As filed with the Securities and Exchange Commission on June 29,
2000
Securities Act
File No. 2-69877
Investment Company
Act File No. 811-3111
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
N-1A
| REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 |
|
x |
| Pre-Effective
Amendment No.
|
|
¨ |
| Post-Effective
Amendment No. 23 |
|
x |
| and/or |
|
|
| REGISTRATION
STATEMENT UNDER THE |
|
|
| INVESTMENT
COMPANY ACT OF 1940 |
|
x |
| Amendment No.
24 |
|
x |
(Check appropriate
box or boxes)
CMA®
TAX-EXEMPT FUND
(Exact Name of
Registrant as Specified in Charter)
800 Scudders Mill
Road
Plainsboro, New
Jersey 08536
(Address of
Principal Executive Offices)
(609)
282-2800
(Registrant’s
Telephone Number, including Area Code)
TERRY K.
GLENN
CMA®
Tax-Exempt Fund
800 Scudders Mill
Road, Plainsboro, New Jersey
Mailing
Address:
P.O. Box 9011,
Princeton, New Jersey 08543-9011
(Name and Address
of Agent for Service)
Copies
to:
| Counsel for the
Fund:
BROWN & WOOD
LLP
One World Trade
Center
New York, New
York 10048-0557
Attention:
Thomas R. Smith, Jr., Esq.
|
|
Michael J.
Hennewinkel, Esq.
FUND ASSET
MANAGEMENT, L.P.
P.O. Box
9011
Princeton, New
Jersey
08543-9011
|
|
Jeffrey S.
Alexander, Esq.
MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED
222 Broadway
(14
TH
Floor)
New York, New York
10038
It is proposed that
this filing will become effective (check appropriate box)
|
x
|
immediately upon
filing pursuant to paragraph (b)
|
|
¨
|
on (date) pursuant
to paragraph (b)
|
|
¨
|
60 days after
filing pursuant to paragraph (a) (1)
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|
¨
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on (date) pursuant
to paragraph (a) (1)
|
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¨
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75 days after
filing pursuant to paragraph (a) (2)
|
|
¨
|
on (date) pursuant
to paragraph (a) (2) of Rule 485
|
If appropriate, check
the following box:
|
¨
|
this post-effective
amendment designates a new effective date for a previously filed
post-effective amendment.
|
Title of
Securities Being Registered: Shares of Beneficial Interest, Par Value $.10
Per Share
Prospectus
[LOGO OF MERRILL
LYNCH]
|
CMA® Government
Securities Fund
|
June 29, 2000
|
This Prospectus
contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for
future reference.
|
|
The Securities
and Exchange Commission has not approved or disapproved these securities
or passed upon the adequacy of this Prospectus. Any representation to the
contrary is a criminal offense.
|
Table of Contents
CMA FUNDS
Key Facts
[GRAPHIC]
In an effort to help you
better understand the many concepts involved in making an investment
decision, we have defined the highlighted terms in this prospectus in
the sidebar.
Liquidity — the
ease with which a security can be traded. Securities that are less
liquid have fewer potential buyers and, as a consequence, greater
volatility.
MERRILL LYNCH CASH MANAGEMENT ACCOUNT
A Cash Management Account (“CMA Account”) is a conventional
Merrill Lynch cash securities or margin account that is linked to the
CMA Funds, to money market deposit accounts maintained with other banks
and to a Visa® card/check account (“Visa® Account”).
Subscribers to the CMA service are charged an annual program
participation fee, presently $100, and may automatically invest free
cash balances held in their CMA Accounts in shares of the Tax-Exempt
Fund or one of the various series of CMA Multi-State Municipal Series
Trust commonly known as “sweep”. After June 5, 2000, shares
of CMA Money Fund, CMA Government Securities Fund and CMA Treasury Fund
are no longer available via the CMA sweep.
The CMA service
is a program offered by Merrill Lynch (not the Funds). This prospectus
provides information concerning certain CMA Funds, but is not intended
to provide detailed information concerning the CMA service. If you want
more information about the CMA service, please review the CMA program
description brochure.
CMA Money Fund,
CMA Government Securities Fund, CMA Tax-Exempt Fund and CMA Treasury
Fund are four of the money market funds (collectively, with the ten
series of CMA Multi-State Municipal Series Trust, the “CMA
Funds”) shares of which are offered to subscribers of the CMA
service. Each CMA Fund is a no-load money market fund that seeks
current income, preservation of capital and liquidity available from
investing in short term securities.
Each CMA Fund
has its own goals, investment strategies and risks. We cannot guarantee
that any of the CMA Funds will achieve its objectives.
CMA MONEY FUND AT A GLANCE
What are the Fund’s
investment objectives?
The investment
objectives of the Fund are to seek current income, preservation of
capital and liquidity available from investing in a diversified
portfolio of short term money market securities.
CMA MONEY
FUND
3
[GRAPHIC] Key
Facts
Short Term
Securities —
securities with maturities of not more than 762 days (25 months) in the
case of U.S. Government and agency securities.
U.S.
Government Securities — debt
securities issued or guaranteed as to principal and interest by the
U.S. Government that are supported by the full faith and credit of the
United States.
U.S.
Government Agency Securities — debt
securities issued or guaranteed as to principal and interest by U.S.
Government agencies, U.S. Government sponsored enterprises and U.S.
Government instrumentalities that are not direct obligations of the
United States.
Repurchase
Agreements — agreements
in which a party sells securities to the Fund and at the same time
agrees to repurchase the securities at a particular time and
price.
Maturity — the time at
which the principal amount of a bond is scheduled to be returned to
investors.
Yield — the income
generated by an investment in the Fund.
What are the
Fund’s main investment strategies?
The Fund intends
to achieve its investment objectives by investing in a diversified
portfolio of U.S. dollar-denominated short term securities.
These securities consist primarily of short term U.S. Government
securities, U.S. Government agency securities, bank
obligations, commercial paper and repurchase agreements. The
Fund may also invest in obligations of domestic and foreign banks and
other short term debt securities issued by U.S. and foreign entities.
The Fund may invest up to 25% of its total assets in foreign bank money
instruments. The Fund’s dollar-weighted maturity will not
exceed 90 days.
Other than U.S.
Government and certain U.S. Government agency securities, the Fund only
invests in short term securities having one of the two highest short
term ratings from a nationally recognized rating agency or unrated
instruments which, in the opinion of Fund management, are of similar
credit quality. Certain short term securities are entitled to the
benefit of guarantees, letters of credit or similar arrangements
provided by a financial institution. When this is the case, Fund
management may consider the obligation of the financial institution and
its creditworthiness in determining whether the security is an
appropriate investment for the Fund.
Fund management
decides which of these securities to buy and sell based on its
assessment of the relative values of different securities and future
interest rates. Fund management seeks to improve the Fund’s
yield by taking advantage of differences in yield that regularly
occur between securities of a similar kind. The Fund cannot guarantee
that it will meet its objectives.
What are the main risks
of investing in the Fund?
An investment in
the Fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. The Fund could lose money
if the issuer of an instrument held by the Fund defaults or if short
term interest rates rise sharply in a manner not anticipated by Fund
management. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by
investing in the Fund.
Who should
invest?
Shares of the
Fund are offered to participants in the Cash Management Account
financial service program and to investors maintaining accounts
directly with the Fund’s transfer agent.
The Fund may be
an appropriate investment for you if you:
|
Ÿ
|
Are investing
with short term goals in mind
|
|
Ÿ
|
Are looking
for preservation of capital
|
|
Ÿ
|
Are looking
for current income and liquidity
|
CMA MONEY
FUND
4
RISK/RETURN BAR CHART FOR CMA MONEY FUND
The bar chart and table
shown below provide an indication of the risks of investing in the
Fund. The bar chart shows changes in the Fund’s performance for
each of the past ten calendar years. The table shows the average annual
total returns of the Fund for one, five and ten years. How the Fund
performed in the past is not necessarily an indication of how the Fund
will perform in the future.
[GRAPH]
1990 8.07%
1991 6.04%
1992 3.52%
1993 2.86%
1994 3.80%
1995 5.61%
1996 5.08%
1997 5.21%
1998 5.15%
1999 4.77%
During the ten year
period shown in the bar chart, the highest return for a quarter was
2.01% (quarter ended December 31, 1990) and the lowest return for a
quarter was 0.68% (quarter ended June 30, 1993). The Fund’s
year-to-date return as of March 31, 2000 was 1.35%.
Average Annual Total
Returns (as of the
calendar year ended)
December 31, 1999 |
|
Past
One Year |
|
Past
Five Years |
|
Past
Ten Years |
|
| CMA
Money Fund |
|
4.77% |
|
5.16% |
|
5.00% |
|
CMA MONEY
FUND
5
[GRAPHIC] Key
Facts
UNDERSTANDING
EXPENSES
Fund investors pay
various fees and expenses, either directly or indirectly. Listed below
are some of the main types of expenses, which all mutual funds may
charge:
Expenses paid
indirectly by the shareholder (these costs are deducted from the
Fund’s total assets).
Annual
Fund Operating
Expenses — expenses that cover the costs of operating
the Fund.
Management
Fee — a fee
paid to the Manager for managing the Fund.
Distribution Fees — fees
used to support the Fund’s marketing and distribution efforts,
such as compensating financial consultants, advertising and
promotion.
FEES AND EXPENSES FOR CMA MONEY FUND
This table
shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than
those indicated below.
| Shareholder Fees (fees paid directly by the
shareholder) |
|
| Maximum Account
Fee(a) |
|
$100 |
|
| Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) |
|
| Management
Fee |
|
0.38% |
|
| Distribution (12b-1)
Fees(b) |
|
0.13% |
|
| Other Expenses (including transfer
agency fees)(c) |
|
0.05% |
|
| Total
Annual Fund Operating Expenses(d) |
|
0.56% |
|
(a)
|
Merrill Lynch
charges this annual program fee to
CMA program subscribers.
|
(b)
|
The Fund is
authorized to pay Merrill Lynch distribution fees of 0.125% each year
under a distribution plan that the Fund has adopted under rule 12b-1.
For the fiscal year ended March 31, 2000, the Fund paid $76,626,653
in fees to Merrill Lynch pursuant to the distribution
plan.
|
(c)
|
The Fund pays
the Transfer Agent $10.00 for each shareholder account and reimburses
the Transfer Agent’s out-of-pocket expenses. For the fiscal year
ended March 31, 2000, the Fund paid the Transfer Agent fees totaling
$21,210,081. The Manager provides accounting services to the Fund at
its cost. For the fiscal year ended March 31, 2000, the Fund
reimbursed the Manager $2,832,808 for these services.
|
(d)
|
As of June 5,
2000, CMA Money Fund is no longer available for the automatic
investment of free cash balances in CMA Accounts. As a result, the
Fund’s cash inflows and, therefore, net assets are likely to
decline substantially over time. As assets decline, economies of
scale may also decline, resulting in increased expense ratios for
remaining shareholders.
|
Example:
This example is
intended to help you compare the cost of investing in the Fund with the
cost of investing in other money market funds.
This example
assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the
Fund’s operating expenses remain the same. This assumption is not
meant to indicate that you will receive a 5% annual rate of return.
Your annual return may be more or less than the 5% used in this
example. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
| |
|
1
Year |
|
3
Years |
|
5
Years |
|
10
Years |
|
| CMA Money
Fund |
|
$57 |
|
$179 |
|
$313 |
|
$701 |
|
|
| This example
does not take into account the annual program fee charged by Merrill
Lynch to CMA subscribers. See the CMA program description brochure
for details. Shareholders of the Fund whose accounts are maintained
directly with the Fund’s transfer agent and who are not
subscribers to the CMA program will not be charged a program fee but
will not receive any of the additional services available to
subscribers. |
CMA MONEY
FUND
6
Liquidity — the ease with
which a security can be traded. Securities that are less liquid have
fewer potential buyers and, as a consequence, greater
volatility.
Direct
U.S. Government Obligations — issued or have
their principal and interest guaranteed and backed by the full faith
and credit of the United States.
Repurchase Agreements —agreements in which a
party sells securities to the Fund and at the same time agrees to
repurchase the securities at a particular time and price.
Short
Term U.S. Government Securities — debt securities with
maturities of not more than 762 days (25 months) that are issued or
guaranteed as to principal and interest by the U.S. Government and are
supported by the full faith and credit of the United
States.
Maturity — the time at which
the principal amount of a bond is scheduled to be returned to
investors.
CMA GOVERNMENT SECURITIES FUND AT A GLANCE
What are the
Fund’s investment objectives?
The Fund’s
investment objectives are to seek preservation of capital, current
income and liquidity available from investing
exclusively in a diversified portfolio of short term marketable
securities, including variable rate securities, that are direct
U.S. Government obligations, and repurchase agreements
pertaining to such securities.
What are the
Fund’s main investment strategies?
The Fund
intends to achieve its goals by investing in a diversified portfolio
made up only of short term U.S. Government securities
and repurchase agreements with banks and securities dealers
that involve direct U.S. Government obligations. Fund management
decides which of these securities to buy and sell based on its
assessment of the relative values of various short term U.S.
Government securities and repurchase agreements, as well as future
interest rates. Short term U.S. Government securities have little
credit risk. The Fund’s dollar-weighted average maturity
will not exceed 90 days. The Fund cannot guarantee that it will
achieve its objectives.
What are the main risks
of investing in the Fund?
An investment
in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. The Fund could
lose money if short term interest rates rise sharply in a manner not
anticipated by Fund management. Although the Fund seeks to preserve
the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
Who should
invest?
Shares of the
Fund are offered to participants in the Cash Management Account
financial service program and to investors maintaining accounts
directly with the Fund’s transfer agent.
The Fund may be
an appropriate investment for you if you:
|
Ÿ
|
Are looking
for preservation of capital
|
|
Ÿ
|
Are investing
with short term goals in mind, such as for cash reserves, and want
to focus on U.S. Government securities
|
|
Ÿ
|
Are looking
for current income and liquidity
|
CMA GOVERNMENT
SECURITIES FUND
7
[GRAPHIC] Key
Facts
RISK/RETURN BAR CHART FOR CMA GOVERNMENT SECURITIES FUND
The bar chart and table shown below provide an indication of the risks
of investing in the Fund. The bar chart shows changes in the
Fund’s performance for each of the past ten calendar years. The
table shows the average annual total returns of the Fund for one, five
and ten years. How the Fund performed in the past is not necessarily
an indication of how the Fund will perform in the future.
[GRAPH]
1990 7.85%
1991 5.89%
1992 3.44%
1993 2.79%
1994 3.65%
1995 5.46%
1996 4.99%
1997 5.11%
1998 5.00%
1999 4.53%
During the ten year
period shown in the bar chart, the highest return for a quarter was
1.91% (quarter ended March 30, 1990) and the lowest return for a
quarter was 0.68% (quarter ended June 30, 1993). The Fund’s
year-to-date return as of March 31, 2000 was 1.24%.
Average Annual
Total
Returns (as of the
calendar year ended)
December 31, 1999 |
|
Past
One Year |
|
Past
Five Years |
|
Past
Ten Years |
|
| CMA
Government Securities Fund |
|
4.53% |
|
5.02% |
|
4.86% |
|
CMA GOVERNMENT
SECURITIES FUND
8
UNDERSTANDING
EXPENSES
Fund investors pay
various fees and expenses, either directly or indirectly. Listed below
are some of the main types of expenses, which all mutual funds may
charge:
Expenses paid
indirectly by the shareholder (these costs are deducted from the
Fund’s total assets).
Annual
Fund Operating
Expenses — expenses that cover the costs of
operating the Fund.
Management Fee — a fee
paid to the Manager for managing the Fund.
Distribution Fees — fees
used to support the Fund’s marketing and distribution efforts,
such as compensating financial consultants, advertising and
promotion.
FEES AND EXPENSES FOR CMA GOVERNMENT SECURITIES FUND
This table
shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than
those indicated below.
| Shareholder Fees (fees paid directly by the
shareholder) |
|
| Maximum Account
Fee(a) |
|
$100 |
|
| Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) |
|
| Management
Fee |
|
0.40% |
|
| Distribution (12b-1)
Fees(b) |
|
0.13% |
|
| Other Expenses (including
transfer agency fees)(c) |
|
0.03% |
|
| Total
Annual Fund Operating Expenses(d) |
|
0.56% |
|
(a)
|
Merrill Lynch
charges this annual program fee to CMA program
subscribers.
|
(b)
|
The Fund is
authorized to pay Merrill Lynch distribution fees of 0.125% each
year under a distribution plan that the Fund has adopted under rule
12b-1. For the fiscal year ended March 31, 2000, the Fund paid
$4,242,030 in fees to Merrill Lynch pursuant to the distribution
plan.
|
(c)
|
The Fund pays
the Transfer Agent $10.00 for each shareholder account and
reimburses the Transfer Agent’s out-of-pocket expenses. For the
fiscal year ended March 31, 2000, the Fund paid the Transfer Agent
fees totaling $441,791. The Manager provides accounting services to
the Fund at its cost. For the fiscal year ended March 31, 2000, the
Fund reimbursed the Manager $218,186 for these services.
|
(d)
|
As of June 5,
2000, CMA Government Securities Fund is no longer available for the
automatic investment of free cash balances in CMA Accounts. As a
result, the Fund’s cash inflows and, therefore, net assets are
likely to decline substantially over time. As assets decline,
economies of scale may also decline, resulting in increased expense
ratios for remaining shareholders.
|
Example:
This example is
intended to help you compare the cost of investing in the Fund with
the cost of investing in other money market funds.
This example
assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the
Fund’s operating expenses remain the same. This assumption is not
meant to indicate that you will receive a 5% annual rate of return.
Your annual return may be more or less than the 5% used in this
example. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
| |
|
1
Year |
|
3
Years |
|
5
Years |
|
10
Years |
|
| CMA Government
Securities Fund |
|
$57 |
|
$179 |
|
$313 |
|
$701 |
|
|
| This example
does not take into account the annual program fee charged by Merrill
Lynch to CMA subscribers. See the CMA program description brochure
for details. Shareholders of the Fund whose accounts are maintained
directly with the Fund’s transfer agent and who are not
subscribers to the CMA program will not be charged a program fee but
will not receive any of the additional services available to
subscribers. |
CMA GOVERNMENT
SECURITIES FUND
9
[GRAPHIC] Key
Facts
Liquidity — the ease with which a
security can be traded. Securities that are less liquid have fewer
potential buyers and, as a consequence, greater
volatility.
Short
Term Tax-Exempt Securities — securities that mature
or reset to a new interest rate within 397 days (13 months) and that
pay interest exempt from Federal income tax.
Municipal Bond — a debt obligation
issued by or on behalf of a governmental entity or other qualifying
issuer that pays interest exempt from Federal income tax.
CMA TAX-EXEMPT FUND AT A GLANCE
What are the
Fund’s investment objectives?
The
Fund’s investment objectives are to seek current income exempt
from Federal income taxes, preservation of capital and liquidity
available from investing in a diversified portfolio of short term
high quality tax-exempt money market securities.
What are the
Fund’s main investment strategies?
The Fund
intends to achieve its goals by investing in a diversified portfolio
of short term tax-exempt securities. These securities
consist principally of tax-exempt notes and commercial paper, short
term municipal bonds, tax-exempt variable rate demand
obligations and short term tax-exempt derivatives. Distributions of
income and capital gains (if any) from the Fund may be subject to
state and local income taxes. Certain short term tax-exempt
securities have maturities that are longer than 397 days, but give
the Fund the right to demand payment from a financial institution
within that period. The Fund treats these securities as having a
maturity of 397 days or less. The Fund’s dollar-weighted average
maturity will not exceed 90 days.
The Fund only
invests in short term tax-exempt securities having one of the two
highest short term ratings from a nationally recognized rating agency
or unrated securities which, in the opinion of Fund management, are
of similar quality. Certain short term tax-exempt securities are
entitled to the benefit of insurance, guarantees, letters of credit
or similar arrangements provided by a financial institution. When
this is the case, Fund management may consider the obligation of the
financial institution and its creditworthiness in determining whether
the security is an appropriate investment for the Fund.
The Fund does
not presently intend to invest more than 25% of its total assets in
short term tax-exempt securities of issuers located in the same
state.
Fund
management determines which securities to buy based on its assessment
of relative values of different securities and future interest rates.
Fund management seeks to improve the Fund’s yield by taking
advantage of differences in yield that regularly occur among
securities of a similar kind. The Fund cannot guarantee that it will
achieve its objectives.
What are the main
risks of investing in the Fund?
An investment
in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. The Fund could
lose money if the issuer of an instrument held by the Fund defaults
or if short term interest rates rise sharply in a manner not
anticipated by Fund management. Although the Fund seeks to preserve
the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
CMA TAX-EXEMPT
FUND
10
Who should
invest?
Shares of the
Fund are offered to participants in the Cash Management Account
financial service program and to investors maintaining accounts
directly with the Fund’s transfer agent.
The Fund may
be an appropriate investment for you if you:
|
Ÿ
|
Are looking
for preservation of capital
|
|
Ÿ
|
Are
investing with short term goals in mind
|
|
Ÿ
|
Are looking
for liquidity as well as current income that is exempt from Federal
income tax
|
RISK/RETURN BAR CHART FOR CMA TAX-EXEMPT FUND
The bar chart and
table shown below provide an indication of the risks of investing in
the Fund. The bar chart shows changes in the Fund’s performance
for each of the past ten calendar years. The table shows the average
annual total returns of the Fund for one, five and ten years. How the
Fund performed in the past is not necessarily an indication of how
the Fund will perform in the future.
[GRAPH]
1990 5.62%
1991 4.21%
1992 2.60%
1993 1.97%
1994 2.40%
1995 3.39%
1996 3.03%
1997 3.16%
1998 2.98%
1999 2.75%
During the ten year
period shown in the bar chart, the highest return for a quarter was
1.43% (quarter ended December 31, 1990) and the lowest return for a
quarter was 0.46% (quarter ended March 31, 1994). The Fund’s
year-to-date return as of March 31, 2000 was 0.76%.
Average Annual
Total
Returns (as of the
calendar year ended)
December 31, 1999 |
|
Past
One Year |
|
Past
Five Years |
|
Past
Ten Years |
|
| CMA Tax-Exempt Fund |
|
2.75% |
|
3.06% |
|
3.21% |
|
CMA TAX-EXEMPT
FUND
11
[GRAPHIC] Key
Facts
UNDERSTANDING
EXPENSES
Fund investors pay
various fees and expenses, either directly or indirectly. Listed
below are some of the main types of expenses, which all mutual funds
may charge:
Expenses paid
indirectly by the shareholder (these costs are deducted from the
Fund’s total assets).
Annual
Fund Operating
Expenses — expenses that cover the costs of
operating the Fund.
Management Fee — a
fee paid to the Manager for managing the Fund.
Distribution Fees — fees
used to support the Fund’s marketing and distribution efforts,
such as compensating financial consultants, advertising and
promotion.
FEES AND EXPENSES FOR CMA TAX-EXEMPT FUND
This table
shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than
those indicated below.
| Shareholder Fees (fees paid directly by
the shareholder) |
|
| Maximum Account
Fee(a) |
|
$100 |
|
| Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) |
|
| Management
Fee |
|
0.38% |
|
| Distribution (12b-1)
Fees(b) |
|
0.13% |
|
| Other Expenses (including
transfer agency fees)(c) |
|
0.03% |
|
| Total
Annual Fund Operating Expenses |
|
0.54% |
|
(a)
|
Merrill
Lynch charges this annual program fee to CMA program
subscribers.
|
(b)
|
The Fund is
authorized to pay Merrill Lynch distribution fees of 0.125% each
year under a distribution plan that the Fund has adopted under rule
12b-1. For the fiscal year ended March 31, 2000, the Fund paid
$11,800,900 in fees to Merrill Lynch pursuant to the distribution
plan.
|
(c)
|
The Fund
pays the Transfer Agent $10.00 for each shareholder account and
reimburses the Transfer Agent’s out-of-pocket expenses. For
the fiscal year ended March 31, 2000, the Fund paid the Transfer
Agent fees totaling $1,272,427. The Manager provides accounting
services to the Fund at its cost. For the fiscal year ended March
31, 2000, the Fund reimbursed the Manager $484,036 for these
services.
|
Example:
This example
is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example
assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that
the Fund’s operating expenses remain the same. This assumption
is not meant to indicate that you will receive a 5% annual rate of
return. Your annual return may be more or less than the 5% used in
this example. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
| |
|
1
Year |
|
3
Years |
|
5
Years |
|
10
Years |
|
| CMA Tax-Exempt
Fund |
|
$55 |
|
$173 |
|
$302 |
|
$677 |
|
This example
does not take into account the annual program fee charged by Merrill
Lynch to CMA subscribers. See the CMA program description brochure
for details. Shareholders of the Fund whose accounts are maintained
directly with the Fund’s transfer agent and who are not
subscribers to the CMA program will not be charged a program fee but
will not receive any of the additional services available to
subscribers.
CMA TAX-EXEMPT
FUND
12
Liquidity — the
ease with which a security can be traded. Securities that are less
liquid have fewer potential buyers and, as a consequence, greater
volatility.
Direct
Obligations of the U.S. Treasury — securities issued directly by the U.S.
Treasury rather than by any government agency or
instrumentality.
Short
Term U.S. Treasury Securities — securities
with maturities of not more than 762 days (25 months) that are issued
directly by the U.S. Treasury rather than by any U.S. Government
agency or instrumentality and are supported by the full faith and
credit of the United States.
Maturity — the
time at which the principal amount of a bond is scheduled to be
returned to investors.
CMA TREASURY FUND AT A GLANCE
What are the
Fund’s investment objectives?
The
Fund’s investment objectives are to seek preservation of
capital, liquidity and current income available from
investing exclusively in a diversified portfolio of short term
direct obligations of the U.S. Treasury with remaining
maturities of 25 months or less.
What are the
Fund’s main investment strategies?
The Fund
intends to achieve its goals by investing exclusively in a
diversified portfolio made up only of short term U.S. Treasury
securities. Direct obligations of the U.S. Treasury have
little credit risk. Fund management decides on which U.S. Treasury
securities to buy and sell based on its assessment of their relative
values and future interest rates. The Fund’s dollar-weighted
average maturity will not exceed 90 days. The Fund cannot
guarantee that it will achieve its objectives.
What are the main
risks of investing in the Fund?
An investment
in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. The Fund could
lose money if short term interest rates rise sharply in a manner not
anticipated by Fund management. Although the Fund seeks to preserve
the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
Who should
invest?
Shares of the
Fund are offered to existing participants in the Cash Management
Account financial service program and to investors maintaining
accounts directly with the Fund’s transfer agent.
The Fund may
be an appropriate investment for you if you:
|
Ÿ
|
Are looking
for preservation of capital
|
|
Ÿ
|
Are
investing with short term goals in mind, such as for cash reserves,
and want to focus on U.S. Treasury securities
|
|
Ÿ
|
Are looking
for current income and liquidity
|
CMA TREASURY
FUND
13
[GRAPHIC] Key
Facts
RISK/RETURN BAR CHART FOR CMA TREASURY FUND
The bar chart and
table shown below provide an indication of the risks of investing in
the Fund. The bar chart shows changes in the Fund’s performance
for each complete calendar year since the Fund’s inception. The
table shows the average annual total returns of the Fund for the
periods shown. How the Fund performed in the past is not necessarily
an indication of how the Fund will perform in the future.
[GRAPH]
1992 3.25%
1993 2.62%
1994 3.51%
1995 5.25%
1996 4.78%
1997 4.84%
1998 4.74%
1999 4.22%
During the period
shown in the bar chart, the highest return for a quarter was 1.33%
(quarter ended June 30, 1995) and the lowest return for a quarter was
0.62% (quarter ended June 30, 1993). The Fund’s year-to-date
return as of March 31, 2000 was 1.20%.
Average Annual
Total
Returns (as of the
calendar year ended)
December 31, 1999 |
|
Past
One Year |
|
Past
Five Years |
|
Since
Inception† |
|
| CMA Treasury Fund |
|
4.22% |
|
4.77% |
|
4.26% |
|
†
|
Inception
date is April 15, 1991.
|
CMA TREASURY
FUND
14
UNDERSTANDING
EXPENSES
Fund investors pay
various fees and expenses, either directly or indirectly. Listed
below are some of the main types of expenses, which all mutual funds
may charge:
Expenses paid
indirectly by the shareholder (these costs are deducted from the
Fund’s total assets).
Annual
Fund Operating
Expenses — expenses that cover the costs of
operating the Fund.
Management Fee — a
fee paid to the Manager for managing the Fund.
Distribution Fees — fees
used to support the Fund’s marketing and distribution efforts,
such as compensating financial consultants, advertising and
promotion.
FEES AND EXPENSES FOR CMA TREASURY FUND
This table
shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than
those indicated below.
| Shareholder Fees (fees paid directly by
the shareholder) |
|
| Maximum Account
Fee(a) |
|
$100 |
|
| Annual Fund Operating Expenses (expenses
that are deducted from Fund assets) |
|
| Management
Fee |
|
0.41% |
|
| Distribution (12b-1)
Fees(b) |
|
0.13% |
|
| Other Expenses (including
transfer agency fees)(c) |
|
0.03% |
|
| Total
Annual Fund Operating Expenses(d) |
|
0.57% |
|
(a)
|
Merrill
Lynch charges this annual program fee to CMA program
subscribers.
|
(b)
|
The Fund is
authorized to pay Merrill Lynch distribution fees of 0.125% each
year under a distribution plan that the Fund has adopted under rule
12b-1. For the fiscal year ended March 31, 2000, the Fund paid
$3,206,032 in fees to Merrill Lynch pursuant to the distribution
plan.
|
(c)
|
The Fund
pays the Transfer Agent $10.00 for each shareholder account and
reimburses the Transfer Agent’s out-of-pocket expenses. For
the fiscal year ended March 31, 2000, the Fund paid the Transfer
Agent fees totaling $472,917. The Manager provides accounting
services to the Fund at its cost. For the fiscal year ended March
31, 2000, the Fund reimbursed the Manager $82,972 for these
services.
|
(d)
|
As of June
5, 2000, CMA Treasury Fund is no longer available for the automatic
investment of free cash balances in CMA Accounts. As a result, the
Fund’s cash inflows and, therefore, net assets are likely to
decline substantially over time. As assets decline, economies of
scale may also decline, resulting in increased expense ratios for
remaining shareholders.
|
Example:
This example
is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example
assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that
the Fund’s operating expenses remain the same. This assumption
is not meant to indicate that you will receive a 5% annual rate of
return. Your annual return may be more or less than the 5% used in
this example. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
| |
|
1
Year |
|
3
Years |
|
5
Years |
|
10
Years |
|
| CMA Treasury
Fund |
|
$58 |
|
$183 |
|
$318 |
|
$714 |
|
|
| This example
does not take into account the annual program fee charged by
Merrill Lynch to CMA subscribers. See the CMA program description
brochure for details. Shareholders of the Fund whose accounts are
maintained directly with the Fund’s transfer agent and who are
not subscribers to the CMA program will not be charged a program
fee but will not receive any of the additional services available
to subscribers. |
CMA TREASURY
FUND
15
[GRAPHIC] Key
Facts
Yield — the
amount of income generated by an investment in the Fund.
Yield
Information
The
yield on Fund shares normally will go up and down on a
daily basis. Therefore, yields for any given past periods are not an
indication or representation of future yields. Each Fund’s
yield is affected by changes in interest rates, average portfolio
maturity and operating expenses. Current yield information may not
provide the basis for a comparison with bank deposits or other
investments, which pay a fixed yield over a stated period of
time.
CMA FUNDS
16
Details About the
Fund [GRAPHIC]
ABOUT THE CMA MONEY
FUND PORTFOLIO MANAGER
Richard Mejzak is the
portfolio manager of the Fund. Mr. Mejzak has been a Vice President
of Merrill Lynch Asset Management (“MLAM”) since 1995, and
has been employed by MLAM since 1990.
ABOUT THE
MANAGER
The Funds are managed
by Fund Asset Management.
The Fund
seeks current income, preservation of capital and liquidity. The
Fund tries to achieve its goals by investing in a diversified
portfolio of short term money market securities.
These
instruments are dollar-denominated fixed-income securities
that mature or reset to a new interest rate within 13 months
(25 months if the U.S. Government has issued or guaranteed the
debt). The Fund’s dollar-weighted average maturity will not
exceed 90 days.
Other than
U.S. Government and certain U.S. Government agency securities, the
Fund only invests in short term securities having one of the two
highest short term ratings from a nationally recognized rating
agency or unrated instruments which, in the opinion of Fund
management, are of similar credit quality. Certain short term
securities are entitled to the benefit of guarantees, letters of
credit or similar arrangements provided by a financial institution.
When this is the case, Fund management may consider the obligation
of the financial institution and its creditworthiness in determining
whether the security is an appropriate investment for the
Fund.
Fund
management will vary the types of short term securities in the
Fund’s portfolio, as well as the Fund’s average maturity.
Fund management decides on which securities to buy and sell based on
its assessment of the relative value of different securities and
future interest rates. Fund management seeks to improve the
Fund’s yield by taking advantage of differences in yield that
regularly occur among similar kinds of securities.
Among the
short term money market securities the Fund may buy are:
U.S. Government
Securities — Debt securities that are issued by or
guaranteed as to principal and interest by the U.S. Government and
supported by the full faith and credit of the United
States.
U.S. Government
Agency Securities — Debt securities issued or guaranteed as to
principal and interest by U.S. Government agencies, U.S.
Government-sponsored enterprises and U.S. Government
instrumentalities that are not
direct obligations of the U.S. government.
Bank
Money Instruments — Obligations of commercial banks or other
depository institutions, such as certificates of deposit,
bankers’ acceptances,
bank notes
and time deposits. The Fund may only invest in obligations of
savings banks and savings and loan associations organized and
operating in the United States. The obligations of commercial banks
may be Eurodollar obligations or Yankeedollar
obligations.
The Fund may invest in Eurodollar obligations only if they, by their
terms, are general obligations of the U.S. parent bank.
The Fund may
also invest up to 25% of its total assets in bank money instruments
issued by foreign depository institutions and their foreign branches
and subsidiaries.
Commercial
Paper — Obligations, usually of nine months or
less, issued by corporations, securities firms and other businesses
for short term funding.
Short Term
Obligations — Corporate or foreign government debt and
asset-backed securities with a period of 397 days or
less remaining to maturity.
Floating Rate
Obligations — Obligations of government agencies,
corporations, depository institutions or other issuers that
periodically reset their interest rate to reflect a current market
rate, such as the federal funds rate or a bank’s prime rate, or
the level of an interest rate index, such as LIBOR (a
well-known short term interest rate index).
Insurance
Company Obligations — Short term funding agreements and
guaranteed insurance contracts with fixed or floating interest
rates.
Master
Notes — Variable principal amount demand
instruments issued by securities firms and other corporate
issuers.
Other Eligible
Investments — Other money market instruments permitted by
SEC rules governing money market funds.
Repurchase
Agreements; Purchase and Sale Contracts — The Fund may enter into certain types of
repurchase agreements or purchase and sale contracts. Under a
repurchase agreement, the seller agrees to repurchase a security
(typically a security issued or guaranteed by the U.S. Government)
at a mutually agreed upon time and price. This insulates the Fund
from changes in the market value of the security during the period,
except for currency fluctuations. A purchase and sale contract is
similar to a repurchase agreement, but purchase and sale contracts
provide that the purchaser receives any interest on the security
paid during the period. If the seller fails to repurchase the
security in either situation and the market value declines, the Fund
may lose money.
CMA FUNDS
18
ABOUT THE CMA
GOVERNMENT SECURITIES FUND PORTFOLIO MANAGER
Robert Sabatino is
the portfolio manager and Vice President of the Fund. Mr. Sabatino
has been a Vice President of MLAM since 1998 and has been employed
by MLAM since 1995.
Reverse
Repurchase Agreements — In a reverse repurchase agreement the Fund
sells a security to another party and agrees to buy it back at a
specific time and price. The Fund may engage in reverse repurchase
agreements involving the securities described above.
When Issued,
Delayed Delivery and Forward Commitments — The Fund may
buy or sell money market securities on a when issued, delayed
delivery and forward commitment basis. In these transactions, the
Fund buys or sells the securities at an established price with
payment and delivery taking place in the future. The value of the
security on the delivery date may be more or less than its purchase
or sale price.
CMA Government Securities Fund
The Fund
seeks preservation of capital, current income and liquidity. The
Fund tries to achieve its goals by investing in a diversified
portfolio of short term marketable securities that are direct U.S.
Government obligations. The Fund also enters into repurchase
agreements with banks and securities dealers that involve direct
obligations of the U.S. Government.
In seeking to
achieve the Fund’s objectives, Fund management varies the kinds
of short term U.S. Government securities held in the Fund’s
portfolio as well as its average maturity. Fund management decides
on which securities to buy and sell, as well as whether to enter
into repurchase agreements, based on its assessment of their
relative values and future interest rates.
Among the
short term U.S. Government securities the Fund may buy
are:
|
Ÿ
|
U.S.
Treasury obligations.
|
|
Ÿ
|
U.S.
Government agency securities that are backed by the full faith and
credit of the United States.
|
|
Ÿ
|
Variable
rate U.S. Government agency obligations, which have interest rates
that reset periodically prior to maturity based on a specific
index or interest rate.
|
|
Ÿ
|
Deposit
receipts, which represent interests in component parts of U.S.
Treasury bonds or other U.S. Government or U.S. Government agency
securities.
|
The Fund may
invest in short term U.S. Government securities with maturities of
up to 762 days (25 months). The Fund’s dollar-weighted average
maturity will not exceed 90 days. Short term U.S. Government
securities have little credit risk.
CMA FUNDS
19
[GRAPHIC] Details
About the Fund
ABOUT THE CMA
TAX-EXEMPT FUND PORTFOLIO MANAGER
Peter J. Hayes is the
portfolio manager of the Fund. Mr. Hayes has been a First Vice
President of MLAM since 1989, was a Vice President of MLAM from 1988
to 1997 and has been employed by MLAM since 1987.
The Fund may
also enter into repurchase agreements involving U.S. Government
securities described above. The Fund may also invest in the U.S.
Government securities described above pursuant to purchase and sale
contracts.
The Fund may
buy and sell U.S. Government securities on a when issued, delayed
delivery or forward commitment basis. In these transactions, the
Fund buys or sells a security at an established price with payment
and delivery taking place in the future. The value of the security
on the delivery date may be more or less than its purchase or sale
price.
The Fund may
not invest in securities that are issued or guaranteed by U.S.
Government entities, but not backed by the full faith and credit of
the United States.
The Fund
seeks current income exempt from Federal income taxes, preservation
of capital and liquidity. The Fund tries to achieve its goals by
investing in a diversified portfolio of short term tax-exempt
securities.
These
securities mature or reset to a new interest rate within 13 months.
Certain short term tax exempt securities have maturities longer than
13 months, but give the Fund the right to demand payment from a
financial institution within that period. The Fund treats these
securities as having a maturity of 13 months or less. The
Fund’s dollar-weighted average maturity will not exceed 90
days.
The Fund only
invests in short term tax exempt securities having one of the two
highest ratings from a nationally recognized rating agency or
unrated securities which, in the opinion of Fund management, are of
similar credit quality. Certain short term tax exempt securities are
entitled to the benefit of insurance, guarantees, letters of credit
or similar arrangements provided by a financial institution. When
this is the case, Fund management may consider the obligation of the
financial institution and its creditworthiness in determining
whether the security is an appropriate investment for the
Fund.
Management of
the Fund will seek to keep its assets fully invested to maximize the
yield on the Fund’s portfolio. There may be times when the Fund
has uninvested cash, however, which will reduce its
yield.
Fund
management will vary the types of short term tax-exempt securities
in the Fund’s portfolio, as well as its average maturity. Fund
management
determines which securities to buy based on its assessment of relative
values of different securities and future interest rates. Fund
management seeks to improve the Fund’s yield by taking
advantage of differences in yield that regularly occur between
similar kinds of securities.
The Fund does
not presently intend to invest more than 25% of its assets in short
term tax-exempt securities of issuers located in the same
state.
The Fund may
invest up to 10% of its assets in illiquid
securities.
The Fund will
not invest in taxable securities except that certain municipal
bonds, known as “private activity bonds,” may subject
certain investors to a Federal alternative minimum tax.
Distributions of income and capital gains (if any) from the Fund may
be subject to state and local income taxes.
Among the
short term tax-exempt securities the Fund may buy are:
Tax-Exempt
Notes — short term municipal debt obligations often
used to provide interim financing in anticipation of tax collection,
bond sales or other revenues.
Tax-Exempt
Commercial Paper — short term unsecured promissory notes used
to finance general short term credit needs.
Tax-Exempt
Bonds — long term debt obligations that pay
interest exempt from Federal income tax. The Fund will only invest
in long term debt obligations that have remaining maturities of 397
days or less or that the Fund has a contractual right to sell (put)
periodically or on demand within that time.
Variable Rate
Demand Obligations — floating rate securities that combine an
interest in a long term municipal bond with a right to demand
payment periodically or on notice. The Fund may also buy a
participation interest in a variable rate demand obligation owned by
a commercial bank or other financial institution. When the Fund
purchases a participation interest, it receives the right to demand
payment on notice to the owner of the obligation. The Fund will not
invest more than 20% of its total assets in participation interests
in variable rate demand obligations.
Short Term
Tax-Exempt Derivatives — a variety of securities that generally
represent the Fund’s ownership interest in one or more
municipal bonds held by a trust or partnership coupled with a
contractual right to sell (put) that
interest to a
financial institution, periodically or on demand, for a price equal
ABOUT THE CMA
TREASURY
FUND
PORTFOLIO
MANAGER
Jacqueline Rogers is
the portfolio manager of the Fund. Ms. Rogers has been a Vice
President of MLAM since 1985 and has been employed by MLAM since
1982.
to face
value. Income on the underlying municipal bonds is “passed
through” the trust or partnership to the Fund and other
institutions that have an ownership interest. Depending on the
particular security, the Fund may receive pass-through income at a
fixed interest rate or a floating municipal money market interest
rate.
Municipal Lease
Obligations — participation certificates issued by
government authorities to finance the acquisition, development or
construction of equipment, land or facilities. The certificates
represent participations in a lease or similar agreement backed by
the municipal issuer’s promise to budget for and appropriate
funds to make payments due under the lease.
When Issued and
Delayed Delivery Securities — The Fund may buy or sell short term
tax-exempt securities on a when issued or delayed delivery basis. In
these transactions, the Fund buys or sells the securities at an
established price with payment and delivery taking place in the
future. The value of the security on the delivery date may be more
or less than its purchase or sale price.
The
Fund’s portfolio represents a significant percentage of the
market in short term tax-exempt securities. A shortage of available
high quality short term tax-exempt securities will affect the yield
on the Fund’s portfolio. The Fund may suspend or limit sales of
shares if, due to such a shortage, the sale of additional shares
would not be in the best interest of the Fund’s
shareholders.
The Fund
seeks preservation of capital, liquidity and current income. The
Fund tries to achieve its goals by investing exclusively in a
diversified portfolio of short term marketable securities that are
direct obligations of the U.S. Treasury.
The Fund may
invest in short term U.S. Treasury securities with maturities of up
to 762 days (25 months). The Fund’s dollar-weighted average
maturity will not exceed 90 days. Short term U.S. Treasury
securities have little credit risk.
In seeking to
achieve the Fund’s objectives, Fund management varies the kinds
of short term U.S. Treasury securities held in the Fund’s
portfolio and its average maturity. Fund management decides on which
U.S. Treasury securities to buy and sell based on its assessment of
their relative values and future interest rates.
The Fund may
buy or sell U.S. Treasury securities on a when issued, delayed
delivery or a forward commitment basis. In these transactions, the
Fund buys or sells a security at an established price with payment
and delivery taking
place in the future. The value of the security on the delivery date
may be more or less than the purchase or sale price.
This section
contains a summary discussion of the general risks of investing in
CMA Money Fund, CMA Government Securities Fund, CMA Tax-Exempt Fund
and CMA Treasury Fund. As with any mutual fund, there can be no
guarantee that a Fund will meet its goals or that a Fund’s
performance will be positive for any period of time.
Credit
Risk — Credit risk is the risk that the issuer of a
security owned by the Fund will be unable to pay the interest or
principal when due. The degree of credit risk depends on both the
financial condition of the issuer and the terms of the obligation.
While the Fund invests only in money market securities of highly
rated issuers, those issuers may still default on their
obligations.
Selection
Risk — Selection risk is the risk that the securities
that Fund management selects will underperform those of other funds
with similar investment objectives and investment
strategies.
Interest Rate
Risk — Interest rate risk is the risk that prices of
securities owned by the Fund generally increase when interest rates
go down and decrease when interest rates go up. Prices of longer
term securities generally change more in response to interest rate
changes than prices of shorter term securities.
Share Reduction
Risk — In order to maintain a constant net asset value
of $1.00 per share, the Fund may reduce the number of shares held by
its shareholders.
Borrowing
Risk — The Fund may borrow only to meet redemptions.
Borrowing may exaggerate changes in the net asset value of Fund
shares and in the yield on the Fund’s portfolio. Borrowing will
cost the Fund interest expense and other fees. The cost of borrowing
money may reduce the Fund’s return.
When Issued
Securities, Delayed Delivery Securities and Forward
Commitments — When issued and delayed delivery securities and
forward commitments involve the risk that the security that the Fund
buys will lose value prior to its delivery. There is also the risk
that the security will not be
issued or
that the other party will not meet its obligation. If this occurs,
the Fund loses both the investment opportunity for the assets it has
set aside to pay for the security and any gain in the
security’s price.
Repurchase
Agreements; Purchase and Sale Contracts (applicable to all
the CMA Funds except the Tax-Exempt Fund) — The Fund may enter into certain types of
repurchase agreements or purchase and sale contracts. Under a
repurchase agreement, the seller agrees to repurchase a security
(typically a security issued or guaranteed by the U.S. Government)
at a mutually agreed upon time and price. This insulates the Fund
from changes in the market value of the security during the period,
except for currency fluctuations. A purchase and sale contract is
similar to a repurchase agreement, but purchase and sale contracts
provide that the purchaser receives any interest on the security
paid during the period. If the seller fails to repurchase the
security in either situation and the market value declines, the Fund
may lose money.
Additional Risks of CMA Money Fund
Reverse
Repurchase Agreement and Securities Lending
Risk — The Fund may enter into reverse repurchase
agreements with financial institutions. Reverse repurchase
agreements involve the risk that the other party may fail to return
the securities in a timely manner or at all. The Fund could lose
money if it is unable to recover its securities and the value of the
collateral held by the Fund is less than the value of the
securities. These events could trigger adverse tax consequences to
the Fund.
Foreign Market
Risk — The Fund may invest in U.S. dollar denominated
money market instruments and other short term debt obligations
issued by foreign banks and similar institutions. Although the Fund
will invest in these securities only if Fund management determines
they are of comparable quality to the Fund’s U.S. investments,
investing in securities of foreign issuers involves some additional
risks. These risks include the possibly higher costs of foreign
investing, and the possibility of adverse political, economic or
other developments.
Additional Risks of CMA Tax-Exempt Fund
VRDO and
Municipal Derivatives Credit Risk — When the Fund invests in variable rate demand
obligations or short term municipal derivatives, it assumes credit
risk with respect to the financial institution providing the
Fund with the
right to demand payment or put (sell) the security. While the Fund
invests only in short term municipal securities of high quality
issuers, or which are backed by high quality financial institutions,
those issuers or financial institutions may still default on their
obligations.
Short Term
Municipal Derivatives — Short term municipal derivatives present certain
unresolved tax, legal, regulatory and accounting issues not
presented by investments in other short term municipal securities.
These issues might be resolved in a manner adverse to the Fund. For
example, the Internal Revenue Service has never ruled on the subject
of whether pass-through income paid to the Fund is tax-exempt. The
Fund receives an opinion of counsel that pass-through income is
tax-exempt, but that does not mean that the IRS will never rule that
pass-through income is taxable.
Municipal Lease
Obligations — In a municipal lease obligation, the issuer often
agrees to budget for and appropriate municipal funds to make
payments due on the lease obligation. However, this does not ensure
that funds will actually be appropriated in future years. The issuer
does not pledge its unlimited taxing power for the payment of the
lease obligation but the leased property secures the obligation. In
addition, the proceeds of sale might not cover the Fund’s
loss.
Illiquid
Securities — If the Fund buys illiquid securities, it may be
unable to quickly resell them or may be able to sell them only at a
price below current value.
CMA FUNDS
25
[GRAPHIC] Details
About the Fund
STATEMENT OF
ADDITIONAL INFORMATION
If you would
like further information about the Funds, including how each Fund
invests, please see the Statement of Additional
Information.
CMA FUNDS
26
Your Account
[GRAPHIC]
HOW TO BUY, SELL AND TRANSFER SHARES
The chart on the following pages summarizes how to buy, sell and
transfer shares of each Fund through Merrill Lynch. You may also buy
and sell shares through the Transfer Agent. To learn more about
buying, selling and transferring shares through the Transfer Agent,
call 1-800-MER-FUND. Because the selection of a mutual fund involves
many considerations, your Merrill Lynch Financial Consultant may
help you with this decision.
Because of
the high costs of maintaining smaller shareholder accounts, the Fund
may redeem the shares in your account (without charging any deferred
sales charge) if the net asset value of your account falls below
$500 due to redemptions you have made. You will be notified that the
value of your account is less than $500 before the Fund makes an
involuntary redemption. You will then have 60 days to make an
additional investment to bring the value of your account to at least
$500 before the Fund takes any action. This involuntary redemption
does not apply to retirement plans or Uniform Gifts or Transfers to
Minors Acts accounts.
CMA FUNDS
27
[GRAPHIC] Your
Account
| If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
| Buy
Shares |
|
Determine the
amount of
your investment |
|
If you are a CMA
program subscriber, there is no minimum initial
investment for Fund shares, but the minimum for the program is
$20,000 in cash and/or securities. |
|
| |
|
|
|
If you are not a
CMA program subscriber, the minimum initial
investment for a Fund is $5,000. |
|
|
|
Have cash balances
from
your account automatically
invested in shares of the |
|
If you are a CMA
program subscriber and you choose to have your
cash balances automatically invested in shares of a designated
Fund, they will be invested as follows: |
|
| |
|
Fund designated as
your
primary money account |
|
Ÿ Except as described below, cash balances of less than
$1,000 in a
CMA account are automatically invested in shares of the Fund at the
next determined net asset value not later than the first business day
of each week on which both the New York Stock Exchange and New
York banks are open, which will usually be a Monday. |
|
| |
|
|
|
Ÿ Cash
balances from (i) a sale of securities that does not settle on the
day the sale is made, (ii) a sale of securities that settles on a
same day
basis, (iii) a repayment of principal on debt securities held in the
CMA
account or (iv) a sale of shares of Merrill Lynch Ready Assets Trust
or
Merrill Lynch U.S.A. Government Reserves will be invested in shares
of
the Fund at the next determined net asset value on the business day
following the day on which proceeds of the transaction are received
by the CMA account. |
|
| |
|
|
|
Ÿ A
cash deposit of $1,000 or more to the CMA account, other than a
manual investment placed through your Merrill Lynch Financial
Consultant, or cash balances of $1,000 or more from a payment of
dividends or interest on securities held in your CMA account will be
invested in shares of the Fund at the next determined net asset value
on the next business day if the deposit is delivered or payment is
received prior to the cashiering deadline in the brokerage office in
which the deposit is made. Check with your Merrill Lynch Financial
Consultant regarding the cashiering deadline in his or her branch. If
the deposit is made, or payment received, after the applicable
cashiering deadline, the cash balance will be invested in shares of
the
Fund at the net asset value next determined on the second business
day following the date of the deposit or payment. |
|
CMA FUNDS
28
| If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
Buy Shares
(continued) |
|
Have your Merrill
Lynch
Financial Consultant submit
your purchase order |
|
If you are a CMA
program subscriber, you may make manual
investments of $1,000 or more in any CMA Fund not designated as
your primary money account. However, you may not hold shares
of more than one series of the CMA Multi-State Municipal Series
Trust at the same time. |
| |
| |
|
|
|
Generally, manual
purchases placed through Merrill Lynch will be
effective on the day following the day the order is placed, subject
to certain timing considerations. Manual purchases of $500,000 or
more can be made effective on the same day the order is placed
provided certain requirements are met. |
| |
| |
|
|
|
Each Fund may
reject any order to buy shares and may suspend
the sale of shares at any time for any reason. Merrill Lynch
reserves the right to terminate a subscriber’s participation in
the
CMA program at any time for any reason. |
| |
| |
|
|
|
When purchasing
shares as a CMA program subscriber, you will be
subject to the applicable annual program participation fee. To
receive all the services available as a CMA program subscriber, you
must complete the account opening process, including completing
or supplying requested documentation. |
|
| |
|
Or contact the
Transfer
Agent |
|
If you maintain an
account directly with the Transfer Agent and
are not a CMA program subscriber, you may call the Transfer
Agent at 1-800-MER-FUND and request a purchase application.
Mail the completed purchase application to the Transfer Agent at
the address on the inside back cover of this Prospectus. |
|
Add to Your
Investment |
|
Purchase additional
shares |
|
The minimum
investment for additional purchases (other than
automatic purchases) is $1,000 for all accounts. |
|
| |
|
Acquire additional
shares
through the automatic
dividend reinvestment plan |
|
All dividends are
automatically reinvested in the form of
additional shares at net asset value. |
|
Transfer Shares to
Another Securities
Dealer |
|
Transfer to a
participating
securities dealer |
|
You may transfer
your Fund shares only to another securities
dealer that has entered into an agreement with Merrill Lynch.
Certain shareholder services may not be available for the
transferred shares. You may only purchase additional shares of
funds previously owned before the transfer. All future trading of
these assets must be coordinated by the receiving firm. |
|
| |
|
Transfer to a non-
participating securities
dealer |
|
If you no longer
maintain a CMA account, you must either transfer
your shares to an account with the Transfer Agent or they will be
automatically redeemed. Shareholders maintaining accounts with
the Transfer Agent are not entitled to the services available to
CMA program subscribers. |
|
CMA FUNDS
29
[GRAPHIC] Your
Account
| If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
| Sell Your
Shares |
|
Automatic
Redemption |
|
Each Fund has
instituted an automatic redemption procedure for
CMA program subscribers who have elected to have cash balances
in their accounts automatically invested in shares of a designated
Fund. For these subscribers, unless directed otherwise, Merrill
Lynch will redeem a sufficient number of shares of the Fund to
satisfy debit balances in the account (i) created by activity therein
or (ii) created by Visa® card purchases, cash advances or checks
written against the Visa® account. Each CMA account will be
automatically scanned for debits each business day prior to 12
noon, Eastern time. After application of any cash balances in the
account to these debits, shares of the Fund designated as the
primary money account and, to the extent necessary, shares of
other CMA Funds or money accounts will be redeemed at net asset
value at the 12 noon, Eastern time, to satisfy remaining
debits. |
|
| |
|
Have your Merrill
Lynch
Financial Consultant submit
your sales order |
|
If you are a CMA
program subscriber, you may redeem your shares
directly by submitting a written notice of redemption to Merrill
Lynch, which will submit the request to the Transfer Agent. Cash
proceeds from the redemption generally will be mailed to you at
your address of record, or upon request, mailed or wired (if
$10,000 or more) to your bank account. Redemption requests
should not be sent to the Fund or its Transfer Agent. If
inadvertently sent to the Fund or the Transfer Agent, redemption
requests will be forwarded to Merrill Lynch. All shareholders on
the account must sign the letter and signatures must be
guaranteed (e.g., by a bank or a broker). |
| |
| |
|
|
|
Redemptions of Fund
shares will be confirmed to CMA program
subscribers (rounded to the nearest share) in their monthly
transaction statements. |
|
|
|
Sell through the
Transfer
Agent |
|
You may sell shares
held at the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of this
prospectus. All shareholders on the account must sign the letter. A
signature guarantee will generally be required but may be waived
in certain limited circumstances. You can obtain a signature
guarantee from a bank, securities dealer, securities broker, credit
union, savings association, national securities exchange and
registered securities association. A notary public seal will not be
acceptable. Redemption requests should not be sent to the Fund
or Merrill Lynch. The Transfer Agent will mail redemption proceeds
to you at your address of record. If you make a redemption
request before the Fund has collected payment for the purchase of
shares, the Fund or the Transfer Agent may delay mailing your
proceeds. This delay will usually not exceed ten days. |
| |
| |
|
|
|
Check with the
Transfer Agent or your Merrill Lynch Financial
Consultant for details. |
|
CMA FUNDS
30
Net
Asset Value — the
market value of the Fund’s total assets after deducting
liabilities, divided by the number of shares
outstanding.
Dividends — ordinary income and capital gains paid
to shareholders. Dividends may be reinvested in additional Fund
shares as they are paid.
When you buy shares, you pay the net asset value
(normally $1.00 per share) without a sales charge. For the CMA Money
Fund, the CMA Government Fund and the CMA Treasury Fund, the
“penny-rounding” method is used in calculating net asset
value, meaning that the calculation is rounded to the nearest whole
cent. For the CMA Tax-Exempt Fund, net asset value is determined
using the “amortized cost” method, meaning that the
calculation is based on a valuation of the assets held by the Fund
at cost, with an adjustment for any discount or premium on a
security at the time of purchase. The net asset value is the
offering price. Shares are also redeemed at their net asset value.
Each Fund calculates its net asset value at 12 noon Eastern time on
each business day the New York Stock Exchange or New York banks are
open, immediately after the daily declaration of dividends. The net
asset value used in determining your price is the one calculated
after your purchase or redemption order becomes effective. Share
purchase orders are effective on the date federal funds become
available to the Fund.
Dividends are declared and reinvested daily in
the form of additional shares at net asset value. You will begin
accruing dividends on the day following the date your purchase
becomes effective. In most cases, shareholders will receive
statements monthly as to such reinvestments. Shareholders redeeming
their holdings will receive all dividends declared and reinvested
through the date of redemption. The CMA Money Fund, the CMA
Government Securities Fund and the CMA Treasury Fund intend to make
distributions, most of which will be taxed as ordinary income,
although each Fund may distribute capital gains as well. The CMA
Tax-Exempt Fund intends to make distributions most of which will be
excludable from gross income for Federal income tax purposes, but
may distribute taxable capital gains as well.
If you redeem
shares of a Fund or exchange them for shares of another fund, you
generally will be treated as having sold your shares, and any gain
on the transaction may be subject to tax. Capital gains are
generally taxed at different rates than ordinary income
dividends.
CMA FUNDS
31
[GRAPHIC] Your
Account
Generally,
within 60 days after the end of each Fund’s taxable year, each
Fund will tell you the amount of any exempt interest dividends and
capital gain dividends you received that year. Capital gain
dividends are taxable as long term capital gains to you regardless
of how long you have held your shares. The tax treatment of
distributions from a Fund is the same whether you choose to receive
distributions in cash or to have them reinvested in shares of the
Fund.
If the value
of assets held by a Fund declines, the Trustees may authorize a
reduction in the number of outstanding shares in shareholders’
accounts so as to preserve a net asset value of $1.00 per share.
After such a reduction, the basis of your eliminated shares would be
added to the basis of your remaining Fund shares, and you could
recognize a capital loss if you disposed of your shares at that
time. Dividends from the CMA Money Fund, the CMA Government
Securities Fund or the CMA Treasury Fund, including dividends
reinvested in additional shares of such Fund, will nonetheless be
fully taxable, even if the number of shares in your account has been
reduced as described above.
If you are
neither a lawful permanent resident nor a citizen of the U.S., or if
you are a foreign entity, each Fund’s ordinary income dividends
(which include distributions of net short term capital gains) will
generally be subject to a 30% U.S. withholding tax, unless a lower
treaty rate applies.
Dividends and
interest received by a Fund may give rise to withholding and other
taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such
taxes.
By law, each
Fund must withhold 31% of your dividends and redemption proceeds if
you have not provided a taxpayer identification number to the Fund
or the number is incorrect.
This section
summarizes some of the consequences under current Federal tax law of
an investment in each Fund. It does not address the potential state
and/or local income tax consequences of your investment and is not a
substitute for personal tax advice. Consult your personal tax
adviser about the potential tax consequences of an investment in
each Fund under all applicable tax laws.
CMA FUNDS
32
Management of the
Funds [GRAPHIC]
Fund Asset
Management, the Manager for each Fund, manages each Fund’s
investments and business operations under the overall supervision of
each Fund’s Board of Trustees. The Manager has the
responsibility for making all investment decisions for the Fund.
Each Fund pays the Manager a fee at the annual rate of 0.500% of the
Fund’s average daily net assets not exceeding $500 million;
0.425% of the average daily net assets exceeding $500 million but
not exceeding $1 billion; and 0.375% of the average daily net assets
exceeding $1 billion.
Fund Asset
Management was organized as an investment adviser in 1977 and offers
investment advisory services to more than 40 registered investment
companies. Fund Asset Management is part of The Merrill Lynch Asset
Management Group of ML & Co. The Asset Management Group had
approximately $556 million in investment company and other portfolio
assets under management as of May 2000. This amount includes assets
managed for Merrill Lynch affiliates.
CMA FUNDS
33
[GRAPHIC] Management
of the Funds
FINANCIAL HIGHLIGHTS FOR CMA MONEY FUND
The following
Financial Highlight tables are intended to help you understand each
Fund’s financial performance for the past five years. Certain
information reflects financial results for a single Fund share. The
total returns in the tables represent the rate an investor would
have earned or lost on an investment in the respective Fund
(assuming reinvestment of all dividends). This information has been
audited by Deloitte & Touche LLP, whose
report, along with the Fund’s financial statements, is included
in each Fund’s annual report to shareholders, which is
available upon request.
| |
|
CMA Money
Fund
|
| |
|
For the Year
Ended March 31,
|
| Increase
(Decrease) in Net Asset Value: |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
| Per Share
Operating Performance: |
|
| Net asset value,
beginning of year |
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
| Investment
income — net |
|
.0491 |
|
|
.0483 |
|
|
.0512 |
|
|
.0490 |
|
|
.0529 |
|
|
| Realized and
unrealized gain (loss) on
investments — net |
|
(.0004 |
) |
|
.0002 |
|
|
.0004 |
|
|
— |
† |
|
.0003 |
|
|
| Total from
investment operations |
|
.0487 |
|
|
.0485 |
|
|
.0516 |
|
|
.0490 |
|
|
.0532 |
|
|
| Less dividends and
distributions: |
| Investment
income — net |
|
(.0491 |
) |
|
(.0483 |
) |
|
(.0512 |
) |
|
(.0490 |
) |
|
(.0529 |
) |
| Realized gain on
investments — net |
|
— |
† |
|
(.0002 |
) |
|
(.0001 |
) |
|
(.0002 |
) |
|
(.0006 |
) |
|
| Total dividends and
distributions |
|
(.0491 |
) |
|
(.0485 |
) |
|
(.0513 |
) |
|
(.0492 |
) |
|
(.0535 |
) |
|
| Net asset value,
end of year |
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
| Total Investment
Return |
|
5.02 |
% |
|
4.98 |
% |
|
5.26 |
% |
|
5.04 |
% |
|
5.49 |
% |
|
| Ratios to
Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses, excluding
interest expenses |
|
.55 |
% |
|
.56 |
% |
|
.56 |
% |
|
.55 |
% |
|
— |
† |
|
| Expenses |
|
.56 |
% |
|
.57 |
% |
|
.57 |
% |
|
.56 |
% |
|
.56 |
% |
|
| Investment income
and realized gain on investments — net |
|
4.92 |
% |
|
4.84 |
% |
|
5.13 |
% |
|
4.89 |
% |
|
5.35 |
% |
|
| Supplemental
Data: |
|
| Net assets, end of
year (in thousands) |
|
$67,788,051 |
|
|
$60,341,146 |
|
|
$50,923,780 |
|
|
$41,984,753 |
|
|
$36,922,858 |
|
|
†
|
Amount is
less than $.0001 per share.
|
CMA GOVERNMENT
SECURITIES FUND
34
FINANCIAL HIGHLIGHTS FOR CMA GOVERNMENT SECURITIES FUND
| |
|
CMA Government
Securities Fund
|
| |
|
For the Year
Ended March 31,
|
| Increase
(Decrease) in Net Asset Value: |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
| Per Share
Operating Performance: |
|
| Net asset value,
beginning of year |
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
| Investment
income — net |
|
.0462 |
|
|
.0468 |
|
|
.0501 |
|
|
.0477 |
|
|
.0521 |
|
|
| Realized and
unrealized gain (loss) on
investments — net |
|
(.0006 |
) |
|
.0002 |
|
|
.0007 |
|
|
(.0004 |
) |
|
.0002 |
|
|
| Total from
investment operations |
|
.0456 |
|
|
.0470 |
|
|
.0508 |
|
|
.0473 |
|
|
.0523 |
|
|
| Less dividends and
distributions: |
| Investment
income — net |
|
(.0462 |
) |
|
(.0468 |
) |
|
(.0501 |
) |
|
(.0477 |
) |
|
(.0521 |
) |
| Realized gain on
investments — net |
|
— |
† |
|
(.0001 |
) |
|
(.0001 |
) |
|
— |
† |
|
(.0003 |
) |
|
| Total dividends and
distributions |
|
(.0462 |
) |
|
(.0469 |
) |
|
(.0502 |
) |
|
(.0477 |
) |
|
(.0524 |
) |
|
| Net asset value,
end of year |
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
| Total Investment
Return |
|
4.71 |
% |
|
4.81 |
% |
|
5.15 |
% |
|
4.96 |
% |
|
5.37 |
% |
|
| Ratios to
Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses |
|
.56 |
% |
|
.57 |
% |
|
.57 |
% |
|
.56 |
% |
|
.57 |
% |
|
| Investment income
and realized gain on investments — net |
|
4.60 |
% |
|
4.68 |
% |
|
5.02 |
% |
|
4.81 |
% |
|
5.25 |
% |
|
| Supplemental
Data: |
|
| Net assets, end of
year (in thousands) |
|
$3,288,573 |
|
|
$3,693,186 |
|
|
$3,540,040 |
|
|
$3,423,468 |
|
|
$3,345,603 |
|
|
†
|
Amount is
less than $.0001 per share.
|
CMA MONEY
FUND
35
[GRAPHIC] Management
of the Funds
FINANCIAL HIGHLIGHTS FOR CMA TAX-EXEMPT FUND
| |
|
CMA Tax-Exempt
Fund
|
| |
|
For the Year
Ended March 31,
|
| Increase
(Decrease) in Net Asset Value: |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
| Per Share
Operating Performance: |
|
| Net asset value,
beginning of year |
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
| Investment
income — net |
|
.03 |
|
|
.03 |
|
|
.03 |
|
|
.03 |
|
|
.03 |
|
|
| Realized gain
(loss) on investments — net |
|
— |
† |
|
— |
† |
|
— |
† |
|
— |
† |
|
— |
† |
|
| Total from
investment operations |
|
.03 |
|
|
.03 |
|
|
.03 |
|
|
.03 |
|
|
.03 |
|
|
| Less dividends from
investment income — net |
|
(.03 |
) |
|
(.03 |
) |
|
(.03 |
) |
|
(.03 |
) |
|
(.03 |
) |
|
| Net asset value,
end of year |
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
| Total Investment
Return |
|
2.91 |
% |
|
2.87 |
% |
|
3.16 |
% |
|
3.00 |
% |
|
3.31 |
% |
|
| Ratios to
Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses |
|
.54 |
% |
|
.55 |
% |
|
.55 |
% |
|
.55 |
% |
|
.55 |
% |
|
| Investment
income — net |
|
2.87 |
% |
|
2.83 |
% |
|
3.11 |
% |
|
2.94 |
% |
|
3.26 |
% |
|
| Supplemental
Data: |
|
| Net assets, end of
year (in thousands) |
|
$10,188,792 |
|
|
$9,730,131 |
|
|
$9,356,705 |
|
|
$8,347,278 |
|
|
$8,164,160 |
|
|
|
| † Amount is less than $.01 per share. |
CMA TREASURY
FUND
36
FINANCIAL HIGHLIGHTS FOR CMA TREASURY FUND
| |
|
CMA Treasury
Fund
|
| |
|
For the Year
Ended March 31,
|
| Increase
(Decrease) in Net Asset Value: |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
| Per Share
Operating Performance: |
|
| Net asset value,
beginning of year |
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
| Investment
income — net |
|
.0434 |
|
|
.0438 |
|
|
.0475 |
|
|
.0461 |
|
|
.0498 |
|
|
| Realized and
unrealized gain (loss) on
investments — net |
|
.0004 |
|
|
.0001 |
|
|
.0008 |
|
|
(.0001 |
) |
|
.0001 |
|
|
| Total from
investment operations |
|
.0438 |
|
|
.0439 |
|
|
.0483 |
|
|
.0460 |
|
|
.0499 |
|
|
| Less dividends and
distributions: |
| Investment
income — net |
|
(.0434 |
) |
|
(.0438 |
) |
|
(.0475 |
) |
|
(.0461 |
) |
|
(.0498 |
) |
| Realized gain on
investments — net |
|
(.0001 |
) |
|
(.0002 |
) |
|
(.0005 |
) |
|
(.0001 |
) |
|
(.0003 |
) |
|
| Total dividends
and distributions |
|
(.0435 |
) |
|
(.0440 |
) |
|
(.0480 |
) |
|
(.0462 |
) |
|
(.0501 |
) |
|
| Net asset value,
end of year |
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
$
1.00 |
|
|
| Total
Investment Return |
|
4.44 |
% |
|
4.50 |
% |
|
4.92 |
% |
|
4.74 |
% |
|
5.14 |
% |
|
| Ratios to
Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses |
|
.57 |
% |
|
.58 |
% |
|
.60 |
% |
|
.59 |
% |
|
.60 |
% |
|
| Investment income
and realized gain on investments — net |
|
4.38 |
% |
|
4.37 |
% |
|
4.82 |
% |
|
4.59 |
% |
|
5.01 |
% |
|
| Supplemental
Data: |
|
| Net assets, end of
year (in thousands) |
|
$2,594,450 |
|
|
$2,455,126 |
|
|
$2,279,822 |
|
|
$1,968,516 |
|
|
$1,791,760 |
|
|
CMA TAX-EXEMPT
FUND
37
[This page
intentionally left blank]
CMA
FUNDS
[FLOW CHART]
POTENTIAL
INVESTORS
Open an account (two options).
1
CMA PROGRAM SUBSCRIBER'S
MERRILL LYNCH
FINANCIAL CONSULTANT
Advises shareholders on their fund investments.
2
TRANSFER AGENT
Financial Data Services, Inc.
ADMINISTRATIVE OFFICES
4800 Deer Lake Drive East
Jacksonville, Florida 32246-5289
MAILING ADDRESS
P.O. BOX 45289
Jacksonville, Florida 32232-5289
1-800-221-7210
Performs recordkeeping and reporting services.
DISTRIBUTOR
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4 World Financial Center
New York, New York 10281
Arranges for the sale of Fund shares.
THE FUNDS
The Board of Trustees
oversees each Fund.
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
Provides legal advice to the Fund.
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02101
Holds the Fund's assets for safekeeping.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Princeton Forrestal Village
116-300 Village Boulevard
Princeton, New Jersey 08540-6400
Audits the financial statements of the
Fund on behalf of the shareholders.
MANAGER
Fund Asset Management L.P.
ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Plainsboro, New Jersey 08536
MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day activities.
CMA
FUNDS
|
For More
Information [GRAPHIC]
|
|
Additional
information about each Fund’s investments is available in
the Fund’s annual and semi-annual reports to shareholders.
You may obtain these reports at no cost by calling
1-800-MER-FUND.
|
|
Each Fund will
send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To
receive separate shareholder reports for each account, call your
Merrill Lynch Financial Consultant or write to the Transfer Agent
at its mailing address. Include your name, address, tax
identification number and Merrill Lynch brokerage or mutual fund
account number. If you have any questions, please call your
Merrill Lynch Financial Consultant or the Transfer Agent at
1-800-MER-FUND.
|
|
Statement of Additional Information
|
|
The Statement of
Additional Information contains further information about each
Fund and is incorporated by reference (legally considered to be
part of this Prospectus). You may request a free copy by writing
the Fund at
|
Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289 or
by calling 1-800-MER-FUND.
Contact your Merrill
Lynch Financial Consultant or the Fund at the telephone number or
address indicated above if you have any questions.
Information about
each Fund (including the Statement of Additional Information) can
be reviewed and copied at the SEC’s Public Reference Room in
Washington, D.C. Call 1-202-942-8090 for information on the
operation of the public reference room. This information is also
available on the SEC’s Internet site at http://www.sec.gov and
copies may be obtained upon payment of a duplicating fee by
electronic request at the following E-mail address:
[email protected], or by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-0102.
You should rely
only on the information contained in this Prospectus. No one is
authorized to provide you with information that is different from
the information contained in this Prospectus.
Investment Company
Act file #811-2752, #811-3205, #811-3111, #811-6196
Code
#10117-06-00
©
Fund Asset Management, L.P.
[LOGO OF MERRILL
LYNCH]
Prospectus
June 29,
2000
STATEMENT OF ADDITIONAL INFORMATION
CMA Money
Fund
CMA
Government Securities Fund
CMA
Tax-Exempt Fund
CMA
Treasury Fund
P.O. Box
9011, Princeton, New Jersey 08543-9011 Ÿ Phone No. (609) 282-2800
CMA Money
Fund (the “Money Market Fund”), CMA Government Securities
Fund (the “Government Fund”), CMA Tax-Exempt Fund (the
“Tax-Exempt Fund”) and CMA Treasury Fund (the
“Treasury Fund”) (collectively, the “Funds”),
are no-load money market funds whose shares are offered to
participants in the Cash Management Account® (“CMA”
or “CMA account”) financial service program of Merrill
Lynch, Pierce, Fenner & Smith Incorporated (“Merrill
Lynch”). The CMA Tax-Exempt Fund is available to provide a
medium for the investment of free cash balances held in CMA
accounts. A CMA account is a conventional Merrill Lynch cash
securities account or margin securities account (“Securities
Account”) that is linked to the Tax-Exempt Fund money market
deposit account maintained with depository institutions and to a
Visa® card/check account (“Visa® Account”). In
addition, investors may have their free cash balances invested in
certain series of CMA Multi-State Municipal Series Trust, each of
which is designed to provide income that is exempt from taxation in
a particular state (the “CMA State Funds”). Merrill Lynch
markets its margin account under the name Investor
CreditLine
SM
service.
Each CMA
Fund is a no-load money market fund seeking current income,
preservation of capital and liquidity available from investing in
short term securities. Of the CMA Funds offered by this Prospectus,
CMA Money Fund invests in money market securities generally; CMA
Government Securities Fund invests in direct U.S. Government
obligations; CMA Tax-Exempt Fund invests in tax-exempt securities
and pays dividends exempt from Federal income taxation; and CMA
Treasury Fund invests in U.S. Treasury securities. The CMA Funds
also include the CMA State Funds. At the date hereof, CMA State
Funds exist with respect to Arizona, California, Connecticut,
Massachusetts, Michigan, New Jersey, New York, North Carolina, Ohio
and Pennsylvania. There can be no assurance that each Fund’s
investment objectives will be achieved.
A customer
of Merrill Lynch may subscribe to the CMA program with a minimum of
$20,000 in securities or cash. Subject to the conditions described
in the Prospectus referred to below, free cash balances in the
Securities Account of CMA participants will be invested
periodically in shares of CMA Tax-Exempt Fund or one of the CMA
State Funds. This permits the subscriber to earn a return on such
funds pending further investment in other aspects of the CMA
program or utilization through the Visa® Account.
(continued on next page)
This
Statement of Additional Information of the Funds is not a
prospectus and should be read in conjunction with the Prospectus of
the Funds, dated June 29, 2000 (the “Prospectus”), which
has been filed with the Securities and Exchange Commission (the
“Commission”) and can be obtained, without charge, by
calling (800) MER-FUND or by writing each Fund at the above
address. The Prospectus is incorporated by reference into this
Statement of Additional Information, and this Statement of
Additional Information is incorporated by reference into the
Prospectus. Each Fund’s audited financial statements are
incorporated in this Statement of Additional Information by
reference to each Fund’s 2000 annual report to shareholders.
You may request a copy of each annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m.
Eastern time on any business day.
Fund
Asset Management—Manager
The date of
this Statement of Additional Information is June 29,
2000.
(continued from previous page)
Merrill
Lynch charges an annual program participation fee, presently $100
for individuals, for the CMA program (an additional $25 annual
program fee is charged for participation in the CMA Visa® Gold
Program or an additional $75 annual program fee is charged for
participation in the CMA Visa® Signature
SM
Program, as
described in the CMA Program Description). A different fee may be
charged to certain group plans and special accounts. Participants
in such plans or special accounts should refer to the relevant
program descriptions or other explanatory material to determine
which of the CMA Funds are available to them. Merrill Lynch
reserves the right to change the fee for the CMA program or the CMA
Visa® Gold Program or the CMA Visa® Signature
SM
Program at
any time. The shares of each Fund also may be purchased without the
imposition of the annual program participation fee by investors
maintaining accounts directly with the Transfer Agent who do not
subscribe to the CMA program. The minimum initial purchase for
non-CMA subscribers is $5,000 and subsequent purchases must be
$1,000 or more. Such investors will not receive any of the
additional services available to CMA program subscribers, such as a
Visa® card/check account or the automatic investment of free
cash balances.
The
information in this document should be read in conjunction with the
description of the Merrill Lynch Cash Management Account program
that is furnished to all CMA subscribers. Reference is made to such
description for information with respect to the CMA program,
including the fees related thereto. Information concerning the
other CMA Funds is contained in the prospectus relating to each of
such Funds, and information concerning the Insured Savings Account
is contained in the Insured Savings Account Fact Sheet. All CMA
subscribers are furnished with the prospectuses of CMA Money Fund,
CMA Government Securities Fund, CMA Tax-Exempt Fund and CMA
Treasury Fund. The prospectuses of the CMA State Funds and the
Insured Savings Account Fact Sheet are available from Merrill
Lynch. For more information about the Merrill Lynch Cash Management
Account program, call toll-free from anywhere in the U.S.,
1-800-CMA-INFO (1-800-262-4636).
TABLE OF
CONTENTS
INVESTMENT OBJECTIVES AND POLICIES
The Money
Market Fund is a no-load money market fund. The investment
objectives of the Money Market Fund are to seek current income,
preservation of capital and liquidity available from investing in a
diversified portfolio of short term money market securities. The
investment objectives are fundamental policies of the Money Market
Fund that may not be changed without a vote of the majority of the
outstanding shares of the Money Market Fund. There can be no
assurance that the investment objectives of the Money Market Fund
will be realized.
The Money
Market Fund’s investments in U.S. Government and Government
agency securities will be in instruments with a remaining maturity
of 762 days (25 months) or less. The Money Market Fund’s other
investments will be in instruments with a remaining maturity of 397
days (13 months) or less that have received a short term rating, or
that have been issued by issuers that have received a short term
rating with respect to a class of debt obligations that are
comparable in priority and security with the instruments, from the
requisite nationally recognized statistical rating organizations
(“NRSROs”) in one of the two highest short term rating
categories or, if neither the instrument nor its issuer is so
rated, will be of comparable quality as determined by the Trustees
of the Money Market Fund (or by Fund Asset Management, L.P. (the
“Manager” or “FAM”) pursuant to delegated
authority). Currently, there are four NRSROs: Duff & Phelps
Credit Rating Co., Fitch IBCA, Duff & Phelps
(“Fitch”), Thomson BankWatch, Inc., Moody’s
Investors Service, Inc. (“Moody’s”) and Standard
& Poor’s Ratings Services (“Standard &
Poor’s”). The Money Market Fund will determine the
remaining maturity of its investments in accordance with Commission
regulations. The dollar-weighted average maturity of the
Fund’s portfolio will not exceed 90 days. During the
Fund’s fiscal year ended March 31, 2000, the average maturity
of its portfolio ranged from 49 days to 79 days.
Investment
in Money Market Fund shares offers several potential benefits. The
Money Market Fund seeks to provide as high a yield potential,
consistent with its objectives, as is available through investment
in short term money market securities using professional money
market management, block purchases of securities and yield
improvement techniques. It provides high liquidity because of its
redemption features and seeks the reduced risk that generally
results from diversification of assets. The shareholder is also
relieved from administrative burdens associated with direct
investment in short term securities, such as coordinating
maturities and reinvestments, safekeeping and making numerous
buy-sell decisions. These benefits are at least partially offset by
certain expenses borne by investors, including management fees,
distribution fees, administrative costs and operational
costs.
In managing
the Fund, the Manager will employ a number of professional money
management techniques, including varying the composition of
investments and the average maturity of the portfolio based on its
assessment of the relative values of the various securities and
future interest rate patterns. These assessments will respond to
changing economic and money market conditions and to shifts in
fiscal and monetary policy. The Manager also will seek to improve
yield by taking advantage of yield disparities that regularly occur
in the money market. For example, market conditions frequently
result in similar securities trading at different prices. Also,
there frequently are differences in yields between the various
types of money market securities. The Money Market Fund seeks to
enhance yield by purchasing and selling securities based on these
yield differences.
The
following is a description of some of the types of money market
securities in which the Money Market Fund may invest:
U.S.
Government Securities. Marketable
securities issued by or guaranteed as to principal and interest by
the U.S. Government and supported by the full faith and credit of
the United States.
U.S.
Government Agency Securities. Debt
securities issued by U.S. Government-sponsored enterprises,
agencies and instrumentalities, including, but not limited to, the
Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, the Student Loan Marketing Association and
the Federal Agricultural Mortgage Corporation. Such securities may
also include debt securities issued by international organizations
designated or supported by multiple governmental entities, such as
the International Bank for Reconstruction and Development (the
“World Bank”). Government Agency securities are not
direct obligations of the
U.S. Government but involve various forms of U.S. Government
sponsorship or guarantees and are issued, in general, under the
authority of an act of Congress. The U.S. Government is not
obligated to provide financial support to any of these agencies,
instrumentalities or organizations.
Bank
Money Instruments. U.S.
dollar-denominated obligations of commercial banks, savings banks,
savings and loan associations or other depository institutions such
as, but not limited to, certificates of deposit, including variable
rate certificates of deposit, time deposits, deposit notes, bank
notes and bankers’ acceptances. The obligations of commercial
banks may be issued by U.S. banks, foreign branches or subsidiaries
of U.S. banks (“Eurodollar” obligations) or U.S. branches
or subsidiaries of foreign banks (“Yankeedollar”
obligations). The Money Market Fund may invest only in Eurodollar
obligations which by their terms are general obligations of the
U.S. parent bank. Yankeedollar obligations in which the Money
Market Fund may invest must be issued by U.S. branches or
subsidiaries of foreign banks which are subject to state or Federal
banking regulations in the U.S. and by their terms must be general
obligations of the foreign parent.
Eurodollar
and Yankeedollar obligations, as well as other obligations of
foreign depository institutions and short term obligations issued
by other foreign entities, may involve additional investment risks,
including adverse political and economic developments, the possible
imposition of withholding taxes on interest income payable on such
obligations, the possible seizure or nationalization of foreign
deposits and the possible establishment of exchange controls or
other foreign governmental laws or restrictions which might
adversely affect the repayment of principal and the payment of
interest. The issuers of such obligations may not be subject to
U.S. regulatory requirements. Foreign branches or subsidiaries of
U.S. banks may be subject to less stringent reserve requirements
than U.S. banks. U.S. branches or subsidiaries of foreign banks are
subject to the reserve requirements of the states in which they are
located. There may be less publicly available information about a
U.S. branch or subsidiary of a foreign bank or other issuer than
about a U.S. bank or other issuer, and such entities may not be
subject to the same accounting, auditing and financial record
keeping standards and requirements as U.S. issuers. Evidence of
ownership of Eurodollar and foreign obligations may be held outside
the United States, and the Money Market Fund may be subject to the
risks associated with the holding of such property overseas.
Eurodollar and foreign obligations of the Money Market Fund held
overseas will be held by foreign branches of the Money Market
Fund’s custodian or by other U.S. or foreign banks under
subcustodian arrangements complying with the requirements of the
Investment Company Act of 1940, as amended (the “Investment
Company Act”).
The Manager
will carefully consider the above factors in making investments in
Eurodollar obligations, Yankeedollar obligations of foreign
depository institutions and other foreign short term obligations,
and will not knowingly purchase obligations which, at the time of
purchase, are subject to exchange controls or withholding taxes.
Generally, the Money Market Fund will limit its Yankeedollar
investments to obligations of banks organized in Canada, France,
Germany, Japan, the Netherlands, Switzerland, the United Kingdom
and other industrialized nations.
Bank money
instruments in which the Money Market Fund invests must be issued
by depository institutions with total assets of at least $1
billion, except that the Money Market Fund may invest in
certificates of deposit of smaller institutions if such
certificates of deposit are Federally insured and if, as a result
of such purchase, no more than 10% of total assets (taken at market
value), are invested in such certificates of deposit.
Commercial Paper and Other Short Term
Obligations. Commercial paper (including
variable amount master demand notes) refers to short term unsecured
promissory notes issued by corporations, partnerships, trusts or
other entities to finance short term credit needs and
non-convertible debt securities (e.g., bonds and debentures)
with no more than 397 days (13 months) remaining to maturity at the
date of purchase. Short term obligations issued by trusts,
corporations, partnerships or other entities include
mortgage-related or asset-backed instruments, including
pass-through certificates such as participations in, or bonds and
notes backed by, pools of mortgage, automobile, manufactured
housing or other types of consumer loans; credit card or trade
receivables; or pools of mortgage- or asset-backed securities.
These structured financings will be supported by sufficient
collateral and other credit enhancements, including letters of
credit, insurance, reserve funds and guarantees by third parties,
to enable such instruments to obtain the requisite quality rating
by an NRSRO.
Foreign
Bank Money Instruments. U.S.
dollar-denominated obligations of foreign depository institutions
and their foreign branches and subsidiaries, such as, but not
limited to, certificates of deposit, bankers’ acceptances,
time deposits, bank notes and deposit notes. The obligations of
such foreign depository institutions and their foreign branches and
subsidiaries may be the general obligations of the parent bank or
may be limited to the issuing branch or subsidiary by the terms of
the specific obligation or by government regulation. Such
investments will only be made if determined to be of comparable
quality to other investments permissible for the Money Market Fund.
The Money Market Fund will not invest more than 25% of its total
assets (taken at market value at the time of each investment) in
these obligations.
Foreign
Short Term Debt Instruments. U.S.
dollar-denominated commercial paper and other short term
obligations issued by foreign entities. Such investments are
subject to quality standards similar to those applicable to
investments in comparable obligations of domestic
issuers.
The
following is a description of other types of investments or
investment practices in which the Money Market Fund may invest or
engage:
Repurchase Agreements. The Money
Market Fund may invest in the money market securities described
above pursuant to repurchase agreements. Under such agreements, the
counterparty agrees, upon entering into the contract, to repurchase
the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market
fluctuations during such period.
Such
agreements usually cover short periods, such as under a week. The
Money Market Fund will require the seller to provide additional
collateral if the market value of the securities falls below the
repurchase price at any time during the term of the repurchase
agreement. In the event of a default by the seller, the Money
Market Fund ordinarily will retain ownership of the securities
underlying the repurchase agreement, and instead of a contractually
fixed rate of return, the rate of return to the Money Market Fund
shall be dependent upon intervening fluctuations of the market
value of such securities and the accrued interest on the
securities. In such event, the Money Market Fund would have rights
against the seller for breach of contract with respect to any
losses arising from market fluctuations following the failure of
the seller to perform. In certain circumstances, repurchase
agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to
the purchaser. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the
underlying securities are not owned by the Money Market Fund but
only constitute collateral for the seller’s obligation to pay
the repurchase price. Therefore, the Money Market Fund may suffer
time delays and incur costs or possible losses in connection with
the disposition of the collateral. From time to time, the Money
Market Fund also may invest in money market securities pursuant to
purchase and sale contracts. While purchase and sale contracts are
similar to repurchase agreements, purchase and sale contracts are
structured so as to be in substance more like a purchase and sale
of the underlying security than is the case with repurchase
agreements.
Reverse
Repurchase Agreements. The Money Market
Fund may enter into reverse repurchase agreements that involve the
sale of money market securities held by the Money Market Fund, with
an agreement to repurchase the securities at an agreed-upon price,
date and interest payment. During the time a reverse repurchase
agreement is outstanding, the Money Market Fund will maintain a
segregated custodial account containing U.S. Government or other
appropriate liquid securities having a value equal to the
repurchase price.
The Money
Market Fund may invest in variable amount master demand notes.
These are demand obligations that permit the investment of
fluctuating amounts at varying market rates of
interest.
Lending
of Portfolio Securities. The Money
Market Fund may lend portfolio securities (with a value not in
excess of 33 1
/3% of its
total assets) to brokers, dealers and financial institutions and
receive collateral in cash or securities issued or guaranteed by
the U.S. Government which will be maintained at all times in an
amount equal to at least 100% of the current market value of the
loaned securities. This limitation is a fundamental policy of the
Money Market Fund and may not be changed without the approval of
the holders of a majority of the Money Market Fund’s
outstanding voting securities, as defined in the Investment Company
Act. During the period of the loan, such cash collateral will be
invested in short term securities, the income from which will
increase the return
to the Money Market Fund. Such loans will be terminable at any time.
The Money Market Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights. The
Money Market Fund may pay reasonable fees in connection with the
arranging of such loans.
Forward
Commitments. The Money Market Fund may
purchase or sell money market securities on a forward commitment
basis at fixed purchase or sale terms. The purchase of money market
securities on a forward commitment basis involves the risk that the
yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself;
if yields increase, the value of the securities purchased on a
forward commitment basis will generally decrease. A separate
account of the Money Market Fund will be established with the Money
Market Fund’s custodian consisting of cash or liquid money
market securities having a market value at all times at least equal
to the amount of the forward purchase commitment. By doing so, the
Money Market Fund forgoes the opportunity to sell such securities
at a higher price should they increase in value between the trade
and settlement dates.
Preservation
of capital is a prime investment objective of the Money Market
Fund, and while the types of money market securities in which the
Money Market Fund invests generally are considered to have low
principal risk, such securities are not completely risk free. There
is a risk of the failure of issuers to meet their principal and
interest obligations. With respect to repurchase agreements,
reverse repurchase agreements and the lending of portfolio
securities by the Money Market Fund, there is also the risk of the
failure of the parties involved to repurchase at the agreed-upon
price or to return the securities involved in such transactions, in
which event the Money Market Fund may suffer time delays and incur
costs or possible losses in connection with such
transactions.
Rule 2a-7
under the Investment Company Act presently limits investments by
the Money Market Fund in securities issued by any one issuer (other
than the U.S. Government, its agencies or instrumentalities)
ordinarily to not more than 5% of its total assets, or, in the
event that such securities are not First Tier Securities (as
defined in the Rule), not more than 1% of its total assets. In
addition, Rule 2a-7 requires that not more than 5% of the Money
Market Fund’s total assets be invested in Second Tier
Securities (as defined in the Rule). The Rule requires the Money
Market Fund to be diversified (as defined in the Rule) other than
with respect to government securities and securities subject to
guarantee issued by a non-controlled person (as defined in the
Rule).
Investment Restrictions. The Money
Market Fund has adopted a number of restrictions and policies
relating to the investment of its assets and its activities, which
are fundamental policies and may not be changed without the
approval of the holders of a majority of the Money Market
Fund’s outstanding voting securities (which for this purpose
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). The Money Market
Fund may not:
|
(1)
purchase any securities other than types of money
market securities and investments described under
“Investment Objectives and Policies”;
|
|
(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, U.S. Government agency securities or domestic bank
money market instruments);
|
|
(3)
purchase the securities of any one issuer, other than
the U.S. Government, its agencies or instrumentalities, if
immediately after the purchase, more than 5% of the value of its
total assets (taken at market value) would be invested in such
issuer, except that, in the case of bank money market instruments
or repurchase agreements with any one bank, up to 25% of the
value of the Fund’s total assets may be invested without
regard to such 5% limitation but shall instead be subject to a
10% limitation;
|
|
(4)
purchase more than 10% of the outstanding securities,
or more than 10% of the outstanding voting securities, of an
issuer;
|
|
(5)
enter into repurchase agreements if, as a result,
more than 10% of the Fund’s total assets (taken at market
value at the time of each investment, together with any other
investments deemed illiquid) would be subject to repurchase
agreements maturing in more than seven days;
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(6)
make investments for the purpose of exercising control or
management;
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(7)
underwrite securities issued by other
persons;
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(8)
purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition or
reorganization;
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(9)
purchase or sell real estate (other than money market
securities secured by real estate or interests therein or money
market securities issued by companies which invest in real estate
or interests therein), commodities or commodity contracts,
interests in oil, gas or other mineral exploration or development
programs;
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(10)
purchase any securities on margin, except for the use
of short term credit necessary for clearance of purchases and
sales of portfolio securities;
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(11)
make short sales of securities or maintain a short
position or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof;
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(12)
make loans to other persons, provided that the Money
Market Fund may purchase money market securities or enter into
repurchase agreements and lend securities owned or held by it
pursuant to (13) below;
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(13)
lend its portfolio securities in excess of
33 1
/3% of its
total assets, taken at market value, provided that such loans are
made according to the guidelines set forth below;
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(14)
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 (the borrowing provisions shall not apply to
reverse repurchase agreements). (Usually only
“leveraged” investment companies may borrow in excess
of 5% of their assets; however, the Money Market Fund will not
borrow to increase income but only to meet redemption requests
which might otherwise require untimely dispositions of portfolio
securities. The Money Market Fund will not purchase securities
while borrowings are outstanding. Interest paid on such
borrowings will reduce net income.);
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(15)
mortgage, pledge, hypothecate or in any manner
transfer (except as provided in (13) above) as security for
indebtedness any securities owned or held by the Money Market
Fund except as may be necessary in connection with borrowings
referred to in investment restriction (14) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of the
Money Market Fund’s net assets, taken at market
value;
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(16)
invest in securities with legal or contractual
restrictions on resale (except for repurchase agreements) or for
which no readily available market exists if, regarding all such
securities, more than 10% of its net assets (taken at market
value) would be invested in such securities;
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(17)
invest in securities of issuers (other than issuers
of U.S. Government agency securities) having a record, together
with predecessors, of less than three years of continuous
operation if, regarding all such securities, more than 5% of its
total assets (taken at market value) would be invested in such
securities;
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(18)
enter into reverse repurchase agreements if, as a
result thereof, the Money Market Fund’s obligations with
respect to reverse repurchase agreements would exceed one-third
of its net assets (defined to be total assets, taken at market
value, less liabilities other than reverse repurchase
agreements);
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(19)
purchase or retain the securities of any issuer, if
those individual officers and Trustees of the Money Market Fund,
the Manager or any subsidiary thereof each owning beneficially
more than 1% of the securities of such issuer own in the
aggregate more than 5% of the securities of the issuer;
and
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(20)
issue senior securities to the extent such issuance
would violate applicable law.
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The
Government Fund is a no-load money market fund. The investment
objectives of the Government Fund are to seek preservation of
capital, current income and liquidity available from investing
exclusively in a diversified portfolio of short term marketable
securities that are direct obligations of the U.S. Government and
repurchase agreements pertaining to such securities. Direct U.S.
Government obligations consist of securities issued, or guaranteed
as to principal and interest, by the U.S. Government and which are
backed by the full faith and credit of the United States. The
Government Fund may not invest in securities issued or guaranteed
by U.S. Government agencies, instrumentalities or
Government-sponsored enterprises which are not backed by the full
faith and credit of the United States. There can be no assurance
that the investment objectives of the Government Fund will be
realized.
Investment
in Government Fund shares offers several potential benefits. The
Government Fund seeks to provide as high a yield potential,
consistent with its objectives, as is available from investments in
short term U.S. Government securities utilizing professional money
market management and block purchases of securities. It provides
high liquidity because of its redemption features and seeks the
reduced market risk that generally results from diversification of
assets. The shareholder is also relieved from administrative
burdens associated with direct investment in short term U.S.
Government securities, such as coordinating maturities and
reinvestments, safekeeping and making numerous buy-sell decisions.
These benefits are at least partially offset by certain expenses
borne by investors, including management fees, distribution fees,
administrative costs and operational costs.
The
Government Fund may invest in the U.S. Government securities
described above pursuant to repurchase agreements. Under such
agreements, the counterparty agrees, upon entering into the
contract, to repurchase the security from the Government Fund at a
mutually agreed upon time and price, thereby determining the yield
during the term of the agreement. This results in a fixed rate of
return insulated from market fluctuations during such
period.
Preservation
of capital is a prime investment objective of the Government Fund
and the direct U.S. Government obligations in which it will invest
are generally considered to have the lowest principal risk among
money market securities. Historically, direct U.S. Government
obligations have generally had lower rates of return than other
money market securities with less safety. Repurchase agreements may
be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser. In
the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities
are not owned by the Government Fund but only constitute collateral
for the seller’s obligation to pay the repurchase price. With
respect to repurchase agreements, there is also the risk of the
failure of parties involved to repurchase at the agreed upon price,
in which event the Government Fund may suffer time delays and incur
costs or possible losses in connection with such
transactions.
The
Government Fund may purchase or sell portfolio securities on a
forward commitment basis at fixed purchase or sale terms. The
purchase of portfolio securities on a forward commitment basis
involves the risk that the yields available in the market when the
delivery takes place may actually be higher than those obtained in
the transaction itself; if yields increase, the value of the
securities purchased on a forward commitment basis will generally
decrease. A separate account of the Government Fund will be
established with its custodian consisting of cash or liquid money
market securities having a market value at all times at least equal
to the amount of the forward purchase commitment. The Government
Fund may also sell money market securities on a forward commitment
basis. By doing so, the Fund forgoes the opportunity to sell such
securities at a higher price should they increase in value between
the trade and settlement dates.
For purposes
of its investment policies, the Government Fund defines short term
U.S. Government securities as securities having a maturity of not
more than 762 days (25 months). Fund Asset Management, L.P. (the
“Manager”) expects that substantially all the assets of
the Government Fund will be invested in securities maturing in not
more than 397 days (13 months) but at times some portion may have
maturities up to not more than 762 days (25 months). The
dollar-weighted average maturity of the Government Fund’s
portfolio will not exceed 90 days. During the Government
Fund’s fiscal year ended March 31, 2000, the average maturity
of its portfolio ranged from 35 days to 81 days.
Investment Restrictions. The
Government Fund has adopted a number of restrictions and policies
relating to the investment of its assets and its activities, which
are fundamental policies and may not be changed without the
approval of the holders of a majority of the Government Fund’s
outstanding voting securities (which for this
purpose 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). The
Government Fund may not:
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(1)
purchase any securities other than short term marketable
securities which are direct obligations of the U.S. Government
and repurchase agreements pertaining to such
securities;
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(2) enter
into repurchase agreements with any one bank or primary dealer or
an affiliate thereof, if immediately thereafter, more than 5% of
the value of its total assets (taken at market value) would be
invested in repurchase agreements with such bank or primary
dealer or an affiliate thereof;
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(3) enter
into repurchase agreements if, as a result thereof, more than 10%
of the Government Fund’s total assets (taken at market value
at the time of each investment) would be subject to repurchase
agreements maturing in more than seven days;
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(4)
act as an underwriter of securities issued by other
persons;
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(5)
purchase any securities on margin, except for use of
short term credit necessary for clearance of purchases and sales
of portfolio securities;
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(6)
make short sales of securities or maintain a short
position or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof;
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(7)
make loans to other persons, provided that the
Government Fund may purchase short term marketable securities
which are direct obligations of the U.S. Government or enter into
repurchase agreements pertaining thereto;
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(8)
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 Government Fund will not borrow to increase income
but only to meet redemption requests which might otherwise
require untimely dispositions of portfolio securities. The
Government Fund will not purchase securities while borrowings are
outstanding. Interest paid on such borrowings will reduce net
income);
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(9)
mortgage, pledge, hypothecate or in any manner
transfer as security for indebtedness any securities owned or
held by the Government Fund except as may be necessary in
connection with borrowings mentioned in (8) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of the
Government Fund’s net assets, taken at market
value;
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(10)
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, U.S. Government agency securities or domestic bank
money market instruments);
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(11)
issue senior securities to the extent such issuance
would violate applicable law;
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(12)
purchase or sell real estate (other than money market
securities secured by real estate or interests therein or money
market securities issued by companies which invest in real
estate, or interests therein); and
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(13)
purchase or sell commodities or contracts on
commodities, except to the extent that the Fund may do so in
accordance with applicable law and the Fund’s Prospectus and
Statement of Additional Information, as they may be amended from
time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
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Investment Objectives. The
Tax-Exempt Fund is a no-load tax-exempt money market fund. The
investment objectives of the Tax-Exempt Fund are to seek current
income exempt from Federal income taxes, preservation of capital
and liquidity available from investing in a diversified portfolio
of short term high quality tax-exempt securities. The Tax-Exempt
Fund seeks to achieve its objectives by investing in a diversified
portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and
instrumentalities or derivative or synthetic municipal instruments,
the interest on which, according to bond counsel to the issuer, is
exempt from Federal income tax (such obligations are herein
referred to as “Tax-Exempt Securities”). The Tax-Exempt
Fund may invest in certain otherwise tax-exempt securities which
are classified as “private activity bonds” which may
subject certain investors to a Federal alternative minimum tax. See
“Taxes.” The investment objectives of the Tax-Exempt Fund
described in this paragraph are a fundamental policy of the
Tax-Exempt Fund and may not be changed without a vote of the
majority of the outstanding shares of the Tax-Exempt Fund. There
can be no assurance that the investment objectives of the
Tax-Exempt Fund will be realized.
The
Tax-Exempt Fund can be expected to offer a lower yield than longer
term municipal bond funds since Tax-Exempt Securities with longer
maturities tend to produce higher yields. Interest rates in the
short term Tax-Exempt Securities market also may fluctuate more
widely from time to time than interest rates in the long-term
municipal bond market. However, because of the shorter maturities,
the market value of the Tax-Exempt Securities held by the
Tax-Exempt Fund can be expected to fluctuate less in value as a
result of changes in interest rates.
Investment
in Tax-Exempt Fund shares offers several potential benefits. The
Tax-Exempt Fund seeks to provide as high a tax-exempt yield
potential, consistent with its objectives, as is available from
investments in short term Tax-Exempt Securities utilizing
professional management and block purchases of securities. It
provides high liquidity because of its redemption features and
seeks the reduced risk that generally results from diversification
of assets. The shareholder is also relieved from administrative
burdens associated with direct investment in short term securities,
such as coordinating maturities and reinvestments, safekeeping and
making numerous buy-sell decisions. These benefits are at least
partially offset by certain expenses borne by investors, including
management fees, distribution fees, administrative costs and
operational costs.
The
Tax-Exempt Securities in which the Tax-Exempt Fund invests include
municipal notes, municipal commercial paper and municipal bonds
with a remaining maturity of not more than 397 days (13 months).
The Tax-Exempt Fund will also invest in variable rate demand
obligations and participations therein (see “Variable Rate
Demand Obligations” below) and derivative or synthetic
municipal instruments (see “Derivative Products” below).
Municipal notes include tax anticipation notes, bond anticipation
notes and revenue anticipation notes. Anticipation notes are sold
as interim financing in anticipation of tax collection, bond sales
or revenue receipts. Municipal commercial paper refers to short
term unsecured promissory notes issued generally to finance short
term credit needs. The Tax-Exempt Fund may invest in all types of
tax-exempt instruments currently outstanding or to be issued in the
future which satisfy the short term maturity and quality standards
of the Tax-Exempt Fund.
The
Tax-Exempt Fund presently contemplates that it will not invest more
than 25% of its total assets in Tax-Exempt Securities whose issuers
are located in the same state. The Tax-Exempt Fund does not intend
to invest more than 25% of its total assets in industrial
development bonds or private activity bonds where the entities
supplying the revenues from which the issues are to be paid are in
the same industry.
Certain of
the instruments in which the Tax-Exempt Fund invests, including
variable rate demand obligations (“VRDOs”) and derivative
or synthetic municipal instruments (“Derivative
Products”), effectively provide the Tax-Exempt Fund with
economic interests in long-term municipal bonds, coupled with
rights to demand payment of the principal amounts of such
instruments from designated counterparties. Under Securities and
Exchange Commission rules, the Tax-Exempt Fund treats these
instruments as having maturities shorter than the stated maturity
dates of the obligations, in the case of VRDOs, or the long term
bonds underlying Derivative Products (the “Underlying
Bonds”). Such maturities are sufficiently short term to allow
such instruments to qualify as eligible investments for money
market funds such as the Tax-Exempt Fund. A demand right is
dependent on the financial ability of the counterparty, which is
typically a bank, broker-dealer or other financial institution, to
purchase the instrument at its principal amount. In addition, the
right of the Tax-Exempt Fund to demand payment from a counterparty
may be subject to certain conditions, including the
creditworthiness of the instrument or the Underlying Bond. If a
counterparty is unable to purchase the instrument or, because of
conditions on the right of the Tax-Exempt Fund to demand payment,
the counterparty is not obligated to purchase the instrument on
demand, the Tax-Exempt Fund may be required to dispose of the
instrument or the Underlying Bond in the open market, which may be
at a price which adversely affects the Tax-Exempt Fund’s net
asset value.
VRDOs and
Participating VRDOs. VRDOs are
tax-exempt obligations that contain a floating or variable interest
rate adjustment formula and a right of demand on the part of the
holder thereof to receive payment of the unpaid principal balance
plus accrued interest on a short notice period not to exceed seven
days. There is, however, the possibility that because of default or
insolvency the demand feature of VRDOs and Participating VRDOs may
not be honored. The interest rates are adjustable at intervals
(ranging from daily to one year) to some prevailing market rate for
similar investments, such adjustment formula being calculated to
maintain the market value of the VRDOs at approximately the par
value of the VRDOs on the adjustment date. The adjustments are
typically based upon the Public Securities Association Index or
some other appropriate interest rate adjustment index.
The
Tax-Exempt Fund may also invest in VRDOs in the form of
participation interests (“Participating VRDOs”) in
variable rate tax-exempt obligations held by a financial
institution, typically commercial banks (“institutions”).
Participating VRDOs provide the Tax-Exempt Fund with a specific
undivided interest (up to 100%) of the underlying obligation and
the right to demand payment of the unpaid principal balance plus
accrued interest on the Participating VRDOs from the financial
institution upon a specified number of days’ notice, not to
exceed 7 days. In addition, the Participating VRDO is backed by an
irrevocable letter of credit or similar commitment of the
institution. The Tax-Exempt Fund would have an undivided interest
in the underlying obligation and thus participate on the same basis
as the financial institution in such obligation except that the
financial institution typically retains fees out of the interest
paid on the obligation for servicing the obligation, providing the
letter of credit or issuing the repurchase commitment.
VRDOs that
contain a right of demand to receive payment of the unpaid
principal balance plus accrued interest on a notice period
exceeding seven days may be deemed to be illiquid securities. A
VRDO with a demand notice period exceeding seven days will
therefore be subject to the Fund’s restriction on illiquid
investments unless, in the judgment of the Trustees, such VRDO is
liquid. The Trustees may adopt guidelines and delegate to the
Manager the daily function of determining and monitoring liquidity
of such VRDOs. The Trustees, however, will retain sufficient
oversight and be ultimately responsible for such
determinations.
The
Tax-Exempt Fund has been advised by its counsel that the Tax-Exempt
Fund should be entitled to treat the income received on
Participating VRDOs as interest from tax-exempt obligations
provided that the Tax-Exempt Fund does not invest more than a
limited amount (not more than 20%) of its total assets in such
investments and certain other conditions are met. It is presently
contemplated that the Tax-Exempt Fund will not invest more than a
limited amount (not more than 20%) of its total assets in
Participating VRDOs.
Because of
the interest rate adjustment formula on VRDOs (including
Participating VRDOs), the VRDOs are not comparable to fixed rate
securities. The Tax-Exempt Fund’s yield on VRDOs will decline
and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have
declined. On the other hand, during periods when prevailing
interest rates have increased, the Tax-Exempt Fund’s yield on
VRDOs will increase and its shareholders will have a reduced risk
of capital depreciation.
Derivative Products. The
Tax-Exempt Fund may invest in a variety of Derivative Products.
Derivative Products are typically structured by a bank,
broker-dealer or other financial institution. A Derivative Product
generally consists of a trust or partnership through which the Fund
holds an interest in one or more Underlying Bonds coupled with a
conditional right to sell (“put”) the Fund’s
interest in the Underlying Bonds at par plus accrued interest to a
financial institution (a “Liquidity Provider”).
Typically, a Derivative Product is structured as a trust or
partnership which provides for pass-through tax-exempt income.
There are currently three principal types of derivative structures:
(1) “Tender Option Bonds,” which are instruments which
grant the holder thereof the right to put an Underlying Bond at par
plus accrued interest at specified intervals to a Liquidity
Provider; (2) “Swap Products,” in which the trust or
partnership swaps the payments due on an Underlying Bond with a
swap counterparty who agrees to pay a floating municipal money
market interest rate; and (3) “Partnerships,” which
allocate to the partners income, expenses, capital gains and losses
in accordance with a governing partnership agreement. The
Tax-Exempt Fund may also invest in other forms of Derivative
Products.
Investments
in Derivative Products raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in
other municipal bonds. There is some risk that certain issues could
be resolved in a manner which could adversely impact the
performance of the Tax-Exempt Fund. For example, the tax-exempt
treatment of the interest paid to holders of Derivative Products is
premised on the legal conclusion that the holders of such
Derivative Products have an ownership interest in the Underlying
Bonds. While the Fund receives an opinion of legal counsel to the
effect that the income from each Derivative Product is tax-exempt
to the same extent as the Underlying Bond, the Internal Revenue
Service (the “IRS”) has not issued a ruling on this
subject. Were the IRS to issue an adverse ruling, there is a risk
that the interest paid on such Derivative Products would be deemed
taxable.
Municipal
Lease Obligations. Also included within
the general category of the Tax-Exempt Securities are certificates
of participation, (“COPs”) issued by government
authorities or entities to finance the acquisition or construction
of equipment, land and/or facilities. The COPs represent
participations in a lease, an installment purchase contract or a
conditional sales contract (hereinafter collectively called
“lease obligations”) relating to such equipment, land or
facilities. Although lease obligations do not constitute general
obligations of the issuer for which the issuer’s unlimited
taxing power is pledged, a lease obligation is frequently backed by
the issuer’s covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease
obligations contain “non-appropriation” clauses that
provide that the issuer has no obligation to make lease or
installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although
“non-appropriation” lease obligations are secured by the
leased property, disposition of the property in the event of
foreclosure might prove difficult. These securities represent a
type of financing that has not yet developed the depth of
marketability associated with more conventional securities. Certain
investments in lease obligations may be illiquid. The Tax-Exempt
Fund may not invest in illiquid lease obligations if such
investments, together with all other illiquid investments, would
exceed 10% of the Tax-Exempt Fund’s net assets. The Tax-Exempt
Fund may, however, invest without regard to such limitation in
lease obligations which the Manager, pursuant to guidelines which
have been adopted by the Board of Trustees and subject to the
supervision of the Board, determines to be liquid. The Manager will
deem lease obligations liquid if they are publicly offered and have
received an investment grade rating of Baa or better by
Moody’s or BBB or better by Standard & Poor’s or
Fitch. Unrated lease obligations, or those rated below investment
grade, will be considered liquid if the obligations come to the
market through an underwritten public offering and at least two
dealers are willing to give competitive bids. In reference to the
latter, the Manager must, among other things, also review the
creditworthiness of the entity obligated to make payment under the
lease obligation and make certain specified determinations based on
such factors as the existence of a rating or credit enhancement
such as insurance, the frequency of trades or quotes for the
obligation and the willingness of dealers to make a market in the
obligation.
Purchase
or Sale of Tax-Exempt Securities on a Delayed Delivery Basis or on
a When-Issued Basis. Tax-Exempt
Securities may at times be purchased or sold on a delayed delivery
basis or on a when-issued basis. These transactions arise when
securities are purchased or sold by the Tax-Exempt Fund with
payment and delivery taking place in the future, often a month or
more after the purchase. The payment obligation and the interest
rate are each fixed at the time the buyer enters into the
commitment. The Tax-Exempt Fund will only make commitments to
purchase such securities with the intention of actually acquiring
the securities, but the Tax-Exempt Fund may sell these securities
prior to settlement date if it is deemed advisable. No new
when-issued commitments will be made if more than 40% of the
Tax-Exempt Fund’s net assets would become so committed.
Purchasing Tax-Exempt Securities on a when-issued basis involves
the risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the
transaction itself; if yields so increase, the value of the
when-issued obligation will generally decrease. The Tax-Exempt Fund
will maintain a separate account at its custodian consisting of
cash or liquid Tax-Exempt Securities (valued on a daily basis)
equal at all times to the amount of the when-issued
commitment.
Purchase
of Securities with Fixed Price
“Puts.” The Tax-Exempt Fund
has authority to purchase fixed rate Tax-Exempt Securities and, for
a price, simultaneously acquire the right to sell such securities
back to the seller at an agreed upon price at any time during a
stated period or on a certain date. Such a right is generally
denoted as a fixed price put. Puts with respect to fixed rate
instruments are to be distinguished from the demand or repurchase
features of VRDOs and Participating VRDOs which enable the
Tax-Exempt Fund to dispose of the security at a time when the
market value of the security approximates its par
value.
Short
Term Maturity Standards. All of the
investments of the Tax-Exempt Fund will be in securities with
remaining maturities of not more than 397 days (13 months). The
dollar-weighted average maturity of the Tax-
Exempt Fund’s portfolio will be 90 days or less. The maturity of
VRDOs (including Participating VRDOs) is deemed to be the longer of
(i) the notice period required before the Tax-Exempt Fund is
entitled to receive payment of the principal amount of the VRDO
upon demand or (ii) the period remaining until the VRDO’s next
interest rate adjustment. If not redeemed by the Tax-Exempt Fund
through the demand feature, VRDOs mature on a specified date which
may range up to 30 years from the date of issuance.
High
Quality Standards. The Tax-Exempt
Fund’s portfolio investments in municipal notes and short term
tax-exempt commercial paper will be limited to those obligations
which (i) are secured by a pledge of the full faith and credit of
the United States, or (ii) are rated, or issued by issuers who have
been rated, in one of the two highest rating categories for short
term municipal debt obligations by an NRSRO or, if not rated, will
be of comparable quality as determined by the Trustees of the
Tax-Exempt Fund. The Tax-Exempt Fund’s investments in
municipal bonds (which must have maturities at the date of purchase
of 397 days (13 months) or less) will be in issuers who have
received from the requisite NRSROs a rating, with respect to a
class of short term debt obligations that is comparable in priority
and security with the investment, in one of the two highest rating
categories for short term obligations or, if not rated, will be of
comparable quality as determined by the Trustees of the Tax-Exempt
Fund. Currently, there are three NRSROs which rate municipal
obligations: Fitch, Moody’s and Standard & Poor’s.
Certain tax-exempt obligations (primarily VRDOs and Participating
VRDOs) may be entitled to the benefit of standby letters of credit
or similar commitments issued by financial institutions and, in
such instances, the Board of Trustees and the Manager will take
into account the obligation of the financial institution in
assessing the quality of such instrument. The Tax-Exempt Fund may
also purchase other types of tax-exempt instruments if, in the
opinion of the Trustees, such obligations are equivalent to
securities having the ratings described above. For a description of
Tax-Exempt Securities and such ratings, see “Information
Concerning Tax-Exempt Securities” in the Appendix.
Preservation
of capital is a prime investment objective of the Tax-Exempt Fund,
and, while the types of short term Tax-Exempt Securities in which
the Tax-Exempt Fund invests are not completely risk free, such
securities are generally considered by the Manager to have low risk
of the failure of issuers or credit enhancers to meet their
principal and interest obligations. These securities have a lower
principal risk compared to lower rated obligations and generally to
longer term obligations which entail the risk of changing
conditions over a longer period of time.
Other
Factors. Management of the Tax-Exempt
Fund will endeavor to be as fully invested as reasonably
practicable in order to maximize the yield on the Tax-Exempt
Fund’s portfolio. Because the Tax-Exempt Fund does not intend
to realize taxable investment income, it will not invest in taxable
short term money market securities. Tax-Exempt Securities generally
do not trade on the basis of same day settlements and, accordingly,
a portfolio of such securities cannot be managed on a daily basis
with the same flexibility as a portfolio of money market securities
which can be bought and sold on a same day basis. There may be
times when the Tax-Exempt Fund has uninvested cash resulting from
an influx of cash due to large purchases of shares or maturities of
portfolio securities. The Tax-Exempt Fund may also be required to
maintain cash reserves or incur temporary bank borrowings to make
redemption payments which are made on the same day the redemption
request is received. Such inability to be fully invested would
lower the yield on the portfolio.
The
Tax-Exempt Fund’s portfolio holdings represent a significant
percentage of the market in short term tax-exempt securities and
the yield on the portfolio could be negatively impacted from time
to time by the lack of availability of short term high quality
Tax-Exempt Securities. The Tax-Exempt Fund reserves the right to
suspend or otherwise limit sales of its shares if, as a result of
difficulties in acquiring portfolio securities, it is determined
that it is not in the interests of the Tax-Exempt Fund’s
shareholders to issue additional shares.
Investment Restrictions. The
Tax-Exempt Fund has adopted a number of restrictions and policies
relating to the investment of its assets and its activities, which
are fundamental policies and may not be changed without the
approval of the holders of a majority of the Tax-Exempt Fund’s
outstanding shares (which for this purpose 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). The Tax-Exempt Fund may not:
|
(1)
purchase any securities other than Tax-Exempt
Securities referred to herein and in the Appendix under the
heading “Information Concerning Tax-Exempt
Securities”;
|
|
(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 (i.e., guaranteed) by the United States
Government or its agencies or instrumentalities (for purposes of
this restriction, the Tax-Exempt 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);
|
|
(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 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 (provided that such
restriction shall not apply to Tax-Exempt Securities secured by
real estate or interests therein or issued by companies which
invest in real estate or interests therein), commodities or
commodity contracts, interests in oil, gas or other mineral
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;
|
|
(8)
make short sales of securities or maintain a short
position or invest in put, call, straddle, or spread options or
combinations thereof; provided, however, that the Tax-Exempt Fund
shall have the authority to purchase Tax-Exempt Securities
subject to put options as set forth herein and in the Appendix
under the heading “Information Concerning Tax-Exempt
Securities;”
|
|
(9)
make loans to other persons, provided that the
Tax-Exempt 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);
|
|
(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 Tax-Exempt Fund will not borrow to increase income
but only to meet redemption requests which might otherwise
require untimely dispositions of portfolio securities. The
Tax-Exempt 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 Tax-Exempt 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 value;
|
|
(12)
invest in securities with legal or contractual
restrictions on resale or for which no readily available market
exists if, regarding all such securities, more than 10% of its
net assets (taken at value), would be invested in such
securities;
|
|
(13)
act as an underwriter of securities, except to the
extent that the Tax-Exempt Fund may technically be deemed an
underwriter when engaged in the activities described in (9) above
or insofar as the Tax-Exempt Fund may be deemed an underwriter
under the Securities Act of 1933 in selling portfolio
securities;
|
|
(14)
issue senior securities to the extent such issuance
would violate applicable law; and
|
|
(15)
invest more than 25% of its total assets (taken at
market value at the time of each investment) in securities of
issuers in a single industry; provided that, for purposes of this
restriction, neither the U.S.
Government nor any state, municipality nor political subdivision
thereof is considered to be part of any industry.
|
The Treasury
Fund is a no-load money market fund. The investment objectives of
the Treasury Fund are to seek preservation of capital, liquidity
and current income available from investing exclusively in a
diversified portfolio of short term marketable securities that are
direct obligations of the U.S. Treasury. There can be no assurance
that the investment objectives of the Treasury Fund will be
realized.
Preservation
of capital is a prime investment objective of the Treasury Fund and
the direct U.S. Treasury obligations in which it will invest are
generally considered to have the lowest principal risk among money
market securities. Historically, direct U.S. Treasury obligations
have generally had lower rates of return than other money market
securities with less safety.
For purposes
of its investment objectives, the Treasury Fund defines short term
marketable securities which are direct obligations of the U.S.
Treasury as any U.S. Treasury obligations having maturities of no
more than 762 days (25 months). The dollar-weighted average
maturity of the Treasury Fund’s portfolio will not exceed 90
days. For the year ended March 31, 2000, the average maturity of
the Treasury Fund’s portfolio ranged from 41 days to 83
days.
Investment
in Treasury Fund shares offers several potential benefits. The
Treasury Fund seeks to provide as high a yield potential,
consistent with its objectives, as is available through investment
in short term U.S. Treasury obligations utilizing professional
money market management and block purchases of securities. It
provides high liquidity because of its redemption features and
seeks the reduced market risk that generally results from
diversification of assets. The shareholder is also relieved from
administrative burdens associated with direct investment in U.S.
Treasury securities, such as coordinating maturities and
reinvestments, and making numerous buy-sell decisions. These
benefits are at least partially offset by certain expenses borne by
investors, including management fees, distribution fees,
administrative costs and operational costs.
Forward
Commitments. The Treasury Fund may
purchase or sell portfolio securities on a forward commitment basis
at fixed purchase or sale terms. The purchase of portfolio
securities on a forward commitment basis involves the risk that the
yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself;
if yields increase, the value of the securities purchased on a
forward commitment basis will generally decrease. A separate
account of the Treasury Fund will be established with its custodian
consisting of cash or Treasury securities having a market value at
all times at least equal to the amount of the forward purchase
commitment. The Treasury Fund may also sell securities on a forward
commitment basis. By doing so, the Fund forgoes the opportunity to
sell such securities at a higher price should they increase in
value between the trade and settlement dates.
Investment Restrictions. The
Treasury Fund has adopted the following restrictions and policies
relating to the investment of its assets and its activities, which
are fundamental policies and may not be changed without the
approval of the holders of a majority of the Treasury Fund’s
outstanding voting securities (which for this purpose 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). The Treasury Fund may
not:
|
(1)
purchase any securities other than direct obligations
of the U.S. Treasury with remaining maturities of more than 762
days (25 months);
|
|
(2)
act as an underwriter of securities issued by other
persons;
|
|
(3)
purchase any securities on margin, except for use of
short term credit necessary for clearance of purchases and sales
of portfolio securities;
|
|
(4)
make short sales of securities or maintain a short
position or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof;
|
|
(5) make
loans to other persons, provided that the Treasury Fund may
purchase short term marketable securities which are direct
obligations of the U.S. Treasury;
|
|
(6)
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 Treasury Fund will not borrow to increase income but
only to meet redemption requests which might otherwise require
untimely dispositions of portfolio securities. The Treasury Fund
will not purchase securities while borrowings are outstanding.
Interest paid on such borrowings will reduce net
income.);
|
|
(7)
mortgage, pledge, hypothecate or in any manner
transfer as security for indebtedness any securities owned or
held by the Treasury Fund except as may be necessary in
connection with borrowings mentioned in (6) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of the
Treasury Fund’s net assets, taken at market
value;
|
|
(8)
purchase or sell real estate (other than money market
securities secured by real estate or interests therein or money
market securities issued by companies which invest in real
estate, or interests therein);
|
|
(9)
purchase or sell commodities or contracts on
commodities, except to the extent that the Fund may do so in
accordance with applicable law and the Fund’s Prospectus and
Statement of Additional Information, as they may be amended from
time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act;
|
|
(10)
issue senior securities to the extent such issuance
would violate applicable law; and
|
|
(11)
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, U.S. Government agency securities or bank money
instruments).
|
The Board of
Trustees of each Fund consists of seven individuals, five of whom
are not “interested persons” of the Fund as defined in
the Investment Company Act (the “non-interested
Trustees”). The Trustees of each Fund are responsible for the
overall supervision of the operations of the Fund and perform the
various duties imposed on the directors of investment companies by
the Investment Company Act.
Information
about the Trustees, executive officers and portfolio managers of
the Funds, including their ages and their principal occupations for
at least the last five years, is set forth below. With the
exception of ten officers, the persons named below hold the same
positions with each of the Funds. Unless otherwise noted, the
address of each Trustee, executive officer and portfolio manager is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
TERRY
K. GLENN
(59) — President and Trustee
(1)(2) — Executive Vice President of the Manager and
Merrill Lynch Asset Management (“MLAM”) (which terms as
used herein include their corporate predecessors) since 1983;
Executive Vice President and Director of Princeton Services, Inc.
(“Princeton Services”) since 1993; President of Princeton
Funds Distributor, Inc. (“PFD”) since 1986 and Director
thereof since 1991; President of Princeton Administrators, L.P.
since 1988.
RONALD
W. FORBES
(59) — Trustee (2)(3) — 1400
Washington Avenue, Albany, New York 12222. Professor of Finance,
School of Business, State University of New York at Albany since
1989; International Consultant, Urban Institute, Washington, D.C.
from 1995 to 1999.
CYNTHIA
A. MONTGOMERY
(47) — Trustee (2)(3) — Harvard
Business School, Soldiers Field Road, Boston, Massachusetts 02163.
Professor, Harvard Business School since 1989; Associate Professor,
J.L. Kellogg Graduate School of Management, Northwestern University
from 1985 to 1989; Assistant Professor, Graduate School of
(1)
|
Interested
person, as defined in the Investment Company Act, of the
Funds.
|
(2)
|
Such
Trustee or officer is a director, trustee or officer of certain
other investment companies for which the Manager or MLAM acts as
the investment adviser or manager.
|
(3)
|
Member of
the Fund’s Audit and Nominating Committee, which is
responsible for the selection of the independent auditors and the
selection and nomination of non-interested Trustees.
|
Business
Administration, The University of Michigan from 1979 to 1985;
Director, UNUM Corporation since 1990 and Director of Newell Co.
since 1995.
CHARLES
C. REILLY
(68) — Trustee (2)(3) — 9
Hampton Harbor Road, Hampton Bays, New York 11946. Self-employed
financial consultant since 1990; President and Chief Investment
Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990;
Adjunct Professor, Columbia University Graduate School of Business
from 1990 to 1991; Adjunct Professor, Wharton School, The
University of Pennsylvania from 1989 to 1990; Partner, Small Cities
Cable Television from 1986 to 1997.
KEVIN
A. RYAN
(67) — Trustee (2)(3) — 127
Commonwealth Avenue, Chestnut Hill, Massachusetts 02167. Founder
and currently Director Emeritus of The Boston University Center for
the Advancement of Ethics and Character and Director thereof until
1989; Professor from 1982 to 1999 and currently Professor Emeritus
of Education at Boston University; formerly taught on the faculties
of The University of Chicago, Stanford University and Ohio State
University.
RICHARD
R. WEST
(62) — Trustee (2)(3) — Box
604, Genoa, Nevada 89411. Professor of Finance since 1984, and Dean
from 1984 to 1993, and currently Dean Emeritus of New York
University, Leonard N. Stern School of Business Administration;
Director of Bowne & Co., Inc. (financial printers), Vornado
Realty Trust, Inc. (real estate holding company) and
Alexander’s Inc. (real estate company).
ARTHUR
ZEIKEL
(67) — Trustee (1)(2) — 300
Woodland Avenue, Westfield, New Jersey 07090. Chairman of the
Manager and MLAM from 1997 to 1999 and President thereof from 1977
to 1997; Chairman of Princeton Services from 1997 to 1999, Director
thereof from 1993 to 1999 and President thereof from 1993 to 1997;
Executive Vice President of Merrill Lynch & Co., Inc. (“ML
& Co.”) from 1990 to 1999.
VINCENT
R. GIORDANO
(55) — Senior Vice President of the Tax-Exempt
Fund (1)(2) — Senior Vice President of the
Manager and MLAM since 1984; Senior Vice President of Princeton
Services since 1993.
KENNETH
A. JACOB
(49) — Vice President of the Tax-Exempt Fund
(1)(2) — First Vice President of MLAM since 1997;
Vice President of MLAM from 1984 to 1997.
RICHARD
MEJZAK
(32) — Vice President of the Money Market Fund
(1)(2) — Vice President of MLAM since 1995; employee
of MLAM since 1990.
DONALD
C. BURKE
(39) — Vice President and Treasurer
(1)(2) — Senior Vice President and Treasurer of MLAM
and FAM since 1999; Senior Vice President and Treasurer of
Princeton Services since 1999; Vice President of PFD since 1999;
First Vice President of MLAM from 1997 to 1999; Vice President of
MLAM from 1990 to 1997; Director of Taxation of MLAM since
1990.
JACQUELINE
ROGERS
(42) — Vice President of the Treasury Fund
(1)(2) — Vice President and Portfolio Manager of
MLAM since 1985.
ROBERT
SABATINO
(26) — Vice President and Portfolio Manager
(1)(2) — Vice President of MLAM since 1998; employed
by MLAM since 1995.
PETER
J. HAYES
(40) — Vice President of the Tax-Exempt Fund
(1)(2) — First Vice President of MLAM since 1997;
Vice President of MLAM from 1988 to 1997.
HELEN
MARIE
SHEEHAN
(40) — Vice President of the Tax-Exempt Fund
(1)(2) — Vice President of MLAM since 1991;
Assistant Vice President of MLAM from 1989 to 1991; employee of
MLAM since 1985.
PHILLIP
S. GILLESPIE
(36) — Secretary
(1)(2) — Director of MLAM Legal Advisory since 2000,
Vice President of MLAM Legal Advisory from 1999 to 2000; and
Attorney associated with the Manager and FAM since 1998; Assistant
General Counsel of Chancellor LGT Asset Management, Inc. from 1997
to 1998; Senior Counsel and Attorney in the Division of Investment
Management and the Office of General Counsel at the U.S. Securities
and Exchange Commission from 1993 to 1997.
(1)
|
Interested
person, as defined in the Investment Company Act, of the
Funds.
|
(2)
|
Such
Trustee or officer is a director, trustee or officer of certain
other investment companies for which the Manager or MLAM acts as
the investment adviser or manager.
|
(3)
|
Member of
the Fund’s Audit and Nominating Committee, which is
responsible for the selection of the independent auditors and the
selection and nomination of non-interested Trustees.
|
As of June 1, 2000,
the Trustees and officers of the Funds as a group (18 persons)
owned an aggregate of less than 1% of the outstanding shares of the
Funds. At such date, Mr. Zeikel, a Trustee of each Fund, Mr. Glenn,
a Trustee and officer of each Fund and the other officers of the
Funds owned an aggregate of less than 1% of the outstanding shares
of common stock of ML & Co.
Pursuant to
the terms of its Investment Advisory Agreement (the
“Investment Advisory Agreements”) with each Fund, the
Manager pays all compensation of officers and employees of such
Fund as well as the fees of all Trustees of the Fund who are
affiliated persons of ML & Co. or its subsidiaries. Each Fund
pays each Trustee who is not affiliated with the Manager (each a
“non-interested Trustee”) an annual fee plus a fee for
each meeting attended and pays all Trustees’ actual
out-of-pocket expenses relating to attendance at meetings. Each
Fund also compensates members of its Audit and Nominating Committee
(the “Committee”), which consists of all of the
non-interested Trustees. The Chairman of the Committee receives an
additional annual fee of $1,000 per year.
The
following table shows the compensation earned by the non-interested
Trustees for the fiscal year ended March 31, 2000 and the aggregate
compensation paid to them by all registered investment companies
advised by the Manager and its affiliate, MLAM
(“FAM/MLAM-advised funds”), for the calendar year ended
December 31, 1999.
Name of
Trustee
|
|
Compensation
from Money
Market Fund
|
|
Compensation
from
Government
Fund
|
|
Compensation
from
Tax-Exempt
Fund
|
|
Compensation
from
Treasury
Fund
|
|
Aggregate
Compensation
from Fund
and
MLAM/FAM-
Advised Funds
Paid to
Trustee(1)
|
| Ronald W.
Forbes(1) |
|
$20,000 |
|
$6,000 |
|
$ 9,000 |
|
$6,000 |
|
$213,900 |
| Cynthia A.
Montgomery(1) |
|
$20,000 |
|
$6,000 |
|
$ 9,000 |
|
$6,000 |
|
$213,900 |
| Charles C.
Reilly(1) |
|
$21,000 |
|
$7,000 |
|
$10,000 |
|
$7,000 |
|
$400,025 |
| Kevin A.
Ryan(1) |
|
$20,000 |
|
$6,000 |
|
$ 9,000 |
|
$6,000 |
|
$213,900 |
| Richard R.
West(1) |
|
$20,000 |
|
$6,000 |
|
$ 9,000 |
|
$6,000 |
|
$388,775 |
(1)
|
The
Trustees serve on the boards of FAM/MLAM-advised funds as
follows: Mr. Forbes (36 registered investment companies
consisting of 49 portfolios); Ms. Montgomery (36 registered
investment companies consisting of 49 portfolios); Mr. Reilly (57
registered investment companies consisting of 68 portfolios); Mr.
Ryan (36 registered investment companies consisting of 49
portfolios); and Mr. West (67 registered investment companies
consisting of 72 portfolios).
|
Investment Advisory Arrangements
Investment Advisory Services. Each
Fund has entered into a separate Investment Advisory Agreement with
the Manager. The Investment Advisory Agreements provide that,
subject to the supervision of the Board of Trustees, the Manager is
responsible for the actual management of the Funds’ portfolios
and constantly reviews the Funds’ holdings in light of its own
research analysis and that from other relevant sources. The
responsibility for making decisions to buy, sell or hold a
particular security rests with the Manager, subject to the review
of the Board of Trustees. The Manager also performs certain other
administrative services and provides all of the office space,
facilities, equipment and necessary personnel for portfolio
management of the Funds.
Securities
held by each Fund may also be held by, or be appropriate
investments for, other funds or clients (collectively referred to
as “clients”) for which the Manager or MLAM acts as an
investment 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 each 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 the
Manager or MLAM. To the extent that transactions on behalf of more
than one client of the Manager or MLAM 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.
Investment
Advisory Fee. The Manager presently
receives a fee from each Fund at the end of each month at the
following annual rates:
Portion
of average daily value of net assets:
| |
|
Rate
|
| Not
exceeding $500 million |
|
0.500 |
% |
| In excess
of $500 million but not exceeding $1 billion |
|
0.425 |
% |
| In excess
of $1 billion |
|
0.375 |
% |
The table
below sets forth information about the total advisory fees payable
by each Fund to the Manager for the periods indicated. The
information does not include amounts paid under each Fund’s
Distribution Plan to Merrill Lynch.
| |
|
Advisory Fee
|
| |
|
For Fiscal Year Ended March
31,
|
CMA
Fund
|
|
1998
|
|
1999
|
|
2000
|
| Money
Market |
|
$170,196,721 |
|
$206,023,610 |
|
$233,247,917 |
| Government |
|
$ 13,436,885 |
|
$ 14,245,998 |
|
$ 13,929,725 |
| Tax-Exempt |
|
$ 32,978,418 |
|
$ 35,897,862 |
|
$ 36,576,047 |
| Treasury |
|
$ 8,821,989 |
|
$ 10,339,609 |
|
$ 10,560,704 |
Payment
of Fund Expenses. The Investment
Advisory Agreements obligate the Manager to provide investment
advisory services, to furnish administrative services, office space
and facilities for management of the affairs of each Fund, to pay
all compensation of and furnish office space for officers and
employees of the Fund, as well as the fees of all Trustees of the
Funds who are affiliated persons of ML & Co. or any of its
subsidiaries. Except for certain expenses incurred by Merrill Lynch
(see “Purchase of Shares” and “Redemption of
Shares” below), the Funds pay all other expenses incurred in
their operations, including, among other things, taxes, expenses
for legal and auditing services, costs of printing proxies,
reports, prospectuses and statements of additional information sent
to current shareholders (except to the extent paid for by the
Distributor), charges of the custodian and transfer agent, expenses
of redemption of shares, Commission fees, expenses of registering
the shares under Federal and state securities laws, fees and
expenses of non-affiliated Trustees, accounting and pricing costs
(including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by the
Funds. Accounting services are provided to each of the Funds by the
Manager, and each Fund reimburses the Manager for its costs in
connection with such services.
For the
fiscal year ended March 31, 2000, the amounts of such reimbursement
paid by the Money Market Fund, the Government Fund, the Tax-Exempt
Fund and the Treasury Fund aggregated $2,832,808, $218,186,
$484,036 and $82,972, respectively. For the fiscal year ended March
31, 2000, the ratio of total expenses to average net assets was
.56% for the Money Market Fund, .56% for the Government Fund, .54%
for the Tax-Exempt Fund and .57% for the Treasury Fund (excluding
payments under the Funds’ Distribution Plans).
For
information as to the distribution fee paid by each Fund to Merrill
Lynch pursuant to the Distribution Agreement, see “Purchase of
Shares” and “Redemption of Shares”
below.
Organization of the Manager. The
Manager is a limited partnership, the partners of which are ML
& Co., a financial services holding company and the parent of
Merrill Lynch, and Princeton Services. ML & Co. and Princeton
Services are “controlling persons” of the Manager as
defined under the Investment Company Act because of their ownership
of its voting securities or their power to exercise a controlling
influence over its management or policies.
The Asset
Management Group of ML & Co. (which includes the Manager) acts
as the investment adviser for more than 40 registered investment
companies and provides investment advisory services to individuals
and institutional accounts. As of May 2000, the Asset Management
Group had a total of approximately $556 million in investment
company and other portfolio assets under management. This amount
includes assets managed for certain affiliates of the
Manager.
Duration and
Termination. Unless earlier terminated
as described herein, each Investment Advisory Agreement will
continue in effect from year to year if approved annually (a) by
the Board of Trustees of the Fund or by a majority of the
outstanding voting shares of the Fund and (b) by a majority of the
Trustees who are not parties to such contract or interested persons
(as defined in the Investment Company Act) of any such party. Such
contract is not assignable and may be terminated without penalty on
60 days’ written notice at the option of either party thereto
or by vote of the shareholders of the Fund.
Financial
Data Services, Inc. (the “Transfer Agent”), a subsidiary
of ML & Co., acts as the Funds’ Transfer Agent pursuant to
a Transfer Agency, Shareholder Servicing Agency and Proxy Agency
Agreement (the “Transfer Agency Agreement”). Pursuant to
the Transfer Agency Agreement, the Transfer Agent is responsible
for the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts. Pursuant to the Transfer
Agency Agreement, the Transfer Agent receives a fee of $10.00 per
account and is entitled to reimbursement from the Fund for certain
transaction charges and out-of-pocket expenses incurred by it under
the Transfer Agency Agreement. Additionally, a $.20 monthly closed
account charge will be assessed on all accounts which close during
the calendar year. Application of this fee will commence the month
following the month the account is closed. At the end of the
calendar year, no further fees will be due. For purposes of the
Transfer Agency Agreement, the term “account” includes a
shareholder account maintained directly by the Transfer Agent and
any other account representing the beneficial interest of a person
in the relevant share class on a recordkeeping system, provided the
recordkeeping system is maintained by a subsidiary of ML &
Co.
The Board of
Trustees of each Fund has adopted a Code of Ethics under Rule 17j-1
under the Investment Company Act that covers the respective Fund
and that Fund’s Manager (together, the “Codes”). The
Codes significantly restrict the personal investing activities of
all employees of the Manager and, as described below, impose
additional, more onerous, restrictions on each Fund’s
investment personnel.
The Codes
require that all employees of the Manager pre-clear any personal
securities investment (with limited exceptions, such as government
securities). The pre-clearance requirement and associated
procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive
restrictions applicable to all employees of the Manager include a
ban on acquiring any securities in a “hot” initial public
offering and a prohibition from profiting on short term trading in
securities. In addition, no employee may purchase or sell any
security that at the time is being purchased or sold (as the case
may be), or to the knowledge of the employee is being considered
for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading “blackout
periods” which prohibit trading by investment personnel of the
Trust within periods of trading by the Fund in the same (or
equivalent) security (15 or 30 days depending upon the
transaction).
Reference is
made to “How to Buy, Sell and Transfer Shares” in the
Prospectus.
Purchase of Shares by Cash Management Account
Subscribers
CMA
Program. The shares of the Funds are
offered to participants in the CMA program and to individual
investors maintaining accounts directly with the Funds’
Transfer Agent to provide a medium for the investment of free cash
balances held in CMA accounts (commonly referred to as a
“sweep”). As of June 5, 2000 shares of CMA Tax-Exempt
Fund only are offered to CMA program participants. Persons
subscribing to CMA services will have free cash balances invested
in shares of the Tax-Exempt Fund if it has been designated by the
participant as the primary investment account (the “Primary
Money Account”). Alternatively, subscribers may designate the
Insured Savings Account or one of the CMA State Funds as their
Primary Money Account. As described in the description of the
Merrill Lynch Cash Management Account program, a subscriber to CMA
financial services may
also elect to have free cash balances in CMA accounts deposited in
individual money market deposit accounts established for such
subscriber at designated depository institutions pursuant to the
Insured Savings
SM
Account
(the “Insured Savings Account”). In addition, investors
may also have their free cash balances invested in certain series
of CMA Multi-State Municipal Series Trust (the “CMA State
Funds”), each of which is designed to provide income that is
exempt from Federal income taxes, personal income taxes of the
designated state and, in certain instances, local personal income
taxes, local personal property taxes and/or state intangible
personal property taxes, or into one or more accounts at Merrill
Lynch Bank USA and/or Merrill Lynch Bank & Trust Co. (the
“Merrill Lynch Banks”), MLPF&S’s affiliated,
FDIC-insured depository institutions. The Funds, the CMA State
Funds and the Insured Savings Account are collectively referred to
in this Statement of Additional Information as the Money Accounts.
This document does not purport to describe the Insured Savings
Account or the CMA State Funds. Prospective participants in the
Insured Savings Account are referred to the fact sheet with respect
thereto which is available from Merrill Lynch, and prospective
investors in the CMA State Funds are referred to the prospectus for
those funds which is available from Merrill Lynch. For more
information about the CMA State Funds, investors should contact
their Merrill Lynch Financial Consultants.
Purchases of
shares of a Fund designated as the Primary Money Account will be
made pursuant to the CMA automatic or manual purchase procedures
described below. Purchases of shares of the Funds may also be made
by investors maintaining accounts with the Funds’ Transfer
Agent pursuant to the procedures described below.
The purchase
price for shares of the Funds is the net asset value per share next
determined after receipt by a Fund of an automatic or manual
purchase order in proper form. Shares purchased will receive the
next dividend declared after such shares are issued which will be
immediately prior to the 12 noon, Eastern time, pricing on the
following business day. A purchase order will not be effective
until cash in the form of Federal funds becomes available to the
Fund (see below for information as to when free cash balances held
in CMA accounts become available to the Funds). There are no
minimum investment requirements for subscribers to the Cash
Management Account program other than for manual
purchases.
Subscribers
to the CMA service have the option to change the designation of
their Primary Money Account at any time by notifying their Merrill
Lynch Financial Consultants. At that time, a subscriber may
instruct his or her Financial Consultant to redeem shares of a Fund
designated as the Primary Money Account and to transfer the
proceeds to the newly-designated Primary Money Account.
Automatic
Purchases. After June 5, 2000, new cash
balances in CMA accounts that will be swept automatically into one
or more accounts at a Merrill Lynch Bank. Debits in those accounts
will be paid from balances in the CMA Money, CMA Government and CMA
Treasury Funds until those balances are depleted. Free cash
balances in CMA accounts electing the tax-exempt sweep options will
continue to be swept into the CMA Tax-Exempt Fund or one of the CMA
Multi-State Funds.
Manual
Purchases. Subscribers to the CMA
service may make manual investments of $1,000 or more at any time
in shares of a Fund not selected as their Primary Money Account.
Manual purchases shall be effective on the day following the day
the order is placed with Merrill Lynch, except that orders
involving cash deposits made on the date of a manual purchase shall
become effective on the second business day thereafter if they are
placed after the cashiering deadline referred to in the preceding
paragraph. As a result, CMA customers who enter manual purchase
orders which include cash deposits made on that day after such
cashiering deadline will not receive the daily dividend which would
have been received had their orders been entered prior to the
deadline. In addition, manual purchases of $500,000 or more can be
made effective on the same day the order is placed with Merrill
Lynch provided that requirements as to timely notification and
transfer of a Federal funds wire in the proper amount are met. CMA
customers desiring further information on this method of purchasing
shares should contact their Merrill Lynch Financial
Consultants.
Merrill
Lynch reserves the right to terminate a subscriber’s
participation in the Cash Management Account program for any
reason.
All
purchases of the Funds’ shares and dividend reinvestments will
be confirmed to Cash Management Account subscribers (rounded to the
nearest share) in the transaction statement which is sent to all
participants in such Account monthly.
Purchase of Shares by Non-Cash Management Account
Subscribers
Shares of
the Funds may be purchased by investors maintaining accounts
directly with the Funds’ Transfer Agent who are not
subscribers to the Cash Management Account program. Shareholders of
the Funds not subscribing to such program will not be charged the
applicable program fee, but will not receive any of the services
available to program subscribers, such as the Visa® card/check
account or the automatic investment of free cash balances. The
minimum initial purchase for non-program subscribers is $5,000 and
the minimum subsequent purchase is $1,000. Investors desiring to
purchase shares directly through the Transfer Agent as described
below should contact Financial Data Services, Inc., P.O. Box 45290,
Jacksonville, Florida 32232-5290 or call (800)
221-7210.
Payment
to the Transfer Agent. Investors who are
not subscribers to the CMA program may submit purchase orders
directly by mail or otherwise to the Transfer Agent. Purchase
orders by mail should be sent to Financial Data Services, Inc.,
P.O. Box 45290, Jacksonville, Florida 32232-5290. Purchase orders
that are sent by hand should be delivered to Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. Investors opening a new account must enclose a
completed Purchase Application which is available from Financial
Data Services, Inc. Existing shareholders should enclose the
detachable stub from a monthly account statement that they have
received. Checks should be made payable to Merrill Lynch, Pierce,
Fenner & Smith Incorporated. Certified checks are not
necessary, but checks are accepted subject to collection at full
face value in U.S. funds and must be drawn in U.S. dollars on a
U.S. bank. Payments for the accounts of corporations, foundations
and other organizations may not be made by third party checks.
Since there is a three-day settlement period applicable to the sale
of most securities, delays may occur when an investor is
liquidating other investments for investment in one of the
Funds.
As described
under “Tax-Exempt Fund—Investment Objectives and
Policies,” the Tax-Exempt Fund has reserved the right to
suspend or otherwise limit sales of its shares if, as a result of
difficulties in obtaining portfolio securities, it is determined
that it is not in the interests of the Tax-Exempt Fund’s
shareholders to issue additional shares. If sales of shares of the
Tax-Exempt Fund are suspended, shareholders who have designated
such Fund as their Primary Money Account will be permitted to
designate one of the CMA State Funds (if available) or the Insured
Savings Account or an account at a Merrill Lynch Bank as their
Primary Money Account. Pending such an election, Merrill Lynch will
consider various alternatives with respect to automatic investments
for such accounts, including the investment of free cash balances
in such accounts in an account at a Merrill Lynch Bank.
Each Fund
has entered into a distribution agreement (each a
“Distribution Agreement”) with Merrill Lynch pursuant to
which Merrill Lynch acts as the distributor for the Fund. The
Distribution Agreements obligate Merrill Lynch to pay certain
expenses in connection with the offering of the shares of the
Funds. After the prospectus, statement of additional information
and periodic reports have been prepared, set in type and mailed to
shareholders, Merrill Lynch will pay for the printing and
distribution of copies thereof used in connection with the offering
to investors. Merrill Lynch will also pay for other supplementary
sales literature and advertising costs. The Distribution Agreements
are subject to the same renewal requirements and termination
provisions as the Investment Advisory Agreements described
above.
Each Fund
has adopted a Distribution and Shareholder Servicing Plan (each a
“Distribution Plan”) in compliance with Rule 12b-1 under
the Investment Company Act pursuant to which Merrill Lynch receives
a distribution fee under the Distribution Agreement from the Fund
at the end of each month at the annual rate of 0.125% of average
daily net assets of such Fund attributable to subscribers to the
CMA program and to investors maintaining securities accounts with
Merrill Lynch or maintaining accounts directly with the Transfer
Agent who are not subscribers to such program, except that the
value of Fund shares in accounts maintained directly with the
Transfer Agent that are not serviced by Merrill Lynch Financial
Consultants will be excluded. The Distribution Plans reimburse
Merrill Lynch only for actual expenses incurred in the fiscal year
in which the fees are paid. The distribution fees are principally
to compensate Merrill Lynch Financial Consultants and other Merrill
Lynch personnel for selling shares of each Fund and for providing
direct personal services to shareholders of the Funds. The
distribution fee is not compensation for the administrative and
operational services rendered to shareholders by Merrill Lynch
which are covered by Investment Advisory Agreements between each
Fund and the Manager. See “Management of the
Funds—Investment Advisory Arrangements”.
The Trustees believe
that each Fund’s expenditures under its Distribution Plan
benefit such Fund and its shareholders by providing better
shareholder services by facilitating the sale and distribution of
Fund shares. For the year ended March 31, 2000, the Money Market
Fund paid $76,626,653 in fees to Merrill Lynch pursuant to its
Distribution Plan. For the year ended March 31, 2000, the
Government Fund paid $4,242,030 in fees to Merrill Lynch pursuant
to its Distribution Plan. For the year ended March 31, 2000, the
Tax-Exempt Fund paid $11,800,900 in fees to Merrill Lynch pursuant
to its Distribution Plan. For the year ended March 31, 2000, the
Treasury Fund paid $3,206,032 in fees to Merrill Lynch pursuant to
its Distribution Plan. All of the amounts expended under the
Distribution Plans for the year ended March 31, 2000 were allocated
to Merrill Lynch Financial Consultants, other Merrill Lynch
personnel and related administrative costs.
Among other
things, each Distribution Plan provides that Merrill Lynch shall
provide and the Trustees of the Trust shall review quarterly
reports of the distribution expenses made by Merrill Lynch pursuant
to the Distribution Plan. In their consideration of each
Distribution Plan, the Trustees must consider all factors they deem
relevant, including information as to the benefits of the
Distribution Plan to the related Fund and its shareholders. Each
Distribution Plan further provides that, so long as the
Distribution Plan remains in effect, the selection and nomination
of Trustees of the Fund who are not “interested persons”
of the Fund as defined in the Investment Company Act
(“Independent Trustees”) shall be committed to the
discretion of the Independent Trustees then in office. Each
Distribution Plan can be terminated at any time, without penalty,
by the vote of a majority of the Independent Trustees or by the
vote of the holders of a majority of the outstanding voting
securities of each Fund. Finally, the Distribution Plans cannot be
amended to increase materially the amount to be spent by the Fund
thereunder without shareholder approval, and all material
amendments are required to be approved by vote of the Trustees of
the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for that purpose.
Reference is
made to “How to Buy, Sell and Transfer Shares” in the
Prospectus.
Each
Fund is required to redeem for cash all full and fractional shares
of the Fund. The redemption price is the net asset value per share
next determined after receipt by the Transfer Agent of proper
notice of redemption as described in accordance with either the
automatic or manual procedures set forth below. If such notice is
received by the Transfer Agent prior to the 12 noon, Eastern time,
pricing on any business day, the redemption will be effective on
such day. Payment of the redemption proceeds will be made on the
same day the redemption becomes effective. If the notice is
received after 12 noon, Eastern time, the redemption will be
effective on the next business day and payment will be made on such
next day.
Redemption of Shares by Cash Management Account
Subscribers
Automatic
Redemptions. Redemptions will be
effected automatically by Merrill Lynch to satisfy debit balances
in the Securities Account created by activity therein or to satisfy
debit balances created by Visa® card purchases, card advances
(which may be obtained through participating banks and automated
teller machines) or checks written against the Visa® Account.
Each CMA account will be automatically scanned for debits each
business day prior to 12 noon, Eastern time. After application of
any free cash balances in the account to such debits, shares of the
Tax-Exempt Fund (or the CMA State Funds, if applicable) will be
redeemed at net asset value at the 12 noon, Eastern time pricing,
and funds deposited pursuant to the Insured Savings Account or in
an account at a Merrill Lynch Bank will be withdrawn, to the extent
necessary to satisfy any remaining debits in either the Securities
Account or the Visa® Account. Automatic redemptions or
withdrawals will be made first from the participant’s Primary
Money Account and then, to the extent necessary, from Money
Accounts not designated as the Primary Money Account. Unless
otherwise requested, in those instances where shareholders request
transactions that settle on a “same-day” basis (such as
Federal Funds wire redemptions, branch office checks, transfers to
other Merrill Lynch accounts and certain securities transactions)
the Fund shares necessary to effect such transactions will be
deemed to have been transferred to Merrill Lynch prior to the
Fund’s declaration of dividends on that day. In such
instances, shareholders will receive all dividends declared and
reinvested through the date immediately preceding the date of
redemption. Unless otherwise requested by the participant,
redemptions
or withdrawals from non-Primary Money Accounts will be made in the
order the Money Accounts were established; thus, redemptions or
withdrawals will first be made from the non-Primary Money Account
which the participant first established. Margin loans through the
Investor CreditLine
SM
service
will be utilized to satisfy debits remaining after the liquidation
of all funds invested in or deposited through Money Accounts, and
shares of the CMA Tax-Exempt Fund may not be purchased, nor may
deposits be made pursuant to the Insured Savings Account or into an
account at a Merrill Lynch Bank, until all debits and margin loans
in the account are satisfied.
Merrill
Lynch, in conjunction with an affiliate, offers modified features,
the CMA Visa® Gold Program, and the CMA Visa®
Signature
SM
Program to
the CMA account for individual shareholders. Participants in the
CMA Visa® Gold Program or CMA Visa® Signature
SM
Program may
purchase goods or services at participating merchants with the
Visa® Gold or Visa® Signature card. Such purchases may be
paid for by automatic debit on the fourth Wednesday of each month.
See the Merrill Lynch Cash Management Account Program Description
for more information concerning the CMA Visa® Gold Program and
CMA Visa® Signature Programs.
As set forth
in the current description of the CMA program, a participant whose
Securities Account is a margin account through the Investor
CreditLine
SM
service may
designate a minimum balance to be maintained in shares of the CMA
Tax-Exempt Fund or the CMA State Funds or deposits made pursuant to
the Insured Savings Account or into an account at a Merrill Lynch
Bank (the “Minimum Money Accounts Balance”). If a
participant designates a Minimum Money Accounts Balance, the shares
or deposits representing such balance will not be redeemed or
withdrawn until loans equal to the available margin loan value of
securities in the Securities Account have been made. Participants
considering the establishment of a Minimum Money Accounts Balance
should review the description of this service contained in the
description of the CMA program which is available from Merrill
Lynch.
Shareholders
of the Funds may arrange to have periodic investments made in
certain other mutual funds sponsored by Merrill Lynch through the
CMA Automated Investment Program. Under this program, the
shareholder’s Money Account will be automatically debited at
periodic intervals in an amount of $250 or more, as selected by the
shareholder,
and investment made in the fund the shareholder has designated.
Further information on this program is available from Merrill
Lynch.
Manual
Redemptions. Shareholders may redeem
shares of a Fund directly by submitting a written notice of
redemption directly to Merrill Lynch, which will submit the
requests to the Funds’ Transfer Agent. Cash proceeds from the
manual redemption of Fund shares ordinarily will be mailed to the
shareholder at his or her address of record, or upon request,
mailed or wired (if $10,000 or more) to his or her bank account.
Redemption requests should not be sent to the Fund or the Transfer
Agent. If inadvertently sent to the Fund or the Transfer Agent,
redemption requests will be forwarded to Merrill Lynch. The notice
requires the signatures of all persons in whose name the shares are
registered, signed exactly as their names appear on their monthly
statement. The signature(s) on the redemption request must be
guaranteed by an “eligible guarantor institution” as such
is defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, the existence and validity of which may be verified by the
Transfer Agent through the use of industry publications. Notarized
signatures are not sufficient. In certain instances, additional
documents such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or
certificates of corporate authority may be required. CMA customers
desiring to effect manual redemptions should contact their Merrill
Lynch Financial Consultants.
All
redemptions of Fund shares will be confirmed to Cash Management
Account subscribers (rounded to the nearest share) in the CMA
Transaction Statement which is sent to all CMA participants
monthly.
Redemption of Shares by Non-Cash Management Account
Subscribers
Shareholders
may redeem shares of the Funds held in a Merrill Lynch securities
account directly by submitting a written notice of redemption to
Merrill Lynch, which will submit the requests to the Funds’
Transfer Agent as described above under “Redemption of
Shares—Redemption of Shares by Cash Management Account
Subscribers—Manual Redemptions.”
Shareholders
maintaining an account directly with the Transfer Agent, who are
not CMA program participants, may redeem shares of the Funds by
submitting a written notice by mail directly to the Transfer Agent,
Financial Data Services, Inc., P.O. Box 45290, Jacksonville, Florida
32232-5290. Redemption requests which are sent by hand should be
delivered to Financial Data Services, Inc., 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484. Cash proceeds from the
manual redemption of Fund shares will be mailed to the shareholder
at his or her address of record. Redemption requests should not be
sent to the Funds or Merrill Lynch. If inadvertently sent to the
Funds or Merrill Lynch, such redemption requests will be forwarded
to the Transfer Agent. The notice requires the signatures of all
persons in whose names the shares are registered, signed exactly as
their names appear on their monthly statement. The signature(s) on
the notice must be guaranteed by an “eligible guarantor
institution” as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, the existence and validity of which may be
verified by the Transfer Agent by the use of industry publications.
Notarized signatures are not sufficient. In certain instances,
additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority may be
required.
At various
times the Funds may be requested to redeem shares, in manual or
automatic redemptions, with respect to which good payment has not
yet been received by Merrill Lynch. A Fund may delay, or cause to
be delayed, the payment of the redemption proceeds until such time
as it has assured itself that good payment has been collected for
the purchase of such shares. Normally, this delay will not exceed
10 days. In addition, the Funds reserve the right not to effect
automatic redemptions where the shares to be redeemed have been
purchased by check within 15 days prior to the date the redemption
request is received.
The right to
receive payment with respect to any redemption of Fund shares may
be suspended by each Fund for a period of up to seven days.
Suspensions of more than seven days may not be made except (1) for
any period (A) during which the New York Stock Exchange (the
“NYSE”) is closed other than customary weekend and
holiday closings or (B) during which trading on the NYSE is
restricted; (2) for any period during which an emergency exists as
a result of which (A) disposal by the Fund of securities owned by
it is not reasonably practicable or (B) it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets; or (3) for such other periods as the Commission may by
order permit for the protection of securityholders of the Fund. The
Commission shall by rules and regulations determine the conditions
under which (i) trading shall be deemed to be restricted and (ii)
an emergency shall be deemed to exist within the meaning of clause
(2) above.
The value of
shares of the Funds at the time of redemption may be more or less
than the shareholders’ cost, depending on the market value of
the securities held by the Funds at any such time.
Merrill
Lynch has offered the CMA program since September 1977. While no
significant problems have occurred to date, no predictions can be
made as to the rate of purchases and redemptions of shares which
will result from the automatic features of the CMA program. The
portfolio securities of the Funds are highly liquid and the Funds
have the right to borrow up to 20% of their total assets on a
temporary basis to meet unexpected redemptions. Nevertheless, an
erratic redemption pattern could force the Manager to invest in
securities or maintain an average portfolio maturity which might
lessen the yield that would otherwise be available to the
Funds.
Merrill
Lynch, in conjunction with another subsidiary of ML & Co.,
offers a modified version of the CMA account which has been
designed for corporations and other businesses. This account, the
Working Capital Management™ account (“WCMA
account”), provides participants with the features of a
regular CMA account and also optional lines of credit. A brochure
describing the WCMA program, as well as information concerning
charges for participation in the program, is available from Merrill
Lynch.
Participants
in the WCMA program are able to invest funds in one or more of the
Funds designated by them. Checks and other funds transmitted to a
WCMA account will generally be applied, first to the payment of
pending securities transactions or other charges in the
participant’s securities account, second, to reduce
outstanding balances in the lines of credit available through such
program and, third, to purchase shares of the designated Fund. To
the extent not otherwise applied, funds transmitted by Federal
funds wire or an automated clearinghouse service will be invested
in shares of the designated Fund on the business day following
receipt of such funds by Merrill Lynch. Funds received in a WCMA
account from the sale of securities will be invested in the
designated Fund as described above. The amount payable on a check
received in a WCMA account prior to the cashiering deadline
referred to above will be invested on the second business day
following receipt of the check by Merrill Lynch.
Redemptions of Fund shares will be effected as described above to
satisfy debit balances, such as those created by purchases of
securities or by checks written against a bank providing checking
services to WCMA participants. WCMA participants that have a line
of credit will, however, be permitted to maintain a minimum Fund
balance; for participants who elect to maintain such a balance,
debits from check usage will be satisfied through the line of
credit so that such balance is maintained. However, if the full
amount of available credit is not sufficient to satisfy the debit,
it will be satisfied from the minimum balance.
From time to
time, Merrill Lynch also may offer the Funds to participants in
certain other programs sponsored by Merrill Lynch. Some or all of
the features of the CMA account may not be available in such
programs. For more information on the services available under such
programs, participants should contact their financial
consultants.
DETERMINATION OF NET ASSET VALUE
Money Market Fund, Government Fund and Treasury Fund
The net
asset value of the Money Market Fund, the Government Fund and the
Treasury Fund is determined by the Manager at 12:00 noon, Eastern
time, on each business day during which the NYSE or New York banks
are open for business, immediately after the daily declaration of
dividends. As a result of this procedure, the net asset value is
determined each business day except for days on which both the NYSE
and New York banks are closed. Both the NYSE and New York banks are
closed for New Year’s Day, Martin Luther King, Jr. Day,
Presidents Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value per share
of the Money Market Fund, the Government Fund and the Treasury Fund
is determined under the “penny rounding” method by adding
the value of all securities and other assets in each Fund’s
portfolio, deducting such Fund’s liabilities, dividing by the
number of shares of the Fund outstanding and rounding the result to
the nearest whole cent. It is anticipated that the net asset value
per share of each Fund will remain constant at $1.00 per share, but
no assurance can be offered in this regard. Securities with
remaining maturities of greater than 60 days for which market
quotations are readily available will be valued at market value.
Securities with remaining maturities of 60 days or less will be
valued on an amortized cost basis, i.e., by valuing the
instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the
instrument. Other securities held by the Money Market Fund, the
Government Fund and the Treasury Fund will be valued at their fair
value as determined in good faith by or under direction of the
Board of Trustees.
The net
asset value of the Tax-Exempt Fund for the purpose of pricing
orders for the purchase and redemption of shares is determined by
the Manager at 12:00 noon, Eastern time, on each day the NYSE or
New York banks are open for business, immediately after the daily
declaration of dividends. As a result of this procedure, the net
asset value is determined each day except for days on which both
the NYSE and New York banks are closed. Both the NYSE and New York
banks are closed on New Year’s Day, Martin Luther King, Jr.
Day, Presidents Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value is
determined by adding the value of all securities and other assets
in the portfolio, deducting its liabilities and dividing by the
number of shares outstanding. It is anticipated that the net asset
value per share of the Tax-Exempt Fund will remain constant at
$1.00 per share, but no assurance can be offered in this
regard.
The
Tax-Exempt Fund values its portfolio securities based upon their
amortized cost in accordance with the terms of a rule adopted by
the Commission. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or
lower than the price the Tax-Exempt Fund would receive if it sold
the instrument.
In
accordance with the Commission regulations applicable to the
valuation of portfolio securities, the Funds will maintain a
dollar-weighted average portfolio maturity of 90 days or less and
will purchase instruments having
remaining maturities of not more than 397 days (13 months), with the
exception of U.S. Government and U.S. Government agency securities,
which may have remaining maturities of up to 762 days (25 months).
The Funds will invest only in securities determined by the Trustees
to be of high quality with minimal credit risks. In addition, the
Trustees have established procedures designed to stabilize, to the
extent reasonably possible, each Fund’s price per share as
computed for the purpose of sales and redemptions at $1.00.
Deviations of more than an insignificant amount between the net
asset value calculated using market quotations and that calculated
on a “penny rounded” basis or, in the case of the
Tax-Exempt Fund, an amortized cost basis, will be reported to the
Trustees of the Fund by the Manager. In the event the Trustees
determine that a deviation exists with respect to any Fund that may
result in material dilution or other unfair results to investors or
existing shareholders of that Fund, the Fund will take such
corrective action as it regards necessary and appropriate,
including the reduction of the number of outstanding shares of the
Fund by having each shareholder proportionately contribute shares
to the Fund’s capital; the sale of portfolio instruments prior
to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends; or establishing
a net asset value per share solely by using available market
quotations. If the number of outstanding shares is reduced in order
to maintain a constant net asset value of $1.00 per share, the
shareholders will contribute proportionately to the Fund’s
capital. Each shareholder will be deemed to have agreed to such
contribution by such shareholder’s investment in such
Fund.
Since the net income of the Funds is
determined and declared as a dividend immediately prior to each
time the net asset value of each Fund is determined, the net asset
value per share of the Funds normally remains at $1.00 per share
immediately after each such dividend declaration. Any increase in
the value of a shareholder’s investment in a Fund,
representing the reinvestment of dividend income, is reflected by
an increase in the number of shares of the Fund in the account and
any decrease in the value of a shareholder’s investment may be
reflected by a decrease in the number of shares in the account. See
“Taxes” below.
Each Fund
normally computes its annualized yield by determining the net
income for a seven-day base period for a hypothetical pre-existing
account having a balance of one share at the beginning of the base
period, dividing the net income by the net asset value of the
account at the beginning of the base period to obtain the base
period return, multiplying the result by 365 and then dividing by
seven. Under this calculation, the yield on the Money Market Fund,
the Government Fund and the Treasury Fund shares reflects, and the
yield on the Tax-Exempt Fund does not reflect, realized gains and
losses on portfolio securities. In accordance with regulations
adopted by the Commission, each Fund is required to disclose its
annualized yield for certain seven-day base periods in a
standardized manner that does not take into consideration any
realized or unrealized gains or losses on portfolio securities. The
Commission also permits the calculation of a standardized effective
or compounded yield. This is computed by compounding the
unannualized base period return, which is done by adding one to the
base period return, raising the sum to a power equal to 365 divided
by seven, and subtracting one from the result. The annualized
compounded yield will be somewhat higher than the yield because of
the effect of assumed reinvestment. In the case of the Money Market
Fund, the Government Fund and the Treasury Fund, this compounded
yield calculation also reflects realized gains or losses on
portfolio securities. Realized gains and losses are not reflected
in the compounded yield calculation of the Tax-Exempt
Fund.
The yield on
each Fund’s shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication
or representation by the Fund of future yields or rates of return
on its shares. The yield is affected by such factors as changes in
interest rates on the Fund’s portfolio securities, average
portfolio maturity, the types and quality of portfolio securities
held and operating expenses. Current yield information may not
provide a basis for comparison with bank deposits or other
investments that pay a fixed yield over a stated period of time.
The yield on Government Fund shares and Treasury Fund shares may
not, for various reasons, be comparable to the yield on shares of
other money market funds or other investments.
Seven-Day Period Ended March 31, 2000
|
|
Excluding
gains and
losses
|
| Money
Market Fund |
|
5.50% |
| Government
Fund |
|
5.19% |
| Tax-Exempt
Fund |
|
3.28% |
| Treasury
Fund |
|
5.05% |
On occasion, each
Fund may compare its yield to (i) the average yield reported by the
Bank Rate Monitor National Index
TM
for money
market deposit accounts offered by the 100 leading banks and thrift
institutions in the ten largest standard metropolitan statistical
areas, (ii) yield data published by Lipper Analytical Services,
Inc., (iii) performance data published by Morningstar Publications,
Inc., Money Magazine, U.S. News & World Report, Business
Week, CDA Investment Technology, Inc., Forbes Magazine
and Fortune Magazine or (iv) historical yield data
relating to other central asset accounts similar to the CMA
program. In addition, on occasion, the Money Market Fund, the
Government Fund and the Treasury Fund may each compare their yields
to the yield on an investment in 90-day Treasury bills on a rolling
basis, assuming quarterly compounding. As with yield quotations,
yield comparisons should not be considered indicative of the
Fund’s yield or relative performance for any future
period.
The Funds
have no obligations to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to a
policy established by the Trustees and officers of each Fund, the
Manager is primarily responsible for the Fund’s portfolio
decisions and the placing of the Fund’s portfolio
transactions. In placing orders, it is the policy of the Funds to
obtain the best net results taking into account such factors as
price of the securities offered, the type of transaction involved,
the firm’s general execution and operational facilities, and
the firm’s risk in positioning the securities involved. While
the Manager generally seeks reasonably competitive spreads or
commissions, the Funds will not necessarily be paying the lowest
spread or commission available. The Fund’s policy of investing
in securities with short maturities will result in high portfolio
turnover.
The
portfolio securities in which each Fund invests are traded
primarily in the over-the-counter (“OTC”) market. Where
possible, the Funds will deal directly with the dealers who make a
market in the securities involved except in those circumstances
where better prices and execution are available elsewhere. Such
dealers usually are acting as principals for their own accounts. On
occasion, securities may be purchased directly from the issuer. The
money market securities in which the Money Market Fund, the
Government Fund and the Treasury Fund invest and the Tax-Exempt
Securities in which the Tax-Exempt Fund invests are generally
traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Funds primarily will consist of
dealer spreads and underwriting commissions. Under the Investment
Company Act, a person affiliated with the Funds is prohibited from
dealing with the Funds as a principal in the purchase and sale of
securities unless an exemptive order allowing such transactions is
obtained from the Commission. Since OTC transactions are usually
principal transactions, an affiliated person of the Funds may not
serve as the Funds’ dealer in connection with such
transactions, except pursuant to the exemptive order described
below. However, an affiliated person of the Funds may serve as the
Funds’ broker in OTC transactions conducted on an agency
basis. The Funds may not purchase securities from any underwriting
syndicate of which Merrill Lynch is a member, except in accordance
with applicable rules under the Investment Company Act or,
likewise, under an exemptive order.
The
Commission has issued an exemptive order permitting the Money
Market Fund, the Government Fund and the Treasury Fund to conduct
principal transactions with Merrill Lynch Government Securities
Inc. (“GSI”) in U.S. Government and U.S. Government
agency securities, with Merrill Lynch Money Markets Inc.
(“MMI”) in certificates of deposit and other short term
bank money market instruments and commercial paper and with Merrill
Lynch in fixed income securities including medium term notes. The
order contains a number of conditions, including conditions
designed to insure that the price to the Money Market Fund, the
Government Fund and the Treasury Fund from GSI, MMI or Merrill
Lynch is equal to or better than that available from other sources.
GSI, MMI and Merrill Lynch have informed such Funds that they will
in no way, at any time, attempt to influence or control the
activities of the Fund or the Manager in placing such principal
transactions. The exemptive order allows GSI, MMI or Merrill Lynch
to receive a dealer spread on any transaction with the Money Market
Fund, the Government Fund or the Treasury Fund no greater than its
customary dealer spread for transactions of the type involved.
Generally such spreads do not exceed 0.25% of the principal amount
of the securities involved. For the fiscal years ended March 31,
1998, 1999 and 2000 the Money Market Fund engaged in 146, 116 and
135 such transactions, respectively, aggregating approximately
$10.4 billion, $9.6 billion and $15.5 billion, respectively. For
the fiscal years ended March 31, 1998, 1999 and 2000, the
Government Fund engaged in 0, 13 and 2 such transactions,
respectively, aggregating approximately $0, $1.8 billion and $84.0
million, respectively. For the fiscal
years ended March 31, 1998, 1999 and 2000 the Treasury Fund engaged
in 7, 0 and 0 such transactions, respectively, aggregating
approximately $48.6 million, $0 and $0, respectively.
Prior to the
receipt of a separate exemptive order also described below, the
Tax-Exempt Fund could not purchase securities in principal
transactions with Merrill Lynch, although it could purchase
tax-exempt securities from underwriting syndicates of which Merrill
Lynch was a member under certain conditions in accordance with the
provisions of a rule adopted under the Investment Company Act. The
Commission issued an exemptive order permitting the Tax-Exempt Fund
to conduct principal transactions with Merrill Lynch in Tax-Exempt
Securities with remaining maturities of one year or less. This
order contains a number of conditions, including conditions
designed to insure that the price to the Tax-Exempt Fund from
Merrill Lynch is equal to or better than that available from other
sources. Merrill Lynch has informed the Tax-Exempt Fund that it
will in no way, at any time, attempt to influence or control the
activities of the Fund or the Manager in placing such principal
transactions. The exemptive order allows Merrill Lynch to receive a
dealer spread on any transaction with the Tax-Exempt Fund no
greater than its customary dealer spread for transactions of the
type involved. For the fiscal years ended March 31, 1998, 1999 and
2000, the Tax-Exempt Fund engaged in 20, 12 and 32 principal
transactions, respectively, with Merrill Lynch, aggregating
approximately $353.7 million, $322.4 million and $952.5 million,
respectively.
The Trustees
of each Fund have considered the possibilities of recapturing for
the benefit of the Funds expenses of possible portfolio
transactions, such as dealers’ spreads and underwriting
commissions, by conducting such portfolio transactions through
affiliated entities, including Merrill Lynch. After considering all
factors deemed relevant, the Trustees made a determination not to
seek such recapture. The Trustees will reconsider this matter from
time to time. The Manager has arranged for the Funds’
custodian to receive any tender offer solicitation fees on behalf
of the Funds payable with respect to portfolio securities of the
Funds.
The Funds do
not expect to use one particular dealer, but, subject to obtaining
the best price and execution, dealers who provide supplemental
investment research to the Manager may receive orders for
transactions by the Funds. Information so received will be in
addition to and not in lieu of the services required to be
performed by the Manager under its Investment Advisory Agreement
and the expenses of the Manager will not necessarily be reduced as
a result of the receipt of such supplemental
information.
Dividends
are declared and reinvested daily by each Fund in the form of
additional shares at net asset value. Each Fund’s net income
for dividend purposes is determined at 12 noon, Eastern time, on
each day the NYSE or New York banks are open for business,
immediately prior to the determination of such Fund’s net
asset value on that day (see “Determination of Net Asset
Value”). Such reinvestments will be reflected in
shareholders’ monthly CMA transaction statements. Shareholders
liquidating their holdings will receive on redemption all dividends
declared and reinvested through the date of redemption, except that
in those instances where shareholders request transactions that
settle on a “same-day” basis (such as Federal Funds wire
redemptions, branch office checks, transfers to other Merrill Lynch
accounts and certain securities transactions) the Fund shares
necessary to effect such transactions will be deemed to have been
transferred to Merrill Lynch prior to the Fund’s declaration
of dividends on that day. In such instances, shareholders will
receive all dividends declared and reinvested through the date
immediately preceding the date of redemption. Since the net income
(including realized gains and losses on the portfolio assets) is
declared as a dividend in shares each time the net income of the
Fund is determined, the net asset value per share of the Fund
normally remains constant at $1.00 per share.
Net income
of each Fund (from the time of the immediately preceding
determination thereof) consists of (i) interest accrued and/or
discount earned (including both original issue and market
discount), (ii) less amortization of premiums and the estimated
expenses of the Fund (including the fees payable to the Manager)
for the period, (iii) plus or minus all realized gains and losses
on portfolio securities. The amount of discount or premium on
portfolio securities is fixed at the time of their purchase and
consists of the difference between the purchase price for such
securities and the principal amount of such securities. Unrealized
gains and losses are reflected in each Fund’s net assets and
are not included in net income.
The Funds
intend to continue to qualify for the special tax treatment
afforded regulated investment companies (“RICs”) under
the Internal Revenue Code of 1986, as amended (the
“Code”). As long as the Money Market Fund, the Government
Fund, the Treasury Fund or the Tax-Exempt Fund so qualifies, such
Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized
capital gains which it distributes to shareholders. The Funds
intend to distribute substantially all of such income.
Taxation
of Ordinary Income and Capital Gain Dividends
Dividends
paid by the Money Market Fund, the Government Fund and the Treasury
Fund or, if applicable, the Tax-Exempt Fund from their ordinary
income or from an excess of net short term capital gains over net
long term capital losses (together referred to hereafter as
“ordinary income dividends”) are taxable to shareholders
as ordinary income. Distributions made from an excess of net long
term capital gains over net short term capital losses
(“capital gain dividends”) are taxable to shareholders as
long term capital gains, regardless of the length of time the
shareholder has owned the Fund shares. Certain categories of
capital gain dividends are taxable at different rates. Generally
not later than 60 days after the close of their taxable years, the
Funds will provide their respective shareholders with a written
notice designating the amounts of any capital gain dividends or
exempt-interest dividends, if applicable, as well as the amount of
capital gains in the different categories of capital gain referred
to above. Ordinary income and capital gain dividends are taxable to
shareholders even though they are reinvested in additional shares
of a Fund.
Tax Rules
Applicable to the Tax-Exempt Fund and its
Shareholders
The
Tax-Exempt Fund intends to qualify to pay “exempt-interest
dividends” as defined in Section 852(b)(5) of the Code. Under
such section if, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consists of
obligations exempt from Federal income tax (“tax-exempt
obligations”) under Section 103(a) of the Code (relating
generally to obligations of a state or local governmental unit),
the Tax-Exempt Fund shall be qualified to pay exempt-interest
dividends to its shareholders. Exempt-interest dividends are
dividends or any part thereof paid by the Tax-Exempt Fund which are
attributable to interest on tax-exempt obligations and designated
by the Tax-Exempt Fund as exempt-interest dividends in a written
notice mailed to the Tax-Exempt Fund’s shareholders within
sixty days after the close of its taxable year. To the extent that
the dividends distributed to the Tax-Exempt Fund’s
shareholders are derived from interest income exempt from Federal
income tax under Code Section 103(a) and are properly designated as
exempt-interest dividends, they will be excludable from a
shareholder’s gross income for Federal income tax purposes.
Exempt-interest dividends are included, however, in determining the
portion, if any, of a person’s social security and railroad
retirement benefits subject to Federal income taxes. Interest on
indebtedness incurred or continued to purchase or carry shares of a
RIC paying exempt-interest dividends, such as the Tax-Exempt Fund,
will not be deductible by the investor for Federal income tax
purposes to the extent attributable to exempt-interest dividends.
Shareholders are advised to consult their tax advisers with respect
to whether exempt-interest dividends retain the exclusion under
Code Section 103(a) if a shareholder would be treated as a
“substantial user” or “related person” under
Code Section 147(a) with respect to property financed with the
proceeds of an issue of “industrial development bonds” or
“private activity bonds,” if any, held by the Tax-Exempt
Fund.
All or a
portion of the Tax-Exempt Fund’s gain from the sale or
redemption of tax-exempt obligations purchased at a market discount
will be treated as ordinary income rather than capital gain. This
rule may increase the amount of ordinary income dividends received
by shareholders. Any loss upon the sale or exchange of Tax-Exempt
Fund shares held for six months or less will be disallowed to the
extent of any exempt-interest dividends received by the
shareholder. In addition, any such loss that is not disallowed
under the rule stated above will be treated as long-term capital
loss to the extent of any capital gain dividends received by the
shareholder.
The Code
subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The Federal
alternative minimum tax applies to interest received on
“private activity bonds” issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are
used for purposes other
than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for
industrial development or housing purposes). Income received on
such bonds is classified as an item of “tax preference,”
which could subject certain investors in such bonds, including
shareholders of the Tax-Exempt Fund, to a Federal alternative
minimum tax. The Tax-Exempt Fund will purchase such “private
activity bonds” and will report to shareholders within 60 days
after its calendar year-end the portion of the Tax-Exempt
Fund’s dividends declared during the year which constitutes an
item of tax preference for Federal alternative minimum tax
purposes. The Code further provides that corporations are subject
to a Federal alternative minimum tax based, in part, on certain
differences between taxable income as adjusted for other tax
preferences and the corporation’s “adjusted current
earnings,” which more closely reflect a corporation’s
economic income. Because an exempt-interest dividend paid by the
Tax-Exempt Fund will be included in adjusted current earnings, a
corporate shareholder may be required to pay Federal alternative
minimum tax on exempt-interest dividends received from the
Tax-Exempt Fund.
The Code
provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of
exempt-interest dividends received from all sources (including the
Tax-Exempt Fund) during the taxable year.
General
Taxation
If the Money
Market Fund, the Government Fund, the Treasury Fund or the
Tax-Exempt Fund pays a dividend in January which was declared in
the previous October, November or December to shareholders of
record on a specified date in one of such months, then such
dividend will be treated for tax purposes as being paid by such
Fund and received by its shareholders on December 31 of the year in
which such dividend was declared. Distributions by the Funds,
whether from exempt-interest income, ordinary income or capital
gains, will not be eligible for the dividends received deduction
allowed to corporations under the Code. Distributions in excess of
a Fund’s earnings and profits will first reduce the adjusted
tax basis of a holder’s shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset). Any loss
upon the sale or exchange of Fund shares held for six months or
less will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder.
If the value
of assets held by the Money Market Fund, the Government Fund, the
Treasury Fund or the Tax-Exempt Fund declines, the Board of
Trustees may authorize a reduction in the number of outstanding
shares in the respective shareholders’ accounts so as to
preserve a net asset value of $1.00 per share. After such a
reduction, the basis of eliminated shares would be added to the
basis of shareholders’ remaining Fund shares, and any
shareholders disposing of shares at that time may recognize a
capital loss. Distributions paid by the Money Market Fund, the
Government Fund and the Treasury Fund, including distributions
reinvested in additional shares of an affected Fund, will
nonetheless be fully taxable, even if the number of shares in
shareholders’ accounts has been reduced as described
above.
Ordinary
income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law.
Nonresident shareholders are urged to consult their own tax
advisers concerning the applicability of the United States
withholding tax.
Dividends
and interest received by a Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between
certain countries and the United States may reduce or eliminate
such taxes.
Under
certain Code provisions, some shareholders may be subject to a 31%
withholding tax on certain ordinary income dividends and on capital
gain dividends and redemption payments (“backup
withholding”). Generally, shareholders subject to backup
withholding will be those for whom no certified taxpayer
identification number is on file with a Fund or who, to such
Fund’s knowledge, have furnished an incorrect number. When
establishing an account, an investor must certify under penalty of
perjury that such number is correct and that such investor is not
otherwise subject to backup withholding.
The Code requires a
RIC to pay a nondeductible 4% excise tax to the extent the RIC does
not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital
gains, determined, in general, on an October 31 year-end, plus
certain undistributed amounts from previous years. The required
distributions, however, are based only on the taxable income of a
RIC. The excise tax, therefore, will generally not apply to the
tax-exempt income of a fund, such as the Tax-Exempt Fund, that pays
exempt-interest dividends. Although the Money Market Fund, the
Government Fund and the Treasury Fund intend to distribute their
income and capital gains in the manner necessary to minimize
imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of each Fund’s taxable ordinary income and
capital gains will be distributed to avoid entirely the imposition
of the tax. In such event, any such Fund will be liable for the tax
only on the amount by which it does not meet the foregoing
distribution requirements.
A loss
realized on a sale or exchange of shares of any of the Funds will
be disallowed if other shares of such Fund are acquired (whether
through the automatic reinvestment of dividends or otherwise)
within a 61-day period beginning 30 days before and ending 30 days
after the date that the shares are disposed of. In such a case, the
basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The
foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in
effect. For the complete provisions, reference should be made to
the pertinent Code sections and the Treasury Regulations
promulgated thereunder. The Code and the Treasury Regulations are
subject to change by legislative, judicial or administrative action
either prospectively or retroactively.
Ordinary
income dividends and capital gain dividends may also be subject to
state and local taxes. Certain states exempt from state income
taxation dividends paid by RICs which are derived in whole or in
part from interest on U.S. Government obligations. State law varies
as to whether and what percentage of dividend income attributable
to U.S. Government obligations is exempt from state income
tax.
Shareholders
are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign
investors should consider applicable foreign taxes in their
evaluation of an investment in the Funds.
Organization of the Funds
The Money
Market Fund, the Government Fund and the Tax-Exempt Fund are
unincorporated business trusts organized on June 5, 1989 under the
laws of Massachusetts. The Money Market Fund is the successor to a
Massachusetts business trust organized on September 19, 1977, the
Government Fund is the successor to a Massachusetts business trust
organized on August 3, 1981 and the Tax-Exempt Fund is the
successor to a Massachusetts business trust organized on January
15, 1981. The Treasury Fund is an unincorporated business trust
organized on October 24, 1990 under the laws of Massachusetts. Each
Fund is a no-load, diversified, open-end investment company. The
Declaration of Trust of each Fund permits the Trustees to issue an
unlimited number of full and fractional shares of a single class.
Upon liquidation of any of the Funds, shareholders of that Fund are
entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders. Shares are fully paid and
nonassessable by the Funds. Shareholders are entitled to one vote
for each full share held and fractional votes for fractional shares
held and to vote in the election of Trustees and on other matters
submitted to the vote of shareholders.
The
Declarations of Trust do not require that the Funds hold annual
meetings of shareholders. However, each Fund will be required 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, of a material increase in
distribution fees or of a change in the fundamental policies,
objectives or restrictions of such Fund. Each Fund also would be
required to hold a special shareholders’ meeting to elect new
Trustees at such time as less than a majority of the Trustees
holding office have been elected by shareholders. Each Declaration
of Trust provides that a shareholders’ meeting may be called
for any reason at the request of 10% of the outstanding shares of
the related Fund or by a majority of the Trustees. Except as set
forth above, the Trustees shall continue to hold office and appoint
successor Trustees.
The Declarations of
Trust establishing the Funds refer to the Trustees under the
Declarations of Trust collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer,
employee or agent of any of the Funds 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 any Fund but the
Trust Property only shall be liable. Copies of the Declarations of
Trust, together with all amendments thereto, are on file in the
office of the Secretary of the Commonwealth of
Massachusetts.
The
Declaration of Trust of each Fund permits the Trustees to issue an
unlimited number of full and fractional shares of a single class
and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial
interest in the Fund. Each share represents an equal proportionate
interest in the Fund with each other share. Upon liquidation of the
Fund, shareholders are entitled to share pro rata in the net assets
of the Fund available for distribution to shareholders. Shares have
no preemptive or conversion rights. The rights of redemption and
exchange are described elsewhere herein and in the Prospectus of
the Funds. Shares of each Fund are fully paid and non-assessable by
the Fund.
Shareholders
are entitled to one vote for each full share held and fractional
votes for fractional shares held in the election of Trustees and on
other matters submitted to the vote of shareholders. Voting rights
are not cumulative, so that the holders of more than 50% of the
shares voting in the election of Trustees can, if they choose to do
so, elect all of the Trustees of a Fund, in which event the holders
of the remaining shares are unable to elect any person as a
Trustee. No amendment may be made to any Declaration of Trust
without the affirmative vote of a majority of the outstanding
shares of the related Fund except under certain limited
circumstances set forth in the Declaration of Trust.
Deloitte
& Touche
LLP, Princeton
Forrestal Village, 116-300 Village Boulevard, Princeton, New Jersey
08540-6400, has been selected as the independent auditors of each
Fund. The selection of independent auditors is subject to
ratification by the shareholders of each Fund. The independent
auditors are responsible for auditing the annual financial
statements of each Fund.
State Street
Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts 02101
(the “Custodian”), acts as custodian of the Funds’
assets. The Custodian is responsible for safeguarding and
controlling the Funds’ cash and securities, handling the
receipt and delivery of securities and collecting interest and
dividends on the Funds’ investments.
Financial
Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484 (the “Transfer Agent”), acts as the
Funds’ transfer agent. The Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts. See “How to
Buy, Sell and Transfer Shares—Through the Transfer Agent”
in the Prospectus.
Brown &
Wood
LLP, One World
Trade Center, New York, New York 10048-0557, is counsel for the
Funds.
The fiscal
year of each Fund ends on the last day of March of each year. Each
Fund sends to its shareholders, at least semi-annually, reports
showing the Fund’s portfolio and other information. An annual
report containing financial statements audited by independent
auditors is sent to each Fund’s shareholders each
year.
Shareholder
inquiries may be addressed to each Fund at the address or telephone
number set forth on the cover page of this Statement of Additional
Information.
The
Prospectus and this Statement of Additional Information with
respect to the shares of the Funds do not contain all the
information set forth in the Registration Statement and the
exhibits relating thereto, which each Fund has filed with the
Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933, as amended, and the Investment Company Act,
to which reference is hereby made.
To the
knowledge of the Funds, no person owned beneficially 5% or more of
any Fund’s shares on June 1, 2000.
Each
Fund’s audited financial statements are incorporated in this
Statement of Additional Information by reference to its annual
report to shareholders for the year ended March 31, 2000. You may
request a copy of the annual report at no charge by calling (800)
456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
APPENDIX
Description of Commercial Paper, Bank Money
Instruments
and
Corporate Bond Ratings
Commercial Paper and Bank Money
Instruments
Commercial
paper with the greatest capacity for timely payment is rated A by
Standard & Poor’s, a Division of The McGraw-Hill
Companies, Inc. (“S&P”). Issues within this category
are further redefined with designations 1, 2 and 3 to indicate the
relative degree of safety; A-1, the highest of the three, indicates
the obligor’s capacity to meet its financial commitment on the
obligation is strong; and A-2 indicates the obligor’s capacity
to meet its financial commitment is satisfactory.
Moody’s
Investors Service, Inc. (“Moody’s”) employs the
designations of Prime-1, Prime-2 and Prime-3 to indicate the
relative repayment ability of rated issuers. Prime-1 issuers have a
superior ability for repayment. Prime-2 issuers have a strong
ability for repayment, but to a lesser degree than
Prime-1.
Fitch IBCA,
Inc. (“Fitch”) employs the rating F1 to indicate issues
regarded as having the strongest degree of assurance for timely
payment. The rating F2 indicates a satisfactory degree of assurance
for timely payment, although the margin of safety is not as great
as indicated by the F1 category.
Thomson
BankWatch, Inc. (“Thomson”) employs the designation
TBW-1, TBW-2, TBW-3 and TBW-4 as ratings for commercial paper,
other senior short term obligations and deposit obligations of the
entities to which the rating has been assigned. TBW-1 is the
highest category and indicates a very high likelihood that
principal and interest will be paid on a timely basis. TBW-2 is the
second highest category and indicates that while the degree of
safety regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as for issues
rated TBW-1.
Corporate
Bonds
Bonds rated
AAA have the highest rating assigned by S&P to a debt
obligation. The obligor’s capacity to meet its financial
commitment is extremely strong. Bonds rated AA differ from the
highest rated obligations only in small degree. The obligor’s
capacity to meet its financial commitment is very
strong.
Bonds rated
Aaa by Moody’s are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as “gilt edged.” Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues. Bonds rated Aa are judged to be of high quality by all
standards. They are rated lower than the best bonds because margins
of protection may not be as large or fluctuation of protective
elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than
in Aaa securities. Moody’s applies numerical modifiers 1, 2
and 3 in each generic rating classification from Aa through Caa in
its corporate bond rating system. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
Bonds rated
AAA by Fitch denote the lowest expectation of credit risk. They are
assigned only in case of exceptionally strong capacity for timely
payments of financial commitments. Bonds rated AA denote a very low
expectation of investment risk. They indicate a very strong
capacity for timely payments of financial commitments.
Bonds rated
AAA by Thomson are accorded the highest rating category which
indicates that the ability to repay principal and interest on a
timely basis is extremely high. AA is the second highest rating
category and indicates a very strong ability to repay principal and
interest on a timely basis, with limited incremental risk compared
to issues rated in the highest rating category.
Information Concerning Tax-Exempt Securities
Description of Tax-Exempt Securities
Tax-Exempt
Securities include debt obligations issued to obtain funds for
various public purposes, including construction of a wide range of
public facilities, refunding of outstanding obligations and
obtaining of funds for general operating expenses and loans to
other public institutions and facilities. In addition, certain
types of industrial development bonds are issued by or on behalf of
public authorities to finance various facilities operated for
private profit, including pollution control facilities. Such
obligations are included within the term Tax-Exempt Securities if
the interest paid thereon is exempt from Federal income
tax.
The two
principal classifications of Tax-Exempt Securities are
“general obligation” bonds and “revenue” or
“special obligation” bonds. General obligation bonds are
secured by the issuer’s pledge of its faith, credit, and
taxing power for the repayment of principal and the payment of
interest. Revenue or special obligation bonds are payable only from
the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as from the user of the
facility being financed. Industrial development bonds are in most
cases revenue source such as from the user of the facility being
financed. Industrial development bonds are in most cases revenue
bonds and do not generally constitute the pledge of the credit or
taxing power of the issuer of such bonds. The repayment of the
principal and the payment of interest on such industrial revenue
bonds depends solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment. The portfolio may generally include
“moral obligation” bonds which are normally issued by
special purpose public authorities. If an issuer of moral
obligations bonds is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the
issuer.
Yields on
Tax-Exempt Securities are dependent on a variety of factors,
including the general condition of the money market and of the
municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The
ability of the Tax-Exempt Fund to achieve its investment objective
is also dependent on the continuing ability of the issuers of the
Tax-Exempt Securities in which the Tax-Exempt Fund invests to meet
their obligations for the payment of interest and repayment of
principal when due. There are variations in the risks involved in
holding Tax-Exempt Securities, both within a particular
classification and between classifications, depending on numerous
factors. Furthermore, the rights of holders of Tax-Exempt
Securities and the obligations of the issuers of such Tax-Exempt
Securities may be subject to applicable bankruptcy, insolvency and
similar laws and court decisions affecting the rights of creditors
generally, and such laws, if any, which may be enacted by Congress
or state legislatures affecting specifically the rights of holders
of Tax-Exempt Securities.
From time to
time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax
exemption for interest on Tax-Exempt Securities. Similar proposals
may be introduced in the future. If such a proposal were enacted,
the ability of the Tax-Exempt Fund to pay “exempt-interest
dividends” would be adversely affected and the Tax-Exempt Fund
would re-evaluate its investment objective and policies and
consider changes in its structure.
Ratings
of Municipal Notes and Short Term Tax-Exempt Commercial
Paper
Commercial
paper with the greatest capacity for timely payment is rated A by
Standard & Poor’s. Issues within this category are further
redefined with designations 1, 2 and 3 to indicate the relative
degree of safety; A-1 indicates the obligor’s capacity to meet
its financial obligation is strong; issues that possess extremely
strong safety characteristics will be given an A-1+ designation;
A-2 indicates that the obligor’s capacity to meet its
financial obligation is satisfactory. A Standard & Poor’s
rating with respect to certain municipal note issues with a
maturity of less than three years reflects the liquidity factors
and market access risks unique to notes. SP-1, the highest note
rating, indicates a strong capacity to pay principal and interest.
Issues that possess a very strong capacity to pay
debt service will be given an “SP-1+” designation. SP-2,
the second highest note rating, indicates a satisfactory capacity
to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the
notes.
Moody’s
employs the designations of Prime-1, Prime-2 and Prime-3 with
respect to commercial paper to indicate the relative capacity of
the rated issuers (or related supporting institutions) to repay
punctually. Prime-1 issues have a superior ability for repayment.
Prime-2 issues have a strong ability for repayment, but to a lesser
degree than Prime-1. Moody’s highest rating for short-term
notes and VRDOs is MIG-1/VMIG-1; MIG-1/VMIG-1 denotes “best
quality”, enjoying “strong protection by established cash
flows,” “superior liquidity support” or
“demonstrated broad-based access to the market for
refinancing”; MIG-2/VMIG-2 denotes “high quality”
with margins of protection that are ample although not so large as
MIG-1/VMIG-1.
Fitch
employs the rating F-1+ to indicate short term debt issues regarded
as having the strongest degree of assurance for timely payment. The
rating F-1 reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+. The rating F-2 indicates a
satisfactory degree of assurance for timely payment, although the
margin of safety is not as indicated by the F-1+ and F-1
categories.
Ratings
of Municipal Bonds
Bonds rated
AAA have the highest rating assigned by Standard & Poor’s
to a debt obligation. The obligor’s capacity to meet its
financial obligation is extremely strong. Bonds rated AA differ
from the highest rated obligations only in a small degree. The
obligor’s capacity to meet its financial commitment on the
obligation is very strong. A Standard & Poor’s municipal
debt rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may
take into consideration obligors such as guarantors and insurers of
lessees.
Bonds rated
Aaa by Moody’s are judged to be of the best quality. Interest
payments are protected by a large or by an exceptionally stable
margin and principal is secure. Bonds rated Aa are judged to be of
high quality by all standards. They are rated lower than the best
bonds because the margins of protection may not be as large or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities. Moody’s applies
the numerical modifier 1 to the classifications Aa through Caa to
indicate that Moody’s believes the issue possesses the
strongest investment attributes in its rating category. Bonds for
which the security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operating experience, (c)
rentals that begin when facilities are completed, or (d) payments
to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Bonds rated
AAA by Fitch denote the lowest expectation of credit risk. Bonds
rated AA denote a very low expectation of credit risk. Both ratings
indicate a strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
reasonably foreseeable events. The ratings take into consideration
special features of the issue, its relationship to other
obligations of the issuer, the current and prospective financial
condition and operative performance of the issuer and of any
guarantor, as well as the economic and political environment that
might affect the issuer’s future financial strength and credit
quality. Bonds that have the same rating are of similar but not
necessarily identical credit quality since the rating categories do
not fully reflect small differences in the degrees of credit
risk.
(This Page
Intentionally Left Blank)
CODE
#
PART
C: OTHER INFORMATION
Item
23. Exhibits.
Exhibit
Number
|
|
|
|
Description
|
| 1(a) |
|
— |
|
Declaration of Trust of the Registrant dated June 5,
1989.(a) |
| (b) |
|
— |
|
Amendment
to Declaration of Trust dated July 31, 1990.(a) |
| 2 |
|
— |
|
By-Laws of
the Registrant.(a) |
| 3 |
|
— |
|
Portions
of the Declaration of Trust and By-Laws of the Registrant
defining the rights of
holders of shares of the Registrant.(b) |
| 4(a) |
|
— |
|
Management
Agreement between the Registrant and Fund Asset Management,
Inc.(c) |
| (b) |
|
— |
|
Supplement
to Management Agreement with Fund Asset Management,
L.P.(c) |
| 5 |
|
— |
|
Form of
Distribution Agreement between the Registrant and Merrill Lynch,
Pierce, Fenner &
Smith Incorporated.(a) |
| 6 |
|
— |
|
None. |
| 7(a) |
|
— |
|
Custody
Agreement between the Registrant and State Street Bank and Trust
Company.(a) |
| (b) |
|
— |
|
Amendment
to Custody Agreement dated December 12, 1998.(a) |
| 8(a) |
|
— |
|
Amended
Transfer Agency Agreement between the Registrant and Financial
Data Services,
Inc.(a) |
| (b) |
|
— |
|
Form of
Cash Management Account Agreement.(a) |
| 9 |
|
— |
|
Opinion of
Brown & Wood LLP, counsel
to the Registrant.(d) |
| 10 |
|
— |
|
Consent of
Deloitte & Touche LLP,
independent auditors for the Registrant. |
| 11 |
|
— |
|
None. |
| 12 |
|
— |
|
None. |
| 13 |
|
— |
|
Form of
Distribution and Shareholder Servicing Plan of the
Registrant.(a) |
| 14 |
|
— |
|
None. |
| 15 |
|
— |
|
Code of
Ethics.(e) |
(a)
|
Previously
filed pursuant to the Electronic Data Gathering, Analysis and
Retrieval (“EDGAR”) phase-in requirements on July 28,
1995 as an exhibit to Post-Effective Amendment No. 16 to the
Registration Statement.
|
(b)
|
Reference
is made to Article II, Section 2.3 and Articles III, V, VI, VIII,
IX, X and XI of the Registrant’s Declaration of Trust, filed
as Exhibit 1 to Post-Effective Amendment No. 16 to the
Registrant’s Registration Statement under the Securities Act
of 1933, as amended (the “Registration Statement”); and
to Articles I, V and VI of the Registrant’s By-Laws, filed
as Exhibit 2 to Post-Effective Amendment No. 16 to the
Registration Statement.
|
(c)
|
Previously
filed on July 28, 1994 as an exhibit to Post-Effective Amendment
No. 15 to the Registrant’s Registration
Statement.
|
(d)
|
Filed as
an Exhibit to this filing pursuant to EDGAR requirements.
|
(e)
|
Incorporated by reference to Exhibit 15 to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A of
Merrill Lynch Middle East/Africa Fund, Inc. (File No. 811-07155),
filed on March 29, 2000.
|
Item
24. Persons Controlled by or under Common
Control with Registrant.
None.
Item
25. Indemnification.
Section 5.3
of the Registrant’s Declaration of Trust provides as
follows:
|
“The
Trust shall indemnify each of its Trustees, officers, employees,
and agents (including persons who serve at its request as
directors, officers or trustees of another organization in which
it has any interest as a shareholder, creditor or otherwise)
against all liabilities and expenses (including amounts paid in
satisfaction
of judgments, in compromise, as fines and penalties, and as counsel
fees) reasonably incurred by him in connection with the defense
or disposition of any action, suit or other proceeding, whether
civil or criminal, in which he may be involved or with which he
may be threatened, while in office or thereafter, by reason of
his being or having been such a trustee, officer, employee or
agent, except with respect to any matter as to which he shall
have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of his
duties; provided, however, that as to any matter disposed of by a
compromise payment by such person, pursuant to a consent decree
or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have
received a written opinion from independent legal counsel
approved by the Trustees to the effect that if either the matter
of willful misfeasance, gross negligence or reckless disregard of
duty, or the matter of good faith and reasonable belief as to the
best interests of the Trust, had been adjudicated, it would have
been adjudicated in favor of such person. The rights accruing to
any person under these provisions shall not exclude any other
right to which he may be lawfully entitled; provided that no
person may satisfy any right of indemnity or reimbursement
granted herein or in Section 5.1 or to which he may be otherwise
entitled except out of the property of the Trust, and no
Shareholder shall be personally liable to any person with respect
to any claim for indemnity or reimbursement or otherwise. The
Trustees may make advance payments in connection with
indemnification under this Section 5.3, provided that the
indemnified person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined
that he is not entitled to such
indemnification.”
|
The
Registrant’s By-Laws provide that insofar as the conditional
advancing of indemnification moneys pursuant to Section 5.3 of the
Declaration of Trust for actions based upon the Investment Company
Act of 1940 may be concerned, such payments will be made only on
the following conditions: (i) the advances must be limited to
amounts used, or to be used, for the preparation or presentation of
a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only upon
receipt of a written promise by, or on behalf of, the recipient to
repay that amount of the advance which exceeds the amount to which
it is ultimately determined he is entitled to receive from the
Registrant by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an
equivalent form of security which assures that any repayments may
be obtained by the Registrant without delay or litigation, which
bond, insurance or other form of security must be provided by the
recipient of the advance, or (b) a majority of a quorum of the
Registrant’s disinterested, non-party Trustees, or an
independent legal counsel in a written opinion, shall determine,
based upon a review of readily available facts, that the recipient
of the advance ultimately will be found entitled to
indemnification.
In Section 8
of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor
and each person, if any, who controls the Distributor within the
meaning of the Securities Act of 1933 ( the “1933 Act”),
against certain types of civil liabilities arising in connection
with the Registration Statement or Prospectus.
Insofar as
indemnification for liabilities arising under the 1933 Act may be
permitted to Trustees, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer
or controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person or the principal underwriter in connection with
the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
Item
26. Business and Other Connections of the
Investment Adviser.
Fund Asset
Management, L.P. (the “Investment Adviser” or
“FAM”) acts as the investment adviser for the following
open-end registered investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust,
Master Internet Strategies Trust, Master Focus Twenty Trust, Master
Large Cap Series Trust, Master Premier Growth Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Corporate High Yield Fund, Inc., Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal Series
Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Puerto Rico Tax Exempt Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch U.S.
Government Mortgage Fund, Merrill Lynch World Income Fund, Inc. and
The Municipal Fund Accumulation Program, Inc.; and for the
following closed-end registered investment companies: Apex
Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate
High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt
Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt
Strategies Fund III, Inc., Income Opportunities Fund 2000, Inc.,
Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings California Insured Fund II,
Inc., MuniHoldings California Insured Fund V, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund V,
MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings
Insured Fund, Inc., MuniHoldings Insured Fund II, Inc.,
MuniHoldings Insured Fund III, Inc., MuniHoldings Insured Fund IV,
Inc., MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund IV,
Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New
York Insured Fund IV, Inc., MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida
Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc.,
MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund,
Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
Merrill
Lynch Asset Management, L.P. (“MLAM”), an affiliate of
FAM, acts as investment adviser for the following open-end
registered investment companies: Master Focus Twenty Trust, Master
Global Financial Services Trust, Master Large Cap Series Trust,
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program,
Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset
Income Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
Convertible Fund, Inc., Merrill Lynch Developing Capital Markets
Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill
Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund,
Inc., Merrill Lynch Global Financial Services Fund, Inc., Merrill
Lynch Global Growth Fund, Inc., Merrill Lynch Global Holdings,
Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value
Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch Index Fund, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch
Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill
Lynch Real Estate Fund, Inc., Merrill Lynch Ready Assets Trust,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund,
Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill
Lynch Strategic Dividend Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch
Utility Income Fund, Inc., Merrill Lynch Variable Series Fund,
Inc., The Asset Program, Inc. and Hotchkis and Wiley Funds (advised
by Hotchkis and Wiley, a division of MLAM); and for the following
closed-end registered investment companies: Merrill Lynch High
Income Municipal Bond Fund, Inc., Merrill Lynch Senior Floating
Rate Fund, Inc. and Merrill Lynch Senior Floating Rate Fund II,
Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy
Portfolio and Merrill Lynch Basic Value Equity Portfolio, two
investment portfolios of EQ Advisors Trusts.
The address
of each of these investment companies is P.O. Box 9011, Princeton,
New Jersey 08543-9011. The address of Merrill Lynch Funds for
Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665. The address of the Investment Adviser, MLAM, Princeton
Services, Inc. (“Princeton Services”) and Princeton
Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch Funds Distributor
(“MLFD”) is P.O. Box 9081, Princeton, New Jersey
08543-9081. The address of Merrill Lynch, and Merrill Lynch &
Co., Inc.
(“ML & Co.”) is 4 World Financial Center, New York, New
York 10080. The address of Financial Data Services, Inc.
(“FDS”) is 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484.
Set forth
below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation
or employment of a substantial nature in which each such person or
entity has been engaged since January 1, 1998 for his, her or its
own account or in the capacity of director, officer, employee,
partner or trustee. In addition, Mr. Glenn is President or
Executive Vice President and Mr. Burke is Vice President and
Treasurer of all or substantially all of the investment companies
listed in the first two paragraphs of this Item 26 and Messrs.
Doll, Giordano and Monagle are officers or directors/trustees of
one or more of such companies.
Name
|
|
Position(s) with the
Investment Adviser
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
| ML &
Co. |
|
Limited
Partner |
|
Financial
Services Holding Company; Limited Partner
of MLAM |
| Princeton
Services |
|
General
Partner |
|
General
Partner of MLAM |
| Jeffrey M.
Peek |
|
President |
|
President
of MLAM; President and Director of
Princeton Services; Executive Vice President of
ML & Co.; Managing Director and Co-Head of the
Investment Banking Division of Merrill Lynch in
1997 |
| Terry K.
Glenn |
|
Executive
Vice
President |
|
Executive
Vice President of MLAM; Executive Vice
President and Director of Princeton Services;
President of Princeton Funds Distributor, Inc. since
1986 and Director thereof since 1991; Director of
FDS; President of Princeton Administrators, L.P. |
| Gregory A.
Bundy |
|
Chief
Operating Officer
and Managing Director |
|
Chief
Operating Officer and Managing Director of
FAM; Chief Operating Officer and Managing
Director of Princeton Services; Co-CEO of Merrill
Lynch Australia from 1997 to 1999 |
| Donald C.
Burke |
|
Senior
Vice President
and Treasurer |
|
Senior
Vice President, Treasurer and Director of
Taxation of MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice President of
PFD; First Vice President of MLAM from 1997 to
1999; Vice President of MLAM from 1990 to 1997 |
| Michael G.
Clark |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services; Treasurer and
Director of PFD; First Vice President of MLAM
from 1997 to 1999; Vice President of MLAM from
1996 to 1997 |
| Robert C.
Doll |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services; Chief Investment
Officer of Oppenheimer Funds, Inc. in 1999 and
Executive Vice President thereof from 1991 to
1999 |
| Linda L.
Federici |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services |
| Vincent R.
Giordano |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services |
| Michael J.
Hennewinkel |
|
Senior
Vice President,
General Counsel and
Secretary |
|
Senior
Vice President, General Counsel and Secretary
of MLAM; Senior Vice President of Princeton
Services |
| Philip L.
Kirstein |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President, General Counsel, Director and Secretary
of Princeton Services |
Name
|
|
Position(s) with the
Investment Adviser
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
Debra W.
Landsman-
Yaros |
|
Senior Vice President |
|
Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Senior Vice
President of PFD |
| Stephen
M.M. Miller |
|
Senior
Vice President |
|
Executive
Vice President of Princeton Administrators;
Senior Vice President of Princeton Services |
| Joseph T.
Monagle, Jr. |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services |
| Gregory D.
Upah |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services |
Item
27. Principal
Underwriters.
(a) Merrill
Lynch acts as the principal underwriter for the Registrant. Merrill
Lynch also acts as the principal underwriter for each of the
following open-end investment companies referred to in the first
paragraph of Item 26: CBA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Money Fund, CMA Treasury Fund and CMA Government
Securities Fund, The Corporate Fund Accumulation Program, Inc. and
The Municipal Fund Accumulation Program, Inc., and also acts as the
principal underwriter for each of the closed-end investment
companies referred to in the first paragraph of Item 26, and as the
depositor of the following unit investment trusts: The Corporate
Income Fund, Municipal Investment Trust Fund, The ML Trust for
Government Guaranteed Securities and The Government Securities
Income Fund.
(b) Set
forth below is information concerning each director and executive
officer of Merrill Lynch. The principal business address of each
such person is 4 World Financial Center, New York, New York
10280.
Name
|
|
Position(s) and Office(s)
with Merrill Lynch
|
|
Position(s) and Office(s)
with Registrant
|
| Herbert M.
Allison, Jr. |
|
Director,
President and Chief Executive Officer |
|
None |
| John L.
Steffens |
|
Vice
Chairman and Director |
|
None |
| Thomas W.
Davis |
|
Executive
Vice President |
|
None |
| Barry S.
Friedberg |
|
Executive
Vice President |
|
None |
| Edward L.
Goldberg |
|
Executive
Vice President |
|
None |
| Jerome P.
Kenney |
|
Executive
Vice President |
|
None |
| E. Stanley
O’Neal |
|
Executive
Vice President |
|
None |
| Thomas H.
Patrick |
|
Executive
Vice President |
|
None |
| Winthrop
H. Smith, Jr. . |
|
Executive
Vice President |
|
None |
| Roger M.
Vasey |
|
Executive
Vice President |
|
None |
| George A.
Schierren |
|
General
Counsel, Senior Vice President and
Director |
|
None |
| John C.
Stomber |
|
Treasurer |
|
None |
| Andrea L.
Dulberg |
|
Secretary |
|
None |
(c) Not
applicable.
Item
28. Location of Accounts and
Records.
All
accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder will be maintained at the offices of the Registrant, 800
Scudders Mill Road, Plainsboro, New Jersey 08536, and its transfer
agent, FDS, 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Item
29. Management
Services.
Other than
as set forth under the caption “Management of the
Funds—Fund Asset Management” in the Prospectus
constituting Part A of the Registration Statement and under the
caption “Management of the Funds — Investment
Advisory Arrangements” in the Statement of Additional
Information constituting Part B of the Registration Statement, the
Registrant is not a party to any management-related services
contract.
Item
30. Undertakings.
Not
applicable.
SIGNATURES
Pursuant to
the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the Township of Plainsboro and State of New
Jersey, on the 29th day of June, 2000.
|
(Terry
K. Glenn, President)
|
Pursuant to
the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following
person in the capacities and on the date indicated.
Signature
|
|
Title
|
|
Date
|
| |
|
/S
/
TERRY
K. GLENN
(Terry K. Glenn) |
|
President
(Principal Executive
Officer) and Trustee |
|
June 29,
2000 |
| |
|
/S
/ DONALD
C. BURKE
*
(Donald
C. Burke) |
|
Treasurer
(Principal Financial
and Accounting Officer) |
|
|
| |
|
/S
/ RONALD
W. FORBES
*
(Ronald W. Forbes) |
|
Trustee |
|
|
| |
|
/S
/ CYNTHIA
A. MONTGOMERY
*
(Cynthia A. Montgomery) |
|
Trustee |
|
|
| |
|
/S
/ CHARLES
C. REILLY
*
(Charles C. Reilly) |
|
Trustee |
|
|
| |
|
/S
/ KEVIN
A. RYAN
*
(Kevin
A. Ryan) |
|
Trustee |
|
|
| |
|
/S
/ RICHARD
R. WEST
*
(Richard R. West) |
|
Trustee |
|
|
| |
|
/S
/ ARTHUR
ZEIKEL
*
(Arthur
Zeikel) |
|
Trustee |
|
|
| |
|
/S
/ TERRY
K. GLENN
*By:
(Terry K. Glenn, Attorney-in-Fact) |
|
|
|
June 29,
2000 |
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
|
| 9 |
|
—Consent of Brown & Wood LLP, counsel
to the Registrant. |
| 10 |
|
—Consent of Deloitte & Touche LLP,
independent auditors for the Registrant. |
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