MERRILL LYNCH
RETIREMENT
RESERVES
MONEY FUND
Merrill Lynch
Retirement Series Trust
FUND LOGO
Semi-Annual Report
April 30, 1996
<PAGE>
Officers and Trustees
Arthur Zeikel, President and Trustee
Joe Grills, Trustee
Walter Mintz, Trustee
Robert S. Salomon Jr., Trustee
Melvin R. Seiden, Trustee
Stephen B. Swensrud, Trustee
Harry Woolf, Trustee
Terry K. Glenn, Executive Vice President
Joseph T. Monagle Jr., Senior Vice President
Christopher G. Ayoub, Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 221-7210
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance, which will fluctuate. The Fund
seeks to maintain a consistent $1.00 net asset value per share,
although this cannot be assured. An investment in the Fund is
neither insured nor guaranteed by the US Government. Statements and
other information herein are as dated and are subject to change.
<PAGE>
Merrill Lynch
Retirement Reserves
Money Fund
Box 9011
Princeton, New Jersey
08543-9011
DEAR SHAREHOLDER
For the six-month period ended April 30, 1996, Merrill Lynch
Retirement Reserves Money Fund's net annualized yield was 5.27%*.
The Fund's 7-day yield as of April 30, 1996 was 4.92%.
The average portfolio maturity for Merrill Lynch Retirement Reserves
Money Fund at April 30, 1996 was 55 days, compared to 83 days at
October 31, 1995.
The Environment
Investor perceptions regarding the US economy changed over the
course of the six-month period ended April 30, 1996. As 1995 drew to
a close and 1996 began, it appeared that the US economy was losing
momentum. Lackluster retail sales, increases in initial unemployment
claims (along with weak job and income growth), and evidence of
slowing in the manufacturing sector all suggested that the rate of
economic growth was decelerating, with some forecasters even
suggesting the possibility of an imminent recession. Going into
1996, we maintained the Fund's average life toward the higher end of
the allowed band. It was our belief that short-term interest rates
would continue to rally as the Federal Reserve Board pursued a
course of monetary easing.
However, the consensus outlook for the rate of future economic
growth changed dramatically with the report of stronger-than-
expected employment data for February and March. As a result,
investors began to anticipate renewed economic growth. Long-term
interest rates rose, and the Federal Reserve Board left monetary
policy on hold. Adding to investor concerns was the report that the
Knight Ridder-Commodity Research Bureau Index was near an eight-year
high, largely because of an increase in agricultural prices as well
as an upward spike in the price of crude oil. In his mid-February
Humphrey-Hawkins testimony, Federal Reserve Board Chairman Alan
Greenspan noted that the economy was entering a growth period. In
response, we initiated sales of longer-term securities, thereby
reducing interest rate exposure and shortening the average life
considerably.
<PAGE>
[FN]
*Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to the
investor after all expenses.
Investors are likely to continue to focus on the probable direction
of economic activity and Federal Reserve Board monetary policy in
the weeks ahead. At this time, inflationary pressures do not seem to
be building and the capital spending, housing and consumption
sectors are still relatively weak, which suggest that the economy is
not on the verge of overheating. Nevertheless, it is likely that any
further indications of stronger economic activity in the weeks ahead
may add to investor concerns that accelerating economic activity
could lead to higher inflation and interest rates.
The portfolio's composition at the end of the April period and as of
our last report is detailed below:
4/30/96 10/31/95
Bank Notes 4.5% 3.8%
Certificates of Deposit 0.2 --
Certificates of Deposit--European -- 6.6
Certificates of Deposit--Yankee 5.1 6.7
Commercial Paper--Discount 34.7 29.3
Corporate Notes 10.3 6.1
Master Notes 3.2 3.3
Repurchase Agreements 1.0 1.3
US Government, Agency &
Instrumentality Obligations--
Discount Notes 6.3 6.8
US Government, Agency &
Instrumentality Obligations--
Non-Discount Notes 36.8 36.7
Liabilities in Excess of Other
Assets (2.1) (0.6)
------ ------
Total 100.0% 100.0%
====== ======
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
Christopher G. Ayoub
(Christopher G. Ayoub)
Vice President and Portfolio Manager
May 29, 1996
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Bank Notes--4.5%
Bank One, Columbus $125,000 5.24++% 9/18/96 $ 124,963
Bank One, Dayton 60,000 5.32++ 1/30/97 59,978
Bank One, 82,000 5.27++ 8/28/96 81,990
Milwaukee 42,000 5.27++ 9/05/96 41,994
Bank One, Texas 50,000 5.27++ 9/05/96 49,993
First Bank, N.A., 50,000 5.45++ 12/18/96 49,990
Minneapolis
Total Bank Notes (Cost--$408,908) 408,908
Certificates of Deposit--0.2%
Bank One, Cleveland 21,000 5.32 6/04/96 21,000
Total Certificates of Deposit (Cost--$21,000) 21,000
Certificates of Deposit--Yankee--5.1%
Bayerische 70,000 5.02 8/12/96 69,925
Hypotheken-und-
Wechsel Bank, NY
<PAGE>
Bayerische 50,000 5.10 7/05/96 49,972
Landesbank
Girozentrale, NY
HongKongbank, NY 100,000 5.35 6/04/96 99,998
Societe Generale, 50,000 5.35 6/06/96 49,999
NY 150,000 5.37 6/07/96 150,002
48,000 5.39 6/14/96 48,002
Total Certificates of Deposit--Yankee
(Cost--$468,011) 467,898
Commercial Paper--34.7%
Allied-Signal, Inc. 25,000 5.34 5/15/96 24,944
Allomon Funding Corp. 9,041 5.32 5/24/96 9,009
Alpine Securitization 59,469 5.35 5/15/96 59,336
Corp. 11,535 5.30 6/20/96 11,448
American Express 25,000 4.88 8/09/96 24,627
Credit Corp.
Ameritech Capital 25,000 5.30 7/11/96 24,734
Funding Corp.
Apreco, Inc. 30,000 5.30 6/12/96 29,810
Beta Finance Inc. 12,000 5.32 10/03/96 11,721
CS First Boston Inc. 20,000 5.31 6/05/96 19,894
CSW Credit, Inc. 40,000 5.33 5/14/96 39,917
15,000 5.34 5/16/96 14,964
32,500 5.34 5/20/96 32,404
28,100 5.35 6/04/96 27,954
Caisse des Depots et 53,000 5.35 5/08/96 52,937
Consignations 65,000 5.34 5/13/96 64,875
Cargill Financial 25,000 5.30 5/24/96 24,912
Services Corp.
Cargill Inc. 25,000 5.30 5/24/96 24,912
<PAGE>
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
Deer Park Refining $ 50,000 5.35 % 6/12/96 $ 49,683
L.P.
Eureka 30,000 5.35 5/08/96 29,964
Securitization Inc. 40,000 5.40 5/10/96 39,940
30,000 5.35 5/20/96 29,911
Falcon Asset 25,000 5.30 5/23/96 24,915
Securitization Corp. 25,500 5.33 5/23/96 25,413
53,650 5.29 6/13/96 53,303
23,600 5.32 6/17/96 23,432
Ford Motor 100,000 5.32 5/08/96 99,882
Credit Co. 59,000 5.30 5/22/96 58,809
30,000 5.30 5/30/96 29,868
190,000 5.30 5/31/96 189,133
General Electric 75,000 5.45 5/02/96 74,979
Capital Corp. 100,000 5.15 7/15/96 98,875
100,000 5.09 7/16/96 98,860
100,000 5.14 7/16/96 98,860
General Motors 170,000 5.39 5/06/96 169,847
Acceptance Corp. 35,000 5.13 5/13/96 34,933
35,000 5.40 5/16/96 34,916
37,000 5.35 6/05/96 36,802
Goldman Sachs 50,000 5.30 5/31/96 49,772
Group L.P.
Greenwich Funding 8,000 5.38 5/01/96 7,999
Corp. 52,142 5.35 5/07/96 52,088
16,300 5.10 5/09/96 16,279
40,000 5.35 5/15/96 39,911
32,103 5.31 5/20/96 32,008
International 64,775 5.35 5/15/96 64,631
Securitization Corp. 31,000 5.32 5/21/96 30,904
53,630 5.32 5/22/96 53,456
<PAGE>
Korea Development 30,000 5.10 5/08/96 29,966
Bank 20,000 5.30 7/25/96 19,745
Morgan Stanley 200,000 5.375 5/01/96 199,970
Group, Inc. 60,000 5.30 5/22/96 59,806
National Australia 49,500 5.44 5/29/96 49,287
Funding (Delaware) Inc.
National Fleet 15,000 5.25 5/08/96 14,983
Funding Corp. 75,000 5.31 5/29/96 74,679
16,700 5.31 5/30/96 16,626
New Center Asset 57,000 5.35 5/30/96 56,746
Trust
Nomura Holding 25,000 5.20 5/03/96 24,989
America, Inc. 25,000 5.35 6/13/96 24,838
Preferred Receivables 58,900 5.33 5/14/96 58,778
Funding Corp.
Sheffield Receivables 23,000 5.30 5/22/96 22,926
Corp.
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (concluded)
Svenska $ 18,900 5.30 % 5/20/96 $ 18,844
Handelsbanken, Inc. 40,000 5.30 6/20/96 39,700
Sweden, 56,000 5.50 5/01/96 55,992
Kingdom of 18,000 4.98 7/08/96 17,816
WCP Funding Inc. 15,000 5.33 6/03/96 14,925
Windmill Funding 18,581 5.35 5/17/96 18,534
Corp. 78,730 5.30 5/24/96 78,452
24,003 5.37 5/28/96 23,905
17,192 5.35 5/31/96 17,113
60,144 5.37 5/31/96 59,867
12,010 5.30 6/18/96 11,923
<PAGE>
Total Commercial Paper (Cost--$3,158,348) 3,158,181
Corporate Notes--10.3%
Abbey National 47,000 6.45 5/15/96 47,017
Treasury Services PLC
Beta Finance Inc. 25,000 5.37++ 8/26/96 25,000
40,000 5.38++ 9/16/96 40,000
30,000 5.388 9/25/96 29,999
CIT Group Holdings, 25,000 5.30 9/20/96 24,990
Inc. (The) 50,000 5.31 9/26/96 49,982
40,000 5.41 11/14/96 40,018
30,000 5.30 2/06/97 29,982
Key Bank of NY, 100,000 5.26++ 8/16/96 99,986
Albany
PHH Corp. 100,000 5.34 1/23/97 99,978
25,000 5.36 2/10/97 24,993
25,000 5.378 3/25/97 24,991
SMM Trust 71,000 5.52++ 6/14/96 71,000
Certificate (1995-K)
SMM Trust 150,000 5.50++ 1/08/97 150,000
Certificate (1995-Q)
Short Term Card 150,000 5.51++ 1/15/97 150,000
Account Trust (1995-1)
Toyota Motor 30,000 5.333++ 9/13/96 29,992
Credit Corp.
Total Corporate Notes (Cost--$937,890) 937,928
Master Notes--3.2%
Goldman Sachs 34,000 5.41++ 8/09/96 34,000
Group, L.P. 175,000 5.39++ 11/08/96 175,000
Jackson National 80,000 5.47++ 4/08/97 80,000
Life Insurance Co.
<PAGE>
Total Master Notes (Cost--$289,000) 289,000
US Government, Agency & Instrumentality Obligations--
Discount Notes--6.3%
Federal Home Loan 50,000 5.20 10/11/96 48,806
Bank 25,000 5.22 1/21/97 24,030
Federal National 50,000 5.15 5/03/96 49,979
Mortgage Association 73,000 5.17 5/10/96 72,897
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government, Agency & Instrumentality Obligations--
Discount Notes (concluded)
Federal National $ 30,000 4.82 % 7/30/96 $ 29,606
Mortgage Association 25,000 5.17 10/11/96 24,403
(concluded) 50,000 5.11 10/30/96 48,668
US Treasury Bills 60,000 5.875 5/02/96 59,984
75,000 4.545 2/06/97 71,939
50,000 4.56 2/06/97 47,959
50,000 4.59 2/06/97 47,959
50,000 5.23 5/01/97 47,310
Total US Government, Agency & Instrumentality
Obligations--Discount Notes (Cost--$574,554) 573,540
US Government, Agency & Instrumentality Obligations--
Non-Discount Notes--36.8%
Federal Farm Credit 50,000 5.25 5/01/96 50,000
Bank 85,000 5.20++ 12/30/96 84,897
40,000 5.38++ 11/25/97 39,987
30,000 6.24 5/07/98 29,976
Federal Home Loan 70,000 5.71++ 6/17/96 70,000
Bank 29,000 6.21++ 6/21/96 29,000
20,500 5.63 6/28/96 20,500
15,000 5.135++ 8/05/96 14,994
20,095 6.875 11/18/96 20,216
25,000 5.83++ 2/18/97 25,024
26,000 6.19 5/08/98 25,931
<PAGE>
Federal Home Loan 15,500 5.58++ 5/06/96 15,500
Mortgage Corp. 38,250 6.005 5/13/96 38,258
21,850 5.50++ 6/03/96 21,846
55,000 5.70++ 6/07/96 54,998
Federal National 50,000 5.20++ 5/10/96 49,999
Mortgage Association 98,000 5.58++ 5/13/96 98,000
80,000 5.83++ 5/24/96 80,000
110,000 5.63 6/28/96 110,000
100,000 5.273++ 7/05/96 99,983
45,000 5.255++ 7/18/96 44,992
70,000 5.19++ 8/08/96 69,989
40,000 5.58++ 8/13/96 40,000
20,000 5.85++ 10/07/96 20,014
150,000 5.268++ 10/11/96 150,000
40,000 5.31++ 11/04/96 40,000
100,000 5.44 11/21/96 99,910
50,000 5.31 12/11/96 49,915
75,000 5.21++ 12/19/96 74,965
30,000 5.85++ 2/14/97 30,038
123,000 5.32++ 2/21/97 123,000
67,000 5.33++ 4/15/97 66,931
75,000 5.22++ 4/22/97 74,936
50,000 5.205++ 4/29/97 49,949
68,500 5.70++ 5/19/97 68,500
140,000 5.310++ 5/22/97 139,899
25,000 5.19 1/08/98 24,656
38,000 5.75++ 5/14/98 38,000
22,150 5.30++ 12/14/98 22,101
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government, Agency & Instrumentality Obligations--
Non-Discount Notes (continued)
<PAGE>
Student Loan $ 15,000 5.35++ % 5/09/96 $ 15,000
Marketing 53,750 5.28++ 5/14/96 53,750
Association 67,350 6.08++ 7/01/96 67,337
15,000 5.25++ 7/19/96 15,000
75,000 5.30++ 8/08/96 75,000
125,000 5.268++ 9/20/96 125,000
50,000 5.25++ 9/23/96 50,000
75,000 5.31++ 10/04/96 75,000
11,830 5.50++ 11/01/96 11,844
59,415 5.31++ 12/20/96 59,415
45,000 5.46++ 1/14/97 45,008
37,125 5.50++ 1/23/97 37,176
17,500 5.525++ 2/14/97 17,509
25,000 5.42++ 3/03/97 25,000
35,000 5.48++ 3/03/97 35,037
67,075 5.45++ 1/21/98 67,236
29,200 5.40++ 2/17/98 29,175
US Treasury Notes 10,000 6.50 9/30/96 10,045
50,000 6.875 10/31/96 50,352
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government, Agency & Instrumentality Obligations--
Non-Discount Notes (concluded)
US Treasury Notes $ 15,000 7.50 % 12/31/96 $ 15,192
(concluded) 45,000 6.125 5/31/97 45,169
55,000 5.25 12/31/97 54,364
60,000 5.00 1/31/98 58,988
50,000 5.125 2/28/98 49,250
50,000 5.875 4/30/98 49,875
Total US Government, Agency & Instrumentality
Obligations--Non-Discount Notes
(Cost--$3,345,953) 3,343,626
Face Amount Issue
Repurchase Agreements**--1.0%
$ 91,000 Fuji Securities, Inc., purchased on
4/30/1996 to yield 5.37% to 5/01/1996 91,000
Total Repurchase Agreements (Cost--$91,000) 91,000
Total Investments (Cost--$9,294,664)--102.1% 9,291,081
<PAGE>
Liabilities in Excess of Other Assets--(2.1%) (189,743)
----------
Net Assets--100.0% $9,101,338
==========
[FN]
*Commercial Paper and certain US Government, Agency &
Instrumentality Obligations are traded on a discount basis; the
interest rates shown are the discount rates paid at the time of
purchase by the Fund. Other securities bear interest at the rates
shown, payable at fixed dates or upon maturity. Interest rates on
variable rate securities are adjusted periodically based upon
appropriate indexes; the interest rates shown are the rates in
effect at April 30, 1996.
**Repurchase Agreements are fully collateralized by US Government
Obligations.
++Floating Rate Notes.
See Notes to Financial Statements.
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of April 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$9,294,663,510*)(Note 1a) $9,291,080,633
Cash . 4,014,345
Receivables: Interest $ 44,011,916
Beneficial interest sold 3,482 44,015,398
--------------
Prepaid registration fees and other assets (Note 1d) 421,348
--------------
Total assets 9,339,531,724
--------------
Liabilities: Payables: Securities purchased 128,256,342
Beneficial interest redeemed 102,991,616
Investment adviser (Note 2) 3,030,650 234,278,608
--------------
Accrued expenses and other liabilities 3,914,909
--------------
Total liabilities 238,193,517
--------------
Net Assets: Net assets $9,101,338,207
==============
<PAGE>
Net Assets Shares of beneficial interest, $0.10 par value, unlimited number of
Consist of: shares authorized $ 910,492,109
Paid-in capital in excess of par 8,194,428,975
Unrealized depreciation on investments--net (3,582,877)
--------------
Net assets--Equivalent to $1.00 per share based on 9,104,921,084
shares of beneficial interest outstanding $9,101,338,207
==============
<FN>
*Cost for Federal income tax purposes. As of April 30, 1996, net
unrealized depreciation for Federal income tax purposes amounted to
$3,582,877, of which $355,721 related to appreciated securities and
$3,938,598 related to depreciated securities.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
April 30, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 255,137,941
(Note 1c):
Expenses: Investment advisory fees (Note 2) $ 16,892,320
Transfer agent fees (Note 2) 7,034,996
Registration fees (Note 1d) 586,062
Accounting services (Note 2) 244,384
Printing and shareholder reports 240,295
Custodian fees 121,518
Professional fees 43,632
Trustees' fees and expenses 35,491
Other. 63,229
--------------
Total expenses 25,261,927
--------------
Investment income--net 229,876,014
--------------
Realized & Unreal- Realized gain on investments--net 307,537
ized Gain (Loss) Change in unrealized appreciation/depreciation on investments--net (7,269,858)
on Investments --------------
- --Net (Note 1c): Net Increase in Net Assets Resulting from Operations $ 222,913,693
==============
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1996 October 31, 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 229,876,014 $ 432,019,283
Realized gain on investments--net 307,537 1,637,926
Change in unrealized appreciation/depreciation on
investments--net (7,269,858) 10,376,159
-------------- --------------
Net increase in net assets resulting from operations 222,913,693 444,033,368
-------------- --------------
Dividends & Investment income--net (229,876,014) (432,019,283)
Distributions to Realized gain on investments--net (307,537) (1,637,926)
Shareholders -------------- --------------
(Note 1e): Net decrease in net assets resulting from dividends and
distributions to shareholders (230,183,551) (433,657,209)
-------------- --------------
Beneficial Interest Net proceeds from sale of shares 14,265,306,958 24,132,766,015
Transactions Net asset value of shares issued to shareholders in
(Notes 1e & 3): reinvestment of dividends and distributions 230,181,614 433,654,456
-------------- --------------
14,495,488,572 24,566,420,471
Cost of shares redeemed (14,035,787,024) (23,331,574,095)
-------------- --------------
Net increase in net assets derived from beneficial
interest transactions 459,701,548 1,234,846,376
-------------- --------------
Net Assets: Total increase in net assets 452,431,690 1,245,222,535
Beginning of period 8,648,906,517 7,403,683,982
-------------- --------------
End of period $9,101,338,207 $8,648,906,517
============== ==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Six
Months Ended For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: April 30, 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .0259 .0540 .0345 .0279 .0370
Realized and unrealized gain
(loss) on investments--net (.0001) .0015 (.0011) .0004 .0012
---------- ---------- ---------- ---------- ----------
Total from investment operations .0258 .0555 .0334 .0283 .0382
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.0259) (.0540) (.0345) (.0279) (.0370)
Realized gain on investments--net --++ (.0002) --++ (.0003) (.0010)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.0259) (.0542) (.0345) (.0282) (.0380)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total investment return 5.27%* 5.57% 3.48% 2.86% 3.95%
========== ========== ========== ========== ==========
Ratios to Expenses .57%* .59% .59% .62% .63%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income and realized
gain on investments--net 5.18%* 5.43% 3.44% 2.82% 3.88%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in
Data: thousands) $9,101,338 $8,648,907 $7,403,684 $7,066,326 $6,474,640
========== ========== ========== ========== ==========
<FN>
*Annualized.
++Amount is less than $.0001 per share.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Retirement Reserves Money Fund (the "Fund") is a
separate Fund offering a separate class of shares of Merrill Lynch
Retirement Series Trust (the "Trust"). The Trust is registered under
the Investment Company Act of 1940 as a diversified, open-end
management investment company which will comprise a series of
separate portfolios offering a separate class of shares to
participants in the retirement plans for which Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S") acts as passive custodian. At
the present time, the Fund is the only series offered. These
unaudited financial statements reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal recurring nature. The following is a summary of
significant accounting policies consistently followed by the Fund.
(a) Valuation of investments--Investments maturing more than sixty
days after the valuation date are valued at the most recent bid
price or yield equivalent as obtained from dealers that make markets
in such securities. When securities are valued with sixty days or
less to maturity, the difference between the valuation existing on
the sixty-first day before maturity and maturity value is amortized
on a straight-line basis to maturity. Investments maturing within
sixty days from their date of acquisition are valued at amortized
cost, which approximates market value.
NOTES TO FINANCIAL STATEMENTS (concluded)
For the purposes of valuations, the maturity of variable rate
certificates of deposit, variable rate commercial paper, short-term
corporate bond notes and variable rate Government agency notes and
variable rate corporate notes is deemed to be the next coupon date
on which the interest rate is to be adjusted. Assets for which
market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Board
of Trustees.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
premium and discount) is recognized on the accrual basis. Realized
gains and losses on security transactions are determined on the
identified cost basis.
<PAGE>
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions to shareholders--The Fund declares
dividends daily and reinvests daily such dividends in additional
fund shares at net asset value. Dividends and distributions are
declared from the total of net investment income and net realized
gains or losses on investments.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.50%
of the Fund's average daily net assets not exceeding $1 billion;
0.45% of average daily net assets in excess of $1 billion but not
exceeding $2 billion; 0.40% of average daily net assets in excess of
$2 billion but not exceeding $3 billion; 0.375% of average daily net
assets in excess of $3 billion but not exceeding $4 billion; 0.35%
of average daily net assets in excess of $4 billion but not
exceeding $7 billion; and 0.325% of average daily net assets in
excess of $7 billion. The most restrictive annual expense limitation
requires that MLAM reimburse the Fund to the extent the Fund's
expenses (excluding interest, taxes, distribution fees, brokerage
fees and commissions, and extraordinary charges such as litigation
costs) exceed 2.5% of the Fund's first $30 million of average daily
net assets, 2.0% of the next $70 million of average daily net assets
and 1.5% of the remaining average daily net assets. MLAM's
obligation to reimburse the Fund is limited to the amount of the
management fee. No fee payment will be made to MLAM during the
period which will cause such expenses to exceed the most restrictive
expense limitation at the time of such payment.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
<PAGE>
Certain officers and/or trustees of the Trust are officers and/or
directors of MLAM, MLFD, MLFDS, PSI, MLPF&S, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the periods
corresponds to the amounts included in the Statements of Changes in
Net Assets, since shares are recorded at $1.00 per share.
