As filed with the Securities and Exchange
Commission on September 30, 1999
Securities Act File No. 33-39555
Investment Company Act File No. 811-4375
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 9
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 188
(Check appropriate box or boxes)
Merrill Lynch Florida Municipal Bond Fund
of Merrill Lynch Multi-State Municipal Series Trust
(Exact Name of Registrant as Specified in Charter)
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)
(609) 282-2800
(Registrant’s Telephone Number, including
Area Code)
Terry K. Glenn
Merrill Lynch Multi-State Municipal Series Trust
800 Scudders Mill Road, Plainsboro, New Jersey
08536
Mailing Address:
P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
Copies to:
| Counsel for the
Trust
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
Attention: Thomas R. Smith, Jr., Esq.
Brian M.
Kaplowitz, Esq.
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Michael J. Hennewinkel, Esq.
MERRILL LYNCH
ASSET MANAGEMENT
P.O. Box 9011
Princeton, New Jersey 08543-9011
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It is
proposed that this filing will become effective (check appropriate
box):
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¨
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immediately upon filing pursuant to paragraph (b)
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¨
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on
(date) pursuant to paragraph (b)
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x
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60
days after filing pursuant to paragraph (a)(1)
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¨
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on
(date) pursuant to paragraph (a)(1)
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¨
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75
days after filing pursuant to paragraph (a)(2)
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on
(date) pursuant to paragraph (a)(2) of Rule 485.
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If
appropriate, check the following box:
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¨
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this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
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Title of Securities Being Registered: Shares of
Beneficial Interest, par value $.10 per share.
The information in this
prospectus is not complete and may be changed. We may not use this
prospectus to sell securities until the registration statement
containing this prospectus, which has been filed with the Securities
and Exchange Commission, is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
Prospectus
[LOGO] Merrill Lynch
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 30, 1999
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Merrill
Lynch Florida Municipal Bond Fund
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of
Merrill Lynch Multi-State Municipal Series Trust
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[GRAPHIC] November
, 1999
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This Prospectus contains information you should know before
investing, including information about risks. Please read it
before you invest and keep it for future reference.
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The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
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Table of Contents
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
[LOGO] Key Facts
In an effort to help you better understand the many
concepts involved in making an investment decision, we have
defined highlighted terms in this prospectus in the sidebar.
Investment Grade
— any of the four highest debt
obligation ratings by recognized rating agencies, including
Moody’s Investors Service, Inc., Standard & Poor’
s or Fitch IBCA, Inc.
Florida Municipal Bond
— a debt obligation issued by or on
behalf of a governmental entity in Florida or other qualifying
issuer that pays interest exempt from Federal income tax and
permits shares of the Fund to be exempt from Florida intangible
personal property tax.
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND AT A GLANCE
What is the Fund’s objective?
The investment objective of the Fund is to
provide shareholders with income exempt from Federal income tax
and the opportunity to own shares exempt from Florida
intangible personal property tax.
What are the Fund’s main investment strategies?
The Fund invests primarily in a portfolio of
long term investment grade Florida municipal bonds.
These may be obligations of a variety of issuers including
governmental entities in Florida and issuers located in Puerto
Rico, the U.S. Virgin Islands and Guam. The Fund will invest at
least 65% of its assets in Florida municipal bonds and at least
80% of its total assets in Florida municipal bonds and other
bonds that pay interest exempt from Federal income tax but may
not permit Fund shares to be exempt from Florida intangible
personal property tax. The Fund may invest up to 20% of its
assets in high yield bonds (also known as “junk bonds”
). The Fund also may invest in certain types of “derivative
” securities. When choosing investments, Fund management
considers various factors, including the credit quality of
issuers, yield analysis, maturity analysis and the call
features of the obligations. Under normal conditions, the Fund
’s average weighted maturity will be more than ten years.
The Fund cannot guarantee that it will achieve its objective.
What are the main risks of investing in the Fund?
As with any fund, the value of the Fund’s
investments — and therefore the value of Fund
shares — may go up or down. These changes may
occur in response to interest rate changes or other factors
that may affect a particular issuer or obligation. Generally,
when interest rates go up, the value of debt instruments like
municipal bonds goes down. If the value of the Fund’s
investments goes down, you may lose money. Prices of longer
term securities generally change more in response to interest
rate changes than prices of shorter term securities.
In addition, since the Fund invests at least 65%
of its assets in Florida municipal bonds, it is more exposed to
negative political or economic factors in Florida than a fund
that invests more widely. Derivatives and high yield bonds may
be volatile and subject to liquidity, leverage, credit and
other types of risks.
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
[LOGO] Key Facts
Who should invest?
The Fund may be an appropriate investment for
you if you:
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Are looking for income that is exempt from Federal
income tax and shares whose value is exempt from Florida
intangible personal property taxes
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Want a professionally managed portfolio without the
administrative burdens of direct investments in municipal
bonds
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Are looking for liquidity
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Can tolerate the risk of loss caused by negative
political or economic developments in Florida, changes in
interest rates or adverse changes in the price of bonds in
general
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MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
The bar chart and table shown below provide an
indication of the risks of investing in the Fund. The bar chart
shows changes in the Fund’s performance for Class B shares
for each complete calendar year since the Fund’s
inception. Sales charges are not reflected in the bar chart. If
these amounts were reflected, returns would be less than those
shown. The table compares the average annual total returns for
each class of the Fund’s shares for the periods shown with
those of the Lehman Brothers Municipal Bond Index. How the Fund
performed in the past is not necessarily an indication of how
the Fund will perform in the future.
[BAR GRAPH]
1992 1993 1994 1995 1996 1997 1998
----- ------ ------ ------ ----- ----- -----
7.66% 12.12% -8.27% 15.92% 3.17% 8.15% 5.34%
During the period shown in the bar chart, the
highest return for a quarter was 6.81% (quarter ended March 31,
1995) and the lowest return for a quarter was
-
7.90%
(quarter ended March 31, 1994). The Fund’s year-to-date
return as of June 30, 1999 was
-
1.79%.
Average Annual
Total Returns
(as of the calendar year ended
December 31, 1998)
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Past
One Year
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Past
Five Years
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Since
Inception
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Merrill Lynch Florida Municipal Bond Fund*A
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1.64%
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4.23%
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6.46%†
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Lehman Brothers Municipal Bond Index**
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6.48%
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6.22%
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7.83%#
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Merrill Lynch Florida Municipal Bond Fund*B
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1.34%
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4.56%
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6.49%†
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Lehman Brothers Municipal Bond Index**
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6.48%
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6.22%
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7.83%#
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Merrill Lynch Florida Municipal Bond Fund*C
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4.24%
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N/A
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7.29%††
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Lehman Brothers Municipal Bond Index**
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6.48%
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N/A
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8.98%††
†
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Merrill Lynch Florida Municipal Bond Fund*D
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1.54%
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N/A
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6.79%††
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Lehman Brothers Municipal Bond Index**
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6.48%
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N/A
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8.98%††
†
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**
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This unmanaged Index consists of long term revenue
bonds, prerefunded bonds, general obligation bonds and
insured bonds. Past performance is not predictive of future
performance.
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†
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Inception date is May 31, 1991.
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††
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Inception date is October 21, 1994.
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†††
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Since October 31, 1994.
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MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
[LOGO] Key Facts
UNDERSTANDING EXPENSES
Fund investors pay various fees and expenses, either
directly or indirectly. Listed below are some of the main types
of expenses, which all mutual funds may charge:
Expenses paid directly by the shareholder:
Shareholder Fees
— these include sales charges which you may pay
when you buy or sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual
Fund Operating Expenses
— expenses that cover the costs of operating
the Fund.
Management Fee
— a fee paid to the Manager for managing the
Fund.
Distribution Fees
— fees used to support the Fund’s
marketing and distribution efforts, such as compensating
Financial Consultants, advertising and promotion.
Service
(Account Maintenance) Fees
— fees used to compensate securities dealers
for account maintenance activities.
The Fund offers four different classes of
shares. Although your money will be invested the same way no
matter which class of shares you buy, there are differences
among the fees and expenses associated with each class. Not
everyone is eligible to buy every class. After determining
which classes you are eligible to buy, decide which class best
suits your needs. Your Merrill Lynch Financial Consultant can
help you with this decision.
This table shows the different fees and expenses
that you may pay if you buy and hold the different classes of
shares of the Fund. Future expenses may be greater or less than
those indicated below.
Shareholder Fees (fees paid directly from your
investment)(a):
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Class A
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Class B(b)
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Class C
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Class D
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Maximum Sales Charge (Load) imposed on purchases
(as a percentage of offering price)
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4.00%(c)
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None
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None
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4.00%(c)
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Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price
or redemption
proceeds, whichever is lower)
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None(d)
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4.0%(c)
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1.0%(c)
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None(d)
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Maximum Sales Charge (Load) imposed on Dividend
Reinvestments
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None
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None
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None
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None
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Redemption Fee
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None
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None
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None
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None
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Exchange Fee
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None
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None
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None
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None
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Maximum Account Fee
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None
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None
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None
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None
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Annual Fund Operating Expenses (expenses that are
deducted from Fund assets):
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Management Fee(e)
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0.55%
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0.55%
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0.55%
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0.55%
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Distribution and/or Service (12b-1) Fees(f)
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None
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0.50%
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0.60%
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0.10%
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Other Expenses (including transfer agency fees)(g)
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0.17%
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0.18%
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0.18%
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0.17%
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| Total
Annual Fund Operating Expenses
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0.72%
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1.23%
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1.33%
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0.82%
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(a)
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In addition, Merrill Lynch may charge clients a
processing fee (currently $5.35) when a client buys or
redeems shares.
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(b)
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Class B shares automatically convert to Class D shares
about ten years after you buy them. Then they will no longer
be subject to distribution fees and will pay lower account
maintenance fees.
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(c)
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Some investors may qualify for reductions in the sales
charge (load).
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(d)
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You may pay a deferred sales charge if you purchase $1
million or more and you redeem within one year.
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(e)
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The Fund pays the Manager a fee at the annual rate of
0.55% of the average daily net assets of the Fund for the
first $500 million; 0.525% of the average daily net assets
from $500 million to $1 billion; and 0.50% of the average
daily net assets above $1 billion. For the fiscal year ended
July 31, 1999, the Manager received a fee equal to 0.55% of
the Fund’s average daily net assets.
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(f)
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The Fund calls the “Service Fee” an “
Account Maintenance Fee.” Account Maintenance Fee is the
term used elsewhere in this Prospectus and in all other Fund
materials. If you hold Class B or Class C shares for a long
time, it may cost you more in distribution (12b-1) fees than
the maximum sales charge that you would have paid if you had
bought one of the other classes.
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MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
(footnotes continued from previous page)
(g)
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The Fund pays the Transfer Agent $11.00 for each Class
A and Class D shareholder account and $14.00 for each Class B
and Class C shareholder account and reimburses the Transfer
Agent’s out-of-pocket expenses. The Fund pays a 0.10%
fee for certain accounts that participate in the Merrill
Lynch Mutual Fund Advisor program. The Fund also pays a $0.20
monthly closed account charge, which is assessed upon all
accounts that close during the year. This fee begins the
month following the month the account is closed and ends at
the end of the calendar year. For the fiscal year ended July
31, 1999, the Fund paid the Transfer Agent fees totaling
$79,306. The Manager provides accounting services to the Fund
at its cost. For the fiscal year ended July 31, 1999, the
Fund reimbursed the Manager $93,289 for these services.
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Examples:
These examples are intended to help you compare
the cost of investing in the Fund with the cost of investing in
other mutual funds.
These examples assume that you invest $10,000 in
the Fund for the time periods indicated, that your investment
has a 5% return each year, that you pay the sales charges, if
any, that apply to the particular class and that the Fund’
s operating expenses remain the same. This assumption is not
meant to indicate you will receive a 5% annual rate of return.
Your annual return may be more or less than the 5% used in this
example. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
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1 Year
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3 Years
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5 Years
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10 Years
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| Class A
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$471
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$621
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$785
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$1,259
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| Class B
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$525
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$590
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$676
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$1,489
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| Class C
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$235
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$421
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$729
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$1,601
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| Class D
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$480
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$651
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$837
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$1,373
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| EXPENSES IF YOU DID NOT REDEEM
YOUR SHARES:
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1 Year
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3 Years
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5 Years
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10 Years
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| Class A
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$471
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$621
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$785
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$1,259
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| Class B
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$125
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$390
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$676
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$1,489
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| Class C
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$135
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$421
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$729
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$1,601
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| Class D
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$480
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$651
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$837
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$1,373
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MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
[LOGO] Details About the Fund
ABOUT THE
PORTFOLIO MANAGERS
Robert A. DiMella and Robert D. Sneeden are the
portfolio managers of the Fund and are Vice Presidents of the
Fund. Mr. DiMella has been a Vice President of Merrill Lynch
Asset Management since 1997 and an Assistant Vice President
from 1995 to 1997 and was an Assistant Portfolio Manager of
Merrill Lynch Asset Management from 1993 to 1995. Mr. Sneeden
has been an Assistant Vice President and Portfolio Manager of
Merrill Lynch Asset Management since 1994.
ABOUT THE MANAGER
The Fund is managed by Fund Asset Management.
The Fund’s main goal is to seek
income that is exempt from Federal income tax and to provide
shareholders with the opportunity to own shares exempt from
Florida intangible personal property tax. The Fund invests
primarily in long term, investment grade Florida municipal
bonds. These may be obligations of a variety of issuers
including governmental entities or other qualifying issuers.
Issuers may be located in Florida or in other qualifying
jurisdictions such as Puerto Rico, the U.S. Virgin Islands and
Guam.
The Fund may invest in either fixed rate or
variable rate obligations. At least 80% of the Fund’s
total assets will be invested in investment grade securities.
The Fund may invest up to 20% of its total assets in high
yield (“junk”) bonds. These bonds are generally more
speculative and involve greater price fluctuations than
investment grade securities.
The Fund will invest at least 80% of its
total assets in obligations that pay interest exempt from
Federal income tax and at least 65% of its total assets in
Florida municipal bonds. Under normal conditions, the Fund
’s average weighted maturity will be more than ten years.
For temporary periods, however, the Fund may invest up to 35%
of its total assets in short term tax exempt or taxable money
market obligations, although the Fund will not generally
invest more than 20% of its net assets in taxable money market
obligations. As a temporary measure for defensive purposes,
the Fund may invest without limitation in short term
tax-exempt or taxable money market obligations. These short
term investments may limit the potential for the Fund to
achieve its objective.
The Fund may use derivatives including
futures, options, indexed securities and inverse securities.
Derivatives are financial instruments whose value is derived
from another security or an index such as the Lehman Brothers
Municipal Bond Index.
The Fund’s investments may include
private activity bonds that may subject certain shareholders
to a Federal alternative minimum tax.
Florida’s economy is influenced by
numerous factors, including transfer payments from the Federal
government (social security benefits, pension benefits, etc.),
population growth, tourism, interest rates and hurricane
activity. The Manager believes that current economic
conditions in Florida will enable the Fund to continue to
invest in high quality Florida municipal bonds. Moody’s,
Standard & Poor’s and Fitch currently rate the State
of Florida general obligation bonds AA2, AA+ and AA,
respectively.
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
Fund management considers a variety of
factors when choosing investments, such as:
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Credit Quality Of Issuers
— based on bond ratings and other factors
including economic and financial conditions.
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Yield Analysis
— takes into account factors such as the
different yields available on different types of obligations
and the shape of the yield curve (longer term obligations
typically have higher yields).
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Maturity Analysis
— the average maturity of the portfolio will
be maintained within a desirable range as determined from
time to time. Factors considered include portfolio activity,
maturity of the supply of available bonds and the shape of
the yield curve.
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In addition, Fund management considers the
availability of features that protect against an early call of
a bond by the issuer.
This section contains a summary discussion
of the general risks of investing in the Fund. As with any
mutual fund, there can be no guarantee that the Fund will meet
its goals or that the Fund’s performance will be positive
for any period of time.
Bond Market And Selection Risk
— Bond market risk is the risk that the bond
market will go down in value, including the possibility that
the market will go down sharply and unpredictably. Selection
risk is the risk that the investments that Fund management
selects will underperform the market or other funds with
similar investment objectives and investment strategies.
Credit Risk
— Credit risk is the risk that the issuer will
be unable to pay the interest or principal when due. The
degree of credit risk depends on both the financial condition
of the issuer and the terms of the obligation.
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
[LOGO] Details About the Fund
Interest Rate Risk
— Interest rate risk is the risk that prices
of municipal bonds generally increase when interest rates
decline and decrease when interest rates increase. Prices of
longer term securities generally change more in response to
interest rate changes than prices of shorter term securities.
State Specific Risk
— The Fund will invest primarily in Florida
municipal bonds. As a result, the Fund is more exposed to
risks affecting issuers of Florida municipal bonds than is a
municipal bond fund that invests more widely.
The Fund is a non-diversified fund, which
means that it may invest more of its assets in obligations of
a single issuer than if it were a diversified fund. By
concentrating in a smaller number of investments, the Fund
’s risk is increased because each investment has a
greater effect on the Fund’s performance.
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 have encountered financial
difficulties. Florida is highly dependent upon sales and use
taxes, which account for the majority of its General Fund
revenues. The Florida Constitution does not permit a state or
local personal income tax. The structure of personal income in
Florida is also different from the rest of the nation in that
the State has a proportionally greater retirement age
population that 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.
Call And Redemption Risk
— A bond’s issuer may call a bond for
redemption before it matures. If this happens to a bond the
Fund holds, the Fund may lose income and may have to invest
the proceeds in bonds with lower yields.
Risks associated with certain types of
obligations in which the Fund may invest include:
General Obligation Bonds
— The faith, credit and taxing power of the
issuer of a general obligation bond secures payment of
interest and repayment of principal. Timely payments depend on
the issuer’s credit quality, ability to raise tax
revenues and ability to maintain an adequate tax base.
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
Revenue Bonds
— Payments of interest and principal on
revenue bonds are made only from the revenues generated by a
particular facility, class of facilities or the proceeds of a
special tax or other revenue source. These payments depend on
the money earned by the particular facility or class of
facilities. Industrial development bonds are one type of
revenue bond.
Industrial Development Bonds
— Municipalities and other public authorities
issue industrial development bonds to finance development of
industrial facilities for use by a private enterprise. The
private enterprise pays the principal and interest on the
bond, and the issuer does not pledge its faith, credit and
taxing power for repayment. If the private enterprise defaults
on its payments, the Fund may not receive any income or get
its money back from the investment.
Moral Obligation Bonds
— Moral obligation bonds are generally issued
by special purpose public authorities of a state or
municipality. If the issuer is unable to meet its obligations,
repayment of these bonds becomes a moral commitment, but not a
legal obligation, of the state or municipality.
Municipal Notes
— Municipal notes are shorter term municipal
debt obligations. They may provide interim financing in
anticipation of tax collection, bond sales or revenue
receipts. If there is a shortfall in the anticipated proceeds,
the notes may not be fully repaid and the Fund may lose money.
Municipal Lease Obligations
— In a municipal lease obligation, the issuer
agrees to budget for and appropriate municipal funds to make
payments due on the lease obligation. However, this does not
ensure that funds will actually be appropriated in future
years. The issuer does not pledge its unlimited taxing power
for payment of the lease obligation, but the leased property
secures the obligation. In addition, the proceeds of a sale
may not cover the Fund’s loss.
Insured Municipal Bonds
— Bonds purchased by the Fund may be covered
by insurance that guarantees timely interest payments and
repayment of principal on maturity. If a bond’s insurer
fails to fulfill its obligations or loses its credit rating,
the value of the bond could drop. Insured bonds are subject to
market risk.
Junk Bonds
— Junk bonds are debt securities that are
rated below investment grade by the major rating agencies or
are unrated securities that
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
Fund management believes are of comparable quality. The Fund
does not intend to purchase debt securities that are in
default or which Fund management believes will be in default.
Although junk bonds generally pay higher rates of interest
than investment grade bonds, they are high risk investments
that may cause income and principal losses for the Fund. Junk
bonds generally are less liquid and experience more price
volatility than higher rated debt securities. The issuers of
junk bonds may have a larger amount of outstanding debt
relative to their assets than issuers of investment grade
bonds. In the event of an issuer’s bankruptcy, claims of
other creditors may have priority over the claims of junk bond
holders, leaving few or no assets available to repay junk bond
holders. Junk bonds may be subject to greater call and
redemption risk than higher rated debt securities.
When Issued Securities, Delayed Delivery
Securities and Forward Commitments
— When issued and delayed delivery securities
and forward commitments involve the risk that the security the
Fund buys will lose value prior to its delivery to the Fund.
There also is the risk that the security will not be issued or
that the other party will not meet its obligation, in which
case the Fund loses the investment opportunity of the assets
it has set aside to pay for the security and any gain in the
security’s price.
Variable Rate Demand Obligations
— Variable rate demand obligations (VRDOs) are
floating rate securities that combine an interest in a long
term municipal bond with a right to demand payment before
maturity from a bank or other financial institution. If the
bank or financial institution is unable to pay, the Fund may
lose money.
Illiquid Investments
— The Fund may invest up to 15% of its assets
in illiquid securities that it cannot easily resell within
seven days at current value or that have contractual or legal
restrictions on resale. If the Fund buys illiquid securities
it may be unable to quickly resell them or may be able to sell
them only at a price below current value.
Derivatives
— The Fund may use derivative instruments
including indexed and inverse securities, options on portfolio
positions, options on securities or other financial indices,
financial futures and options on such futures. Derivatives
allow the Fund to increase or decrease its risk exposure more
quickly and efficiently than other types of instruments.
Derivatives are volatile and involve significant risks,
including:
|
Ÿ
|
Credit Risk
— the risk that the counterparty (the party
on the other side of the transaction) on a derivative
transaction will be unable to honor its financial obligation
to the Fund.
|
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
|
Ÿ
|
Leverage Risk
— the risk associated with certain types of
investments or trading strategies that relatively small
market movements may result in large changes in the value of
an investment. Certain investments or trading strategies
that involve leverage can result in losses that greatly
exceed the amount originally invested.
|
|
Ÿ
|
Liquidity Risk
— the risk that certain securities may be
difficult or impossible to sell at the time that the seller
would like or at the price that the seller believes the
security is currently worth.
|
The Fund may use derivatives for hedging
purposes including anticipatory hedges. Hedging is a strategy
in which the Fund uses a derivative to offset the risk that
other Fund holdings may decrease in value. While hedging can
reduce losses, it can also reduce or eliminate gains if the
market moves in a different manner than anticipated by the
Fund or if the cost of the derivative outweighs the benefit of
the hedge. Hedging also involves the risk that changes in the
value of the derivative will not match those of the holdings
being hedged as expected by the Fund, in which case any losses
on the holdings being hedged may not be reduced. There can be
no assurance that the Fund’s hedging strategy will reduce
risk or that hedging transactions will be either available or
cost effective. The Fund is not required to use hedging and
may choose not to do so.
Indexed And Inverse Floating Rate Securities
— The Fund may invest in securities whose
potential returns are directly related to changes in an
underlying index or interest rate, known as indexed
securities. The return on indexed securities will rise when
the underlying index or interest rate rises and fall when the
index or interest rate falls. The Fund may also invest in
securities whose return is inversely related to changes in an
interest rate (inverse floaters). In general, income on
inverse floaters will decrease when short term rates increase
and increase when short term rates decrease. Investments in
inverse floaters may subject the Fund to the risks of reduced
or eliminated interest payments and losses of principal. In
addition, certain indexed securities and inverse floaters may
increase or decrease in value at a greater rate than the
underlying interest rate, which effectively leverages the Fund
’s investment. As a result, the market value of such
securities will generally be more volatile than that of fixed
rate, tax exempt securities. Both indexed securities and
inverse floaters are derivative securities and can be
considered speculative.
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
[LOGO] Details About the Fund
Borrowing And Leverage
— The Fund may borrow for temporary emergency
purposes including to meet redemptions. Borrowing may
exaggerate changes in the net asset value of Fund shares and
in the yield on the Fund’s portfolio. Borrowing will cost
the Fund interest expense and other fees. The costs of
borrowing may reduce the Fund’s return. Certain
securities that the Fund buys may create leverage including,
for example, when issued securities, forward commitments and
options.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about
the Fund, including how it invests, please see the Statement
of Additional Information.
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
[LOGO] Your Account
MERRILL LYNCH SELECT PRICING
SM
SYSTEM
The Fund offers four share classes, each
with its own sales charge and expense structure, allowing you
to invest in the way that best suits your needs. Each share
class represents an ownership interest in the same investment
portfolio. When you choose your class of shares you should
consider the size of your investment and how long you plan to
hold your shares. Your Merrill Lynch Financial Consultant can
help you determine which share class is best suited to your
personal financial goals.
For example, if you select Class A or D
shares, you generally pay a sales charge at the time of
purchase. If you buy Class D shares, you also pay an ongoing
account maintenance fee of 0.10%. You may be eligible for a
sales charge reduction or waiver.
If you select Class B or C shares, you will
invest the full amount of your purchase price, but you will be
subject to a distribution fee of 0.25% on Class B shares or
0.35% on Class C shares and an account maintenance fee of
0.25% on both classes. Because these fees are paid out of the
Fund’s assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost you more
than paying an initial sales charge. In addition, you may be
subject to a deferred sales charge when you sell Class B or C
shares.
The Fund’s shares are distributed by
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc., an affiliate of Merrill Lynch. The Fund is
a series of the Merrill Lynch Multi-State Municipal Series
Trust.
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND
[LOGO] Your Account
The table below summarizes key features of
the Merrill Lynch Select Pricing
SM
System.
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
|
| Availability
|
|
Limited to certain
investors including:
Ÿ
Current Class A
shareholders
Ÿ
Participants in
certain Merrill Lynch-
sponsored programs
Ÿ
Certain affiliates of
Merrill Lynch.
|
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers.
|
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers.
|
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers.
|
|
|
|
Initial Sales
Charge?
|
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments.
|
|
No. Entire purchase
price is invested in
shares of the Fund.
|
|
No. Entire purchase
price is invested in
shares of the Fund.
|
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments.
|
|
Deferred Sales
Charge?
|
|
No. (May be charged
for purchases over
$1 million that are
redeemed within
one year.)
|
|
Yes. Payable if you
redeem within four
years of purchase.
|
|
Yes. Payable if you
redeem within one
year of purchase.
|
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year.)
|
|
|
|
Account
Maintenance and
Distribution Fees?
|
|
No.
|
|
0.25% Account
Maintenance Fee
0.25% Distribution
Fee.
|
|
0.25% Account
Maintenance Fee
0.35% Distribution
Fee.
|
|
0.10% Account
Maintenance Fee
No Distribution Fee.
|
|
Conversion to
Class D shares?
|
|
No.
|
|
Yes,
automatically
after approximately
ten years.
|
|
No.
|
|
No.
|
|
|
|
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
Class A and Class D Shares
— Initial Sales Charge Options
If you select Class A or
Class D shares, you will pay a sales charge at the time of
purchase.
| Your
Investment
|
|
As a
% of
Offering Price
|
|
As a
% of
Your Investment*
|
|
Dealer
Compensation
as a % of
Offering Price
|
|
|
Less than $25,000
|
|
4.00%
|
|
4.17%
|
|
3.75%
|
|
$25,000 but less than
$50,000
|
|
3.75%
|
|
3.90%
|
|
3.50%
|
|
$50,000 but less than
$100,000
|
|
3.25%
|
|
3.36%
|
|
3.00%
|
|
$100,000 but less than
$250,000
|
|
2.50%
|
|
2.56%
|
|
2.25%
|
|
$250,000 but less than
$1,000,000
|
|
1.50%
|
|
1.52%
|
|
1.25%
|
|
|
$1,000,000 and over**
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
|
*
|
Rounded to the nearest
one-hundredth percent.
|
**
|
If you invest $1,000,000
or more in Class A or Class D shares, you may not pay an
initial sales charge. However, if you redeem your shares
within one year after purchase, you may be charged a
deferred sales charge. This charge is 1% of the lesser
of the original cost of the shares being redeemed or
your redemption proceeds.
|
No initial sales charge
applies to Class A or Class D shares that you buy through
reinvestment of dividends.
A reduced or waived sales
charge on a purchase of Class A or Class D shares may
apply for:
|
Ÿ
|
Purchases under a Right of
Accumulation or Letter of Intent
|
|
Ÿ
|
Certain Merrill Lynch investment or
central asset accounts
|
|
Ÿ
|
Purchases using proceeds from the
sale of certain Merrill Lynch closed-end funds under
certain circumstances
|
|
Ÿ
|
Certain investors, including
directors or trustees of Merrill Lynch mutual funds and
Merrill Lynch employees
|
|
Ÿ
|
Certain Merrill Lynch fee-based
programs
|
Right of Accumulation
— permits you to pay the sales charge that would
apply to the cost or value (whichever is higher) of all
shares you own in the Merrill Lynch mutual funds that
offer Select Pricing options.
Letter of Intent
— permits you to pay the sales charge that would
be applicable if you add up all shares of Merrill Lynch
Select Pricing System funds that you agree to buy within a
13 month period. Certain restrictions apply.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
[LOGO] Your Account
Only certain investors
are eligible to buy Class A shares. Your Merrill Lynch
Financial Consultant can help you determine whether you
are eligible to buy Class A shares or to participate in
any of these programs.
If you decide to buy
shares under the initial sales charge alternative and you
are eligible to buy both Class A and Class D shares, you
should buy Class A since Class D shares are subject to a
0.10% account maintenance fee, while Class A shares are
not.
If you redeem Class A or
Class D shares and within 30 days buy new shares of the
same class, you will not pay a sales charge on the new
purchase amount. The amount eligible for this “
Reinstatement Privilege” may not exceed the amount of
your redemption proceeds. To exercise the privilege,
contact your Merrill Lynch Financial Consultant or the Fund
’s Transfer Agent at 1-800-MER-FUND.
Class B and Class C Shares
— Deferred Sales Charge Options
If you select Class B or
Class C shares, you do not pay an initial sales charge at
the time of purchase. However, if you redeem your Class B
shares within four years after purchase, or your Class C
shares within one year after purchase, you may be required
to pay a deferred sales charge. You will also pay
distribution fees of 0.25% for Class B shares and 0.35%
for Class C shares and account maintenance fees of 0.25%
for Class B and Class C shares each year under
distribution plans that the Fund has adopted under Rule
12b-1. Because these fees are paid out of the Fund’s
assets on an ongoing basis, over time these fees increase
the cost of your investment and may cost you more than
paying an initial sales charge. The Distributor uses the
money that it receives from the deferred sales charges and
the distribution fees to cover the costs of marketing,
advertising and compensating the Merrill Lynch Financial
Consultant or other securities dealer who assists you in
purchasing Fund shares.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
Class B Shares
If you redeem Class B
shares within four years after purchase, you may be
charged a deferred sales charge. The amount of the charge
gradually decreases as you hold your shares over time,
according to the following schedule:
| Years Since
Purchase
|
|
Sales Charge*
|
|
|
0 – 1
|
|
4.00%
|
|
|
1 – 2
|
|
3.00%
|
|
|
2 – 3
|
|
2.00%
|
|
|
3 – 4
|
|
1.00%
|
|
|
4 and thereafter
|
|
0.00%
|
|
*
|
The percentage charge
will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your
redemption. Shares acquired through reinvestment of
dividends are not subject to a deferred sales charge.
Not all Merrill Lynch funds have identical deferred
sales charge schedules. If you exchange your shares for
shares of another fund, the higher charge will apply.
|
The deferred sales charge
relating to Class B shares may be reduced or waived in
certain circumstances, such as:
|
Ÿ
|
Redemption in connection with
participation in certain Merrill Lynch fee-based programs
|
|
Ÿ
|
Withdrawals resulting from
shareholder death or disability as long as the waiver
request is made within one year of death or disability
or, if later, reasonably promptly following completion
of probate, or in connection with involuntary
termination of an account in which Fund shares are held
|
|
Ÿ
|
Withdrawal through the Merrill Lynch
Systematic Withdrawal Plan of up to 10% per year of your
Class B account value at the time the plan is established
|
Your Class B shares
convert automatically into Class D shares approximately
ten years after purchase. Any Class B shares received
through reinvestment of dividends paid on converting
shares will also convert at that time. Class D shares are
subject to lower annual expenses than Class B shares. The
conversion of Class B to Class D shares is not a taxable
event for Federal income tax purposes.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
[LOGO] Your Account
Different conversion
schedules apply to Class B shares of different Merrill
Lynch mutual funds. For example, Class B shares of a
fixed-income fund typically convert approximately ten
years after purchase compared to approximately eight years
for equity funds. If you acquire your Class B shares in an
exchange from another fund with a shorter conversion
schedule, the Fund’s ten year conversion schedule
will apply. If you exchange your Class B shares in the
Fund for Class B shares of a fund with a shorter
conversion schedule, the other fund’s conversion
schedule will apply. The length of time that you hold both
the original and exchanged Class B shares in both funds
will count toward the conversion schedule. The conversion
schedule may be modified in certain other cases as well.
Class C Shares
If you redeem Class C
shares within one year after purchase, you may be charged
a deferred sales charge of 1.00%. The charge will apply to
the lesser of the original cost of the shares being
redeemed or the proceeds of your redemption. You will not
be charged a deferred sales charge when you redeem shares
that you acquire through reinvestment of Fund dividends.
The deferred sales charge relating to Class C shares may
be reduced or waived in connection with involuntary
termination of an account in which Fund shares are held
and withdrawals through the Merrill Lynch Systematic
Withdrawal Plan.
Class C shares do not
offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart below summarizes
how to buy, sell, transfer and exchange shares through
Merrill Lynch or other securities dealers. You may also
buy shares through the Transfer Agent. To learn more about
buying shares through the Transfer Agent, call
1-800-MER-FUND. Because the selection of a mutual fund
involves many considerations, your Merrill Lynch Financial
Consultant may help you with this decision.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
| If You Want To
|
|
Your Choices
|
|
Information
Important for You to Know
|
|
| Buy Shares
|
|
First, select
the share class
appropriate for you
|
|
Refer to the
Merrill Lynch Select Pricing table on page 16. Be sure
to read this prospectus carefully.
|
| |
|
|
|
|
Next, determine
the
amount of your investment
|
|
The minimum
initial investment for the Fund is $1,000 for all
accounts except that certain Merrill Lynch fee-based
programs
have a $250 initial minimum investment.
|
|
|
|
|
|
|
|
(The minimums
for initial investments may be waived under
certain circumstances.)
|
| |
|
|
|
|
Have your
Merrill Lynch
Financial Consultant or
securities dealer submit
your purchase order
|
|
The price of
your shares is based on the next calculation of net
asset value after your order is placed. Any purchase
orders placed
prior to the close of business on the New York Stock
Exchange
(generally 4:00 p.m. Eastern time) will be priced at the
net asset
value determined that day.
|
|
|
|
|
|
|
|
Purchase orders
placed after that time will be priced at the net
asset value determined on the next business day. The Fund
may
reject any order to buy shares and may suspend the sale of
shares
at any time. Merrill Lynch may charge a processing fee to
confirm
a purchase. This fee is currently $5.35.
|
| |
|
|
|
|
Or contact the
Transfer
Agent
|
|
To purchase
shares directly, call the Transfer Agent at 1-800-MER-
FUND and request a purchase application. Mail the completed
purchase application to the Transfer Agent at the address
on the
inside back cover of this Prospectus.
|
|
Add to Your
Investment
|
|
Purchase
additional shares
|
|
The minimum
investment for additional purchases is generally $50
except that certain programs, such as automatic investment
plans,
may have higher minimums.
|
|
|
|
|
|
|
|
(The minimum for
additional purchases may be waived under
certain circumstances.)
|
| |
|
|
|
|
Acquire
additional shares
through the automatic
dividend reinvestment plan
|
|
All dividends
are automatically reinvested without a sales charge.
|
|
|
|
|
|
Participate in
the automatic
investment plan
|
|
You may invest a
specific amount on a periodic basis through
certain Merrill Lynch investment or central asset accounts.
|
|
Transfer Shares
to
Another Securities
Dealer
|
|
Transfer to a
participating
securities dealer
|
|
You may transfer
your Fund shares only to another securities
dealer that has entered into an agreement with Merrill
Lynch.
Certain shareholder services may not be available for the
transferred shares. You may only purchase additional
shares of
funds previously owned before the transfer. All future
trading of
these assets must be coordinated by the receiving firm.
|
| |
|
|
|
|
Transfer to a
non-
participating securities
dealer
|
|
You must either:
Ÿ
Transfer your shares to an account with the
Transfer Agent; or
Ÿ
Sell your shares, paying any applicable CDSC.
|
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
[LOGO] Your Account
| If You Want to
|
|
Your Choices
|
|
Information
Important for You to Know
|
|
| Sell Your Shares
|
|
Have your
Merrill Lynch
Financial Consultant or
securities dealer submit
your sales order
|
|
The price of
your shares is based on the next calculation of net
asset value after your order is placed. For your
redemption request
to be priced at the net asset value on the day of your
request, you
must submit your request to your dealer prior to that day
’s close
of business on the New York Stock Exchange (generally 4:00
p.m.
Eastern time). Any redemption request placed after that
time will
be priced at the net asset value at the close of business
on the
next business day. Dealers must submit redemption requests
to the
Fund not more than thirty minutes after the close of
business on
the New York Stock Exchange on the day the request was
received.
|
|
|
|
|
|
|
|
Securities
dealers, including Merrill Lynch, may charge a fee to
process a redemption of shares. Merrill Lynch currently
charges a
fee of $5.35. No processing fee is charged if you redeem
shares
directly through the Transfer Agent.
|
|
|
|
|
|
|
|
The Fund may
reject an order to sell shares under certain
circumstances.
|
| |
|
|
|
|
Sell through the
Transfer
Agent
|
|
You may sell
shares held at the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of
this
prospectus. All shareholders on the account must sign the
letter. In
some cases, a signature guarantee may be required. Please
see the
Statement of Additional Information for details on when a
signature guarantee is needed. If you hold stock
certificates, return
the certificates with the letter. The Transfer Agent will
normally
mail redemption proceeds within seven days following
receipt of a
properly completed request. If you make a redemption
request
before the Fund has collected payment for the purchase of
shares,
the Fund or the Transfer Agent may delay mailing your
proceeds.
This delay will usually not exceed ten days. If you hold
share
certificates, they must be delivered to the Transfer Agent
before
they can be converted. Check with the Transfer Agent or
your
Merrill Lynch Financial Consultant for details.
|
|
Sell Shares
Systematically
|
|
Participate in
the Fund’s
Systematic Withdrawal Plan
|
|
You can choose
to receive systematic payments from your Fund
account either by check or through direct deposit to your
bank
account on a monthly or quarterly basis. If you hold your
Fund
shares in a Merrill Lynch CMA® or CBA® Account,
you can arrange
for systematic redemptions of a fixed dollar amount on a
monthly,
bi-monthly, quarterly, semi-annual or annual basis,
subject to
certain conditions. Under either method you must have
dividends
automatically reinvested. For Class B and C shares your
total
annual withdrawals cannot be more than 10% per year of the
value of your shares at the time your plan is established.
The
deferred sales charge is waived for systematic
redemptions. Ask
your Merrill Lynch Financial Consultant for details.
|
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
| If You Want to
|
|
Your Choices
|
|
Information
Important for You to Know
|
|
Exchange Your
Shares
|
|
Select the fund
into which
you want to exchange. Be
sure to read that fund’s
prospectus
|
|
You can exchange
your shares of the Fund for shares of many
other Merrill Lynch mutual funds. You must have held the
shares
used in the exchange for at least 15 calendar days before
you can
exchange to another fund.
|
|
|
|
|
|
|
|
Each class of
Fund shares is generally exchangeable for shares of
the same class of another fund. If you own Class A shares
and wish
to exchange into a fund in which you have no Class A
shares (and
are not eligible to purchase Class A shares), you will
exchange into
Class D shares.
|
|
|
|
|
|
|
|
Some of the
Merrill Lynch mutual funds impose a different initial
or deferred sales charge schedule. If you exchange Class A
or D
shares for shares of a fund with a higher initial sales
charge than
you originally paid, you will be charged the difference at
the time
of exchange. If you exchange Class B shares for shares of
a fund
with a different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or C shares
in both
funds will count when determining your holding period for
calculating a deferred sales charge at redemption. If you
exchange
Class A or D shares for money market fund shares, you will
receive
Class A shares of Summit Cash Reserves Fund. Class B or C
shares of
the Fund will be exchanged for Class B shares of Summit.
|
|
|
|
|
|
|
|
Although there
is currently no limit on the number of exchanges
that you can make, the exchange privilege may be modified
or
terminated at any time in the future.
|
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
[LOGO] Your Account
Net Asset Value
— the market value of the Fund
’s total assets after deducting liabilities, divided
by the number of shares outstanding.
HOW SHARES ARE PRICED
When you buy shares, you
pay the net asset value, plus any applicable
sales charge. This is the offering price. Shares are also
redeemed at their net asset value, minus any applicable
deferred sales charge. The Fund calculates its net asset
value (generally by using market quotations) each day the
New York Stock Exchange is open, after the close of
business on the Exchange (the Exchange generally closes at
4:00 p.m. Eastern time). The net asset value used in
determining your price is the next one calculated after
your purchase or redemption order is placed.
Generally, Class A shares
will have the highest net asset value because that class
has the lowest expenses, and Class D shares will have a
higher net asset value than Class B or Class C shares.
Class B shares will have a higher net asset value than
Class C shares because Class B shares have lower
distribution expenses than Class C shares. Also dividends
paid on Class A and Class D shares will generally be
higher than dividends paid on Class B and Class C shares
because Class A and Class D shares have lower expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
If you participate in
certain fee-based programs offered by Merrill Lynch, you
may be able to buy Class A shares at net asset value,
including by exchanges from other share classes. Sales
charges on the shares being exchanged may be reduced or
waived under certain circumstances.
You generally cannot
transfer shares held through a fee-based program into
another account. Instead, you will have to redeem your
shares held through the program and purchase shares of
another class, which may be subject to distribution and
account maintenance fees. This may be a taxable event and
you will pay any applicable sales charges.
If you leave one of these
programs, your shares may be redeemed or automatically
exchanged into another class of Fund shares or into a
money market fund. The class you receive may be the class
you originally owned when you entered the program, or in
certain cases, a different class. If the exchange is into
Class B shares, the period before conversion to Class D
shares may be modified. Any redemption or exchange will be
at net asset value. However, if you participate in the
program for less than a specified period, you may be
charged a fee in accordance with the terms of the program.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
Dividends
— Exempt-interest, ordinary income
and capital gains paid to shareholders. Dividends may be
reinvested in additional Fund shares as they are paid.
“BUYING A DIVIDEND”
You may want to avoid buying
shares shortly before the Fund pays a dividend, although
the impact on you will be significantly less than if you
were invested in a fund paying fully taxable dividends.
The reason? If you buy shares when a fund has realized but
not yet distributed taxable income (if any) or capital
gains, you will pay the full price for the shares and then
receive a portion of the price back in the form of a
taxable dividend. Before investing you may want to consult
your tax adviser.
Details about these
features and the relevant charges are included in the
client agreement for each fee-based program and are
available from your Merrill Lynch Financial Consultant.
DIVIDENDS AND TAXES
The Fund will distribute
any net investment income monthly and any net realized
long or short term capital gains at least annually. The
Fund may also pay a special distribution at the end of the
calendar year to comply with Federal tax requirements. If
your account is with Merrill Lynch and you would like to
receive dividends in cash, contact your
Merrill Lynch Financial Consultant. If your account is
with the Transfer Agent and you would like to receive
dividends in cash, contact the Transfer Agent.
Taxes
To the extent that the
dividends distributed by the Fund are from municipal bond
interest income, they are exempt from Federal income tax.
However, certain investors may be subject to a Federal
alternative minimum tax on dividends received from the
Fund. Interest income from other investments may produce
taxable distributions. The value of your shares generally
will be exempt from Florida intangible personal property
tax. While dividends paid by the Fund to individuals who
are Florida residents are not subject to personal income
taxation, distributions by the Fund will be subject to
Florida corporate income taxes. If you are subject to
income tax in a state other than Florida, the dividends
derived from Florida municipal bonds may be subject to
income tax in that state.
Generally, within 60 days
after the end of the Fund’s taxable year, the Trust
will tell you the amount of exempt-interest dividends and
capital gain dividends you received that year. Capital
gain dividends are taxable as long term capital gains to
you, regardless of how long you have held your shares. The
tax treatment of dividends from the Fund is the same
whether you choose to receive dividends in cash or to have
them reinvested in shares of the Fund.
By law, the Fund must
withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or
social security number or if the number you have provided
is incorrect.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
[LOGO] Your Account
If you redeem Fund shares
or exchange them for shares of another fund, any gain on
the transaction may be subject to Federal income tax.
This section summarizes
some of the consequences of an investment in the Fund
under current Federal and Florida tax laws. It is not a
substitute for personal tax advice. Consult your personal
tax adviser about the potential tax consequences to you of
an investment in the Fund under all applicable tax laws.
The Fund’s Statement of Additional Information has
more information about taxes.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
[LOGO] Management of the Fund
Fund Asset Management,
the Fund’s Manager, manages the Fund’s
investments and its business operations under the overall
supervision of the Trust’s Board of Trustees. The
Manager has the responsibility for making all investment
decisions for the Fund. The Fund pays the Manager a fee at
the annual rate of 0.55% of the average daily net assets
of the Fund for the first $500 million; 0.525% of the
average daily net assets from $500 million to $1 billion;
and 0.50% of the average daily net assets above $1
billion. For the fiscal year ended July 31, 1999, the
Manager received a fee equal to 0.55% of the Fund’s
average daily net assets.
Fund Asset Management is
part of the Asset Management Group of ML & Co. The
Asset Management Group had approximately $520 billion in
investment company and other portfolio assets under
management as of August 1999. This amount includes assets
managed for Merrill Lynch affiliates.
A Note About Year 2000
Many computer systems were
designed using only two digits to designate years. These
systems may not be able to distinguish the Year 2000 from
the Year 1900 (commonly known as the “Year 2000
Problem”). The Fund could be adversely affected if
the computer systems used by Fund management or other Fund
service providers do not properly address this problem
before January 1, 2000. Fund management expects to have
addressed this problem before then, and does not
anticipate that the services it provides will be adversely
affected. The Fund’s other service providers have
told Fund management that they also expect to resolve the
Year 2000 Problem, and Fund management will continue to
monitor the situation as the Year 2000 approaches.
However, if the problem has not been fully addressed, the
Fund could be negatively affected. The Year 2000 Problem
could also have a negative impact on the issuers of
securities in which the Fund invests, and this could hurt
the Fund’s investment returns.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
[LOGO] Management of the Fund
The Financial Highlights
table is intended to help you understand the Fund’s
financial performance for the periods shown. Certain
information reflects financial results for a single Fund
share. The total returns in the table represent the rate
an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends). This information
has been audited by Deloitte & Touche LLP
, whose report, along with the Fund’s financial
statements, is included in the Fund’s annual report
to shareholders, which is available upon request.
|
|
|
Class
A
|
|
Class
B
|
| Increase
(Decrease) in
|
|
For
the Year Ended July 31,
|
|
For
the Year Ended July 31,
|
| Net Asset
Value:
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
1995
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
1995
|
|
| Per Share
Operating Performance:
|
|
| Net asset value,
beginning of year
|
|
$
|
|
$10.37
|
|
|
$9.94
|
|
|
$9.86
|
|
|
$9.88
|
|
|
$
|
|
$10.37
|
|
$9.94
|
|
|
$9.86
|
|
|
$9.88
|
|
|
| Investment income
— net
|
|
|
|
.53
|
|
|
.53
|
|
|
.53
|
|
|
.53
|
|
|
|
|
.47
|
|
.48
|
|
|
.48
|
|
|
.49
|
|
|
Realized and
unrealized gain (loss) on
investments — net
|
|
|
|
.04
|
|
|
.43
|
|
|
.08
|
|
|
(.02
|
)
|
|
|
|
.04
|
|
.43
|
|
|
.08
|
|
|
(.02
|
)
|
|
| Total from
investment operations
|
|
|
|
.57
|
|
|
.96
|
|
|
.61
|
|
|
.51
|
|
|
|
|
.51
|
|
.91
|
|
|
.56
|
|
|
.47
|
|
|
| Less
dividends from
|
|
investment income — net
|
|
—
|
|
(.53
|
)
|
|
(.53
|
)
|
|
(.53
|
)
|
|
(.53
|
)
|
|
—
|
|
(.47)
|
|
(.48
|
)
|
|
(.48
|
)
|
|
(.49
|
)
|
|
| Total dividends
and distributions
|
|
—
|
|
(.53
|
)
|
|
(.53
|
)
|
|
(.53
|
)
|
|
(.53
|
)
|
|
|
|
(.47)
|
|
(.48
|
)
|
|
(.48
|
)
|
|
(.49
|
)
|
|
| Net asset value,
end of year
|
|
$
|
|
$10.41
|
|
|
$10.37
|
|
|
$9.94
|
|
|
$9.86
|
|
|
$
|
|
$10.41
|
|
$10.37
|
|
|
$9.94
|
|
|
$9.86
|
|
|
|
Total Investment Return:*
|
|
| Based on net
asset value per share
|
|
%
|
|
5.61
|
%
|
|
9.99
|
%
|
|
6.30
|
%
|
|
5.47
|
%
|
|
%
|
|
5.07%
|
|
9.43
|
%
|
|
5.76
|
%
|
|
4.93
|
%
|
|
|
Ratios to Average Net Assets:
|
|
| Total expenses
|
|
%
|
|
.69
|
%
|
|
.69
|
%
|
|
.68
|
%
|
|
.70
|
%
|
|
%
|
|
1.20%
|
|
1.20
|
%
|
|
1.18
|
%
|
|
1.21
|
%
|
|
| Investment income
— net
|
|
%
|
|
5.06
|
%
|
|
5.31
|
%
|
|
5.30
|
%
|
|
5.54
|
%
|
|
%
|
|
4.55%
|
|
4.80
|
%
|
|
4.79
|
%
|
|
5.03
|
%
|
|
|
Supplemental Data:
|
|
| Net assets, end
of year (in thousands)
|
|
$
|
|
$44,173
|
|
|
$47,598
|
|
|
$46,765
|
|
|
$51,805
|
|
|
$
|
|
$143,496
|
|
$160,562
|
|
|
$195,097
|
|
|
$205,362
|
|
|
| Portfolio
turnover
|
|
%
|
|
101.75
|
%
|
|
84.69
|
%
|
|
162.83
|
%
|
|
178.62
|
%
|
|
%
|
|
101.75%
|
|
84.69
|
%
|
|
162.83
|
%
|
|
178.62
|
%
|
|
* Total investment returns
exclude the effects of sales charges.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
FINANCIAL HIGHLIGHTS (concluded)
|
|
|
Class C
|
|
Class D
|
| Increase
(Decrease) in
|
|
For
the Year Ended July 31,
|
|
For the
Period
October 21,
1994†
to
July 31,
1995
|
|
For
the Year Ended July 31,
|
|
For the
Period
October 21,
1994†
to
July 31,
1995
|
| Net Asset
Value:
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
| Per Share
Operating Performance:
|
|
| Net asset value,
beginning of period
|
|
$
|
|
$10.35
|
|
|
$9.92
|
|
|
$9.85
|
|
|
$9.48
|
|
|
$
|
|
$10.35
|
|
|
$9.92
|
|
|
$9.85
|
|
|
$9.48
|
|
|
| Investment income
— net
|
|
|
|
.46
|
|
|
.47
|
|
|
.47
|
|
|
.37
|
|
|
|
|
.52
|
|
|
.52
|
|
|
.52
|
|
|
.40
|
|
|
Realized and
unrealized gain (loss) on
investments — net
|
|
|
|
.04
|
|
|
.43
|
|
|
.07
|
|
|
.37
|
|
|
|
|
.04
|
|
|
.43
|
|
|
.07
|
|
|
.37
|
|
|
| Total from
investment operations
|
|
|
|
.50
|
|
|
.90
|
|
|
.54
|
|
|
.74
|
|
|
|
|
.56
|
|
|
.95
|
|
|
.59
|
|
|
.77
|
|
|
| Less
dividends from
|
|
investment income — net
|
|
—
|
|
(.46
|
)
|
|
(.47
|
)
|
|
(.47
|
)
|
|
(.37
|
)
|
|
—
|
|
(.52
|
)
|
|
(.52
|
)
|
|
(.52
|
)
|
|
(.40
|
)
|
|
| Net asset value,
end of period
|
|
$
|
|
$10.39
|
|
|
$10.35
|
|
|
$9.92
|
|
|
$9.85
|
|
|
$
|
|
$10.39
|
|
|
$10.35
|
|
|
$9.92
|
|
|
$9.85
|
|
|
|
Total Investment Return:**
|
|
| Based on net
asset value per share
|
|
%
|
|
4.97
|
%
|
|
9.33
|
%
|
|
5.54
|
%
|
|
7.92
|
%#
|
|
%
|
|
5.51
|
%
|
|
9.89
|
%
|
|
6.09
|
%
|
|
8.34
|
%#
|
|
|
Ratios to Average Net Assets:
|
|
| Total expenses
|
|
%
|
|
1.30
|
%
|
|
1.30
|
%
|
|
1.28
|
%
|
|
1.33
|
%*
|
|
%
|
|
.79
|
%
|
|
.79
|
%
|
|
.78
|
%
|
|
.81
|
%*
|
|
| Total Investment
income — net
|
|
%
|
|
4.44
|
%
|
|
4.70
|
%
|
|
4.70
|
%
|
|
4.84
|
%*
|
|
%
|
|
4.95
|
%
|
|
5.21
|
%
|
|
5.20
|
%
|
|
5.39
|
%*
|
|
|
Supplemental Data:
|
|
| Net assets, end
of period (in thousands)
|
|
$
|
|
$8,900
|
|
|
$5,976
|
|
|
$5,738
|
|
|
$1,954
|
|
|
$
|
|
$24,268
|
|
|
$19,511
|
|
|
$15,231
|
|
|
$9,179
|
|
|
| Portfolio
turnover
|
|
%
|
|
101.75
|
%
|
|
84.69
|
%
|
|
162.83
|
%
|
|
178.62
|
%
|
|
%
|
|
101.75
|
%
|
|
84.69
|
%
|
|
162.83
|
%
|
|
178.62
|
%
|
|
|
† Commencement of
operations.
|
* Annualized.
** Total investment
returns exclude the effects of sales charges.
# Aggregate total investment return.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
[This page intentionally left
blank]
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND
[FLOW CHART]
POTENTIAL
INVESTORS
Open an account (two options).
| MERRILL LYNCH
|
|
TRANSFER AGENT
|
| FINANCIAL CONSULTANT
|
|
Financial Data Services, Inc
|
| OR SECURITIES DEALER
|
|
P.O. Box 45289
|
|
|
|
Jacksonville, Florida 32232-5289
|
| Advises shareholders on
|
|
|
| their Fund investments.
|
|
Performs recordkeeping and
|
|
|
|
reporting services.
|
DISTRIBUTOR
Merrill Lynch Funds Distributor,
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund Shares.
| COUNSEL
|
|
CUSTODIAN
|
| Brown & Wood LLP
|
|
State Street Bank
|
| One World Trade
Center
|
THE FUND
|
and Trust Company
|
| New York, New York
10048-0557
|
The Board of
Directors
|
P.O. Box 351
|
|
|
oversees the Fund.
|
Boston,
Massachusetts 02101
|
| Provides legal
advice
|
|
|
| to the Fund.
|
|
Holds the Fund's
assets
|
|
|
|
for safekeeping.
|
| INDEPENDENT AUDITORS
|
|
MANAGER
|
| Deloitte &
Touche LLP
|
|
Fund Asset
Management, L.P.
|
| 117 Campus Drive
|
|
ADMINISTRATIVE OFFICES
|
| Princeton, New Jersey 08540-6400
|
|
800 Scudders Mill Road
|
|
|
|
Plainsboro, New Jersey 08536
|
| Audits the financial
|
|
|
| statements of the Fund on behalf of
|
|
MAILING ADDRESS
|
| the shareholders.
|
|
P.O. Box 9011
|
|
|
|
Princeton, New Jersey 08543-9011
|
|
|
|
TELEPHONE NUMBER
|
|
|
|
1-800-MER-FUND
|
|
|
|
|
|
|
|
Manages the Fund's
|
|
|
|
day-to-day activities.
|
|
|
|
|
MERRILL LYNCH FLORIDA
MUNICIPAL BOND FUND
[LOGO] For More Information
Additional information about the
Fund’s invest-ments is available in the Fund’s
annual and semi-annual reports to shareholders. In the Fund
’s annual report you will find a discussion of the
market conditions and investment strategies that
significantly affected the Fund’s performance during
its last fiscal year. You may obtain these reports at no
cost by calling 1-800-MER-FUND.
The Fund will send you one copy of
each share-holder report and certain other mailings,
regardless of the number of Fund accounts you have. To
receive separate shareholder reports for each account,
call your Merrill Lynch Financial Consultant or write to
the Transfer Agent at its mailing address. Include your
name, address, tax identification number and Merrill Lynch
brokerage or mutual fund account number. If you have any
questions, please call your Merrill Lynch Financial
Consultant or the Transfer Agent at 1-800-MER-FUND.
Statement of Additional Information
The Fund’s Statement of
Additional Information contains further information about
the Fund and is incorporated by reference (legally
considered to be part of this prospectus). You may request
a free copy by writing the Fund at Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289 or by calling 1-800-MER-FUND.
Contact your Merrill Lynch
Financial Consultant or the Fund at the telephone number
or address indicated above if you have any questions.
Information about the Fund
(including the Statement of Additional Information) can be
reviewed and copied at the SEC’s Public Reference
Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the public reference room.
This information is also available on the SEC’s
Internet site at http://www.sec.gov and copies may be
obtained upon payment of a duplicating fee by writing the
Public Reference Section of the SEC, Washington, D.C.
20549-6009.
You should rely only on
the information contained in this Prospectus. No one is
authorized to provide you with information that is
different from information contained in this Prospectus.
Investment Company Act
file #811-4375
Code #13904-11-99
©
Fund Asset Management, L.P.
[LOGO] Merrill Lynch
|
of Merrill Lynch Multi-State
|
[GRAPHIC]
November , 1999
SUBJECT TO COMPLETION
STATEMENT OF ADDITIONAL
INFORMATION DATED SEPTEMBER 30, 1999
Merrill Lynch Florida
Municipal Bond Fund
of Merrill Lynch
Multi-State Municipal Series Trust
P.O. Box 9011, Princeton,
New Jersey 08543-9011 Ÿ
Phone No. (609) 282-2800
Merrill Lynch Florida Municipal
Bond Fund (the “Fund”) is a series of Merrill
Lynch Multi-State Municipal Series Trust (the “Trust
”), an open-end investment company organized as a
Massachusetts business trust. The investment objective of
the Fund is to provide shareholders with income exempt
from Federal income tax and to offer shareholders the
opportunity to own shares exempt from Florida intangible
personal property tax. The Fund invests primarily in a
portfolio of long-term investment grade obligations issued
by or on behalf of the State of Florida, its political
subdivisions, agencies and instrumentalities and
obligations of other qualifying issuers, such as issuers
located in Puerto Rico, the U.S. Virgin Islands and Guam,
which pay interest exempt, in the opinion of bond counsel
to the issuer, from Federal income tax and which enable
shares of the Fund to be exempt from Florida intangable
personal property tax. There can be no assurance that the
investment objective of the Fund will be realized. For
more information on the Fund’s investment objective
and policies, see “Investment Objective and Policies.
”
Pursuant to the Merrill Lynch
Select Pricing
SM
System, the Fund offers four classes of shares,
each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select
Pricing
SM
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 “Purchase of Shares.”
This Statement of Additional
Information of the Fund is not a prospectus and should be
read in conjunction with the Prospectus of the Fund, dated
November , 1999 (the “
Prospectus”), which has been filed with the
Securities and Exchange Commission (the “Commission
”) and can be obtained, without charge, by calling
(800) MER-FUND or by writing the Fund at the above
address. The Prospectus is incorporated by reference into
this Statement of Additional Information, and this
Statement of Additional Information is incorporated by
reference into the Prospectus. The Fund’s audited
financial statements are incorporated in this Statement of
Additional Information by reference to its 1999 annual
report to shareholders. You may request a copy of the
annual report at no charge by calling (800) 456-4587 ext.
789 between 8:00 a.m. and 8:00 p.m. on any business day.
Fund Asset Management
— Manager
Merrill Lynch Funds
Distributor — Distributor
The date of this Statement
of Additional Information is November
, 1999
The information in this
statement of additional information is not complete and
may be changed. This statement of additional information
is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the
Fund is to provide shareholders with income exempt from
Federal income taxes and the opportunity to own shares
whose value is exempt from Florida intangible personal
property tax. The Fund seeks to achieve its objective by
investing primarily in a portfolio of long-term investment
grade obligations issued by or on behalf of the State of
Florida, its political subdivisions, agencies and
instrumentalities and obligations of other qualifying
issuers, such as issuers located in Puerto Rico, the U.S.
Virgin Islands and Guam, which pay interest exempt, in the
opinion of bond counsel to the issuer, from Federal income
taxes and which enable shares of the Fund to be exempt
from Florida intangible personal property tax (“
Florida Municipal Bonds”). Obligations exempt from
Federal income taxes are referred to herein as “
Municipal Bonds.” Unless otherwise indicated,
references to Municipal Bonds shall be deemed to include
Florida Municipal Bonds. The investment objective as set
forth in the first sentence of this paragraph is a
fundamental policy and may not be changed without a vote
of a majority of the outstanding shares of the Fund. See
“How the Fund Invests” in the Prospectus for a
general discussion of the Fund’s goals, main
investment strategies and main risks.
Under normal circumstances, except
when acceptable securities are unavailable as determined
by Fund Asset Management, L.P. (the “Manager” or
“FAM”), the Fund’s manager, or for
temporary defensive purposes, the Fund will invest at
least 65% of its total assets in Florida Municipal Bonds.
The value of bonds and other fixed-income obligations may
fall when interest rates rise and rise when interest rates
fall. In general, bonds and other fixed-income obligations
with longer maturities will be subject to greater
volatility resulting from interest rate fluctuations than
will similar obligations with shorter maturities. Under
normal conditions, it is generally anticipated that the
Fund’s average weighted maturity will be in excess of
ten years. For temporary periods or to provide liquidity,
the Fund has the authority to invest as much as 35% of its
total assets in tax-exempt or taxable money market
obligations with a maturity of one year or less (such
short-term obligations being referred to herein as “
Temporary Investments”), except that taxable
Temporary Investments shall not exceed 20% of the Fund
’s net assets.
The Fund may also invest in
variable rate demand obligations (“VRDO’s”)
and VRDOs in the form of participation interests (“
Participating VRDOs”) in variable rate tax-exempt
obligations held by a financial institution. See “
Description of Temporary Investments.” The Fund’
s hedging strategies, which are described in more detail
under “Financial Futures Transaction and Options,
” are not fundamental policies and may be modified by
the Trustees of the Trust without the approval of the Fund
’s shareholders.
At least 80% of the Fund’s
total assets will be invested in Municipal Bonds that 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 (“S&P”)
(currently AAA, AA, A and BBB) or Fitch IBCA, Inc. (“
Fitch”) (currently AAA, AA, A and BBB). If unrated,
such securities will posses creditworthiness comparable,
in the opinion of the Manager, to other obligations in
which the Fund may invest. Securities rated in the lower
investment grade rating category are considered to have
speculative characteristics.
The Fund may invest up to 20% of
its total assets in Municipal Bonds that are rated below
Baa by Moody’s or below BBB by S&P or Fitch or
which, in the Manager’s judgment, possess similar
credit characteristics. Such securities, sometimes
referred to as “high yield” or “junk”
bonds, are predominantly speculative with respect to the
capacity to pay interest and repay principal in accordance
with the terms of the security and generally involve a
greater volatility of price than securities in higher
rating categories. See “Description of Municipal Bonds
— ‘High Yield’ or ‘Junk
’ Bonds.” The Fund does not intend to purchase
debt securities that are in default or which the Manager
believes will be in default.
Certain Municipal Bonds may be
entitled to the benefits of letters of credit or similar
credit enhancements issued by financial institutions. In
such instances, the Trustees and the Manager will take
into account in assessing the quality of such bonds not
only the creditworthiness of the issuer of such bonds but
also the creditworthiness of the financial institution
that provides the credit enhancement.
The Fund ordinarily does not
intend to realize significant interest income that is
subject to Federal income tax or to have significant
assets subject to Florida intangible personal property
tax. However, to the extent that suitable Florida
Municipal Bonds are not available for investment by the
Fund, the Fund may purchase Municipal Bonds issued by
other states, their agencies and instrumentalities, the
interest income on which is exempt, in the opinion of bond
counsel to the issuer, from Federal income tax, but which
are not exempt from Florida intangible personal property
taxation. The Fund also may invest in securities not
issued by or on behalf of a state or territory or by an
agency or instrumentality thereof, if the Fund
nevertheless believes that such securities pay interest
exempt from Federal income taxation (“Non-Municipal
Tax-Exempt Securities”). Non-Municipal Tax-Exempt
Securities could include trust certificates or other
instruments evidencing interest in one or more long-term
municipal securities. Non-Municipal Tax-Exempt Securities
also may include securities issued by other investment
companies that invest in municipal bonds, to the extent
such investments are permitted by applicable law.
Non-Municipal Tax-Exempt Securities will be considered
“Municipal Bonds” for purposes of the Fund’
s investment objective and policies. The Fund at all times
will have at least 80% of its net assets invested in
securities the interest on which is exempt from Federal
income taxation. However, interest received on certain
otherwise tax-exempt securities that 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 the Fund
’s total assets invested in “private activity
bonds” will vary during the year. Federal tax
legislation has limited the types and volume of bonds the
interest on which qualifies for a Federal income tax
exemption. As a result, this legislation and legislation
that may be enacted in the future may affect the
availability of Municipal Bonds for investment by the
Fund. See “Dividends and Taxes — Taxes.
”
Risk Factors and Special Considerations Relating to
Municipal Bonds
The risks and special
considerations involved in investment in Municipal Bonds
vary with the types of instruments being acquired.
Investments in Non-Municipal Tax-Exempt Securities may
present similar risks, depending on the particular
product. Certain instruments in which the Fund may invest
may be characterized as derivative instruments. See “
Investment Objective and Policies —
Description of Municipal Bonds” and “—
Financial Futures Transactions and Options.”
The Fund ordinarily will invest at
least 65% of its assets in Florida Municipal Bonds, and
therefore it is more susceptible to factors adversely
affecting issuers of Florida Municipal Bonds than is a
municipal bond fund that is not concentrated in issuers of
Florida Municipal Bonds to this degree.
The Manager does not believe that
the current economic conditions in Florida or other
factors described above will have a significant adverse
effect on the Fund’s ability to invest in high
quality Florida Municipal Bonds. Because the Fund’s
portfolio will be comprised primarily of investment grade
securities, the Fund is expected to be less subject to
market and credit risks than a fund that invests primarily
in lower quality Florida Municipal Bonds.
The value of Municipal Bonds
generally may be affected by uncertainties in the
municipal markets as a result of legislation or litigation
changing the taxation of Municipal Bonds or the rights of
Municipal Bond holders in the event of a bankruptcy.
Municipal bankruptcies are rare and certain provisions of
the U.S. Bankruptcy Code governing such bankruptcies are
unclear. Further, the application of state law to
Municipal Bond issuers could produce varying results among
the states or among Municipal Bond issuers within a state.
These uncertainties could have a significant impact on the
prices of the Municipal Bonds or the Florida Municipal
Bonds in which the Fund invests.
For a discussion of economic and
other conditions in the State of Florida, see Appendix I
— “Economic and Other Conditions in
Florida.”
Description of Municipal Bonds
Set forth below is a detailed
description of the Municipal Bonds and Temporary
Investments in which the Fund may invest. Information with
respect to ratings assigned to tax-exempt obligations that
the Fund may purchase is set forth in Appendix II to this
Statement of Additional Information. See “How the
Fund Invests” in the Prospectus.
Municipal Bonds include debt
obligations issued to obtain funds for various public
purposes, including the construction of a wide range of
public facilities, refunding of outstanding obligations
and obtaining funds for general operating expenses and
loans to other public institutions and facilities. In
addition, certain types of bonds are issued by or on
behalf of public authorities to finance various privately
owned or operated facilities, including certain facilities
for the local furnishing of electric energy or gas, sewage
facilities, solid waste disposal facilities and other
specialized facilities. Such obligations are included
within the term Municipal Bonds if the interest paid
thereon is excluded from gross income for Federal income
tax purposes and, in the case of Florida Municipal Bonds,
if the obligations also permit Fund shares to be exempt
from Florida intangible personal property tax. 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 interest on
Municipal Bonds may bear a fixed rate or be payable at a
variable or floating rate. The two principal
classifications of Municipal Bonds are “general
obligation” 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.
General obligation bonds are secured
by the issuer’s pledge of its faith, credit and
taxing power for the payment of principal and interest.
The taxing power of any governmental entity may be
limited, however, by provisions of its state constitution
or laws, and an entity’s creditworthiness will depend
on many factors, including potential erosion of its tax
base due to population declines, natural disasters,
declines in the state’s industrial base or inability
to attract new industries, economic limits on the ability
to tax without eroding the tax base, state legislative
proposals or voter initiatives to limit ad valorem real
property taxes and the extent to which the entity relies
on Federal or state aid, access to capital markets or
other factors beyond the state’s or entity’s
control. Accordingly, the capacity of the issuer of a
general obligation bond as to the timely payment of
interest and the repayment of principal when due is
affected by the issuer’s maintenance of its tax base.
Revenue Bonds.
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.
IDBs and Private Activity Bonds.
The Fund may purchase IDBs and
private activity bonds. IDBs and private activity bonds
are, in most cases, 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. IDBs and private activity bonds
generally 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 generally depends on
the revenues of a private entity and be aware of the risks
that such an investment may entail. Continued ability of
an entity to generate sufficient revenues for the payment
of principal and interest on such bonds will be affected
by many factors including the size of the entity, capital
structure, demand for its products or services,
competition, general economic conditions, government
regulation and the entity’s dependence on revenues
for the operation of the particular facility being
financed.
“Moral Obligation” Bonds.
The Fund also may invest in
“moral obligation” bonds, which are normally
issued by special purpose public authorities. If an issuer
of moral obligation bonds is unable to meet its
obligations, the repayment of such bonds becomes a moral
commitment but not a legal obligation of the state or
municipality in question.
Municipal Notes.
Municipal notes are shorter term municipal debt
obligations. They may provide interim financing in
anticipation of tax collection, bond sales or revenue
receipts. If there is a shortfall in the anticipated
proceeds, the note may not be fully repaid and the Fund
may lose money.
Municipal Commercial Paper.
Municipal commercial paper is
generally unsecured and issued to meet short-term
financing needs. The lack of security presents some risk
of loss to the Fund.
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 is frequently backed
by the issuer’s covenant to budget for, appropriate
and make the payments due under the lease obligation.
However, certain lease obligations contain “
non-appropriation” clauses which provide that the
issuer has no obligation to make lease or installment
purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although
“non-appropriation” lease obligations are
secured by the leased property, disposition of the
property in the event of foreclosure might prove
difficult. These securities represent a type of financing
that has not yet developed the depth of marketability
associated with more conventional securities. Certain
investments in lease obligations may be illiquid. The Fund
may not invest in illiquid lease obligations if such
investments, together with all other illiquid investments,
would exceed 15% of the Fund’s total assets. The Fund
may, however, invest without regard to such limitation in
lease obligations which the Manager, pursuant to
guidelines which have been adopted by the Board of
Trustees and subject to the supervision of the Board,
determines to be liquid. The Manager will deem lease
obligations to be liquid if they are publicly offered and
have received an investment grade rating of Baa or better
by Moody’s, or BBB or better by S&P or Fitch.
Unrated lease obligations, or those rated below investment
grade, will be considered liquid if the obligations come
to the market through an underwritten public offering and
at least two dealers are willing to give competitive bids.
In reference to the latter, the Manager must, among other
things, also review the creditworthiness of the entity
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.
Indexed and Inverse Floating
Obligations. The Fund may
invest in Florida Municipal Bonds and Municipal Bonds (and
Non-Municipal Tax-Exempt Securities) yielding a return
which is based on a particular index of value or interest
rates. For example, the Fund may invest in Florida
Municipal Bonds and Municipal Bonds that pay interest
based on an index of Municipal Bond interest rates. The
principal amount payable upon maturity of certain Florida
Municipal Bonds and Municipal Bonds also may be based on
the value of the index. To the extent the Fund invests in
these types of Municipal Bonds, the Fund’s return on
such Florida Municipal Bonds and 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, the Fund 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,
a remarketing agent, or by reference to a short-term
tax-exempt interest rate index). The Fund may purchase
synthetically-created inverse floating rate bonds
evidenced by custodial or trust receipts. Generally,
income on inverse floating rate bonds will decrease when
short-term interest rates increase, and will increase when
short-term interest 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 will
generally be more volatile than the market values of
fixed-rate tax-exempt securities. To seek to limit the
volatility of these securities, the Fund may purchase
inverse floating obligations with shorter-term maturities
or which contain limitations on the extent to which the
interest rate may vary. Certain investments in such
obligations may be illiquid. The Fund may not invest in
such illiquid obligations if such investments, together
with other illiquid investments, would exceed 15% of the
Fund’s total assets. The Manager, however, believes
that indexed and inverse floating obligations represent
flexible portfolio management instruments for the Fund
which allow the Fund to seek potential investment rewards,
hedge other portfolio positions or vary the degree of
investment leverage relatively efficiently under different
market conditions.
When Issued Securities, Delayed
Delivery Transactions and Forward Commitments.
The Fund may purchase or sell securities
that it is entitled to receive on a when issued basis. The
Fund may also purchase or sell securities on a delayed
delivery basis. The Fund may also purchase or sell
securities through a forward
commitment. These transactions involve the purchase or sale
of securities by the Fund at an established price with
payment and delivery taking place in the future. The Fund
enters into these transactions to obtain what is
considered an advantageous price to the Fund at the time
of entering into the transaction. The Fund has not
established any limit on the percentage of its assets that
may be committed in connection with these transactions.
When the Fund purchases securities in these transactions,
the Fund segregates liquid securities in an amount equal
to the amount of its purchase commitments.
There can be no assurance that a
security purchased on a when issued basis will be issued
or that a security purchased or sold through a forward
commitment will be delivered. The value of securities in
these transactions on the delivery date may be more or
less than the Fund’s purchase price. The Fund may
bear the risk of a decline in the value of the security in
these transactions and may not benefit from an
appreciation in the value of the security during the
commitment period.
Call and Redemption Risk.
The Fund may purchase a Municipal
Bond issuer’s right to call all or a portion of such
Municipal Bond for mandatory tender for purchase (a “
Call Right”). A holder of a Call Right may exercise
such right to require a mandatory tender for the purchase
of related Municipal Bonds, subject to certain conditions.
A Call Right that is not exercised prior to 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. The Fund may not invest
in such illiquid obligations if such investments, together
with other illiquid investments, would exceed 15% of the
Fund’s total assets.
“High Yield” or “
Junk” Bonds. The Fund may
invest up to 20% of its total assets in Municipal Bonds
that are rated below Baa by Moody’s or below BBB by S
&P or Fitch or which, in the Manager’s judgment,
possess similar credit characteristics. See Appendix II
— “Ratings of Municipal Bonds”
for additional information regarding ratings of debt
securities. Junk bonds are debt securities that are rated
below investment grade by the major rating agencies or are
unrated securities that Fund management believes are of
comparable quality. Although junk bonds generally pay
higher rates of interest than investment grade bonds, they
are high risk invesments that may cause income and
principal losses for the Fund. The major risks in junk
bond investments include the following:
Junk bonds may be issued by less
creditworthy companies. These securities are vulnerable to
adverse changes in the issuer’s industry and to
general economic conditions. Issuers of junk bonds may be
unable to meet their interest or principal payment
obligations because of an economic downturn, specific
issuer developments or the unavailability of additional
financing.
The issuers of junk bonds may have
a larger amount of outstanding debt relative to their
assets than issuers of investment grade bonds. If the
issuer experiences financial stress, it may be unable to
meet its debt obligations. The issuer’s ability to
pay its debt obligations also may be lessened by specific
issuer developments, or the unavailability of additional
financing.
Junk bonds are frequently ranked
junior to claims by other creditors. If the issuer cannot
meet its obligations, the senior obligations are generally
paid off before the junior obligations.
Junk bonds frequently have
redemption features that permit an issuer to repurchase
the security from the Fund before it matures. If an issuer
redeems the junk bonds, the Fund may have to invest the
proceeds in bonds with lower yields and may lose income.
Prices of junk bonds are subject
to extreme price fluctuations. Negative economic
developments may have a greater impact on the prices of
junk bonds than on other higher rated fixed income
securities.
Junk bonds may be less liquid than
higher rated fixed income securities even under normal
economic conditions. There are fewer dealers in the junk
bond market, and there may be significant differences in
the prices quoted for junk bonds by the dealers. Because
they are less liquid, judgment may play a greater role in
valuing certain of the Fund’s portfolio securities
than in the case of securities trading in a more liquid
market.
The Fund may incur expenses to the
extent necessary to seek recovery upon default or to
negotiate new terms with a defaulting issuer.
Yields.
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 maturity of the obligation and the rating of
the issue. The ability of the Fund to achieve its
investment objective is also dependent on the continuing
ability of the issuers of the securities in which the Fund
invests to meet their obligations for the payment of
interest and principal when due. There are variations in
the risks involved in holding Municipal Bonds, both within
a particular classification and between classifications,
depending on numerous factors. Furthermore, the rights of
owners of Municipal Bonds and the obligations of the
issuer of such Municipal Bonds may be 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.
Financial Futures Transactions and Options
The Fund may hedge all or a
portion of its portfolio investments against fluctuations
in interest rates through the use of options and certain
financial futures contracts and options thereon. While the
Fund’s use of hedging strategies is intended to
reduce the volatility of the net asset value of the Fund
’s shares, the net asset value of the Fund’s
shares will fluctuate. There can be no assurance that the
Fund’s hedging transactions will be effective.
Furthermore, the Fund may only engage in hedging
activities from time to time and may not necessarily be
engaging in hedging activities when movements in interest
rates occur. The Fund has no obligation to enter into
hedging transactions and may choose not to do so.
The Fund is authorized to purchase
and sell certain exchange traded financial futures
contracts (“financial futures contracts”) solely
for the purpose of hedging its investments in Municipal
Bonds against declines in value and to hedge against
increases in the cost of securities it intends to
purchase. However, any transactions involving financial
futures or options (including puts and calls associated
therewith) will be in accordance with the Fund’s
investment policies 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 futures contracts to make and accept a
cash settlement, at a specific future time for a specified
price. To hedge its portfolio, the Fund may take an
investment position in a futures contract which will move
in the opposite direction from the portfolio position
being hedged. A sale of financial futures contracts may
provide a hedge against a decline in the value of
portfolio securities because such depreciation may be
offset, in whole or in part, by an increase in the value
of the position in the financial futures contracts. A
purchase of financial futures contracts may provide a
hedge against an increase in the cost of securities
intended to be purchased because such appreciation may be
offset, in whole or in part, by an increase in the value
of the position in the futures contracts.
Certain Federal income tax
requirements may limit the Fund’s ability to engage
in hedging transactions. 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
“Dividends and Taxes — Taxes” and
“— Tax Treatment of Options and Futures
Transactions.”
Futures Contracts.
A futures contract is an agreement between
two parties to buy and sell a security or, in the case of
an index-based futures contract, to make and accept a cash
settlement for a set price on a future date. A majority of
transactions in futures contracts, however, do not result
in the actual delivery of the underlying instrument or
cash settlement, but are settled through liquidation, (
i.e., by entering into an offsetting transaction.
Futures contracts have been designed by boards of trade
which have been designated “contracts markets”
by the Commodity Futures Trading Commission (“CFTC
”)).
The purchase or sale of a futures
contract differs from the purchase or sale of a security
in that no price or premium is paid or received. Instead,
an amount of cash or securities acceptable to the broker
and the relevant contract market, which varies, but is
generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as “
initial margin” and represents a “good faith
” deposit assuring the performance of
both the purchaser and seller under the futures contract.
Subsequent payments to and from the broker, called “
variation margin,” are required to be made on a daily
basis as the price of the futures contract fluctuates
making the long and short positions in the futures
contract more or less valuable, a process known as “
marking to the market.” At any time prior to the
settlement date of the futures contract, the position may
be closed out by taking an opposite position that will
operate to terminate the position in the futures contract.
A final determination of variation margin is then made,
additional cash is required to be paid to or released by
the broker and the purchaser realizes a loss or gain. In
addition, a nominal commission is paid on each completed
sale transaction.
The Fund deals in financial
futures contracts based on a long-term municipal bond
index developed by the Chicago Board of Trade (“CBT
”) and The Bond Buyer (the “Municipal Bond Index
”). The Municipal Bond Index is comprised of 40
tax-exempt municipal revenue and general obligation bonds.
Each bond included in the Municipal Bond Index must be
rated A or higher by Moody’s or S&P 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 futures
contract is traded only on the CBT. Like other contract
markets, the CBT assures performance under futures
contracts through a clearing corporation, a nonprofit
organization managed by the exchange membership which is
also responsible for handling daily accounting of deposits
or withdrawals of margin.
The Fund may purchase and sell
financial futures contracts on U.S. Government securities
as a hedge against adverse changes in interest rates as
described below. With respect to U.S. Government
securities, currently there are financial futures
contracts based on long-term U.S. Treasury bonds, Treasury
notes, Government National Mortgage Association (“GNMA
”) Certificates and three-month U.S. Treasury bills.
The Fund may purchase and write call and put options on
futures contracts on U.S. Government securities and
purchase and sell Municipal Bond Index futures contracts
in connection with its hedging strategies.
Subject to policies adopted by the
Trustees, the Fund also may engage in other futures
contracts transactions such as futures contracts on other
municipal bond indices that may become available if the
Manager and the Trustees of the Trust should determine
that there is normally a sufficient correlation between
the prices of such futures contracts and the Municipal
Bonds in which the Fund invests to make such hedging
appropriate.
Futures Strategies.
The Fund may sell a financial futures
contract (i.e., assume a short position) in
anticipation of a decline in the value of its investments
in Municipal Bonds resulting from an increase in interest
rates or otherwise. The risk of decline could be reduced
without employing futures as a hedge by selling such
Municipal Bonds and either reinvesting the proceeds in
securities with shorter maturities or by holding assets in
cash. This strategy, however, entails increased
transaction costs in the form of dealer spreads and
typically would reduce the average yield of the Fund’
s portfolio securities as a result of the shortening of
maturities. The sale of futures contracts provides an
alternative means of hedging against declines in the value
of its investments in Municipal Bonds. As such values
decline, the value of the Fund’s positions in the
futures contracts will tend to increase, thus offsetting
all or a portion of the depreciation in the market value
of the Fund’s Municipal Bond investments that are
being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions,
commissions on futures transactions are lower than
transaction costs incurred in the purchase and sale of
Municipal Bonds. In addition, the ability of the Fund to
trade in the standardized contracts available in the
futures markets may offer a more effective defensive
position than a program to reduce the average maturity of
the portfolio securities due to the unique and varied
credit and technical characteristics of the municipal debt
instruments available to the Fund. Employing futures as a
hedge also may permit the Fund to assume a defensive
posture without reducing the yield on its investments
beyond any amounts required to engage in futures trading.
When the Fund intends to purchase
Municipal Bonds, the Fund may purchase futures contracts
as a hedge against any increase in the cost of such
Municipal Bonds resulting from a decrease in interest
rates or otherwise, that may occur before such purchases
can be effected. Subject to the degree correlation between
the Municipal Bonds and the futures contracts, subsequent
increases in the cost of Municipal Bonds should be
reflected in the
value of the futures held by the Fund. As such purchases are
made, an equivalent amount of futures contracts will be
closed out. Due to changing market conditions and interest
rate forecasts, however, a futures position may be
terminated without a corresponding purchase of portfolio
securities.
Call Options on Futures Contracts.
The Fund may also purchase and
sell exchange traded call and put options on financial
futures contracts on U.S. Government securities. The
purchase of a call option on a futures contract is
analogous to the purchase of a call option on an
individual security. Depending on the pricing of the
option compared to either the futures contract upon which
it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities.
Like the purchase of a futures contract, the Fund will
purchase a call option on a futures contract to hedge
against a market advance when the Fund is not fully
invested.
The writing of a call option on a
futures contract constitutes a partial hedge against
declining prices of the securities which are deliverable
upon exercise of the futures contract. If the futures
price at expiration is below the exercise price, the Fund
will retain the full amount of the option premium which
provides a partial hedge against any decline that may have
occurred in the Fund’s portfolio holdings.
Put Options on Futures Contracts.
The purchase of a put option
on a futures contract is analogous to the purchase of a
protective put option on portfolio securities. The Fund
will purchase a put option on a futures contract to hedge
the Fund’s portfolio against the risk of rising
interest rates.
The writing of a put option on a
futures contract constitutes a partial hedge against
increasing prices of the securities which are deliverable
upon exercise of the futures contract. If the futures
price at expiration is higher than the exercise price, the
Fund will retain the full amount of the option premium
which provides a partial hedge against any increase in the
price of Municipal Bonds which the Fund intends to
purchase.
The writer of an option on a
futures contract is required to deposit initial and
variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from
the writing of an option will be included in initial
margin. The writing of an option on a futures contract
involves risks similar to those relating to futures
contracts.
The Trust has received an order
from the Commission exempting it from the provisions of
Section 17(f) and Section 18(f) of the Investment Company
Act of 1940, as amended (the “Investment Company Act
”), in connection with its strategy of investing in
futures contracts. Section 17(f) relates to the custody of
securities and other assets of an investment company and
may be deemed to prohibit certain arrangements between the
Fund and commodities brokers with respect to initial and
variation margin. Section 18(f) of the Investment Company
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
has in the past indicated that a futures contract may be a
“senior security” under the Investment Company
Act.
Restrictions on Use of Futures
Transactions. Regulations of
the CFTC applicable to the Fund require that all of the
Fund’s futures transactions constitute bona fide
hedging transactions and that the Fund purchase and sell
futures contracts and options thereon (i) for bona fide
hedging purposes, and (ii) for non-hedging purposes, if
the aggregate initial margin and premiums required to
establish positions in such contracts and options does not
exceed 5% of the liquidation value of the Fund’s
portfolio assets after taking into account unrealized
profits and unrealized losses on any such contracts and
options. (However, the Fund intends to engage in options
and futures transactions only for hedging purposes.)
Margin deposits may consist of cash or securities
acceptable to the broker and the relevant contract market.
When the Fund purchases a futures
contract, or writes a put option or purchases a call
option thereon, it will maintain an amount of cash, cash
equivalents (e.g., high grade commercial paper and
daily tender adjustable notes) or liquid securities in a
segregated account with the Fund’s custodian, so that
the amount so segregated plus the amount of initial and
variation margin held in the account of its broker equals
the market value of the futures contracts, thereby
ensuring that the use of such futures contract is
unleveraged. It is not anticipated that transactions in
futures contracts will have the effect of increasing
portfolio turnover.
Risk Factors in Futures
Transactions and Options.
Investment in futures contracts involves the risk of
imperfect correlation between movements in the price of
the futures contract and the price of the security being
hedged. The hedge will not be fully effective when there
is imperfect correlation between the movements in the
prices of two financial instruments. For example, if the
price of the futures contract moves more than the price of
the hedged security, the Fund will experience either a
loss or gain on the futures contract which is not
completely offset by movements in the price of the hedged
securities. To compensate for imperfect correlations, the
Fund may purchase or sell futures contracts in a greater
dollar amount than the hedged securities if the volatility
of the hedged securities is historically greater than the
volatility of the futures contracts. Conversely, the Fund
may purchase or sell fewer futures contracts if the
volatility of the price of the hedged securities is
historically less than that of the futures contracts.
The particular municipal bonds
comprising the index underlying the Municipal Bond Index
financial futures contract may vary from the bonds held by
the Fund. As a result, the Fund’s ability to hedge
effectively all or a portion of the value of its Municipal
Bonds through the use of such financial futures contracts
will depend in part on the degree to which price movements
in the index underlying the financial futures contract
correlate with the price movements of the Municipal Bonds
held by the Fund. The correlation may be affected by
disparities in the average maturity, ratings, geographical
mix or structure of the Fund’s investments as
compared to those comprising the Municipal Bond Index and
general economic or political factors. In addition, the
correlation between movements in the value of the
Municipal Bond Index may be subject to change over time as
additions to and deletions from the Municipal Bond Index
alter its structure. The correlation between futures
contracts on U.S. Government securities and the Municipal
Bonds held by the Fund may be adversely affected by
similar factors and the risk of imperfect correlation
between movements in the prices of such futures contracts
and the prices of Municipal Bonds held by the Fund may be
greater. Municipal Bond Index futures contracts were
approved for trading in 1986. Trading in such futures
contracts may tend to be less liquid than trading in other
futures contracts. The trading of futures contracts also
is subject to certain market risks, such as inadequate
trading activity, which could at times make it difficult
or impossible to liquidate existing positions.
The Fund expects to liquidate a
majority of the futures contracts it enters into through
offsetting transactions on the applicable contract market.
There can be no assurance, however, that a liquid
secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be
possible to close out a futures position. In the event of
adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin.
In such situations, if the Fund has insufficient cash, it
may be required to sell portfolio securities to meet daily
variation margin requirements at a time when it may be
disadvantageous to do so. The inability to close out
futures positions also could have an adverse impact on the
Fund’s ability to hedge effectively its investments
in Municipal Bonds. The liquidity of a secondary market in
a futures contract may be adversely affected by “
daily price fluctuation limits” established by
commodity exchanges which limit the amount of fluctuation
in a futures contract price during a single trading day.
Once the daily limit has been reached in the contract, no
trades may be entered into at a price beyond the limit,
thus preventing the liquidation of open futures positions.
Prices have in the past moved beyond the daily limit on a
number of consecutive trading days. The Fund will enter
into a futures position only if, in the judgment of the
Manager, there appears to be an actively traded secondary
market for such futures contracts.
The successful use of transactions
in futures and related options also depends on the ability
of the Manager to forecast correctly the direction and
extent of interest rate movements within a given time
frame. To the extent interest rates remain stable during
the period in which a futures contract or option is held
by the Fund or such rates move in a direction opposite to
that anticipated, the Fund may realize a loss on the
hedging transaction which is not fully or partially offset
by an increase in the value of portfolio securities. As a
result, the Fund’s total return for such period may
be less than if it had not engaged in the hedging
transaction.
Because of low initial margin
deposits made upon the opening of a futures position,
futures transactions involve substantial leverage. As a
result, relatively small movements in the price of the
futures contracts can result in substantial unrealized
gains or losses. There is also the risk of loss by the
Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a
financial futures contract. Because the Fund will engage
in the purchase and sale of futures contracts solely for
hedging purposes, however, any losses
incurred in connection therewith should, if the hedging
strategy is successful, be offset in whole or in part by
increases in the value of securities held by the Fund or
decreases in the price of securities the Fund intends to
acquire.
The amount of risk the Fund
assumes when it purchases an option on a futures contract
is the premium paid for the option plus related
transaction costs. In addition to the correlation risks
discussed above, the purchase of an option on a futures
contract also entails the risk that changes in the value
of the underlying futures contract will not be fully
reflected in the value of the option purchased.
Description of Temporary Investments
The Fund may invest in short-term
tax-free and taxable securities subject to the limitations
set forth above and in the Prospectus under “How the
Fund Invests.” 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, revenue 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 Fund may not invest in any security issued
by a commercial bank or a savings institution unless the
bank or institution is organized and operating in the
United States, has total assets of at least one billion
dollars and is a member of the Federal Deposit Insurance
Corporation (“FDIC”), except that up to 10% of
total assets may be invested in certificates of deposit of
smaller institutions if such certificates are fully
insured by the FDIC.
VRDOs and Participating VRDOs.
VRDOs are tax-exempt
obligations which contain a floating or variable interest
rate adjustment formula and a 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 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 based
upon the Public Securities Association Index or some other
appropriate interest rate adjustment index. The Fund may
invest in all types of tax-exempt instruments currently
outstanding or to be issued in the future which satisfy
the short-term maturity and quality standards of the Fund.
Participating VRDOs provide the
Fund with a specified undivided interest (up to 100%) of
the underlying obligation and the right to demand payment
of the unpaid principal balance plus accrued interest on
the Participating VRDOs from the financial institution
upon a specified number of days notice, not to exceed
seven days. In addition, the Participating VRDO is backed
by an irrevocable letter of credit or guaranty of the
financial institution. The Fund would have an undivided
interest in the underlying obligation and thus participate
on the same basis as the financial institution in such
obligation except that the financial institution typically
retains fees out of the interest paid on the obligation
for servicing the obligation, providing the letter of
credit and issuing the repurchase commitment. The Fund has
been advised by its counsel that the Fund should be
entitled to treat the income received on Participating
VRDOs as interest from tax-exempt obligations.
VRDOs that contain a 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 will therefore
be subject to the Fund’s restriction on illiquid
investments unless, in the judgment of the Trustees, such
VRDO is liquid. The Trustees may adopt guidelines and
delegate to the Manager the daily function of determining
and monitoring liquidity of such VRDOs. The Trustees,
however, will retain sufficient oversight and will be
ultimately responsible for such determinations.
The Temporary Investments, VRDOs
and Participating VRDOs in which the Fund may invest will
be in the following rating categories at the time of
purchase: MIG-1/VMIG-1 through MIG-3/VMIG-3 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 S&P), or F-1 through F-3 for notes,
VRDOs and commercial paper (as determined by Fitch).
Temporary Investments, if not rated, must be of comparable
quality in the opinion of the Manager. In addition, the
Fund reserves the right to invest temporarily a greater
portion of its assets in Temporary Investments for
defensive purposes, when, in the judgment of the Manager,
market conditions warrant.
Repurchase Agreements.
The Fund may invest in securities pursuant
to repurchase agreements. Repurchase agreements may be
entered into only with a member bank of the Federal
Reserve System or primary dealer or an affiliate thereof,
in U.S. Government securities. Under such agreements, the
bank or primary dealer or an affiliate thereof agrees,
upon entering into the contract, to repurchase the
security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement.
This results in a fixed rate of return insulated from
market fluctuations during such period. 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 a repurchase agreement, the Fund will
require the seller to provide additional collateral if the
market value of the securities falls below the repurchase
price at any time during the term of the repurchase
agreement. In the event of default by the seller under a
repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Fund
but only constitute collateral for the seller’s
obligation to pay the repurchase price. Therefore, the
Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the
collateral. In the event of a default under such a
repurchase agreement, instead of the contractual fixed
rate of return, the rate of return to the Fund shall be
dependent upon intervening fluctuations of the market
value of such security and the accrued interest on the
security. In such event, the Fund would have rights
against the seller for breach of contract with respect to
any losses arising from market fluctuations following the
failure of the seller to perform. The Fund may not invest
in repurchase agreements maturing in more than seven days
if such investments, together with all other illiquid
investments, would exceed 15% of the Fund’s net
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. The treatment
of purchase and sales contracts is less certain.
Suitability.
The economic benefit of an investment in the
Fund depends upon many factors beyond the control of the
Fund, the Manager and its affiliates. Because of its
emphasis on Florida Municipal Bonds, the Fund should be
considered a vehicle for diversification and not as a
balanced investment program. The suitability for any
particular investor of a purchase of shares in the Fund
will depend upon, among other things, such investor’s
tax status, investment objectives and an ability to accept
the risks associated with investing in Florida Municipal
Bonds, including the risk of loss of principal, the risk
of receiving income that is not exempt from Federal income
taxation and the risk that the Fund’s shares will be
subject to the Florida intangible personal property tax.
The Fund has adopted a number of
fundamental and non-fundamental restrictions and policies
relating to the investment of its assets and its
activities. The fundamental policies set forth below may
not be changed without the approval of the holders of a
majority of the Fund’s outstanding voting securities
(which for this purpose and under the Investment Company
Act means the lesser of (i) 67% of the Fund’s shares
present at a meeting at which more than 50% of the
outstanding shares of the Fund are represented or (ii)
more than 50% of the Fund’s outstanding shares). The
Fund may not:
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(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). For purposes of this restriction,
states, municipalities and their political subdivisions
are not considered part of any industry.
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(2) Make investments
for the purpose of exercising control or management.
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(3) Purchase or sell
real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities
directly or indirectly secured by real estate or
interests therein or issued by companies which invest in
real estate or interests therein.
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(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 the Fund may lend its
portfolio securities, provided that the lending of
portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund
’s Prospectus and Statement of Additional
Information, as they may be amended from time to time.
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(5) Issue senior
securities to the extent such issuance would violate
applicable law.
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(6) Borrow money,
except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to
33
1
/
3
% of its total assets (including the amount
borrowed), (ii) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its
total assets for temporary purposes, (iii) the Fund may
obtain such short-term credit as may be necessary for
the clearance of purchases and sales of portfolio
securities and (iv) the Fund may purchase securities on
margin to the extent permitted by applicable law. The
Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund’
s investment policies as set forth in its Prospectus and
Statement of Additional Information, as they may be
amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward
commitment transactions and similar investment
strategies.
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(7) Underwrite
securities of other issuers, except insofar as the Fund
technically may be deemed an underwriter under the
Securities Act of 1933, as amended (“Securities Act
”), in selling portfolio securities.
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(8) Purchase or sell
commodities or contracts on commodities, except to the
extent that the Fund may do so in accordance with
applicable law and the Fund’s Prospectus and
Statement of Additional Information, as they may be
amended from time to time, and without registering as a
commodity pool operator under the Commodity Exchange Act.
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Under the non-fundamental
investment restrictions, which may be changed by the Board
of Trustees without shareholder approval, the Fund may not:
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a. Purchase
securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
As a matter of policy, however, the Fund will not
purchase shares of any registered open-end investment
company or registered unit investment trust, in reliance
on Section 12(d)(1)(F) or (G) (the “fund of funds
” provisions) of the Investment Company Act, at any
time the Fund’s shares are owned by another
investment company that is part of the same group of
investment companies as the Fund.
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b. Make short sales
of securities or maintain a short position, except to
the extent permitted by applicable law. The Fund
currently does not intend to engage in short sales,
except short sales “against the box.”
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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 Fund has otherwise
determined to be liquid pursuant to applicable law.
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d. Notwithstanding
fundamental investment restriction (6) above, borrow
amounts in excess of 20% of the Fund’s total
assets, taken at market value (including the amount
borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes. In
addition, the Fund will not purchase securities while
borrowings are outstanding.
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Non-Diversified Status.
The Fund is classified as non-diversified
within the meaning of the Investment Company Act, which
means that the Fund is not limited by such Act in the
proportion of its assets that it may
invest in securities of a single issuer. The Fund’s
investments are limited, however, in order to allow the
Fund to qualify as a “regulated investment company
” under the Code. See “Dividends and Taxes
— Taxes.” To qualify, the Fund complies
with certain requirements, including limiting its
investments so that at the close of each quarter of the
taxable year (i) not more than 25% of the market value of
the Fund’s total assets will be invested in the
securities of a single issuer and (ii) with respect to 50%
of the market value of its total assets, not more than 5%
of the market value of its total assets will be invested
in the securities of a single issuer and the Fund will not
own more than 10% of the outstanding voting securities of
a single issuer. For purposes of this restriction, the
Fund will regard each state and each political
subdivision, agency or instrumentality of such state and
each multi-state agency of which such state is a member
and each public authority which issues securities on
behalf of a private entity as a separate issuer, except
that if the security is backed only by the assets and
revenues of a non-government entity then the entity with
the ultimate responsibility for the payment of interest
and principal may be regarded as the sole issuer. These
tax-related limitations may be changed by the Trustees of
the Trust to the extent necessary to comply with changes
to the Federal tax requirements. A fund that elects to be
classified as “diversified” under the Investment
Company Act must satisfy the foregoing 5% and 10%
requirements with respect to 75% of its total assets. To
the extent that the Fund assumes large positions in the
securities of a small number of issuers, the Fund’s
net asset value may fluctuate to a greater extent than
that of a diversified company as a result of changes in
the financial condition or in the market’s assessment
of the issuers, and the Fund may be more susceptible to
any single economic, political or regulatory occurrence
than a diversified company.
The Manager will effect portfolio
transactions without regard to the time the securities
have been held, if, in its judgment, such transactions are
advisable in light of a change in circumstances of a
particular issuer or in general market, financial or
economic conditions. As a result of its investment
policies, the Fund may engage in a substantial number of
portfolio transactions and the Fund’s portfolio
turnover rate may vary greatly from year to year or during
periods within a year. The portfolio turnover rate is
calculated by dividing the lesser of the Fund’s
annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or
less) by the monthly average value of the securities in
the portfolio during the year. A high portfolio turnover
may result in negative tax consequences, such as an
increase in capital gain dividends or in ordinary income
dividends of accrued market discount. See “Dividends
and Taxes—Taxes.” High portfolio turnover may
also involve correspondingly greater transaction costs in
the form of dealer spreads and brokerage commissions,
which are borne directly by the Fund.
The Trustees of the Trust consist
of seven individuals, five of whom are not “
interested persons” of the Trust as defined in the
Investment Company Act (the “non-interested Trustees
”). The Trustees are responsible for the overall
supervision of the operations of the Trust and perform the
various duties imposed on the directors or Trustees of
investment companies by the Investment Company Act.
Information about the Trustees, executive officers of the
Trust and the portfolio manager of the Fund, 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, executive officer and
the portfolio manager is P.O. Box 9011, Princeton, New
Jersey 08543-9011.
TERRY
K. GLENN
(59) — President and Trustee (1)(2)
— Executive Vice President of the Manager
and Merrill Lynch Asset Management, L.P. (“MLAM”
) (which terms as used herein include their corporate
predecessors) since 1983; Executive Vice President and
Director of Princeton Services, Inc. (“Princeton
Services”) since 1993; President of Princeton Funds
Distributor, Inc. (“PFD”) since 1986 and
Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
JAMES
H. BODURTHA
(55) — Trustee (2)(3) —
36 Popponesset Road, Cotuit, Massachusetts 02635. Director
and Executive Vice President, The China Business Group,
Inc. since 1996; Chairman and Chief Executive Officer,
China Enterprise Management Corporation from 1993 to 1996;
Chairman, Berkshire Corporation since 1980; Partner,
Squire, Sanders & Dempsey from 1980 to 1993.
HERBERT
I. LONDON
(60) — Trustee (2)(3) —
2 Washington Square Village, New York, New York 10012.
John M. Olin Professor of Humanities, New York University
since 1993 and Professor thereof since 1980; President,
Hudson Institute since 1997 and Trustee thereof since 1980;
Dean, Gallatin Division of New York University from 1976
to 1993; Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corporation
from 1991 to 1995; Overseer, Center for Naval Analyses
from 1983 to 1993; Limited Partner, Hypertech LP since
1996.
ROBERT
R. MARTIN
(72) — Trustee (2)(3) —
513 Grand Hill, St. Paul, Minnesota 55102. Chairman and
Chief Executive Officer, Kinnard Investments, Inc. from
1990 to 1993; Executive Vice President, Dain Bosworth from
1974 to 1989; Director, Carnegie Capital Management from
1977 to 1985 and Chairman thereof in 1979; Director,
Securities Industry Association from 1981 to 1982 and
Public Securities Association from 1979 to 1980; Chairman
of the Board, WTC Industries Inc. in 1994; Trustee,
Northland College since 1992.
JOSEPH
L. MAY
(70) — Trustee (2)(3) —
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.
ANDRÉ
F. PEROLD
(47) — Trustee(2)(3) —
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
TIBCO from 1994 to 1996.
ARTHUR
ZEIKEL
(67) — Trustee(1)(2) —
300 Woodland Avenue, Westfield, New Jersey 07090. Chairman
of the Manager and MLAM from 1997 to 1999 and President
thereof from 1977 to 1997; Chairman of Princeton Services
from 1997 to 1999, Director thereof from 1993 to 1999 and
President thereof from 1993 to 1997; Executive Vice
President of Merrill Lynch & Co., Inc. (“ML &
Co.”) from 1990 to 1999.
VINCENT
R. GIORDANO
(55) — Senior Vice President(1)(2)
— Senior Vice President of the Manager and
MLAM since 1984; Senior Vice President of Princeton
Services since 1993.
KENNETH
A. JACOB
(48) — Vice President(1)(2) —
First Vice President of MLAM since 1997; Vice
President of MLAM from 1984 to 1997; Vice President of the
Manager since 1984.
ROBERT
A. DI
MELLA
, CFA (33) — Portfolio Manager and Vice
President (1)(2) — Vice President of
MLAM since 1997; Assistant Vice President of MLAM from
1995 to 1997; Assistant Portfolio Manager of MLAM from
1993 to 1995.
ROBERT
D. SNEEDEN
(46) — Portfolio Manager and Vice
President (1)(2) — Assistant Vice
President and Portfolio Manager of MLAM since 1994; Vice
President of Lehman Brothers from 1990 to 1994.
DONALD
C. BURKE
(39) — Vice President and Treasurer
(1)(2) — Senior Vice President and
Treasurer of the Manager and MLAM since 1999; Senior Vice
President and Treasurer of Princeton Services since 1999;
Vice President of PFD since 1999; First Vice President of
MLAM from 1997 to 1999; Vice President of MLAM from 1990
to 1997; Director of Taxation of MLAM since 1990.
ALICE
A. PELLEGRINO
(39) — Secretary(1)(2) —
Vice President of MLAM since 1999; Attorney
associated with MLAM since 1997; Associate with
Kirkpatrick & Lockhart LLP from 1992 to 1997.
(1)
|
Interested person, as
defined in the Investment Company 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 the investment adviser or manager.
|
(3)
|
Member of the Trust’
s Audit and Nominating Committee, which is responsible
for the selection of the independent auditors and the
selection and nomination of non-interested Trustees.
|
As of August 31, 1999, the
Trustees, officers of the Trust and officers of the Fund
as a group (13 persons) owned an aggregate of less than 1%
of the outstanding shares of the Fund. At such date, Mr.
Zeikel, a Trustee of the Trust, Mr. Glenn, a Trustee and
officer of the Trust and the other officers of the Trust
and the Fund owned an aggregate of less than 1% of the
outstanding shares of common stock of ML & Co.
The Trust pays each non-interested
Trustee a fee of $10,000 per year plus $1,000 per Board
meeting attended. The Trust also compensates members of
its Audit and Nominating Committee (the “Committee
”), which consists of all the non-interested
Trustees, a fee of $2,000 per year plus $500 per Committee
meeting attended. The Trust reimburses each non-interested
Trustee for his out-of-pocket expenses relating to
attendance at Board and Committee meetings. The fees and
expenses of the Trustees are allocated to the respective
series of the Trust on the basis of asset size.
The following table shows the
compensation earned by the non-interested Trustees for the
fiscal year ended July 31, 1999 and the aggregate
compensation paid to them from all registered investment
companies advised by the Manager and its affiliate, MLAM (
“MLAM/FAM-advised funds”), for the calendar year
ended December 31, 1998.
Name
|
|
Position with
Trust
|
|
Compensation
From Fund
|
|
Pension or
Retirement Benefits
Accrued as Part of
Fund Expense
|
|
Estimated
Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation from
Trust and Other
MLAM/FAM-
Advised Funds(1)
|
| James H.
Bodurtha...
|
|
Trustee
|
|
$2,593
|
|
None
|
|
None
|
|
$163,500
|
| Herbert
I. London...
|
|
Trustee
|
|
$2,593
|
|
None
|
|
None
|
|
$163,500
|
| Robert
R. Martin...
|
|
Trustee
|
|
$2,593
|
|
None
|
|
None
|
|
$163,500
|
| Joseph
L. May...
|
|
Trustee
|
|
$2,593
|
|
None
|
|
None
|
|
$163,500
|
| Andr
é F. Perold...
|
|
Trustee
|
|
$2,593
|
|
None
|
|
None
|
|
$163,500
|
(1)
|
The Trustees serve on
the boards of MLAM/FAM-advised funds as follows: Mr.
Bodurtha (29 registered investment companies consisting
of 47 portfolios); Mr. London (29 registered investment
companies consisting of 47 portfolios); Mr. Martin (29
registered investment companies consisting of 47
portfolios); Mr. May (29 registered investment companies
consisting of 47 portfolios); and Mr. Perold (29
registered investment companies consisting of 47
portfolios).
|
Trustees of the Trust may purchase
Class A shares of the Fund at net asset value. See “
Purchase of Shares — Initial Sales Charge
Alternatives — Class A and Class D Shares
— Reduced Initial Sales Charges —
Purchase Privilege of Certain Persons.”
Management and Advisory Arrangements
Management Services.
The Manager provides the Fund with
investment advisory and management services. Subject to
the supervision of the Trustees, the Manager is
responsible for the actual management of the Fund’s
portfolio and constantly reviews the Fund’s holdings
in light of its own research analysis and that from other
relevant sources. The responsibility for making decisions
to buy, sell or hold a particular security rests with the
Manager. The Manager performs certain of the other
administrative services and provides all the office space,
facilities, equipment and necessary personnel for
management of the Trust and the Fund.
Management Fee.
The Trust has entered into a management
agreement on behalf of the Fund with the Manager (the
“Management Agreement”), pursuant to which the
Manager receives for its services to the Fund monthly
compensation at the annual rate of 0.55% of the average
daily net assets not exceeding $500 million; 0.525% of the
average daily net assets exceeding $500 million but not
exceeding $1.0 billion and 0.50% of the average daily net
assets exceeding $1.0 billion. The table below sets forth
information about the total management fees paid by the
Fund to the Manager for the periods indicated.
Fiscal
Year Ended July 31,
|
|
Management Fee
|
| 1999...
|
|
$
|
| 1998...
|
|
$1,237,408
|
| 1997...
|
|
$1,371,623
|
Payment of Fund Expenses.
The Management Agreement obligates
the Manager to provide investment advisory services and to
pay all compensation of and furnish office space for
officers and employees of the Trust connected with
investment and economic research, trading and investment
management of the Trust, as well as
the fees of all Trustees of the Trust who are affiliated
persons of ML & Co. or any of its affiliates. The Fund
pays all other expenses incurred in its operation and a
portion of the Trust’s general administrative
expenses allocated on the basis of the asset size of the
respective series of the Trust (“Series”).
Expenses that will be borne directly by the Series include
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
Merrill Lynch Funds Distributor, a division of PFD (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 that will be allocated on the
basis of asset size of the respective Series include fees
and expenses of non-interested Trustees, state franchise
taxes, costs of printing proxies and other expenses
relating to shareholder meetings and other expenses
properly payable by the Trust. The organizational expenses
of the Trust were paid by the Trust, and if additional
Series are added to the Trust, the organizational expenses
will be allocated among the Series in a manner deemed
equitable by the Trustees. 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 Trust by the Manager and the Trust
reimburses the Manager for its costs in connection with
such services. As required by the Fund’s distribution
agreements, the Distributor will pay the promotional
expenses of the Fund incurred in connection with the
offering of shares of the Fund. Certain expenses in
connection with the account maintenance and distribution
of Class B and Class C shares will be financed by the
Trust pursuant to the Distribution Plans in compliance
with Rule 12b-1 under the Investment Company Act. See
“Purchase of Shares — Distribution
Plans.” Reference is made to “Management of the
Fund” in the Prospectus for certain information
concerning the management and advisory arrangements of the
Trust.
Organization of the Manager.
The Manager is a limited
partnership, the partners of which are ML & Co., a
financial services holding company and the parent of
Merrill Lynch, and Princeton Services. ML & Co. and
Princeton Services are “controlling persons” of
the Manager as defined under the Investment Company Act
because of their ownership of its voting securities or
their power to exercise a controlling influence over its
management or policies.
Duration and Termination.
Unless earlier terminated as
described herein, the Management Agreement will remain in
effect from year to year if approved annually (a) by the
Trustees of the Trust or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Trustees
who are not parties to such contract or interested persons
(as defined in the Investment Company 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 or by vote of the
shareholders of the Fund.
Transfer Agency Services.
Financial Data Services, Inc. (the
“Transfer Agent”), a subsidiary of ML & Co.,
acts as the Trust’s Transfer Agent pursuant to a
Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the “Transfer
Agency Agreement”). Pursuant to the Transfer Agency
Agreement, the Transfer Agent is responsible for the
issuance, transfer and redemption of shares and the
opening and maintenance of shareholder accounts. Pursuant
to the Transfer Agency Agreement, the Transfer Agent
receives a fee of $11.00 per Class A or Class D account
and $14.00 per Class B or Class C account and is entitled
to reimbursement for certain transaction charges and
out-of-pocket expenses incurred by the Transfer Agent
under the Transfer Agency Agreement. Additionally, a $.20
monthly closed account charge will be assessed on all
accounts which close during the calendar year. Application
of this fee will commence the month following the month
the account is closed. At the end of the calendar year, no
further fees will be due. For purposes of the Transfer
Agency Agreement, the term “account” includes a
shareholder account maintained directly by the Transfer
Agent and any other account representing the beneficial
interest of a person in the relevant share class on a
recordkeeping system, provided the recordkeeping system is
maintained by a subsidiary of ML & Co.
Distribution Expenses.
The Fund has entered into four separate
distribution agreements with the Distributor in connection
with the continuous offering of each class of shares of
the Fund (the “Distribution Agreements”). The
Distribution Agreements obligate the Distributor to pay
certain expenses in connection with the offering of each
class of shares of the Fund. After the prospectuses,
statements of additional information and periodic reports
have been prepared, set in type and mailed to
shareholders, the Distributor pays for the printing and
distribution
of copies thereof used in connection with the offering to
dealers and investors. The Distributor also pays for other
supplementary sales literature and advertising costs. The
Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Management
Agreement described above.
The Board of Trustees of the Trust
has adopted a Code of Ethics under Rule 17j-1 of the
Investment Company Act that incorporates the Code of
Ethics of the Manager (together, the “Codes”).
The Codes significantly restrict the personal investing
activities of all employees of the Manager and, as
described below, impose additional, more onerous,
restrictions on fund investment personnel.
The Codes require that all
employees of the Manager pre-clear any personal securities
investment (with limited exceptions, such as government
securities). The pre-clearance 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 that at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee
is being considered for purchase or sale, by any fund
advised by the Manager. Furthermore, the Codes provide for
trading “blackout periods” which prohibit
trading by investment personnel of the Fund within periods
of trading by the Fund in the same (or equivalent)
security (15 or 30 days depending upon the transaction).
Reference is made to “How to
Buy, Sell, Transfer and Exchange Shares” in the
Prospectus.
The Fund offers 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 and Class C are sold to investors
choosing the deferred sales charge alternatives. Each
Class A, Class B, Class C or Class D share of the Fund
represents an identical interest in the investment
portfolio of the Fund and has the same rights, except that
Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees (also known as
service 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
contingent deferred sales charges (“CDSCs”),
distribution fees 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 and, accordingly, such
charges do not affect the net asset value of any other
class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each
class of shares are calculated in the same manner at the
same time and 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 CDSCs and distribution fees with respect to
the Class B and Class C shares in that the sales charges
and distribution fees applicable to each class provide for
the financing of the distribution of the shares of the
Fund. The distribution-related revenues paid with respect
to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive
different compensation for selling different classes of
shares.
The Merrill Lynch Select Pricing
SM
System is used by more than 50 registered
investment companies advised by MLAM or FAM. Funds advised
by MLAM or FAM that utilize the Merrill Lynch Select
Pricing
SM
System are referred to herein as “Select
Pricing Funds.”
The Fund or the Distributor may
suspend the continuous offering of the Fund’s shares
of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume
such offering from time to time. Any order may be rejected
by the Fund or the Distributor. 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 $5.35) to confirm a
sale of shares to such customers. Purchases made directly
through the Transfer Agent are not subject to the
processing fee.
Initial Sales Charge Alternatives — Class A
and Class D Shares
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 or Class C shares. Investors not
qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares,
because over time the accumulated ongoing account
maintenance and distribution fees on Class B or Class C
shares may exceed the initial sales charges and, in the
case of Class D shares, the account maintenance fee.
Although some investors who previously purchased Class A
shares may no longer be eligible to purchase Class A
shares of other Select Pricing 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 a reduced
initial sales charge 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.
The term “purchase,” as
used in the Prospectus and this Statement of Additional
Information in connection with an investment in Class A
and Class D shares of the Fund, refers to a single
purchase by an individual or to concurrent purchases,
which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse
and their children under the age of 21 years purchasing
shares for his, 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
Investment Company Act, but does not include purchases by
any such company that 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.
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 who currently own Class A shares in a
shareholder account are entitled to purchase additional
Class A shares of the Fund in that account. Class A shares
are available at net asset value to corporate warranty
insurance reserve fund programs provided that the program
has $3 million or more initially invested in Select
Pricing Funds. Also eligible to purchase Class A shares in
a shareholder account 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,
collective investment trusts for which Merrill Lynch Trust
Company serves as trustee and certain purchases made in
connection with certain fee-based programs. In addition,
Class A shares are offered at net asset value to ML &
Co. and its subsidiaries and their directors and employees
and to members of the Boards of MLAM-advised investment
companies. Certain persons who acquired shares of certain
MLAM-advised closed-end funds in their initial offerings
who wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in shares of the
Fund also may purchase Class A shares of the Fund if
certain conditions are met. In addition, Class A shares of
the Fund and certain other Select Pricing Funds are
offered at net asset value to shareholders of Merrill
Lynch Senior Floating Rate Fund, Inc. and, if certain
conditions are met, to shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High
Income Municipal Bond Fund, Inc. who wish to reinvest the
net proceeds from a sale of certain of their shares of
common stock pursuant to a tender offer conducted by such
funds in shares of the Fund and certain other Select
Pricing Funds.
Class A and Class D
Sales Charge Information
Class A Shares
|
For the
Fiscal
Year Ended
July 31,
|
|
Gross
Sales
Charges
Collected
|
|
Sales
Charges
Retained By
Distributor
|
|
Sales
Charges
Paid To
Merrill Lynch
|
|
CDSCs
Received on
Redemption of
Load-Waived Shares
|
|
1999
|
|
$
6,609
|
|
$
512
|
|
$
6,097
|
|
$0
|
|
1998
|
|
$13,043
|
|
$1,243
|
|
$11,800
|
|
$0
|
|
1997
|
|
$
7,501
|
|
$
729
|
|
$
6,772
|
|
$0
|
|
|
|
Class D Shares
|
For the
Fiscal
Year Ended
July 31,
|
|
Gross
Sales
Charges
Collected
|
|
Sales
Charges
Retained By
Distributor
|
|
Sales
Charges
Paid To
Merrill Lynch
|
|
CDSCs
Received on
Redemption of
Load-Waived Shares
|
|
1999
|
|
$88,770
|
|
$3,354
|
|
$85,416
|
|
$10,372
|
|
1998
|
|
$26,224
|
|
$2,713
|
|
$23,511
|
|
$10,000
|
|
1997
|
|
$27,060
|
|
$2,785
|
|
$24,275
|
|
$0
|
The Distributor may reallow
discounts to selected dealers and retain the balance over
such discounts. At times the Distributor may reallow the
entire sales charge to such dealers. Since securities
dealers selling Class A and Class D shares of the Fund
will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the
Securities Act.
Reduced Initial Sales Charges
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 to obtain such investments.
Reinvested Dividends.
No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the
automatic reinvestment of dividends.
Right of Accumulation.
Reduced sales charges are applicable
through a right of accumulation under which eligible
investors are permitted to purchase shares of the Fund
subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price
of the shares then being purchased plus (b) an amount
equal to the then current net asset value or cost,
whichever is higher, of the purchaser’s combined
holdings of all classes of shares of the Fund and of any
other Select Pricing 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 Intent.
Reduced sales charges are applicable to
purchases aggregating $25,000 or more of the Class A or
Class D shares of the Fund or any Select Pricing Funds
made within a 13-month period starting with the first
purchase pursuant to a Letter of Intent. The Letter of
Intent is available only to investors whose accounts are
established and maintained at the Fund’s Transfer
Agent. The Letter of Intent is not available to employee
benefit plans for which Merrill Lynch provides plan
participant recordkeeping services. The Letter of Intent
is not a binding obligation to purchase any amount of
Class A or Class D shares; however, its execution will
result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not
originally made pursuant to a Letter of Intent may be
included under a subsequent Letter of Intent executed
within 90 days of such purchase if the Distributor is
informed in writing of this intent within such 90-day
period. The value of Class A and Class D shares of the
Fund and of other Select Pricing Funds presently held, at
cost or maximum offering price (whichever is higher), on
the date of the first purchase under the Letter of Intent,
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 Intent (minimum of
$25,000), the investor will be notified and must pay,
within 20 days of the expiration of
such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate
and the sales charge applicable to the shares actually
purchased through the Letter. Class A or Class D shares
equal to at least 5.0% 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 Intent must be at
least 5.0% of the dollar amount of such Letter. If a
purchase during the term of such Letter would otherwise be
subject to a further reduced sales charge based on the
right of accumulation, the purchaser will be entitled on
that purchase and subsequent purchases to the further
reduced percentage sales charge that 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 charge 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 Intent will be
deducted from the total purchases made under such Letter.
An exchange from the Summit Cash Reserves Fund into the
Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the
Fund.
TMA
SM
Managed Trusts.
Class A shares are offered at net asset value to TMA
SM
Managed Trusts to which Merrill Lynch Trust
Company provides discretionary trustee services.
Employee Access
SM
Accounts.
Provided applicable threshold requirements are met, either
Class A or Class D shares are offered at net asset value
to Employee Access
SM
Accounts available through authorized employers.
The initial minimum investment for such accounts is $500,
except that the initial minimum investment for shares
purchased for such accounts pursuant to the Automatic
Investment Program is $50.
Purchase Privilege of Certain
Persons. Trustees of the
Trust, members of the Boards of other MLAM-advised funds,
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 any
trust, pension, profit-sharing or other benefit plan for
such persons, may purchase Class A shares of the Fund at
net asset value.
Class D shares of the Fund are
offered at net asset value, without a sales charge, to an
investor that 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 shares 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 must establish that such redemption had been made
within 60 days prior to the investment in the Fund and the
proceeds from the redemption had been maintained in the
interim in cash or a money market fund.
Class D shares of the Fund are
also offered at net asset value, without a sales charge,
to an investor that has a business relationship with a
Merrill Lynch Financial Consultant and that 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.
Class D shares of the Fund are
offered at net asset value, without a sales charge, to an
investor that has a business relationship with a Merrill
Lynch Financial Consultant and that 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.
Closed-End Fund Investment
Option. Class A shares of the
Fund and certain other Select Pricing Funds (“
Eligible Class A Shares”) are offered at net asset
value to shareholders of certain closed-end funds advised
by FAM or MLAM who purchased such closed-end fund shares
prior to October 21, 1994 (the date the Merrill Lynch
Select Pricing
SM
System commenced operations) and wish to reinvest
the net proceeds from a sale of their closed-end fund
shares of common stock in Eligible Class A Shares, if the
conditions set forth below are satisfied. Alternatively,
closed-end fund shareholders who purchased such shares on
or after October 21, 1994 and wish to reinvest the net
proceeds from a sale of their closed-end fund shares are
offered Class A shares (if eligible to buy Class A shares)
or Class D shares of the Fund and other Select Pricing
Funds (“Eligible Class D Shares”), if the
following conditions are met. First, the sale of
closed-end fund shares must be made through Merrill Lynch,
and the net proceeds therefrom must be immediately
reinvested in Eligible Class A or Eligible Class D Shares.
Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares
representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund
shares must have been continuously maintained in a Merrill
Lynch securities account. Fourth, there must be a minimum
purchase of $250 to be eligible for the investment option.
Shareholders of certain
MLAM-advised continuously offered closed-end funds may
reinvest at net asset value the net proceeds from a sale
of certain shares of common stock of such funds in shares
of the Fund. Upon exercise of this investment option,
shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. will receive Class A shares of the Fund and
shareholders of Merrill Lynch Municipal Strategy Fund,
Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that
shareholders already owning Class A shares of the Fund
will be eligible to purchase additional Class A shares
pursuant to this option, if such additional Class A shares
will be held in the same account as the existing Class A
shares and the other requirements pertaining to the
reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the
above-referenced continuously offered closed-end funds (an
“eligible fund”) must sell his or her shares of
common stock of the eligible fund (the “eligible
shares”) back to the eligible fund in connection with
a tender offer conducted by the eligible fund and reinvest
the proceeds immediately in the designated class of shares
of the Fund. This investment option is available only with
respect to eligible shares as to which no Early Withdrawal
Charge or CDSC (each as defined in the eligible fund’
s prospectus) is applicable. Purchase orders from eligible
fund shareholders wishing to exercise this investment
option will be accepted only on the day that the related
tender offer terminates and will be effected at the net
asset value of the designated class of the Fund on such
day.
Acquisition of Certain Investment
Companies. Class D shares may
be offered at net asset value 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.
Deferred Sales Charge Alternatives — Class B
and Class C Shares
Investors choosing the deferred
sales charge alternatives should consider Class B shares
if they intend to hold their shares for an extended period
of time and Class C shares if they are uncertain as to the
length of time they intend to hold their assets in Select
Pricing Funds.
Because no initial sales charges
are deducted at the time of the purchase, Class B and
Class C shares provide the benefit of putting all of the
investor’s dollars to work from the time the
investment is made. The deferred sales charge alternatives
may be particularly appealing to investors that do not
qualify for the reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the
ongoing account maintenance and distribution fees
potentially may be offset to the extent any return is
realized on the additional funds initially invested in
Class B or Class C shares. In addition, Class B shares
will be converted into Class D shares of the Fund after a
conversion period of approximately ten years, and
thereafter investors will be subject to lower ongoing fees.
The public offering price of Class
B and Class C shares for investors choosing the deferred
sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge
at the time of purchase. See “Pricing of Shares
— Determination of Net Asset Value” below.
Contingent Deferred
Sales Charges — Class B Shares
Class B shares that are redeemed
within four years of purchase may be subject to a CDSC at
the rates set forth below charged as a percentage of the
dollar amount subject thereto. In determining whether a
CDSC is applicable to a redemption, the calculation will
be determined in the manner that results in the lowest
applicable rate being charged. 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. It will be assumed that the
redemption is first of shares held for over four years or
shares acquired pursuant to reinvestment of dividends and
then of shares held longest during the four-year period. 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 following table sets forth the
Class B CDSC:
Year
Since Purchase Payment Made
|
|
CDSC
as a Percentage
of Dollar Amount
Subject to Charge
|
| 0–
1...
|
|
4.0%
|
| 1–
2...
|
|
3.0%
|
| 2–
3...
|
|
2.0%
|
| 3–
4...
|
|
1.0%
|
| 4 and
thereafter...
|
|
None
|
To provide an example, assume an
investor purchased 100 shares at $10 per share (at a cost
of $1,000) and in the third year after purchase, the net
asset value per share is $12 and, during such time, the
investor has acquired 10 additional shares upon dividend
reinvestment. If at such time the investor makes his or
her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to a CDSC because of dividend
reinvestment. With respect to the remaining 40 shares, the
charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds
will be charged at a rate of 2.0% (the applicable rate in
the third year after purchase).
The Class B CDSC may be waived on
redemptions of shares in certain circumstances, including
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 or, if later,
reasonably, promptly, following completion of probate. The
Class B CDSC may be waived or its terms may be modified in
connection with certain fee-based programs. The Class B
CDSC may also be waived in connection with involuntary
termination of an account in which Fund shares are held or
for withdrawals through the Merrill Lynch Systematic
Withdrawal Plan. See “Shareholder Services —
Fee-Based Programs” and “ —
Systematic Withdrawal Plan.”
Conversion of Class B Shares to
Class D Shares. After
approximately ten years (the “Conversion Period”
), Class B shares will be converted automatically into
Class D shares of the Fund. Class D shares are subject to
an ongoing account maintenance fee of 0.10% of net assets
but are not subject to the distribution fee that is borne
by Class B shares. Automatic conversion of Class B shares
into Class D shares will occur at least once each month
(on the “Conversion Date”) on the basis of the
relative net asset value 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 the Conversion Date the conversion of
Class B shares to Class D shares of the Fund in a single
account will result in less than $50 worth of Class B
shares being left in the account, all of the Class B
shares of the Fund held in the account on the Conversion
Date will be converted to Class D shares of the Fund.
In general, Class B shares of
equity Select Pricing Funds will convert approximately
eight years after initial purchase and Class B shares of
taxable and tax-exempt fixed income Select Pricing 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. The
conversion period also may be modified for investors that
participate in certain fee-based programs. See “
Shareholder Services —Fee-Based Programs.”
Class B shareholders of the Fund
exercising the exchange privilege described under “
Shareholder Services —Exchange Privilege”
will continue to be subject to the Fund’s CDSC
schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares acquired as a result of the
exchange.
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.
Contingent Deferred
Sales Charges — Class C Shares
Class C shares that are redeemed
within one year of purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject
thereto. In determining whether a Class C CDSC is
applicable to a redemption, the calculation will be
determined in the manner that results in the lowest
possible rate being charged. The charge will be assessed
on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.
Accordingly, no Class C CDSC will be imposed on increases
in net asset value above the initial purchase price. In
addition, no Class C CDSC will be assessed on shares
derived from reinvestment of dividends. It will be assumed
that the redemption is first of shares held for over one
year or shares acquired pursuant to reinvestment of
dividends and then of shares held longest during the
one-year period. 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 C CDSC
may be waived in connection with involuntary termination
of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic
Withdrawal Plan. See “Shareholder Services —
Fee-Based Programs” and “ —
Systematic Withdrawal Plan.” The Class C CDSC of the
Fund and certain other MLAM-advised mutual funds may be
waived with respect to Class C shares purchased by an
investor with the net proceeds of a tender offer made by
certain MLAM-advised closed end funds, including Merrill
Lynch Senior Floating Rate Fund II, Inc. Such waiver is
subject to the requirement that the tendered shares shall
have been held by the investor for a minimum of one year
and to such other conditions as are set forth in the
prospectus for the related closed end fund.
Class B and Class C
Sales Charge Information
Class B Shares*
|
For the
Fiscal Year
Ended July 31,
|
|
CDSCs
Received
by Distributor
|
|
CDSCs
Paid to
Merrill Lynch
|
|
1999
|
|
$164,622
|
|
$164,622
|
|
1998
|
|
$109,591
|
|
$109,591
|
|
1997
|
|
$265,358
|
|
$265,358
|
|
*
|
Additional Class B CDSCs
payable to the Distributor may have been waived or
converted to a contingent obligation in connection with
a shareholder’s participation in certain fee-based
programs.
|
Class C Shares
|
For the
Fiscal Year
Ended July 31,
|
|
CDSCs
Received
by Distributor
|
|
CDSCs
Paid to
Merrill Lynch
|
|
1999
|
|
$3,967
|
|
$3,967
|
|
1998
|
|
$1,169
|
|
$1,169
|
|
1997
|
|
$4,549
|
|
$4,549
|
Merrill Lynch compensates its
Financial Consultants for selling Class B and Class C
shares at the time of purchase from its own funds.
Proceeds from the CDSC and the distribution fee are paid
to the Distributor and are used in whole or in part by the
Distributor to defray the expenses of dealers (including
Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of
compensation to financial consultants for selling Class B
and Class C shares from the dealer’s own funds. The
combination of the CDSC and the ongoing distribution fee
facilitates the ability of the Fund to sell the Class B
and Class C shares without a sales charge being deducted
at the time of purchase. See “Distribution Plans”
below. Imposition of the CDSC and the distribution fee on
Class B and Class C shares is limited by the NASD
asset-based sales charge rule. See “Limitations on
the Payment of Deferred Sales Charges” below.
Reference is made to “Fees
and Expenses” in the Prospectus for certain
information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to
Rule 12b-1 under the Investment Company Act (each a “
Distribution Plan”) with respect to the account
maintenance and/or distribution fees paid by the Fund to
the Distributor with respect to such classes.
The Distribution Plans for Class
B, Class C and Class D shares each provides that the Fund
pays the Distributor an account maintenance fee relating
to the shares of the relevant class, accrued daily and
paid monthly, at the annual rates of 0.25%, 0.25% and
0.10%, respectively, of the average daily net assets of
the Fund attributable to shares of the relevant class in
order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account
maintenance activities with respect to Class B, Class C
and Class D shares. Each of those classes has exclusive
voting rights with respect to the Distribution Plan
adopted with respect to such class pursuant to which
account maintenance and/or distribution fees are paid
(except that Class B shareholders may vote upon any
material changes to expenses charged under the Class D
Distribution Plan).
The Distribution Plans for Class B
and Class C shares each provides 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 rates of 0.25% and 0.35%, respectively, of the
average daily net assets of the Fund attributable to the
shares of the relevant class in order to compensate the
Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing shareholder and distribution
services and bearing certain distribution-related expenses
of the Fund, including payments to financial consultants
for selling Class B and Class C shares of the Fund. The
Distribution Plans relating to Class B and Class C shares
are designed to permit an investor to purchase Class B and
Class C shares through dealers without the assessment of
an initial sales charge and at the same time permit the
dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares.
The Fund’s Distribution Plans
are subject to the provisions of Rule 12b-1 under the
Investment Company Act. In their consideration of each
Distribution Plan, the Trustees must consider all factors
they deem relevant, including information as to the
benefits of the Distribution Plan to the Fund and each
related class of shareholders. Each Distribution Plan
further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of
non-interested Trustees shall be committed to the
discretion of the non-interested Trustees then in office.
In approving each Distribution Plan in accordance with
Rule 12b-1, the non-interested Trustees concluded that
there is reasonable likelihood that each Distribution Plan
will benefit the Fund and its related class of
shareholders. Each Distribution Plan can be terminated at
any time, without penalty, by the vote of a majority of
the non-interested Trustees or by the vote of the holders
of a majority of the outstanding related class of voting
securities of the Fund. A Distribution Plan cannot be
amended to increase materially the amount to be spent by
the Fund without the approval of the related class of
shareholders and all material amendments are required to
be approved by the vote of Trustees, including a majority
of the non-interested 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 Fund preserve copies of the
Distribution Plan and any report made pursuant to such
plan for a period of not less than six years from the date
of the Distribution Plan or such report, the first two
years in an easily accessible place.
Among other things, each
Distribution Plan provides that the Distributor shall
provide and the Trustees shall review quarterly reports of
the disbursement of the account maintenance and/or
distribution fees paid to the Distributor. Payments under
the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares
regardless of the amount of expenses incurred and,
accordingly, distribution-related revenues from the
Distribution Plans may be more or less than
distribution-related expenses. Information with respect to
the distribution-related revenues and expenses is
presented to the Trustees for their consideration in
connection with their deliberations as to the continuance
of the Class B and Class C Distribution Plans annually, as
of December 31 of each year, on a “fully allocated
accrual” basis and quarterly on a “direct
expense and revenue/cash” basis. On the fully
allocated accrual basis, revenues consist of the account
maintenance fees, distribution fees, the CDSCs and certain
other related revenues, and expenses consist of financial
consultant compensation, branch office and regional
operation center selling and transaction processing
expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the
direct expense and revenue/cash basis, revenues consist of
the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant
compensation.
As of December 31, 1998, the last
date for which fully allocated accrual data is available,
the fully allocated accrual expenses of the Distributor
and Merrill Lynch for the period since the commencement of
operations of Class B shares exceeded the fully allocated
accrual revenues by approximately $2,772,000 (1.82% of
Class B net assets at that date). As of July 31, 1999,
direct cash revenues for the period since the commencement
of operations of Class B shares exceeded direct cash
expenses by $4,255,197 (3.19% of Class B net assets at
that date). As of December 31, 1998, the fully allocated
accrual expenses incurred by the Distributor and Merrill
Lynch for the period since the commencement of operations
of Class C shares exceeded the fully allocated accrual
revenues by approximately $46,000 (.42% of Class C net
assets at that date). As of July 31, 1999, direct cash
revenues for the period since the commencement of
operations of Class C shares exceeded direct cash expenses
by $108,575 (1.00% of Class C net assets at that date).
For the fiscal year ended July 31,
1999, the Fund paid the Distributor $
pursuant to the Class B Distribution Plan (based on
average daily net assets subject to such Class B
Distribution Plan of approximately $
million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related
activities and services in connection with Class B shares.
For the fiscal year ended July 31, 1999, the Fund paid the
Distributor $
pursuant to the Class C
Distribution Plan (based on average daily net assets
subject to such Class C Distribution Plan of approximately
$
million), all of which was paid to
Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection
with Class C shares. For the fiscal year ended July 31,
1999, the Fund paid the Distributor $
pursuant to the Class D Distribution Plan (based on
average daily net assets subject to such Class D
Distribution Plan of approximately $
million), all of which was paid to Merrill Lynch for
providing account maintenance activities in connection
with Class D shares.
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in
the Conduct Rules of the NASD imposes a limitation on
certain asset-based sales charges such as the distribution
fee and the CDSC borne by the Class B and Class C shares
but not the account maintenance fee. The maximum sales
charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule
limits the aggregate of distribution fee payments and
CDSCs payable by the Fund to (1) 6.25% of eligible gross
sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to
dividend reinvestments and exchanges), plus (2) interest
on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance
being the maximum amount payable minus amounts received
from the payment of the distribution fee and the CDSC). In
connection with the Class B shares, the Distributor has
voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales.
Consequently, the maximum amount payable to the
Distributor (referred to as the “voluntary maximum
”) in connection with the Class B shares is 6.75% of
eligible gross sales. The Distributor retains the right to
stop waiving the interest charges at any time. To the
extent payments would exceed the voluntary maximum, the
Fund will not make further payments of the distribution
fee with respect to Class B shares and any CDSCs will be
paid to the Fund rather than to the Distributor; however,
the Fund will continue to
make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary
maximum may exceed the amount payable under the NASD
formula. In such circumstances 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, 1999 with respect
to the Class B and Class C shares of the Fund indicating
the maximum allowable payments that can be made under the
NASD maximum sales charge rule and, with respect to the
Class B shares, the Distributor’s voluntary maximum.
|
|
|
Data Calculated as of July 31, 1999
|
|
|
|
(in thousands)
|
|
|
|
Eligible
Gross
Sales(1)
|
|
Allowable
Aggregate
Sales Charges(2)
|
|
Allowable
Interest on
Unpaid
Balance(3)
|
|
Maximum
Amount
Payable
|
|
Amounts
Previously
Paid to
Distributor(4)
|
|
Aggregate
Unpaid
Balance
|
|
Annual
Distribution
Fee at
Current Net
Asset
Level(5)
|
Class
B Shares for the period
May 31, 1991 (commencement of
operations) to July 31, 1999
|
| Under
NASD Rule as Adopted...
|
|
$329,611
|
|
$20,558
|
|
$12,027
|
|
$32,585
|
|
$6,326
|
|
$26,259
|
|
$333
|
| Under
Distributor’s Voluntary Waiver...
|
|
$329,611
|
|
$20,558
|
|
$
1,691
|
|
$22,249
|
|
$6,326
|
|
$15,923
|
|
$333
|
|
|
|
Class
C Shares, for the period
October 21, 1994 (commencement
of operations) to July 31, 1999
|
| Under
NASD Rule as Adopted...
|
|
$
14,186
|
|
$
876
|
|
$
203
|
|
$
1,079
|
|
$
112
|
|
$
967
|
|
$ 38
|
(1)
|
Purchase price of all
eligible Class B or Class C shares sold during the
periods indicated other than shares acquired through
dividend reinvestment and the exchange privilege.
|
(2)
|
Includes amounts
attributable to exchanges from Summit Cash Reserves Fund
(“Summit”) which are not reflected in Eligible
Gross Sales. Shares of Summit can only be purchased by
exchange from another fund (the “redeemed fund”
). Upon such an exchange, the maximum allowable sales
charge payment to the redeemed fund is reduced in
accordance with the amount of the redemption. This
amount is then added to the maximum allowable sales
charge payment with respect to Summit. Upon an exchange
out of Summit, the remaining balance of this amount is
deducted from the maximum allowable sales charge payment
to Summit and added to the maximum allowable sales
charge payment to the fund into which the exchange is
made.
|
(3)
|
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.
|
(4)
|
Consists of CDSC
payments, distribution fee payments and accruals. See
“What are the Fund’s fees and expenses?”
in the Prospectus. This figure may include CDSCs that
were deferred when a shareholder redeemed shares prior
to the expiration of the applicable CDSC period and
invested the proceeds, without the imposition of a sales
charge, in Class A shares in conjunction with the
shareholder’s participation in the Merrill Lynch
Mutual Fund Advisor (Merrill Lynch MFA
SM
) Program (the “MFA Program”). The CDSC
is booked as a contingent obligation that may be payable
if the shareholder terminates participation in the MFA
Program.
|
(5)
|
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 (with respect to Class B shares)
or the NASD maximum (with respect to Class B and Class C
shares).
|
Reference is made to “How to
Buy, Sell, Transfer and Exchange Shares” in the
Prospectus.
The Fund is required to redeem for
cash all shares of the Fund upon receipt of a written
request in proper form. The redemption price is the net
asset value per share next determined after the initial
receipt of proper notice of redemption. Except for any
CDSC that 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 right to redeem shares or to
receive payment with respect to any such redemption may be
suspended for more than seven days only for any period
during which trading on the NYSE is restricted as
determined by the Commission or the NYSE is closed (other
than customary weekend and holiday closings), for any
period during which an emergency exists as defined by the
Commission as a result of which disposal of portfolio
securities or determination of the net asset value of the
Fund is not reasonably practicable, and for such other
periods as the Commission may by order permit for the
protection of shareholders of the Fund.
The value of shares at the time of
redemption may be more or less than the shareholder’s
cost, depending in part on the market value of the
securities held by the Fund at such time.
A shareholder wishing to redeem
shares held with the Transfer Agent may do so without
charge by tendering the shares directly to the Transfer
Agent at Financial Data Services, Inc., P.O. Box 45289,
Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to
Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484. Proper notice of
redemption in the case of shares deposited with the
Transfer Agent may be accomplished by a written letter
requesting redemption. Proper notice of redemption in the
case of shares for which certificates have been issued may
be accomplished by a written letter as noted above
accompanied by certificates for the shares to be redeemed.
Redemption requests should not be sent to the Fund. The
redemption request 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 on
the redemption request may require a guarantee by an “
eligible guarantor institution” as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), the existence and
validity of which may be verified by the Transfer Agent
through the use of industry publications. In the event a
signature guarantee is required, notarized signatures are
not sufficient. In general, signature guarantees are
waived on redemptions of less than $50,000 as long as the
following requirements are met: (i) all requests require
the signature(s) of all persons in whose name(s) shares
are recorded on the Transfer Agent’s register; (ii)
all checks must be mailed to the stencil address of record
on the Transfer Agent’s register and (iii) the
stencil address must not have changed within 30 days.
Certain rules may apply regarding certain account types
such as but not limited to UGMA/UTMA accounts, Joint
Tenancies With Rights of Survivorship, contra broker
transactions, and institutional accounts. 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 Fund may be
requested to redeem shares for which it has not yet
received good payment (e.g., cash, Federal funds or
certified check drawn on a United States bank). The Fund
may delay or cause to be delayed the mailing of a
redemption check until such time as it has assured itself
that good payment (e.g., cash, Federal funds or
certified check drawn on a United States bank) has been
collected for the purchase of such Fund shares, which will
not exceed 10 days.
The Fund also will repurchase Fund
shares through a shareholder’s listed securities
dealer. The Fund 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 the
order is placed. Shares will be priced at the net asset
value calculated on the day the request is received,
provided that the request for repurchase is submitted to
the dealer prior to the regular close of business on the
NYSE (generally, the NYSE closes at 4:00 p.m., Eastern
time) and such request is received by the 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 Fund 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 Fund (other than any
applicable CDSC). Securities firms that do not have
selected dealer agreements with the Distributor, however,
may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill
Lynch may charge its customers a processing fee (presently
$5.35) to confirm a repurchase of shares to such
customers. Repurchases made directly through the Transfer
Agent on accounts held at the Transfer Agent are not
subject to the processing fee. The Fund 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
Fund 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 the Fund have a
privilege to reinstate their accounts by purchasing Class
A or Class D shares, as the case may be, of the Fund at
net asset value without a sales charge up to the dollar
amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a
check for the amount to be reinstated to the Transfer
Agent within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the
Distributor. Alternatively, the reinstatement privilege
may be exercised through the investor’s Merrill Lynch
Financial Consultant within 30 days after the date the
request for redemption was accepted by the Transfer Agent
or the Distributor. The reinstatement will be made at the
net asset value per share next determined after the notice
of reinstatement is received and cannot exceed the amount
of the redemption proceeds.
Determination of Net Asset Value
Reference is made to “How
Shares Are Priced” in the Prospectus.
The net asset value of the shares
of all classes of the Fund is determined by the Manager
once daily Monday through Friday after the close of
business on the NYSE on each day the NYSE is open for
trading. The NYSE generally closes at 4:00 p.m., Eastern
time. The NYSE is not open for trading on New Year’s
Day, Martin Luther King, Jr. Day, Presidents’ Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Net asset value is computed by
dividing the value of the securities held by the Fund plus
any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities
(including accrued expenses) 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 per share net asset value of
Class B, Class C and Class D shares generally will be
lower than the per share net asset value of 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, and the daily expense accruals of the account
maintenance fees applicable with respect to the Class D
shares; moreover, the per share net asset value of the
Class B and Class C shares generally will be lower than
the per share net asset value of Class D shares reflecting
the daily expense accruals of the distribution fees and
higher transfer agency fees applicable with respect to
Class B and Class C shares of the Fund. The per share net
asset value of Class C shares will generally be lower than
the per share net asset value of Class B shares reflecting
the daily expense accruals of the higher distribution fees
applicable with respect to Class C shares. It is expected,
however, that the per share net asset value of the four
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.
The Municipal Bonds and other
portfolio securities in which the Fund invests are traded
primarily in over-the-counter (“OTC”) municipal
bond and money markets and are valued at the last
available bid price for long positions and at the last
available ask price for short positions in the OTC market
or on the basis of yield equivalents as obtained from one
or more dealers that make markets in the securities. One
bond is the “yield equivalent” of another bond
when, taking into account market price, maturity, coupon
rate, credit rating and ultimate return of principal, both
bonds will theoretically produce an equivalent return to
the bondholder. Financial futures contracts and options
thereon, which are traded on exchanges, are valued at
their settlement prices as of the close of such exchanges.
Short-term investments with a remaining maturity of 60
days or less are valued on an amortized cost basis which
approximates market value. Securities and assets for which
market quotations are not readily available are valued at
fair value as determined in good faith by or under the
direction of the Trustees of the Trust, including
valuations furnished by a pricing service retained by the
Trust, which may utilize a matrix system for valuations.
The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the
general supervision of the Trustees.
Computation of Offering Price Per Share
An illustration of the computation
of the offering price for Class A, Class B, Class C and
Class D shares of the Fund based on the value of the Fund
’s net assets and number of shares outstanding on
July 31, 1999 is set forth below.
|
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
|
Class
D
|
| Net
Assets...
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
| Number
of Shares Outstanding...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value Per Share (net assets divided by
number of shares
outstanding)...
|
|
$
|
|
$
|
|
$
|
|
$
|
Sales
Charge (for Class A and Class D shares:
4.00% of offering price;
4.17% of net asset value
per share)*...
|
|
—
|
|
**
|
|
**
|
|
—
|
|
|
|
|
|
|
|
|
|
| Offering
Price...
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
*
|
Rounded to the nearest
one-hundredth percent; assumes maximum sales charge is
applicable.
|
**
|
Class B and Class C
shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See
“Purchase of Shares — Deferred Sales
Charge Alternatives — Class B and Class C
Shares — Contingent Deferred Sales Charges
— Class B Shares” and “
— Contingent Deferred Sales Charges —
Class C Shares” herein.
|
Transactions in Portfolio Securities
Subject to policies established by
the Trustees, the Manager is primarily responsible for the
execution of the Fund’s portfolio transactions. The
Trust has no obligation to deal with any dealer or group
of dealers in the execution of transactions in portfolio
securities of the Fund. 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 results in
conducting portfolio transactions for the Fund, taking
into account such factors as price (including the
applicable dealer spread or commission), the size, type
and difficulty of the transaction involved, the firm’
s general execution and operations facilities and the firm
’s risk in positioning the securities involved. The
portfolio securities of the Fund 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 Fund primarily
consists of dealer or underwriter spreads. While
reasonable competitive spreads or commissions are sought,
the Fund will not necessarily be paying the lowest spread
or commission available. Transactions with respect to the
securities of small and emerging growth companies in which
the Fund may invest may involve specialized services on
the part of the broker or dealer and thereby entail higher
commissions or spreads than would be the case with
transactions involving more widely traded securities.
Subject to obtaining the best net
results, dealers who provide supplemental investment
research (such as information concerning tax-exempt
securities, economic data and market forecasts) to the
Manager may receive orders for transactions by the Fund.
Information so received will be in addition to and not in
lieu of the services required to be performed by the
Manager under its Management Agreement and the expense of
the Manager will not necessarily be reduced as a result of
the receipt of such supplemental information. Supplemental
investment research obtained from such dealers might be
used by the Manager in servicing all of its accounts and
all such research might not be used by the Manager in
connection with the Fund. Consistent with the Conduct
Rules of the NASD and policies established by the Trustees
of the Trust, the Manager may consider sales of shares of
the Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Fund.
Because of the affiliation of
Merrill Lynch with the Manager, the Fund is prohibited
from engaging in certain transactions involving such firm
or its affiliates except pursuant to an exemptive order
under the Investment Company Act. Included among such
restricted transactions are purchases from or sales to
Merrill Lynch of securities in transactions in which it
acts as principal. Under an exemptive order, the Trust may
effect principal transactions with Merrill Lynch in high
quality, short-term, tax-exempt securities subject to
conditions set forth in such order. Information regarding
transactions executed pursuant to the exemptive order is
set forth in the following table:
Fiscal Year Ended July 31,
|
|
Number of
Transactions
|
|
Approximate Aggregate
Market Value of Transactions
|
| 1999...
|
|
|
|
$
|
| 1998...
|
|
0
|
|
$0
|
| 1997...
|
|
0
|
|
$0
|
An affiliated person of the Trust
may serve as broker for the Fund in OTC transactions
conducted on an agency basis. Certain court decisions have
raised questions as to the extent to which investment
companies should seek exemptions under the Investment
Company 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.
The Fund may not purchase
securities, including Municipal Bonds, during the
existence of any underwriting syndicate of which Merrill
Lynch is a member or in a private placement in which
Merrill Lynch serves as placement agent except pursuant to
procedures approved by the Trustees of the Trust which
either comply with rules adopted by the Commission or with
interpretations of the Commission staff. Rule 10f-3 under
the Investment Company Act sets forth conditions under
which the Fund may purchase Municipal Bonds from an
underwriting syndicate of which Merrill Lynch is a member.
The rule sets forth requirements relating to, among other
things, the terms of an issue of Municipal Bonds purchased
by the Fund, the amount of Municipal Bonds that may be
purchased in any one issue and the assets of the Fund that
may be invested in a particular issue.
Section 11(a) of the Exchange Act
generally prohibits members of the U.S. national
securities exchanges from executing exchange transactions
for their affiliates and institutional accounts that they
manage unless the member (i) has obtained prior express
authorization from the account to effect such
transactions, (ii) at least annually furnishes the account
with a statement setting forth the aggregate compensation
received by the member in effecting such transactions, and
(iii) complies with any rules the Commission has
prescribed with respect to the requirements of clauses (i)
and (ii). To the extent Section 11(a) would apply to
Merrill Lynch acting as a broker for the Fund in any of
its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents
have been obtained from the Fund and annual statements as
to aggregate compensation will be provided to the Fund.
Securities may be held by, or be appropriate investments
for, the Fund as well as other funds or investment
advisory clients of the Manager or MLAM.
Because of different objectives or
other factors, a particular security may be bought for one
or more clients of the Manager or an affiliate when one or
more clients of the Manager or an affiliate are selling
the same security. If purchases or sales of securities
arise for consideration at or about the same time that
would involve the Fund or other clients or funds for which
the Manager or an affiliate acts as manager 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 an
affiliate during the same period may increase the demand
for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price.
The Trust offers a number of
shareholder services and investment plans described below
that are designed to facilitate investment in shares of
the Fund. Full details as to each of such services, copies
of the various plans and instructions as to how to
participate in the various services or plans, or how to
change options with respect thereto, can be obtained from
the Fund, by calling the telephone number on the cover
page hereof, or from the Distributor or Merrill Lynch.
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 dividends. The statements will also show
any other activity in the account since the preceding
statement. Shareholders will also receive separate
confirmations for each purchase or sale transaction other
than automatic investment purchases and the reinvestment
of dividends. A shareholder with an account held at the
Transfer Agent may make additions to his or her Investment
Account at any time by mailing a check directly to the
Transfer Agent. A shareholder may also maintain an account
through Merrill Lynch. Upon the transfer of shares out of
a Merrill Lynch brokerage account, an Investment Account
in the transferring shareholder’s name may be opened
automatically at the Transfer Agent.
Share certificates are issued only
for full shares and only upon the specific request of a
shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full
shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
Shareholders may transfer their
Fund shares from Merrill Lynch to another securities
dealer that has entered into a selected dealer agreement
with Merrill Lynch. Certain shareholder services may not
be available for the transferred shares. After the
transfer, the shareholder may purchase additional shares
of funds owned before the transfer and all future trading
of these assets must be coordinated by the new firm. If a
shareholder wishes to transfer his or her shares to a
securities dealer that has not entered into a selected
dealer agreement with Merrill Lynch, the shareholder must
either (i) redeem his or her shares, paying any applicable
CDSC or (ii) continue to maintain an Investment Account at
the Transfer Agent for those shares. The shareholder may
also request the new securities dealer to maintain the
shares in an account at the Transfer Agent registered in
the name of the securities dealer for the benefit of the
shareholder whether the securities dealer has entered into
a selected dealer agreement or not.
U.S. shareholders of each class of
shares of the Fund have an exchange privilege with certain
other Select Pricing Funds and Summit Cash Reserves Fund (
“Summit”), a series of Financial Institutions
Series Trust, which is a Merrill Lynch-sponsored money
market fund specifically designated for exchange by
holders of Class A, Class B, Class C and Class D shares of
Select Pricing Funds. 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 at least 15 days. Before
effecting an exchange, shareholders should obtain a
currently effective prospectus of the fund into which the
exchange is to be made. Exercise of the exchange privilege
is treated as a sale of the exchanged shares and a
purchase of the acquired shares for Federal income tax
purposes.
Exchanges of Class A and Class D
Shares. Class A shareholders
may exchange Class A shares of the Fund for Class A shares
of a second Select Pricing Fund if the shareholder holds
any Class A shares of the second fund in his or her
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
Select Pricing Fund, but does not hold Class A shares of
the second fund in his or her 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 Select Pricing 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 D shares
are exchangeable with shares of the same class of other
Select Pricing Funds.
Exchanges of Class A or Class D
shares outstanding (“outstanding Class A or Class D
shares”) for Class A or Class D shares of other
Select Pricing Funds or for Class A shares of Summit, (
“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 or Class D shares acquired through
dividend reinvestment shall be deemed to have been sold
with a sales charge equal to the sales charge previously
paid on the Class A or Class D shares on which the
dividend was paid. Based on this formula, Class A and
Class D shares generally may be exchanged into the Class A
or Class D shares, respectively, of the other funds with a
reduced sales charge or without a sales charge.
Exchanges of Class B and Class C
Shares. Certain Select Pricing
Funds with Class B or Class C shares outstanding (“
outstanding Class B or Class C shares”) offer to
exchange their Class B or Class C shares for Class B or
Class C shares, respectively, of certain other Select
Pricing Funds or for Class B shares of Summit (“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 shareholders
of the Fund exercising the exchange privilege will
continue to be subject to the Fund’s CDSC schedule if
such schedule is higher than the CDSC schedule relating to
the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the
Fund acquired through use of the exchange privilege will
be subject to the Fund’s CDSC schedule if such
schedule is higher than the CDSC schedule relating to the
Class B shares of the fund from which the exchange has
been made. For purposes of computing the CDSC 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 shares of the
Fund for those of Merrill Lynch Special Value Fund, Inc. (
“Special Value Fund”) after having held the Fund
’s Class B shares for two and a half years. The 2%
CDSC that generally would apply to a redemption would not
apply to the exchange. Three years later the investor may
decide to redeem the Class B shares of Special Value Fund
and receive cash. There will be no CDSC due on this
redemption, since by “tacking” the two and a
half year holding period of Fund Class B shares to the
three-year holding period for the Special Value Fund Class
B shares, the investor will be deemed to have held the
Special Value Fund Class B shares for more than five years.
Exchanges for Shares of a Money
Market Fund. Class A and Class
D shares are exchangeable for Class A shares of Summit and
Class B and Class C shares are exchangeable for Class B
shares of Summit. Class A shares of Summit have an
exchange privilege back into Class A or Class D shares of
Select Pricing Funds; Class B shares of Summit have an
exchange privilege back into Class B or Class C shares of
Select Pricing Funds and, in the event of such an
exchange, the period of time that Class B shares of Summit
are held will count toward satisfaction of the holding
period requirement for purposes of reducing any CDSC and
toward satisfaction of any Conversion Period with respect
to Class B shares. Class B shares of Summit will be
subject to a distribution fee at an annual rate of 0.75%
of average daily net assets of such Class B shares. This
exchange privilege does not apply with respect to certain
Merrill Lynch fee-based programs for which alternative
exchange arrangements may exist. Please see your Merrill
Lynch Financial Consultant for further information.
Prior to October 12, 1998,
exchanges from the Fund and other Select Pricing Funds
into a money market Fund were directed to certain Merrill
Lynch-sponsored money market funds other than Summit.
Shareholders who exchanged Select Pricing Fund shares for
shares of such other money market funds and subsequently
wish to
exchange those money market fund shares for shares of the
Fund will be subject to the CDSC schedule applicable to
such Fund shares, if any. The holding period for those
money market fund shares will not count toward
satisfaction of the holding period requirement for
reduction of the CDSC imposed on such shares, if any, and,
with respect to Class B shares, toward satisfaction of the
Conversion Period.
Exchanges by Participants in the
MFA Program. The Fund’s
exchange privilege is also modified with respect to
purchases of Class A and Class D shares by investors 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 Select Pricing Fund for Class A or Class D
shares of the Fund will be made solely on the basis of the
relative net asset values of the shares being exchanged.
Therefore, there will not be a charge for any difference
between the sales charge previously paid on the shares of
the other Select Pricing Fund and the sales charge payable
on the shares of the Fund being acquired in the exchange
under the MFA Program.
Exercise of the Exchange Privilege.
To exercise the exchange
privilege, a shareholder should contact his or her Merrill
Lynch Financial Consultant, who will advise the Fund of
the exchange. Shareholders of the Fund, and shareholders
of the other Select Pricing Funds with shares for which
certificates have not been issued, may exercise the
exchange privilege by wire through their securities
dealers. The Fund reserves the right to require a properly
completed Exchange Application. This exchange privilege
may be modified or terminated in accordance with the rules
of the Commission. The Fund reserves the right to limit
the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous
offering of their shares to the general public at any time
and may thereafter resume such offering from time to time.
The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be
made. It is contemplated that the exchange privilege may
be applicable to other new mutual funds whose shares may
be distributed by the Distributor.
Certain Merrill Lynch fee-based
programs, including pricing alternatives for securities
transactions (each referred to in this paragraph as a
“Program”), may permit the purchase of Class A
shares at net asset value. Under specified circumstances,
participants in certain Programs may deposit other classes
of shares which will be exchanged for Class A shares.
Initial or deferred sales charges otherwise due in
connection with such exchanges may be waived or modified,
as may the Conversion Period applicable to the deposited
shares. Termination of participation in a Program may
result in the redemption of shares held therein or the
automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In
addition, upon termination of participation in a Program,
shares that have been held for less than specified periods
within such Program may be subject to a fee based upon the
current value of such shares. These Programs also
generally prohibit such shares from being transferred to
another account at Merrill Lynch, to another broker-dealer
or to the Transfer Agent. Except in limited circumstances
(which may also involve an exchange as described above),
such shares must be redeemed and another class of shares
purchased (which may involve the imposition of initial or
deferred sales charges and distribution and account
maintenance fees) in order for the investment not to be
subject to Program fees. Additional information regarding
a specific Program (including charges and limitations on
transferability applicable to shares that may be held in
such Program) is available in such Program’s client
agreement and from the Transfer Agent at 1-800-MER-FUND or
1-800-637-3863.
Automatic Investment Plans
A shareholder 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) or
Class B, Class C or Class D shares at the applicable
public offering price. These purchases may be made either
through the shareholder’s securities dealer, or by
mail directly to the Transfer Agent, acting as agent for
such securities dealer. Voluntary accumulation also can be
made through a service known as the Fund’s Automatic
Investment Plan. The Fund would be authorized, on a
regular basis, to provide systematic additions to the
Investment Account of such shareholder through charges of
$50 or more to the regular bank account of the shareholder
by either pre-authorized checks or automated clearing
house debits. An investor whose shares of the Fund are
held within a CMA® or CBA® Account may arrange to
have periodic investments made in the Fund in amounts of
$100 or more through the CMA® or CBA® Automated
Investment Program.
Automatic Dividend Reinvestment Plan
Unless specific instructions are
given as to the method of payment, dividends will be
automatically reinvested, without sales charge, in
additional full and fractional shares of the Fund. Such
reinvestment will be at the net asset value of shares
after Fund as of the close of business on the NYSE on the
monthly payment date for such dividends. No CDSC will be
imposed upon redemption of shares issued as a result of
the automatic reinvestment of dividends.
Shareholders may, at any time, by
written notification to Merrill Lynch if their account is
maintained with Merrill Lynch, or by written notification
or by telephone (1-800-MER-FUND) to the Transfer Agent, if
their account is maintained with the Transfer Agent elect
to have subsequent dividends or both dividends and capital
gains distributions, paid in cash, rather than reinvested
in shares of the Fund or vice versa (provided that, in the
event that a payment on an account maintained at the
Transfer Agent would amount to $10.00 or less, a
shareholder will not receive such payment in cash and such
payment will automatically be reinvested in additional
shares). Commencing ten days after the receipt by the
Transfer Agent of such notice, those instructions will be
effected. The Fund is not responsible for any failure of
delivery to the shareholder’s address of record and
no interest will accrue on amounts represented by uncashed
distribution checks. Cash payments can also be directly
deposited to the shareholder’s bank account.
Systematic Withdrawal Plan
A shareholder may elect to receive
systematic withdrawals from his or her Investment Account
by check or through automatic payment by direct deposit to
his or her bank account on either a monthly or quarterly
basis as provided below. Quarterly withdrawals are
available for shareholders that have acquired shares of
the Fund having a value, based on cost or the current
offering price, of $5,000 or more, and monthly withdrawals
are available for shareholders with shares having a value
of $10,000 or more.
At the time of each withdrawal
payment, sufficient 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 the dollar amount and the class of
shares to be redeemed. Redemptions will be made at net
asset value as determined after the close of business on
the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern
time) on the 24th day of each month or the 24th day of the
last month of each quarter, whichever is applicable. If
the NYSE is not open for business on such date, the shares
will be redeemed at the net asset value determined at
close of business on the NYSE on the following business
day. The check for the withdrawal payment will be mailed,
or the direct deposit of the withdrawal payment will be
made, on the next business day following redemption. When
a shareholder is making systematic withdrawals, dividends
on all shares in the Investment Account are automatically
reinvested in shares of the Fund. A shareholder’s
Systematic Withdrawal Plan may be terminated at any time,
without charge or penalty, by the shareholder, the Fund,
the Transfer Agent or the Distributor.
With respect to redemptions of
Class B or Class C shares pursuant to a systematic
withdrawal plan, the maximum number of Class B or Class C
shares that can be redeemed from an account annually shall
not exceed 10% of the value of shares of such class in
that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that
otherwise might be due on such redemption of Class B or
Class C shares will be waived. Shares redeemed pursuant to
a systematic withdrawal plan will be redeemed in the same
order as Class B or Class C shares are otherwise redeemed.
See “Purchase of Shares — Deferred
Sales Charge Alternatives — Class B and Class C
Shares.” Where the systematic withdrawal plan is
applied to Class B shares, upon conversion of the last
Class B shares in an account to Class D shares, the
systematic withdrawal plan will be applied thereafter to
Class D shares if the shareholder so elects. If an
investor wishes to change the amount being withdrawn in a
systematic withdrawal plan the investor should contact his
or her Merrill Lynch Financial Consultant.
Withdrawal payments should not be
considered as dividends. 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 shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of
sales charges and tax liabilities. The Fund will not
knowingly accept purchase orders for
shares of the Fund from investors that maintain a Systematic
Withdrawal Plan unless such purchase is equal to at least
one year’s scheduled withdrawals or $1,200, whichever
is greater. Automatic investments may not be made into an
Investment Account in which the shareholder has elected to
make systematic withdrawals.
Alternatively, a shareholder whose
shares are held within a CMA® or CBA® Account may
elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the CMA®
or CBA® Systematic Redemption Program. The minimum
fixed dollar amount redeemable is $50. The proceeds of
systematic redemptions will be posted to the shareholder
’s account three business days after the date the
shares are redeemed. All redemptions are made at net asset
value. A shareholder may elect to have his or her shares
redeemed on the first, second, third or fourth Monday of
each month, in the case of monthly redemptions, or of
every other month, in the case of bimonthly redemptions.
For quarterly, semiannual or annual redemptions, the
shareholder may select the month in which the shares are
to be redeemed and may designate whether the redemption is
to be made on the first, second, third or fourth Monday of
the month. If the Monday selected is not a business day,
the redemption will be processed at net asset value on the
next business day. The CMA® or CBA® Systematic
Redemption Program is not available if Fund shares are
being purchased within the account pursuant to the
Automatic Investment Program. For more information on the
CMA® or CBA® Systematic Redemption Program,
eligible shareholders should contact their Merrill Lynch
Financial Consultant.
The net investment income of the
Fund is declared as dividends daily prior to the
determination of the net asset value which is calculated
after the close of business on the NYSE (generally, the
NYSE closes at 4:00 p.m., Eastern time) on that day. The
net investment income of the Fund for dividend purposes
consists of interest earned on portfolio securities, less
expenses, in each case computed since the most recent
determination of net asset value. Expenses of the Fund,
including the management fees and the account maintenance
and distribution fees, are accrued daily. Dividends of net
investment income are declared daily and reinvested
monthly in the form of additional full and fractional
shares of the Fund at net asset value as of the close of
business on the “payment date” unless the
shareholder elects to receive such dividends in cash.
Shares will accrue dividends as long as they are issued
and outstanding. Shares are issued and outstanding from
the settlement date of a purchase order to the day prior
to settlement date of a redemption order.
All net realized capital gains, if
any, are declared and distributed to the Fund’s
shareholders at least annually. Capital gain dividends
will be reinvested automatically in shares of the Fund
unless the shareholder elects to receive such dividends in
cash.
The per share dividends on each
class of shares will be reduced as a result of any account
maintenance, distribution and transfer agency fees
applicable to that class. See “Pricing of Shares
— Determination of Net Asset Value.”
See “Shareholder Services
” for information as to how to elect either dividend
reinvestment or cash payments. Portions of dividends which
are taxable to shareholders as described below are subject
to income tax whether they are reinvested in shares of the
Fund or received in cash.
The Trust intends to continue to
qualify the Fund for the special tax treatment afforded
regulated investment companies (“RICs”) under
the Code. As long as it so qualifies, the Fund (but not
its shareholders) will not be subject to Federal income
tax to the extent that it distributes its net investment
income and net realized capital gains. The Trust intends
to cause the Fund to distribute substantially all of such
income.
As discussed in “General
Information — Description of Shares,”
the Trust has established other series in addition to the
Fund (together with the Fund, the “Series”).
Each Series of the Trust is treated as a separate
corporation for Federal income tax purposes. Each Series,
therefore, is considered to be a separate entity in
determining its treatment under the rules for RICs. Losses
in one Series do not offset gains in another Series, and
the requirements (other than certain organizational
requirements) for qualifying for RIC status will be
determined at the Series level rather than at the Trust
level.
The Code requires a RIC to pay a
nondeductible 4% excise tax to the extent the RIC does not
distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of
its capital gains, determined, in general, on an October
31 year end, plus certain undistributed amounts from
previous years. The required distributions, however, are
based only on the taxable income of a RIC. The excise tax,
therefore, generally will not apply to the tax-exempt
income of a RIC, such as the Fund, that pays
exempt-interest dividends.
The Trust intends to qualify the
Fund to pay “exempt-interest dividends” as
defined in Section 852(b)(5) of the Code. Under such
section if, at the close of each quarter of the Fund’
s taxable year, at least 50% of the value of the Fund’
s total assets consists of obligations exempt from Federal
income tax (“tax-exempt obligations”) under
Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the
Fund shall be qualified to pay exempt-interest dividends
to its Class A, Class B, Class C and Class D shareholders
(together the “shareholders”). Exempt-interest
dividends are dividends or any part thereof paid by the
Fund that are attributable to interest on tax-exempt
obligations and designated by the Trust as exempt-interest
dividends in a written notice mailed to the Fund’s
shareholders within 60 days after the close of the Fund
’s taxable year. The Fund will allocate interest from
tax-exempt obligations (as well as ordinary income,
capital gains and tax preference items discussed below)
among the Class A, Class B, Class C and Class D
shareholders according to a method (which it believes is
consistent with the Commission rule permitting the
issuance and sale of multiple classes of shares) that is
based upon the gross income that is allocable to the 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.
Exempt-interest dividends 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 and railroad retirement
benefits subject to Federal income taxes. Interest on
indebtedness incurred or continued to purchase or carry
shares of a RIC paying exempt-interest dividends, such as
the Fund, will not be deductible by the investor for
Federal income tax purposes or for tax purposes to the
extent attributable to exempt-interest dividends.
Shareholders are advised to consult their tax advisors
with respect to whether exempt-interest dividends retain
the exclusion under Code Section 103(a) if a shareholder
would be treated as a “substantial user” or
“related person” under Code Section 147(a) with
respect to property financed with the proceeds of an issue
of “industrial development bonds” or “
private activity bonds,” if any, held by the Fund.
Dividends paid by the 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 Fund will be
subject to Florida corporate income taxes and state taxes
in states other than Florida. The Trust will inform
shareholders annually regarding the portion of the Fund
’s distributions that constitutes exempt-interest
dividends and the portion that is exempt from Florida
intangible personal property taxes. Prior to July 1, 1999,
shares similar to shares in the Fund were exempt from
Florida intangible personal property tax if the Fund’
s portfolio consisted solely of assets exempt from the
Florida intangible personal property tax. Under this
provision, the Fund previously received a ruling from the
Florida Department of Revenue that if on the last business
day of any calendar year the Fund’s assets consist
solely of assets exempt from Florida intangible personal
property tax, shares of the Fund will be exempt from
Florida intangible personal property tax in the following
year. Effective July 1, 1999, the Florida Legislature
revised this requirement so that the Fund’s shares
will be exempt if at least ninety percent of the net asset
value of the portfolio of assets corresponding to the
shares in the Fund is invested in assets that are exempt
from the Florida intangible personal property tax. The
Fund has applied for a ruling from the Florida Department
of Revenue that if, on the last business day of any
calendar year, at least ninety percent of the net asset
value of the portfolio of assets corresponding to shares
in the Fund is invested in assets that are exempt from the
tax, shares of the Fund owned by Florida residents will be
exempt from the Florida intangible personal property tax
in the following year. Although there is no assurance that
the Florida Department of Revenue will issue a favorable
ruling on this issue, the Florida Department of Revenue
has previously issued similar rulings. 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. Prior to the receipt of the ruling from
the Florida Department of Revenue, the Fund will rely on
an opinion of Florida counsel for the Fund, Holland &
Knight LLP, stating that the Fund’s shares will be
exempt from Florida intangible personal property tax if
the revised asset requirement is met. This opinion is
based on existing Florida law and interpretive authority
which could be changed at any time retroactively. While
the opinion represents the best judgment of Holland &
Knight LLP, there is no guarantee that the legal
conclusions will not be challenged by the Department of
Revenue or in judicial or administrative proceedings.
Thus, under Florida counsel’s opinion or if a
favorable ruling is issued, and if the revised requirement
is met, shares of the 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
Fund are subject to Florida intangible personal property
tax because less than 90% of the net asset value of the
Fund’s assets on the last business day of the
previous calendar year consisted of assets exempt from
Florida intangible personal property tax, only that
portion of the value of Fund shares equal to the portion
of the net asset value of the Fund that is attributable to
obligations of the U.S. Government will be exempt from
taxation. The Fund anticipates that on the last business
day of each calendar year at least 90% of the net asset
value of the Fund’s assets will consist of assets
exempt from Florida intangible personal property tax.
To the extent the Fund’s
distributions are derived from interest on its taxable
investments or from an excess of net short-term capital
gains over net long-term capital losses (“ordinary
income dividends”), such distributions are considered
ordinary income for Federal income tax purposes.
Distributions, if any, from an excess of net long-term
capital gains over net short-term capital losses derived
from the sale of securities or from certain transactions
in futures or options (“capital gain dividends”)
are taxable as long-term capital gains for Federal income
tax purposes, regardless of the length of time the
shareholder has owned Fund shares. Certain categories of
capital gains are taxable at different rates. Generally
not later than 60 days after the close of the Fund’s
taxable year, the Trust will provide shareholders with a
written notice designating the amounts of any
exempt-interest dividends and capital gain dividends, as
well as any amount of capital gain dividends in the
different categories of capital gain referred to above.
Distributions by the Fund, whether from exempt-interest
income, ordinary income or capital gains, will not be
eligible for the dividends received deduction allowed to
corporations under the Code.
All or a portion of the Fund’
s gains from the sale or redemption of tax-exempt
obligations purchased at a market discount will be treated
as ordinary income rather than capital gain. This rule may
increase the amount of ordinary income dividends received
by shareholders. Distributions in excess of the Fund’
s earnings and profits will first reduce the adjusted tax
basis of a holder’s shares and, after such adjusted
tax basis is reduced to zero, will constitute capital
gains to such holder (assuming the shares are held as a
capital asset). Any loss upon the sale or exchange of Fund
shares held for six months or less will be disallowed to
the extent of any exempt-interest dividends received by
the shareholder. In addition, any such loss that is not
disallowed under the rule stated above will be treated as
long-term capital loss to the extent of any capital gain
dividends received by the shareholder. If the Fund pays a
dividend in January which was declared in the previous
October, November or December to shareholders of record on
a specified date in one of such months, then such dividend
will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the
year in which such dividend was declared.
The Code subjects interest
received on certain otherwise tax-exempt securities to a
Federal alternative minimum tax. The alternative minimum
tax applies to interest received on certain “private
activity bonds” issued after August 7, 1986. Private
activity bonds are bonds which, although tax-exempt, are
used for purposes other than those generally performed by
governmental units and which benefit non-governmental
entities (e.g., bonds used for industrial
development or housing purposes). Income received on such
bonds is classified as an item of “tax preference,
” which could subject certain investors in such
bonds, including shareholders of the Fund, to a
alternative minimum tax. The Fund will purchase such “
private activity bonds,” and the Trust will report to
shareholders within 60 days after calendar year-end the
portion of the Fund’s dividends declared during the
year which constitute an item of tax preference for
alternative minimum tax purposes. The Code further
provides that corporations are subject to a Federal
alternative minimum tax based, in part, on certain
differences between taxable income as adjusted for other
tax preferences and the corporation’s “adjusted
current earnings,” which more closely reflect a
corporation’s economic income. Because an
exempt-interest dividend paid by the Fund will be
included in adjusted current earnings, a corporate
shareholder may be required to pay Federal alternative
minimum tax on exempt-interest dividends paid by the Fund.
The Fund may invest in high yield
securities, as described in “Investment Objective and
Policies — Description of Municipal Bonds.
” Furthermore, the Fund may also invest in
instruments the return on which includes non-traditional
features such as indexed principal or interest payments (
“non-traditional instruments”). These
instruments may be subject to special tax rules under
which the Fund may be required to accrue and distribute
income before amounts due under the obligations are paid.
In addition, it is possible that all or a portion of the
interest payments on such high yield securities and/or
non-traditional instruments could be recharacterized as
taxable ordinary income.
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 on
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 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 the Fund will be disallowed if other
Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day
period beginning 30 days before and ending 30 days after
the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
Ordinary income dividends paid to
shareholders that 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 advisors
concerning the applicability of the United States
withholding tax.
Under certain provisions of the
Code, some shareholders may be subject to a 31%
withholding tax on certain ordinary income dividends and
on capital gain dividends and redemption payments (“
backup withholding”). Generally, shareholders subject
to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Trust
or who, to the Trust’s knowledge, have furnished an
incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such
number is correct and that such shareholder is not
otherwise subject to backup withholding.
The Code provides that every
person required to file a tax return must include for
information purposes on such return the amount of
exempt-interest dividends received from all sources
(including the Fund) during the taxable year.
Tax Treatment of Options and Futures Transactions
The Fund may purchase and sell
municipal bond index futures contracts and interest rate
futures contracts on U.S. Government securities (“
financial futures contracts”). The Fund may also
purchase and write call and put options on such financial
futures contracts. In general, unless an election is
available to the Fund or an exception applies, such
options and futures contracts that are “Section 1256
contracts” will be “marked to market” for
Federal income tax purposes at the end of each taxable
year, (i.e., each such option or financial futures
contract will be treated as sold for its fair market value
on the last day of the taxable year, and any gain or loss
attributable to Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss).
Application of these rules to Section 1256 contracts held
by the Fund may alter the timing and character of
distributions to shareholders. The mark-to market rules
outlined above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the
risk of changes in price or interest rates with respect to
its investments.
Code Section 1092, which applies
to certain “straddles,” may affect the taxation
of the Fund’s sales of securities and transactions in
financial futures contracts and related options. Under
Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain
sales of securities and certain closing transactions in
financial futures contracts or the related options.
Florida Taxation of the Fund
If the Fund does not have a
taxable nexus to Florida, such as through the location
within the state of the Fund’s activities or those of
FAM, under present Florida law, the Fund is not subject to
Florida corporate income taxation. Additionally, if a Fund
’s assets do not have a taxable situs in Florida on
January 1 of each calendar year, the Fund will not be
subject to Florida intangible personal property tax. If a
Fund has a taxable nexus to Florida or the Fund’s
assets have a taxable situs in Florida on January 1 of any
year, the Fund will be subject to Florida taxation.
The foregoing is a general and
abbreviated summary of the applicable provisions of the
Code, Treasury regulations and Florida tax laws presently
in effect. For the complete provisions, reference should
be made to the pertinent Code sections, the Treasury
regulations promulgated thereunder and Florida tax laws.
The Code and the Treasury regulations, as well as the
Florida tax laws, are subject to change by legislative,
judicial or administrative action either prospectively or
retroactively.
Shareholders are urged to consult
their tax advisers regarding the availability of any
exemptions from state or local taxes and with specific
questions as to Federal, foreign, state or local taxes.
From time to time the Fund may
include its average annual total return and other total
return data, as well as yield and tax-equivalent yield, in
advertisements or information furnished to present or
prospective shareholders. Total return, yield and
tax-equivalent yield figures are based on the Fund’s
historical performance and are not intended to indicate
future performance. Average annual total return, yield and
tax-equivalent yield are determined separately for Class
A, Class B, Class C and Class D shares in accordance with
formulas specified by the Commission.
Average annual total return
quotations for the specified periods are computed by
finding the average annual compounded rates of return
(based on net investment income and any realized and
unrealized capital gains or losses on portfolio
investments over such periods) that would equate the
initial amount invested to the redeemable value of such
investment at the end of each period. Average annual total
return is computed assuming all dividends and
distributions are reinvested and taking into account all
applicable recurring and nonrecurring expenses, including
the maximum sales charge in the case of Class A and Class
D shares and the CDSC that would be applicable to a
complete redemption of the investment at the end of the
specified period in the case of Class B and Class C shares.
Yield quotations will be computed
based on a 30-day period by dividing (a) the net income
based on the yield of each security earned during the
period by (b) the average daily number of shares
outstanding during the period that were entitled to
receive dividends multiplied by the maximum offering price
per share on the last day of the period. Tax equivalent
yield quotations will be computed by dividing (a) the part
of the Fund’s yield that is tax-exempt by (b) one
minus a stated tax rate and (c) adding the result to that
part, if any, of the Fund’s yield that is not
tax-exempt.
The Fund also may quote annual,
average annual and annualized total return and aggregate
total return performance data, both as a percentage and as
a dollar amount based on a hypothetical $1,000 investment,
for various periods other than those noted below. Such
data will be computed as described above, except that (1)
as required by the periods of the quotations, actual
annual, annualized or aggregate data, rather than average
annual data, may be quoted and (2) the maximum applicable
sales charges will not be included with respect to annual
or annualized rates of return calculations. Aside from the
impact on the performance data calculations of including
or excluding the maximum applicable sales charges, actual
annual or annualized total return data generally will be
lower than average annual total return data since the
average rates of return reflect compounding of return;
aggregate total return data generally will be higher than
average annual total return data since the aggregate rates
of return reflect compounding over a longer period of time.
Set forth below is total return,
yield and tax-equivalent yield information for the Class
A, Class B, Class C and Class D shares of the Fund for the
periods indicated.
|
|
|
Class A Shares
|
|
Class B Shares
|
Period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
|
|
Average Annual Total Return
|
|
|
|
(including maximum applicable sales
charges)
|
| One Year
Ended July 31, 1999...
|
|
2.49
|
%
|
|
$975.10
|
|
(2.81
|
)%
|
|
$971.90
|
| Five
Years Ended July 31, 1999...
|
|
4.89
|
%
|
|
$1,269.90
|
|
5.22
|
%
|
|
$1,289.60
|
Inception (May 31, 1991) to
July 31, 1999...
|
|
5.80
|
%
|
|
$1,584.70
|
|
5.79
|
%
|
|
$1,584.00
|
|
|
|
Annual Total Return
|
|
|
|
(excluding maximum applicable sales
charges)
|
| Year
ended July 31,
|
|
|
|
|
|
|
|
|
|
|
| 1999...
|
|
1.57
|
%
|
|
$1,015.70
|
|
1.06
|
%
|
|
$1,016.00
|
| 1998...
|
|
5.61
|
%
|
|
$1,056.10
|
|
5.07
|
%
|
|
$1,050.70
|
| 1997...
|
|
9.99
|
%
|
|
$1,099.90
|
|
9.43
|
%
|
|
$1,094.30
|
| 1996...
|
|
6.30
|
%
|
|
$1,063.00
|
|
5.76
|
%
|
|
$1,057.60
|
| 1995...
|
|
5.47
|
%
|
|
$1,054.70
|
|
4.93
|
%
|
|
$1,049.70
|
| 1994...
|
|
0.39
|
%
|
|
$1,003.90
|
|
(0.11
|
)%
|
|
$998.90
|
| 1993...
|
|
7.98
|
%
|
|
$1,079.80
|
|
7.44
|
%
|
|
$1,074.40
|
| 1992...
|
|
|
%
|
|
$1,139.10
|
|
13.33
|
%
|
|
$
|
Inception (May 31, 1991) to
July 31, 1991...
|
|
1.07
|
%
|
|
$1,010.70
|
|
.99
|
%
|
|
$1,333.30
|
|
|
|
Aggregate Total Return
|
|
|
|
(including maximum applicable sales
charges)
|
Inception (May 31, 1991) to
July 31, 1999...
|
|
58.47
|
%
|
|
$1,584.70
|
|
58.40
|
%
|
|
$1,584.00
|
|
|
|
Yield
|
| 30 days
ended July 31, 1999...
|
|
4.62
|
%
|
|
—
|
|
4.30
|
%
|
|
974.10
|
|
|
|
Tax Equivalent Yield*
|
| 30 days
ended July 31, 1999...
|
|
6.42
|
%
|
|
—
|
|
5.97
|
%
|
|
1,298.00
|
*
|
Based on a Federal
income tax rate of 28%.
|
|
|
|
Class C Shares
|
|
Class D Shares
|
Period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
|
|
Average Annual Total Return
|
|
|
|
(including maximum applicable sales
charges)
|
| One year
ended July 31, 1999...
|
|
(0.01
|
)%
|
|
$999.90
|
|
(2.59
|
)%
|
|
$
—
|
Inception (October 21, 1994) to
July 31, 1999...
|
|
5.98
|
%
|
|
$1,319.70
|
|
5.61
|
%
|
|
$
—
|
|
|
|
Annual Total Return
|
|
|
|
(excluding maximum applicable sales
charges)
|
|
|
| Year
ended July 31,
|
|
|
|
|
|
|
|
|
|
|
| 1999...
|
|
0.95
|
%
|
|
$1,009.50
|
|
1.46
|
%
|
|
$1,014.60
|
| 1998...
|
|
4.97
|
%
|
|
$1,049.70
|
|
5.51
|
%
|
|
$1,055.10
|
| 1997...
|
|
9.33
|
%
|
|
$1,093.30
|
|
9.89
|
%
|
|
$1,098.90
|
| 1996...
|
|
5.54
|
%
|
|
$1,055.40
|
|
6.09
|
%
|
|
$1,060.90
|
Inception (October 21, 1994) to
July 31, 1995...
|
|
7.92
|
%
|
|
$1,079.20
|
|
8.34
|
%
|
|
$1,083.40
|
|
|
|
Aggregate Total Return
|
|
|
|
(including maximum applicable sales
charges)
|
Inception (October 21, 1994) to
July 31, 1999...
|
|
31.97
|
%
|
|
$1,319.70
|
|
29.80
|
%
|
|
$1,298.00
|
|
|
|
|
|
Yield
|
| 30 days
ended July 31, 1999...
|
|
4.20
|
%
|
|
—
|
|
4.52
|
%
|
|
—
|
|
|
|
Tax Equivalent Yield*
|
| 30 days
ended July 31, 1999...
|
|
5.83
|
%
|
|
—
|
|
6.28
|
%
|
|
—
|
*
|
Based on a Federal
income tax rate of 28%.
|
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” the total return data
quoted by the Fund in advertisements directed to such
investors may take into account the reduced, and not the
maximum, sales charge or may not take into account the
CDSC, and, therefore, may reflect greater total return
since, due to the reduced sales charges or the waiver of
CDSCs, a lower amount of expenses may be deducted.
On occasion, the Fund may compare
its performance to the Lehman Brothers Municipal Bond
Index or other market indices or to performance data
published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc. (“Morningstar”), CDA
Investment Technology, Inc., Money Magazine, U.S. News
& World Report, Business Week, Forbes Magazine,
Fortune Magazine or other industry publications. When
comparing its performance to a market index, the Fund may
refer to various statistical measures derived from the
historic performance of the Fund and the index such as
standard deviation and beta. In addition, from time to
time the 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 the Fund’s relative performance for any
future period.
Total return figures are based on
the Fund’s historical performance and are not
intended to indicate future performance. The Fund’s
total return, yield and tax-equivalent yield will vary
depending on market conditions, the securities comprising
the Fund’s portfolio, the Fund’s operating
expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an
investment in the Fund will fluctuate and an investor’
s shares, when redeemed, may be worth more or less than
their original cost.
The Trust is a business trust
organized on August 2, 1985 under the laws of
Massachusetts. On October 1, 1987, the Trust changed its
name from “Merrill Lynch Multi-State Tax-Exempt
Series Trust” to “Merrill Lynch Multi-State
Municipal Bond Series Trust,” and on December 22,
1987 the Trust again changed its name to “Merrill
Lynch Multi-State Municipal Series Trust.” The Trust
is an open-end management investment company comprised of
separate 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 with income exempt from Federal, and in
certain cases state and local, income taxes. 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, $.10 par value 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. The
Trust is presently comprised of the Fund, Merrill Lynch
Arizona Municipal Bond Fund, Merrill Lynch Arkansas
Municipal Bond Fund, Merrill Lynch Colorado Municipal Bond
Fund, Merrill Lynch Connecticut Municipal Bond Fund,
Merrill Lynch Maryland Municipal Bond Fund, Merrill Lynch
Massachusetts Municipal Bond Fund, Merrill Lynch Michigan
Municipal Bond Fund, Merrill Lynch Minnesota Municipal
Bond Fund, Merrill Lynch New Jersey Municipal Bond Fund,
Merrill Lynch New Mexico Municipal Bond Fund, Merrill
Lynch New York Municipal Bond Fund, Merrill Lynch North
Carolina Municipal Bond Fund, Merrill Lynch Ohio Municipal
Bond Fund, Merrill Lynch Oregon Municipal Bond Fund,
Merrill Lynch Pennsylvania Municipal Bond Fund and Merrill
Lynch Texas Municipal Bond Fund. Shareholder approval is
not required for the authorization of additional Series or
classes of a Series of the Trust.
At the date of this Statement of
Additional Information, the shares of the Fund are divided
into Class A, Class B, Class C and Class D shares. Class
A, Class B, Class C and Class D shares represent interests
in the same assets of the Fund and are identical in all
respects except that Class B, Class C and Class D shares
bear certain expenses relating to the account maintenance
associated with such shares and Class B and Class C shares
bear certain expenses relating to the distribution of such
shares. All shares of the Trust have equal voting rights.
Each class has exclusive voting rights with respect to
matters relating to distribution and/or account
maintenance expenditures, as applicable (except that Class
B shareholders may vote upon any material changes to
expenses
charged under the Class D Distribution Plan). See “
Purchase of Shares.” The Trustees of the Trust may
classify and reclassify the shares of any Series into
additional or other classes at a future date.
Each issued and outstanding share
of a Series is entitled to one vote and to participate
equally in dividends and distributions with respect to
that Series and, upon liquidation or dissolution of the
Series, in the net assets of such Series remaining after
satisfaction of outstanding liabilities except that, as
noted above, expenses relating to distribution and/or
account maintenance of the Class B, Class C and Class D
shares are borne solely by the respective class. There
normally will be no meetings 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 may, in accordance
with the terms of the Declaration of Trust, cause a
meeting of shareholders to be held for the purpose of
voting on the removal of Trustees. Also, the Trust will be
required to call a special meeting of shareholders in
accordance with the requirements of the Investment Company
Act to seek approval of new management and advisory
arrangements, of a material increase in distribution fees
or a change in the fundamental policies, objectives or
restrictions of a Series.
The obligations and liabilities of
a particular Series are restricted to the assets of that
Series and do not extend to the assets of the Trust
generally. The shares of each Series, when issued, will be
fully paid and nonassessable, have no preference,
preemptive or similar rights and will be freely
transferable. Redemption and conversion rights are as set
forth elsewhere herein and in the Prospectus. Shares do
not have cumulative voting rights and the holders of more
than 50% of the shares of the Trust voting for the
election of Trustees can elect all of the Trustees if they
choose to do so and in such event the holders of the
remaining shares would not be able to elect any Trustees.
No amendments may be made to the Declaration of Trust,
other than amendments necessary to conform the Declaration
to certain laws or regulations, to change the name of the
Trust, or to make certain non-material changes, without
the affirmative vote of a majority of the outstanding
shares of the Trust, or of the affected Series or class,
as applicable.
The Declaration of Trust
establishing the Trust dated August 2, 1985, a copy of
which, together with all amendments thereto (the “
Declaration”) is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides
that the name “Merrill Lynch Multi-State Municipal
Series Trust” refers to the Trustees under the
Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to
any personal liability; nor shall resort be had to their
private property for the satisfaction of any obligation or
claim of the Trust, but the “Trust Property”
only shall be liable. Under Massachusetts law,
shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for
the trust’s obligations. However, the risk of a
shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which
both inadequate insurance existed and the trust itself was
unable to meet its obligations.
The Manager provided the initial
capital for the Fund by purchasing 10,000 shares of the
Fund for $100,000. Such shares were acquired for
investment and can only be disposed of by redemption. If
additional Series are added to the Trust, the
organizational expenses will be allocated among the Series
in a manner deemed equitable by the Trustees.
Deloitte & Touche LLP
, 117 Campus Drive, Princeton, New Jersey 08540-6400, has
been selected as the independent auditors of the Trust.
The selection of independent auditors is subject to
approval by the non-interested Trustees of the Trust. The
independent auditors are responsible for auditing the
annual financial statements of the Fund.
State Street Bank and Trust
Company, P. O. Box 351, Boston, Massachusetts 02101, acts
as the Custodian of the Fund’s assets. The Custodian
is responsible for safeguarding and controlling the Fund
’s cash and securities, handling the receipt and
delivery of securities and collecting interest on the Fund
’s investments.
Financial Data Services, Inc.,
4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484, acts as the Trust’s Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening, maintenance and
servicing of shareholder accounts. See “How to Buy,
Sell, Transfer and Exchange Shares —
Through the Transfer Agent” in the Prospectus.
Brown & Wood LLP
, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust.
The fiscal year of the Fund ends
on July 31 of each year. The Trust sends to the Fund’
s shareholders, 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.
Shareholder inquiries may be
addressed to the Fund at the address or telephone number
set forth on the cover page of this Statement of
Additional Information.
The Prospectus and this Statement
of Additional Information do not contain all the
information set forth in the Registration Statement and
the exhibits relating thereto, which the Trust has filed
with the Securities and Exchange Commission, Washington,
D.C., under the Securities Act and the Investment Company
Act, to which reference is hereby made.
Under a separate agreement, ML
& Co. has granted the Trust the right to use the “
Merrill Lynch” name and has reserved the right to
withdraw its consent to the use of such name by the Trust
at any time or to grant the use of such name to any other
company, and the Trust has granted ML & Co. under
certain conditions, the use of any other name it might
assume in the future, with respect to any corporation
organized by ML & Co.
To the knowledge of the Trust, the
following persons or entities owned beneficially 5% or
more of any class of the Fund’s shares as of August
31, 1999:
Name
|
|
Address
|
|
Percent of Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Fund’s audited financial
statements are incorporated in this Statement of
Additional Information by reference to its 1999 annual
report to shareholders. You may request a copy of the
annual report at no charge by calling (800) 456-4587 ext.
789 between 8:00 a.m. and 8:00 p.m. on any business day.
ECONOMIC AND OTHER
CONDITIONS IN FLORIDA
The following information is a
brief summary of factors affecting the economy of the
State of Florida (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 of the most recent publicly available
offering statements relating to debt offerings of the
State, however, it has not been updated. The Fund has not
independently verified the information.
Throughout the 1980s, the State
’s unemployment rate generally, tracked below that of
the nation. In the 1990’s, the trend was reversed,
until 1995 and 1996, when the State’s unemployment
rate again tracked below the national average. The State
’s unemployment rate is projected to be 4.2% in 1999
and 4.4% in 2000. In 1998, Florida’s unemployment
rate was 4.3% while the nation’s was 4.5%. (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 August 20, 1999 for a State of Florida debt offering
(“State of Florida Report”)).
From 1992 through 1998, the State
’s per capita income expanded approximately 29.0%,
while the national per capita income increased by 30.3%.
Real personal income in Florida is estimated to increase
4.9% in 1998-1999 and 3.5% in 1999-2000 while personal
income per capita is projected to grow at 3.1% in
1998-1999 and 1.8% in 1999-2000.
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 1998 represented 62.0% 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 72.2%. Florida’s income is
dependent upon transfer payments controlled by the federal
government.
The State’s strong population
growth is one fundamental reason why its economy has
typically performed 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
grown dramatically since then and as of April 1, 1998
ranked fourth with an estimated population of 15.0
million. Since 1990, the State’s average annual rate
of population increase has been approximately 1.9% as
compared to an approximately 1.0% 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 close to 230,000 new residents per year throughout
the 1990s.
Tourism is one of the State’s
most important industries. Forty eight million seven
hundred thousand (48.7 million) people visited the State
in 1998, according to the Florida Department of Commerce.
Tourism arrivals are expected to increase by 2.0% in
1998-99 and 1.7% the following year. In 1998-1999, tourist
arrivals are projected to be approximately 49.7 million.
In 1999-2000, tourist arrivals are projected to reach 50.6
million. Florida tourism appears to be recovering from the
effects of negative publicity regarding crime against
tourists in the State. Factors such as “product
maturity” of a Florida vacation package, higher
prices, and more aggressive marketing by competing
vacation destinations, could contribute to a tourism
slowdown.
Florida’s dependency on the
highly cyclical construction and construction-related
manufacturing sectors has declined. For example, total
contract construction employment as a share of total
non-farm employment was a little over 5.3% in 1998.
Florida, nevertheless, has had a dynamic construction
industry, with single and multi-family housing starts
accounting for approximately 9.2% of total U.S. housing
starts, while the State’s population was 5.5% of the
nation’s population. Total housing starts were
145,500 in 1998. A driving force behind Florida’s
construction industry is its rapid growth in population.
In Florida, single and multi-family housing starts in
1998-1999 are projected to reach a combined level of
144,000 and 143,000 next year. Multi-family starts have
been slow to recover from the early 90’s recession,
but are showing stronger growth now and should maintain a
level of nearly 46,500 in 1998-1999 and 46,300 in
1999-2000. Total construction expenditures are forecasted
to increase 8.6% in this year and 2.5% next year.
Financial operations of the State
covering all receipts and expenditures are maintained
through the use of four 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
1996-97, the State derived approximately 67% 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, beverage
tax, and estate tax which amounted to 68%, 8%, 4%, 3% and
3%, 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 1996-97, expenditures from the General Revenue Fund
for education, health and welfare, and public safety
amounted to approximately 53%, 26% and 14%, respectively,
of total General Revenues.
The Sale and Use Tax is the
greatest single source of tax receipts in the State. For
the State fiscal year ended June 30, 1997, receipts from
this source were $12,089 million, an increase of 5.5% from
fiscal year 1995-96. The second largest source of State
tax receipts is the Motor Fuel Tax. The collections from
this source during the fiscal year ended June 30, 1997
were $2,012 million. Alcoholic beverage tax revenues
totalled $447.2 million for the State fiscal year ended
June 30, 1997, an increase of $5.7 million from the
previous year. The receipts of corporate income tax for
the fiscal year ended June 30, 1997 were $1,362.3 million,
an increase of 17.2% from fiscal year 1995-96. Gross
Receipt tax collections for fiscal year 1996-97 totalled
$575.7 million, an increase of 6.0% over the previous
fiscal year. Documentary stamp tax collections totalled
$844.2 million during fiscal year 1996-97, posting an 8.9%
increase 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 $952.4 million during the fiscal year
ended June 30, 1997, a 6.3% increase from the previous
fiscal year. Recent reductions in the intangible personal
property tax rate and expansions in the exclusions from
that tax could reduce future revenues from that source.
Severance taxes totalled $39.2 million during fiscal year
1995-96, up 26.1% 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 1996-97 produced ticket sales of
$2.09 billion of which education received approximately
$792.3 million.
In addition to the foregoing
information, the State of Florida Report contains the
following General Revenue information for fiscal year
1997-1998 in tabular form.
State of Florida
Total General Revenues
Fiscal Years 1997-98
(in millions of dollars)
|
|
|
1997-98
|
|
|
|
Actual
|
| General
Revenue Fund:
|
|
|
|
|
Sales Tax-GR...
|
|
$11,828.7
|
|
|
Beverage Tax & Licenses...
|
|
550.1
|
|
|
Corporate Income Tax...
|
|
1,395.7
|
|
|
Documentary Stamp Tax...
|
|
429.6
|
|
|
Cigarette Tax...
|
|
142.1
|
|
|
Insurance Premium Tax...
|
|
295.5
|
|
|
Pari-Mutuels Tax...
|
|
25.6
|
|
|
Intangibles Tax...
|
|
756.0
|
|
|
Estate Tax...
|
|
595.0
|
|
|
Interest Earnings...
|
|
217.9
|
|
|
Public Safety Licenses...
|
|
61.2
|
|
|
Medical & Hospital Fees...
|
|
99.8
|
|
|
Motor Vehicle Charges...
|
|
41.3
|
|
|
Auto Title & Lien Fees...
|
|
24.0
|
|
|
Severance Taxes...
|
|
35.4
|
|
|
Service Charge...
|
|
383.8
|
|
|
Other Taxes, Licenses & Fees...
|
|
262.5
|
|
| Less:
Refunds...
|
|
(204.6
|
)
|
|
|
|
|
| Net
General Revenue...
|
|
$16,939.4
|
|
|
|
|
|
Executive Office of the
Governor
Revenue and Economic
Analysis
March 8, 1999
Those tables also disclose that
State Fuel Tax Trust Fund Revenues for fiscal year
1997-1998 were $1,175.7 million.
For fiscal year 1998-99 the
estimated General Revenue plus Working Capital and Budget
Stabilization funds available total $19,481.8 million, a
5.2% increase over 1997-98. The $17,779.5 million in
estimated revenues represent a 5.0% increase over the
analogous figure in 1997-1998. With combined General
Revenue, Working Capital Fund and Budget Stabilization
Fund appropriations at $18,222.0 million, unencumbered
reserves at the end of 1998-99 are estimated at $1,360.7
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
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.
The State Constitution provides
that State revenues collected for any fiscal year shall be
limited to State revenues allowed under that provision 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.
“State revenues” are
defined as 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.
It should be noted that many of
these provisions which were adopted by amendment in 1994,
are ambiguous, and likely will not be clarified until
State courts have ruled on their meanings. Further, it is
uncertain how the Legislature will implement the language
of the amendment and whether such implementing legislation
will itself be the subject of court interpretation.
The Fund cannot predict the impact
of these provisions on State finances. To the extent local
governments traditionally receive revenues from the State
which are subject to, and limited by, the future
distribution of such State revenues may be adversely
affected.
Hurricanes continue to endanger
the coastal and interior portions of Florida. Substantial
damage resulted from Hurricane Andrew in 1992. During the
1995 hurricane season, a record number of tropical storms
and hurricanes also caused substantial damage. The 1996
and 1997 hurricane seasons were uneventful with
considerably less damage than in 1992 and 1995. During the
1998 hurricane season, two hurricanes caused significant
damage to several coastal communities in Florida. The
hurricane season runs from June 1 through November 30. The
Fund cannot predict the economic impact, if any, of future
hurricanes and storms.
As of August 20, 1999 the State
had a high bond rating from Moody’s Investors
Service, Inc. (Aa2), Standard & Poor’s (AA+) and
Fitch IBCA, Inc. (AA) on all of its general obligation
bonds. Outstanding general obligation bonds at June 30,
1998 totalled almost $8.7 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 over $787 million of
general obligation bonds since July 1, 1998.
In May 1999, as supplemented in
June 1999, the Florida Auditor General notified the
Governor’s Office that it identified, as of September
30, 1997, forty local government entities as meeting one
or more of the financial emergency conditions prescribed
by State statute. The Auditor General’s notification
indicated that ten of those local government entities
(including the city of Miami) were on September 30, 1997
in a state of financial emergency. Stating that a
statutorily defined financial emergency is not necessarily
indicative of a local governmental entity’s solvency
or ability to pay its current financial obligations, the
Auditor General’s notification indicated that the
remaining thirty local government entities were not facing
a true financial crisis and/or the financial emergency was
due to accounting practices. For these purposes, a state
of emergency is considered two consecutive years of budget
deficits. Municipalities or special districts that may be
in a state of financial emergency are those that the
Auditor General was unable to conclude had sufficient
revenues to cover their deficits. The operations of all
these entities mentioned in the Auditor General’s
notification may be adversely affected by their financial
condition.
RATINGS OF MUNICIPAL
BONDS
Description of Moody
’s Investors Service, Inc.’s (“Moody’s
”) Long-Term Debt 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 edged.
” 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 three ratings of Moody’s for
short-term notes are MIG 1/VMIG 1, MIG 2/VMIG 2 and MIG
3/VMIG 3; MIG 1/VMIG 1 denotes “best quality strong
protection from established cash flows”; MIG 2/VMIG 2
denotes “high quality” with “ample margins
of protection”; MIG 3/VMIG 3 instruments are of “
favorable quality but lacking the undeniable strength of
the preceding grades.”
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
supporting institutions) have a superior ability for
repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the
following characteristics: leading market positions in
well established industries; high rates of return on funds
employed; conservative capitalization 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
supporting institutions) have a strong ability for
repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or
supporting institutions) have an acceptable ability for
repayment of short-term promissory obligations. The
effects of industry characteristics and market composition
may be more pronounced. Variability in earnings and
profitability may result in changes to the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
Issuers rated Not Prime do not
fall within any of the Prime rating categories.
Description of Standard
& Poor’s, a Division of The McGraw-Hill
Companies, Inc. (“Standard & Poor’s”),
Municipal Debt Ratings
A Standard & Poor’s
municipal debt rating is a current opinion of the
creditworthiness of an obligor with respect to a specific
financial obligation, a specific class of financial
obligations or a specific program. It takes into
consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the
obligation.
The debt rating is not a
recommendation to purchase, sell or hold a financial
obligation, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current
information furnished by the obligors or obtained by
Standard & Poor’s from other sources 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 based on circumstances.
The ratings are based, in varying
degrees, on the following considerations:
I.
|
Likelihood
of payment—capacity and willingness of the obligor
as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
|
II.
|
Nature of
and provisions of the obligation;
|
III.
|
Protection
afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws
affecting creditors’ rights.
|
AAA
|
Debt rated
“AAA” has the highest rating assigned by
Standard & Poor’s. Capacity to meet its
financial commitment on the obligation is extremely
strong.
|
AA
|
Debt rated
“AA” differs from the highest rated issues
only in small degree. The Obligor’s capacity to
meet its financial commitment on the obligation is very
strong.
|
A
|
Debt rated
“A” is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
However, the obligor’s capacity to meet its
financial commitment on the obligation is still strong.
|
BBB
|
Debt rated
“BBB” exhibits adequate protection parameters.
However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment
on the obligation.
|
BB
B
CCC
CC
C
|
|
Debt
rated “BB,” “B,” “CCC,”
“CC” and “C” are regarded as having
significant speculative
characteristics. “BB” indicates the least degree
of speculation and “C” the highest degree of
speculation.
While such debt will likely have some quality and
protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse
conditions.
|
D
|
Debt rated
“D” is in payment default. The “D”
rating category is used when payments on an obligation
are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor
’s believes that such payments will be made during
such grace period. The “D” rating also will be
used upon the filing of a bankruptcy petition or the
taking of similar action if payments on an obligation
are jeopardized.
|
Plus (+) or Minus (-): The ratings
from “AA” to “CCC” may be modified by
the addition of a plus or minus sign to show relative
standing within the major rating categories.
Description of Standard
& Poor’s Commercial Paper Ratings
A Standard & Poor’s
commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original
maturity of no more than 365 days. Ratings are graded into
several categories, ranging from “A-1” for the
highest-quality obligations to “D” for the
lowest. These categories are as follows:
|
|
|
| A-1
|
|
This
designation indicates that the degree of safety
regarding timely payment is strong. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus sign (+)
designation.
|
|
|
| A-2
|
|
Capacity
for timely payment on issues with this designation is
satisfactory. However, the relative degree of
safety is not as high as for issues designated “A-1.
”
|
|
|
| A-3
|
|
Issues
carrying this designation have an adequate capacity for
timely payment. They are, however, more
vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
|
|
|
| B
|
|
Issues
rated “B” are regarded as having only
speculative capacity for timely payment.
|
|
|
| C
|
|
This
rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
|
|
|
| D
|
|
Debt
rated “D” is in payment default. The “D
” rating category is used when interest payments or
principal
payments are not made on the date due, even if the
applicable grace period has not expired unless Standard
& Poor’s believes that such payments will be made
during such grace period.
|
A commercial paper rating is not a
recommendation to purchase or sell a security. The ratings
are based on current information furnished to Standard
& Poor’s by the issuer or obtained by Standard
& Poor’s from other sources it considers
reliable. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of,
such information.
A Standard & Poor’s note
rating reflects the liquidity factors and market access
risks unique to notes. Notes due in three years or less
will likely receive a note rating. Notes maturing beyond
three years will most likely receive a long-term debt
rating. The following criteria will be used in making that
assessment.
|
—Amortization schedule—the larger the final
maturity relative to other maturities, the more likely
it will be treated as a note.
|
|
—Source of payment—the more dependent the
issue is on the market for its refinancing, the more
likely it will be treated as a note.
|
Note rating symbols are as follows:
|
|
|
| SP-1
|
|
Strong
capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay
debt service is given a plus (+) designation.
|
|
| SP-2
|
|
Satisfactory capacity to pay principal and interest with
some vulnerability to adverse financial and
economic changes over the term of the notes.
|
|
| SP-3
|
|
Speculative capacity to pay principal and interest.
|
c
|
The “c
” subscript is used to provide additional
information to investors that the bank may terminate its
obligation to purchase tendered bonds if the long-term
credit rating of the issuer is below an investment-grade
level and/or the issuer’s bonds are deemed taxable.
|
p
|
The letter
“p” indicates that the rating is provisional.
A provisional rating assumes the successful completion
of the project financed by the debt being rated and
indicates that payment of debt service requirements is
largely or entirely dependent upon the successful,
timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of or
the risk of default upon failure of such completion. The
investor should exercise his own judgment with respect
to such likelihood and risk.
|
*
|
Continuance of the ratings is contingent upon Standard
& Poor’s receipt of an executed copy of the
escrow agreement or closing documentation confirming
investments and cash flows.
|
r
|
The “r
” highlights derivative, hybrid, and certain other
obligations that Standard & Poor’s believes may
experience high volatility or high variability in
expected returns as a result of noncredit risks.
Examples of such obligations are securities with
principal or interest return indexed to equities,
commodities, or currencies; certain swaps and options,
and interest-only and principal-only mortgage
securities. The absence of an “r” symbol
should not be taken as an indication that an obligation
will exhibit no volatility or variability in total
return.
|
Description of Fitch
IBCA, Inc.’s (“Fitch”) Investment Grade
Bond Ratings
Fitch investment grade bond
ratings provide a guide to investors in determining the
credit risk associated with a particular security. The
rating represents Fitch’s assessment of the issuer
’s ability to meet the obligations of a specific debt
issue or class of debt in a timely manner.
The rating takes into
consideration special features of the issue, its
relationship to other obligations of the issuer, the
current and prospective financial condition and operating
performance of the issuer and any guarantor, as well as
the economic and political environment that might affect
the issuer’s future financial strength and credit
quality.
Fitch ratings do not reflect any
credit enhancement that may be provided by insurance
policies or financial guarantees unless otherwise
indicated.
Bonds carrying the same rating are
of similar but not necessarily identical credit quality
since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not
recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price,
the suitability of any security for a particular investor,
or the tax-exempt nature or taxability of payments made in
respect of any security.
Fitch ratings are based on
information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch
believes to be reliable. Fitch does not audit or verify
the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result
of changes in, or the unavailability of, information or
for other reasons.
AAA
|
Bonds
considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
|
AA
|
Bonds
considered to be investment grade and of very high
credit quality. The obligor’s ability to pay
interest and repay principal is very strong, although
not quite as strong as bonds rated “AAA.”
Because bonds rated in the “AAA” and “AA
” categories are not significantly vulnerable to
foreseeable future developments, short-term debt of
these issuers is generally rated “F-1+.”
|
A
|
Bonds
considered to be investment grade and of high credit
quality. The obligor’s ability to pay interest and
repay principal is considered to be strong, but may be
more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher
ratings.
|
BBB
|
Bonds
considered to be investment grade and of
satisfactory-credit quality. The obligor’s ability
to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for
bonds with higher ratings.
|
Plus (+) or Minus (-): Plus and
minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the “
AAA” category.
NR
|
Indicates
that Fitch does not rate the specific issue.
|
Conditional
|
A
conditional rating is premised on the successful
completion of a project or the occurrence of a specific
event.
|
Suspended
|
A rating
is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating
purposes.
|
Withdrawn
|
A rating
will be withdrawn when an issue matures or is called or
refinanced and, at Fitch’s discretion, when an
issuer fails to furnish proper and timely information.
|
FitchAlert
|
Ratings
are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change
and the likely direction of such change. These are
designated as “Positive,” indicating a
potential upgrade, “Negative,” for potential
downgrade, or “Evolving,” where ratings may be
raised or lowered. FitchAlert is relatively short-term,
and should be resolved within 12 months.
|
Ratings Outlook: An outlook is
used to describe the most likely direction of any rating
change over the intermediate term. It is described as
“Positive” or “Negative.” The absence
of a designation indicates a stable outlook.
Description of Fitch
’s 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 rating are of
similar but not necessarily identical credit quality since
rating categories cannot fully reflect the differences in
degrees of credit risk.
BB
|
Bonds are
considered speculative. The obligor’s ability to
pay interest and repay principal may be affected over
time by adverse economic changes. However, business and
financial alternatives can be identified which could
assist the obligor in satisfying its debt service
requirements.
|
B
|
Bonds are
considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor’s limited margin of
safety and the need for reasonable business and economic
activity throughout the life of the issue.
|
CCC
|
Bonds have
certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet
obligations requires an advantageous business and
economic environment.
|
CC
|
Bonds are
minimally protected. Default in payment of interest
and/or principal seems probable over time.
|
C
|
Bonds are
in imminent default in payment of interest or principal.
|
DDD
|
Bonds are
in default on interest and/or principal payments. Such
bonds are extremely speculative and
|
DD
|
should be
valued on the basis of their ultimate recovery value in
liquidation or reorganization of the
|
D
|
obligor.
“DDD” represents the highest potential for
recovery on these bonds, and “D” represents
the lowest potential for recovery.
|
Plus (+) or Minus (-): Plus and
minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the “
DDD,” “DD,” or “D” categories.
Description of Fitch
’s Short-Term Ratings
Fitch’s short-term ratings
apply to debt obligations that are payable on demand or
have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term
notes, and municipal and investment notes.
The short-term ratings places
greater emphasis than a long-term rating on the existence
of liquidity necessary to meet the issuer’s
obligations in a timely manner.
Fitch short-term ratings are as
follows:
|
|
|
| F-1+
|
|
Exceptionally Strong Credit Quality. Issues assigned
this rating are regarded as having the strongest degree
of assurance for timely payment.
|
|
| F-1
|
|
Very
Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly
less in degree than issues rated “F-1+.”
|
|
| F-2
|
|
Good
Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues
assigned “F-1+” and “F-1” ratings.
|
|
| F-3
|
|
Fair
Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance
for timely payment is adequate; however, near-term adverse
changes could cause these securities to be
rated below investment grade.
|
|
| F-S
|
|
Weak
Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to
near-term adverse changes in financial and economic
conditions.
|
D
|
Default.
Issues assigned this rating are in actual or imminent
payment default.
|
LOC
|
The symbol
“LOC” indicates that the rating is based on a
letter of credit issued by a commercial bank.
|
Code # 13905-11-99
PART C.
OTHER INFORMATION
Item 23.
Exhibits
Exhibit
Number
|
|
Description
|
|
1(a)
|
|
—
Declaration of Trust of the Registrant, dated August 2,
1985.(a)
|
|
(b)
|
|
—
Amendment to Declaration of Trust, dated September 18,
1987.(a)
|
|
(c)
|
|
—
Amendment to Declaration of Trust, dated December 21,
1987.(a)
|
|
(d)
|
|
—
Amendment to Declaration of Trust, dated October 3,
1988.(a)
|
|
(e)
|
|
—
Amendment to Declaration of Trust, dated October 17,
1994 and instrument establishing Class C and
Class D shares of beneficial interest.(a)
|
|
(f)
|
|
—
Instrument establishing Merrill Lynch Florida Municipal
Bond Fund (the “Fund”) as a series of the
Registrant.(a)
|
|
(g)
|
|
—
Instrument establishing Class A and Class B shares of
beneficial interest of the Fund.(a)
|
| 2
|
|
—
By-Laws of the Registrant.(a)
|
| 3
|
|
—
Portions of the Declaration of Trust, Certificate of
Establishment and Designation and By-Laws of
the Registrant defining the rights of holders of the Fund
as a series of the Registrant.(b)
|
|
4(a)
|
|
—
Form of Management Agreement between the Registrant and
Fund Asset Management, L.P.(a)
|
|
(b)
|
|
—
Supplement to Management Agreement between Registrant
and Fund Asset Management, L.P.(e)
|
|
5(a)
|
|
—
Form of Revised Class A Distribution Agreement between
the Registrant and Merrill Lynch Funds
Distributor, Inc. (now known as Princeton Funds
Distributor, Inc.) (the “Distributor”)
(including
Form of Selected Dealers Agreement).(e)
|
|
(b)
|
|
—
Form of Class B Distribution Agreement between the
Registrant and the Distributor (including Form
of Selected Dealers Agreement).(a)
|
|
(c)
|
|
—
Form of Class C Distribution Agreement between the
Registrant and the Distributor (including Form
of Selected Dealers Agreement).(e)
|
|
(d)
|
|
—
Form of Class D Distribution Agreement between the
Registrant and the Distributor (including Form
of Selected Dealers Agreement).(e)
|
|
(e)
|
|
—
Letter Agreement between the Fund and the Distributor,
dated September 15, 1993, in connection
with the Merrill Lynch Mutual Fund Advisor Program.(c)
|
| 6
|
|
—
None.
|
| 7
|
|
—
Form of Custody Agreement between the Registrant and
State Street Bank and Trust Company.(d)
|
| 8
|
|
—
Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency
Agreement between the Registrant and Merrill Lynch
Financial Data Services, Inc. (now known as
Financial Data Services, Inc.)(f)
|
|
9(a)
|
|
—
Opinion of Brown & Wood LLP
, counsel to the Registrant.(h)
|
|
(b)
|
|
—
Consent of Brown & Wood LLP
, counsel to the Registrant.
|
| 10
|
|
—
Consent of Deloitte & Touche LLP
, independent auditors for the Registrant.
|
| 11
|
|
—
None.
|
| 12
|
|
—
Certificate of Fund Asset Management, L.P.(a)
|
| 13(a)
|
|
—
Amended and Restated Class B Distribution Plan of the
Registrant and Amended and Restated Class
B Distribution Plan Sub-Agreement.(c)
|
|
(b)
|
|
—
Form of Class C Distribution Plan of the Registrant and
Class C Distribution Plan Sub-
Agreement.(e)
|
|
(c)
|
|
—
Form of Class D Distribution Plan of the Registrant and
Class D Distribution Plan Sub-
Agreement.(e)
|
| 14
|
|
—
None.
|
| 15
|
|
—
Merrill Lynch Select Pricing
SM
System Plan pursuant to Rule 18f-3.(g)
|
(a)
|
Filed on November 1,
1995 as an Exhibit to Post-Effective Amendment No. 5 to
the Registrant’s Registration Statement on Form
N-1A (File No. 33-39555) under the Securities Act of
1933, as amended, relating to shares of the Fund (the
“Registration Statement”).
|
(b)
|
Reference is made to
Article II, Section 2.3 and Articles V, VI, VIII, IX, X
and XI of the Registrant’s Declaration of Trust, as
amended, filed as Exhibits 1(a), 1(b), 1(c), 1(d) and
1(e) with Post-Effective Amendment No. 5 to the
Registration Statement; to the Certificates of
Establishment and Designation establishing the Fund as a
series of the Registrant and establishing Class A and
Class B shares of beneficial
|
interest of the Fund, filed as Exhibits 1(f) and 1(g),
respectively, with Post-Effective Amendment No. 5 to the
Registration Statement; and to Articles I, V and VI of
the Registrant’s By-Laws, filed as Exhibit 2 with
Post-Effective Amendment No. 5 to the Registration
Statement.
(c)
|
Filed on November 24,
1993 as an Exhibit to Post-Effective Amendment No. 3 to
the Registration Statement.
|
(d)
|
Incorporated by
reference to Exhibit 8 to Post-Effective Amendment No. 3
to Registrant’s Registration Statement on Form N-1A
under the Securities Act of 1933, filed on October 14,
1994, relating to shares of Merrill Lynch Minnesota
Municipal Bond Fund series of the Registrant (File No.
33-44734).
|
(e)
|
Filed on October 18,
1994 as an Exhibit to Post-Effective Amendment No. 4 to
the Registration Statement.
|
(f)
|
Incorporated by
reference to Exhibit 9 to Post-Effective Amendment No. 5
to Registrant’s Registration Statement on Form N-1A
under the Securities Act of 1933, filed on October 20,
1995, relating to shares of Merrill Lynch Arizona
Municipal Bond Fund series of the Registrant (File No.
33-41311).
|
(g)
|
Incorporated by
reference to Exhibit 18 to Post-Effective Amendment No.
13 to the Registration Statement on Form N-1A under the
Securities Act of 1933, as amended, relating to shares
of Merrill Lynch New York Municipal Bond Fund series of
Merrill Lynch Multi-State Municipal Series Trust (File
No. 2-99473), filed on January 25, 1996.
|
(h)
|
Filed on April 25, 1991
as an Exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement. Refiled with this Post-Effective
Amendment No. 21 pursuant to Electronic Data Gathering,
Analysis and Retrieval (EDGAR) requirements.
|
Item 24.
Persons Controlled by or Under Common
Control with Registrant
The Registrant is not controlled
by or under common control with any other person.
Item 25.
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 or she may be lawfully entitled;
provided that no Person may satisfy any right of indemnity
or reimbursement granted herein or in Section 5.1 or to
which he or she 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 moneys for actions based upon
the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions:
(i) the advances must be limited to amounts used, or to be
used, for the preparation or presentation of a defense to
the action, including costs connected with the preparation
of a settlement; (ii) advances may be made only upon
receipt of a written promise by, or on behalf of, the
recipient to repay that amount of the advance which
exceeds the amount which it is ultimately determined that
he or she is entitled to receive from the Registrant by
reason of indemnification; and (iii)(a) such promise must
be secured by a surety bond, other suitable insurance or
an equivalent form of security which assures that any
repayments may be obtained by the Registrant without delay
or litigation, which bond, insurance or other form of
security must be provided by the recipient of the advance,
or (b) a majority of a quorum of the Registrant’s
disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon
a review of readily available facts that the recipient of
the advance ultimately will be found entitled to
indemnification.
In Section 9 of the Class A, Class
B, Class C and Class D Shares 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 (“
1933 Act”), against certain types of civil
liabilities arising in connection with the Registration
Statement or Prospectus and Statement of Additional
Information.
Insofar as indemnification for
liabilities arising under the 1933 Act may be permitted to
Trustees, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy
as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by
a Trustee, officer, or controlling person of the
Registrant and the principal underwriter in connection
with the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or
controlling person or the principal underwriter in
connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question
whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed
by the final adjudication of such issue.
Item 26.
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 registered
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
Corporate High Yield Fund, Inc., Merrill Lynch Emerging
Tigers Fund, Inc., Merrill Lynch Federal Securities Trust,
Merrill Lynch Funds for Institutions Series, Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch Multi-State Municipal Series Trust, Merrill
Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., and The Municipal
Fund Accumulation Program, Inc.; and for the following
closed-end registered investment companies: Apex Municipal
Fund, Inc., Corporate High Yield Fund, Inc., Corporate
High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities
Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets
Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund,
Inc., MuniHoldings Fund II, Inc., MuniHoldings California
Insured Fund, Inc., MuniHoldings California Insured Fund
II, Inc., MuniHoldings California Insured Fund III, Inc.,
MuniHoldings California Insured Fund IV, Inc.,
MuniHoldings California Insured Fund V, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund
II, MuniHoldings Florida Insured Fund III, MuniHoldings
Florida Insured Fund IV, MuniHoldings Florida Insured Fund
V, MuniHoldings Insured Fund, Inc., MuniHoldings Insured
Fund II, Inc., MuniHoldings Insured Fund III, Inc.,
MuniHoldings Insured Fund IV, Inc., MuniHoldings Michigan
Insured Fund, Inc., MuniHoldings Michigan Insured Fund II,
Inc., MuniHoldings New Jersey Insured Fund, Inc.,
MuniHoldings New Jersey Insured Fund II, Inc.,
MuniHoldings New Jersey Insured Fund III, Inc.,
MuniHoldings New Jersey Insured Fund IV, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York
Insured Fund, Inc., MuniHoldings New York Insured Fund II,
Inc., MuniHoldings New York Insured Fund III, Inc.,
MuniHoldings New York Insured Fund IV, Inc., MuniHoldings
Pennsylvania Insured Fund, MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield California Insured Fund II, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield 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 Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, 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
registered 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 Capital Fund, Inc.,
Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch
Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental
Growth Fund, Inc., Merrill Lynch Global Allocation Fund,
Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global
Resources Trust, Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value
Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity
Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch
Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Real
Estate Fund, Inc., Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term
Global Income Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch U.S. Treasury Money Fund, Merrill
Lynch U.S.A. Government Reserves, Merrill Lynch Utility
Income Fund, Inc., Merrill Lynch Variable Series Funds,
Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and
Wiley, a division of MLAM); and for the following
closed-end registered investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc., Merrill Lynch
Senior Floating Rate Fund, Inc. and Merrill Lynch Senior
Floating Rate Fund II, Inc. MLAM also acts as sub-adviser
to Merrill Lynch World Strategy Portfolio and Merrill
Lynch Basic Value Equity Portfolio, two investment
portfolios of EQ Advisors Trust.
The address of each of these
registered investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address
of Merrill Lynch Funds for Institutions Series and Merrill
Lynch Intermediate Government Bond Fund is One Financial
Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of the Manager, MLAM, Princeton Services, Inc. (
“Princeton Services”) and Princeton
Administrators, L.P. (“Princeton Administrators”
) is also P.O. Box 9011, Princeton, New Jersey 08543-9011.
The address of Princeton Funds Distributor, Inc., (“
PFD”) and of Merrill Lynch Funds Distributor (“
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 10281-1201. The address of the Fund
’s transfer agent, Financial Data Services, Inc. (
“FDS”), 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, 1997 for his, her or its own
account or in the capacity of director, officer, partner
or trustee. In addition, Mr. Glenn is President and Mr.
Burke is Vice President and Treasurer of all or
substantially all of the investment companies described in
the first two paragraphs of this Item 26, and Messrs.
Doll, Giordano, and Monagle are officers of one or more of
such companies.
Name
|
|
Position(s) with
the Manager
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
| ML &
Co. ...
|
|
Limited
Partner
|
|
Financial Services Holding Company; Limited
Partner of MLAM
|
|
|
Princeton Services...
|
|
General
Partner
|
|
General
Partner of MLAM
|
|
| Jeffrey
M. Peek...
|
|
President
|
|
President of MLAM; President and Director of
Princeton Services; Executive Vice President of
ML & Co.; Managing Director and Co-Head of the
Investment Banking Division of Merrill Lynch in
1997
|
|
| Terry K.
Glenn...
|
|
Executive Vice
President
|
|
Executive Vice President of MLAM; Executive Vice
President and Director of Princeton Services;
President and Director of PFD; Director of FDS;
President of Princeton Administrators
|
Name
|
|
Position(s) with the
Manager
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
| Gregory
A. Bundy...
|
|
Chief
Operating
Officer and
Managing Director
|
|
Chief
Operating Officer and Managing Director of
MLAM; Chief Operating Officer and Managing
Director of Princeton Services; Co-CEO of Merrill
Lynch Australia from 1997 to 1999
|
|
|
|
| Donald
C. Burke...
|
|
Senior
Vice President
and Treasurer
|
|
Senior
Vice President, Treasurer and Director of
Taxation of MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice President of
PFD; First Vice President of MLAM from 1997 to
1999; Vice President of MLAM from 1990 to 1997
|
|
|
|
| Michael
G. Clark...
|
|
Senior
Vice President
|
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services; Treasurer and
Director of PFD; First Vice President of MLAM
from 1997 to 1999; Vice President of MLAM from
1996 to 1997
|
|
|
|
| Robert
C. Doll...
|
|
Senior
Vice President
|
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services; Chief Investment
Officer of Oppenheimer Funds, Inc. in 1999 and
Executive Vice President thereof from 1991 to 1999
|
|
|
|
| Linda L.
Federici...
|
|
Senior
Vice President
|
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services
|
|
|
|
| Vincent
R. Giordano...
|
|
Senior
Vice President
|
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services
|
|
|
|
| Michael
J. Hennewinkel...
|
|
Senior
Vice President,
Secretary and General
Counsel
|
|
Senior
Vice President, Secretary and General
Counsel of MLAM; Senior Vice President of
Princeton Services
|
|
|
|
| Philip
L. Kirstein...
|
|
Senior
Vice President
|
|
Senior
Vice President of MLAM; Senior Vice
President, Secretary, General Counsel and Director
of Princeton Services
|
|
|
|
| Debra W.
Landsman-Yaros...
|
|
Senior
Vice President
|
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services; Vice President of
PFDS
|
|
|
|
| Stephen
M. M. Miller...
|
|
Senior
Vice President
|
|
Executive Vice President of Princeton
Administrators; Senior Vice President of Princeton
Services
|
|
|
|
| Joseph
T. Monagle, Jr. ...
|
|
Senior
Vice President
|
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services
|
|
|
|
| Brian A.
Murdock...
|
|
Senior
Vice President
|
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services
|
|
|
|
| Gregory
D. Upah...
|
|
Senior
Vice President
|
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services
|
Item 27.
Principal Underwriters
(a) MLFD, a division of
PFD, acts as the principal underwriter for the Registrant
and for each of the open-end registered investment
companies referred to in the first two paragraphs of Item
26 except 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. The Municipal Fund Accumulation
Program, Inc. MLFD also acts as the principal underwriter
for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund,
Inc., Merrill Lynch Municipal Strategy Fund, Inc., Merrill
Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch
Senior Floating Rate Fund II, Inc. A separate division of
PFD acts as the principal underwriter of a number of other
investment companies.
(b) Set forth below is
information concerning each director and officer of PFD.
The principal business address of each such person is P.O.
Box 9081, Princeton, New Jersey 08543-9081, except that
the address of Messrs. Breen, Crook, Fatseas and Wasel is
One Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665.
Name
|
|
Position(s) and Office(s)
with PFD
|
|
Position(s) and Office(s) with
Registrant
|
| Terry K.
Glenn...
|
|
President and Director
|
|
President and Trustee
|
|
|
|
| Michael
G. Clark...
|
|
Treasurer and Director
|
|
None
|
|
|
|
| Thomas
J. Verage...
|
|
Director
|
|
None
|
|
|
|
| Robert
W. Crook...
|
|
Senior
Vice President
|
|
None
|
|
|
|
| Michael
J. Brady...
|
|
Vice
President
|
|
None
|
|
|
|
| William
M. Breen...
|
|
Vice
President
|
|
None
|
|
|
|
| Donald
C. Burke...
|
|
Vice
President
|
|
Vice
President and Treasurer
|
|
|
|
| James T.
Fatseas...
|
|
Vice
President
|
|
None
|
|
|
|
| Debra W.
Landsman-Yaros...
|
|
Vice
President
|
|
None
|
|
|
|
| Michelle
T. Lau...
|
|
Vice
President
|
|
None
|
|
|
|
|
Salvatore Venezia...
|
|
Vice
President
|
|
None
|
|
|
|
| William
Wasel...
|
|
Vice
President
|
|
None
|
|
|
|
| Robert
Harris...
|
|
Secretary
|
|
None
|
(c) Not applicable.
Item 28.
Location of Accounts and Records
All accounts, books and other
documents required to be maintained by Section 31(a) of
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,
Financial Data Services, Inc. (4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484).
Item 29.
Management Services
Other than as set forth under the
caption “Management of the Fund — Fund
Asset Management” in the Prospectus constituting Part
A of the Registration Statement and under “Management
of the Trust — Management and Advisory
Arrangements” in the Statement of Additional
Information constituting Part B of the Registration
Statement, the Registrant is not a party to any
management-related service contract.
Item 30.
Undertakings.
Not applicable.
SIGNATURES
Pursuant to the requirements of
the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant has duly caused this
Post-Effective Amendment to its 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 30th day of September, 1999.
|
MERRILL
LYNCH
MULTI
-STATE
MUNICIPAL
SERIES
TRUST
|
|
(Donald C. Burke,
Vice President and Treasurer)
|
Pursuant to the requirements of
the Securities Act of 1933, this Post-Effective Amendment
to the Registration Statement has been signed below by the
following persons in the capacities and on the date(s)
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
T
ERRY
K. GLENN
*
(Terry K. Glenn)
|
|
President and Trustee
(Principal Executive Officer)
|
|
|
|
|
|
/
S
/ DONALD
C. BURKE
(Donald C. Burke)
|
|
Vice
President and Treasurer
(Principal Financial and
Accounting Officer)
|
|
September 30, 1999
|
|
|
|
J
AMES
H. BODURTHA
*
(James H. Bodurtha)
|
|
Trustee
|
|
|
|
|
|
H
ERBERT
I. LONDON
*
(Herbert I. London)
|
|
Trustee
|
|
|
|
|
|
R
OBERT
R. MARTIN
*
(Robert R. Martin)
|
|
Trustee
|
|
|
|
|
|
J
OSEPH
L. MAY
*
(Joseph L. May)
|
|
Trustee
|
|
|
|
|
|
A
NDRE
F. PEROLD
*
(Andre F. Perold)
|
|
Trustee
|
|
|
|
|
|
A
RTHUR
ZEIKEL
*
(Arthur Zeikel)
|
|
Trustee
|
|
|
|
|
|
|
|
|
/s/
DONALD
C. BURKE
*By:
(Donald C. Burke, Attorney-in-Fact)
|
|
|
|
September 30, 1999
|
POWER OF ATTORNEY
The undersigned
Directors/Trustees and officers of each of the
registered investment companies listed below hereby
authorize Terry K. Glenn, Donald C. Burke and Joseph T.
Monagle, Jr., or any of them, as attorney-in-fact, to
sign on his or her behalf in the capacities indicated
any Registration Statement or amendment thereto
(including post-effective amendments) for each of the
following registered investment companies and to file
the same, with all exhibits thereto, with the Securities
and Exchange Commission: Merrill Lynch California
Municipal Series Trust, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch
Convertible Fund, Inc., Merrill Lynch Consults
International Portfolio, Merrill Lynch Growth Fund,
Merrill Lynch World Income Fund, Inc., MuniEnhanced
Fund, Inc., MuniHoldings California Insured Fund II,
Inc., MuniHoldings Florida Insured Fund III,
MuniHoldings Michigan Insured Fund, Inc., MuniHoldings
New York Fund, Inc., MuniHoldings New York Insured Fund
II, Inc., MuniHoldings New York Insured Fund III, Inc.,
MuniHoldings Pennsylvania Insured Fund, MuniVest
Pennsylvania Insured Fund, MuniYield Fund, Inc.,
MuniYield Arizona Fund, Inc., MuniYield California Fund,
Inc., MuniYield California Insured Fund, Inc., MuniYield
California Insured Fund II, Inc., MuniYield Florida
Fund, MuniYield Michigan Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New York Insured Fund,
Inc., MuniYield New York Insured Fund II, Inc.,
MuniYield Quality Fund, Inc. and MuniYield Quality Fund
II, Inc.
Dated: April 7, 1999
/s/ TERRY
K. GLENN
Terry K. Glenn
|
|
(President/Principal Executive
Officer/Director/Trustee)
|
|
|
|
/s/ JAMES
H. BODURTHA
James H. Bodurtha
|
|
(Director/Trustee)
|
|
|
|
/s/ HERBERT
I. LONDON
Herbert I. London
|
|
(Director/Trustee)
|
|
|
|
/s/ ROBERT
R. MARTIN
Robert R. Martin
|
|
(Director/Trustee)
|
/s/ JOSEPH
L. MAY
Joseph L. May
|
|
(Director/Trustee)
|
|
|
|
/s/ ANDR
É
F. PEROLD
André F. Perold
|
|
(Director/Trustee)
|
|
|
|
/s/ ARTHUR
ZEIKEL
Arthur Zeikel
|
|
(Director/Trustee)
|
|
|
|
/s/ DONALD
C. BURKE
Donald C. Burke
|
(Vice President/Treasurer/Principal
Financial and
Accounting Officer)
|
EXHIBIT INDEX
Exhibit
Numbers
|
|
Description
|
|
9(a)
|
|
—
Opinion of Brown & Wood LLP
, Counsel to Registrant.
|
|
9(b)
|
|
—
Consent of Brown & Wood LLP
, Counsel to the Registrant
|
|
10
|
|
—
Consent of Deloitte & Touche LLP
, Independent Auditors for the Registrant
|
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