<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 21, 1997
SECURITIES ACT FILE NO. 2-74584 INVESTMENT COMPANY ACT FILE NO. 811-3310
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 17 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 19 [X]
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
OF MERRILL LYNCH RETIREMENT SERIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH RETIREMENT SERIES TRUST
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:
PHILIP L. KIRSTEIN, ESQ. COUNSEL FOR THE TRUST:
MERRILL LYNCH ASSET MANAGEMENT
BOX 9011 BROWN & WOOD LLP
ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, N.Y. 10048-0557
ATTENTION: THOMAS R. SMITH, JR.,
ESQ.
----------------
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)
[_] 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.
----------------
The Registrant has registered an indefinite number of its shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. The notice required by such rule for
the Registrant's most recent fiscal year was filed on December 23, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
OF MERRILL LYNCH RETIREMENT SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<C> <S> <C>
PART A
Item 1. Cover Page............... Cover Page
Item 2. Synopsis................. Not Applicable
Item 3. Condensed Financial
Information.............. Financial Highlights; Yield Information
Item 4. General Description of
Registrant............... Investment Objectives and Policies;
Additional Information
Item 5. Management of the Fund... Fee Table; Management of the Trust;
Portfolio Transactions; Inside Back Cover
Page
Item 5A. Management's Discussion
of Fund Performance...... Not Applicable
Item 6. Capital Stock and Other
Securities............... Cover Page; Additional Information
Item 7. Purchases of Securities
Being Offered............ Cover Page; Fee Table; Purchase of Shares;
Redemption of Shares; Additional
Information; Inside Back Cover Page
Item 8. Redemption or Repurchase. Purchase of Shares; Redemption of Shares
Item 9. Pending Legal
Proceedings.............. Not Applicable
PART B
Item 10. Cover Page............... Cover Page
Item 11. Table of Contents........ Back Cover Page
Item 12. General Information and
History.................. Not Applicable
Item 13. Investment Objectives and
Policies................. Investment Objectives and Policies
Item 14. Management of the Fund... Management of the Trust
Item 15. Control Persons and
Principal Holders of
Securities............... Management of the Trust
Item 16. Investment Advisory and
Other Services........... Management of the Trust; Purchase of
Shares; Redemption of Shares; General
Information
Item 17. Brokerage Allocation..... Portfolio Transactions
Item 18. Capital Stock and Other
Securities............... General Information--Description of Series
and Shares
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............ Purchase of Shares; Redemption of Shares;
Determination of Net Asset Value; Exchange
Privilege
Item 20. Tax Status............... Taxes
Item 21. Underwriters............. Purchase of Shares; Redemption of Shares
Item 22. Calculation of
Performance Data......... Yield Information
Item 23. Financial Statements..... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
FEBRUARY 21, 1997
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
MERRILL LYNCH RETIREMENT SERIES TRUST
P.O. Box 9011, Princeton, New Jersey 08543-9011 . Phone No. (609) 282-2800
-------------------------
The investment objectives of the Merrill Lynch Retirement Reserves Money
Fund (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. These securities primarily consist of U.S.
Government and agency securities, bank certificates of deposit and bankers'
acceptances, commercial paper and repurchase agreements. For purposes of its
investment policies, the Money Market Fund defines short-term money market
securities as having a maturity of no more than 762 days (25 months) in the
case of U.S. Government and Government agency securities and no more than 397
days (13 months) in the case of all other securities. THE MONEY MARKET FUND
SEEKS TO MAINTAIN A CONSTANT $1.00 NET ASSET VALUE PER SHARE, ALTHOUGH THIS
CANNOT BE ASSURED. AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT. The Money Market Fund is a separate
series, offering a separate class of shares, of Merrill Lynch Retirement
Series Trust (the "Trust"), which is a Massachusetts business trust.
Shares of the Money Market Fund are offered to participants in the self-
directed retirement plans for which Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") acts as passive custodian (the "Self-Directed
Plans"). For a description of the Self-Directed Plans, see Appendix A to the
Statement of Additional Information referred to below. The participant in each
Self-Directed Plan is responsible for making investment decisions concerning
the funds contributed to his Self-Directed Plan. Participants in the Self-
Directed Plans may elect to have cash balances in their accounts automatically
invested in shares of the Money Market Fund. Shares of the Money Market Fund
are also offered to certain independent pension, profit-sharing, annuity and
other qualified plans. Shares are sold at their net asset value without any
sales charge. There is no minimum initial or subsequent purchase requirement.
Shares may be redeemed at any time at net asset value as described herein. See
"Purchase of Shares" and "Redemption of Shares."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
This Prospectus is a concise statement of information about the Trust and
the Money Market Fund that is relevant to making an investment in the Money
Market Fund. This Prospectus should be read carefully and retained for future
reference. A statement containing additional information about the Trust and
the Money Market Fund, dated February 21, 1997 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission (the
"Commission") and can be obtained, without charge, by calling or by writing
the Money Market Fund at the above telephone number or address. The Statement
of Additional Information is hereby incorporated by reference into this
Prospectus.
-------------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
FEE TABLE
<TABLE>
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
FOR THE YEAR ENDED OCTOBER 31, 1996:
Management Fees(a)..................................................... 0.38%
Other Expenses
Custodial Fees................................................ 0.01%
Shareholder Servicing Fees(b)................................. 0.16%
Other......................................................... 0.01%
----
Total Other Expenses.......................................... 0.18%
----
Total Fund Operating Expenses(c)....................................... 0.56%
====
</TABLE>
- --------
(a) See "Management of the Trust--Management and Advisory Arrangements"--page
9.
(b) See "Management of the Trust--Transfer Agency Services"--page 10.
(c) The Money Market Fund has no minimum initial or subsequent purchase
requirement. Therefore, there are a large number of Money Market Fund
accounts of relatively small asset size, and as a result, the total
operating expenses of the Money Market Fund may be higher than the
expenses incurred in other money market funds.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------- ---------- -----------
<S> <C> <C> <C> <C>
An investor would pay the fol-
lowing expenses on a $1,000
investment, assuming an oper-
ating expense ratio of 0.56%
and a 5% annual return
throughout the periods........ $6 $18 $31 $70
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Money Market Fund will bear
directly or indirectly. The example set forth above assumes reinvestment of
all dividends and distributions and utilizes a 5% annual rate of return as
mandated by Commission regulations. The example should not be considered a
representation of past or future expenses or annual rate of return and actual
expenses or annual rate of return may be more or less than those assumed for
purposes of the example.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Money Market Fund by
Deloitte & Touche LLP, independent auditors. Financial statements for the
fiscal year ended October 31, 1996 and the independent auditors' report thereon
are included in the Statement of Additional Information. The following per
share data and ratios have been derived from information provided in the Money
Market Fund's audited financial statements.
Further information about the performance of the Money Market Fund is
contained in the Money Market Fund's most recent annual report to shareholders
which may be obtained, without charge, by calling or writing the Money Market
Fund at the telephone number or address on the front cover of this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (De-
crease) in Net
Asset Value:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of
year............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment in-
come--net....... .0509 .0540 .0345 .0279 .0370 .0609 .0775 .0853 .0668
Realized and
unrealized gain
(loss) on in-
vestments--net.. (.0002) .0015 (.0011) .0004 .0012 .0025 -- .0002 (.0004)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from in-
vestment opera-
tions............ .0507 .0555 .0334 .0283 .0382 .0634 .0775 .0855 .0664
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Less dividends
and distribu-
tions:
Investment in-
come--net....... (.0509) (.0540) (.0345) (.0279) (.0370) (.0609) (.0775) (.0853) (.0664)
Realized gain on
investments--
net............. (.0001) (.0002) -- + (.0003) (.0010) (.0025)* -- (.0002)* --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total dividends
and distribu-
tions............ (.0510) (.0542) (.0345) (.0282) (.0380) (.0634) (.0775) (.0855) (.0664)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ========== ========== ==========
Total Investment
Return........... 5.21% 5.57% 3.48% 2.86% 3.95% 6.54% 8.04% 8.89% 6.79%
========== ========== ========== ========== ========== ========== ========== ========== ==========
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... .56% .59% .59% .62% .63% .64% .69% .81% .90%
========== ========== ========== ========== ========== ========== ========== ========== ==========
Investment income
and realized gain
on investments--
net.............. 5.07% 5.43% 3.44% 2.82% 3.88% 6.30%* 7.75%* 8.55%* 6.62%*
========== ========== ========== ========== ========== ========== ========== ========== ==========
SUPPLEMENTAL DA-
TA:
Net assets, end
of year (in thou-
sands)........... $9,340,229 $8,648,907 $7,403,684 $7,066,326 $6,474,640 $6,485,985 $5,597,641 $5,012,328 $3,366,310
========== ========== ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
FOR THE YEAR
ENDED OCTOBER 31,
----------
1987
----------
<S> <C>
Increase (De-
crease) in Net
Asset Value:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of
year............. $ 1.00
----------
Investment in-
come--net....... .0573
Realized and
unrealized gain
(loss) on in-
vestments--net.. (.0009)
----------
Total from in-
vestment opera-
tions............ .0564
----------
Less dividends
and distribu-
tions:
Investment in-
come--net....... (.0564)
Realized gain on
investments--
net............. --
----------
Total dividends
and distribu-
tions............ (.0564)
----------
Net asset value,
end of year...... $ 1.00
==========
Total Investment
Return........... 5.80%
==========
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... .93%
==========
Investment income
and realized gain
on investments--
net.............. 5.67%*
==========
SUPPLEMENTAL DA-
TA:
Net assets, end
of year (in thou-
sands)........... $2,995,894
==========
</TABLE>
- ----
* Includes unrealized gain (loss).
+ Amount is less than $.0001 per share.
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information for the indicated seven-day periods,
computed to include and exclude realized and unrealized gains and losses, and
information as to the compounded annualized yield, excluding gains and losses,
for the same periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------------
OCTOBER 31, 1996 JANUARY 31, 1997
---------------- ----------------
<S> <C> <C>
Annualized Yield:
Including gains and losses................. 5.04% 5.07%
Excluding gains and losses................. 4.98% 5.04%
Compounded Annualized Yield.................. 5.11% 5.17%
Average maturity of portfolio at end of peri-
od.......................................... 72 days 77 days
</TABLE>
The yield of the Money Market Fund refers to the income generated by an
investment in the Money Market Fund over a stated seven-day period. This income
is then annualized; that is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The compounded annualized yield is
calculated similarly but, when annualized, the income earned by an investment
in the Money Market Fund is assumed to be reinvested. The compounded annualized
yield will be somewhat higher than the yield because of the effect of the
assumed reinvestment.
This yield on Money Market Fund shares normally will fluctuate on a daily
basis. Therefore, the yield for any given past period is not an indication or
representation by the Money Market Fund of future yields or rates on its
shares. The Money Market Fund's yield is affected by changes in interest rates
on money market 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
which pay a fixed yield over a stated period of time.
On occasion, the Money Market Fund may compare its yield to (1) the
Donoghue's Domestic Prime Funds Average, an average compiled by Donoghue's
Money Fund Report, a widely recognized independent publication that monitors
the performance of money market mutual funds, (2) 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, (3) yield data published by Lipper
Analytical Services, Inc., Morningstar Publications, Inc., Money Magazine, U.S.
News & World Report, Business Week, CDA Investment Technology, Inc., Forbes
Magazine and Fortune Magazine, or (4) 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
Money Market Fund's yield or relative performance for any future period.
INVESTMENT OBJECTIVES AND POLICIES
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
4
<PAGE>
investment objectives are fundamental policies of the Money Market Fund which
may not be changed without the vote of a majority of the outstanding shares of
the Money Market Fund.
Investment in the Money Market Fund offers several benefits. The Money Market
Fund seeks to provide as high a yield potential as is available, consistent
with the preservation of capital, from short-term money market securities
utilizing professional money market management, block purchases of securities
and yield improvement techniques. It provides high liquidity because of its
redemption features and reduced risk resulting from diversification of assets.
There can be no assurance that the objectives of the Money Market Fund will be
realized. Certain expenses are borne by investors, including management fees,
administrative costs and operational costs.
In managing the Money Market Fund's portfolio, Merrill Lynch Asset
Management, L.P. ("MLAM" or the "Manager") will employ a number of professional
money management techniques, including varying the composition of the Money
Market Fund's investments and the average maturity of the portfolio based on
its assessment of the relative values of the various money market instruments
and future interest rate patterns. The Manager's assessments will respond to
changing economic and money market conditions and to shifts in fiscal and
monetary policy. The Manager will also 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 are frequently differences in the yield 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 the types of money market securities in
which the Money Market Fund may invest:
United States 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.
United States Government Agency Securities: Debt securities issued by U.S.
Government-sponsored enterprises, Federal agencies and certain international
institutions which are not direct obligations of the United States but involve
U.S. Government sponsorship or guarantees by U.S. Government agencies or
enterprises. The U.S. Government is not obligated to provide financial support
to these instrumentalities.
Bank Money Instruments: Obligations of commercial banks, savings banks,
savings and loan associations, depository or other institutions, such as
certificates of deposit, including variable rate certificates of deposit,
bankers' acceptances, bank notes and time deposits. The savings banks and
savings and loan associations must be organized and operating in the United
States. 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 in Eurodollar obligations which by their terms
are general obligations of the U.S. parent bank.
Commercial Paper and Other Short-term Obligations: Commercial paper
(including variable amount master demand notes and funding agreements), which
refers to short-term, unsecured promissory notes issued by corporations,
partnerships, trusts and 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
5
<PAGE>
at the date of purchase. Short-term obligations issued by trusts include
mortgage-related or asset-backed debt instruments, including pass-through
certificates representing participations in, or bonds and notes backed by,
pools of mortgage, credit card, automobile or other types of receivables.
Foreign Bank Money Instruments: The Money Market Fund may invest in U.S.
dollar-denominated obligations of foreign depository institutions and their
foreign branches and subsidiaries, such as certificates of deposit, bankers'
acceptances, time deposits, bank notes and deposit notes. The obligations of
such foreign branches and subsidiaries may be the general obligation 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: The Money Market Fund may also invest in
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. Investments in foreign entities in general involve the same
risks as those described in the Money Market Fund Statement of Additional
Information in connection with investments in Eurodollar and Yankeedollar
obligations.
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 repurchase
agreements involving the money market securities described above and repurchase
agreements involving U.S. Government and agency securities with longer
maturities. Under such agreements, the counterparty agrees, upon entering into
the contract, to repurchase the security from the Money Market 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.
Reverse Repurchase Agreements: The Money Market Fund may enter into reverse
repurchase agreements which 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
high-grade debt securities having a value equal to the repurchase price.
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. During the period of the loan, the Money Market Fund
receives the income on both the loaned securities and the collateral and
thereby increases its yield.
6
<PAGE>
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 are not completely risk free, such securities generally are
considered to have low principal risk. There is the risk of the failure of
issuers to meet their principal and interest obligations. 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.
With respect to repurchase agreements, purchase and sale contracts and reverse
repurchase agreements, there is also the risk of the failure of parties
involved to repurchase at the agreed upon price or to return the securities
involved in such transaction, in which event the Money Market Fund may suffer
time delays and incur costs or possible losses in connection with such
transactions.
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 up to 10% of total assets (taken at market value) may be invested in
certificates of deposit of smaller institutions if such certificates of deposit
are Federally insured.
The Money Market Fund may invest in participations in, or bonds and notes
backed by, pools of mortgage, credit card, automobile or other types of
receivables with remaining maturities of no more than 397 days (13 months).
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 a nationally recognized statistical rating
organization, as described below.
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 Trust. Currently, there are six NRSROs: Duff
& Phelps Inc., Fitch Investors Service, Inc., IBCA Limited and its affiliate
IBCA Inc., Thompson Bankwatch, Inc., Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services. The Money Market Fund will determine the
remaining maturity of investments in which it invests in accordance with
Commission regulations.
A Commission regulation ordinarily limits investments by the Money Market
Fund in securities issued by any one issuer (other than the U.S. Government,
its agencies or instrumentalities) to not more than 5% of its total assets, or
in the event that such securities do not have the highest rating, not more than
1% of its total assets. In addition, such regulation requires that not more
than 5% of the Money Market Fund's total assets be invested in securities that
do not have the highest rating or are not of comparable quality to securities
with the highest rating as determined by the Trustees of the Trust.
The Money Market Fund may purchase or sell money market securities on a
forward commitment basis at fixed purchase 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
securities purchased on a forward commitment basis will generally decrease. A
separate account of the Money Market Fund will be established
7
<PAGE>
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.
For purposes of its investment policies, the Money Market Fund defines short-
term money market securities as securities having a maturity of no more than
762 days (25 months) in the case of U.S. Government and agency securities and
no more than 397 days (13 months) in the case of all other securities. The
dollar-weighted average maturity of the Money Market Fund's portfolio will not
exceed 90 days. During the Money Market Fund's fiscal year ended October 31,
1996, the average maturity of its portfolio ranged from 47 days to 89 days.
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 as defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act"). Among the more significant restrictions, the
Money Market Fund may not: (1) purchase any securities other than (i) money
market and (ii) other securities 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, Government agency securities,
or domestic bank money instruments); (3) purchase the securities of any one
issuer, other than the U.S. Government, its agencies or instrumentalities, if
immediately after such 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 instruments, repurchase agreements and purchase and sale
contracts with any one bank up to 25% of the value of the Money Market Fund's
total assets may be invested without regard to such 5% limitation but shall
instead be subject to a limitation of 15% of the value of its total assets; and
(4) enter into repurchase agreements or purchase and sale contracts if, as a
result, more than 10% of the Money Market Fund's total assets (taken at market
value at the time of each investment) would be subject to repurchase agreements
or purchase and sale contracts maturing in more than seven days.
MANAGEMENT OF THE TRUST
TRUSTEES
The Trustees of the Trust consist of six individuals, five of whom are not
"interested persons" of the Trust as defined in the Investment Company Act. The
Trustees of the Trust are responsible for the overall supervision of the
operations of the Money Market Fund and perform the various duties imposed on
the directors of investment companies by the Investment Company Act.
The Trustees of the Trust are:
Arthur Zeikel*--President of the Manager and its affiliate, Fund Asset
Management, L.P. ("FAM"); President and Director of Princeton Services, Inc.
("Princeton Services"); Executive Vice President of Merrill Lynch & Co., Inc.
("ML & Co."); and Director of Merrill Lynch Funds Distributor, Inc. (the
"Distributor").
Joe Grills--Member of the Committee of Investment of Employee Benefit Assets
of the Financial Executives Institute ("CIEBA"); Member of CIEBA's Executive
Committee; Member of the Investment
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Advisory Committees of the State of New York Common Retirement Fund and the
Howard Hughes Medical Institute.
Walter Mintz--Special Limited Partner of Cumberland Associates (investment
partnership).
Robert S. Salomon, Jr.--Principal of STI Management (investment adviser).
Melvin R. Seiden--Director of Silbanc Properties, Ltd. (real estate,
investment and consulting).
Stephen B. Swensrud--Chairman of Fernwood Associates (financial consultants).
- --------
* Interested person, as defined in the Investment Company Act, of the Trust.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager acts as the manager for the Money Market Fund and provides the
Trust and the Money Market Fund with management and investment advisory
services. The Manager is owned and controlled by ML&Co., a financial services
holding company and the parent of Merrill Lynch. The Manager, or an affiliate,
FAM, acts as the investment adviser for more than 130 registered investment
companies and provides investment advice to individual and institutional
accounts. As of January 31, 1997, the Manager and FAM had a total of $239.8
billion in investment company and other portfolio assets under management,
including accounts of certain affiliates of the Manager.
The management agreement with the Manager (the "Management Agreement")
provides that, subject to the direction of the Trustees, the Manager is
responsible for the actual management of the Money Market Fund's portfolio and
constantly reviews the Money Market Fund's 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 review by the Trustees. The Manager performs certain of the
other administrative services and provides all of the office space, facilities,
equipment and necessary personnel for management of the Money Market Fund.
Pursuant to the Management Agreement, the Manager is entitled to receive
compensation at the annual rate of 0.50% of the Fund's average net assets not
exceeding $1 billion; 0.45% of the average daily net assets exceeding $1
billion but not exceeding $2 billion; 0.40% of the average daily net assets
exceeding $2 billion but not exceeding $3 billion; 0.375% of average daily net
assets exceeding $3 billion but not exceeding $4 billion; 0.35% of average
daily net assets exceeding $4 billion but not exceeding $7 billion; 0.325% of
average daily net assets exceeding $7 billion but not exceeding $10 billion;
and 0.30% of average daily net assets exceeding $10 billion. For the fiscal
year ended October 31, 1996, the total fee paid by the Money Market Fund to the
Manager aggregated $34,280,472 (based on average net assets of approximately
$9.0 billion) and the effective fee rate was 0.38%.
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The Management Agreement obligates the Money Market Fund to pay certain
expenses incurred in its operations, including, among other things, the
management fee, legal and audit fees, unaffiliated Trustees' fees and expenses,
registration fees, custodian and transfer agency fees, accounting and pricing
costs, and certain of the costs of printing proxies, shareholder reports,
prospectuses and statements of additional information. Accounting services are
provided to the Trust by the Manager, and the Trust reimburses the Manager for
its costs in connection with such services. For the fiscal year ended October
31, 1996, the Trust paid $386,264 to the Manager in connection with accounting
services. For the year ended October 31, 1996, the ratio of total expenses to
average net assets was 0.56%.
Christopher G. Ayoub is primarily responsible for the day-to-day management
of the Trust's portfolio. Mr. Ayoub is a Vice President of the Fund and has
been a Vice President of the Manager since 1985.
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which is
a subsidiary of ML & Co., acts as the Trust's 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 at the rate of
$6.50 per shareholder account for the first one million accounts and $6.00 per
shareholder account for each account thereafter 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. For the year ended
October 31, 1996, the total fee paid by the Trust to the Transfer Agent
pursuant to the Transfer Agency Agreement was $14,246,085.
PURCHASE OF SHARES
The Trust is offering Money Market Fund shares to participants in the Self-
Directed Plans and certain independent pension, profit-sharing, annuity and
other qualified plans. There are no minimum initial or subsequent purchase
requirements. Fractional shares of the Money Market Fund will not be sold,
other than through dividend reinvestments.
The Trust is offering shares without a sales charge at a public offering
price equal to the net asset value (normally $1.00 per share) next determined
after a purchase order becomes effective. Share purchase orders are effective
on the date Federal Funds become available to the Money Market Fund. If Federal
Funds are available to the Money Market Fund prior to the determination of net
asset value (generally 4:00 p.m. New York time), on any business day, the order
will be effective on that day. Shares purchased will begin accruing dividends
on the day following the date of purchase. Any order may be rejected by the
Money Market Fund or the Distributor.
Shares of the Fund are offered to participants in various retirement plans in
association with the Merrill Lynch BlueprintSM Program ("Blueprint"). Most
contributions to such plans are made through payroll deductions. In addition to
investing in the Money Market Fund, participants in such plans may invest in
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other mutual funds associated with the Merrill Lynch organization or various
other types of securities. If participants elect to have their contributions
invested in the Money Market Fund, the contributions will be invested
automatically on the business day following the date they are received in the
account. There will be no minimum initial or subsequent purchase requirement
pursuant to these types of plans. Cash balances of less than $1.00 will not be
invested. Additional information about Blueprint can be obtained from Merrill
Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program, P.O. Box
30441, New Brunswick, New Jersey 08989-0441.
Purchases of shares of the Money Market Fund by pension, profit-sharing and
annuity plans (other than the Self-Directed Plans) are made by payments by the
trustee or sponsor of such plan directly to Merrill Lynch.
As described in Appendix A to the Statement of Additional Information, there
are seven types of Self-Directed Plans: the individual retirement account
("IRA"), the individual retirement rollover account ("IRRA"), a simplified
employee pension plan ("SEP Plus (R)"), a Basic SM (Keogh Plus) profit sharing
plan, a Basic SM (Keogh Plus) money purchase pension plan (together with the
profit sharing plan, the "Basic SM Plans"), a 403(b)(7) Retirement Selector
Account ("RSA") and the corporate self-directed account of Blueprint. Although
the amount which may be contributed to a Self-Directed Plan account in any one
year is subject to certain limitations, assets already in a Self-Directed Plan
account may be invested in the Money Market Fund without regard to such
limitations.
Shareholders considering transferring a tax-deferred retirement account such
as an IRA from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the retirement account
is to be transferred will not take delivery of shares of the Trust, a
shareholder must either redeem the shares so that the cash proceeds can be
transferred to the account at the new firm, or such shareholder must continue
to maintain a retirement account at Merrill Lynch for those shares.
Self-Directed Plan Investments. Investment in shares of the Money Market
Fund by participants in the Self-Directed Plans are made as follows:
Participants in these Self-Directed Plans have three options concerning cash
balances which may arise in their IRA, IRRA, SEP Plus (R), RSA and Basic SM
("Retirement Plan") accounts. First, participants may elect to have such
balances automatically invested in shares of the Money Market Fund or another
money market mutual fund advised by the Manager on a daily basis. Second,
participants may elect to have such balances deposited in an FDIC-insured
money market account with a commercial bank designated by Merrill Lynch except
for RSA accounts. Third, participants may elect to maintain the cash balances
in their Retirement Plan account, in which case such amounts will not be
invested and no return will be earned until investment instructions are
received by Merrill Lynch from the participant.
Cash balances of participants who elect to have such funds automatically
invested in the Money Market Fund will be invested as follows. Cash balances
arising from the sale of securities held in the Self-Directed Plan account
which do not settle on the day of the transaction (such as most common and
preferred stock transactions) become available to the Trust and will be
invested in shares of the Money Market Fund on the business day following the
day that proceeds with respect thereto are received in the Self-Directed Plan
account. Proceeds giving rise to cash balances from the sale of securities
held in the Self-Directed Plan
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account settling on a same day basis and from principal repayments on debt
securities held in the account become available to the Trust and will be
invested in shares of the Money Market Fund on the next business day following
receipt. Cash balances arising from dividends or interest payments on
securities held in the Self-Directed Plan account or from a contribution to the
Self-Directed Plan are invested in shares of the Money Market Fund on the
business day following the date the payment is received in the Self-Directed
Plan account. Cash balances of less than $1.00 will not be invested and no
return will be earned.
A participant in these Self-Directed Plans (except retirement plans in
association with Blueprint) who has not elected to have cash balances
automatically invested in shares of the Money Market Fund may enter a purchase
order through his Merrill Lynch financial consultant. Orders to invest either
cash balances held in a Self-Directed Plan account or funds deposited in the
commercial bank referred to above will become effective on the business day
following the date on which the order is given.
REDEMPTION OF SHARES
Distributions from a Self-Directed Plan to a participant prior to the time
the participant reaches age 59 1/2 may subject the participant to penalty
taxes. There are, however, no adverse tax consequences resulting from
redemptions of shares of the Money Market Fund where the redemption proceeds
remain in the Self-Directed Plan account and are otherwise invested.
Shareholders other than participants in the Self-Directed Plans should consult
their tax advisers concerning tax consequences resulting from redemption of
shares of the Money Market Fund.
The Money Market Fund is required to redeem for cash all of its full and
fractional shares. The redemption price is the net asset value per share next
determined after receipt by Merrill Lynch of proper notice of redemption as
described below. If such notice is received by Merrill Lynch prior to the
determination of net asset value on that day, the redemption will be effective
on such day and payment generally will be made on the next business day. If the
notice is received after the determination of net asset value has been made,
the redemption will be effective on the next business day and payment will be
made on the second business day after receipt of the notice. Shareholders
liquidating their holdings in the Money Market Fund will receive upon
redemption all dividends declared and reinvested until the time of redemption.
Any shareholder may redeem shares of the Money Market Fund by submitting a
written notice of redemption to Merrill Lynch. Participants in IRA, Basic, RSA
and SEP Self-Directed Plans should contact their Merrill Lynch financial
consultant to effect such redemptions. Participants in Self-Directed Plans in
association with Blueprint should contact Merrill Lynch at the toll-free number
furnished to them to effect such redemptions. Redemption requests should not be
sent to the Money Market Fund or to its Transfer Agent. If inadvertently sent
to the Money Market Fund or the Transfer Agent, redemption requests will be
forwarded to Merrill Lynch. The notice must bear the signature of the person in
whose name the Self-Directed Plan is maintained, signed exactly as his name
appears on his Self-Directed Plan adoption agreement.
The Trust has instituted an automatic redemption procedure for participants
in the Self-Directed Plans who have elected to have cash balances in their
accounts automatically invested in shares of the Money Market Fund. In the case
of such participants, unless directed otherwise, Merrill Lynch will redeem a
sufficient number of shares of the Money Market Fund to purchase other
securities which the participant has selected for investment in his Self-
Directed Plan account.
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PORTFOLIO TRANSACTIONS
The money market securities in which the Money Market Fund invests are traded
primarily in the over-the-counter ("OTC") market. Where possible, the Money
Market Fund 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 principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Money market securities generally are 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 Money Market Fund will
consist primarily of dealer spreads and underwriting commissions. Under the
Investment Company Act, persons affiliated with the Trust are prohibited from
dealing with the Trust as a principal in the purchase and sale of securities
unless a permissive order allowing such transactions is obtained from the
Commission. Affiliated persons of the Trust may serve as its broker in OTC
transactions conducted on an agency basis. The Commission has issued an order
permitting the Trust to conduct certain principal transactions with Merrill
Lynch Government Securities Inc. and Merrill Lynch Money Markets Inc. subject
to certain terms and conditions. During the fiscal year ended October 31, 1996,
the Money Market Fund engaged in 48 transactions pursuant to such order
aggregating approximately $2.4 billion.
ADDITIONAL INFORMATION
DIVIDENDS
Dividends are declared and reinvested daily in the form of additional shares
at net asset value. Shareholders liquidating their holdings will receive upon
redemption all dividends declared and reinvested through 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 Money Market Fund is determined, the net asset value per share of the
Money Market Fund normally remains constant at $1.00 per share. Fluctuations in
value may be reflected in the number of outstanding shares in the shareholder's
account.
Net income (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) plus or minus all realized gains and
losses on portfolio securities, (iii) less the estimated expenses of the Money
Market Fund applicable to that dividend period.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Money Market Fund is determined by the Manager
once daily, immediately after the daily declaration of dividends, on each day
during which the New York Stock Exchange ("NYSE") or New York banks are open
for business. Such determination is made as of the close of business on the
NYSE (generally, 4:00 p.m., New York time) or, on days when the NYSE is closed
but New York banks are open, at 4:00 p.m., New York time. The net asset value
per share is determined pursuant to the "penny-rounding" method by adding the
fair value of all securities and other assets in the portfolio including
interest
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accrued but not yet received, deducting the portfolio's liabilities and
dividing by the number of shares outstanding. The result of this computation
will be rounded to the nearest whole cent. Securities with remaining maturities
of greater than 60 days for which market quotations are readily available will
be valued at market value. Securities with a remaining maturity of 60 days or
less are valued on an amortized cost basis. 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.
EXCHANGE PRIVILEGE
Shareholders of the Money Market Fund have an exchange privilege with Class D
shares of certain other mutual funds advised by the Manager or FAM ("MLAM-
advised mutual funds"). Alternatively, shareholders may exchange shares of the
Money Market Fund for Class A shares of one of the MLAM-advised mutual funds if
the shareholder holds any Class A shares of that fund in his account in which
the exchange is made at the time of the exchange or is otherwise an eligible
Class A investor. Shareholders of the Money Market Fund also may exchange
shares of the Money Market Fund into shares of certain MLAM-advised money
market funds specifically designated as available for exchange by holders of
Money Market Fund shares. There is currently no limitation on the number of
times a shareholder may exercise the exchange privilege. The exchange privilege
may be modified or terminated at any time in accordance with the rules of the
Commission. Exercise of the exchange privilege is treated as a sale for Federal
income tax purposes. For further information, see "Exchange Privilege" in the
Statement of Additional Information.
TAXES
Regulated Investment Companies. The following is a general summary of the
treatment of regulated investment companies ("RICs") and their shareholders
under the Internal Revenue Code of 1986, as amended (the "Code"). The Trust
intends to continue to qualify the Money Market Fund for the special tax
treatment afforded RICs under the Code. If it so qualifies, the Money Market
Fund 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 participants'
Self-Directed Plan accounts. The Trust intends to cause the Money Market Fund
to distribute substantially all of such income.
Dividends paid by the Money Market Fund from its 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 ordinarily
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 ordinarily taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Any loss upon the sale or exchange of Fund shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any capital
gain dividends received by the shareholder. Distributions in excess of the
Money Market 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). Dividends of a RIC are ordinarily taxable to
shareholders even though they are reinvested in additional shares of the Fund.
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Under certain provisions of the Code, some taxpayers may be subject to a 31%
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, participants in the
Self-Directed Plans subject to backup withholding will be those for whom no
certified taxpayer identification number is on file with the Trust or who, to
the Trust's knowledge, have furnished an incorrect number. When establishing an
account, an investor must certify under penalty of perjury that such number is
correct and that such investor is not otherwise subject to backup withholding.
Self-Directed Retirement Plans. Investment in the Money Market Fund is
limited to participants in the self-directed retirement plans ("retirement
plans") for which Merrill Lynch acts as passive custodian. Accordingly, the
general description of the tax treatment of RICs as set forth above is
qualified with respect to the special tax treatment afforded retirement plans
under the Code. Under the Code, neither ordinary income dividends nor capital
gain dividends represent current income to shareholders if such shares are held
in a retirement plan. Rather, distributions from a retirement plan will be
taxable as ordinary income at the rate applicable to the participant at the
time of the distribution. Such distributions would include (i) any pre-tax
contributions to the retirement plan (including pre-tax contributions that have
been rolled over from another retirement plan or individual retirement account
("IRA")), and (ii) dividends (whether or not such dividends are classified as
ordinary income or capital gain dividends). In addition to ordinary income tax,
participants may be subject to the imposition of excise taxes on any
distributed amount, including: (i) a 10% excise tax on any amount withdrawn
from a retirement plan prior to the participant's attainment of age 59 1/2; and
(ii) a 15% excise tax on the amount of any "excess distributions" (generally,
amounts in excess of $150,000) made from the retirement plan or any other
qualified retirement plan or IRA annually.
Under certain limited circumstances (for example, if an individual for whose
benefit a retirement plan is established engages in any transaction prohibited
under Section 4975 of the Code with respect to such account), the retirement
plan would cease to be qualified for the special treatment afforded certain
retirement plans under the Code as of the first day of such taxable year that
the transaction causing disqualification occurred. If a retirement plan through
which a shareholder holds Money Market Fund shares becomes ineligible for
special tax treatment, such shareholder will be treated as having received a
distribution on the first day of the taxable year from the retirement plan in
an amount equal to the fair market value of all assets in the account. Thus,
the shareholder would be taxed currently on (i) the amount of any pre-tax
contributions and previously untaxed dividends held within the account, and
(ii) all ordinary income and capital gain dividends paid by the Fund subsequent
to such event, whether such dividends are received in cash or reinvested in
additional shares. These ordinary income and capital gain dividends also might
be subject to state and local taxes. In the event of retirement plan
disqualification, shareholders also could be subject to the excise tax
described above. Additionally, retirement plan disqualification may subject a
nonresident alien
shareholder to a 30% United States withholding tax on ordinary income dividends
paid by the Fund unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law.
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.
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State. Ordinary income and capital gain dividends on RIC shares held in a
disqualified retirement plan or outside of a retirement plan also may be
subject to state and local taxes. Certain states exempt from state income
taxation dividends paid by RICs which are derived from interest on United
States Government obligations. State law varies as to whether dividend income
attributable to United States Government obligations is exempt from state
income tax. Generally, however, states exempt from state income taxation
dividends on shares held within a qualified retirement plan, and commence
taxation on such amounts when actually distributed from the retirement plan.
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 Fund.
ORGANIZATION OF THE TRUST
The Trust was organized on July 15, 1986 under the laws of the Commonwealth
of Massachusetts. The Trust is the successor to a Massachusetts business trust
of the same name organized October 28, 1981. It is a no-load, diversified,
open-end investment company. The Declaration of Trust provides that the Trust
shall be comprised of separate series (the "Series") each of which will consist
of a separate portfolio which will issue a separate class of shares. The
Trustees are authorized to create an unlimited number of Series and, with
respect to each Series, to issue an unlimited number of full and fractional
shares of beneficial interest of a single class. All shares have equal voting
rights, except that only shares of the respective Series are entitled to vote
on matters concerning only that Series. Each issued and outstanding share of a
Series is entitled to one vote and to participate equally in dividends and
distributions declared by such Series and in net assets of such Series upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities. In the event a Series were unable to meet its obligations, the
remaining Series would assume the unsatisfied obligations of that Series. The
shares of each Series, when issued, will be fully paid and non-assessable by
the Trust. At the date of this Prospectus, the Money Market Fund is the only
Series of the Trust.
The Declaration does not require that the Trust hold an annual meeting of
shareholders. However, the Trust 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 the Money Market Fund or the Trust. The Trust
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. The Declaration provides that a
shareholders' meeting may be called for any reason at the request of 10% of the
outstanding shares of the Trust or by a majority of the Trustees. Except as set
forth above, the Trustees shall continue to hold office and appoint successor
Trustees.
The Declaration of Trust establishing the Trust, dated July 15, 1986, a copy
of which, together with all amendments thereto (the "Declaration"), is on file
in the office of the Secretary of the Commonwealth of Massachusetts, provides
that the name "Merrill Lynch Retirement Series Trust" refers to the Trustees
under the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim of said Trust
but the "Trust Property" (as defined in the Declaration) only shall be liable.
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SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45290
Jacksonville, Florida 32232-5290
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Merrill Lynch Financial
Data Services, Inc. at 800-221-7210.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Money Market Fund at the
address or telephone number set forth on the cover page of this Prospectus.
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APPLICATION FOR CHECK WRITING PRIVILEGES FOR
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
If you are either 59 1/2 years or older, permanently disabled or, in the
case of a Merrill Lynch Tax-Deferred Basic (TM) Retirement Plan, you are
eligible for distributions, you may be eligible to write checks of $500 or
more against your balance in the Merrill Lynch Retirement Reserves Money Fund.
(THE RETIREMENT RESERVES CHECK WRITING PRIVILEGE IS NOT AVAILABLE TO
PARTICIPANTS IN CERTAIN EMPLOYEE BENEFIT PLANS (IN ASSOCIATION WITH THE
MERRILL LYNCH BLUEPRINT SM PROGRAM) OR TO A PARTICIPANT IN A PENSION, PROFIT-
SHARING OR OTHER QUALIFIED PLAN, WITH THE EXCEPTION OF THE MERRILL LYNCH TAX-
DEFERRED BASIC (TM) RETIREMENT PLAN.)
To apply for the check writing privilege:
--Read the information on this page to determine if you are eligible.
--If you are eligible, read the terms governing the check writing
privilege.
--Complete the Check Request Form on the back of this page.
WHO IS ELIGIBLE FOR CHECK WRITING
You are eligible for the check writing privilege only if you meet the
following three conditions:
(1) YOU ARE EITHER (I) AGE 59 1/2 OR OLDER, (II) PERMANENTLY DISABLED OR
(III), IN THE CASE OF BASIC PLANS, ARE ELIGIBLE FOR DISTRIBUTIONS.
Distributions from an IRA or SEP before you reach age 59 1/2 are
generally subject to an Internal Revenue Service penalty tax equal to
10% of the amount withdrawn unless you are permanently disabled.
Distributions from certain Basic Plans before you reach age 59 1/2 may
also be subject to penalty taxes.
(2) YOU CHOOSE NOT TO HAVE INCOME TAXES WITHHELD FROM AMOUNTS DISTRIBUTED
FROM YOUR ACCOUNT THROUGH USE OF THE CHECK WRITING PRIVILEGE. All
distributions from your account are taxable income to you and are
subject to Federal Income Tax withholding. However, you may for any
reason choose not to have these taxes withheld. You can participate in
the check writing program only if you choose not to have taxes
withheld, since Merrill Lynch cannot withhold taxes from checks you
write. NOTE: You may be responsible, under IRS regulations, for paying
estimated taxes based on the amounts distributed from your account by
check. Be aware also that when your actual taxes for a year are
determined, you could incur IRS penalties if your estimated tax
payments were not sufficient.
(3)YOU HAVE A MERRILL LYNCH RETIREMENT RESERVES MONEY FUND POSITION.
NOTE: IF YOU ARE A PARTICIPANT IN A BASIC PLAN, YOU MUST BE ELIGIBLE UNDER
THE PLAN TO BEGIN RECEIVING PAYMENTS. CHECK WITH YOUR PLAN
ADMINISTRATOR (USUALLY IT IS YOUR EMPLOYER) TO MAKE SURE YOU ARE
ELIGIBLE. IF YOU ARE, YOUR PLAN ADMINISTRATOR MUST ALSO SIGN THE CHECK
REQUEST FORM.
TERMS GOVERNING CHECK WRITING
The check writing program does not establish a checking account relationship
between you and Merrill Lynch or between you and Merrill Lynch Financial Data
Services, Inc.
Instead, these terms apply to the check writing program:
--Each check must be for at least $500.
--Any check for less than $500 will be returned unpaid.
--There are no charges for checks.
--A transaction advice will confirm any check paid against your account, and
distribution by check will be indicated on your account's monthly statement--
there is no separate "checking statement."
--No check may exceed your balance in the Merrill Lynch Retirement Reserves
Money Fund.
NOTE: DO NOT USE CHECKS TO CLOSE OUT OR TRANSFER YOUR ACCOUNT, TO CORRECT AN
OVERCONTRIBUTION (EXCESS CONTRIBUTION) OR TO WITHDRAW AMOUNTS
CLASSIFIED AS VOLUNTARY CONTRIBUTIONS TO BASIC PLANS. THIS IS BECAUSE
ALL MERRILL LYNCH RETIREMENT RESERVES MONEY FUND CHECK DISTRIBUTIONS
WILL BE REPORTED TO THE IRS AS TAXABLE DISTRIBUTIONS. AS A RESULT YOU
MAY BE SUBJECT TO ADVERSE TAX CONSEQUENCES. INSTEAD, CONTACT YOUR
MERRILL LYNCH FINANCIAL CONSULTANT TO MAKE SUCH TRANSACTIONS.
DISTRIBUTIONS OTHER THAN BY CHECK
If you decide to use the check writing privilege, you may still choose to
take distributions from your Retirement Account by contacting your Financial
Consultant rather than by writing checks.
NOTE: FOR DISTRIBUTIONS OTHER THAN BY CHECK WRITING YOU WILL NEED TO COMPLETE
THE APPROPRIATE DISTRIBUTION AND TAX WITHHOLDING FORM WHICH CAN BE
OBTAINED FROM YOUR MERRILL LYNCH FINANCIAL CONSULTANT.
19
<PAGE>
CHECK REQUEST FORM Merrill Lynch Financial Data Services,
When completed return this form to: Inc.
P.O. Box 45290
Jacksonville, Florida 32232-5290
CHECK NAME. Checks are issued only in the name of the owner of the Retirement
Account. Please enter your name exactly as it appears on your Merrill Lynch
Adoption Agreement:
[ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Last Name First Name Initial
ACCOUNT NUMBER FOR YOUR MERRILL LYNCH IRA, BASIC OR SEP RETIREMENT
ACCOUNT. (If you have more than one account, you must complete a separate form
to request checks for each account on which you want to write checks.)
[ ][ ][ ][ ][ ][ ][ ]
Account Number
BIRTHDATE: [ ][ ][ ][ ][ ]
Month-Day-Year
SOCIAL SECURITY NUMBER: [ ][ ][ ][ ][ ][ ][ ][ ][ ]
ADDRESS:[ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Street Address
[ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
City State Zip Code
CHECK REDEMPTION PRIVILEGE (SEE TERMS AND CONDITIONS IN THE PROSPECTUS): By
signing this form, you request and authorize Merrill Lynch Financial Data
Services, Inc. (the "Transfer Agent") to honor checks or automatic clearing
house ("ACH") debits you draw on the Merrill Lynch Retirement Reserves Money
Fund in your Merrill Lynch Retirement Account (IRA, Basic or SEP) in the
amount of $500 or more, subject to acceptance by the Fund. Payment for the
checks will be made by redeeming sufficient Fund shares in your account
without a signature guarantee.
The Transfer Agent and the Fund reserve all their lawful rights for honoring
checks or ACH debits drawn by you and for redeeming Fund shares pursuant to
this check redemption privilege. You acknowledge that this privilege does not
create a checking account or other bank account relationship between you and
the Transfer Agent or the Fund and the relationship between you and the
Transfer Agent is that of a shareholder-transfer agent.
INTERNAL REVENUE SERVICE REPORTING
MERRILL LYNCH IS REQUIRED BY LAW TO REPORT TO THE INTERNAL REVENUE SERVICE
ALL DISTRIBUTIONS MADE DURING THE YEAR FROM YOUR RETIREMENT ACCOUNT.
PLEASE NOTE:-- THE YEAR OF DISTRIBUTION WILL BE DETERMINED BY THE DATE THE
CHECK IS PROCESSED BY MERRILL LYNCH FINANCIAL DATA SERVICES,
INC., NOT THE DATE YOU WRITE THE CHECK OR THE DATE THE CHECK IS
PRESENTED TO A LOCAL BANK FOR PAYMENT.
THEREFORE, IF YOU ARE OVER AGE 70 1/2 AND MUST TAKE A
DISTRIBUTION BY DECEMBER 31 OF A CALENDAR YEAR, YOU MUST ALLOW
SUFFICIENT TIME FOR THE CHECK TO BE PAID BY THE BANK BEFORE
YEAR-END. OTHERWISE, YOUR DISTRIBUTION WILL NOT BE REFLECTED
AND REPORTED TO THE IRS IN THE YEAR FOR WHICH IT WAS INTENDED.
SIGNATURE
By signing this check request form, you confirm that you are either 59 1/2
years of age or older, permanently disabled or, in the case of Basic Plans,
are eligible for distributions, and that you choose not to have income taxes
withheld from distributions made under the check writing program.
Your signature: _____________________________________________ Date: __________
If you are a Basic Plan participant, your Plan Administrator must also sign
to indicate you are eligible to start receiving distributions under the Plan.
Signature of Plan Administrator: ______________________________________________
20
<PAGE>
[This Page Intentionally Left Blank]
21
<PAGE>
[This Page Intentionally Left Blank]
22
<PAGE>
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
The Bank of New York
90 Washington Street
12th Floor
New York, New York 10286
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45290
Jacksonville, Florida 32232-5290
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST, THE MANAGER, OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
----------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Financial Highlights....................................................... 3
Yield Information.......................................................... 4
Investment Objectives and Policies......................................... 4
Management of the Trust.................................................... 8
Trustees.................................................................. 8
Management and Advisory Arrangements...................................... 9
Transfer Agency Services.................................................. 10
Purchase of Shares......................................................... 10
Redemption of Shares....................................................... 12
Portfolio Transactions..................................................... 13
Additional Information..................................................... 13
Dividends................................................................. 13
Determination of Net Asset Value.......................................... 13
Exchange Privilege........................................................ 14
Taxes..................................................................... 14
Organization of the Trust................................................. 16
Shareholder Reports....................................................... 17
Shareholder Inquiries..................................................... 17
Application for Check Writing Privileges................................... 19
</TABLE>
Code # 10093-0297
[LOGO] MERRILL LYNCH
Merrill Lynch Retirement
Reserves Money Fund
Merrill Lynch
Retirement Series Trust
[ART]
PROSPECTUS
February 21, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
MERRILL LYNCH RETIREMENT SERIES TRUST
P.O. Box 9011, Princeton, New Jersey 08543-9011 . Phone No. (609) 282-2800
-------------------------
The investment objectives of the Merrill Lynch Retirement Reserves Money Fund
(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. These securities primarily consist of U.S. Government
and agency securities, bank certificates of deposit and bankers' acceptances,
commercial paper and repurchase agreements. For purposes of its investment
policies, the Money Market Fund defines short-term money market securities as
securities having a maturity of no more than 762 days (25 months) in the case
of U.S. Government and agency securities and no more than 397 days (13 months)
in the case of all other securities. Management of the Money Market Fund
expects that substantially all the assets of the Money Market Fund will be
invested in securities maturing in less than one year, but at times some
portion may have longer maturities not exceeding 762 days. The dollar weighted-
average maturity of the Money Market Fund's portfolio will not exceed 90 days.
Shares of the Money Market Fund are offered to participants in the self-
directed retirement plans for which Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") acts as passive custodian (the "Self-Directed
Plans"). For a description of the Self-Directed Plans, see Appendix A to this
Statement of Additional Information. Shares of the Money Market Fund are also
offered to certain independent pension, profit-sharing, annuity and other
qualified plans.
The Money Market Fund is a separate series, offering a separate class of
shares, of Merrill Lynch Retirement Series Trust (the "Trust"), an
unincorporated business trust organized under the laws of Massachusetts. The
Trust is a no-load, diversified, open-end investment company which may be
comprised of separate series ("Series"), each of which would be a separate
portfolio offering a separate class of shares to participants in the retirement
plans described herein.
-------------------------
This Statement of Additional Information of the Money Market Fund is not a
prospectus and should be read in conjunction with the prospectus of the Money
Market Fund, dated February 21, 1997 (the "Prospectus"), which has been filed
with the Securities and Exchange Commission (the "Commission") and can be
obtained, without charge, by calling or by writing the Money Market Fund at the
above telephone number or address. This Statement of Additional Information has
been incorporated by reference into the Prospectus. Capitalized terms used but
not defined herein have the same meanings as in the Prospectus.
-------------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
-------------------------
The date of this Statement of Additional Information is February 21, 1997.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
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. Reference is made
to "Investment Objectives and Policies" in the Prospectus for a discussion of
the investment objectives and policies of the Money Market Fund.
As discussed in the Prospectus, the Money Market Fund may invest in money
market securities pursuant to repurchase agreements involving money market
securities and involving U.S. Government and agency securities with longer
maturities. 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.
Repurchase agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to the purchaser.
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 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.
Also, as discussed in the Prospectus, the Money Market Fund may invest in
obligations issued by commercial and savings banks and savings and loan
associations. The savings banks and savings and loan associations must be
organized and operating in the United States. 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). Eurodollar and Yankeedollar obligations may
be general obligations of the parent bank or may be limited to the issuing
branch by the terms of the specific obligation or by government regulation.
Eurodollar and Yankeedollar obligations may involve additional investment
risks from the risks of obligations of U.S. banks. Such investment risks
include 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
2
<PAGE>
governmental laws or restrictions which might adversely affect the payment of
principal and interest. Generally the issuers of such obligations are subject
to fewer U.S. regulatory requirements than are applicable to U.S. banks.
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 than about a U.S. bank, and such branches or
subsidiaries may not be subject to the same accounting, auditing and financial
recordkeeping standards and requirements as U.S. banks. Evidence of ownership
of Eurodollar obligations may be held outside of the United States, and the
Money Market Fund may be subject to risks associated with the holding of such
property overseas. Eurodollar obligations of the Money Market Fund held
overseas will be held by foreign branches of the Money Market Fund's Custodian
or by foreign branches of other U.S. banks or foreign banks under subcustodian
arrangements complying with the requirements of the Investment Company Act of
1940, as amended (the "Investment Company Act").
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager") will carefully
consider the above factors in making investments in Eurodollar and Yankeedollar
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 western industrialized nations.
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 Trust. Currently, there are six NRSROs: Duff
& Phelps Inc., Fitch Investors Service, Inc., IBCA Limited and its affiliate
IBCA Inc., Thompson Bankwatch, Inc., Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services. The Money Market Fund will determine the
remaining maturity of investments in which it invests in accordance with
Commission regulations.
In addition to the investment restrictions set forth in the Prospectus, the
Money Market 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 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) make
investments for the purpose of exercising control or management; (2) underwrite
securities issued by other persons; (3) purchase securities of other investment
companies, except in connection with a merger, consolidation, acquisition or
reorganization; (4) 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; (5) purchase any securities on
margin, except for use of short-term credit necessary
3
<PAGE>
for clearance of purchases and sales of portfolio securities; (6) make short
sales of securities or maintain a short position or write, purchase or sell
puts, calls, straddles, spreads or combinations thereof; (7) make loans to
other persons, provided that the Money Market Fund may purchase money market
securities or enter into repurchase agreements or purchase and sale contracts
and lend securities owned or held by it pursuant to (8) below; (8) lend its
portfolio securities other than as provided in the guidelines set forth below,
or in excess of 33 1/3% of its total assets, taken at market value; (9) 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.; (10)
mortgage, pledge, hypothecate or in any manner transfer (except as provided in
(8) 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 (9) above, and then such mortgaging,
pledging or hypothecating may not exceed 10% of the Money Market Fund's net
assets, taken at market value; (11) invest in securities for which no readily
available market exists if more than 10% of its total assets (taken at market
value) would be invested in such securities; (12) invest in securities with
legal or contractual restrictions on resale (except for repurchase agreements
or purchase and sale contracts), or in securities of issuers (other than 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; (13) enter into reverse repurchase agreements if,
as a result thereof, the Money Market Fund's obligations with respect to
reverse repurchase agreements and borrowings permitted in (9) above would
exceed 33 1/3% of its net assets (defined to be total assets, taken at market
value, less liabilities other than reverse repurchase agreements). Also, the
Money Market Fund has specifically undertaken with one state securities
commission that, because the Money Market Fund can only invest in a diversified
portfolio of short-term money market securities, it will not invest in
warrants.
Lending of Portfolio Securities. Subject to investment restriction (8) above,
the Money Market Fund may from time to time lend securities from its portfolio
to brokers, dealers and financial institutions and receive collateral in cash
or securities issued or guaranteed by the United States 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. 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 and may do so when deemed appropriate. The Money
Market Fund may pay reasonable fees to persons unaffiliated with the Money
Market Fund in connection with the arranging of such loans.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
Information about the Trustees and executive officers of the Trust, their
ages and their principal occupations for at least the last five years are set
forth below. Unless otherwise noted, the address of each Trustee and executive
officer is Merrill Lynch Asset Management, L.P., P.O. Box 9011, Princeton, New
Jersey 08543-9011.
4
<PAGE>
Arthur Zeikel (64)--President and Trustee (1)(2)--President of MLAM (which
term as used herein includes its corporate predecessors) since 1977; President
of Fund Asset Management, L.P. ("FAM") (which term as used herein includes its
corporate predecessors) since 1977; President and Director of Princeton
Services, Inc. ("Princeton Services") since 1993; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML&Co.") since 1990; Director of Merrill Lynch
Funds Distributor, Inc. (the "Distributor") since 1977.
Joe Grills (61)--Trustee (2)--183 Soundview Lane, New Canaan, Connecticut
06840. Member of the Committee of Investment of Employee Benefit Assets of the
Financial Executives Institute ("CIEBA") since 1986; member of CIEBA's
Executive Committee since 1988 and its Chairman from 1991 to 1992; Assistant
Treasurer of International Business Machines Incorporated ("IBM") and Chief
Investment Officer of the IBM Retirement Funds from 1986 until 1993; Member of
the Investment Advisory Committee of the State of New York Common Retirement
Fund; Member of the Investment Advisory Committee of the Howard Hughes Medical
Institute; Director, Duke Management Company and LaSalle Street Fund since
1995; Director, Kimco Realty Corporation since January 1997.
Walter Mintz (67)--Trustee (2)--1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Associates (investment
partnership) since 1982.
Robert S. Salomon, Jr. (60)--Trustee (2)--106 Dolphin Cove Quay, Stamford,
Connecticut 06902. Principal of STI Management (investment adviser); Chairman
and CEO of Salomon Brothers Asset Management from 1992 to 1995; Chairman of
Salomon Brothers equity mutual funds from 1992 to 1995; Director of Stock
Research and U.S. Equity Strategist at Salomon Brothers from 1975 to 1991;
Director, Common Fund and the Norwalk Community Technical College Foundation.
Melvin R. Seiden (66)--Trustee (2)--780 Third Avenue, Suite 2502, New York,
New York 10017. Director of Silbanc Properties, Ltd. (real estate, investments
and consulting) since 1987; Chairman and President of Seiden & de Cuevas, Inc.
(private investment firm) from 1964 to 1987.
Stephen B. Swensrud (63)--Trustee (2)--24 Federal Street, Suite 400, Boston,
Massachusetts 02110. Chairman of Fernwood Associates (financial consultants)
since 1975.
Terry K. Glenn (56)--Executive Vice President (1)(2)--Executive Vice
President of the Manager and FAM since 1983; President of the Distributor since
1986 and Director thereof since 1991; Executive Vice President and Director of
Princeton Services since 1993; President of Princeton Administrators, L.P.
since 1988.
Joseph T. Monagle, Jr. (48)--Senior Vice President (1)(2)--Senior Vice
President of the Manager and FAM since 1990; Vice President of the Manager from
1978 to 1990; Senior Vice President of Princeton Services since 1993.
Christopher G. Ayoub (41)--Vice President (1)(2)--Vice President of the
Manager since 1985; Assistant Vice President of the Manager from 1984 to 1985
and employee since 1982.
Donald C. Burke (36)--Vice President (1)(2)--Vice President and Director of
Taxation of MLAM since 1990; employee of Deloitte & Touche LLP From 1982 to
1990.
5
<PAGE>
Gerald M. Richard (47)--Treasurer (1)(2)--Senior Vice President and
Treasurer of the Manager and FAM since 1984; Vice President of the Distributor
since 1981 and Treasurer thereof since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993.
Mark B. Goldfus (50)--Secretary (1)(2)--Vice President of the Manager and
FAM since 1985.
- ---------------------
(1) Interested person, as defined in the Investment Company Act of 1940, of
the Trust.
(2) Such Trustee or officer is a director, trustee, officer or member of an
advisory board of certain other investment companies for which the Manager
or FAM acts as investment adviser.
At February 1, 1997, the Trustees and officers of the Trust as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of
beneficial interest of the Trust. At such date, the officers of the Trust
owned an aggregate of less than 1% of the outstanding Common Stock of ML & Co.
COMPENSATION OF TRUSTEES
Pursuant to the terms of its management agreement with the Trust (the
"Management Agreement"), the Manager pays all compensation of officers and
employees of the Trust as well as the fees of all Trustees of the Trust who
are affiliated persons of ML & Co. or its subsidiaries. The Trust pays each
unaffiliated Trustee a fee of $4,000 per year plus $1,000 per meeting attended
and all Trustees' actual out-of-pocket expenses relating to attendance at
meetings. The Trust also pays each member of the Audit Committee, which
consists of all of the unaffiliated Trustees, an annual fee of $4,000 plus a
fee of $750 for each meeting of the Audit Committee which is held on a day on
which the Board of Trustees does not meet, together with all out-of-pocket
expenses relating to attendance at such meetings. These fees and expenses
aggregated $71,319 for the fiscal year ended October 31, 1996.
The following table sets forth for the fiscal year ended October 31, 1996,
compensation paid by the Trust to the non-interested Trustees and, for the
calendar year ending December 31, 1996, the aggregate compensation paid by all
investment companies (including the Trust) advised by MLAM and its affiliate,
FAM ("MLAM/FAM Advised Funds"), to the non-interested Trustees.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
PENSION OR FROM TRUST AND
COMPENSATION RETIREMENT BENEFITS MLAM/FAM ADVISED
AME OFN FROM THE ACCRUED AS PART FUNDS PAID TO
RUSTEET TRUST OF TRUST EXPENSE TRUSTEES
- ------- ------------ ------------------- ----------------------
<S> <C> <C> <C>
Joe Grills(1) $15,000 None $164,000
Walter Mintz(1) $15,000 None $164,000
Robert S. Salomon,
Jr.(1) $13,000 None $187,000
Melvin R. Seiden(1) $15,000 None $164,000
Stephen B. Swensrud(1) $13,250 None $154,250
</TABLE>
- --------
(1) The Trustees serve on the boards of MLAM/FAM Advised Funds as follows: Joe
Grills (18 registered investment companies consisting of 37 portfolios);
Walter Mintz (18 registered investment companies consisting of 37
portfolios); Robert S. Salomon, Jr. (18 registered investment companies
consisting of 37 portfolios); Melvin R. Seiden (18 registered investment
companies consisting of 37 portfolios); and Stephen B. Swensrud (20
registered investment companies consisting of 48 portfolios).
6
<PAGE>
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Trust--Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Money Market Fund.
Subject to the direction of the Trustees, the Manager performs, or arranges
for affiliates to perform, pursuant to the Management Agreement, the management
and administrative services necessary for the operation of the Trust and the
Money Market Fund. The Manager and its affiliates will provide a variety of
administrative and operational services to shareholders of the Money Market
Fund, including processing services related to the purchase and redemption of
shares and the general handling of shareholder relations. The Manager is
responsible for the actual management of the Money Market Fund's portfolio and
constantly reviews the Money Market Fund's 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 review by the Trustees. The Manager provides the Trust and
the Money Market Fund with office space, equipment and facilities and such
other services as the Manager, subject to supervision and review by the
Trustees, shall from time to time determine to be necessary to perform its
obligations under the Management Agreement.
Securities held by the Money Market 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 its affiliate, FAM, 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 other clients are selling the security. If purchases or sales of
securities for the Money Market 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 FAM. To the extent that transactions on behalf of more
than one client of the Manager or FAM during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
As compensation for its services under the Management Agreement with the
Trust, the Manager is entitled to receive a fee from the Money Market Fund at
the end of each month at the annual rates of 0.50% of average daily net assets
not exceeding $1 billion; 0.45% of average daily net assets exceeding $1
billion but not exceeding $2 billion; 0.40% of average daily net assets
exceeding $2 billion but not exceeding $3 billion; 0.375% of average daily net
assets exceeding $3 billion but not exceeding $4 billion; 0.35% of average
daily net assets exceeding $4 billion but not exceeding $7 billion; 0.325% of
average daily net assets exceeding $7 billion but not exceeding $10 billion;
and 0.30% of average daily net assets exceeding $10 billion. For the years
ended October 31, 1994, 1995 and 1996 the fees paid by the Money Market Fund to
the Manager were $28,889,652, $30,946,227 and $34,280,472, respectively.
The Management Agreement obligates the Manager to provide advisory,
administrative and management services, to furnish office space and facilities
for management of the affairs of the Trust and the Money Market Fund, to pay
all compensation of and furnish office space for officers and employees of the
Trust, as well as the fees of all Trustees of the Trust who are affiliated
persons of ML & Co. or any of its subsidiaries. The Money Market Fund pays all
other expenses incurred in its operation, and, if other Series
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should be added, a portion of the Trust's general administrative expenses will
be allocated on the basis of the asset size of the respective Series. Expenses
that will be borne directly by the Series include redemption expenses, expenses
of portfolio transactions, expenses of registering the shares under Federal and
state securities laws, pricing costs (including the daily calculation of net
asset value), fees for legal and auditing services, expenses of printing
proxies, shareholder reports, prospectuses and statements of additional
information (except to the extent paid by the Distributor as described below),
charges of the Custodian and Transfer Agent, Commission fees, interest, certain
taxes, and other expenses attributable to a particular Series. Expenses which
will be allocated on the basis of asset size of the respective Series include
fees and expenses of unaffiliated Trustees, state franchise taxes, expenses
related to shareholder meetings, and other expenses properly payable by the
Trust. If additional Series are added to the Trust, the organizational expenses
will be allocated among the Series in a manner deemed equitable by the
Trustees. Depending upon the nature of a lawsuit, litigation costs may be
assessed to the specific Series to which the lawsuit relates or allocated on
the basis of the asset size of the respective Series. The Trustees have
determined that this is an appropriate method of allocation of expenses. As
required by the Distribution Agreement, the Distributor will pay certain of the
expenses of each Series incurred in connection with the offering of shares of
each Series; after the prospectuses, statements of additional information and
periodic reports have been prepared and set in type, the Distributor will pay
for the printing and distribution of copies thereof used in connection with the
offering to investors. The Distributor will also pay for other supplementary
sales literature.
The Manager is a limited partnership, the partners of which are ML & Co. and
Princeton Services, Inc. ML & Co. and Princeton Services are "controlling
persons" of the Manager (as defined in 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.
Duration and Termination. Unless earlier terminated as described below, the
Management Agreement will continue in effect from year to year if approved
annually (a) by the Trustees of the Trust or by a majority of the outstanding
shares of the Money Market 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 agreement terminates upon
assignment and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of the shareholders of the
Money Market Fund.
PURCHASE AND REDEMPTION OF SHARES
Reference is made to "Purchase of Shares" and "Redemption of Shares" in the
Prospectus for certain information as to the purchase and redemption of Money
Market Fund shares.
The right to receive payment with respect to any redemption of Money Market
Fund shares may be suspended by the Trust 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 ("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 Money Market Fund of securities owned by it is not
reasonably practicable or (b) it is not reasonably practicable for the Money
Market Fund fairly to determine the value of its net assets; or (3) for such
other periods as the Commission
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may by order permit for the protection of security holders of the Money Market
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.
All purchases and redemptions of Money Market Fund shares and dividend
reinvestments will be confirmed to participants in the IRA, Basic and SEP Self-
Directed Plans (rounded to the nearest share) in the statement which is sent
monthly to all participants in these Self-Directed Plans. The Money Market Fund
and the Distributor have received an exemptive order from the Commission which
permits the Money Market Fund to omit sending out more frequent confirmations
with respect to certain transactions. These transactions are purchases
resulting from automatic investments in shares of the Money Market Fund and
redemptions which are effected automatically to purchase other securities which
the participant has selected for investment in his account.
Participants in Self-Directed Plans in association with the Merrill Lynch
Blueprint Program will receive quarterly statements reflecting all purchases,
redemptions and dividend reinvestments of Money Market Fund shares. In
addition, these participants will receive an individual confirmation with
respect to each redemption of Money Market Fund shares and each purchase of
such shares other than purchases which are made automatically through payroll
deductions. Shareholders who are not participants in the Self-Directed Plans
will receive quarterly statements reflecting all purchases, redemptions and
dividend reinvestments of Money Market Fund shares.
In the interest of economy and convenience and because of the operating
procedures of the Money Market Fund, certificates representing the Money Market
Fund's shares will not be physically issued. Shares are maintained by the Money
Market Fund on the register maintained by the Transfer Agent, and the holders
thereof will have the same rights of ownership with respect to such shares as
if certificates had been issued.
The Distributor acts as the distributor of the shares of the Money Market
Fund pursuant to a distribution agreement with the Trust (the "Distribution
Agreement"). The Distribution Agreement is renewable annually and may be
terminated upon 60 days' written notice by either party. Under such Agreement,
after the prospectuses, statements of additional information and periodic
reports have been prepared and set in type, the Distributor will pay for the
printing and distribution of copies thereof used in connection with the
offering to investors. The Distributor will also pay for other supplementary
sales literature.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policy
established by the Trustees and officers of the Trust, the Manager is primarily
responsible for the Money Market Fund's portfolio decisions and the placing of
the Money Market Fund's portfolio transactions. In placing orders, it is the
policy of the Money Market Fund to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), size,
type and difficulty of the transaction involved, the firm's general execution
and operational facilities, and the firm's
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risk in positioning the securities involved. While the Manager generally seeks
reasonably competitive spreads or commissions, the Money Market Fund will not
necessarily be paying the lowest spread or commission available. The Money
Market Fund's policy of investing in securities with short maturities will
result in high portfolio turnover.
The money market securities in which the Money Market Fund invests are traded
primarily in the over-the-counter ("OTC") market. Bonds and debentures are
usually traded OTC but may be traded on an exchange. Where possible, the Money
Market Fund 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 act as principal for
their own accounts. On occasion, securities may be purchased directly from the
issuer. The money market securities in which the Money Market 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 Money Market Fund will primarily consist of dealer spreads
and underwriting commissions. Under the Investment Company Act, persons
affiliated with the Trust are prohibited from dealing with the Trust as a
principal in the purchase and sale of securities, unless a permissive order
allowing such transactions is obtained from the Commission. Since OTC
transactions are usually principal transactions, affiliated persons of the
Trust, including Merrill Lynch Government Securities Inc. ("GSI") and Merrill
Lynch, may not serve as the Money Market Fund's dealer in connection with such
transactions, except pursuant to the permissive order described below. However,
affiliated persons of the Trust may serve as its broker in OTC transactions
conducted on an agency basis. The Trust may not generally purchase securities
from any underwriting syndicate of which Merrill Lynch is a member. Of the
money market securities in which the Money Market Fund invests, generally only
United States Government agency securities are sold in underwritings.
The Commission has issued an order permitting all Merrill Lynch-sponsored
money market funds, including the Money Market Fund, to conduct principal
transactions with GSI in U.S. Government securities and U.S. Government agency
securities and with Merrill Lynch Money Markets Inc., a subsidiary of GSI
("MMI"), in certificates of deposit and other short-term bank money instruments
and commercial paper. This order contains a number of conditions, including
conditions designed to ensure that the price to the Money Market Fund from GSI
or MMI is equal to or better than that available from other sources. GSI and
MMI have informed the Trust that they will in no way, at any time, attempt to
influence or control the activities of the Money Market Fund or the Manager in
placing such principal transactions. The permissive order allows GSI or MMI to
receive a dealer spread on any transaction with the Money Market Fund no
greater than its customary dealer spread from transactions of the type
involved. Generally such spreads do not exceed 0.25% of the principal amount of
the securities involved. During the fiscal year ended October 31, 1996, the
Money Market Fund engaged in 48 transactions pursuant to such order aggregating
approximately $2.4 billion.
The Trustees of the Trust have considered the possibilities of recapturing
for the benefit of the Money Market Fund expenses of possible portfolio
transactions, such as dealer spreads and underwriting commissions, by
conducting such portfolio transactions through affiliated entities, including
GSI and Merrill Lynch. For example, dealer spreads received by GSI or its
subsidiary on transactions conducted pursuant to the permissive order described
above could be offset against the management fee payable by the Money
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Market Fund to the Manager. 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 Money Market Fund does not expect to use one particular dealer, but,
subject to obtaining the best price and execution, dealers who provide
supplemental investment research (such as information concerning money market
securities, economic data and market forecasts) to the Manager may receive
orders for transactions by the Money Market Fund. Information so received will
be in addition to and not in lieu of the services required to be performed by
the Manager under its Management Agreement and the expenses of the Manager will
not necessarily be reduced as a result of the receipt of such supplemental
information.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Money Market Fund is determined by the Manager
once daily, immediately after the daily declaration of dividends, on each day
during which the NYSE or New York banks are open for business. Such
determination is made as of the close of business on the NYSE (generally 4:00
p.m., New York time) or, on days when the NYSE is closed but the New York banks
are open, at 4:00 p.m., New York time. 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, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value per share is determined
under the "penny-rounding" method by adding the value of all securities and
other assets in the portfolio, deducting the portfolio's liabilities, dividing
by the number of shares outstanding and rounding the result to the nearest
whole cent.
The Money Market Fund values its portfolio securities with remaining
maturities of 60 days or less on an amortized cost basis and values its
securities with remaining maturities of greater than 60 days for which market
quotations are readily available at market value. Other securities held by the
Money Market Fund are valued at their fair value as determined in good faith by
or under the direction of the Board of Trustees.
In accordance with the Commission rule applicable to the valuation of its
portfolio securities, the Money Market Fund 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 Securities and U.S. Government agency securities,
which may have remaining maturities of up to 762 days (twenty-five months). The
Money Market Fund 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, the Money Market Fund's price per share as computed for the purposes
of sales and redemptions at $1.00. Deviations of more than an insignificant
amount between the net asset value per share calculated using market quotations
and that calculated on a "penny-rounded" basis will be reported to the Trustees
by the Manager. In the event the Trustees determine that a deviation exists
which may result in the material dilution or other unfair results to investors
or existing shareholders, the Money Market Fund will take such corrective
action as it regards as necessary and appropriate, including the reduction of
the number of outstanding shares of the Money Market Fund by having each
shareholder proportionately contribute shares to the Money Market Fund's
capital; the sale of portfolio instruments prior
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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 "penny rounded" net asset
value of $1.00 per share, the shareholders will contribute proportionately to
the Money Market Fund's capital. Each shareholder will be deemed to have agreed
to such contribution by an investment in the Money Market Fund.
Since the net income of the Money Market Fund (including realized gains and
losses on the portfolio securities) is determined and declared as a dividend
immediately prior to each time the net asset value of the Money Market Fund is
determined, the net asset value per share of the Money Market Fund normally
remains at $1.00 per share immediately after each such dividend declaration.
Any increase in the value of a shareholder's investment in the Money Market
Fund, representing the reinvestment of dividend income, is reflected by an
increase in the number of shares of the Money Market 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."
YIELD INFORMATION
The Money Market 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 reflects
realized and unrealized gains and losses on portfolio securities. In accordance
with regulations adopted by the Commission, the Money Market Fund is required
to disclose its annualized yield for certain seven-day base periods in a
standardized manner which 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. This compounded yield
calculation also excludes realized and unrealized gains or losses on portfolio
securities.
The yield on the Trust'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 Trust of future yields or rates of return on its shares.
The yield is affected by such factors as changes in interest rates on Treasury
securities, average portfolio maturity, the types and quality of portfolio
securities held and operating expenses. The yield on Trust shares for various
reasons may not be comparable to the yield on shares of other money market
funds or other investments.
TAXES
FEDERAL
Regulated Investment Companies. The following is a general summary of the
treatment of regulated investment companies ("RICs") and their shareholders
under the Code. The Trust intends to continue to qualify the Money Market Fund
for the special tax treatment afforded RICs under the Code. If it so qualifies,
the Money Market Fund 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
participants' Self-Directed Plan accounts. The Trust intends to cause the Money
Market Fund to distribute substantially all of its income.
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As discussed in the Prospectus, the Trust may establish other series in
addition to the Money Market Fund (together with the Money Market Fund, the
"Series"). Each Series of the Trust will be treated as a separate corporation
for Federal income tax purposes. Each Series, therefore, will be considered to
be a separate entity in determining its treatment under the rules for RICs
described in the Prospectus. Losses in one Series do not offset gains in
another Series, and the requirements (other than certain organizational
requirements) for qualifying for RIC status are determined at the Series level
rather than at the Money Market Fund level.
Dividends paid by the Money Market Fund from its 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 ordinarily
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 ordinarily taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Any loss upon the sale or exchange of Fund shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any capital
gain dividends received by the shareholder. Distributions in excess of the
Money Market 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). Dividends of a RIC are ordinarily taxable to
shareholders even though they are reinvested in additional shares of the Fund.
If the value of assets held by the Money Market Fund declines, the Board of
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 eliminated shares would be added to the
basis of shareholders' remaining Money Market Fund shares. In the event of
retirement plan disqualification or for shares held outside of a retirement
plan, distributions, including distributions reinvested in additional shares of
the Money Market Fund, would be fully taxable, even if the number of shares in
shareholders' accounts had been reduced as described above.
Under certain provisions of the Code, some taxpayers may be subject to a 31%
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, participants in the
Self-Directed Plans subject to backup withholding will be those for whom no
certified taxpayer identification number is on file with the Trust or who, to
the Trust's knowledge, have furnished an incorrect number. When establishing an
account, an investor must certify under penalty of perjury that such number is
correct and that such 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. While the Money Market Fund intends to distribute
its 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 the
Fund's taxable income and capital gains will be distributed to avoid entirely
the imposition of the tax. In such event, the Fund will be liable for the tax
only on the amount by which it does not meet the foregoing distribution
requirements.
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Self-Directed Retirement Plans. Investment in the Money Market Fund is
limited to participants in the self-directed retirement plans ("retirement
plans") for which Merrill Lynch acts as passive custodian. Accordingly, the
general description of the tax treatment of RICs as set forth above is
qualified with respect to the special tax treatment afforded retirement plans
under the Code. Under the Code, neither ordinary income dividends nor capital
gain dividends represent current income to shareholders if such shares are held
in a retirement plan. Rather, distributions from a retirement plan will be
taxable as ordinary income at the rate applicable to the participant at the
time of the distribution. Such distributions would include (i) any pre-tax
contributions to the retirement plan (including pre-tax contributions that have
been rolled over from another retirement plan or individual retirement account
("IRA")), and (ii) dividends (whether or not such dividends are classified as
ordinary income or capital gain dividends). In addition to ordinary income tax,
participants may be subject to the imposition of excise taxes on any
distributed amount, including: (i) a 10% excise tax on any amount withdrawn
from a retirement plan prior to the participant's attainment of age 59 1/2; and
(ii) a 15% excise tax on the amount of any "excess distributions" (generally,
amounts in excess of $150,000) made from the retirement plan or any other
qualified retirement plan or IRA annually.
Under certain limited circumstances (for example, if an individual for whose
benefit a retirement plan is established engages in any transaction prohibited
under Section 4975 of the Code with respect to such account), the retirement
plan would cease to be qualified for the special treatment afforded certain
retirement plans under the Code as of the first day of such taxable year that
the transaction causing disqualification occurred. If a retirement plan through
which a shareholder holds Money Market Fund shares becomes ineligible for
special tax treatment, such shareholder will be treated as having received a
distribution on the first day of the taxable year from the retirement plan in
an amount equal to the fair market value of all assets in the account. Thus,
the shareholder would be taxed currently on (i) the amount of any pre-tax
contributions and previously untaxed dividends held within the account, and
(ii) all ordinary income and capital gain dividends paid by the Money Market
Fund subsequent to such event, whether such dividends are received in cash or
reinvested in additional shares. These ordinary income and capital gain
dividends also might be subject to state and local taxes. In the event of
retirement plan disqualification, shareholders also could be subject to the
excise taxes described above. Additionally, retirement plan disqualification
may subject a nonresident alien shareholder to a 30% United States withholding
tax on ordinary income dividends paid by the Fund unless a reduced rate of
withholding or withholding exemption is provided under applicable treaty law.
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.
STATE
Ordinary income and capital gain dividends on RIC shares held in a
disqualified retirement plan or outside of a retirement plan also may be
subject to state and local taxes. Certain states exempt from state income
taxation dividends paid by RICs which are derived from interest on United
States Government obligations. State law varies as to whether dividend income
attributable to United States Government
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obligations is exempt from state income taxation dividends on shares held
within a qualified retirement plan, and commence taxation on such amounts when
actually distributed from the retirement plan.
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 Fund.
EXCHANGE PRIVILEGE
Participants in the Self-Directed Plans (except retirement plans in
association with the Merrill Lynch Blueprint SM Program) who are shareholders
of the Money Market Fund and who have held all or part of their shares for at
least 15 days may exchange their shares of the Money Market Fund for Class D
shares of mutual funds advised by the Manager or FAM described below
(collectively referred to as the "MLAM-advised mutual funds") on the basis
described below. Shares with a net asset value of at least $250 are required
to qualify for the exchange privilege. Certain funds into which exchanges may
be made may impose a redemption fee (not in excess of 2.00% of the amount
redeemed) on shares purchased through the exchange privilege when such shares
are subsequently redeemed, including redemption through subsequent exchanges.
Alternatively, shareholders may exchange shares of the Money Market Fund for
Class A shares of one of the MLAM-advised mutual funds if the shareholder
holds any Class A shares of that fund in his or her account in which the
exchange is made at the time of the exchange or is otherwise an eligible Class
A investor otherwise Class D shares will be automatically purchased. An
eligible Class A investor includes the following: certain employer sponsored
retirement or savings plans, including eligible 401(k) plans, provided such
plans meet the required minimum number of eligible employees or required
amount of assets advised by MLAM or any of its affiliates; corporate warranty
insurance reserve fund programs provided that the program has $3 million or
more initially invested in MLAM-advised mutual funds; participants in certain
investment programs including TMASM Managed Trusts to which Merrill Lynch
Trust Company provides discretionary trustee services and certain purchases
made in connection with the Merrill Lynch Mutual Fund Adviser program; and ML
& Co. and its subsidiaries and their directors and employees and members of
the Board of MLAM-advised investment companies, including the Money Market
Fund.
Shareholders of the Money Market Fund also may exchange shares of the Money
Market Fund into shares of Merrill Lynch Ready Assets Trust, Merrill Lynch
U.S.A. Government Reserves and Merrill Lynch U.S. Treasury Money Fund.
Under the exchange privilege, each of the funds offers to exchange its
shares ("new shares") for shares ("outstanding shares") of any of the other
funds, on the basis of relative net asset value per share, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the outstanding shares and the sales charge payable at the time of the
exchange on the new shares. At the present time, the shares of each of the
funds other than Merrill Lynch U.S.A. Government Reserves are sold with
varying sales charges. With respect to outstanding shares as to which previous
exchanges have taken place, the "sales charge previously paid" shall include
the aggregate of the sales charges paid with respect to such shares in the
initial purchase and any subsequent exchange. Shares issued pursuant to
dividend reinvestment are sold on a no-load
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basis in each of the funds. For purposes of the exchange privilege, dividend
reinvestment shares shall be deemed to have been sold with a sales charge
equal to the sales charge previously paid on the shares on which the dividend
was paid. Based on this formula, an exchange of shares of the Money Market
Fund, which are sold on a no-load basis, for shares of the other funds, which
are sold with a sales charge, will generally require the payment of a sales
charge.
The exchange privilege available to participants in the Merrill Lynch
Blueprint SM Program may be different from that available to other investors.
Shareholders of the Money Market Fund other than participants in the Self-
Directed Plans should consult with Merrill Lynch as to availability of the
exchange privilege.
Before effecting an exchange, shareholders of the Money Market Fund should
obtain a currently effective prospectus of the fund into which the exchange is
to be made. Exercise of the exchange privilege is treated as a sale for
Federal income tax purposes and depending on the circumstances, a short or
long-term capital gain or loss may be realized. In addition, an exchanging
shareholder of any of the funds may be subject to backup withholding unless
such shareholder certifies under penalty of perjury that the taxpayer
identification number on file with any such fund is correct, and that he or
she is not otherwise subject to backup withholding. See "Taxes."
To exercise the exchange privilege, shareholders may either contact their
listed securities dealer, who will advise the Money Market Fund of the
exchange. This exchange privilege may be modified or terminated in accordance
with the rules of the Commission. The Money Market Fund reserves the right to
limit the number of times an investor may exercise the exchange privilege.
Certain funds may suspend the continuous offering of their shares to the
general public at any time and may thereafter resume such offering from time
to time. The exchange privilege is available only to U.S. shareholders in
states where the exchange legally may be made.
GENERAL INFORMATION
DESCRIPTION OF SERIES AND SHARES
The Declaration of Trust provides that the Trust shall comprise separate
Series each of which will consist of a separate portfolio which will issue a
separate class of shares. The Trustees are authorized to create an unlimited
number of Series and, with respect to each Series, to issue an unlimited
number of full and fractional shares of beneficial interest, par value $.10
per share, 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 interests in the Series. All shares have equal voting rights,
except that only shares of the respective Series are entitled to vote on
matters concerning only that Series. Each issued and outstanding share of a
Series is entitled to one
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vote for each full share held and fractional votes on fractional shares in the
election of Trustees (to the extent hereinafter provided) and on other matters
submitted to the vote of Shareholders, and to participate equally in dividends
and distributions declared by such Series and in net assets of such Series upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities.
In the event a Series were unable to meet its obligations, the remaining
Series would assume the unsatisfied obligations of that Series. The shares of
each Series, when issued, will be fully paid and non-assessable, have no
preference, pre-emptive, conversion, exchange or similar rights, and are freely
transferable. Shareholders of the Trust are entitled to redeem their shares as
set forth under "Redemption of Shares" in the Prospectus and "Purchase and
Redemption of Shares" herein. Shares do not have cumulative voting rights and
the holders of more than 50% of the shares of the Trust voting for the election
of Trustees can elect all of the Trustees of the Trust if they choose to do so,
and in such event the holders of the remaining shares would not be able to
elect any Trustees. No amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding shares of the
Trust. At the date of this Statement of Additional Information, the Money
Market Fund is the only Series of the Trust.
CUSTODIAN
The Bank of New York, (the "Custodian"), 90 Washington Street, 12th Floor,
New York, New York 10286, acts as Custodian of the Money Market Fund's assets.
The Custodian is responsible for safeguarding and controlling the Money Market
Fund's cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the Money Market Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services (the "Transfer Agent"), Inc., 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484, a subsidiary of ML & Co.,
acts as the Money Market Fund's Transfer Agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the
opening, maintenance and servicing of shareholder accounts.
INDEPENDENT AUDITORS
Deloitte & Touche llp, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Trust. The selection of
independent auditors is subject to ratification by the shareholders of the
Trust. The independent auditors are responsible for auditing the annual
financial statements of the Money Market Fund.
LEGAL COUNSEL
Brown & Wood LLP, one World Trade Center, New York, New York 10048-0557, is
counsel for the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of the Money Market Fund ends on October 31 of each year. The
Money Market Fund sends to its shareholders at least semi-annually reports
showing the Money Market Fund's portfolio and other information. An annual
report, containing financial statements audited by independent auditors, is
sent to shareholders each year.
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ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all of the information set forth in the Registration Statement and the exhibits
relating thereto, which the Money Market Fund has filed with the Commission,
Washington, D.C. 20549, under the Securities Act and the Investment Company
Act, to which reference is hereby made.
To the knowledge of the Trust, no person or entity owned beneficially 5% or
more of the Money Market Fund's shares on February 1, 1997.
----------------
The Declaration of Trust establishing the Trust, dated July 15, 1986, a copy
of which, together with all amendments thereto (the "Declaration"), is on file
in the office of the Secretary of the Commonwealth of Massachusetts, provides
that the name "Merrill Lynch Retirement Series Trust" refers to the Trustees
under the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim of said Trust
but the "Trust Property" (as defined in the Declaration) only shall be liable.
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APPENDIX A
DESCRIPTION OF THE SELF-DIRECTED PLANS
This Appendix describes in summary form the various types of self-directed
retirement plans for which Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") acts as passive custodian (the "Self-Directed Plans"). This
description does not purport to be complete, and it should be read in
conjunction with the materials concerning the Self-Directed Plans, including
copies of the Plans and the forms necessary to establish a plan, which are
available from Merrill Lynch. Investors should read such materials carefully
before establishing a Self-Directed Plan and should consult with their
attorney or tax adviser to determine if any of the Self-Directed Plans are
suited to their needs and circumstances. The laws applicable to the Self-
Directed Plans, including the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and the Internal Revenue Code of 1986, as amended (the
"Code") are complex and include a variety of transitional rules which may be
applicable to some investors. These laws should be reviewed by investors'
attorneys to determine their applicability. Investors are further advised that
the discussion of taxation contained in this Appendix relates solely to
federal tax laws but generally does not address the numerous transitional
rules and that the tax treatment of the Self-Directed Plans under applicable
state law may vary.
There are seven types of Self-Directed Plans available: the individual
retirement account ("IRA"); the individual retirement rollover account
("IRRA"), the simplified employee pension plan ("SEP Plus (R)"); the Basic (SM)
(Keogh Plus) profit sharing plan; the Basic (SM) (Keogh Plus) money purchase
pension plan (together with the profit sharing plan, the "Basic (SM) Plans");
the 403(b)(7) Retirement Selector Account ("RSA") and the corporate Self-
Directed account of the Merrill Lynch Blueprint (SM) Program. Specific
information with respect to certain requirements and limitations for each
Self-Directed Plan is described in greater detail below. See "Types of Self-
Directed Plans."
ESTABLISHMENT OF A SELF-DIRECTED PLAN ACCOUNT
Self-Directed Plan accounts may be established by qualified individuals and
businesses through Merrill Lynch.
Generally, Self-Directed Plans afford participants the opportunity to take a
tax deduction, up to the maximum amount permitted under the Code for the
particular Self-Directed Plan, for amounts contributed to the Plan. Each Self-
Directed Plan is "self-directed;" that is, each participant is responsible for
making investment decisions concerning the funds contributed to his Self-
Directed Plan.
Merrill Lynch charges an annual custodial fee for each account established
pursuant to the Self-Directed Plans. These fees, which are contained in the
Self-Directed Plan documents, vary according to the type of account. Brokerage
fees will be assessed separately for each transaction to which they apply.
Shares of the Trust are also offered to participants in various retirement
plans in association with the Merrill Lynch Blueprint (SM) Program. Most
contributions to such plans are made through payroll deductions. In addition
to investing in the Money Market Fund, participants in such plans may invest
in other mutual funds associated with the Merrill Lynch organization or
various other types of securities. If participants elect to have their
contributions invested in the Money Market Fund, the contributions will be
invested automatically on the business day following the date they are
received in the account. There will be no
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minimum initial or subsequent purchase requirement pursuant to these types of
plans. Cash balances of less than $1.00 will not be invested.
PERMISSIBLE SELF-DIRECTED PLAN INVESTMENTS
The type of investments that may be made depends on the type of Self-
Directed Plan established.
Participants and employers that maintain IRAs, IRRAs, Basic SM Plans,
SEPs(R) or retirement plans in association with the Merrill Lynch Blueprint SM
Program may invest in securities through Merrill Lynch or its affiliates,
including stocks traded "over-the-counter" or on a recognized exchange,
government or corporate debt obligations, certain mutual funds, certain
limited partnership interests in real estate, and bank money instruments.
Participants and employers may also invest in annuity contracts issued by a
life insurance company (including Merrill Lynch Life Insurance Company and
Merrill Lynch Life Insurance Company of New York), and, in the case of Basic
Plan participants only, life insurance contracts. Participants and employers
that maintain RSAs are restricted to investing in mutual funds. Those
participants and employers desiring a diversified portfolio but not wishing to
actively manage the portfolio may elect to invest all or a portion of their
account in certain mutual funds advised by Merrill Lynch Asset Management (the
"Manager") or its subsidiary. Participants and employers may vary their
investment portfolio as often as they wish.
Cash balances arise in a Self-Directed Plan account from contributions to
the Plan, the sale of securities held in the account and the receipt of
dividends, interest and principal repayments on securities held in the
account. Cash balances for which no other investment directions are given
will, in accordance with the option previously selected by the participant or
employer, be invested in full shares of the Money Market Fund or another money
market fund advised by the Manager, deposited in an Insured Investment
Account, an FDIC insured interest-bearing account with a Merrill Lynch Bank
and Trust Company, or maintained uninvested in the Self-Directed Plan account.
If such amounts are not invested, no return will be earned. All cash balances
will be invested or maintained in accordance with the option selected by the
participant or employer, pending instructions as to further investment.
Based upon performance of money market funds generally over the last several
years, the yield on amounts invested in the Money Market Fund may be greater
at times than the yield on amounts deposited in the interest-bearing account.
There can be no assurance, however, that the yield on an investment in the
Money Market Fund will be or will remain greater than that available on such
interest-bearing account. In addition, the Money Market Fund is not a bank,
and shares of the Money Market Fund are not equivalent to a bank account. As
with any investment in securities, the value of an investment in the Money
Market Fund will fluctuate. Amounts deposited in the interest-bearing account
will be insured as to principal in an amount of up to $100,000 per account by
the Federal Deposit Insurance Corporation. Cash balances maintained in a Self-
Directed Plan account will be insured, up to $100,000, by the Securities
Investor Protection Corporation.
CONTRIBUTIONS AND DISTRIBUTIONS
The amount which may be contributed to a Self-Directed Plan in any one year
is subject to certain limitations under the Code; however, assets already in a
Self-Directed Plan account may be invested without regard to such limitations
on contributions. With the exception of contributions made on behalf of
employees
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by employers under the Basic (SM) Plans, and employer contributions to a SEP,
RSA or 401(k) plan in association with the Merrill Lynch Blueprint (SM) Program
(as discussed herein), a Self-Directed Plan participant may deduct from his
annual gross income, up to the maximum permitted under the Code, amounts
contributed to his Self-Directed Plan. These amounts, plus any additional
income earned on such contributions, will ordinarily not be taxed until
distributed to the participant.
Generally, under the Code, distributions may be made at any time but, as
discussed below, distributions made prior to the date on which the participant
reaches age 59 1/2 may be subject to a penalty and may be subject to mandatory
federal income tax withholding at a 20 percent rate (as described below).
Distributions will be taxed as ordinary income at the rate applicable to the
participant in the year in which distributed.
Excess Contributions. Contributions to an IRA, IRRA or SEP in excess of
those allowed by law are subject to a six percent excise tax if not withdrawn,
together with additional income attributable to such excess contributions,
prior to the date the participant files his income tax return for the year in
which the excess contribution was made. If an excess amount is contributed in
one year and is not eliminated in later years, the excess amount will be
subject to a cumulative six percent excise tax each year until it is
eliminated. Elimination of the excess may be accomplished either by reducing
the contribution (and deduction) for a succeeding year, or by withdrawal of
the excess amount plus the income attributable to it. Such income will be
considered a premature distribution subject to the ten percent penalty tax on
premature distributions discussed below, and will additionally be taxable as
ordinary income at the applicable rate for the year in which it is
distributed. Contributions to a Basic Plan (SM), RSA or a 401(k) plan in
association with the Merrill Lynch Blueprint (SM) Program are not subject to the
six percent excise tax, but premature distributions from these plans under the
Code are generally subject to the ten percent penalty.
Timing of Retirement Benefits. Generally, a participant, upon reaching age
59 1/2, may make such distributions from his Self-Directed Plan account as he
chooses without tax penalties. Generally, the Code requires that amounts in
all Self-Directed Plans must commence to be distributed to a participant on or
before April 1 of the calendar year following the calendar year in which he
reaches age 70 1/2, even if the employee has not retired.
Such distributions may be made in a lump sum or installments over the life
of the participant, or the joint lives of the participant and a designated
beneficiary, or over a period not to exceed the life expectancy (determined,
generally, by IRS life expectancy tables) of the participant or the joint life
expectancy of the participant and designated beneficiary. If the employee dies
before his entire interest has been distributed, the remaining portion of his
interest must be distributed at least as rapidly as the method of distribution
in effect prior to his death. Special rules apply under the Code to spousal
beneficiaries.
If the minimum payout required from a Self-Directed Plan for a particular
year is not made, a 50 percent excise tax will be imposed on the amount
representing the difference between the minimum payout required from the Self-
Directed Plan, and the amount actually distributed, under Section 4974 of the
Code.
Treatment of Lump Sum Distributions and Annuities. The recipient of a "lump
sum distribution" (generally a distribution or payment within one taxable year
to the recipient of the balance to the credit of the employee on account of
the employee's death, attainment of age 59 1/2, disability or separation from
service
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(except in the case of a self-employed individual)) from a qualified
retirement plan (including Basic (SM) Plans, RSA and 401(k) plans but not IRAs
or SEPs) may compute his tax liability using the five-year averaging tax
computation, subject to certain requirements. The total taxable amount of a
lump sum distribution is the part that is the employer's contribution and
income earned on the account. Generally, the part of the distribution that
consists of the employee's contributions (other than deductible voluntary
employee contributions), the actuarial value of any annuity contract
distributed and the net unrealized appreciation in employer's securities
distributed (until such securities are sold or otherwise disposed of in a
taxable transaction), together with the death benefit exclusion, if
applicable, is not taxed. Employee contributions should be reduced by any
amounts previously distributed that were included in gross income because they
were a return of employer contributions. If annuity payments are made from
qualified retirement plans after January 1, 1986, under Section 72(b) of the
Code a portion of the annuity payments received annually by recipients may be
excluded from income as a return of the recipient's investment. This
"exclusion ratio" is the employee's investment in the contract over the
expected return. For annuity starting dates commencing after 1986, this
exclusion ratio is applied to only a limited number of annuity payments, and
the excludable amount is limited to the employee's total investment. If an
annuitant dies before the entire investment has been recovered, the
unrecovered investment is deductible on the individual's final income tax
return. No income averaging methods apply to distributions from IRAs, IRRAs,
SEPs or RSAs.
Excise Tax on Large Distributions. To limit the total tax-deferred benefits
any individual can receive annually, Section 4980A of the Code imposes a 15
percent excise tax on certain "excess distributions" from qualified retirement
plans. All distributions from qualified retirement plans including Basics (SM)
Plans, 401(k) plans, tax-sheltered annuities, RSAs, IRAs and SEPs made within
one year are aggregated for this purpose. Total benefits paid in a year
exceeding the greater of $112,500, indexed for inflation ($155,000 for 1996),
or $150,000 (unindexed) are subject to the tax to the extent of the excess.
For lump sum distributions eligible to be taxed under the five-year averaging
provisions, the penalty will be applied separately with respect to the lump
sum distribution and other retirement distributions. The penalty will be
applied on the portion of the lump sum distribution which exceeds five times
the otherwise applicable limit for the year.
Unless an election is made by a spouse, distributions made to beneficiaries
after the death of an individual are disregarded for purposes of applying this
tax; instead, an additional estate tax may be payable. The penalty tax on
excess distributions is reduced by any excise tax on early withdrawals.
Benefits accrued before August 1, 1986 may have been grandfathered and may
not be subject to the excise tax.
Premature Distributions. 1. Excise Tax: Distributions from an IRA, IRRA,
RSA, SEP or qualified retirement plan (including Basic (SM) Plans and 401(k)
plans) prior to the time the participant reaches age 59 1/2 generally are
subject to penalty unless the participant has died or has become disabled
(within the meaning of Code Section 72(m)(7)). The penalty for early
distributions is an excise tax equivalent to ten percent of the amount so
distributed, in addition to the applicable ordinary income tax payable on such
amount for the year in which it is distributed. The tax will be waived for any
distribution that is part of a scheduled series of substantially level
payments under an annuity for the life or life expectancy of the taxpayer or
the joint lives of the taxpayer and his designated beneficiary. Distributions
can also be made, without penalty, to cover deductible medical expenses, for
certain payments in a divorce settlement, or to an employee who is age 55 or
older, has separated from service, and has satisfied the requirements of the
employer's plan for early
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retirement (if the plan permits such payments). In certain cases, the penalty
will not be waived if the distribution is from an IRA or retirement annuity. A
premature distribution of an employee's contribution from a 401(k) plan or RSA
may be permitted without penalty in the event of hardship, termination of the
plan or a sale of the employer's business. The penalty is also not waived for
distributions from a qualified retirement plan, if the employee is a more than
five percent owner or has been a more than five-percent owner at any time
during the five plan years preceding the plan year ending in the tax year in
which the amount is received. A five percent owner is a person who, in the case
of a corporate employer, actually or constructively owns more than five percent
of the outstanding stock of the employer or stock possessing more than five
percent of the total combined voting power of all stock of the employer, or
who, in the case of a non-corporate employer, owns more than five percent of
the capital or profits interest in the employer. A rollover will avoid
imposition of the excise tax. However, for distributions prior to 1993, the
Code restricts the rollover of partial distributions to distributions received
on account of an employee's separation from service, death or disability.
2. Mandatory Income Tax Withholding: Generally, any portion of an "eligible
rollover distribution" made from a qualified retirement plan after December 31,
1992 qualifies for tax-free rollover into an eligible retirement plan under
Section 402(c) of the Code. Under Section 402(c), as amended, all distributions
from a qualified retirement plan (including in-service distributions) are
eligible rollover distributions, except for certain periodic payments, required
amounts distributed to a participant who is over age 70 1/2 as described above,
and amounts otherwise not includible in gross income. Rollovers may be made by
the participant in one of two ways: first, by direct transfers from the
qualified retirement plan to an IRA (including an individual retirement annuity
other than an endowment contract), a qualified defined contribution plan or an
annuity under Section 403(a) of the Code (a "direct rollover") or, in the case
of the RSA plan to another 403(b) plan, a tax sheltered annuity; or second, by
rolling over an eligible rollover distribution within 60 days of receipt to any
of the arrangements described above. In the event a direct rollover is not
chosen by the participant, a mandatory 20 percent of the distribution is
withheld to satisfy any federal tax liability that may be assessed. The
mandatory 20 percent withholding tax is not assessed against any distributions
that may not be rolled over (including, but not limited to, distributions to
beneficiaries other than a surviving spouse, or a present or former spouse
under a qualified domestic relations order).
Participants should consult with their attorneys or tax advisers in order to
determine the application of the new rollover and mandatory withholding
requirements to their own circumstances.
The foregoing rules are of general applicability to the Self-Directed Plans.
The following section discusses specific considerations applicable to the
different types of Self-Directed Plans.
TYPES OF SELF-DIRECTED PLANS
Individual Retirement Accounts. As a result of changes made by the Tax Reform
Act of 1986, the allowable deductions for contributions to IRAs are restricted
for certain taxpayers who are (or their spouses are) active participants in
employer-sponsored retirement plans and whose adjusted gross income exceeds
certain levels. An individual will be considered an active participant in a
defined contribution plan if any employer contribution or forfeiture is added
to his account for the year. In the case of a defined benefit plan, an
individual will be considered an active participant if he is not excluded under
the eligibility rules for the
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year. The determination of whether an individual is an active participant is
made without regard to whether the individual's rights under a plan are vested.
If an unmarried taxpayer, or either spouse in the case of married taxpayers, is
an "active participant" in an employer-sponsored retirement plan, deductible
contributions are permitted subject to a pro rata phase-out rule where adjusted
gross income (before the IRA deduction) is over $40,000 on a joint return or
$25,000 for an unmarried individual. The allowable deduction is completely
eliminated for such taxpayers when adjusted gross income (before the IRA
deduction) reaches $50,000 on a joint return or $35,000 for an unmarried
person. For this purpose, an employer-sponsored retirement plan means a
pension, profit-sharing or stock bonus plan qualified under Code section 401(a)
(including a Keogh plan or 401(k) plan), an annuity plan qualified under
Section 403(a), a SEP, a tax-sheltered Code section 403(b) annuity and
retirement plans covering federal, state or local government employees. A
minimum deductible contribution of $200 is provided for any taxpayer whose
adjusted gross income is not above the phase-out range even if the phase-out
rules would provide for a lower deduction.
Subject to the above limitations, any individual with compensation may
establish an IRA. Generally, the maximum yearly tax deduction that may be taken
for an IRA contribution is the lesser of $2,000 or 100% of the individual's
compensation. If a husband and wife are both employed, they may take a
deduction of up to $4,000 on a joint return. If only one spouse is employed, a
separate IRA, called a "spousal IRA," may be established for the benefit of the
non-working spouse or a spouse that elects to be treated as having no
compensation for the year. The deduction for a spousal IRA may only be taken if
a joint return is filed, and the maximum contribution and aggregate deduction
for the two IRAs for any year is $2,250. Allocations may be made between the
two accounts in any manner so long as no more than $2,000 is contributed to
either of the accounts. No deduction for IRA contributions may be made for or
after the tax year in which a participant reaches age 70 1/2. In addition, no
deduction will be allowed for amounts paid to an "inherited IRA" (i.e., an IRA
acquired on account of the death of another individual other than by the
surviving spouse of the original owner).
Active participants in employer-sponsored plans who are not eligible to make
deductible contributions to IRAs (or whose deductions are limited) may make
nondeductible contributions to a separate account. The nondeductible
contribution is subject to the same dollar limitations ($2,000 or 100% of
compensation) as deductible contributions described above. Income in the
separate account will accumulate tax-free until distributed; however, only the
account earnings will be included in taxable income upon distribution.
The Self-Directed IRA program allows for the establishment of IRRAs, which
are "rollover IRAs". Prior to 1993, a rollover IRA could have only been
established with a distribution received from a qualified employer-sponsored
pension plan that was of an amount equal to at least 50% of the balance to the
credit of the employee in the plan; after December 31, 1992, this 50%
requirement no longer applies. This distribution would ordinarily be subject to
income tax; however, tax may be deferred to the extent that all or part of the
rollover amount, less any voluntary contributions made to the employer-
sponsored plan, is put into an IRA within 60 days of receiving the
distribution. With respect to a distribution of less than the entire balance to
the credit of the employee in the plan prior to 1993 (a "partial rollover"),
the distribution was eligible for rollover treatment only if the distribution
was made on account of the employee's death, separation from service or
disability and was not one of a series of periodic payments and the employee
elected, in a manner to be prescribed by regulations, to have rollover
treatment apply to such distribution. However, as described above, effective
for rollovers made after December 31, 1992, the limitations described with
respect to partial
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rollovers have been eliminated, and new mandatory federal income tax
withholding requirements have been imposed for any rollover that is not a
direct rollover. The amounts in a rollover IRA are taxed only upon
distribution, as with other IRAs. However, tax-free rollover treatment will be
denied for amounts received from an "inherited IRA."
Simplified Employee Pension Plans. A SEP is essentially a collection of IRA
accounts established by employers for their employees, and any employer,
whether it is a sole proprietorship, a partnership or a corporation, may set
up a SEP. To qualify as a SEP, certain requirements must be met; in
particular, the plan must cover all current employees age 21 years or older
who have worked for the business in three of the last five calendar years and
have received at least $400 in compensation from the employer. Up to $22,500
or 15% of the employee's compensation up to $150,000 (effective for plan years
beginning after December 31, 1994), subject to inflation adjustments may be
paid by the employer to the employee's SEP. The same percentage of
compensation (determined under a written formula) must be contributed on
behalf of each employee. Such contributions are deductible by the employer and
excluded from the employee's income. In addition, elective salary deferrals
may be made by a participant in the SEP Plus (R) Plan. The tax-free elective
deferral of an employee's income for a taxable year cannot exceed $7,000, as
adjusted for inflation (currently, $9,500 in 1996). This cap limits all tax-
free elective deferrals by an employee under all cash and deferred
arrangements, SEPs and tax sheltered annuities.
Because the SEP is also an IRA, the employee may, if otherwise eligible
under the rules applicable to IRAs discussed above, make up to a $2,000
contribution to the SEP or make rollover contributions (see "Individual
Retirement Accounts" above). Amounts contributed to a participant's SEP
account vest immediately. If the participant should cease to be employed by
the business maintaining the SEP, the participant retains full rights to and
investment power over the account. In such case, the account should be changed
to a regular IRA so that the participant may make additional permissible
contributions.
Tax-deductible employer contributions may continue to be made to a SEP
participant's account even after he has reached age 70 1/2.
Basic (SM) Plans. The Basic (SM) Plan provides a format under which a profit-
sharing plan or a money purchase pension plan may be established either by a
corporation for its employees or by a self-employed individual or partnership
as a "Keogh" plan. A Keogh plan is a self-employed retirement plan established
by a self-employed individual or other non-corporate employer for the
exclusive benefit of employees and their beneficiaries. For Keogh plan
purposes, "employer" takes on a special meaning. A sole proprietor (i.e., a
self-employed individual who owns the entire interest in an unincorporated
trade or business), an independent contractor, or an individual in business
for himself is self-employed and is his own employer. A partnership is treated
as the employer of each partner who earns income from the performance of
services for the partnership. Silent partners who put up capital but do not
work in the business may not be included in a Keogh plan. Under the money
purchase pension plan, regular, set contributions must be made for each
employee each year. Under the profit-sharing plan, contributions are keyed to
the existence of profits and should be made on a regular basis to ensure that
the Basic (SM) Plan maintains its qualified status.
Generally, all employees who are at least 21 years of age and have worked
for the employer (whether corporate or non-corporate) for at least two years
must be covered under the terms of the Basic (SM) Plan. Contributions under a
Basic (SM) Plan are usually required to be allocated among those who are
participants on
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the last day of a plan year. For this purpose, the Basic (SM) Plan provides
several options to define the compensation that will be included in
determining contributions under the Basic (SM) Plan. Contributions under the
Basic (SM) Plan are fully vested when made.
Top-Heavy Plan Requirements. The Code imposes special rules with respect to
qualified plans that are considered to be "top-heavy" plans (individual
retirement plans are not subject to the Code's rules relating to "top-heavy"
plans). A defined contribution plan, such as the Basic Plan, is considered to
be "top-heavy" where the account balances of "key employees" exceed 60% of the
account balances of all employees. "Key employees" include all employees who,
at any time during the plan year or the four preceding plan years (1) are
officers having annual compensation of more than $45,000, as adjusted for
inflation, (2) are one of the ten employees with annual compensation of more
than $30,000 that actually or constructively own the largest interests in the
employer, (3) are "five-percent owners," or (4) own more than a one percent
interest in the employer and have annual compensation in excess of $150,000.
The account balance of an individual that has not received compensation as an
employee during the five preceding plan years is not taken into account.
When a plan favoring key employees is determined to be "top-heavy," its
continued qualification under the Code depends on its compliance with certain
requirements, which (1) limit the amount of a participant's compensation that
may be taken into account, (2) provide stringent vesting schedules, (3)
provide minimum contributions or benefits for non-key employees, and (4)
reduce the aggregate limit on benefits and contributions for certain key
employees who participate in both a defined benefit plan and a defined
contribution plan. Even if a Basic (SM) Plan were determined to be "top-heavy,"
it would continue to maintain its qualification under the Code because the
provisions of the Plan relating to the above limitations have been designed to
comply with such limitations, whether or not the Basic (SM) Plan is found to be
"top-heavy."
For a SEP Plus (R) Plan which is top-heavy (either because it was deemed to
be top-heavy as of the adoption of the plan or as determined through annual
testing prescribed by the Code) the employer may preserve the plan's
qualification by making a contribution on behalf of each non-key employee of
the lesser of: (1) 3% of each such non-key employee's compensation, or (2) the
highest contribution percentage rate for any key employee under the plan.
Retirement Plans in Association with the Merrill Lynch Blueprint (SM)
Program. The Merrill Lynch Blueprint (SM) Program is available to participants
in a cash or deferred plan (commonly known as a "401(k) plan") and to
participants in IRAs in which contributions are made through payroll
deductions.
A 401(k) plan is a cash or deferred arrangement that allows an employee to
choose whether the employer will pay a certain amount directly to the employee
in cash or to a qualified profit-sharing plan or a stock bonus plan on behalf
of such employee. The tax-free elective deferral of an employee's income for a
taxable year cannot exceed $7,000, as adjusted for inflation (currently,
$9,500 in 1996). This cap limits all tax-free elective deferrals by an
employee under all cash and deferred arrangements, SEPs and tax sheltered
annuities. The employer may make "non-elective" contributions directly into
the plan on the employee's behalf. These contributions must meet special non-
discrimination tests. Generally, participants in a 401(k) plan in association
with the Merrill Lynch Blueprint (SM) Program are treated in the same manner as
participants in other qualified retirement plans.
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Participants in IRA plans which are maintained in association with the
Merrill Lynch Blueprint (SM) Program are generally treated for contribution and
distribution purposes in the same manner as other IRA participants, as
discussed above.
Each of the foregoing Self-Directed Plans is designed to meet differing
needs and has varying financial and tax consequences. An investor should
thoroughly review all of the materials available from Merrill Lynch concerning
the Self-Directed Plans and consult with his attorney or tax adviser in
determining whether any of these Plans is suited to his needs and
circumstances.
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APPENDIX B
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 Corporation ("S&P"). Issues within this category are further
refined with designations 1, 2 and 3 to indicate the relative degree of safety;
A-1, the highest of the three, indicates the degree of safety is either
overwhelming or very strong; A-2 indicates that capacity for timely repayment
is strong.
Moody's Investors Service ("Moody's") employs the designations of Prime-1,
Prime-2 and Prime-3 to indicate the relative capacity of the rated issuers to
repay punctually. Prime-1 issues have a superior capacity for repayment. Prime-
2 issues have a strong capacity for repayment, but to a lesser degree than
Prime-1.
Short-term obligations, including commercial paper, rated A1+ by IBCA Limited
or its affiliate IBCA Inc. (together, "IBCA") are obligations supported by the
highest capacity for timely repayment. Obligations rated A1 have a very strong
capacity for timely repayment. Obligations rated A2 have a strong capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
Fitch Investors Service, Inc. ("Fitch") employs the rating F-1+ to indicate
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+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.
Duff & Phelps Inc. ("Duff & Phelps") employs the designation of Duff 1 with
respect to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: short-term liquidity is
clearly outstanding, and safety is just below risk-free U.S. Treasury short-
term obligations. Duff 1- indicates high certainty of timely payment. Duff 2
indicates good certainty of timely payment: liquidity factors and company
fundamentals are sound.
CORPORATE BONDS
Bonds rated AAA have the highest rating assigned by S&P to a debt obligation.
Capacity to pay interest and repay principal is extremely strong. Bonds rated
AA have a very strong capacity to pay interest and repay principal and differ
from the highest rated issues only in a small degree.
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 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 B in its corporate bond rating system. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category;
28
<PAGE>
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 IBCA are obligations for which there is the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk significantly.
Bonds rated AA are obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk, albeit not very significantly.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated AAA by Duff & Phelps are deemed to be of the highest credit
quality: the risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt. AA indicates high credit quality: protection
factors are strong, and risk is modest but may vary slightly from time to time
because of economic conditions.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Retirement Reserves Money Fund of
Merrill Lynch Retirement Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Retirement Reserves Money Fund of
Merrill Lynch Retirement Series Trust as of October 31, 1996, the related
statements of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Retirement Reserves Money Fund of Merrill Lynch Retirement Series Trust as of
October 31, 1996, the results of its operations, the changes in its net assets,
and the financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 3, 1996
30
<PAGE>
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Bank Notes--3.6%
Bank One, Dayton $ 60,000 5.32++ % 1/30/97 $ 59,993
Colorado National 90,000 5.345++ 2/19/97 89,997
Bank of Denver 10,000 5.345++ 5/21/97 9,999
First Bank of 75,000 5.33 12/09/96 75,001
South Dakota, N.A.
First Bank, N.A., 50,000 5.325++ 11/20/96 50,000
Minneapolis 50,000 5.325++ 12/18/96 49,998
Total Bank Notes (Cost--$334,988) 334,988
Certificates of Deposit--1.9%
Chase Manhattan 29,000 5.85 1/08/97 29,018
Bank 50,000 5.75 2/03/97 50,030
50,000 5.60 4/01/97 50,014
Morgan Guaranty 50,000 5.90 9/30/97 50,146
Trust Company
Total Certificates of Deposit (Cost--$179,089) 179,208
Certificates of Deposit--European--2.7%
ABN-AMRO 20,000 5.51 4/15/97 19,999
Bank NV
Abbey National 50,000 5.51 4/15/97 49,997
Treasury Services PLC
Australia and New 60,000 5.62 4/02/97 60,021
Zealand Banking
Group Ltd.
Bank of Scotland 45,000 5.63 3/27/97 45,022
25,000 5.65 4/03/97 25,012
Bankers Trust 50,000 5.40 1/21/97 49,997
Company
Total Certificates of Deposit--European
(Cost--$250,011) 250,048
Certificates of Deposit--Yankee--2.9%
Bank of Nova Scotia 25,000 5.51 4/15/97 25,002
(The), NY
Bayerische 25,000 5.46 11/27/96 24,998
Hypotheken-und- 25,000 5.80 3/06/97 25,023
Wechsel Bank, NY
Bayerische 25,000 5.45 11/29/96 24,998
Landesbank
Girozentrale, NY
Bayerische 75,000 5.49 11/13/96 74,997
Vereinsbank AG, NY
Hongkongbank, NY 100,000 5.40 11/05/96 99,998
Total Certificates of Deposit--Yankee
(Cost--$275,004) 275,016
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper--32.3%
ABN-AMRO North $ 42,000 5.30 % 11/07/96 $ 41,955
America Finance Inc.
Abbey National 200,000 5.45 3/26/97 195,669
N.A. Corp.
Allomon Funding 10,132 5.30 11/04/96 10,126
Corporation 16,071 5.27 11/15/96 16,036
18,000 5.27 11/21/96 17,945
Alpine 44,167 5.27 11/14/96 44,076
Securitization 70,000 5.27 11/15/96 69,846
Corporation
Bear Stearns 25,000 5.32 11/08/96 24,970
Companies, Inc.
Beta Finance Inc. 12,000 5.64 1/10/97 11,874
6,250 5.64 1/13/97 6,182
12,500 5.50 3/18/97 12,244
50,000 5.45 3/24/97 48,932
CSW Credit, Inc. 13,338 5.27 11/19/96 13,301
29,600 5.27 11/26/96 29,487
Caisse 47,000 5.515 12/11/96 46,713
d'Amortissement 54,400 5.50 12/24/96 53,968
de la Dette 13,000 5.40 2/20/97 12,784
Sociale 60,000 5.46 3/03/97 58,905
50,000 5.66 3/10/97 49,036
Chase Manhattan 29,000 5.68 1/09/97 28,700
Corporation
Clipper Receivables 25,000 5.27 11/20/96 24,927
Corp. 9,114 5.27 11/22/96 9,085
Eiger Capital Corp. 24,014 5.26 11/22/96 23,937
Eksportfinans A/S 32,000 5.30 11/29/96 31,862
Eureka 25,000 5.31 11/12/96 24,956
Securitization Inc.
Falcon Asset 24,825 5.47 11/04/96 24,810
Securitization Corp.
Ford Credit 50,000 5.51 3/24/97 48,932
Europe PLC
Ford Motor 50,000 5.46 11/01/96 49,993
Credit Company 100,000 5.35 2/03/97 98,594
50,000 5.48 3/24/97 48,932
General Electric 50,000 5.50 3/03/97 49,088
Capital Corp.
General Motors 40,000 5.54 11/04/96 39,976
Acceptance Corp. 25,000 5.34 11/07/96 24,973
50,000 5.35 1/28/97 49,342
31
<PAGE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (concluded)
Goldman Sachs $ 60,000 5.30 % 11/06/96 $ 59,947
Group, L.P. 75,000 5.68 1/06/97 74,257
25,000 5.36 4/24/97 24,351
Greenwich 150,000 5.27 11/15/96 149,671
Funding Corp.
Internationale 50,000 5.35 4/14/97 48,776
Nederlanden (US)
Funding Corp.
International 27,176 5.27 11/20/96 27,096
Securitization Corp.
Korea Development 50,000 5.37 11/06/96 49,954
Bank 30,000 5.34 11/08/96 29,964
19,000 5.35 1/15/97 18,787
Mont Blanc 23,255 5.26 11/18/96 23,194
Capital Corp. 51,745 5.27 11/20/96 51,594
Monte Rosa 19,109 5.27 11/07/96 19,089
Capital Corp. 50,000 5.26 11/15/96 49,890
23,022 5.26 11/18/96 22,961
Morgan Stanley 170,000 5.60 11/01/96 169,974
Group, Inc.
New Center 25,000 5.52 12/06/96 24,866
Asset Trust 53,000 5.43 1/29/97 52,295
35,000 5.40 2/07/97 34,487
25,000 5.43 2/14/97 24,608
50,000 5.50 2/25/97 49,134
75,000 5.62 3/10/97 73,554
50,000 5.49 3/21/97 48,954
125,000 5.46 3/24/97 122,330
Old Line Funding 25,115 5.29 12/06/96 24,982
Corp. 17,000 5.29 12/12/96 16,895
9,000 5.29 12/16/96 8,939
Smith Barney Inc. 50,000 5.27 12/02/96 49,766
Sweden, Kingdom of 50,000 5.295 11/22/96 49,834
40,000 5.58 11/27/96 39,839
Western Australia 23,000 5.53 1/24/97 22,711
Treasury Corp.
Westpac Capital Corp. 25,000 5.51 12/16/96 24,829
24,200 5.50 12/30/96 23,986
Windmill Funding 15,413 5.27 11/04/96 15,404
Corp. 43,175 5.30 11/05/96 43,143
6,515 5.35 11/05/96 6,510
50,186 5.27 11/22/96 50,024
27,381 5.27 11/25/96 27,281
25,000 5.28 11/25/96 24,908
Total Commercial Paper (Cost--$3,020,279) 3,020,940
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Corporate Notes--11.0%
Abbey National $ 150,000 5.262 % 5/16/97 $ 149,917
Treasury Services
PLC
Asset Backed 91,000 5.375++ 10/15/97 91,000
Securities Investment
Trust (1996-M)
CIT Group 40,000 5.42 11/14/96 40,001
Holdings, Inc. (The) 30,000 5.30 2/06/97 29,994
85,000 5.36++ 10/27/97 85,000
Ford Motor Credit
Co. 57,000 5.68 5/27/97 57,068
KeyBank National 30,000 5.299++ 8/21/97 29,983
Association
PHH Corp. 100,000 5.336 1/23/97 99,993
25,000 5.326 2/10/97 24,997
25,000 5.315 3/25/97 24,996
25,000 5.42 6/12/97 24,990
65,000 5.406 9/03/97 64,979
SMM Trust 150,000 5.383++ 1/08/97 150,000
Certificate (1995-Q)
Short Term Card 150,000 5.393++ 1/15/97 150,000
Account Trust (1995-1)
Total Corporate Notes
(Cost--$1,022,852) 1,022,918
Funding Agreements--0.9%
Jackson National 80,000 5.45++ 4/08/97 80,000
Life Insurance Co.
Total Funding Agreements
(Cost--$80,000) 80,000
Master Notes--2.2%
Goldman Sachs 175,000 5.36++ 11/08/96 175,000
Group, L.P. 34,000 5.36++ 5/01/97 34,000
Total Master Notes (Cost--$209,000) 209,000
US Government, Agency & Instrumentality
Obligations--Discount Notes--4.0%
Federal Home 75,000 5.425 3/07/97 73,616
Loan Banks 26,000 5.40 3/12/97 25,501
33,000 5.44 3/13/97 32,362
10,300 5.44 3/17/97 10,095
14,000 5.40 3/24/97 13,707
Federal National 25,000 5.46 2/03/97 24,656
Mortgage Association 168,000 5.26 4/16/97 163,924
US Treasury Bills 31,000 4.59 2/06/97 30,576
Total US Government, Agency & Instrumentality
Obligations--Discount Notes
(Cost--$374,326) 374,437
32
<PAGE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government, Agency & Instrumentality
Obligations--Non-Discount Notes--32.7%
Federal Farm $ 85,000 5.20++ % 12/30/96 $ 84,975
Credit Banks 60,000 5.85 10/01/97 60,126
40,000 5.38++ 11/25/97 39,991
10,000 6.24 5/07/98 10,002
Federal Home 20,095 6.875 11/18/96 20,113
Loan Banks 25,000 5.83++ 2/18/97 25,009
25,000 5.99 2/09/98 25,075
26,000 6.19 5/08/98 26,000
26,500 6.45 10/21/98 26,567
15,000 6.12 11/19/98 14,981
Federal Home 50,000 5.36 3/28/97 49,995
Loan Mortgage Corp. 25,000 5.37++ 10/07/97 24,986
Federal National 40,000 5.32++ 11/04/96 40,000
Mortgage Association 50,000 5.31 12/11/96 49,993
75,000 5.22++ 12/19/96 74,993
75,000 5.43++ 1/13/97 75,002
30,000 5.85++ 2/14/97 30,014
123,000 5.40++ 2/21/97 123,000
67,000 5.213++ 4/15/97 66,967
75,000 5.23++ 4/22/97 74,969
50,000 5.205++ 4/29/97 49,975
42,000 5.233++ 5/14/97 41,980
68,500 5.70 5/19/97 68,500
140,000 5.24++ 5/22/97 139,947
140,000 5.36++ 7/16/97 139,933
66,000 5.38++ 8/01/97 65,978
55,000 5.38++ 8/22/97 54,974
55,000 5.365++ 9/03/97 54,966
42,000 5.37++ 9/09/97 41,975
41,000 5.37++ 9/29/97 40,978
35,000 5.53 10/14/97 34,976
73,000 5.355++ 10/20/97 72,938
25,000 5.19 1/08/98 24,850
60,000 5.42++ 4/24/98 59,966
38,000 5.75 5/14/98 38,000
22,150 5.53++ 12/14/98 22,111
Student Loan 11,830 5.58++ 11/01/96 11,830
Marketing 59,415 5.39++ 12/20/96 59,415
Association 5,000 5.54++ 1/14/97 5,002
37,125 5.58++ 1/23/97 37,141
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)
Student Loan $ 45,125 5.605++% 2/14/97 $ 45,145
Marketing 60,000 5.50++ 3/03/97 60,015
Association 115,000 5.375 8/21/97 114,960
(concluded) 75,000 5.37++ 10/01/97 74,960
67,075 5.53++ 1/21/98 67,189
29,200 5.48++ 2/17/98 29,182
75,000 5.425++ 4/21/98 74,974
US Treasury Notes 15,000 7.50 12/31/96 15,054
50,000 6.50 4/30/97 50,285
25,000 6.50 5/15/97 25,148
95,000 6.125 5/31/97 95,356
25,000 8.50 7/15/97 25,520
50,000 8.75 10/15/97 51,477
160,000 5.625 10/31/97 160,125
48,000 5.25 12/31/97 47,805
60,000 5.00 1/31/98 59,531
25,000 6.00 9/30/98 25,109
25,000 5.875 10/31/98 25,047
Total US Government, Agency & Instrumentality
Obligations--Non-Discount Notes
(Cost--$3,055,244) 3,055,075
Face
Amount Issue
Repurchase Agreements**--6.9%
$100,000 Fuji Securities, Inc., purchased
on 10/31/1996 to yield 5.62% to
11/01/1996 100,000
250,000 HSBC Securities, Inc., purchased
on 10/31/1996 to yield 5.60% to
11/01/1996 250,000
294,632 Lehman Brothers Inc., purchased
on 10/31/1996 to yield 5.60% to
11/01/1996 294,632
Total Repurchase Agreements
(Cost--$644,632) 644,632
Total Investments (Cost--$9,445,425)--101.1% 9,446,262
Liabilities in Excess of Other Assets--(1.1%) (106,033)
----------
Net Assets--100.0% $9,340,229
==========
[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 October 31, 1996.
**Repurchase Agreements are fully collateralized by US Government
Obligations.
++Floating Rate Notes.
See Notes to Financial Statements.
33
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$9,445,425,408*)(Note 1a) $9,446,261,938
Cash . 500,338
Receivables:
Securities sold $ 185,768,167
Interest 38,232,762
Beneficial interest sold 41,617 224,042,546
--------------
Prepaid registration fees and other assets (Note 1d) 383,253
--------------
Total assets 9,671,188,075
--------------
Liabilities: Payables:
Beneficial interest redeemed 309,826,850
Securities purchased 14,990,625
Investment adviser (Note 2) 3,012,367
Dividends to shareholders 2,382 327,832,224
--------------
Accrued expenses and other liabilities 3,126,779
--------------
Total liabilities 330,959,003
--------------
Net Assets: Net assets $9,340,229,072
==============
Net Assets Shares of beneficial interest, $0.10 par value, unlimited
Consist of: number of shares authorized $ 933,939,254
Paid-in capital in excess of par 8,405,453,288
Unrealized appreciation on investments--net 836,530
--------------
Net assets--Equivalent to $1.00 per share based on 9,339,392,542
shares of beneficial interest outstanding $9,340,229,072
==============
<FN>
*As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes amounted to $446,137, of which $1,805,087
related to appreciated securities and $1,358,950 related to
depreciated securities. The aggregate cost of investments at October
31, 1996 for Federal income tax purposes was $9,445,815,801.
See Notes to Financial Statements.
</TABLE>
34
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 508,277,097
(Note 1c):
Expenses: Investment advisory fees (Note 2) $ 34,280,472
Transfer agent fees (Note 2) 14,246,085
Registration fees (Note 1d) 869,052
Printing and shareholder reports 595,719
Accounting services (Note 2) 386,264
Custodian fees 257,809
Professional fees 89,476
Interest expense 77,650
Trustees' fees and expenses 71,319
Other. 93,451
--------------
Total expenses 50,967,297
--------------
Investment income--net 457,309,800
--------------
Realized & Realized gain on investments--net 471,407
Unrealized Gain Change in unrealized appreciationon investments--net (2,850,451)
(Loss) on --------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 454,930,756
(Note 1c): ==============
See Notes to Financial Statements.
</TABLE>
35
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the
Year Ended
October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 457,309,800 $ 432,019,283
Realized gain on investments--net 471,407 1,637,926
Change in unrealized appreciation/depreciation on investments
--net (2,850,451) 10,376,159
-------------- --------------
Net increase in net assets resulting from operations 454,930,756 444,033,368
-------------- --------------
Dividends & Investment income--net (457,309,800) (432,019,283)
Distributions to Realized gain on investments--net (471,407) (1,637,926)
Shareholders -------------- --------------
(Note 1e): Net decrease in net assets resulting from dividends and
distributions to shareholders (457,781,207) (433,657,209)
-------------- --------------
Beneficial Interest Net proceeds from sale of shares 27,785,847,538 24,132,766,015
Transactions Net asset value of shares issued to shareholders in
(Notes 1e & 3): reinvestment of dividends and distributions 457,779,630 433,654,456
-------------- --------------
28,243,627,168 24,566,420,471
Cost of shares redeemed (27,549,454,162) (23,331,574,095)
-------------- --------------
Net increase in net assets derived from beneficial
interest transactions 694,173,006 1,234,846,376
-------------- --------------
Net Assets: Total increase in net assets 691,322,555 1,245,222,535
Beginning of year 8,648,906,517 7,403,683,982
-------------- --------------
End of year $9,340,229,072 $8,648,906,517
============== ==============
See Notes to Financial Statements.
</TABLE>
36
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .0509 .0540 .0345 .0279 .0370
Realized and unrealized gain (loss)
on investments--net (.0002) .0015 (.0011) .0004 .0012
---------- ---------- ---------- ---------- ----------
Total from investment operations .0507 .0555 .0334 .0283 .0382
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.0509) (.0540) (.0345) (.0279) (.0370)
Realized gain on investments--net (.0001) (.0002) --++ (.0003) (.0010)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.0510) (.0542) (.0345) (.0282) (.0380)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total investment return 5.21% 5.57% 3.48% 2.86% 3.95%
========== ========== ========== ========== ==========
Ratios to Average Expenses .56% .59% .59% .62% .63%
Net Assets: ========== ========== ========== ========== ==========
Investment income and realized
gain on investments--net 5.07% 5.43% 3.44% 2.82% 3.88%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $9,340,229 $8,648,907 $7,403,684 $7,066,326 $6,474,640
========== ========== ========== ========== ==========
<FN>
++Amount is less than $.0001 per share.
See Notes to Financial Statements.
</TABLE>
37
<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. 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.
For the purposes of valuations, the maturity of variable rate
certificates of deposit, variable rate commercial paper, short-term
corporate bond notes, 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.
(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
38
<PAGE>
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.
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
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 years
corresponds to the amounts included in the Statements of Changes in
Net Assets, since shares are recorded at $1.00 per share.
39
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies......................................... 2
Management of the Trust.................................................... 4
Trustees and Officers..................................................... 4
Compensation of Trustees.................................................. 6
Management and Advisory Arrangements...................................... 7
Purchase and Redemption of Shares.......................................... 8
Portfolio Transactions..................................................... 9
Determination of Net Asset Value........................................... 11
Yield Information.......................................................... 12
Taxes...................................................................... 12
Federal................................................................... 12
State..................................................................... 14
Exchange Privilege......................................................... 15
General Information........................................................ 16
Description of Series and Shares.......................................... 16
Custodian................................................................. 17
Transfer Agent............................................................ 17
Independent Auditors...................................................... 17
Legal Counsel............................................................. 17
Reports to Shareholders................................................... 17
Additional Information.................................................... 18
Appendix A................................................................. 19
Appendix B................................................................. 28
Independent Auditors' Report............................................... 30
Financial Statements....................................................... 31
</TABLE>
Code #10237-0297
[LOGO] MERRILL LYNCH
Merrill Lynch Retirement
Reserves Money Fund
Merrill Lynch
Retirement Series Trust
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
February 21, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) Financial Statements
Contained in Part A:
Financial Highlights for each of the years in the ten-year period
ended October 31, 1996
Contained in Part B:
Schedule of Investments as of October 31, 1996
Statement of Assets and Liabilities as of October 31, 1996
Statement of Operations for the year ended October 31, 1996
Statements of Changes in Net Assets for each of the years in the
two-year period ended October 31, 1996
Financial Highlights for each of the years in the five-year period
ended October 31, 1996
(B) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(a) --Declaration of Trust dated July 15, 1986.(a)
(b) --Instrument establishing Merrill Lynch Retirement Reserves Money Fund
as a series of Registrant.(a)
2 --By-Laws of Registrant.(a)
3 --None.
4 --None.
5 --Management Agreement between Registrant and Merrill Lynch Asset
Management, L.P.
6 --Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(a)
7 --None.
8 --Custody Agreement between Registrant and The Bank of New York.(a)
9 --Transfer Agency, Shareholder Servicing Agency and Proxy Agency
Agreement between Registrant and Merrill Lynch Financial Data
Service, Inc.(a)
10 --None.
11 --Consent of Deloitte & Touche LLP, independent auditors for
Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management.(a)
14 --None.
15 --None.
16 --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22.(a)
17 --Financial Data Schedule.
</TABLE>
- --------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
(EDGAR) phase-in requirements.
(b) Filed on EDGAR on February 24, 1995 as an exhibit to Post-Effective
Amendment No. 15 to Registrant's Registration Statement under the
Securities Act of 1933 on Form N-1A.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS JANUARY 31, 1997
-------------- ----------------
<S> <C>
Shares of beneficial interest, par value $.10 per share........ 1,980,074
---------
</TABLE>
Note: The number of holders shown above includes holders of record plus
beneficial owners whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Section 5.3 of 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, at 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
(relating to no personal liability of shareholders, Trustees, etc.) 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.
Insofar as the conditional advancing of indemnification monies 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
C-2
<PAGE>
exceeds the amount to which it is ultimately determined that 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 written opinion, shall determine, based upon a
review of readily available facts, that the recipient of the advance ultimately
will be found entitled to indemnification.
In Section 9 of the 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, against certain types of civil liabilities arising in
connection with the Registration Statement or Prospectus.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 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 Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts as the
investment adviser for the following open-end registered investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Financial Institutions Series Trust, Merrill
Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Emerging Tigers Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Puerto Rico Tax-Exempt Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., and The Municipal Fund Accumulation
Program, Inc., and for the following closed-end registered investment
companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc. Merrill Lynch Municipal Strategy Fund,
Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida
C-3
<PAGE>
Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured
Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund,
Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc.,
MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II,
Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield
Quality Fund II, Inc., Senior High Income Portfolio, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and Worldwide
Dollar Vest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager") acts as the
investment adviser for the following open-end registered investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc.,
Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series
Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money
Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income
Fund, Inc. and Merrill Lynch Variable Series Funds, Inc., and for the following
closed-end registered investment companies: Convertible Holdings Inc., Merrill
Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy
Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Institutional Intermediate Fund
is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The
address of the Manager, FAM and 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, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is North Tower, World
Financial Center, 250 Vesey Street, New York, New York 10281-1201. The address
of the Fund's transfer agent, Merrill Lynch Financial Data Services, Inc.
("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
December 1, 1994, for his own account or in the capacity of director, officer,
partner or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is
Executive Vice President and Mr. Richard is Treasurer of all or substantially
all of the investment companies described in the preceding paragraph and
Messrs. Giordano, Harvey, Hewitt, Kirstein and Monagle are directors or
officers of one or more of such companies.
C-4
<PAGE>
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS,
NAME WITH MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------ ----------------------------------
<S> <C> <C>
ML & Co. ............... Limited Partner Financial Services Holding Company;
Limited Partner of FAM
Princeton Services...... General Partner General Partner of FAM
Arthur Zeikel........... President and President of FAM; President and Director
Director of Princeton Services; Director of
Merrill Lynch Funds Distributor, Inc.
(the "Distributor"); Executive Vice
President of ML & Co.
Terry K. Glenn.......... Executive Vice Executive Vice President of FAM;
President Executive Vice President and Director
of Princeton Services; President and
Director of the Distributor, Director
of FDS; President of Princeton
Administrators, L.P.
Philip L. Kirstein...... Senior Vice Senior Vice President, General Counsel
President, General and Secretary of FAM; Senior Vice
Counsel and President, General Counsel, Director
Secretary and Secretary of Princeton Services;
Director of the Distributor
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Michael J. Hennewinkel.. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller of
and Controller FAM; Senior Vice President and
Controller of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Michael L. Quinn........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch from 1985 to
1989
Richard L. Reller....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>
<TABLE>
<S> <C> <C>
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of the
Distributor
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS,
NAME WITH MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------ ----------------------------------
<S> <C> <C>
Ronald L. Welburn. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Anthony Wiseman... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant. MLFD acts as
the principal underwriter for each of the open-end investment companies
referred to in the first two paragraphs of Item 28 except CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The
Corporate Fund Accumulation Program, Inc., MuniAssets Fund, Inc. and The
Municipal Fund Accumulation Program, Inc., and MLFD also acts as the principal
underwriter for the following closed-end investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate
Fund, Inc.
(b) Set Forth below is information concerning each director and officer of
the Distributor. The principal business address of each such person is P.O. Box
9081, Princeton, New Jersey 08543-9081, except that the address of Messrs.
Crook, Aldrich, Brady, Breen, Fatseas and Wasel is One Financial Center,
Boston, Massachusetts 02111-2633.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICES POSITIONS AND OFFICES
NAME WITH DISTRIBUTOR WITH REGISTRANT
----- ---------------------------- ------------------------
<S> <C> <C>
Terry K. Glenn............ President and Director Executive Vice President
Arthur Zeikel............. Director President and Trustee
Philip L. Kirstein........ Director None
William E. Aldrich........ Senior Vice President None
Robert W. Crook........... Senior Vice President None
Kevin P. Boman............ Vice President None
Michael J. Brady.......... Vice President None
William M. Breen.......... Vice President None
Michael G. Clark.......... Vice President None
Mark A. DeSario........... Vice President None
James T. Fatseas.......... Vice President None
Debra W. Landsman-Yaros... Vice President None
Michelle T. Lau........... Vice President None
Gerald M. Richard......... Vice President and Treasurer Treasurer
Richard L. Rufener........ Vice President None
Salvatore Venezia......... Vice President None
William Wasel............. Vice President None
Robert Harris............. Secretary None
</TABLE>
(c) Not applicable.
C-6
<PAGE>
ITEM 30. 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, Merrill Lynch Financial
Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-
6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Trust--
Management and Advisory Arrangements" in the Prospectus constituting Part A of
the Registration Statement, and under "Management of the Trust--Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, Registrant is not a party to any
management-related service contract.
ITEM 32. UNDERTAKINGS.
Not applicable.
C-7
<PAGE>
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 THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE
485(B) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND THE STATE OF NEW JERSEY, ON THE
20TH DAY OF FEBRUARY, 1997.
Merrill Lynch Retirement Series
Trust
(Registrant)
/s/ Arthur Zeikel
By___________________________________
(ARTHUR ZEIKEL, PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Arthur Zeikel Trustee (Principal February 20,
- ------------------------------------- Executive Officer) 1997
(ARTHUR ZEIKEL)
Treasurer (Principal
Gerald M. Richard* Financial and
- ------------------------------------- Accounting Officer)
(GERALD M. RICHARD)
Joe Grills* Trustee
- -------------------------------------
(JOE GRILLS)
Walter Mintz* Trustee
- -------------------------------------
(WALTER MINTZ)
Trustee
Robert S. Salomon, Jr.*
- -------------------------------------
(ROBERT S. SALOMON, JR.)
Melvin R. Seiden* Trustee
- -------------------------------------
(MELVIN R. SEIDEN)
Stephen B. Swensrud* Trustee
- -------------------------------------
(STEPHEN B. SWENSRUD)
/s/ Arthur Zeikel February 20,
*By _________________________________ 1997
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT)
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
5 --Management Agreement between Registrant and Merrill Lynch
Asset Management, L.P.
11 --Consent of Deloitte & Touche LLP, independent auditors
for Registrant.
17 --Financial Data Schedule.
</TABLE>
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents fair and
accurate narrative descriptions of graphic and image material omitted from this
EDGAR Submission file due to ASCII-incompatibility and cross-references this
material to the location of each occurrence in the text.
<TABLE>
<CAPTION>
DESCRIPTION OF OMITTED GRAPHIC OR
IMAGE LOCATION OF GRAPHIC OR IMAGE IN TEXT
------------------------------------ ------------------------------------
<S> <C>
Compass plate, circular graph paper Back cover of Prospectus and back
and Merrill Lynch logo including cover of Statement of Additional
stylized market bull Information
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 9445425408
<INVESTMENTS-AT-VALUE> 9446261938
<RECEIVABLES> 224042546
<ASSETS-OTHER> 883591
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9671188075
<PAYABLE-FOR-SECURITIES> 14990625
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 315968378
<TOTAL-LIABILITIES> 330959003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9339392542
<SHARES-COMMON-STOCK> 9339392542
<SHARES-COMMON-PRIOR> 8645219536
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 836530
<NET-ASSETS> 9340229072
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 508277097
<OTHER-INCOME> 0
<EXPENSES-NET> (50967297)
<NET-INVESTMENT-INCOME> 457309800
<REALIZED-GAINS-CURRENT> 471407
<APPREC-INCREASE-CURRENT> (2850451)
<NET-CHANGE-FROM-OPS> 454930756
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (457309800)
<DISTRIBUTIONS-OF-GAINS> (471407)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27785847538
<NUMBER-OF-SHARES-REDEEMED> (27549454162)
<SHARES-REINVESTED> 457779630
<NET-CHANGE-IN-ASSETS> 691322555
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34280472
<INTEREST-EXPENSE> 77650
<GROSS-EXPENSE> 50967297
<AVERAGE-NET-ASSETS> 9004842102
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.5
MANAGEMENT AGREEMENT
This Agreement, made on the 31st day of December, 1986, amended on the 24th
day of February, 1995, and amended on the 21st day of February, 1997 by and
between MERRILL LYNCH RETIREMENT SERIES TRUST, a Massachusetts business trust
(hereinafter referred to as the "Trust"), and MERRILL LYNCH ASSET MANAGEMENT,
L.P., a Delaware limited partnership (hereinafter referred to as the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as a diversified open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Trust is authorized to establish separate series, each of
which will offer a separate class of shares to various types of retirement
plans; and
WHEREAS, the Trust has established the MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND (the "Money Market Fund") as the initial series of the Trust; and
WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Manager to render management and
investment advisory services to the Trust and Money Market Fund in the manner
and on the terms hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Trust and the Money Market Fund on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Manager hereby agree as follows:
ARTICLE I
DUTIES OF THE MANAGER
The Trust hereby employs the Manager to act as the manager and investment
adviser of the Money Market Fund and to furnish, or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to the supervision of the Trustees of the Trust, for the period and on
the terms and conditions set forth in this Agreement. The Manager hereby
accepts such employment and agrees during such period, at its own expense, to
render, or arrange for the rendering of, such services and to assume the
obligations herein set forth for the compensation provided for herein. The
Manager and its affiliates shall all purposes herein be deemed to be an
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independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust or the Money
Market Fund in any way or otherwise be deemed an agent of the Trust or the Money
Market Fund.
(a) Management Services. The Manager shall perform (or arrange for the
performance by affiliates of) the management and administrative services
necessary for the operation of the Trust and the Money Market Fund including
processing shareholder orders, administering shareholder accounts and handling
shareholder relations. The Manager shall provide the Trust and the Money Market
Fund with office space, equipment and facilities and such other services as the
Manager, subject to review by the Trustees, shall from time to time determine to
be necessary or useful to perform its obligations under this Agreement. The
Manager shall also, on behalf of the Trust and the Money Market Fund, conduct
relations with custodians, depositories, transfer agents, dividend disbursing
agents, other shareholder service agents, accountants, attorneys, underwriters,
brokers and dealers, corporate fiduciaries, insurers, banks and such other
persons in any such other capacity deemed to be necessary or desirable. The
Manager shall make reports to the Trustees of its performance of obligations
hereunder and furnish advice and recommendations with respect to such other
aspects of the business and affairs of the Trust and the Money Market Fund as it
shall determine to be desirable.
(b) Investment Advisory Services. The Manager shall provide the Trust
with such investment research, advice and supervision as the latter may from
time to time consider necessary for the proper supervision of the assets of the
Money Market Fund, shall furnish continuously an investment program for the
Money Market Fund and shall determine from time to time which securities shall
be purchased, sold or exchanged and what portion of the assets of the Money
Market Fund shall be held in the various money market securities or cash,
subject always to the restrictions of the Declaration of Trust and By-Laws of
the Trust, as amended from time to time, the provisions of the Investment
Company Act and the statements relating to the Trust's investment objectives,
investment policies and investment restrictions as the same are set forth in the
currently effective prospectus and statement of additional information relating
to the shares of beneficial interest of the Money Market Fund under the
Securities Act of 1933, as amended (the "Prospectus" and "Statement of
Additional Information", respectively). The Manager shall also make decisions
for the Trust as to the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Trust's portfolio
securities shall be exercised. Should the Trustees at any time, however, make
any definite determination as to investment policy and notify the Manager
thereof in writing, the Manager shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified that such
determination has been revoked. The Manager shall take, on behalf of the Money
Market Fund, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders for
the purchase or sale of portfolio securities for the Money Market Fund's account
with brokers or dealers selected by it, and to that end, the Manager is
authorized as the agent of the Trust to give instructions to the Custodian of
the Money Market Fund as to deliveries of securities and payments of cash for
the account of the Money Market Fund. In connection with the selection of such
brokers or dealers and the placing of such orders with respect to assets of the
Money Market Fund, the Manager is directed at all times to seek to obtain
execution and price within the policy guidelines determined by the Trustees of
the Trust and set forth in the Prospectus and Statement of Additional
Information. Subject to this requirement and the provisions of the Investment
Company Act, the Securities Exchange Act of 1934, as amended, and other
applicable provisions of law, the Manager may select brokers or dealers with
which it or the Trust is affiliated.
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ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Manager. The Manager assumes and shall pay for maintaining the
staff and personnel necessary to perform its obligations under this Agreement,
and shall at its own expense, provide the office space, equipment and facilities
which it is obligated to provide under Article I hereof, and shall pay all
compensation of officers of the Trust and all compensation of trustees of the
Trust who are affiliated persons of the Manager.
(b) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Money Market Fund (except for the expenses incurred by the
Distributor), including, without limitation: redemption expenses, expenses of
portfolio transactions, expenses of registering shares under Federal and state
securities laws, pricing costs (including the daily calculation of net asset
value), expenses of printing shareholder reports and prospectuses, Securities
and Exchange Commission fees, interest, taxes, fees and actual out-of-pocket
expenses of trustees who are not affiliated persons of the Manager, fees for
legal and auditing services, litigation expenses, costs of printing proxies and
other expenses related to shareholder meetings, and other expenses properly
payable by the Trust. It is also understood that the Trust will reimburse the
Manager for its costs in providing accounting services to the Trust. The
Distributor will pay certain of the expenses of the Money Market Fund incurred
in connection with the continuous offering of Money Market Fund shares.
ARTICLE III
COMPENSATION OF THE MANAGER
(a) Management Fee. For the services rendered, the facilities furnished
and the expenses assumed by the Manager, the Trust shall pay to the Manager
compensation at the following annual rates calculated as hereinafter set forth,
commencing on the day following effectiveness hereof:
Advisory
fee
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Portion of average daily value of net assets:
Not exceeding $1 billion.................................... 0.50%
In excess of $1 billion but not exceeding $2 billion........ 0.45%
In excess of $2 billion but not exceeding $3 billion........ 0.40%
In excess of $3 billion but not exceeding $4 billion........ 0.375%
In excess of $4 billion but not exceeding $7 billion........ 0.35%
In excess of $7 billion but not exceeding $10 billion....... 0.325%
In excess of $10 billion.................................... 0.30%
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and paid monthly by applying the annual rate to the
average daily net assets of the Money Market Fund determined as of each business
day. If this Agreement becomes effective subsequent to the first day of a month
or shall terminate before the last day of a month, compensation for that part
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of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth above. Subject to the
provisions of subsection (b) hereof, payment of the Manager's compensation for
the preceding month shall be made as promptly as possible after completion of
the computations contemplated by subsection (b) hereof.
(b) Expense Limitations. In the event the operating expenses of the Money
Market Fund, including amounts payable to the Manager pursuant to subsection (a)
hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed the expense limitations applicable to the Money Market Fund
imposed by applicable state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, the Manager shall reduce
its management fee by the extent of such excess and, if required pursuant to any
such laws or regulations, will reimburse the Money Market Fund in the amount of
such excess, provided, however, to the extent permitted by law, there shall be
excluded from such expenses the amount of any interest, taxes, brokerage
commissions and extraordinary expenses (including but not limited to legal
claims and liabilities and litigation costs and any indemnification related
thereto) paid or payable by the Money Market Fund. Whenever the expenses of the
Money Market Fund exceed a pro-rata portion of the applicable annual expense
limitations, the estimated amount of reimbursement under such limitations shall
be applicable as an offset against the monthly payment of the fee due to the
Manager. Should two or more such expense limitations be applicable as at the
end of the last business day of the month, that expense limitation which results
in the largest reduction in the Manager's fee shall be applicable.
ARTICLE IV
LIMITATION OF LIABILITY OF THE MANAGER
The Manager shall not be liable for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
management of the Trust and the Money Market Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties hereunder. As
used in this Article IV, the term "Manager" shall include any affiliates of the
Manager performing services for the Trust or the Money Market Fund contemplated
hereby and directors, officers and employees of the Manager and such affiliates.
ARTICLE V
ACTIVITIES OF THE MANAGER
The services of the Manager to the Trust and the Money Market Fund are not
to be deemed to be exclusive, the Manager being free to render services to
others. It is understood that trustees, officers, employees and shareholders of
the Trust and the Money Market Fund are or may become interested in the Manager,
as directors, officers, employees and shareholders or otherwise and that
directors, officers, employees and shareholders of the Manager are or may become
similarly interested in the Trust and the Money Market Fund, and that the
Manager may become interested in the Trust and the Money Market Fund as
shareholder or otherwise.
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ARTICLE VI
DURATION AND TERMINATION OF THIS CONTRACT
This Agreement shall become effective as of the date first above written
and shall remain in force until January 31, 1998 and thereafter, but only so
long as such continuance is specifically approved at least annually by (i) the
Trustees of the Trusts or by the vote of a majority of the outstanding voting
securities of the Money Market Fund, and (ii) a majority of those trustees who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Money Market Fund, or by the Manager, on
sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Trustees of the Trust, or by the vote of a
majority of outstanding voting securities of the Money Market Fund, and (ii) a
majority of those trustees who are not parties to this Agreement or interested
persons of any such party cast in person at a meeting called for the purpose of
voting on such approval.
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with laws of the State of
New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
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ARTICLE X
PERSONAL LIABILITY
The Declaration of Trust establishing Merrill Lynch Retirement Series
Trust, dated July 15, 1986, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts provides that the name "Merrill Lynch Retirement
Series Trust" refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of Merrill Lynch Retirement Series Trust shall be
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of said Merrill Lynch Retirement Series Trust, but
the Trust Property only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH RETIREMENT SERIES TRUST
By /s/ Mark B. Goldfus
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MERRILL LYNCH ASSET MANAGEMENT, L.P.
By /s/ Philip L. Kirstein
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SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
MERRILL LYNCH ASSET MANAGEMENT
As of January 1, 1994 Merrill Lynch Investment Management, Inc. d/b/a/
Merrill Lynch Asset Management was reorganized as a limited partnership,
formally known as Merrill Lynch Asset Management, L.P. and continuing to do
business under the name Merrill Lynch Asset Management ("MLAM"). The
general partner of MLAM is Princeton Services, Inc. and the limited
partners are Merrill Lynch Investment Management, Inc. and Merrill Lynch &
Co., Inc. Pursuant to Rule 202(a)(1)-1 under the Investment Advisers Act of
1940 and Rule 2a-6 under the Investment Company Act of 1940 such
reorganization did not constitute an assignment of this investment advisory
agreement since it did not involve a change of control or management of the
investment adviser. Pursuant to the requirements of Section 205 of the
Investment Advisers Act of 1940, however, Merrill Lynch Asset Management
hereby supplements this investment advisory agreement by undertaking to
advise you of any change in the membership of the partnership within a
reasonable time after any such change occurs.
By /s/ Arthur Zeikel
----------------------
Dated: January 3, 1994
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EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Retirement Reserves Money Fund of
Merrill Lynch Retirement Series Trust:
We consent to the use in Post-Effective Amendment No. 17 to Registration
Statement No. 2-74584 of our report dated December 3, 1996 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
February 20, 1997
