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Next: MERRILL LYNCH COLORADO MUNICIPAL BOND FUND OF THE MLMSMST, 485APOS, 1999-09-29 |
As filed with the Securities and Exchange Commission on September 29, 1999 Securities Act File No. 33-50051 SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM N-1A |
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 Pre-Effective Amendment No. Post-Effective Amendment No. 7 and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 184 |
|X| | | |X| |X| |X| |
(Check appropriate box or boxes)Merrill Lynch Colorado Municipal Bond Fund 800 Scudders Mill Road Terry K. Glenn Copies to: |
Counsel for the Trust BROWN & WOOD LLP One World Trade Center New York, New York 10048-0557 Attention: Thomas R. Smith, Jr., Esq. Brian M. Kaplowitz, Esq. |
Michael J. Hennewinkel, Esq. MERRILL LYNCH ASSET MANAGEMENT P.O. Box 9011 Princeton, New Jersey 08543-9011 |
It is proposed that this filing will become effective (check appropriate box): |
| | | immediately upon filing pursuant to paragraph (b) |
| | | on (date) pursuant to paragraph (b) |
|X| | 60 days after filing pursuant to paragraph (a)(1) |
| | | on (date) pursuant to paragraph (a)(1) |
| | | 75 days after filing pursuant to paragraph (a)(2) |
| | | on (date) pursuant to paragraph (a)(2) of Rule 485. |
If appropriate, check the following box: |
| | | this post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
Title of Securities Being Registered: Shares of Beneficial Interest, par value $.10 per share. |
Prospectus[LOGO] Merrill Lynch The information in this prospectus is not complete and may be changed. We may not use this prospectus to sell securities until the registration statement containing this prospectus, which has been filed with the Securities and Exchange Commission, is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION
November __, 1999 This Prospectus contains information you should know before investing, including information about risks. Please read it before you invest and keep it for future reference. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense. Table of Contents |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
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[ICON] Key Facts In an effort to help you better understand the many concepts involved in making an investment decision, we have defined highlighted terms in this prospectus in the sidebar. Investment Grade any of the four highest debt obligation ratings by recognized rating agencies, including Moody's Investors Service, Inc., Standard & Poor's or Fitch, IBCA, Inc. Colorado Municipal Bond a debt obligation issued by or on behalf of a governmental entity in Colorado or other qualifying issuer that pays interest exempt from Colorado income taxes as well as from Federal income tax. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND AT A GLANCE What is the Fund's objective? The investment objective of the Fund is to provide shareholders with income exempt from Federal and Colorado income taxes. What are the Fund's main investment strategies? The Fund invests primarily in a portfolio of long term investment grade Colorado municipal bonds. These may be obligations of a variety of issuers including governmental entities in Colorado and issuers located in Puerto Rico, the U.S. Virgin Islands and Guam. The Fund will invest at least 65% of its assets in Colorado municipal bonds and at least 80% of its total assets in Colorado municipal bonds and other bonds that pay interest exempt from Federal income tax but not Colorado income tax. The Fund may invest up to 20% of its assets in high yield bonds (also known as "junk" bonds). The Fund also may invest in certain types of "derivative" securities. When choosing investments, Fund management considers various factors, including the credit quality of issuers, yield analysis, maturity analysis and the call features of the obligations. Under normal conditions, the Fund's average weighted maturity will be more than ten years. The Fund cannot guarantee that it will achieve its objective. What are the main risks of investing in the Fund? As with any fund, the value of the Fund's investments and therefore the value of Fund shares may go up or down. These changes may occur in response to interest rate changes or other factors that may affect a particular issuer or obligation. Generally, when interest rates go up, the value of debt instruments like municipal bonds goes down. If the value of the Fund's investments goes down, you may lose money. Prices of longer term securities generally change more in response to interest rate changes than prices of shorter term securities. In addition, since the Fund invests at least 65% of its assets in Colorado municipal bonds, it is more exposed to negative political or economic factors in Colorado than a fund that invests more widely. Derivatives and high yield bonds may be volatile and subject to liquidity, leverage, credit and other types of risks. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 3 |
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[ICON] Key Facts |
Who should invest?
The Fund may be an appropriate investment for you if you: |
| Are looking for income that is exempt from Federal and Colorado income taxes |
| Want a professionally managed portfolio without the administrative burdens of direct investments in municipal bonds |
| Are looking for liquidity |
| Can tolerate the risk of loss caused by negative political or economic developments in Colorado, changes in interest rates or adverse changes in the price of bonds in general |
4 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
The bar chart and table shown below provide an indication of the risks of investing in the Fund. The bar chart shows changes in the Fund's performance for Class B shares for each complete calendar year since the Fund's inception. Sales charges are not reflected in the bar chart. If these amounts were reflected, returns would be less than those shown. The table compares the average annual total returns for each class of the Fund's shares for the periods shown with those of the Lehman Brothers Municipal Bond Index. How the Fund performed in the past is not necessarily an indication of how the Fund will perform in the future. [The following table was depicted as a bar chart in the printed material.] |
1994 | 1995 | 1996 | 1997 | 1998 | |||||
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-8.66 | % | 16.97 | % | 2.75 | % | 8.66 | % | 5.55 | % |
During the period shown in the bar chart, the highest return for a quarter was 6.66% (quarter ended March 31, 1995) and the lowest return for a quarter was -7.28% (quarter ended March 31, 1994). The Fund's year-to-date return as of June 30, 1999 was -2.63%. |
Average Annual Total Returns (as of the calendar year ended December 31, 1998) | Past One Year | Past Five Years | Since Inception | ||||||
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Merrill Lynch Colorado Municipal Bond Fund* | A | 1.85 | % | 4.39 | % | 4.68 | % | ||
Lehman Brothers Municipal Bond Index** | 6.48 | % | 6.22 | % | 6.55 | % | |||
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Merrill Lynch Colorado Municipal Bond Fund* | B | 1.55 | % | 4.72 | % | 4.99 | % | ||
Lehman Brothers Municipal Bond Index** | 6.48 | % | 6.22 | % | 6.55 | % | |||
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Merrill Lynch Colorado Municipal Bond Fund* | C | 4.45 | % | N/A | 7.44 | % | |||
Lehman Brothers Municipal Bond Index** | 6.48 | % | N/A | 8.98 | %# | ||||
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Merrill Lynch Colorado Municipal Bond Fund* | D | 1.85 | % | N/A | 6.98 | % | |||
Lehman Brothers Municipal Bond Index** | 6.48 | % | N/A | 8.98 | %# | ||||
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* ** |
Includes sales charge. This unmanaged Index consists of long term revenue bonds, prerefunded bonds, general obligation bonds and insured bonds. Past performance is not predictive of future performance. |
# |
Inception date is November 26, 1993. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 5 |
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[ICON] Key Facts UNDERSTANDING EXPENSES Fund investors pay various fees and expenses, either directly or indirectly. Listed below are some of the main types of expenses, which all mutual funds may charge: Expenses paid directly by the shareholder: Shareholder Fees these include sales charges which you may pay when you buy or sell shares of the Fund. Expenses paid indirectly by the shareholder: Annual Fund Operating Expenses expenses that cover the costs of operating the Fund. Management Fee a fee paid to the Manager for managing the Fund. Distribution Fees fees used to support the Fund's marketing and distribution efforts, such as compensating Financial Consultants, advertising and promotion. Service (Account Maintenance) Fees fees used to compensate securities dealers for account maintenance activities. |
The Fund offers four different classes of shares. Although your money will be invested the same way no matter which class of shares you buy, there are differences among the fees and expenses associated with each class. Not everyone is eligible to buy every class. After determining which classes you are eligible to buy, decide which class best suits your needs. Your Merrill Lynch Financial Consultant can help you with this decision. This table shows the different fees and expenses that you may pay if you buy and hold the different classes of shares of the Fund. Future expenses may be greater or less than those indicated below. |
Shareholder Fees (fees paid directly
from your investment)(a): |
Class A | Class B(b) | Class C | Class D | |||||
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Maximum Sales
Charge (Load) imposed on |
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purchases (as a percentage of offering price) | 4.00 | %(c) | None | None | 4.00 | %(c) | |||
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Maximum Deferred Sales
Charge (Load) (as |
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a percentage of original purchase price or | |||||||||
redemption proceeds, whichever is lower) | None | (d) | 4.0 | %(c) | 1.0 | %(c) | None | (d) | |
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Maximum Sales Charge (Load) imposed on | |||||||||
Dividend Reinvestments | None | None | None | None | |||||
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Redemption Fee | None | None | None | None | |||||
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Exchange Fee | None | None | None | None | |||||
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Maximum Account Fee | None | None | None | None | |||||
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Annual Fund Operating Expenses (expenses that are deducted from Fund assets): | |||||||||
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Management Fee(e) | 0.55 | % | 0.55 | % | 0.55 | % | 0.55 | % | |
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Distribution and/or Service (12b-1) Fees(f) | None | 0.50 | % | 0.60 | % | 0.10 | % | ||
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Other Expenses (including transfer agency | |||||||||
fees)(g) | 0.76 | % | 0.76 | % | 0.77 | % | 0.77 | % | |
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Total Annual Fund Operating Expenses | 1.31 | % | 1.81 | % | 1.92 | % | 1.42 | % | |
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(a) | In addition, Merrill Lynch may charge clients a processing fee (currently $5.35) when a client buys or redeems shares. |
(b) | Class B shares automatically convert to Class D shares about ten years after you buy them. Then they will no longer be subject to distribution fees and will pay lower account maintenance fees. |
(c) | Some investors may qualify for reductions in the sales charge (load). |
(d) | You may pay a deferred sales charge if you purchase $1 million or more and you redeem within one year. |
(e) | The Fund pays the Manager a fee at the annual rate of 0.55% of the average daily net assets of the Fund for the first $500 million; 0.525% of the average daily net assets from $500 million to $1 billion; and 0.50% of the average daily net assets above $1 billion. For the fiscal year ended July 31, 1999, the Manager received a fee equal to 0.55% of the Fund's average daily net assets, but the Manager voluntarily waived $90,538 of the management fee due. Total Fund Operating Expenses in the fee table have been restated to assume the absence of the waiver because it may be discontinued or reduced by the Manager at any time without notice. For the fiscal year ended July 31, 1999, the Manager waived management fees totaling 0.33% for Class A shares, 0.32% for Class B shares, 0.32% for Class C shares and 0.32% for Class D shares after which the Fund's total expense ratio was 0.98% for Class A shares, 1.49% for Class B shares, 1.60% for Class C shares and 1.10% for Class D shares. |
(f) | The Fund calls the "Service Fee" an "Account Maintenance Fee." Account Maintenance Fee is the term used elsewhere in this Prospectus and in all other Fund materials. If you hold Class B or Class C shares for a long time, it may cost you more in distribution (12b-1) fees than the maximum sales charge that you would have paid if you had bought one of the other classes. |
6 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
(footnotes continued from previous page) |
(g) | The Fund pays the Transfer Agent $11.00 for each Class A and Class D shareholder account and $14.00 for each Class B and Class C shareholder account and reimburses the Transfer Agent's out-of-pocket expenses. The Fund pays a 0.10% fee for certain accounts that participate in the Merrill Lynch Mutual Fund Advisor program. The Fund also pays a $0.20 monthly closed account charge, which is assessed upon all accounts that close during the year. This fee begins the month following the month the account is closed and ends at the end of the calendar year. For the fiscal year ended July 31, 1999, the Fund paid the Transfer Agent fees totaling $10,263. The Manager provides accounting services to the Fund at its cost. For the fiscal year ended July 31, 1999, the Fund reimbursed the Manager $54,414 for these services. |
Examples: These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. These examples assume that you invest $10,000 in the Fund for the time periods indicated, that your investment has a 5% return each year, that you pay the sales charges, if any, that apply to the particular class and that the Fund's operating expenses remain the same. This assumption is not meant to indicate you will receive a 5% annual rate of return. Your annual return may be more or less than the 5% used in this example. Although your actual costs may be higher or lower, based on these assumptions your costs would be: EXPENSES IF YOU DID REDEEM YOUR SHARES: |
1 Year | 3 Years | 5 Years | 10 Years | ||||||
---|---|---|---|---|---|---|---|---|---|
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Class A | $528 | $799 | $1,089 | $1,916 | |||||
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Class B | $584 | $769 | $980 | $2,127 | |||||
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Class C | $295 | $603 | $1,037 | $2,243 | |||||
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Class D | $539 | $831 | $1,145 | $2,034 | |||||
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EXPENSES IF YOU DID NOT REDEEM YOUR SHARES: |
1 Year | 3 Years | 5 Years | 10 Years | ||||||
---|---|---|---|---|---|---|---|---|---|
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Class A | $528 | $799 | $1,089 | $1,916 | |||||
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Class B | $184 | $569 | $ 980 | $2,127 | |||||
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Class C | $195 | $603 | $1,037 | $2,243 | |||||
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Class D | $539 | $831 | $1,145 | $2,034 | |||||
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MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 7 |
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[ICON] Details About the Fund ABOUT THE PORTFOLIO MANAGER ABOUT THE MANAGER |
The Fund's main goal is to seek income that is exempt from Federal and Colorado income taxes. The Fund invests primarily in long term, investment grade Colorado municipal bonds. These may be obligations of a variety of issuers including governmental entities or other qualifying issuers. Issuers may be located in Colorado or in other qualifying jurisdictions such as Puerto Rico, the U.S. Virgin Islands and Guam. The Fund may invest in either fixed rate or variable rate obligations. At least 80% of the Fund's total assets will be invested in investment grade securities. The Fund may invest up to 20% of its total assets in high yield ("junk") bonds. These bonds are generally more speculative and involve greater price fluctuations than investment grade securities. The Fund will invest at least 80% of its total assets in obligations that pay interest exempt from Federal income tax and at least 65% of its total assets in Colorado municipal bonds. Under normal conditions, the Fund's average weighted maturity will be more than ten years. For temporary periods, however, the Fund may invest up to 35% of its total assets in short term tax exempt or taxable money market obligations, although the Fund will not generally invest more than 20% of its net assets in taxable money market obligations. As a temporary measure for defensive purposes, the Fund may invest without limitation in short term tax-exempt or taxable money market obligations. These short term investments may limit the potential for the Fund to achieve its objective. The Fund may use derivatives including futures, options, indexed securities and inverse securities. Derivatives are financial instruments whose value is derived from another security or an index such as the Lehman Brothers Municipal Bond Index. The Fund's investments may include private activity bonds that may subject certain shareholders to a Federal alternative minimum tax. Colorado's economy is influenced by numerous factors, including developments in the agriculture, retail and wholesale trade and service industries. The Manager believes that current economic conditions in Colorado will enable the Fund to continue to invest in high quality Colorado municipal bonds. Fund management considers a variety of factors when choosing investments, such as: |
8 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
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| Credit Quality Of Issuers based on bond ratings and other factors including economic and financial conditions. |
| Yield Analysis takes into account factors such as the different yields available on different types of obligations and the shape of the yield curve (longer term obligations typically have higher yields). | |
| Maturity Analysis the average maturity of the portfolio will be maintained within a desirable range as determined from time to time. Factors considered include portfolio activity, maturity of the supply of available bonds and the shape of the yield curve. |
In addition, Fund management considers the availability of features that protect against an early call of a bond by the issuer. This section contains a summary discussion of the general risks of investing in the Fund. As with any mutual fund, there can be no guarantee that the Fund will meet its goals or that the Fund's performance will be positive for any period of time. Bond Market And Selection Risk Bond market risk is the risk that the bond market will go down in value, including the possibility that the market will go down sharply and unpredictably. Selection risk is the risk that the investments that Fund management selects will underperform the market or other funds with similar investment objectives and investment strategies. Credit Risk Credit risk is the risk that the issuer will be unable to pay the interest or principal when due. The degree of credit risk depends on both the financial condition of the issuer and the terms of the obligation. Interest Rate Risk Interest rate risk is the risk that prices of municipal bonds generally increase when interest rates decline and decrease when interest rates increase. Prices of longer term securities generally change more in response to interest rate changes than prices of shorter term securities.
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MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 9 |
|
[ICON] Details About the Fund |
State Specific Risk The Fund will invest primarily in Colorado municipal bonds. As a result, the Fund is more exposed to risks affecting issuers of Colorado municipal bonds than is a municipal bond fund that invests more widely. Colorado public bodies have sometimes encountered financial difficulties of a type that could have an adverse effect on the performance of the Fund. The Fund is a non-diversified fund, which means that it may invest more of its assets in obligations of a single issuer than if it were a diversified fund. By concentrating in a smaller number of investments, the Fund's risk is increased because each investment has a greater effect on the Fund's performance. A constitutional amendment (the "Amendment") which became effective as of December 31, 1992 restricts the ability of Colorado state and local governments to increase revenues and impose taxes. This amendment could restrict Colorado's ability to make payments on its bonds. For additional information on the Amendment, see Appendix I "Economic and Financial Conditions in Colorado" in the Statement of Additional Information. Call And Redemption Risk A bond's issuer may call a bond for redemption before it matures. If this happens to a bond the Fund holds, the Fund may lose income and may have to invest the proceeds in bonds with lower yields. Risks associated with certain types of obligations in which the Fund may invest include: General Obligation Bonds The faith, credit and taxing power of the issuer of a general obligation bond secures payment of interest and repayment of principal. Timely payments depend on the issuer's credit quality, ability to raise tax revenues and ability to maintain an adequate tax base. The State of Colorado does not issue general obligation bonds. Revenue Bonds Payments of interest and principal on revenue bonds are made only from the revenues generated by a particular facility, class of facilities or the proceeds of a special tax or other revenue source. These payments depend on the money earned by the particular facility or class of facilities. Industrial development bonds are one type of revenue bond. Industrial Development Bonds Municipalities and other public authorities issue industrial development bonds to finance development of industrial facilities for use by a private enterprise. The private enterprise pays the principal and interest on the bond, and the issuer does not pledge its faith, credit and taxing power for repayment. If the private enterprise defaults on its payments, the Fund may not receive any income or get its money back from the investment.
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10 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
Moral Obligation Bonds Moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality. Municipal Notes Municipal notes are shorter term municipal debt obligations. They may provide interim financing in anticipation of tax collection, bond sales or revenue receipts. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Fund may lose money. Municipal Lease Obligations In a municipal lease obligation, the issuer agrees to budget for and appropriate municipal funds to make payments due on the lease obligation. However, this does not ensure that funds will actually be appropriated in future years. The issuer does not pledge its unlimited taxing power for payment of the lease obligation, but the leased property secures the obligation. In addition, the proceeds of a sale may not cover the Fund's loss. Insured Municipal Bonds Bonds purchased by the Fund may be covered by insurance that guarantees timely interest payments and repayment of principal on maturity. If a bond's insurer fails to fulfill its obligations or loses its credit rating, the value of the bond could drop. Insured bonds are subject to market risk. Junk Bonds Junk bonds are debt securities that are rated below investment grade by the major rating agencies or are unrated securities that Fund management believes are of comparable quality. The Fund does not intend to purchase debt securities that are in default or which Fund management believes will be in default. Although junk bonds generally pay higher rates of interest than investment grade bonds, they are high risk investments that may cause income and principal losses for the Fund. Junk bonds generally are less liquid and experience more price volatility than higher rated debt securities. The issuers of junk bonds may have a larger amount of outstanding debt relative to their assets than issuers of investment grade bonds. In the event of an issuer's bankruptcy, claims of other creditorsmay have priority over the claims of junk bond holders, leaving few or no assets available to repay junk bond holders. Junk bonds may be subject to greater call and redemption risk than higher rated debt securities. When Issued Securities, Delayed Delivery Securities and Forward Commitments When issued and delayed delivery securities and forward commitments involve the risk that the security the Fund buys will lose value prior to its delivery to the Fund. There also is the risk that the |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 11 |
|
[ICON] Details About the Fund |
security will not be issued or that the other party will not meet its obligation, in which case the Fund loses the investment opportunity of the assets it has set aside to pay for the security and any gain in the security's price. Variable Rate Demand Obligations Variable rate demand obligations (VRDOs) are floating rate securities that combine an interest in a long term municipal bond with a right to demand payment before maturity from a bank or other financial institution. If the bank or financial institution is unable to pay, the Fund may lose money. Illiquid Investments The Fund may invest up to 15% of its assets in illiquid securities that it cannot easily resell within seven days at current value or that have contractual or legal restrictions on resale. If the Fund buys illiquid securities it may be unable to quickly resell them or may be able to sell them only at a price below current value. Derivatives The Fund may use derivative instruments including indexed and inverse securities, options on portfolio positions, options on securities or other financial indices, financial futures and options on such futures. Derivatives allow the Fund to increase or decrease its risk exposure more quickly and efficiently than other types of instruments. Derivatives are volatile and involve significant risks, including: |
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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. |
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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. |
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Liquidity Risk the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security is currently worth. |
The Fund may use derivatives for hedging purposes including anticipatory hedges. Hedging is a strategy in which the Fund uses a derivative to offset the risk that other Fund holdings may decrease in value. While hedging can reduce losses, it can also reduce or eliminate gains if the market moves in a different manner than anticipated by the Fund or if the cost of the derivative |
12 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
outweighs the benefit of the hedge. Hedging also involves the risk that changes in the value of the derivative will not match those of the holdings being hedged as expected by the Fund, in which case any losses on the holdings being hedged may not be reduced. There can be no assurance that the Fund's hedging strategy will reduce risk or that hedging transactions will be either available or cost effective. The Fund is not required to use hedging and may choose not to do so. Indexed And Inverse Floating Rate Securities The Fund may invest in securities whose potential returns are directly related to changes in an underlying index or interest rate, known as indexed securities. The return on indexed securities will rise when the underlying index or interest rate rises and fall when the index or interest rate falls. The Fund may also invest in securities whose return is inversely related to changes in an interest rate (inverse floaters). In general, income on inverse floaters will decrease when short term rates increase and increase when short term rates decrease. Investments in inverse floaters may subject the Fund to the risks of reduced or eliminated interest payments and losses of principal. In addition, certain indexed securities and inverse floaters may increase or decrease in value at a greater rate than the underlying interest rate, which effectively leverages the Fund's investment. As a result, the market value of such securities will generally be more volatile than that of fixed rate, tax exempt securities. Both indexed securities and inverse floaters are derivative securities and can be considered speculative. Borrowing And Leverage The Fund may borrow
for temporary emergency purposes including to meet redemptions. Borrowing
may exaggerate changes in the net asset value of Fund shares and in the
yield on the Fund's portfolio. Borrowing will cost the Fund interest expense
and other fees. The costs of borrowing may reduce the Fund's return. Certain
securitiesthat the Fund buys may create leverage including, for example,
when issued securities, forward commitments and options. STATEMENT OF ADDITIONAL INFORMATION If you would like further information about the Fund, including how it invests, please see the Statement of Additional Information. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 13 |
MERRILL LYNCH SELECT
PRICINGSM SYSTEM The Fund offers four share classes, each with its own sales charge and expense structure, allowing you to invest in the way that best suits your needs. Each share class represents an ownership interest in the same investment portfolio. When you choose your class of shares you should consider the size of your investment and how long you plan to hold your shares. Your Merrill Lynch Financial Consultant can help you determine which share class is best suited to your personal financial goals. For example, if you select Class A or D shares, you generally pay a sales charge at the time of purchase. If you buy Class D shares, you also pay an ongoing account maintenance fee of 0.10%. You may be eligible for a sales charge reduction or waiver. If you select Class B or C shares, you will invest the full amount of your purchase price, but you will be subject to a distribution fee of 0.25% on Class B shares or 0.35% on Class C shares and an account maintenance fee of 0.25% on both classes. Because these fees are paid out of the Fund's assets on an ongoing basis, over time these fees increase the cost of your investment and may cost you more than paying an initial sales charge. In addition, you may be subject to a deferred sales charge when you sell Class B or C shares. The Fund's shares are distributed by Merrill Lynch Funds Distributor, a division of Princeton Funds Distributor, Inc., an affiliate of Merrill Lynch. The Fund is a series of the Merrill Lynch Multi-State Municipal Series Trust. |
14 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
The table below summarizes key features of the Merrill Lynch Select PricingSM System. |
Class A | Class B | Class C | Class D | ||||
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Availability | Limited to certain investors including: Current Class A shareholders Participants in certain Merrill Lynch-sponsored programs Certain affiliates of Merrill Lynch |
Generally available through Merrill Lynch. Limited availability through other securities dealers. | Generally available through Merrill Lynch. Limited availability through other securities dealers. | Generally available through Merrill Lynch. Limited availability through other securities dealers. | |||
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Initial Sales Charge? |
Yes. Payable at time of purchase. Lower sales charges available for larger investments. | No. Entire purchase price is invested in shares of the Fund. | No. Entire purchase price is invested in shares of the Fund. | Yes. Payable at time of purchase. Lower sales charges available for larger investments. | |||
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Deferred Sales Charge? |
No. (May be charged for purchases over $1 million that are redeemed within one year.) | Yes. Payable if you redeem within one year of purchase. | Yes. Payable if you redeem within one year of purchase. | No. (May be charged for purchases over $1 million that are redeemed within one year.) | |||
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Account Maintenance and Distribution Fees? |
No. | 0.25% Account Maintenance Fee 0.25% Distribution Fee. | 0.25% Account Maintenance Fee 0.35% Distribution Fee. | 0.10% Account Maintenance Fee No Distribution Fee. | |||
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Conversion to Class D shares? | No. | Yes, automatically after approximately eight years. | No. | No. | |||
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MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 15 |
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[ICON] Your Account |
Right of Accumulation permits you to pay the sales charge that would apply to the cost or value (whichever is higher) of all shares you own in the Merrill Lynch mutual funds that offer Select Pricing options. Letter of Intent permits you to pay the sales charge that would be applicable if you add up all shares of Merrill Lynch Select Pricing System funds that you agree to buy within a 13 month period. Certain restrictions apply. |
Class A and Class D Shares Initial Sales Charge OptionsIf you select Class A or Class D shares, you will pay a sales charge at the time of purchase. |
Your Investment | As a % of Offering Price |
As a % of Your Investment* |
Dealer Compensation as a % of Offering Price |
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Less than $25,000 | 4.00 | % | 4.17 | % | 3.75 | % | |
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$25,000 but less than $50,000 |
3.75 | % | 3.90 | % | 3.50 | % | |
|
|||||||
$50,000 but less than $100,000 |
3.25 | % | 3.36 | % | 3.00 | % | |
|
|||||||
$100,000 but less than $250,000 |
2.50 | % | 2.56 | % | 2.25 | % | |
|
|||||||
$250,000 but less than $1,000,000 |
1.50 | % | 1.52 | % | 1.25 | % | |
|
|||||||
$1,000,000 and over** | 0.00 | % | 0.00 | % | 0.00 | % | |
|
* | Rounded to the nearest one-hundredth percent. | |
** | If you invest $1,000,000 or more in Class A or Class D shares, you may not pay an initial sales charge. However, if you redeem your shares within one year after purchase, you may be charged a deferred sales charge. This charge is 1% of the lesser of the original cost of the shares being redeemed or your redemption proceeds. |
No initial sales charge applies to Class A or Class D shares that you buy through reinvestment of dividends. A reduced or waived sales charge on a purchase of Class A or Class D shares may apply for: |
| Purchases under a Right of Accumulation or Letter of Intent |
| TMASM Managed Trusts |
| Certain Merrill Lynch investment or central asset accounts |
| Purchases using proceeds from the sale of certain Merrill Lynch closed-end funds under certain circumstances |
| Certain investors, including directors or trustees of Merrill Lynch mutual funds and Merrill Lynch employees |
| Certain Merrill Lynch fee-based programs |
16 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
Only certain investors are eligible to buy Class A shares. Your Merrill Lynch Financial Consultant can help you determine whether you are eligible to buy Class A shares or to participate in any of these programs. If you decide to buy shares under the initial sales charge alternative and you are eligible to buy both Class A and Class D shares, you should buy Class A since Class D shares are subject to a 0.10% account maintenance fee, while Class A shares are not. If you redeem Class A or Class D shares and within 30 days buy new shares of the same class, you will not pay a sales charge on the new purchase amount. The amount eligible for this "Reinstatement Privilege" may not exceed the amount of your redemption proceeds. To exercise the privilege, contact your Merrill Lynch Financial Consultant or the Fund's Transfer Agent at 1-800-MER-FUND. Class B and Class C Shares Deferred Sales Charge Options If you select Class B or Class C shares, you do not pay an initial sales charge at the time of purchase. However, if you redeem your Class B shares within four years after purchase, or your Class C shares within one year after purchase, you may be required to pay a deferred sales charge. You will also pay distribution fees of 0.25% for Class B shares and 0.35% for Class C shares and account maintenance fees of 0.25% for Class B and Class C shares each year under distribution plans that the Fund has adopted under Rule 12b-1. Because these fees are paid out of the Fund's assets on an ongoing basis, over time these fees increase the cost of your investment and may cost you more than paying an initial sales charge. The Distributor uses the money that it receives from the deferred sales charges and the distribution fees to cover the costs of marketing, advertising and compensating the Merrill Lynch Financial Consultant or other securities dealer who assists you in purchasing Fund shares. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 17 |
|
[ICON] Your Account |
Class B SharesIf you redeem Class B shares within four years after purchase, you may be charged a deferred sales charge. The amount of the charge gradually decreases as you hold your shares over time, according to the following schedule: |
Years Since Purchase | Sales Charge* | ||||
---|---|---|---|---|---|
|
|||||
0 - 1 | 4.00% | ||||
|
|||||
1 - 2 | 3.00% | ||||
|
|||||
2 - 3 | 2.00% | ||||
|
|||||
3 - 4 | 1.00% | ||||
|
|||||
4 and thereafter | 0.00% | ||||
|
* | The percentage charge will apply to the lesser of the original cost of the shares being redeemed or the proceeds of your redemption. Shares acquired through reinvestment of dividends are not subject to a deferred sales charge. Not all Merrill Lynch funds have identical deferred sales charge schedules. If you exchange your shares for shares of another fund, the higher charge will apply. |
The deferred sales charge relating to Class B shares may be reduced or waived in certain circumstances, such as: |
| Redemption in connection with participation in certain Merrill Lynch fee-based programs |
| Withdrawals resulting from shareholder death or disability as long as the waiver request is made within one year of death or disability or, if later, reasonably promptly following completion of probate, or in connection with involuntary termination of an account in which Fund shares are held |
| Withdrawal through the Merrill Lynch Systematic Withdrawal Plan of up to 10% per year of your Class B account value at the time the plan is established |
Your Class B shares convert automatically into Class D shares approximately ten years after purchase. Any Class B shares received through reinvestment of dividends paid on converting shares will also convert at that time. Class D shares are subject to lower annual expenses than Class B shares. The conversion of Class B to Class D shares is not a taxable event for Federal income tax purposes. |
18 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
Different conversion schedules apply to Class B shares of different Merrill Lynch mutual funds. For example, Class B shares of a fixed-income fund typically convert approximately ten years after purchase compared to approximately eight years for equity funds. If you acquire your Class B shares in an exchange from another fund with a shorter conversion schedule, the Fund's ten year conversion schedule will apply. If you exchange your Class B shares in the Fund for Class B shares of a fund with a shorter conversion schedule, the other fund's conversion schedule will apply. The length of time that you hold both the original and exchanged Class B shares in both funds will count toward the conversion schedule. The conversion schedule may be modified in certain other cases as well. Class C Shares If you redeem Class C shares within one year after purchase, you may be charged a deferred sales charge of 1.00%. The charge will apply to the lesser of the original cost of the shares being redeemed or the proceeds of your redemption. You will not be charged a deferred sales charge when you redeem shares that you acquire through reinvestment of Fund dividends. The deferred sales charge relating to Class C shares may be reduced or waived in connection with involuntary termination of an account in which Fund shares are held and withdrawals through the Merrill Lynch Systematic Withdrawal Plan. Class C shares do not offer a conversion privilege. HOW TO BUY, SELL, TRANSFER AND EXCHANGE
SHARES The chart below summarizes how to buy, sell, transfer and exchange shares through Merrill Lynch or other securities dealers. You may also buy shares through the Transfer Agent. To learn more about buying shares through the Transfer Agent, call 1-800-MER-FUND. Because the selection of a mutual fund involves many considerations, your Merrill Lynch Financial Consultant may help you with this decision. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 19 |
[ICON] Your Account
|
If You Want to | Your Choices | Information Important for You to Know | |
|
|||
Buy Shares | First, select the share class appropriate for you | Refer to the Merrill Lynch Select Pricing table on page 15. Be sure to read this prospectus carefully. | |
|
|||
Next, determine the amount of your investment | The minimum initial investment
for the Fund is $1,000 for all accounts except that certain Merrill Lynch
fee-based programs have a $250 initial minimum investment. (The minimums for initial investments may be waived under certain circumstances.) |
||
|
|||
Have your Merrill Lynch Financial Consultant or securities dealer submit your purchase order | The price of your shares is based
on the next calculation of net asset value after your order is placed. Any
purchase orders placed prior to the close of business on the New York Stock
Exchange (generally 4:00 p.m Eastern time) will be priced at the net asset
value determined that day. Purchase orders placed after that time will be priced at the net asset value determined on the next business day. The Fund may reject any order to buy shares and may suspend the sale of shares at any time. Merrill Lynch may charge a processing fee to confirm a purchase. This fee is currently $5.35. |
||
|
|||
Or contact the Transfer Agent |
To purchase shares directly, call the Transfer Agent at 1-800-MER-FUND and request a purchase application. Mail the completed purchase application to the Transfer Agent at the address on the inside back cover of this Prospectus. | ||
|
|||
Add to Your Investment |
Purchase additional shares | The minimum investment for additional
purchases is generally $50 except that certain programs, such as automatic
investment plans, may have higher minimums. (The minimum for additional purchases may be waived under certain circumstances.) |
|
|
|||
Acquire additional shares through the automatic dividend reinvestment plan | All dividends are automatically reinvested without a sales charge. | ||
Participate in the automatic investment plan | You may invest a specific amount on a periodic basis through certain Merrill Lynch investment or central asset accounts. | ||
|
|||
Transfer Shares to Another Securities Dealer |
Transfer to a participating securities dealer |
You may transfer your Fund shares only to another securities dealer that has entered into an agreement with Merrill Lynch. Certain shareholder services may not be available for the transferred shares. You may only purchase additional shares of funds previously owned before the transfer. All future trading of these assets must be coordinated by the receiving firm. | |
|
|||
Transfer to a non-participating securities dealer |
You must either: Transfer your shares to an account with the Transfer Agent; or Sell your shares, paying any applicable CDSC. |
||
|
20 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
|
If You Want to | Your Choices | Information Important for You to Know | |
|
|||
Sell Your Shares | Have your Merrill Lynch
Financial Consultant or securities dealer submit your sales order |
The price of your shares
is based on the next calculation of net asset value after your order is
placed. For your redemption request to be priced at the net asset value
on the day of your request, you must submit your request to your dealer
prior to that day's close of business on the New York Stock Exchange (generally
4:00 p.m. Eastern time). Any redemption request placed after that time will
be priced at the net asset value at the close of business on the next business
day. Dealers must submit redemption requests to the Fund not more than thirty
minutes after the close of business on the New York Stock Exchange on the
day the request was received. Securities dealers, including Merrill Lynch, may charge a fee to process a redemption of shares. Merrill Lynch currently charges a fee of $5.35. No processing fee is charged if you redeem shares directly through the Transfer Agent. The Fund may reject an order to sell shares under certain circumstances. |
|
|
|||
Sell through the Transfer Agent | You may sell shares
held at the Transfer Agent by writing to the Transfer Agent at the address
on the inside back cover of this prospectus. All shareholders on the account
must sign the letter. In some cases, a signature guarantee may be required.
Please see the Statement of Additional Information for details on when a
signature guarantee is needed. If you hold stock certificates, return the
certificates with the letter. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly completed request.
If you make a redemption request before the Fund has collected payment for
the purchase of shares, the Fund or the Transfer Agent may delay mailing
your proceeds. This delay will usually not exceed ten days. If you hold share certificates, they must be delivered to the Transfer Agent before they can be converted. Check with the Transfer Agent or your Merrill Lynch Financial Consultant for details. |
||
|
|||
Sell Shares Systematically | Participate in the Fund's Systematic Withdrawal Plan | You can choose to receive systematic payments from your Fund account either by check or through direct deposit to your bank account on a monthly or quarterly basis. If you hold your Fund shares in a Merrill Lynch CMA® or CBA® Account you can arrange for systematic redemptions of a fixed dollar amount on a monthly, bi-monthly, quarterly, semi-annual or annual basis, subject to certain conditions. Under either method you must have dividends automatically reinvested. For Class B and C shares your total annual withdrawals cannot be more than 10% per year of the value of your shares at the time your plan is established. The deferred sales charge is waived for systematic redemptions. Ask your Merrill Lynch Financial Consultant for details. | |
|
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 21 |
[ICON] Your Account
|
If You Want to | Your Choices | Information Important for You to Know | |
|
|||
Exchange Your Shares | Select the fund into which you want to exchange. Be sure to read that fund's prospectus | You can exchange your shares of the Fund for shares
of many other Merrill Lynch mutual funds. You must have held the shares
used in the exchange for at least 15 calendar days before you can exchange
to another fund. Each class of Fund shares is generally exchangeable for shares of the same class of another fund. If you own Class A shares and wish to exchange into a fund in which you have no Class A shares (and are not eligible to purchase Class A shares), you will exchange into Class D shares. Some of the Merrill Lynch mutual funds impose a different initial or deferred sales charge schedule. If you exchange Class A or D shares for shares of a fund with a higher initial sales charge than you originally paid, you will be charged the difference at the time of exchange. If you exchange Class B shares for shares of a fund with a different deferred sales charge schedule, the higher schedule will apply. The time you hold Class B or C shares in both funds will count when determining your holding period for calculating a deferred sales charge at redemption. If you exchange Class A or D shares for money market fund shares, you will receive Class A shares of Summit Cash Reserves Fund. Class B or C shares of the Fund will be exchanged for Class B shares of Summit. Although there is currently no limit on the number of exchanges that you can make, the exchange privilege may be modified or terminated at any time in the future. |
|
|
22 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
|
Net Asset Value the market value of the Fund's total assets after deducting liabilities, divided by the number of shares outstanding. |
HOW SHARES ARE PRICED When you buy shares, you pay the net asset value, plus any applicable sales charge. This is the offering price. Shares are also redeemed at their net asset value, minus any applicable deferred sales charge. The Fund calculates its net asset value (generally by using market quotations) each day the New York Stock Exchange is open, after the close of business on the Exchange (the Exchange generally closes at 4:00 p.m. Eastern time). The net asset value used in determining your price is the next one calculated after your purchase or redemption order is placed. Generally, Class A shares will have the highest net asset value because that class has the lowest expenses, and Class D shares will have a higher net asset value than Class B or Class C shares. Class B shares will have a higher net asset value than Class C shares because Class B shares have lower distribution expenses than Class C shares. Also dividends paid on Class A and Class D shares will generally be higher than dividends paid on Class B and Class C shares because Class A and Class D shares have lower expenses. PARTICIPATION IN
MERRILL LYNCH FEE-BASED PROGRAMS If you participate in certain fee-based programs offered by Merrill Lynch, you may be able to buy Class A shares at net asset value, including by exchanges from other share classes. Sales charges on the shares being exchanged may be reduced or waived under certain circumstances. You generally cannot transfer shares held through a fee-based program into another account. Instead, you will have to redeem your shares held through the program and purchase shares of another class, which may be subject to distribution and account maintenance fees. This may be a taxable event and you will pay any applicable sales charges. If you leave one of these programs, your shares may be redeemed or automatically exchanged into another class of Fund shares or into a money market fund. The class you receive may be the class you originally owned when you entered the program, or in certain cases, a different class. If the exchange is into Class B shares, the period before conversion to Class D shares may be modified. Any redemption or exchange will be at net asset value. However, if you participate in the program for less than a specified period, you may be charged a fee in accordance with the terms of the program. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 23 |
|
Dividends Exempt-interest, ordinary income and capital gains paid to shareholders. Dividends may be reinvested in additional Fund shares as they are paid. |
Details about these features and the relevant charges are included in the client agreement for each fee-based program and are available from your Merrill Lynch Financial Consultant. DIVIDENDS AND TAXES The Fund will distribute any net investment income monthly and any net realized long or short term capital gains at least annually. The Fund may also pay a special distribution at the end of the calendar year to comply with Federal tax requirements. If your account is with Merrill Lynch and you would like to receive dividends in cash, contact your Merrill Lynch Financial Consultant. If your account is with the Transfer Agent and you would like to receive dividends in cash, contact the Transfer Agent. Taxes To the extent that the dividends distributed by the Fund are from municipal bond interest income, they are exempt from Federal income tax. However, certain investors may be subject to a Federal alternative minimum tax on dividends received from the Fund. To the extent that the dividends distributed by the Fund are derived from Colorado municipal bond interest income, they are also exempt from Colorado income taxes. Interest income from other investments may produce taxable dividends. Dividends derived from capital gains realized by the Fund will be subject to Federal tax and generally will be subject to Colorado tax as well. If you are subject to income tax in a state other than Colorado, the dividends derived from Colorado municipal bonds will not be exempt from income tax in that state. Generally, within 60 days after the end of the Fund's taxable year, the Trust will tell you the amount of exempt-interest dividends and capital gain dividends you received that year. Capital gain dividends are taxable as long term capital gains to you, regardless of how long you have held your shares. The tax treatment of dividends from the Fund is the same whether you choose to receive dividends in cash or to have them reinvested in shares of the Fund. |
24 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
|
"BUYING A DIVIDEND" |
By law, the Fund must withhold 31% of your distributions and proceeds if you have not provided a taxpayer identification number or social security number or if the number you have provided is incorrect. If you redeem Fund shares or exchange them for shares of another fund, any gain on the transaction may be subject to Federal income tax. This section summarizes some of the consequences of an investment in the Fund under current Federal and Colorado tax laws. It is not a substitute for personal tax advice. Consult your personal tax adviser about the potential tax consequences to you of an investment in the Fund under all applicable tax laws. The Fund's Statement of Additional Information has more information about taxes. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 25 |
|
[ICON] Management of the Fund |
Fund Asset Management, the Fund's Manager, manages the Fund's investments and its business operations under the overall supervision of the Trust's Board of Trustees. The Manager has the responsibility for making all investment decisions for the Fund. The Fund pays the Manager a fee at the annual rate of 0.55% of the average daily net assets of the Fund for the first $500 million; 0.525% of the average daily net assets from $500 million to $1 billion; and 0.50% of the average daily net assets above $1 billion. For the fiscal year ended July 31, 1999, the Manager received a fee equal to 0.55% of the Fund's average daily net assets, but the Manager voluntarliy waived a portion of the management fee due for the fiscal year. See the Fees and Expenses table on page 6. Fund Asset Management is part of the Asset Management Group of ML & Co. The Asset Management Group had approximately $520 billion in investment company and other portfolio assets under management as of August 1999. This amount includes assets managed for Merrill Lynch affiliates. A Note About Year 2000 Many computer systems were designed using only two digits to designate years. These systems may not be able to distinguish the Year 2000 from the Year 1900 (commonly known as the "Year 2000 Problem"). The Fund could be adversely affected if the computer systems used by Fund management or other Fund service providers do not properly address this problem before January 1, 2000. Fund management expects to have addressed this problem before then, and does not anticipate that the services it provides will be adversely affected. The Fund's other service providers have told Fund management that they also expect to resolve the Year 2000 Problem, and Fund management will continue to monitor the situation as the Year 2000 approaches. However, if the problem has not been fully addressed, the Fund could be negatively affected. The Year 2000 Problem could also have a negative impact on the issuers of securities in which the Fund invests, and this could hurt the Fund's investment returns. |
26 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
|
The Financial Highlights table is intended to help you understand the Fund's financial performance for the periods shown. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned on an investment in the Fund (assuming reinvestment of all dividends). This information has been audited by Deloitte & Touche LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report to shareholders, which is available upon request. |
Class A
|
Class B
|
||||||||||||||||||||
Increase(Decrease) in Net Asset |
For the Year Ended July 31,
|
For the Year Ended July 31,
|
|||||||||||||||||||
Value: | 1999 | 1998 | 1997 | 1996 | 1995 | 1999 | 1998 | 1997 | 1996 | 1995 | |||||||||||
|
|||||||||||||||||||||
Per Share Operating Performance: | |||||||||||||||||||||
|
|||||||||||||||||||||
Net asset value, beginning of year | $ | $ 9.89 | $ 9.45 | $ 9.41 | $ 9.38 | $ | $ 9.89 | $ 9.45 | $ 9.41 | $ 9.38 | |||||||||||
|
|||||||||||||||||||||
Investment income net | .47 | .47 | .50 | .52 | .42 | .42 | .45 | .48 | |||||||||||||
|
|||||||||||||||||||||
Realized and unrealized gain (loss) on investments net |
.07 | .44 | .04 | .03 | .07 | .44 | .04 | .03 | |||||||||||||
|
|||||||||||||||||||||
Total from investment operations | .54 | .91 | .54 | .55 | .49 | .86 | .49 | .51 | |||||||||||||
|
|||||||||||||||||||||
Less dividends and distributions: Investment incomenet |
| (.47 | ) | (.47 | ) | (.50 | ) | (.52 | ) | | (.42 | ) | (.42 | ) | (.45 | ) | (.48 | ) | |||
Realized gain on investmentsnet |
| | | | | | | | | | |||||||||||
In excess of realized gain
on investments net |
| | | | | | | | | | |||||||||||
|
|||||||||||||||||||||
Total dividends and distributions | | (.47 | ) | (.47 | ) | (.50 | ) | (.52 | ) | (.42 | ) | (.42 | ) | (.45 | ) | (.48 | ) | ||||
|
|||||||||||||||||||||
Net asset value, end of year | $ | $9.96 | $9.89 | $9.45 | $ 9.41 | $ | $ 9.96 | $ 9.89 | $ 9.45 | $ 9.41 | |||||||||||
|
|||||||||||||||||||||
Total Investment Return:* | |||||||||||||||||||||
|
|||||||||||||||||||||
Based on net asset value per share | % | 5.56 | % | 9.93 | % | 5.83 | % | 6.20 | % | % | 5.03 | % | 9.38 | % | 5.29 | % | 5.66 | % | |||
|
|||||||||||||||||||||
Ratios to Average Net Assets: | |||||||||||||||||||||
|
|||||||||||||||||||||
Expenses,net of reimbursement | % | .72 | % | .62 | % | .47 | % | .24 | % | % | 1.23 | % | 1.13 | % | .98 | % | .76 | % | |||
|
|||||||||||||||||||||
Expenses | % | 1.07 | % | 1.05 | % | 1.12 | % | 1.40 | % | % | 1.58 | % | 1.56 | % | 1.62 | % | 1.93 | % | |||
|
|||||||||||||||||||||
Investment income net | % | 4.69 | % | 4.94 | % | 5.24 | % | 5.71 | % | % | 4.19 | % | 4.43 | % | 4.73 | % | 5.20 | % | |||
|
|||||||||||||||||||||
Supplemental Data: | |||||||||||||||||||||
|
|||||||||||||||||||||
Net assets, end of year(in thousands) | $ | $9,336 | $8,481 | $8,777 | $9,755 | $ | $15,588 | $18,987 | $18,407 | $17,116 | |||||||||||
|
|||||||||||||||||||||
Portfolio turnover | % | 131.91 | % | 108.22 | % | 49.13 | % | 73.86 | % | % | 131.91 | % | 108.22 | % | 49.13 | % | 73.86 | % | |||
|
* | Total investment returns exclude the effects of sales loads. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND | 27 |
|
FINANCIAL HIGHLIGHTS (concluded) |
Class C
|
Class D
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Increase (Decrease) in Net Asset |
For the Year Ended July 31,
|
For the Period October 21, 1994 to July 31, |
For the Year Ended July 31,
|
For the Period October 21, 1994 to July 31, |
|||||||||||||||||
Value: | 1999 | 1998 | 1997 | 1996 | 1995 | 1999 | 1998 | 1997 | 1996 | 1995 | |||||||||||
|
|||||||||||||||||||||
Per Share Operating Performance: |
|||||||||||||||||||||
|
|||||||||||||||||||||
Net asset value, beginning of period |
$ | $ 9.89 | $ 9.46 | $ 9.41 | $ 9.03 | $ | $ 9.88 | $ 9.45 | $ 9.40 | $ 9.03 | |||||||||||
|
|||||||||||||||||||||
Investment income net |
.41 | .41 | .44 | .35 | .46 | .46 | .49 | .40 | |||||||||||||
|
|||||||||||||||||||||
Realized and unrealized gain (loss) on investments net |
.08 | .43 | .05 | .38 | .08 | .43 | .05 | .37 | |||||||||||||
|
|||||||||||||||||||||
Total from investment operations |
.49 | .84 | .49 | .73 | .54 | .89 | .54 | .77 | |||||||||||||
|
|||||||||||||||||||||
Less dividends and distributions: Investment income net |
| (.41 | ) | (.41 | ) | (.44 | ) | (.35 | ) | | (.46 | ) | (.46 | ) | (.49 | ) | (.40 | ) | |||
Realized gain on investments net |
| | | | | | | | | | |||||||||||
In excess of realized gain on investments net |
| | | | | | | | | | |||||||||||
|
|||||||||||||||||||||
Total dividends and distributions |
| (.41 | ) | (.41 | ) | (.44 | ) | (.35 | ) | | (.46 | ) | (.46 | ) | (.49 | ) | (.40 | ) | |||
|
|||||||||||||||||||||
Net asset value, end of year |
$ | $ 9.97 | $ 9.89 | $ 9.46 | $ 9.41 | $ | $ 9.96 | $ 9.88 | $ 9.45 | $9.40 | |||||||||||
|
|||||||||||||||||||||
Total Investment Return:* |
|||||||||||||||||||||
|
|||||||||||||||||||||
Based on net asset value per share |
% | 5.03 | % | 9.15 | % | 5.29 | % | 8.27 | %# | % | 5.56 | % | 9.71 | % | 5.84 | % | 8.74 | %# | |||
|
|||||||||||||||||||||
Ratios to Average Net Assets: |
|||||||||||||||||||||
|
|||||||||||||||||||||
Expenses, net of reimbursement | % | 1.33 | % | 1.23 | % | 1.09 | % | .95 | %* | % | .82 | % | .72 | % | .58 | % | .38 | %* | |||
|
|||||||||||||||||||||
Expenses | % | 1.68 | % | 1.66 | % | 1.72 | % | 2.04 | %* | % | 1.17 | % | 1.15 | % | 1.21 | % | 1.49 | %* | |||
|
|||||||||||||||||||||
Investment income net |
% | 4.08 | % | 4.33 | % | 4.62 | % | 5.01 | %* | % | 4.59 | % | 4.84 | % | 5.13 | % | 5.66 | %* | |||
|
|||||||||||||||||||||
Supplemental Data: | |||||||||||||||||||||
|
|||||||||||||||||||||
Net assets, end of year (in thousands) |
$ | $ 674 | $ 578 | $ 449 | $ 162 | $ | $2,116 | $2,647 | $2,173 | $1,265 | |||||||||||
|
|||||||||||||||||||||
Portfolio turnover | % | 131.91 | % | 108.22 | % | 49.13 | % | 73.86 | % | % | 131.91 | % | 108.22 | % | 49.13 | % | 73.86 | % | |||
|
* | Annualized. |
** | Total investment returns exclude the effects of sales loads. |
| Commencement of operations. |
# | Aggregate total investment return. |
28 | MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
|
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MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
|
(This page intenionally left blank) |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
|
[1] |
POTENTIAL INVESTORS Open an account (two options) |
[2] |
MERRILL LYNCH FINANCIAL CONSULTANT OR SECURITIES DEALER Advises shareholders on their Fund investments. |
TRANSFER AGENT Financial Data Services, Inc. P.O. Box 45289 Jacksonville, Florida 32232-5289 Performs recordkeeping and reporting services. |
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DISTRIBUTOR Merrill Lynch Funds Distributor, a division of Princeton Funds Distributor, Inc. P.O. Box 9081 Princeton, New Jersey 08543-9081 Arranges for the sale of Fund shares. |
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COUNSEL Brown & Wood LLP One World Trade Center New York, New York 10048-0557 Provides legal advice to the Fund. |
THE
FUND The Board of Trustees oversees the Fund. |
CUSTODIAN State Street Bank and Trust Company P.O. Box 351 Boston, Massachusetts 02101 Holds the Fund's assets for safekeeping. |
INDEPENDENT AUDITORS Deloitte & Touche LLP 117 Campus Drive Princeton, New Jersey 08540-6400 Audits the financial statements of the Fund on behalf of the shareholders. |
MANAGER Fund Asset Management, L.P. ADMINISTRATIVE OFFICES 800 Scudders Mill Road Plainsboro, New Jersey 08536 MAILING ADDRESS P.O. Box 9011 Princeton, New Jersey 08543-9011 TELEPHONE NUMBER 1-800-MER-FUND Manages the Fund's day-to-day activities. |
MERRILL LYNCH COLORADO MUNICIPAL BOND FUND |
For More Information [ICON] Additional information about the Fund's investments is available in the Fund's annual and semi-annual reports to shareholders. In the Fund's annual report you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. You may obtain these reports at no cost by calling 1-800-MER-FUND. The Fund will send you one copy of each shareholder report and certain other mailings, regardless of the number of Fund accounts you have. To receive separate shareholder reports for each account, call your Merrill Lynch Financial Consultant or write to the Transfer Agent at its mailing address. Include your name, address, tax identification number and Merrill Lynch brokerage or mutual fund account number. If you have any questions, please call your Merrill Lynch Financial Consultant or the Transfer Agent at 1-800-MER-FUND. Statement of Additional Information The Fund's Statement of Additional Information contains further information about the Fund and is incorporated by reference (legally considered to be part of this prospectus). You may request a free copy by writing the Fund at Financial Data Services, Inc., P.O. Box 45289 Jacksonville, Florida 32232-5289 or by calling 1-800-MER-FUND. Contact your Merrill Lynch Financial Consultant or the Fund, at the telephone number or address indicated above, if you have any questions. Information about the Fund (including the Statement of Additional Information) can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the public reference room. This information is also available on the SEC's Internet site at http://www.sec.gov and copies may be obtained upon payment of a duplicating fee by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009. You should rely only on the information contained in this Prospectus. No one is authorized to provide you with information that is different from information contained in this Prospectus. Investment Company Act file #811-4375 |
Prospectus |
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[LOGO] Merrill Lynch |
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Merrill Lynch Colorado Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust |
November __, 1999
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Risk Factors and Special Considerations Relating to Municipal Bonds |
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Initial Sales Charge Alternatives Class A and Class D Shares |
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Deferred Sales Charge Alternatives Class B and Class C Shares |
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INVESTMENT OBJECTIVE AND POLICIES The investment objective of the Fund is to provide shareholders with income exempt from Federal and Colorado income taxes. The Fund seeks to achieve its objective by investing primarily in a portfolio of long-term investment grade obligations issued by or on behalf of the State of Colorado, its political subdivisions, agencies and instrumentalities and obligations of other qualifying issuers, such as issuers located in Puerto Rico, the US Virgin Islands and Guam, which pay interest exempt, in the opinion of bond counsel to the issuer, from Federal and Colorado income taxes. Obligations exempt from Federal income taxes are referred to herein as "Municipal Bonds," and obligations exempt from Federal and Colorado income taxes are referred to as "Colorado Municipal Bonds." Unless otherwise indicated, references to Municipal Bonds shall be deemed to include Colorado Municipal Bonds. The investment objective as set forth in the first sentence of this paragraph is a fundamental policy and may not be changed without a vote of a majority of the outstanding shares of the Fund. See "How the Fund Invests" in the Prospectus for a general discussion of the Fund's goals, main investment strategies and main risks. Under normal circumstances, except when acceptable securities are unavailable as determined by Fund Asset Management, L.P. (the "Manager" or "FAM"), the Fund's manager, or for temporary defensive purposes, the Fund will invest at least 65% of its total assets in Colorado Municipal Bonds. The value of bonds and other fixed-income obligations may fall when interest rates rise and rise when interest rates fall. In general, bonds and other fixed-income obligations with longer maturities will be subject to greater volatility resulting from interest rate fluctuations than will similar obligations with shorter maturities. Under normal conditions, it is generally anticipated that the Fund's average weighted maturity will be in excess of ten years. For temporary periods or to provide liquidity, the Fund has the authority to invest as much as 35% of its total assets in tax-exempt or taxable money market obligations with a maturity of one year or less (such short-term obligations being referred to herein as "Temporary Investments"), except that taxable Temporary Investments shall not exceed 20% of the Fund's net assets. The Fund may also invest in variable rate demand obligations ("VRDOs") and VRDOs in the form of participation interests ("Participating VRDOs") in variable rate tax-exempt obligations held by a financial institution. See "Description of Temporary Investments." The Fund's hedging strategies, which are described in more detail under "Financial Futures Transactions and Options," are not fundamental policies and may be modified by the Trustees of the Trust without the approval of the Fund's shareholders. At least 80% of the Fund's total assets will be invested in Municipal Bonds that are commonly referred to as "investment grade" securities, which are obligations rated at the time of purchase within the four highest quality ratings as determined by either Moody's Investors Service, Inc. ("Moody's") (currently Aaa, Aa, A and Baa), Standard & Poor's ("S&P") (currently AAA, AA, A and BBB) or Fitch IBCA, Inc. ("Fitch") (currently AAA, AA, A and BBB). If unrated, such securities will possess creditworthiness comparable, in the opinion of the Manager, to other obligations in which the Fund may invest. Securities rated in the lowest investment grade rating category are considered to have speculative characteristics. The Fund may invest up to 20% of its total assets in Municipal Bonds that are rated below Baa by Moody's or below BBB by S&P or Fitch or which, in the Manager's judgment, possess similar credit characteristics. Such securities, sometimes referred to as "high yield" or "junk" bonds, are predominantly speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of the security and generally involve a greater volatility of price than securities in higher rating categories. See "Description of Municipal Bonds 'High Yield' or 'Junk' Bonds." The Fund does not intend to purchase debt securities that are in default or which the Manager believes will be in default. Certain Municipal Bonds may be entitled to the benefits of letters of credit or similar credit enhancements issued by financial institutions. In such instances, the Manager will take into account in assessing the quality of such bonds not only the creditworthiness of the issuer of such bonds but also the creditworthiness of the financial institution that provides the credit enhancement. The Fund ordinarily does not intend to realize investment income not exempt from Federal income tax and Colorado income taxes. However, to the extent that suitable Colorado Municipal Bonds are not available for investment by the Fund, the Fund may purchase Municipal Bonds issued by other states, their agencies and
2
instrumentalities, the interest income on which is exempt, in the opinion of bond counsel to the issuer, from Federal income tax, but not Colorado income taxation. The Fund also may invest in securities not issued by or on behalf of a state or territory or by an agency or instrumentality thereof, if the Fund nevertheless believes such securities to be exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities"). Non-Municipal Tax-exempt Securities could include trust certificates or other instruments evidencing interest in one or more long-term municipal securities. Non-Municipal Tax-exempt Securities also may include securities issued by other investment companies that invest in municipal bonds, to the extent such investments are permitted by applicable law. Non-Municipal Tax-exempt securities will be considered "Municipal Bonds" for purposes of the Fund's investment objective and policies. The Fund at all times will have at least 80% of its net assets invested in securities the interest on which is exempt from Federal taxation. However, interest received on certain otherwise tax-exempt securities that are classified as "private activity bonds" (in general, bonds that benefit non-governmental entities) may be subject to a Federal alternative minimum tax. The percentage of the Fund's total assets invested in "private activity bonds" will vary during the year. Federal tax legislation has limited the types and volume of bonds the interest on which qualifies for a Federal income tax exemption. As a result, this legislation and legislation that may be enacted in the future may affect the availability of Municipal Bonds for investment by the Fund. See "Distributions and Taxes Taxes." Risk Factors and Special Considerations Relating to Municipal Bonds The risks and special considerations involved
in investment in Municipal Bonds vary with the types of instruments being
acquired. Investments in Non-Municipal Tax-exempt Securities may present
similar risks, depending on the particular product. Certain instruments
in which the Fund may invest may be characterized The Fund ordinarily will invest at least 65% of its assets in Colorado Municipal Bonds, and therefore it is more susceptible to factors adversely affecting issuers of Colorado Municipal Bonds than is a municipal bond fund that is not concentrated in issuers of Colorado Municipal Bonds to this degree. The Manager does not believe that the current economic conditions in Colorado will have a significant adverse effect on the Fund's ability to invest in high quality Colorado Municipal Bonds. Because the Fund's portfolio will be comprised primarily of investment grade securities, the Fund is expected to be less subject to market and credit risks than a fund that invests primarily in lower quality Colorado Municipal Bonds. For a discussion of economic and other conditions in the State of Colorado, see Appendix I "Economic and Financial Conditions in Colorado." The value of Municipal Bonds generally may be affected by uncertainties in the municipal markets as a result of legislation or litigation changing the taxation of Municipal Bonds or the rights of Municipal Bond holders in the event of a bankruptcy. Municipal bankruptcies are rare and certain provisions of the US Bankruptcy Code governing such bankruptcies are unclear. Further, the application of state law to Municipal Bond issuers could produce varying results among the states or among Municipal Bond issuers within a state. These uncertainties could have a significant impact on the prices of the Municipal Bonds or the Colorado Municipal Bonds in which the Fund invests. Description of Municipal Bonds Set forth below is a detailed description of the Municipal Bonds and Temporary Investments in which the Fund may invest. Information with respect to ratings assigned to tax-exempt obligations that the Fund may purchase is set forth in Appendix II to this Statement of Additional Information. See "How the Fund Invests" in the Prospectus. Municipal Bonds include debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities, refunding of outstanding obligations and obtaining funds for general operating expenses and loans to other public institutions and facilities. In addition, certain types of bonds are issued by or on behalf of public authorities to finance various privately owned or operated facilities, including certain facilities for the local furnishing of electric energy or gas, sewage facilities, solid waste disposal facilities and other specialized facilities. Such obligations are included within the term Municipal Bonds if the interest paid
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thereon is excluded from gross income for Federal income tax purposes and, in the case of Colorado Municipal Bonds, exempt from Colorado income taxes. Other types of industrial development bonds or private activity bonds, the proceeds of which are used for the construction, equipment or improvement of privately operated industrial or commercial facilities, may constitute Municipal Bonds, although the current Federal tax laws place substantial limitations on the size of such issues. The interest on Municipal Bonds may bear a fixed rate or be payable at a variable or floating rate. The two principal classifications of Municipal Bonds are "general obligation" and "revenue" bonds, which latter category includes industrial development bonds ("IDBs") and, for bonds issued after August 15, 1986, private activity bonds. General Obligation Bonds. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. The taxing power of any governmental entity may be limited, however, by provisions of its state constitution or laws, and an entity's creditworthiness will depend on many factors, including potential erosion of its tax base due to population declines, natural disasters, declines in the state's industrial base or inability to attract new industries, economic limits on the ability to tax without eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes and the extent to which the entity relies on Federal or state aid, access to capital markets or other factors beyond the state's or entity's control. Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment of principal when due is affected by the issuer's maintenance of its tax base. The State of Colorado does not issue general obligation bonds; it may issue only revenue bonds, described below. Revenue Bonds. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as payments from the user of the facility being financed; accordingly the timely payment of interest and the repayment of principal in accordance with the terms of the revenue or special obligation bond is a function of the economic viability of such facility or such revenue source. IDBs and Private Activity Bonds. The Fund may purchase IDBs and private activity bonds. IDBs and private activity bonds are, in most cases, tax-exempt securities issued by states, municipalities or public authorities to provide funds, usually through a loan or lease arrangement, to a private entity for the purpose of financing construction or improvement of a facility to be used by the entity. Such bonds are secured primarily by revenues derived from loan repayments or lease payments due from the entity which may or may not be guaranteed by a parent company or otherwise secured. IDBs and private activity bonds generally are not secured by a pledge of the taxing power of the issuer of such bonds. Therefore, an investor should be aware that repayment of such bonds generally depends on the revenues of a private entity and be aware of the risks that such an investment may entail. Continued ability of an entity to generate sufficient revenues for the payment of principal and interest on such bonds will be affected by many factors including the size of the entity, capital structure, demand for its products or services, competition, general economic conditions, government regulation and the entity's dependence on revenues for the operation of the particular facility being financed. "Moral Obligation" Bonds. The Fund also may invest in "moral obligation" bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral commitment but not a legal obligation of the state or municipality in question. Municipal Notes. Municipal notes are shorter term municipal debt obligations. They may provide interim financing in anticipation of tax collection, bond sales or revenue receipts. If there is a shortfall in the anticipated proceeds, the note may not be fully repaid and the Fund may lose money. Municipal Commercial Paper. Municipal commercial paper is generally unsecured and issued to meet short-term financing needs. The lack of security presents some risk of loss to the Fund. Municipal Lease Obligations. Also included within the general category of Municipal Bonds are participation certificates issued by government authorities or entities to finance the acquisition or construction of equipment, land and/or facilities. The certificates represent participations in a lease, an installment purchase contract or a conditional sales contract (hereinafter collectively called "lease obligations") relating to such equipment, land or facilities. Although lease obligations do not constitute general obligations of the issuer for which the issuer's unlimited taxing power is pledged, a lease obligation is frequently backed by the issuer's covenant to budget for, appropriate and make the payments due under the lease obligation. However, certain lease
4
obligations contain "non-appropriation" clauses which provide that the issuer has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. These securities represent a type of financing that has not yet developed the depth of marketability associated with more conventional securities. Certain investments in lease obligations may be illiquid. The Fund may not invest in illiquid lease obligations if such investments, together with all other illiquid investments, would exceed 15% of the Fund's total assets. The Fund may, however, invest without regard to such limitation in lease obligations which the Manager, pursuant to guidelines which have been adopted by the Board of Trustees and subject to the supervision of the Board, determines to be liquid. The Manager will deem lease obligations to be liquid if they are publicly offered and have received an investment grade rating of Baa or better by Moody's, or BBB or better by S&P or Fitch. Unrated lease obligations, or those rated below investment grade, will be considered liquid if the obligations come to the market through an underwritten public offering and at least two dealers are willing to give competitive bids. In reference to the latter, the Manager must, among other things, also review the creditworthiness of the entity obligated to make payment under the lease obligation and make certain specified determinations based on such factors as the existence of a rating or credit enhancement such as insurance, the frequency of trades or quotes for the obligation and the willingness of dealers to make a market in the obligation. Indexed and Inverse Floating Obligations. The Fund may invest in Colorado Municipal Bonds and Municipal Bonds (and Non-Municipal Tax-exempt Securities) yielding a return which is based on a particular index of value or interest rates. For example, the Fund may invest in Colorado Municipal Bonds and Municipal Bonds that pay interest based on an index of Municipal Bond interest rates. The principal amount payable upon maturity of certain Colorado Municipal Bonds and Municipal Bonds also may be based on the value of the index. To the extent the Fund invests in these types of Municipal Bonds, the Fund's return on such Colorado Municipal Bonds and Municipal Bonds will be subject to risk with respect to the value of the particular index. Interest and principal payable on the Municipal Bonds may also be based on relative changes among particular indices. Also, the Fund may invest in so-called "inverse floating obligations" or "residual interest bonds" on which the interest rates typically vary inversely with a short-term floating rate (which may be reset periodically by a dutch auction, a remarketing agent, or by reference to a short-term tax-exempt interest rate index). The Fund may purchase synthetically-created inverse floating rate bonds evidenced by custodial or trust receipts. Generally, income on inverse floating rate bonds will decrease when short-term interest rates increase, and will increase when short-term interest rates decrease. Such securities have the effect of providing a degree of investment leverage, since they may increase or decrease in value in response to changes, as an illustration, in market interest rates at a rate which is a multiple (typically two) of the rate at which fixed-rate long-term tax-exempt securities increase or decrease in response to such changes. As a result, the market values of such securities will generally be more volatile than the market values of fixed-rate tax-exempt securities. To seek to limit the volatility of these securities, the Fund may purchase inverse floating obligations with shorter-term maturities or which contain limitations on the extent to which the interest rate may vary. Certain investments in such obligations may be illiquid. The Fund may not invest in such illiquid obligations if such investments, together with other illiquid investments, would exceed 15% of the Fund's total assets. The Manager, however, believes that indexed and inverse floating obligations represent flexible portfolio management instruments for the Fund which allow the Fund to seek potential investment rewards, hedge other portfolio positions or vary the degree of investment leverage relatively efficiently under different market conditions. When Issued Securities, Delayed Delivery Transactions and Forward Commitments. The Fund may purchase or sell securities that it is entitled to receive on a when issued basis. The Fund may also purchase or sell securities on a delayed delivery basis. The Fund may also purchase or sell securities through a forward commitment. These transactions involve the purchase or sale of securities by the Fund at an established price with payment and delivery taking place in the future. The Fund enters into these transactions to obtain what is considered an advantageous price to the Fund at the time of entering into the transaction. The Fund has not established any limit on the percentage of its assets that may be committed in connection with these transactions. When the Fund purchases securities in these transactions, the Fund segregates liquid securities in an amount equal to the amount of its purchase commitments. There can be no assurance that a security purchased on a when issued basis will be issued or that a security purchased or sold through a forward commitment will be delivered. The value of securities in these transactions
5 on the delivery date may be more or less than the Fund's purchase price. The Fund may bear the risk of a decline in the value of the security in these transactions and may not benefit from an appreciation in the value of the security during the commitment period. Call and Redemption Risk. The Fund may purchase a Municipal Bond issuer's right to call all or a portion of such Municipal Bond for mandatory tender for purchase (a "Call Right"). A holder of a Call Right may exercise such right to require a mandatory tender for the purchase of related Municipal Bonds, subject to certain conditions. A Call Right that is not exercised prior to maturity of the related Municipal Bond will expire without value. The economic effect of holding both the Call Right and the related Municipal Bond is identical to holding a Municipal Bond as a non-callable security. Certain investments in such obligations may be illiquid. The Fund may not invest in such illiquid obligations if such investments, together with other illiquid investments, would exceed 15% of the Fund's total assets. "High Yield" or "Junk" Bonds. The Fund may invest up to 20% of its total assets in Municipal Bonds that are rated below Baa by Moody's or below BBB by S&P or Fitch or which, in the Manager's judgment, possess similar credit characteristics. See Appendix II "Ratings of Municipal Bonds" for additional information regarding ratings of debt securities. Junk bonds are debt securities that are rated below investment grade by the major rating agencies or are unrated securities that Fund management believes are of comparable quality. Although junk bonds generally pay higher rates of interest than investment grade bonds, they are high risk investments that may cause income and principal losses for the Fund. The major risks in junk bond investments include the following: Junk bonds may be issued by less creditworthy companies. These securities are vulnerable to adverse changes in the issuer's industry and to general economic conditions. Issuers of junk bonds may be unable to meet their interest or principal payment obligations because of an economic downturn, specific issuer developments or the unavailability of additional financing. The issuers of junk bonds may have a larger amount of outstanding debt relative to their assets than issuers of investment grade bonds. If the issuer experiences financial stress, it may be unable to meet its debt obligations. The issuer's ability to pay its debt obligations also may be lessened by specific issuer developments, or the unavailability of additional financing. Junk bonds are frequently ranked junior to claims by other creditors. If the issuer cannot meet its obligations, the senior obligations are generally paid off before the junior obligations. Junk bonds frequently have redemption features that permit an issuer to repurchase the security from the Fund before it matures. If an issuer redeems the junk bonds, the Fund may have to invest the proceeds in bonds with lower yields and may lose income. Prices of junk bonds are subject to extreme price fluctuations. Negative economic developments may have a greater impact on the prices of junk bonds than on other higher rated fixed income securities. Junk bonds may be less liquid than higher rated fixed income securities even under normal economic conditions. There are fewer dealers in the junk bond market, and there may be significant differences in the prices quoted for junk bonds by the dealers. Because they are less liquid, judgment may play a greater role in valuing certain of the Fund's portfolio securities than in the case of securities trading in a more liquid market. The Fund may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting issuer. Yields. Yields on Municipal Bonds are dependent on a variety of factors, including the general condition of the money market and of the municipal bond market, the size of a particular offering, the financial condition of the issuer, the maturity of the obligation and the rating of the issue. The ability of the Fund to achieve its investment objective is also dependent on the continuing ability of the issuers of the securities in which the Fund invests to meet their obligations for the payment of interest and principal when due. There are variations in the risks involved in holding Municipal Bonds, both within a particular classification and between classifications, depending on numerous factors. Furthermore, the rights of owners of Municipal Bonds and the obligations of the issuer of such Municipal Bonds may be subject to applicable bankruptcy, insolvency and similar laws and court
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decisions affecting the rights of creditors generally and to general equitable principles, which may limit the enforcement of certain remedies. Financial Futures Transactions and Options The Fund may hedge all or a portion of its portfolio investments against fluctuations in interest rates through the use of options and certain financial futures contracts and options thereon. While the Fund's use of hedging strategies is intended to reduce the volatility of the net asset value of the Fund's shares, the net asset value of the Fund's shares will fluctuate. There can be no assurance that the Fund's hedging transactions will be effective. Furthermore, the Fund may only engage in hedging activities from time to time and may not necessarily be engaging in hedging activities when movements in interest rates occur. The Fund has no obligation to enter into hedging transactions and may choose not to do so. The Fund is authorized to purchase and sell certain exchange traded financial futures contracts ("financial futures contracts") solely for the purpose of hedging its investments in Municipal Bonds against declines in value and to hedge against increases in the cost of securities it intends to purchase. However, any transactions involving financial futures or options (including puts and calls associated therewith) will be in accordance with the Fund's investment policies and limitations. A financial futures contract obligates the seller of a contract to deliver and the purchaser of a contract to take delivery of the type of financial instrument covered by the contract, or in the case of index-based futures contracts to make and accept a cash settlement, at a specific future time for a specified price. To hedge its portfolio, the Fund may take an investment position in a futures contract which will move in the opposite direction from the portfolio position being hedged. A sale of financial futures contracts may provide a hedge against a decline in the value of portfolio securities because such depreciation may be offset, in whole or in part, by an increase in the value of the position in the financial futures contracts. A purchase of financial futures contracts may provide a hedge against an increase in the cost of securities intended to be purchased because such appreciation may be offset, in whole or in part, by an increase in the value of the position in the futures contracts. Certain Federal income tax requirements may limit the Fund's ability to engage in hedging transactions. Distributions, if any, of net long-term capital gains from certain transactions in futures or options are taxable at long-term capital gains rates for Federal income tax purposes. See "Dividends and Taxes Taxes" and " Tax Treatment of Options and Futures Transactions."Futures Contracts. A futures contract is an agreement between two parties to buy and sell a security or, in the case of an index-based futures contract, to make and accept a cash settlement for a set price on a future date. A majority of transactions in futures contracts, however, do not result in the actual delivery of the underlying instrument or cash settlement, but are settled through liquidation, (i.e., by entering into an offsetting transaction. Futures contracts have been designed by boards of trade which have been designated "contracts markets" by the Commodity Futures Trading Commission ("CFTC")). The purchase or sale of a futures contract differs from the purchase or sale of a security in that no price or premium is paid or received. Instead, an amount of cash or securities acceptable to the broker and the relevant contract market, which varies, but is generally about 5% of the contract amount, must be deposited with the broker. This amount is known as "initial margin" and represents a "good faith" deposit assuring the performance of both the purchaser and seller under the futures contract. Subsequent payments to and from the broker, called "variation margin," are required to be made on a daily basis as the price of the futures contract fluctuates making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." At any time prior to the settlement date of the futures contract, the position may be closed out by taking an opposite position that will operate to terminate the position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid to or released by the broker and the purchaser realizes a loss or gain. In addition, a nominal commission is paid on each completed sale transaction. The Fund deals in financial futures contracts based on a long-term municipal bond index developed by the Chicago Board of Trade ("CBT") and The Bond Buyer (the "Municipal Bond Index"). The Municipal Bond Index is comprised of 40 tax-exempt municipal revenue and general obligation bonds. Each bond included in the Municipal Bond Index must be rated A or higher by Moody's or S&P and must have a remaining maturity of 19 years or more. Twice a month new issues satisfying the eligibility requirements are added to, and an equal number
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of old issues are deleted from, the Municipal Bond Index. The value of the Municipal Bond Index is computed daily according to a formula based on the price of each bond in the Municipal Bond Index, as evaluated by six dealer-to-dealer brokers. The Municipal Bond Index futures contract is traded only on the CBT. Like other contract markets, the CBT assures performance under futures contracts through a clearing corporation, a nonprofit organization managed by the exchange membership which is also responsible for handling daily accounting of deposits or withdrawals of margin. The Fund may purchase and sell financial futures contracts on US Government securities as a hedge against adverse changes in interest rates as described below. With respect to US Government securities, currently there are financial futures contracts based on long-term US Treasury bonds, Treasury notes, Government National Mortgage Association ("GNMA") Certificates and three-month US Treasury bills. The Fund may purchase and write call and put options on futures contracts on US Government securities and purchase and sell Municipal Bond Index futures contracts in connection with its hedging strategies. Subject to policies adopted by the Trustees, the Fund also may engage in other futures contracts transactions such as futures contracts on other municipal bond indices that may become available if the Manager and the Trustees of the Trust should determine that there is normally a sufficient correlation between the prices of such futures contracts and the Municipal Bonds in which the Fund invests to make such hedging appropriate. Futures Strategies. The Fund may sell a financial futures contract (i.e., assume a short position) in anticipation of a decline in the value of its investments in Municipal Bonds resulting from an increase in interest rates or otherwise. The risk of decline could be reduced without employing futures as a hedge by selling such Municipal Bonds and either reinvesting the proceeds in securities with shorter maturities or by holding assets in cash. This strategy, however, entails increased transaction costs in the form of dealer spreads and typically would reduce the average yield of the Fund's portfolio securities as a result of the shortening of maturities. The sale of futures contracts provides an alternative means of hedging against declines in the value of its investments in Municipal Bonds. As such values decline, the value of the Fund's positions in the futures contracts will tend to increase, thus offsetting all or a portion of the depreciation in the market value of the Fund's Municipal Bond investments that are being hedged. While the Fund will incur commission expenses in selling and closing out futures positions, commissions on futures transactions are lower than transaction costs incurred in the purchase and sale of Municipal Bonds. In addition, the ability of the Fund to trade in the standardized contracts available in the futures markets may offer a more effective defensive position than a program to reduce the average maturity of the portfolio securities due to the unique and varied credit and technical characteristics of the municipal debt instruments available to the Fund. Employing futures as a hedge also may permit the Fund to assume a defensive posture without reducing the yield on its investments beyond any amounts required to engage in futures trading. When the Fund intends to purchase Municipal Bonds, the Fund may purchase futures contracts as a hedge against any increase in the cost of such Municipal Bonds resulting from a decrease in interest rates or otherwise, that may occur before such purchases can be effected. Subject to the degree correlation between the Municipal Bonds and the futures contracts, subsequent increases in the cost of Municipal Bonds should be reflected in the value of the futures held by the Fund. As such purchases are made, an equivalent amount of futures contracts will be closed out. Due to changing market conditions and interest rate forecasts, however, a futures position may be terminated without a corresponding purchase of portfolio securities. Call Options on Futures Contracts. The Fund may also purchase and sell exchange traded call and put options on financial futures contracts on US Government securities. The purchase of a call option on a futures contract is analogous to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the futures contract upon which it is based or the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying debt securities. Like the purchase of a futures contract, the Fund will purchase a call option on a futures contract to hedge against a market advance when the Fund is not fully invested. The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at expiration is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund's portfolio holdings.
8
Put Options on Futures Contracts. The purchase of a put option on a futures contract is analogous to the purchase of a protective put option on portfolio securities. The Fund will purchase a put option on a futures contract to hedge the Fund's portfolio against the risk of rising interest rates. The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at expiration is higher than the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any increase in the price of Municipal Bonds which the Fund intends to purchase. The writer of an option on a futures contract is required to deposit initial and variation margin pursuant to requirements similar to those applicable to futures contracts. Premiums received from the writing of an option will be included in initial margin. The writing of an option on a futures contract involves risks similar to those relating to futures contracts. The Trust has received an order from the Commission exempting it from the provisions of Section 17(f) and Section 18(f) of the Investment Company Act of 1940, as amended (the "Investment Company Act"), in connection with its strategy of investing in futures contracts. Section 17(f) relates to the custody of securities and other assets of an investment company and may be deemed to prohibit certain arrangements between the Fund and commodities brokers with respect to initial and variation margin. Section 18(f) of the Investment Company Act prohibits an open-end investment company such as the Trust from issuing a "senior security" other than a borrowing from a bank. The staff of the Commission has in the past indicated that a futures contract may be a "senior security" under the Investment Company Act. Restrictions on Use of Futures Transactions. Regulations of the CFTC applicable to the Fund require that all of the Fund's futures transactions constitute bona fide hedging transactions and that the Fund purchase and sell futures contracts and options thereon (i) for bona fide hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial margin and premiums required to establish positions in such contracts and options does not exceed 5% of the liquidation value of the Fund's portfolio assets after taking into account unrealized profits and unrealized losses on any such contracts and options. (However, the Fund intends to engage in options and futures transactions only for hedging purposes.) Margin deposits may consist of cash or securities acceptable to the broker and the relevant contract market. When the Fund purchases a futures contract, or writes a put option or purchases a call option thereon, it will maintain an amount of cash, cash equivalents (e.g., high grade commercial paper and daily tender adjustable notes) or liquid securities in a segregated account with the Fund's custodian, so that the amount so segregated plus the amount of initial and variation margin held in the account of its broker equals the market value of the futures contracts, thereby ensuring that the use of such futures contract is unleveraged. It is not anticipated that transactions in futures contracts will have the effect of increasing portfolio turnover. Risk Factors in Futures Transactions and Options. Investment in futures contracts involves the risk of imperfect correlation between movements in the price of the futures contract and the price of the security being hedged. The hedge will not be fully effective when there is imperfect correlation between the movements in the prices of two financial instruments. For example, if the price of the futures contract moves more than the price of the hedged security, the Fund will experience either a loss or gain on the futures contract which is not completely offset by movements in the price of the hedged securities. To compensate for imperfect correlations, the Fund may purchase or sell futures contracts in a greater dollar amount than the hedged securities if the volatility of the hedged securities is historically greater than the volatility of the futures contracts. Conversely, the Fund may purchase or sell fewer futures contracts if the volatility of the price of the hedged securities is historically less than that of the futures contracts. The particular municipal bonds comprising the index underlying the Municipal Bond Index financial futures contract may vary from the bonds held by the Fund. As a result, the Fund's ability to hedge effectively all or a portion of the value of its Municipal Bonds through the use of such financial futures contracts will depend in part on the degree to which price movements in the index underlying the financial futures contract correlate with the price movements of the Municipal Bonds held by the Fund. The correlation may be affected by disparities in the average maturity, ratings, geographical mix or structure of the Fund's investments as compared to those comprising the Municipal Bond Index and general economic or political factors. In addition, the correlation
9
between movements in the value of the Municipal Bond Index may be subject to change over time as additions to and deletions from the Municipal Bond Index alter its structure. The correlation between futures contracts on US Government securities and the Municipal Bonds held by the Fund may be adversely affected by similar factors and the risk of imperfect correlation between movements in the prices of such futures contracts and the prices of Municipal Bonds held by the Fund may be greater. Municipal Bond Index futures contracts were approved for trading in 1986. Trading in such futures contracts may tend to be less liquid than trading in other futures contracts. The trading of futures contracts also is subject to certain market risks, such as inadequate trading activity, which could at times make it difficult or impossible to liquidate existing positions. The Fund expects to liquidate a majority of the futures contracts it enters into through offsetting transactions on the applicable contract market. There can be no assurance, however, that a liquid secondary market will exist for any particular futures contract at any specific time. Thus, it may not be possible to close out a futures position. In the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. In such situations, if the Fund has insufficient cash, it may be required to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so. The inability to close out futures positions also could have an adverse impact on the Fund's ability to hedge effectively its investments in Municipal Bonds. The liquidity of a secondary market in a futures contract may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which limit the amount of fluctuation in a futures contract price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open futures positions. Prices have in the past moved beyond the daily limit on a number of consecutive trading days. The Fund will enter into a futures position only if, in the judgment of the Manager, there appears to be an actively traded secondary market for such futures contracts. The successful use of transactions in futures and related options also depends on the ability of the Manager to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent interest rates remain stable during the period in which a futures contract or option is held by the Fund or such rates move in a direction opposite to that anticipated, the Fund may realize a loss on the hedging transaction which is not fully or partially offset by an increase in the value of portfolio securities. As a result, the Fund's total return for such period may be less than if it had not engaged in the hedging transaction. Because of low initial margin deposits made upon the opening of a futures position, futures transactions involve substantial leverage. As a result, relatively small movements in the price of the futures contracts can result in substantial unrealized gains or losses. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in a financial futures contract. Because the Fund will engage in the purchase and sale of futures contracts solely for hedging purposes, however, any losses incurred in connection therewith should, if the hedging strategy is successful, be offset in whole or in part by increases in the value of securities held by the Fund or decreases in the price of securities the Fund intends to acquire. The amount of risk the Fund assumes when it purchases an option on a futures contract is the premium paid for the option plus related transaction costs. In addition to the correlation risks discussed above, the purchase of an option on a futures contract also entails the risk that changes in the value of the underlying futures contract will not be fully reflected in the value of the option purchased. Description of Temporary Investments The Fund may invest in short-term tax-free and taxable securities subject to the limitations set forth above and in the Prospectus under "How the Fund Invests." The tax-exempt money market securities may include municipal notes, municipal commercial paper, municipal bonds with a remaining maturity of less than one year, variable rate demand notes and participations therein. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes and grant anticipation notes. Anticipation notes are sold as interim financing in anticipation of tax collection, bond sales, government grants or revenue receipts. Municipal commercial paper refers to short-term unsecured promissory notes generally issued to finance short-term credit needs. The taxable money market securities in which the Fund may invest as Temporary Investments consist of US Government securities, US Government agency securities, domestic bank or savings institution certificates of deposit and bankers' acceptances, short-term corporate debt securities such as commercial paper and repurchase agreements.
10
These Temporary Investments must have a stated maturity not in excess of one year from the date of purchase. The Fund may not invest in any security issued by a commercial bank or a savings institution unless the bank or institution is organized and operating in the United States, has total assets of at least one billion dollars and is a member of the Federal Deposit Insurance Corporation ("FDIC"), except that up to 10% of total assets may be invested in certificates of deposit of smaller institutions if such certificates are fully insured by the FDIC. VRDOs and Participating VRDOs.
VRDOs are tax-exempt obligations which contain a floating or variable
interest rate adjustment formula and a right of demand on the part of
the holder thereof to receive payment of the unpaid principal balance
plus accrued interest upon a short notice period not to exceed seven days.
There is, however, the possibility that because of default or insolvency
the demand feature of VRDOs and Participating VRDOs may not be honored.
The interest rates are adjustable at intervals (ranging from daily to
up to one year) to some prevailing market rate for similar investments,
such adjustment formula being calculated to maintain the market value
of the VRDOs, at approximately the par value of the VRDOs on the adjustment
date. The adjustments typically are based upon the Public Securities Association
Index or some other appropriate interest rate adjustment index. The Fund
may invest in all types of tax-exempt instruments currently outstanding
or to be issued in the future which satisfy the short-term maturity and
quality standards of the Fund. 11
In general, for Federal income tax purposes, repurchase agreements are treated as collateralized loans secured by the securities "sold." Therefore, amounts earned under such agreements will not be considered tax-exempt interest. The treatment of purchase and sales contracts is less certain. Suitability. The economic benefit of an investment in the Fund depends upon many factors beyond the control of the Fund, the Manager and its affiliates. Because of its emphasis on Colorado Municipal Bonds, the Fund should be considered a vehicle for diversification and not as a balanced investment program. The suitability for any particular investor of a purchase of shares in the Fund will depend upon, among other things, such investor's tax status, investment objectives and such investor's ability to accept the risks associated with investing in Colorado Municipal Bonds, including the risk of receiving income that is not exempt from Federal and Colorado income taxes. The Fund has adopted a number of fundamental and non-fundamental restrictions and policies relating to the investment of its assets and its activities. The fundamental policies set forth below may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities (which for this purpose and under the Investment Company Act means the lesser of (i) 67% of the Fund's shares present at a meeting at which more than 50% of the outstanding shares of the Fund are represented or (ii) more than 50% of the Fund's outstanding shares). The Fund may not: (1) Invest more than 25% of its assets, taken at market value in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities). For purposes of this restriction, states, municipalities and their political subdivisions are not considered part of any industry. (2) Make investments for the purpose of exercising control or management. (3) Purchase or sell real estate, except that, to the extent permitted by applicable law, the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein. (4) Make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers' acceptances, repurchase agreements or any similar instruments shall not be deemed to be the making of a loan, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set forth in the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time. (5) Issue senior securities to the extent such issuance would violate applicable law. (6) Borrow money, except that (i) the Fund may borrow from banks (as defined in the Investment Company Act) in amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii) the Fund may, to the extent permitted by applicable law, borrow up to an additional 5% of its total assets for temporary purposes, (iii) the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (iv) the Fund may purchase securities on margin to the extent permitted by applicable law. The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Fund's investment policies as set forth in its Prospectus and Statement of Additional Information, as they may be amended from time to time, in connection with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment strategies.
12
(7) Underwrite securities of other issuers, except insofar as the Fund technically may be deemed an underwriter under the Securities Act of 1933, as amended ("Securities Act"), in selling portfolio securities. (8) Purchase or sell commodities or contracts on commodities, except to the extent that the Fund may do so in accordance with applicable law and the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time, and without registering as a commodity pool operator under the Commodity Exchange Act. Under the non-fundamental investment restrictions, which may be changed by the Board of Trustees without shareholder approval, the Fund may not: (a) Purchase securities of other investment companies, except to the extent such purchases are permitted by applicable law. As a matter of policy, however, the Fund will not purchase shares of any registered open-end investment company or registered unit investment trust, in reliance on Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of the Investment Company Act, at any time the Fund's shares are owned by another investment company that is part of the same group of investment companies as the Fund. (b) Make short sales of securities or maintain a short position, except to the extent permitted by applicable law. The Fund currently does not intend to engage in short sales, except short sales "against the box." (c) Invest in securities which cannot be readily resold because of legal or contractual restrictions or which cannot otherwise be marketed, redeemed or put to the issuer or a third party, if at the time of acquisition more than 15% of its total assets would be invested in such securities. This restriction shall not apply to securities which mature within seven days or securities which the Board of Trustees of the Trust has otherwise determined to be liquid pursuant to applicable law. (d) Notwithstanding fundamental investment restriction (6) above, borrow amounts in excess of 20% of its total assets taken at market value (including the amount borrowed), and then only from banks as a temporary measure for extraordinary or emergency purposes. In addition, the Fund will not purchase securities while borrowings are outstanding. Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") with the Manager, the Fund is prohibited from engaging in certain transactions involving Merrill Lynch or its affiliates except pursuant to an exemptive order under the Investment Company Act. See "Portfolio Transactions." Without such an exemptive order the Fund would be prohibited from engaging in portfolio transactions with Merrill Lynch or any of its affiliates acting as principal. Non-Diversified Status. The Fund is classified as non-diversified within the meaning of the Investment Company Act, which means that the Fund is not limited by such Act in the proportion of its assets that it may invest in securities of a single issuer. The Fund's investments are limited, however, in order to allow the Fund to qualify as a "regulated investment company" under the Code. See "Dividends and Taxes Taxes." To qualify, the Fund complies with certain requirements, including limiting its investments so that at the close of each quarter of the taxable year (i) not more than 25% of the market value of the Fund's total assets will be invested in the securities of a single issuer and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a single issuer and the Fund will not own more than 10% of the outstanding voting securities of a single issuer. For purposes of this restriction, the Fund will regard each state and each political subdivision, agency or instrumentality of such state and each multi-state agency of which such state is a member and each public authority which issues securities on behalf of a private entity as a separate issuer, except that if the security is backed only by the assets and revenues of a non-government entity then the entity with the ultimate responsibility for the payment of interest and principal may be regarded as the sole issuer. These tax-related limitations may be changed by the Trustees of the Trust to the extent necessary to comply with changes to the Federal tax requirements. A fund that elects to be classified as "diversified" under the Investment Company Act must satisfy the foregoing 5% and 10% requirements with respect to 75% of its total assets. To the extent that the Fund assumes large positions in the securities of a small number of issuers, the Fund's net asset value may fluctuate to a greater extent than that of
13
The Manager will effect portfolio transactions without regard to the time the securities have been held, if, in its judgment, such transactions are advisable in light of a change in circumstances of a particular issuer or in general market, financial or economic conditions. As a result of its investment policies, the Fund may engage in a substantial number of portfolio transactions and the Fund's portfolio turnover rate may vary greatly from year to year or during periods within a year. The portfolio turnover rate is calculated by dividing the lesser of the Fund's annual sales or purchases of portfolio securities (exclusive of purchases or sales of securities whose maturities at the time of acquisition were one year or less) by the monthly average value of the securities in the portfolio during the year. A high portfolio turnover may result in negative tax consequences, such as an increase in capital gain dividends or in ordinary income dividends of accrued discount. See "Dividends and Taxes Taxes." High portfolio turnover may also involve corresponding greater transaction costs in the form of spreads and brokerage commissions which are borne directly by the Fund. The Trustees of the Trust consist of seven individuals, five of whom are not "interested persons" of the Trust as defined in the Investment Company Act (the "non-interested Trustees"). The Trustees are responsible for the overall supervision of the operations of the Trust and perform the various duties imposed on the directors or Trustees of investment companies by the Investment Company Act. Information about the Trustees, executive officers of the Trust and the portfolio manager of the Fund, including their ages and their principal occupations for at least the last five years, is set forth below. Unless otherwise noted, the address of each Trustee, executive officer and the portfolio manager is P.O. Box 9011, Princeton, New Jersey 08543-9011. TERRY K. GLENN (59) President and Trustee (1)(2) Executive Vice President of the Manager and Merrill Lynch Asset Management, L.P. ("MLAM") (which terms as used herein include their corporate predecessors) since 1983; Executive Vice President and Director of Princeton Services, Inc. ("Princeton Services") since 1993; President of Princeton Funds Distributor, Inc. ("PFD") since 1986 and Director thereof since 1991; President of Princeton Administrators, LP since 1988. JAMES H. BODURTHA (55) Trustee (2)(3) 36 Popponesset Road, Cotuit, Massachusetts 02635. Director and Executive Vice President, The China Business Group, Inc. since 1996; Chairman and Chief Executive Officer, China Enterprise Management Corporation from 1993 to 1996; Chairman, Berkshire Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993. HERBERT I. LONDON (60) Trustee (2)(3) 2 Washington Square Village, New York, New York 10012. John M. Olin Professor of Humanities, New York University since 1993 and Professor thereof since 1980; President, Hudson Institute since 1997 and Trustee thereof since 1980; Dean, Gallatin Division of New York University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Director, Damon Corporation from 1991 to 1995; Overseer, Center for Naval Analyses from 1983 to 1993; Limited Partner, Hypertech LP since 1996. ROBERT R. MARTIN (72) Trustee (2)(3) 513 Grand Hill, St. Paul, Minnesota 55102. Chairman and Chief Executive Officer, Kinnard Investments, Inc. from 1990 to 1993; Executive Vice President, Dain Bosworth from 1974 to 1989; Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof in 1979; Director, Securities Industry Association from 1981 to 1982 and Public Securities Association from 1979 to 1980; Chairman of the Board, WTC Industries Inc. in 1994; Trustee, Northland College since 1992. JOSEPH L. MAY (70) Trustee (2)(3) 424 Church Street, Suite 2000, Nashville, Tennessee 37219. Attorney in private practice since 1984; President, May and Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983; Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May Corporation (personal holding company) from 1972 to 1983; Director, Signal Apparel Co. from 1972 to 1989.
14
ANDRÉ F. PEROLD (47) Trustee (2)(3) Morgan Hall, Soldiers Field, Boston, Massachusetts 02163. Professor, Harvard Business School since 1989 and Associate Professor from 1983 to 1989; Trustee, The Common Fund since 1989; Director, Quantec Limited since 1991 and TIBCO from 1994 to 1996. ARTHUR ZEIKEL (67) Trustee (1)(2) 300 Woodland Avenue, Westfield, New Jersey 07090. Chairman of the Manager and MLAM from 1997 to 1999 and President thereof from 1977 to 1997; Chairman of Princeton Services from 1997 to 1999, Director thereof from 1993 to 1999 and President thereof from 1993 to 1997; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") from 1990 to 1999. VINCENT R. GIORDANO (55) Senior Vice President (1)(2) Senior Vice President of the Manager and MLAM since 1984; Senior Vice President of Princeton Services since 1993. KENNETH A. JACOB (48) Vice President (1)(2) First Vice President of MLAM since 1997; Vice President of MLAM from 1984 to 1997; Vice President of the Manager since 1984. MICHAEL KALINOSKI (29) Portfolio Manager and Vice President (1)(2) Vice President and Portfolio Manager of MLAM since 1999; from 1996 to 1999 he was the head Municipal Bond Trader with Strong Funds and from 1983 to 1996 was a member of the municipal bond investment team of Strong Funds. DONALD C. BURKE (39) Vice President and Treasurer (1)(2) Senior Vice President and Treasurer of the Manager and MLAM since 1999; Senior Vice President and Treasurer of Princeton Services since 1999; Vice President of PFD since 1999; First Vice President of MLAM from 1997 to 1999; Vice President of MLAM from 1990 to 1997; Director of Taxation of MLAM since 1990. ALICE A. PELLEGRINO (39) Secretary (1)(2) Vice President of MLAM since 1999; Attorney associated with MLAM since 1997; Associate with Kirkpatrick & Lockhart LLP from 1992 to 1997. |
________ | |
(1) |
Interested person, as defined in the Investment Company Act, of the Trust. |
(2) |
Such Trustee or officer is a director, trustee or officer of certain other investment companies for which the Manager or MLAM acts as the investment adviser or manager. |
(3) |
Member of the Trust's Audit and Nominating Committee, which is responsible for the selection of the independent auditors and the selection and nomination of non-interested Trustees. |
As of August 31, 1999, the Trustees, officers of the Trust and officers of the Fund as a group (12 persons) owned an aggregate of less than 1% of the outstanding shares of the Fund. At such date, Mr. Zeikel, a Trustee of the Trust, Mr. Glenn, a Trustee and officer of the Trust and the other officers of the Trust and the Fund owned an aggregate of less than 1% of the outstanding shares of common stock of ML & Co. The Trust pays each non-interested Trustee a fee of $10,000 per year plus $1,000 per Board meeting attended. The Trust also compensates members of its Audit and Nominating Committee (the "Committee"), which consists of all the non-interested Trustees, a fee of $2,000 per year plus $500 per Committee meeting attended. The Trust reimburses each non-interested Trustee for his out-of-pocket expenses relating to attendance at Board and Committee meetings. The fees and expenses of the Trustees are allocated to the respective series of the Trust on the basis of asset size. The following table shows the compensation earned by the non-interested Trustees for the fiscal year ended July 31, 1999 and the aggregate compensation paid to them from all registered investment companies advised by the Manager and its affiliate, MLAM ("MLAM/FAM-advised funds"), for the calendar year ended December 31, 1998. |
Name |
Position with |
Compensation |
Pension or |
Estimated |
Aggregate | |
James H. Bodurtha |
Trustee |
$350 |
None |
None |
$163,500 | |
Herbert I. London |
Trustee |
$350 |
None |
None |
$163,500 | |
Robert R. Martin |
Trustee |
$350 |
None |
None |
$163,500 | |
Joseph L. May |
Trustee |
$350 |
None |
None |
$163,500 | |
André F. Perold |
Trustee |
$350 |
None |
None |
$163,500 |
________ | |
(1) |
The Trustees serve on the boards of MLAM/FAM-advised funds as follows: Mr. Bodurtha (29 registered investment companies consisting of 47 portfolios); Mr. London (29 registered investment companies consisting of 47 portfolios); Mr. Martin (29 registered investment companies consisting of 47 portfolios); Mr. May (29 registered investment companies consisting of 47 portfolios); and Mr. Perold (29 registered investment companies consisting of 47 portfolios). |
Fiscal Year
Ended July 31, |
Management Fee |
Amount of Fee | ||
1999 |
$ |
$ 90,538 | ||
1998 |
$163,150 |
$103,823 | ||
1997 |
$164,290 |
$127,660 |
Year Since Purchase Payment Made |
CDSC as a Percentage |
|||
0-1 |
4.0 |
% |
||
1-2 |
3.0 |
% |
||
2-3 |
2.0 |
% |
||
3-4 |
1.0 |
% |
||
4 and thereafter |
None |
|
To provide an example, assume an investor purchased 100 shares at $10 per share (at a cost of $1,000) and in the third year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to a CDSC because of dividend reinvestment. With respect to the remaining 40 shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the applicable rate in the third year after purchase). The Class B CDSC may be waived on redemptions of shares in certain circumstances, including any partial or complete redemption following the death or disability (as defined in the Internal Revenue Code of 1986, as amended (the "Code")) of a Class B shareholder (including one who owns the Class B shares as joint tenant with his or her spouse), provided the redemption is requested within one year of the death or initial determination of disability or, if later, reasonably promptly following completion of probate. The Class B CDSC may be waived
22
or its terms may be modified in connection with certain fee-based programs. The Class B CDSC may also be waived in connection with involuntary termination of an account in which Fund shares are held or for withdrawals through the Merrill Lynch Systematic Withdrawal Plan. See "Shareholder Services Fee-Based Programs" and " Systematic Withdrawal Plan." Conversion of Class B Shares to Class D Shares. After approximately ten years (the "Conversion Period"), Class B shares will be converted automatically into Class D shares of the Fund. Class D shares are subject to an ongoing account maintenance fee of 0.10% of net assets but are not subject to the distribution fee that is borne by Class B shares. Automatic conversion of Class B shares into Class D shares will occur at least once each month (on the "Conversion Date") on the basis of the relative net asset value of the shares of the two classes on the Conversion Date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes. In addition, shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D shares. The Conversion Date for dividend reinvestment shares will be calculated taking into account the length of time the shares underlying such dividend reinvestment shares were outstanding. If at the Conversion Date the conversion of Class B shares to Class D shares of the Fund in a single account will result in less than $50 worth of Class B shares being left in the account, all of the Class B shares of the Fund held in the account on the Conversion Date will be converted to Class D shares of the Fund. In general, Class B shares of equity Select Pricing Funds will convert approximately eight years after initial purchase and Class B shares of taxable and tax-exempt fixed income Select Pricing Funds will convert approximately ten years after initial purchase. If, during the Conversion Period, a shareholder exchanges Class B shares with an eight-year Conversion Period for Class B shares with a ten-year Conversion Period, or vice versa, the Conversion Period applicable to the Class B shares acquired in the exchange will apply and the holding period for the shares exchanged will be tacked on to the holding period for the shares acquired. The conversion period also may be modified for investors that participate in certain fee-based programs. See "Shareholder Services Fee-Based Programs." Class B shareholders of the Fund exercising the exchange privilege described under "Shareholder Services Exchange Privilege" will continue to be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares acquired as a result of the exchange. Share certificates for Class B shares of the Fund to be converted must be delivered to the Transfer Agent at least one week prior to the Conversion Date applicable to those shares. In the event such certificates are not received by the Transfer Agent at least one week prior to the Conversion Date, the related Class B shares will convert to Class D shares on the next scheduled Conversion Date after such certificates are delivered. Contingent Deferred Sales Charges Class C Shares Class C shares that are redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a percentage of the dollar amount subject thereto. In determining whether a Class C CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no Class C CDSC will be assessed on shares derived from reinvestment of dividends. It will be assumed that the redemption is first of shares held for over one year or shares acquired pursuant to reinvestment of dividends and then of shares held longest during the one-year period. A transfer of shares from a shareholder's account to another account will be assumed to be made in the same order as a redemption. The Class C CDSC may be waived in connection with involuntary termination of an account in which Fund shares are held and withdrawals through the Merrill Lynch Systematic Withdrawal Plan. See "Shareholder Services Fee-Based Programs" and " Systematic Withdrawal Plan." The Class C CDSC of the Fund and certain other MLAM-advised mutual funds may be waived with respect to Class C shares purchased by an investor with the net proceeds of a tender offer made by certain MLAM-advised closed end funds, including Merrill Lynch Senior Floating Rate Fund II, Inc. Such waiver is subject to the requirement that the tendered shares shall have been held by the investor for a minimum of one year and to such other conditions as are set forth in the prospectus for the related closed end fund.
23
Class B and Class C Sales Charge Information |
||||
Class B Shares* |
||||
|
For the Fiscal Year |
CDSCs Received |
CDSCs Paid to |
|
|
1999 |
$16,214 |
$16,214 |
|
|
1998 |
$19,311 |
$19,311 |
|
|
1997 |
$31,763 |
$31,763 |
|
_______________ |
||||
Class C Shares |
||||
|
For the Fiscal Year |
CDSCs Received |
CDSCs Paid to |
|
|
1999 |
$1,169 |
$1,169 |
|
|
1998 |
$ 286 |
$ 286 |
|
|
1997 |
$ 20 |
$ 20 |
|
|
|
(in thousands) |
||||||
|
Eligible |
Allowable |
Allowable |
Maximum |
Amounts |
Aggregate |
Annual |
|
Class B Shares for the period |
|
|
|
|
|
|
|
|
Under NASD Rule as Adopted |
$24,599 |
$1,537 |
$701 |
$2,238 |
$406 |
$1,832 |
$35 |
|
Under Distributor's Voluntary Waiver |
$24,599 |
$1,537 |
$124 |
$1,661 |
$406 |
$1,255 |
$35 |
|
Class C Shares, for the period |
|
|
|
|
|
|
|
|
Under NASD Rule as Adopted |
$ 1,291 |
$ 81 |
$ 17 |
$ 98 |
$ 11 |
$ 87 |
$ 3 |
(1) |
Purchase price of all eligible Class B or Class C shares sold during the periods indicated other than shares acquired through dividend reinvestment and the exchange privilege. |
(2) |
Includes amounts attributable to exchanges from Summit Cash Reserves Fund ("Summit") which are not reflected in Eligible Gross Sales. Shares of Summit can only be purchased by exchange from another fund (the "redeemed fund"). Upon such an exchange, the maximum allowable sales charge payment to the redeemed fund is reduced in accordance with the amount of the redemption. This amount is then added to the maximum allowable sales charge payment with respect to Summit. Upon an exchange out of Summit, the remaining balance of this amount is deducted from the maximum allowable sales charge payment to Summit and added to the maximum allowable sales charge payment to the fund into which the exchange is made. |
(3) |
Interest is computed on a monthly basis based upon the prime rate, as reported in The Wall Street Journal, plus 1.0%, as permitted under the NASD Rule. |
(4) |
Consists of CDSC payments, distribution fee payments and accruals. See "What are the Fund's fees and expenses?" in the Prospectus. This figure may include CDSCs that were deferred when a shareholder redeemed shares prior to the expiration of the applicable CDSC period and invested the proceeds, without the imposition of a sales charge, in Class A shares in conjunction with the shareholder's participation in the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFASM) Program (the "MFA Program"). The CDSC is booked as a contingent obligation that may be payable if the shareholder terminates participation in the MFA Program. |
(5) |
Provided to illustrate the extent to which the current level of distribution fee payments (not including any CDSC payments) is amortizing the unpaid balance. No assurance can be given that payments of the distribution fee will reach either the voluntary maximum (with respect to Class B shares) or the NASD maximum (with respect to Class B and Class C shares). |
Class A |
Class B
|
Class C
|
Class D
| ||||
Net Assets |
$ |
$ |
$ |
$ | |||
| |||||||
Number of Shares Outstanding |
|
|
|
| |||
| |||||||
Net Asset Value
Per Share (net |
$ |
$ |
$ |
$ | |||
Sales Charge
(for Class A and |
|
** |
** |
| |||
| |||||||
Offering Price |
$ |
$ |
$ |
$ | |||
|
* |
Rounded to the nearest one-hundredth percent; assumes maximum sales charge is applicable. | |
** |
Class B and Class C shares are not subject to an initial sales charge but may be subject to a CDSC on redemption of shares. See "Purchase of Shares Deferred Sales Charge Alternatives Class B and Class C Shares Contingent Deferred Sales Charges Class B Shares" and " Contingent Deferred Sales Charges Class C Shares" herein. |
Fiscal Year Ended July 31, |
Number of Transactions |
Approximate Aggregate |
||
1999 |
|
$ |
||
1998 |
2
|
$2,200,000 |
||
1997 |
0 |
$ 0 |
The net investment income of the Fund is declared as dividends daily prior to the determination of the net asset value, which is calculated after the close of business on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) on that day. The net investment income of the Fund for dividend purposes consists of interest earned on portfolio securities, less expenses, in each case computed since the most recent determination of net asset value. Expenses of the Fund, including the management fees and the account maintenance and distribution fees, are accrued daily. Dividends of net investment income are declared daily and reinvested monthly in the form of additional full and fractional shares of the Fund at net asset value as of the close of business on the "payment date" unless the shareholder elects to receive such dividends in cash. Shares will accrue dividends as long as they are issued and outstanding. Shares are issued and outstanding from the settlement date of a purchase order to the day prior to settlement date of a redemption order. All net realized capital gains, if any, are declared and distributed to the Fund's shareholders at least annually. Capital gain dividends will be reinvested automatically in shares of the Fund unless the shareholder elects to receive such distributions in cash. The per share dividends on each class of shares will be reduced as a result of any account maintenance, distribution and transfer agency fees applicable to that class. See "Pricing of Shares Determination of Net Asset Value." See "Shareholder Services" for information as to how to elect either dividend reinvestment or cash payments. Portions of dividends which are taxable to shareholders as described below are subject to income tax whether they are reinvested in shares of the Fund or received in cash. The Trust intends to continue to qualify the Fund for the special tax treatment afforded regulated investment companies ("RICs") under the Code. As long as it so qualifies, the Fund (but not its shareholders) will not be subject to Federal income tax to the extent that it distributes its net investment income and net realized capital gains. The Trust intends to cause the Fund to distribute substantially all of such income. As discussed in "General Information Description of Shares," the Trust has established other series in addition to the Fund (together with the Fund, the "Series"). Each Series of the Trust is treated as a separate corporation for Federal income tax purposes. Each Series, therefore, is considered to be a separate entity in determining its treatment under the rules for RICs. Losses in one Series do not offset gains in another Series, and the requirements (other than certain organizational requirements) for qualifying for RIC status will be determined at the Series level rather than at the Trust level. The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined, in general, on an October 31 year end, plus certain undistributed amounts from previous years. The required distributions, however, are based only on the taxable income of a RIC. The excise tax, therefore, generally will not apply to the tax-exempt income of a RIC, such as the Fund, that pays exempt-interest dividends. The Trust intends to qualify the Fund to pay "exempt-interest dividends" as defined in Section 852(b)(5) of the Code. Under such section if, at the close of each quarter of the Fund's taxable year, at least 50% of the value of the Fund's total assets consists of obligations exempt from Federal income tax ("tax-exempt obligations") under Section 103(a) of the Code (relating generally to obligations of a state or local governmental unit), the Fund shall be qualified to pay exempt-interest dividends to its Class A, Class B, Class C and Class D shareholders (together the "shareholders"). Exempt-interest dividends are dividends or any part thereof paid by the Fund that are attributable to interest on tax-exempt obligations and designated by the Trust as exempt-interest dividends in a written notice mailed to the Fund's shareholders within 60 days after the close of the Fund's taxable year. The Fund will allocate interest from tax-exempt obligations (as well as ordinary income, capital gains and tax preference items discussed below) among the Class A, Class B, Class C and Class D shareholders according to a method (which it believes is consistent with the Commission rule permitting the issuance and sale of multiple classes of shares) that is based upon the gross income that is allocable to the Class A, Class B, Class C and Class D shareholders during the taxable year, or such other method as the Internal Revenue Service may prescribe.
35
Exempt-interest dividends will be excludable from a shareholder's gross income for Federal income tax purposes. Exempt-interest dividends are included, however, in determining the portion, if any, of a person's social security and railroad retirement benefits subject to Federal income taxes. Interest on indebtedness incurred or continued to purchase or carry shares of a RIC paying exempt-interest dividends, such as the Fund, will not be deductible by the investor for Federal income tax purposes or for Colorado income tax purposes to the extent attributable to exempt-interest dividends. Shareholders are advised to consult their tax advisors with respect to whether exempt-interest dividends retain the exclusion under Code Section 103(a) if a shareholder would be treated as a "substantial user" or "related person" under Code Section 147(a) with respect to property financed with the proceeds of an issue of "industrial development bonds" or "private activity bonds," if any, held by the Fund. The portion of the Fund's exempt-interest dividends paid from interest received by the Fund from Colorado Municipal Bonds also will be exempt from Colorado personal and corporate income taxes. Shareholders subject to income taxation by states other than Colorado will realize a lower after-tax rate of return than Colorado shareholders since the dividends distributed by the Fund generally will not be exempt, to any significant degree, from income taxation by such other states. The Trust will inform shareholders annually regarding the portion of the Fund's distributions that constitutes exempt-interest dividends and the portion that is exempt from Colorado income taxes. The Trust will allocate exempt-interest dividends among Class A, Class B, Class C and Class D shareholders for Colorado income tax purposes based on a method similar to that described above for Federal income tax purposes. Beginning in 2000, shareholders may be able to exclude from Colorado taxable income up to $1,200 per year ($2,400 for a married couple filing jointly) of distributions from the Fund attributable to taxable interest and capital gain dividends. Under legislation enacted by Colorado in 1999, interest income, dividend income and net capital gains otherwise includable in taxable income qualify for the exclusion. The exclusion will be available only in years during which state revenues exceed by $220 million (indexed annually to reflect the rate of growth in Colorado personal income) state spending limits mandated by the Colorado Constitution (see Appendix I Economic and Financial Conditions in Colorado Restrictions of Appropriations and Revenues, for information on revenue and spending limits under Colorado law). Distributions from investment income and capital gains of the Fund, including exempt-interest dividends, may also be subject to state taxes in states other than Colorado and may be subject to local taxes. Accordingly, investors in the fund should consult their tax advisors with respect to the applications of such taxes to the receipt of Fund dividends and to the holding of Fund shares. To the extent the Fund's distributions are derived from interest on its taxable investments or from an excess of net short-term capital gains over net long-term capital losses ("ordinary income dividends"), such distributions are considered ordinary income for Federal income tax purposes and Colorado income tax purposes. Distributions, if any, from an excess of net long-term capital gains over net short-term capital losses derived from the sale of securities or from certain transactions in futures or options ("capital gain dividends") are taxable as long-term capital gains for Federal income tax purposes, regardless of the length of time the shareholder has owned Fund shares, and for Colorado income tax purposes, are treated as capital gains which are taxed at ordinary income tax rates. Certain categories of capital gains are taxable at different rates for Federal income tax purposes. Generally not later than 60 days after the close of the Fund's taxable year, the Trust will provide shareholders with a written notice designating the amounts of any exempt-interest dividends and capital gain dividends, as well as any amount of capital gain dividends in the different categories of capital gain referred to above. Distributions paid by the Fund, whether from exempt-interest income, ordinary income or capital gains, will not be eligible for the dividends received deduction allowed to corporations under the Code.All or a portion of the Fund's gains from the sale or redemption of tax-exempt obligations purchased at a market discount will be treated as ordinary income rather than capital gain. This rule may increase the amount of ordinary income dividends received by shareholders. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a holder's shares and, after such adjusted tax basis is reduced to zero, will constitute capital gains to such holder (assuming the shares are held as a capital asset). Any loss upon the sale or exchange of Fund shares held for six months or less will be disallowed to the extent of any exempt-interest dividends received by the shareholder. In addition, any such loss that is not disallowed under the rule stated above will be treated as long-term capital loss to the extent of any capital gain dividends received by the shareholder.
36 If the Fund pays a dividend in January which was declared in the previous October, November or December to shareholders of record on a specified date in one of such months, then such dividend will be treated for tax purposes as being paid by the Fund and received by its shareholders on December 31 of the year in which such dividend was declared. The Code subjects interest received on certain otherwise tax-exempt securities to a Federal alternative minimum tax. The alternative minimum tax applies to interest received on certain "private activity bonds" issued after August 7, 1986. Private activity bonds are bonds which, although tax-exempt, are used for purposes other than those generally performed by governmental units and which benefit non-governmental entities (e.g., bonds used for industrial development or housing purposes). Income received on such bonds is classified as an item of "tax preference," which could subject certain investors in such bonds, including shareholders of the Fund, to a Federal alternative minimum tax. The Fund will purchase such "private activity bonds," and the Trust will report to shareholders within 60 days after calendar year-end the portion of the Fund's dividends declared during the year which constitute an item of tax preference for alternative minimum tax purposes. The Code further provides that corporations are subject to a Federal alternative minimum tax based, in part, on certain differences between taxable income as adjusted for other tax preferences and the corporation's "adjusted current earnings," which more closely reflect a corporation's economic income. Because an exempt-interest dividend paid by the Fund will be included in adjusted current earnings, a corporate shareholder may be required to pay Federal alternative minimum tax on exempt-interest dividends paid by the Fund. The Fund may invest in high yield securities, as described in "Investment Objective and Policies Description of Municipal Bonds." Furthermore, the Fund may also invest in instruments the return on which includes non-traditional features such as indexed principal or interest payments ("non-traditional instruments"). These instruments may be subject to special tax rules under which the Fund may be required to accrue and distribute income before amounts due under the obligations are paid. In addition, it is possible that all or a portion of the interest payments on such high yield securities and/or non-traditional instruments could be recharacterized as taxable ordinary income. No gain or loss will be recognized by Class B shareholders on the conversion of their Class B shares into Class D shares. A shareholder's basis on the Class D shares acquired will be the same as such shareholder's basis in the Class B shares converted and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares. If a shareholder exercises an exchange privilege within 90 days of acquiring the shares, then the loss the shareholder can recognize on the exchange will be reduced (or the gain increased) to the extent any sales charge paid to the Fund reduces any sales charge the shareholder would have owed upon purchase of the new shares in the absence of the exchange privilege. Instead, such sales charge will be treated as an amount paid for the new shares. A loss realized on a sale or exchange of shares of the Fund will be disallowed if other Fund shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Ordinary income dividends paid to shareholders that are nonresident aliens or foreign entities will be subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident shareholders are urged to consult their own tax advisors concerning the applicability of the United States withholding tax. Under certain provisions of the Code, some shareholders may be subject to a 31% withholding tax on certain ordinary income dividends and on capital gain dividends and redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Trust or who, to the Trust's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such shareholder is not otherwise subject to backup withholding. The Code provides that every person required to file a tax return must include for information purposes on such return the amount of exempt-interest dividends received from all sources (including the Fund) during the taxable year. 37 Tax Treatment of Options and Futures Transactions The Fund may purchase and sell municipal bond index futures contracts and interest rate futures contracts on U.S. Government securities ("financial futures contracts"). The Fund may also purchase and write call and put options on such financial futures contracts. In general, unless an election is available to the Fund or an exception applies, such options and futures contracts that are "Section 1256 contracts" will be "marked to market" for Federal income tax purposes at the end of each taxable year, (i.e., each such option or financial futures contract will be treated as sold for its fair market value on the last day of the taxable year, and any gain or loss attributable to Section 1256 contracts will be 60% long-term and 40% short-term capital gain or loss). Application of these rules to Section 1256 contracts held by the Fund may alter the timing and character of distributions to shareholders. The mark-to market rules outlined above, however, will not apply to certain transactions entered into by the Fund solely to reduce the risk of changes in price or interest rates with respect to its investments. Code Section 1092, which applies to certain "straddles," may affect the taxation of the Fund's sales of securities and transactions in financial futures contracts and related options. Under Section 1092, the Fund may be required to postpone recognition for tax purposes of losses incurred in certain sales of securities and certain closing transactions in financial futures contracts or the related options. The foregoing is a general and abbreviated summary of the applicable provisions of the Code, Treasury regulations and Colorado income tax laws presently in effect. For the complete provisions, reference should be made to the pertinent Code sections, the Treasury regulations promulgated thereunder and Colorado income tax laws. The Code and the Treasury regulations, as well as the Colorado tax laws, are subject to change by legislative, judicial or administrative action either prospectively or retroactively. Shareholders are urged to consult their tax advisers regarding the availability of any exemptions from state or local taxes and with specific questions as to Federal, foreign, state or local taxes. |
From time to time the Fund may include its average annual total return and other total return data, as well as yield and tax-equivalent yield, in advertisements or information furnished to present or prospective shareholders. Total return, yield and tax-equivalent yield figures are based on the Fund's historical performance and are not intended to indicate future performance. Average annual total return, yield and tax-equivalent yield are determined separately for Class A, Class B, Class C and Class D shares in accordance with formulas specified by the Commission. Average annual total return quotations for the specified periods are computed by finding the average annual compounded rates of return (based on net investment income and any realized and unrealized capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each period. Average annual total return is computed assuming all dividends and distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses, including the maximum sales charge in the case of Class A and Class D shares and the CDSC that would be applicable to a complete redemption of the investment at the end of the specified period in the case of Class B and Class C shares. Yield quotations will be computed based on a 30-day period by dividing (a) the net income based on the yield of each security earned during the period by (b) the average daily number of shares outstanding during the period that were entitled to receive dividends multiplied by the maximum offering price per share on the last day of the period. Tax equivalent yield quotations will be computed by dividing (a) the part of the Fund's yield that is tax-exempt by (b) one minus a stated tax rate and (c) adding the result to that part, if any, of the Fund's yield that is not tax-exempt. The Fund also may quote annual, average annual and annualized total return and aggregate total return performance data, both as a percentage and as a dollar amount based on a hypothetical $1,000 investment, for various periods other than those noted below. Such data will be computed as described above, except that (1) as required by the periods of the quotations, actual annual, annualized or aggregate data, rather than average annual data, may be quoted and (2) the maximum applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the impact on the performance data calculations of including or excluding the maximum applicable sales charges, actual annual or annualized total return data
38
Set forth below is total return, yield and tax-equivalent yield information for the Class A, Class B, Class C and Class D shares of the Fund for the periods indicated. |
Class A Shares
|
Class B Shares
|
|||||
Period |
Expressed as |
Redeemable Value |
Expressed as |
Redeemable Value |
||
Average Annual Total Return
(including maximum applicable sales charges) |
||||||
One Year Ended July 31, 1999 |
(2.61)% |
$ 973.90 |
(2.94)% |
|
||
Five Years Ended July 31, 1999 |
4.90% |
$1,270.30 |
5.22% |
$1,289.90 |
||
Inception (November 26, 1993) |
3.78% |
$1,234.30 |
4.00% |
$1,249.20 |
||
|
(excluding maximum applicable sales charges) |
|||||
|
||||||
Year ended July 31, |
||||||
1999 |
1.45% |
$ 1,014.50 |
0.94% |
$ 1,009.40 |
||
1998 |
5.56% |
$ 1,055.60 |
5.03% |
$ 1,055.30 |
||
1997 |
9.93% |
$ 1,099.30 |
9.38% |
$ 1,093.80 |
||
1996 |
5.83% |
$ 1,058.30 |
5.29% |
$ 1,052.90 |
||
1995 |
6.20% |
$ 1,062.00 |
5.66% |
$ 1,056.60 |
||
Inception (November 26, 1993) |
(2.83)% |
$ 971.70 |
(3.16)% |
$ 968.40 |
||
|
||||||
|
Aggregate Total Return
(including maximum applicable sales charges) |
|||||
|
||||||
Inception (November 26, 1993) |
23.43% |
$ 1,234.30 |
24.92% |
$ 1,249.20 |
||
|
Yield
|
|||||
30 days ended July 31, 1999 |
3.67% |
|
3.31% |
|
||
|
Tax Equivalent Yield*
|
|||||
30 days ended July 31, 1999 |
5.10% |
|
4.60% |
|
||
* Based on a Federal income tax rate of 28%. |
Class C Shares
|
Class D Shares
|
|||||
Period |
Expressed as |
Redeemable Value |
Expressed as |
Redeemable Value |
||
|
Average Annual Total Return
(including maximum applicable sales charges) |
|||||
One year ended July 31, 1999 |
(0.13)% |
$ 998.70 |
(2.71)% |
$ 972.90 |
||
Inception (October 21, 1994) |
5.95% |
$1,317.70 |
5.59% |
$1,296.80 |
||
|
||||||
|
Annual Total Return
(excluding maximum applicable sales charges) |
|||||
|
||||||
Year Ended July 31, |
||||||
1999 |
0.84% |
$ 1,008.40 |
1.35% |
$ 1,013.50 |
||
1998 |
5.03% |
$ 1,050.30 |
5.56% |
$ 1,055.60 |
||
1997 |
9.15% |
$ 1,091.50 |
9.71% |
$ 1,097.10 |
||
1996 |
5.29% |
$ 1,052.90 |
5.84% |
$ 1,058.40 |
||
Inception (October 21, 1994) |
8.27% |
$ 1,082.70 |
8.74% |
$ 1,087.40 |
||
|
||||||
|
Aggregate Total Return
(including maximum applicable sales charges) |
|||||
|
||||||
Inception (October 21, 1994) |
31.77% |
$ 1,317.70 |
29.68% |
$ 1,296.80 |
||
|
Yield
|
|||||
30 days ended July 31, 1999 |
3.21% |
|
3.56% |
|
||
|
Tax Equivalent Yield*
|
|||||
30 days ended July 31, 1999 |
4.46% |
|
4.94% |
|
||
* Based on a Federal income tax rate of 28%. |
||||||
|
||||||
In order to reflect the reduced sales charges in the case of Class A or Class D shares, or the waiver of the CDSC in the case of Class B or Class C shares applicable to certain investors, as described under "Purchase of Shares" the total return data quoted by the Fund in advertisements directed to such investors may take into account the reduced, and not the maximum, sales charge or may not take into account the CDSC, and, therefore, may reflect greater total return since, due to the reduced sales charges or the waiver of CDSCs, a lower amount of expenses may be deducted. On occasion, the Fund may compare its performance to the Lehman Brothers Municipal Bond Index or other market indices or to performance data published by Lipper Analytical Services, Inc., Morningstar Publications, Inc. ("Morningstar"), CDA Investment Technology, Inc., Money Magazine, U.S. News & World Report, Business Week, Forbes Magazine, Fortune Magazine or other industry publications. When comparing its performance to a market index, the Fund may refer to various statistical measures derived from the historic performance of the Fund and the index such as standard deviation and beta. In addition, from time to time the Fund may include its Morningstar risk-adjusted performance ratings in advertisements or supplemental sales literature. As with other performance data, performance comparisons should not be considered indicative of the Fund's relative performance for any future period. Total return figures are based on the Fund's historical performance and are not intended to indicate future performance. The Fund's total return, yield and tax-equivalent yield will vary depending on market conditions, the securities comprising the Fund's portfolio, the Fund's operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The value of an investment in the Fund will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. The Trust is a business trust organized on August 2, 1985 under the laws of Massachusetts. On October 1, 1987, the Trust changed its name from "Merrill Lynch Multi-State Tax-Exempt Series Trust" to "Merrill Lynch Multi-State Municipal Bond Series Trust," and on December 22, 1987 the Trust again changed its name to "Merrill Lynch Multi-State Municipal Series Trust." The Trust is an open-end management investment company comprised of separate Series, each of which is a separate portfolio offering shares to selected groups of purchasers. Each of the Series is managed independently in order to provide to shareholders who are residents of the state to which such Series relates with income exempt from Federal, and in certain cases state and local, income taxes. The Trustees are authorized to create an unlimited number of Series and, with respect to each Series, to issue an unlimited number of full and fractional shares of beneficial interest, $.10 par value per share, of different classes and to divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interests in the Series. The Trust is presently comprised of the Fund, Merrill Lynch Arizona Municipal Bond Fund, Merrill Lynch Arkansas Municipal Bond Fund, Merrill Lynch Connecticut Municipal Bond Fund, Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch Maryland Municipal Bond Fund, Merrill Lynch Massachusetts Municipal Bond Fund, Merrill Lynch Michigan Municipal Bond Fund, Merrill Lynch Minnesota Municipal Bond Fund, Merrill Lynch New Jersey Municipal Bond Fund, Merrill Lynch New Mexico Municipal Bond Fund, Merrill Lynch New York Municipal Bond Fund, Merrill Lynch North Carolina Municipal Bond Fund, Merrill Lynch Ohio Municipal Bond Fund, Merrill Lynch Oregon Municipal Bond Fund, Merrill Lynch Pennsylvania Municipal Bond Fund and Merrill Lynch Texas Municipal Bond Fund. Shareholder approval is not required for the authorization of additional Series or classes of a Series of the Trust. At the date of this Statement of Additional Information, the shares of the Fund are divided into Class A, Class B, Class C and Class D shares. Class A, Class B, Class C and Class D shares represent interests in the same assets of the Fund and are identical in all respects except that Class B, Class C and Class D shares bear certain expenses relating to the account maintenance associated with such shares and Class B and Class C shares bear 40
certain expenses relating to the distribution of such shares. All shares of the Trust have equal voting rights. Each class has exclusive voting rights with respect to matters relating to distribution and/or account maintenance expenditures, as applicable (except that Class B shareholders may vote upon any material changes to expenses charged under the Class D Distribution Plan). See "Purchase of Shares." The Trustees of the Trust may classify and reclassify the shares of any Series into additional or other classes at a future date. Each issued and outstanding share of a Series is entitled to one vote and to participate equally in dividends and distributions with respect to that Series and, upon liquidation or dissolution of the Series, in the net assets of such Series remaining after satisfaction of outstanding liabilities except that, as noted above, expenses relating to distribution and/or account maintenance of the Class B, Class C and Class D shares are borne solely by the respective class. There normally will be no meetings of shareholders for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. Shareholders may, in accordance with the terms of the Declaration of Trust, cause a meeting of shareholders to be held for the purpose of voting on the removal of Trustees. Also, the Trust will be required to call a special meeting of shareholders in accordance with the requirements of the Investment Company Act to seek approval of new management and advisory arrangements, of a material increase in distribution fees or a change in the fundamental policies, objectives or restrictions of a Series. The obligations and liabilities of a particular Series are restricted to the assets of that Series and do not extend to the assets of the Trust generally. The shares of each Series, when issued, will be fully paid and nonassessable, have no preference, preemptive or similar rights and will be freely transferable. Redemption and conversion rights are as set forth elsewhere herein and in the Prospectus. Shares do not have cumulative voting rights and the holders of more than 50% of the shares of the Trust voting for the election of Trustees can elect all of the Trustees if they choose to do so and in such event the holders of the remaining shares would not be able to elect any Trustees. No amendments may be made to the Declaration of Trust, other than amendments necessary to conform the Declaration to certain laws or regulations, to change the name of the Trust, or to make certain non-material changes, without the affirmative vote of a majority of the outstanding shares of the Trust, or of the affected Series or class, as applicable. The Declaration of Trust establishing the Trust dated August 2, 1985, a copy of which, together with all amendments thereto (the "Declaration") is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name "Merrill Lynch Multi-State Municipal Series Trust" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the Trust shall be held to any personal liability; nor shall resort be had to their private property for the satisfaction of any obligation or claim of the Trust, but the "Trust Property" only shall be liable. Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable as partners for the trust's obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the trust itself was unable to meet its obligations. The Manager provided the initial capital for the Fund by purchasing 10,000 shares of the Fund for $100,000. Such shares were acquired for investment and can only be disposed of by redemption. If additional Series are added to the Trust, the organizational expenses will be allocated among the Series in a manner deemed equitable by the Trustees. Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400, has been selected as the independent auditors of the Trust. The selection of independent auditors is subject to approval by the non-interested Trustees of the Trust. The independent auditors are responsible for auditing the annual financial statements of the Fund.
41
State Street Bank and Trust Company, P. O. Box 351, Boston, Massachusetts 02101, acts as the Custodian of the Fund's assets. The Custodian is responsible for safeguarding and controlling the Fund's cash and securities, handling the receipt and delivery of securities and collecting interest on the Fund's investments. Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484, acts as the Trust's Transfer Agent. The Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening, maintenance and servicing of shareholder accounts. See "How to Buy, Sell, Transfer and Exchange Shares Through the Transfer Agent" in the Prospectus. Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is counsel for the Trust. The fiscal year of the Fund ends on July 31 of each year. The Trust sends to the Fund's shareholders, at least semi-annually, reports showing the Fund's portfolio and other information. An annual report, containing financial statements audited by independent auditors, is sent to shareholders each year. After the end of each year, shareholders will receive Federal income tax information regarding dividends and capital gains distributions. Shareholder inquiries may be addressed to the Fund at the address or telephone number set forth on the cover page of this Statement of Additional Information. The Prospectus and this Statement of Additional Information do not contain all the information set forth in the Registration Statement and the exhibits relating thereto, which the Trust has filed with the Securities and Exchange Commission, Washington, D.C., under the Securities Act and the Investment Company Act, to which reference is hereby made. Under a separate agreement, ML & Co. has granted the Trust the right to use the "Merrill Lynch" name and has reserved the right to withdraw its consent to the use of such name by the Trust at any time or to grant the use of such name to any other company, and the Trust has granted ML & Co. under certain conditions, the use of any other name it might assume in the future, with respect to any corporation organized by ML & Co. To the knowledge of the Trust,
the following persons or entities owned beneficially 5% or more of any
class of the Fund's shares as of______________, 1999: |
Name |
Address |
Percent of Class |
The Fund's audited financial statements are incorporated in this Statement of Additional Information by reference to its 1999 annual report to shareholders. You may request a copy of the annual report at no charge by calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business day.
42
ECONOMIC AND FINANCIAL CONDITIONS IN COLORADO The following information is a brief summary of factors affecting the economy of the State of Colorado and does not purport to be a complete description of such factors. Other factors will affect issuers. The summary is based primarily upon statistics provided by state agencies and other independent sources, however, it has not been updated nor will it be updated during the year. The Fund has not independently verified the information. State Economy Based on data published by the State of Colorado, Office of State Planning and Budgeting as presented in the Colorado Economic Perspective, State Revenue and Economic Projections through Fiscal Year 2003-2004, dated June 20, 1999 (the "Economic Report"), 54% of non-agricultural employment in Colorado in 1998 was concentrated in the retail and wholesale trade and service sectors, reflecting the importance of tourism to the State's economy and of Denver as a regional economic and transportation hub. The government and manufacturing sectors followed as the next largest employment sectors in the State, representing approximately 15.7% and 10.1%, respectively, of non-agricultural employment in the State in 1998. The Office of Planning and Budgeting projects similar concentrations for 1999 and 2000. According to the Economic Report, the unemployment rate in Colorado rose slightly from 3.3% during 1997 to 3.8% during 1998. Colorado continued to surpass the non-agricultural employment growth rate of the U.S., with a 3.6% growth rate for Colorado in 1998, as compared to 2.5% for the nation as a whole. The rate of job growth in Colorado is projected in the Economic Report to be 3.1% in 2000. Personal income rose 8.2% in Colorado during 1998, as compared with an increase of 5% for the nation as a whole. Total Colorado retail sales increased by 6.4% over sales in calendar 1997. Restrictions of Appropriations and Revenues The State Constitution requires that expenditures for any fiscal year not exceed revenues for such fiscal year. By statute, the amount of General Fund revenues available for appropriation is based upon revenue estimates which, together with other available resources, must exceed annual appropriations by the amount of the unappropriated reserve (the "Unappropriated Reserve"). The Unappropriated Reserve requirement for fiscal years 1991, 1992 and 1993 was set at 3% of total appropriations from the General Fund. For fiscal years 1994 and thereafter, the Unappropriated Reserve requirement is 4% of total appropriations from the General Fund. In addition to the Unappropriated Reserve, a constitutional amendment approved by Colorado voters in 1992 requires the State and each local government to reserve a certain percentage of its fiscal year spending (excluding bonded debt service) for emergency use (the "Emergency Reserve"). The minimum Emergency Reserve was set at 1% for 1993 and 2% for 1994, and is set at 3% for 1995 and later years. The balance held in the State Controlled Maintenance Trust Fund is now used to satisfy the Emergency Reserve requirement. General Fund appropriations also are limited by statute to an amount equal to the cost of performing certain required reappraisals of taxable property plus an amount equal to the lesser of (i) 5% of Colorado personal income or (ii) 106% of the total General Fund appropriations for the previous fiscal year. This restriction does not apply to any General Fund appropriations which are required as a result of a new federal law, a final state or federal court order or moneys derived from the increase in the rate or amount of any tax or fee approved by a majority of the registered electors of the State voting at any general election. In addition, the statutory limit on the level of General Fund appropriations may be exceeded for a given fiscal year upon the declaration of a State fiscal emergency by the State General Assembly. During each of the past several years, Colorado has met the Unappropriated Reserve and Emergency Reserve requirements described above. Based on the Economic Report estimates, the 1999 and 2000 fiscal year ending General Fund balances are expected to exceed the required Unappropriated Reserve. On November 3, 1992, voters in Colorado approved a constitutional amendment (the "Amendment") which, in general, became effective December 31, 1992, and restricts the ability of the State and local governments to increase revenues and impose taxes. The Amendment applies to the State and all local governments, including
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home rule entities ("Districts"). Enterprises, defined as government-owned businesses authorized to issue revenue bonds and receiving under 10% of annual revenue in grants from all Colorado state and local governments combined, are excluded from the provisions of the Amendment. The provisions of the Amendment are unclear and have required judicial interpretation. Among other provisions, the Amendment requires voter approval prior to tax increases, the imposition of a new tax, creation of debt, or mill levy or valuation for assessment ratio increases or a change of tax policy resulting in a net revenue gain. The Amendment also limits increases in government spending and property tax revenues to specified percentages. The Amendment requires that District property tax revenues yield no more than the prior year's revenues adjusted for inflation, voter approved changes and (except with regard to school districts) local growth in property values according to a formula set forth in the Amendment. School districts are allowed to adjust tax levies for changes in student enrollment. Pursuant to the Amendment, local government spending is to be limited by the same formula as the limitation for property tax revenues. The Amendment limits increases in expenditures from the State General Fund and program revenues (cash funds) to the growth in inflation plus the percentage change in State population in the prior calendar year. The bases for initial spending and revenue limits were fiscal year 1992 spending and 1991 property taxes collected in 1992. The base for spending and revenue limits for each subsequent fiscal year is the prior fiscal year's spending and property taxes collected in the prior calendar year. Debt service changes, reductions and voter-approved revenue changes are excluded from the calculation bases. The Amendment also prohibits new or increased real property transfer tax rates, new State real property taxes and local District income taxes. Litigation concerning several issues relating to the Amendment has been brought in the Colorado courts. The litigation deals with three principal issues: (i) whether Districts can increase mill levies to pay debt service on general obligation bonds without obtaining voter approval; (ii) whether a multi-year lease-purchase agreement subject to annual appropriation is an obligation which requires voter approval prior to execution of the agreement; and (iii) what constitutes an "enterprise" which is excluded from the provisions of the Amendment. In September 1994, the Colorado Supreme Court held that Districts can increase mill levies to pay debt service on voter approved general obligations bonds issued after the effective date of the Amendment; in June 1995, the Colorado Supreme Court validated mill levy increases to pay general obligation bonds issued prior to the Amendment, provided that such bonds or bonds issued to refund such bonds were voter approved. In late 1994, the Colorado Court of Appeals held that multi-year lease-purchase agreements subject to annual appropriation do not require voter approval, and that decision was not appealed. Recently the Colorado Supreme Court ruled that notes to be issued by the State the repayment of which was subject to legislative appropriation must be approved by the voters under the Amendment. The Court distinguished these notes from lease-purchase agreements. Finally, in May 1995, the Colorado Supreme Court ruled that entities with the power to levy taxes may not themselves be "enterprises" for purposes of the Amendment; however, the Court did not address the issue of how valid enterprises may be created. Many Colorado local governments interpret this decision to mean that a government with taxing power cannot be an enterprise but that a business activity (such as a utility) owned by such a government can be an enterprise. Additional litigation in the "enterprise" arena may be filed in the future to clarify these issues. In 1996, the Colorado Supreme Court held that voters can authorize a government to keep and spend all revenues received in excess of the spending limits. Other aspects of the spending limit are being litigated in district court actions. According to the Economic Report, the fiscal year 1998, general fund revenues (adjusted for cash funds that are exempt from the Amendment) were $5,348 million and program revenues (cash funds) were $2,087.2 million, for revenues totaling $7,435.2 million. During calendar year 1996, population and inflation grew at rates of 3.5% and 2.0%, respectively, for a combined total limit of 5.5%. Accordingly, under the Amendment, State revenues during the 1998 fiscal year could not exceed $6,872 million and the actual 1998 general fund and program revenues of $7,435.2 million were over the limit. In November 1998, Colorado voters defeated a proposition to permit the State to keep and spend a portion of the surplus, and the excess of $563.2 million is required to be refunded to Colorado taxpayers. The estimated limitation for fiscal year 1999 is 5.3% over the revenue limit for the 1999 fiscal year; accordingly, 1999 fiscal year revenues cannot exceed an estimated $7,236.2 million. Fiscal year 2000 revenues are estimated to be $615.7 million over the projected limitation which means that there will likely be additional refunds unless voters allow some or all of those revenues to be retained.
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Because of the significant anticipated surpluses, many permanent tax reductions were passed by the General Assembly in 1999 and signed into law by the Governor. In total, taxes were reduced by an estimated $237.8 million in fiscal year 2001, the first full year of the majority of the tax cuts. The largest tax cut was a reduction in the income tax rate to 4.75%, effective January 1, 1999, from the previous 5% rate. There is also a statutory restriction on the amount of annual increases in taxes that the various taxing jurisdictions in Colorado can levy without electoral approval. This restriction does not apply to taxes levied to pay general obligations debt. State Finances According to the State of Colorado Audited Financial Reports, on a GAAP basis, the State had unrestricted General Fund balances at June 30, 1996 and 1997 of $368.5 million and $514.1 million, respectively. The Office of State Planning and Budgeting projects the fiscal year 1998 General Fund ending balance to be approximately $775.8 million. The ending balances for fiscal years 1997 and 1998 give effect to HB 98-1414, which specifies that the refunds required by the Amendment are to be booked in the year of the refund rather than in the year incurred. For fiscal year 1998, individual income taxes generated the largest portion of the State's General Fund gross receipts, representing approximately 56% of such receipts. Sales, use and other excise taxes represented the second largest source at approximately 30% of fiscal year 1998 gross receipts, while corporate income taxes represented about 4.9% of fiscal year 1997 gross receipts. For fiscal year 1999, General Fund revenues of approximately $5,766.4 million and appropriations of approximately $5,850.3 million are projected. The percentages of General Fund revenue generated by type of tax for fiscal years 1999 and 2000 are not expected to be significantly different from fiscal year 1998 percentages. State Debt Under its constitution, the State of Colorado is not permitted to issue general obligation bonds secured by the full faith and credit of the State. However, certain agencies and instrumentalities of the State are authorized to issue bonds secured by revenues from specific projects and activities. The State enters into certain lease transactions which are subject to annual renewal at the option of the State. In addition, the State is authorized to issue short-term revenue anticipation notes. Local governmental units in the State are also authorized to incur indebtedness. The major source of financing for such local government indebtedness is an ad valorem property tax. In addition, in order to finance public projects, local governments in the State can issue revenue bonds payable from the revenues of a utility or enterprise or from the proceeds of an excise tax, or assessment bonds payable from special assessments. Colorado local governments can also finance public projects through leases which are subject to annual appropriation at the option of the local government. Local governments in Colorado also issue tax anticipation notes. The Amendment requires prior voter approval for the creation of any multiple fiscal year debt or other financial obligation whatsoever, except for refundings at a lower rate or obligations of an enterprise. The State has submitted to the voters of the State at the November 2, 1999 election a question of issuing $1,700,000,000 of revenue anticipation notes, the proceeds of which would be used for highway purposes.
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RATINGS OF MUNICIPAL BONDS Description of Moody's Investors Service, Inc.'s ("Moody's") Long-Term Debt Ratings |
Aaa |
Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. |
Aa |
Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than in Aaa securities. |
A |
Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. |
Baa |
Bonds which are rated Baa are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. |
Ba |
Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. |
B |
Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. |
Caa |
Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. |
Ca |
Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. |
C |
Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. |
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. Short TermNotes: The three ratings of Moody's for short-term notes are MIG 1/VMIG 1, MIG 2/VMIG 2 and MIG 3/VMIG 3; MIG 1/VMIG 1 denotes "best quality strong protection from established cash flows"; MIG 2/VMIG 2 denotes "high quality" with "ample margins of protection"; MIG 3/VMIG 3 instruments are of "favorable quality but lacking the undeniable strength of the preceding grades." Description of Moody's Commercial Paper Ratings Moody's Commercial Paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
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Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of short-term promissory obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and ample asset protection; broad margins in earning coverage of fixed financial charges and high internal cash generation; and well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of short-term promissory obligations. The effects of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes to the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. Description of Standard & Poor's, a Division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"), Municipal Debt Ratings A Standard & Poor's municipal debt rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations or a specific program. It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation. The debt rating is not a recommendation to purchase, sell or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the obligors or obtained by Standard & Poor's from other sources Standard & Poor's considers reliable. Standard & Poor's does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on circumstances. The ratings are based, in varying degrees, on the following considerations: |
I.
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Likelihood of payment capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; |
II.
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Nature of and provisions of the obligation; |
III.
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Protection afforded to, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. |
AAA |
Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to meet its financial commitment on the obligation is extremely strong. |
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AA |
Debt rated "AA" differs from the highest rated issues only in small degree. The Obligor's capacity to meet its financial commitment on the obligation is very strong. |
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A |
Debt rated "A" is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. |
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BBB |
Debt rated "BBB" exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
II-2 |
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BB |
Debt rated "BB," "B," "CCC," "CC" and "C" are regarded as having significant speculative characteristics. "BB" indicates the least degree of speculation and "C" the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major risk exposures to adverse conditions. |
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D |
Debt rated "D" is in payment default. The "D" rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized. |
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. |
Description of Standard & Poor's Commercial Paper Ratings |
A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from "A-1" for the highest-quality obligations to "D" for the lowest. These categories are as follows: |
A-1 |
This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. |
A-2 |
Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated "A-1." |
A-3 |
Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. |
B |
Issues rated "B" are regarded as having only speculative capacity for timely payment. |
C |
This rating is assigned to short-term debt obligations with a doubtful capacity for payment. |
D |
Debt rated "D" is in payment default. The "D" rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired unless Standard & Poor's believes that such payments will be made during such grace period. |
A commercial paper rating is not a recommendation to purchase or sell a security. The ratings are based on current information furnished to Standard & Poor's by the issuer or obtained by Standard & Poor's from other sources it considers reliable. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information. A Standard & Poor's note rating reflects the liquidity factors and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment.
Note rating symbols are as follows: |
SP-1 |
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation. |
SP-2 |
Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the notes. |
SP-3 |
Speculative capacity to pay principal and interest.
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c |
The "c" subscript is used to provide additional information to investors that the bank may terminate its obligation to purchase tendered bonds if the long-term credit rating of the issuer is below an investment-grade level and/or the issuer's bonds are deemed taxable. |
p |
The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful, timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of or the risk of default upon failure of such completion. The investor should exercise his own judgment with respect to such likelihood and risk. |
* |
Continuance of the ratings is contingent upon Standard & Poor's receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows. |
r |
The "r" highlights derivative, hybrid, and certain other obligations that Standard & Poor's believes may experience high volatility or high variability in expected returns as a result of noncredit risks. Examples of such obligations are securities with principal or interest return indexed to equities, commodities, or currencies; certain swaps and options, and interest-only and principal-only mortgage securities. The absence of an "r" symbol should not be taken as an indication that an obligation will exhibit no volatility or variability in total return. |
Description of Fitch IBCA, Inc.'s ("Fitch") Investment Grade Bond Ratings Fitch investment grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The rating represents Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue or class of debt in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guarantees unless otherwise indicated. Bonds carrying the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk. Fitch ratings are not recommendations to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security. Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. |
AAA |
Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. |
AA |
Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." |
A |
Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
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BBB |
Bonds considered to be investment grade and of satisfactory-credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. |
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category. |
NR |
Indicates that Fitch does not rate the specific issue. |
Conditional |
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event. |
Suspended |
A rating is suspended when Fitch deems the amount of information available from the issuer to be inadequate for rating purposes. |
Withdrawn |
A rating will be withdrawn when an issue matures or is called or refinanced and, at Fitch's discretion, when an issuer fails to furnish proper and timely information. |
FitchAlert |
Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may be raised or lowered. FitchAlert is relatively short-term, and should be resolved within 12 months. |
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Ratings Outlook: An outlook is used to describe the most likely direction of any rating change over the intermediate term. It is described as "Positive" or "Negative." The absence of a designation indicates a stable outlook. Description of Fitch's Speculative Grade Bond Ratings Fitch speculative grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings ("BB" to "C") represent Fitch's assessment of the likelihood of timely payment of principal and interest in accordance with the terms of obligation for bond issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an assessment of the ultimate recovery value through reorganization or liquidation. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength. Bonds that have the rating are of similar but not necessarily identical credit quality since rating categories cannot fully reflect the differences in degrees of credit risk. |
BB |
Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. |
B |
Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. |
CCC |
Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. |
CC |
Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. |
C |
Bonds are in imminent default in payment of interest or principal.
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| |
DDD |
Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and |
DD |
should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the |
D |
obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery. |
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "DDD," "DD," or "D" categories. Description of Fitch's Short-Term Ratings Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The short-term ratings places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. Fitch short-term ratings are as follows: |
F-1+ |
Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. |
F-1 |
Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+." |
F-2 |
Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned "F-1+" and "F-1" ratings. |
F-3 |
Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate; however, near-term adverse changes could cause these securities to be rated below investment grade. |
F-S |
Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. |
D |
Default. Issues assigned this rating are in actual or imminent payment default. |
LOC |
The symbol "LOC" indicates that the rating is based on a letter of credit issued by a commercial bank.
II-6
|
|
Code # 16916-11-99
PART C. OTHER INFORMATION ITEM 23. Exhibits |
Exhibit |
Description | ||
1 |
(a) |
|
Declaration of Trust of the Registrant, dated August 2, 1985.(a) |
(b) |
|
Amendment to Declaration of Trust, dated September 18, 1987.(a) | |
(c) |
|
Amendment to Declaration of Trust, dated December 21, 1987.(a) | |
(d) |
|
Amendment to Declaration of Trust, dated October 3, 1988.(a) | |
(e) |
|
Amendment to Declaration of Trust, dated October 17, 1994 and instrument establishing Class C and Class D shares of beneficial interest.(a) | |
(f) |
|
Instrument establishing Merrill Lynch Colorado Municipal Bond Fund (the "Fund") as a series of the Registrant.(d) | |
(g) |
|
Instrument establishing Class A and Class B shares of beneficial interest of the Fund.(d) | |
2 |
|
|
By-Laws of the Registrant.(a) |
3 |
|
|
Portions of the Declaration of Trust, Certificate of Establishment and Designation and By-Laws of the Registrant defining the rights of holders of the Fund as a series of the Registrant.(b) |
4 |
(a) |
|
Form of Management Agreement between the Registrant and Fund Asset Management, L.P.(a) |
(b) |
|
Supplement to Management Agreement between Registrant and Fund Asset Management, L.P.(f) | |
5 |
(a) |
|
Form of Revised Class A Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor, Inc. (now known as Princeton Funds Distributor, Inc.) (the "Distributor") (including Form of Selected Dealers Agreement).(f) |
(b) |
|
Form of Class B Distribution Agreement between the Registrant and the Distributor (including Form of Selected Dealers Agreement).(a) | |
(c) |
|
Form of Class C Distribution Agreement between the Registrant and the Distributor (including Form of Selected Dealers Agreement).(f) | |
(d) |
|
Form of Class D Distribution Agreement between the Registrant and the Distributor (including Form of Selected Dealers Agreement).(f) | |
(e) |
|
Letter Agreement between the Fund and the Distributor, dated September 15, 1993, in connection with the Merrill Lynch Mutual Fund Advisor Program.(d) | |
6 |
|
|
None. |
7 |
|
|
Form of Custody Agreement between the Registrant and State Street Bank and Trust Company.(e) |
8 |
|
|
Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the Registrant and Merrill Lynch Financial Data Services, Inc. (now known as Financial Data Services, Inc.)(c) |
9 |
(a) |
|
Opinion of Brown & Wood LLP, counsel to the Registrant.(i) |
(b) |
|
Consent of Brown & Wood LLP, counsel to the Registrant. | |
10 |
|
|
Consent of Deloitte & Touche LLP, independent auditors for the Registrant. |
11 |
|
|
None. |
12 |
|
|
Certificate of Fund Asset Management, L.P.(d) |
13 |
(a) |
|
Class B Distribution Plan of the Registrant and Amended and Restated Class B Distribution Plan Sub-Agreement.(c) |
(b) |
|
Form of Class C Distribution Plan of the Registrant and Class C Distribution Plan Sub-Agreement.(f) | |
(c) |
|
Form of Class D Distribution Plan of the Registrant and Class D Distribution Plan Sub-Agreement.(f) | |
14 |
|
|
None. |
15 |
|
|
Merrill Lynch Select PricingSM System Plan pursuant to Rule 18f-3.(h) |
(a) |
Filed on October 30, 1995 as an Exhibit to Post-Effective Amendment No. 3 to Registrant's Registration Statement on Form N-1A under the Securities Act of 1933, as amended, relating to shares of the Fund (File No. 33-50051) (the "Registration Statement"). |
C-1 |
|
|
|
(b) |
Reference is made to Article II, Section 2.3 and Articles V, VI, VIII, IX, X and XI of the Registrant's Declaration of Trust, as amended, filed as Exhibits 1(a), 1(b), 1(c), 1(d) and 1(e) with Post-Effective Amendment No. 3 to the Registration Statement; to the Certificates of Establishment and Designation establishing the Fund as a series of the Registrant and establishing Class A and Class B shares of beneficial interest of the Fund, filed as Exhibits 1(f) and 1(g), respectively, with Pre-Effective Amendment No. 1 to the Registration Statement; and to Articles I, V and VI of the Registrant's By-Laws, filed as Exhibit 2 with Post-Effective Amendment No. 3 to the Registration Statement. |
(c) |
Filed on August 20, 1993 as an Exhibit to the Registration Statement. |
(d) |
Filed on October 13, 1993 as an Exhibit to Pre-Effective Amendment No. 1 to the Registration Statement. |
(e) |
Incorporated by reference to Exhibit 8 to Post-Effective Amendment No. 3 to Registrant's Registration Statement on Form N-1A under the Securities Act of 1933, as amended, filed on October 14, 1994, relating to shares of Merrill Lynch Minnesota Municipal Bond Fund series of the Registrant (File No. 33-44734). |
(f) |
Filed on October 19, 1994 as an Exhibit to Post-Effective Amendment No. 2 to the Registration Statement. |
(g) |
Filed on April 13, 1994 as an Exhibit to Post-Effective Amendment No. 1 to the Registration Statement. |
(h) |
Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13 to Registrant's Registration Statement on Form N-1A under the Securities Act of 1933, as amended, filed on January 25, 1996, relating to shares of Merrill Lynch New York Municipal Bond Fund series of the Registrant (File No. 2-99473). |
(i) | Filed on October 13, 1993 as an Exhibit to Pre-Effective Amendment No. 1 to the Registration Statement. Refiled with this Post-Effective Amendment No. 7 pursuant to Electronic Data Gathering, Analysis and Retrieval (EDGAR) requirements. |
Item 24. Persons Controlled by or Under Common Control with Registrant The Registrant is not controlled by or under common control with any other person. Item 25. Indemnification Section 5.3 of the Registrant's Declaration of Trust provides as follows: "The Trust shall indemnify each of its Trustees, officers, employees and agents (including persons who serve at its request as directors, officers or trustees of another organization in which it has any interest as a shareholder, creditor or otherwise) against all liabilities and expenses (including amounts paid in satisfaction of judgments, in compromise, as fines and penalties and as counsel fees) reasonably incurred by him in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which he may be involved or with which he may be threatened, while in office or thereafter, by reason of his being or having been such a trustee, officer, employee or agent, except with respect to any matter as to which he shall have been adjudicated to have acted in bad faith, willful misfeasance, gross negligence or reckless disregard of his duties; provided, however, that as to any matter disposed of by a compromise payment by such person, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless the Trust shall have received a written opinion from independent legal counsel approved by the Trustees to the effect that if either the matter of willful misfeasance, gross negligence or reckless disregard of duty, or the matter of good faith and reasonable belief as to the best interests of the Trust, had been adjudicated, it would have been adjudicated in favor of such person. The rights accruing to any Person under these provisions shall not exclude any other right to which he or she may be lawfully entitled; provided that no Person may satisfy any right of indemnity or reimbursement granted herein or in Section 5.1 or to which he or she may be otherwise entitled except out of the property of the Trust, and no Shareholder shall be personally liable to any Person with respect to any claim for indemnity or reimbursement or otherwise. The Trustees may make advance payments in connection with indemnification under this Section 5.3, provided that the indemnified person shall have given a written undertaking to reimburse the Trust in the event it is subsequently determined that he is not entitled to such indemnification." Insofar as the conditional advancing of indemnification moneys for actions based upon the Investment Company Act of 1940 may be concerned, such payments will be made only on the following conditions: (i) the advances must be limited to amounts used, or to be used, for the preparation or presentation of a defense to the action, including costs connected with the preparation of a settlement; (ii) advances may be made only upon C-2
receipt of a written promise by, or on behalf of, the recipient to repay that amount of the advance which exceeds the amount which it is ultimately determined that he or she is entitled to receive from the Registrant by reason of indemnification; and (iii)(a) such promise must be secured by a surety bond, other suitable insurance or an equivalent form of security which assures that any repayments may be obtained by the Registrant without delay or litigation, which bond, insurance or other form of security must be provided by the recipient of the advance, or (b) a majority of a quorum of the Registrant's disinterested, non-party Trustees, or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts that the recipient of the advance ultimately will be found entitled to indemnification. In Section 9 of the Class A, Class B, Class C and Class D Shares Distribution Agreements relating to the securities being offered hereby, the Registrant agrees to indemnify the Distributor and each person, if any, who controls the Distributor within the meaning of the Securities Act of 1933, as amended ("1933 Act"), against certain types of civil liabilities arising in connection with the Registration Statement or Prospectus and Statement of Additional Information. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to Trustees, officers and controlling persons of the Registrant and the principal underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer, or controlling person of the Registrant and the principal underwriter in connection with the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person or the principal underwriter in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. Item 26. Business and Other Connections of Investment Adviser Fund Asset Management, L.P. (the "Manager" or "FAM") acts as the investment adviser for the following open-end registered investment companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., and The Municipal Fund Accumulation Program, Inc.; and for the following closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc., MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings California Insured Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings Florida Insured Fund IV, MuniHoldings Florida Insured Fund V, MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Insured Fund IV, Inc., MuniHoldings Michigan Insured Fund, Inc., MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund III, Inc., MuniHoldings New Jersey Insured Fund IV, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York Insured Fund III, Inc., MuniHoldings New York Insured Fund IV, Inc., MuniHoldings Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund,
C-3 MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc. Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the Manager, acts as the investment adviser for the following open-end registered investment companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLAM); and for the following closed-end registered investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch Senior Floating Rate Fund II, Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two investment portfolios of EQ Advisors Trust. The address of each of these registered investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds for Institutions Series and Merrill Lynch Intermediate Government Bond Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The address of the Manager, MLAM, Princeton Services, Inc. ("Princeton Services") and Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Princeton Funds Distributor, Inc., ("PFD") and of Merrill Lynch Funds Distributor ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281-1201. The address of the Fund's transfer agent, Financial Data Services, Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Set forth below is a list of each executive officer and partner of the Manager indicating each business, profession, vocation or employment of a substantial nature in which each such person or entity has been engaged since August 1, 1997 for his, her or its own account or in the capacity of director, officer, partner or trustee. In addition, Mr. Glenn is President and Mr. Burke is Vice President and Treasurer of all or substantially all of the investment companies described in the first two paragraphs of this Item 26, and Messrs. Doll, Giordano and Monagle are officers of one or more of such companies. |
Name |
|
Position(s) with the |
Other Substantial Business, |
ML & Co. |
Limited Partner |
Financial Services Holding Company; Limited Partner of MLAM |
|
Princeton Services |
General Partner |
General Partner of MLAM |
|
Jeffrey M. Peek |
President |
President of MLAM; President and Director of Princeton Services; Executive Vice President of ML & Co.; Managing Director and Co-Head of the Investment Banking Division of Merrill Lynch in 1997 |
|
C-4 |
|||
Name |
|
Position(s) with the |
Other Substantial Business, |
Terry K. Glenn |
Executive Vice |
Executive Vice President of MLAM; Executive Vice President and Director of Princeton Services; President and Director of PFD; Director of FDS; President of Princeton Administrators |
|
Gregory A. Bundy |
Chief Operating |
Chief Operating Officer and Managing Director of MLAM; Chief Operating Officer and Managing Director of Princeton Services; Co-CEO of Merrill Lynch Australia from 1997 to 1999 |
|
Donald C. Burke |
Senior Vice President |
Senior Vice President, Treasurer and Director of Taxation of MLAM; Senior Vice President and Treasurer of Princeton Services; Vice President of PFD; First Vice President of MLAM from 1997 to 1999; Vice President of MLAM from 1990 to 1997 |
|
|
|||
Michael G. Clark |
Senior Vice President |
Senior Vice President of MLAM; Senior Vice President of Princeton Services; Treasurer and Director of PFD; First Vice President of MLAM from 1997 to 1999; Vice President of MLAM from 1996 to 1997 |
|
Robert C. Doll |
Senior Vice President |
Senior Vice President of MLAM; Senior Vice President of Princeton Services; Chief Investment Officer of Oppenheimer Funds, Inc. in 1999 and Executive Vice President thereof from 1991 to 1999 |
|
Linda L. Federici |
Senior Vice President |
Senior Vice President of MLAM; Senior Vice President of Princeton Services |
|
Vincent R. Giordano |
Senior Vice President |
Senior Vice President of MLAM; Senior Vice President of Princeton Services |
|
Michael J. Hennewinkel |
Senior Vice President, Secretary and General Counsel |
Senior Vice President, Secretary and General Counsel of MLAM; Senior Vice President of Princeton Services |
|
Philip L. Kirstein |
Senior Vice President |
Senior Vice President of MLAM; Senior Vice President, Secretary, General Counsel and Director of Princeton Services |
|
Debra W. Landsman-Yaros |
Senior Vice President |
Senior Vice President of MLAM; Senior Vice President of Princeton Services; Vice President of PFDS |
|
Stephen M. M. Miller |
Senior Vice President |
Executive Vice President of Princeton Administrators; Senior Vice President of Princeton Services |
|
Joseph T. Monagle, Jr. |
Senior Vice President |
Senior Vice President of MLAM; Senior Vice President of Princeton Services |
|
Brian A. Murdock |
Senior Vice President |
Senior Vice President of MLAM; Senior Vice President of Princeton Services |
|
Gregory D. Upah |
Senior Vice President |
Senior Vice President of MLAM; Senior Vice President of Princeton Services |
Item 27. Principal Underwriters (a) MLFD, a division of PFD, acts as the principal underwriter for the Registrant and for each of the open-end registered investment companies referred to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc. The Municipal Fund Accumulation Program, Inc. MLFD also acts as the principal underwriter for the following closed-end registered investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch Senior Floating Rate Fund II, Inc. A separate division of PFD acts as the principal underwriter of a number of other investment companies.
C-5
(b) Set forth below is information concerning each director and officer of PFD. The principal business address of each such person is P.O. Box 9081, Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen, Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. |
Name |
Position(s) and Office(s) |
Position(s) and Office(s) with Registrant | ||
Terry K. Glenn |
President and Director |
President and Trustee | ||
Michael G. Clark |
Treasurer and Director |
None | ||
Thomas J. Verage |
Director |
None | ||
Robert W. Crook |
Senior Vice President |
None | ||
Michael J. Brady |
Vice President |
None | ||
William M. Breen |
Vice President |
None | ||
Donald C. Burke |
Vice President |
Vice President and Treasurer | ||
James T. Fatseas |
Vice President |
None | ||
Debra W. Landsman-Yaros |
Vice President |
None | ||
Michelle T. Lau |
Vice President |
None | ||
Salvatore Venezia |
Vice President |
None | ||
William Wasel |
Vice President |
None | ||
Robert Harris |
Secretary |
None |
(c) Not applicable. Item 28. Location of Accounts and Records All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules thereunder are maintained at the offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey 08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484). Item 29. Management Services Other than as set forth under the caption "Management of the Fund Fund Asset Management" in the Prospectus constituting Part A of the Registration Statement and under "Management of the Trust Management and Advisory Arrangements" in the Statement of Additional Information constituting Part B of the Registration Statement, the Registrant is not a party to any management-related service contract. Item 30. Undertakings Not applicable.
C-6
SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Plainsboro, and the State of New Jersey, on the 29th day of September, 1999.
|
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
(Registrant) |
|
By: /s/ Donald C. Burke
(Donald C. Burke, Vice President and Treasurer) |
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the |
Signature
|
Title
|
Date
|
---|---|---|
TERRY K. GLENN*
(Terry K. Glenn) |
President and Trustee (Principal Executive Officer) |
|
/s/ DONALD C. BURKE
(Donald C. Burke) |
Vice President and Treasurer (Principal Financial and Accounting Officer) |
September 29, 1999 |
JAMES H. BODURTHA*
(James H. Bodurtha) |
Trustee | |
HERBERT I. LONDON*
(Herbert I. London) |
Trustee | |
ROBERT R. MARTIN*
(Robert R. Martin) |
Trustee | |
JOSEPH L. MAY*
(Joseph L. May) |
Trustee | |
ANDRE F. PEROLD*
(Andre F. Perold) |
Trustee | |
ARTHUR ZEIKEL*
(Arthur Zeikel) |
Trustee | |
*By: /s/ DONALD C. BURKE
(Donald C. Burke, Attorney-in-Fact) |
September 29, 1999 |
C-7
POWER OF ATTORNEY The undersigned Directors/Trustees and officers of each of the registered investment companies listed below hereby authorize Terry K. Glenn, Donald C. Burke and Joseph T. Monagle, Jr., or any of them, as attorney-in-fact, to sign on his or her behalf in the capacities indicated any Registration Statement or amendment thereto (including post-effective amendments) for each of the following registered investment companies and to file the same, with all exhibits thereto, with the Securities and Exchange Commission: Merrill Lynch California Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Convertible Fund, Inc., Merrill Lynch Consults International Portfolio, Merrill Lynch Growth Fund, Merrill Lynch World Income Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings California Insured Fund II, Inc., MuniHoldings Florida Insured Fund III, MuniHoldings Michigan Insured Fund, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York Insured Fund III, Inc., MuniHoldings Pennsylvania Insured Fund, MuniVest Pennsylvania Insured Fund, MuniYield Fund, Inc., MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Michigan Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield Quality Fund, Inc. and MuniYield Quality Fund II, Inc. Dated: April 7, 1999 |
/s/ TERRY K. GLENN
Terry K. Glenn (President/Principal Executive Officer/Director/Trustee) |
/s/ JOSEPH L. MAY
Joseph L. May (Director/Trustee) |
/s/ JAMES H. BODURTHA
James H. Bodurtha (Director/Trustee) |
/s/ ANDRÉ
F. PEROLD
André F. Perold (Director/Trustee) |
/s/ HERBERT I. LONDON
Herbert I. London (Director/Trustee) |
/s/ ARTHUR ZEIKEL
Arthur Zeikel (Director/Trustee) |
/s/ ROBERT R. MARTIN
Robert R. Martin (Director/Trustee) |
/s/ DONALD C. BURKE
Donald C. Burke (Vice President/Treasurer/Principal Financial and Accounting Officer) |
C-8 EXHIBIT INDEX |
Exhibit Number |
Description
|
||
9 |
(a) |
|
Opinion of Brown & Wood LLP, counsel to the Registrant |
9 |
(b) |
|
Consent of Brown & Wood LLP, counsel to the Registrant |
10 |
|
|
Consent of Deloitte & Touche LLP, independent auditors for the Registrant |
|