SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MERRILL LYNCH
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(Name of Registrant as Specified In Its Charter)
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT
MERRILL LYNCH CALIFORNIA MUNICIPAL
SERIES TRUST (2 Series)
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT
MERRILL LYNCH MULTI-STATE
LIMITED MATURITY
MUNICIPAL SERIES TRUST (8 Series)
MERRILL LYNCH MULTI-STATE MUNICIPAL
SERIES TRUST (16 Series)
MERRILL LYNCH WORLD INCOME FUND, INC.
P.O. Box 9011
Princeton, New Jersey 08543-9011
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
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* Set forth the amount on which the filing fee is calculated and state how
it was determined.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
[PRELIMINARY COPY]
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT
MERRILL LYNCH CALIFORNIA MUNICIPAL SERIES TRUST (2 SERIES)
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT
MERRILL LYNCH MULTI-STATE LIMITED MATURITY
MUNICIPAL SERIES TRUST (8 SERIES)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST (16 SERIES)
MERRILL LYNCH WORLD INCOME FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
Dear Shareholder:
The enclosed proxy statement requests that you consider and approve (i) the
election of the Board of Directors or Trustees, (ii) the selection of the
independent auditors, (iii) certain changes to the fundamental investment
restrictions for each of the above-referenced mutual funds (each a "Fund",
which term includes the individual series of the above-listed series trusts) of
which you own shares; and (iv) an amendment to the Fund's Articles of
Incorporation or Declaration of Trust in connection with the implementation by
the Funds of the Merrill Lynch Select Pricing SM System (the "Select Pricing
System").
As you are aware, many of the mutual funds advised by Merrill Lynch Asset
Management, L.P. ("MLAM") or its affiliate, Fund Asset Management, L.P.
("FAM"), and distributed by Merrill Lynch Funds Distributor, Inc. ("MLFD"),
offer two classes of shares which may be purchased at a price equal to the next
determined net asset value per share plus a sales charge which, at the election
of the purchaser, may be imposed (i) at the time of purchase (the "Class A
shares") or (ii) on a deferred basis (the "Class B shares") (the "Dual
Distribution System"). In order to provide additional distribution alternatives
tailored more specifically to an investor's needs, the Funds, as well as all of
the other mutual funds advised by MLAM or FAM that are currently operating
under the Dual Distribution System, intend to implement the Select Pricing
System, a new distribution system under which each Fund will offer four classes
of shares,
each with a different combination of sales charges, ongoing fees and other
features. The implementation of the Select Pricing System will not adversely
affect the net asset value of a current shareholder's investment in the Fund
nor will the two new classes of shares have an adverse effect on the shares
that are issued and outstanding.
An amendment to the Articles of Incorporation or Declaration of Trust of each
of the Funds is being proposed in connection with the implementation of the
Select Pricing System. This amendment, as well as the election of the Boards of
Directors and Trustees, the selection of independent auditors and the proposed
investment restriction changes require the separate approval of the outstanding
shareholders of each of the Funds. In addition, in the case of a series trust,
the charter amendment and the investment restriction changes require the
separate approval of each series. When we have solicited proxies in the past,
you have received a proxy statement directed solely to shareholders of your
Fund. Because all of the mutual funds currently operating under the Dual
Distribution System intend to begin operating under the Select Pricing System,
and since much of the information required to be included in the proxy
materials for each Fund is substantially identical, we believe it is more
efficient to prepare a single "omnibus" proxy statement for use by the
shareholders of all Funds having a common Board of Directors or Trustees.
Specific information pertaining to your Fund or Funds is attached hereto as
Exhibits A and C. If you own more than one Fund, the term "Fund" refers to each
Fund in which you own shares.
Each Fund is organized either as a Maryland corporation or a Massachusetts
business trust. In each jurisdiction, nomenclature varies. For ease and clarity
of presentation, throughout the proxy statement we will refer to you as a
"shareholder", to your Fund shares of common stock or beneficial interest as
"shares", to your Board of Directors or Trustees as the "Board", to your
directors or trustees as "Board members", to the investment adviser of your
Fund as the "Investment Adviser" or "MLAM" and to your Fund's Articles of
Incorporation or Declaration of Trust as its "charter". Unless otherwise
indicated, MLAM and FAM are together referred to as "MLAM".
EACH SHAREHOLDER WILL VOTE ONLY ON PROPOSALS THAT APPLY TO THAT SHAREHOLDER'S
FUND. SHARES OF AN INDIVIDUAL SERIES OF A SERIES TRUST WILL BE DEEMED TO BE
SHARES OF A SEPARATE FUND FOR VOTING PURPOSES IN THE CASE OF PROPOSALS 3 AND 4.
THE ENCLOSED PROXY CARD(S) SOLICITS YOUR VOTE ON EACH PROPOSAL AS A SHAREHOLDER
OF EACH OF THE FUNDS THAT YOU OWN. YOU WILL BE SENT A SEPARATE PROXY STATEMENT
AND PROXY CARD FOR EACH ACCOUNT IN WHICH YOU HOLD SHARES OF THE FUNDS COVERED
BY THIS PROXY STATEMENT; IN ADDITION,
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IF YOU OWN SHARES OF OTHER MLAM-ADVISED FUNDS, YOU WILL BE SENT FOR EACH
ACCOUNT AN ADDITIONAL COMBINED PROXY STATEMENT AND PROXY CARD FOR EACH GROUP OF
FUNDS WITH A COMMON BOARD. EACH VOTE IS IMPORTANT; PLEASE REVIEW EACH PROXY
STATEMENT CAREFULLY AND CAST YOUR VOTE ON EACH PROXY CARD YOU RECEIVE.
MANAGEMENT AND THE BOARD RECOMMEND THAT YOU VOTE "FOR" EACH PROPOSAL. If you
have any questions, please call .
Sincerely,
Arthur Zeikel
President
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[PRELIMINARY COPY]
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT
MERRILL LYNCH CALIFORNIA MUNICIPAL SERIES TRUST (2 SERIES)
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT
MERRILL LYNCH MULTI-STATE LIMITED MATURITY
MUNICIPAL SERIES TRUST (8 SERIES)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST (16 SERIES)
MERRILL LYNCH WORLD INCOME FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
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NOTICE OF MEETINGS OF SHAREHOLDERS
SEPTEMBER 20, 1994
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To The Shareholders:
Notice is hereby given that Meetings of Shareholders (the "Meetings") of the
above-listed mutual funds (each a "Fund", which term includes the individual
series of the above-listed series trusts) advised by Merrill Lynch Asset
Management, L.P. ("MLAM") and Fund Asset Management, L.P. ("FAM") will be held
at the offices of MLAM, 800 Scudders Mill Road, Plainsboro, New Jersey, on
September 20, 1994 at the time specified in Exhibit A hereto. The Meetings will
be held for the following purposes:
(1) To elect members of the Boards of Directors or Trustees to serve
for an indefinite term until their successors are duly elected
and qualified;
(2) To consider and act upon a proposal to ratify the selection of
the independent auditors of each Fund for its current fiscal
year;
(3) To consider and act upon a proposal to amend the fundamental
investment restrictions of each Fund;
(4) To consider and act upon a proposal to amend the Articles of
Incorporation or Declaration of Trust of each Fund in
connection with the implementation of the Merrill Lynch Select
Pricing SM System (the "Select Pricing System"), a multiclass
distribution system in connection with the offer and sale of
shares of the Fund (this proposal must be approved by the
shareholders of both classes of the Fund voting as a single class
and also by the Class B shareholders of the Fund voting as a
separate class); and
(5) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board has fixed the close of business on August 5, 1994 as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meetings or any adjournment thereof.
A complete list of the shareholders of each Fund entitled to vote at each
Meeting will be available and open to the examination of any shareholder of
that Fund for any purpose germane to the Fund's Meeting during ordinary
business hours from and after September 6, 1994 at the office of the Fund, 800
Scudders Mill Road, Plainsboro, New Jersey 08536. You are cordially invited to
attend your Fund's Meeting. Shareholders who do not expect to attend the
Meeting in person are requested to complete, date and sign the enclosed form of
proxy, as well as any other proxies you may receive from the Funds in
connection with these Meetings, and return them promptly. If you own shares of
a series trust, you will vote the shares of each series as a separate Fund.
Each proxy you receive from the Funds in connection with these meetings is
being solicited on behalf of the Board.
By Order of the Board
Plainsboro, New Jersey
Dated: August 10, 1994
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[PRELIMINARY COPY]
COMBINED PROXY STATEMENT
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MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT
MERRILL LYNCH CALIFORNIA MUNICIPAL SERIES TRUST (2 SERIES)
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT
MERRILL LYNCH MULTI-STATE LIMITED MATURITY
MUNICIPAL SERIES TRUST (8 SERIES)
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST (16 SERIES)
MERRILL LYNCH WORLD INCOME FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
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MEETINGS OF SHAREHOLDERS
SEPTEMBER 20, 1994
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Boards of the above-listed funds (each a "Fund", which
term includes the individual series of the above-listed series trusts, and
collectively, the "Funds"), to be voted at the Meeting of Shareholders of each
Fund (the "Meeting"), to be held at the offices of Merrill Lynch Asset
Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New Jersey, on
September 20, 1994 at the time specified in Exhibit A hereto. The approximate
mailing date of this Proxy Statement is August 16, 1994.
Each Fund is organized either as a Maryland corporation or a Massachusetts
business trust. In each jurisdiction, nomenclature varies. For ease and clarity
of presentation, throughout the proxy statement shares of common stock or
beneficial interest of a Fund are referred to as "shares", holders of shares
are referred to as "shareholders", the Board of Directors or Trustees of each
of the Funds is referred to as "Board members", the investment adviser of each
Fund is referred to as the
"Investment Adviser" or "MLAM" and each Fund's Articles of Incorporation or
Declaration of Trust is referred to as its "charter". Unless otherwise
indicated, MLAM and Fund Asset Management, L.P. ("FAM") are together referred
to as "MLAM" and Merrill Lynch Funds Distributor, Inc., is referred to as
"MLFD".
All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon or otherwise as
provided therein. Unless instructions to the contrary are marked, proxies will
be voted "FOR" the election of the Board, "FOR" the ratification of the
selection of independent auditors to serve for the Fund's current fiscal year,
"FOR" the proposal to amend the fundamental investment restrictions of the
Fund and "FOR" the charter amendment in connection with the implementation of
the Merrill Lynch Select Pricing SM System (the "Select Pricing System"). Any
proxy may be revoked at any time prior to the exercise thereof by giving
written notice to the Secretary of the Fund.
The Board has fixed the close of business on August 5, 1994 (the "Record
Date") for the determination of shareholders entitled to notice of and to vote
at the Meetings and at any adjournment thereof. Shareholders on the Record
Date will be entitled to one vote for each share held and fractional votes for
fractional shares held, with no shares having cumulative voting rights.
Shareholders of each Fund will vote as a single class, and will vote
separately on each proposal on which shareholders of that Fund are entitled to
vote. As noted, with respect to Proposal 4, Class B shareholders of each Fund
voting together as a separate class also will be required to approve the
charter amendment. With respect to proposals 3 and 4, if you own shares of a
series trust, you will vote the shares of each series as a separate Fund.
As of the Record Date, your Fund had outstanding the number of shares
indicated in Exhibit A. To the knowledge of the Fund, no person owned
beneficially more than five percent of the outstanding shares of the Fund at
such date except as set forth on Exhibit A.
The Board knows of no business other than that mentioned in Proposals 1
through 4 of the Notice of Meeting which will be presented for consideration
at the Meeting. If any other matter is properly presented, it is the intention
of the persons named in the enclosed proxy, as well as any other proxy sent by
the Funds in connection with the Meetings, to vote in accordance with their
best judgment.
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Proposal 1
ELECTION OF BOARD MEMBERS
At the Meeting, each Board member will be elected to serve for an indefinite
term until his successor is elected and qualified, until his death, until he
resigns or is otherwise removed under the charter or until December 31 of the
year in which he reaches age 72. It is the intention of the persons named in
the enclosed proxy to nominate and vote in favor of the election of the persons
listed below.
The Board knows of no reason why any of these nominees will be unable to
serve, but in the event of any such unavailability, the proxies received will
be voted for such substitute nominee or nominees as the Board may recommend.
Certain information concerning the nominees is set forth below. Additional
information concerning the nominees and other information relevant to the
election of Board members is set forth in Exhibit A.
PRINCIPAL OCCUPATIONS DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
--------------------------- --- ----------------------------
Kenneth S. 72 Executive Vice President and
Axelson(1)(2)......... Director, J.C. Penney Company,
75 Jameson Point Road Inc., until 1982; Director, UNUM
Rockland, Maine 04841 Corporation, Protection Mutual
Insurance Company, and, until
1994, Grumman Corporation and
Zurn Industries, Inc., and,
until 1992, Central Maine Power
Company and Key Trust Company of
Maine; Trustee, The Chicago Dock
and Canal Trust.
Herbert I. London(1)(2). 55 Dean, Gallatin Division of New
113-115 University York University from 1978 to
Place 1993 and Director from 1975 to
New York, New York 1976; Professor, New York
10003 University since 1973; John M.
Olin Professor of Humanities,
New York University since 1993;
Distinguished Fellow, Herman
Kahn Chair, Hudson Institute
from 1984 to 1985; Trustee,
Hudson Naval Institute since
1980; Overseer, Center for Naval
Analyses from 1983 to 1993;
Director, Damon Corp. since
1991.
3
PRINCIPAL OCCUPATIONS DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
--------------------------- --- ----------------------------
Robert R. Martin(1)(2).. 67 Chairman and Chief Executive
513 Grand Hill Officer, Kinnard Investments,
St. Paul, Minnesota Inc. from 1990 to 1993;
55102 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. since 1994;
Trustee, Northland College since
1992.
Joseph L. May(1)(2)..... 65 Attorney in private practice since
424 Church Street 1984; President, May and Athens
Suite 2000 Hosiery Mills Division, Wayne-
Nashville, Tennessee Gossard Corporation from 1954 to
37219 1983; Vice President, Wayne-
Gossard Corporation from 1972 to
1983; Chairman, The May
Corporation (personal holding
company) from 1972 to 1983;
Director, Signal Apparel Co.
from 1972 to 1989.
Andre F. Perold(1)(2)... 42 Professor, Harvard Business School
Morgan Hall since 1989 and Associate
Soldiers Field Professor from 1983 to 1989;
Boston, Massachusetts Trustee, The Common Fund, since
02163 1989; Director, Quantel
Investment Technology (a private
United Kingdom company).
Arthur Zeikel(1)(3)..... 62 President of MLAM and its
P.O. Box 9011 predecessor since 1977 and Chief
Princeton, New Jersey Investment Officer since 1976;
08543-9011 President and Chief Investment
Officer of FAM and its
predecessor since 1977;
President and Director of
Princeton Services, Inc.
("Princeton Services") since
1993; Executive Vice President
of Merrill Lynch & Co., Inc.
("ML & Co.") since 1990;
Executive Vice President of
Merrill Lynch since 1990; Senior
Vice President of Merrill Lynch
from 1985 to 1990; Director of
MLFD.
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(1) Each of the nominees is a director, trustee or member of an advisory board
of certain other investment companies for which FAM or MLAM acts as
investment adviser. See "Merrill Lynch Investment Company Directorships"
below.
(2) Member of the Audit and Nominating Committee of the Board.
(3) Interested person, as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), of the Funds.
Committees and Board Meetings. The Board has a standing Audit and Nominating
Committee (the "Committee"), which consists of the Board members who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act. The principal purpose of the Committee is to review the scope of the
annual audit conducted by the Fund's independent auditors and the evaluation by
such auditors of the accounting procedures followed by the Fund. The Committee
will also select and nominate the Board members who are not "interested
persons" of the Fund within the meaning of the Investment Company Act. The
Committee generally will not consider nominees recommended by shareholders of
the Fund. The non-interested Board members have retained independent legal
counsel to assist them in connection with these duties.
During the Fund's last fiscal year, each of the Board members then in office
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board held during the fiscal year and (ii) if a member, the total number of
meetings of the Committee held during the fiscal year.
Compensation of Board Members. The Investment Adviser pays all compensation
of all officers of the Fund and all Board members who are affiliated with ML &
Co. or its subsidiaries. The Fund pays each Board member not affiliated with
the Investment Adviser an annual fee plus a fee for each meeting attended, and
the Fund also pays each member of its Committee an annual fee plus a fee for
each meeting attended, together with such Board member's out-of-pocket expenses
relating to attendance at such meetings. Information with respect to fees and
expenses paid to the Board members for each Fund's most recently completed
fiscal year is set forth in Exhibit A.
Merrill Lynch Investment Company Board Memberships. MLAM and FAM act as the
investment adviser for more than 90 registered investment companies. Mr. Zeikel
is a trustee or director of each of these companies except for Merrill Lynch
Series Fund, Inc., Merrill Lynch Institutional Intermediate Fund and Merrill
Lynch Funds for Institutions
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Series. Messrs. Axelson, London, Martin, May and Perold are trustees or
directors of Convertible Holdings, Inc., Merrill Lynch Balanced Fund for
Investment and Retirement, Merrill Lynch California Municipal Series Trust,
Merrill Lynch Consults International Portfolio, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Growth Fund for Investment and
Retirement, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch World Income Fund, Inc., Merrill Lynch Global Convertible Fund,
Inc., MuniEnhanced Fund, Inc., MuniYield Fund, Inc., MuniYield Arizona Fund,
Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield 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., MuniYield Quality Fund II,
Inc. and MuniVest Pennsylvania Insured Fund.
Officers of the Fund. Information regarding the officers of the Fund is set
forth in Exhibit A.
Stock Ownership. As of July 29, 1994, the nominees held shares of the Funds
as follows:
NO. OF
NOMINEE FUND AND CLASS SHARES HELD
- ------- -------------- -----------
Mr. Axelson..........................................
Mr. London...........................................
Mr. Martin...........................................
Mr. May..............................................
Mr. Perold...........................................
Mr. Zeikel...........................................
At the Record Date, the Board members and officers of the Fund as a group
owned an aggregate of less than 1% of the shares of the Fund outstanding at
such date. At such date, Mr. Zeikel, an officer of the Fund and a member of the
Board, and the other officers of the Fund owned an aggregate of less than 1% of
the outstanding shares of common stock of ML & Co.
Proposal 2
SELECTION OF INDEPENDENT AUDITORS
The Board, including a majority of the Board members who are not interested
persons of the Fund, has selected independent auditors to examine the financial
statements of the Fund for the current fiscal year. The Fund knows of no direct
or indirect financial interest of such auditors
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in the Fund. Such appointment is subject to ratification or rejection by the
shareholders of the Fund. Unless a contrary specification is made, the
accompanying proxy will be voted in favor of ratifying the selection of such
auditors.
Deloitte & Touche ("D&T") acts as independent auditors for all of the Funds.
D&T also acts as independent auditors for ML & Co. and all of its subsidiaries
and for most other investment companies for which MLAM or FAM acts as
investment adviser. The fees received by D&T from these other entities are
substantially greater, in the aggregate, than the total fees received by it
from the Fund. The Board considered the fact that D&T has been retained as the
independent auditors for ML & Co. and the other entities described above in its
evaluation of the independence of D&T with respect to each Fund.
Representatives of the Fund's independent auditors are expected to be present
at the Meeting and will have the opportunity to make a statement if they so
desire and to respond to questions from shareholders.
Proposal 3
PROPOSAL TO AMEND THE FUNDAMENTALINVESTMENT RESTRICTIONS OF THE FUND
Each Fund advised by MLAM or FAM (collectively, the "MLAM Funds") has adopted
investment restrictions that govern generally the operations of the Fund.
Investment restrictions that are deemed fundamental may not be changed without
a vote of the outstanding shares of the Fund, while non-fundamental investment
restrictions may be changed by the Fund's Board if it deems it in the best
interest of the Fund and its shareholders to do so. In addition to investment
restrictions, each of the Funds operate pursuant to investment objectives and
policies, described in the Fund's Prospectus and Statement of Additional
Information, that govern the investment activities of the Fund and further
limit their ability to invest in certain types of securities or engage in
certain types of transactions. These investment objectives and policies will be
unaffected by the adoption of the proposed investment restrictions. Generally
the investment objective of a Fund is a fundamental policy of the Fund that may
be changed only by shareholder vote. The investment policies of a Fund are non-
fundamental and may not be changed unless and until (i) the Board of the Fund
explicitly authorizes, by resolution, a change in the investment policy and
(ii) the Prospectus of the Fund is amended to reflect the change in policy and,
if appropriate, to include additional disclosure.
Investment restrictions may differ among Funds depending on prevailing
regulations and the nature of the securities markets at the time
7
the particular Fund commenced operations. As a result, similar Funds in the
MLAM complex have different investment restrictions, which may disadvantage one
Fund over another in the current marketplace and make administration and
compliance monitoring unnecessarily difficult.
To address this problem, MLAM has analyzed the various fundamental and non-
fundamental investment restrictions of the Funds covered by this proxy
statement, as well as the investment restrictions of all of the other MLAM-
advised non-money market mutual funds, in light of each Fund's investment
objectives and policies, and has created a set of standard fundamental and non-
fundamental investment restrictions. The proposed uniform restrictions are
designed to provide each Fund with as much investment flexibility as possible
under the Investment Company Act and applicable state securities regulations
("state blue sky regulations"), help promote operational efficiencies and
facilitate monitoring of compliance. Several recently created Funds in the MLAM
complex operate under investment restrictions substantially similar to the
proposed restrictions.
The proposed changes to the investment restrictions are not expected to
affect materially the operations of the Funds. Although adoption of new or
revised investment restrictions is not likely to have any effect on the current
investment techniques employed by a Fund, it will contribute to the overall
goal of uniformity and standardization. In this regard, the Boards propose that
each Fund adopt, as described below, the uniform, updated investment
restrictions.
The proposed restrictions restate, without material change, many of the
fundamental and non-fundamental restrictions currently in effect for each Fund.
In some instances, certain fundamental or non-fundamental restrictions have
been modified or eliminated in accordance with developments in Federal or state
blue sky regulations or in the securities markets since the inception of the
Fund. In other instances, certain restrictions previously deemed fundamental
have been redesignated non-fundamental. Fundamental investment restrictions may
not be changed without a vote of the shareholders of the Fund, and the costs of
shareholder meetings for these purposes generally are borne by the Fund and its
shareholders. By making certain restrictions non-fundamental, the Board may
amend a restriction as it deems appropriate and in the best interest of the
Fund and its shareholders, without incurring the costs of seeking a shareholder
vote.
Each Fund's current investment restrictions are set forth in Exhibit C. Set
forth below is each proposed restriction, followed by a commentary describing
the proposed restriction and detailing the significance, if any, of the
proposed changes for the MLAM Funds.
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Proposed Fundamental Investment Restrictions. Under the proposed fundamental
investment restrictions, a Fund may not:
1. MAKE ANY INVESTMENT INCONSISTENT WITH THE FUND'S CLASSIFICATION AS A
DIVERSIFIED COMPANY UNDER THE INVESTMENT COMPANY ACT./1/
Commentary: Current applicable law regarding diversification of assets
requires that with respect to 75% of its total assets, a Fund may not
invest more than 5% of its total assets (taken at market value at the
time of each investment) in the securities of any one issuer or acquire
more than 10% of the voting securities of any one issuer. The U.S.
Government, its agencies and instrumentalities are not included within
the definition of "issuer" for purposes of these limitations. Certain
MLAM Funds apply this diversification restriction to 100% of total
assets.
At one time, state blue sky regulations applied the diversification
restriction to 100% of a mutual fund's assets, thereby prohibiting an
investment company from investing more than 5% of total assets in a
single issuer or from holding more than 10% of the voting securities of a
single issuer. These state blue sky limitations, however, have been
eliminated.
If the uniform restrictions are approved, each Fund currently classified
as "diversified" would be subject, as a matter of investment policy, to
the diversification restriction described above only with respect to 75%
of its total assets. As to the remaining 25% of total assets, there would
be no fundamental investment limitation on the amount of (i) total assets
the Fund could invest in a single issuer or (ii) voting securities of a
single issuer that could be held by the Fund. A Fund could, for example,
invest up to 25% of its assets in a single issuer without limitation as
to the percentage ownership of that issuer's outstanding securities. The
primary purpose of the proposal is to give the Funds that presently have
a diversification restriction with respect to 100% of their assets the
same investment flexibility as MLAM Funds that have a diversification
restriction with respect to 75% of their assets, as well as to enable the
Funds to comply with any future changes in applicable law regarding
diversification requirements without incurring the costs of soliciting a
shareholder vote.
- ------------
/1/Not applicable to either series of Merrill Lynch California Municipal Series
Trust, all series of Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, all series of Merrill Lynch Multi-State Municipal Series Trust
(except the Arizona and New York series) or Merrill Lynch World Income Fund,
Inc., which are non-diversified Funds.
9
2. INVEST MORE THAN 25% OF ITS ASSETS, TAKEN AT MARKET VALUE, IN THE
SECURITIES OF ISSUERS IN ANY PARTICULAR INDUSTRY (EXCLUDING THE U.S. GOVERNMENT
AND ITS AGENCIES AND INSTRUMENTALITIES)./2/
Commentary: The proposed restriction, which addresses concentration in a
particular industry, is in substance identical to the applicable
restriction in effect for each Fund. Certain MLAM Funds currently do not
exclude explicitly the U.S. Government, its agencies and
instrumentalities from the definition of "industry". However, such
entities have not been considered to constitute "industries" for purposes
of concentration, and therefore explicit reference to such entities in
the proposed restriction does not change a Fund's concentration policy.
In addition, for purposes of this restriction, states, municipalities and
their political subdivisions are not considered to be part of any
industry.
3. MAKE INVESTMENTS FOR THE PURPOSE OF EXERCISING CONTROL OR MANAGEMENT.
Commentary: The proposed restriction is in substance identical to the
applicable restriction in effect for each Fund. Certain MLAM Funds
currently include the restriction in their non-fundamental, rather than
their fundamental, investment restrictions.
4. PURCHASE OR SELL REAL ESTATE, EXCEPT THAT A FUND MAY INVEST IN SECURITIES
DIRECTLY OR INDIRECTLY SECURED BY REAL ESTATE OR INTERESTS THEREIN OR ISSUED BY
COMPANIES WHICH INVEST IN REAL ESTATE OR INTERESTS THEREIN.
Commentary: The proposed restriction is substantially similar to the
applicable restriction in effect for each Fund, except that certain MLAM
Funds also prohibit investment in real estate limited partnerships in the
fundamental restriction. Prohibition on investments in real estate
limited partnerships is required under current applicable law, however
such law does not require this restriction to be fundamental.
Accordingly, under the proposed uniform restrictions, investment in real
estate limited partnerships is prohibited in non-fundamental investment
restriction (g) to provide the flexibility to the
- ------------
/2/A MLAM Fund that concentrates in a particular industry (i.e., more than 25%)
will continue to use its present concentration restriction. A typical
restriction in this regard reads as follows:
The Fund will not 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, its agencies and
instrumentalities), except that, under normal circumstances,
the Fund will invest more than 25% of its total assets in the
securities of issuers in the [name of industry].
None of the Funds covered by this proxy statement concentrate in a
particular industry.
10
Board to modify the restriction in response to future changes in
applicable law without incurring the expense of a shareholder vote.
In addition, the applicable restrictions currently in effect for certain
MLAM Funds do not contain any exception to the general prohibition on
investments in real estate. The proposed restriction clarifies that these
Funds have the flexibility, consistent with other MLAM Funds to invest in
securities secured by real estate or issued by companies investing in
real estate, such as real estate investment trusts.
5. MAKE LOANS TO OTHER PERSONS, EXCEPT THAT THE ACQUISITION OF BONDS,
DEBENTURES OR OTHER CORPORATE DEBT SECURITIES AND INVESTMENT IN GOVERNMENT
OBLIGATIONS, SHORT-TERM COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT, BANKERS
ACCEPTANCES AND REPURCHASE AGREEMENTS 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.
Commentary: The proposed restriction, with respect to the making of
loans, is in substance similar to the applicable restrictions in effect
for each Fund. Certain MLAM Funds address loans to other persons and
securities lending in two separate restrictions. A Fund may, as an
investment policy, restrict investment in the instruments specifically
permitted in the exception beyond the limitations set forth in the
proposed restriction.
Each Fund is permitted to engage in securities lending but the MLAM Funds
have a variety of different investment restrictions in this regard. For
example, certain MLAM Funds have a fundamental investment restriction
limiting securities lending to less than 20% of total assets. In addition
to investment restrictions, certain MLAM Funds have imposed limitations
on securities lending as an investment policy.
Applicable law generally permits the lending of a Fund's portfolio
securities in an amount up to 33 1/3% of the Fund's total assets,
provided that such loans are made in accordance with prescribed
guidelines which typically are set forth in the Statement of Additional
Information of the Fund. Each Fund will continue to be subject to the
lending limitations set forth as an investment policy in its Prospectus
and Statement of Additional Information following approval of the
proposed uniform investment restrictions, unless and until the Board
determines that an amendment to such investment policy is in the best
interest of the Fund and its shareholders and the Prospectus of the Fund
is amended.
11
6. ISSUE SENIOR SECURITIES TO THE EXTENT SUCH ISSUANCE WOULD VIOLATE
APPLICABLE LAW.
Commentary: Certain MLAM Funds currently limit the extent to which the
Fund may issue senior securities, while other MLAM Funds have no
restriction on the issuance of senior securities. The proposed
restriction substitutes instead a limitation on the issuance of senior
securities based upon applicable law.
Applicable law currently prohibits the issuance of senior securities,
defined as any bond, debenture, note or similar obligation or instrument
evidencing indebtedness, and any stock of any class having priority as to
any other class as to distribution of assets or payment of dividends, but
not including (i) bank borrowings provided that immediately thereafter
the Fund has 300% asset coverage for all borrowings, or (ii) any note or
other evidence of indebtedness representing a loan made to the Fund for
temporary purposes (i.e., to be repaid in 60 days without extension or
renewal) in an amount not exceeding 5% of the Fund's total assets when
the loan is made.
Certain of a Fund's other investment techniques, which involve leverage
or establish a prior claim to the Fund's assets, may be considered senior
securities, absent appropriate segregation of assets or exemptive relief.
These techniques include standby commitment agreements, contracts for the
purchase of securities on a delayed delivery basis (i.e., firm commitment
agreements), reverse repurchase agreements, engaging in financial futures
and options thereon, forward foreign currency contracts, put and call
options, the purchase of securities on a when-issued basis and short
sales. The manner and extent to which a Fund can issue senior securities
is governed by applicable law, must be set forth in the Fund's Prospectus
and Statement of Additional Information and may be changed only upon
resolution of the Board.
Investments in interest rate swaps, to the extent permitted, are not
treated as senior securities.
7. 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 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
12
TRANSACTIONS, SHORT SALES, WHEN-ISSUED AND FORWARD COMMITMENT TRANSACTIONS AND
SIMILAR INVESTMENT STRATEGIES.
Commentary: Each Fund has an express limitation on borrowings, a number
of which are more restrictive than the limitations set forth in the
proposed restriction. For example, a number of MLAM Funds limit
borrowings to 5% of total assets. To the extent the Fund's investment
policies, as stated in the Fund's Prospectus and Statement of Additional
Information, include a limitation on borrowing, or on the pledging of
assets to secure borrowings, that is more restrictive than the
restrictions in proposed restriction (7), the Fund will continue to be
limited by such investment policy on a non-fundamental basis. Moreover,
if a Fund intends to borrow from a bank or to offer debt securities
privately as part of its investment policies, it will so state in its
Prospectus. If the Fund limits borrowing to 5% of total assets, a
statement to that effect in the Prospectus will suffice. On the other
hand, if the Fund intends as an investment policy to engage in a higher
level of borrowing for investment purposes, additional disclosure with
respect to the purposes of such borrowing and the consequences of
leverage will be included in the Fund's Prospectus and Statement of
Additional Information.
With regard to purchases on margin, under current applicable law, a Fund
may not establish or use a margin account with a broker for the purpose
of effecting securities transactions on margin, except that a Fund may
obtain such short term credit as necessary for the clearance of
transactions. However, a Fund may pay initial or variation margin in
connection with futures and related options transactions, as set forth in
investment restriction (9) below, without regard to this prohibition.
8. UNDERWRITE SECURITIES OF OTHER ISSUERS EXCEPT INSOFAR AS THE FUND
TECHNICALLY MAY BE DEEMED AN UNDERWRITER UNDER THE SECURITIES ACT OF 1933 IN
SELLING PORTFOLIO SECURITIES.
Commentary: The proposed restriction is in substance identical to the
applicable restriction in effect for each Fund.
9. PURCHASE OR SELL COMMODITIES OR CONTRACTS ON COMMODITIES, EXCEPT TO THE
EXTENT 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.
Commentary: Certain MLAM Funds prohibit investment in commodities; others
have no restriction on investment in commodities. Under the Investment
Company Act, a Fund must state its policy relating to the purchase and
sale of commodities. In general, the Funds currently do not anticipate
investment directly in tangible commodities and would be greatly
restricted from making such direct investments
13
by the provisions of the Federal tax laws; however, the Funds may invest
in financial instruments linked to commodities as described below.
Adoption of the proposed uniform restrictions will enable a Fund to
invest in commodities only in accordance with applicable law and with the
Fund's investment policies as stated in the Fund's Prospectus and
Statement of Additional Information.
The MLAM Funds have obtained an exemptive order from the Securities and
Exchange Commission (the "SEC") which, among other things, permits
investment in the commodities markets to the extent such investment is
limited to financial futures and options thereon for hedging purposes
only. The terms of the exemptive order are slightly more restrictive than
currently applicable law.
Regulations of the Commodity Futures Trading Commission applicable to the
Funds provide that futures trading activities, as described in a Fund's
Prospectus and Statement of Additional Information, will not result in
the Fund being deemed a "commodity pool operator" as defined under such
regulations if the Fund adheres to certain restrictions. In particular, a
MLAM Fund that may, as a matter of investment policy, purchase and sell
futures contracts and options thereon may do so (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 do not exceed 5% of the liquidation value of such Fund's
portfolio, after taking into account unrealized profits and unrealized
losses on any such contracts and options. In addition, certain of the
MLAM Funds may invest in securities whose potential investment returns
are based on the change in value of specific commodities.
If approved by the shareholders, the above-listed restrictions will replace
the fundamental investment restrictions for each Fund and, accordingly, will
become the only fundamental investment restrictions under which each Fund will
operate. If approved, the above restrictions may not be changed without the
approval of the holders of a majority of the Fund's outstanding shares (which
for this purpose and under the Investment Company Act means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares).
Proposed Non-Fundamental Investment Restrictions. The Boards have adopted the
following non-fundamental investment restrictions, subject to approval of the
fundamental investment restrictions described above. Certain of the proposed
non-fundamental restrictions are in
substance similar or identical to current fundamental investment restrictions.
Redesignating a restriction as non-fundamental allows the
14
Board the flexibility to modify the restriction in response to changes in the
securities markets or applicable law if the Board deems it in the best interest
of the Fund and its shareholders to do so. Although future modification of a
non-fundamental investment restriction would not require a shareholder vote,
modification of these restrictions would require both (i) authorization by
resolution by the Board and (ii) amendment of the Fund's Prospectus.
Under the proposed non-fundamental investment restrictions, each Fund may
not:
A. PURCHASE SECURITIES OF OTHER INVESTMENT COMPANIES, EXCEPT TO THE EXTENT
SUCH PURCHASES ARE PERMITTED BY APPLICABLE LAW.
Commentary: A number of MLAM Funds currently state this restriction as a
fundamental, rather than a non-fundamental, restriction. In addition, a
number of the restrictions currently in effect set forth specifically the
applicable law. Applicable law currently allows a Fund to purchase the
securities of other investment companies if immediately thereafter not
more than (i) 3% of the total outstanding voting stock of such company is
owned by the Fund, (ii) 5% of the Fund's total assets, taken at market
value, would be invested in any one such company, (iii) 10% of the Fund's
total assets, taken at market value, would be invested in such
securities, and (iv) the Fund, together with other investment companies
having the same investment adviser and companies controlled by such
companies, owns not more than 10% of the total outstanding stock of any
one closed-end investment company.
Certain state blue sky regulations have excepted from the prohibition on
purchases of securities of other investment companies purchases made in
connection with a plan of merger, consolidation, reorganization, or
acquisition, or purchases made in the open market of securities of
closed-end investment companies where no underwriter or dealer's
commission or profit, other than the customary broker's commission, is
involved. This restriction is no longer required and has therefore been
deleted from the proposed restriction.
B. MAKE SHORT SALES OF SECURITIES OR MAINTAIN A SHORT POSITION EXCEPT TO THE
EXTENT PERMITTED BY APPLICABLE LAW.
Commentary: In a short sale, an investor sells a borrowed security and
has a corresponding obligation to "cover" by delivering at a later date
the identical security. In a short sale "against the box", an investor
sells the securities short while either owning the same securities in the
same amount or having the right to obtain securities to cover through,
for example, the investor's ownership of warrants, options, or
convertible
15
securities. Certain MLAM Funds currently prohibit short sales under any
circumstances; others are specifically authorized to engage in short
sales "against the box".
Under current applicable law, short sales are considered to involve the
creation of senior securities. A Fund that includes short sales in its
investment policies must secure its obligation to replace the borrowed
security by depositing collateral in a segregated account in compliance
with SEC guidelines which are described in the Fund's Prospectus. In
addition, under the current blue sky laws of a certain state, Funds that
sell short are limited so that the dollar amount of short sales at any
one time may not exceed 25% of the net equity of the Fund and the value
of securities of any one issuer in which the Fund is short may not exceed
the lesser of 2.0% of the value of the Fund's net assets or 2.0% of the
securities of any class of any issuer.
Short sales "against the box" are not considered speculative sales and do
not create senior securities. Funds that are not specifically authorized
to engage in short sales "against the box" have not considered short
sales "against the box" to be short sales for purposes of their
investment restrictions.
The majority of the MLAM Funds, as a matter of investment policy, do not
enter into short sales of any kind. If the proposed investment
restrictions are adopted, the MLAM Funds that currently are authorized to
make short sales will continue to have that ability within the confines
of applicable law; the MLAM Funds that are not currently authorized to
make short sales will not make short sales unless and until such policy
is amended by resolution of the Board and the Fund's Prospectus is
amended.
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 [DIRECTORS OR TRUSTEES] OF THE FUND HAS OTHERWISE DETERMINED TO BE
LIQUID PURSUANT TO APPLICABLE LAW.
Commentary: Certain MLAM Funds limit investment in restricted and
illiquid securities to 5% or 10% of Fund assets. Under the Investment
Company Act, open-end investment companies are required to determine net
asset value and offer redemption on a daily basis with payment to follow
within seven days. In order to ensure that adequate cash is available at
all times to cover redemptions, a Fund is required to limit its
investments in securities deemed illiquid to 15% of the Fund's net
assets.
16
Under current applicable law, an illiquid asset is any asset which may
not be sold or disposed of in the ordinary course of business within
seven days at approximately the value at which a Fund has valued the
investment. The types of securities that will be considered illiquid will
vary over time based on changing market conditions and regulatory
interpretations.
In accordance with the most restrictive state blue sky regulations
currently in effect, a Fund whose shares are registered or qualified for
sale in such state, may invest no more than 10% of its total assets in
illiquid securities. It is possible that such state interpretation will
be relaxed in the future to enable a Fund to invest up to 15% of its
total assets in illiquid securities. In addition, certain states consider
investment of more than 5% of a Fund's total assets in illiquid
securities to be speculative and require special disclosure in a Fund's
Prospectus with respect thereto.
Under current SEC interpretations, a Fund may purchase, without regard to
the foregoing 10% (or 15%) limitation, securities which are not
registered under the Securities Act of 1933, as amended (the "Securities
Act"), provided that they are determined to be liquid pursuant to
guidelines and procedures established by the Board. Included among such
securities are foreign securities traded in a foreign securities market
and securities which can be offered and sold to "qualified institutional
buyers," as defined in Rule 144A under the Securities Act ("Rule 144A
Securities"). Certain MLAM Funds do not permit the Board discretion with
respect to Rule 144A Securities.
The proposed investment restriction would increase the Funds' flexibility
with respect to the amount of securities deemed illiquid in which the
Fund may invest up to the current SEC limit, assuming that the Fund is
not otherwise limited with respect to investment in illiquid securities.
A Fund, in its Prospectus and Statement of Additional Information, may
limit investment in illiquid securities to a percentage of less than 15%,
pursuant to state blue sky regulations or for other reasons.
Current applicable law does not require a Fund to state its limitation on
investment in illiquid securities as a fundamental policy; however, a
number of MLAM Funds currently state their limitations on illiquid
securities as a fundamental, rather than a non-fundamental, restriction.
D. INVEST IN WARRANTS IF, AT THE TIME OF ACQUISITION, ITS INVESTMENTS IN
WARRANTS, VALUED AT THE LOWER OF COST OR MARKET VALUE, WOULD EXCEED 5% OF THE
FUND'S TOTAL ASSETS; INCLUDED WITHIN SUCH LIMITATION, BUT NOT TO EXCEED 2% OF
THE FUND'S TOTAL ASSETS, ARE WARRANTS WHICH ARE NOT LISTED ON THE NEW
17
YORK STOCK EXCHANGE OR AMERICAN STOCK EXCHANGE OR A MAJOR FOREIGN EXCHANGE. FOR
PURPOSES OF THIS RESTRICTION, WARRANTS ACQUIRED BY THE FUND IN UNITS OR
ATTACHED TO SECURITIES MAY BE DEEMED TO BE WITHOUT VALUE.
Commentary: Certain MLAM Funds currently prohibit investment in warrants;
others impose limitations that are as restrictive or more restrictive
than the proposed restriction. If a Fund is otherwise authorized to
invest in warrants as a matter of investment policy, such Fund will now
be subject to the limitation set forth in proposed non-fundamental
investment restriction (d). A Fund that is currently prohibited from
investing in warrants as a matter of investment policy will not invest in
warrants unless and until such policy is amended by resolution of the
Board and the Fund's Prospectus is amended.
E. INVEST IN SECURITIES OF COMPANIES HAVING A RECORD, TOGETHER WITH
PREDECESSORS, OF LESS THAN THREE YEARS OF CONTINUOUS OPERATION, IF MORE THAN 5%
OF THE FUND'S TOTAL ASSETS WOULD BE INVESTED IN SUCH SECURITIES. THIS
RESTRICTION SHALL NOT APPLY TO MORTGAGE-BACKED SECURITIES, ASSET-BACKED
SECURITIES OR OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES.
Commentary: The proposed restriction, which addresses investment by a
Fund in "unseasoned issuers", is in substance identical to the applicable
restriction in effect for each Fund; however, a number of MLAM Funds
state this restriction as a fundamental, rather than a non-fundamental,
restriction.
Restrictions on unseasoned issuers are determined primarily by state blue
sky regulations. While several states have more lenient restrictions
concerning investment in the securities of unseasoned issuers (i.e., up
to 15%), the most restrictive state limitation is currently 5%.
Applicable state blue sky regulations do not require that entities with
less than three years of continuous operation that issue mortgage-backed
securities, asset-backed securities or obligations supported by the U.S.
Government, its agencies or instrumentalities be included in the
definition of "unseasoned issuers". There is no federal limitation
concerning investment in unseasoned issuers.
F. PURCHASE OR RETAIN THE SECURITIES OF ANY ISSUER, IF THOSE INDIVIDUAL
OFFICERS AND DIRECTORS OF THE FUND, THE INVESTMENT ADVISER OR ANY SUBSIDIARY
THEREOF EACH OWNING MORE THAN ONE-HALF OF ONE PERCENT OF THE SECURITIES OF SUCH
ISSUER OWN IN THE AGGREGATE MORE THAN 5% OF THE SECURITIES OF SUCH ISSUER.
Commentary: The proposed restriction, which addresses investment by a
Fund in securities of an issuer in which management of the Fund owns
shares, is in substance similar to the applicable restriction in effect
18
for each Fund; however, a number of MLAM Funds currently state this
restriction as a fundamental, rather than a non-fundamental, restriction.
Restrictions on these types of investments are determined primarily by
state blue sky regulations. Certain MLAM Funds' current investment
restrictions apply to the Investment Adviser or any "affiliate" thereof,
which would make the restriction applicable to ML & Co. and any entity
controlled by ML & Co. The proposed restriction reflects currently
applicable law and applies only to MLAM and its subsidiaries.
G. INVEST IN REAL ESTATE LIMITED PARTNERSHIP INTERESTS OR INTERESTS IN OIL,
GAS OR OTHER MINERAL LEASES, OR EXPLORATION OR DEVELOPMENT PROGRAMS, EXCEPT
THAT THE FUND MAY INVEST IN SECURITIES ISSUED BY COMPANIES THAT ENGAGE IN OIL,
GAS OR OTHER MINERAL EXPLORATION OR DEVELOPMENT ACTIVITIES.
Commentary: Restrictions with respect to these types of investments are
determined primarily by state blue sky regulations. The proposed
restriction is in substance similar to the applicable restriction in
effect for each Fund; however, a number of MLAM Funds state this
restriction, in whole or in part, as a fundamental, rather than a non-
fundamental, restriction.
H. WRITE, PURCHASE OR SELL PUTS, CALLS, STRADDLES, SPREADS OR COMBINATIONS
THEREOF, EXCEPT TO THE EXTENT PERMITTED IN THE FUND'S PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION, AS THEY MAY BE AMENDED FROM TIME TO TIME.
Commentary: The proposed restriction is in substance similar to the
applicable restriction in effect for each MLAM Fund authorized to engage
in these types of transactions, except that certain MLAM Funds impose
specific percentage limitations in the investment restriction on the
investments. A number of MLAM Funds state this restriction as a
fundamental, rather than a non-fundamental, restriction.
If the proposed restrictions are approved, MLAM Funds that currently are
authorized to engage in puts, calls, straddles, spreads and combinations
thereof will be subject to the proposed restriction. MLAM Funds that are
not currently authorized to engage in these types of transactions would
not be permitted to engage in such transactions unless and until the
Board determines to establish an investment policy in this regard.
Elimination of Investment Restrictions on Eligible Securities for Municipal
Bond Funds. Each of the Funds covered by this Proxy Statement which invest
primarily in municipal bonds currently is subject to a fundamental investment
restriction that such Fund may not purchase any securities other than
securities referred to in the investment objective
19
and policies section of the Prospectus of the Fund. Under the proposed uniform
investment restrictions, this restriction is eliminated. The elimination of
this restriction is not considered to be significant because the Prospectuses
of the Funds generally contain broad definitions of eligible tax-exempt
securities. The investment objective of each of the Funds will continue to be a
fundamental policy changeable only by shareholder vote. Generally the
investment objective of each such Fund specifies that the Fund will seek to
provide shareholders with income exempt from Federal income taxes and, in the
case of state-specific funds, income exempt from income tax of the relevant
state. Such investment objective mandates significant investment in tax-exempt
securities. Interpretations by the staff of the SEC require that under normal
market conditions tax-exempt funds be at least 80% invested in tax-exempt
securities and, if state specific, at least 65% invested in the tax-exempt
securities of the relevant state. Accordingly, any change in the fundamental
investment objective of such Funds will require shareholder approval.
Elimination of Restrictions Applicable to Foreign Securities. Investment
restrictions relating to investment in foreign securities have been eliminated
in the proposed uniform restrictions. Certain funds that commenced operations
more than 10 years ago were required by state blue sky regulations then in
effect to include an investment restriction limiting or prohibiting investment
in foreign securities. More recently, Funds are no longer required to state
this policy as an investment restriction but instead include investment
policies with respect to foreign securities in their Prospectuses and
Statements of Additional Information.
Proposal 4
APPROVAL OR DISAPPROVAL OF A CHARTER AMENDMENT
IN CONNECTION WITH THE IMPLEMENTATION OF
THE MERRILL LYNCH SELECT PRICINGSM SYSTEM
DESCRIPTION OF THE SELECT PRICING SYSTEM
General. In 1988, MLAM developed a two-class distribution system pursuant to
which investors may choose to purchase Class A shares of a Fund with a front-
end sales charge or Class B shares with a contingent deferred sales charge
("CDSC") and ongoing distribution fees (the "Dual Distribution System"). The
Dual Distribution System was among the first in the mutual fund industry to
offer investors alternative sales charge arrangements within the same Fund.
On April 12, 1994, the SEC issued an exemptive order permitting certain MLAM-
advised mutual funds to issue multiple classes of shares (the "Order"). The
Order permits each Fund to create an unlimited number of classes of shares to
expand the types of sales charge
20
arrangements available to Fund investors without otherwise affecting investment
in the Fund. In this regard, the Funds intend to implement the Select Pricing
System, under which eligible investors may choose from different sales charge
alternatives in four classes of shares.
At its meeting held August , 1994, the Board approved the manner in which
shares of each class will be offered and sold under the Select Pricing System,
as described in detail below. The specific amounts of the sales charges, and
account maintenance and distribution fees for each Fund are set forth in
Exhibit A. Although the Funds currently intend to implement the Select Pricing
System as described herein, changes may be made to the distribution
arrangements of any class at any time; however, changes will not be made to the
terms of the Select Pricing System as it applies to any Fund unless and until
(i) the Board of the Fund explicitly authorizes, by resolution, any change in
the terms and (ii) the Prospectus of the Fund is amended to reflect the change.
Changes to the Select Pricing System ordinarily would not require a vote of the
shareholders of a Fund, except in certain circumstances necessitating a charter
amendment or in which fees paid by existing shareholders pursuant to Rule 12b-1
under the Investment Company Act ("Rule 12b-1") are increased.
The following table sets forth a summary of the distribution arrangements for
each class of shares under the Select Pricing System, followed by a more
detailed description of each class.
ACCOUNT
SALES MAINTENANCE DISTRIBUTION CONVERSION
CLASS CHARGE FEE FEE FEATURE
- ------------------------------------------------------------------------------------
A* Maximum 5.25% No No No
front-end
sales
charge**
- ------------------------------------------------------------------------------------
B CDSC for Maximum Maximum B shares
periods of up 0.25% 0.75% convert to D
to 4 years, shares
at a maximum automatically
rate of 4.0% after
during the Conversion
first year, Period
decreasing
1.0% annually
to 0.0%
- ------------------------------------------------------------------------------------
C 1.0% CDSC for Maximum Maximum No
one year 0.25% 0.75%
- ------------------------------------------------------------------------------------
D Maximum 5.25% Maximum No No
front-end 0.25%
sales
charge**
21
- ------------
* Offered only to eligible investors. See "Class A" below.
** Certain Class A and Class D purchases will be subject to a maximum 1.0%
CDSC for one year. See "Class A" and "Class D" below.
Class A: Class A shares will be sold subject to a front-end sales charge and
will bear no ongoing distribution or account maintenance fees. For
most Funds, the front-end sales charge on purchases of Class A shares
under the Select Pricing System will be lower than the front-end
sales charge currently imposed on Class A shares. Class A shares will
be offered to a limited group of investors. Investors that currently
own Class A shares of a Fund in an account will be entitled to
purchase additional Class A shares of that Fund in that account.
Class A shares also will be offered to certain retirement plans. In
addition, Class A shares will be offered to directors of ML & Co. and
employees of ML & Co. and its subsidiaries, Board members and members
of the Boards of other MLAM-advised mutual funds and participants in
certain investment programs. Class A shares also will be issued on
reinvestment of dividends paid on Class A shares.
Exchange Privilege. THE EXCHANGE PRIVILEGE FOR CLASS A SHAREHOLDERS
WILL BE MODIFIED UNDER THE SELECT PRICING SYSTEM MAKING IT MORE
RESTRICTIVE THAN PRESENTLY EXISTS. Under the Select Pricing System,
Class A shareholders may exchange Class A shares of one Fund for
Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second Fund in his
account in which the exchange is made at the time of the exchange.
If the Class A shareholder wants to exchange his Class A shares for
shares of a second Fund, and the shareholder does not hold Class A
shares of the second Fund in his account at the time of the
exchange, the shareholder will receive Class D shares of the second
Fund as a result of the exchange. Class A or Class D shares may be
exchanged for Class A shares of a second Fund at any time as long
as, at the time of the exchange, the shareholder holds Class A
shares of the second Fund in the account in which the exchange is
made.
For example, a shareholder owns 50 Class A shares of Merrill Lynch
Basic Value Fund, Inc. ("Basic Value") and 50 Class A shares of
Merrill Lynch World Income Fund, Inc. ("World Income") in his
personal account and 50 Class A shares of Merrill Lynch Pacific
Fund, Inc. ("Pacific") in his individual retirement account ("IRA").
In his personal account, the shareholder eliminates his position in
Basic Value by exchanging 25 shares of Basic Value for shares of
equivalent value of World Income and 25 shares of Basic Value for
shares of equivalent
22
value of Pacific. The shareholder will receive Class A shares of
World Income, because he holds World Income Class A shares in his
personal account at the time of the exchange, and he will receive
Class D shares of Pacific, because although he owns Pacific Class A
shares, he does not hold them in his personal account. Similarly, if
the shareholder decides to exchange back into Basic Value, he will
receive Class D shares, because he no longer holds Class A shares of
Basic Value in his personal account.
In his IRA, if the investor decides to exchange 25 Class A shares of
Pacific for shares of equivalent value of Merrill Lynch Fund for
Tomorrow, Inc. ("Fund for Tomorrow"), he will receive Class D shares
of Fund for Tomorrow, because he holds no Class A shares of Fund for
Tomorrow in his IRA. If he decides, however, to exchange back into
Pacific, he can receive Class A shares of Pacific as long as he
still holds any Class A shares of Pacific in his IRA at the time of
the exchange.
Class A shareholders also may exchange Class A shares for shares of
certain MLAM-advised money market funds. For further information
regarding the Select Pricing System exchange privilege, see
"Exchange Privilege" below.
Reduced initial sales charges. Class A investors may qualify for
reduced initial sales charges through a right of accumulation taking
into account an investor's holdings in both Class A and Class D
shares of any MLAM-advised Fund. Under the Select Pricing System,
Class B shares will no longer be counted toward the right of
accumulation. See "Right of Accumulation" below. Under a right of
accumulation, certain Class A shareholders who purchase or
accumulate at least $1 million in Class A and/or Class D shares of
any MLAM-advised Fund also qualify to add to their investment in
Class A shares of a Fund without the imposition of a front-end sales
charge. Although these investors will not be subject to a front-end
sales charge, they will be subject to a CDSC of 1.0% if the shares
are redeemed within one year after purchase.
Redesignation of Class A Shares. Class A shares outstanding on the
date of the implementation of the Select Pricing System (the
"Implementation Date") that are subject to ongoing account
maintenance fees automatically will be redesignated Class D shares.
None of the Funds covered by this Proxy Statement
23
currently have Class A shares that will be redesignated as Class D
shares on the Implementation Date. The redesignation of the Class A
shares to Class D shares will not be deemed a purchase or sale of
the shares for Federal income tax purposes. See "Redesignation of
Shares of Certain MLAM-Advised Funds" below.
Class B: Class B shares will be sold on a deferred sales charge basis. Class B
shares do not incur a front-end sales charge, but they are subject to
a maximum ongoing 0.25% account maintenance fee, an ongoing
distribution fee and a CDSC for periods of up to four years.
Conversion of Class B Shares to Class D Shares. After a set time
period (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 but no distribution
fee. Automatic conversion of Class B shares into Class D shares will
occur at least once a month (on the "Conversion Date") on the basis
of the relative net asset values of the shares of the two classes on
the Conversion Date, without the imposition of any sales load, fee
or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income
tax purposes.
In addition, shares purchased through reinvestment of dividends on
Class B shares also will convert automatically to Class D shares.
The Conversion Date for dividend reinvestment shares will be
calculated taking into account the length of time the shares
underlying such dividend reinvestment shares were outstanding.
In general, Class B shares of equity Funds will convert
approximately eight years after initial purchase, and Class B shares
of taxable and tax-exempt fixed income Funds will convert
approximately ten years after initial purchase. Specific Conversion
Periods for each Fund are set forth in Exhibit A. If during the
Conversion Period a shareholder exchanges Class B shares with a ten-
year Conversion Period for Class B shares with an eight-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" onto the
holding period for the shares acquired. The Conversion Period for
certain retirement plans will be modified as described under "Class
B Retirement Plans" below.
24
The Class B distribution fee is subject to the limitations on asset-
based sales charges imposed by the National Association of
Securities Dealers, Inc. (the "NASD"), as voluntarily modified by
MLFD. See "Limitations on Asset-Based Sales Charges" below.
Exchange Privilege. Class B shareholders may exchange Class B shares
of the Fund for Class B shares of any MLAM-advised mutual fund as
well as shares of certain MLAM-advised money market funds. See
"Exchange Privilege" below.
Redesignation of Class B Shares. Class B shares of Merrill Lynch
Fundamental Growth Fund, Inc., outstanding on the Implementation
Date automatically will be redesignated Class C shares. This
redesignation of Class B shares to Class C shares will not be deemed
a purchase or sale of the shares for Federal income tax purposes.
See "Redesignation of Shares of Certain MLAM-Advised Funds" below.
Class C: Class C shares will not incur a front-end sales charge when
purchased, but Class C shares are subject to a maximum ongoing 0.25%
account maintenance fee and an ongoing distribution fee. In the case
of fixed income Funds, the Class C distribution fees will be
different from the Class B distribution fees of a particular Fund. In
the case of equity Funds, Class C distribution fees will equal Class
B distribution fees. Class C shares are sold subject to a CDSC of
1.0% for one year. The Class C distribution fee will be charged
indefinitely subject to approval of the continuance of the Fund's
Class C Distribution Plan pursuant to Rule 12b-1 and the limitations
on asset-based sales charges imposed by the NASD. See "Limitations on
Asset-Based Sales Charges" below.
Exchange Privilege. Class C shareholders may exchange Class C shares
of the Fund for Class C shares of any MLAM-advised mutual fund as
well as shares of certain MLAM-advised money market funds. See
"Exchange Privilege" below.
Class D: Class D shares will be sold subject to a front-end sales charge which
will be identical to the front-end sales charge imposed on Class A
shares under the Select Pricing System. Class D shares are charged a
maximum ongoing 0.25% account maintenance fee but are not subject to
an ongoing distribution fee.
Reduced Initial Sales Charges. Class D investors may qualify for
reduced initial sales charges through a right of accumulation taking
into account each investor's holdings in both Class A and Class D
shares of any MLAM-advised Fund. See "Right of Accumulation" below.
Under a right of accumulation, certain
25
investors who purchase or accumulate at least $1 million in Class A
and/or Class D shares of any MLAM-advised Fund will not be subject
to a front-end sales charge upon the purchase of Class D shares;
however, they will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase.
Exchange Privilege. Class D shareholders may exchange Class D shares
of one Fund for Class D shares of any MLAM-advised mutual fund. If
the shareholder holds any Class A shares of the second Fund in his
account at the time of the exchange, he may exchange Class D shares
for Class A shares of the second Fund. Class D shareholders also may
exchange Class D shares of the Fund for shares of certain MLAM-
advised money market funds. See "Exchange Privilege" below.
Class D shares also will be issued upon conversion of Class B shares
after the Class B Conversion Period, as more fully described below.
MLAM developed the Dual Distribution System to provide investors with the
alternatives within the same Fund of purchasing shares pursuant to either the
front-end sales charge method or the deferred sales charge method. The Select
Pricing System was developed to expand the alternatives available under the
Dual Distribution System by providing investors with additional distribution
alternatives. These alternative sales arrangements permit the investor to
choose the method of purchasing shares that is most beneficial given the amount
of the investor's purchase, the length of time the investor expects to hold the
shares and other relevant circumstances.
Front-End Sales Charge Alternatives. Investors who prefer a front-end sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the front-end sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because of the account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
front-end sales charges may find the front-end sales charge alternative
particularly attractive because similar sales charge reductions are not
available with respect to the deferred sales charges imposed in connection with
purchases of Class B or Class C shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for an extended
period of time also may elect to purchase Class A or Class D shares, because
over time the accumulated ongoing account maintenance and distribution fees on
Class B or Class C shares may exceed the initial front-end sales charge and, in
the case of
26
Class D shares, the account maintenance fee. Although some investors that
previously purchased Class A shares may no longer be eligible to purchase Class
A shares of other Funds, those previously purchased Class A shares, as well as
any new Class D shares acquired, will count toward a right of accumulation
which may qualify the investor for reduced initial sales charges on new front-
end sales charge purchases. In addition, the ongoing Class B and Class C
account maintenance and distribution fees will cause Class B and Class C shares
to have a higher expense ratio, pay lower dividends and have a lower total
return than the front-end sales charge shares. The ongoing Class D account
maintenance fees will cause Class D shares to have a higher expense ratio, pay
lower dividends and have a lower total return than Class A shares.
The benefit of an initial sales charge waiver for investors who purchase at
least $1 million in Class A or Class D shares of any MLAM-advised Fund may be
offset to the extent the shareholder must pay a CDSC on shares redeemed in less
than one year.
Deferred Sales Charge Alternatives. Investors that do not qualify for a
reduction of front-end sales charges may prefer the deferred sales charge
alternatives, because while Class A and Class D initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. Both Class B and Class C shares are subject to ongoing
account maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution charges potentially may be offset to the extent
any return is realized on the additional funds initially invested in Class B or
Class C shares. In addition, Class B shares will be converted into Class D
shares of the Fund after the Conversion Period and thereafter will be subject
to significantly lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend
to hold their shares for an extended period of time. In making this decision,
Class B purchasers will take into account whether they intend to redeem their
shares within the CDSC period and, if not, whether they intend to remain
invested until the end of the Conversion Period and thereby take advantage of
the reduction in ongoing fees. Other investors, however, may elect to purchase
Class C shares if they determine that it is advantageous to have all their
funds invested initially and they are uncertain as to the amount of time they
intend to hold the shares. Although Class C shareholders are subject to a
shorter CDSC period at a lower rate, they forgo the Class B conversion feature,
making their investment subject to account maintenance and distribution fees
for an
27
indefinite period of time. In addition, while both Class B and Class C
distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, Class B shares are further limited under a MLFD voluntary
waiver of asset-based sales charges. See "Limitations on Asset-Based Sales
Charges" below.
------------------------
Each Class A, B, C and D share of a Fund will represent identical interests
in the investment portfolio of the Fund and have the same rights, except that
Classes B, C and D bear the expenses of the ongoing account maintenance fee and
Classes B and C also bear the expenses of the ongoing distribution fee and the
additional incremental transfer agency costs resulting from the deferred sales
charge arrangement. Classes B, C and D have exclusive voting rights with
respect to the distribution plan adopted pursuant to Rule 12b-1 under the
Investment Company Act applicable to each respective class. Each class also has
different exchange privileges. The deferred sales charges that are imposed on
Class B and Class C shares will be imposed directly and respectively against
those classes and not against all assets of the Fund and, accordingly, such
charges will not affect the net asset value of any other class or have any
impact on investors choosing another sales charge option.
The implementation of the Select Pricing System will not adversely affect the
net asset value of a current shareholder's investment in the Fund. Outstanding
shares will not be subject to any charge as a result of the reclassification.
Two new and separate classes will be added, having no adverse effect on the
shares that are issued and outstanding; however, the creation of Class D will
provide a significant benefit to Class B shareholders as described herein.
Exchange Privilege. As previously stated, investors who hold Class A shares
of a Fund in an account will be entitled, subsequent to the Implementation
Date, to purchase additional Class A shares of that Fund in that account only.
Current Class A shareholders that do not qualify to purchase Class A shares
under the Select Pricing System and wish to exchange their Class A shares for
shares of a second Fund will receive Class A shares of that Fund only if such
shareholder owned Class A shares of the second Fund on the date of the
exchange. Otherwise, shareholders that do not qualify to purchase Class A
shares under the Select Pricing System will receive Class D shares in exchange
for Class A shares after the Implementation Date. Investors will have an
unlimited right to exchange Class D shares for Class A shares of any Fund held
in the account, provided that Class A shares of the Fund acquired in the
exchange are held in the account at the time of the exchange.
28
Class A and Class D shares also will be exchangeable for shares of certain
money market funds specifically designated as available for exchange by holders
of Class A and Class D shares. The period of time that Class A or Class D
shares are held in a money market fund, however, will not count toward
satisfaction of the holding period requirement for reduction of any CDSC
imposed in connection with a reduced initial sales charge purchase.
Class B and Class C shares will be exchangeable only with shares of the same
class of other mutual funds advised by MLAM as well as certain money market
funds specifically designated as available for exchange by holders of Class B
and Class C shares. The period of time that Class B or Class C shares are held
in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of the CDSC for Class B and Class C
shares or the Conversion Period for Class B shares.
Right of Accumulation. Under the Select Pricing System, reduced sales charges
will be applicable through a right of accumulation under which eligible
investors are permitted to purchase Class A or Class D shares of a Fund at the
offering price applicable to the total of (a) the dollar amount then being
purchased plus (b) an amount equal to the then net asset value or cost,
whichever is higher, of the purchaser's combined holdings of Class A and Class
D shares of the Fund and of any other Fund with an initial sales charge for
which MLFD is the distributor. Class B and Class C shares owned will not count
toward this right of accumulation.
Redesignation of Shares of Certain MLAM-Advised Funds. The following eight
Funds currently offer Class A shares subject to an account maintenance fee:
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc. and Merrill
Lynch Short-Term Global Income Fund, Inc. In order to continue the same sales
charge and account maintenance fee arrangements on these Class A shares, on the
Implementation Date, Class A shares of those Funds will be automatically
redesignated Class D shares. Subsequent to the Implementation Date,
reinvestment of dividends paid on these redesignated Class A shares will be in
Class D shares.
Outstanding Class B shares of Merrill Lynch Fundamental Growth Fund, Inc.
("Fundamental Growth"), which currently are subject to the same CDSC, account
maintenance fee and distribution fee as Class C shares will be under the Select
Pricing System, will be automatically
29
redesignated Class C shares on the Implementation Date. Subsequent to the
Implementation Date, reinvestment of dividends paid on these redesignated Class
B shares of Fundamental Growth will be in Class C shares.
Redesignation of shares of any Fund in connection with the implementation of
the Select Pricing System will not be deemed a purchase or sale of the shares
for Federal income tax purposes.
Limitations on Asset-Based Sales Charges. Class B and Class C distribution
fees are subject to the limitations on asset-based sales charges imposed by the
NASD. As applicable to the Funds, the NASD rule limits the aggregate of
distribution fee payments and CDSCs payable by a Fund to (1) 6.25% of eligible
gross sales of Class B or Class C shares (defined to exclude shares issued
pursuant to dividend reinvestments and exchanges) plus (2) interest on the
unpaid balance at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). The maximum allowable payments under the NASD rule is referred
to as the "NASD maximum". Aggregate distribution fee payments on Class C shares
will be limited in accordance with the NASD maximum.
With respect to Class B shares, MLFD has agreed voluntarily to waive interest
charges on the unpaid balance in excess of 0.50% of eligible gross sales.
Consequently, the maximum amount payable to MLFD (referred to as the "Class B
voluntary maximum") is 6.75% of eligible gross sales. MLFD retains the right to
stop waiving the interest charges at any time. To the extent payments would
exceed the Class B voluntary maximum, in the case of Class B shares, or the
NASD maximum, in the case of Class C shares, the Fund will not make further
payments of the distribution fee and any CDSCs will be paid to the Fund rather
than to MLFD; however, the Fund will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
Class B voluntary maximum may exceed the amount payable under the NASD formula.
In such circumstances payments in excess of the amount payable under the NASD
maximum will not be made.
PROPOSED CHARTER AMENDMENT
On August , 1994, the Board approved the Select Pricing System and a related
amendment to the Fund's charter. The proposed amendment to the charter, among
other things, will enable each Fund to institute the Class B to Class D
automatic conversion feature which is integral to the implementation of the
Select Pricing System. In addition, while the Fund's charter permits the Board
to reclassify unissued shares into additional
30
classes, the proposed amendment to the Fund's charter also will permit the
Board to institute automatic conversion features with respect to all classes by
reclassifying issued shares of the Fund into additional classes at a future
date.
Class B Retirement Plans. Certain shareholders of the Fund purchased Class B
shares through retirement plans. These purchases qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares under exemptive orders and
a no-action letter granted by the SEC. Retirement plans holding Class B shares
purchased without a CDSC are herein referred to as "Class B Retirement Plans."
Since these Class B shares were sold without a CDSC, there was heretofore no
reason to track the length of time that such shares were held, and therefore
Class B Retirement Plan shares cannot be converted to Class D shares in the
same manner as other Class B shares.
To ensure that both the Class B Retirement Plan shareholders and the other
Class B shareholders are treated fairly under the Select Pricing System, the
proposed charter amendment provides that rather than imposing the usual Class B
Conversion Periods which apply to the shares, a ten-year Conversion Period will
be applied to each Class B Retirement Plan. After the Implementation Date, the
Class B Retirement Plans will continue to purchase Class B shares without a
CDSC. When the first share purchased by a Class B Retirement Plan has been held
for ten years (i.e., ten years from the date the relationship between the Funds
and the plan was established), all Class B shares of all Funds held in that
Class B Retirement Plan will be converted into Class D shares of the
appropriate Funds. Subsequent to such conversion, that retirement plan will be
sold Class D shares of the appropriate Funds.
Text of Proposed Charter Amendment. Each Fund's state of organization is set
forth in Exhibit A. With respect to the Funds that are Maryland corporations,
the charter will be amended to add the following provision:
The Board of Directors may classify and reclassify any issued shares of
capital stock into one or more additional or other classes or series as
may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and pursuant
to such classification or reclassification to increase or decrease the
number of authorized shares of any existing class or series; provided,
however, that any such classification or reclassification shall not
substantially adversely affect the rights of
31
holders of such issued shares. The Board's authority pursuant to this
paragraph shall include, but not be limited to, the power to vary among
all the holders of a particular class or series (a) the length of time
shares must be held prior to reclassification to shares of another class
or series (the "Holding Period(s)"), (b) the manner in which the time for
such Holding Period(s) is determined and (c) the class or series into
which the particular class or series is being reclassified; provided,
however, that, subject to the first sentence of this section, with
respect to holders of the Corporation's shares issued on or after the
date of the Corporation's first effective prospectus which sets forth
Holding Period(s) (the "First Holding Period Prospectus"), the Holding
Period(s), the manner in which the time for such Holding Period(s) is
determined and the class or series into which the particular class or
series is being reclassified shall be disclosed in the Corporation's
prospectus or statement of additional information in effect at the time
such shares, which are the subject of the reclassification, were issued;
and provided, further, that, subject to
the first sentence of this section, with respect to holders of the
Corporation's Class B shares issued prior to the date of the
Corporation's First Holding Period Prospectus, the Holding Period shall
be ten (10) years for retirement plan (as recognized by the Internal
Revenue Code of 1986, as amended from time to time) holders of issued
Class B shares and shall be the Holding Period set forth in the
Corporation's First Holding Period Prospectus, for all other holders of
issued Class B shares; Class B shares held by a retirement plan shall be
reclassified to Class D shares in the month following the month in which
the first Class B share of any mutual fund advised by Merrill Lynch Asset
Management, L.P., Fund Asset Management, L.P., or their affiliates, held
by such retirement plan has been held for the ten (10) year Holding
Period established by the Corporation's Board of Directors for such
retirement plan Class B shareholder; and the Class B shares of every
other shareholder shall be reclassified to Class D shares in the month
following the month in which such shares have been held for the Holding
Period established by the Corporation's Board of Directors for non-
retirement plan shareholders in the Corporation's First Holding Period
Prospectus.
With respect to the Funds that are Massachusetts business trusts, Sections
6.1, 6.2 and 10.1 of the charters generally will be amended as follows (changes
are underlined):
6.1. Beneficial Interest. The interest of the beneficiaries hereunder
shall be divided into transferable shares of beneficial interest, par
value $0.10 per share. The number of such shares of
32
beneficial interest authorized hereunder is unlimited. The Trustees, in
their discretion, without a vote of the Shareholders, may divide the
shares of beneficial interest into classes. In such event, each class
shall represent interests in the Trust property and have identical
voting, dividend, liquidation and other rights and the same terms and
conditions except that expenses related directly or indirectly to the
distribution of the shares of a class may be borne solely by such class
(as shall be determined by the Trustees) and, as provided in Section
10.1, a class may have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class. The bearing of
such expenses solely by a class of Shares shall be appropriately
reflected (in the manner determined by the Trustees) in the net asset
value, dividend and liquidation rights of the Shares of such class. The
Trustees may provide that shares of a class will be exchanged for shares
of another class without any act or deed on the part of the holder of
shares of the class being exchanged, whether or not shares of such class
are issued and outstanding, all on terms and conditions as the Trustees
may specify. The Trustees may redesignate a class or series of shares of
beneficial interest or a portion of a class or series of shares of
beneficial interest whether or not shares of such class or series are
issued and outstanding, provided that such redesignation does not
materially adversely affect the preference, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of beneficial
interest. The division of the Shares into classes and the terms and
conditions pursuant to which the Shares of the classes will be issued
must be made in compliance with the 1940 Act. All shares issued hereunder
including, without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid and
nonassessable.
6.2. Rights of Shareholders. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders
shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of
the Trust nor can they be called upon to share or assume any losses of
the Trust or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only
the rights in this Declaration specifically set forth. The Shares shall
not entitle the holder to preference, preemptive, appraisal, conversion
or exchange rights (except for rights of appraisal specified in Section
11.4 and except as may be specified by the Trustees in
33
connection with the division of shares into classes or the redesignation
of classes or portions of classes in accordance with Section 6.1).
10.1. Voting Powers. The Shareholders shall have power to vote (i) for
the removal of Trustees as provided in Section 2.3; (ii) with respect to
any advisory or management contract as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in Section
11.3; (iv) with respect to such additional matters relating to the Trust
as may be required or authorized by the 1940 Act, the laws of the
Commonwealth of Massachusetts or other applicable law or by this
Declaration or the By-Laws of the Trust; and (v) with respect to such
additional matters relating to the Trust as may be properly submitted for
Shareholder approval. If the Shares of a Series shall be divided into
classes as provided in Article VI hereof, the Shares of each class shall
have identical voting rights except that the Trustees, in their
discretion, may provide a class with exclusive voting rights with respect
to matters related to expenses being borne solely by such class whether
or not shares of such class are issued and outstanding.
Implementation of the Select Pricing System is conditioned upon approval of
the charter amendment by all shareholders of the Fund, voting as a single
class, as well as by existing Class B shareholders, voting as a separate
class. On August , 1994, the Board approved the proposed charter amendment.
The Board recommends that the shareholders approve the charter amendment.
* * *
OTHER PERTINENT INFORMATION REGARDING THE FUND
INFORMATION CONCERNING MLAM AND FAM
Effective January 1, 1994, MLAM and FAM were reorganized as Delaware limited
partnerships. Both MLAM and FAM are owned and controlled by ML & Co., and the
general partner of both MLAM and FAM is Princeton Services, a wholly-owned
subsidiary of ML & Co. The reorganization did not result in a change of
management of either MLAM or FAM, in any of its personnel, or in an adverse
change in its financial condition. Prior to the reorganization, MLAM (which was
known as Merrill Lynch Investment Management, Inc. and which did business as
Merrill Lynch Asset Management) and FAM (which was known as Fund Asset
Management, Inc.) were Delaware corporations. MLAM was a wholly-owned
subsidiary of ML & Co. and FAM was a wholly-owned subsidiary of MLAM.
MLFD, an affiliate of MLAM and FAM, acts as distributor of the Fund's shares.
MLAM, FAM, Princeton Services and MLFD are located
34
at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. ML & Co. is located at
250 Vesey Street, New York, New York 10281.
MLAM or FAM acts as the investment adviser to more than 90 registered
investment companies. In addition, MLAM offers portfolio management and
portfolio analysis services to individuals and institutions.
The audited balance sheet of each of MLAM and FAM for the fiscal year ended
December 31, 1993 is set forth in Exhibit B.
Securities held by the Fund also may be held by or be appropriate investments
for other funds or clients (collectively referred to as "clients") for which
MLAM or FAM acts as an adviser. Because of different investment objectives or
other factors, a particular security may be bought for one or more clients when
one or more clients are selling the security. If purchases or sales of
securities for the Fund or other clients arise for consideration at or about
the same time, transactions in such securities will be made, insofar as
feasible, for the respective clients in a manner deemed equitable to all by
MLAM or FAM. To the extent that transactions on behalf of more than one client
of MLAM or FAM during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an adverse
effect on price.
The following table sets forth the name, title and principal occupation of
the principal executive officer of MLAM and FAM and the directors of Princeton
Services, the general partner of both MLAM and FAM.
NAME* TITLE PRINCIPAL OCCUPATION
----- ----- --------------------
Arthur Zeikel...... President and Chief President and Chief
Investment Officer Investment Officer
of MLAM and FAM and of MLAM and FAM;
Director of Executive Vice
Princeton Services President of ML &
Co.; President of
Princeton Services
Terry K. Glenn..... Executive Vice Executive Vice
President of MLAM President of MLAM
and FAM and and FAM; Executive
Director of Vice President of
Princeton Services Princeton Services
Philip L. Kirstein. Senior Vice Senior Vice
President and President and
General Counsel of General Counsel of
MLAM and FAM and MLAM and FAM;
Director of Senior Vice
Princeton Services President of
Princeton Services
35
- ------------
* Mr. Zeikel is presently a Board member of the Fund. The address of Messrs.
Zeikel, Glenn and Kirstein is P.O. Box 9011, Princeton, New Jersey 08543-
9011, which is also the address of MLAM and FAM.
TERMS OF INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement provides that, subject to the direction of
the Board, the Investment Adviser is responsible for the actual management of
the Fund's portfolio and for the review of the Fund's holdings in light of its
own research analysis and analyses from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by the Board. The
Investment Adviser provides the portfolio managers for the Fund who consider
analyses from various sources (including brokerage firms with which the Fund
does business), make the necessary investment decisions and place transactions
accordingly. The Investment Adviser is also obligated to perform certain
administrative and management services for the Fund and is obligated to provide
all the office space, facilities, equipment and personnel necessary to perform
its duties under the Investment Advisory Agreement.
Investment Advisory Fee. The Investment Advisory Agreement provides that as
compensation for its services to the Fund, the Investment Adviser receives from
the Fund at the end of each month a fee calculated as an annual percentage of
the Fund's average daily net assets (i.e., the average daily value of the total
assets of the Fund minus the sum of accrued liabilities of the Fund).
Information pertaining to the Fund's investment advisory fee is set forth in
Exhibit A.
Payment of Expenses. The Investment Advisory Agreement obligates the
Investment Adviser to provide investment advisory services and to pay all
compensation of and furnish office space for officers and employees of the Fund
connected with the investment and economic research, trading and investment
management of the Fund, as well as the fees of all Board members of the Fund
who are affiliated persons of the Investment Adviser or any of its affiliates.
The Fund pays all other expenses incurred in its operation, including, among
other things, expenses for legal and auditing services, taxes, costs of
printing proxies, stock certificates and shareholder reports, charges of the
custodian and transfer agent, dividend disbursing agent and registrar fees and
expenses with respect to the issuance of preferred stock, SEC fees, fees and
expenses of unaffiliated Board members, accounting and pricing costs,
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, mailing and other expenses properly payable by the
Fund.
36
Accounting services are provided to the Fund by the Investment Adviser, and
the Fund reimburses the Investment Adviser for its costs in connection with
such services. Information with respect to such reimbursement is set forth in
Exhibit A.
California imposes limitations on the expenses of those Funds whose shares
are registered or qualified for sale in California. At the date of this proxy
statement, these annual expense limitations require that the Investment Adviser
reimburse the Fund in an amount necessary to prevent the aggregate ordinary
operating expenses (excluding taxes, brokerage fees and commissions,
distribution fees and extraordinary charges such as litigation costs) from
exceeding in any fiscal year 2.5% of the Fund's first $30 million of average
net assets, 2.0% of the next $70 million and 1.5% of the remaining average net
assets. The Investment Adviser's obligation to reimburse the Fund is limited to
the amount of the investment advisory fee. No payment will be made to the
Investment Adviser during any fiscal year which will cause expenses to exceed
the most restrictive expense limitation at the time of such payment. Additional
information with respect to the Fund's reimbursement pursuant to such expense
limitations, if any, is set forth in Exhibit A.
Duration and Termination. The Investment Advisory Agreement will continue in
effect from year to year if approved annually (a) by the Board or by a majority
of the outstanding shares of the Fund and (b) by a majority of the Board
members who are not parties to such agreement or interested persons (as defined
in the Investment Company Act) of any such party. Such agreement is not
assignable and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of the shareholders of the
Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board, the Investment Adviser is
primarily responsible for the execution of each Fund's portfolio transactions
and the allocation of brokerage. In executing such transactions, the Investment
Adviser seeks to obtain the best results for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and operational facilities of
the firm involved and the firm's risk in positioning a block of securities.
While the Investment Adviser generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest commission or spread
available.
The Fund has no obligation to deal with any broker or group of brokers in the
execution of transactions in portfolio securities. Subject to obtaining the
best price and execution, brokers or dealers who provided
37
supplemental investment research (such as information concerning money market
securities, economic data and market forecasts) to the Investment Adviser,
including Merrill Lynch, may receive orders for transactions by the Fund.
Information so received will be in addition to and not in lieu of the services
required to be performed by the Investment Adviser under the Investment
Advisory Agreement, and the expenses of the Investment Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information.
Each Fund invests in securities traded in the over-the-counter markets, and
where possible, deals directly with dealers who make markets in the securities
involved, except in those circumstances where better prices and execution are
available elsewhere. Under the Investment Company Act, except as permitted by
exemptive order, persons affiliated with a Fund are prohibited from dealing
with the Fund as principal in the purchase and sale of securities. Since
transactions in the over-the-counter market usually involve transactions with
dealers acting as principal for their own account, a Fund will not deal with
affiliated persons, including Merrill Lynch and its affiliates, in connection
with such transactions except that pursuant to an exemptive order, obtained by
the Investment Adviser, certain Funds may engage in principal transactions with
Merrill Lynch in high-quality short-term, tax-exempt securities. For
information about transactions with and brokerage commissions paid to Merrill
Lynch see Exhibit A.
The Board has considered the possibility of recapturing for the benefit of
the Fund brokerage commissions, dealer spreads and other expenses of possible
portfolio transactions, such as underwriting commissions, by conducting
portfolio transactions through affiliated entities, including Merrill Lynch.
For example, brokerage commissions received by Merrill Lynch could be offset
against the investment advisory fee paid by the Fund to the Investment Adviser.
After considering all factors deemed relevant, the Board members made a
determination not to seek such recapture. The Board members will reconsider
this matter from time to time.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing by the Fund of the proxy
materials in connection with the matters to be considered at the meeting will
be borne by the Fund. The Fund will reimburse banks, brokers and others for
their reasonable expenses in forwarding proxy solicitation material to the
beneficial owners of the shares of the Fund. The Fund also may hire proxy
solicitors at the expense of the Fund.
The proposal to elect the Fund's Board (Proposal 1) and the proposal to
ratify the selection of the Fund's independent auditors (Proposal 2) may
38
be approved by a majority of the Fund's shareholders, voting in person or by
proxy, at a meeting at which a quorum is duly constituted. The proposal to
amend the fundamental investment restrictions of the Fund (Proposal 3) requires
the affirmative vote of the lesser of (i) 67% of the shares represented at the
Meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares.
The proposal to amend the Fund's charter (Proposal 4) must be approved by the
affirmative vote of (i) at least 66 2/3% of the outstanding shares of the Fund
for Merrill Lynch Global Convertible Fund, Inc. and Merrill Lynch World Income
Fund, Inc., or (ii) a majority of the outstanding shares of the Fund for
Merrill Lynch Balanced Fund for Investment and Retirement, Merrill Lynch
California Municipal Series Trust, Merrill Lynch Growth Fund for Investment and
Retirement, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust
and Merrill Lynch Multi-State Municipal Series Trust. The charter amendment
also must be approved separately by the affirmative vote of the outstanding
Class B shares of the Fund in the same percentages as set forth in (i) and (ii)
immediately above.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Fund. It is anticipated that the cost of such supplementary
solicitation, if any, will be nominal. For Merrill Lynch Balanced Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc. and
Merrill Lynch World Income Fund, Inc., a quorum consists of a majority of the
shares entitled to vote at the Meeting, present in person or by proxy; for
Merrill Lynch California Municipal Series Trust, Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust and Merrill Lynch Multi-State Municipal Series Trust, a quorum
consists of 33 1/3% of the shares entitled to vote at the Meeting, present in
person or by proxy. Class B quorum requirements for the separate Class B vote
on Proposal 4 will be identical to the overall quorum requirements for each
Fund.
All shares represented by properly executed proxies, unless such proxies have
previously been revoked, will be voted at the Meeting in accordance with the
directions on the proxies; if no direction is indicated, the shares will be
voted "FOR" the Board member nominees, "FOR" the ratification of the
independent auditors, "FOR" the amendments to the fundamental investment
restrictions of the Fund and "FOR" the charter amendment.
With respect to each Fund whose fiscal year ended subsequent to May 31, 1994,
the Board represents that there has been no material adverse
39
change in the financial operations of the Fund since the date of the unaudited
financial statements contained in the Fund's most recent semi-annual report.
Also, with respect to each Fund whose fiscal year ended subsequent to May 31,
1994, shares will not be voted for Proposal (1) unless the Fund has received a
certificate from its President, dated the Meeting Date, that, to his knowledge,
there has been no material adverse change in the Fund's financial operations
since the date of the unaudited financial statements included in the Fund's
most recent semi-annual report, unless such material adverse change has been
disclosed to shareholders in additional proxy material. If you wish to receive
a copy of the Fund's most recent annual report and any semi-annual, without
charge, report, please call 1-800- and one will be sent to you.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in "street
name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on each
Proposal before the Meeting. The Fund understands that, under the rules of the
New York Stock Exchange, such broker-dealer firms may, without instructions
from their customers and clients, grant authority to the proxies designated to
vote on the election of Board members (Proposal 1), the ratification of the
selection of independent auditors (Proposal 2) and the proposed charter
amendment (Proposal 4) if no instructions have been received prior to the date
specified in the broker-dealer firm's request for voting instructions. Broker-
dealer firms, including Merrill Lynch, will not be permitted to grant voting
authority without instructions with respect to the amendments to the
fundamental investment restrictions (Proposal 3). The Fund will include shares
held of record by broker-dealers as to which such authority has been granted in
its tabulation of the total number of votes present for purposes of determining
whether the necessary quorum of shareholders exists. Proxies which are returned
but which are marked "abstain" or on which a broker-dealer has declined to vote
on any proposal ("broker non-votes") will be counted as present for the
purposes of a quorum. Merrill Lynch has advised the Fund that it intends to
exercise discretion over shares held in its name for which no instructions have
been received by voting such shares on Proposals 1, 2 and 4 in the same
proportion as it has voted shares for which it has received instructions.
However, abstentions and broker non-votes will not be counted as votes cast.
Abstentions and broker non-votes will not have an effect on the vote on
Proposals 1 and 2 (in the case of Maryland corporations) or on Proposal 1 only
(in the case of Massachusetts business trusts); however, abstentions and broker
non-votes will have the same effect as a vote against Proposals 3 and 4 (in the
case of Maryland corporations) or Proposals 2, 3 and 4 (in the case of
Massachusetts business trusts).
40
With respect to Funds organized in Massachusetts: The charter, which is on
file with the Secretary of State of the Commonwealth of Massachusetts, provides
that the name of the Fund refers to the Board under the charter collectively as
Board members, but not as individuals or personally; and no Board member,
shareholder, officer, employee or agent of the Fund 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 Fund but the Fund Estate only
shall be liable.
MEETINGS OF SHAREHOLDERS
The Fund's charter does not require that the Fund hold an annual meeting of
shareholders. The Fund will be required, however, to call special meetings of
shareholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements or of a change in
the fundamental policies, objectives or restrictions of the Fund. The Fund also
would be required to hold a special shareholders' meeting to elect new Board
members at such time as less than a majority of the Board members holding
office have been elected by shareholders. The charter or by-laws of each Fund
provides that a shareholders' meeting may be called at the request of (i) 10%
of the outstanding shares of Merrill Lynch California Municipal Series Trust,
Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch Multi-
State Limited Maturity Municipal Series Trust and Merrill Lynch Multi-State
Municipal Series Trust, (ii) 25% of the outstanding shares of Merrill Lynch
Balanced Fund for Investment and Retirement, (iii) a majority of the
outstanding shares of Merrill Lynch World Income Fund, Inc. or (iv) by the
written request of the holders of shares, entitled to vote at such meeting, or
by a majority of the Board members.
By Order of the Board
Dated: August , 1994
41
EXHIBIT A
INFORMATION PERTAINING TO EACH FUND
. GENERAL INFORMATION PERTAINING TO THE FUNDS
DEFINED TERM STATE OF
FUND USED IN EXHIBIT A FISCAL YEAR END ORGANIZATION MEETING TIME
- ----------------------------------------------------------------------------------
Merrill Lynch Balanced Fund for Investment and
Retirement* Balanced Fund 9/30 MD 11:00 a.m.
- ----------------------------------------------------------------------------------
Merrill Lynch California Municipal Series Trust** CA Trust 8/31 MA 2:30 p.m.
- ----------------------------------------------------------------------------------
Merrill Lynch Global Convertible Fund, Inc. Global Convertible 10/31 MD 3:30 p.m.
- ----------------------------------------------------------------------------------
Merrill Lynch Growth Fund for Investment and Re-
tirement Growth Fund 10/31 MA 4:00 p.m.
- ----------------------------------------------------------------------------------
Merrill Lynch Multi-State Limited Maturity Munic-
ipal Series Trust*** Ltd Maturity Trust 7/31 MA 2:00 p.m.
- ----------------------------------------------------------------------------------
Merrill Lynch Multi-State Municipal Series Trust+ Municipal Series Trust 7/31++ MA 11:30 a.m.
- ----------------------------------------------------------------------------------
Merrill Lynch World Income Fund, Inc. World Income 12/31 MD 3:00 p.m.
* Merrill Lynch Retirement Benefit Investment Program, Inc. does business
under the name Merrill Lynch Balanced Fund for Investment and Retirement.
** Consists of two series: Merrill Lynch California Municipal Bond Fund ("CA
Muni Bond") and Merrill Lynch California Insured Municipal Bond Fund ("CA
Ins Muni Bond").
*** Consists of eight series: Merrill Lynch Arizona Limited Maturity Municipal
Bond Fund ("AZ Ltd Maturity"); Merrill Lynch California Limited Maturity
Municipal Bond Fund ("CA Ltd Maturity"); Merrill Lynch Florida Limited
Maturity Municipal Bond Fund ("FL Ltd Maturity"); Merrill Lynch
Massachusetts Limited Maturity Municipal Bond Fund ("MA Ltd Maturity");
Merrill Lynch Michigan Limited Maturity Municipal Bond Fund ("MI Ltd
Maturity"); Merrill Lynch New Jersey Limited Maturity Municipal Bond Fund
("NJ Ltd Maturity"); Merrill Lynch New York Limited Maturity Municipal
Bond Fund ("NY Ltd Maturity"); and Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund ("PA Ltd Maturity").
+ Currently consists of 16 series: Merrill Lynch Arizona Municipal Bond Fund
("AZ Muni Bond"); Merrill Lynch Colorado Municipal Bond Fund ("CO Muni
Bond"); Merrill Lynch Connecticut Municipal Bond Fund ("CT Muni Bond");
Merrill Lynch Florida Municipal Bond Fund ("FL Muni Bond"); Merrill Lynch
Maryland Municipal Bond Fund ("MD Muni Bond"); Merrill Lynch Massachusetts
Municipal Bond Fund ("MA Muni Bond"); Merrill Lynch Michigan Municipal
Bond Fund ("MI Muni Bond"); Merrill Lynch Minnesota Municipal Bond Fund
("MN Muni Bond"); Merrill Lynch New Jersey Municipal Bond Fund ("NJ Muni
Bond"); Merrill Lynch New Mexico Municipal Bond Fund ("NM Muni Bond");
Merrill Lynch New York Municipal Bond Fund ("NY Muni Bond"); Merrill Lynch
North Carolina Municipal Bond Fund ("NC Muni Bond"); Merrill Lynch Ohio
Municipal Bond Fund ("OH Muni Bond"); Merrill Lynch Oregon Municipal Bond
Fund ("OR Muni Bond"); Merrill Lynch Pennsylvania Municipal Bond Fund ("PA
Muni Bond"); and Merrill Lynch Texas Municipal Bond Fund ("TX Muni Bond").
Merrill Lynch Arkansas Municipal Bond Fund, a new series of Municipal
Series Trust, has not commenced operations and has no public shareholders
at the date of this Proxy Statement.
++ Except for NY Muni Bond, which has a fiscal year end of 9/30.
A-1
FUND SHARES OUTSTANDING AS OF THE RECORD DATE
-----------------------------------------------------
CLASS A CLASS B
- -----------------------------------------------------------------------------
Balanced Fund
- -----------------------------------------------------------------------------
CA Trust
---------------------------------------------------------------------
CA Muni Bond
- -----------------------------------------------------------------------------
CA Ins Muni Bond
- -----------------------------------------------------------------------------
Global Convertible
- -----------------------------------------------------------------------------
Growth Fund
- -----------------------------------------------------------------------------
Ltd Maturity Trust
---------------------------------------------------------------------
AZ Ltd Maturity
- -----------------------------------------------------------------------------
CA Ltd Maturity
- -----------------------------------------------------------------------------
FL Ltd Maturity
- -----------------------------------------------------------------------------
MA Ltd Maturity
- -----------------------------------------------------------------------------
MI Ltd Maturity
- -----------------------------------------------------------------------------
NJ Ltd Maturity
- -----------------------------------------------------------------------------
NY Ltd Maturity
- -----------------------------------------------------------------------------
PA Ltd Maturity
- -----------------------------------------------------------------------------
Municipal Series Trust
---------------------------------------------------------------------
AZ Muni Bond
A-2
FUND SHARES OUTSTANDING AS OF THE RECORD DATE
--------------------------------------------
CLASS A CLASS B
- --------------------------------------------------------------------
CO Muni Bond
- --------------------------------------------------------------------
CT Muni Bond
- --------------------------------------------------------------------
FL Muni Bond
- --------------------------------------------------------------------
MD Muni Bond
- --------------------------------------------------------------------
MA Muni Bond
- --------------------------------------------------------------------
MI Muni Bond
- --------------------------------------------------------------------
MN Muni Bond
- --------------------------------------------------------------------
NJ Muni Bond
- --------------------------------------------------------------------
NM Muni Bond
- --------------------------------------------------------------------
NY Muni Bond
- --------------------------------------------------------------------
NC Muni Bond
- --------------------------------------------------------------------
OH Muni Bond
- --------------------------------------------------------------------
OR Muni Bond
- --------------------------------------------------------------------
PA Muni Bond
- --------------------------------------------------------------------
TX Muni Bond
- --------------------------------------------------------------------
World Income
. INFORMATION ABOUT HOLDERS OF 5% OR MORE OF A FUND'S OUTSTANDING SHARES.
A-3
. INFORMATION PERTAINING TO OFFICERS AND BOARD MEMBERS
YEAR IN WHICH EACH NOMINEE
BECAME A MEMBER OF THE BOARD
---------------------------------------------------------------
FUND AXELSON LONDON MARTIN MAY PEROLD ZEIKEL
- -----------------------------------------------------------------------------
Balanced Fund 1985 1987 1993 1987 1985 1985
- -----------------------------------------------------------------------------
CA Trust 1985 1987 1993 1987 1985 1985
- -----------------------------------------------------------------------------
Global Convertible 1988 1988 1993 1988 1988 1988
- -----------------------------------------------------------------------------
Growth Fund 1987 1987 1993 1987 1987 1987
- -----------------------------------------------------------------------------
Ltd Maturity Trust 1993 1993 1993 1993 1993 1993
- -----------------------------------------------------------------------------
Municipal Series Trust 1985 1987 1993 1987 1985 1985
- -----------------------------------------------------------------------------
World Income 1988 1988 1993 1988 1988 1988
A-4
Set forth in the table below is information regarding board meetings held and
independent director compensation paid during each Fund's most recently
completed fiscal year.
FUND BOARD AUDIT COMMITTEE
- --------------------------------------------------------------------------------
---------------------------------
# MEETINGS ANNUAL FEE PER MEETING FEE # MEETINGS ANNUAL FEE PER MEETING FEE AGGREGATE FEES AND
HELD ($) ($) HELD ($) ($) EXPENSES ($)
- ----------------------------------------------------------------------------------
Balanced Fund 4 5,000 500 4 1,000 250 36,447
- ----------------------------------------------------------------------------------
CA Trust 4 5,000 500 4 1,000 250 36,657
- ----------------------------------------------------------------------------------
Global Convertible 4 5,000 500 4 1,000 250 36,395
- ----------------------------------------------------------------------------------
Growth Fund 4 5,000 500 4 1,000 250 36,828
- ----------------------------------------------------------------------------------
Ltd Maturity Trust* 5 5,000 500 5 1,000 250 11,816
- ----------------------------------------------------------------------------------
Municipal Series Trust** 5 10,000 1,000 6 2,000 500 71,934
- ----------------------------------------------------------------------------------
World Income 4 5,000 500 4 1,000 250 40,553
*Represents the total amount of fees and expenses for each Series for the six
month period ended January 31, 1994.
**Represents the total amount of fees and expenses for each Series most recent
fiscal year end.
A-5
Set forth in the table below are the officers
of all of the Funds; specific officers of each
Fund are indicated according to the year in
which he became an officer.
OFFICER INFORMATION
- ----------------------------------------------------------------------------------------------------
OFFICER SINCE
----------------------------------------------
NAME AND BALANCED GLOBAL GROWTH LTD MATURITY MUNICIPAL WORLD
BIOGRAPHY AGE OFFICE FUND CA TRUST CONVERTIBLE FUND TRUST SERIES TRUST INCOME
- ----------------------------------------------------------------------------------
Arthur Zeikel.......... 62 President 1986 1985 1988 1987 1993 1985 1988
President of MLAM since
1977 and Chief
Investment Officer since
1976; President
and Chief Investment
Officer of FAM
since 1977; President
and Director of
Princeton Services since
1993; Executive Vice
President of ML & Co.
since 1990;
Executive Vice President
of Merrill
Lynch since 1990 and
Senior Vice
President from 1985 to
1990; Director of MLFD.
- ----------------------------------------------------------------------------------
Terry K. Glenn......... 53 Executive Vice 1986 1985 1988 1987 1993 1985 1988
Executive Vice President President
of MLAM and FAM since
1983; Executive Vice
President and Director
of Princeton
Services since 1993;
President of MLFD since
1986 and Director since
1991; President of
Princeton
Administrators,
L.P. since 1988.
A-6
OFFICER INFORMATION
- ------------------------------------------------------------------------------------------------------
OFFICER SINCE
-----------------------------------------------
NAME AND BALANCED GLOBAL GROWTH LTD MATURITY MUNICIPAL WORLD
BIOGRAPHY AGE OFFICE FUND CA TRUST CONVERTIBLE FUND TRUST SERIES TRUST INCOME
- -------------------------------------------------------------------------------------
Gerald M. Richard...... 45 Treasurer 1985 1985 1988 1987 1993 1985 1988
Senior Vice President
and Treasurer of MLAM
and FAM since 1984;
Senior
Vice President and
Treasurer of Princeton
Services since 1993;
Treasurer of MLFD since
1984 and Vice President
since 1981.
- -------------------------------------------------------------------------------------
Bernard J. Durnin...... 51 Senior Vice 1985 -- -- -- -- -- --
Senior Vice President of President
MLAM and
FAM since 1981 and Vice
President from 1977 to
1981.
- -------------------------------------------------------------------------------------
Vincent R. Giordano.... 49 Senior Vice -- 1985 -- -- 1993 1985 --
Senior Vice President of President
FAM and
MLAM since 1984 and
Portfolio Manager of FAM
and MLAM since 1977;
Vice President of MLAM
from 1980 to 1984;
Senior Vice President of
Princeton
Services since 1993.
- -------------------------------------------------------------------------------------
Norman R. Harvey....... 61 Senior Vice -- -- -- 1987 -- -- --
Senior Vice President of President
MLAM and
FAM since 1982; Senior
Vice President of
Princeton Services since
1993.
A-7
OFFICER INFORMATION
- ------------------------------------------------------------------------------------------------------
OFFICER SINCE
-----------------------------------------------
NAME AND BALANCED GLOBAL GROWTH LTD MATURITY MUNICIPAL WORLD
BIOGRAPHY AGE OFFICE FUND CA TRUST CONVERTIBLE FUND TRUST SERIES TRUST INCOME
- -------------------------------------------------------------------------------------
N. John Hewitt......... 59 Senior Vice -- -- 1988 -- -- -- 1988
Senior Vice President of President
MLAM and
FAM since 1976; Manager
of the Fixed Income
Mutual Fund and
Insurance Portfolio
Groups of MLAM since
1980; Senior Vice
President of Princeton
Services since 1993.
- -------------------------------------------------------------------------------------
Donald C. Burke........ 34 Vice President 1993 1993 1993 1993 1993 1993 1993
Vice President and
Director of Taxation
of MLAM since 1990;
Employee of Deloitte &
Touche from 1982 to
1990.
- -------------------------------------------------------------------------------------
Denis B. Cummings...... 51 Vice President 1991 -- -- -- -- -- --
Vice President of MLAM
since 1978.
- -------------------------------------------------------------------------------------
Harry E. Dewdney....... 65 Vice President -- -- 1988 -- -- -- --
Vice President and
Portfolio Manager of
MLAM since 1986; Senior
Vice President of the
International Trading
and Foreign Exchange
Department of Prescott,
Ball
and Turben from 1978 to
1986.
- -------------------------------------------------------------------------------------
Peter J. Hayes......... 35 Vice President -- -- -- -- 1993 -- --
Vice President of MLAM
since 1989 and Assistant
Vice President of MLAM
from 1987 to 1989;
Assistant Vice President
of Shawmut Bank, N.A.
from 1985 to 1987.
A-8
OFFICER INFORMATION
- ------------------------------------------------------------------------------------------------------
OFFICER SINCE
-----------------------------------------------
NAME AND BALANCED GLOBAL GROWTH LTD MATURITY MUNICIPAL WORLD
BIOGRAPHY AGE OFFICE FUND CA TRUST CONVERTIBLE FUND TRUST SERIES TRUST INCOME
- -------------------------------------------------------------------------------------
Kenneth A. Jacob....... 43 Vice President -- 1986 -- -- 1993 1986 --
Vice President of FAM
and MLAM since 1984.
- -------------------------------------------------------------------------------------
Stephen C. Johnes...... 58 Vice President -- -- -- 1987 -- -- --
Vice President of MLAM
since 1987; Managing
Director of the Trust
Company of the West from
1983 to 1986 and Senior
Vice President from 1980
to 1982.
- -------------------------------------------------------------------------------------
Vincent T. Lathbury, 53 Vice President -- -- -- -- -- -- 1988
III....................
President and Portfolio
Manager of FAM and MLAM
since 1982; Vice
President
and Manager of Bond
Department of
INA Capital Management,
Inc. from
1979 to 1982.
- -------------------------------------------------------------------------------------
Robert Parish.......... 42 Vice President -- -- -- -- -- -- 1992
Portfolio Manager of FAM
since 1991; Portfolio
Manager of Templeton
International from 1986
to 1991 and Vice
President from 1989.
- -------------------------------------------------------------------------------------
Mark B. Goldfus........ 47 Secretary -- -- 1987 -- -- -- 1988
Vice President of MLAM
and FAM since 1985.
A-9
OFFICER INFORMATION
- ------------------------------------------------------------------------------------------------------
OFFICER SINCE
-----------------------------------------------
NAME AND BALANCED GLOBAL GROWTH LTD MATURITY MUNICIPAL WORLD
BIOGRAPHY AGE OFFICE FUND CA TRUST CONVERTIBLE FUND TRUST SERIES TRUST INCOME
- -------------------------------------------------------------------------------------
Robert Harris.......... 42 Secretary -- -- -- -- 1993 -- --
Vice President of MLAM
since 1984; Secretary of
MLFD since 1982.
- -------------------------------------------------------------------------------------
Jerry Weiss............ 36 Secretary 1990 1990 -- 1990 -- 1990 --
Vice President of MLAM
since 1990; Attorney in
private practice from
1982 to 1990.
A-10
. INFORMATION PERTAINING TO THE SELECT PRICING SYSTEM
SALES CHARGES
For Balanced Fund and Growth Fund:
DUAL DISTRIBUTION SELECT PRICING
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- -----------------------------------------------------------------------------------------------------------------------------
Maximum 4.0% CDSC during the Maximum 5.25%** 4.0% CDSC during the 1.0% CDSC during the Maximum 5.25%**
6.5%* first year, decreasing first year, decreasing first year, decreasing
1.0% annually to 0.00% 1.0% annually to 0.00% to 0.00% after the
after the fourth year after the fourth year first year
- -----------------------------------------------------------------------------------------------------------------------------
* 6.5% for purchases less than $10,000; 6.0% for purchases between $10,000
and $25,000; 5.0% for purchases between $25,000 and $50,000; 4.0% for
purchases between $50,000 and $100,000; 3.0% for purchases between $100,000
and $250,000; 2.0% for purchases between $250,000 and $1,000,000; .75% for
purchases of $1,000,000 and greater.
** 4.75% for purchases between $25,000 and $50,000; 4.00% for purchases
between $50,000 and $100,000; 3.00% for purchases between $100,000 and
$250,000; 2.00% for purchases between $250,000 and $1,000,000; and 0% for
purchases of $1,000,000 and greater.
For all series of CA Trust, all series of Municipal Series Trust and World
Income:
DUAL DISTRIBUTION SELECT PRICING
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- -----------------------------------------------------------------------------------------------------------------------------
Maximum 4.0% CDSC during the Maximum 4.0%** 4.0% CDSC during the 1.0% CDSC during the Maximum 4.0%**
4.0%* first year, decreasing first year, decreasing first year, decreasing
1.0% annually to 0.00% 1.0% annually to 0.00% to 0.00% after the
after the fourth year after the fourth year first year
- -----------------------------------------------------------------------------------------------------------------------------
* 4.0% for purchases less than $25,000; 3.75% for purchases between $25,000
and $50,000; 3.25% for purchases between $50,000 and $100,000; 2.5% for
purchases between $100,000 and $250,000; 1.5% for purchases between
$250,000 and $1,000,000; .50% for purchases of $1,000,000 and greater.
** 3.75% for purchases between $25,000 and $50,000; 3.25% for purchases
between $50,000 and $100,000; 2.5% for purchases between $100,000 and
$250,000; 1.5% for purchases between $250,000 and $1,000,000; 0% for
purchases of $1,000,000 and greater.
A-11
For all series of Ltd Maturity Trust:
DUAL DISTRIBUTION SELECT PRICING
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- ----------------------------------------------------------------------------------
Maximum 1.0% CDSC during the Maximum 1.0% CDSC during the 1.0% CDSC during Maximum
1.0%* first year, 1.0%** first the 1.0%**
decreasing to year, decreasing to first year,
0.00% after the first 0.00% decreasing to
year after the first year 0.00% after the
first year
* .75% for purchases between $100,000 and $250,000; .50% for purchases
between $250,000 and $500,000; .30% for purchases of $500,000 and greater.
** .75% for purchases between $100,000 and $250,000; .50% for purchases
between $250,000 and $500,000; .30% for purchases between $500,000 and
$1,000,000; 0% for purchases of $1,000,000 and greater.
For Global Convertible:
DUAL DISTRIBUTION SELECT PRICING
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- ----------------------------------------------------------------------------------
Maximum 4.0% CDSC during the Maximum 4.0% CDSC during the 1.0% CDSC during 5.25%**
4.0%* first 5.25%** first the
year, decreasing 1.0% year, decreasing 1.0% first year,
annually annually decreasing to
to 0.00% after the to 0.00% after the 0.00% after the
fourth year fourth year first year
* 4.0% for purchases less than $25,000; 3.75% for purchases between $25,000
and $50,000; 3.25% for purchases between $50,000 and $100,000; 2.5% for
purchases between $100,000 and $250,000; 1.5% for purchases between
$250,000 and $1,000,000; .50% for purchases of $1,000,000 and greater.
** 4.75% for purchases between $25,000 and $50,000; 4.0% for purchases between
$50,000 and $100,000; 3.0% for purchases between $100,000 and $250,000;
2.0% for purchases between $250,000 and $1,000,000; 0% for purchases of
$1,000,000 and greater.
A-12
DISTRIBUTION AND ACCOUNT MAINTENANCE FEES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
For Balanced Fund, Global Convertible and Growth Fund:
DUAL DISTRIBUTION SELECT PRICING
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- ----------------------------------------------------------------------------------------
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE
FEE FEE FEE FEE FEE FEE FEE FEE
- ----------------------------------------------------------------------------------------
None 0.75% 0.25% None 0.75% 0.25% 0.75% 0.25% None 0.25%
For all series of CA Trust, all series of Municipal Series Trust and World
Income:
DUAL DISTRIBUTION SELECT PRICING
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- ----------------------------------------------------------------------------------------
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE
FEE FEE FEE FEE FEE FEE FEE FEE
- ----------------------------------------------------------------------------------------
None 0.50% 0.25% None 0.50% 0.25% 0.55% 0.25% None 0.25%
For all series of Ltd Maturity Trust:
DUAL DISTRIBUTION SELECT PRICING
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
- ----------------------------------------------------------------------------------------
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE
FEE FEE FEE FEE FEE FEE FEE FEE
- ----------------------------------------------------------------------------------------
None 0.20% 0.15% None 0.20% 0.15% 0.20% 0.15% None 0.10%
A-13
CLASS B CONVERSION PERIODS
Balanced Fund 8 years
- --------------------------------------------------------
CA Trust 10 years
- --------------------------------------------------------
Global Convertible 8 years
- --------------------------------------------------------
Growth Fund 8 years
- --------------------------------------------------------
Ltd Maturity Trust 10 years
- --------------------------------------------------------
Municipal Series Trust 10 years
- --------------------------------------------------------
World Income 10 years
A-14
. INFORMATION PERTAINING TO THE FUNDS' INVESTMENT ADVISORY ARRANGEMENTS
---------------------------------------
INVESTMENT ADVISORY
AGREEMENT
-----------------------------------------------------------------------
MOST RECENT MOST RECENT
INVESTMENT DATE ANNUAL DIRECTOR SHAREHOLDER
FUND ADVISER EXECUTED FEE RATE APPROVAL APPROVAL
- --------------------------------------------------------------------------------------
Balanced Fund MLAM 3/20/87 0.65% 3/31/94 9/30/88
- --------------------------------------------------------------------------------------
FEE INFORMATION
---------------------------------------
INVESTMENT ADVISORY FEE ADVISORY FEE PAYABLE
PAID FOR FUND'S MOST BASED ON NET ASSETS REIMBURSEMENTS DURING
RECENT FISCAL YEAR AT RECORD DATE FISCAL YEAR
-----------------------------------------------------------------------
PURSUANT TO
FEE BASED ON AVERAGE FEE BASED ON NET FOR CALIFORNIA
AMOUNT NET ASSETS OF AMOUNT ASSETS OF ACCOUNTING EXPENSE
FUND ($) APPROX. ($) APPROX. SERVICES($) LIMITATIONS
- --------------------------------------------------------------------------------------
Balanced Fund 5,620,993 902,217,114 143,231 0
- --------------------------------------------------------------------------------------
CA Trust
- --------------------------------------------------------------------------------------
CA Muni Bond FAM 8/5/85 0.55% 12/15/93 9/30/88
- --------------------------------------------------------------------------------------
CA Ins Muni Bond FAM 12/18/92 0.55% 12/15/93 --
- --------------------------------------------------------------------------------------
Global Con-
vertible MLAM 1/18/88 0.65% 10/1/93 12/13/89
- --------------------------------------------------------------------------------------
Growth Fund MLAM 2/4/87 0.65% 10/1/93. 10/31/88
- --------------------------------------------------------------------------------------
CA Trust
- --------------------------------------------------------------------------------------
CA Muni Bond 4,391,540 812,674,334 81,306 0
- --------------------------------------------------------------------------------------
CA Ins Muni Bond 213,036 75,603,552 24,230 0
- --------------------------------------------------------------------------------------
Global Con-
vertible 139,948 21,589,532 49,224 0
- --------------------------------------------------------------------------------------
Growth Fund 6,922,555 1,049,650,500 77,561 0
- --------------------------------------------------------------------------------------
Ltd Maturity
Trust
- --------------------------------------------------------------------------------------
AZ Ltd Matu-
rity FAM 10/1/93 0.35% 10/1/93 --
- --------------------------------------------------------------------------------------
CA Ltd Maturity FAM 10/1/93 0.35% 10/1/93 --
- --------------------------------------------------------------------------------------
FL Ltd Matu-
rity FAM 10/1/93 0.35% 10/1/93 --
- --------------------------------------------------------------------------------------
MA Ltd Maturity FAM 10/1/93 0.35% 10/1/93 --
- --------------------------------------------------------------------------------------
MI Ltd Matu-
rity FAM 10/1/93 0.35% 10/1/93 --
- --------------------------------------------------------------------------------------
NJ Ltd Matu-
rity FAM 10/1/93 0.35% 10/1/93 --
- --------------------------------------------------------------------------------------
NY Ltd Maturity FAM 10/1/93 0.35% 10/1/93 --
- --------------------------------------------------------------------------------------
PA Ltd Matu-
rity FAM 10/1/93 0.35% 10/1/93 --
Ltd Maturity
Trust
- --------------------------------------------------------------------------------------
AZ Ltd Matu-
rity 3,679 5,726,154 5,701 0
- --------------------------------------------------------------------------------------
CA Ltd Maturity 8,704 13,547,381 6,491 0
- --------------------------------------------------------------------------------------
FL Ltd Matu-
rity 21,994 34,233,784 5,490 0
- --------------------------------------------------------------------------------------
MA Ltd Maturity 7,154 11,135,523 5,702 0
- --------------------------------------------------------------------------------------
MI Ltd Matu-
rity 3,202 4,983,575 6,232 0
- --------------------------------------------------------------------------------------
NJ Ltd Matu-
rity 6,477 10,081,015 4,379 0
- --------------------------------------------------------------------------------------
NY Ltd Maturity 7,684 11,960,486 6,526 0
- --------------------------------------------------------------------------------------
PA Ltd Matu-
rity 6,477 10,082,117 5,832 0
*For the six months ended January 31, 1994
A-15
-----------------------------------------
INVESTMENT ADVISORY
AGREEMENT
------------------------------------------------------------------------
MOST RECENT MOST RECENT
INVESTMENT DATE ANNUAL DIRECTOR SHAREHOLDER
FUND ADVISER EXECUTED FEE RATE APPROVAL APPROVAL
- --------------------------------------------------------------------------------------
FEE INFORMATION
-----------------------------------------
INVESTMENT ADVISORY FEE ADVISORY FEE PAYABLE
PAID FOR FUND'S MOST BASED ON NET ASSETS REIMBURSEMENTS DURING
RECENT FISCAL YEAR AT RECORD DATE FISCAL YEAR
------------------------------------------------------------------------
PURSUANT TO
BASED ON AVERAGE BASED ON NET FOR CALIFORNIA
FEE NET ASSETS OF FEE ASSETS OF ACCOUNTING EXPENSE
FUND AMOUNT($) APPROX. AMOUNT($) APPROX. SERVICES($) LIMITATIONS
- --------------------------------------------------------------------------------------
Municipal Series Trust
- --------------------------------------------------------------------------------------
AZ Muni Bond FAM 7/12/91 0.55% 12/15/93 --
- --------------------------------------------------------------------------------------
CO Muni Bond* FAM 8/16/93 0.55% 12/15/93 --
- --------------------------------------------------------------------------------------
CT Muni Bond+ FAM 3/31/94 0.55% 3/31/94 --
- --------------------------------------------------------------------------------------
FL Muni Bond FAM 4/26/91 0.55% 12/15/93 7/24/92
- --------------------------------------------------------------------------------------
MD Muni Bond* FAM 8/16/93 0.55% 12/15/93 --
- --------------------------------------------------------------------------------------
MA Muni Bond FAM 12/12/91 0.55% 12/15/93 --
- --------------------------------------------------------------------------------------
MI Muni Bond FAM 12/18/92 0.55% 12/15/93 --
- --------------------------------------------------------------------------------------
MN Muni
Bond FAM 12/12/91 0.55% 12/15/93 --
- --------------------------------------------------------------------------------------
NJ Muni Bond FAM 7/31/90 0.55% 12/15/93 11/1/91
- --------------------------------------------------------------------------------------
NM Muni Bond+ FAM 3/31/94 0.55% 3/31/94 --
- --------------------------------------------------------------------------------------
NY Muni Bond FAM 9/20/85 0.55% 12/15/93
- --------------------------------------------------------------------------------------
NC Muni Bond FAM 8/21/92 0.55% 12/15/93 9/30/88
- --------------------------------------------------------------------------------------
OH Muni Bond FAM 12/12/91 0.55% 12/15/93 --
- --------------------------------------------------------------------------------------
OR Muni Bond* FAM 6/18/93 0.55% 12/15/93 --
- --------------------------------------------------------------------------------------
PA Muni Bond FAM 7/31/90 0.55% 12/15/93 11/1/91
- --------------------------------------------------------------------------------------
TX Muni Bond FAM 6/14/91 0.55% 12/15/93 11/13/92
- --------------------------------------------------------------------------------------
World Income FAM 9/7/88 0.60% 12/15/93 12/13/91
Municipal Series Trust
- --------------------------------------------------------------------------------------
AZ Muni Bond 471,916 86,038,511 26,175 0
- --------------------------------------------------------------------------------------
CO Muni Bond* 14,499 14,361,468 5,638 0
- --------------------------------------------------------------------------------------
CT Muni Bond+ -- -- -- -- -- --
- --------------------------------------------------------------------------------------
FL Muni Bond 1,317,023 240,116,482 48,945 0
- --------------------------------------------------------------------------------------
MD Muni Bond* 15,637 10,923,493 8,528 0
- --------------------------------------------------------------------------------------
MA Muni Bond 330,194 60,200,285 48,195 0
- --------------------------------------------------------------------------------------
MI Muni Bond 127,701 45,809,330 16,916 0
- --------------------------------------------------------------------------------------
MN Muni
Bond 301,137 54,902,574 29,700 0
- --------------------------------------------------------------------------------------
NJ Muni Bond 1,015,508 185,145,083 38,618 0
- --------------------------------------------------------------------------------------
NM Muni Bond+ -- -- -- -- -- --
- --------------------------------------------------------------------------------------
NY Muni Bond 3,744,878 689,500,586 65,976 0
- --------------------------------------------------------------------------------------
NC Muni Bond 150,982 32,217,628 32,660 0
- --------------------------------------------------------------------------------------
OH Muni Bond 238,477 43,478,396 46,839 0
- --------------------------------------------------------------------------------------
OR Muni Bond* 57,376 24,099,244 17,240 0
- --------------------------------------------------------------------------------------
PA Muni Bond 591,807 107,896,850 48,205 0
- --------------------------------------------------------------------------------------
TX Muni Bond 401,457 73,192,727 51,189 0
- --------------------------------------------------------------------------------------
World Income 13,902,958 2,323,498,076 169,845 0
*For the six months ended January 31,1994
+CT Muni Bonds and NM Muni Bond Fund commenced oprrations on May 4, 1994 and
April 13, 1994, respectively.
A-16
Set forth in the table below is information regarding portfolio transactions
and brokerage commissions for each Fund's most recent fiscal year:
BROKERAGE COMMISSIONS
------------------------------------------------------------------
FUND DOLLAR AMOUNT DOLLAR AMOUNT PAID TO % PAID TO % OF AGGREGATE DOLLAR AMOUNT
MERRILL LYNCH MERRILL LYNCH OF TRANSACTIONS IN WHICH
BROKERAGE COMMISSIONS PAID
EFFECTED THROUGH MERRILL LYNCH
----------------------------------------------------------------------------------
Balanced Fund 1,375,992 80,436 5.85% 1.65%
----------------------------------------------------------------------------------
CA Trust
----------------------------------------------------------------------------------
CA Muni Bond 0 0 0 0
----------------------------------------------------------------------------------
CA Ins Muni Bond 0 0 0 0
----------------------------------------------------------------------------------
Global Convertible 32,896 0 0 0
----------------------------------------------------------------------------------
Growth Fund 1,399,875 27,990 2.00% 2.36
----------------------------------------------------------------------------------
Ltd Maturity Trust* -- -- -- --
*Portfolio transactions and brokerage commissions are reported on an annual
basis. Ltd Maturity Trust's most recent fiscal year is July 31, 1994, and
numbers are not available at this time.
A-17
BROKERAGE COMMISSIONS
-----------------------------------------------------------------------------
FUND DOLLAR AMOUNT DOLLAR AMOUNT PAID TO % PAID TO % OF AGGREGATE DOLLAR AMOUNT
MERRILL LYNCH MERRILL LYNCH OF TRANSACTIONS IN WHICH
BROKERAGE COMMISSIONS PAID
EFFECTED THROUGH MERRILL
LYNCH
- --------------------------------------------------------------------------------------------------------
Municipal Series Trust
- --------------------------------------------------------------------------------------------------------
AZ Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
CO Muni Bond -- -- -- --
- --------------------------------------------------------------------------------------------------------
CT Muni Bond -- -- -- --
- --------------------------------------------------------------------------------------------------------
FL Muni Bond 5,655 0 0 0
- --------------------------------------------------------------------------------------------------------
MD Muni Bond -- -- -- --
- --------------------------------------------------------------------------------------------------------
MA Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
MI Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
MN Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
NJ Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
NM Muni Bond -- -- -- --
- --------------------------------------------------------------------------------------------------------
NY Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
NC Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
OH Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
OR Muni Bond -- -- -- --
- --------------------------------------------------------------------------------------------------------
PA Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
TX Muni Bond 0 0 0 0
- --------------------------------------------------------------------------------------------------------
World Income 86,336 65,410 67.9% 67.1%
A-18
EXHIBIT B
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1993 AND INDEPENDENT AUDITORS' REPORT
B-1
INDEPENDENT AUDITORS' REPORT
Merrill Lynch Investment Management, Inc.:
We have audited the accompanying consolidated balance sheet of Merrill Lynch
Investment Management, Inc. and its subsidiaries (the "Company") as of December
31, 1993. This consolidated balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all
material respects, the financial position of the Company at December 31, 1993
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
February 28, 1994
B-2
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
1993
------------
ASSETS
Cash and cash equivalents......................................... $ 1,664,075
Receivable from affiliated companies:
Lease transactions.............................................. 708,616,571
Sale of leased investment....................................... 48,312,532
Investments in affiliated limited partnership..................... 62,218,528
Investments in leases:
Leveraged leases................................................ 57,431,668
Sales-type leases............................................... 3,362,521
Investments in affiliated investment companies--(market:
$26,066,372).................................................... 24,610,184
Fund management and administrative fees receivable................ 49,098,914
Fixed assets (net of $11,457,912 accumulated depreciation)........ 10,406,280
Prepaid expenses and other assets................................. 15,376,412
------------
TOTAL ASSETS...................................................... $981,097,685
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Payable to affiliates............................................. $759,321,639
Accrued liabilities and other payables............................ 8,432,888
Deferred income--unearned fees.................................... 7,007,406
Deferred income taxes:
Arising from leveraged leases................................... 52,938,886
Arising from sales-type leases.................................. 1,351,622
Other........................................................... 43,685,367
------------
Total liabilities................................................. 872,737,808
------------
Stockholder's Equity:
Common stock, par value $1.00 per share--authorized 25,000 shares;
outstanding 10,000 shares....................................... 10,000
Additional paid-in capital........................................ 23,266,792
Accumulated translation adjustment................................ 642,388
Retained earnings................................................. 84,440,697
------------
Total stockholder's equity........................................ 108,359,877
------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........................ $981,097,685
============
See notes to consolidated balance sheet.
B-3
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Merrill Lynch Investment Management, Inc. and its subsidiaries (the
"Company"), serve as investment adviser to certain registered investment
companies, and provide investment advisory services for individuals and
institutions. Merrill Lynch Investment Management, Inc., a wholly-owned
subsidiary of Merrill Lynch Group, Inc., is an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML&Co.").
The Company's consolidated balance sheet reflects its 100 percent ownership
of Merrill Lynch Funds Distributor, Inc., a distributor of shares of various
affiliated managed registered investment companies, Fund Asset Management,
Inc., an investment adviser to various registered investment companies and a
lessor participant in leveraged lease agreements, Merrill Lynch International
Asset Management, Ltd., a Channel Islands based investment adviser and
Princeton Administrators, Inc., an administrator to certain non-affiliated
investment companies, and its 60% ownership of Merrill Lynch International
Capital Management Co., a Japan based investment advisor.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated balance sheet, cash and cash equivalents
include marketable securities with initial maturity dates of less than three
months. The carrying amount approximates fair value because of the short
maturity of those instruments.
FIXED ASSETS
Fixed assets recorded at cost and consist principally of furniture and
equipment. Depreciation is calculated using the straight-line method over a
period ranging from 3 to 10 years.
DEFERRED INCOME--UNEARNED FEES
Investment advisory services are billed at the beginning of the period for
which services are to be rendered. The fee is deferred and credited to income
on a pro rata basis over the period of the contract, which normally does not
exceed one year.
B-4
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
INCOME TAXES
The results of operations of the Company are included in the consolidated
Federal and combined state and local income tax returns filed by ML&Co. It is
the policy of ML&Co. to allocate the tax associated with such operating results
to each respective subsidiary in a manner which approximates the separate
company method. In 1992, ML&Co. adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires an
asset and liability method in recording income taxes on all transactions that
have been recognized in the financial statements. SFAS 109 provides that
deferred taxes be adjusted to reflect tax rates at which future tax liabilities
or assets are expected to be settled or realized.
The Company serves as an independent adviser for certain investment
companies. In addition, the Company, through its 100% owned subsidiary,
Princeton Administrators, Inc., serves as an administrator for certain non-
affiliated investment companies. Management fees earned as adviser and
administrator are based on a percentage of the net assets of each investment
company. Such fees are recognized in the period earned.
The Company maintains investments in certain of these investment companies.
Such investments are carried at the lower of cost or market value. Market value
is determined based upon quoted market prices.
The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), an affiliate which provides that the Company, which
receives revenue as investment adviser to certain investment companies (the
"Funds"), reimburse MLPF&S for certain costs incurred in processing
transactions involving shares of the Funds.
In connection with the formation of certain affiliated investment companies
(the "Investment Companies"), the Company has reimbursed MLPF&S for
subscription expenses incurred in offering the Investment Companies' shares for
sale. The unamortized balance included in prepaid expenses and other assets
totalled $5,276,842 as of December 31, 1993.
The Company has unsecured note agreements with ML&Co. for $700,000,000. These
amounts bear interest at a floating rate approximating ML&Co's. average
borrowing rate, of which $650,000,000 is payable on demand and $50,000,000 is
due August 26, 1994. In addition, the Company has certain other amounts payable
to affiliates.
B-5
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
During 1992, the Company's investments in Merrill Lynch Interfunding, Inc.
and Merlease Leasing Corp. were sold to an affiliate at book value. Receivable
from affiliated companies-lease transactions represents the proceeds from this
transaction.
The Company has a 98 percent limited partnership interest in ML Plainsboro
Limited Partnership ("MLP"), whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.
The "Receivable from affiliated companies" arising from lease transactions is
summarized as follows:
Monies advanced to fund lease transactions................... $(103,476,954)
Tax benefits allocated to the Company by ML&Co............... 88,699,254
Proceeds from sale of subsidiaries........................... 684,115,048
Other........................................................ 39,279,223
-------------
Total...................................................... $ 708,616,571
=============
ML&Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML&Co. credits the Company for interest at
a floating rate approximating ML&Co.'s average borrowing rate based on the
Company's average daily balance due to/from ML&Co.
INVESTMENTS IN LEASES
The Company is a lessor participant in leveraged lease agreements. Pertinent
information relating to the Company's investments in leveraged leases is
summarized as follows:
ESTIMATED
LENGTH OF RESIDUAL VALUE
LEASE EQUITY OF LEASED
TYPE OF PROPERTY (YEARS) INVESTMENT PROPERTY
---------------- --------- ---------- --------------
Generating plant......................... 24-25 34.06% 15.0%
Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is
B-6
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
collateralized by a first lien on the properties and related rentals. At the
end of the respective lease terms, ownership of the properties remains with the
Company.
The Company's net investment in leveraged leases is summarized as follows:
Rentals receivable (net of principal and interest on nonre-
course debt)............................................... $ 66,075,030
Estimated residual values of leased assets................... 18,964,143
Less:
Unearned and deferred income............................... (26,617,505)
Allowance for uncollectibles............................... (990,000)
------------
Investment in leveraged leases............................... 57,431,668
Less deferred taxes arising from leveraged leases............ (52,938,886)
------------
Net investment in leveraged leases........................... $ 4,492,782
============
In 1993, one of the Company's subsidiaries sold its equity interest in a
chemical tanker previously accounted for as a leverage lease. The sale resulted
in an after-tax gain of $112,000.
The Company's investment in the sales-type lease consisted of the following
elements at December 31, 1993:
Minimum lease payments receivable................................ $3,672,000
Less:
Unearned income................................................ (59,479)
Allowance for uncollectibles................................... (250,000)
----------
Investment in sales-type financing leases........................ $3,362,521
==========
At December 31, 1993, minimum lease payments receivable are $3,672,000 for
1994.
For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding long-term debt.
For state and local tax purposes, the Company also receives the benefits of tax
deductions from (i) and (ii) above. Since, during the early years of the
leases, those deductions exceed the Company's
B-7
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
lease rental income, substantial excess deductions are available to be applied
against the Company's other income and the consolidated income of ML&Co. In the
later years of these leases, rental income will exceed the related deductions
and taxes will be payable (to the extent that net deductions arising from
additional leveraged lease transactions do not offset such lease income).
Deferred taxes have been provided to reflect these temporary differences.
INCOME TAXES
As part of the consolidated group, the Company transfers its current Federal
and state tax liabilities to the Parent. At December 31, 1993, the Company had
a current Federal tax receivable of $1,015,000 and current state tax payable of
$2,900,000 to the Parent.
PENSION PLAN
The Company participates in the ML&Co. Comprehensive Retirement Program (the
"Program"), consisting of the Retirement Accumulation Plan ("RAP") and the
Employee Stock Ownership Plan (the "ESOP"). Both plans become effective January
1, 1989. Under the Program, cash contributions made by the Company and the
ML&Co. stock held by the ESOP are allocated quarterly to participant's
accounts. Allocations are based on years of service, age and eligible
compensation. Actuarial data regarding the Company's Plan participants is not
separately available.
NAME CHANGE
Effective December 28, 1991, the Company, through an amendment of its
certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc., ("MLIM"). MLIM does business under the name "Merrill Lynch
Asset Management".
LITIGATION
The Company is a party to certain lawsuits arising from the normal conduct of
its business. While the ultimate result of the lawsuits against the Company
cannot be predicted with certainty, management does not expect that these
matters will have a material adverse effect on the Company's financial position
or the results of its operations.
B-8
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONCLUDED)
SUBSEQUENT EVENT
Effective January 1, 1994, the Company contributed certain net investment
advisory assets to Merrill Lynch Asset Management, L.P., a newly formed
Delaware limited partnership, in exchange for a 99% limited partnership
interest. The general partner, Princeton Services, Inc. (a wholly-owned
subsidiary of Merrill Lynch & Co., Inc.) contributed 1% of the value of the net
investment advisory assets in exchange for its 1% general partnership interest.
The partnership's profits and losses are to be allocated in proportion to the
capital contributions of the partners.
B-9
EXHIBIT A
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1993 AND INDEPENDENT AUDITORS' REPORT
B-10
INDEPENDENT AUDITORS' REPORT
Fund Asset Management, Inc.:
We have audited the accompanying consolidated balance sheet of Fund Asset
Management, Inc. and subsidiary (the "Company") as of December 31, 1993. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on the balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all
material respects, the financial position of the Company at December 31, 1993
in conformity with generally accepted accounting principles.
Deloitte & Touche
Parsippany, New Jersey
February 28, 1994
B-11
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
1993
-------------
ASSETS
Cash............................................................. $ 996,680
Receivable from affiliated companies:
Lease transactions............................................. 24,501,523
Sale of leased investment...................................... 48,312,532
Fund management fees receivable.................................. 28,927,938
Investments in leases:
Leveraged leases............................................... 57,431,668
Sales-type lease............................................... 3,362,521
Investments in affiliated investment companies--(market:
$19,731,088)................................................... 18,181,262
Investment in affiliated limited partnership..................... 31,109,264
-------------
TOTAL ASSETS..................................................... $212,823,388
=============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Payable to Merrill Lynch & Co., Inc. and affiliates.............. $ 21,554,955
Deferred income taxes:
Arising from leveraged leases.................................. 52,938,886
Arising from sales-type lease.................................. 1,351,622
Other.......................................................... 15,838,124
Other............................................................ 8,501
-------------
Total liabilities................................................ 91,692,088
-------------
STOCKHOLDERS EQUITY:
Common stock, par value $1.00 per share--authorized 25,000
shares; outstanding 1,000 shares............................... 1,000
Additional paid-in capital....................................... 686,215,876
Retained earnings................................................ 119,029,472
Proceeds receivable from Merrill Lynch & Co., Inc. from sale of
subsidiary..................................................... (684,115,048)
-------------
Total stockholder's equity....................................... 121,131,300
-------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY....................... $212,823,388
=============
See notes to consolidated balance sheet.
B-12
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
ORGANIZATION
Fund Asset Management, Inc. and subsidiary (the "Company"), a wholly-owned
subsidiary of Merrill Lynch Investment Management, Inc. (the "Parent"), or
"MLIM" which is an indirect wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. ("ML&Co."), serves as an investment adviser to various registered open-end
investment companies. The Company is also a lessor participant in certain
leveraged and sales-type lease agreements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes--The results of the operations of the Company are included in
the consolidated Federal and combined state and local income tax returns filed
by ML&Co. It is the policy of ML&Co. to allocate the tax associated with such
operating results to each respective subsidiary in a manner which approximates
the separate company method. In 1992, ML&Co. adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which
requires an asset and liability method in recording income taxes on all
transactions that have been recognized in the financial statements. SFAS 109
provides that deferred taxes be adjusted to reflect tax rates at which future
tax liabilities or assets are expected to be settled or realized.
TRANSACTIONS WITH AFFILIATES
The Company serves as an investment adviser for certain affiliated investment
companies. The Company maintains investments in certain of these investment
companies. Such investments are carried at the lower of cost or market value.
Market value is determined based upon quoted market prices.
The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") an affiliate which provides that the Company, which
receives revenue as investment adviser to certain investment companies (the
"Funds"), reimburse MLPF&S for certain costs incurred in processing
transactions involving shares of the Funds.
ML&Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML&Co. credits the Company for interest, at
a floating rate approximating ML&Co.'s average borrowing rate, based on the
Company's average daily balances due to/from ML&Co.
B-13
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
The "Receivable from affiliated companies" arising from lease transactions is
summarized as follows:
Monies advanced to fund lease transactions................... $(103,476,954)
Tax benefits allocated to the Company by ML&Co............... 88,699,254
Other........................................................ 39,279,223
-------------
Total...................................................... $ 24,501,523
=============
The Company has a 49 percent limited partnership interest in ML Plainsboro
Limited Partnership ("MLP") whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.
During 1992, the Company sold its investment in Merrill Lynch Interfunding,
Inc. and Merlease Leasing Corp. to an affiliate at book value, resulting in a
receivable from ML&Co. This receivable is reflected as a reduction to
stockholder's equity.
INVESTMENTS IN LEASES
The Company is a lessor participant in leveraged leases.
Pertinent information relating to the Company's investments in leveraged
leases is summarized as follows:
ESTIMATED
LENGTH OF RESIDUAL VALUE
LEASE EQUITY OF LEASED
TYPE OF PROPERTY (YEARS) INVESTMENT PROPERTY
---------------- --------- ---------- --------------
Generating plant......................... 24-25 34.06% 15.0%
Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is secured by a first lien on
the properties and related rentals. At the end of the respective lease terms,
ownership of the properties remains with the Company.
B-14
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
The Company's net investment in leveraged leases is summarized as follows:
Rentals receivable (net of principal and interest on nonre-
course debt)................................................ $66,075,030
Estimated residual values of leased assets.................... 18,964,143
Less:
Unearned and deferred income................................ (26,617,505)
Allowance for uncollectibles................................ (990,000)
-----------
Investment in leveraged leases................................ 57,431,668
Less deferred taxes arising from leveraged leases............. (52,938,886)
-----------
Net investment in leveraged leases............................ $ 4,492,782
===========
During 1993, the Company sold its equity interest in the chemical tanker
previously accounted for as a leveraged lease. The sale resulted in an after-
tax gain of $112,000.
The Company's investment in the sales-type leases consisted of the following
elements at December 31, 1993:
Minimum lease payments receivable................................ $3,672,000
Less:
Unearned income................................................ (59,479)
Allowance for uncollectibles................................... (250,000)
----------
Investment in sales type financing leases........................ $3,362,521
==========
At December 31, 1993 minimum lease payments receivable are $3,672,000 for
1994.
For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding long-term debt.
For state and local tax purposes, the Company also receives the benefits of tax
deductions from (i) and (ii) above. Since, during the early years of the
leases, those deductions exceed the Company's lease rental income, substantial
excess deductions are available to be applied against the Company's other
income and the consolidated income of ML&Co. In the later years of these
leases, rental income will exceed the related deductions and taxes will be
payable (to the extent that net
B-15
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET--(CONCLUDED)
deductions arising from additional leveraged lease transactions do not offset
such net lease income). Deferred taxes have been provided to reflect these
temporary differences.
INCOME TAXES
As part of the consolidated group, the Company transfers its current Federal
and state tax liabilities to MLIM. No such amounts were due to MLIM at December
31, 1993.
PENSION PLAN
The Company participates in the ML&Co. Comprehensive Retirement Program (the
"Program") consisting of the Retirement Accumulation Plan ("RAP") and the
Employee Stock Ownership Plan (the "ESOP"). Under the Program, cash
contributions made by the Company and the ML&Co. stock held by the ESOP will be
allocated quarterly to participants' accounts. Allocations will be based on
years of service, age and eligible compensation. Actuarial data regarding the
Company's Plan participants is not separately available.
NAME CHANGE
Effective December 28, 1991, the Company's Parent, through an amendment of
its certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc. ("MLIM"). MLIM does business under the name "Merrill Lynch
Asset Management".
SUBSEQUENT EVENT
Effective January 1, 1994, Fund Asset Management, Inc. contributed certain
net investment advisory assets to Fund Asset Management, L.P., a newly formed
Delaware limited partnership, in exchange for a 99% limited partnership
interest. The general partner, Princeton Services, Inc. (a wholly-owned
subsidiary of Merrill Lynch & Co., Inc.) contributed 1% of the value of the net
investment advisory assets in exchange for its 1% general partnership interest.
The partnership's profits and losses are to be allocated in proportion to the
capital contributions of the partners.
B-16
EXHIBIT C
INVESTMENT RESTRICTIONS RELATING TO EACH FUND
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT
("BALANCED FUND")
Fundamental Investment Restrictions
The Balanced Fund may not:
1. Invest more than 5% of the total assets of any portfolio in the securities
of any one issuer (except for government securities); or purchase more than 10%
of the outstanding voting securities of any one company.
2. Pledge any of its assets, except that each portfolio may pledge securities
having a market value of not more than 10% of its total assets in order to
secure permitted borrowings from banks. Such borrowings may not exceed 10% of
any such portfolio's assets. No such portfolio may make additional investments
while outstanding borrowings are in excess of 5% of its assets.
3. Purchase a restricted security or a security for which there is no readily
available market if as a result of such purchase more than 5% of the total
assets of the portfolio making the purchase would be invested in such
securities.
4. Invest more than 25% of the value of the total assets of any portfolio in
the securities of issuers in any single industry.
5. Invest in companies for the purpose of exercising control of management.
6. Purchase or sell real estate.
7. Purchase or sell commodities or commodity contracts.
8. Purchase any securities on margin, except that any portfolio may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
9. Make short sales of securities or maintain a short position in any
security.
C-1
10. Lend money to other persons, except through the purchase of debt
obligations and repurchase agreements consistent with the investment policies
of the portfolio taking such action.
11. Lend securities of any portfolio in an amount exceeding 33 1/3% of the
value of total assets of such portfolio, both taken at market value at the time
any such loan is made.
12. Enter into a repurchase agreement maturing in more than seven days if, as
a result, such repurchase agreement, together with restricted securities and
securities for which there are no readily available markets, would constitute
more than 10% of the value of the total assets of the portfolio entering into
such agreement.
13. Underwrite securities of other issuers except insofar as the Balanced
Fund or any portfolio thereof may technically be deemed an underwriter under
the Securities Act of 1933, as amended, in selling portfolio securities.
14. Purchase securities of other open-end investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
15. Issue senior securities as defined in the Act, except that this
restriction shall not be deemed to prohibit any portfolio from making permitted
borrowings, lending its portfolio securities or entering into repurchase
agreements.
Non-Fundamental Investment Restrictions
The Balanced Fund may not:
a. Invest more than 5% of the assets of any portfolio, taken at market value
at the time of the investment, in companies having a record, together with
predecessors, of less than three years of continuous operation.
b. Purchase or sell interests in oil, gas or other mineral exploration or
development programs, except that any portfolio may invest in the securities of
companies which invest in such interests or sponsor such programs.
c. Invest in warrants if at the time of acquisition more than 2% of the value
of the total assets of the portfolio making such acquisition, taken at market
value, would be invested in warrants. (For purposes of this restriction,
warrants acquired by a portfolio in units or attached to securities are deemed
to have no value.)
C-2
d. Invest in the securities of any issuer if, to the knowledge of the
Balanced Fund, any officer or director of the Fund or its investment adviser
owns more than 1/2 of 1% of the outstanding securities of such issuer and such
officers and directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
e. Borrow money, except for temporary or emergency purposes, and in any case
the Balanced Fund may not make borrowings in an aggregate amount in excess of
33 1/3% of its net assets.
MERRILL LYNCH CALIFORNIA MUNICIPAL
SERIES TRUST
("CALIFORNIA TRUST")
Fundamental Investment Restrictions
The following fundamental restrictions (the "California Trust Investment
Restrictions") apply to the both series funds (each, the "Fund") of the Merrill
Lynch California Trust, except as indicated below. Each Fund may not:
1. Purchase any securities other than securities referred to under
"Investment Objective and Policies" in the Prospectus and the Statement of
Additional Information and under "Description of Municipal Bonds and Temporary
Investments" therein.
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in securities of issuers in any single industry
provided that, for purposes of this restriction, the U.S. Government, U.S.
Government Agencies, states, municipalities and their political subdivisions
are not considered to be part of any industry.
3. Invest more than 10% of its total assets (taken at market value at the
time of each investment) in industrial revenue bonds where the entity supplying
the revenues from which the issue is to be paid, and the guarantor of the
obligation, including predecessors, each have a record of less than three years
of continuous business operation.
4. Make investments for the purpose of exercising control or management.
5. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization and provided
further that the Fund may purchase securities of closed-end investment
companies if immediately thereafter not more than (i) 3% of the total
outstanding voting stock of such company is owned by the Fund, (ii) 5% of the
Fund's total assets, taken at market value, would be invested in any one such
company, or (iii) 10% of the Fund's total assets, taken at market value, would
be invested in such securities.
C-3
6. Purchase or sell real estate or real estate limited partnership interests
(provided that such restriction shall not apply to securities secured by real
estate or interests therein or issued by companies, other than such
partnerships, which invest in real estate or interests therein), commodities or
commodity contracts (except that the Fund may purchase and sell financial
futures contracts), interests in oil, gas or other mineral leases or
exploration or development programs.
7. Purchase any securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities (the
deposit or payment by the Fund of initial or variation margin in connection
with financial futures contracts is not considered the purchase of a security
on margin).
8. Make short sales of securities or maintain a short position or invest in
put, call, straddle or spread options (this restriction does not apply to
options on financial futures contracts).
9. Make loans to other persons, provided that the Fund may purchase a portion
of an issue of tax-exempt securities (the acquisition of a portion of any issue
of tax-exempt securities or bonds, debentures or other debt securities which
are not publicly distributed is considered to be the making of a loan under the
Investment Company Act of 1940, as amended) and provided further that
investments in repurchase agreements and purchase and sale contracts shall not
be deemed to be the making of a loan.
10. Borrow amounts in excess of 20% of its total assets, taken at market
value (including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes. [Usually only "leveraged"
investment companies may borrow in excess of 5% of their assets; however, the
Fund will not borrow to increase income but only to meet redemption requests
which might otherwise require untimely disposition of portfolio securities. The
Fund will not purchase securities while borrowings are outstanding. Interest
paid on such borrowings will reduce net income.]
11. Mortgage, pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by the Fund except as may be
necessary in connection with borrowings mentioned in (10) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of its total assets,
taken at market value, or except as may be necessary in connection with
transactions in financial futures contracts.
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not readily marketable, or in
individually negotiated loans that constitute illiquid investments and
C-4
illiquid lease obligations, or in repurchase agreements or purchase and sale
contracts maturing in more than seven days, if, regarding all such securities,
more than 15% of its net assets (taken at market value), would be invested in
such securities.
13. Act as an underwriter of securities, except to the extent that the Fund
may technically be deemed an underwriter when engaged in the activities
described in (12) above or insofar as the Fund may be deemed an underwriter
under the Securities Act of 1933, as amended, in selling portfolio securities.
MERRILL LYNCH CALIFORNIA MUNICIPAL BOND FUND ("CALIFORNIA FUND")
The above California Trust Investment Restrictions apply to the California
Fund except for restrictions (2), (3) and (5). For the California Fund,
investment restrictions (2), (3) and (5) are as follows:
2. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in the securities of any one issuer, except that such
restriction shall not apply to securities backed by the United States
Government or its agencies or instrumentalities. [For purposes of this
restriction, the California Trust 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.]
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, and the guarantor of the
obligation, including predecessors, each have a record of less than three years
of continuous business operation.
5. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
("GLOBAL CONVERTIBLE FUND")
Fundamental Investment Restrictions
The Global Convertible Fund may not:
1. (a) Invest in the securities of any one issuer if, immediately after and
as a result of such investment, the value of the holdings of the Global
C-5
Convertible Fund in the securities of such issuer exceeds 5% of the Global
Convertible Fund's total assets, taken at market value, except that such
restriction shall not apply to securities issued or guaranteed by the
Government of the United States or any of its agencies or instrumentalities or,
with respect to 25% of the Global Convertible Fund's total assets, to
securities issued or guaranteed by the government of any country which is a
member of the Organization for Economic Cooperation and Development or any such
countries' agencies or instrumentalities or supranational institutions or
organizations.
(b) Invest in the securities of any single issuer if, immediately after and
as a result of such investment, the Global Convertible Fund owns more than 10%
of the outstanding voting securities of such issuer.
Nothing in the foregoing investment restrictions shall be deemed to prohibit
the Global Convertible Fund from purchasing the securities of any issuer
pursuant to the exercise of subscription rights distributed to the Global
Convertible Fund by the issuer, except that no such purchase may be made if as
a result the Fund will no longer be a diversified investment company as defined
in the Investment Company Act of 1940, as amended, or fail to meet the
diversification requirements of the Internal Revenue Code of 1986, as amended.
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry.
3. Make investments for the purpose of exercising control or management.
4. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Global
Convertible Fund, (ii) 5% of the Global Convertible Fund's total assets, taken
at market value, would be invested in any one such company, or (iii) 10% of the
Global Convertible Fund's total assets, taken at market value, would be
invested in such securities.
5. Purchase or sell real estate; provided that the Global Convertible Fund
may invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein.
C-6
6. Purchase any securities on margin, except that the Global Convertible Fund
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities. (The deposit or payment by the
Global Convertible Fund of initial or variation margin in connection with
futures or related options transactions is not considered the purchase of a
security on margin.)
7. Make short sales of securities or maintain a short position.
8. Make loans to other persons (except as provided in (9) below); provided,
that for purposes of this restriction an investment in repurchase agreements
and purchase and sale contracts shall not be deemed to be the making of a loan.
9. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loan shall be made in accordance with
the guidelines set forth in the Prospectus and the Statement of Additional
Information.
10. Issue senior securities, borrow money or pledge its assets in excess of
20% of its total assets taken at market value (including the amount borrowed)
and then only from a bank as a temporary measure for extraordinary or emergency
purposes including to meet redemptions or to settle securities transactions.
Usually only "leveraged" investment companies may borrow in excess of 5% of
their assets; however, the Global Convertible Fund will not borrow to increase
income but only to meet redemption requests or to settle securities
transactions which may otherwise require untimely dispositions of Fund
securities. The Global Convertible Fund will not purchase securities while
borrowings are outstanding except (a) to honor prior commitments or (b) to
exercise subscription rights where outstanding borrowings have been obtained
exclusively for settlements of other securities transactions. The purchase of
securities while borrowings are outstanding will have the effect of leveraging
the Global Convertible Fund. Such leveraging increases the Global Convertible
Fund's exposure to capital risk and borrowed funds are subject to interest
costs which will reduce net income. (See restriction (11) below regarding the
exclusion from this restriction of arrangements with respect to options,
futures contracts and options on futures contracts).
11. Mortgage, pledge, hypothecate or in any manner transfer for indebtedness
any securities owned by or held by the Global Convertible Fund except as may be
necessary in connection with borrowings mentioned in (10) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of its total assets,
taken at market value. (For the purpose of this restriction and restriction
(10) above, collateral arrangements with
C-7
respect to the writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial and variation
margin are not deemed to be a pledge of assets, and neither such arrangements
nor the purchase and sale of options, futures or related options are deemed to
be the issuance of a senior security).
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable,
including repurchase agreements and purchase and sale contracts maturing in
more than seven days, if, regarding all such securities, more than 10% of its
net assets, taken at market value, would be invested in such securities.
13. Act as an underwriter of securities, except to the extent that the Global
Convertible Fund may technically be deemed an underwriter when investing in
repurchase agreements and purchase and sale contracts or insofar as the Global
Convertible Fund may be deemed an underwriter under the Securities Act of 1933,
as amended, in selling portfolio securities.
14. Purchase or sell interests in oil, gas or other mineral exploration or
development programs except that the Global Convertible Fund may invest in
securities issued by companies that engage in oil, gas or other mineral
exploration or development activities.
Non-Fundamental Investment Restrictions
The Global Convertible Fund may not:
a. Invest in warrants except for the purpose of creating a synthetic
convertible security if at the time of acquisition its investments in warrants,
excluding those purchased for the purpose of creating a synthetic convertible
security, valued at the lower of cost or market value, would exceed 5% of the
Global Convertible Fund's net assets; included within such limitation, but not
to exceed 2% of the Global Convertible Fund's net assets, are warrants which
are not listed on the New York or American Stock Exchange. For purposes of this
restriction, warrants acquired by the Global Convertible Fund in units or
attached to securities may be deemed to be without value.
b. Purchase or sell commodities or commodity contracts, except that the
Global Convertible Fund may deal in forward foreign exchange between currencies
of the different countries in which it may invest and purchase and sell
currency options, stock index futures, financial futures and currency futures
contracts and related options on such futures.
c. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operations, if more than
5% of its total assets would be invested in such securities.
C-8
d. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except to the extent described in the Global Convertible Fund's
Prospectus and in the Statement of Additional Information, as amended from time
to time.
e. Purchase or retain the securities of any issuer, if those individual
Directors, officers and directors of the Global Convertible Fund, the Manager
or any subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer owns in the aggregate more than 5% of the securities
of such issuer.
f. Purchase or sell OTC options and the securities underlying such options
if, as a result of such transactions, such options, together with all other
illiquid securities or securities which are not readily marketable, exceed 10%
of the net assets of the Global Convertible Fund, taken at market value, except
that with respect to OTC options sold by the Global Convertible Fund to primary
U.S. Government securities dealers who agree that the Global Convertible Fund
may repurchase such options at a predetermined price (which may be based upon a
formula), the Global Convertible Fund will treat as illiquid an amount equal to
the repurchase price less the amount by which the option is in-the-money.
The Global Convertible Fund will not change or modify the policy described in
clause (f) above prior to the change or modification by the Commission staff of
its position regarding OTC options.
In addition, the Global Convertible Fund has undertaken with a State
Securities Commission that it will not invest in real estate limited
partnerships or in oil, gas or other mineral leases.
Portfolio securities of the Global Convertible Fund generally may not be
purchased from, sold or loaned to the Manager or its affiliates or any of their
directors, officers or employees, acting as principal.
With respect to investment restriction (12) above, while the Global
Convertible Fund will not purchase illiquid securities in an amount exceeding
10% of its net assets, the Global Convertible Fund may purchase, without regard
to that limitation, securities that are not registered under the Securities Act
of 1933, as amended, but that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the Securities Act of 1933, as
amended, provided that the Global Convertible Fund's Board of Directors
continuously determines, based on the trading markets for the specific Rule
144A security, that it is liquid. The Board of Directors may adopt guidelines
regarding such securities which may be held by the Global Convertible Fund and
delegate to the Manager the daily function of determining and monitoring
liquidity of such securities. The Board of Directors, however, will retain
oversight and is ultimately responsible for the determinations.
C-9
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT
("GROWTH FUND")
Fundamental Investment Restrictions
The Growth Fund may not:
1. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in the securities of any one issuer, except that such
restriction shall not apply to securities backed by the United States
Government or its agencies or instrumentalities.
2. Invest in the securities of any single issuer if, immediately after and as
a result of such investment, the Growth Fund owns more than 10% of the
outstanding voting securities of such issuer.
3. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry.
4. Make investments for the purpose of exercising control or management.
5. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than 10% of
the Growth Fund's total assets, taken at market value, would be invested in
such securities.
6. Purchase or sell real estate (including real estate limited partnerships);
provided that the Growth Fund may invest in securities secured by real estate
or interests therein or issued by companies which invest in real estate or
interests therein.
7. Purchase any securities on margin, except that the Growth Fund may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities. (The deposit or payment by the Growth Fund of
initial or variation margin in connection with futures or related options
transactions, if applicable, is not considered the purchase of a security on
margin.)
8. Make short sales of securities or maintain a short position.
9. Make loans to other persons (except as provided in (10) below); provided
that for purposes of this restriction an investment in repurchase agreements
shall not be deemed to be the making of a loan.
C-10
10. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans shall be made in accordance
with the guidelines set forth in the Prospectus.
11. Issue senior securities, borrow money or pledge its assets in excess of
20% of its total assets taken at value (including the amount borrowed) and then
only from a bank as a temporary measure for extraordinary or emergency
purposes. Usually only "leveraged" investment companies may borrow in excess of
5% of their assets; however, the Growth Fund will not borrow to increase income
but only to meet redemption requests which may otherwise require untimely
dispositions of fund securities. The Growth Fund will not purchase securities
while borrowings are outstanding except to honor prior commitments and to
exercise subscription rights. Interest paid on such borrowings will reduce net
income. (See restriction (12) below regarding the exclusion from this
restriction of arrangements with respect to options, futures contracts and
options on futures contracts.)
12. Mortgage, pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by the Growth Fund except as may be
necessary in connection with borrowings mentioned in (11) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of its total assets,
taken at market value. (For the purpose of this restriction and restriction
(11) above, collateral arrangements with respect to the writing of options,
futures contracts, options on futures contracts, and collateral arrangements
with respect to initial and variation margin are not deemed to be a pledge of
assets, and neither such arrangements nor the purchase and sale of options,
futures or related options are deemed to be the issuance of a senior security.)
13. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable,
including repurchase agreements maturing in more than seven days, if, regarding
all such securities, more than 10% of its total assets, taken at market value,
would be invested in such securities.
14. Act as an underwriter of securities, except to the extent that the Growth
Fund may technically be deemed an underwriter when investing in repurchase
agreements or insofar as the Growth Fund may be deemed an underwriter under the
Securities Act of 1933, as amended, in selling portfolio securities.
15. Purchase or sell interests in oil, gas or other mineral exploration or
development programs except that the Growth Fund may invest in securities
issued by companies that engage in oil, gas or other mineral exploration
development activities.
C-11
With respect to investment restriction (f) above, while the Growth Fund will
not purchase illiquid securities in an amount exceeding 10% of its net assets,
the Growth Fund may purchase, without regard to that limitation, and to the
extent permitted by applicable state law, securities that are not registered
under the Securities Act of 1933, as amended, but that can be offered and sold
to "qualified institutional buyers" under Rule 144A under the Securities Act of
1933, as amended, provided that the Growth Fund's Board of Trustees
continuously determines, based on the trading markets for the specific Rule
144A security, that it is liquid. The Board of Trustees may adopt guidelines
regarding such securities which may be held by the Growth Fund and delegate to
the Manager the daily function of determining and monitoring liquidity of such
securities. The Board of Trustees, however, will retain oversight and is
ultimately responsible for the determinations.
Non-Fundamental Investment Restrictions
The Growth Fund may not:
a. Invest in warrants if at the time of acquisition more than 2% of its total
assets, taken at market value, would be invested in warrants. For purposes of
this restriction, warrants acquired by the Growth Fund in units or attached to
securities may be deemed to be without value.
b. Purchase or sell commodities or commodity contracts, except that the
Growth Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and purchase and sell stock index
and currency options, stock index futures, financial futures and currency
futures contracts and related options on such futures.
c. Invest in securities or companies having a record, together with
predecessors, of less than three years of continuous operation, if more than 5%
of its total assets would be invested in such securities.
d. Write, purchase, or sell puts, calls, straddles, spreads or combinations
thereof, to the extent described in the Growth Fund's Prospectus and Statement
of Additional Information, as amended from time to time.
e. Purchase or retain the securities of any issuer, if those individual
Trustees, officers and directors of the Growth Fund, the Manager or any
subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the securities
of such issuer.
f. Purchase or sell OTC options and securities underlying such options if, as
a result of such a transaction, such options, together with all other illiquid
securities or securities which are not readily marketable, exceed 10% of the
net assets of the Growth Fund, taken at market value.
C-12
The Growth Fund will not change or modify the policy described in clause (f)
above prior to the change or modification by the Securities and Exchange
Commission staff of its position regarding OTC options.
MERRILL LYNCH MULTI-STATE
LIMITED MATURITY
MUNICIPAL SERIES TRUST
("LIMITED MATURITY TRUST")
Fundamental Investment Restrictions
The following fundamental restrictions apply to each series fund (each, the
"Fund") of the Limited Maturity Trust. Each Fund may not:
1. Purchase any securities other than securities referred to under
"Investment Objective and Policies" in the Prospectus and the Statement of
Additional Information.
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry (other than U.S. Government securities or Government agency
securities, Municipal Bonds and Non-Municipal Tax-exempt Securities).
3. Invest more than 10% of its total assets (taken at market value at the
time of each investment) in revenue bonds where the entity supplying the
revenues from which the issue is to be paid, and the guarantor of the
obligation, including predecessors, each have a record of less than three years
of continuous business operation.
4. Make investments for the purpose of exercising control or management.
5. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization.
6. Purchase or sell real estate (including limited partnership interests, but
provided that such restriction shall not apply to readily marketable securities
secured by real estate or interests therein or issued by companies which invest
in real estate or interest therein), commodities or commodity contracts (except
that each Fund may purchase and sell financial futures contracts), interests in
oil, gas or other mineral exploration or development programs or leases.
7. Purchase any securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities (the
deposit or payment by the Fund of initial or variation margin in connection
with financial futures contracts is not considered the purchase of a security
on margin).
C-13
8. Make short sales of securities or maintain a short position or invest in
put, call, straddle or spread options (this restriction does not apply to
options on financial futures contracts).
9. Make loans to other persons, provided that each Fund may purchase a
portion of an issue of tax-exempt securities (the acquisition of a portion of
an issue of tax-exempt securities or bonds, debentures or other debt securities
which are not publicly distributed is considered to be the making of a loan
under the Investment Company Act of 1940, as amended), and provided further
that investments in repurchase agreements and purchase and sale contracts shall
not be deemed to be the making of a loan.
10. Borrow amounts in excess of 20% of its total assets, taken at market
value (including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes. [Usually only "leveraged"
investment companies may borrow in excess of 5% of their assets; however, each
Fund will not borrow to increase income but only to meet redemption requests
which might otherwise require untimely disposition of portfolio securities.
Each Fund will not purchase securities while borrowings are outstanding.
Interest paid on such borrowings will reduce net income].
11. Mortgage, pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by the Fund except as may be
necessary in connection with borrowings mentioned in (10) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of its total assets,
taken at market value, or except as may be necessary in connection with
transactions in financial futures contracts.
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not readily marketable, including
individually negotiated loans that constitute illiquid investments and illiquid
lease obligations, or in repurchase agreements or purchase and sale contracts
maturing in more than seven days, if regarding all such securities, more than
15% of its net assets (taken at market value), would be invested in such
securities.
13. Act as an underwriter of securities, except to the extent that such Fund
may technically be deemed an underwriter when engaged in the activities
described in (12) above or insofar as such Fund may be deemed an underwriter
under the Securities Act of 1933, as amended, in selling portfolio securities.
C-14
MERRILL LYNCH MULTI-STATE MUNICIPAL SERIES TRUST
("MUNICIPAL SERIES TRUST")
Fundamental Investment Restrictions
The following fundamental restrictions (the "Municipal Series Trust
Investment Restrictions") apply to each series fund (each, the "Fund") of the
Municipal Series Trust, except as indicated below. Each Fund may not:
1. Purchase any securities other than securities referred to under
"Investment Objective and Policies" in the Prospectus and the Statement of
Additional Information.
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry (other than U.S. Government securities or Government agency
securities, Municipal Bonds and Non-Municipal Tax-exempt Securities).
3. Invest more than 10% of its total assets (taken at market value at the
time of each investment) in industrial revenue bonds where the entity supplying
the revenues from which the issue is to be paid, and the guarantor of the
obligation, including predecessors, each have a record of less than three years
of continuous business operation.
4. Make investments for the purpose of exercising control or management.
5. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, and provided
further that each Fund may purchase securities of closed-end investment
companies if immediately thereafter not more than (i) 3% of the total
outstanding voting stock of such company is owned by such Fund, (ii) 5% of such
Fund's total assets, taken at market value, would be invested in any one such
company, or (iii) 10% of such Fund's total assets, taken at market value, would
be invested in such securities.
6. Purchase or sell real estate (including limited partnership interests, but
provided that such restriction shall not apply to readily marketable securities
secured by real estate or interests therein or issued by companies which invest
in real estate or interest therein), commodities or commodity contracts (except
that each Fund may purchase and sell financial futures contracts), interests in
oil, gas or other mineral exploration or development programs or leases.
7. Purchase any securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities (the
deposit or payment by each Fund of initial or variation margin in connection
with financial futures contracts is not considered the purchase of a security
on margin).
C-15
8. Make short sales of securities or maintain a short position or invest in
put, call, straddle or spread options (this restriction does not apply to
options on financial futures contracts).
9. Make loans to other persons, provided that each Fund may purchase a
portion of an issue of tax-exempt securities (the acquisition of a portion of
an issue of tax-exempt securities or bonds, debentures or other debt securities
which are not publicly distributed is considered to be the making of a loan
under the Investment Company Act of 1940, as amended), and provided further
that investments in repurchase agreements and purchase and sale contracts shall
not be deemed to be the making of a loan.
10. Borrow amounts in excess of 20% of its total assets, taken at market
value (including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes. [Usually only "leveraged"
investment companies may borrow in excess of 5% of their assets; however, each
Fund will not borrow to increase income but only to meet redemption requests
which might otherwise require untimely disposition of portfolio securities.
Each Fund will not purchase securities while borrowings are outstanding.
Interest paid on such borrowings will reduce net income].
11. Mortgage, pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by each Fund except as may be
necessary in connection with borrowings mentioned in (10) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of its total assets,
taken at market value, or except as may be necessary in connection with
transactions in financial futures contracts.
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not readily marketable, including
individually negotiated loans that constitute illiquid investments and illiquid
lease obligations, or in repurchase agreements or purchase and sale contracts
maturing in more than seven days, if regarding all such securities, more than
15% of its net assets (taken at market value), would be invested in such
securities.
13. Act as an underwriter of securities, except to the extent that such Fund
may technically be deemed an underwriter when engaged in the activities
described in (12) above or insofar as such Fund may be deemed an underwriter
under the Securities Act of 1933, as amended, in selling portfolio securities.
C-16
MERRILL LYNCH ARIZONA MUNICIPAL BOND FUND ("ARIZONA FUND")
The Municipal Series Trust Investment Restrictions apply to the Arizona Fund
except for restrictions (2), (3), (6) and (12). For the Arizona Fund,
investment restrictions (2), (3), (6) and (12) are as follows:
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry (other than U.S. Government securities or Government agency securities
or Municipal Bonds).
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, including predecessors, each have
a record of less than three years of continuous business operation.
6. Purchase or sell real estate (provided that such restriction shall not
apply to securities secured by real estate or interests therein or issued by
companies which invest in real estate or interest therein), commodities or
commodity contracts (except that the Arizona Fund may purchase and sell
financial futures contracts), or interests or leases in oil, gas or other
mineral exploration or development programs.
12. Invest in securities with legal or contractual restrictions on resale or
for which no readily available market exists, including repurchase agreements
and purchase and sale contracts maturing in more than seven days, if regarding
all such securities, more than 10% of its net assets (taken at market value),
would be invested in such securities.
In addition, the Arizona Fund may not, with respect to 75% of its total
assets, invest in the securities of any one issuer if, immediately after and as
a result of such investment, the value of the holdings of the Arizona Fund in
the securities of such issuer exceeds 5% of the Arizona Fund's total assets,
taken at market value, except that such restriction shall not apply to
securities issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities. [For purposes of this restriction, the Arizona 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.]
C-17
MERRILL LYNCH FLORIDA MUNICIPAL BOND FUND ("FLORIDA FUND")
The Municipal Series Trust Investment Restrictions apply to the Florida Fund
except for restrictions (2), (3) and (12). For the Florida Fund, investment
restrictions (2), (3) and (12) are as follows:
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry (other than U.S. Government securities or Government agency securities
or Municipal Bonds).
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, and the guarantor of the
obligation, including predecessors, each have a record of less than three years
of continuous business operation.
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not readily marketable, including
individually negotiated loans that constitute illiquid investments and illiquid
lease obligations, or in repurchase agreements or purchase and sale contracts
maturing in more than seven days, if, regarding all such securities, more than
10% of its net assets (taken at market value), would be invested in such
securities.
MERRILL LYNCH MASSACHUSETTS MUNICIPAL BOND FUND ("MASSACHUSETTS FUND")
The Municipal Series Trust Investment Restrictions apply to the Massachusetts
Fund except for restriction (12). For the Massachusetts Fund, investment
restriction (12) is as follows:
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not readily marketable, including
individually negotiated loans that constitute illiquid investments and illiquid
lease obligations, or in repurchase agreements or purchase and sale contracts
maturing in more than seven days, if regarding all such securities, more than
10% of its net assets (taken at market value), would be invested in such
securities.
MERRILL LYNCH MICHIGAN MUNICIPAL BOND FUND ("MICHIGAN FUND")
MERRILL LYNCH OREGON MUNICIPAL BOND FUND ("OREGON FUND")
The Municipal Series Trust Investment Restrictions apply to each of the
Michigan Fund and the Oregon Fund except for restriction (6). For each of the
Michigan Fund and the Oregon Fund, investment restriction (6) is as follows:
C-18
6. Purchase or sell real estate (provided that such restriction shall not
apply to securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein), commodities or
commodity contracts (except that each of the Michigan Fund and the Oregon Fund
may purchase and sell financial futures contracts), interests in oil, gas or
other mineral exploration or development programs.
MERRILL LYNCH MINNESOTA MUNICIPAL BOND FUND ("MINNESOTA FUND")
The Municipal Series Trust Investment Restrictions apply to the Minnesota
Fund except for restrictions (3) and (12). For the Minnesota Fund, investment
restrictions (3) and (12) are as follows:
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, including predecessors, each have
a record of less than three years of continuous business operation.
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not readily marketable, including
individually negotiated loans that constitute illiquid investments and illiquid
lease obligations, or in repurchase agreements or purchase and sale contracts
maturing in more than seven days, if regarding all such securities, more than
10% of its net assets (taken at market value), would be invested in such
securities.
MERRILL LYNCH NEW JERSEY MUNICIPAL BOND FUND ("NEW JERSEY FUND")
The Municipal Series Trust Investment Restrictions apply to the New Jersey
Fund except for restrictions (2), (3), (6) and (12). For the New Jersey Fund,
investment restrictions (2), (3), (6) and (12) are as follows:
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry (other than U.S. Government securities or Government agency
securities, Municipal Bonds or New Jersey Municipal Obligations).
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, including predecessors, each have
a record of less than three years of continuous business operation.
6. Purchase or sell real estate (provided that such restriction shall not
apply to securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein), commodities or
commodity contracts (except that the New Jersey Fund may purchase and sell
financial futures contracts), or interests or leases in oil, gas or other
mineral exploration or development programs.
C-19
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not readily marketable, including
individually negotiated loans that constitute illiquid investments and illiquid
lease obligations, or in repurchase agreements or purchase and sale contracts
maturing in more than seven days, if regarding all such securities, more than
10% of its net assets (taken at market value), would be invested in such
securities.
MERRILL LYNCH NEW YORK MUNICIPAL BOND FUND ("NEW YORK FUND")
The Municipal Series Trust Investment Restrictions apply to the New York Fund
except for restrictions (1), (2), (3), (6) and (12). For the New York Fund,
investment restrictions (1), (2), (3), (6) and (12) are as follows:
1. Purchase any securities other than securities referred to under
"Investment Objective and Policies" in the Prospectus and the Statement of
Additional Information and under "Description of Municipal Bonds and Temporary
Investments" in the Statement of Additional Information.
2. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in the securities of any one issuer, except that such
restriction shall not apply to securities backed by the United States
Government or its agencies or instrumentalities. [For purposes of this
restriction, the Municipal Series Trust 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.]
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, including predecessors, each have
a record of less than three years of continuous business operation.
6. Purchase or sell real estate (provided that such restriction shall not
apply to securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein), commodities or
commodity contracts (except that the New York Fund may purchase and sell
financial futures contracts), interests in oil, gas or other mineral
exploration or development programs.
C-20
12. Invest in securities with legal or contractual restrictions on resale or
for which no readily available market exists, including repurchase agreements
and purchase and sale contracts maturing in more than seven days, if regarding
all such securities, more than 10% of its net assets (taken at market value),
would be invested in such securities.
MERRILL LYNCH NORTH CAROLINA MUNICIPAL BOND FUND ("NORTH CAROLINA FUND")
The Municipal Series Trust Investment Restrictions apply to the North
Carolina Fund except for restrictions (3) and (6). For the North Carolina Fund,
investment restrictions (3) and (6) are as follows:
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, and the guarantor of the
obligation, including predecessors, each have a record of less than three years
of continuous business operation.
6. Purchase or sell real estate (provided that such restriction shall not
apply to securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein), commodities or
commodity contracts (except that the North Carolina Fund may purchase and sell
financial futures contracts), interests in oil, gas or other mineral
exploration or development programs.
MERRILL LYNCH OHIO MUNICIPAL BOND FUND ("OHIO FUND")
The Municipal Series Trust Investment Restrictions apply to the Ohio Fund
except for restrictions (3), (6) and (12). For the Ohio Fund, investment
restrictions (3), (6) and (12) are as follows:
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, and the guarantor of the
obligation, including predecessors, each have a record of less than three years
of continuous business operation.
6. Purchase or sell real estate (provided that such restriction shall not
apply to securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein), commodities or
commodity contracts (except that the Ohio Fund may purchase and sell financial
futures contracts), interests in oil, gas or other mineral exploration or
development programs.
C-21
12. Invest in securities with legal or contractual restrictions on resale or
for which no readily available market exists, or in individually negotiated
loans that constitute illiquid investments and illiquid lease obligations, or
in repurchase agreements or purchase and sale contracts maturing in more than
seven days, if, regarding all such securities, more than 10% of its net assets
(taken at market value), would be invested in such securities.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND FUND ("PENNSYLVANIA FUND")
The Municipal Series Trust Investment Restrictions apply to the Pennsylvania
Fund except for restrictions (2), (3), (6) and (12). For the Pennsylvania Fund,
investment restrictions (2), (3), (6) and (12) are as follows:
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry (other than U.S. Government securities or Government agency securities
or Municipal Bonds).
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, including predecessors, has a
record of less than three years of continuous business operation.
6. Purchase or sell real estate (provided that such restriction shall not
apply to securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein), commodities or
commodity contracts (except that the Pennsylvania Fund may purchase and sell
financial futures contracts), or interests or leases in oil, gas or other
mineral exploration or development programs.
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not readily marketable, including
individually negotiated loans that constitute illiquid investments and illiquid
lease obligations, or in repurchase agreements or purchase and sale contracts
maturing in more than seven days, if, regarding all such securities, more than
10% of its net assets (taken at market value), would be invested in such
securities.
Under prior Pennsylvania law, in order for the Pennsylvania Fund to qualify
to pass through to investors income exempt from Pennsylvania personal income
tax, the Pennsylvania Fund was required to adhere to
C-22
certain investment restrictions. In order to comply with this and other
Pennsylvania law requirements previously in effect, the Pennsylvania Fund
adopted, as a fundamental policy, a requirement that it invest in securities
for income earnings rather than trading for profit and that, in accordance with
such policy, it not vary its portfolio investments except to: (i) eliminate
unsafe investments or investments not consistent with the preservation of the
capital of the tax status of the investments of the Fund; (ii) honor redemption
orders, meet anticipated redemption requirements, and negate gains from
discount purchases; (iii) reinvest the earnings from securities in like
securities; or (iv) defray normal administrative expenses. Pennsylvania has
recently enacted legislation which eliminated the necessity for the foregoing
investment policies. Since such policies are fundamental policies of the
Pennsylvania Fund, which can only be changed by the affirmative vote of a
majority (as defined under the Investment Company Act of 1940, as amended) of
the outstanding shares, the Pennsylvania Fund continues to be governed by such
investment policies.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND ("TEXAS FUND")
The Municipal Series Trust Investment Restrictions apply to the Texas Fund
except for restrictions (2), (3), (6) and (12). For the Texas Fund, investment
restrictions (2), (3), (6) and (12) are as follows:
2. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry (other than U.S. Government securities or Government agency securities
or Municipal Bonds).
3. Invest more than 5% of its total assets (taken at market value at the time
of each investment) in industrial revenue bonds where the entity supplying the
revenues from which the issue is to be paid, including predecessors, each have
a record of less than three years of continuous business operation.
6. Purchase or sell real estate (provided that such restriction shall not
apply to securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein), commodities or
commodity contracts (except that the Texas Fund may purchase and sell financial
futures contracts), or interests or leases in oil, gas or other mineral
exploration or development programs.
12. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not readily marketable, including
individually negotiated loans that constitute illiquid investments
C-23
and illiquid lease obligations, or in repurchase agreements or purchase and
sale contracts maturing in more than seven days, if regarding all such
securities, more than 10% of its net assets (taken at market value), would be
invested in such securities.
MERRILL LYNCH WORLD INCOME FUND, INC.
("WORLD INCOME FUND")
Fundamental Investment Restrictions
The World Income Fund may not:
1. Invest more than 25% of its total assets, taken at market value at the
time of each investment, in the securities of issuers in any particular
industry (including securities issued or guaranteed by the government of any
one foreign country, but excluding the U.S. Government, its agencies and
instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealers' commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the World
Income Fund, (ii) 5% of the World Income Fund's total assets, taken at market
value, would be invested in any one such company, or (iii) 10% of the World
Income Fund's total assets, taken at market value, would be invested in all
such securities.
4. Purchase or sell real estate; provided that the World Income Fund may
invest in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
5. Make loans to other persons (except as provided in (6) below); provided
that for purposes of this restriction the acquisition of a portion of bonds,
debentures, or other corporate debt securities and investment in governmental
and supranational obligations, short-term commercial paper, certificates of
deposit, bankers' acceptances and repurchase agreements shall not be deemed to
be the making of a loan.
6. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans shall be made in accordance
with the guidelines set forth in the Statement of Additional Information.
C-24
7. Issue senior securities, borrow money or pledge its assets in excess of 33
1/3 of its total assets taken at market value (including the amount borrowed)
and then only from banks for the purpose of meeting redemption requests or
settlement of investment transactions, or for temporary or emergency purposes.
[Usually only "leveraged" investment companies may borrow in excess of 5% of
their assets; however, the World Income Fund will not borrow to increase income
but intends only to meet redemption requests or to settle investment
transactions or for temporary or emergency purposes which may otherwise require
untimely dispositions of portfolio securities. Interest paid on such borrowings
will reduce net income.] (See restriction (8) below regarding the exclusion
from this restriction of arrangements with respect to options, futures
contracts and options on futures contracts.) The World Income Fund will not
purchase additional portfolio securities while outstanding borrowings exceed 5%
of the World Income Fund's total assets.
8. Mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the World Income Fund except as
may be necessary in connection with borrowings mentioned in (7) above or except
as may be necessary in connection with transactions in financial futures
contracts and options thereon.
9. Underwrite securities of other issuers except insofar as the World Income
Fund may be deemed an underwriter under the Securities Act of 1933, as amended,
in selling portfolio securities.
Non-Fundamental Investment Restrictions
The World Income Fund may not:
a. Purchase any securities on margin, except that the World Income Fund may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities. (The deposit or payment by the
World Income Fund of initial or variation margin in connection with futures
contracts or options transactions is not considered the purchase of a security
on margin.)
b. Purchase or sell commodities or commodity contracts, except that the World
Income Fund may deal in forward foreign exchange between currencies of the
different countries in which its portfolio securities are denominated or
anticipated to be denominated, and the World Income Fund may purchase and sell
financial and currency options, futures contracts and related options.
C-25
c. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except to the extent described in the Prospectus and Statement of
Additional Information.
d. Invest in securities which cannot be readily resold because of legal or
contractual restrictions, or which are not otherwise readily marketable, if,
regarding all such securities, more than 10% of the World Income Fund's net
assets, taken at market value, would be invested in such securities.
e. Invest in real estate limited partnerships or oil, gas or other mineral
exploration or development programs or leases.
f. Invest in securities of unseasoned issuers, including their predecessors,
which have been in operation for less than three years and equity securities of
issuers which are not readily marketable if by reason thereof the value of the
World Income Fund's aggregate investment in such classes of securities will
exceed 5% of its total assets.
g. Make short sales of securities or maintain a short position; provided,
however, that the World Income Fund may sell short convertible securities
"against the box". Selling "against the box" involves owning the convertible
security and selling short the underlying common stock into which it is
convertible.
C-26
[PRELIMINARY COPY]
PROXY
Meeting of Shareholders of Please mark your choices below in blue or black ink.
Merrill Lynch Balanced Fund for Investment and Retirement This Proxy has been personalized to reflect those
Merrill Lynch California Municipal Series Trust (2 Series) shares of the indicated Funds that are held within a
Merrill Lynch Global Convertible Fund, Inc. single account. If a shareholder holds shares in
Merrill Lynch Growth Fund for Investment and Retirement multiple accounts, it will be necessary to execute a
Merrill Lynch Multi-State Limited Maturity Municipal Series Trust proxy for each such account. With respect to
(8 Series) proposal 4, separate vote is required for Class A
Merrill Lynch Multi-State Municipal Series Trust (16 Series) and Class B shares owned.
Merrill Lynch World Income Fund, Inc.
P.O. Box 9011, Princton, NJ 08543-9011
This Proxy is solicited on behalf of the Directors/Trustees
The undersigned hereby appoints as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated below, all shares in one or more of the
above-mentioned Funds held of record by the undersigned on August , 1994, at the Meeting of Shareholders of such Fund to be held
on September , 1994, or any adjournments thereof. Such proxies are also authorized to vote on such other matters as may properly
come before such meeting or any adjournment thereof.
This Proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. If no direction is
made for any specific item, this Proxy will be voted FOR all nominees for Director/Trustee and for each of the proposals related to
each Fund.
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Shares Held in Account 1. Election of Directors/Trustees. Nominees: Kenneth S. Axelson, Herbert I. London, Robert R. Martin,
Joseph L. May, Andre F. Perold and Arthur Zeikel
Class A Class B FOR WITHHOLD FOR ALL
ALL ALL EXCEPT*
000000000 000000000 Balanced Fund for Investment and Retirement [_] [_] [_]
000000000 000000000 California Municipal Series Trust [_] [_] [_]
000000000 000000000 Global Convertible Fund, Inc. [_] [_] [_]
000000000 000000000 Growth Fund for Investment and Retirement [_] [_] [_]
000000000 000000000 Multi-State Limited Maturity Municipal Series Trust [_] [_] [_]
000000000 000000000 Multi-State Municipal Series Trust [_] [_] [_]
000000000 000000000 World Income Fund, Inc. [_] [_] [_]
*To withhold authority for a Nominee for a particular Fund, check the "FOR ALL EXCEPT" box and
print name of Nominee on the appropriate line below.
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2. Ratify the 3. Amend the 4. Amend the charter of the Fund
selection of fundamental in connection with the
independent investment implementation of
auditors. restrictions. Merrill Lynch Select Pricing(tm).
--Class A Shares-- --Class B Shares--
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
Balanced Fund for Investment and Retirement [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
California Municipal Series Trust [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Global Convertible Fund, Inc. [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Growth Fund for Investment and Retirement [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Multi-State Limited Maturity Municipal Series Trust [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Multi-State Municipal Series Trust [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
World Income Fund, Inc. [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
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Please mark, sign, date, and mail your Proxy in the enclosed potage-paid envelope.
Signature _____________________________________________________________________ Date _________________________
If joint owner, each should sign. When signing as executor, trustee, etc., give full title as such.