As filed with the Securities and Exchange Commission on July 14, 2000
Securities Act File No. 333-
Investment Company Act File No. 811-6304
------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
[ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No.
(Check appropriate box or boxes)
------------------------------
MERRILL LYNCH ADJUSTABLE RATE SECURITIES FUND, INC.
(Exact Name Of Registrant As Specified In Its Charter)
------------------------------
(609) 282-2800
(Area Code And Telephone Number)
------------------------------
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address Of Principal Executive Offices:
Number, Street, City, State, Zip Code)
------------------------------
Terry K. Glenn
Merrill Lynch Adjustable Rate Securities Fund, Inc.
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:
FRANK P. BRUNO, ESQ. MICHAEL J. HENNEWINKEL, ESQ.
BROWN & WOOD LLP MERRILL LYNCH INVESTMENT MANAGERS, L.P.
One World Trade Center 800 Scudders Mill Road
New York, NY 10048-0557 Plainsboro, NJ 08536
------------------------------
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective under the Securities Act of
1933.
------------------------------
Title of Securities Being Registered: Common Stock, Par Value $.10 per
share.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
P.O. Box 9011
Princeton, New Jersey 08543-9011
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On October 17, 2000
TO THE SHAREHOLDERS OF
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Meeting") of Merrill Lynch Intermediate Government Bond Fund ("Intermediate
Government Bond") will be held at the offices of Merrill Lynch Investment
Managers, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey on October 17,
2000 at [ ], Eastern time, for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization
(the "Agreement and Plan of Reorganization") providing for the
acquisition of substantially all of the assets of Intermediate Government
Bond by Merrill Lynch Adjustable Rate Securities Fund, Inc. ("Adjustable
Rate"), and the assumption of substantially all of the liabilities of
Intermediate Government Bond by Adjustable Rate, in exchange solely for
an equal aggregate value of newly-issued shares of Adjustable Rate. The
Agreement and Plan of Reorganization also provides for distribution of
such shares of Adjustable Rate to shareholders of Intermediate Government
Bond in liquidation of Intermediate Government Bond. A vote in favor of
this proposal will constitute a vote in favor of the liquidation and
dissolution of Intermediate Government Bond and the termination of its
registration under the Investment Company Act of 1940, as amended; and
(2) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
Intermediate Government Bond is a Massachusetts business trust. As
described in more detail below, shareholders may have statutory appraisal
rights for their shares if the proposed Reorganization is approved by the
shareholders of Intermediate Government Bond at the Meeting and effected by
Intermediate Government Bond. In order for a shareholder to exercise his or
her statutory rights, the shareholder must (1) file with Intermediate
Government Bond before the taking of the vote on the approval of such
Agreement and Plan of Reorganization, written objection to the proposed
Reorganization stating that he or she intends to demand payment for his or her
shares if the Reorganization takes place; (2) not vote in favor of such
Agreement and Plan of Reorganization; and (3) demand payment for his or her
shares and an appraisal of the value thereof in writing from Adjustable Rate
within twenty days after the date of mailing to the shareholder of notice that
the Reorganization has become effective.
Intermediate Government Bond and any such shareholders shall in such
cases have the rights and duties and shall follow the procedure set forth in
sections 88 to 98, inclusive, of Chapter 156B of the General Laws of
Massachusetts. In the event any shareholder elects to exercise his or her
statutory appraisal rights, it is the present intention of Adjustable Rate to
petition a court of competent jurisdiction to determine whether this right of
appraisal has been superseded by the provision of Rule 22c-1 under the
Investment Company Act of 1940, as amended, which generally requires mutual
funds to redeem their shares at prices based upon the then current net asset
value of such shares.
The Board of Trustees of Intermediate Government Bond has fixed the close
of business on August 23, 2000 as the record date for the determination of
shareholders entitled to notice of, and to vote at, the Meeting or any
adjournment thereof.
A complete list of the shareholders of Intermediate Government Bond
entitled to vote at the Meeting will be available and open to the examination
of any shareholders of Intermediate Government Bond Fund for any purpose
germane to the Meeting during ordinary business hours from and after October
3, 2000 at the offices of Intermediate Government Bond, 800 Scudders Mill
Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meeting. Shareholders who do not
expect to attend the Meeting in person are requested to complete, date and
sign the enclosed form of proxy and return it promptly in the envelope
provided for that purpose. If you have been provided with the opportunity on
your proxy card or voting instruction form to provide voting instructions via
telephone or the internet, please take advantage of these prompt and efficient
voting options. The enclosed proxy is being solicited on behalf of the Board
of Trustees of Intermediate Government Bond.
By Order of the Board of Trustees,
PHILLIP S. GILLESPIE
Secretary
Plainsboro, New Jersey
Dated:
<PAGE>
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 was 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 offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED JULY 14, 2000
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
MERRILL LYNCH ADJUSTABLE RATE SECURITIES FUND, INC.
P.O. Box 9011, Princeton, New Jersey 08543-9011
(609) 282-2800
SPECIAL MEETING OF SHAREHOLDERS OF
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
October 17, 2000
This Proxy Statement and Prospectus is being sent to you because you are
a shareholder of Merrill Lynch Intermediate Government Bond Fund
("Intermediate Government Bond"), a Massachusetts business trust. Intermediate
Government Bond has called a Special Meeting of its shareholders to consider a
proposal to approve an Agreement and Plan of Reorganization between
Intermediate Government Bond and Merrill Lynch Adjustable Rate Securities
Fund, Inc. ("Adjustable Rate") discussed in greater detail elsewhere in this
Proxy Statement and Prospectus. The Board of Trustees of Intermediate
Government Bond is requesting its shareholders to submit a proxy to be used at
the Special Meeting to vote the shares held by the shareholder submitting the
proxy.
The Agreement and Plan of Reorganization that you are being asked to
consider involves a transaction whereby Adjustable Rate will acquire
substantially all of the assets and assume substantially all of the
liabilities of Intermediate Government Bond in exchange for shares of
Adjustable Rate, which will then be distributed to the shareholders of
Intermediate Government Bond. This transaction is referred to in this Proxy
Statement and Prospectus as the "Reorganization." After the completion of
these transactions, Intermediate Government Bond will terminate its
registration under the Investment Company Act of 1940, as amended, and will
dissolve in accordance with the laws of the Commonwealth of Massachusetts.
The Reorganization is contingent upon the approval by stockholders of
Adjustable Rate of a proposal to amend the investment objective and policies
of Adjustable Rate. As proposed to be amended the investment objective of
Adjustable Rate will be to seek current income and low net asset value
fluctuation by investing primarily in U.S. government securities. Although it
is intended that Adjustable Rate will amend its investment objective and
policies and change its name to Merrill Lynch U.S. Short-Term Government Fund,
Inc. prior to the Reorganization, this Proxy Statement and Prospectus refers
to the proposed acquiring fund as Adjustable Rate.
The Board of Trustees has fixed the close of business on August 23, 2000
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Meeting and at any adjournment
thereof. Shareholders on the Record Date will be entitled to one vote for each
share held, with no share having cumulative voting rights. As of the Record
Date, Intermediate Government Bond had outstanding [ ] shares of beneficial
interest, par value $.10 per share. To the knowledge of Intermediate
Government Bond, as of the Record Date, no person is the owner of more than
five percent of the outstanding shares of beneficial interest.
The current prospectus relating to Adjustable Rate, dated ____________ ,
2000 (the "Adjustable Rate Prospectus"), accompanies this Proxy Statement and
Prospectus and is incorporated herein by reference. The Annual Report to
Stockholders of Adjustable Rate as of May 31, 2000 also accompanies this Proxy
Statement and Prospectus.
------------------
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Proxy Statement and
Prospectus. Any representation to the contrary is a criminal offense.
------------------
This Proxy Statement and Prospectus sets forth concisely the information
about Adjustable Rate that a shareholder of Intermediate Government Bond
should know before considering this Reorganization transaction and should be
retained for future reference. Intermediate Government Bond has authorized the
solicitation of proxies in connection with the Reorganization solely on the
basis of this Proxy Statement and Prospectus and the accompanying documents.
A statement of additional information relating to this reorganization
transaction (the "Statement of Additional Information") is on file with the
Commission. It is available from Adjustable Rate without charge, upon oral
request by calling 1-800-456-4587, ext. 123 by writing Adjustable Rate at its
principal executive offices. The Statement of Additional Information, dated
__________ is incorporated by reference into this Proxy Statement and
Prospectus. The Commission maintains a web site (http://www.sec.gov) that
contains the Statement of Additional Information, other material incorporated
herein by reference and other information regarding the Funds.
The address of the principal executive offices of both Intermediate
Government Bond and Adjustable Rate is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536, and the telephone number is (609) 282-2800.
------------------
The date of this Proxy Statement and Prospectus is ________, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION...................................................................1
SUMMARY........................................................................1
The Reorganization........................................................2
RISK FACTORS AND SPECIAL CONSIDERATIONS........................................9
COMPARISON OF THE FUNDS.......................................................11
Financial Highlights.....................................................11
Information About Adjustable Rate........................................15
Information About Intermediate Government Bond...........................15
Investment Restrictions..................................................15
Management...............................................................15
Purchase of Shares.......................................................17
Redemption of Shares.....................................................17
Performance..............................................................17
Stockholder Rights.......................................................18
Dividends................................................................19
Automatic Dividend Reinvestment Plan.....................................19
Tax Information..........................................................19
Portfolio Transactions...................................................19
Portfolio Turnover.......................................................19
Additional Information...................................................19
THE REORGANIZATION............................................................20
General..................................................................20
Procedure................................................................21
Terms of the Agreement and Plan..........................................21
Potential Benefits to Shareholders as a Result of the Reorganization.....22
Tax Consequences of the Reorganization...................................24
Appraisal Rights.........................................................25
Capitalization...........................................................25
INFORMATION CONCERNING THE SPECIAL MEETING....................................27
Date, Time and Place of Meeting..........................................27
Solicitation, Revocation and Use of Proxies..............................27
Record Date and Outstanding Shares.......................................27
Security Ownership of Certain Beneficial Owners and Management
of Intermediate Government Bond and Adjustable Rate Securities Fund......27
Voting Rights and Required Vote..........................................27
ADDITIONAL INFORMATION........................................................28
LEGAL PROCEEDINGS.............................................................28
LEGAL OPINIONS................................................................29
EXPERTS.......................................................................29
STOCKHOLDER PROPOSALS.........................................................29
EXHIBIT I - AGREEMENT AND PLAN OF REORGANIZATION.............................I-1
EXHIBIT II - SECTIONS 86 THROUGH 98 OF CHAPTER 156B OF THE MASSACHUSETTS
GENERAL LAWS...........................................................II-1
<PAGE>
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Trustees of Intermediate
Government Bond for use at a special meeting of shareholders of Intermediate
Government Bond (the "Meeting") to be held at the offices of Merrill Lynch
Investment Managers ("MLIM"), 800 Scudders Mill Road, Plainsboro, New Jersey
on October 17, 2000 at __________ , Eastern time. The mailing address for
Intermediate Government Bond is P.O. Box 9011, Princeton, New Jersey
08543-9011. The approximate mailing date of this Proxy Statement and
Prospectus is _________ , 2000.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation
to the Secretary of Intermediate Government Bond at the address indicated
above or by voting in person at the Meeting. All properly executed proxies
received prior to the Meeting will be voted at the Meeting in accordance with
the instructions marked thereon or otherwise as provided therein. Unless
instructions to the contrary are marked, properly executed proxies will be
voted "FOR" the proposal to approve the Agreement and Plan of Reorganization
between Adjustable Rate and Intermediate Government Bond (the "Agreement and
Plan").
Adjustable Rate is incorporated as a Maryland corporation while
Intermediate Government Bond is organized as a Massachusetts business trust.
In each jurisdiction, nomenclature varies. For ease and clarity of
presentation, holders of shares of common stock of Adjustable Rate and holders
of shares of beneficial interest of Intermediate Government Bond are each
referred to as "stockholders".
Stockholders of Intermediate Government Bond will be entitled to receive
the same class of shares of Adjustable Rate (i.e., Class A, Class B, Class C
or Class D) (the "Corresponding Shares") as they held in Intermediate
Government Bond immediately prior to the Reorganization. The same or lower
distribution fees, account maintenance fees and sales charges (including
contingent deferred sales charges ("CDSCs")), if any, shall apply to
Corresponding Shares as applied to shares of Intermediate Government Bond
immediately prior to the Reorganization. The aggregate net asset value of the
Corresponding Shares of Adjustable Rate to be issued to the stockholders of
Intermediate Government Bond will equal the aggregate net asset value of the
outstanding shares of Intermediate Government Bond as set forth in the
Agreement and Plan. Intermediate Government Bond and Adjustable Rate sometimes
are referred to herein collectively as the "Funds" and individually as a
"Fund," as the context requires. The fund resulting from the Reorganization is
sometimes referred to herein as the "Combined Fund."
Approval of the Agreement and Plan will require the affirmative vote of
Intermediate Government Bond stockholders representing two-thirds of the
outstanding shares entitled to be cast thereon. Stockholders will vote as a
single class on the proposal to approve the Agreement and Plan. See
"Information Concerning the Special Meeting."
The Board of Trustees of Intermediate Government Bond knows of no
business other than that discussed above which will be presented for
consideration at the Meeting. If any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy to vote in accordance
with their best judgment.
This Proxy Statement and Prospectus serves as a prospectus of Adjustable
Rate under the Securities Act of 1933, as amended (the "Securities Act"), in
connection with the issuance of shares of Adjustable Rate to Intermediate
Government Bond pursuant to the terms of the Agreement and Plan.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus (including documents incorporated by
reference) and is qualified in its entirety by reference to the more complete
information contained in this Proxy Statement and Prospectus and in the
Agreement and Plan, attached hereto as Exhibit I.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of Intermediate Government
Bond by Adjustable Rate in exchange for the Corresponding Shares and the
subsequent distribution of Corresponding Shares to the stockholders of
Intermediate Government Bond; and (ii) the subsequent deregistration and
dissolution of Intermediate Government Bond.
The Reorganization
At a meeting of the Board of Trustees of Intermediate Government Bond
held on June 6, 2000, the Board of Trustees approved a proposal that
Adjustable Rate acquire substantially all of the assets and assume
substantially all of the liabilities of Intermediate Government Bond in
exchange solely for an equal aggregate value of newly issued shares of
Adjustable Rate to be distributed to the stockholders of Intermediate
Government Bond in exchange for their shares of beneficial interest of
Intermediate Government Bond.
Based upon their evaluation of all relevant information, the Trustees of
Intermediate Government Bond have determined that the Reorganization will
potentially benefit the stockholders of Intermediate Government Bond.
Specifically, the Trustees considered that after the Reorganization,
Intermediate Government Bond stockholders will remain invested in an open-end
fund with a substantially larger combined net asset value. As part of a larger
fund Intermediate Government Bond stockholders are likely to benefit from
reduced overall operating expenses per share on a pro forma basis as a result
of certain economies of scale expected after the Reorganization. See
"Summary--Pro Forma Fee Tables" and "The Reorganization--Potential Benefits to
Stockholders as a Result of the Reorganization."
The Board of Trustees of Intermediate Government Bond, including all of
the Trustees who are not "interested persons," as defined in the Investment
Company Act, has determined that the Reorganization is in the best interests
of Intermediate Government Bond and that the interests of existing
Intermediate Government Bond stockholders will not be diluted as a result of
effecting the Reorganization. As a result of the Reorganization, however, a
stockholder of Intermediate Government Bond or a stockholder of Adjustable
Rate would hold a reduced percentage of ownership in the Combined Fund than he
or she held in Intermediate Government Bond or Adjustable Rate prior to the
Reorganization.
The Reorganization is contingent upon receipt of the approval of the
stockholders of Adjustable Rate of certain proposed amendments to the
investment objective and policies of Adjustable Rate and requires the approval
of the vote of two-thirds of the shares of Intermediate Government Bond
outstanding on the Record Date and entitled to be cast at the Meeting.
If all of the requisite approvals are obtained, it is anticipated that
the Reorganization will occur as soon as practicable after such approval,
provided that Intermediate Government Bond and Adjustable Rate have obtained
prior to that time either (a) a favorable private letter ruling from the
Internal Revenue Service (the "IRS") or (b) an opinion of counsel concerning
the tax consequences of the Reorganization as set forth in the Agreement and
Plan. The Agreement and Plan may be terminated, and the Reorganization
abandoned, whether before or after approval by the stockholders of
Intermediate Government Bond, at any time prior to the Exchange Date (as
defined below), (i) by mutual consent of the Board of Trustees of Intermediate
Government Bond and the Board of Directors of Adjustable Rate; (ii) by the
Board of Trustees of Intermediate Government Bond if any condition to
Intermediate Government Bond's obligations has not been fulfilled or waived by
such Board; or (iii) by the Board of Directors of Adjustable Rate if any
condition to Adjustable Rate's obligations has not been fulfilled or waived by
such Board.
<PAGE>
Pro Forma Fee Tables
The tables below provide information about the fees and expenses
attributable to shares of each Fund and, assuming the Reorganization takes
place, the estimated annualized fees and expenses attributable to shares of
the Combined Fund.
<TABLE>
<CAPTION>
Pro Forma Fee Table for Class A and Class B Stockholders of Intermediate Government Bond,
Adjustable Rate (adjusted for repricing) and the Combined Fund*
as of April 28, 2000 (unaudited)
Class A Shares Class B Shares (b)
-------------------------------------- ------------------------------------
Actual Actual
-------------------------- ------------------------
Intermediate Pro Forma Intermediate Pro Forma
Adjustable Government Combined Adjustable Government Combined
Rate Bond Fund Rate Bond Fund
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stockholder Fees (fees paid directly from stockholder's
investment) (a):
Maximum Sales Charge (Load) imposed on purchases
(as a percentage of offering price).......... 1.00%(c) 1.00%(c) 1.00%(c) None None None
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, whichever is lower)..... None(d) None(d) None(d) 1.00%(c) 1.00%(c) 1.00%(c)
Maximum Sales Charge (Load) Imposed on Dividend
Reinvestments................................ None None None None None None
Exchange Fee..................................... None None None None None None
Redemption Fee................................... None None None None None None
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets):
Investment Advisory Fees.......................... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
Distribution and/or Service (12b-1) Fees(e)....... None None None 0.40% 0.50% 0.40%
Other Expenses (including transfer agent fees)(g). 0.49% 0.47% 0.30% 0.49% 0.47% 0.30%
----- ----- ----- ----- ----- -----
Total Annual Fund Operating Expenses.............. 0.89% 0.87% 0.70%(h) 1.29% 1.37% 1.10%(h)
===== ===== ===== ===== ===== =====
---------
* See footnotes on page 4.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Fee Table for Class C and Class D Stockholders of Intermediate Government Bond,
Adjustable Rate (adjusted for repricing) and the Combined Fund*
as of April 28, 2000 (unaudited)
Class C Shares Class D Shares
-------------------------------------- ------------------------------------
Actual Actual
-------------------------- ------------------------
Intermediate Pro Forma Intermediate Pro Forma
Adjustable Government Combined Adjustable Government Combined
Rate Bond Fund Rate Bond Fund
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stockholder Fees (fees paid directly from stockholder's
investment) (a):
Maximum Sales Charge (Load) imposed on purchases
(as a percentage of offering price).......... None None None 1.00%(c) 1.00%(c) 1.00%(c)
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, whichever is lower)..... 1.00%(c) 1.00%(c) 1.00%(c) None(d) None(d) None(d)
Maximum Sales Charge (Load) Imposed on Dividend
Reinvestments................................ None None None None None None
Exchange Fee..................................... None None None None None None
Redemption Fee................................... None None None None None None
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets):
Investment Advisory Fees.......................... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
Distribution and/or Service (12b-1) Fees(e)....... 0.40% 0.50%(f) 0.40% 0.10% 0.10% 0.10%
Other Expenses (including transfer agent fees)(g). 0.49% 0.47% 0.30% 0.49% 0.47% 0.30%
----- ----- ----- ----- ----- -----
Total Annual Fund Operating Expenses.............. 1.29% 1.37% 1.10%(h) 0.99% 0.97% 0.80%(h)
===== ===== ===== ===== ===== =====
---------
(a) In addition, Merrill Lynch may charge clients a processing fee (currently $5.35) when a client buys or
sells shares.
(b) Class B shares automatically convert to Class D shares about ten years after initial purchase. After such
conversion, such shares will no longer be subject to distribution fees.
(c) Some investors may qualify for reductions in the sales charge (load).
(d) An investor may pay a deferred sales charge if such investor purchases $1 million or more and redeems
within one year.
(e) The Funds call the "Service Fee" an "Account Maintenance Fee." Account Maintenance Fee is the term used
in the Prospectuses of the Funds and all other Fund materials. If an investor holds Class B or Class C
shares for a long time, it may cost that stockholder more in distribution (12b-1) fees than the maximum
sales charge that such stockholder would have paid if he or she had bought one of the other classes.
(f) The Class C distribution fees (0.25%) of Intermediate Government Bond are currently being waived. There
is no guarantee that such waiver will continue in the future.
(g) The Funds pay the Transfer Agent $11.00 for each Class A and Class D stockholder account and $14.00 for
each Class B and Class C stockholder account and reimburse the Transfer Agent's out-of-pocket expenses.
The Funds pay a 0.10% fee for certain accounts that participate in the Merrill Lynch Mutual Fund Advisor
program. The Funds also pay 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. MLIM provides accounting services to each Fund at cost. For the fiscal
year ended May 31, 1999, Adjustable Rate reimbursed MLIM $51,747 for these services; for the fiscal year
ended October 31, 1999, Intermediate Government Bond reimbursed MLIM $55,751 for these services.
(h) Following the Reorganization, MLIM intends to voluntarily waive a portion of the investment advisory fee
due from the Combined Fund to the extent necessary to limit the Total Annual Fund Operating Expenses of
each class of shares of the Combined Fund as follows: 0.65% for Class A shares, 1.05% for Class B shares,
1.05% for Class C shares and 0.75% for Class D shares. MLIM may reduce or discontinue this waiver at any
time without notice.
</TABLE>
<PAGE>
The foregoing Pro Forma Fee Tables and Examples are intended to assist
investors in understanding the costs and expenses that an Intermediate
Government Bond stockholder or Adjustable Rate stockholder bears directly or
indirectly as compared to the costs and expenses that would be borne by such
investors taking into account the Reorganization.
EXAMPLES:
These examples assume that a stockholder invests $10,000 in the relevant Fund
for the time periods indicated, that the investment has a 5% return each year,
that the stockholder pays the sales charges, if any, that apply to the
particular class and that each Fund's operating expenses remain the same. This
assumption is not meant to indicate that a stockholder will receive a 5%
annual rate of return. Stockholder annual return may be more or less than the
5% used in these examples. Although a stockholder's actual costs may be higher
or lower, based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
---
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
--------------------------------------- ----------------- ------------------- -------------------- -------------------
Class A
--------------------------------------- ----------------- ------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Intermediate Government Bond $188 $375 $577 $1,162
Adjustable Rate 190 381 588 1,185
Combined Fund* 171 322 486 962
--------------------------------------- ----------------- ------------------- -------------------- -------------------
Class B
--------------------------------------- ----------------- ------------------- -------------------- -------------------
Intermediate Government Bond $239 $434 $750 $1,646
Adjustable Rate 231 409 708 1,556
Combined Fund* 212 350 606 1,340
--------------------------------------- ----------------- ------------------- -------------------- -------------------
Class C
--------------------------------------- ----------------- ------------------- -------------------- -------------------
Intermediate Government Bond $239 $434 $750 $1,646
Adjustable Rate 231 409 708 1,556
Combined Fund* 212 350 606 1,340
--------------------------------------- ----------------- ------------------- -------------------- -------------------
Class D
--------------------------------------- ----------------- ------------------- -------------------- -------------------
Intermediate Government Bond $198 $406 $631 $1,278
Adjustable Rate 200 412 642 1,301
Combined Fund* 181 353 540 1,080
EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
-------
1 Year 3 Years 5 Years 10 Years
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Class A
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Intermediate Government Bond $188 $375 $577 $1,162
Adjustable Rate 190 381 588 1,185
Combined Fund* 171 322 486 962
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Class B
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Intermediate Government Bond $139 $434 $750 1,646
Adjustable Rate 131 409 708 1,556
Combined Fund* 112 350 606 1,340
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Class C
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Intermediate Government Bond $139 $434 $750 1,646
Adjustable Rate 131 409 708 1,556
Combined Fund* 112 350 606 1,340
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Class D
---------------------------------------- ---------------- ------------------- -------------------- -------------------
Intermediate Government Bond $198 $406 $631 $1,278
Adjustable Rate 190 381 588 1,185
Combined Fund* 181 353 540 1,080
-------------
* Assuming the Reorganization took place on April 28, 2000.
</TABLE>
The Examples set forth above assume reinvestment of all dividends and
utilize a 5% annual rate of return as mandated by Commission regulations. The
Examples should not be considered a representation of past or future expenses
or annual rates of return, and actual expenses or annual rates of return may
be more or less than those assumed for purposes of the Examples. See
"Summary," "The Reorganization--Potential Benefits to Stockholders as a Result
of the Reorganization" and "Comparison of the Funds--Management," "--Purchase
of Shares" and "--Redemption of Shares."
Intermediate Government Bond Intermediate Government Bond was formed
under the laws of the Commonwealth of
Massachusetts on September 10, 1986 and
commenced operations on November 6, 1986.
Intermediate Government Bond is a
diversified, open-end management investment
company.
As of April 28, 2000, Intermediate
Government Bond had net assets of
approximately $76.6 million.
Adjustable Rate Adjustable Rate was incorporated under the
laws of the State of Maryland on April 19,
1991 and commenced operations on August 2,
1991. Adjustable Rate is a diversified,
open-end management investment company.
As of April 28, 2000, Adjustable Rate had
net assets of approximately $81.5 million.
Comparison of the Funds Investment Objectives. The investment
objectives of Adjustable Rate and
Intermediate Government Bond are similar,
though not identical. If stockholders of
Adjustable Rate approve a proposed
amendment to its investment objective,
Adjustable Rate will seek current income
and low net asset value fluctuation by
investing primarily in U.S. government
securities. The investment objective of
Intermediate Government Bond is to seek the
highest possible current income consistent
with the protection of capital afforded by
investing primarily in intermediate-term
debt securities issued or guaranteed by the
U.S. government, its agencies or
instrumentalities.
The Reorganization will not take place if
stockholders of Adjustable Rate do not
approve the amendment to that Fund's
investment objective.
Portfolio Management. The manager for both
Intermediate Government Bond and Adjustable
Rate is Merrill Lynch Investment Managers,
L.P. ("MLIM"). MLIM has retained Merrill
Lynch Asset Management U.K. Limited ("MLAM
U.K.") as sub-adviser to Intermediate
Government Bond. Gregory Mark Maunz has
served as portfolio manager of Adjustable
Rate since 1991 and will serve as portfolio
manager of the Combined Fund. Ralph A.
DeCesare has served as portfolio manager of
Intermediate Government Bond since 1998.
MLIM was organized as an investment adviser
in 1977 and offers investment advisory
services to more than 40 registered
investment companies. MLIM and its
affiliates, including Fund Asset
Management, had approximately $556 billion
in investment company and other portfolio
assets under management as of May 2000.
This amount includes assets managed for
Merrill Lynch affiliates.
Advisory Fees. Pursuant to a separate
investment advisory agreement between each
Fund and MLIM, each Fund pays MLIM a
monthly fee at the annual rate of 0.40% of
the average daily net assets of that Fund
(following the repricing of Adjustable Rate
approved by the Adjustable Rate Board of
Directors on June 6, 2000). After the
Reorganization, the Combined Fund would pay
a monthly fee at the annual rate of 0.40%
of the average daily net assets of the
Combined Fund. See "Summary--Pro Forma Fee
Tables" and "Comparison of the
Funds--Management."
Class Structure. Each Fund offers four
classes of shares under the Select Pricing
System. The Class A, Class B, Class C and
Class D shares issued by Adjustable Rate
are identical in all respects to the Class
A, Class B, Class C and Class D shares
issued by Intermediate Government Bond,
except that they represent ownership
interests in a different investment
portfolio and the distribution fees for
Class B and Class C shares are lower for
Adjustable Rate. See "Comparison of the
Funds--Purchase of Shares," "--Redemption
of Shares" and "Additional
Information--Stockholder Services."
Overall Annual Expense Ratio. As of April
28, 2000, the overall annual operating
expense ratio (excluding class specific
distribution and account maintenance fees)
for Intermediate Government Bond was 0.87%
(based on net assets of approximately $76.6
million) and for Adjustable Rate, after
repricing, (excluding class specific
distribution and account maintenance fees)
was 0.89% (based on net assets of
approximately $81.5 million). If the
Reorganization had taken place on that
date, the estimated overall annual
operating expense ratio (excluding class
specific distribution and account
maintenance fees) for the Combined Fund,
adjusted for repricing, would have been
0.70% (based on net assets of approximately
$158.2 million). Following the
Reorganization, MLIM intends to waive
voluntarily a portion of the management fee
due from the Combined Fund to the extent
necessary to limit the overall annual
operating expense ratio (excluding class
specific distribution and account
maintenance fees) to 0.65%.
The foregoing expense ratios are for each
Fund on an overall basis. Such ratios
differ among Class A, Class B, Class C and
Class D shares as a result of class
specific distribution and account
maintenance expenditures. See "Summary--Pro
Forma Fee Tables."
Purchase of Shares. Shares of Adjustable
Rate are offered continuously for sale to
the public in substantially the same manner
as shares of Intermediate Government Bond.
See "Comparison of the Funds--Purchase of
Shares."
Redemption of Shares. The redemption
procedures for shares of Adjustable Rate
are substantially the same as the
redemption procedures for shares of
Intermediate Government Bond. Because of
the high cost of maintaining smaller
stockholder accounts, Adjustable Rate,
however, may redeem the shares in an
account (without charging any deferred
sales charge) if the net asset value of an
account falls below $500 due to
redemptions. A stockholder will be notified
that the value of his or her account is
less than $500 before Adjustable Rate makes
an involuntary redemption. A stockholder
will then have 60 days to make an
additional investment to bring the value of
his or her account to at least $500 before
Adjustable Rate takes any action. This
involuntary redemption does not apply to
retirement plans or Uniform Gifts or
Transfers to Minors Act accounts. For
purposes of computing any CDSC that may be
payable upon disposition of Corresponding
Shares of Adjustable Rate acquired by
Intermediate Government Bond stockholders
in the Reorganization, the holding period
of Intermediate Government Bond shares
outstanding on the date the Reorganization
takes place will be "tacked" onto the
holding period of the Corresponding Shares
of Adjustable Rate acquired in the
Reorganization. See "Comparison of the
Funds--Redemption of Shares."
Dividends. Each Fund pays dividends daily
immediately prior to the determination of
net asset value of the Fund on that day and
dividends are reinvested monthly in
additional full and fractional shares of
the relevant Fund at net asset value unless
the stockholder elects to receive such
dividends in cash.
Each Fund distributes substantially all of
its net investment income, if any, monthly
and distributes all net realized capital
gains to its stockholders at least
annually. Intermediate Government Bond
distributes substantially all of the net
investment income, if any, daily
immediately prior to the determination of
the net asset value of the Intermediate
Government Bond on that day and reinvested
monthly in additional full and fractional
shares of Intermediate Government Bond at
net asset value unless the stockholder
elects to receive such dividends in cash.
See "Comparison of the Funds--Dividends."
Net Asset Value. Both Intermediate
Government Bond Fund and Adjustable Rate
determine net asset value of each class of
shares once daily as of the close of
business on the New York Stock Exchange
(the "NYSE") on each day the NYSE is open
for trading based on prices at the time of
closing. The NYSE generally closes at 4:00
p.m., Eastern time. Both Funds compute net
asset value per share in the same manner.
See "Comparison of the Funds--Additional
Information--Net Asset Value."
Voting Rights. The corresponding voting
rights of the stockholders of each Fund are
substantially the same. See "Comparison of
the Funds--Additional Information--Capital
Stock."
Other Significant Considerations.
Stockholder services available to
Intermediate Government Bond stockholders,
such as providing the annual and
semi-annual reports, are substantially the
same as those available to Adjustable Rate
stockholders. See "Comparison of the
Funds--Additional Information--Stockholder
Services." An automatic dividend
reinvestment plan is available to
stockholders of each Fund. The plans are
identical. See "Comparison of the
Funds--Automatic Dividend Reinvestment
Plan" and "Comparison of the
Funds--Additional Information--Stockholder
Services."
Tax Considerations Intermediate Government Bond and Adjustable
Rate jointly have requested a private
letter ruling from the IRS with respect to
the Reorganization to the effect that,
among other things, neither Intermediate
Government Bond nor Adjustable Rate will
recognize gain or loss on the transaction,
and Intermediate Government Bond
stockholders will not recognize gain or
loss on the exchange of their shares of
Intermediate Government Bond for
Corresponding Shares of Adjustable Rate.
The consummation of the Reorganization is
subject to the receipt of such ruling or
receipt of an opinion of counsel to the
same effect. The Reorganization will not
affect the status of Adjustable Rate as a
regulated investment company. See "The
Reorganization--Tax Consequences of the
Reorganization."
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Many of the investment risks associated with an investment in Adjustable
Rate are substantially similar to the investment risks associated with an
investment in Intermediate Government Bond. Such risks include interest rate
risk, prepayment risk and credit risk, as well as the risks associated with
investing in (a) mortgage-backed securities, (b) indexed and inverse floating
rate securities and (c) when issued and delayed delivery securities. The
primary difference in risk stems from Adjustable Rate's ability to invest in
derivative instruments, including interest rate swaps, caps and floors. The
risk factors to which an investment in Adjustable Rate is subject are set
forth in the Adjustable Rate Prospectus that accompanies this Proxy Statement
and Prospectus under the caption "Details about the Fund--Investment Risks."
The risks associated with investing in Adjustable Rate that are not associated
with investing in Intermediate Government Bond are summarized below.
Derivatives -- Adjustable Rate may use derivative instruments including
futures, forwards, options, indexed securities and inverse securities.
Derivatives are financial instruments whose value is derived from another
security, a commodity (such as oil or gold), or an index or interest rate such
as the prime lending rate. Derivatives allow Adjustable Rate to increase or
decrease its risk exposure more quickly and efficiently than other types of
instruments.
Derivatives are volatile and involve significant risks, including:
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.
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.
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.
Interest Rate Hedging Transactions and Risk Factors in Such Transactions.
Adjustable Rate may hedge all or a portion of its portfolio investments
against fluctuations in interest rates by entering into interest rate
transactions, such as interest rate swaps and the purchase or sale of interest
rate caps and floors. Adjustable Rate bears the risk of an imperfect
correlation between the index used in the hedging transaction and that
pertaining to the securities that are the subject of the hedging transaction.
Adjustable Rate may use derivatives for hedging purposes, including
anticipatory hedges. Hedging is a strategy in which Adjustable Rate 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 Adjustable Rate 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 Adjustable Rate, 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. Adjustable Rate is
not required to use hedging and may choose not to do so.
Interest Rate Transactions, Options and Futures. Adjustable Rate may
engage in various portfolio strategies to seek to increase its return through
the use of options on portfolio securities and to hedge its portfolio against
movements in interest rates. Adjustable Rate has the authority to engage in
interest rate transactions in order to hedge against interest rate movements,
purchase call and put options on securities, write (i.e., sell) covered call
and put options on its portfolio securities, and engage in hedging
transactions in financial futures, and related options on such futures.
Although certain risks are involved in interest rate options and futures
transactions, MLIM believes that, because Adjustable Rate will (i) write only
covered options on portfolio securities, and (ii) engage in other transactions
only for hedging purposes, these portfolio strategies will not subject the
Fund to the risks frequently associated with the speculative use of such
transactions. While Adjustable Rate's use of hedging strategies is intended to
reduce the volatility of the net asset value of Fund shares, Adjustable Rate's
net asset value will fluctuate. There can be no assurance that Adjustable
Rate's hedging transactions will be effective. Furthermore, Adjustable Rate
will only engage in hedging activities from time to time and may not
necessarily be engaging in hedging activities when movements in interest rates
occur.
Adjustable Rate also may be subject, to a lesser extent, to risks
associated with the following investment strategies.
Illiquid Securities -- Adjustable Rate may invest up to 15% of its net
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. Investment of
the Fund's assets in illiquid securities may restrict the ability of the Fund
to dispose of its investments in a timely fashion and for a fair price as well
as its ability to take advantage of market opportunities. The risks associated
with illiquidity will be particularly acute where the Fund's operations
require cash, such as when the Fund redeems shares or pays dividends, and
could result in the Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of illiquid investments.
Restricted Securities -- Restricted securities have contractual or legal
restrictions n their resale. They may include private placement securities
that Adjustable Rate buys directly from the issuer. Private placement and
other restricted securities may not be listed on an exchange and may have no
active trading market.
Restricted securities may be illiquid. Adjustable Rate may be unable to
sell them on short notice or may be able to sell them only at a price below
current value. Adjustable Rate may get only limited information about the
issuer, so it may be less able to predict a loss. In addition, if Adjustable
Rate management receives material adverse nonpublic information about the
issuer, the Fund will not be able to sell the security.
Rule 144A Securities -- Rule 144A securities are restricted securities
that can be resold to qualified institutional buyers but not to the general
public. Rule 144A securities may have an active trading market, but carry the
risk that the active trading market may not continue.
Dollar Rolls. Adjustable Rate also may enter into "dollar rolls." A
dollar roll involves selling mortgage-backed securities for delivery in the
current month and simultaneously contracting substantially similar (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Fund foregoes principal and interest paid on the mortgage-backed
securities. Adjustable Rate is compensated by the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. A "covered roll" is a specific type of dollar
roll for which there is a segregated account with liquid securities in an
amount equal to the forward price. Money market securities held by Adjustable
Rate in such an account will not be subject to the general limitation that,
other than for temporary or defensive purposes, the Fund will invest no more
than 35% of its total assets in money market securities. Dollar rolls in which
the Fund may invest will be limited to covered rolls.
<PAGE>
COMPARISON OF THE FUNDS
Financial Highlights
Adjustable Rate. The Financial Highlights table is intended to help you
understand the Fund's financial performance for the past five years. Certain
information reflects financial results for a single Adjustable Rate share. The
total returns in the table represent the rate an investor would have earned or
lost on an investment in Adjustable Rate shares (assuming reinvestment of all
dividends). This information has been audited by [ ] whose report,
along with the Fund's financial statements is included in the Fund's annual
report to stockholders which accompanies this Proxy Statement and Prospectus.
The following per share data and ratios have been derived from
information provided in the financial statements:
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------- ---------------------------------------------
For the Year Ended May 31, For the Year Ended May 31,
--------------------------------------------- ---------------------------------------------
----- ---- ---- ----- ----- ----- ---- ---- ----- -----
2000+ 1999 1998 1997+ 1996+ 2000+ 1999 1998 1997+ 1996+
----- ---- ---- ----- ----- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Asset Value:
Per Share Operating
Performance:
Net asset value, beginning
of period $ 9.52 $ 9.61 $ 9.65 $ 9.54 $ 9.55 $ 9.49 $ 9.58 $ 9.62 $ 9.53 $ 9.56
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Investment income--net .52 .53 .57 .59 .56 .45 .46 .50 .51 .52
Realized and unrealized gain
(loss) on investments--net (.08) (.09) (.04) .10 .03 (.08) (.09) (.04) .09 (.02)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total from investment
operations .44 .44 .53 .69 .59 .37 .37 .46 .60 .50
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Less dividends from
investment income--net (.52) (.53) (.57) (.58) (.60) (.45) (.46) (.50) (.51) (.53)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Net asset value, end of
period $ 9.44 $ 9.52 $ 9.61 $ 9.65 $ 9.54 $ 9.41 $ 9.49 $ 9.58 $ 9.62 $ 9.53
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Total Investment Return:*
Based on net asset value per
share 4.76% 4.59% 5.66% 7.48% 6.41% 3.96% 3.78% 4.85% 6.44% 5.34%
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Ratios to Average Net Assets:
Expenses 9.95% .92% .92% .89% .81% 1.73% 1.70% 1.70% 1.65% 1.59%
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Investment income--net 5.50% 5.43% 5.93% 6.13% 6.20% 4.72% 4.66% 5.19% 5.35% 5.45%
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Supplemental Data:
Net assets, end of period
(in thousands) $ 1,147 $ 947 $ 1,071 $ 265 $ 281 $54,126 $72,875 $85,094 $106,061 $137,387
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Portfolio turnover 41.63% 48.76% 47.55% 18.48% 25.30% 41.63% 48.76% 47.55% 18.48% 25.30%
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
---------
+ Based on average shares outstanding.
* Total investment returns exclude the effects of sales charges.
</TABLE>
<PAGE>
Adjustable Rate-Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class C Class D
--------------------------------------------- ---------------------------------------------
For the Year Ended May 31, For the Year Ended May 31,
--------------------------------------------- ---------------------------------------------
----- ---- ---- ----- ----- ----- ---- ---- ----- -----
2000+ 1999 1998 1997+ 1996+ 2000+ 1999 1998 1997+ 1996+
----- ---- ---- ----- ----- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning
of period $ 9.49 $ 9.58 $ .63 $ 9.53 $ 9.56 $ 9.49 $ 9.58 $ 9.62 $ 9.52 $ 9.55
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Investment income--net .44 .45 .49 .50 .48 .50 .51 .55 .57 .56
Realized and unrealized gain
(loss) on investments--net (.08) (.09) (.05) .11 .01 (.09) (.09) (.04) .09 (.01)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total from investment
operations .36 .36 .44 .61 .49 .41 .42 .51 .66 .55
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Less dividends from investment
income--net (.44) (.45) (.49) (.51) (.52) (.50) (.51) (.55) (.56) (.58)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Net asset value, end of period $ 9.41 $ 9.49 $ 9.58 $ 9.63 $ 9.53 $ 9.40 $ 9.49 $ 9.58 $ 9.62 $ 9.52
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Total Investment Return:*
Based on net asset value per
share 3.92% 3.74% 4.71% 6.51% 5.30% 4.39% 4.32% 5.40% 7.11% 5.91%
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Ratios to Average Net Assets:
Expenses 1.75% 1.73% 1.74% 1.70% 1.57% 1.21% 1.17% 1.18% 1.13% 1.06%
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Investment income--net 4.70% 4.62% 5.15% 5.34% 5.40% 5.24% 5.18% 5.70% 5.87% 5.98%
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Supplemental Data:
Net assets, end of period
(in thousands) $12,400 $ 6,256 $ 4,434 $ 5,315 $ 3,078 $11,466 $ 9,408 $19,193 $ 13,267 $ 12,800
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Portfolio turnover 41.63% 48.76% 47.55% 18.48% 25.30% 41.63% 48.76% 47.55% 18.48% 25.30%
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
---------
* Total investment returns exclude the effects of sales charges.
+ Based on the average shares outstanding.
</TABLE>
<PAGE>
Intermediate Government Bond. 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 Adjustable Rate
share. The total returns in the table represent the rate an investor would
have earned or lost on an investment in Adjustable Rate shares (assuming
reinvestment of all dividends). This information, except for the six months
ended April 30, 2000, which is unaudited, has been audited by [ ]
whose report, along with the Fund's financial statements is included in the
Fund's annual report to stockholders which is available upon request.
The following per share data and ratios have been derived from
information provided in the financial statements:
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------- --------------------------------------------------
For the Period For the Period
For the Six February 18, For the Six February 18,
Months Ended For the Year Ended 1997+ to Months Ended For the Year Ended 1997+ to
April 30, October 31, October 31, April 30, October 31, October 31,
2000 1999 1998 1997 2000 1999 1998 1997
------------ -------- -------- ----------- ------------ -------- -------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Asset Value:
Per Share Operating
Performance:
Net asset value, beginning
of period $ 9.39 $ 10.11 $ 9.74 $ 9.66 $ 9.39 $ 10.11 $ 9.74 $ 9.66
------------ -------- -------- ----------- ------------ -------- -------- -----------
Investment income--net .28 .55 .59 .39 .26 .50 .54 .37
Realized and unrealized
gain (loss) on
investments--net (.18) (.72) .37 .08 (.18) (.72) .37 .08
------------ -------- -------- ----------- ------------ -------- -------- -----------
Total from investment
operations .10 (.17) .96 .47 .08 (.22) .91 .45
------------ -------- -------- ----------- ------------ -------- -------- -----------
Less dividends from
investment income--net (.28) (.55) (.59) (.39) (.26) (.50) (.54) (.37)
------------ -------- -------- ----------- ------------ -------- -------- -----------
Net asset value, end of
period $ 9.21 $ 9.39 $ 10.11 $ 9.74 $ 9.21 $ 9.39 $ 10.11 $ 9.74
============ ======== ======== =========== ============ ======== ======== ===========
Total Investment Return:**
Based on net asset value
per share 1.13%# (1.74)% 10.23% 5.04%# .87%# (2.24)% 9.68% 4.81%#
============ ======== ======== =========== ============ ======== ======== ===========
Ratios to Average Net
Assets:
Expenses, net of
reimbursement .87% .75% .76% 1.12%* 1.38%* 1.20% 1.23% 1.39%*
============ ======== ======== =========== ============ ======== ======== ===========
Expenses .87% .78% 1.09% 2.08%* 1.38%* 1.28% 1.54% 2.42%*
============ ======== ======== =========== ============ ======== ======== ===========
Investment income--net 6.14% 5.60% 5.99% 5.95%* 5.61%* 5.13% 5.34% 5.69%*
============ ======== ======== =========== ============ ======== ======== ===========
Supplemental Data:
Net assets, end of period
(in thousands) $ 25,214 $ 24,019 $ 1,905 $ 425 $ 25,275 $ 36,334 $ 39,975 $ 829
============ ======== ======== =========== ============ ======== ======== ===========
Portfolio turnover 9.98% 191.16% 108.06% 201.55% 90.98% 191.16% 108.06% 201.55%
============ ======== ======== =========== ============ ======== ======== ===========
---------
* Annualized.
** Total investment returns exclude the effects of sales charges.
# Aggregate total investment return.
+ Commencement of operations.
++ Based on average shares outstanding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Intermediate Government Bond-Financial Highlights (concluded)
Class C Class D
-------------------------------------------- -------------------------------------------------------------
For the
Period
For the Six For the Year February 18, For the Six For the Year Ended
Months Ended Ended 1997+ to Months Ended October 31,
April 30, October 31, October 31, April 30, -----------------------------------------------
2000 1999 1998 1997 2000 1999 1998 1997 1996
--------- -------- -------- ----------- --------- --------- -------- -------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Asset Value:
Per Share Operating
Performance:
Net asset value,
beginning of period $ 9.39 $ 10.11 $ 9.73 $ 9.66 $ 9.39 $ 10.11 $ 9.74 $ 9.68 $ 9.82
------ ------- ------- ------- ------ ------- ------- ------- -------
Investment income--net .27 .52 .57 .36 .28 .54 .58 .55 .61
Realized and unrealized
gain (loss) on
investments--net (.18) (.72) .38 .07 (.18) (.72) .37 .06 (.14)
------ ------- ------- ------- ------ ------- ------- ------- -------
Total from investment
operations .09 (.20) .95 .43 .10 (.18) .95 .61 .47
------ ------- ------- ------- ------ ------- ------- ------- -------
Less dividends from
investment income--net (.27) (.52) (.57) (.36) .28 (.54) (.58) (.55) (.61)
------ ------- ------- ------- ------ ------- ------- ------- ------
Net asset value, end of
period $ 9.21 $ 9.39 $ 10.11 $ 9.73 $ 9.21 $ 9.39 $ 10.11 $ 9.74 $ 9.68
====== ======= ======= ======= ====== ======= ======= ======= =======
Total Investment Return:**
Based on net asset value
per share 1.00%# (2.00)% 10.05% 4.57% 1.08%# (1.83)% 10.12% 6.60% 4.87%
====== ======= ======= ======= ====== ======= ======= ======= =======
Ratios to Average Net
Assets:
Expenses, net of
reimbursement 1.13%* .94% .95% 1.47%* .96%* .79% .89% 1.25% .97%
====== ======= ======= ======= ====== ======= ======= ======= =======
Expenses 1.13%* 1.03% 1.26% 2.64%* .96%* .87% 1.22% 1.69% .97%
====== ======= ======= ======= ====== ======= ======= ======= =======
Investment income--net 5.85%* 5.37% 5.54% 5.55%* 6.04%* 5.55% 5.94% 5.71% 6.19%
====== ======= ======= ======= ====== ======= ======= ======= =======
Supplemental Data:
Net assets, end of
period (in
thousands) $1,924 $ 3,397 $ 4,674 $ 47 $24,210 $29,157 $34,408 $28,805 $47,281
====== ======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover 90.98% 191.16% 108.06% 201.55% 90.98% 191.16% 108.06% 201.55% 51.44%
====== ======= ======= ======= ====== ======= ======= ======= =======
---------
* Annualized.
** Total investment returns exclude the effects of sales charges.
# Aggregate total investment return.
+ Commencement of operations.
</TABLE>
<PAGE>
Information About Adjustable Rate
The Prospectus and Annual Report of Adjustable Rate have been delivered
with this Prospectus and Proxy statement and are incorporated herein by
reference. Information about Adjustable Rate's investment objective and
policies can be found under the heading "Details About the Fund--How the Fund
Invests" in the Adjustable Rate Prospectus. For information regarding
Management's Discussion of Fund Performance of Adjustable Rate, please see the
Supplement to the Prospectus dated June 30, 2000 as well as the Annual Report
that accompanies this Proxy Statement and Prospectus.
Information About Intermediate Government Bond
Information about Intermediate Government Bond is incorporated herein by
reference from the current prospectus of Intermediate Government Bond. The
Intermediate Government Bond Prospectus, dated February 1, 2000, is available
upon request (without charge) by calling Intermediate Government Bond at (609)
282-2800 or by writing Intermediate Government Bond at P.O. Box 9011,
Princeton, New Jersey 08543-9011.
Investment Restrictions
Other than as noted below, Adjustable Rate and Intermediate Government
Bond have substantially similar investment restrictions. As a non-fundamental
restriction, Adjustable Rate may borrow up to 33-1/3% of its total assets
taken at market value, while Intermediate Government Bond may borrow up to 5%
of its total assets taken at market value, and then only from banks as a
temporary measure for extraordinary or emergency purposes including to meet
redemptions or to settle securities transactions. See "Investment Objective
and Policies--Investment Restrictions" in the Adjustable Rate Statement of
Additional Information dated [ ] (Adjustable Rate Statement").
Management
Directors. The Board of Directors of Adjustable Rate consists of seven
individuals, five of whom are not "interested persons" as defined in the
Investment Company Act. The Board of Trustees of Intermediate Government Bond
consists of eight individuals, six of whom are not "interested persons" as
defined by the Investment Company Act. One individual is both a Director of
Adjustable Rate and a Trustee of Intermediate Government Bond and is an
"interested person" of each Fund. The Directors/Trustees are responsible for
the overall supervision of the operation of each Fund and perform the various
duties imposed on the Directors/Trustees of investment companies by the
Investment Company Act.
Information about the Directors of Adjustable Rate, 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 Director is P.O. Box 9011,
Princeton, New Jersey 08543-9011.
TERRY K. GLENN (59) -- President and Director(1)(2) -- Executive Vice
President of MLIM and Fund Asset Management, L.P. ("FAM") (which terms as used
herein include their corporate predecessors) since 1983; President of FAM
Distributors, Inc. ("FAMD") since 1986 and Director thereof since 1991;
Executive Vice President and Director of Princeton Services, Inc. ("Princeton
Services") since 1993; President of Princeton Administrators, L.P. since 1988.
JOE GRILLS (65) -- Director(2) -- P.O. Box 98, Rapidan, Virginia 22773.
Member of the Committee of Investment of Employee Benefit Assets of the
Financial Executives Institute ("CIEGA") since 1986; Member of CIEGA's
Executive Committee since 1988 and its Chairman from 1991 to 1993; Assistant
Treasurer of International Business Machines Incorporated ("IBM") and Chief
Investment Officer of IBM Retirement Funds from 1985 until 1993; Member of the
Investment Advisory Committee of the State of New York Common Retirement Fund
and the Howard Hughes Medical Institute since 1997; Director, Duke Management
Company since 1992 and Vice Chairman since 1998; Director, LaSalle Street Fund
since 1995; Member of the Investment Advisory Committee of the Virginia
Retirement System since 1998; Director, Montpelier Foundation since 1998 and
its Vice Chairman since 2000.
WALTER MINTZ (71) -- Director(2) - 1114 Avenue of the Americas, New York,
New York 10035. Special Limited Partner of Cumberland Associates (investment
partnership) since 1982.
ROBERT S. SALOMON, JR. (63) -- Director(2) -- 106 Dolphin Cove Quay,
Stamford, Connecticut 06902. Principal of STI Management (investment adviser)
since 1994; Trustee, Common Fund since 1980; Chairman and CEO of Salomon
Brothers Asset Management from 1992 until 1995; Chairman of Salomon Brothers
equity mutual funds from 1992 until 1995; Regular columnist with Forbes
magazine sine 1992; Director of Stock Research and U.S. Equity Strategist at
Salomon Brothers from 1975 until 1991.
MELVIN R. SEIDEN (69)-- Director(2)-- 780 Third Avenue, Suite 2502, New
York, New York 10017. Director of Silbanc Properties, Ltd. (real estate,
investment and consulting) since 1987; Chairman and President of Seiden & de
Cuevas, Inc. (private investment firm) from 1964 to 1987.
STEPHEN B. SWENSRUD (67) -- Director(2) -- 88 Broad Street, 2nd Floor,
Suite 400, Boston, Massachusetts 02110. Chairman of Fernwood Advisors
(investment adviser) since 1996; Principal, Fernwood Associates (financial
consultant) since 1975. Chairman of RPC Corporation (manufacturing) since
1978; Director of International Mobile Communications, Inc.
(telecommunications) since 1998.
ARTHUR ZEIKEL (68) -- Director(1)(2) -- 300 Woodland Avenue, Westfield,
New Jersey 07090. Chairman of MLIM and FAM 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.
JOSEPH T. MONAGLE, JR. (51) -- Senior Vice President(1)(2) -- Senior Vice
President of MLIM and FAM since 1990; Department Head of Global Fixed Income
Division of MLIM and FAM since 1997; Senior Vice President of Princeton
Services since 1993.
JEFFREY B. HEWSON (49) -- Senior Vice President(1)(2) -- Director (Global
Fixed Income) of MLIM since 1998; Vice President of MLIM from 1989 to 1998;
Portfolio Manager of MLIM since 1985.
GREGORY MARK MAUNZ (47) -- Senior Vice President(1)(2) -- First Vice
President of MLIM since 1997; Vice President of MLIM from 1985 to 1997;
Portfolio Manager of MLIM since 1984.
THEODORE J. MAGNANI (38) -- Vice President(1) -- Vice President of MLIM
since 1992.
DONALD C. BURKE (40) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of MLIM and FAM since 1999; Senior Vice President and
Treasurer of Princeton Services since 1999; First Vice President of the
Investment Adviser from 1997 to 1999; Vice President of the Investment Adviser
from 1990 to 1997; Director of Taxation of the Investment Adviser since 1990;
Vice President of FAMD since 1999.
IRA P. SHAPIRO (37) -- Secretary(1)(2) -- First Vice President of MLIM
since 1998; Director (Legal Advisory) of MLIM from 1997 to 1998; Vice
President of MLIM and FAM from 1996 to 1997; Attorney with MLIM and FAM from
1993 to 1996.
------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a trustee, director or officer of certain
other investment companies for which MLIM or FAM acts as the
investment adviser or manager.
Management and Advisory Arrangements. MLIM serves as the investment
adviser for Adjustable Rate and the investment adviser for Intermediate
Government Bond Fund pursuant to separate management agreements (each, a
"Management Agreement") that, except for certain minor differences, are
identical.
Pursuant to the separate Management Agreement between each Fund and MLIM,
each Fund pays MLIM a management fee at the annual rate of 0.40% of the
average daily net assets of the Fund. After the Reorganization, the Combined
Fund will pay MLIM a management fee at the annual rate of 0.40%. See
"Summary--Pro Forma Fee Tables."
MLIM has retained MLAM U.K. as sub-adviser to Intermediate Government
Bond. Pursuant to a separate sub-advisory agreement between MLIM and MLAM U.K.
with respect to Intermediate Government Bond, MLIM pays MLAM U.K. a fee for
providing investment advisory services to MLIM with respect to Intermediate
Government Bond, in an amount to be determined from time to time by MLIM and
MLAM U.K. but in no event in excess of the amount MLIM actually receives for
providing services to Intermediate Government Bond pursuant to its Management
Agreement. The address of MLAM U.K. is 33 King William Street, London EC4R
9AS, England.
Purchase of Shares
The class structure and purchase and distribution procedures for shares
of Intermediate Government Bond are substantially the same as those of
Adjustable Rate. For a complete discussion of the four classes of shares and
the purchase and distribution procedures related thereto see "Your
Account--Merrill Lynch Select Pricing(SM) System" and "--Participation in
Merrill Lynch Fee Based Programs" in the Adjustable Rate Prospectus and "Your
Account--How to Buy, Sell, Transfer and Exchange Shares" in the Adjustable
Rate Prospectus.
Redemption of Shares
The procedure for redeeming shares of Adjustable Rate is substantially
the same as the procedure for redeeming shares of Intermediate Government
Bond. Because of the high cost of maintaining smaller stockholder accounts,
Adjustable Rate, however, may redeem the shares in an account (without
charging any deferred sales charge) if the net asset value of the account
falls below $500 due to redemption. A stockholder will be notified that the
value of his or her account is less than $500 before Adjustable Rate makes an
involuntary redemption. A stockholder will then have 60 days to make an
additional investment to bring the value of his/her account to at least $500
before Adjustable Rate takes any action. This involuntary redemption does not
apply to retirement plans or Uniform Gifts or Transfers to Minors Act
accounts. For purposes of computing any CDSC that may be payable upon
disposition of Corresponding Shares of Adjustable Rate acquired by
Intermediate Government Bond stockholders in the Reorganization, the holding
period of Intermediate Government Bond shares outstanding on the date the
Reorganization takes place will be tacked onto the holding period of the
Corresponding Shares of Adjustable Rate acquired in the Reorganization. See
"Your Account--Merrill Lynch Select Pricing(SM) System" and "--Participation
in Merrill Lynch Fee Based Programs" in the Adjustable Rate Prospectus and
"Your Account--How to Buy, Sell, Transfer and Exchange Shares" in the
Adjustable Rate Prospectus.
Performance
General. The following tables provide performance information for each
class of shares of Intermediate Government Bond and Adjustable Rate, including
and excluding maximum applicable sales charges, for the periods indicated.
Past performance is not indicative of future performance.
<PAGE>
<TABLE>
<CAPTION>
Adjustable Rate
Average Annual Total Return*
Class A Shares Class B Shares Class C Shares Class D Shares
--------------------- --------------------- --------------------- ---------------------
Without Without Without Without
Sales With Sales Sales With Sales Sales With Sales Sales With Sales
Charge Charge** Charge Charge** Charge Charge** Charge Charge**
Period (%) (%) (%) (%) (%) (%) (%) (%)
------ ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year Ended
4/30/00............. 4.91% 0.71% 4.11% 0.14% 3.96% 2.97% 4.65% 0.46%
Five Years Ended
4/30/00............. 6.01% 5.14% 5.12% 5.12% 5.08% 5.08% 5.67% 4.81%
Inception *** to
4/30/00............. 6.11% 5.33% 4.26% 4.26% 5.18% 5.18% 4.80% 4.31%
---------
* The Average Annual Total Return figures presented have been calculated
based on actual sales charge and expense levels for the time periods
indicated, and do not reflect the proposed repricing. If the repricing
were taken into effect, returns would be higher.
** Assumes the maximum applicable sales charge currently in effect. The
maximum initial sales charge on Class A and Class D shares is 4%. The
maximum contingent deferred sales charge ("CDSC") on Class B shares is 4%,
and is reduced to 0% after four years. Class C shares are subject to a 1%
CDSC for one year.
*** Class B and Class D shares commenced operations on August 2, 1991. Class A
and Class C shares commenced operations on October 21, 1994.
</TABLE>
<TABLE>
<CAPTION>
Intermediate Government Bond
Average Annual Total Return**
Class A Shares Class B Shares Class C Shares Class D Shares
--------------------- --------------------- --------------------- ---------------------
Without Without Without Without
Sales With Sales Sales With Sales Sales With Sales Sales With Sales
Charge Charge* Charge Charge* Charge Charge* Charge Charge*
Period (%) (%) (%) (%) (%) (%) (%) (%)
------ ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year Ended
4/30/00............. 0.21% -0.80% -0.30% -1.25% 0.04% -0.90% 0.11% -0.89%
Five Years Ended
4/30/00............. -- -- -- -- -- -- 5.14% 4.92%
Ten Years Ended
4/30/00............. -- -- -- -- -- -- 6.39% 6.28%
Inception *** to
4/30/00............. 4.49% 4.16% 4.01% 4.01% 4.16% 4.16% -- --
---------
* Assumes the maximum applicable sales charge. The maximum initial sales
charge on Class A and Class D shares is 1%. The maximum CDSC on Class B
and Class C shares is 1% and is reduced to 0% after one year.
** At the close of business on February 14, 1997, there was a reorganization
of Intermediate Government Bond in which Intermediate Government Bond
changed its investment objective. As a result, the performance
information for operations of Intermediate Government Bond prior to its
reorganization may not be indicative of its performance following its
reorganization.
*** Inception date of Class A, Class B and Class C shares is February 18,
1997.
</TABLE>
Stockholder Rights
Stockholders of Adjustable Rate are entitled to one vote for each share
held and fractional votes for fractional shares held and will vote on the
election of Directors and any other matter submitted to a stockholder vote.
Adjustable Rate does not intend to hold meetings of stockholders in any year
in which the Investment Company Act does not require stockholders to act upon
any of the following matters: (i) election of Directors; (ii) approval of a
management agreement; (iii) approval of distribution arrangements; and (iv)
ratification of selection of independent accountants. Voting rights for
Directors are not cumulative. Shares of Adjustable Rate to be issued to
Intermediate Government Bond stockholders in the Reorganization will be fully
paid and non-assessable, will have no preemptive rights and will have the
conversion rights described in this Prospectus and Proxy Statement and in the
Adjustable Rate Prospectus. Each share of Adjustable Rate common stock is
entitled to participate equally in dividends declared by the Fund and in the
net assets of the Fund on liquidation or dissolution after satisfaction of
outstanding liabilities, except that Class B, Class C and Class D shares bear
certain additional expenses. Rights attributable to shares of Intermediate
Government Bond are substantially identical to those described above.
Dividends
The current policy of Intermediate Government Bond with respect to
dividends is substantially similar to the policy of Adjustable Rate. It is
each Fund's intention to distribute all of its net investment income, if any.
Adjustable Rate distributes dividends from such net investment income at least
monthly, whereas Intermediate Government Bond distributes dividends daily and
reinvests monthly unless the stockholder elects to receive such dividends in
cash. If in any fiscal year each Fund has net income from certain foreign
currency transactions, such income will be distributed at least annually.
Following the Reorganization, the Combined Fund shall distribute dividends
from net investment income at least monthly.
Automatic Dividend Reinvestment Plan
Each of the Funds offers its stockholders an Automatic Dividend
Reinvestment Plan (the "Plan") with substantially similar terms. Pursuant to
the Plans, dividends will be automatically reinvested, without a sales charge,
in additional full and fractional shares of the relevant Fund unless a
stockholder has elected to receive such dividends in cash. For further
information about the Plans, see "Stockholder Services--Automatic Dividend
Reinvestment Plan" in the Adjustable Rate Statement.
After the Reorganization, an Intermediate Government Bond stockholder who
has elected to receive dividends in cash will continue to receive dividends in
cash; all other Intermediate Government Bond stockholders will have their
dividends automatically reinvested in shares of the Combined Fund. However, if
a stockholder owns shares of both Funds, after the Reorganization the
stockholder's election with respect to the dividends of Adjustable Rate will
control unless the stockholder specifically elects a different option at that
time.
Tax Information
The tax consequences associated with investment in shares of Intermediate
Government Bond are substantially identical to the tax consequences associated
with investment in shares of Adjustable Rate. See "Your Account--Dividends and
Taxes" in the Adjustable Rate Prospectus.
Portfolio Transactions
The procedures for engaging in portfolio transactions are generally the
same for both Intermediate Government Bond and Adjustable Rate. For a
discussion of these procedures, see "Portfolio Transactions and Brokerage" in
the Adjustable Rate Statement.
Portfolio Turnover
Generally, neither Intermediate Government Bond nor Adjustable Rate
purchases securities for short term trading profits. However, either Fund may
dispose of securities without regard to the time that they have been held when
such action, for defensive or other reasons, appears advisable to MLIM.
Neither Fund has any limit on its rate of portfolio turnover. The portfolio
turnover rates for Intermediate Government Bond for its fiscal years ended
October 31, 1998 and 1999 were 108.06% and 191.16%, respectively. The
portfolio turnover rates for Adjustable Rate for its fiscal years ended May
31, 1999 and 2000 were 48.76% and _____%, respectively. A high portfolio
turnover involves certain tax consequences, and correspondingly greater
transaction costs in the form of dealer spreads and brokerage commissions
which are borne directly by the Fund such as an increase in capital gain
dividends or in ordinary income dividends of accrued market discount.
Additional Information
Net Asset Value. Both Adjustable Rate and Intermediate Government Bond
determine net asset value of each class of its shares once daily as of the
close of business on the NYSE on each day during which the NYSE is open for
trading based on prices at the time of closing. The NYSE generally closes at
4:00 p.m., Eastern time. Net asset value is computed by dividing the market
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.
Stockholder Services. Adjustable Rate offers a number of stockholder
services and investment plans designed to facilitate investment in shares of
the Fund. For a description of these services, see "Shareholder Services" in
the Adjustable Rate Prospectus.
Custodian. The Bank of New York acts as custodian of the cash and
securities of Adjustable Rate. The principal business address of The Bank of
New York is 90 Washington Street, 12th Floor, New York, New York 10286. It is
presently anticipated that The Bank of New York will serve as the custodian of
the Combined Fund. State Street Bank and Trust Company acts as custodian of
Intermediate Government Bond. The principal business address of State Street
Bank and Trust Company is P.O. Box 351, Boston, Massachusetts 02101.
Transfer Agent, Dividend Disbursing Agent and Stockholder Servicing
Agent. Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, an affiliate of MLIM, serves as the transfer agent,
dividend disbursing agent and stockholder servicing agent with respect to each
Fund (the "Transfer Agent"), at the same fee schedule, pursuant to separate
agreements with each of the Funds. For the fiscal year ended May 31, 1999,
Adjustable Rate paid the Transfer Agent fees totaling $108,176; for the fiscal
year ended October 31, 1999, Intermediate Government Bond Fund paid the
Transfer Agent fees totaling $65,344.
Capital Stock. Intermediate Government Bond has an authorized capital of
an indefinite number of shares of beneficial interest, par value $.10 per
share, divided into four classes, designated Class A, Class B, Class C and
Class D shares. Adjustable Rate has an authorized capital of 1,000,000,000
shares of common stock, par value $.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D shares. Class A and Class C
each consist of 100,000,000 shares, Class B consists of 600,000,000 shares and
Class D consists of 200,000,000 shares. The rights, preferences and expenses
attributable to the Class A, Class B, Class C and Class D shares of
Intermediate Government Bond are identical in all respects to those of the
Class A, Class B, Class C and Class D shares of Adjustable Rate except as
described in "Comparison of the Funds--Redemption of Shares" and "Comparison
of the Funds--Additional Information--Stockholder Services" above.
Stockholder Inquiries. Stockholder inquiries with respect to Intermediate
Government Bond and Adjustable Rate may be addressed to either Fund by
telephone at (609) 282-2800 or at the address set forth on the cover page of
this Proxy Statement and Prospectus.
THE REORGANIZATION
General
Under the Agreement and Plan (attached hereto as Exhibit I), Adjustable
Rate will acquire substantially all of the assets, and will assume
substantially all of the liabilities, of Intermediate Government Bond, in
exchange solely for an equal aggregate value of shares to be issued by
Adjustable Rate. Upon receipt by Intermediate Government Bond of such shares,
Intermediate Government Bond will distribute the shares to its stockholders as
described below.
Generally, the assets transferred by Intermediate Government Bond to
Adjustable Rate will equal all investments of Intermediate Government Bond
held in its portfolio as of the Valuation Time (as defined in the Agreement
and Plan) and all other assets of Intermediate Government Bond as of such
time.
Intermediate Government Bond will distribute the shares of Adjustable
Rate received by it pro rata to its stockholders in exchange for such
stockholders' proportional interests in Intermediate Government Bond. The
shares of Adjustable Rate received by Intermediate Government Bond
stockholders will be of the same class and have the same aggregate net asset
value as each such stockholder's interest in Intermediate Government Bond as
of the Valuation Time (previously defined as the "Corresponding Shares"). (See
"Terms of the Agreement and Plan--Valuation of Assets and Liabilities" for
information concerning the calculation of net asset value.) The distribution
will be accomplished by opening new accounts on the books of Adjustable Rate
in the names of all stockholders of Intermediate Government Bond, including
stockholders holding Intermediate Government Bond shares in certificate form,
and transferring to each stockholder's account the Corresponding Shares of
Adjustable Rate representing such stockholder's interest previously credited
to the account of Intermediate Government Bond. Stockholders holding
Intermediate Government Bond shares in certificate form may receive
certificates representing the Corresponding Shares of Adjustable Rate credited
to their account in respect of such Intermediate Government Bond shares by
sending the certificates to the Transfer Agent accompanied by a written
request for such exchange.
Since the Corresponding Shares of Adjustable Rate will be issued at net
asset value and the shares of Intermediate Government Bond will be valued at
net asset value for the purposes of the exchange by the stockholders of
Intermediate Government Bond of such shares for the Corresponding Shares, the
holders of shares of Intermediate Government Bond will not be diluted as a
result of the Reorganization. However, as a result of the Reorganization, a
stockholder of Intermediate Government Bond or Adjustable Rate would hold a
reduced percentage of ownership in the Combined Fund than he or she held in
Intermediate Government Bond or Adjustable Rate prior to the Reorganization.
Procedure
On June 6, 2000, the Board of Trustees of Intermediate Government Bond,
including all of the Directors who are not "interested persons," as defined by
the Investment Company Act, approved the Agreement and Plan and the submission
of such Agreement and Plan to Intermediate Government Bond stockholders for
approval. The Board of Directors of Adjustable Rate, including all of the
Directors who are not interested persons, also approved the Agreement and Plan
on June 6, 2000.
If the stockholders of Intermediate Government Bond approve the
Reorganization at the Meeting, all required regulatory approvals are obtained,
the stockholders of Adjustable Rate approve the change in the investment
objective of Adjustable Rate and certain conditions are either met or waived,
it is presently anticipated that the Reorganization will take place during the
fourth calendar quarter of 2000.
The Board of Trustees of Intermediate Government Bond recommends that
Intermediate Government Bond stockholders approve the Agreement and Plan.
Terms of the Agreement and Plan
The following is a summary of the significant terms of the Agreement and
Plan. This summary is qualified in its entirety by reference to the Agreement
and Plan, attached hereto as Exhibit I.
Valuation of Assets and Liabilities. The respective assets of
Intermediate Government Bond and Adjustable Rate will be valued as of the
Valuation Time. The assets in each Fund will be valued according to the
procedures set forth under "Your Account--How Shares are Priced" in the
Adjustable Rate Prospectus. Purchase orders for Intermediate Government Bond
shares which have not been confirmed as of the Valuation Time will be treated
as assets of Intermediate Government Bond for purposes of the Reorganization;
redemption requests with respect to Intermediate Government Bond shares which
have not settled as of the Valuation Time will be treated as liabilities of
Intermediate Government Bond for purposes of the Reorganization.
Distribution of Adjustable Rate Shares. On the next full business day
following the Valuation Time (the "Exchange Date"), Adjustable Rate will issue
to Intermediate Government Bond a number of Corresponding Shares the aggregate
net asset value of which will equal the aggregate net asset value of shares of
Intermediate Government Bond as of the Valuation Time. Each holder of
Intermediate Government Bond shares will receive, in exchange for his or her
proportionate interest in Intermediate Government Bond, Corresponding Shares
of Adjustable Rate of the same class and having the same aggregate net asset
value as the Intermediate Government Bond shares held by such stockholder as
of the Valuation Time.
Expenses. Each Fund will bear all expenses attributable solely to the
conduct of its own business. Such expenses will be deducted from the assets of
that Fund prior to the consummation of the Reorganization. Adjustable Rate
shall pay, subsequent to the Exchange Date, all expenses incurred in
connection with the Reorganization, including, but not limited, to all costs
related to the preparation of the Agreement and Plan, the preparation and
distribution of the N-14 Registration Statement (including this Proxy
Statement and Prospectus), the cost of preparing and filing the ruling request
with the Internal Revenue Service, other filing fees, legal and accounting
fees, printing costs, portfolio transfer taxes (if any), and any similar
expenses incurred in connection with the Reorganization.
As of the date of this Memorandum, the total expenses associated with the
Reorganization are expected to be approximately $241,000.
Required Approvals. Under Intermediate Government Bond's Declaration of
Trust (as amended to date) and relevant Massachusetts law, approval of the
Agreement and Plan requires the affirmative vote of Intermediate Government
Bond Fund stockholders representing two-thirds of the outstanding shares
entitled to be cast thereon.
Deregistration and Dissolution. Following the transfer of the assets and
liabilities of Intermediate Government Bond to Adjustable Rate and the
distribution of Corresponding Shares of Adjustable Rate to Intermediate
Government Bond stockholders, Intermediate Government Bond will terminate its
registration under the Investment Company Act and its organization under
Massachusetts law and will withdraw its authority to do business in any state
where it is required to do so.
Amendments and Conditions. The Agreement and Plan may be amended at any
time prior to the Exchange Date with respect to any of the terms therein. The
obligations of Intermediate Government Bond and Adjustable Rate pursuant to
the Agreement and Plan are subject to various conditions, including the
approval by Adjustable Rate stockholders of certain amendments to the
Adjustable Rate investment objective and policies, a registration statement on
Form N-14 being declared effective by the Commission, approval of the
Reorganization by Intermediate Government Bond stockholders, a favorable IRS
ruling or an opinion of counsel being received as to tax matters, an opinion
of counsel being received as to securities matters and the continuing accuracy
of various representations and warranties of Intermediate Government Bond and
Adjustable Rate being confirmed by the respective parties.
Termination, Postponement and Waivers. The Agreement and Plan may be
terminated, and the Reorganization abandoned at any time, whether before or
after adoption thereof by the Intermediate Government Bond stockholders, prior
to the Exchange Date, or the Exchange Date may be postponed: (i) by mutual
consent of the Board of Trustees of Intermediate Government Bond and the Board
of Directors of Adjustable Rate; (ii) by the Board of Trustees of Intermediate
Government Bond if any condition to Intermediate Government Bond's obligations
has not been fulfilled or waived by such Board; or (iii) by the Board of
Directors of Adjustable Rate if any condition to Adjustable Rate's obligations
has not been fulfilled or waived by such Board.
Potential Benefits to Stockholders as a Result of the Reorganization
MLIM and the Board of Trustees of Intermediate Government Bond have
determined that stockholders are likely to benefit from the Reorganization.
First, following the Reorganization, Intermediate Government Bond stockholders
will remain invested in an open-end fund that has investment objectives and
policies similar, though not identical, to that of Intermediate Government
Bond. In addition, Intermediate Government Bond stockholders are likely to
experience certain additional benefits, including lower expenses per share and
economies of scale. See "Comparison of the Funds--Redemption of Shares" and
"--Additional Information--Stockholder Services."
Specifically, after the Reorganization, the total operating expenses of
the Combined Fund as a percentage of net assets, are estimated to be less than
the current operating expenses for Intermediate Government Bond. See
"Summary--Pro Forma Fee Tables." In addition, certain fixed costs, such as
costs of printing stockholder reports and proxy statements, legal expenses,
audit fees, registration fees, mailing costs and other expenses would be
spread across a larger asset base, thereby lowering the expense ratio borne by
Intermediate Government Bond stockholders. To illustrate the potential
economies of scale for Intermediate Government Bond, on April 28, 2000, the
total annual operating expense ratio (excluding class specific distribution
and account maintenance fees) for Intermediate Government Bond was 0.87%
(based on fund net assets of approximately $76.6 million and without giving
effect to any fee waiver or expense reimbursement) and for Adjustable Rate,
after repricing, (excluding class specific distribution and account
maintenance fees) was 0.89% (based on fund net assets of approximately $81.5
million). If the Reorganization had taken place on that date, the total annual
operating expense ratio (excluding class specific distribution and account
maintenance fees) for the Combined Fund would have been 0.70% (based on fund
net assets of approximately $158.2 million). Following the Reorganization,
MLIM intends to voluntarily waive a portion of the management fee due from the
Combined Fund to limit the total annual operating expense ratio (excluding
class specific distribution and account maintenance fees) of the Combined Fund
to 0.65%. MLIM may reduce or discontinue this waiver at any time without
notice.
The following table sets forth (i) the net assets of Intermediate
Government Bond as of the last three fiscal year ends and as of April 28, 2000
and (ii) the net assets of Adjustable Rate as of the last three fiscal year
ends and as of April 28, 2000.
Net Assets for the Dates Indicated
----------------------------------
Intermediate
Adjustable Rate Net Assets Government Bond Net Assets
--------------- ---------- --------------- ----------
As of April 28, 2000 $81,453,092 As of April 28, 2000 $76,622,847
As of May 31, 1999 $89,486,012 As of October 31, 1999 $92,907,008
As of May 31, 1998 $109,791,670 As of October 31, 1998 $80,961,586
As of May 31, 1997 $124,907,786 As of October 31, 1997 $30,105,790
As of May 31, 1996 $153,545,830 As of October 31, 1996 $47,281,220
As of May 31, 1995 $221,080,542 As of October 31, 1995 $65,138,719
MLIM believes that the economies of scale that may be realized as a
result of the Reorganization would be beneficial to Intermediate Government
Bond stockholders.
Based on the foregoing, the Board of Trustees of Intermediate Government
Bond concluded that the Reorganization presents no significant risks or costs
(including legal, accounting and administrative costs) that would outweigh the
benefits discussed above. In approving the Reorganization, the Board of
Trustees of Intermediate Government Bond and the Board of Directors of
Adjustable Rate determined that the interests of existing stockholders of that
Fund would not be diluted as a result of the Reorganization.
Tax Consequences of the Reorganization
General. The Reorganization has been structured with the intention that
it qualify for Federal income tax purposes as a tax-free reorganization under
Section 368 (a) (1) (C) of the Internal Revenue Code of 1986, as amended (the
"Code"). Intermediate Government Bond and Adjustable Rate have elected and
qualified for the special tax treatment afforded "regulated investment
companies" under the Code, and Adjustable Rate intends to continue to so
qualify after the Reorganization. Intermediate Government Bond and Adjustable
Rate have jointly requested a private letter ruling from the IRS to the effect
that for Federal income tax purposes: (i) the transfer of substantially all of
the assets of Intermediate Government Bond to Adjustable Rate in exchange
solely for shares of Adjustable Rate as provided in the Agreement and Plan
will constitute a reorganization within the meaning of Section 368(a)(1)(C) of
the Code, and Intermediate Government Bond and Adjustable Rate will each be
deemed to be a "party" to the Reorganization within the meaning of Section
368(b) of the Code; (ii) in accordance with Section 361(a) of the Code, no
gain or loss will be recognized to Intermediate Government Bond as a result of
the asset transfer solely in exchange for Adjustable Rate shares or on the
distribution of the Adjustable Rate stock to Intermediate Government Bond
stockholders under Section 361(c)(1) of the Code; (iii) under Section 1032 of
the Code, no gain or loss will be recognized to Adjustable Rate on the receipt
of assets of Intermediate Government Bond in exchange for Adjustable Rate
shares; (iv) in accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized to the stockholders of Intermediate Government Bond on the
receipt of Corresponding Shares of Adjustable Rate in exchange for their
shares of Intermediate Government Bond; (v) in accordance with Section 362(b)
of the Code, the tax basis of the Intermediate Government Bond assets in the
hands of Adjustable Rate will be the same as the tax basis of such assets in
the hands of Intermediate Government Bond immediately prior to the
consummation of the Reorganization; (vi) in accordance with Section 358 of the
Code, immediately after the Reorganization, the tax basis of the Corresponding
Shares of Adjustable Rate received by the stockholders of Intermediate
Government Bond in the Reorganization will be equal, to the tax basis of the
shares of Intermediate Government Bond surrendered in exchange; (vii) in
accordance with Section 1223 of the Code, a stockholder's holding period for
the Corresponding Shares of Adjustable Rate will be determined by including
the period for which such stockholder held the shares of Intermediate
Government Bond exchanged therefor, provided, that such Intermediate
Government Bond shares were held as a capital asset; (viii) in accordance with
Section 1223 of the Code, Adjustable Rate's holding period with respect to the
Intermediate Government Bond assets transferred will include the period for
which such assets were held by Intermediate Government Bond; and (ix) the
taxable year of Intermediate Government Bond will end on the effective date of
the Reorganization, and pursuant to Section 381(a) of the Code and regulations
thereunder, Adjustable Rate will succeed to and take into account certain tax
attributes of Intermediate Government Bond, such as earnings and profits,
capital loss carryovers and method of accounting.
Under Section 381(a) of the Code, Adjustable Rate will succeed to and
take into account certain tax attributes of Intermediate Government Bond
including, but not limited to, earnings and profits, any net operating loss
carryovers, any capital loss carryovers and method of accounting. The Code,
however, contains special limitations with regard to the use of net operating
losses, capital losses and other similar items in the context of certain
reorganizations, including a tax-free reorganizations pursuant to Section
368(a)(1)(C) of the Code, which could reduce the benefit of these attributes
to Adjustable Rate. Adjustable Rate and Intermediate Government Bond have
significant net realized capital losses. After the Reorganization,
Intermediate Government Bond stockholders may benefit from the ability of
Adjustable Rate to offset these capital losses against its realized capital
gains, if any, subject to certain limitations. As a result of the
Reorganization, however, the benefit of offsetting these capital losses may be
diluted for stockholders of Adjustable Rate.
Stockholders should consult their tax advisers regarding the effect of
the Reorganization in light of their individual circumstances. As the
foregoing relates only to Federal income tax consequences, stockholders also
should consult their tax advisers as to the foreign, state and local tax
consequences of the Reorganization.
Status as a Regulated Investment Company. Both Intermediate Government
Bond and Adjustable Rate have elected and qualified to be taxed as regulated
investment companies under Sections 851-855 of the Code, and after the
Reorganization, Adjustable Rate intends to continue to operate so as to
qualify as a regulated investment company. Following the liquidation and
dissolution of Intermediate Government Bond and distribution of shares of
Adjustable to Intermediate Government Bond stockholders, Intermediate
Government Bond will terminate its registration under the Investment Company
Act and its organization under Massachusetts law.
Appraisal Rights
Intermediate Government Bond is a Massachusetts business trust. As
described in more detail below, shareholders may have statutory appraisal
rights for their shares, if the proposed Reorganization is approved by the
shareholders of Intermediate Government Bond at the Meeting and effected by
Intermediate Government Bond. In order for a shareholder to exercise his or
her statutory rights, the shareholder must (1) file with Intermediate
Government Bond before the taking of the vote on the approval of the Agreement
and Plan, a written objection to the proposed Reorganization stating that he
or she intends to demand payment for his or her shares if the Reorganization
takes place, (2) not vote in favor of the Agreement and Plan and (3) demand
payment for his or her shares and an appraisal of the value thereof in writing
from Adjustable Rate within twenty days after the date of mailing to the
shareholder of notice that the Reorganization has become effective. A vote
against the Reorganization or the execution of a proxy directing such a vote
will not satisfy the requirements of those provisions. A failure to vote
against the Reorganization will not constitute a waiver of such rights.
Intermediate Government Bond takes the position that, if available, this
statutory right of appraisal may be exercised only by stockholders of record.
Intermediate Government Bond and any such stockholders shall in such
cases have the rights and duties and shall follow the procedure set forth in
section 88 to 98 inclusive, of chapter 156B of the General Laws of
Massachusetts. In the event that any stockholder elects to exercise his or her
statutory right of appraisal under Massachusetts law, it is the present
intention of Adjustable Rate to petition a court of competent jurisdiction to
determine whether such right of appraisal has been superseded by the
provisions of Rule 22c-1 under the Investment Company Act, which generally
requires mutual funds to redeem their shares at prices based upon the then
current net asset value of such shares. In such event, a dissenting
stockholder may not receive any payment until disposition of any such court
proceeding.
For federal income tax purposes, dissenting stockholders obtaining
payment for their shares will recognize gain or loss measured by the
difference between any such payment and the tax basis for their shares.
Stockholders are advised to consult their personal tax advisers as to the tax
consequences of dissenting.
Capitalization
The following table sets forth as of April 28, 2000: (i) the
capitalization of Intermediate Government Bond, (ii) the capitalization of
Adjustable Rate and (iii) the capitalization of the Combined Fund as adjusted
to give effect to the Reorganization.
Pro Forma Capitalization of Adjustable Rate, Intermediate Government Bond and
-----------------------------------------------------------------------------
Combined Fund as of April 28, 2000
----------------------------------
Adjustable Rate
---------------
Class A Class B Class C Class D
------- ------- ------- -------
Total Net Assets: $1,080,974 $56,219,996 $12,638,505 $11,513,617
Shares Outstanding: 114,086 5,952,790 1,338,201 1,219,620
Net Asset Value
Per Share: $9.48 $9.44 $9.44 $9.44
Intermediate Government Bond
----------------------------
Class A Class B Class C Class D
------- ------- ------- -------
Total Net Assets: $25,273,025 $25,305,016 $1,915,862 $24,250,294
Shares Outstanding: 2,742,892 2,746,464 208,088 2,632,241
Net Asset Value
Per Share: $9.21 $9.21 $9.21 $9.21
Combined Fund*
--------------
Class A Class B Class C Class D
------- ------- ------- -------
Total Net Assets: $26,353,999 $81,525,012 $14,554,367 $35,763,911
Shares Outstanding: 2,779,958 8,636,124 1,541,776 3,788,550
Net Asset Value
Per Share: $9.48 $9.44 $9.44 $9.44
---------
* Total Net Assets and Net Asset Value Per Share include the aggregate
value of the net assets of Intermediate Government Bond that would have
been transferred to Adjustable Rate had the Reorganization been
consummated on April 28, 2000. The data does not take into account
expenses incurred in connection with the Reorganization or the actual
number of shares that would have been issued. No assurance can be given
as to how many shares of Adjustable Rate the Intermediate Government Bond
stockholders will receive on the date the Reorganization takes place, and
the foregoing should not be relied upon to reflect the number of shares
of Adjustable Rate that actually will be received by Intermediate
Government Bond stockholders on or after such date.
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
Date, Time and Place of Meeting
The Meeting will be held on October 17, 2000, at the offices of Merrill
Lynch Investment Managers, L.P., 800 Scudders Mill Road, Plainsboro, New
Jersey at .m., Eastern time.
Solicitation, Revocation and Use of Proxies
A stockholder executing and returning a proxy has the power to revoke it
at any time prior to its exercise by executing a superseding proxy or by
submitting a notice of revocation to the Secretary of Intermediate Government
Bond. Although mere attendance at the Meeting will not revoke a proxy, a
stockholder present at the Meeting may withdraw his proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated on a properly
executed proxy, such shares will be voted "FOR" approval of the Agreement and
Plan.
It is not anticipated that any matters other than the adoption of the
Agreement and Plan will be brought before the Meeting. If, however, any other
business properly is brought before the Meeting, proxies will be voted in
accordance with the judgment of the persons designated on such proxies.
Record Date and Outstanding Shares
Only holders of record of shares of Intermediate Government Bond at the
close of business on August 23, 2000 (the "Record Date") are entitled to vote
at the Meeting or any adjournment thereof. At the close of business on the
Record Date, there were ________________ shares of beneficial interest of
Intermediate Government Bond issued and outstanding and entitled to vote.
Security Ownership of Certain Beneficial Owners and Management of Intermediate
Government Bond and Adjustable Rate
To the knowledge of Intermediate Government Bond, no person or entity
owned beneficially or of record 5% or more of the shares of Intermediate
Government Bond outstanding on the Record Date.
At the Record Date, the Trustees and officers of Intermediate Government
Bond as a group (24 persons) owned an aggregate of approximately % of the
outstanding shares of Intermediate Government Bond and owned an aggregate of
less than 1% of the outstanding shares of common stock of ML & Co.
To the knowledge of Adjustable Rate, no person or entity owned
beneficially or of record 5% or more of the shares of Adjustable Rate
outstanding on the Record Date.
At the Record Date, the Directors and officers of Adjustable Rate as a
group (13 persons) owned an aggregate of less than 1% of the outstanding
shares of Adjustable Rate and owned less than 1% of the outstanding shares of
common stock of ML & Co.
Voting Rights and Required Vote
For purposes of this Proxy Statement and Prospectus, each share of each
class of Intermediate Government Bond is entitled to one vote. Approval of the
Agreement and Plan requires the affirmative vote of Intermediate Government
Bond stockholders representing two-thirds of the outstanding shares entitled
to vote present in person or by proxy, with all shares voting as a single
class. See "Agreement Plan of Reorganization--Appraisal Rights" and Exhibit
II--Sections 86 through 98 of Chapter 156B of The Massachusetts General Laws
(the Massachusetts Business Corporation Law) for a discussion of dissenters'
rights under Massachusetts Law.
A quorum for purposes of the Meeting consists of one-third of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the
time scheduled for the Meeting, a quorum of Intermediate Government Bond's
stockholders is not present or if a quorum is present but sufficient votes in
favor of the Agreement and Plan are not received from the stockholders of
Intermediate Government Bond, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies
from stockholders. Any such adjournment will require the affirmative vote of a
majority of the shares of Intermediate Government Bond present in person or by
proxy and entitled to vote at the session of the Meeting to be adjourned. The
persons named as proxies will vote in favor of any such adjournment if they
determine that adjournment and additional solicitation are reasonable and in
the interests of the stockholders of Intermediate Government Bond.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by Adjustable Rate. Adjustable Rate will reimburse banks, brokers and
others for their reasonable expenses in forwarding proxy solicitation
materials to the beneficial owners of shares of Intermediate Government Bond
and will reimburse certain persons that Intermediate Government Bond may
employ for their reasonable expenses in assisting in the solicitation of
proxies from such beneficial owners of shares of Intermediate Government Bond.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview
by officers of Intermediate Government Bond.
Broker-dealer firms, including Merrill Lynch, holding shares of
Intermediate Government Bond in "street name" for the benefit of their
customers and clients will request the instructions of such customers and
clients on how to vote their shares before the Meeting. Broker-dealer firms,
including Merrill Lynch, will not be permitted to vote without instructions
with respect to the approval of the Agreement and Plan. Properly executed
proxies that are returned but that are marked "abstain" or with respect to
which a broker-dealer has received no instructions and therefore has declined
to vote on the proposal ("broker non-votes") will be counted as present for
the purposes of determining a quorum. However, abstentions and broker
non-votes will have the same effect as a vote against approval of the
Agreement and Plan.
This Proxy Statement and Prospectus does not contain all of the
information set forth in the registration statements and the exhibits relating
thereto, which Intermediate Government Bond and Adjustable Rate, respectively,
have filed with the Commission under the Securities Act and the Investment
Company Act, to which reference is hereby made.
Intermediate Government Bond and Adjustable Rate both file reports and
other information with the Commission. Reports, proxy statements, registration
statements and other information filed by Intermediate Government Bond and
Adjustable Rate can be inspected and copied at the public reference facilities
of the Commission in Washington, D.C. and at the New York Regional Office of
the Commission at Seven World Trade Center, New York, New York 10048. Call
202-942-8090 for information on the operation of the public reference room.
Copies of materials, other materials incorporated herein by reference and
other information regarding the funds also can be obtained on the Commission's
Internet site at http://www.sec.gov and copies may be obtained upon payment of
a duplicating fee, by electronic request at the following e-mail address:
[email protected] or by mail from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
LEGAL PROCEEDINGS
There are no material legal proceedings to which Intermediate Government
Bond or Adjustable Rate is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be
passed upon for Adjustable Rate by Brown & Wood LLP, One World Trade Center,
New York, New York 10048 and for Intermediate Government Bond by Clifford
Chance Rogers & Wells LLP, 200 Park Avenue, New York, New York 10166.
EXPERTS
The financial highlights of Intermediate Government Bond and Adjustable
Rate included in this Proxy Statement and Prospectus have been so included in
reliance on the reports of [(" ")] independent auditors, given on their
authority as experts in auditing and accounting. The principal business
address of [ ] is [ ], [ ]. _______ will serve as the independent auditors for
the Combined Fund after the Reorganization.
STOCKHOLDER PROPOSALS
A stockholder proposal intended to be presented at any subsequent meeting
of stockholders of Intermediate Government Bond must be received by
Intermediate Government Bond in a reasonable time before Intermediate
Government Bond begins to print and mail the proxy solicitation materials to
be utilized in connection with such meeting in order to be considered in
Intermediate Government Bond's proxy statement and form of proxy relating to
the meeting.
By Order of the Board of Trustees,
Phillip S. Gillespie
Secretary, Merrill Lynch Intermediate
Government Bond Fund
<PAGE>
EXHIBIT I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of the __________ day of , 2000, by and between Merrill Lynch Adjustable Rate
Securities Fund, Inc., a Maryland corporation ("Adjustable Rate"), and Merrill
Lynch Intermediate Government Bond Fund, a Massachusetts business trust
("Intermediate Government Bond" and, together with Adjustable Rate, the
"Funds").
PLAN OF REORGANIZATION
The reorganization will comprise the acquisition by Adjustable Rate of
substantially all of the assets, and the assumption of substantially all of
the liabilities, of Intermediate Government Bond in exchange solely for an
equal aggregate value of newly issued shares, with a par value of $.10 per
share, of Adjustable Rate and the subsequent distribution of Corresponding
Shares (defined below) of Adjustable Rate to the shareholders of Intermediate
Government Bond in exchange for their shares of beneficial interest, par value
$.10 per share, of Intermediate Government Bond, in liquidation of
Intermediate Government Bond, all upon and subject to the terms hereinafter
set forth (the "Reorganization").
In the course of the Reorganization, shares of Adjustable Rate will be
distributed to Intermediate Government Bond shareholders as follows: each
holder of Intermediate Government Bond shares will be entitled to receive the
same class of shares of Adjustable Rate (i.e., Class A, Class B, Class C or
Class D) (the "Corresponding Shares") as he or she held in Intermediate
Government Bond immediately prior to the Reorganization. The same or lower
distribution fees, account maintenance fees and sales charges (including
contingent deferred sales charges), if any, shall apply to the Corresponding
Shares as applied to shares of Intermediate Government Bond immediately prior
to the Reorganization. The aggregate net asset value of the Corresponding
Shares of Adjustable Rate to be received by each shareholder of Intermediate
Government Bond will equal the aggregate net asset value of the Intermediate
Government Bond shares owned by such shareholder on the Exchange Date (defined
below). In consideration therefor, on the Exchange Date, Adjustable Rate shall
acquire substantially all of Intermediate Government Bond's assets and assume
substantially all of Intermediate Government Bond's obligations and
liabilities then existing, whether absolute, accrued, contingent or otherwise.
It is intended that the Reorganization described in this Plan shall be a
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
As promptly as practicable after the consummation of the Reorganization,
Intermediate Government Bond shall be dissolved in accordance with the laws of
the Commonwealth of Massachusetts and will terminate its registration under
the Investment Company Act of 1940, as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, Adjustable Rate and Intermediate Government Bond hereby
agree as follows:
1. Representations and Warranties of Adjustable Rate.
Adjustable Rate represents and warrants to, and agrees with, Intermediate
Government Bond that:
(a) Adjustable Rate is a corporation duly organized, validly existing and
in good standing in conformity with the laws of the State of Maryland, and has
the power to own all of its assets and to carry out this Agreement. Adjustable
Rate has all necessary Federal, state and local authorizations to carry on its
business as it is now being conducted and to carry out this Agreement.
(b) Adjustable Rate is duly registered under the 1940 Act as a
diversified, open-end management investment company (File No. 811-6304), and
such registration has not been revoked or rescinded and is in full force and
effect. Adjustable Rate has elected and qualified for the special tax
treatment afforded regulated investment companies ("RICs") under Sections
851-855 of the Code at all times since its inception and intends to continue
to so qualify until consummation of the Reorganization and thereafter.
(c) Intermediate Government Bond has been furnished with a statement of
assets and liabilities and a schedule of investments of Adjustable Rate, each
as of May 31, 2000, said financial statements having been audited by [ ],
independent public accountants. An unaudited statement of assets and
liabilities of Adjustable Rate and an unaudited schedule of investments of
Adjustable Rate, each as of the Valuation Time (defined below), will be
furnished to Intermediate Government Bond at or prior to the Exchange Date for
the purpose of determining the number of shares of Adjustable Rate to be
issued pursuant to Section 4 of this Agreement; and each will fairly present
the financial position of Adjustable Rate as of the Valuation Time in
conformity with generally accepted accounting principles applied on a
consistent basis.
(d) Intermediate Government Bond has been furnished with Adjustable
Rate's Annual Report to Stockholders for the year ended May 31, 2000 and the
financial statements appearing therein fairly present the financial position
of Adjustable Rate as of the dates indicated in conformity with generally
accepted accounting principles applied on a consistent basis.
(e) Intermediate Government Bond has been furnished with the prospectus
and statement of additional information of Adjustable Rate, each dated [June ,
2000], and said prospectus and statement of additional information do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) Adjustable Rate has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Directors, and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Adjustable Rate, threatened against it which
assert liability on the part of Adjustable Rate or which materially affect its
financial condition or its ability to consummate the Reorganization.
Adjustable Rate is not charged with or, to the best of its knowledge,
threatened with any violation or investigation of any possible violation of
any provisions of any Federal, state or local law or regulation or
administrative ruling relating to any aspect of its business.
(h) Adjustable Rate is not a party to or obligated under any provision of
its Articles of Incorporation, or its by-laws, or any contract or other
commitment or obligation, and is not subject to any order or decree which
would be violated by its execution of or performance under this Agreement.
(i) There are no material contracts outstanding to which Adjustable Rate
is a party that have not been disclosed in the N-14 Registration Statement (as
defined in subsection (l) below) or will not otherwise be disclosed to
Intermediate Government Bond prior to the Valuation Time.
(j) Adjustable Rate has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of assets
and liabilities referred to above, those incurred in the ordinary course of
its business as an investment company since the date of Adjustable Rate's most
recent annual or semi-annual report to stockholders; and those incurred in
connection with the Reorganization. As of the Valuation Time, Adjustable Rate
will advise Intermediate Government Bond in writing of all known liabilities,
contingent or otherwise, whether or not incurred in the ordinary course of
business, existing or accrued as of such time.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Adjustable Rate of
the Reorganization, except such as may be required under the Securities Act of
1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act") and the 1940 Act or state securities laws (which term
as used herein shall include the laws of the District of Columbia and Puerto
Rico).
(l) The registration statement filed by Adjustable Rate on Form N-14
relating to the shares of Adjustable Rate to be issued pursuant to this
Agreement which includes the proxy statement of Intermediate Government Bond
and the prospectus of Adjustable Rate with respect to the transaction
contemplated herein, and any supplement, or amendment thereto or to the
documents therein (as amended, the "N-14 Registration Statement"), on its
effective date, at the time of the stockholders' meeting referred to in
Section 6(a) of this Agreement and at the Exchange Date, insofar as it relates
to Adjustable Rate (i) complied or will comply in all material respects with
the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules
and regulations thereunder and (ii) did not or will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
the prospectus included therein did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations
and warranties in this subsection shall apply only to statements in or
omissions from the N-14 Registration Statement made in reliance upon and in
conformity with information furnished by Adjustable Rate for use in the N-14
Registration Statement as provided in Section 6(e) of this Agreement.
(m) Adjustable Rate is authorized to issue 1,000,000,000 shares of common
stock, par value $.10 per share, divided into four classes, designated Class
A, Class B, Class C and Class D Common Stock. Class A and Class C each consist
of 100,000,000 shares, Class B consists of 600,000,000 shares and Class D
consists of 200,000,000 shares; each outstanding share is fully paid and
non-assessable and has full voting rights.
(n) Adjustable Rate shares to be issued to Intermediate Government Bond
pursuant to this Agreement will have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be legally and validly issued and
will be fully paid and nonassessable and will have full voting rights, and no
stockholder of Adjustable Rate will have any preemptive right of subscription
or purchase in respect thereof.
(o) At or prior to the Exchange Date, Adjustable Rate shares to be
transferred to Intermediate Government Bond for distribution to the
shareholders of Intermediate Government Bond on the Exchange Date will be duly
qualified for offering to the public in all states of the United States in
which the sale of shares of Intermediate Government Bond presently are
qualified, and there are a sufficient number of such shares registered under
the 1933 Act and, as may be necessary, with each pertinent state securities
commission to permit the transfers contemplated by this Agreement to be
consummated.
(p) At or prior to the Exchange Date, Adjustable Rate will have obtained
any and all regulatory, Director and stockholder approvals necessary to issue
the shares of Adjustable Rate to Intermediate Government Bond.
2. Representations and Warranties of Intermediate Government Bond.
Intermediate Government Bond represents and warrants to, and agrees with,
Adjustable Rate that:
(a) Intermediate Government Bond is a trust with transferable shares duly
organized, validly existing and in good standing in conformity with the laws
of the Commonwealth of Massachusetts, and has the power to own all of its
assets and to carry out this Agreement. Intermediate Government Bond has all
necessary Federal, state and local authorizations to carry on its business as
it is now being conducted and to carry out this Agreement.
(b) Intermediate Government Bond is duly registered under the 1940 Act as
a diversified, open-end management investment company (File No. 811-4839), and
such registration has not been revoked or rescinded and is in full force and
effect. Intermediate Government Bond has elected and qualified for the special
tax treatment afforded RICs under Sections 851-855 of the Code at all times
since its inception, and intends to continue to so qualify for its taxable
year ending upon liquidation.
(c) As used in this Agreement, the term "Investments" shall mean (i) the
investments of Intermediate Government Bond shown on the schedule of its
investments as of the Valuation Time (as defined in Section 3(c) of this
Agreement) furnished to Adjustable Rate, and (ii) all other assets owned by
Intermediate Government Bond or liabilities incurred as of the Valuation Time.
(d) Intermediate Government Bond has full power and authority to enter
into and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement have been duly authorized by all necessary
action of its Board of Trustees and this Agreement constitutes a valid and
binding contract enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
(e) Adjustable Rate has been furnished with a statement of assets and
liabilities and a schedule of investments of Intermediate Government Bond,
each as of October 31, 1999, said financial statements having been audited by
Deloitte & Touche LLP, independent public accountants. An unaudited statement
of assets and liabilities of Intermediate Government Bond and an unaudited
schedule of investments of Intermediate Government Bond, each as of the
Valuation Time, will be furnished to Adjustable Rate at or prior to the
Exchange Date for the purpose of determining the number of shares of
Adjustable Rate to be issued pursuant to Section 4 of this Agreement; and each
will fairly present the financial position of Intermediate Government Bond as
of the Valuation Time in conformity with generally accepted accounting
principles applied on a consistent basis.
(f) Adjustable Rate has been furnished with Intermediate Government
Bond's Annual Report to Shareholders for the year ended October 31, 1999 and
Semi-Annual Report to Shareholders for the six-month period ended April 30,
2000, and the financial statements appearing therein fairly present the
financial position of Intermediate Government Bond as of the dates indicated,
in conformity with generally accepted accounting principles applied on a
consistent basis.
(g) Adjustable Rate has been furnished with the prospectus and statement
of additional information of Intermediate Government Bond, each dated February
1, 2000, and said prospectus and statement of additional information do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(h) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Intermediate Government Bond, threatened
against it which assert liability on the part of Intermediate Government Bond
or which materially affect its financial condition or its ability to
consummate the Reorganization. Intermediate Government Bond is not charged
with or, to the best of its knowledge, threatened with any violation or
investigation of any possible violation of any provisions of any Federal,
state or local law or regulation or administrative ruling relating to any
aspect of its business.
(i) There are no material contracts outstanding to which Intermediate
Government Bond is a party that have not been disclosed in the N-14
Registration Statement or will not otherwise be disclosed to Adjustable Rate
prior to the Valuation Time.
(j) Intermediate Government Bond is not a party to or obligated under any
provision of its Declaration of Trust, as amended, or its by-laws or any
contract or other commitment or obligation, and is not subject to any order or
decree which would be violated by its execution of or performance under this
Agreement.
(k) Intermediate Government Bond has no known liabilities of a material
amount, contingent or otherwise, other than those shown on its statements of
assets and liabilities referred to above, those incurred in the ordinary
course of its business as an investment company since its most recent annual
or semi-annual report to shareholders and those incurred in connection with
the Reorganization. As of the Valuation Time, Intermediate Government Bond
will advise Adjustable Rate in writing of all known liabilities, contingent or
otherwise, whether or not incurred in the ordinary course of business,
existing or accrued as of such time.
(l) Intermediate Government Bond has filed, or has obtained extensions to
file, all Federal, state and local tax returns which are required to be filed
by it, and has paid or has obtained extensions to pay, all Federal, state and
local taxes shown on said returns to be due and owing and all assessments
received by it, up to and including the taxable year in which the Exchange
Date occurs. All tax liabilities of Intermediate Government Bond have been
adequately provided for on its books, and no tax deficiency or liability of
Intermediate Government Bond has been asserted and no question with respect
thereto has been raised by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid, up to and
including the taxable year in which the Exchange Date occurs.
(m) At both the Valuation Time and the Exchange Date, Intermediate
Government Bond will have full right, power and authority to sell, assign,
transfer and deliver the Investments. At the Exchange Date, subject only to
the delivery of the Investments as contemplated by this Agreement,
Intermediate Government Bond will have good and marketable title to all of the
Investments, and Adjustable Rate will acquire all of the Investments free and
clear of any encumbrances, liens or security interests and without any
restrictions upon the transfer thereof (except those imposed by the Federal or
state securities laws and those imperfections of title or encumbrances as do
not materially detract from the value or use of the Investments or materially
affect title thereto).
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Intermediate
Government Bond of the Reorganization, except such as may be required under
the 1933 Act, the 1934 Act, the 1940 Act or state securities laws.
(o) The N-14 Registration Statement, on its effective date, at the time
of the shareholders' meeting referred to in Section 6(a) of this Agreement and
on the Exchange Date, insofar as it relates to Intermediate Government Bond
(i) complied or will comply in all material respects with the provisions of
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder, and (ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and the prospectus
included therein did not or will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and
warranties in this subsection shall apply only to statements in or omissions
from the N-14 Registration Statement made in reliance upon and in conformity
with information furnished by Intermediate Government Bond for use in the N-14
Registration Statement as provided in Section 6(e) of this Agreement.
(p) Intermediate Government Bond is authorized to issue an indefinite
number of shares of beneficial interest, par value $.10 per share, divided
into four classes, designated Class A, Class B, Class C and Class D shares;
each outstanding share is fully paid and nonassessable and has full voting
rights.
(q) The books and records of Intermediate Government Bond made available
to Adjustable Rate and/or its counsel are substantially true and correct and
contain no material misstatements or omissions with respect to the operations
of Intermediate Government Bond.
(r) Intermediate Government Bond will not sell or otherwise dispose of
any of the shares of Adjustable Rate to be received in the Reorganization,
except in distribution to the shareholders of Intermediate Government Bond.
3. The Reorganization.
(a) Subject to receiving the requisite approval of the shareholders of
Intermediate Government Bond, and to the other terms and conditions contained
herein, Intermediate Government Bond agrees to convey, transfer and deliver to
Adjustable Rate and Adjustable Rate agrees to acquire from Intermediate
Government Bond, on the Exchange Date, all of the Investments (including
interest accrued as of the Valuation Time on debt instruments) of Intermediate
Government Bond, and assume substantially all of the liabilities of
Intermediate Government Bond, in exchange solely for that number of shares of
Adjustable Rate provided in Section 4 of this Agreement. Pursuant to this
Agreement, as soon as practicable on or after the Exchange Date Intermediate
Government Bond will distribute all shares of Adjustable Rate received by it
to its stockholders in exchange for their corresponding Intermediate
Government Bond shares. Such distribution shall be accomplished by the opening
of stockholder accounts on the stock ledger records of Adjustable Rate in the
amounts due the shareholders of Intermediate Government Bond based on their
respective holdings in Intermediate Government Bond as of the Valuation Time.
(b) Intermediate Government Bond will pay or cause to be paid to
Adjustable Rate any interest or dividends it receives on or after the Exchange
Date with respect to the Investments transferred to Intermediate Government
Bond hereunder.
(c) The Valuation Time shall be 4:00 P.M., Eastern time, on ______, 2000,
or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
(d) Adjustable Rate will acquire substantially all of the assets of, and
assume substantially all of the known liabilities of, Intermediate Government
Bond, except that recourse for such liabilities will be limited to the net
assets of Intermediate Government Bond acquired by Adjustable Rate. The known
liabilities of Intermediate Government Bond as of the Valuation Time shall be
confirmed in writing to Adjustable Rate by Intermediate Government Bond
pursuant to Section 2(k) of this Agreement.
(e) Adjustable Rate and Intermediate Government Bond will jointly file
Articles of Transfer with the State Department of Assessments and Taxation of
Maryland and any other such instrument as may be required by the State of
Maryland to effect the transfer of the Investments of Intermediate Government
Bond to Adjustable Rate.
(f) Intermediate Government Bond will be dissolved following the Exchange
Date by filing a Certificate of Termination with the Commonwealth of
Massachusetts.
(g) As promptly as practicable after the liquidation of Intermediate
Government Bond pursuant to the Reorganization, Intermediate Government Bond
shall terminate its registration under the 1940 Act.
4. Issuance and Valuation of Shares of Adjustable Rate in the
Reorganization.
Full shares of Adjustable Rate, and to the extent necessary, fractional
shares of Adjustable Rate, of an aggregate net asset value equal to the net
asset value of the assets of Intermediate Government Bond acquired, determined
as hereinafter provided, reduced by the amount of liabilities of Intermediate
Government Bond assumed by Adjustable Rate, shall be issued by Adjustable Rate
in exchange for such assets of Intermediate Government Bond. The net asset
value of Intermediate Government Bond and Adjustable Rate shall be determined
in accordance with the procedures described in the prospectus of Adjustable
Rate in effect as of the Valuation Time. Such valuation and determination
shall be made by Adjustable Rate in cooperation with Intermediate Government
Bond. Adjustable Rate shall issue its Class A, Class B, Class C and Class D
shares to Intermediate Government Bond in certificates or share deposit
receipts (one in respect of each class) registered in the name of Intermediate
Government Bond. Intermediate Government Bond shall distribute Corresponding
Shares of Adjustable Rate to its stockholders by redelivering such
certificates to Financial Data Services, Inc.
5. Payment of Expenses.
(a) With respect to expenses incurred in connection with the
Reorganization, (i) each Fund shall pay all expenses incurred that are
attributable solely to such Fund and the conduct of its business, and (ii)
Adjustable Rate shall pay, subsequent to the Exchange Date and pro rata
according to each Fund's net assets on the Exchange Date, all expenses
incurred in connection with the Reorganization, including, but not limited to,
all costs related to the preparation and distribution of the N-14 Registration
Statement. Such fees and expenses shall include the cost of preparing and
filing a ruling request with the Internal Revenue Service, legal and
accounting fees, printing costs, filing fees, stock exchange fees, rating
agency fees, portfolio transfer taxes (if any) and any similar expenses
incurred in connection with the Reorganization.
(b) If the Reorganization is not approved, these expenses will be
allocated pro rata between the Funds according to the net asset value of the
shares of each Fund on the date of the shareholder meeting referred to in
Section 6(a) of this Agreement.
(c) If for any reason the Reorganization is not consummated, no party
shall be liable to any other party for any damages resulting therefrom,
including, without limitation, consequential damages.
6. Covenants of Adjustable Rate and Intermediate Government Bond.
(a) Intermediate Government Bond agrees to call a special meeting of the
shareholders of Intermediate Government Bond to be held as soon as is
practicable after the effective date of the N-14 Registration Statement for
the purpose of considering the Reorganization as described in this Agreement,
and it shall be a condition to the obligations of each of the parties hereto
that the holders of two-thirds of the shares of Intermediate Government Bond
issued and outstanding and entitled to vote thereon, shall have approved this
Agreement at such a meeting at or prior to the Valuation Time.
(b) Adjustable Rate and Intermediate Government Bond each covenants to
operate the business of Adjustable Rate and Intermediate Government Bond,
respectively, as presently conducted between the date hereof and the Exchange
Date.
(c) Intermediate Government Bond agrees that following the consummation
of the Reorganization, it will dissolve in accordance with the laws of the
Commonwealth of Massachusetts and any other applicable law, it will not make
any distributions of any Adjustable Rate shares other than to the shareholders
of Intermediate Government Bond and without first paying or adequately
providing for the payment of all of Intermediate Government Bond's liabilities
not assumed by Adjustable Rate, if any, and on and after the Exchange Date it
shall not conduct any business except in connection with its dissolution.
(d) Intermediate Government Bond undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section 8(f) of the 1940
Act for an order declaring that Intermediate Government Bond has ceased to be
a registered investment company.
(e) Adjustable Rate will file the N-14 Registration Statement with the
Securities and Exchange Commission (the "Commission") and will use its best
efforts to provide that the N-14 Registration Statement becomes effective as
promptly as practicable. Adjustable Rate and Intermediate Government Bond
agree to cooperate fully with each other, and each will furnish to the other
the information relating to itself to be set forth in the N-14 Registration
Statement as required by the 1933 Act, the 1934 Act and the 1940 Act, and the
rules and regulations thereunder and the state securities laws.
(f) Adjustable Rate has no plan or intention to sell or otherwise dispose
of the assets of Intermediate Government Bond to be acquired in the
Reorganization, except for dispositions made in the ordinary course of
business.
(g) Intermediate Government Bond and Adjustable Rate each agrees that by
the Exchange Date all of its Federal and other tax returns and reports
required to be filed on or before such date shall have been filed and all
taxes shown as due on said returns either have been paid or adequate liability
reserves have been provided for the payment of such taxes. In connection with
this covenant, the Funds agree to cooperate with each other in filing any tax
return, amended return or claim for refund, determining a liability for taxes
or a right to a refund of taxes or participating in or conducting any audit or
other proceeding in respect of taxes. Adjustable Rate agrees to retain for a
period of ten (10) years following the Exchange Date all returns, schedules
and work papers and all material records or other documents relating to tax
matters of Intermediate Government Bond for its taxable period first ending
after the Exchange Date and for all prior taxable periods. Any information
obtained under this subsection shall be kept confidential except as otherwise
may be necessary in connection with the filing of returns or claims for refund
or in conducting an audit or other proceeding. After the Exchange Date,
Intermediate Government Bond shall prepare, or cause its agents to prepare,
any Federal, state or local tax returns, including any Forms 1099, required to
be filed by Intermediate Government Bond with respect to Intermediate
Government Bond's final taxable year ending with its complete liquidation and
for any prior periods or taxable years and further shall cause such tax
returns and Forms 1099 to be duly filed with the appropriate taxing
authorities. Notwithstanding the aforementioned provisions of this subsection,
any expenses incurred by Intermediate Government Bond (other than for payment
of taxes) in connection with the preparation and filing of said tax returns
and Forms 1099 after the Exchange Date shall be borne by Intermediate
Government Bond to the extent such expenses have been accrued by Intermediate
Government Bond in the ordinary course without regard to the Reorganization;
any excess expenses shall be borne by Merrill Lynch Investment Managers, L.P.
("MLIM") at the time such tax returns and Forms 1099 are prepared.
(h) Intermediate Government Bond agrees to mail to its shareholders of
record entitled to vote at the special meeting of shareholders at which action
is to be considered regarding this Agreement, in sufficient time to comply
with requirements as to notice thereof, a combined Proxy Statement and
Prospectus which complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act,
and the rules and regulations, respectively, thereunder.
(i) Following the consummation of the Reorganization, Adjustable Rate
expects to stay in existence and continue its business as a diversified,
open-end management investment company registered under the 1940 Act.
7. Exchange Date.
(a) Delivery of the assets of Intermediate Government Bond to be
transferred, together with any other Investments, and the Adjustable Rate
shares to be issued, shall be made at the offices of Brown & Wood LLP, One
World Trade Center, New York, New York 10048, at 10:00 A.M. on the next full
business day following the Valuation Time, or at such other place, time and
date agreed to by Intermediate Government Bond and Adjustable Rate, the date
and time upon which such delivery is to take place being referred to herein as
the "Exchange Date." To the extent that any Investments, for any reason, are
not transferable on the Exchange Date, Intermediate Government Bond shall
cause such Investments to be transferred to Adjustable Rate's account with The
Bank of New York at the earliest practicable date thereafter.
(b) Intermediate Government Bond will deliver to Adjustable Rate on the
Exchange Date confirmations or other adequate evidence as to the tax basis of
each of the Investments delivered to Adjustable Rate hereunder, certified by
Deloitte & Touche LLP.
(c) As soon as practicable after the close of business on the Exchange
Date, Intermediate Government Bond shall deliver to Adjustable Rate a list of
the names and addresses of all of the shareholders of record of Intermediate
Government Bond on the Exchange Date and the number of shares of Intermediate
Government Bond owned by each such shareholder, certified to the best of their
knowledge and belief by the transfer agent for Intermediate Government Bond or
by its President.
8. Intermediate Government Bond Conditions.
The obligations of Intermediate Government Bond hereunder shall be
subject to the following conditions:
(a) That the required vote of the stockholders of Adjustable Rate has
been obtained approving the proposal to amend the investment objective and
policies of Adjustable Rate at a special meeting of Adjustable Rate
stockholders called for that purpose at or prior to consummation of the
Reorganization.
(b) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the Board of Trustees of Intermediate Government
Bond and by the affirmative vote of the holders of two-thirds of the shares of
Intermediate Government Bond, issued and outstanding and entitled to vote
thereon, voting together as a single class, and by the Board of Directors of
Adjustable Rate; and that Adjustable Rate shall have delivered to Intermediate
Government Bond a copy of the resolution approving this Agreement adopted by
Adjustable Rate's Board of Directors, certified by the Secretary of Adjustable
Rate.
(c) That Adjustable Rate shall have furnished to Intermediate Government
Bond a statement of Adjustable Rate's assets and liabilities, with values
determined as provided in Section 4 of this Agreement, together with a
schedule of its investments, all as of the Valuation Time, certified on
Adjustable Rate's behalf by its President (or any Vice President) and its
Treasurer, and a certificate signed by Adjustable Rate's President (or any
Vice President) and its Treasurer, dated as of the Exchange Date, certifying
that as of the Valuation Time and as of the Exchange Date there has been no
material adverse change in the financial position of Adjustable Rate since the
date of Adjustable Rate's most recent annual or semi-annual report to
stockholders, other than changes in its portfolio securities since the date of
such report or changes in the market value of its portfolio securities.
(d) That Adjustable Rate shall have furnished to Intermediate Government
Bond a certificate signed by Adjustable Rate's President (or any Vice
President) and its Treasurer, dated as of the Exchange Date, certifying that,
as of the Valuation Time and as of the Exchange Date all representations and
warranties of Adjustable Rate made in this Agreement are true and correct in
all material respects with the same effect as if made at and as of such dates,
and that Adjustable Rate has complied with all of the agreements and satisfied
all of the conditions on its part to be performed or satisfied at or prior to
each of such dates.
(e) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(f) That Intermediate Government Bond shall have received an opinion of
Brown & Wood LLP, as counsel to Adjustable Rate, in form and substance
satisfactory to Intermediate Government Bond and dated the Exchange Date, to
the effect that (i) Adjustable Rate is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland; (ii) the Corresponding Shares of Adjustable Rate to be issued
pursuant to this Agreement are duly authorized and, upon delivery, will be
validly issued and fully paid and nonassessable by Adjustable Rate, and no
stockholder of Adjustable Rate has any preemptive right to subscription or
purchase in respect thereof (pursuant to the Articles of Incorporation or the
by-laws of Adjustable Rate or, to the best of such counsel's knowledge,
otherwise); (iii) this Agreement has been duly authorized, executed and
delivered by Adjustable Rate, and represents a valid and binding contract,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
pertaining to the enforcement of creditors' rights generally and court
decisions with respect thereto; provided, such counsel shall express no
opinion with respect to the application of equitable principles in any
proceeding, whether at law or in equity; (iv) the execution and delivery of
this Agreement does not, and the consummation of the Reorganization will not,
violate any material provisions of Maryland law or the Articles of
Incorporation, the by-laws, or any agreement (known to such counsel) to which
Adjustable Rate is a party or by which Adjustable Rate is bound, except
insofar as the parties have agreed to amend such provision as a condition
precedent to the Reorganization; (v) to the best of such counsel's knowledge,
no consent, approval, authorization or order of any United States federal
court, Maryland state court or governmental authority is required for the
consummation by Adjustable Rate of the Reorganization, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act and the
published rules and regulations of the Commission thereunder and under
Maryland law and such as may be required under state securities laws; (vi) the
N-14 Registration Statement has become effective under the 1933 Act, no stop
order suspending the effectiveness of the N-14 Registration Statement has been
issued and no proceedings for that purpose have been instituted or are pending
or contemplated under the 1933 Act, and the N-14 Registration Statement, and
each amendment or supplement thereto, as of their respective effective dates,
appear on their face to be appropriately responsive in all material respects
to the requirements of the 1933 Act, the 1934 Act and the 1940 Act and the
published rules and regulations of the Commission thereunder; (vii) the
descriptions in the N-14 Registration Statement of statutes, legal and
governmental proceedings and contracts and other documents are accurate and
fairly present the information required to be shown; (viii) such counsel does
not know of any statutes, legal or governmental proceedings or contracts or
other documents related to the Reorganization of a character required to be
described in the N-14 Registration Statement which are not described therein
or, if required to be filed, filed as required; (ix) Adjustable Rate, to the
knowledge of such counsel, is not required to qualify to do business as a
foreign corporation in any jurisdiction except as may be required by state
securities laws, and except where Adjustable Rate has so qualified or the
failure so to qualify would not have a material adverse effect on Adjustable
Rate or its stockholders; (x) such counsel does not have actual knowledge of
any material suit, action or legal or administrative proceeding pending or
threatened against Adjustable Rate, the unfavorable outcome of which would
materially and adversely affect Adjustable Rate; (xi) all corporate actions
required to be taken by Adjustable Rate to authorize this Agreement and to
effect the Reorganization have been duly authorized by all necessary corporate
actions on the part of Adjustable Rate; and (xii) such opinion is solely for
the benefit of Adjustable Rate and Intermediate Government Bond and their
Directors and officers. Such opinion also shall state that (x) while such
counsel cannot make any representation as to the accuracy or completeness of
statements of fact in the N-14 Registration Statement or any amendment or
supplement thereto, nothing has come to their attention that would lead them
to believe that, on the respective effective dates of the N-14 Registration
Statement and any amendment or supplement thereto, (1) the N-14 Registration
Statement or any amendment or supplement thereto contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading;
and (2) the prospectus included in the N-14 Registration Statement contained
any untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (y) such counsel does not
express any opinion or belief as to the financial statements or other
financial or statistical data relating to Adjustable Rate or incorporated by
reference in the N-14 Registration Statement. In giving the opinion set forth
above, Brown & Wood LLP may state that it is relying on certificates of
officers of Adjustable Rate and Intermediate Government Bond with regard to
matters of fact and certain certificates and written statements of
governmental officials with respect to the good standing of Adjustable Rate.
(g) That Intermediate Government Bond shall have received either (a) a
private letter ruling from the Internal Revenue Service or (b) an opinion of
Brown & Wood LLP, to the effect that for Federal income tax purposes (i) the
transfer of substantially all of the Investments of Intermediate Government
Bond to Adjustable Rate in exchange solely for shares of Adjustable Rate as
provided in this Agreement will constitute a reorganization within the meaning
of Section 368(a)(1)(C) of the Code, and Intermediate Government Bond and
Adjustable Rate will each be deemed to be a "party" to the Reorganization
within the meaning of Section 368(b) of the Code; (ii) in accordance with
Section 361(a) of the Code, no gain or loss will be recognized to Intermediate
Government Bond as a result of the asset transfer solely in exchange for
Adjustable Rate shares or on the distribution of the Adjustable Rate stock to
Intermediate Government Bond stockholders under Section 361(c)(1) of the Code;
(iii) under Section 1032 of the Code, no gain or loss will be recognized to
Adjustable Rate on the receipt of assets of Intermediate Government Bond in
exchange for Adjustable Rate shares; (iv) in accordance with Section 354(a)(1)
of the Code, no gain or loss will be recognized to the shareholders of
Intermediate Government Bond on the receipt of Corresponding Shares of
Adjustable Rate in exchange for their shares of Intermediate Government Bond;
(v) in accordance with Section 362(b) of the Code, the tax basis of the
Intermediate Government Bond assets in the hands of Adjustable Rate will be
the same as the tax basis of such assets in the hands of Intermediate
Government Bond immediately prior to the consummation of the Reorganization;
(vi) in accordance with Section 358 of the Code, immediately after the
Reorganization, the tax basis of the Corresponding Shares of Adjustable Rate
received by the stockholders of Intermediate Government Bond in the
Reorganization will be equal to the tax basis of the shares of Intermediate
Government Bond surrendered in exchange; (vii) in accordance with Section 1223
of the Code, a stockholder's holding period for the Corresponding Shares of
Adjustable Rate will be determined by including the period for which such
stockholder held the shares of Intermediate Government Bond exchanged
therefor, provided, that such Intermediate Government Bond shares were held as
a capital asset; (viii) in accordance with Section 1223 of the Code,
Adjustable Rate's holding period with respect to the Intermediate Government
Bond assets transferred will include the period for which such assets were
held by Intermediate Government Bond; and (ix) the taxable year of
Intermediate Government Bond will end on the effective date of the
Reorganization, and pursuant to Section 381(a) of the Code and regulations
thereunder, Adjustable Rate will succeed to and take into account certain tax
attributes of Intermediate Government Bond, such as earnings and profits,
capital loss carryovers and method of accounting.
(h) That all proceedings taken by Adjustable Rate and its counsel in
connection with the Reorganization and all documents incidental thereto shall
be satisfactory in form and substance to Intermediate Government Bond.
(i) That the N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Adjustable Rate, be contemplated by
the Commission.
(j) That Intermediate Government Bond shall have received from Deloitte &
Touche LLP a letter dated within three days prior to the effective date of the
N-14 Registration Statement and a similar letter dated within five days prior
to the Exchange Date, in form and substance satisfactory to Intermediate
Government Bond, to the effect that (i) they are independent public
accountants with respect to Adjustable Rate within the meaning of the 1933 Act
and the applicable published rules and regulations thereunder; (ii) in their
opinion, the financial statements and supplementary information of Adjustable
Rate included or incorporated by reference in the N-14 Registration Statement
and reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder; and (iii) on the basis of limited procedures agreed
upon by Intermediate Government Bond and Adjustable Rate and described in such
letter (but not an examination in accordance with generally accepted auditing
standards) consisting of a reading of any unaudited interim financial
statements and unaudited supplementary information of Adjustable Rate included
in the N-14 Registration Statement, and inquiries of certain officials of
Adjustable Rate responsible for financial and accounting matters, nothing came
to their attention that caused them to believe that (a) such unaudited
financial statements and related unaudited supplementary information do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder, or (b) such unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles, applied
on a basis substantially consistent with that of the audited financial
statements; and (iv) on the basis of limited procedures agreed upon by
Intermediate Government Bond and Adjustable Rate and described in such letter
(but not an examination in accordance with generally accepted auditing
standards), the information relating to Adjustable Rate appearing in the N-14
Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records of
Adjustable Rate or from schedules prepared by officials of Adjustable Rate
having responsibility for financial and reporting matters and such information
is in agreement with such records, schedules or computations made therefrom.
(k) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or
other proceeding shall be instituted or threatened which would materially
affect the financial condition of Adjustable Rate or would prohibit the
Reorganization.
(l) That Intermediate Government Bond shall have received from the
Commission such orders or interpretations as Clifford Chance Rogers & Wells
LLP, as counsel to Intermediate Government Bond, deems reasonably necessary or
desirable under the 1933 Act and the 1940 Act in connection with the
Reorganization, provided, that such counsel shall have requested such orders
as promptly as practicable, and all such orders shall be in full force and
effect.
9. Adjustable Rate Conditions.
The obligations of Adjustable Rate hereunder shall be subject to the
following conditions:
(a) That the required vote of the stockholders of Adjustable Rate has
been obtained approving the proposal to amend the investment objective and
policies of Adjustable Rate at a special meeting of Adjustable Rate
stockholders called for that purpose at or prior to consummation of the
Reorganization.
(b) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the Board of Trustees of Intermediate Government
Bond and by the affirmative vote of the holders of two-thirds of the shares of
Intermediate Government Bond issued and outstanding and entitled to vote
thereon, voting together as a single class; and that Intermediate Government
Bond shall have delivered to Adjustable Rate a copy of the resolution
approving this Agreement adopted by Intermediate Government Bond's Board of
Trustees, and a certificate setting forth the vote Intermediate Government
Bond shareholders obtained, each certified by the Secretary of Intermediate
Government Bond.
(c) That Intermediate Government Bond shall have furnished to Adjustable
Rate a statement of Intermediate Government Bond's assets and liabilities,
with values determined as provided in Section 4 of this Agreement, together
with a schedule of investments with their respective dates of acquisition and
tax costs, all as of the Valuation Time, certified on Intermediate Government
Bond's behalf by its President (or any Vice President) and its Treasurer, and
a certificate signed by Intermediate Government Bond's President (or any Vice
President) and its Treasurer, dated as of the Exchange Date, certifying that
as of the Valuation Time and as of the Exchange Date there has been no
material adverse change in the financial position of Intermediate Government
Bond since the date of Intermediate Government Bond's most recent annual or
semi-annual report to shareholders, other than changes in the Investments
since the date of such report or changes in the market value of the
Investments.
(d) That Intermediate Government Bond shall have furnished to Adjustable
Rate a certificate signed by Intermediate Government Bond's President (or any
Vice President) and its Treasurer, dated the Exchange Date, certifying that as
of the Valuation Time and as of the Exchange Date all representations and
warranties of Intermediate Government Bond made in this Agreement are true and
correct in all material respects with the same effect as if made at and as of
such dates and Intermediate Government Bond has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied at or prior to such dates.
(e) That Intermediate Government Bond shall have delivered to Adjustable
Rate a letter from Deloitte & Touche LLP, dated the Exchange Date, stating
that such firm has performed a limited review of the Federal, state and local
income tax returns of Intermediate Government Bond for the period ended
October 31, 1999 (which returns originally were prepared and filed by
Intermediate Government Bond), and that based on such limited review, nothing
came to their attention which caused them to believe that such returns did not
properly reflect, in all material respects, the Federal, state and local
income taxes of Intermediate Government Bond for the period covered thereby;
and that for the period from November 1, 1999, to and including the Exchange
Date and for any taxable year of Intermediate Government Bond ending upon the
liquidation of Intermediate Government Bond, such firm has performed a limited
review to ascertain the amount of applicable Federal, state and local taxes,
and has determined that either such amount has been paid or reserves have been
established for payment of such taxes, this review to be based on unaudited
financial data; and that based on such limited review, nothing has come to
their attention which caused them to believe that the taxes paid or reserves
set aside for payment of such taxes were not adequate in all material respects
for the satisfaction of Federal, state and local taxes for the period from
November 1, 1999, to and including the Exchange Date and for any taxable year
of Intermediate Government Bond ending upon the liquidation of Intermediate
Government Bond or that Intermediate Government Bond would not continue to
qualify as a RIC for Federal income tax purposes for the tax years in
question.
(f) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(g) That Adjustable Rate shall have received an opinion of Clifford
Chance Rogers & Wells LLP, as counsel to Intermediate Government Bond, in form
satisfactory to Adjustable Rate and dated the Exchange Date, to the effect
that (i) upon consummation of the Reorganization in accordance with the terms
of this Agreement, Intermediate Government Bond will have duly transferred its
assets and liabilities in accordance with this Agreement; (ii) to the best of
such counsel's knowledge, no consent, approval, authorization or order of any
United States federal court or governmental authority is required for the
consummation by Intermediate Government Bond of the Reorganization, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act
and the published rules and regulations of the Commission thereunder and such
as may be required under state securities laws; (iii) the proxy statement of
Intermediate Government Bond contained in the N-14 Registration Statement, and
each amendment or supplement thereto, as of their respective effective dates,
appear on their face to be appropriately responsive in all material respects
to the requirements of the 1933 Act, the 1934 Act and the 1940 Act and the
published rules and regulations of the Commission thereunder insofar as those
requirements relate to information regarding Intermediate Government Bond;
(iv) insofar as those requirements relate to information regarding
Intermediate Government Bond, the descriptions in the proxy statement
contained in the N-14 Registration Statement of statutes, legal and
governmental proceedings and contracts and other documents are accurate and
fairly present the information required to be shown; (v) such counsel does not
know of any statutes, legal or governmental proceedings or contracts or other
documents related to the Reorganization of Intermediate Government Bond of a
character required to be described in the N-14 Registration Statement which
are not described therein or, if required to be filed, filed as required; (vi)
to the knowledge of such counsel, Intermediate Government Bond is not required
to qualify to do business as a foreign corporation in any jurisdiction except
as may be required by state securities laws, and except where it has so
qualified or the failure so to qualify would not have a material adverse
effect on Intermediate Government Bond, or its shareholders; (vii) such
counsel does not have actual knowledge of any material suit, action or legal
or administrative proceeding pending or threatened against Intermediate
Government Bond, the unfavorable outcome of which would materially and
adversely affect Adjustable Rate; and (viii) such opinion is solely for the
benefit of Adjustable Rate and its Directors and officers. Such opinion also
shall state that (x) while such counsel cannot make any representation as to
the accuracy or completeness of statements of fact in the N-14 Registration
Statement or any amendment or supplement thereto, nothing has come to their
attention that would lead them to believe that, on the respective effective
dates of the N-14 Registration Statement and any amendment or supplement
thereto, (1) the N-14 Registration Statement or any amendment or supplement
thereto insofar as it relates to Intermediate Government Bond contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; and (2) the proxy statement and prospectus included in the N-14
Registration Statement insofar as it relates to Intermediate Government Bond
contained any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (y) such counsel
does not express any opinion or belief as to the financial statements or other
financial or statistical data relating to Intermediate Government Bond
contained or incorporated by reference in the N-14 Registration Statement. In
giving the opinion set forth above, Clifford Chance Rogers & Wells LLP may
state that it is relying on certificates of officers of Intermediate
Government Bond with regard to matters of fact and certain certificates and
written statements of governmental officials with respect to the good standing
of Intermediate Government Bond and on the opinion of Bingham Dana LLP as to
matters of Massachusetts law.
(h) That Adjustable Rate shall have received an opinion of Bingham Dana
LLP, as Massachusetts counsel to Intermediate Government Bond, in form and
substance satisfactory to Adjustable Rate and dated the Exchange Date, to the
effect that (i) Intermediate Government Bond is a trust with transferable
shares duly organized, validly existing and in good standing in conformity
with the laws of the Commonwealth of Massachusetts; (ii) this Agreement has
been duly authorized, executed and delivered by Intermediate Government Bond
and represents a valid and binding contract, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement of
creditors' rights generally and court decisions with respect thereto;
provided, such counsel shall express no opinion with respect to the
application of equitable principles in any proceeding, whether at law or in
equity; (iii) the execution and delivery of this Agreement does not, and the
consummation of the Reorganization will not, violate any material provisions
of Massachusetts law, the Declaration of Trust or the by-laws, except insofar
as the parties have agreed to amend such provision as a condition precedent to
the Reorganization; (iv) Intermediate Government Bond has the power to sell,
assign, transfer and deliver the assets transferred by it hereunder and, upon
consummation of the Reorganization in accordance with the terms of this
Agreement, Intermediate Government Bond will have duly transferred such assets
in accordance with this Agreement; (v) to the best of such counsel's
knowledge, no filing or registration with, or consent, approval, authorization
or order of any Massachusetts state court or governmental authority is
required for the consummation by Intermediate Government Bond of the
Reorganization, except such as have been obtained from the Board of Trustees
and shareholders of Intermediate Government Bond and such as may be required
under Massachusetts state securities law; (vi) all actions required to be
taken by Intermediate Government Bond to authorize this Agreement and to
effect the Reorganization have been duly authorized by all necessary actions
on the part of Intermediate Government Bond; and (vii) such opinion is solely
for the benefit of Adjustable Rate and its Directors and officers. In giving
the opinion set forth above, Bingham Dana LLP may state that it is relying on
certificates of officers of Intermediate Government Bond with regard to
matters of fact and certain certificates and written statements of
governmental officials with respect to the valid existence and the good
standing of Intermediate Government Bond.
(i) That Adjustable Rate shall have received a private letter ruling from
the Internal Revenue Service or an opinion of Brown & Wood LLP with respect to
the matters specified in Section 8(f) of this Agreement.
(j) That Adjustable Rate shall have received from Deloitte & Touche LLP a
letter dated within three days prior to the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to
the Exchange Date, in form and substance satisfactory to Adjustable Rate, to
the effect that (i) they are independent public accountants with respect to
Intermediate Government Bond within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder; (ii) in their opinion,
the financial statements and supplementary information of Intermediate
Government Bond included or incorporated by reference in the N-14 Registration
Statement and reported on by them comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder; (iii) on the basis of limited procedures
agreed upon by Intermediate Government Bond and Adjustable Rate and described
in such letter (but not an examination in accordance with generally accepted
auditing standards) consisting of a reading of any unaudited interim financial
statements and unaudited supplementary information of Intermediate Government
Bond included in the N-14 Registration Statement, and inquiries of certain
officials of Intermediate Government Bond responsible for financial and
accounting matters, nothing came to their attention that caused them to
believe that (a) such unaudited financial statements and related unaudited
supplementary information do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder, (b) such unaudited financial statements are
not fairly presented in conformity with generally accepted accounting
principles, applied on a basis substantially consistent with that of the
audited financial statements, or (c) such unaudited supplementary information
is not fairly stated in all material respects in relation to the unaudited
financial statements taken as a whole; and (iv) on the basis of limited
procedures agreed upon by Adjustable Rate and Intermediate Government Bond and
described in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to Intermediate
Government Bond appearing in the N-14 Registration Statement, which
information is expressed in dollars (or percentages derived from such dollars)
(with the exception of performance comparisons, if any), if any, has been
obtained from the accounting records of Intermediate Government Bond or from
schedules prepared by officials of Intermediate Government Bond having
responsibility for financial and reporting matters and such information is in
agreement with such records, schedules or computations made therefrom.
(k) That the Investments to be transferred to Adjustable Rate shall not
include any assets or liabilities which Adjustable Rate, by reason of charter
limitations or otherwise, may not properly acquire or assume.
(l) That the N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Intermediate Government Bond, be
contemplated by the Commission.
(m) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or
other proceeding shall be instituted or threatened which would materially
affect the financial condition of Intermediate Government Bond or would
prohibit the Reorganization.
(n) That Adjustable Rate shall have received from the Commission such
orders or interpretations as Brown & Wood LLP, as counsel to Adjustable Rate,
deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall be
in full force and effect.
(o) That all proceedings taken by Intermediate Government Bond and its
counsel in connection with the Reorganization and all documents incidental
thereto shall be satisfactory in form and substance to Adjustable Rate.
(p) That prior to the Exchange Date, Intermediate Government Bond shall
have declared a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its shareholders all of
its investment company taxable income to and including the Exchange Date, if
any (computed without regard to any deduction for dividends paid), and all of
its net capital gain, if any, realized to and including the Exchange Date.
10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any time
(whether before or after approval thereof by the shareholders of Intermediate
Government Bond) prior to the Exchange Date, or the Exchange Date may be
postponed, (i) by mutual consent of the Board of Trustees of Intermediate
Government Bond and the Board of Directors of Adjustable Rate; (ii) by the
Board of Trustees of Intermediate Government Bond if any condition of
Intermediate Government Bond's obligations set forth in Section 8 of this
Agreement has not been fulfilled or waived by such Board; or (iii) by the
Board of Directors of Adjustable Rate if any condition of Adjustable Rate's
obligations set forth in Section 9 of this Agreement has not been fulfilled or
waived by such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by April 30, 2001, this Agreement automatically shall terminate on
that date, unless a later date is mutually agreed to by the Board of Trustees
of Intermediate Government Bond and the Board of Directors of Adjustable Rate.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either Intermediate Government
Bond or Adjustable Rate or persons who are their directors, trustees,
officers, agents or shareholders in respect of this Agreement.
(d) At any time prior to the Exchange Date, any of the terms or
conditions of this Agreement may be waived by the Board of Trustees of
Intermediate Government Bond or the Board of Directors of Adjustable Rate,
respectively (whichever is entitled to the benefit thereof), if, in the
judgment of such Board after consultation with its counsel, such action or
waiver will not have a material adverse effect on the benefits intended under
this Agreement to the shareholders of their respective fund, on behalf of
which such action is taken. In addition, the Board of Trustees of Intermediate
Government Bond and the Board of Directors of Adjustable Rate have delegated
to MLIM the ability to make non-material changes to the transaction if it
deems it to be in the best interests of Intermediate Government Bond and
Adjustable Rate to do so.
(e) The respective representations and warranties contained in Sections 1
and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and neither Intermediate Government Bond
nor Adjustable Rate nor any of their officers, directors or trustees, agents
or stockholders shall have any liability with respect to such representations
or warranties after the Exchange Date. This provision shall not protect any
officer, director or trustee, agent, shareholder or stockholder of
Intermediate Government Bond or Adjustable Rate against any liability to the
entity for which that officer, director or trustee, agent, shareholder or
stockholder so acts or to its shareholders or stockholders, to which that
officer, director or trustee, agent, shareholder or stockholder otherwise
would be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties in the conduct of such office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Exchange Date and shall impose any
terms or conditions which are determined by action of the Board of Trustees of
Intermediate Government Bond and the Board of Directors of Adjustable Rate to
be acceptable, such terms and conditions shall be binding as if a part of this
Agreement without further vote or approval of the shareholders of Intermediate
Government Bond unless such terms and conditions shall result in a change in
the method of computing the number of shares of Adjustable Rate to be issued
to Intermediate Government Bond in which event, unless such terms and
conditions shall have been included in the proxy solicitation materials
furnished to the shareholders of Intermediate Government Bond prior to the
meeting at which the Reorganization shall have been approved, this Agreement
shall not be consummated and shall terminate unless Intermediate Government
Bond promptly shall call a special meeting of shareholders at which such
conditions so imposed shall be submitted for approval.
11. Indemnification.
(a) Intermediate Government Bond hereby agrees to indemnify and hold
Adjustable Rate harmless from all loss, liability and expense (including
reasonable counsel fees and expenses in connection with the contest of any
claim) which Adjustable Rate may incur or sustain by reason of the fact that
(i) Adjustable Rate shall be required to pay any corporate obligation of
Intermediate Government Bond, whether consisting of tax deficiencies or
otherwise, based upon a claim or claims against Intermediate Government Bond
which were omitted or not fairly reflected in the financial statements to be
delivered to Adjustable Rate in connection with the Reorganization; (ii) any
representations or warranties made by Intermediate Government Bond in this
Agreement should prove to be false or erroneous in any material respect; (iii)
any covenant of Intermediate Government Bond has been breached in any material
respect; or (iv) any claim is made alleging that (a) the N-14 Registration
Statement included any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or (b) the Proxy Statement and Prospectus
delivered to the shareholders of Intermediate Government Bond and forming a
part of the N-14 Registration Statement included any untrue statement of a
material fact or omitted to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such claim is based on written
information furnished to Intermediate Government Bond by Adjustable Rate.
(b) Adjustable Rate hereby agrees to indemnify and hold Intermediate
Government Bond harmless from all loss, liability and expenses (including
reasonable counsel fees and expenses in connection with the contest of any
claim) which Intermediate Government Bond may incur or sustain by reason of
the fact that (i) any representations or warranties made by Adjustable Rate in
this Agreement should prove false or erroneous in any material respect, (ii)
any covenant of Adjustable Rate has been breached in any material respect, or
(iii) any claim is made alleging that (a) the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading or (b) the Proxy Statement and Prospectus
delivered to shareholders of Intermediate Government Bond and forming a part
of the N-14 Registration Statement included any untrue statement of a material
fact or omitted to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such claim is based on written information
furnished to Adjustable Rate by Intermediate Government Bond.
(c) In the event that any claim is made against Adjustable Rate in
respect of which indemnity may be sought by Adjustable Rate from Intermediate
Government Bond under Section 11(a) of this Agreement, or in the event that
any claim is made against Intermediate Government Bond in respect of which
indemnity may be sought by Intermediate Government Bond from Adjustable Rate
under Section 11(b) of this Agreement, then the party seeking indemnification
(the "Indemnified Party"), with reasonable promptness and before payment of
such claim, shall give written notice of such claim to the other party (the
"Indemnifying Party"). If no objection as to the validity of the claim is made
in writing to the Indemnified Party by the Indemnifying Party within thirty
(30) days after the giving of notice hereunder, then the Indemnified Party may
pay such claim and shall be entitled to reimbursement therefor, pursuant to
this Agreement. If, prior to the termination of such thirty-day period,
objection in writing as to the validity of such claim is made to the
Indemnified Party, the Indemnified Party shall withhold payment thereof until
the validity of such claim is established (i) to the satisfaction of the
Indemnifying Party, or (ii) by a final determination of a court of competent
jurisdiction, whereupon the Indemnified Party may pay such claim and shall be
entitled to reimbursement thereof, pursuant to this Agreement, or (iii) with
respect to any tax claims, within seven (7) calendar days following the
earlier of (A) an agreement between Intermediate Government Bond and
Adjustable Rate that an indemnity amount is payable, (B) an assessment of a
tax by a taxing authority, or (C) a "determination" as defined in Section
1313(a) of the Code. For purposes of this Section 11, the term "assessment"
shall have the same meaning as used in Chapter 63 of the Code and Treasury
Regulations thereunder, or any comparable provision under the laws of the
appropriate taxing authority. In the event of any objection by the
Indemnifying Party, the Indemnifying Party promptly shall investigate the
claim, and if it is not satisfied with the validity thereof, the Indemnifying
Party shall conduct the defense against such claim. All costs and expenses
incurred by the Indemnifying Party in connection with such investigation and
defense of such claim shall be borne by it. These indemnification provisions
are in addition to, and not in limitation of, any other rights the parties may
have under applicable law.
12. Other Matters.
(a) Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Reorganization is,
to its knowledge, an affiliate of a party to the Reorganization pursuant to
Rule 145(c), Adjustable Rate will cause to be affixed upon the certificate(s)
issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO MERRILL LYNCH ADJUSTABLE RATE FUND, INC. (OR ITS STATUTORY
SUCCESSOR) OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT
OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE FUND, SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to Adjustable
Rate's transfer agent with respect to such shares. Intermediate Government
Bond will provide Adjustable Rate on the Exchange Date with the name of any
Intermediate Government Bond shareholder who is to the knowledge of
Intermediate Government Bond an affiliate of Intermediate Government Bond on
such date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any provision
of this Agreement shall be in writing and shall be made by hand delivery,
prepaid certified mail or overnight service, addressed to Intermediate
Government Bond or Adjustable Rate, in either case at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, Attn: Terry K. Glenn, President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes
the only understanding with respect to the Reorganization, may not be changed
except by a letter of agreement signed by each party and shall be governed by
and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said state.
(e) Copies of the Articles of Incorporation of Adjustable Rate are on
file with the State Department of Assessments and Taxation of the State of
Maryland and notice is hereby given that this instrument is executed on behalf
of the Directors of Adjustable Rate.
(f) It is expressly agreed that the obligations of Intermediate
Government Bond hereunder shall not be binding upon its Trustees,
shareholders, nominees, officers, agents, or employees personally, but shall
bind only the trust property of Intermediate Government Bond as provided in
that Fund's Declaration of Trust, as amended. The execution and delivery of
this Agreement has been authorized by the Trustees of Intermediate Government
Bond and signed by authorized officers of Intermediate Government Bond, acting
as such, and neither such authorization by such Trustees nor such execution
and delivery by such officers shall be deemed to have been made by any of them
individually or to impose liability on any of them personally, but shall bind
only the trust property of Intermediate Government Bond, as provided in that
Fund's Declaration of Trust, as amended.
<PAGE>
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MERRILL LYNCH ADJUSTABLE RATE FUND, INC.
BY: ___________________________________
ATTEST:
___________________________________
(IRA P. SHAPIRO, SECRETARY)
MERRILL LYNCH INTERMEDIATE GOVERNMENT
BOND FUND
BY: ___________________________________
ATTEST:
___________________________________
(PHILLIP S. GILLESPIE, SECRETARY)
<PAGE>
EXHIBIT II
SECTIONS 86 THROUGH 98 OF CHAPTER 156B
OF THE MASSACHUSETTS GENERAL LAWS
(THE MASSACHUSETTS BUSINESS CORPORATION LAW)
ss. 86. Sections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal
thereof, sections eighty-seven to ninety-eight, inclusive, shall apply except
as otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have
such right unless (1) he files with the corporation before taking the vote of
the stockholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action
is taken and (2) his shares are not voted in favor of the proposed action.
ss.87. Statement of rights of objecting stockholders in notice of meeting; form
The notice of the meeting of stockholders at which the approval of such
proposed action to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to
create any rights in any stockholder receiving the same to demand payment for
his stock, and the directors may authorize the inclusion in any such notice of
a statement of opinion by the management as to the existence or non-existence
of the right of stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of
notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at
the meeting and effected by the corporation, any stockholder (1) who
files with the corporation before the taking of the vote on the
approval of such action, written objection to the proposed action
stating that he intends to demand payment for his shares if the
action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the
corporation (or, in the case of a consolidation or merger, the name
of the resulting or surviving corporation shall be inserted), within
twenty days after the date of mailing to him of notice in writing
that the corporate action has become effective, payment for his
shares and an appraisal of the value thereof. Such corporation and
any such stockholder shall in such cases have the rights and duties
and shall follow the procedure set forth in sections 88 to 98,
inclusive, of chapter 156B of the General Laws of Massachusetts."
ss.88. Notice of effectiveness of action objected to
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified
mail, addressed to the stockholder at his last known address as it appears in
the records of the corporation.
ss. 89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three,
or section eighty-eight, any stockholder to whom the corporation was required
to give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
ss.90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine
the corporation upon which such demand is made and any such objecting
stockholder fail to agree as to the value of such stock, such corporation or
any such stockholder may within four months after the expiration of such
thirty-day period demand a determination of the value of the stock of all such
objecting stockholders by a bill in equity filed in the superior court in the
county where the corporation in which such objecting stockholder held stock
had or has its principal office in the commonwealth.
ss.91. Parties to suit to determine value; service
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof.
If the bill is filed by a stockholder, he shall bring the bill in his own
behalf and in behalf of all other stockholders who have demanded payment for
their shares and with whom the corporation has not reached agreement as to the
value thereof, and service of the bill shall be made upon the corporation by
subpoena with a copy of the bill annexed. The corporation shall file with its
answer a duly verified list of all such other stockholders, and such
stockholders shall thereupon be deemed to have been added as parties to the
bill. The corporation shall give notice in such form and returnable on such
date as the court shall order to each stockholder party to the bill by
registered or certified mail, addressed to the last known address of such
stockholder as shown in the records of the corporation, and the court may
order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section
eighty-nine shall be deemed to have consented to the provisions of this
section relating to notice, and the giving of notice by the corporation to any
such stockholder in compliance with the order of the court shall be sufficient
service of process on him. Failure to give notice to any stockholder making
demand shall not invalidate the proceedings as to other stockholders to whom
notice was properly given, and the court may at any time before the entry of a
final decree make supplementary orders of notice.
ss.92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the valuation
of and payment for their shares, and shall order the corporation to make
payment of such value, together with interest, if any, as hereinafter provided
to the stockholders entitled thereto upon the transfer by them to the
corporation of the certificates representing such stock if certificated or, if
uncertificated, upon receipt of the instruction transferring such stock to the
corporation. For this purpose, the value of the shares shall be determined as
of the day preceding the date of the vote approving the proposed corporate
action and shall be exclusive of any element of value arising from the
expectation or accomplishment of the proposed corporate action.
ss. 93. Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report
the same to the court, all in accordance with the usual practice in suits in
equity in the superior court.
ss.94. Notation on stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in
its records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
ss. 95. Costs; interest
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. Interest shall be paid upon
any award from the date of the vote approving the proposed corporate action,
and the court may on application of any interested party determine the amount
of interest to be paid in the case of any stockholder.
ss.96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his stock as provided in
this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled
to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote, approving the proposed corporate
action) unless:
1) A bill shall not be filed within the time provided in section
ninety;
2) A bill, if filed, shall be dismissed as to such stockholder; or
3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting
or surviving corporation, deliver to it a written withdrawal of his
objections to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
ss. 97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or securities.
ss. 98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude in the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground
that such corporate action will be or is illegal or fraudulent as to him.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
MERRILL LYNCH ADJUSTABLE RATE SECURITIES FUND, INC.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(609) 282-2800
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Proxy Statement and Prospectus of Merrill
Lynch Intermediate Government Bond Fund ("Intermediate Government Bond") and
Merrill Lynch Adjustable Rate Securities Fund, Inc. ("Adjustable Rate") dated
____________________ (the "Proxy Statement and Prospectus"), which has been
filed with the Securities and Exchange Commission and can be obtained, without
charge, by calling Adjustable Rate at 1-800-456-4587, ext. 123, or by writing
to Adjustable Rate at the above address. This Statement of Additional
Information has been incorporated by reference into the Proxy Statement and
Prospectus.
Further information about Adjustable Rate is contained in and
incorporated by reference to its Statement of Additional Information, dated
_________________ , 2000 which is incorporated by reference into and
accompanies this Statement of Additional Information.
The Commission maintains a web site (http://www.sec.gov) that contains
the prospectus and statement of additional information of each of Intermediate
Government Bond and Adjustable Rate, other material incorporated by reference
and other information regarding Intermediate Government Bond and Adjustable
Rate.
TABLE OF CONTENTS
General Information.........................................................2
Financial Statements........................................................2
The date of this Statement of Additional Information
is _______________ , 2000.
<PAGE>
GENERAL INFORMATION
The stockholders of Intermediate Government Bond are being asked to
approve the acquisition of substantially all of the assets of Intermediate
Government Bond, and the assumption of substantially all of the liabilities of
Intermediate Government Bond, by Adjustable Rate in exchange solely for an
equal aggregate value of shares of Adjustable Rate (the "Reorganization").
Adjustable Rate is an open-end management investment company organized as a
Maryland corporation. A Special Meeting of Stockholders of Intermediate
Government Bond to consider the Reorganization will be held at 800 Scudders
Mill Road, Plainsboro, New Jersey, on October 17, 2000, at .m., Eastern time.
For detailed information about the Reorganization, stockholders of
Intermediate Government Bond should refer to the Proxy Statement and
Prospectus. For further information about Adjustable Rate, stockholders should
refer to Adjustable Rate's Statement of Additional Information, dated
_________________ , 2000, which accompanies this Statement of Additional
Information and is incorporated by reference herein.
FINANCIAL STATEMENTS
Pro forma financial statements reflecting consummation of the
Reorganization are included herein.
Adjustable Rate
Audited financial statements and accompanying notes for the fiscal year
ended May 31, 2000, and the independent auditor's report thereon, dated
_____________________ , of Adjustable Rate are incorporated herein by
reference from Adjustable Rate's Annual Report to Stockholders, which
accompanies this Statement of Additional Information.
Intermediate Government Bond
Audited financial statements and accompanying notes for the fiscal year
ended October 31, 1999, and the independent auditor's report thereon, dated
________________ , of Intermediate Government Bond are incorporated herein by
reference from Intermediate Government Bond's Annual Report to Stockholders,
which accompanies this Statement of Additional Information. Unaudited
financial statements and accompanying notes for the six months ended April 28,
2000 of Intermediate Government Bond are incorporated herein by reference from
Intermediate Government Bond's Semi-Annual Report to Stockholders, which
accompanies this Statement of Additional Information.
<PAGE>
PART C
OTHER INFORMATION
Item 15. Indemnification.
Reference is made to Article VI of Registrant's Articles of
Incorporation, Article VI of Registrant's By-Laws, Section 2-418 of the
Maryland General Corporation Law and Section 9 of the Class A, Class B, Class
C and Class D Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or
any stockholder thereof to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. Absent a court
determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Registrant to indemnify such person must be based
upon the reasonable determination of independent counsel or non-party
independent directors, after review of the facts, that such officer or
director is not guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification
within the scope of Article VI of the By-Laws shall be entitled to advances
from the Registrant for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to the
full extent permitted under the General Laws of the State of Maryland,
provided, however, that the person seeking indemnification shall provide to
the Registrant a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Registrant has been
met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form
and amount acceptable to the Registrant for his undertaking; (b) the
Registrant is insured against losses arising by reason of the advance; (c) a
majority of a quorum of non-party independent directors, or independent legal
counsel in a written opinion, shall determine, based on a review of facts
readily available to the Registrant at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his or her activities as an
officer or director of the Registrant. The Registrant, however, may not
purchase insurance on behalf of any officer or director of the Registrant that
protects or purports to protect such person from liability to the Registrant
or to its stockholders to which such officer or director would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A, Class B, Class C and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933 (the "1933 Act"),
against certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Directors, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 Director,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suit or proceeding)
is asserted by such Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of
such issue.
ITEM 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C> <C>
1(a) -- Articles of Incorporation of the Registrant, dated April 18, 1991. (a)
(b) -- Articles of Amendment to Articles of Incorporation of the Registrant, dated May 31, 1994. (b)
(c) -- Articles of Amendment to Articles of Incorporation of the Registrant, dated October 17, 1994. (a)
(d) -- Articles Supplementary to Articles of Incorporation of the Registrant, dated October 17, 1994. (a)
2 -- By-Laws of the Registrant. (a)
3 -- Not Applicable.
4 -- Form of Agreement and Plan of Reorganization between
the Registrant and Merrill Lynch Intermediate
Government Bond Fund (included as Exhibit I to the Proxy
Statement and Prospectus contained in this Registration
Statement).
5 -- Portions of the Articles of Incorporation and By-Laws of the Registrant defining the rights of
stockholders of the Registrant. (c)
6(a) -- Management Agreement between the Registrant and Merrill Lynch Investment Managers, L.P. (a)
(b) -- Supplement to Management Agreement between the Registrant and Merrill Lynch Investment Managers, L.P. (c)
7(a) -- Form of Class A Shares Distribution Agreement between the Registrant and Princeton Funds Distributor, now
FAM Distributors, Inc. (the "Distributor") (including Selected Dealers Agreement). (c)
(b) -- Form of Class B Shares Distribution Agreement between the Registrant and the Distributor. (a)
(c) -- Form of Class C Shares Distribution Agreement between the Registrant and the Distributor, (including
Selected Dealers Agreement). (c)
(d) -- Form of Class D Shares Distribution Agreement between the Registrant and the Distributor (including
Selected Dealers Agreement). (c)
8 -- Credit Agreement between the Registrant and a syndicate of banks. (d)
9(a) -- Custody Agreement between the Registrant and The Bank of New York. (a)
(b) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the
Registrant and Financial Data Services, Inc. (a)
(c) -- License Agreement Relating to Use of Name between the Registrant and Merrill Lynch & Co., Inc. (a)
10(a) -- Amended and Restated Class B Distribution Plan of the Registrant. (a)
(b) -- Form of Class C Distribution Plan and Class C Distribution Plan Sub-Agreement of the Registrant. (c)
(c) -- Form of Class D Distribution Plan and Class D Distribution Plan Sub-Agreement of the Registrant. (c)
11 -- Opinion and Consent of Brown & Wood LLP, counsel to the Registrant. (*)
12 -- Private Letter Ruling from the IRS.*
13 -- Not Applicable.
14(a) -- Consent of [ ]; independent auditors for the Registrant.*
(b) -- Consent of [ ]; independent auditors for Merrill Lynch Intermediate Government Bond
Fund.*
15 -- Not Applicable.
16 -- Power of Attorney (included on the signature page of this Registration Statement).
17(a) -- Prospectus dated , 2000, and Statement of Additional Information dated June ,
2000, of the Registrant.*
(b) -- Annual Report to Stockholders of the Registrant, as of May 31, 2000.*
(c) -- Annual Report to Shareholders of Merrill Lynch Intermediate Government Bond Fund, as of October 31, 1999.*
(d) -- Semi-Annual Report to Shareholders of Merrill Lynch Intermediate Government Bond Fund, as of April 30,
2000.
(e) -- Form of Proxy.
</TABLE>
---------
(a) Filed on September 27, 1995, as an Exhibit to Post-Effective Amendment
No. 6 to the Registrant's Registration Statement under the Securities Act
of 1933, as amended, on Form N-1A (File No. 33-40332) (the "Registration
Statement").
(b) Reference is made to Article V, Article VI (section 3), Article VII,
Article VIII and Article X of the Registrant's Articles of Incorporation,
previously filed as Exhibit 1 to the Registration Statement; and to
Article II, Article III (sections 1, 3, 5, 6 and 17), Article VI, Article
VII, Article XIII and Article XIV of the Registrant's By-Laws previously
filed as Exhibit 2 to the Registration Statement.
(c) Filed on October 14, 1994, as an exhibit to Post-Effective Amendment No.
5 to the Registration Statement.
(d) Incorporated by reference to Exhibit 8(b) to the Registration Statement
on Form N-1A of Master Premier Growth Trust (File No. 811-09733) filed
December 21, 1999.
*To be filed by Amendment.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
as amended, the reoffering prospectus will contain information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the offering of
securities at that time shall be deemed to be the initial bona fide offering
of them.
(3) The Registrant undertakes to file, by post-effective amendment,
either a copy of the Internal Revenue Service private letter ruling applied
for or an opinion of counsel as to certain tax matters, within a reasonable
time after receipt of such ruling or opinion.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the Township of Plainsboro and
State of New Jersey, on the 14th day of July, 2000.
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC.
(Registrant)
By /s/ Donald C. Burke
-------------------------------------
(Donald C. Burke, Vice President and
Treasurer)
Each person whose signature appears below hereby authorizes Terry K.
Glenn, Donald C. Burke or Ira P. Shapiro, or any of them, as attorney-in-fact,
to sign on his behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President and Director July 14, 2000
/s/ TERRY K. GLENN (Principal Executive Officer)
----------------------------------------------
(Terry K. Glenn)
Vice President and Treasurer July 14, 2000
(Principal Financial
/s/ DONALD C. BURKE and Accounting Officer)
----------------------------------------------
(Donald C. Burke)
/s/ JOE GRILLS Director July 14, 2000
----------------------------------------------
(Joe Grills)
/s/ WALTER MINTZ Director July 14, 2000
----------------------------------------------
(Walter Mintz)
/s/ ROBERT S. SALOMON, JR Director July 14, 2000
----------------------------------------------
(Robert S. Salomon, Jr.)
/s/ MELVIN R. SEIDEN Director July 14, 2000
----------------------------------------------
(Melvin R. Seiden)
/s/ STEPHEN B. SWENSRUD Director July 14, 2000
----------------------------------------------
(Stephen B. Swensrud)
Director
----------------------------------------------
(Arthur Zeikel)
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
17(e) Form of Proxy
<PAGE>
Exhibit (17)(e)
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
P.O. Box 9011
Princeton, New Jersey 08543-9011
PROXY
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Donald C. Burke, Terry K. Glenn and
[Phillip S. Gillespie] as proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse hereof, all the shares of beneficial interest of
Merrill Lynch Intermediate Government Bond Fund (the "Fund") held of record by
the undersigned on August 23, 2000 at the special meeting of shareholders of
the Fund to be held on October 17, 2000 or any adjournment thereof.
This proxy when properly executed will be voted in the
manner directed herein by the undersigned shareholder. If no
direction is made, this proxy will be voted FOR Proposal 1.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card
at once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE>
Please mark boxes |X| or |X| in blue or black ink.
1. To approve or disapprove an Agreement and Plan of Reorganization between
Merrill Lynch Intermediate Government Bond Fund and Merrill Lynch
Adjustable Rate Securities Fund, Inc.
FOR |_| AGAINST |_| ABSTAIN |_|
2. In the discretion of such proxies, upon such other business as may
properly come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon.
When shares are held by joint tenants, both
should sign. When signing as attorney or as
executor, administrator, trustee or
guardian, please give full title as such.
If a corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Dated: ______________________________, 2000
X__________________________________________
Signature
X__________________________________________
Signature, if held jointly
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
