 62 as well. In that event, a number of taxes currently being
collected (especially by counties and general law cities) would be
invalidated. Prior collection of such taxes may also be subject to claims for
refund unless the Supreme Court chooses to apply its ruling prospectively. The
California Supreme Court has yet to consider the validity of Proposition 62 to
charter cities.
At the November 9, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amends Article XIIIB to
require that (i) the California Legislature establish a prudent state reserve
fund in an amount as it shall deem reasonable and necessary and (ii) revenues
in excess of amounts permitted to be spent and which would otherwise be
returned pursuant to Article XIIIB by revision of tax rates or fee schedules
be transferred and allocated (up to a maximum of 40%) to the State School Fund
and be expended solely for purposes of instructional improvement and
accountability. Proposition 98 also amends Article XVI to require that the
State of California provide a minimum level of funding for public schools and
community colleges. Commencing with the 1988-89 fiscal year, money to be
applied by the State for the support of school districts and community college
districts shall not be less than the greater of: (i) the amount which, as a
percentage of the State general fund revenues which may be appropriated
pursuant to Article XIIIB, equals the percentage of such State general fund
revenues appropriated for school districts and community college districts,
respectively, in fiscal year 1986-87 or
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(ii) the amount required to ensure that the total allocations to school
districts and community college districts from the State general fund proceeds
of taxes appropriated pursuant to Article XIIIB and allocated local proceeds of
taxes shall not be less than the total amount from these sources in the prior
year, adjusted for increases in enrollment and adjusted for changes in the
costs of living pursuant to the provisions of Article XIIIB. The initiative
permits the enactment of legislation, by a two-thirds vote, to suspend the
minimum funding requirement for one year. As a result of Proposition 98, funds
that the State might otherwise make available to its political subdivisions may
be allocated instead to satisfy such minimum funding level.
On November 3, 1992, voters approved an initiative statute, Proposition 163,
which exempts certain food products, including candy and other snack foods,
from California's sales tax. The sales tax had been broadened to include those
items as part of the 1991-92 budget legislation. The State Legislative Analyst
estimates a revenue reduction of $300 million per year ($200 million in 1992-
93).
Article XIIIA, Article XIIIB and a number of propositions were adopted
pursuant to California's constitutional initiative process. From time to time,
other initiative measures could be adopted by California voters. The adoption
of any such initiatives may cause California issuers to receive reduced
revenues, or to increase expenditures, or both.
Recent Initiatives. In July 1991, California increased taxes by adding two
new marginal tax rates, at 10% and 11%, effective for tax years 1991 through
1995. After 1995, the maximum personal income tax rate is scheduled to return
to 9.3%, and the alternative minimum tax rate is scheduled to drop from 8.5% to
7%. In addition, legislation in July 1991 raised the sales tax by 1.25%, of
which 0.5% was a permanent addition. This tax increase will be cancelled if a
court rules that such tax increase violates any constitutional requirements.
Although 0.5% of the State tax rate was scheduled to expire on June 30, 1993,
such amount was extended for six months for the benefit of counties and cities.
On November 2, 1993, voters approved extension of this 0.5% levy as a permanent
source of funding for local government.
Proposition 187. On November 8, 1994 the voters approved Proposition 187, an
initiative statute ("Proposition 187"). Proposition 187 specifically prohibits
public funding of social services, health care services and public school
education for the benefit of any person not verified as either a United States
citizen or a person legally admitted to the United States. Among the provisions
in Proposition 187 the measure requires, commencing January 1, 1995, that every
school district in the state verify the legal status of every child enrolling
in the district for the first time. By January 1, 1996, each school district
must also verify the legal status of children already enrolled in the district
and of all parents or guardians of all students. If the district "reasonably
suspects" that a student, parent or guardian is not legally in the United
States, that district must report the student to the United States Immigration
and Naturalization Service and certain other parties. The Legislative Analyst
estimates that verification costs could be in the tens of millions of dollars
on a statewide level (including verification costs incurred by other local
governments) with first-year costs potentially in excess of $100 million.
The reporting requirements may violate the Family Educational Rights and
Privacy Act ("FERPA"), which generally prohibits schools that receive federal
funds from disclosing information in student records without parental consent.
Compliance with FERPA is a condition of receiving federal education funds,
which total $2.3 billion annually to California school districts. The Secretary
of the United States Department of Education has indicated that the reporting
requirement in Proposition 187 could jeopardize the ability of school districts
to receive these funds.
Opponents of Proposition 187 have filed at least eight lawsuits challenging
the constitutionality and validity of the measure. A United States District
Court judge overseeing four of the lawsuits has granted a preliminary
injunction enjoining the implementation of most of the provisions of
Proposition 187, pending a trial on the merits scheduled for Fall, 1995. A
United States Court of Appeals denied the State's request for termination of
the preliminary injunction and immediate enforcement of Proposition 187 on July
14, 1995.
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Pending Litigation. The State is a party to numerous legal proceedings, many
of which normally occur in governmental operations. Some of the more
significant lawsuits pending against the State are described herein.
The State is a defendant in 12 lawsuits involving the exclusion of small
business stock gains from preference tax and in some cases, also from taxation.
The lead cases are Mervin Morris v. Franchise Tax Board and James Lennane v.
Franchise Tax Board. The majority of the remaining cases had been deferred
pending the outcome of the Morris and Lennane cases. The Supreme Court has
ruled against the State in Lennane but has not yet ruled in Morris. The State
will lose at least $80 million as a result of the Lennane decision.
The State has lost several tax cases relating to the State's method of
determining the tax on gross health insurance premiums. The loss to the State
will be approximately $200 million.
In Parr v. State of California, a complaint was filed in federal court
claiming that payment of wages in registered warrants violated the Fair Labor
Standards Act ("FLSA"). The federal court held that the issuance of registered
warrants does violate the FLSA but subsequently withdrew its order. Further
proceedings are uncertain at this time. If the State loses, the maximum amount
of damages could be approximately $500 million.
The State is involved in a lawsuit seeking reimbursement for alleged state-
mandated costs. In Thomas Hayes v. Commission on State Mandates, the State
Director of Finance is appealing a 1984 decision by the State Board of Control.
The Board of Control decided in favor of local school districts' claims for
reimbursement for special education programs for handicapped students; however,
funds have not been appropriated. The amount of potential liability to the
State, if all potentially eligible school districts pursue timely claims, has
been estimated by the Department of Finance at over $1 billion.
In another case, the State is a defendant in Long Beach Unified School
District v. State of California. In this case, the school district seeks
reimbursement for voluntary desegregation costs incurred in the implementation
of California Department of Education guidelines. The years of reimbursement
are from fiscal year 1977-78 and each fiscal year thereafter to the present.
The district prevailed in a superior court, and the case has been decided by a
State appellate court against the State. A petition for review was denied and
the superior court judgment has become final, but the court retains
jurisdiction to oversee payment. The State anticipates that the unfavorable
outcome will affect pending claims by other school districts, and the total
loss could be in excess of $300 million.
A federal Court of Appeals in the case of Deanna Beno, et al. v. Donna
Shalala, et al., reversing a trial court ruling in favor of the State, recently
determined that the Secretary of the United States Department of Health and
Human Services violated the federal Administrative Procedure Act when she
approved California's Assistance Payment Demonstration Project, which, in part,
granted California a waiver from complying with requirements for state
participation in the federal program for medical assistance (Medicaid). The
waiver had allowed California to reduce payments under the Aid to Families with
Dependent Children program (AFDC) below 1988 payment levels without violating
Medicaid requirements relating to maintenance of AFDC payment levels.
California had relied, in part, on the waiver to reduce state AFDC payments in
1992, 1993 and 1994. The Court of Appeals remanded the case to the trial court
with instructions to remand the demonstration project to the Secretary for
additional consideration of objections raised by the plaintiffs. The effect of
the court's decision on California is uncertain at this time.
One of the features of the 1994-95 Budget Act is a 2.3 percent reduction in
AFDC payments. In Welch v. Anderson, on August 19, 1994, the San Francisco
Superior Court issued a preliminary injunction against the California Director
of Social Services to prevent the 2.3 percent AFDC cuts from becoming effective
September 1, 1994. While September cuts were already in process and could not
be halted, the court ordered the cuts to be restored. The case has been
appealed, and the effect of the court's order cannot be determined until the
appellate process is complete.
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The State is involved in two lawsuits related to contamination at the
Stringfellow toxic waste site. In one suit, the State is one of approximately
130 defendants in Penny Newman v. J. B. Stringfellow, et al. in which 3,800
plaintiffs are claiming damages of $850 million arising from contamination at
the Stringfellow toxic waste site. The State is a defendant because it chose
the site and approved the deposit of toxic wastes. Seventeen of the 3,800
plaintiffs have litigated their claims; in half of these cases plaintiffs'
verdicts in the total amount of $159,000 were received and in the remaining
cases verdicts were entered for the State. The other cases have been settled
for $13.5 million. In the separate suit described in United States, People of
the State of California v. J.B. Stringfellow Jr., et al., the State has been
found liable by the District Court on the counterclaim. The amount of liability
is still being litigated, although allocation of liability has been determined
by the trial court, including an allocation of liability to the State.
The State is a defendant in a coordinated action involving 3,000 plaintiffs
seeking recovery for damages caused by the Yuba River flood of February 1986.
The trial court has found liability in inverse condemnation and awarded damages
of $500,000 to 12 sample plaintiffs. Potential liability to the remaining 300
plaintiffs, from claims filed, ranges from $800 million to $1.5 billion. An
appeal has been filed.
In 1992, a lawsuit was filed, called California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. As part of the
negotiations leading to the 1995-96 Budget Act, an oral agreement was reached
to settle this case. It is expected that a formal settlement reflecting these
conditions will be entered into in the near future.
The oral agreement provides that both the State and K-14 schools share in the
repayment of prior years' emergency loans to schools. Of the total $1.76
billion in loans, the State will repay $935 million, while schools will repay
$825 million. The State share of the repayment will be reflected as
expenditures above the current Proposition 98 base calculation. The schools'
share of the repayment will count as appropriations that count toward
satisfying the Proposition 98 guarantee, or from "below" the current base.
Repayments are spread over the eight-year period of 1994-95 through 2001-02 to
mitigate any adverse fiscal impact. Once a court settlement is reached, and the
Director of Finance certifies that such a settlement has occurred, $360 million
in appropriations to schools will be disbursed in August 1996.
The State is involved in a case concerning the default by Triad Healthcare on
a $167 million loan guaranteed by the Cal-Mortgage Loan Insurance Division of
the Office of Statewide Health Planning and Development (Cal-Mortgage). Monies
for the loan were raised through the sale of Certificates of Participation and
Cal-Mortgage insured the debt service payments. Since July 1993, Triad has
failed to make its monthly debt service payments; therefore, the reserve
account of the bonds has been used to make the payments. However, these funds
are only expected to last until February 1995. After that time, Cal-Mortgage
anticipates that additional debt service payments will be made from the Health
Facility Construction Loan Insurance Fund as they become due. However, if there
is any shortfall in this fund, the State's General Fund will be used to make up
the difference.
In Jernigan & Burleson v. State, filed in federal district court, the prison
inmate plaintiffs claim they are entitled to minimum wages while working for
the Prison Industry Authority. The inmates claim the State has violated the
Fair Labor Standards Act (the "FLSA"). Plaintiffs are seeking back pay for the
period from August 1990 onward, and liquidated damages, for a total of
approximately $350 million. In June 1995, the district court ruled that the
inmates are not employees under the FLSA. The decision has been appealed to the
Ninth Circuit Court of Appeals.
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APPENDIX C
ECONOMIC CONDITIONS IN FLORIDA
The following information is a brief summary of factors affecting the economy
of the state and does not purport to be a complete description of such factors.
Other factors will affect issuers. The summary is based upon one or more
publicly available offering statements relating to debt offerings of the state
of Florida; however, it has not been updated nor will it be updated during the
year. The Trust has not independently verified the information.
Throughout the 1980s, the State's unemployment rate has, generally, tracked
below that of the nation. In recent years, however, the State's jobless rate
has moved ahead of the national average. The State's unemployment rate is
projected to be 5.5% in 1995-96 and 5.3% in 1996-97. Nevertheless, the average
rate of unemployment for the State since 1985 is 6.3%, while the national
average is 6.4%. (The projections set forth in this Appendix were obtained from
a report, prepared by the Revenue and Economic Analysis Unit of the Executive
Office of the Governor for the State of Florida, contained within a recent
official statement, dated October 6, 1995, for a State of Florida debt
offering.)
Personal income in the State has been growing strongly the last several years
and has generally outperformed both the nation as a whole and the Southeast in
particular. From 1985 through 1994, the State's per capita income rose an
average 5.2% per year, while the national per capita income increased an
average of 5.1%. By the end of 1996-97, real personal income per capita in the
State is projected to average 4.2% higher than its 1994-95 level. Growth in
real personal income in the State is expected to increase 4.1% in 1995-96 and
increase 3.8% in 1996-97.
The structure of Florida's income differs from that of the nation and the
Southeast. Because Florida has a proportionally greater retirement age
population, property income (dividends, interest, and rent) and transfer
payments (social security and pension benefits, among other sources of income)
are a relatively more important source of income. For example, Florida's
employment income in 1994 represented 61.5% of total personal income, while the
nation's share of total personal income in the form of wages and salaries and
other labor benefits was 72.6%. Florida's income is dependent upon transfer
payments controlled by the federal government.
The State's strong population growth is one main reason why its economy is
performing better than the nation as a whole. In 1980, the State was ranked
seventh among the 50 states with a population of 9.7 million people. The State
has continued to grow since then and as of April 1, 1994 ranked fourth with an
estimated population of 13.9 million. Since 1984, the State's average annual
rate of population increase has been approximately 2.3% as compared to an
approximately 1.0% average annual increase for the nation as a whole. While
annual growth in the State's population is expected to decline somewhat, it is
still expected to grow between 200,000 and 270,000 throughout the 1990s.
Tourism is one of the State's most important industries. 39.9 million people
visited the State in 1994, according to the Florida Department of Commerce,
down from the 41.1 million visitors in 1993. Tourist arrivals are expected to
increase by 1.3% this year. Florida tourism still appears to be suffering from
the effects of negative publicity regarding crime against tourists in the
state. Also, factors such as "product maturity" of a Florida vacation package,
higher prices, and more aggressive marketing by competing vacation
destinations, could be contributory causes of the tourism slowdown.
Florida's economy has been and currently is dependent on the highly cyclical
construction and construction-related manufacturing sectors. For example, total
contract construction employment as a share of total non-farm employment was a
little over 5% in 1994. Florida, nevertheless, has had a dynamic construction
industry, with single and multi-family housing starts accounting for
approximately 8.5% of total U.S. housing starts in 1994, while the State's
population is 5.3% of the nation's population. Since 1985, total
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housing starts have averaged 148,500 per year. The reason for such a dynamic
construction industry was the rapid growth of the State's population. In
Florida, single and multi-family housing starts in 1995-96 are projected to
reach a combined level of 116,000 increasing to 117,100 next year. Multi-family
starts have been slow to recover, but are expected to maintain a level of
nearly 30,500 in 1995-96. Total construction expenditures are forecasted to
increase 3.3% in this year and increase 6.5% next year. This represents a
slower pace of growth than what was originally projected. The increase in
interest rates during 1994 contributed to a slowdown in the construction sector
of Florida's economy. Income and employment growth rates are also expected to
reflect the slowdown in economic growth caused by the rising interest rates.
Financial operations of the State covering all receipts and expenditures are
maintained through the use of three funds--the General Revenue Fund, Trust
Funds, the Working Capital Fund, and beginning in fiscal year 1994-95, the
Budget Stabilization Fund. In fiscal year 1994-95, the State derived
approximately 66% of its total direct revenues to these funds from State taxes
and fees. Federal funds and other special revenues accounted for the remaining
revenues. Major sources of tax revenues to the General Revenue Fund are the
sales and use tax, corporate income tax, intangible personal property tax, and
beverage tax, which amounted to 67%, 7%, 4%, and 4%, respectively, of total
General Revenue Funds available. State expenditures are categorized for budget
and appropriation purposes by type of fund and spending unit, which are further
subdivided by line item. In fiscal year 1994-95, expenditures from the General
Revenue Fund for education, health and welfare, and public safety amounted to
approximately 49%, 32% and 11%, respectively, of total General Revenues.
For fiscal year 1994-95 the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $14,682.9 million, a 6.1%
increase over 1993-94. This amount reflects a transfer of $159.0 million in
non-recurring revenue due to Hurricane Andrew, to a hurricane relief trust
fund. With combined General Revenue, Working Capital Fund, and Budget
Stabilization Fund appropriations at $14,330.8 million, unencumbered reserves
at the end of 1994-95 are estimated at $352.1 million.
Estimated fiscal year 1995-96 General Revenue plus Working Capital and Budget
Stabilization funds available are expected to total $15,147.5 million, a 3.2%
increase over fiscal year 1994-95.
The Sales and Use Tax is the greatest single source of tax receipts in the
State. For the State fiscal year ended June 30, 1995, receipts from this source
were $10,672 million, an increase of 6.0% from fiscal year 1993-94. The second
largest source of State tax receipts is the Motor Fuel Tax. The estimated
collections from this source during the fiscal year ending June 30, 1994, were
$1,733.4 million. Alcoholic beverage tax revenues totalled $437.3 million for
the State fiscal year ending June 30, 1995, down by $4.9 million from the
previous year. The receipts of corporate income tax for the fiscal year ended
June 30, 1995 were $1,063.5 million, an increase of 1.5% from fiscal year 1993-
94. Gross Receipt tax collections for fiscal year 1994-95 totalled $508.4
million, an increase of 10.4% over the previous fiscal year. Documentary stamp
tax collections totalled $695.3 million during fiscal year 1994-95, posting an
11.4% decrease from the previous fiscal year. The intangible personal property
tax is a tax on stocks, bonds, notes, governmental leaseholds, certain limited
partnership interests, mortgages and other obligations secured by liens on
Florida realty, and other intangible personal property. Total collections from
intangible personal property taxes were $818.0 million during the fiscal year
ending June 30, 1995, down 2.1% from the previous fiscal year. Severance taxes
totalled $61.2 million during fiscal year 1994-95, up 1.1% from the previous
fiscal year. In November 1986, the voters of the State approved a
constitutional amendment to allow the State to operate a lottery. Fiscal year
1994-95 produced ticket sales of $2.19 billion of which education received
approximately $853.2 million.
The State Constitution does not permit a state or local personal income tax.
An amendment to the State Constitution by the electors of the State would be
required in order to impose a personal income tax in the State.
Property valuations for homestead property are subject to a growth cap.
Growth in the just (market) value of property qualifying for the homestead
exemption is limited to 3% or the change in the Consumer
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Price Index, whichever is less. If the property changes ownership or homestead
status, it is to be re-valued at full just value on the next tax roll. Although
the impact of the growth cap cannot be determined, it may have the effect of
causing local government units in the State to rely more on non-ad valorem tax
revenues to meet operating expenses and other requirements normally funded with
ad valorem tax revenues.
An amendment to the State Constitution was approved by statewide ballot in
the November 8, 1994 general election which is commonly referred to as the
"Limitation on State Revenues Amendment." This amendment provides that State
revenues collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an adjustment for
growth. Growth is defined as an amount equal to the average annual rate of
growth in State personal income over the most recent twenty quarters times the
State revenues allowed under the amendment for the prior fiscal year. State
revenues collected for any fiscal year in excess of this limitation are
required to be transferred to the Budget Stabilization Fund until the fund
reaches the maximum balance specified in Section 19(g) of Article III of the
State Constitution, and thereafter is required to be refunded to taxpayers as
provided by general law. The limitation on State revenues imposed by the
amendment may be increased by the Legislature, by a two-thirds vote of each
house.
The term "State revenues," as used in the amendment, means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, the term "State
revenues" does not include: (i) revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of bonds by the
State; (ii) revenues that are used to provide matching funds for the federal
Medicaid program with the exception of the revenues used to support the Public
Medical Assistance Trust Fund or its successor program and with the exception
of State matching funds used to fund elective expansions made after July 1,
1994; (iii) proceeds from the State lottery returned as prizes; (iv) receipts
of the Florida Hurricane Catastrophe Fund; (v) balances carried forward from
prior fiscal years; (vi) taxes, licenses, fees and charges for services imposed
by local, regional, or school district governing bodies; or (vii) revenue from
taxes, licenses, fees and charges for services required to be imposed by any
amendment or revision to the State Constitution after July 1, 1994. The
amendment took effect on January 1, 1995 and is applicable to State fiscal year
1995-96.
It should be noted that many of the provisions of the amendment are
ambiguous, and likely will not be clarified until State courts have ruled on
their meanings. Further, it is unclear how the Legislature will implement the
language of the amendment and whether such implementing legislation itself will
be the subject of further court interpretation.
The Fund cannot predict the impact of the amendment on State finances. To the
extent local governments traditionally receive revenues from the State which
are subject to, and limited by, the amendment, the future distribution of such
State revenues may be adversely affected by the amendment.
Hurricanes continue to endanger the coastal and interior portions of Florida.
Substantial damage resulted from Hurricane Andrew in 1992. The 1995 hurricane
season has experienced a record number of tropical storms and hurricanes.
According to the Florida General Purposes Financial Statements for fiscal
year ended June 30, 1994, as of June 30, 1994, the State maintains a high bond
rating from Moody's (Aa), Standard & Poor's (AA) and Fitch (AA) on all of its
general obligation bonds. Outstanding general obligation bonds at June 30, 1994
totalled almost $6.1 billion and were issued to finance capital outlay for
educational projects of both local school districts, community colleges and
state universities, environmental protection and highway construction. The
State has issued just over $1.72 billion of general obligation bonds since July
1, 1994.
On April 18, 1985, the Jacksonville Electric Authority (the "JEA") signed a
consent order with the Florida Department of Environmental Protection pursuant
to which the JEA agreed to remediate certain hazardous substances present in
certain property acquired by the JEA. It is estimated that the total costs for
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the JEA to comply with the consent order could range up to approximately $8
million. The JEA has filed suit against the previous owners of the property,
however, it is unclear whether the JEA will be awarded damages. The JEA has
also been designated as a potentially responsible party ("PRP") by the U.S.
Environmental Protection Agency for two other sites with expected remediation
costs of $15 million (of which the JEA is responsible for 1.4%) and $18.9
million. The Fund has invested in bonds issued by the JEA. The Fund cannot
predict the impact of such remediation costs on the JEA's finances.
In November 1994 the Florida Supreme Court determined in Kuhnlein v. Florida
Department of Revenue, 19 Fla. L. Weekly S467, 1994 WL 525900 (1994) that the
$295 vehicle impact fee imposed by the State on certificates of title issued
for vehicles previously titled outside Florida violated the U.S. Constitution.
In making this determination, the Court approved the trial court's order that
the State refund the taxes collected. The State's refund exposure is expected
to be in excess of $180 million. The Fund cannot predict the impact of this
ruling on State finances.
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APPENDIX D
ECONOMIC AND FINANCIAL CONDITIONS IN MASSACHUSETTS
The following information is a brief summary of factors affecting the economy
of the state and does not purport to be a complete description of such factors.
Other factors will affect issuers. The summary is based primarily upon one or
more publicly available offering statements relating to debt offerings of state
issuers; however, it has not been updated nor will it be updated during the
year. The Trust has not independently verified the information.
Economic growth in the Commonwealth has slowed since 1988, particularly in
the construction, real estate, financial and manufacturing sectors, including
certain high technology areas. Economic conditions have improved somewhat since
1993. The unemployment rate in Massachusetts averaged 6.9% during 1993, after
rising steadily during the previous three years, from 3.4% at the beginning of
1989. As of August 1995, however, the Commonwealth's unemployment rate was 5.1%
as compared to a national average of 5.6%. Per capita personal income in the
Commonwealth is currently higher than the national average, but is, however,
growing at a rate lower than the national average.
Ending fund balances in the budgeted operating funds for fiscal 1990 were
negative $1.104 billion. For fiscal 1991, these funds attained positive ending
balances of $237.1 million. Fiscal 1992 ended with positive fund balances of
$549.4 million after carrying forward the fund balances from fiscal 1991.
Fiscal 1993 ended with positive fund balances of $562.5 million. In fiscal
1994, which ended June 30, 1994, the total revenues of the budgeted operating
funds of the Commonwealth during such fiscal year increased by approximately
5.7% over the prior fiscal year, to $15.550 billion. Expenditures increased by
5.6% over the prior year, to $15.523 billion. As a result, the Commonwealth
ended fiscal 1994 with a positive closing fund balance of $589.3 million.
Budgeted revenues and other sources in fiscal 1995, which ended June 30,
1995, are currently estimated by the Executive Office for Administration and
Finance to be approximately $16.350 billion, including tax revenues of $11.165
billion. It is estimated that fiscal 1995 budgeted expenditures will be $16.310
billion.
Standard & Poor's and Moody's have upgraded their ratings of the
Commonwealth's general obligation bonds from A and Baa, respectively, to A+ and
A-1, respectively. Fitch Investors Service, Inc. has recently upgraded its
rating of the Commonwealth's bonds from A to A+. From time to time, the rating
agencies may further change their ratings.
Growth of tax revenues in the Commonwealth is limited by law. Tax revenues in
fiscal years 1988 through 1995 were lower than the limits set by law, and the
Executive Office for Administration and Finance estimates that state tax
revenues in fiscal 1996 will not reach the limits imposed by law. In addition,
effective July 1, 1990, limitations were placed on the amount of direct bonds
the Commonwealth may have outstanding in a fiscal year, and the amount of the
total appropriation in any fiscal year that may be expended for repayment of
principal of and payment of interest on general obligation debt of the
Commonwealth was limited to 10% of such appropriation. Bonds in the aggregate
principal amount of $1.416 billion issued in October and December 1990, under
Chapter 151 of the Acts of 1990 to meet the fiscal 1990 deficit are excluded
from the computation of these limitations, and principal of and interest on
such bonds are to be paid from up to 15% of the Commonwealth's income tax
receipts in each year that such principal or interest is payable.
Furthermore, certain of the Commonwealth's cities and towns have at times
experienced serious financial difficulties which have adversely affected their
credit standing. The recurrence of such financial difficulties, or financial
difficulties of the Commonwealth, could adversely affect the market values and
marketability of outstanding obligations issued by the Commonwealth or its
public authorities or municipalities. In addition, the Massachusetts statutes
which limit the taxing authority of the Commonwealth or certain Massachusetts
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governmental entities may impair the ability of issuers of some Massachusetts
obligations to pay debt service on their obligations.
In Massachusetts, the tax on personal property and real estate is virtually
the only source of tax revenues available to cities and towns to meet local
costs. "Proposition 2 1/2," an initiative petition adopted by the voters of the
Commonwealth of Massachusetts on November 4, 1980, limits the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of certain debt service. Proposition 2 1/2 required many
cities and towns to reduce their property tax levels to a stated percentage of
the full and fair cash value of their taxable real estate and personal property
and limited the amount by which the total property taxes assessed by a city or
town might increase from year to year. Although the limitations of Proposition
2 1/2 on tax increases may be overridden and amounts for debt service and
capital expenditures excluded from such limitation by the voters of the
relevant municipality, Proposition 2 1/2 will continue to restrain
significantly the ability of cities and towns to pay for local services,
especially in light of cost increases due to an inflation rate generally
exceeding 2.5%.
To offset shortfalls experienced by local governments as a result of the
implementation of Proposition 2 1/2, the government of the Commonwealth
increased direct local aid from the 1981 level of $1.632 billion to the fiscal
1990 level of $2.937 billion. Direct local aid decreased from fiscal 1990 to
$2.359 billion in fiscal 1992, increased to $2.584 billion in fiscal 1993 and
increased to $2.727 billion in fiscal 1994. It is estimated that fiscal 1995
expenditures for direct local aid will be $2.978 billion.
The aggregate unfunded actuarial liabilities of the pension systems of the
Commonwealth and the unfunded liability of the Commonwealth related to local
retirement systems are significant--estimated to be approximately $9.651
billion as of January 1, 1993 (the last date that such liability was
calculated) on the basis of certain actuarial assumptions regarding, among
other things, future investment earnings, annual inflation rates, wage
increases and cost of living increases. No assurance can be given that these
assumptions will be realized. The legislature adopted a comprehensive pension
bill addressing the issue in January 1988, which requires the Commonwealth,
beginning in fiscal year 1989, to fund future pension liabilities currently and
amortize the Commonwealth's unfunded liabilities over 40 years in accordance
with funding schedules prepared by the Secretary for Administration and Finance
and approved by the legislature. The annual payments under the legislation,
through fiscal 1998, are estimated to be $959.9 million in fiscal 1995, $1.007
billion in fiscal 1996, $1.061 billion in fiscal 1997 and $1.128 billion in
fiscal 1998.
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APPENDIX E
ECONOMIC AND FINANCIAL CONDITIONS IN MICHIGAN
The following information is a brief summary of factors affecting the economy
of the state and does not purport to be a complete description of such factors.
Other factors will affect issuers. The summary is based primarily upon one or
more publicly available offering statements relating to debt offerings of state
issuers, however, it has not been updated nor will it be updated during the
year. The Trust has not independently verified the information.
Due primarily to the fact that the leading sector of the economy of the State
of Michigan (sometimes referred to as the "State") is the manufacturing of
durable goods, economic activity in the State has tended to be more cyclical
than in the nation as a whole. While the State's efforts to diversify its
economy have proven successful, as reflected by the fact that the share of
employment in the State in the durable goods sector has fallen from 33.1% in
1960 to 17.3% in 1991, durable goods manufacturing still represents a sizable
portion of the State's economy. As a result, any substantial national economic
downturn is likely to have an adverse effect on the economy of the State and on
the revenues of the State and some of its local governmental units. Recently,
as well as historically, the average monthly unemployment rate in the State has
been higher than the average figures for the United States.
The State's economy could continue to be affected by changes in the auto
industry, notably consolidation and plant closings resulting from competitive
pressures and overcapacity. Such actions could adversely affect State revenues
and the financial impact on the local units of government in the areas in which
plants are closed could be more severe. The impact on the financial condition
of the municipalities in which the plants are located may be more severe than
the impact on the State itself.
The Michigan Constitution limits the amount of total revenues of the State
raised from taxes and certain other sources to a level for each fiscal year
equal to a percentage of the State's personal income for the prior calendar
year. In the event the State's total revenues exceed the limit by 1% or more,
the Constitution requires that the excess be refunded to taxpayers. The State
Constitution does not prohibit the increasing of taxes so long as revenues are
expected to amount to less than the revenue limit and authorizes exceeding the
limit for emergencies. The State Constitution further provides that the
proportion of State spending paid to all local units' total spending may not be
reduced below the proportion in effect for the 1978-79 fiscal year. The
Constitution requires that if spending does not meet the required level in a
given year an additional appropriation for local units is required for the
following fiscal year. The State Constitution also requires the State to
finance any new or expanded activity of local units mandated by State law. Any
expenditures required by this provision would be counted as State spending for
local units for purposes of determining compliance with the provisions stated
above.
The State Constitution limits the purposes for which State general obligation
debt may be issued. Such debt is limited to short-term debt for State operating
purposes, short- and long-term debt for the purposes of making loans to school
districts and long-term debt for voter approved purposes. In addition to the
foregoing, the State authorizes special purpose agencies and authorities to
issue revenue bonds payable from designated revenues and fees. Revenue bonds
are not obligations of the State and in the event of shortfalls in self-
supporting revenues, the State has no legal obligation to appropriate money to
these debt service payments. The State's Constitution also directs or restricts
the use of certain revenues.
The State finances its operations through the State's General Fund and
Special Revenue Funds. The General Fund receives revenues of the State that are
not specifically required to be included in the Special Revenue Fund. General
Fund revenues are obtained approximately 63% from the payment of State taxes
and 37% from federal and non-tax revenue sources. The majority of the revenues
from State taxes are from the State's personal income tax, single business tax,
use tax, sales tax and various other taxes. Approximately 60% of total General
Fund expenditures are for State support of public education and for social
services
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programs. Other significant expenditures from the General Fund provide funds
for law enforcement, general State government, debt service and capital outlay.
The State Constitution requires that any prior year's surplus or deficit in any
fund must be included in the next succeeding year's budget for that fund.
In recent years, the State of Michigan has reported its financial results in
accordance with generally accepted accounting principles. For the fiscal years
ended September 30, 1990 and 1991, the State reported negative year-end General
Fund balances of $310.3 million and $169.4 million, respectively, but ended the
1992, 1993 and 1994 fiscal years with its General Fund in balance after
transfers in 1993 and 1994 from the General Fund to the Budget Stabilization
Fund of $283 million and $464 million, respectively. Those transfers raised the
balance in the Budget Stabilization Fund to $779 million as of September 30,
1994. A positive cash balance in the combined General Fund/School Aid Fund was
recorded at September 30, 1990. In each of the three prior fiscal years, the
State undertook mid-year actions to address projected year-end budget deficits
including expenditure costs and deferrals and one time expenditures or revenue
recognition adjustments. From 1991 through 1993, the State experienced
deteriorating cash balances which necessitated short-term borrowings and the
deferral of certain scheduled cash payments of local units of government. The
State borrowed between $500 million and $900 million for cash flow purposes in
the 1992 to 1993 fiscal year and $500 million in the 1995 fiscal year. The
State did not have to borrow for short-term cash flow purposes in the 1993-94
fiscal year due to improved cash balances.
Amendments to the Michigan Constitution which placed limitations on increases
in State taxes and local ad valorem taxes (including taxes used to meet debt
service commitments on obligations of taxing units) were approved by the voters
of the State of Michigan in November, 1978 and became effective on December 23,
1978. To the extent that obligations in the Fund are tax supported and are for
local units and have not been voted by the taxing unit's electors, the ability
of the local units to levy debt service taxes might be affected.
State law provides for distributions of certain State collected taxes or
portions thereof to local units based in part on population as shown by census
figures and authorizes levy of certain local taxes by local units having a
certain level of population as determined by census figures. Reductions in
population in local units resulting from periodic census could result in a
reduction in the amount of State collected taxes returned to those local units
and in reductions in levels of local tax collections for such local units
unless the impact of the census is changed by State law. No assurance can be
given that any such State law will be enacted. In the 1991 fiscal year, the
State deferred certain scheduled payments to municipalities, school districts,
universities and community colleges. While such deferrals were made up at later
dates, similar future deferrals could have an adverse impact on the cash
position of some local units. Additionally, the State has reduced revenue
sharing payments to municipalities below the level provided under formulas by
increasing amounts in the three fiscal years ending with the fiscal year ended
September 30, 1993 and $64.6 million (budgeted) in the fiscal year which ended
on September 30, 1994.
On March 15, 1994, the electors of the State voted to amend the State's
Constitution to increase the State sales tax rate from 4% to 6% and to place an
annual cap on property assessment increases for all property taxes. Companion
legislation also cut the State's income tax rate from 4.6% to 4.4%. In
addition, property taxes for school operating purposes have been reduced and
school funding is being provided from a combination of property taxes and state
revenues, some of which are being provided from new or increased State taxes.
The legislation also contains other provisions that may reduce or alter the
revenues of local units of government and tax increment bonds could be
particularly affected. While the ultimate impact of the constitutional
amendment and related legislation cannot yet be accurately predicted, investors
should be alert to the potential effect of such measures upon the operations
and revenues of Michigan local units of government.
Currently, the State's general obligation bonds are rated A1 by Moody's
Investors Service, Inc., AA by Standard & Poor's Ratings Group and Aa by Fitch
Investors Service, Inc.
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APPENDIX F
ECONOMIC AND FINANCIAL CONDITIONS IN NEW JERSEY
The following information is a brief summary of factors affecting the economy
of New Jersey and does not purport to be a complete description of such
factors. Other factors will affect issuers. The summary is based primarily upon
one or more publicly available offering statements relating to debt offerings
of state issuers, however, it has not been updated nor will it be updated
during the year. The Trust has not independently verified the information.
Effective January 1, 1994, personal income tax rates in the State of New
Jersey (the "State") were cut by 5% for all taxpayers. Effective January 1,
1995, the State's personal income tax rates were cut by an additional 10% for
most taxpayers. By a bill signed into law on July 4, 1995, New Jersey personal
income tax rates have been further reduced so that coupled with the prior rate
reductions, beginning with tax year 1996, personal income tax rates will be,
depending upon a taxpayer's level of income and filing status, 30%, 15% or 9%
lower than 1993 rates. At this time the effect of the tax reduction cannot be
evaluated.
The State operates on a fiscal year beginning July 1 and ending June 30. For
example, "fiscal year 1996" refers to the State's fiscal year beginning July 1,
1995 and ending June 30, 1996.
The General Fund is the fund into which all State revenues not otherwise
restricted by statute are deposited and from which appropriations are made. The
largest part of the total financial operations of the State is accounted for in
the General Fund. Revenues received from taxes and unrestricted by statute,
most federal revenue and certain miscellaneous revenue items are recorded in
the General Fund.
The State's undesignated General Fund balance was $1.4 million for the fiscal
year 1991, $760.8 million for the fiscal year 1992, $937 million for the fiscal
year 1993, and $926 million (estimated) for the fiscal year 1994. For the
fiscal year 1995, the balance in the undesignated General Fund is estimated to
be $563 million.
The State finances capital projects primarily through the sale of the general
obligation bonds of the State. These bonds are backed by the full faith and
credit of the State. State tax revenues and certain other fees are pledged to
meet the principal, interest payments and if provided, redemption premium
payments, if any, required to pay the debt fully. No general obligation debt
can be issued by the State without prior voter approval, except that no voter
approval is required for any law authorizing the creation of a debt for the
purpose of refinancing all or a portion of outstanding debt of the State, so
long as such law requires that the refinancing provide a debt service savings.
All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning.
The State has extensive control over school districts, cities, counties and
local financing authorities. State laws impose specific limitations on local
appropriations, with exemptions subject to state approval. The State shares the
proceeds of a number of taxes, with funds going primarily for local education
programs, homestead rebates, medicaid and welfare programs. Certain bonds are
issued by localities, but supported by direct state payments. In addition, the
State participates in local wastewater treatment programs.
The State's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture. After enjoying an extraordinary boom
during the mid-1980s, New Jersey, as well as the rest of the Northeast, slipped
into a slowdown well before the onset of the national recession which
officially began in July 1990 (according to the National Bureau of Economic
Research). By the beginning of the national recession, construction activity
had already been declining in New Jersey for nearly two years. As the rapid
acceleration of real estate prices forced many would-be homeowners out of the
market and high non-residential vacancy rates reduced new commitments for
offices and commercial facilities, construction employment began to decline.
Also growth had tapered off markedly in the service sectors and the long-term
downward trend of factory employment had accelerated, partly because of a
leveling off of industrial demand nationally. The onset of recession caused
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an acceleration of New Jersey's job losses in construction and manufacturing,
as well as an employment downturn in such previously growing sectors as
wholesale trade, retail trade, finance, utilities and trucking and warehousing.
The net effect was a decline in the State's total non-farm wage and salary
employment from a peak of 3,689,800 in March 1989 to a low of 3,445,000 in
March 1992. This loss has been followed by an employment gain of 118,700 from
March 1992 to September 1994.
Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6% during the first quarter of 1989 to a recessionary peak of 8.4%
during 1992 (according to the U.S. Bureau of Labor Statistics and the New
Jersey Department of Labor, Division of Labor Market and Demographic Research).
Since then, the unemployment rate fell to 6.9% during the first quarter of
1995.
Evidence of the State's improving economy can be found in increased
homebuilding, and other areas of construction activity, rising consumer
spending for new cars and light trucks, substantial new job creation and the
decline in the unemployment rate. One of the major reasons for cautious
optimism is found in the construction industry. Total construction contracts
awarded in New Jersey have turned around, rising by 11.8% in the first two
months of 1995 compared with 1994. By far, the largest boost came from
residential construction awards which increased by 32.8% in 1995 compared with
1994. In addition, non-residential building construction awards have turned
around, posting a 2.3% gain from 1994. Nonbuilding construction awards
increased approximately 12% in the first two months of 1995 compared with the
same period in 1994. In addition to increases in construction contract awards,
another reason for cautious optimism is rising new light truck registrations.
New passenger car registrations during 1994 were virtually unchanged from a
year earlier. However, registrations of new light trucks and vans (up to 10,000
lbs.) advanced strongly in 1994, increasing 19%. Prospects for New Jersey are
favorable, although a return to the pace of the 1980s is highly unlikely.
Although growth is likely to be slower than elsewhere in the nation, the
locational advantages that have served New Jersey well for many years will
still be there. Structural changes that have been going on for years can be
expected to continue, with job creation concentrated most heavily in the
service sectors.
New Jersey Education Association et al. v. State of New Jersey et al.
represents a challenge to amendments to the pension laws enacted on June 30,
1994 (P.L. 1994, Chapter 62), which concerned the funding of the Teachers
Pension and Annuity Fund (TPAF), the Public Employee's Retirement System
(PERS), the Police and Fireman's Retirement System (PFRS), the State Police
Retirement System (SPRS) and the Judicial Retirement System (JRS). The
complaint was filed in the United States District Court of New Jersey on
October 17, 1994. The statute, as enacted, made several changes affecting these
retirement systems including changing the actuarial funding method to projected
unit credit; continuing the prefunding of post-retirement medical benefits but
at a reduced level for TPAF and PERS; revising the employee member contribution
rate to a flat 5% for TPAF and PERS; extending the phase in period for the
revised TPAF actuarial assumptions; changing the phase-in period for funding of
cost-of-living adjustments and reducing the inflation assumption for the Cost
of Living Adjustment for all retirement systems; and decreasing the average
salary increase assumption for all retirement systems. Plaintiffs allege that
the changes resulted in lower employer contributions in order to reduce a
general budget deficit. The complaint further alleges that certain provisions
of Chapter 62 violate the contract, due process, and taking clauses of the
United States and New Jersey Constitutions, and further constitute a breach of
the State's fiduciary duty to participants in TPAF and PERS. Plaintiffs seek to
permanently enjoin the State from administering, enforcing or otherwise
implementing Chapter 62. An adverse determination against the State would have
a significant impact upon the fiscal year 1996 budget. The State has filed a
motion to dismiss and a motion for summary judgment. The State intends to
vigorously defend this action.
Currently, the State's general obligation bonds are rated AA+by Standard &
Poor's, Aa1 by Moody's, and AA+ by Fitch.
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APPENDIX G
ECONOMIC AND FINANCIAL CONDITIONS IN NEW YORK
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT SPECIFIC ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON
ONE OR MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS
OF STATE ISSUERS; HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED
DURING THE YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
In recent years, New York State (the "State"), some of its agencies,
instrumentalities, and public authorities and certain of its municipalities
have faced serious financial difficulties that could have an adverse effect on
the sources of payment for or the market value of New York State Municipal
Securities in which the New York Fund invests.
NEW YORK CITY (THE "CITY")
General. More than any other municipality, the fiscal health of the City has
a significant effect on the fiscal health of the State. The national economic
downturn which began in July 1990 adversely affected the local economy, which
had been declining since late 1989. As a result, the City experienced job
losses in 1990 and 1991 and real Gross City Product ("GCP") fell in those two
years. Beginning in calendar year 1992, the improvement in the national economy
helped stabilize conditions in the City. Employment losses moderated toward
year-end and real GCP increased, boosted by strong wage gains. However, after
noticeable improvements in the City's economy during the calendar year 1994,
the City now projects, and its current four-year financial plan assumes, that
economic growth will slow in calendar years 1995 and 1996 with local employment
increasing modestly.
For each of the 1981 through 1994 fiscal years, the City achieved balanced
operating results as reported in accordance with then generally accepted
accounting principles ("GAAP"). The City was required to close substantial
budget gaps in recent fiscal years in order to maintain balanced operating
results. For the City's 1995 fiscal year, the City adopted a budget which
halted the trend in recent years of substantial increases in City spending from
one year to the next and the City budget for fiscal year 1996 reduces City-
funded spending for the second consecutive year. There can be no assurance that
the City will continue to maintain a balanced budget as required by State law
without additional reductions in City services or entitlement programs or tax
or other revenue increases which could adversely affect the City's economic
base.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1996 through 1999 fiscal
years (the "1996-1999 Financial Plan" or "City Financial Plan"). The City's
projections set forth in the City Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies
include, among others, the condition of the regional and local economies, the
impact on real estate tax revenues of the real estate market, wage increases
for City employees consistent with those assumed in the City Financial Plan,
employment growth, the ability to implement proposed reductions in City
personnel and other cost reduction initiatives, provision of State and federal
aid and mandate relief and the impact of proposed federal and State welfare
reforms on City revenues.
Implementation of the City Financial Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1996 through 1999 contemplates the
issuance of $10.1 billion of general obligation bonds primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make
capital investments. In addition, the City issues revenue notes and tax
anticipation notes to finance its seasonal working capital requirements. The
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success of projected public sales of City bonds and notes will be subject to
prevailing market conditions. If the City were unable to sell its general
obligation bonds and notes, it would be prevented from meeting its planned
operating and capital expenditures.
1996-1999 Financial Plan. In July 1995, the City published the City Financial
Plan for the 1996-1999 fiscal years. The 1996-1999 Financial Plan projects
revenues and expenditures for the 1996 fiscal year (July 1, 1995-June 30, 1996)
balanced in accordance with GAAP. The City Financial Plan sets forth proposed
actions to close a previously projected budget gap of approximately $3.1
billion for the 1996 fiscal year. Such gap-closing actions for the 1996 fiscal
year include, among others, substantial reductions in entitlement programs,
City service and personnel reductions, saving initiatives related to labor and
pension costs, increases in federal and State aid, the sale of certain City
assets and increases in certain lease and fee payments due the City.
The City Financial Plan also sets forth projections for the 1997 through 1999
fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $888 million, $1.46 billion and $1.44 billion for the 1997
through 1999 fiscal years, respectively, after the successful implementation of
the $3.1 billion gap-closing program for the 1996 fiscal year. Proposed gap-
closing actions for the 1997 through 1999 fiscal years include additional
service and expenditure reductions, labor productivity gains and fee
initiatives.
The City Financial Plan is subject to the ability of the City to implement
the proposed reductions in City services and personnel and entitlement
expenditures which are difficult to implement. The City Financial Plan also
assumes the successful renegotiation of certain lease payments due the City.
Certain initiatives included in the City Financial Plan are subject to
negotiation with the City's municipal labor unions and various actions are
subject to approval by the State and federal governments.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. If the State experiences
revenue shortfalls or spending increases beyond its projections during its
1995-1996 fiscal year or subsequent fiscal years, such developments could
result in reductions in anticipated State aid to the City. In addition, State
budgets in future fiscal years may continue to be delayed beyond the April 1
statutory deadline and there may be adverse effects on the City's cash flow and
additional City expenditures as a result of such reductions or delays.
From time to time, various State and City entities issue reports regarding
the City Financial Plan and the City's financial condition. In July of 1995,
the City Comptroller, the New York State Financial Control Board and the Office
of the State Deputy Comptroller of New York each issued reports on the City
Financial Plan. The report issued by the City Comptroller concluded that budget
risks of up to $1 billion, $2.5 billion, $3.3 billion and $3.4 billion exist
for the City's 1996 through 1999 fiscal years, respectively. The Financial
Control Board identified budget risks of $873 million, $2.1 billion, $2.8
billion and $2.8 billion for the 1996 through 1999 fiscal years, respectively.
The State Deputy Comptroller's report stated that the City faces potential
budget shortfalls of $800 million, $1.5 billion, $2 billion and $1.8 billion
for the 1996 through 1999 fiscal years, respectively. In May 1995, the New York
City Comptroller issued two reports that noted the City's economy has weakened
during the previous six months and that, with no immediate prospect of a
recovery in the City's economy, and with retrenchment in Medicaid and public
assistance programs, the City's economic and budget problems will continue for
the next several fiscal years. It was also noted that the City's current fiscal
problems are as serious as those which the City faced in the mid-1970's, and
may be more difficult to solve, since the City's economy remains weak and the
State and federal governments are reducing support for the City. In May 1995,
the New York State Comptroller issued a report concluding that the City economy
has slowed significantly since 1994 and that proposed reductions in Medicaid
spending at the state and local levels could cause significant job displacement
in the City's health sector, and additional downsizing by utilities, banks and
other companies could further constrain job prospects. It is reasonable to
expect that such reports will continue to be issued and to engender public
comment.
Ratings. As of November 2, 1995, Moody's rated the City's general obligation
bonds Baa1, Standard & Poor's rated such bonds BBB+ and Fitch Investors
Service, Inc. ("Fitch") rated such bonds A-. On July
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10, 1995, Standard & Poor's revised downward its rating on City general
obligation bonds from A- to BBB+. Standard & Poor's stated that the downgrade
was a reflection of the City's inability to eliminate a structural budget
imbalance due to persistent softness in the City's economy, weak job growth, a
trend of using nonrecurring budget devices, optimistic projections of State and
federal aid and high levels of debt service. Such ratings reflect only the view
of Moody's, Standard & Poor's and Fitch, from which an explanation of the
significance of such ratings may be obtained. There is no assurance that such
ratings will continue for any given period of time or that they will not be
revised downward or withdrawn entirely. Any such downward revision or
withdrawal could have an adverse effect on the market prices of City bonds.
Outstanding Indebtedness. As of June 30, 1995, the City had approximately
$24.4 billion of long-term debt and as of June 30, 1994, the New York City
Municipal Water Finance Authority (the "Water Authority") had approximately
$5.6 billion of long-term debt.
Debt service on Water Authority obligations is secured by fees and charges
collected from the users of the City's water and sewer system. State and
federal regulations require the City's water supply to meet certain standards
to avoid filtration. The City's water supply now meets all technical standards
and the City's current efforts are directed toward protection of the watershed
area. The City has taken the position that increased regulatory, enforcement
and other efforts to protect its water supply, relating to such matters as land
use and sewage treatment, will preserve the high quality of water in the
upstate water supply system and prevent the need for filtration. The U.S.
Environmental Protection Agency has granted the City a waiver of filtration
regulations through 1996. If filtration of the City's water supply is
ultimately required, the capital expenditure required could be between $4
billion and $5 billion. Such an expenditure could cause significant increases
in City water and sewer charges.
Litigation. The City is a defendant in a significant number of lawsuits.
While the outcome and fiscal impact, if any, of the proceedings and claims are
not currently predictable, adverse determinations might have a material adverse
effect upon the City's ability to carry out the City Financial Plan. As of June
30, 1994, the City estimated its potential future liability on account of all
outstanding claims to be approximately $2.6 billion.
NEW YORK STATE
Current Economic Outlook. The national economy began the current expansion in
1991 and has added over 7 million jobs since early 1992. Although the State has
added approximately 185,000 jobs since November 1992, employment growth in the
State has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, defense and banking industries.
The State expects New York's economy to continue to expand modestly during
1995, but there is expected to be a pronounced slow-down during the course of
the year. On an average annual basis, employment growth is expected to be about
the same as 1994. Both personal income and wages are expected to record
moderate gains in 1995. The annual rates of job growth and growth in personal
income and wages are expected to slow gradually during 1996.
State Financial Plan for the 1995-1996 Fiscal Year. The State's budget for
its 1995-1996 fiscal year (April 1, 1995-March 31, 1996) was enacted by the
State Legislature on June 7, 1995, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the State Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for debt
service. The 1995-1996 fiscal year budget includes a planned three-year 20%
reduction in the State's personal income tax and is the first budget in over 50
years which projects a decline in General Fund disbursements and spending on
State operations. On June 20, 1995, the State published the State Financial
Plan for the 1995-1996 fiscal year based on the enacted 1995-1996 budget and
issued its first and second quarterly updates of the State Financial Plan in
July and October 1995, respectively (the "State Financial Plan").
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The State Financial Plan projects a General Fund balanced on a cash basis
with total projected receipts of $32.788 billion and total projected
disbursements of $32.774 billion. The State Financial Plan includes gap-closing
actions to offset a previously projected budget gap of $5 billion, the largest
in the State's history. Such gap-closing actions include, among others,
substantial reductions in social and medical entitlement programs, reductions
in State services and capital programs and increased lottery revenues. There
can be no assurance that additional gap-closing measures will not be required
and there is no assurance that any such measures will enable the State to
achieve a balanced budget for its 1995-1996 fiscal year.
The State Financial Plan and the 1995-1996 fiscal year budget are based upon
forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and State economies. Many uncertainties exist in forecasts of both
the national and State economies, including consumer attitudes toward spending,
federal financial and monetary policies, the availability of credit and the
condition of the world economy, which could have an adverse effect on the
State. There can be no assurance that the State economy will not experience
worse-than-predicted results in the 1995-1996 fiscal year with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
Owing to these and other factors, the State may face substantial potential
budget gaps in future years resulting from a significant disparity between tax
revenues projected from a lower recurring receipts base and the spending
required to maintain State programs at required levels. Any such recurring
imbalance would be exacerbated by the use by the State of nonrecurring
resources to achieve budgetary balance in a particular fiscal year. To correct
any recurring budgetary imbalance, the State would need to take significant
actions to align recurring receipts and disbursements in future fiscal years.
There can be no assurance, however, that the State's action will be sufficient
to preserve budget balances in the then current or future fiscal years.
The State Financial Plan contains actions that provide nonrecurring resources
or savings as well as actions that impose baseline losses of receipts. The
Division of the Budget estimates the net amount of nonrecurring resources used
in the State Financial Plan to be at least $600 million. In addition to these
nonrecurring actions, the adoption of the three-year 20% reduction in the
State's personal income tax in combination with business tax reductions enacted
in 1994 will reduce State tax receipts by $5.5 billion by the 1997-1998 fiscal
year.
Uncertainties with regard to both the economy and potential decisions at the
federal level add further pressure on future budget balance in New York State.
Specific budget proposals being discussed at the federal level but not included
in the State's current economic forecast would (if enacted) have a
disproportionately negative impact on the longer-term outlook for the State's
economy as compared to other states.
On October 2, 1995, the State Comptroller released an analysis of the State
Financial Plan which estimated a potential imbalance in receipts and
disbursements of at least $2.7 billion for the 1996-1997 fiscal year and at
least $3.9 billion for the State's 1997-98 fiscal year. Pursuant to State law,
the Governor is required to submit a balanced budget to the State Legislature
and has indicated he will close any potential imbalance primarily through
expenditure reductions.
The State anticipates that its capital programs will be financed, in part, by
State and public authorities borrowings in the 1995-1996 fiscal year. The State
expects to issue $248 million in general obligations bonds (including $70
million for purposes of redeeming outstanding Bond Anticipation Notes
("BANs")), $186 million in general obligation commercial paper and up to $47
million in certificates of participation during the State's fiscal year for
equipment purchases and capital purposes. Borrowings by public authorities
pursuant to lease-purchase and contractual-obligation financings for capital
programs of the State are projected to total $2.7 billion. Additionally, the
Local Government Assistance Corporation ("LGAC") issued net proceeds of $529
million during the 1995-1996 fiscal year.
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1994-1995 Fiscal Year. In July, 1995, the State Comptroller issued its audit
of the State's 1994-1995 fiscal year prepared in accordance with generally
accepted auditing standards. The State completed its 1994-1995 fiscal year with
a General Fund operating deficit of $1.426 billion, as compared with an
operating surplus of $914 million for the previous fiscal year. The 1994-1995
fiscal year deficit was caused by several factors, including the use of $1.026
billion of the 1993-1994 fiscal year surplus in the 1994-1995 fiscal year and
the adoption of changes in accounting methodologies by the State Comptroller.
Local Government Assistance Corporation. In 1990, as part of a state fiscal
reform program, legislation was enacted creating LGAC, a public benefit
corporation empowered to issue long-term obligations to fund certain payments
to local governments traditionally funded through the State's annual seasonal
borrowing. As of June 1995, LGAC has issued bonds to provide net proceeds of
$4.7 billion completing the program. The impact of LGAC's borrowing is that the
State is able to meet its cash flow needs without relying on short-term
seasonal borrowing.
Financing Activities. State financing activities include general obligation
debt of the State and State-guaranteed debt, to which the full faith and credit
of the State has been pledged, as well as lease-purchase and contractual-
obligation financings, moral obligation financings and other financings through
public authorities and municipalities, where the State's obligation to make
payments for debt service is generally subject to annual appropriation by the
State Legislature.
As of March 31, 1995, the total amount of outstanding general obligation debt
was approximately $5.181 billion, including $149 million in BANs, the total
amount of moral obligation debt was approximately $7.010 billion and $17.98
billion of bonds issued primarily in connection with lease-purchase and
contractual-obligation financing of State capital programs were outstanding.
In 1994 and 1995, the State legislature passed a proposed constitutional
amendment on debt reform. The proposed amendment would permit the State to
issue non-voter approved revenue bonds secured by a pledge or certain tax
receipts, up to a cap equal to 5% of State personal income. If approved by the
voters in November 1995, such amendment would become effective January 1, 1996.
Public Authorities. The fiscal stability of the State is related, in part, to
the fiscal stability of its public authorities. Public authorities are not
subject to the constitutional restrictions on the incurrence of debt which
apply to the State itself, and may issue bonds and notes within the amounts of,
and as otherwise restricted by, their legislative authorization. As of
September 30, 1994, the latest data available, there were 18 public authorities
that had outstanding debt of $100 million or more and the aggregate outstanding
debt, including refunding bonds, of these 18 public authorities was $70.3
billion. The State's access to the public credit markets could be impaired and
the market price of its outstanding debt may be adversely affected, if any of
its public authorities were to default on their respective obligations.
Ratings. Currently, Moody's, Standard & Poor's and Fitch rate New York
State's outstanding general obligation bonds A, A- and A+, respectively.
Ratings reflect only the respective views of such organizations, and
explanation of the significance of such ratings must be obtained from the
rating agency furnishing the same. There is no assurance that a particular
rating will continue for any given period of time or that any such rating will
not be revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect
on the market price of the State Municipal Securities in which the New York
Fund invests.
Litigation. The State is a defendant in numerous legal proceedings including,
but not limited to, claims asserted against the State arising from alleged
torts, alleged breaches of contracts, condemnation proceedings and other
alleged violations of State and federal laws.
Several cases challenge the rationality and the retroactive application of
State regulations recalibrating nursing home Medicaid rates. In 1994, the New
York Court of Appeals held invalid the State Department of Health's retroactive
application to rate years 1989 through 1991 of the nursing home Medicaid
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reimbursements rate recalibration adjustment. A case challenging the new
recalibration regulations for rate years commencing 1992 is pending.
In Trustees of and The Pension, Hospitalization Benefit Plan of the
Electrical Industry, et al., v. Cuomo, et al., commenced November 25, 1992 in
the United States District Court for the Eastern District of New York,
plaintiff employee welfare benefit plans seek a declaratory judgment nullifying
on the ground of Federal preemption provisions of Section 2807-c of the Public
Health Law and implementing regulations which impose a bad debt and charity
care allowance on all hospital bills and a 13 percent surcharge on inpatient
bills paid by employee welfare benefit plans. By order and stipulation of the
District Court dated September 21, 1995, the action has been discontinued.
In Music, Cigarette & Amusement Association, Inc., et al. v. Lynch, et al.
(Supreme Court, Kings County, commenced August 1995) and Trump v. Perlee, et
al. (Supreme Court, New York County, commenced August 1995), petitioners
challenge as unconstitutional and seek to enjoin "Quick Draw," a game of the
State Division of the Lottery. Petitioners contend that Sections 94-a through
94-g of Ch. 2 L. 1995, which authorize "Quick Draw," violate Article I (S)9 of
the State Constitution. This constitutional provision bars gambling but allows
lotteries operated by the State. Petitioners contend that "Quick Draw" is not a
lottery as contemplated by Article I (S)9.
In McCall, et al. v. State of New York, et al., commenced July 5, 1995
(Supreme Court, Albany County), an action for a declaratory judgment and
injunctive relief, plaintiffs (including the State Comptroller) contend that
certain provisions of Ch. 119 L. 1995 are unconstitutional. Ch. 119 L. 1995
provides enhanced supplemental pension allowances for members of the State and
local retirement systems. Plaintiffs contend that Section 13 of Ch. 119 L.
1995, which provides that money in a Supplemental Reserve Fund shall be used as
a credit in the State's 1995-96 fiscal year against prior State and local
pension contributions, violates Article V (S)7 of the State Constitution. This
constitutional provision bars the diminishment or impairment of benefits of
membership in the retirement systems.
Adverse developments in existing legal proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced State
Financial Plan. The State believes that the State Financial Plan includes
sufficient reserves for the payment of judgments that may be required during
the 1995-1996 fiscal year. There can be no assurance, however, that an adverse
decision in any of these proceedings would not exceed the amount of the State
Financial Plan reserves for the payment of judgments and, therefore, could
affect the ability of the State to maintain a balanced State Financial Plan.
Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the State's 1995-1996 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1995-1996 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for Yonkers (the "Yonkers
Board") by the State in 1984. The Yonkers Board is charged with oversight of
the fiscal affairs of Yonkers. Future actions taken by the Governor or the
State Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
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APPENDIX H
ECONOMIC AND FINANCIAL CONDITIONS IN PENNSYLVANIA
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
Many factors affect the financial condition of the Commonwealth of
Pennsylvania (the "Commonwealth") and its political subdivisions, such as
social, environmental and economic conditions, many of which are not within the
control of such entities. Pennsylvania and certain of its counties, cities and
school districts and public bodies have from time to time in the past
encountered financial difficulties which have adversely affected their
respective credit standings. Such difficulties could affect outstanding
obligations of such entities, including obligations held by the Fund. For
example, the financial condition of the City of Philadelphia had impaired its
ability to borrow and resulted in its obligations generally being downgraded by
the major rating services (Moody's, Standard & Poor's and Fitch) in some cases
below investment grade.
The General Fund, the Commonwealth's largest fund, receives all tax revenues,
non-tax revenues and Federal grants and entitlements that are not specified by
law to be deposited elsewhere. The majority of the Commonwealth's operating and
administrative expenses are payable from the General Fund. Debt service on all
bonded indebtedness of the Commonwealth, except that issued for highway
purposes or for the benefit of other special revenue funds, is payable from the
General Fund.
The five year period from fiscal 1990 through fiscal 1994 was marked by
public health and welfare costs growing at a rate double the growth rate for
all state expenditures. During this period, public health and welfare costs
rose by an average annual rate of 9.4% while tax revenues were growing at an
average annual rate of 5.8%. Consequently, spending on other budget programs
was restrained to a growth rate of 4.7% and sources of revenues other than
taxes (including transfers from other Commonwealth funds and hospital and
nursing home pooling of contributions to use as federal matching funds) became
larger components of fund revenues.
Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth reported
an increase in the fiscal year-end unappropriated balance. The fiscal 1995
unappropriated surplus (prior to reserves for transfer to the Tax Stabilization
Fund) was $540 million, an increase of $204.2 million over the fiscal 1994
unappropriated surplus (prior to transfers). Commonwealth revenues were
$16,224.6 million, 2.9% above the estimate of revenues used at the time the
budget was enacted. The higher than estimated revenues from tax sources were
due to faster economic growth in the national and state economy than had been
projected when the budget was adopted. Expenditures from Commonwealth revenues
(excluding pooled financing expenditures), including $65.5 million of
supplemental appropriations enacted at the close of the 1995 fiscal year,
totaled $15.67 billion, representing an increase of 5% over spending during
fiscal 1994.
The enacted fiscal 1996 budget provides for expenditures from Commonwealth
revenues of $16.16 billion, a 2.7% increase over total appropriations from
Commonwealth revenues in fiscal 1995. The fiscal 1996 budget is based on
anticipated Commonwealth revenues, net of enacted tax changes but prior to tax
refunds, of $16.27 billion, an increase over actual fiscal 1995 Commonwealth
revenues of .3%. Excluding the estimated effects of the tax changes enacted in
1994 and 1995, Commonwealth revenues for fiscal 1996 are estimated to increase
by approximately 2.9%. Tax changes (reductions) enacted with the fiscal 1996
budget totaled $282.9 million, representing an approximate 1.7% of base
revenues. The largest dollar value changes were in the corporate net income tax
where the scheduled 1997 reduction of the tax rate to 9.99% was accelerated to
the 1995 tax year; a double weighting was provided for the sales factor of the
corporate net income tax apportionment calculation; and the maximum allowance
for the net operating loss deduction was
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increased from $500,000 to $1 million. The fiscal 1996 cost of these corporate
net income tax changes is estimated to be $210.8 million. Other major
components of the tax reduction include a $12.1 million decrease for the
capital stock and franchise tax from an increase in the exemption amount; $24.7
million from the repeal of the tax on annuities; and $27.9 million from an
acceleration of the scheduled phase-out of the inheritance tax on transfers of
certain property to a surviving spouse. A 90 day amnesty program was also
authorized in the tax bill and will be available to taxpayers from mid-October
1995 through mid-January 1996.
The economy of Pennsylvania is composed of many diverse sectors including
manufacturing, mining, agriculture, services and wholesale and retail trade.
Certain industries traditionally strong in the Commonwealth, such as coal,
steel and railways, have declined and account for a decreasing share of total
employment. Service industries (including trade, health care, education and
finance) have grown, however, contributing increasingly to Pennsylvania's
economy and now exceed the manufacturing section as the largest single source
of employment.
Nonagricultural employment in the Commonwealth declined by 5.1% during the
recessionary period from 1980 to 1983. In 1984, the declining trend was
reversed as employment grew by 2.9% over 1983 levels. From 1983 to 1990,
Commonwealth employment continued to grow each year, increasing an additional
14.3 percent. For the last 3 years, employment in the Commonwealth has
increased 2.0%. The unemployment rate in Pennsylvania in September 1995 stood
at a seasonally adjusted rate of 6.4%. The seasonally adjusted national
unemployment rate for September 1995 was 5.6%.
The current Constitutional provisions pertaining to Commonwealth debt permit
the issuance of the following types of debt: (i) debt to suppress insurrection
or rehabilitate areas affected by disaster, (ii) electorate approved debt,
(iii) debt for capital projects subject to an aggregate debt limit of 1.75
times the annual average tax revenues of the preceding five fiscal years and
(iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Debt service on all bonded indebtedness of Pennsylvania, except that issued
for highway purposes or the benefit of other special revenue funds, is payable
from Pennsylvania's General Fund, which receives all Commonwealth revenues that
are not specified by law to be deposited elsewhere. As of June 30, 1995, the
Commonwealth had $5.05 billion of general obligation debt outstanding.
Other state-related obligations include "moral obligations". Moral obligation
indebtedness may be issued by the Pennsylvania Housing Finance Agency ("PHFA"),
a state-created agency which provides financing for housing for lower and
moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of
Philadelphia to, among other things, acquire and prepare various sites for use
as intermediate care facilities for the mentally retarded. PHFA's bonds, but
not its notes, are partially secured by a capital reserve fund required to be
maintained by PHFA in an amount equal to the maximum annual debt service on its
outstanding bonds in any succeeding calendar year. PHFA is not permitted to
borrow additional funds as long as any deficiency exists in the capital reserve
fund.
Certain state-created agencies have statutory authorization to incur debt for
which state appropriations to pay debt service thereon is not required. The
debt of these agencies is supported by assets of, or revenues derived from the
various projects financed and is not an obligation of the Commonwealth. Some of
these agencies, however, are indirectly dependent on Pennsylvania
appropriations. In addition, the Commonwealth maintains pension plans covering
state employees, public school employees and employees of certain state-related
organizations. For the fiscal year ended in 1994, the State Employees'
Retirement System had a $249 million surplus and the Public School Employees'
Retirement System had a total unfunded actuarial accrued liability of $3.8
billion.
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The City of Philadelphia is the largest city in the Commonwealth with an
estimated population of 1,585,577 according to the 1990 Census. Legislation
providing for the establishment of Pennsylvania Intergovernmental Cooperation
Authority ("PICA") to assist Philadelphia in remedying fiscal emergencies was
enacted by the Pennsylvania General Assembly and approved by the Governor in
June, 1991. PICA is designed to provide assistance through the issuance of
funding debt and to make factual findings and recommendations to Philadelphia
concerning its budgetary and fiscal affairs. At this time, Philadelphia is
operating under a five year fiscal plan approved by PICA on April 17, 1995, as
modified in July 1995.
To date, PICA has issued $1.42 billion of its Special Tax Revenue Bonds. This
financial assistance has included the refunding of certain general obligation
bonds, funding of capital projects and the liquidation of the cumulative
General Fund balance deficit as of June 30, 1992 of $224.9 million. The audited
General Fund balance of Philadelphia as of June 30, 1994 reflects a surplus of
approximately $15.4 million, up from approximately $3 million as of June 30,
1993. Preliminary unaudited financial statements as of June 20, 1995 project a
surplus approximating $59.6 million.
There is various litigation pending against the Commonwealth, its officers
and employees. In 1978, the Pennsylvania General Assembly approved a limited
waiver of sovereign immunity. Damages for any loss are limited to $250,000 for
each person and $1 million for each accident. The Supreme Court held that this
limitation is constitutional. Approximately 3,500 suits against the
Commonwealth are pending.
The following are among the cases with respect to which the Office of
Attorney General and the Office of General Counsel have determined that an
adverse decision may have a material effect on government operations of the
Commonwealth:
Baby Neal v. Commonwealth, et al.
In 1990, the American Civil Liberties Union and other various named
plaintiffs filed an action against the Commonwealth in Federal court seeking an
order that would require the Commonwealth to provide additional funding for
child welfare services. No figures for the amount of funding sought are
available. However, a similar lawsuit filed in the Commonwealth Court of
Pennsylvania was resolved through a court approved settlement which provides,
among other things, for Commonwealth funding for such services in fiscal year
1991 and a commitment to pay Pennsylvania counties $30 million over five years.
In December 1994, the Third Circuit Court of Appeals reversed the District
Court's denial of the plaintiff's motion for class certification with respect
to the interests of 16 minor plaintiffs. As a result, the District Court has
recently certified the class and the parties have resumed discovery.
County of Allegheny v. Commonwealth of Pennsylvania
On December 7, 1987, the Supreme Court of Pennsylvania held that the
statutory scheme for county funding of the judicial system is in conflict with
the Pennsylvania Constitution. However, judgment was stayed in order to afford
the General Assembly an opportunity to enact appropriate funding legislation
consistent with its opinion. Since that time, the Supreme Court has denied
various actions and motions by several Pennsylvania municipalities to compel
the Commonwealth to comply with the Supreme Court's 1987 decision or to restore
funding for local courts and district justices to levels existing in 1987. On
December 7, 1992, the State Association of County Commissioners filed a new
action in mandamus seeking to compel the Commonwealth to comply with the
Supreme Court's decision in County of Allegheny. The Commonwealth has filed a
response in opposition to the new action and a request was made by the counties
to continue the action until Spring, 1995. The Court has not apparently acted
on the new action and the General Assembly has yet to consider legislation
implementing the Supreme Court's decision.
Fidelity Bank v. Commonwealth of Pennsylvania
On November 30, 1989, Fidelity Bank, N.A. ("Fidelity") filed an action
challenging the constitutional validity of a 1989 amendment increasing the bank
shares tax and related legislation. The Commonwealth
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Court ruled in favor of the Commonwealth finding no constitutional deficiencies
in the tax increase, but invalidating one element of the legislation which
provided a credit to new banks (the "new bank tax credit"). Fidelity, the
Commonwealth and certain intervener banks appealed to the Pennsylvania Supreme
Court. However, pursuant to a Settlement Agreement dated as of April 21, 1995,
the Commonwealth agreed to enter a credit in favor of Fidelity in the amount of
$4,100,000 in settlement of the constitutional and non-constitutional issues.
The credit represents approximately 5% of the potential claim of Fidelity, had
the constitutional issues been resolved in its favor.
Pursuant to a separate Settlement Agreement dated as of April 21, 1995, the
Commonwealth also settled with the intervening banks with respect to issues
concerning the new bank tax credit.
Notwithstanding the foregoing settlements, other banks have filed protective
petitions which are currently pending at the various administrative agencies
challenging the validity of the 1989 tax increase. At least one of those
cases--Mellon Bank, N.A.--has progressed to Commonwealth Court. Based upon the
favorable decision of the Commonwealth Court on the constitutional issues in
the Fidelity Bank litigation and the terms of the settlement with Fidelity, the
Commonwealth does not expect that substantial liability remains with respect to
the remaining cases.
Pennsylvania Association of Rural and Small Schools (PARSS) v. Casey
In January 1991, the Association of Rural and Small Schools and several other
parties filed a lawsuit against then Governor Robert P. Casey and former
Secretary of Education, Donald M. Carroll challenging the constitutionality of
the Commonwealth system for funding local school districts. The litigation
consists of two parallel cases, one in the Commonwealth Court of Pennsylvania
and one in the United States District Court for the Middle District of
Pennsylvania. The federal court case has been indefinitely stayed pending
resolution of the state court case. The state court case is currently in the
pre-trial discovery stage.
Austin v. Department of Corrections, et al.
In November 1990, the American Civil Liberties Union filed a class action
lawsuit in the United States District Court for the Eastern District of
Pennsylvania on behalf of inmate populations in various Pennsylvania
correctional institutions, challenging the conditions of confinement and
seeking injunctive relief. On January 17, 1995, the Court approved a Settlement
Agreement between the parties, pursuant to which the Commonwealth paid $1.3
million in attorneys' fees to the plaintiffs' attorneys, with an additional
$100,000 to be paid upon dismissal of a preliminary injunction relating to
certain health issues. The parties are presently complying with monitoring
provisions outlined in the Settlement Agreement.
Scott v. Snider
In 1991, a consortium of public interest law firms filed a class action suit
in the U.S. District Court for the Eastern District of Pennsylvania against
various Commonwealth officers alleging that the Commonwealth had failed to
comply with the 1989 federal mandate to provide and pay for early and periodic
screening, diagnostic and treatment services for Medicaid-eligible children. If
the federal court were to grant all of the relief requested, the Commonwealth
would be obligated, among other things, to substantially revise the methods by
which it presently identifies children in need of treatment and to expand the
scope of services and treatment presently provided to such children, and to
increase fees paid to pediatric providers. The Court has denied the plaintiffs'
request to proceed as a class action and dismissed five of the eighteen
plaintiff organizations from the case. On June 2, 1995, the Court approved the
settlement reached by the parties.
Envirotest/Synterra Partners
Envirotest Systems Corporation, Envirotest Partners ("Envirotest") and the
Commonwealth of Pennsylvania have entered into a Standstill Agreement pursuant
to which the parties will proceed to discuss
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resolution of claims which Envirotest might have against the Commonwealth
arising from the suspension of an emissions testing program. Under the program,
Envirotest entered into a contract with the Commonwealth for the operation of
emissions inspection facilities and, incident thereto, acquired land to
construct approximately 85 such facilities. On May 10, 1995, Envirotest filed a
statement of claim with the Pennsylvania Board of Claims, and filed a complaint
with the Commonwealth Court on May 15, 1995, to preserve its position. In those
pleadings, Envirotest alleges damages in excess of $350 million. The Office of
General Counsel has been informed by representatives of Envirotest that it has
expended approximately $200 million to date to acquire land and construct and
maintain the inspection facilities.
Currently, Pennsylvania general obligation bonds are rated AA- by Standard &
Poor's and Fitch, and A1 by Moody's. There can be no assurance that the
economic conditions on which these ratings are based will continue or that
particular bond issues will not be adversely affected by changes in economic or
political conditions.
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APPENDIX I
RATINGS OF MUNICIPAL BONDS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND
RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
Short-term Notes: The four ratings of Moody's for short-term notes are
MIG1/VMIG1, MIG2/VMIG2, MIG3/VMIG3 and MIG4/VMIG4; MIG1/VMIG1 denotes "best
quality . . . strong protection by established cash flows"; MIG2/VMIG2 denotes
"high quality" with ample margins of protection; MIG3/VMIG3 notes are of
"favorable quality . . . but . . . lacking the undeniable strength of the
preceding grades"; MIG4/VMIG4 notes are of "adequate quality . . . [p]rotection
commonly regarded as required of an investment security is present . . . there
is specific risk."
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DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa-judged
to be the best quality, carry the smallest degree of investment risk; Aa-judged
to be of high quality by all standards; A-possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations; Baa-
considered as medium grade obligations, i.e, they are neither highly protected
nor poorly secured.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well established
access to a range of financial markets and assured sources of alternate
liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S ("STANDARD & POOR'S")
MUNICIPAL DEBT RATINGS
A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--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;
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III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories.
BB Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on balance, as
B predominately speculative with respect to capacity to pay interest and
CCC repay principal in accordance with the terms of the obligation. "BB"
CC indicates the lowest degree of speculation and "C" the highest degree
C of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
C1 The rating "CI" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus ( + ) or Minus ( - ): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S CORPORATE BOND RATINGS
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt
rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong. Debt rated "AA" has a
very strong capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree. Debt rated "A" has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt of a higher-rated category. Debt rated "BBB" is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
The ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's Commercial Paper Rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into four
I-3
<PAGE>
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.
Issues assigned the highest rating are regarded as having the greatest capacity
for timely payment. Issues in this category are further refined with the
designation 1, 2 or 3 to indicate the relative degree of safety. These
categories are as follows:
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined
to possess extremely strong safety characteristics are denoted with a
plus sign ( + ) designation.
A-2 Capacity for timely payment on issues with this designation is 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.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
A Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information.
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will likely receive
a note rating. Notes maturing beyond 3 years will most likely receive a long-
term debt rating. The following criteria will be used in making that
assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
--Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 A very strong or strong capacity to pay principal and interest. Those
issues determined to 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.
Standard & Poor's 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.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuers belongs to a group of securities that 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 Standard & Poor's publications.
I-4
<PAGE>
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date information to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S ("FITCH") INVESTMENT GRADE BOND
RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and of any
guarantor, as well as the economic and political environment that might affect
the issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended or withdrawn as a result of changes in, or
the unavailability of, information or for any other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA". Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+".
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
Plus ( + ) or Minus ( - ): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
I-5
<PAGE>
Credit Trend Indicator: Credit trend indicators show whether credit
fundamentals are improving, stable, declining, or uncertain, as follows:
Improving (UP ARROW)
Stable (LEFT ARROW/RIGHT ARROW)
Declining (DOWN ARROW)
Uncertain (UP ARROW/DOWN ARROW)
Credit trend indicators are not predictions that any rating change will
occur, and have a longer-term time frame than issues placed on FitchAlert.
NR Indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
Suspended A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is called or
refinanced and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the
likely direction of such change. These are designated as
"Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evolving," where ratings may be raised or
lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
DESCRIPTION OF FITCH SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or
liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor
in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
I-6
<PAGE>
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 default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents the
lowest potential for recovery.
Plus ( + ) or Minus ( - ): Plus or minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD", "DD", or "D" categories.
DESCRIPTION OF FITCH INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than
issues rated "F-1+".
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned "F-1+" and "F-1"
ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
F-4 Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol "LOC" indicates that the rating is based on a letter of
credit issued by a commercial bank.
INS The symbol "INS" indicates that the rating is based on an insurance
policy or financial guaranty issued by an insurance company.
I-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Limited Maturity Municipal Bond
Funds for Arizona, California, Florida, Massachusetts, Michigan, New Jersey,
New York, and Pennsylvania of the Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust (the "Trust") as of July 31, 1995, the related statement
of operations for the year ended and statements of changes in net assets and
the financial highlights for the year then ended and for the period November
26, 1993 (commencement of operations) to July 31, 1994. These financial
statements and the financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Limited Maturity Municipal Bond Funds for Arizona, California, Florida,
Massachusetts, Michigan, New Jersey, New York, and Pennsylvania of the Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust as of July 31, 1995,
the results of their operations, the changes in their 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 7, 1995
J-1
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
Arizona Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Arizona--96.8% NR* Aa $ 300 Arizona Educational Loan Marketing Corp., Educational Loan Revenue
Bonds, AMT, Senior Series, 5.875% due 9/01/2000 $ 309
A1+ VMIG1++ 200 Arizona Health Facilities Authority Revenue Bonds (Arizona Voluntary
Hospital Federation), VRDN, Series B, 3.85% due 10/01/2015 (a) (c) 200
AAA Aaa 280 Arizona State Transportation Board, Excise Tax Revenue Bonds (Maricopa
County Regional Area Road), Series A, 5.75% due 7/01/2004 (b) 298
AA- A1 350 Central Arizona Water Conservation District, Contract Revenue Bonds
(Central Arizona Project), Series B, 6.50% due 5/01/2001 (e) 389
A1+ NR* 300 Chandler, Arizona, IDA, M/F Housing Revenue Refunding Bonds (Southpark
Apartments Project), VRDN, 3.90% due 12/01/2002 (a) 300
A1+ VMIG1++ 300 Maricopa County, Arizona, IDA, Hospital Facilities Revenue Bonds
(Samaritan Health Service Hospital), VRDN, Series B-2, 3.90%
due 12/01/2008 (a) (d) 300
NR* VMIG1++ 300 Maricopa County, Arizona, Pollution Control Corporation, PCR
(El Paso Electric Co.--Palo Verde Project), VRDN, Series E, 4.35%
due 12/01/2014 (a) 300
A1+ P1 200 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding
(Arizona Public Service Co.), VRDN, Series B, 3.85% due 5/01/2029 (a) 200
Phoenix, Arizona, Airport Revenue Refunding Bonds, AMT, Series C (d):
AAA Aaa 465 5.60% due 7/01/2002 488
AAA Aaa 480 5.70% due 7/01/2003 506
A1+ NR* 300 Phoenix, Arizona, IDA, M/F Housing Revenue Refunding Bonds (Lynwood
Apartments Project), VRDN, 3.90% due 10/01/2025 (a) 300
AA+ Aa 1,000 Phoenix, Arizona, Revenue Refunding Bonds, UT, Series C, 6.375%
due 7/01/2002 1,099
AAA Aaa 475 Pima County, Arizona, Sewer Revenue Bonds, 6.20% due 7/01/2002 (b) (e) 521
A1 NR* 300 Tucson, Arizona, IDA, M/F Revenue Refunding Bonds (Lincoln Garden
Project), VRDN, 3.90% due 2/01/2006 (a) 300
AAA Aaa 250 Tucson, Arizona, Revenue Refunding Bonds, 5.10% due 7/01/1999 (c) 257
NR* VMIG1++ 300 Yavapai County, Arizona, IDA, IDR, Refunding (Kachina Pointe Project),
VRDN, 3.75% due 1/01/2009 (a) 300
Total Investments (Cost--$5,877)--96.8% 6,067
Other Assets Less Liabilities--3.2% 198
-------
Net Assets--100.0% $ 6,265
=======
<FN>
(a)The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31, 1995.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)Prerefunded.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
<CAPTION>
California Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
California--97.2% NR* A $ 685 California Educational Facilities Authority Revenue Refunding Bonds
(Saint Mary's College), 4.90% due 10/01/2003 $ 674
California Health Facilities Financing Authority Revenue Bonds, Series A:
AAA Aaa 500 Refunding (Catholic Healthcare West), 5.30% due 7/01/2003 (d) 510
A1+ VMIG1++ 180 Refunding (Saint Joseph Health System), VRDN, 3.75% due 7/01/2013 (a) 180
A1+ VMIG1++ 200 (Sutter Health), VRDN, 3.75% due 3/01/2020 (a) 200
AAA Aaa 600 California, HFA, Revenue Refunding Bonds, AMT, Series K, 5% due 2/01/2001 595
California Pollution Control Financing Authority, PCR, Refunding,
VRDN (a):
A1+ P1 200 (Exxon Project), 3.75% due 8/01/1995 200
</TABLE>
J-2
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
Arizona Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
A1+ VMIG1++ 200 (Shell Oil Company Project), Series B, 3.80% due 10/01/2011 200
California Pollution Control Financing Authority, Resource Recovery
Revenue Bonds, VRDN, AMT (a):
A1 VMIG1++ 400 (Atlantic Richfield Company Project), Series A, 4% due 8/01/1995 400
NR* P1 300 (Delano Project), 4% due 8/01/2019 300
NR* P1 200 Refunding (Ultra Power Malaga Project), Series A, 3.95% due 8/01/1995 200
NR* P1 100 Refunding (Ultra Power Malaga Project), Series B, 4.35% due 8/01/1995 100
NR* P1 200 Refunding (Ultra Power Rocklin Project), Series A, 4.05% due 6/01/2017 200
A1+ VMIG1++ 100 California Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Shell Oil Co.--Martinez Project), VRDN, AMT, Series A,
3.95% due 10/01/2024 (a) 100
California State, GO, UT:
A A1 750 6.75% due 10/01/2003 836
AAA Aaa 750 6.35% due 11/01/2004 (b) 818
AAA Aaa 600 California State Public Works Board, Lease Revenue Bonds (Department of
Corrections--State Prison/Central California Women's Facility, Madera
County), Series A, 7% due 9/01/2000 (e) 681
SP1 MIG1++ 1,000 California State, RAW, Series C, 5.75% due 4/25/1996 1,014
AAA Aaa 500 California Statewide Community Development Authority, Lease Revenue
Refunding Bonds (Oakland Convention Center Project), 5.70%
due 10/01/2002 (d) 524
A+ NR* 700 East Bay, California, Municipal Utility District, Water System Revenue
Bonds, 7.40% due 6/01/2000 (e) 799
AAA Aaa 200 Los Angeles, California, Department of Airports, Revenue Refunding Bonds,
Series A, 6% due 5/15/2005 (b) 212
AA Aa 650 Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Bonds, 6% due 4/01/2002 689
Los Angeles, California, Harbor Department Revenue Bonds, AMT, Series B:
AA Aa 275 6% due 8/01/2000 288
AA Aa 295 6% due 8/01/2001 310
AA Aa 500 6% due 8/01/2004 524
Los Angeles County, California, Metropolitan Transportation Authority,
Sales Tax Revenue Bonds (Proposition C--Second Senior):
A1+ VMIG1++ 1,000 Refunding, VRDN, Series A, 3.70% due 7/01/2020 (a) (c) 1,000
AAA Aaa 400 Series B, 8% due 7/01/2003 (d) 480
AA- Aa1 1,000 Los Angeles County, California, Public Works Financing Authority Revenue
Refunding Bonds (Capital Construction), 4.80% due 3/01/2004 964
A1+ NR* 400 Moor Park, California, M/F Mortgage Revenue Refunding Bonds (Le Club
Apartments Project), VRDN, Series A, 3.80% due 11/01/2015 (a) 400
AAA Aaa 700 San Francisco, California, City and County Sewer Revenue Bonds, Series A,
5.375% due 10/01/1999 (b) 726
AAA Aaa 500 Santa Clara County, California, Financing Authority Lease Revenue Bonds
(VMC Facility Replacement Project), Series A, 5.80% due 11/15/2000 (d) 528
AAA Aaa 500 University of California, Revenue Refunding Bonds (Multi-Purpose Projects),
Series C, 10% due 9/01/2001 (d) 638
Puerto Rico--1.3% A1+ VMIG1++ 200 Puerto Rico Commonwealth, Government Development Bank, Revenue Refunding
Bonds, VRDN, 3.45% due 12/01/2015 (a) 200
Total Investments (Cost--$15,034)--98.5% 15,490
Other Assets Less Liabilities--1.5% 234
-------
Net Assets--100.0% $15,724
=======
<FN>
(a)The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31, 1995.
(b)FGIC Insured.
(c)MBIA Insured.
(d)AMBAC Insured.
(e)Prerefunded.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
</TABLE>
Portfolio
Abbreviation:
To simplify the listings of Merrill
Lynch Multi-State Limited Maturity
Municipal Series Trust's portfolio
holdings in the Schedule of
Investments, we have abbreviated
the names of many of the securities
according to the list at right.
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RAW Revenue Anticipation Warrants
UPDATES Unit Price Demand Adjustable
Tax-Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
J-3
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
Florida Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Florida--91.3% NR* VMIG1++ $ 1,400 Atlantic Beach, Florida, Revenue Refunding and Improvement Bonds (Fleet
Landing), VRDN, Series B, 4.05% due 10/01/2024 (a) $ 1,400
AAA Aaa 1,000 Broward County, Florida, School District Revenue Bonds, UT, 7.125%
due 2/15/1999 (f) 1,111
AAA Aaa 1,300 Cape Coral, Florida, Water and Sewer Revenue Refunding Bonds, UT,
5.25% due 1/01/2004 (c) 1,333
Dade County, Florida, Aviation Revenue Refunding Bonds, Series A (b):
AAA Aaa 500 5.60% due 10/01/2004 524
AAA Aaa 1,000 AMT, 5.25% due 10/01/1997 1,022
AA- VMIG1++ 100 Dade County, Florida, IDA, Exempt Facilities Revenue Refunding Bonds
(Florida Power and Light Co.), VRDN, 3.85% due 6/01/2021 (a) 100
Dade County, Florida, Solid Waste Authority, IDR (Montenay-Dade
Limited Project), VRDN (a):
A1 VMIG1++ 280 AMT, 4.05% due 12/01/2010 280
A1 VMIG1++ 800 Series A, 4.05% due 12/01/2013 800
A1 VMIG1++ 400 Dade County, Florida, Water and Sewer System Revenue Bonds, VRDN, 3.80%
due 10/05/2022 (a) (c) 400
AAA Aaa 1,185 Dunedin, Florida, Hospital Revenue Bonds (Mease Health Care), 6.75%
due 11/15/2001 (d) (f) 1,348
Florida State Board of Education, Capital Outlay, Public Education
Revenue Refunding Bonds:
AA Aa 850 5.50% due 6/01/2001 890
AAA Aaa 1,000 Series A, 7.25% due 6/01/2000 (f) 1,140
AA Aa 1,000 Series A, 5% due 6/01/2004 1,007
Florida State Division, Board of Finance Department, General Services
Revenue Bonds (Department of Natural Resources):
AAA Aaa 1,730 Refunding, Series A, 6.30% due 7/01/2004 (d) 1,867
AAA Aaa 1,000 Series 2000-A, 5.75% due 7/01/2000 (d) 1,057
AAA Aaa 1,900 Series 2000-A, 6.40% due 7/01/2002 (b) 2,091
Hillsborough County, Florida, IDA, PCR, Refunding (Tampa Electric
Company Project), VRDN (a):
A1+ VMIG1++ 300 3.75% due 5/15/2018 300
AA VMIG1++ 800 3.90% due 9/01/2025 800
AA Aa1 1,000 Jacksonville, Florida, Electric Authority, Special Obligation Revenue
Bonds (Saint John's River), 4th Series, 6.65% due 10/01/2002 1,090
AA Aa1 1,000 Jacksonville, Florida, Electric Authority, Special Obligation Revenue
Refunding Bonds (Saint John's River--2), Series 6-B, 6.50% due
10/01/2001 1,089
AAA Aaa 750 Lake County, Florida, Sales Tax Revenue Bonds, 7.70% due
12/01/1995 (c) (f) 775
AA- Aa 800 Lakeland, Florida, Electric and Water Revenue Bonds, 6.70%
due 10/01/1999 868
A1+ VMIG1++ 1,100 Martin County, Florida, PCR, Refunding (Florida Power and Light Company
Project), VRDN, 3.85% due 9/01/2024 (a) 1,100
AAA Aaa 1,300 North Miami, Florida, Health Facilities Authority, Health Facility
Revenue Bonds (Bon Secours Health System Project), 6% due 8/15/2027 (e) 1,429
AAA Aaa 1,000 Palm Bay, Florida, Utility Revenue Bonds (Palm Bay Utility Corp.
Project), Series B, 6.20% due 10/01/2002 (d) (f) 1,112
Palm Beach County, Florida, GO, UT:
AA Aa 500 5.60% due 12/01/2001 530
AA Aa 250 5.70% due 12/01/2002 267
NR* Baa1 1,440 Pembroke Pines, Florida, Special Assessment No. 94-1, 4.80% due
11/01/1998 1,436
A1 VMIG1++ 200 Pinellas County, Florida, Health Facilities Authority, Revenue Refunding
Bonds (Pooled Hospital Loan Program), DATES, 3.85% due 12/01/2015 (a) 200
A1+ VMIG1++ 100 Putnam County, Florida, Development Authority, PCR, Refunding (Florida
Power and Light Company Project), VRDN, 3.80% due 9/01/2024 (a) 100
AAA Aaa 1,335 Saint Lucie County, Florida, School Board, COP, Series A, 7.25% due
7/01/2000 (b) (f) 1,525
A1 VMIG1++ 1,400 Volusia County, Florida, Health Facilities Authority Revenue Bonds
(Pooled Hospital Loan Program), VRDN, ACES, 3.80% due 11/01/2015 (a) (c) 1,400
Puerto Rico--8.0% A Baa1 500 Puerto Rico Commonwealth, GO, UT, 5.55% due 7/01/2001 514
AAA NR* 1,000 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Refunding Bonds, Series T, 6.50% due 7/01/2002 (f) 1,124
</TABLE>
J-4
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
Florida Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
A Baa1 1,000 Puerto Rico Commonwealth, Refunding, Series I, 5.30% due 7/01/2004 999
Total Investments (Cost--$32,256)--99.3% 33,028
Other Assets Less Liabilities--0.7% 245
-------
Net Assets--100.0% $33,273
=======
<FN>
(a)The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31, 1995.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)FSA Insured.
(f)Prerefunded.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
<CAPTION>
Massachusetts Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Massachusetts-- NR* A1 $ 400 Boston, Massachusetts, Economic Development and Industrial Corp.,
93.9% Public Parking Facility, Series 1990, 5% due 7/01/2000 $ 401
AAA Aaa 400 Boston, Massachusetts, Revenue Refunding Bonds, UT, Series A, 5.20%
due 2/01/2004 (c) 406
A1+ VMIG1++ 300 Boston, Massachusetts, Water and Sewer Commission, General Revenue Bonds,
VRDN, Series A, 3.75% due 11/01/2024 (a) 300
AAA Aaa 300 Chelsea, Massachusetts, School Project Loan Act of 1948, UT, 6% due
6/15/2002 (c) 321
AAA Aaa 400 Lynn, Massachusetts, Water and Sewer Commission, Revenue Refunding Bonds,
4.95% due 12/01/2002 (e) 402
AAA Aaa 250 Massachusetts Educational Loan Authority Revenue Refunding Bonds, AMT,
Issue E, Series B, 5.50% due 7/01/2001 (c) 253
BBB+ A 500 Massachusetts Municipal Wholesale Electric Company, Power Supply System
Revenue Refunding Bonds, Series B, 6.375% due 7/01/2001 529
A A1 500 Massachusetts State Convention Center Authority Refunding Bonds (Hynes
Convention Center), 5.20% due 9/01/1995 501
A+ A1 750 Massachusetts State, GO, Refunding, Series B, 6.25% due 8/01/2001 809
Massachusetts State Health and Educational Facilities Authority
Revenue Bonds:
A1+ VMIG1++ 400 (Capital Asset Program), VRDN, Series C, 4% due 7/01/2005 (a) (b) 400
A1+ VMIG1++ 400 (Harvard University), VRDN, Series I, 3.50% due 7/01/2005 (a) 400
NR* A1 350 (New England Medical Centers), Series E, 7.875% due 7/01/1998 (d) 390
AAA Aaa 400 Refunding (Baystate Medical Center), Series D, 4.60% due 7/01/2002 (e) 391
AAA Aaa 540 Massachusetts State HFA, Housing Revenue Refunding Bonds (Insured--
Rental), AMT, Series A, 5.90% due 7/01/2003 (c) 558
Massachusetts State Industrial Finance Agency, Revenue Bonds:
AAA Aaa 320 (Babson College), Series A, 5.40% due 10/01/2003 (b) 331
NR* P3 400 (Saint Mark's School--Southborough), 5.25% due 1/09/1996 403
AA A1 400 Massachusetts State Special Obligation Revenue Bonds (Highway Improvement
Loan), Series A, 5.90% due 6/01/2001 423
A1 VMIG1++ 200 Massachusetts State, UPDATES, Series B, 3.75% due 12/01/1997 (a) 200
AAA Aaa 500 Massachusetts State, Water Resource Authority, Series A, 6.75% due
7/15/2002 (d) (e) 568
NR* A1 500 New England Educational Loan Marketing Corp., Massachusetts, Student Loan
Revenue Refunding Bonds, AMT, Sub-Issue F, 6.60% due 9/01/2002 533
NR* NR* 390 South Hadley, Massachusetts, Industrial Revenue Bonds (South Hadley
Health Care), AMT, Series A, 5% due 12/01/1996 390
NR* Aaa 400 Wellesley, Massachusetts, Municipal Purpose Bonds, 4.10% due 6/15/1998 401
Puerto Rico--4.0% A Baa1 390 Puerto Rico Commonwealth, GO, UT, 5.55% due 7/01/2001 401
Total Investments (Cost--$9,519)--97.9% 9,711
Other Assets Less Liabilities--2.1% 207
-------
Net Assets--100.0% $ 9,918
=======
<FN>
(a)The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31, 1995.
(b)MBIA Insured.
(c)AMBAC Insured.
(d)Prerefunded.
(e)FGIC Insured.
*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>
J-5
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
Michigan Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Michigan--87.7% A1+ VMIG1++ $ 200 Bruce Township, Michigan, Hospital Finance Authority, Health Care
System Revenue Bonds (Sisters Charity-Saint Joseph's), VRDN, Series A,
3.80% due 5/01/2018 (a) (d) $ 200
AAA Aaa 250 Dearborn, Michigan, Economic Development Corp., Hospital Revenue Bonds
(Oakwood Obligated Group), Series A, 6.95% due 8/15/2001 (d) (e) 285
AAA Aaa 200 Detroit, Michigan, Distributable State Aid, Refunding Bonds, UT, 5.70%
due 5/01/2001 (b) 209
AAA Aaa 250 Detroit, Michigan, Water Supply System, Revenue Refunding Bonds, 6.20%
due 7/01/2004 (c) 271
A1+ VMIG1++ 200 Michigan Higher Education Student Loan Authority, Revenue Refunding
Bonds, VRDN, AMT, Series XII-B, 3.90% due 10/01/2013 (a) (b) 200
AAA Aaa 200 Michigan Municipal Bond Authority Revenue Bonds (Local Government Loan
Program), Series C, 5.50% due 5/01/2003 (d) 207
AA Aa 200 Michigan Municipal Bond Authority Revenue Bonds (State Revolving Fund),
7% due 10/01/2004 228
AA A1 500 Michigan Municipal Bond Authority Revenue Refunding Bonds (Local
Government--Qualified School), Series A, 6% due 5/01/2001 530
AA- A1 200 Michigan State Building Authority, Revenue Refunding Bonds, Series I,
6.40% due 10/01/2004 217
AA- A1 200 Michigan State Comprehensive Transportation, Revenue Refunding Bonds,
Series B, 5.625% due 5/15/2003 210
AAA Aaa 175 Michigan State Hospital Finance Authority Revenue Bonds (Henry Ford
Hospital), Series B, 9% due 5/01/2004 (f) 215
NR* VMIG1++ 200 Michigan State Housing Development Authority, Limited Obligation Revenue
Bonds (Laurel Valley), VRDN, 3.90% due 12/01/2007 (a) 200
AA Aa 200 Michigan State Recreation Program, GO, 6% due 11/01/2004 216
AAA Aaa 150 Michigan State South Central Power Agency, Power Supply System Revenue
Refunding Bonds, 7% due 11/01/1996 (b) (e) 159
A1 VMIG1++ 200 Michigan State Strategic Fund, Limited Obligation Revenue Bonds (United
Waste System, Inc. Project), 4% due 4/01/2010 200
NR* VMIG1++ 200 Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds
(Grayling Generating Project), VRDN, AMT, 3.95% due 1/01/2014 (a) 200
AA- A1 100 Michigan State Trunk Line, GO, Series A, 5.75% due 10/01/2004 105
NR* P1 200 Monroe County, Michigan, Economic Development Corp., Limited Obligation
Revenue Refunding Bonds (Detroit Edison Co.), VRDN, Series CC, 3.80%
due 10/01/2024 (a) 200
AAA Aaa 100 Reeths-Puffer Schools, Michigan, Refunding, GO, UT, Series Q, 6.75%
due 5/01/1999 (c) 108
AA Aa 250 Royal Oak, Michigan, Hospital Finance Authority, Hospital Revenue
Refunding Bonds (William Beaumont Hospital), Series A, 7.75%
due 1/01/2003 269
Puerto Rico--9.3% A Baa1 265 Puerto Rico Commonwealth, GO, UT, 5.55% due 7/01/2001 272
A1+ VMIG1++ 200 Puerto Rico Commonwealth, Government Development Bank, Revenue
Refunding Bonds, VRDN, 3.45% due 12/01/2015 (a) 200
Total Investments (Cost--$4,752)--97.0% 4,901
Other Assets Less Liabilities--3.0% 151
-------
Net Assets--100.0% $ 5,052
=======
<FN>
(a)The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31, 1995.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)Prerefunded.
(f)Escrowed to maturity.
*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>
J-6
<PAGE>
<TABLE>
<CAPTION>
New Jersey Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New Jersey--96.7% NR* Aaa $ 600 Bergen County, New Jersey, General Improvement Bonds, GO, UT, 4.70%
due 7/15/2002 $ 603
AAA Aaa 600 Elizabeth, New Jersey, General Improvement and Sewer Utility Refunding
Bonds, GO, UT, 6% due 8/15/2004 (b) 643
NR* VMIG1++ 400 Essex County, New Jersey, Improvement Authority Revenue Bonds (Pooled
Governmental Loan Program), ACES, 3.65% due 7/01/2026 (a) 400
SP1+ VMIG1++ 400 Mercer County, New Jersey, Improvement Authority Revenue Bonds, VRDN,
3.45% due 11/01/1998 (a) 400
AA Aa1 400 Monmouth County, New Jersey, General Improvement Bonds, GO, UT, 6.625%
due 8/01/2000 431
NR* VMIG1++ 200 New Jersey, EDA, Dock Facility Revenue Refunding Bonds (Bayonne
International Matex Tank Terminal Project), VRDN, Series A, 3.75%
due 12/01/2027 (a) 200
New Jersey, EDA, Economic Development Revenue Bonds, VRDN (a):
NR* Aa1 400 (400 International Drive Partners), 3.45% due 4/01/2019 400
A1 VMIG1++ 300 (Dac Realty Corporation), AMT, Series A, 3.70% due 7/01/2006 300
A1 NR* 400 New Jersey, EDA, Industrial and Economic Development Revenue Bonds
(Toys 'R' Us, Inc. Project), VRDN, 3.95% due 9/01/2005 (a) 400
AAA Aaa 1,000 New Jersey, EDA, Market Transition Facility Revenue Bonds, Senior Lien,
Series A, 7% due 7/01/2004 (c) 1,150
AAA Aaa 400 New Jersey Health Care Facilities Financing Authority Revenue Bonds
(Carrier Foundation), VRDN, Series C, 3.60% due 7/01/2005 (a) (d) 400
A1 VMIG1++ 400 New Jersey Sports and Exposition Authority Revenue Bonds (State
Contract), VRDN, Series C, 3.70% due 9/01/2024 (a) (c) 400
A+ Aa 1,000 New Jersey State Transportation Trust Fund Authority, Transportation
System Revenue Bonds, Series A, 6% due 6/15/2000 (e) 1,065
A A 400 New Jersey State Turnpike Authority, Turnpike Revenue Bonds, Series A,
5.70% due 1/01/2001 417
AA Aa 400 North Brunswick Township, New Jersey, Board of Education, Refunding
Bonds, GO, UT, 6.25% due 2/01/2004 437
NR* Aa 400 Ocean County, New Jersey, Utilities Authority, Wastewater Revenue Bonds,
UT, Series A, 6.125% due 1/01/2003 432
AAA Aaa 1,310 Port Authority of New York and New Jersey, Consolidated Refunding Bonds,
AMT, UT, 97th Series, 7.10% due 7/15/2004 (d) 1,506
A1+ VMIG1++ 200 Port Authority of New York and New Jersey, Special Obligation Revenue
Bonds (Versatile Structure Obligation), VRDN, Series 2, 3.55% due
5/01/2019 (a) 200
A1+ P1 300 Union County, New Jersey, Industrial Pollution Control Financing
Authority, PCR, Refunding (Exxon Project), VRDN, 3.95% due
7/01/2033 (a) 300
Total Investments (Cost--$9,751)--96.7% 10,084
Other Assets Less Liabilities--3.3% 348
-------
Net Assets--100.0% $10,432
=======
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in effect at
July 31, 1995.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)FGIC Insured.
(e)Escrowed to maturity.
*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>
J-7
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
New York Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New Jersey--4.4% A1+ VMIG1++ $ 700 Port Authority of New York and New Jersey, Special Obligation Revenue
Bonds (Versatile Structure Obligation), VRDN, Series 1, 4% due
8/01/2028 (a) $ 700
New York--94.1% AAA Aaa 400 Nassau County, New York, General Improvement Bonds, UT, Series O,
5.625% due 8/01/2004 (c) 422
AAA Aaa 750 New York City, New York, IDA, Civic Facilities Revenue Bonds (USTA
National Tennis Center Project), 6% due 11/15/2003 (d) 802
A1+ NR* 700 New York City, New York, IDA, IDR (Japan Airlines Company Ltd.
Project), VRDN, AMT, 3.90% due 11/01/2015 (a) 700
AA- Aa 800 New York City, New York, Municipal Assistance Corporation Revenue
Bonds, Series 68, 7.10% due 7/01/2000 884
New York City, New York, Municipal Water Finance Authority, Water and
Sewer System Revenue Bonds, VRDN (a) (c):
A1+ VMIG1++ 200 Series C, 3.90% due 6/15/2022 200
AAA VMIG1++ 500 Series G, 3.80% due 6/15/2024 500
BBB+ Baa1 610 New York City, New York, Refunding Bonds, UT, Series A, 6% due 8/01/2000 626
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 600 (College and University Educational Loan), AMT, 6.30% due
7/01/2002 (e) 643
NR* VMIG1++ 500 (Oxford University Press Inc.), VRDN, 4.05% due 7/01/2023 (a) 500
NR* VMIG1++ 400 New York State Energy Research and Development Authority, Electric
Facilities Revenue Bonds (Long Island Lighting Co.), VRDN, Series B,
3.55% due 11/01/2023 (a) 400
New York State Energy Research and Development Authority, PCR:
A1+ Aa1 600 (New York State Electric & Gas), 4.65% due 3/15/2015 601
A1+ A2 500 (Niagara-Mohawk Power Corporation Project), VRDN, AMT, Series A, 4.40%
due 12/01/2023 (a) 500
NR* Aa2 100 (Niagara-Mohawk Power Corporation Project), VRDN, Series B, 3.80%
due 12/01/2025 (a) 100
A- Aa 600 New York State Environmental Facilities Corporation, PCR (State Water--
Revolving Fund), Series E, 5.60% due 6/15/1999 624
A- A 600 New York State Environmental Quality, GO, 6% due 12/01/2004 642
NR* VMIG1++ 300 New York State Job Development Authority, State Guaranteed Special
Purpose Revenue Bonds, VRDN, AMT, Series A-1 thru A-25, 3.90%
due 3/01/2007 (a) 300
New York State Local Government Assistance Corporation Revenue Bonds:
A A 625 Series A, 7% due 4/01/2005 694
AAA Aaa 600 Series D, 7% due 4/01/2002 (b) 691
New York State Medical Care Facilities, Finance Agency Revenue Bonds,
Series A:
AAA Aaa 725 (Mental Health Services Facilities), 7.75% due 2/15/2001 (b) 851
AAA Aaa 500 (New York Hospital Mortgage), 6.20% due 2/15/2005 (f) (g) 537
AA- Aa 600 New York State Power Authority, Revenue Refunding and General Purpose
Bonds, Series CC, 4.375% due 1/01/2001 590
A- A 600 New York State, Refunding Bonds, Series B, 5.10% due 8/15/1999 615
A2 VMIG1++ 675 New York State Tax Exempt Revenue Bonds (Rochester Museum & Science),
5.60% due 12/01/2015 689
600 Niagara County, New York, IDA, Solid Waste Disposal, Revenue Bonds
(American Fuel Company), Series B, 4% due 8/08/1995 600
A+ Aa 340 Triborough Bridge and Tunnel Authority, New York, Revenue Bonds,
Series R, 6.90% due 1/01/2000 371
A+ Aa 985 Triborough Bridge and Tunnel Authority, New York, Revenue Refunding and
General Purpose Bonds, Series A, 4.60% due 1/01/2004 949
Total Investments (Cost--$15,384)--98.5% 15,731
Other Assets Less Liabilities--1.5% 246
-------
Net Assets--100.0% $15,977
=======
</TABLE>
J-8
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <S> <C> <S> <C>
<FN>
(a)The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31, 1995.
(b)Prerefunded.
(c)FGIC Insured.
(d)FSA Insured.
(e)MBIA Insured.
(f)AMBAC Insured.
(g)FHA Insured.
*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.
<CAPTION>
Pennsylvania Limited Maturity Municipal Bond Fund
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Pennsylvania-- NR* A1 $ 400 Allegheny County, Pennsylvania, IDA, Revenue Refunding Bonds (Commercial
83.9% Development Parkway Center Project), VRDN, Series A, 4.05% due
5/01/2009 (d) $ 400
AAA Aaa 400 Beaver County, Pennsylvania, Hospital Authority, Revenue Refunding
Bonds (Beaver County Medical Center Inc.), 5.70% due 7/01/1999 (c) 417
A1+ P1 400 Beaver County, Pennsylvania, IDA, PCR, Refunding (Duquesne Light
Company Project-Mansfield), VRDN, Series B, 3.80% due 8/01/2009 (d) 400
A1+ P1 100 Delaware County, Pennsylvania, IDA, PCR (BP Oil Inc. Project), UPDATES,
4.10% due 12/01/2009 (d) 100
AA Aa 250 Delaware County, Pennsylvania, Refunding Bonds, GO, 4.80% due 10/01/2004 247
A1 NR* 200 Emmaus, Pennsylvania, General Authority Revenue Bonds, VRDN, Sub-Series
B-10, 3.85% due 3/01/2024 (d) 200
A1+ Aaa 400 Lehigh County, Pennsylvania, Authority Water Revenue Bonds, VRDN, 3.75%
due 11/01/2004 (b) (d) 400
NR* VMIG1++ 400 Pennsylvania Energy Development Authority, Energy Development Revenue
Bonds (B&W Ebensburg Project), VRDN, AMT, 3.90% due 12/01/2011 (d) 400
AA Aa 275 Pennsylvania State Higher Educational Facilities Authority, College and
University Revenue Bonds (University of Pennsylvania), Series A, 4.70%
due 9/01/1997 279
A+ Aa 380 Pennsylvania State Higher Educational Facilities Authority, Revenue
Refunding Bonds (Thomas Jefferson University), Series A, 5.75% due
8/15/1998 395
AAA Aaa 400 Pennsylvania State Revenue Refunding Bonds, UT, Series A, 6.60% due
1/01/2001 (c) 436
AA- A1 1,385 Pennsylvania State University, Revenue Refunding Bonds, 5.85% due
3/01/2002 1,464
Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities
Authority, Hospital Revenue Bonds:
NR* Aaa 1,000 (Children's Hospital of Philadelphia Project), Series A, 6.50% due
2/15/2002 (e) 1,116
A- NR* 650 (Children's Seashore House), Series B, 7% due 8/15/2003 701
AAA Aaa 325 Washington County, Pennsylvania, Lease Authority, Municipal Facility
(Shadyside Hospital Project--Pool Capital), Series C, Sub-Series A,
7.45% due 6/15/2000 (a) (c) (e) 375
Puerto Rico--11.5% A- Baa1 1,000 Puerto Rico Municipal Finance Agency, GO, UT, Series A, 5.80% due
7/01/2004 1,008
Total Investments (Cost--$8,190)--95.4% 8,338
Other Assets Less Liabilities--4.6% 403
-------
Net Assets--100.0% $ 8,741
=======
<FN>
(a)Escrowed to maturity.
(b)FGIC Insured.
(c)AMBAC Insured.
(d)The interest rate is subject to change periodically based on prevailing market
rates. The interest rate shown is the rate in effect at July 31, 1995.
(e)Prerefunded.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
J-9
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
<CAPTION>
Arizona California Florida Massachusetts
Limited Limited Limited Limited
As of July 31, 1995 Maturity Maturity Maturity Maturity
<S> <S> <C> <C> <C> <C>
Assets: Investments, at value* (Note 1a) $ 6,066,532 $ 15,489,950 $ 33,028,318 $ 9,711,148
Cash 33,671 65,869 181,089 64,381
Receivables:
Interest 36,068 207,211 319,262 109,402
Investment adviser (Note 2) 34,111 41,529 17,074 40,794
Securities sold 109,625 -- -- --
Beneficial interest sold 4,995 3,696 -- --
Deferred organization expenses (Note 1e) 28,131 12,106 44,278 28,131
Prepaid registration fees and other assets
(Note 1e) 16,970 13,267 15,341 16,414
------------ ------------ ------------ ------------
Total assets 6,330,103 15,833,628 33,605,362 9,970,270
------------ ------------ ------------ ------------
Liabilities: Payables:
Beneficial interest redeemed 3 61,439 259,481 3,547
Dividends to shareholders (Note 1f) 4,742 11,996 26,396 7,405
Distributor (Note 2) 1,416 3,049 5,047 1,416
Accrued expenses and other liabilities 59,126 32,664 41,179 40,289
------------ ------------ ------------ ------------
Total liabilities 65,287 109,148 332,103 52,657
------------ ------------ ------------ ------------
Net Assets: Net assets $ 6,264,816 $ 15,724,480 $ 33,273,259 $ 9,917,613
============ ============ ============ ============
Net Assets Class A Shares of beneficial interest, $.10 par
Consist of: value, unlimited number of shares authorized $ 10,369 $ 35,297 $ 98,338 $ 44,698
Class B Shares of beneficial interest, $.10 par
value, unlimited number of shares authorized 51,070 103,724 161,876 48,175
Class C Shares of beneficial interest, $.10 par
value, unlimited number of shares authorized 11 643 11 4,143
Class D Shares of beneficial interest, $.10 par
value, unlimited number of shares authorized 183 17,726 72,020 2,537
Paid-in capital in excess of par 6,084,212 15,626,794 33,047,393 9,995,949
Accumulated realized capital losses on
investments--net (Note 5) (70,746) (515,218) (878,316) (370,477)
Unrealized appreciation on investments--net 189,717 455,514 771,937 192,588
------------ ------------ ------------ ------------
Net assets $ 6,264,816 $ 15,724,480 $ 33,273,259 $ 9,917,613
============ ============ ============ ============
Net Asset Class A: Net assets $ 1,054,046 $ 3,526,712 $ 9,849,207 $ 4,452,799
Value: ============ ============ ============ ============
Shares of beneficial interest outstanding 103,693 352,970 983,379 446,975
============ ============ ============ ============
Net asset value and redemption price
per share $ 10.17 $ 9.99 $ 10.02 $ 9.96
============ ============ ============ ============
Class B: Net assets $ 5,191,042 $ 10,362,511 $ 16,212,708 $ 4,799,691
============ ============ ============ ============
Shares of beneficial interest outstanding 510,697 1,037,238 1,618,761 481,748
============ ============ ============ ============
Net asset value and redemption price
per share $ 10.16 $ 9.99 $ 10.02 $ 9.96
============ ============ ============ ============
Class C: Net assets $ 1,149 $ 64,309 $ 1,131 $ 412,541
============ ============ ============ ============
Shares of beneficial interest
outstanding 113 6,437 113 41,429
============ ============ ============ ============
Net asset value and redemption price
per share $ 10.17 $ 9.99 $ 10.01 $ 9.96
============ ============ ============ ============
Class D: Net assets $ 18,579 $ 1,770,948 $ 7,210,213 $ 252,582
============ ============ ============ ============
Shares of beneficial interest
outstanding 1,827 177,258 720,201 25,369
============ ============ ============ ============
Net asset value and redemption
price per share $ 10.17 $ 9.99 $ 10.01 $ 9.96
============ ============ ============ ============
<FN>
*Identified cost $ 5,876,815 $ 15,034,436 $ 32,256,381 $ 9,518,560
============ ============ ============ ============
</TABLE>
J-10
<PAGE>
<TABLE>
<CAPTION>
Michigan New Jersey New York Pennsylvania
Limited Limited Limited Limited
As of July 31, 1995 Maturity Maturity Maturity Maturity
<S> <S> <C> <C> <C> <C>
Assets: Investments, at value* (Note 1a) $ 4,900,531 $ 10,084,223 $ 15,731,264 $ 8,337,811
Cash 62,265 388,350 -- 74,363
Receivables:
Securities sold -- -- -- 458,482
Interest 52,867 86,730 180,035 119,266
Investment adviser (Note 2) 27,731 34,889 32,907 33,704
Beneficial interest sold -- -- -- 3,766
Deferred organization expenses (Note 1e) 5,792 28,318 10,377 29,460
Prepaid registration fees and other assets
(Note 1e) 25,978 16,241 154,328 12,853
------------ ------------ ------------ ------------
Total assets 5,075,164 10,638,751 16,108,911 9,069,705
------------ ------------ ------------ ------------
Liabilities: Payables:
Securities purchased -- -- -- 249,072
Beneficial interest redeemed -- 132,760 15,257 6
Dividends to shareholders (Note 1f) 3,943 7,564 12,308 6,755
Distributor (Note 2) 722 2,082 2,528 2,106
Accrued expenses and other liabilities 18,463 64,738 101,328 71,209
------------ ------------ ------------ ------------
Total liabilities 23,128 207,144 131,421 329,148
------------ ------------ ------------ ------------
Net Assets: Net assets $ 5,052,036 $ 10,431,607 $ 15,977,490 $ 8,740,557
============ ============ ============ ============
Net Assets Class A Shares of beneficial interest, $.10 par
Consist of: value, unlimited shares authorized $ 23,074 $ 23,644 $ 47,875 $ 9,340
Class B Shares of beneficial interest, $.10 par
value, unlimited shares authorized 25,001 74,736 87,779 73,406
Class C Shares of beneficial interest, $.10 par
value, unlimited shares authorized 11 11 382 11
Class D Shares of beneficial interest, $.10 par
value, unlimited shares authorized 2,549 4,302 22,938 3,781
Paid-in capital in excess of par 5,034,936 10,276,487 15,760,464 8,607,058
Accumulated realized capital losses on
investments--net (Note 5) (181,857) (280,631) (288,780) (101,230)
Unrealized appreciation on investments--net 148,322 333,058 346,832 148,191
------------ ------------ ------------ ------------
Net assets $ 5,052,036 $ 10,431,607 $ 15,977,490 $ 8,740,557
============ ============ ============ ============
Net Asset Class A: Net assets $ 2,302,328 $ 2,400,567 $ 4,811,410 $ 943,403
Value: ============ ============ ============ ============
Shares of beneficial interest
outstanding 230,742 236,440 478,754 93,398
============ ============ ============ ============
Net asset value and redemption price
per share $ 9.98 $ 10.15 $ 10.05 $ 10.10
============ ============ ============ ============
Class B: Net assets $ 2,494,402 $ 7,592,897 $ 8,821,861 $ 7,414,019
============ ============ ============ ============
Shares of beneficial interest
outstanding 250,006 747,358 877,793 734,063
============ ============ ============ ============
Net asset value and redemption price
per share $ 9.98 $ 10.16 $ 10.05 $ 10.10
============ ============ ============ ============
Class C: Net assets $ 1,128 $ 1,040 $ 38,358 $ 1,141
============ ============ ============ ============
Shares of beneficial interest
outstanding 113 113 3,817 113
============ ============ ============ ============
Net asset value and redemption price
per share $ 9.98 $ 9.20 $ 10.05 $ 10.10
============ ============ ============ ============
Class D: Net assets $ 254,178 $ 437,103 $ 2,305,861 $ 381,994
============ ============ ============ ============
Shares of beneficial interest
outstanding 25,485 43,022 229,378 37,804
============ ============ ============ ============
Net asset value and redemption price
per share $ 9.97 $ 10.16 $ 10.05 $ 10.10
============ ============ ============ ============
<FN>
*Identified cost $ 4,752,209 $ 9,751,165 $ 15,384,432 $ 8,189,620
============ ============ ============ ============
See Notes to Financial Statements.
</TABLE>
J-11
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
Arizona California Florida Massachusetts
Limited Limited Limited Limited
For the Year Ended July 31, 1995 Maturity Maturity Maturity Maturity
<S> <S> <C> <C> <C> <C>
Investment Interest and amortization of premium and discount
Income earned $ 353,154 $ 712,283 $ 1,540,356 $ 571,735
(Note 1d): ------------ ------------ ------------ ------------
Expenses: Investment advisory fees (Note 2) 26,468 52,287 112,421 41,496
Accounting services (Note 2) 36,140 50,033 32,012 49,502
Printing and shareholder reports 18,089 37,423 71,498 24,669
Account maintenance and distribution fees--
Class B (Note 2) 20,042 36,941 65,414 20,819
Professional fees 31,891 31,260 42,201 34,620
Registration fees (Note 1e) 19,300 21,185 22,333 25,451
Amortization of organization expenses (Note 1e) 8,472 3,643 13,335 8,472
Trustees' fees and expenses 3,352 6,326 14,121 6,108
Transfer agent fees--Class B (Note 2) 4,263 4,518 7,274 4,047
Custodian fees 3,186 3,852 6,273 3,560
Pricing fees 2,473 3,782 3,642 2,748
Transfer agent fees--Class A (Note 2) 1,200 1,385 4,028 3,241
Account maintenance fees--Class D (Note 2) 9 704 1,305 61
Transfer agent fees--Class D (Note 2) 7 331 472 47
Account maintenance and distribution fees--
Class C (Note 2) -- 22 1 266
Transfer agent fees--Class C (Note 2) 6 15 5 136
Other 2,749 2,625 2,386 974
------------ ------------ ------------ ------------
Total expenses before reimbursement 177,647 256,332 398,721 226,217
Reimbursement of expenses (Note 2) (129,970) (156,939) (201,491) (159,710)
------------ ------------ ------------ ------------
Total expenses after reimbursement 47,677 99,393 197,230 66,507
------------ ------------ ------------ ------------
Investment income--net 305,477 612,890 1,343,126 505,228
------------ ------------ ------------ ------------
Realized & Realized loss on investments--net (48,045) (365,740) (425,603) (370,476)
Unrealized Change in unrealized appreciation/depreciation
Gain (Loss) on investments--net 182,975 501,542 839,494 274,970
on ------------ ------------ ------------ ------------
Investments-- Net Increase in Net Assets Resulting from
Net (Notes Operations $ 440,407 $ 748,692 $ 1,757,017 $ 409,722
1b, 1d & 3): ============ ============ ============ ============
<CAPTION>
Michigan New Jersey New York Pennsylvania
Limited Limited Limited Limited
For the Year Ended July 31, 1995 Maturity Maturity Maturity Maturity
<S> <S> <C> <C> <C> <C>
Investment Interest and amortization of premium and discount
Income earned $ 260,146 $ 510,440 $ 716,947 $ 452,988
(Note 1d): ------------ ------------ ------------ ------------
Expenses: Investment advisory fees (Note 2) 19,277 39,629 52,164 34,403
Professional fees 28,380 40,083 36,276 38,775
Printing and shareholder reports 14,922 37,544 38,558 28,633
Registration fees (Note 1e) 21,081 15,126 35,428 33,473
Account maintenance and distribution fees--
Class B (Note 2) 8,793 26,488 31,553 30,236
Accounting services (Note 2) 19,568 36,998 3,623 15,577
Trustees' fees and expenses 2,616 5,828 6,409 8,699
Amortization of organization expenses (Note 1e) 1,743 8,528 3,123 8,872
Transfer agent fees--Class B (Note 2) 2,181 4,830 4,797 7,560
Custodian fees 3,067 3,826 4,769 3,759
</TABLE>
J-12
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C> <C> <C>
Pricing fees 3,195 2,342 3,817 2,200
Transfer agent fees--Class A (Note 2) 2,062 1,902 2,504 818
Account maintenance fees--Class D (Note 2) 213 129 373 175
Transfer agent fees--Class D (Note 2) 167 82 183 148
Account maintenance and distribution fees--Class C
(Note 2) 1 28 7 --
Transfer agent fees--Class C (Note 2) 6 18 8 5
Other 2,757 2,936 2,820 3,910
------------ ------------ ------------ ------------
Total expenses before reimbursement 130,029 226,317 226,412 217,243
Reimbursement of expenses (Note 2) (105,185) (157,734) (144,009) (149,611)
------------ ------------ ------------ ------------
Total expenses after reimbursement 24,844 68,583 82,403 67,632
------------ ------------ ------------ ------------
Investment income--net 235,302 441,857 634,544 385,356
------------ ------------ ------------ ------------
Realized & Realized loss on investments--net (132,641) (190,903) (166,770) (38,604)
Unrealized Change in unrealized appreciation/depreciation
Gain (Loss) on investments--net 150,310 328,757 337,132 150,668
on ------------ ------------ ------------ ------------
Investments-- Net Increase in Net Assets Resulting from
- --Net (Notes Operations $ 252,971 $ 579,711 $ 804,906 $ 497,420
1b, 1d & 3): ============ ============ ============ ============
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
Arizona Limited Maturity California Limited Maturity
For the For the Period For the For the Period
Year Ended Nov. 26, 1993++ Year Ended Nov. 26, 1993++
July 31, to July 31, July 31, to July 31,
Increase (Decrease) in Net Assets: 1995 1994 1995 1994
<S> <S> <C> <C> <C> <C>
Operations: Investment income--net $ 305,477 $ 143,624 $ 612,890 $ 322,517
Realized loss on investments--net (48,045) (22,701) (365,740) (149,477)
Change in unrealized appreciation/depreciation
on investments--net 182,975 6,742 501,542 (46,028)
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations 440,407 127,665 748,692 127,012
------------ ------------ ------------ ------------
Dividends to Investment income--net:
Shareholders Class A (78,637) (44,448) (159,781) (87,891)
(Note 1f): Class B (226,411) (99,176) (422,409) (234,626)
Class C (33) -- (585) --
Class D (396) -- (30,115) --
------------ ------------ ------------ ------------
Net decrease in net assets resulting from
dividends to shareholders (305,477) (143,624) (612,890) (322,517)
------------ ------------ ------------ ------------
Beneficial Net increase (decrease) in net assets derived
Interest from beneficial interest transactions (1,547,482) 7,593,327 354,485 15,329,698
Transactions ------------ ------------ ------------ ------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (1,412,552) 7,577,368 490,287 15,134,193
Beginning of period 7,677,368 100,000 15,234,193 100,000
------------ ------------ ------------ ------------
End of period $ 6,264,816 $ 7,677,368 $ 15,724,480 $ 15,234,193
============ ============ ============ ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
J-13
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS (concluded)
<CAPTION>
Massachusetts
Florida Limited Maturity Limited Maturity Michigan Limited Maturity
For the For the Period For the For the Period For the For the Period
Year Ended Nov. 26, 1993++ Year Ended Nov. 26, 1993++ Year Ended Nov. 26, 1993++
Increase (Decrease) July 31, to July 31, July 31, to July 31, July 31, to July 31,
in Net Assets: 1995 1994 1995 1994 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Operations: Investment income-net $ 1,343,126 $ 803,885 $ 505,228 $ 327,953 $ 235,302 $ 133,350
Realized gain (loss)
on investments--net (425,603) (452,713) (370,476) 15,134 (132,641) (49,216)
Change in unrealized
appreciation/depreciation
on investments--net 839,494 (67,557) 274,970 (82,382) 150,310 (1,988)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net
assets resulting from
operations 1,757,017 283,615 409,722 260,705 252,971 82,146
------------ ------------ ------------ ------------ ------------ ------------
Dividends & Investment income--net:
Distributions Class A (531,680) (424,360) (252,210) (151,876) (123,016) (80,245)
to Class B (756,233) (379,525) (242,775) (176,077) (102,718) (53,105)
Shareholders Class C (32) -- (7,683) -- (33) --
(Note 1f): Class D (55,181) -- (2,560) -- (9,535) --
Realized gain on invest-
ments--net:
Class A -- -- (7,555) -- -- --
Class B -- -- (7,096) -- -- --
Class C -- -- (476) -- -- --
Class D -- -- (8) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net decrease in net assets
resulting from dividends
and distributions to
shareholders (1,343,126) (803,885) (520,363) (327,953) (235,302) (133,350)
------------ ------------ ------------ ------------ ------------ ------------
Beneficial Net increase (decrease)
Interest in net assets derived from
Transactions beneficial interest
(Note 4): transactions (187,273) 33,466,911 (6,114,591) 16,110,093 (811,255) 5,796,826
------------ ------------ ------------ ------------ ------------ ------------
Net Assets: Total increase (decrease)
in net assets 226,618 32,946,641 (6,225,232) 16,042,845 (793,586) 5,745,622
Beginning of period 33,046,641 100,000 16,142,845 100,000 5,845,622 100,000
------------ ------------ ------------ ------------ ------------ ------------
End of period $ 33,273,259 $ 33,046,641 $ 9,917,613 $ 16,142,845 $ 5,052,036 $ 5,845,622
============ ============ ============ ============ ============ ============
<CAPTION>
Pennsylvania
New Jersey Limited Maturity New York Limited Maturity Limited Maturity
For the For the Period For the For the Period For the For the Period
Year Ended Nov. 26, 1993++ Year Ended Nov. 26, 1993++ Year Ended Nov. 26, 1993++
Increase (Decrease) July 31, to July 31, July 31, to July 31, July 31, to July 31,
in Net Assets: 1995 1994 1995 1994 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Operations: Investment income--
net $ 441,857 $ 283,444 $ 634,544 $ 314,551 $ 385,356 $ 221,987
Realized loss on
investments--net (190,903) (89,728) (166,770) (122,010) (38,604) (62,626)
Change in unrealized
appreciation/depreciation
on investments--net 328,757 4,301 337,132 9,700 150,668 (2,477)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net
assets resulting from
operations 579,711 198,017 804,906 202,241 497,420 156,884
------------ ------------ ------------ ------------ ------------ ------------
Dividends to Investment income--net:
Shareholders Class A (147,854) (131,310) (247,259) (110,834) (43,161) (20,350)
(Note 1f): Class B (287,858) (152,134) (370,411) (203,717) (334,652) (201,637)
Class C (761) -- (219) -- (32) --
Class D (5,384) -- (16,655) -- (7,511) --
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
J-14
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C> <C> <C>
Net decrease in net assets
resulting from dividends
to shareholders (441,857) (283,444) (634,544) (314,551) (385,356) (221,987)
------------ ------------ ------------ ------------ ------------ ------------
Beneficial Net increase (decrease) in
Interest net assets derived from
Transactions beneficial interest
(Note 4): transactions (3,524,093) 13,803,273 774,385 15,045,053 (1,893,824) 10,487,420
------------ ------------ ------------ ------------ ------------ ------------
Net Assets: Total increase (decrease)
in net assets (3,386,239) 13,717,846 944,747 14,932,743 (1,781,760) 10,422,317
Beginning of period 13,817,846 100,000 15,032,743 100,000 10,522,317 100,000
------------ ------------ ------------ ------------ ------------ ------------
End of period $ 10,431,607 $ 13,817,846 $ 15,977,490 $ 15,032,743 $ 8,740,557 $ 10,522,317
============ ============ ============ ============ ============ ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Arizona Limited Maturity
Class A Class B Class C Class D
For the For the For the For the
The following per share data and ratios For the Period For the Period Period Period
have been derived from information provided Year Nov. 26, Year Nov. 26, Oct. 21, Oct. 21,
in the financial statements. Ended 1993++ to Ended 1993++ to 1994++ to 1994++ to
July 31, July 31, July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1995 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.97 $ 10.00 $ 9.97 $ 10.00 $ 9.89 $ 9.89
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .43 .23 .39 .20 .29 .33
Realized and unrealized gain (loss) on
investments--net .20 (.03) .19 (.03) .28 .28
------- ------- ------- ------- ------- -------
Total from investment operations .63 .20 .58 .17 .57 .61
------- ------- ------- ------- ------- -------
Less dividends from investment
income--net (.43) (.23) (.39) (.20) (.29) (.33)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.17 $ 9.97 $ 10.16 $ 9.97 $ 10.17 $ 10.17
======= ======= ======= ======= ======= =======
Total Based on net asset value per share 6.47% 2.02%+++ 5.99% 1.78%+++ 5.90%+++ 6.34%+++
Investment ======= ======= ======= ======= ======= =======
Return:**
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of
Net Assets: reimbursement .35% .02%* .37% .03%* .90%* .45%*
======= ======= ======= ======= ======= =======
Expenses, net of reimbursement .35% .02%* .72% .38%* 1.05%* .55%*
======= ======= ======= ======= ======= =======
Expenses 2.05% 1.82%* 2.44% 2.18%* 2.79%* 2.39%*
======= ======= ======= ======= ======= =======
Investment income--net 4.31% 3.37%* 3.95% 3.02%* 3.80%* 4.31%
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 1,054 $ 2,103 $ 5,191 $ 5,575 $ 1 $ 19
Data: ======= ======= ======= ======= ======= =======
Portfolio turnover 182.58% 142.37% 182.58% 142.37% 182.58% 182.58%
======= ======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
J-15
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
California Limited Maturity
Class A Class B Class C Class D
For the For the For the For the
The following per share data and ratios For the Period For the Period Period Period
have been derived from information provided Year Nov. 26, Year Nov. 26, Oct. 21, Oct. 21,
in the financial statements. Ended 1993++ to Ended 1993++ to 1994++ to 1994++ to
July 31, July 31, July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1995 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.88 $ 10.00 $ 9.88 $ 10.00 $ 9.76 $ 9.76
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .42 .24 .39 .21 .31 .33
Realized and unrealized gain (loss) on
investments--net .11 (.12) .11 (.12) .23 .23
------- ------- ------- ------- ------- -------
Total from investment operations .53 .12 .50 .09 .54 .56
------- ------- ------- ------- ------- -------
Less dividends from investment
income--net (.42) (.24) (.39) (.21) (.31) (.33)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 9.99 $ 9.88 $ 9.99 $ 9.88 $ 9.99 $ 9.99
======= ======= ======= ======= ======= =======
Total Based on net asset value per share 5.60% 1.23%+++ 5.23% .99%+++ 5.60%+++ 5.85%+++
Investment ======= ======= ======= ======= ======= =======
Return:**
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of
Net Assets: reimbursement .40% .02%* .41% .03%* .67%* .56%*
======= ======= ======= ======= ======= =======
Expenses, net of reimbursement .40% .02%* .76% .38%* .82%* .66%*
======= ======= ======= ======= ======= =======
Expenses 1.44% 1.16%* 1.80% 1.52%* 1.98%* 1.81%*
======= ======= ======= ======= ======= =======
Investment income--net 4.36% 3.54%* 4.00% 3.19%* 4.04%* 4.28%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 3,527 $ 3,804 $10,363 $11,430 $ 64 $ 1,771
Data: ======= ======= ======= ======= ======= =======
Portfolio turnover 124.72% 130.10% 124.72% 130.10% 124.72% 124.72%
======= ======= ======= ======= ======= =======
<CAPTION>
Florida Limited Maturity
Class A Class B Class C Class D
For the For the For the For the
The following per share data and ratios For the Period For the Period Period Period
have been derived from information provided Year Nov. 26, Year Nov. 26, Oct. 21, Oct. 21,
in the financial statements. Ended 1993++ to Ended 1993++ to 1994++ to 1994++ to
July 31, July 31, July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1995 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.87 $ 10.00 $ 9.88 $ 10.00 $ 9.76 $ 9.76
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .43 .24 .40 .21 .29 .33
Realized and unrealized gain (loss) on
investments--net .15 (.13) .14 (.12) .25 .25
------- ------- ------- ------- ------- -------
Total from investment operations .58 .11 .54 .09 .54 .58
------- ------- ------- ------- ------- -------
Less dividends from investment
income--net (.43) (.24) (.40) (.21) (.29) (.33)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.02 $ 9.87 $ 10.02 $ 9.88 $ 10.01 $ 10.01
======= ======= ======= ======= ======= =======
Total Based on net asset value per share 6.05% 1.12%+++ 5.57% .99%+++ 5.65%+++ 6.07%+++
Investment ======= ======= ======= ======= ======= =======
Return:**
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of
Net Assets: reimbursement .39% .02%* .40% .03%* .94%* .57%*
======= ======= ======= ======= ======= =======
Expenses, net of reimbursement .39% .02%* .75% .38%* 1.09%* .67%*
======= ======= ======= ======= ======= =======
Expenses 1.03% .86%* 1.38% 1.23%* 1.67%* 1.19%*
======= ======= ======= ======= ======= =======
Investment income--net 4.39% 3.54%* 4.05% 3.19%* 3.83%* 4.23%*
======= ======= ======= ======= ======= =======
</TABLE>
J-16
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C> <C> <C>
Supplemental Net assets, end of period (in thousands) $ 9,849 $14,868 $16,213 $18,179 $ 1 $ 7,210
Data: ======= ======= ======= ======= ======= =======
Portfolio turnover 138.97% 136.71% 138.97% 136.71% 138.97% 138.97%
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Limited Maturity
Class A Class B Class C Class D
For the For the For the For the
The following per share data and ratios For the Period For the Period Period Period
have been derived from information provided Year Nov. 26, Year Nov. 26, Oct. 21, Oct. 21,
in the financial statements. Ended 1993++ to Ended 1993++ to 1994++ to 1994++ to
July 31, July 31, July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1995 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.95 $ 10.00 $ 9.95 $ 10.00 $ 9.82 $ 9.82
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .44 .25 .40 .22 .33 .34
Realized and unrealized gain (loss) on
investments--net .02 (.05) .02 (.05) .15 .15
------- ------- ------- ------- ------- -------
Total from investment operations .46 .20 .42 .17 .48 .49
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net (.44) (.25) (.40) (.22) (.33) (.34)
Realized gain on investments--net (.01) -- (.01) -- (.01) (.01)
------- ------- ------- ------- ------- -------
Total dividends and distributions (.45) (.25) (.41) (.22) (.34) (.35)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 9.96 $ 9.95 $ 9.96 $ 9.95 $ 9.96 $ 9.96
======= ======= ======= ======= ======= =======
Total Based on net asset value per share 4.79% 2.01%+++ 4.41% 1.77%+++ 5.00%+++ 5.09%+++
Investment ======= ======= ======= ======= ======= =======
Return:**
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of
Net Assets: reimbursement .37% .03%* .39% .03%* .52%* .60%*
======= ======= ======= ======= ======= =======
Expenses, net of reimbursement .37% .03%* .74% .38%* .67%* .70%*
======= ======= ======= ======= ======= =======
Expenses 1.71% 1.17%* 2.08% 1.54%* 2.23%* 2.31%*
======= ======= ======= ======= ======= =======
Investment income--net 4.45% 3.69%* 4.08% 3.28%* 4.32%* 4.21%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 4,453 $ 8,097 $ 4,800 $ 8,046 $ 413 $ 253
Data: ======= ======= ======= ======= ======= =======
Portfolio turnover 89.96% 57.80% 89.96% 57.80% 89.96% 89.96%
======= ======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
J-17
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
Michigan Limited Maturity
Class A Class B Class C Class D
For the For the For the For the
The following per share data and ratios For the Period For the Period Period Period
have been derived from information provided Year Nov. 26, Year Nov. 26, Oct. 21, Oct. 21,
in the financial statements. Ended 1993++ to Ended 1993++ to 1994++ to 1994++ to
July 31, July 31, July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1995 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.92 $ 10.00 $ 9.92 $ 10.00 $ 9.76 $ 9.76
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .44 .24 .40 .22 .30 .34
Realized and unrealized gain (loss) on
investments--net .06 (.08) .06 (.08) .22 .21
------- ------- ------- ------- ------- -------
Total from investment operations .50 .16 .46 .14 .52 .55
------- ------- ------- ------- ------- -------
Less dividends from investment
income--net (.44) (.24) (.40) (.22) (.30) (.34)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 9.98 $ 9.92 $ 9.98 $ 9.92 $ 9.98 $ 9.97
======= ======= ======= ======= ======= =======
Total Based on net asset value per share 5.16% 1.66%+++ 4.78% 1.42%+++ 5.40%+++ 5.72%+++
Investment ======= ======= ======= ======= ======= =======
Return:**
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of
Net Assets: reimbursement .27% .02%* .30% .03%* .81%* .34%*
======= ======= ======= ======= ======= =======
Expenses, net of reimbursement .27% .02%* .65% .38%* .96%* .44%*
======= ======= ======= ======= ======= =======
Expenses 2.18% 2.01%* 2.56% 2.38%* 2.90%* 2.38%*
======= ======= ======= ======= ======= =======
Investment income--net 4.42% 3.59%* 4.09% 3.21%* 3.80%* 4.47%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 2,302 $ 3,435 $ 2,494 $ 2,411 $ 1 $ 254
Data: ======= ======= ======= ======= ======= =======
Portfolio turnover 93.08% 204.15% 93.08% 204.15% 93.08% 93.08%
======= ======= ======= ======= ======= =======
<CAPTION>
New Jersey Limited Maturity
Class A Class B Class C Class D
For the For the For the For the
The following per share data and ratios For the Period For the Period Period Period
have been derived from information provided Year Nov. 26, Year Nov. 26, Oct. 21, Oct. 21,
in the financial statements. Ended 1993++ to Ended 1993++ to 1994++ to 1994++ to
July 31, July 31, July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1995 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.94 $ 10.00 $ 9.95 $ 10.00 $ 9.86 $ 9.85
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .42 .23 .38 .20 .26 .32
Realized and unrealized gain (loss) on
investments--net .21 (.06) .21 (.05) (.66) .31
------- ------- ------- ------- ------- -------
Total from investment operations .63 .17 .59 .15 (.40) .63
------- ------- ------- ------- ------- -------
Less dividends from investment
income--net (.42) (.23) (.38) (.20) (.26) (.32)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.15 $ 9.94 $ 10.16 $ 9.95 $ 9.20 $ 10.16
======= ======= ======= ======= ======= =======
Total Based on net asset value per share 6.45% 1.73%+++ 6.07% 1.59%+++ (4.01)%+++ 6.51%+++
Investment ======= ======= ======= ======= ======= =======
Return:**
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of
Net Assets: reimbursement .34% .03%* .38% .03%* .40%* .52%*
======= ======= ======= ======= ======= =======
Expenses, net of reimbursement .34% .03%* .73% .38%* .55%* .62%*
======= ======= ======= ======= ======= =======
Expenses 1.69% 1.14%* 2.15% 1.52%* 2.22%* 2.07%*
======= ======= ======= ======= ======= =======
Investment income--net 4.10% 3.45%* 3.80% 3.04%* 4.06%* 4.17%*
======= ======= ======= ======= ======= =======
</TABLE>
J-18
<PAGE>
<TABLE>
<CAPTION>
<S> <S> <C> <C> <C> <C>
Supplemental Net assets, end of period (in thousands) $ 2,401 $ 5,933 $ 7,593 $ 7,885 $ 1 $ 437
Data: ======= ======= ======= ======= ======= =======
Portfolio turnover 131.56% 205.04% 131.56% 205.04% 131.56% 131.56%
======= ======= ======= ======= ======= =======
<CAPTION>
New York Limited Maturity
Class A Class B Class C Class D
For the For the For the For the
The following per share data and ratios For the Period For the Period Period Period
have been derived from information provided Year Nov. 26, Year Nov. 26, Oct. 21, Oct. 21,
in the financial statements. Ended 1993++ to Ended 1993++ to 1994++ to 1994++ to
July 31, July 31, July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1995 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.91 $ 10.00 $ 9.91 $ 10.00 $ 9.78 $ 9.78
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .44 .25 .41 .22 .30 .34
Realized and unrealized gain (loss) on
investments--net .14 (.09) .14 (.09) .27 .27
------- ------- ------- ------- ------- -------
Total from investment operations .58 .16 .55 .13 .57 .61
------- ------- ------- ------- ------- -------
Less dividends from investment
income--net (.44) (.25) (.41) (.22) (.30) (.34)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.05 $ 9.91 $ 10.05 $ 9.91 $ 10.05 $ 10.05
======= ======= ======= ======= ======= =======
Total Based on net asset value per share 6.03% 1.61%+++ 5.66% 1.37%+++ 5.97%+++ 6.37%+++
Investment ======= ======= ======= ======= ======= =======
Return:**
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of
Net Assets: reimbursement .33% .03%* .34% .03%* .48%* .38%*
======= ======= ======= ======= ======= =======
Expenses, net of reimbursement .33% .03%* .69% .38%* .63%* .48%*
======= ======= ======= ======= ======= =======
Expenses 1.30% 1.24%* 1.65% 1.60% 1.63%* 1.48%*
======= ======= ======= ======= ======= =======
Investment income--net 4.49% 3.68%* 4.11% 3.31%* 4.21%* 4.47%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 4,811 $ 5,290 $ 8,822 $ 9,743 $ 38 $ 2,306
Data: ======= ======= ======= ======= ======= =======
Portfolio turnover 139.16% 152.73% 139.16% 152.73% 139.16% 139.16%
======= ======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
J-19
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (concluded)
Pennsylvania Limited Maturity
Class A Class B Class C Class D
For the For the For the For the
The following per share data and ratios For the Period For the Period Period Period
have been derived from information provided Year Nov. 26, Year Nov. 26, Oct. 21, Oct. 21,
in the financial statements. Ended 1993++ to Ended 1993++ to 1994++ to 1994++ to
July 31, July 31, July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1995 1994 1995 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.95 $ 10.00 $ 9.95 $ 10.00 $ 9.84 $ 9.84
Operating ------- ------- ------- ------- ------- -------
Performance: Investment income--net .42 .23 .39 .21 .29 .33
Realized and unrealized gain (loss) on
investments--net .15 (.05) .15 (.05) .26 .26
------- ------- ------- ------- ------- -------
Total from investment operations .57 .18 .54 .16 .55 .59
------- ------- ------- ------- ------- -------
Less dividends from investment income--net (.42) (.23) (.39) (.21) (.29) (.33)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.10 $ 9.95 $ 10.10 $ 9.95 $ 10.10 $ 10.10
======= ======= ======= ======= ======= =======
Total Based on net asset value per share 5.89% 1.85%+++ 5.51% 1.61%+++ 5.68%+++ 6.10%+++
Investment ======= ======= ======= ======= ======= =======
Return:**
Ratios to Expenses, excluding account maintenance
Average and distribution fees and net of
Net Assets: reimbursement .38% .02%* .38% .03%* .90%* .47%*
======= ======= ======= ======= ======= =======
Expenses, net of reimbursement .38% .02%* .73% .38%* 1.05%* .57%*
======= ======= ======= ======= ======= =======
Expenses 1.90% 1.48%* 2.25% 1.83%* 2.55%* 2.08%*
======= ======= ======= ======= ======= =======
Investment income--net 4.25% 3.46%* 3.87% 3.05%* 3.77%* 4.30%*
======= ======= ======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $ 943 $ 990 $ 7,414 $ 9,532 $ 1 $ 382
Data: ======= ======= ======= ======= ======= =======
Portfolio turnover 141.52% 237.47% 141.52% 237.47% 141.52% 141.52%
======= ======= ======= ======= ======= =======
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust
(the "Trust") is registered under the Investment Company Act of
1940 as a non-diversified, open-end management investment
company consisting of eight separate series: Merrill Lynch Arizona
Limited Maturity Municipal Bond Fund, Merrill Lynch California
Limited Maturity Municipal Bond Fund, Merrill Lynch Florida
Limited Maturity Municipal Bond Fund, Merrill Lynch Massachusetts
Limited Maturity Municipal Bond Fund, Merrill Lynch Michigan
Limited Maturity Municipal Bond Fund, Merrill Lynch New Jersey
Limited Maturity Municipal Bond Fund, Merrill Lynch New York
Limited Maturity Municipal Bond Fund, and Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund. Each series of the Trust is referred to herein as
a "Fund." The Trust offers four classes of shares under the Merrill Lynch Select
Pricing SM System. Shares of Class A and Class D are sold with a front-end sales
charge. Shares of Class B and Class C may be subject to a contingent deferred
sales charge. All classes of shares have identical voting, dividend, liquida-
tion and other rights and the same terms and conditions, except that Class B,
Class C and Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant accounting
policies followed by the Trust.
J-20
<PAGE>
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Funds invest are traded primarily in the
over-the-counter municipal bond and money markets and are valued
at the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value. Securi-
ties and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Trust, including valuations
furnished by a pricing service retained by the Trust, which may
utilize a matrix system for valuations. The procedures of the pricing
service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
(b) Derivative financial instruments--The Funds 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 Funds may purchase or sell
interest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the contract.
Such receipts or payments are known as variation margin and are
recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
(c) Income taxes--It is each Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated invest-
ment 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 trans-
actions 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 expenses on a straight-
line basis over a five-year period beginning with the commencement
of operations. Prepaid registration fees are charged to expense as the
related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Trust has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). The general partner of FAM
is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidi-
ary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner. The Trust has also entered into a Distribution Agreement
and Distribution Plans with Merrill Lynch Funds Distributor, Inc.
("MLFD" or "Distributor"), a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
FAM is responsible for the management of each Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of each Fund. For such
services, each Fund pays a monthly fee at the annual rate of 0.35% of
each Fund's average daily net assets. The Investment Advisory
Agreement obligates FAM to reimburse each Fund to the extent each
Fund's expenses (excluding interest, taxes, distribution fees, broker-
age fees and commissions, and extraordinary items) exceed 2.5% of
each Fund's first $30 million of average daily net assets, 2.0% of the
next $70 million of average daily net assets and 1.5% of the average
daily net assets in excess thereof. FAM's obligation to reimburse each
Fund is limited to the amount of the management fee. No fee pay-
ment will be made during any fiscal year which will cause such ex-
penses to exceed expense limitations at the time of such payment.
For the year ended July 31, 1995, FAM had voluntarily waived
management fees and reimbursed each Fund for additional expenses
as follows:
Arizona California Florida
Limited Limited Limited
Maturity Maturity Maturity
Management fee $ 26,468 $ 52,287 $112,421
Additional expenses 103,502 104,652 89,070
Massachusetts Michigan New Jersey
Limited Limited Limited
Maturity Maturity Maturity
Management fee $ 41,496 $ 19,277 $ 39,629
Additional expenses 118,214 85,908 118,105
New York Pennsylvania
Limited Limited
Maturity Maturity
Management fee $ 52,164 $ 34,403
Additional expenses 91,845 115,208
J-21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Trust in accordance with Rule 12b-1 under the
Investment Company Act of 1940, each Fund pays the Distributor
ongoing account maintenance fees and distribution fees. The
Distributor voluntarily did not collect any Class C distribution fees
for the period ended July 31, 1995. The fees are accrued daily and
paid monthly at annual rates based upon the average daily net
assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.15% 0.20%
Class C 0.15% 0.20%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Trust. The ongoing account maintenance fee compensates the Distri-
butor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C shareholders.
For the year ended July 31, 1995, MLFD earned underwriting dis-
counts and MLPF&S earned dealer concessions on sales of each
Fund's Class A and Class D Shares as follows:
Arizona California Florida Massachusetts
Limited Limited Limited Limited
Maturity Maturity Maturity Maturity
Class A:
MLFD $ 101 $ 83 $ 154 $ 284
MLPF&S 925 671 2,474 1,260
Class D:
MLFD $ 3 $ 115 $ 1,099 $ 33
MLPF&S 95 2,030 10,964 31
Michigan New Jersey New York Pennsylvania
Limited Limited Limited Limited
Maturity Maturity Maturity Maturity
Class A:
MLFD $ 56 $ 30 $ 157 $ 9
MLPF&S 859 421 5,033 70
Class D:
MLFD $ 91 $ 222 $ 232 $ 49
MLPF&S 797 1,886 3,645 1,149
MLPF&S received contingent deferred sales charges relating to
transactions in Class B and Class C Shares of beneficial interest
as follows:
Class B Class C
Shares Shares
Arizona Limited Maturity $ 13,587 --
California Limited Maturity 5,805 $ 7
Florida Limited Maturity 202,558 --
Massachusetts Limited Maturity 7,599 --
Michigan Limited Maturity 3,977 --
New Jersey Limited Maturity 6,305 --
New York Limited Maturity 6,435 --
Pennsylvania Limited Maturity 7,971 --
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Trust's transfer agent.
Accounting services are provided to the Trust by FAM at cost.
Certain officers and/or trustees of the Trust are officers and/or
directors of FAM, PSI, MLPF&S, MLFD, MLFDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1995 were as follows:
Purchases Sales
Arizona Limited Maturity $ 8,055,024 $ 7,916,965
California Limited Maturity 12,962,752 12,488,433
Florida Limited Maturity 38,372,233 33,511,778
Massachusetts Limited Maturity 8,532,139 11,847,549
Michigan Limited Maturity 3,467,037 3,799,152
New Jersey Limited Maturity 9,164,174 11,669,232
New York Limited Maturity 15,547,343 14,863,942
Pennsylvania Limited Maturity 8,920,524 8,410,776
Net realized and unrealized gains (losses) as of July 31, 1995 were
as follows:
Realized Unrealized
Arizona Limited Maturity Losses Gains
Long-term investments $ (47,790) $ 189,717
Short-term investments (255) --
---------- ----------
Total $ (48,045) $ 189,717
========== ==========
Realized Unrealized
California Limited Maturity Losses Gains
Long-term investments $ (308,957) $ 440,654
Short-term investments (11,923) 14,860
Financial futures contracts (44,860) --
---------- ----------
Total $ (365,740) $ 455,514
========== ==========
J-22
<PAGE>
Realized Unrealized
Florida Limited Maturity Losses Gains
Long-term investments $ (330,381) $ 771,937
Short-term investments (600) --
Financial futures contracts (94,622) --
---------- ----------
Total $ (425,603) $ 771,937
========== ==========
Realized Unrealized
Massachusetts Limited Maturity Losses Gains
Long-term investments $ (292,861) $ 189,912
Short-term investments (9,184) 2,676
Financial futures contracts (68,431) --
---------- ----------
Total $ (370,476) $ 192,588
========== ==========
Realized Unrealized
Michigan Limited Maturity Losses Gains
Long-term investments $ (114,507) $ 148,322
Short-term investments (912) --
Financial futures contracts (17,222) --
---------- ----------
Total $ (132,641) $ 148,322
========== ==========
Realized Unrealized
New Jersey Limited Maturity Losses Gains
Long-term investments $ (188,323) $ 333,058
Short-term investments (2,580) --
---------- ----------
Total $ (190,903) $ 333,058
========== ==========
Realized Unrealized
New York Limited Maturity Losses Gains
Long-term investments $ (122,053) $ 345,482
Short-term investments (560) 1,350
Financial futures contracts (44,157) --
---------- ----------
Total $ (166,770) $ 346,832
========== ==========
Realized Unrealized
Pennsylvania Limited Maturity Gains (Losses) Gains
Long-term investments $ (39,033) $ 148,191
Short-term investments 429 --
---------- ----------
Total $ (38,604) $ 148,191
========== ==========
As of July 31, 1995, net unrealized appreciation/depreciation and
the aggregate cost of investments for Federal income tax purposes
were as follows:
Limited Gross Gross Aggregate
Maturity Unrealized Unrealized Net Unrealized Cost of
Fund Appreciation Depreciation Appreciation Investments
Arizona $189,717 -- $ 189,717 $ 5,876,815
California 429,939 $(10,617) 419,322 15,070,628
Florida 771,937 -- 771,937 32,256,381
Massachusetts 192,835 (247) 192,588 9,518,560
Michigan 134,039 (595) 133,444 4,767,087
New Jersey 337,328 (4,270) 333,058 9,751,165
New York 346,832 -- 346,832 15,384,432
Pennsylvania 150,381 (2,190) 148,191 8,189,620
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions for the year ended July 31, 1995 and the period ended
July 31, 1994, respectively, were as follows:
Increase (Decrease) in For the Year Ended July 31,
Beneficial Interest Transactions 1995 1994
Arizona Limited Maturity $(1,547,482) $ 7,593,327
California Limited Maturity 354,485 15,329,698
Florida Limited Maturity (187,273) 33,466,911
Massachusetts Limited Maturity (6,114,591) 16,110,093
Michigan Limited Maturity (811,255) 5,796,826
New Jersey Limited Maturity (3,524,093) 13,803,273
New York Limited Maturity 774,385 15,045,053
Pennsylvania Limited Maturity (1,893,824) 10,487,420
Transactions in shares of beneficial interest for each class were
as follows:
Arizona Limited Maturity
Class A Shares for the Year Ended Dollar
July 31, 1995 Shares Amount
Shares sold 34,228 $ 339,577
Shares issued to shareholders in
reinvestment of dividends 3,317 33,017
----------- -----------
Total issued 37,545 372,594
Shares redeemed (144,716) (1,448,887)
----------- -----------
Net decrease (107,171) $(1,076,293)
=========== ===========
Arizona Limited Maturity
Class A Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 278,239 $ 2,779,806
Shares issued to shareholders in
reinvestment of dividends 2,135 21,321
----------- -----------
Total issued 280,374 2,801,127
Shares redeemed (74,510) (744,870)
----------- -----------
Net increase 205,864 $ 2,056,257
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
J-23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Arizona Limited Maturity
Class B Shares for the Year Ended Dollar
July 31, 1995 Shares Amount
Shares sold 327,604 $ 3,257,316
Shares issued to shareholders in
reinvestment of dividends 10,498 104,547
----------- -----------
Total issued 338,102 3,361,863
Shares redeemed (386,410) (3,852,363)
----------- -----------
Net decrease (48,308) $ (490,500)
=========== ===========
Arizona Limited Maturity
Class B Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 616,984 $ 6,164,185
Shares issued to shareholders in
reinvestment of dividends 5,114 51,044
----------- -----------
Total issued 622,098 6,215,229
Shares redeemed (68,093) (678,159)
----------- -----------
Net increase 554,005 $ 5,537,070
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
Arizona Limited Maturity
Class C Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 110 $ 1,091
Shares issued to shareholders in
reinvestment of dividends 3 29
----------- -----------
Net increase 113 $ 1,120
=========== ===========
[FN]
++Commencement of Operations.
Arizona Limited Maturity
Class D Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 1,801 $ 17,929
Shares issued to shareholders in
reinvestment of dividends 26 262
----------- -----------
Net increase 1,827 $ 18,191
=========== ===========
[FN]
++Commencement of Operations.
California Limited Maturity
Class A Shares for the Year Ended Dollar
July 31, 1995 Shares Amount
Shares sold 81,782 $ 801,557
Shares issued to shareholders in
reinvestment of dividends 4,844 47,495
----------- -----------
Total issued 86,626 849,052
Shares redeemed (118,656) (1,147,698)
----------- -----------
Net decrease (32,030) $ (298,646)
=========== ===========
California Limited Maturity
Class A Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 498,638 $ 4,981,335
Shares issued to shareholders in
reinvestment of dividends 3,211 31,885
----------- -----------
Total issued 501,849 5,013,220
Shares redeemed (121,849) (1,206,841)
----------- -----------
Net increase 380,000 $ 3,806,379
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
California Limited Maturity
Class B Shares for the Year Ended Dollar
July 31, 1995 Shares Amount
Shares sold 275,065 $ 2,701,344
Shares issued to shareholders in
reinvestment of dividends 19,605 192,424
----------- -----------
Total issued 294,670 2,893,768
Shares redeemed (414,211) (4,043,475)
----------- -----------
Net decrease (119,541) $(1,149,707)
=========== ===========
California Limited Maturity
Class B Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 1,286,485 $12,864,329
Shares issued to shareholders in
reinvestment of dividends 9,784 97,043
----------- -----------
Total issued 1,296,269 12,961,372
Shares redeemed (144,490) (1,438,053)
----------- -----------
Net increase 1,151,779 $11,523,319
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
California Limited Maturity
Class C Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 6,910 $ 68,864
Shares issued to shareholders in
reinvestment of dividends 26 260
----------- -----------
Total issued 6,936 69,124
Shares redeemed (499) (4,971)
----------- -----------
Net increase 6,437 $ 64,153
=========== ===========
[FN]
++Commencement of Operations.
J-24
<PAGE>
California Limited Maturity
Class D Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 299,589 $ 2,938,426
Shares issued to shareholders in
reinvestment of dividends 404 4,019
----------- -----------
Total issued 299,993 2,942,445
Shares redeemed (122,736) (1,203,760)
----------- -----------
Net increase 177,257 $ 1,738,685
=========== ===========
[FN]
++Commencement of Operations.
Florida Limited Maturity
Class A Shares for the Year Ended Dollar
July 31, 1995 Shares Amount
Shares sold 189,974 $ 1,875,261
Shares issued to shareholders in
reinvestment of dividends 24,282 237,815
----------- -----------
Total issued 214,256 2,113,076
Shares redeemed (736,537) (7,241,200)
----------- -----------
Net decrease (522,281) $(5,128,124)
=========== ===========
Florida Limited Maturity
Class A Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 2,423,924 $24,249,083
Shares issued to shareholders in
reinvestment of dividends 19,775 195,813
----------- -----------
Total issued 2,443,699 24,444,896
Shares redeemed (943,039) (9,343,654)
----------- -----------
Net increase 1,500,660 $15,101,242
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
Florida Limited Maturity
Class B Shares for the Year Ended Dollar
July 31, 1995 Shares Amount
Shares sold 1,210,069 $11,716,749
Shares issued to shareholders in
reinvestment of dividends 40,299 395,075
----------- -----------
Total issued 1,250,368 12,111,824
Shares redeemed (1,472,459) (14,333,879)
----------- -----------
Net decrease (222,091) $(2,222,055)
=========== ===========
Florida Limited Maturity
Class B Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 2,024,566 $20,228,524
Shares issued to shareholders in
reinvestment of dividends 17,982 178,003
----------- -----------
Total issued 2,042,548 20,406,527
Shares redeemed (206,696) (2,040,858)
----------- -----------
Net increase 1,835,852 $18,365,669
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
Florida Limited Maturity
Class C Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 110 $ 1,074
Shares issued to shareholders in
reinvestment of dividends 3 31
----------- -----------
Net increase 113 $ 1,105
=========== ===========
[FN]
++Commencement of Operations.
Florida Limited Maturity
Class D Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 835,832 $ 8,301,886
Shares issued to shareholders in
reinvestment of dividends 1,523 15,096
----------- -----------
Total issued 837,355 8,316,982
Shares redeemed (117,154) (1,155,181)
----------- -----------
Net increase 720,201 $ 7,161,801
=========== ===========
[FN]
++Commencement of Operations.
Massachusetts Limited Maturity
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 113,925 $ 1,124,479
Shares issued to shareholders in
reinvestment of dividends & distributions 18,553 182,392
----------- -----------
Total issued 132,478 1,306,871
Shares redeemed (499,178) (4,904,822)
----------- -----------
Net decrease (366,700) $(3,597,951)
=========== ===========
Massachusetts Limited Maturity
Class A Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 986,106 $ 9,847,094
Shares issued to shareholders in
reinvestment of dividends & distributions 10,151 101,086
----------- -----------
Total issued 996,257 9,948,180
Shares redeemed (187,582) (1,874,872)
----------- -----------
Net increase 808,675 $ 8,073,308
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
J-25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Massachusetts Limited Maturity
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 144,229 $ 1,416,046
Shares issued to shareholders in
reinvestment of dividends & distributions 12,243 120,528
----------- -----------
Total issued 156,472 1,536,574
Shares redeemed (483,231) (4,711,225)
----------- -----------
Net decrease (326,759) $(3,174,651)
=========== ===========
Massachusetts Limited Maturity
Class B Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 918,615 $ 9,181,458
Shares issued to shareholders in
reinvestment of dividends & distributions 8,777 87,462
----------- -----------
Total issued 927,392 9,268,920
Shares redeemed (123,885) (1,232,135)
----------- -----------
Net increase 803,507 $ 8,036,785
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
Massachusetts Limited Maturity
Class C Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 61,378 $ 600,360
Shares issued to shareholders in
reinvestment of dividends & distributions 667 6,580
----------- -----------
Total issued 62,045 606,940
Shares redeemed (20,616) (199,766)
----------- -----------
Net increase 41,429 $ 407,174
=========== ===========
[FN]
++Commencement of Operations.
Massachusetts Limited Maturity
Class D Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 32,116 $ 317,241
Shares issued to shareholders in
reinvestment of dividends & distributions 123 1,219
----------- -----------
Total issued 32,239 318,460
Shares redeemed (6,870) (67,623)
----------- -----------
Net increase 25,369 $ 250,837
=========== ===========
[FN]
++Commencement of Operations.
Michigan Limited Maturity
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 28,337 $ 279,211
Shares issued to shareholders in
reinvestment of dividends 3,430 33,654
----------- -----------
Total issued 31,767 312,865
Shares redeemed (147,187) (1,432,908)
----------- -----------
Net decrease (115,420) $(1,120,043)
=========== ===========
Michigan Limited Maturity
Class A Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 401,323 $ 4,013,429
Shares issued to shareholders in
reinvestment of dividends 2,478 24,576
----------- -----------
Total issued 403,801 4,038,005
Shares redeemed (62,639) (622,769)
----------- -----------
Net increase 341,162 $ 3,415,236
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
Michigan Limited Maturity
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 116,190 $ 1,105,484
Shares issued to shareholders in
reinvestment of dividends 6,029 83,311
----------- -----------
Total issued 122,219 1,188,795
Shares redeemed (115,161) (1,122,677)
----------- -----------
Net increase 7,058 $ 66,118
=========== ===========
Michigan Limited Maturity
Class B Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 278,617 $ 2,783,049
Shares issued to shareholders in
reinvestment of dividends 2,148 21,328
----------- -----------
Total issued 280,765 2,804,377
Shares redeemed (42,817) (422,787)
----------- -----------
Net increase 237,948 $ 2,381,590
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
Michigan Limited Maturity
Class C Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 110 $ 1,073
Shares issued to shareholders in
reinvestment of dividends 3 32
----------- -----------
Net increase 113 $ 1,105
=========== ===========
[FN]
++Commencement of Operations.
J-26
<PAGE>
Michigan Limited Maturity
Class D Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 64,155 $ 622,185
Shares issued to shareholders in
reinvestment of dividends 689 6,780
----------- -----------
Total issued 64,844 628,965
Shares redeemed (39,359) (387,400)
----------- -----------
Net increase 25,485 $ 241,565
=========== ===========
[FN]
++Commencement of Operations.
New Jersey Limited Maturity
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 147,003 $ 1,452,568
Shares issued to shareholders in
reinvestment of dividends 6,968 69,363
----------- -----------
Total issued 153,971 1,521,931
Shares redeemed (514,441) (5,055,460)
----------- -----------
Net decrease (360,470) $(3,533,529)
=========== ===========
New Jersey Limited Maturity
Class A Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 713,522 $ 7,132,561
Shares issued to shareholders in
reinvestment of dividends 3,582 35,606
----------- -----------
Total issued 717,104 7,168,167
Shares redeemed (125,194) (1,242,893)
----------- -----------
Net increase 591,910 $ 5,925,274
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
New Jersey Limited Maturity
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 318,885 $ 3,174,748
Shares issued to shareholders in
reinvestment of dividends 18,151 180,493
----------- -----------
Total issued 337,036 3,355,241
Shares redeemed (382,526) (3,775,067)
----------- -----------
Net decrease (45,490) $ (419,826)
=========== ===========
New Jersey Limited Maturity
Class B Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 911,860 $ 9,110,233
Shares issued to shareholders in
reinvestment of dividends 8,809 87,675
----------- -----------
Total issued 920,669 9,197,908
Shares redeemed (132,821) (1,319,909)
----------- -----------
Net increase 787,848 $ 7,877,999
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
New Jersey Limited Maturity
Class C Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 65,242 $ 620,177
Shares issued to shareholders in
reinvestment of dividends 67 621
----------- -----------
Total issued 65,309 620,798
Shares redeemed (65,196) (622,061)
----------- -----------
Net increase (decrease) 113 $ (1,263)
=========== ===========
New Jersey Limited Maturity
Class D Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 69,049 $ 691,844
Shares issued to shareholders in
reinvestment of dividends 348 3,514
----------- -----------
Total issued 69,397 695,358
Shares redeemed (26,375) (264,833)
----------- -----------
Net increase 43,022 $ 430,525
=========== ===========
[FN]
++Commencement of Operations.
New York Limited Maturity
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 189,338 $ 1,861,355
Shares issued to shareholders in
reinvestment of dividends 16,001 157,598
----------- -----------
Total issued 205,339 2,018,953
Shares redeemed (260,265) (2,576,091)
----------- -----------
Net decrease (54,926) $ (557,138)
=========== ===========
New York Limited Maturity
Class A Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 688,129 $ 6,868,576
Shares issued to shareholders in
reinvestment of dividends 7,715 76,559
----------- -----------
Total issued 695,844 6,945,135
Shares redeemed (167,164) (1,662,649)
----------- -----------
Net increase 528,680 $ 5,282,486
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
J-27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
New York Limited Maturity
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 331,365 $ 3,261,544
Shares issued to shareholders in
reinvestment of dividends 18,265 180,012
----------- -----------
Total issued 349,630 3,441,556
Shares redeemed (454,750) (4,436,666)
----------- -----------
Net decrease (105,120) $ (995,110)
=========== ===========
New York Limited Maturity
Class B Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 1,107,860 $11,052,622
Shares issued to shareholders in
reinvestment of dividends 9,226 91,580
----------- -----------
Total issued 1,117,086 11,144,202
Shares redeemed (139,173) (1,381,635)
----------- -----------
Net increase 977,913 $ 9,762,567
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
New York Limited Maturity
Class C Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 3,813 $ 38,224
Shares issued to shareholders in
reinvestment of dividends 4 40
----------- -----------
Net increase 3,817 $ 38,264
=========== ===========
[FN]
++Commencement of Operations.
New York Limited Maturity
Class D Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 271,406 $ 2,697,692
Shares issued to shareholders in
reinvestment of dividends 754 7,474
----------- -----------
Total issued 272,160 2,705,166
Shares redeemed (42,782) (416,797)
----------- -----------
Net increase 229,378 $ 2,288,369
=========== ===========
[FN]
++Commencement of Operations.
Pennsylvania Limited Maturity
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 33,049 $ 326,744
Shares issued to shareholders in
reinvestment of dividends 1,339 13,282
----------- -----------
Total issued 34,388 340,026
Shares redeemed (40,535) (402,246)
----------- -----------
Net decrease (6,147) $ (62,220)
=========== ===========
Pennsylvania Limited Maturity
Class A Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 106,856 $ 1,069,053
Shares issued to shareholders in
reinvestment of dividends 969 9,663
----------- -----------
Total issued 107,825 1,078,716
Shares redeemed (13,280) (132,350)
----------- -----------
Net increase 94,545 $ 946,366
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
Pennsylvania Limited Maturity
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 151,037 $ 1,497,108
Shares issued to shareholders in
reinvestment of dividends 23,340 231,300
----------- -----------
Total issued 174,377 1,728,408
Shares redeemed (398,422) (3,933,111)
----------- -----------
Net decrease (224,045) $(2,204,703)
=========== ===========
Pennsylvania Limited Maturity
Class B Shares for the Period Dollar
November 26, 1993++ to July 31, 1994 Shares Amount
Shares sold 1,067,442 $10,675,486
Shares issued to shareholders in
reinvestment of dividends 12,521 124,741
----------- -----------
Total issued 1,079,963 10,800,227
Shares redeemed (126,855) (1,259,173)
----------- -----------
Net increase 953,108 $ 9,541,054
=========== ===========
[FN]
++Prior to November 26, 1993 (commencement of operations), the Fund issued
5,000 shares to FAM for $50,000.
Pennsylvania Limited Maturity
Class C Shares for the Period Dollar
October 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 110 $ 1,082
Shares issued to shareholders in
reinvestment of dividends 3 31
----------- -----------
Net increase 113 $ 1,113
=========== ===========
[FN]
++Commencement of Operations.
J-28
<PAGE>
Pennsylvania Limited Maturity
Class D Shares for the Period
October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 37,328 $ 367,223
Shares issued to shareholders in
reinvestment of dividends 476 4,763
----------- -----------
Net increase 37,804 $ 371,986
=========== ===========
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At July 31, 1995, each Fund of the Trust had an approximate net
capital loss carryforward as follows: $66,000 in the Arizona Limited
Maturity Fund, all of which expires in 2003; $156,000 in the Califor-
nia Limited Maturity Fund, all of which expires in 2003; $518,000
in the Florida Limited Maturity Fund, all of which expires in 2003;
$71,000 in Massachusetts Limited Maturity Fund, all of which
expires in 2003; $53,000 in the Michigan Limited Maturity Fund,
all of which expires in 2003; $98,000 in the New Jersey Limited
Maturity Fund, all of which expires in 2003; $124,000 in the New York
Limited Maturity Fund, of which $122,000 expires in 2002 and
$2,000 expires in 2003; and $102,000 in the Pennsylvania Limited
Maturity Fund, all of which expires in 2003. These amounts will be
available to offset like amounts of any future taxable gains.
J-29
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies......................................... 2
Description of Municipal Bonds and Other Investments..................... 5
Description of Municipal Bonds........................................... 5
Description of Temporary Investments and Variable Rate Demand
Obligations............................................................. 7
Repurchase Agreements.................................................... 8
Financial Futures Contracts and Options.................................. 8
Investment Restrictions................................................... 12
Management of the Trust................................................... 14
Trustees and Officers.................................................... 14
Compensation of Trustees................................................. 16
Management and Advisory Arrangements..................................... 17
Purchase of Shares........................................................ 18
Initial Sales Charge Alternatives--Class A and Class D Shares............ 19
Reduced Initial Sales Charges--Class A and Class D Shares................ 20
Distribution Plans....................................................... 22
Limitations on the Payment of Deferred Sales Charges..................... 23
Redemption of Shares...................................................... 25
Deferred Sales Charges--Class B and Class C Shares....................... 25
Portfolio Transactions.................................................... 25
Determination of Net Asset Value.......................................... 27
Shareholder Services...................................................... 28
Investment Account....................................................... 28
Automatic Investment Plans............................................... 28
Automatic Reinvestment of Dividends and Capital Gains Distributions...... 29
Systematic Withdrawal Plans--Class A and Class D Shares.................. 29
Exchange Privilege....................................................... 30
Distributions and Taxes................................................... 39
Federal.................................................................. 39
Environmental Tax........................................................ 42
Tax Treatment of Financial Futures Contracts and Options Thereon......... 42
State.................................................................... 42
Performance Data.......................................................... 45
General Information....................................................... 51
Description of Shares.................................................... 51
Computation of Offering Price Per Share.................................. 52
Independent Auditors..................................................... 53
Custodian................................................................ 53
Transfer Agent........................................................... 53
Legal Counsel............................................................ 54
Reports to Shareholders.................................................. 54
Additional Information................................................... 54
Appendices................................................................ A-1
Independent Auditors' Report.............................................. J-1
Financial Statements...................................................... J-2
</TABLE>
Code # 16926--1195
[LOGO] MERRILL LYNCH
Merrill Lynch Multi-State
Limited Maturity
Municipal Series Trust
Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund
Merrill Lynch California Limited
Maturity Municipal Bond Fund
Merrill Lynch Florida Limited
Maturity Municipal Bond Fund
Merrill Lynch Massachusetts Limited
Maturity Municipal Bond Fund
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund
Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund
Merrill Lynch New York Limited
Maturity Municipal Bond Fund
Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
November 21, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24.FINANCIAL STATEMENTS AND EXHIBITS.
(a)FINANCIAL STATEMENTS
Contained in Part A (for each of the Funds):
Financial Highlights for the period November 26, 1993 (commencement of
operations) to July 31, 1994 and for the year ended July 31, 1995.
Contained in Part B (for each of the Funds):
Schedules of Investments as of July 31, 1995.
Statements of Assets and Liabilities as of July 31, 1995.
Statements of Operations for the year ended July 31, 1995.
Statements of Changes in Net Assets for the period November 26, 1993
(commencement of operations) to July 31, 1994 and for the year ended
July 31, 1995.
Financial Highlights for the period November 26, 1993 (commencement of
operations) to July 31, 1994 and for the year ended July 31, 1995.
(b)EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1(a)(1) --Amended and Restated Declaration of Trust of the Registrant, dated
November 15, 1993.(d)
(a)(2) --Certificate of Amendment to Declaration of Trust and Establishment
and Designation of Classes, dated October 17, 1994.
(b)(1) --Instrument establishing Merrill Lynch Arizona Limited Maturity
Municipal Bond Fund (the "Arizona Fund") as a Series of the
Registrant.(a)
(b)(2) --Instrument establishing Merrill Lynch California Limited Maturity
Municipal Bond Fund (the "California Fund") as a Series of the
Registrant.(a)
(b)(3) --Instrument establishing Merrill Lynch Florida Limited Maturity
Municipal Bond Fund (the "Florida Fund") as a Series of the
Registrant.(a)
(b)(4) --Instrument establishing Merrill Lynch Massachusetts Limited
Maturity Municipal Bond Fund (the "Massachusetts Fund") as a Series
of the Registrant.(a)
(b)(5) --Instrument establishing Merrill Lynch Michigan Limited Maturity
Municipal Bond Fund (the "Michigan Fund") as a Series of the
Registrant.(a)
(b)(6) --Instrument establishing Merrill Lynch New Jersey Limited Maturity
Municipal Bond Fund (the "New Jersey Fund") as a Series of the
Registrant.(a)
(b)(7) --Instrument establishing Merrill Lynch New York Limited Maturity
Municipal Bond Fund (the "New York Fund") as a Series of the
Registrant.(c)
(b)(8) --Instrument establishing Merrill Lynch Pennsylvania Limited Maturity
Municipal Bond Fund (the "Pennsylvania Fund") as a Series of the
Registrant.(a)
(c)(1) --Instrument establishing Class A shares and Class B shares of
beneficial interest of the Arizona Fund.(a)
(c)(2) --Instrument establishing Class A shares and Class B shares of
beneficial interest of the California Fund.(a)
(c)(3) --Instrument establishing Class A shares and Class B shares of
beneficial interest of the Florida Fund.(a)
(c)(4) --Instrument establishing Class A shares and Class B shares of
beneficial interest of the Massachusetts Fund.(a)
(c)(5) --Instrument establishing Class A shares and Class B shares of
beneficial interest of the Michigan Fund.(a)
(c)(6) --Instrument establishing Class A shares and Class B shares of
beneficial interest of the New Jersey Fund.(a)
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
(c)(7) --Instrument establishing Class A shares and Class B shares of
beneficial interest of the New York Fund.(c)
(c)(8) --Instrument establishing Class A shares and Class B shares of
beneficial interest of the Pennsylvania Fund.(a)
2 --By-Laws of the Registrant.(d)
3 --None.
4(a) --Portions of the Declaration of Trust, Establishment and Designation
of each series of the Registrant and By-Laws of the Registrant
defining the rights of holders of each Fund as a series of the
Registrant.(b)
(b)(1) --Share certificate for the Arizona Fund.(d)
(b)(2) --Share certificate for the California Fund.(d)
(b)(3) --Share certificate for the Florida Fund.(d)
(b)(4) --Share certificate for the Massachusetts Fund.(d)
(b)(5) --Share certificate for the Michigan Fund.(d)
(b)(6) --Share certificate for the New Jersey Fund.(d)
(b)(7) --Share certificate for the New York Fund.(d)
(b)(8) --Share certificate for the Pennsylvania Fund.(d)
5(a) --Form of Management Agreement between the Registrant and Fund Asset
Management, L.P. ("FAM").(a)
(b) --Supplement to Management Agreement between the Registrant and
FAM.(f)
6(a) --Form of Revised Class A Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc. ("MLFD")
(including Form of Selected Dealers Agreement).(f)
(b) --Form of Class B Shares Distribution Agreement between the
Registrant and MLFD.(a)
(c) --Form of Class C Shares Distribution Agreement between the
Registrant and MLFD (including Form of Selected Dealers
Agreement).(f)
(d) --Form of Class D Shares Distribution Agreement between the
Registrant and MLFD (including Form of Selected Dealers
Agreement).(f)
7 --None.
8 --Custody Agreement between the Registrant and The Bank of New
York.(d)
9 --Form of Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and Merrill Lynch
Financial Data Services, Inc.(a)
10 --Opinion of Brown & Wood, counsel for the Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 --None.
13(a) --Certificate of FAM with respect to the Arizona Fund.(d)
(b) --Certificate of FAM with respect to the California Fund.(d)
(c) --Certificate of FAM with respect to the Florida Fund.(d)
(d) --Certificate of FAM with respect to the Massachusetts Fund.(d)
(e) --Certificate of FAM with respect to the Michigan Fund.(d)
(f) --Certificate of FAM with respect to the New Jersey Fund.(d)
(g) --Certificate of FAM with respect to the New York Fund.(d)
(h) --Certificate of FAM with respect to the Pennsylvania Fund.(d)
14 --None.
15(a) --Form of Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(a)
(b) --Form of Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of the Registrant.(f)
(c) --Form of Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of the Registrant.(f)
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
16(a)(1) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
A Shares of the Arizona Fund.(e)
(a)(2) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
A Shares of the California Fund.(e)
(a)(3) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
A Shares of the Florida Fund.(e)
(a)(4) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
A Shares of the Massachusetts Fund.(e)
(a)(5) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
A Shares of the Michigan Fund.(e)
(a)(6) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
A Shares of the New Jersey Fund.(e)
(a)(7) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
A Shares of the New York Fund.(e)
(a)(8) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
A Shares of the Pennsylvania Fund.(e)
(b)(1) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
B Shares of the Arizona Fund.(e)
(b)(2) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
B Shares of the California Fund.(e)
(b)(3) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
B Shares of the Florida Fund.(e)
(b)(4) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
B Shares of the Massachusetts Fund.(e)
(b)(5) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
B Shares of the Michigan Fund.(e)
(b)(6) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
B Shares of the New Jersey Fund.(e)
(b)(7) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
B Shares of the New York Fund.(e)
(b)(8) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
B Shares of the Pennsylvania Fund.(e)
(c)(1) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
C Shares of the Arizona Fund.
(c)(2) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
C Shares of the California Fund.
(c)(3) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
C Shares of the Florida Fund.
(c)(4) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
C Shares of the Massachusetts Fund.
(c)(5) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
C Shares of the Michigan Fund.
(c)(6) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
C Shares of the New Jersey Fund.
(c)(7) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
C Shares of the New York Fund.
(c)(8) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
C Shares of the Pennsylvania Fund.
(d)(1) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
D Shares of the Arizona Fund.
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
(d)(2) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
D Shares of the California Fund.
(d)(3) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
D Shares of the Florida Fund.
(d)(4) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
D Shares of the Massachusetts Fund.
(d)(5) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
D Shares of the Michigan Fund.
(d)(6) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
D Shares of the New Jersey Fund.
(d)(7) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
D Shares of the New York Fund.
(d)(8) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
D Shares of the Pennsylvania Fund.
17(a)(1) --Financial Data Schedule for Class A Shares of the Arizona Fund.
(a)(2) --Financial Data Schedule for Class A Shares of the California Fund.
(a)(3) --Financial Data Schedule for Class A Shares of the Florida Fund.
(a)(4) --Financial Data Schedule for Class A Shares of the Massachusetts
Fund.
(a)(5) --Financial Data Schedule for Class A Shares of the Michigan Fund.
(a)(6) --Financial Data Schedule for Class A Shares of the New Jersey Fund.
(a)(7) --Financial Data Schedule for Class A Shares of the New York Fund.
(a)(8) --Financial Data Schedule for Class A Shares of the Pennsylvania
Fund.
(b)(1) --Financial Data Schedule for Class B Shares of the Arizona Fund.
(b)(2) --Financial Data Schedule for Class B Shares of the California Fund.
(b)(3) --Financial Data Schedule for Class B Shares of the Florida Fund.
(b)(4) --Financial Data Schedule for Class B Shares of the Massachusetts
Fund.
(b)(5) --Financial Data Schedule for Class B Shares of the Michigan Fund.
(b)(6) --Financial Data Schedule for Class B Shares of the New Jersey Fund.
(b)(7) --Financial Data Schedule for Class B Shares of the New York Fund.
(b)(8) --Financial Data Schedule for Class B Shares of the Pennsylvania
Fund.
(c)(1) --Financial Data Schedule for Class C Shares of the Arizona Fund.
(c)(2) --Financial Data Schedule for Class C Shares of the California Fund.
(c)(3) --Financial Data Schedule for Class C Shares of the Florida Fund.
(c)(4) --Financial Data Schedule for Class C Shares of the Massachusetts
Fund.
(c)(5) --Financial Data Schedule for Class C Shares of the Michigan Fund.
(c)(6) --Financial Data Schedule for Class C Shares of the New Jersey Fund.
(c)(7) --Financial Data Schedule for Class C Shares of the New York Fund.
(c)(8) --Financial Data Schedule for Class C Shares of the Pennsylvania
Fund.
(d)(1) --Financial Data Schedule for Class D Shares of the Arizona Fund.
(d)(2) --Financial Data Schedule for Class D Shares of the California Fund.
(d)(3) --Financial Data Schedule for Class D Shares of the Florida Fund.
(d)(4) --Financial Data Schedule for Class D Shares of the Massachusetts
Fund.
(d)(5) --Financial Data Schedule for Class D Shares of the Michigan Fund.
(d)(6) --Financial Data Schedule for Class D Shares of the New Jersey Fund.
(d)(7) --Financial Data Schedule for Class D Shares of the New York Fund.
(d)(8) --Financial Data Schedule for Class D Shares of the Pennsylvania
Fund.
</TABLE>
- --------
(a) Filed on September 28, 1993 as an Exhibit to the Registration Statement on
Form N-1A (File No. 33-50417) under the Securities Act of 1933 of the
Registrant (the "Registration Statement").
C-4
<PAGE>
(b) Reference is made to Article II, Section 2.3 and Articles V, VI, VIII, IX,
X and XI of the Registrant's Declaration of Trust, as amended, filed as
Exhibit 1(a) to the Registration Statement; to the Certificates of
Establishment and Designation establishing each series of the Registrant
and establishing Class A and Class B shares of beneficial interest of each
series of the Registrant filed as Exhibits 1(b) and 1(c), respectively, to
the Registration Statement; and to Articles I, V and VI of the Registrant's
By-Laws, filed as Exhibit 2 to the Registration Statement.
(c) Filed on October 13, 1993 as an Exhibit to Pre-Effective Amendment No. 1 to
the Registration Statement.
(d) Filed on November 17, 1993 as an Exhibit to Pre-Effective Amendment No. 2
to the Registration Statement.
(e) Filed on May 17, 1994 as an Exhibit to Post-Effective Amendment No. 1 to
the Registration Statement.
(f) Filed on October 14, 1994 as an Exhibit to Post-Effective Amendment No. 2
to the Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT.
The Registrant is not controlled by or under common control with any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1995*
-------------- -------------------
<S> <C>
Arizona Fund
Class A shares of beneficial interest, par value
$0.10 per share..................................... 40
Class B shares of beneficial interest, par value
$0.10 per share..................................... 131
Class C shares of beneficial interest, par value
$0.10 per share..................................... 3
Class D shares of beneficial interest, par value
$0.10 per share..................................... 5
California Fund
Class A shares of beneficial interest, par value
$0.10 per share..................................... 44
Class B shares of beneficial interest, par value
$0.10 per share..................................... 181
Class C shares of beneficial interest, par value
$0.10 per share..................................... 6
Class D shares of beneficial interest, par value
$0.10 per share..................................... 17
Florida Fund
Class A shares of beneficial interest, par value
$0.10 per share..................................... 81
Class B shares of beneficial interest, par value
$0.10 per share..................................... 339
Class C shares of beneficial interest, par value
$0.10 per share..................................... 3
Class D shares of beneficial interest, par value
$0.10 per share..................................... 32
Massachusetts Fund
Class A shares of beneficial interest, par value
$0.10 per share..................................... 35
Class B shares of beneficial interest, par value
$0.10 per share..................................... 177
Class C shares of beneficial interest, par value
$0.10 per share..................................... 8
Class D shares of beneficial interest, par value
$0.10 per share..................................... 9
Michigan Fund
Class A shares of beneficial interest, par value
$0.10 per share..................................... 44
Class B shares of beneficial interest, par value
$0.10 per share..................................... 110
Class C shares of beneficial interest, par value
$0.10 per share..................................... 3
Class D shares of beneficial interest, par value
$0.10 per share..................................... 10
New Jersey Fund
Class A shares of beneficial interest, par value
$0.10 per share..................................... 55
Class B shares of beneficial interest, par value
$0.10 per share..................................... 169
Class C shares of beneficial interest, par value
$0.10 per share..................................... 3
Class D shares of beneficial interest, par value
$0.10 per share..................................... 13
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1995*
-------------- -------------------
<S> <C>
New York Fund
Class A shares of beneficial interest, par value
$0.10 per share..................................... 62
Class B shares of beneficial interest, par value
$0.10 per share..................................... 254
Class C shares of beneficial interest, par value
$0.10 per share..................................... 6
Class D shares of beneficial interest, par value
$0.10 per share..................................... 16
Pennsylvania Fund
Class A shares of beneficial interest, par value
$0.10 per share..................................... 31
Class B shares of beneficial interest, par value
$0.10 per share..................................... 211
Class C shares of beneficial interest, par value
$0.10 per share..................................... 4
Class D shares of beneficial interest, par value
$0.10 per share..................................... 15
</TABLE>
- --------
* 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 27. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees and
agents (including persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties and as
counsel fees) reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he may be involved or with which he may be threatened, while in office
or thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties; provided, however, that as to
any matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of good faith and reasonable belief
as to the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any Person under
these provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no person may satisfy any right in indemnity or
reimbursement granted herein or in Section 5.1 or to which he may be otherwise
entitled except out of the property of the Trust, and no Shareholder shall be
personally liable to any Person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance payments in
connection with indemnification under this Section 5.3, provided that the
indemnified person shall have given a written undertaking to reimburse the
Trust in the event it is subsequently determined that he is not entitled to
such indemnification."
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act of 1940, as amended, may be concerned,
such payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount of the
advance which exceeds the amount to which it is ultimately determined that he
is entitled to receive from the Registrant by reason of indemnification; and
(iii) (a) such promise must be secured by a surety bond, other suitable
insurance or an equivalent form of security which assures that any repayments
may be obtained by the Registrant without delay or litigation, which bond,
insurance or other form of security must be provided by the recipient of the
advance, or (b) a majority of a quorum of the Registrant's disinterested, non-
party Trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts that the recipient of
the advance ultimately will be found entitled to indemnification.
C-6
<PAGE>
In Section 9 of the Distribution Agreements relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"), against certain types of
civil liabilities arising in connection with this Registration Statement, the
Prospectus or the Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to Trustees, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
will submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Manager" or "FAM") acts as the investment
adviser for the following open-end investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Multi-State Municipal Series
Trust, Merrill Lynch Municipal Series Trust, Merrill Lynch Municipal Bond Fund,
Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Arizona Municipal Bond
Fund, 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., Merrill Lynch Municipal Strategy
Fund, Inc., MuniAsset Fund, Inc., MuniBond Income 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 Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New
York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc.
and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the Manager,
acts as the investment adviser for the following open-end investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Balanced Fund for Investment and Retirement, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
C-7
<PAGE>
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 Series
Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income
Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology
Fund, Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch
Variable Series Funds, Inc.; and the following closed-end investment companies:
Convertible Holdings, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc.
and Merrill Lynch Senior Floating Rate Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds for
Institutions Series and Merrill Lynch Institutional Intermediate Fund is One
Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of
the Manager, MLAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. The address of Merrill Lynch Financial Data Services,
Inc. ("MLFDS") is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
August 1, 1993, for his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President and Director
or Trustee, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice President
of substantially all of the investment companies described in the preceding
paragraphs and also hold the same positions with all or substantially all of
the investment companies advised by MLAM as they do with those advised by the
Manager. Messrs. Giordano, Harvey, Hewitt, Kirstein and Monagle are trustees,
directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
<C> <C> <S>
ML & Co. ............... Limited Partner Financial Services Holding
Company; Limited Partner of
MLAM
Princeton Services...... General Partner General Partner of MLAM
Arthur Zeikel........... President President of MLAM; President
and Director of Princeton
Services; Director of MLFD;
Executive Vice President of
ML & Co.; Executive Vice
President of Merrill Lynch
Terry K. Glenn.......... Executive Vice Executive Vice President of
President MLAM; Executive Vice
President and Director of
Princeton Services;
President and Director of
MLFD; President of Princeton
Administrators, L.P.
Vincent R. Giordano..... Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of MLAM
Norman R. Harvey........ Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
<C> <C> <S>
N. John Hewitt.......... Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President,
President, General General Counsel and
Counsel and Secretary of MLAM; Senior
Secretary Vice President, General
Counsel, Director and
Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and
and Controller Controller of MLAM; Senior
Vice President and
Controller of Princeton
Services
Steven 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
MLAM; Senior Vice President
of Princeton Services
Richard L. Reller....... Senior Vice President First Vice President of MLAM;
First Vice President of
Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and
and Treasurer Treasurer of MLAM; Senior
Vice President and Treasurer
of Princeton Services; Vice
President and Treasurer of
MLFD
Ronald L. Welburn....... Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of
MLAM; Senior Vice President
of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and, for each
of the open-end investment companies referred to in the first two paragraphs of
Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
the ten series of CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund,
CMA Treasury Fund, Convertible Holdings, Inc., The Corporate Fund Accumulation
Program, Inc., and The Municipal Fund Accumulation Program, Inc., and MLFD also
acts as the principal underwriter for the following closed-end investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Breen, Crook, Graczyk, Fatseas and Wasel is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
---- ------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn.......... President and Director Executive Vice President
Arthur Zeikel........... Director President and Trustee
Philip L. Kirstein...... Director None
William E. Aldrich...... Senior Vice President None
Robert W. Crook......... Senior Vice President None
Kevin P. Boman.......... Vice President None
Michael J. Brady........ Vice President None
William M. Breen........ Vice President None
Sharon Creveling........ Vice President and Assistant None
Treasurer
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
---- ------------------------- -------------------------
<S> <C> <C>
Mark A. DeSario......... Vice President None
James T. Fatseas........ Vice President None
Stanley Graczyk......... Vice President None
Debra W. Landsman-Yaros. Vice President None
Michelle T. Lau......... Vice President None
Gerald M. Richard....... Vice President and Treasurer Treasurer
Salvatore Venezia....... Vice President None
William Wasel........... Vice President None
Robert Harris........... Secretary Secretary
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended (the "1940 Act") and
the Rules thereunder are maintained at the offices
of the Registrant, 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and
its transfer agent, MLFDS, 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Trust--
Management and Advisory Arrangements" in the Prospectus constituting Part A of
this Registration Statement and under "'Management of the Trust--Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of this Registration Statement, the Registrant is not a party to any
management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and 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 the State of New Jersey, on the 20th day of
November, 1995.
Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust
(Registrant)
/s/ Gerald M. Richard
By: _________________________________
(GERALD M. RICHARD, TREASURER)
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
SIGNATURE TITLE DATE
Arthur Zeikel* President (Principal
- ------------------------------------- Executive Officer)
(ARTHUR ZEIKEL) and Trustee
Treasurer (Principal
/s/ Gerald M. Richard Financial November 20,
- ------------------------------------- and Accounting 1995
(GERALD M. RICHARD) Officer)
James H. Bodurtha* Trustee
- -------------------------------------
(JAMES H. BODURTHA)
Herbert I. London* Trustee
- -------------------------------------
(HERBERT I. LONDON)
Robert R. Martin* Trustee
- -------------------------------------
(ROBERT R. MARTIN)
Joseph L. May* Trustee
- -------------------------------------
(JOSEPH L. MAY)
Andre F. Perold* Trustee
- -------------------------------------
(ANDRE F. PEROLD)
/s/ Gerald M. Richard November 20,
*By: ________________________________ 1995
(GERALD M. RICHARD, ATTORNEY-IN-
FACT)
C-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1(a)(2) --Certificate of Amendment to Declaration of Trust and
Establishment and Designation of Classes, dated October 17,
1994.
10 --Opinion of Brown & Wood, counsel for the Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
16(c)(1) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class C Shares of the Arizona Fund.
(c)(2) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class C Shares of the California Fund.
(c)(3) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class C Shares of the Florida Fund.
(c)(4) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class C Shares of the Massachusetts Fund.
(c)(5) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class C Shares of the Michigan Fund.
(c)(6) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class C Shares of the New Jersey Fund.
(c)(7) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class C Shares of the New York Fund.
(c)(8) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class C Shares of the Pennsylvania Fund.
(d)(1) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class D Shares of the Arizona Fund.
(d)(2) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class D Shares of the California Fund.
(d)(3) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class D Shares of the Florida Fund.
(d)(4) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class D Shares of the Massachusetts Fund.
(d)(5) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class D Shares of the Michigan Fund.
(d)(6) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class D Shares of the New Jersey Fund.
(d)(7) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class D Shares of the New York Fund.
(d)(8) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
relating to Class D Shares of the Pennsylvania Fund.
17(a)(1) --Financial Data Schedule for Class A Shares of the Arizona
Fund.
(a)(2) --Financial Data Schedule for Class A Shares of the California
Fund.
(a)(3) --Financial Data Schedule for Class A Shares of the Florida
Fund.
(a)(4) --Financial Data Schedule for Class A Shares of the
Massachusetts Fund.
(a)(5) --Financial Data Schedule for Class A Shares of the Michigan
Fund.
(a)(6) --Financial Data Schedule for Class A Shares of the New Jersey
Fund.
(a)(7) --Financial Data Schedule for Class A Shares of the New York
Fund.
(a)(8) --Financial Data Schedule for Class A Shares of the
Pennsylvania Fund.
(b)(1) --Financial Data Schedule for Class B Shares of the Arizona
Fund.
(b)(2) --Financial Data Schedule for Class B Shares of the California
Fund.
(b)(3) --Financial Data Schedule for Class B Shares of the Florida
Fund.
(b)(4) --Financial Data Schedule for Class B Shares of the
Massachusetts Fund.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
(b)(5) --Financial Data Schedule for Class B Shares of the Michigan
Fund.
(b)(6) --Financial Data Schedule for Class B Shares of the New Jersey
Fund.
(b)(7) --Financial Data Schedule for Class B Shares of the New York
Fund.
(b)(8) --Financial Data Schedule for Class B Shares of the
Pennsylvania Fund.
(c)(1) --Financial Data Schedule for Class C Shares of the Arizona
Fund.
(c)(2) --Financial Data Schedule for Class C Shares of the California
Fund.
(c)(3) --Financial Data Schedule for Class C Shares of the Florida
Fund.
(c)(4) --Financial Data Schedule for Class C Shares of the
Massachusetts Fund.
(c)(5) --Financial Data Schedule for Class C Shares of the Michigan
Fund.
(c)(6) --Financial Data Schedule for Class C Shares of the New Jersey
Fund.
(c)(7) --Financial Data Schedule for Class C Shares of the New York
Fun.
(c)(8) --Financial Data Schedule for Class C Shares of the
Pennsylvania Fund.
(d)(1) --Financial Data Schedule for Class D Shares of the Arizona
Fund.
(d)(2) --Financial Data Schedule for Class D Shares of the California
Fund.
(d)(3) --Financial Data Schedule for Class D Shares of the Florida
Fund.
(d)(4) --Financial Data Schedule for Class D Shares of the
Massachusetts Fund.
(d)(5) --Financial Data Schedule for Class D Shares of the Michigan
Fund.
(d)(6) --Financial Data Schedule for Class D Shares of the New Jersey
Fund.
(d)(7) --Financial Data Schedule for Class D Shares of the New York
Fund.
(d)(8) --Financial Data Schedule for Class D Shares of the
Pennsylvania Fund.
</TABLE>
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRILL LYNCH ARIZONA LIMITED MATURITY MUNICIPAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 5876815
<INVESTMENTS-AT-VALUE> 6066532
<RECEIVABLES> 184799
<ASSETS-OTHER> 78772
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6330103
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65287
<TOTAL-LIABILITIES> 65287
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6145845
<SHARES-COMMON-STOCK> 103693
<SHARES-COMMON-PRIOR> 210864
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (70746)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 189717
<NET-ASSETS> 1054046
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 353154
<OTHER-INCOME> 0
<EXPENSES-NET> 47677
<NET-INVESTMENT-INCOME> 305477
<REALIZED-GAINS-CURRENT> (48045)
<APPREC-INCREASE-CURRENT> 182975
<NET-CHANGE-FROM-OPS> 440407
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 78637
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34228
<NUMBER-OF-SHARES-REDEEMED> 144716
<SHARES-REINVESTED> 3317
<NET-CHANGE-IN-ASSETS> (1412552)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (22701)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26468
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 177647
<AVERAGE-NET-ASSETS> 1825798
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .20
<PER-SHARE-DIVIDEND> .43
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MERRILL LYNCH CALIFORNIA LIMITED MATURITY MUNICIPAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 15034436
<INVESTMENTS-AT-VALUE> 15489950
<RECEIVABLES> 252436
<ASSETS-OTHER> 91242
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15833628
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 109148
<TOTAL-LIABILITIES> 109148
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15784184
<SHARES-COMMON-STOCK> 352970
<SHARES-COMMON-PRIOR> 385000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (515218)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 455514
<NET-ASSETS> 3526712
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 712283
<OTHER-INCOME> 0
<EXPENSES-NET> 99393
<NET-INVESTMENT-INCOME> 612890
<REALIZED-GAINS-CURRENT> (365740)
<APPREC-INCREASE-CURRENT> 501542
<NET-CHANGE-FROM-OPS> 748692
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 159781
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 81782
<NUMBER-OF-SHARES-REDEEMED> 118656
<SHARES-REINVESTED> 4844
<NET-CHANGE-IN-ASSETS> 490287
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (149477)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52287
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 256332
<AVERAGE-NET-ASSETS> 3666387
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> .11
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MERRILL LYNCH FLORIDA LIMITED MATURITY MUNICIPAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 32256381
<INVESTMENTS-AT-VALUE> 33028318
<RECEIVABLES> 336336
<ASSETS-OTHER> 240708
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33605362
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 332103
<TOTAL-LIABILITIES> 332103
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33379638
<SHARES-COMMON-STOCK> 983379
<SHARES-COMMON-PRIOR> 1505660
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (878316)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 771937
<NET-ASSETS> 9849207
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1540356
<OTHER-INCOME> 0
<EXPENSES-NET> 197230
<NET-INVESTMENT-INCOME> 1343126
<REALIZED-GAINS-CURRENT> (425603)
<APPREC-INCREASE-CURRENT> 839494
<NET-CHANGE-FROM-OPS> 1757017
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 531680
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 189974
<NUMBER-OF-SHARES-REDEEMED> 736537
<SHARES-REINVESTED> 24282
<NET-CHANGE-IN-ASSETS> 226618
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (452713)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 112421
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 398721
<AVERAGE-NET-ASSETS> 12124698
<PER-SHARE-NAV-BEGIN> 9.87
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .15
<PER-SHARE-DIVIDEND> .43
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.02
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> ML MASS LIMITED MATURITY MUNICIPAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 9518560
<INVESTMENTS-AT-VALUE> 9711148
<RECEIVABLES> 150196
<ASSETS-OTHER> 108926
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9970270
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52657
<TOTAL-LIABILITIES> 52657
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10095502
<SHARES-COMMON-STOCK> 446975
<SHARES-COMMON-PRIOR> 813675
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (370477)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 192588
<NET-ASSETS> 4452799
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 571735
<OTHER-INCOME> 0
<EXPENSES-NET> 66507
<NET-INVESTMENT-INCOME> 505228
<REALIZED-GAINS-CURRENT> (370476)
<APPREC-INCREASE-CURRENT> 274970
<NET-CHANGE-FROM-OPS> 409722
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 252210
<DISTRIBUTIONS-OF-GAINS> 7555
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 113925
<NUMBER-OF-SHARES-REDEEMED> 499178
<SHARES-REINVESTED> 18553
<NET-CHANGE-IN-ASSETS> (6225232)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15134
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41496
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 226217
<AVERAGE-NET-ASSETS> 5669092
<PER-SHARE-NAV-BEGIN> 9.95
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> .02
<PER-SHARE-DIVIDEND> .44
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> MERRILL LYNCH MICHIGAN LIMITED MATURITY MUNICIPAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 4752209
<INVESTMENTS-AT-VALUE> 4900531
<RECEIVABLES> 80598
<ASSETS-OTHER> 94035
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5075164
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23128
<TOTAL-LIABILITIES> 23128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5085571
<SHARES-COMMON-STOCK> 230742
<SHARES-COMMON-PRIOR> 346162
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (181857)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 148322
<NET-ASSETS> 2302328
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 260146
<OTHER-INCOME> 0
<EXPENSES-NET> 24844
<NET-INVESTMENT-INCOME> 235302
<REALIZED-GAINS-CURRENT> (132641)
<APPREC-INCREASE-CURRENT> 150310
<NET-CHANGE-FROM-OPS> 252971
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 123016
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28337
<NUMBER-OF-SHARES-REDEEMED> 147187
<SHARES-REINVESTED> 3430
<NET-CHANGE-IN-ASSETS> (793586)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (49216)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19277
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 130029
<AVERAGE-NET-ASSETS> 2781492
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> .44
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> 2.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> MERRILL LYNCH NEW JERSEY LIMITED MATURITY MUNICIPAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 9751165
<INVESTMENTS-AT-VALUE> 10084223
<RECEIVABLES> 121619
<ASSETS-OTHER> 432909
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10638751
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 207144
<TOTAL-LIABILITIES> 207144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10379180
<SHARES-COMMON-STOCK> 236440
<SHARES-COMMON-PRIOR> 596910
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (280631)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 333058
<NET-ASSETS> 2400567
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 510440
<OTHER-INCOME> 0
<EXPENSES-NET> 68583
<NET-INVESTMENT-INCOME> 441857
<REALIZED-GAINS-CURRENT> (190903)
<APPREC-INCREASE-CURRENT> 328757
<NET-CHANGE-FROM-OPS> 579711
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 147854
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 147003
<NUMBER-OF-SHARES-REDEEMED> 514441
<SHARES-REINVESTED> 6968
<NET-CHANGE-IN-ASSETS> (3386239)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (89728)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39629
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 226317
<AVERAGE-NET-ASSETS> 3606812
<PER-SHARE-NAV-BEGIN> 9.94
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> .21
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 1.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> MERRILL LYNCH NEW YORK LIMITED MATURITY MUNICIPAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 15384432
<INVESTMENTS-AT-VALUE> 15731264
<RECEIVABLES> 212942
<ASSETS-OTHER> 164705
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16108911
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 131421
<TOTAL-LIABILITIES> 131421
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15919438
<SHARES-COMMON-STOCK> 478754
<SHARES-COMMON-PRIOR> 533680
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (288780)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 346832
<NET-ASSETS> 4811410
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 716947
<OTHER-INCOME> 0
<EXPENSES-NET> 82403
<NET-INVESTMENT-INCOME> 634544
<REALIZED-GAINS-CURRENT> (166770)
<APPREC-INCREASE-CURRENT> 337132
<NET-CHANGE-FROM-OPS> 804906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 247259
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 189338
<NUMBER-OF-SHARES-REDEEMED> 260265
<SHARES-REINVESTED> 16001
<NET-CHANGE-IN-ASSETS> 944747
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (122010)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 226412
<AVERAGE-NET-ASSETS> 5510776
<PER-SHARE-NAV-BEGIN> 9.91
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> .44
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.05
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> MERRILL LYNCH PENNSYLVANIA LIMITED MATURITY MUNICIPAL BOND FUND
CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 8189620
<INVESTMENTS-AT-VALUE> 8337811
<RECEIVABLES> 615218
<ASSETS-OTHER> 116676
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9069705
<PAYABLE-FOR-SECURITIES> 249072
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80076
<TOTAL-LIABILITIES> 329148
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8693596
<SHARES-COMMON-STOCK> 93398
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<DISTRIBUTIONS-OF-INCOME> 30115
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<NUMBER-OF-SHARES-SOLD> 299589
<NUMBER-OF-SHARES-REDEEMED> 122736
<SHARES-REINVESTED> 404
<NET-CHANGE-IN-ASSETS> 490287
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-END> 9.99
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 27
<NAME> MERRILL LYNCH FLORIDA LIMITED MATURITY MUNICIPAL BOND FUND CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
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<TOTAL-ASSETS> 33605362
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 332103
<TOTAL-LIABILITIES> 332103
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<PAID-IN-CAPITAL-COMMON> 33379638
<SHARES-COMMON-STOCK> 720201
<SHARES-COMMON-PRIOR> 0
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<NET-INVESTMENT-INCOME> 1343126
<REALIZED-GAINS-CURRENT> (425603)
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<DISTRIBUTIONS-OF-INCOME> 55181
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 28
<NAME> ML MASS LIMITED MATURITY MUNICIPAL BOND FUND CLASS D
<S> <C>
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<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10095502
<SHARES-COMMON-STOCK> 25369
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<ACCUMULATED-NET-GAINS> (370477)
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 66507
<NET-INVESTMENT-INCOME> 505228
<REALIZED-GAINS-CURRENT> (370476)
<APPREC-INCREASE-CURRENT> 274970
<NET-CHANGE-FROM-OPS> 409722
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2560
<DISTRIBUTIONS-OF-GAINS> 8
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32116
<NUMBER-OF-SHARES-REDEEMED> 6870
<SHARES-REINVESTED> 123
<NET-CHANGE-IN-ASSETS> (6225232)
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 226217
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 29
<NAME> MERRILL LYNCH MICHIGAN LIMITED MATURITY MUNICIPAL BOND FUND CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
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<OTHER-ITEMS-LIABILITIES> 23128
<TOTAL-LIABILITIES> 23128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5085571
<SHARES-COMMON-STOCK> 25485
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> (181857)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 148322
<NET-ASSETS> 254178
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 260146
<OTHER-INCOME> 0
<EXPENSES-NET> 24844
<NET-INVESTMENT-INCOME> 235302
<REALIZED-GAINS-CURRENT> (132641)
<APPREC-INCREASE-CURRENT> 150310
<NET-CHANGE-FROM-OPS> 252971
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9535
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 64155
<NUMBER-OF-SHARES-REDEEMED> 39359
<SHARES-REINVESTED> 689
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 130029
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<PER-SHARE-NAV-END> 9.97
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 30
<NAME> MERRILL LYNCH NEW JERSEY LIMITED MATURITY MUNICIPAL BOND FUND CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
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<INVESTMENTS-AT-VALUE> 10084223
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<OTHER-ITEMS-LIABILITIES> 207144
<TOTAL-LIABILITIES> 207144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10379180
<SHARES-COMMON-STOCK> 43022
<SHARES-COMMON-PRIOR> 0
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<ACCUMULATED-NET-GAINS> (280631)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 333058
<NET-ASSETS> 437103
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 510440
<OTHER-INCOME> 0
<EXPENSES-NET> 68583
<NET-INVESTMENT-INCOME> 441857
<REALIZED-GAINS-CURRENT> (190903)
<APPREC-INCREASE-CURRENT> 328757
<NET-CHANGE-FROM-OPS> 579711
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5384
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 69049
<NUMBER-OF-SHARES-REDEEMED> 26375
<SHARES-REINVESTED> 348
<NET-CHANGE-IN-ASSETS> (3386239)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (89728)
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39629
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<GROSS-EXPENSE> 226317
<AVERAGE-NET-ASSETS> 167794
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> .32
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<PER-SHARE-NAV-END> 10.16
<EXPENSE-RATIO> 2.07
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 31
<NAME> MERRILL LYNCH NEW YORK LIMITED MATURITY MUNICIPAL BOND FUND CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
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<INVESTMENTS-AT-COST> 15384432
<INVESTMENTS-AT-VALUE> 15731264
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<PAID-IN-CAPITAL-COMMON> 15919438
<SHARES-COMMON-STOCK> 229378
<SHARES-COMMON-PRIOR> 0
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<ACCUMULATED-NET-GAINS> (288780)
<OVERDISTRIBUTION-GAINS> 0
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<EXPENSES-NET> 82403
<NET-INVESTMENT-INCOME> 634544
<REALIZED-GAINS-CURRENT> (166770)
<APPREC-INCREASE-CURRENT> 337132
<NET-CHANGE-FROM-OPS> 804906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16655
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 271406
<NUMBER-OF-SHARES-REDEEMED> 42782
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<GROSS-EXPENSE> 226412
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 32
<NAME> MERRILL LYNCH PENNSYLVANIA LIMITED MATURITY MUNICIPAL BOND FUND
CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 8189620
<INVESTMENTS-AT-VALUE> 8337811
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9069705
<PAYABLE-FOR-SECURITIES> 249072
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80076
<TOTAL-LIABILITIES> 329148
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8693596
<SHARES-COMMON-STOCK> 37804
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (101230)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 148191
<NET-ASSETS> 381994
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 452988
<OTHER-INCOME> 0
<EXPENSES-NET> 67632
<NET-INVESTMENT-INCOME> 385356
<REALIZED-GAINS-CURRENT> (38604)
<APPREC-INCREASE-CURRENT> 150668
<NET-CHANGE-FROM-OPS> 497420
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7511
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 37328
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 476
<NET-CHANGE-IN-ASSETS> (1781760)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (62626)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34403
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 217243
<AVERAGE-NET-ASSETS> 226698
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> .33
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> 2.08
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<PAGE>
EXHIBIT 99.1(a)(2)
MERRILL LYNCH MULTI-STATE LIMITED MATURITY
MUNICIPAL SERIES TRUST
Certification of Amendment
to Declaration of Trust
and
Establishment and Designation of Classes
The undersigned, constituting a majority of the Trustees of Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust (the "Trust"), a
Massachusetts business trust, hereby certify that the Trustees of the Trust have
duly adopted the following amendments, as approved by a majority of the
shareholders of the Trust, to the Trust's Declaration of Trust.
VOTED: That the second paragraph of Section 6.2 of Article VI of the
Declaration of Trust be, and it hereby is, amended by adding the
following:
The Trustees may provide that shares of a class will be exchanged for shares of
another class without any act or deed on the part of the holder of shares of the
class being exchanged, whether or not shares of such class are issued and
outstanding, all on terms and conditions as the Trustees may specify. The
Trustees may redesignate a class or series of shares of beneficial interest or a
portion of a class or series of shares of beneficial interest whether or not
shares of such class or series are issued and outstanding, provided that such
redesignation does not substantially adversely affect the preference, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such issued and
outstanding shares of beneficial interest.
VOTED: That Section 6.3 of Article VI of the Declaration of Trust be, and it
hereby is, amended in its entirety to read as follows:
6.3. Rights of Shareholders. The ownership of the Trust Property of every
----------------------
description and the right to conduct any business hereinbefore described are
vested exclusively in the Trustees, and the Shareholders shall have no interest
therein other than the beneficial interest conferred by their Shares with
respect to a particular Series, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights in this
<PAGE>
Declaration specifically set forth. The Shares shall not entitle the holder to
preference, preemptive, appraisal, conversion or exchange rights (except for
rights of appraisal specified in Section 11.4 and except as may be specified by
the Trustees in connection with the division of shares into classes or the
redesignation of classes or portions of classes in accordance with Section 6.2).
VOTED: That Section 10.1 of Article X of the Declaration of Trust be, and it
hereby is, amended in its entirety to read as follows:
10.1. Voting Powers. The Shareholders shall have power to vote (i) for the
-------------
removal of Trustees as provided in Section 2.3; (ii) with respect to any
advisory or management contract of a Series as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in Section 11.3;
(iv) with respect to such additional matters relating to the Trust as may be
required or authorized by the 1940 Act, the laws of the Commonwealth of
Massachusetts or other applicable law or by this Declaration or the By-Laws of
the Trust; and (v) with respect to such additional matters relating to the Trust
as may be properly submitted for Shareholder approval. If the Shares of a Series
shall be divided into classes as provided in Article VI hereof, the Shares of
each class shall have identical voting rights except that the Trustees, in their
discretion, may provide a class of a Series with exclusive voting rights with
respect to matters related to expenses being borne solely by such class whether
or not shares of such class are issued and outstanding.
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 6.2 of the Declaration of Trust, do hereby divide the shares
of beneficial interest of each series of the Trust to create four classes of
shares, within the meaning of said Section 6.2, as follows:
1. The four classes of shares are designated "Class A Shares," "Class B
Shares," "Class C Shares," and "Class D Shares."
2. Class A Shares, Class B Shares, Class C Shares and Class D Shares shall
be entitled to all of the rights and preferences accorded to Shares
under the Declaration of Trust.
3. The purchase price, the method of determination of net asset value, the
price, terms and manner of redemption, and the relative dividend rights
of holders of Class A Shares, Class B Shares, Class C Shares and Class
D Shares shall be established by the Trustees of the Trust in
accordance with the provisions of the Declaration of Trust and shall be
set forth in the
2
<PAGE>
currently effective prospectus and statement of additional information
of the Trust relating to each series of the Trust, as amended from time
to time, contained in the Trust's registration statement under the
Securities Act of 1933, as amended.
4. Class A Shares, Class B Shares, Class C Shares and Class D Shares shall
vote together as a single class except that shares of a class may vote
separately on matters affecting only that class and shares of a class
not affected by a matter will not vote on that matter.
5. A class of shares of any series of the Trust may be terminated by the
Trustees by written notice to the Shareholders of the class.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees of the Trust, have signed this certificate in duplicate original
counterparts and have caused a duplicate original to be lodged among the records
of the Trust as required by Article XI, Section 11.3(c) of the Declaration of
Trust, as of the 17th day of October, 1994.
/s/ Kenneth S. Axelson /s/ Herbert I. London
---------------------- ---------------------
Kenneth S. Axelson Herbert I. London
75 Jameson Point Road 2 Washington Square Village
Rockland, ME 04841 Apartment 12B
New York, NY 10012
/s/ Robert R. Martin /s/ Joseph L. May
-------------------- -----------------
Robert R. Martin Joseph L. May
513 Grand Hill 2136 Golf Club Lane
St. Paul, MN 55102 Nashville, TN 37215
/s/ Andre F. Perold /s/ Arthur Zeikel
------------------- -----------------
Andre F. Perold Arthur Zeikel
56 Barnstable Road 300 Woodland Avenue
West Newton, MA 02165 Westfield, NJ 07090
The Declaration of Trust establishing Merrill Lynch MultiState Limited
Maturity Municipal Series Trust, dated February 14, 1991, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that the
name of the Trust, "Merrill Lynch Multi-State Limited Maturity Municipal Series
Trust," refers to the Trustees under the Declaration collectively as Trustees,
but not as individuals or personally; and no Trustee, shareholder, officer,
employee or agent of Merrill Lynch Multi-State Limited Maturity Municipal Series
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of said Trust, but the "Trust Property" only shall
be liable.
4
<PAGE>
EXHIBIT 99.10
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: (212) 839-5300
FACSIMILE: (212) 839-5599
November 21, 1995
Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust
P.O. Box 9011
Princeton, New Jersey 08543-9011
Ladies and Gentlemen:
This opinion is furnished in connection with the registration by Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, a Massachusetts
business trust (the "Trust"), of shares of beneficial interest, par value $0.10
per share (the "Shares"), under the Securities Act of 1933 pursuant to a
registration statement on Form N-1A (File No. 33-50417), as amended (the
"Registration Statement"), in the amounts set forth under "Amount of Shares
Being Registered" on the facing page of the Registration Statement. The Shares
being registered consist of the following existing series of Shares of the
Trust: Merrill Lynch Arizona Limited Maturity Municipal Bond Fund, Merrill Lynch
Florida Limited Maturity Municipal Bond Fund, Merrill Lynch Massachusetts
Limited Maturity Municipal Bond Fund, Merrill Lynch Michigan Limited Maturity
Municipal Bond Fund, Merrill Lynch New Jersey Limited Maturity Municipal Bond
Fund and Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund.
As counsel for the Trust, we are familiar with the proceedings taken by it
in connection with the authorization,
<PAGE>
issuance and sale of the Shares. In addition, we have examined and are familiar
with the Declaration of Trust of the Trust, as amended, the By-Laws of the Trust
and such other documents as we have deemed relevant to the matters referred to
in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and nonassessable shares of beneficial interest.
In rendering this opinion, we have relied as to matters of Massachusetts law
upon an opinion of Bingham, Dana & Gould rendered to the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus and
Statement of Additional Information constituting parts thereof.
Very truly yours,
/s/ BROWN & WOOD
2
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust:
We consent to the use in Post-Effective Amendment No. 3 to Registration
Statement No. 33-50417 of our report dated September 7, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
November 15, 1995
<PAGE>
EXHIBIT 16(c)
Arizona Limited Maturity - Class C
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Assets Value 9.89 9.89
--------- ---------
Equals Shares Purchased 101.112 101.112
Plus Shares Acquired through
Dividend Reinvestment 2,914 2,914
--------- ---------
Equals Shares Held at 7/31/95 104.026 104.026
Multiplied by Net Asset Value at 7/31/95 10.18 10.18
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,058.99 1,058.99
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,048.99 1,058.99
--------- ---------
Divided by $1,000 (P) 1.0490 1.0590
Subtract 1 0.0490 0.0590
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.90%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.90%
========
ERV divided by P 1.0490
Raise to the power of 1.2898
Equals 1.0636
Subtract 1 0.0636
Expressed as a percentage equals the
Average Annualized Total Return 6.36%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
ARIZONA LIMITED MATURITY FUND - CLASS C
Long term income generally based on yield to
maturity times market value of each security $3
Plus short term income accrued for the past
thirty days 1
-----------
Equals Total Income 4
Less expenses for the past thirty days -1
-----------
Equals net monthly income for yield calculation 3
-----------
Average shares outstanding for 30 days 113
Times the Net Asset Value 10.17
-----------
Equals total dollars $1,148
===========
Net monthly income divided by total dollars equals 0.002899773
Add 1 1.002899773
Raise to the power of 6 1.017525255
Subtract 1 0.017525255
Times 2 0.035050510
Expressed as a percentage equals the
standardized yield for the 30 day period 3.51%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 4.88%
=====
<PAGE>
California Limited Maturity - Class C
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 9.76 9.76
--------- ---------
Equals Shares Purchased 102.459 102.459
Plus Shares Acquired through
Dividend Reinvestment 3.144 3.144
--------- ---------
Equals Shares Held at 7/31/95 105.603 105.603
Multiplied by Net Asset Value at 7/31/95 10.00 10.00
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,056.03 1,056.03
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,046.03 1,056.03
--------- ---------
Divided by $1,000 (P) 1.0460 1.0560
Subtract 1 0.0460 0.0560
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.60%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.60%
========
ERV divided by P 1.0460
Raise to the power of 1.2898
Equals 1.0598
Subtract 1 0.0598
Expressed as a percentage equals the
Average Annualized Total Return 5.98%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
CALIFORNIA LIMITED MATURITY FUND - CLASS C
Long term income generally based on yield to
maturity times market value of each security $183
Plus short term income accrued for the past
thirty days 61
-----------
Equals Total Income 243
Less expenses for the past thirty days -45
-----------
Equals net monthly income for yield calculation 198
-----------
Average shares outstanding for 30 days 6,653
Times the Net Asset Value 9.99
-----------
Equals total dollars $66,468
===========
Net monthly income divided by total dollars equals 0.002982945
Add 1 1.002982945
Raise to the power of 6 1.018031673
Subtract 1 0.018031673
Times 2 0.036063345
Expressed as a percentage equals the
standardized yield for the 30 day period 3.61%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.01%
=====
<PAGE>
Florida Limited Maturity - Class C
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 9.76 9.76
--------- ---------
Equals Shares Purchased 102.459 102.459
Plus Shares Acquired through
Dividend Reinvestment 2.979 2.979
--------- ---------
Equals Shares Held at 7/31/95 105.438 105.438
Multiplied by Net Asset Value at 7/31/95 10.02 10.02
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,056.49 1,056.49
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,046.49 1,056.49
--------- ---------
Divided by $1,000 (P) 1.0465 1.0565
Subtract 1 0.0465 0.0565
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.65%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.65%
========
ERV divided by P 1.0465
Raise to the power of 1.2898
Equals 1.0604
Subtract 1 0.0604
Expressed as a percentage equals the
Average Annualized Total Return 6.04%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
FLORIDA LIMITED MATURITY FUND - CLASS C
Long term income generally based on yield to
maturity times market value of each security $3
Plus short term income accrued for the past
thirty days 1
-----------
Equals Total Income 4
Less expenses for the past thirty days -1
-----------
Equals net income for yield calculation 3
-----------
Average shares outstanding for 30 days 113
Times the Maximum Offering Price 10.01
-----------
Equals total dollars $1,131
===========
Net monthly income divided by total dollars equals 0.002901039
Add 1 1.002901039
Raise to the power of 6 1.017532962
Subtract 1 0.017532962
Times 2 0.035065925
Expressed as a percentage equals the
standardized yield for the 30 day period 3.51%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 4.88%
=====
<PAGE>
Massachusetts Limited Maturity - Class C
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 9.82 9.82
--------- ---------
Equals Shares Purchased 101.833 101.833
Plus Shares Acquired through
Dividend Reinvestment 3.483 3.483
--------- ---------
Equals Shares Held at 7/31/95 105.316 105.316
Multiplied by Net Asset Value at 7/31/95 9.97 9.97
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,050.00 1,050.00
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,040.00 1,050.00
--------- ---------
Divided by $1,000 (P) 1.0400 1.0500
Subtract 1 0.0400 0.0500
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.00%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.00%
========
ERV divided by P 1.0400
Raise to the power of 1.2898
Equals 1.0519
Subtract 1 0.0519
Expressed as a percentage equals the
Average Annualized Total Return 5.19%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
MASSACHUSETTS LIMITED MATURITY FUND - CLASS C
Long term income generally based on yield to
maturity times market value of each security $1,392
Plus short term income accrued for the past
thirty days 196
-----------
Equals Total Income 1,588
Less expenses for the past thirty days -271
-----------
Equals net monthly income for yield calculation 1,317
-----------
Average shares outstanding for 30 days 41,346
Times the Net Asset Value 9.96
-----------
Equals total dollars $411,811
===========
Net monthly income divided by total dollars equals 0.003198945
Add 1 1.003198945
Raise to the power of 6 1.019347826
Subtract 1 0.019347826
Times 2 0.038695653
Expressed as a percentage equals the
standardized yield for the 30 day period 3.87%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.38%
=====
<PAGE>
Michigan Limited Maturity - Class C
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 9.76 9.76
--------- ---------
Equals Shares Purchased 102.459 102.459
Plus Shares Acquired through
Dividend Reinvestment 3.047 3.047
--------- ---------
Equals Shares Held at 7/31/95 105.506 105.506
Multiplied by Net Asset Value at 7/31/95 9.99 9.99
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,054.00 1,054.00
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,044.00 1,054.00
--------- ---------
Divided by $1,000 (P) 1.0440 1.0540
Subtract 1 0.0440 0.0540
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.40%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.40%
========
ERV divided by P 1.0440
Raise to the power of 1.2898
Equals 1.0571
Subtract 1 0.0571
Expressed as a percentage equals the
Average Annualized Total Return 5.71%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
MICHIGAN LIMITED MATURITY FUND - CLASS C
Long term income generally based on yield to
maturity times market value of each security $3
Plus short term income accrued for the past
thirty days 1
-----------
Equals Total Income 4
Less expenses for the past thirty days -1
-----------
Equals net monthly income for yield calculation 3
-----------
Average shares outstanding for 30 days 109
Times the Net Asset Value 9.98
-----------
Equals total dollars $1,090
===========
Net monthly income divided by total dollars equals 0.003201203
Add 1 1.003201203
Raise to the power of 6 1.019361590
Subtract 1 0.019361590
Times 2 0.038723180
Expressed as a percentage equals the
standardized yield for the 30 day period 3.87%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.38%
=====
<PAGE>
New Jersey Limited Maturity - Class C
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 9.86 9.86
--------- ---------
Equals Shares Purchased 101.420 101.420
Plus Shares Acquired through
Dividend Reinvestment 2.809 2.809
--------- ---------
Equals Shares Held at 7/31/95 104.228 104.228
Multiplied by Net Asset Value at 7/31/95 9.21 9.21
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 959.94 959.94
Less deferred sales charge (9.34) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 950.61 959.94
--------- ---------
Divided by $1,000 (P) 0.9506 0.9599
Subtract 1 -0.0494 -0.0401
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) -4.94%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period -4.01%
========
ERV divided by P 0.9506
Raise to the power of 1.2898
Equals 0.9368
Subtract 1 -0.0632
Expressed as a percentage equals the
Average Annualized Total Return -6.32%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
NEW JERSEY LIMITED MATURITY FUND - CLASS C
Long term income generally based on yield to
maturity times market value of each security $3
Plus short term income accrued for the past
thirty days 1
-----------
Equals Total Income 4
Less expenses for the past thirty days -1
-----------
Equals net monthly income for yield calculation 3
-----------
Average shares outstanding for 30 days 113
Times the Net Asset Value 9.20
-----------
Equals total dollars $1,038
===========
Net monthly income divided by total dollars equals 0.002871824
Add 1 1.002871824
Raise to the power of 6 1.017355130
Subtract 1 0.017355130
Times 2 0.034710260
Expressed as a percentage equals the
standardized yield for the 30 day period 3.47%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 4.82%
=====
<PAGE>
New York Limited Maturity - Class C
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 9.78 9.78
--------- ---------
Equals Shares Purchased 102.249 102.249
Plus Shares Acquired through
Dividend Reinvestment 3.087 3.087
--------- ---------
Equals Shares Held at 7/31/95 105.336 105.336
Multiplied by Net Asset Value at 7/31/95 10.06 10.06
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,059.68 1,059.68
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,049.68 1,059.68
--------- ---------
Divided by $1,000 (P) 1.0497 1.0597
Subtract 1 0.0497 0.0597
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.97%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.97%
========
ERV divided by P 1.0497
Raise to the power of 1.2898
Equals 1.0645
Subtract 1 0.0645
Expressed as a percentage equals the
Average Annualized Total Return 6.45%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
NEW YORK LIMITED MATURITY FUND - CLASS C
Long term income generally based on yield to
maturity times market value of each security $114
Plus short term income accrued for the past
thirty days 31
-----------
Equals Total Income 145
Less expenses for the past thirty days -18
-----------
Equals net monthly income for yield calculation 127
-----------
Average shares outstanding for 30 days 3,817
Times the Net Asset Value 10.05
-----------
Equals total dollars $38,361
===========
Net monthly income divided by total dollars equals 0.003300005
Add 1 1.003300005
Raise to the power of 6 1.019964101
Subtract 1 0.019964101
Times 2 0.039928201
Expressed as a percentage equals the
standardized yield for the 30 day period 3.99%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.54%
=====
<PAGE>
Pennsylvania Limited Maturity - Class C
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 9.84 9.84
--------- ---------
Equals Shares Purchased 101.626 101.626
Plus Shares Acquired through
Dividend Reinvestment 2.903 2.903
--------- ---------
Equals Shares Held at 7/31/95 104.529 104.529
Multiplied by Net Asset Value at 7/31/95 10.11 10.11
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,056.79 1,056.79
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,046.79 1,056.79
--------- ---------
Divided by $1,000 (P) 1.0468 1.0568
Subtract 1 0.0468 0.0568
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.68%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.68%
========
ERV divided by P 1.0468
Raise to the power of 1.2898
Equals 1.0608
Subtract 1 0.0608
Expressed as a percentage equals the
Average Annualized Total Return 6.08%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
PENNSYLVANIA LIMITED MATURITY FUND - CLASS C
Long term income generally based on yield to
maturity times market value of each security $4
Plus short term income accrued for the past
thirty days 1
-----------
Equals Total Income 4
Less expenses for the past thirty days -1
-----------
Equals net monthly income for yield calculation 3
-----------
Average shares outstanding for 30 days 113
Times the Net Asset Value 10.10
-----------
Equals total dollars $1,140
===========
Net monthly income divided by total dollars equals 0.003061167
Add 1 1.003061167
Raise to the power of 6 1.018508139
Subtract 1 0.018508139
Times 2 0.037016279
Expressed as a percentage equals the
standardized yield for the 30 day period 3.70%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.14%
=====
<PAGE>
EXHIBT 16(d)
Arizona Limited Maturity - Class D
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 9.99
---------
Divided by Net Asset Value 9.89
---------
Equals Shares Purchased 100.101 101.112
Plus Shares Acquired through
Dividend Reinvestment 3.315 3.349
--------- ---------
Equals Shares Held at 7/31/95 103.416 104.461
Multiplied by Net Asset Value at 7/31/95 10.18 10.18
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,052.78 1,063.41
Divided by $1,000 (P) 1.0528 1.0634
Subtract 1 0.0528 0.0634
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 5.28%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 6.34%
========
ERV divided by P 1.0528
Raise to the power of 1.2898
Equals 1.0686
Subtract 1 0.0686
Expressed as a percentage equals the
Average Annualized Total Return 6.86%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
ARIZONA LIMITED MATURITY FUND - CLASS D
Long term income generally based on yield to
maturity times market value of each security $50
Plus short term income accrued for the past
thirty days 19
-----------
Equals Total Income 68
Less expenses for the past thirty days -10
-----------
Equals net monthly income for yield calculation 58
-----------
Average shares outstanding for 30 days 1,825
Times the Maximum Offering Price 10.27
-----------
Equals total dollars $18,739
===========
Net monthly income divided by total dollars equals 0.003115970
Add 1 1.003115970
Raise to the power of 6 1.018842063
Subtract 1 0.018842063
Times 2 0.037684127
Expressed as a percentage equals the
standardized yield for the 30 day period 3.77%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.24%
=====
<PAGE>
California Limited Maturity - Class D
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 9.86
---------
Divided by Net Asset Value 9.76
---------
Equals Shares Purchased 101.434 102.459
Plus Shares Acquired through
Dividend Reinvestment 3.361 3.395
--------- ---------
Equals Shares Held at 7/31/95 104.795 105.854
Multiplied by Net Asset Value at 7/31/95 10.00 10.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,047.95 1,058.54
Divided by $1,000 (P) 1.0480 1.0585
Subtract 1 0.0480 0.0585
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.80%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.85%
========
ERV divided by P 1.0480
Raise to the power of 1.2898
Equals 1.0623
Subtract 1 0.0623
Expressed as a percentage equals the
Average Annualized Total Return 6.23%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
CALIFORNIA LIMITED MATURITY FUND - CLASS D
Long term income generally based on yield to
maturity times market value of each security $4,931
Plus short term income accrued for the past
thirty days 1,636
-----------
Equals Total Income 6,567
Less expenses for the past thirty days -1,101
-----------
Equals net monthly income for yield calculation 5,466
-----------
Average shares outstanding for 30 days 179,555
Times the Maximum Offering Price 10.09
-----------
Equals total dollars $1,811,714
===========
Net monthly income divided by total dollars equals 0.003016994
Add 1 1.003016994
Raise to the power of 6 1.018239048
Subtract 1 0.018239048
Times 2 0.036478095
Expressed as a percentage equals the
standardized yield for the 30 day period 3.65%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.07%
=====
<PAGE>
Florida Limited Maturity - Class D
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 9.86
---------
Divided by Net Asset Value 9.76
---------
Equals Shares Purchased 101.434 102.459
Plus Shares Acquired through
Dividend Reinvestment 3.366 3.400
--------- ---------
Equals Shares Held at 7/31/95 104.800 105.859
Multiplied by Net Asset Value at 7/31/95 10.02 10.02
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,050.10 1,060.71
Divided by $1,000 (P) 1.0501 1.0607
Subtract 1 0.0501 0.0607
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 5.01%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 6.07%
========
ERV divided by P 1.0501
Raise to the power of 1.2898
Equals 1.0651
Subtract 1 0.0651
Expressed as a percentage equals the
Average Annualized Total Return 6.51%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
FLORIDA LIMITED MATURITY FUND - CLASS D
Long term income generally based on yield to
maturity times market value of each security $19,496
Plus short term income accrued for the past
thirty days 4,659
-----------
Equals Total Income 24,155
Less expenses for the past thirty days -3,943
-----------
Equals net monthly income for yield calculation 20,212
-----------
Average shares outstanding for 30 days 642,151
Times the Net Asset Value 10.11
-----------
Equals total dollars $6,492,148
===========
Net monthly income divided by total dollars equals 0.003113270
Add 1 1.003113270
Raise to the power of 6 1.018825613
Subtract 1 1.018825613
Times 2 0.037651227
Expressed as a percentage equals the
standardized yield for the 30 day period 3.77%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.24%
=====
<PAGE>
Massachusetts Limited Maturity - Class D
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 9.92
---------
Divided by Net Asset Value 9.82
---------
Equals Shares Purchased 100.815 101.833
Plus Shares Acquired through
Dividend Reinvestment 3.538 3.574
--------- ---------
Equals Shares Held at 7/31/95 104.353 105.407
Multiplied by Net Asset Value at 7/31/95 9.97 9.97
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,040.40 1,050.91
Divided by $1,000 (P) 1.0404 1.0509
Subtract 1 0.0404 0.0509
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.04%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.09%
========
ERV divided by P 1.0404
Raise to the power of 1.2898
Equals 1.0524
Subtract 1 0.0524
Expressed as a percentage equals the
Average Annualized Total Return 5.24%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
MASSACHUSETTS LIMITED MATURITY FUND - CLASS D
Long term income generally based on yield to
maturity times market value of each security $897
Plus short term income accrued for the past
thirty days 126
-----------
Equals Total Income 1,024
Less expenses for the past thirty days -162
-----------
Equals net monthly income for yield calculation 861
-----------
Average shares outstanding for 30 days 26,655
Times the Maximum Offering Price 10.06
-----------
Equals total dollars $268,147
===========
Net monthly income divided by total dollars equals 0.003211638
Add 1 1.003211638
Raise to the power of 6 1.019425210
Subtract 1 0.019425210
Times 2 0.038850419
Expressed as a percentage equals the
standardized yield for the 30 day period 3.89%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.40%
=====
<PAGE>
Michigan Limited Maturity - Class D
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 9.86
---------
Divided by Net Asset Value 9.76
---------
Equals Shares Purchased 101.434 102.459
Plus Shares Acquired through
Dividend Reinvestment 3.436 3.471
--------- ---------
Equals Shares Held at 7/31/95 104.870 105.930
Multiplied by Net Asset Value at 7/31/95 9.98 9.98
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,046.61 1,057.18
Divided by $1,000 (P) 1.0466 1.0572
Subtract 1 0.0466 0.0572
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 4.66%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 5.72%
========
ERV divided by P 1.0466
Raise to the power of 1.2898
Equals 1.0605
Subtract 1 0.0605
Expressed as a percentage equals the
Average Annualized Total Return 6.05%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
MICHIGAN LIMITED MATURITY FUND - CLASS D
Long term income generally based on yield to
maturity times market value of each security $735
Plus short term income accrued for the past
thirty days 212
-----------
Equals Total Income 947
Less expenses for the past thirty days -101
-----------
Equals net monthly income for yield calculation 847
-----------
Average shares outstanding for 30 days 24,601
Times the Maximum Offering Price 10.07
-----------
Equals total dollars $247,729
===========
Net monthly income divided by total dollars equals 0.003417242
Add 1 1.003417242
Raise to the power of 6 1.020679413
Subtract 1 1.020679413
Times 2 0.041358825
Expressed as a percentage equals the
standardized yield for the 30 day period 4.14%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.75%
=====
<PAGE>
New Jersey Limited Maturity - Class D
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 9.95
---------
Divided by Net Asset Value 9.85
---------
Equals Shares Purchased 100.508 101.523
Plus Shares Acquired through
Dividend Reinvestment 3.179 3.211
--------- ---------
Equals Shares Held at 7/31/95 103.686 104.734
Multiplied by Net Asset Value at 7/31/95 10.17 10.17
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,054.49 1,065.14
Divided by $1,000 (P) 1.0545 1.0651
Subtract 1 0.0545 0.0651
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 5.45%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 6.51%
========
ERV divided by P 1.0545
Raise to the power of 1.2898
Equals 1.0708
Subtract 1 0.0708
Expressed as a percentage equals the
Average Annualized Total Return 7.08%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
NEW JERSEY LIMITED MATURITY FUND - CLASS D
Long term income generally based on yield to
maturity times market value of each security $1,098
Plus short term income accrued for the past
thirty days 356
-----------
Equals Total Income 1,454
Less expenses for the past thirty days -230
-----------
Equals net monthly income for yield calculation 1,223
-----------
Average shares outstanding for 30 days 39,740
Times the Maximum Offering Price 10.26
-----------
Equals total dollars $407,731
===========
Net monthly income divided by total dollars equals 0.002999845
Add 1 1.002999845
Raise to the power of 6 1.018134597
Subtract 1 0.018134597
Times 2 0.036269194
Expressed as a percentage equals the
standardized yield for the 30 day period 3.63%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.04%
=====
<PAGE>
New York Limited Maturity - Class D
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 9.88
---------
Divided by Net Asset Value 9.78
---------
Equals Shares Purchased 101.227 102.249
Plus Shares Acquired through
Dividend Reinvestment 3.456 3.491
--------- ---------
Equals Shares Held at 7/31/95 104.683 105.740
Multiplied by Net Asset Value at 7/31/95 10.06 10.06
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,053.11 1,063.75
Divided by $1,000 (P) 1.0531 1.0637
Subtract 1 0.0531 0.0637
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 5.31%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 6.37%
========
ERV divided by P 1.0531
Raise to the power of 1.2898
Equals 1.0690
Subtract 1 0.0690
Expressed as a percentage equals the
Average Annualized Total Return 6.90%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
NEW YORK LIMITED MATURITY FUND - CLASS D
Long term income generally based on yield to
maturity times market value of each security $2,954
Plus short term income accrued for the past
thirty days 803
-----------
Equals Total Income 3,757
Less expenses for the past thirty days -405
-----------
Equals net monthly income for yield calculation 3,353
-----------
Average shares outstanding for 30 days 99,004
Times the Maximum Offering Price 10.15
-----------
Equals total dollars $1,004,886
===========
Net monthly income divided by total dollars equals 0.003336300
Add 1 1.003336300
Raise to the power of 6 1.020185507
Subtract 1 0.020185507
Times 2 0.040371013
Expressed as a percentage equals the
standardized yield for the 30 day period 4.04%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.61%
=====
<PAGE>
Pennsylvania Limited Maturity - Class D
10/21/94 - 7/31/95
<TABLE>
<CAPTION>
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ---------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 9.94
---------
Divided by Net Asset Value 9.84
---------
Equals Shares Purchased 100.610 101.626
Plus Shares Acquired through
Dividend Reinvestment 3.282 3.315
--------- ---------
Equals Shares Held at 7/31/95 103.892 104.941
Multiplied by Net Asset Value at 7/31/95 10.11 10.11
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,050.35 1,060.96
Divided by $1,000 (P) 1.0503 1.0610
Subtract 1 0.0503 0.0610
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 5.03%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 6.10%
========
ERV divided by P 1.0503
Raise to the power of 1.2898
Equals 1.0654
Subtract 1 0.0654
Expressed as a percentage equals the
Average Annualized Total Return 6.54%
=========
</TABLE>
* Does not include sales charge for the period.
<PAGE>
30 DAYS STANDARDIZED YIELD
FOR THE PERIOD ENDING 7-31-95
PENNSYLVANIA LIMITED MATURITY FUND - CLASS D
Long term income generally based on yield to
maturity times market value of each security $1,143
Plus short term income accrued for the past
thirty days 235
-----------
Equals Total Income 1,379
Less expenses for the past thirty days -204
-----------
Equals net monthly income for yield calculation 1,175
-----------
Average shares outstanding for 30 days 35,389
Times the Maximum Offering Price 10.20
-----------
Equals total dollars $360,969
===========
Net monthly income divided by total dollars equals 0.003255491
Add 1 1.003255491
Raise to the power of 6 1.019692610
Subtract 1 0.019692610
Times 2 0.039385219
Expressed as a percentage equals the
standardized yield for the 30 day period 3.94%
=====
Tax Rate 28.00%
X = 1 minus Tax Rate 72.00%
Standardized Yield divided by X equals
Tax Equivalent Yield for 30 day period 5.47%
=====
