<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1998
SECURITIES ACT FILE NO. 2-74584
INVESTMENT COMPANY ACT FILE NO. 811-3310
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 19 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 21 [X]
(Check appropriate box or boxes)
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MERRILL LYNCH
RETIREMENT RESERVES MONEY FUND
OF MERRILL LYNCH RETIREMENT SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(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:
<TABLE>
<S> <C>
Counsel for the Fund: Michael J. Hennewinkel, Esq.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
One World Trade Center P.O. Box 9011
New York, New York 10048-0557 Princeton, New Jersey 08543-9011
Attention: Thomas R. Smith, Jr., Esq.
</TABLE>
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
------------------------
TITLE OF SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, PAR VALUE
$.10 PER SHARE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not use this prospectus to sell securities until the registration statement
containing this prospectus, which has been filed with the Securities and
Exchange Commission, is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
PROSPECTUS
[MERRILL LYNCH LOGO]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 30, 1998
Merrill Lynch Retirement Reserves Money Fund
of Merrill Lynch Retirement Series Trust
[MERRILL LYNCH ARTWORK]
February , 1999
This Prospectus contains information you should know before
investing, including information about risks. Please read
it before you invest and keep it for future reference.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a
criminal offense.
<PAGE> 3
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
[KEY FACTS ICON]
KEY FACTS
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Merrill Lynch Retirement Reserves Money Fund at a Glance.... 3
Risk/Return Bar Chart....................................... 4
Fees and Expenses........................................... 5
[DETAILS ABOUT THE FUND ICON]
DETAILS ABOUT THE FUND
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How the Fund Invests........................................ 7
Investment Risks............................................ 8
[YOUR ACCOUNT ICON]
YOUR ACCOUNT
- -----------------------------------------------------------------
How to Buy, Sell and Transfer Shares........................ 10
How Shares are Priced....................................... 13
Dividends and Taxes......................................... 13
[MANAGEMENT OF THE FUND ICON]
MANAGEMENT OF THE FUND
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Merrill Lynch Asset Management.............................. 14
Financial Highlights........................................ 15
[FOR MORE INFORMATION ICON]
FOR MORE INFORMATION
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Shareholder Reports....................................Back Cover
Statement of Additional Information....................Back Cover
</TABLE>
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
<PAGE> 4
Key Facts [KEY FACTS ICON]
IN AN EFFORT TO HELP YOU BETTER UNDERSTAND THE MANY CONCEPTS INVOLVED IN MAKING
AN INVESTMENT DECISION, WE HAVE DEFINED THE HIGHLIGHTED TERMS IN THIS PROSPECTUS
IN THE SIDEBAR.
SHORT TERM SECURITIES -- securities with maturities of not more than 762 days
(25 months).
DIRECT U.S. GOVERNMENT OBLIGATIONS -- obligations that are issued or have their
principal and interest guaranteed and backed by the full faith and credit of the
United States.
THE MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
AT A GLANCE
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WHAT ARE THE FUND'S OBJECTIVES AND GOALS?
The investment objectives of the Fund are to seek current income, preservation
of capital and liquidity available from investing in a diversified portfolio of
short term money market securities.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund tries to achieve its goals by investing in a diversified portfolio of
SHORT TERM SECURITIES. These securities consist primarily of DIRECT U.S.
GOVERNMENT OBLIGATIONS, U.S. Government agency securities, obligations of
domestic and foreign banks, U.S. dollar denominated commercial paper and other
short term debt securities issued by U.S. and foreign entities and repurchase
agreements. We cannot guarantee that the Fund will achieve its goals.
WHAT ARE THE FUND'S MAIN RISKS?
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
WHO SHOULD INVEST?
Shares of the Fund are offered to participants in Plans for which Merrill Lynch
acts as custodian and to participants in certain independent pension, profit
sharing, annuity and other qualified plans.
The Fund may be an appropriate investment for you if you:
- Are looking for current income and liquidity.
- Are looking for preservation of capital.
- Are investing with short term goals in mind, such as for cash
reserves.
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND 3
<PAGE> 5
[KEY FACTS ICON] Key Facts
YIELD -- the income generated by an investment in the Fund.
RISK/RETURN BAR CHART
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The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
Class I shares from year to year for the ten year period. The table shows the
average annual total returns of the Fund for one, five and ten years. How the
Fund performed in the past is not necessarily an indication of how the Fund will
perform in the future. No information is provided regarding Class II shares
since the Fund began offering Class II shares on October 2, 1998.
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7% 9% 8% 6% 3% 3% 4% 6% 5% 5%
</TABLE>
During the ten year period shown in the bar chart, the highest return for a
quarter was 2.34% (quarter ended June 30, 1989) and the lowest return for a
quarter was 0.69% (quarter ended December 31, 1993). The Fund's year-to-date
return as of September 30, 1998 was 3.89%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(AS OF THE
CALENDAR YEAR ENDED PAST PAST PAST
DECEMBER 31, 1997) ONE YEAR FIVE YEARS TEN YEARS
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<S> <C> <C> <C>
Merrill Lynch Retirement Reserves
Money Fund Class I 5.31% 4.56% 5.63%
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</TABLE>
YIELD INFORMATION
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The YIELD on Fund shares normally will fluctuate on a daily basis. Therefore,
yields for any given past periods are not an indication or representation of
future yields. The Fund's yield is affected by changes in interest rates,
average portfolio maturity, the types and quality of portfolio securities held
and operating expenses. Current yield information may not provide the basis for
a comparison with bank deposits or other investments, which pay a fixed yield
over a stated period of time and may not be comparable to the yield on shares of
other money market funds. To obtain the Fund's current 7-day yield, call
1-800-221-7210.
4 MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
<PAGE> 6
UNDERSTANDING EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
Expenses paid indirectly by the shareholder:
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
MANAGEMENT FEE -- a fee paid to the Manager for managing the Fund.
DISTRIBUTION FEES -- fees used to support the Fund's marketing and distribution
efforts, such as compensating Financial Consultants, advertising and promotion.
FEES AND EXPENSES
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The Fund offers two classes of shares to participants in Plans and certain
independent pension, profit sharing, annuity and other qualified plans. Although
your money will be invested the same way no matter which class of shares you
buy, there are differences among the fees and expenses associated with each
class. Not everyone is eligible to buy each class.
This table shows the different fees and expenses that you may pay if you buy and
hold each class of shares of the Fund. Future expenses may be greater or less
than those indicated below.
<TABLE>
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS) Class I Class II
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MANAGEMENT FEES(a) 0.36% 0.36%
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DISTRIBUTION (12b-1) FEES(b) None 0.20%
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OTHER EXPENSES (INCLUDING TRANSFER AGENCY FEES)(c) 0.19% 0.16%
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TOTAL ANNUAL FUND OPERATING EXPENSES 0.55% 0.72%
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</TABLE>
(a) The Fund pays the Manager a fee at the annual rate of 0.50% of the average
daily net assets of the Fund 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, 1998,
the Manager received a fee equal to 0.36% of the Fund's average daily net
assets.
(b) The Fund is authorized to pay Merrill Lynch distribution fees of 0.20% each
year under a distribution plan with respect to Class II shares that the Fund
has adopted under rule 12b-1. The Fund commenced offering Class II shares on
October 2, 1998. For the fiscal year ended October 31, 1998, $2,493 was paid
to Merrill Lynch pursuant to the distribution plan.
(c) The Fund pays the Transfer Agent $6.50 per shareholder account for the first
one million accounts and $6.00 per shareholder account for each account
thereafter and reimburses the Transfer Agent's out of pocket expenses. The
Fund also pays a $.20 monthly closed account charge, which is assessed on
all accounts that close during the year. This fee begins the month following
the month the account is closed and ends at the end of the calendar year. At
the end of the calendar year, no further fees will be due. For purposes of
the Transfer Agency Agreement, the term "account" includes a shareholder
account maintained directly by the Transfer Agent and any other account
representing the beneficial interest of a person in the relevant share class
on a recordkeeping system provided the recordkeeping system is maintained by
a subsidiary of ML & Co. For the fiscal year ended October 31, 1998, the
Fund paid the Transfer Agent fees totaling $16,158,479. The Manager provides
accounting services to the Fund at its cost. For the fiscal year ended
October 31, 1998, the Fund reimbursed the Manager $499,482 for these
services.
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND 5
<PAGE> 7
[KEY FACTS ICON] Key Facts
EXAMPLE:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------
<S> <C> <C> <C> <C>
CLASS I $56 $176 $307 $689
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CLASS II $74 $230 $401 $895
- --------------------------------------------
</TABLE>
6 MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
<PAGE> 8
Details About the Fund [DETAILS ABOUT THE FUND ICON]
ABOUT THE PORTFOLIO MANAGER
John Ng is a Vice President and the portfolio manager of the Fund. Mr. Ng has
been a Director of Merrill Lynch Asset Management since 1997 and was Vice
President from 1984 to 1997.
ABOUT THE MANAGER
The Fund is managed by Merrill Lynch Asset Management.
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
The Fund seeks current income, preservation of capital and liquidity. The Fund
tries to achieve its goals by investing in a diversified portfolio of short term
money market securities.
In seeking to achieve the Fund's objective, Fund management varies the kinds of
money market securities in the portfolio and the average maturity. Fund
management decides which securities to buy and sell based on its assessment of
the relative values of different securities and future interest rates. Fund
management seeks to improve the Fund's yield by taking advantage of yield
differentials that regularly occur between securities of a similar kind. For
example, market conditions frequently result in similar securities trading at
different prices. Fund management seeks to improve the Fund's yield by buying
and selling securities based on these yield differences.
Among the money market obligations the Fund may buy are:
UNITED STATES GOVERNMENT SECURITIES -- Debt 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 instrumentalities and
certain international institutions that 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 may not be obligated to provide
financial support to the entities.
BANK MONEY INSTRUMENTS -- Obligations of commercial banks, savings banks,
savings and loan associations, or other depository institutions, such as
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.
depository institutions, foreign branches or subsidiaries of U.S. depository
institutions (called Eurodollar obligations) or U.S. branches or subsidiaries of
foreign depository institutions (called Yankeedollar obligations). The Fund may
invest in Eurodollar obligations only if they, 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, funding agreements, and mortgage backed or
asset backed securities) with no more than 397 days (13 months) remaining to
maturity at the date of purchase.
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND 7
<PAGE> 9
[DETAILS ABOUT THE FUND ICON] Details About the Fund
FOREIGN BANK MONEY INSTRUMENTS -- U.S. dollar denominated obligations of foreign
depository institutions and their foreign branches and subsidiaries, such as
certificates of deposits, bankers' acceptances, time deposits, bank notes and
deposit notes. Payment on securities of foreign branches and subsidiaries may be
a general obligation of the parent bank or may be an obligation only of the
issuing branch or subsidiary. The Fund will invest in these securities only if
Fund management determines they are of comparable quality to other investments
permissible for the Fund. The Fund will not invest more than 25% of its total
assets (taken at market value at the time of each investment) in these
obligations.
FOREIGN SHORT TERM DEBT INSTRUMENTS -- U.S. dollar denominated commercial paper
and other short term obligations issued by foreign entities. The Fund may
purchase these securities only if Fund management determines they are of
comparable quality to the Fund's U.S. investments.
REPURCHASE AGREEMENTS -- In a repurchase agreement the Fund buys a security from
another party, which agrees to buy it back at an agreed upon time and price. The
Fund may invest in repurchase agreements involving the money market securities
described above or U.S. Government and agency securities with longer maturities.
REVERSE REPURCHASE AGREEMENTS -- In a reverse repurchase agreement the Fund
sells a security to another party and agrees to buy it back at a specific time
and price. The Fund may invest in reverse repurchase agreements involving the
money market securities described above.
The Fund may buy or sell money market securities on a forward commitment basis.
In these transactions, the Fund buys the securities at an established price with
payment and delivery taking place in the future. Payment and delivery may occur
up to 180 days after purchase. The value of the security on the delivery date
may be more or less than its purchase price.
INVESTMENT RISKS
- --------------------------------------------------------------------------------
This section contains a summary discussion of general risks of investing in the
Fund. As with any mutual fund, there can be no guarantee that the Fund will meet
its goals or that the Fund's performance will be positive for any period of
time.
8 MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
<PAGE> 10
SELECTION RISK -- Selection risk is the risk that the securities that Fund
management selects will underperform other funds with similar investment
objectives and investment strategies.
INTEREST RATE RISK -- Interest rate risk is the risk that prices of securities
owned by the Fund generally increase when interest rates go down and decrease
when interest rates go up.
SHARE REDUCTION RISK -- In order to maintain a constant net asset value of $1.00
per share, the Fund may reduce the number of shares held by its shareholders.
REPURCHASE AGREEMENT RISK -- If the other party to a repurchase agreement
defaults on its obligation, the Fund may suffer delays and incur costs or even
lose money in exercising its rights under the agreement.
REVERSE REPURCHASE AGREEMENT RISK -- The Fund may lose money if it must buy
securities back at a higher price than they are worth.
FOREIGN MARKET RISK -- The Fund may invest in U.S. dollar denominated money
market instruments and other short-term debt obligations issued by foreign banks
and similar institutions. Although the Fund will invest in these securities only
if Fund management determines they are of comparable quality to the Fund's U.S.
investments. Investing in securities of foreign issuers involves some additional
risks. These risks include the higher costs of foreign investing, and the
possibility of adverse political, economic or other developments.
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
If you would like further information about the Fund, including how it invests,
please see the Statement of Additional Information.
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND 9
<PAGE> 11
Your Account [YOUR ACCOUNT ICON]
HOW TO BUY, SELL AND TRANSFER SHARES
- --------------------------------------------------------------------------------
The chart below summarizes how to buy, sell, transfer and exchange shares
through Merrill Lynch or other securities dealers. You may also buy shares
through the Transfer Agent. To learn more about buying shares through the
Transfer Agent, call 1-800-221-7210. Because the selection of a mutual fund
involves many considerations, your Merrill Lynch Financial Consultant may help
you with this decision.
10 MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
<PAGE> 12
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BUY SHARES First, determine the share class for Effective October 2, 1998, Class I shares will be offered
which you are eligible to:
- Any Plan with an active custodial retirement account as
of September 30, 1998
- Any Plan purchasing shares of the Fund through a Merrill
Lynch fee-based program
- Any pension, profit sharing, annuity or qualified plan
other than a Plan
Class II shares will be offered to any Plan that did not
have an active custodial retirement account as of September
30, 1998 and does not otherwise qualify to purchase any
Class I shares as described above.
Fractional shares of the Fund will not be sold, other than
through dividend reinvestments.
Next, determine the amount of your There is no minimum initial investment for Fund shares.
investment
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Have cash balances from your account If you choose to have your cash balances automatically
automatically invested in shares invested in the Fund, they will be invested as follows:
- Cash balances from a sale of securities that does not
settle on the day the sale is made will be invested in
shares of the Fund on the next business day following
the day on which the sale proceeds are received by the
Plan account.
- Cash balances from (i) a sale of securities that settles
on the same day as the sale or (ii) repayments of
principal on debt securities held in the Plan account
will be invested in shares of the Fund on the next
business day following the day on which the money is
received by the Plan account.
- Cash balances from (i) payment of dividends or interest on
securities held in the Plan account or (ii) a contribution
to the Plan will be invested in shares of the Fund on the
next business day following the day on which the money is
received by the Plan account.
Cash balances equal to less than $1.00 will not be invested
and will earn no return.
-------------------------------------------------------------------------------------------------------
Or have your Merrill Lynch Financial Participants in certain plans may request a Merrill Lynch
Consultant or securities dealer Financial Consultant to place a purchase order for their
submit your purchase order* account.
The price of your shares will be the net asset value next
calculated after your order becomes effective. Share
purchase orders are effective on the date Federal Funds
become available to the Fund. Generally, purchase orders
placed through Merrill Lynch will be effective on the day
following the day the order is placed.
The Fund may reject any order to buy shares and may suspend
the sale of shares at any time.
- --------------------------------------------------------------------------------------------------------------------------------
* Except for accounts associated with the Merrill Lynch Blueprint(SM) program.
</TABLE>
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND 11
<PAGE> 13
[YOUR ACCOUNT ICON] Your Account
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADD TO YOUR Purchase additional shares There is no minimum investment for additional purchases for
INVESTMENT all accounts.
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Acquire additional shares through All dividends are automatically reinvested daily in the form
automatic dividend reinvestment of additional shares at net asset value.
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Participate in the automatic You may be able to invest a specific amount on a periodic
investment plan basis through your account.
- --------------------------------------------------------------------------------------------------------------------------------
TRANSFER SHARES TO Transfer to a participating You may transfer your Fund shares only to another securities
ANOTHER SECURITIES securities dealer dealer that has entered into an agreement with Merrill
DEALER Lynch. All shareholder services will be available for the
transferred shares. You may only purchase additional shares
of funds previously owned before the transfer. All future
trading of these assets must be coordinated by the receiving
firm.
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Transfer to a non-participating You must either:
securities dealer - Transfer your shares to an account with the Transfer
Agent; or
- Sell your shares.
- --------------------------------------------------------------------------------------------------------------------------------
SELL YOUR SHARES Have your Merrill Lynch Financial The price of your shares will be the net asset value next
Consultant, trustee, sponsor or calculated after your order is placed. For your redemption
securities dealer submit your sales request to be priced at the net asset value on the day of
order your request, you must submit your request to your dealer
prior to the determination of net asset value of the Fund
(generally 4:00 p.m. Eastern time). Any redemption request
placed by a dealer after that time will be priced at the net
asset value at the close of business on the next business
day. Dealers must submit redemption requests to the Fund not
more than thirty minutes after the close of business on the
New York Stock Exchange on the day the request was received.
Participants in Plans should contact their Merrill Lynch
Financial Consultant to effect such redemptions.
Participants in Plans in association with Merrill Lynch
Blueprint(sm) program should contact Merrill Lynch at the
toll free number furnished to them to effect such
redemptions. Redemption requests should not be sent to the
Fund or to its Transfer Agent. If inadvertently sent to the
Fund or the Transfer Agent, redemption requests will be
forwarded to Merrill Lynch.
The Fund may reject an order to sell shares under certain
circumstances.
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Automatic Redemption The Fund has instituted an automatic redemption procedure
for participants in the Plans who have elected to have cash
balances in their accounts automatically invested in shares
of the Fund. For these participants, unless directed
otherwise, Merrill Lynch will redeem a sufficient number of
shares of the Fund to purchase other securities which the
participant has selected for investment in his account.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12 MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
<PAGE> 14
NET ASSET VALUE -- the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.
DIVIDENDS -- income paid to shareholders. Dividends may be reinvested in
additional Fund shares as they are paid.
DISTRIBUTIONS -- capital gains paid to shareholders. Distributions may be
reinvested in additional Fund shares as they are paid.
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
When you buy shares, you pay the NET ASSET VALUE (normally $1.00 per share)
without a sales charge. The "penny-rounding" method is used in calculating net
asset value, meaning that the calculation is rounded to the nearest whole cent.
This is the offering price. Shares are also redeemed at their net asset value.
The Fund calculates its net asset value each business day (generally, 4:00 p.m.
Eastern time). The net asset value used in determining your price is the next
one calculated after your purchase or redemption order is placed. Share purchase
orders are effective on the date Federal Funds become available to the Fund. You
will begin accruing dividends on the day following the date your purchase
becomes effective.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS are declared and reinvested daily in the form of additional shares at
net asset value. Shareholders will receive statements monthly or quarterly as to
such reinvestments. Shareholders redeeming their holdings will receive all
dividends declared and reinvested through the date of redemption. It is expected
that income will comprise most of the Fund's distributions.
Because of special tax rules applicable to retirement accounts, you will not be
currently taxed on distributions and dividends paid by the Fund to your
retirement account. In general, you will be taxed only when you receive a
distribution from the account. If your shares are held in a Roth IRA, you
generally will not be taxed on receipt of distributions from the account.
Substantial penalties (for Roth IRAs and other retirement accounts) and ordinary
income tax (on the whole distribution, for retirement accounts other than Roth
IRA accounts and on the portion representing accumulated earnings on
contributions, for Roth IRA accounts) will be imposed if amounts are withdrawn
from the retirement account prior to age 59 1/2, unless certain exceptions
apply. Provided the proceeds stay in a retirement account, you will not be taxed
on redemption or exchange of Fund shares. You should consult your tax advisor
about the tax implications of investing in different types of retirement
accounts and about the tax impact of making withdrawals from the account.
Different tax consequences apply for investments outside of a retirement account
or if a retirement account in which amounts are invested becomes ineligible for
the special tax treatment discussed above.
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND 13
<PAGE> 15
Management of the Fund [MANAGEMENT OF THE FUND ICON]
MERRILL LYNCH ASSET MANAGEMENT
- --------------------------------------------------------------------------------
Merrill Lynch Asset Management, the Fund's Manager, manages the Fund's
investments and its business operations under the overall supervision of the
Fund's Board of Trustees. The Manager has the responsibility for making all
investment decisions for the Fund. The Fund pays the Manager a fee at the annual
rate of 0.50% of the Fund's average daily 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 the average daily net assets exceeding $3
billion but not exceeding $4 billion; 0.35% of the average daily net assets
exceeding $4 billion but not exceeding $7 billion; 0.325% of the average daily
net assets exceeding $7 billion but not exceeding $10 billion; and 0.30% of the
average daily net assets exceeding $10 billion. For the fiscal year ended
October 31, 1998, the Manager received a fee equal to 0.36% of the Fund's
average daily net assets.
Merrill Lynch Asset Management is part of Merrill Lynch Asset Management Group,
which had approximately $499 billion in investment company and other portfolio
assets under management as of November 1998. This amount includes assets managed
for Merrill Lynch affiliates.
A NOTE ABOUT YEAR 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund management that they also
expect to resolve the Year 2000 Problem, and the Fund management will continue
to monitor the situation as the Year 2000 approaches. However, if the problem
has not been fully addressed, the Fund could be negatively affected. The Year
2000 Problem could also have a negative impact on the companies in which the
Fund invests, and this could hurt the Fund's investment returns.
14 MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
<PAGE> 16
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Deloitte & Touche LLP, whose report, along with the Fund's
financial statements, are included in the Fund's annual report to shareholders,
which is available upon request.
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------
Investment income -- net .0517 .0512 .0509 .0540 .0345
- ---------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments -- net .0004 .0001 (.0002) .0015 (.0011)
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations .0521 .0513 .0507 .0555 .0334
- ---------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
Investment income -- net (.0517) (.0512) (.0509) (.0540) (.0345)
Realized gain on investments -- net (.0001) (.0001) (.0001) (.0002) --++
- ---------------------------------------------------------------------------------------------------------------
Total dividends and distributions (.0518) (.0513) (.0510) (.0542) (.0345)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------
Total Investment Return 5.31% 5.35% 5.19% 5.55% 3.47%
- ---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------
Expenses .55% .54% .56% .59% .59%
- ---------------------------------------------------------------------------------------------------------------
Investment income and realized gain on
investments -- net 5.19% 5.13% 5.07% 5.43% 3.44%
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $13,917,721 $10,690,345 $9,340,229 $8,648,907 $7,403,684
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS II
------------------
FOR THE PERIOD
OCTOBER 2,
1998+
TO OCTOBER 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1998
- -----------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
- -----------------------------------------------------------
Net asset value, beginning of period $ 1.00
- -----------------------------------------------------------
Investment income -- net .0037
- -----------------------------------------------------------
Realized and unrealized gain (loss) on
investments -- net .0010
- -----------------------------------------------------------
Total from investment operations .0047
- -----------------------------------------------------------
Less dividends and distributions:
Investment income -- net (.0037)
Realized gain on investments -- net --++
- -----------------------------------------------------------
Total dividends and distributions (.0037)
- -----------------------------------------------------------
Net asset value, end of period $ 1.00
- -----------------------------------------------------------
Total Investment Return 5.16%*
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- -----------------------------------------------------------
Expenses .72%*
- -----------------------------------------------------------
Investment income and realized gain on
investments -- net 4.69%*
- -----------------------------------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------------------------------
Net assets, end of period (in
thousands) $56,385
- -----------------------------------------------------------
</TABLE>
* Annualized.
+ Commencement of Operations.
++ Amount is less than $.0001 per share.
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND 15
<PAGE> 17
<TABLE>
<S> <C>
POTENTIAL
INVESTORS
Open an account (two options).
1 2
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT
or SECURITIES DEALER FINANCIAL DATA SERVICES, INC.
P.O. Box 45290
Advises shareholders on their Fund investments. Jacksonville, Florida 32232-5290
1-800-221-7210
Performs recordkeeping and reporting services.
DISTRIBUTOR
MERRILL LYNCH FUNDS DISTRIBUTOR,
A DIVISION OF PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
COUNSEL THE FUND CUSTODIAN
BROWN & WOOD LLP The Board of Trustees THE BANK OF NEW YORK
One World Trade Center oversees the Fund. 90 Washington Street
New York, New York 10048-0557 12th Floor
New York, New York 10286
Provides legal advice to the Fund.
Holds the Fund's assets for safekeeping.
INDEPENDENT AUDITORS INVESTMENT ADVISER
DELOITTE & TOUCHE LLP MERRILL LYNCH ASSET MANAGEMENT, L.P.
117 Campus Drive
Princeton, New Jersey 08540-6400 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Audits the financial Plainsboro, New Jersey 08536
statements of the Fund on behalf of
the shareholders. MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day activities.
</TABLE>
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
<PAGE> 18
For More Information [FOR MORE INFORMATION ICON]
SHAREHOLDER REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. You
may obtain these reports at no cost by calling 1-800-MER-FUND.
The Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch Financial
Consultant or write to the Transfer Agent at its mailing address. Include your
name, address, tax identification number and Merrill Lynch brokerage or mutual
fund account number. If you have any questions, please call your Merrill Lynch
Financial Consultant or the Transfer Agent at 1-800-MER-FUND.
STATEMENT OF ADDITIONAL INFORMATION
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing the Fund at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289
or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund, at the telephone
number or address indicated above, if you have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE
IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
INFORMATION CONTAINED IN THIS PROSPECTUS.
Investment Company Act file #811-3310
Code #10093-2-99
(C) Merrill Lynch Asset Management, L.P.
Prospectus
[MERRILL LYNCH LOGO]
Merrill Lynch
Retirement Reserves
Money Fund
of Merrill Lynch Retirement Series Trust
[MERRILL LYNCH ARTWORK]
February , 1999
<PAGE> 19
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 30, 1998
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
OF MERRILL LYNCH RETIREMENT SERIES TRUST
P.O. Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609) 282-2800
------------------------
The investment objectives of Merrill Lynch Retirement Reserves Money Fund
(the "Fund") are to seek current income, preservation of capital and liquidity
available from investing in a diversified portfolio of short-term money market
securities. These securities primarily consist of U.S. Government and agency
securities, bank certificates of deposit, bankers' acceptances, commercial paper
and repurchase agreements. For purposes of its investment policies, the 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. Fund management expects that substantially all the assets of the
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 Fund's portfolio will not exceed 90 days.
The Trust is authorized to offer Class I and Class II shares of the Fund to
participants in certain retirement plans for which Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") acts as custodian (the "Plans"). For a
description of the Plans, see Appendix A to this Statement of Additional
Information. Shares of the Fund are also offered to certain independent pension,
profit-sharing, annuity and other qualified plans.
The Fund is the only existing series of Merrill Lynch Retirement Series
Trust (the "Trust"), a business trust organized under the laws of Massachusetts.
The Trust is a 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 or classes of shares to participants in the retirement
plans described herein.
------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the Prospectus of the Fund, dated
February , 1999 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission (the "Commission") and can be obtained, without charge,
by calling (800) 637-3863 or by writing the Fund at the above address. The
Prospectus is incorporated by reference into this Statement of Additional
Information, and this Statement of Additional Information is incorporated by
reference into the Prospectus. The Fund's audited financial statements are
incorporated in this Statement of Additional Information by reference to its
1998 annual report to shareholders. You may request a copy of the annual report
at no charge by calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m.
on any business day.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR -- DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is February , 1999.
<PAGE> 20
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.......................... 2
Management of the Fund...................................... 7
Trustees and Officers..................................... 7
Compensation of Trustees.................................. 8
Management and Advisory Arrangements...................... 9
Code of Ethics............................................ 10
Purchase of Shares.......................................... 10
Redemption of Shares........................................ 14
Determination of Net Asset Value............................ 14
Yield Information........................................... 15
Portfolio Transactions...................................... 16
Distributions and Taxes..................................... 17
Dividends and Distributions............................... 17
Taxes..................................................... 17
General Information......................................... 19
Description of Series and Shares.......................... 19
Independent Auditors...................................... 20
Custodian................................................. 20
Transfer Agent............................................ 20
Legal Counsel............................................. 20
Reports to Shareholders................................... 20
Shareholder Inquiries..................................... 21
Additional Information.................................... 21
Financial Statements........................................ 21
Appendix A.................................................. 22
</TABLE>
<PAGE> 21
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund are to seek current income,
preservation of capital and liquidity available from investing in a diversified
portfolio of short-term money market securities. The investment objectives are
fundamental policies of the Fund that may not be changed without the vote of a
majority of the outstanding shares of the Fund.
Investment in the Fund offers several potential benefits. The Fund seeks to
provide as high a yield potential as is available, consistent with the
preservation of capital, from the 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 Fund will be realized. Certain expenses
are borne by investors, including management fees, administrative costs and
operational costs and, in the case of Class II shares, Rule 12b-1 fees.
In managing the 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 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 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 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 instrumentalities and
certain international institutions that 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 may not be obligated to provide
financial support to these entities
Bank Money Instruments: Obligations of commercial banks, savings banks,
savings and loan associations, or other depository 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. depository
institutions, foreign branches or subsidiaries of U.S. depository institutions
(called Eurodollar obligations) or U.S. branches or subsidiaries of foreign
depository institutions (called Yankeedollar obligations). The Fund may invest
in Eurodollar obligations which by their terms are general obligations of the
U.S. parent bank or may be limited to the issuing branch by the terms of the
specific obligation or by government regulation.
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 at the date of purchase. Short-term
obligations also include mortgage-related or asset-backed debt or debt-like
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 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
2
<PAGE> 22
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
Fund. The 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 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 below 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 Fund may invest or engage:
Repurchase Agreements: The 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 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.
Such agreements usually cover short periods, such as under a week.
Reverse Repurchase Agreements: The Fund may enter into reverse repurchase
agreements which involve the sale of money market securities held by the 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 Fund will maintain a segregated custodial account containing U.S. Government
or other appropriate high-grade money market securities having a value equal to
the repurchase price.
Preservation of capital is a prime investment objective of the Fund, and,
while the types of money market securities in which the 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. The 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 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 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 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 Fund
but only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. In addition, with
respect to repurchase agreements, purchase and sale contracts, reverse
repurchase agreements and securities loans, 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 Fund may suffer
time delays and incur costs or possible losses in connection with such
transactions.
From time to time the 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.
Bank money instruments in which the 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.
3
<PAGE> 23
Obligations of foreign issuers may involve additional investment risks from
the risks of obligations of U.S. issuers. 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 governmental laws or restrictions which might
adversely affect the payment of principal and interest. Generally the issuers of
Eurodollar and Yankeedollar 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 may be subject to the
reserve requirements of the states in which they are located. There may be less
publicly available information about a foreign issuer than about a U.S. issuer,
and foreign issuers may not be subject to the same accounting, auditing and
financial recordkeeping standards and requirements as U.S. issuers. Evidence of
ownership of foreign obligations may be held outside of the United States, and
the Fund may be subject to risks associated with the holding of such property
overseas. Foreign obligations of the Fund held overseas will be held by foreign
branches of the 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").
MLAM will carefully consider the above factors in making investments in
non-U.S. obligations and will not knowingly purchase obligations which, at the
time of purchase, are subject to exchange controls or withholding taxes.
Generally the Fund will limit its foreign investments to obligations of issuers
organized in Canada, France, Germany, Japan, the Netherlands, Switzerland, the
United Kingdom and other industrialized nations.
The 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 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 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 (or by the
Manager pursuant to delegated authority). Currently, there are five NRSROs: Duff
& Phelps Inc., Fitch IBCA Inc., Thompson Bankwatch, Inc., Moody's Investors
Service, Inc. and Standard & Poor's, a Division of the McGraw-Hill Companies,
Inc. The 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 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, and are not of
comparable quality to such securities, not more than 1% of its total assets. In
addition, such regulation requires that not more than 5% of the 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 (or by the Manager pursuant to delegated authority).
The 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 Fund will be established with its custodian consisting
4
<PAGE> 24
of cash or liquid high grade 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 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 Fund's portfolio will not exceed 90 days. During the
Fund's fiscal year ended October 31, 1998, the average maturity of its portfolio
ranged from days to days.
European Economic and Monetary Union ("EMU"). Certain European countries
have agreed to enter into EMU in an effort to, among other things, reduce
barriers between countries, increase competition among companies, reduce
government subsidies in certain industries, and reduce or eliminate currency
fluctuations among these countries. Among other things, EMU establishes a single
common European currency (the "euro") that will be introduced on January 1, 1999
and is expected to replace the existing national currencies of all EMU
participants by July 1, 2002. Upon introduction of the euro, certain securities
(beginning with government and corporate bonds) will be redenominated in the
euro, and, thereafter, will be listed, trade and make dividend and other
payments only in euros. Although EMU is generally expected to have a beneficial
effect, it could negatively affect the Fund in a number of situations, including
as follows:
- If the euro, or EMU as a whole, does not take effect as planned, the
Fund's investments could be adversely affected. For example, sharp
currency fluctuations, exchange rate volatility, and other disruptions of
the markets could occur.
- Withdrawal from EMU by a participating country could also have a negative
effect on the Fund's investments, for example if securities redenominated
in euros are transferred back into that country's national currency.
- Computer, accounting, and trading systems must be capable of recognizing
the euro as a distinct currency. Like other investment companies and
business organizations, the Fund could be adversely affected if the
systems used by the Manager, the Fund's other service providers, or
entities with which the Fund or its service providers do business do not
properly address this issue prior to euro conversion over the first
weekend of 1999 (January 1 through January 3). These issues may
negatively affect the issuers of the securities the Fund invests in as
well.
Investment Restrictions. The 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 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 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 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 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;
5
<PAGE> 25
(5) make investments for the purpose of exercising control or management;
(6) underwrite securities issued by other persons;
(7) purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization;
(8) purchase or sell real estate (other than money market securities secured by
real estate or interests therein or money market securities issued by
companies which invest in real estate or interests therein), commodities or
commodity contracts, interests in oil, gas or other mineral exploration or
development programs;
(9) purchase any securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities;
(10) make short sales of securities or maintain a short position or write,
purchase or sell puts, calls, straddles, spreads or combinations thereof;
(11) make loans to other persons, provided that the 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 (12) below;
(12) 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;
(13) 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 Fund will not borrow to increase income, but only to meet redemption
requests which might otherwise require untimely dispositions of portfolio
securities. The Fund will not purchase securities while borrowings are
outstanding. Interest paid on such borrowings will reduce net income;
(14) mortgage, pledge, hypothecate or in any manner transfer (except as provided
in (12) above) as security for indebtedness any securities owned or held by
the Fund except as may be necessary in connection with borrowings referred
to in investment restriction (13) above, and then such mortgaging, pledging
or hypothecating may not exceed 10% of the Fund's net assets, taken at
market value;
(15) 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;
(16) 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;
(17) enter into reverse repurchase agreements if, as a result thereof, the
Fund's obligations with respect to reverse repurchase agreements and
borrowings permitted in (13) 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).
Securities Lending. Subject to investment restriction (12) above, the 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 Fund. Such loans will be
terminable at any time. The Fund will have the right to regain record ownership
of loaned securities to
6
<PAGE> 26
exercise beneficial rights and may do so when deemed appropriate. The Fund may
pay reasonable fees to persons unaffiliated with the Fund in connection with the
arranging of such loans.
Subject to the supervision of the Board of Trustees, the Manager is
responsible for the actual management of the Fund's portfolio and constantly
reviews the 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. The Manager performs certain
of the other administrative services and provides all of the office space,
facilities, equipment and necessary personnel for portfolio management of the
Fund.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Board of Trustees of the Fund consists of six individuals, five of whom
are not "interested persons" of the Fund as defined in the Investment Company
Act (the "non-interested Trustees"). The Trustees are responsible for the
overall supervision of the operations of the Fund and perform the various duties
imposed on the directors of investment companies by the Investment Company Act.
Information about the Trustees, executive officers and the portfolio
manager of the Fund, including their ages and their principal occupations for at
least the last five years, is set forth below. Unless otherwise noted, the
address of each Trustee, executive officer and the portfolio manager is P.O. Box
9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (66) -- President and Trustee (1)(2) -- Chairman of the
Manager and Fund Asset Management, L.P. ("FAM") (which terms as used herein
include their corporate predecessors) since 1997; President of the Manager and
FAM from 1977 to 1997; Chairman of Princeton Services, Inc. ("Princeton
Services") since 1997 and Director thereof since 1993; President of Princeton
Services from 1993 to 1997; Executive Vice President of Merrill Lynch & Co.,
Inc. ("ML & Co.") since 1990.
JOE GRILLS (63) -- Trustee (2) -- P.O. Box 98, Rapidan, Virginia 22733.
Member of the Committee on 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 IBM Retirement Funds from 1986 until 1993; Member of the Investment
Advisory Committees of the State of New York Common Retirement Fund and the
Howard Hughes Medical Institute since 1997; Director, Duke Management Company
since 1992, elected Vice Chairman in May 1998; Director, LaSalle Street Fund
since 1995; Director, Hotchkis and Wiley Mutual Funds since 1996; Director,
Kimco Realty Corporation since January 1997; Member of the Investment Advisory
Committee of the Virginia Retirement System since 1998.
WALTER MINTZ (69) -- 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. (62) -- Trustee (2) -- 106 Dolphin Cove Quay,
Stamford, Connecticut 06902. Principal of STI Management (investment adviser)
since 1994; Trustee, The Common Fund since 1980; Chairman and CEO of Salomon
Brothers Asset Management from 1992 until 1995; Chairman of Salomon Brothers
equity mutual funds from 1992 until 1995; Monthly columnist with Forbes magazine
since 1992; Director of Stock Research and U.S. Equity Strategist at Salomon
Brothers from 1975 until 1991.
MELVIN R. SEIDEN (68) -- Trustee (2) -- 780 Third Avenue, Suite 2502, New
York, New York 10017. Director of Silbanc Properties, Ltd. (real estate,
investment and consulting) since 1987; Chairman and President of Seiden & de
Cuevas, Inc. (private investment firm) from 1964 to 1987.
STEPHEN B. SWENSRUD (65) -- Trustee (2) -- 24 Federal Street, Suite 400,
Boston, Massachusetts 02110. Chairman of Fernwood Advisors (investment adviser)
since 1996; Principal, Fernwood Associates (financial consultant) since 1975.
7
<PAGE> 27
TERRY K. GLENN (58) -- Executive Vice President (1)(2) -- Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of Princeton Funds
Distributor, Inc. ("PFD") since 1986 and Director thereof since 1991; President
of Princeton Administrators, L.P. since 1988.
JOSEPH T. MONAGLE, JR. (49) -- Senior Vice President (1)(2) -- Senior Vice
President and Department Head of the Global Fixed Income Division of MLAM and
FAM since 1990; Vice President of MLAM from 1978 to 1990; Senior Vice President
of Princeton Services since 1993.
KEVIN J. MCKENNA (41) -- Senior Vice President (1)(2) -- First Vice
President of the Manager since 1997; Vice President of the Manager from 1985 to
1997.
JOHN NG (44) -- Portfolio Manager (1)(2) -- Director of the Manager since
1997; Vice President of the Manager from 1984 to 1997.
DONALD C. BURKE (38) -- Vice President(1)(2) -- First Vice President of the
Manager since 1997; Vice President of the Manager from 1990 to 1997; Director of
Taxation of the Manager since 1990.
GERALD M. RICHARD (49) -- Treasurer (1)(2) -- Senior Vice President and
Treasurer of the Manager and FAM since 1984; Treasurer of PFD since 1984 and
Vice President thereof since 1981; Senior Vice President and Treasurer of
Princeton Services since 1993.
BARBARA FRASER (54) -- Secretary (1)(2) -- First Vice President of the
Manager since 1996; Vice President of the Manager from 1994 until 1996.
- ---------------
(1) Interested Person, as defined in the Investment Company Act, of the Fund.
(2) Such Trustee or officer is a director, trustee or officer of one or more
investment companies for which the Manager, or its affiliate FAM, acts as
investment adviser or manager.
As of December 1, 1998, the Trustees, officers of the Trust and officers of
the Fund as a group (12 persons) owned an aggregate of less than 1% of the
outstanding shares of the Fund. At such date, Mr. Zeikel, a Trustee and officer
of the Fund, and the other officers of the Fund owned an aggregate of less than
1% of the outstanding shares of Common Stock of ML & Co.
COMPENSATION OF TRUSTEES
The Fund pays each non-interested Trustee a fee of $4,000 per year plus
$1,000 per meeting attended. The Fund also compensates members of its Audit
Committee (the "Committee"), which consists of all the non-interested Trustees,
a fee of $4,000 per year plus a fee of $750 per meeting of the Audit Committee,
which is held on a day on which the Board of Trustees does not meet. The Fund
reimburses each non-interested Trustee for his out-of-pocket expenses relating
to attendance at Board and Committee meetings.
The following table shows the compensation earned by the non-interested
Trustees for the fiscal year ended October 31, 1998 and also the aggregate
compensation paid to them from all registered investment companies advised by
Manager and its affiliate, FAM ("MLAM/FAM-advised funds"), for the calendar year
ended December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATE
PENSION OR ESTIMATED COMPENSATION FROM
RETIREMENT BENEFITS ANNUAL FUND AND OTHER
POSITION WITH COMPENSATION ACCRUED AS PART OF BENEFITS UPON MLAM/FAM-
NAME FUND FROM FUND FUND EXPENSE RETIREMENT ADVISED FUNDS(1)
- ---- ------------- ------------ ------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Joe Grills...................... Trustee $ 15,000 None None $171,500
Walter Mintz.................... Trustee $ 15,000 None None $159,500
Robert S. Salomon, Jr........... Trustee $ 15,000 None None $159,500
Melvin R. Seiden................ Trustee $ 15,000 None None $159,500
Stephen B. Swensrud............. Trustee $ 15,000 None None $175,500
</TABLE>
- ---------------
(1) The Directors serve on the boards of MLAM/FAM-advised funds as follows: Joe
Grills (22 registered investment companies consisting of 55 portfolios),
Walter Mintz (20 registered investment companies consisting of 41
portfolios), Robert S. Salomon (20 registered investment companies
consisting of 41 portfolios), Melvin R. Seiden (20 registered investment
companies consisting of 41 portfolios), Stephen B. Swensrud (23 registered
investment companies consisting of 56 portfolios).
8
<PAGE> 28
Trustees of the Fund, members of the Boards of other MLAM-advised
investment companies, ML & Co. and its subsidiaries (the term "subsidiaries,"
when used herein with respect to ML & Co., includes MLAM, FAM and certain other
entities directly or indirectly wholly owned and controlled by ML & Co.) and
their trustees/directors and employees, and any trust, pension, profit-sharing
or other benefit plan for such persons, may purchase shares of the Fund at net
asset value.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Management Services. The Manager provides the Fund with investment
advisory and management services. Subject to the supervision of the Board of
Trustees, the Manager is responsible for the actual management of the Fund's
portfolio and constantly reviews the 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. The Manager performs certain of the other administrative services and
provides all the office space, facilities, equipment and necessary personnel for
management of the Fund.
Securities held by the Fund also may be held by, or be appropriate
investments for, other funds or clients (collectively referred to as "clients")
for which the Manager or FAM acts as an adviser or by investment advisory
clients of the Manager. Because of different objectives or other factors, a
particular security may be bought for one or more clients when one or more
clients are selling the same security. If purchases or sales of securities for
the Fund or other advisory clients arise for consideration at or about the same
time, transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Manager or an
affiliate 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.
Management Fee. The Fund has entered into a management agreement with the
Manager (the "Management Agreement"), pursuant to which the Manager receives for
its services to the Fund monthly compensation at the annual rate of 0.50% of the
average daily 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 the average daily net assets exceeding $3 billion but not exceeding $4
billion; 0.35% of the average daily net assets exceeding $4 billion but not
exceeding $7 billion; 0.325% of the average daily net assets exceeding $7
billion but not exceeding $10 billion; and 0.30% of the average daily net assets
exceeding $10 billion. The table below sets forth information about the total
management fees paid by the Fund to the Manager for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, MANAGEMENT FEE
----------------------------- --------------
<S> <C>
1998.............................. $43,135,917
1997.............................. $38,870,409
1996.............................. $34,280,472
</TABLE>
Payment of Fund Expenses. The Management Agreement obligates the Manager
to provide management services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund, as well as the
fees of all Trustees of the Fund who are affiliated persons of ML & Co. or any
of its affiliates. The Fund pays all other expenses incurred in the operation of
the Fund, including among other things: taxes, expenses for legal and auditing
services, costs of printing proxies, stock certificates, shareholder reports,
prospectuses and statements of additional information, except to the extent paid
by Merrill Lynch Funds Distributor, a division of PFD (the "Distributor");
charges of the custodian and the transfer agent; expenses of redemption of
shares; Commission fees; expenses of registering the shares under Federal and
state securities laws; fees and expenses of unaffiliated Trustees; accounting
and pricing costs (including the daily calculations of net asset value);
insurance; interest; brokerage costs; litigation and other extraordinary or
non-recurring expenses; and other expenses properly payable by the Fund.
Accounting services are provided for the Fund by the Manager and the Fund
reimburses the Manager for its costs in connection with such services. See
"Purchase of Shares -- Distribution Plans."
9
<PAGE> 29
Organization of the Manager. The Manager is a limited partnership, the
partners of which are ML & Co., a financial services holding company and the
parent of Merrill Lynch, and Princeton Services. ML & Co. and Princeton Services
are "controlling persons" of the Manager as defined under the Investment Company
Act because of their ownership of its voting securities or their power to
exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will continue in effect from year to year if approved
annually (a) by the Board of Trustees or by a majority of the outstanding shares
of the Fund and (b) by a majority of the Trustees who are not parties to such
contract or interested persons (as defined in the Investment Company Act) of any
such party. Such contracts are not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party or by vote of
the shareholders of the Fund.
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Fund'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 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 for
out-of-pocket expenses incurred by the Transfer Agent under the Transfer Agency
Agreement. Additionally, a $.20 monthly closed account charge will be assessed
on all accounts which close during the calendar year. Application of this fee
will commence the month following the month the account is closed. At the end of
the calendar year, no further fees will be due. For purposes of the Transfer
Agency Agreement, the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing the beneficial
interest of a person in the relevant share class on a recordkeeping system,
provided the recordkeeping system is maintained by a subsidiary of ML & Co.
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act that incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on Fund investment personnel.
The Codes require that all employees of the Manager pre-clear any personal
securities investment (with limited exceptions, such as government securities).
The pre-clearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
PURCHASE OF SHARES
Reference is made to "How to Buy, Sell and Transfer Shares" in the
Prospectus.
The Trust currently offers two classes of shares of the Fund to
participants in the 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 Fund will not be sold, other
than through dividend reinvestments. The offering of Class II shares commenced
on October 2, 1998. At that time all outstanding shares of the Fund were
redesignated "Class I shares" and the new class was designated "Class II
shares."
10
<PAGE> 30
Shares of the Fund are offered 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 Fund. If Federal Funds are
available to the Fund prior to the determination of net asset value (generally
4:00 p.m. Eastern 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 Fund or the Distributor.
Each Class I and Class II share of the Fund represents an identical
interest in the investment portfolio of the Fund and has the same rights, except
that Class II shares bear the expenses of the ongoing Class II distribution
fees. Class II shares have exclusive voting rights with respect to the Rule
12b-1 distribution plan adopted with respect to such class pursuant to which
distribution fees are paid. Each class has identical exchange privileges.
Class I Shares. Class I shares will continue to be sold without any
front-end or deferred sales charges and will bear no ongoing distribution fees.
Class I shares are offered to:
- Any Plan with an active custodial retirement account as of September 30,
1998
- Any Plan purchasing shares in the Fund through a Merrill Lynch fee-based
program
- Any pension, profit-sharing, annuity or qualified plan other than a Plan
Class II Shares. Class II Shares, like Class I shares, are sold without
any front-end or deferred sales charges; however, Class II shares are subject to
an ongoing distribution fee.
Class II shares are offered to any Plan that did not have an active
custodial retirement account as of September 30, 1998 and does not otherwise
qualify as an offeree of Class I shares as described above.
The Fund has entered into a separate distribution agreement with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Management Agreement described
above.
The right to receive payment with respect to any redemption of 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 Fund of securities owned by it is not reasonably practicable or (b) it is
not reasonably practicable for the Fund fairly to determine the value of its net
assets; or (3) for such other periods as the Commission may by order permit for
the protection of security holders of the Fund. The Commission shall by rules
and regulations determine the conditions under which (i) trading shall be deemed
to be restricted and (ii) an emergency shall be deemed to exist within the
meaning of clause (2) above.
All purchases and redemptions of Fund shares and dividend reinvestments are
confirmed to participants in Plans (rounded to the nearest share) in the
statement that is sent monthly or quarterly to all participants in these Plans.
The Fund and the Distributor have received an exemptive order from the
Commission that permits the 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 Fund and redemptions which are
effected automatically to purchase other securities which the participant has
selected for investment in his account.
11
<PAGE> 31
Participants in Plans in association with the Merrill Lynch Blueprint(SM)
program receive quarterly statements reflecting all purchases, redemptions and
dividend reinvestments of Fund shares. In addition, these participants receive
an individual confirmation with respect to each redemption of Fund shares and
each purchase of such shares other than purchases that are made automatically
through payroll deductions. Shareholders who are not participants in the Plans
receive quarterly statements reflecting all purchases, redemptions and dividend
reinvestments of Fund shares.
In the interest of economy and convenience and because of the operating
procedures of the Fund, certificates representing the Fund's shares will not be
physically issued. Shares are maintained by the 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.
Class II Distribution Plan. Distribution fees will be paid by the Fund to
Merrill Lynch with respect to the Class II shares (the "Class II Distribution
Plan") under a distribution plan pursuant to Rule 12b-1 under the Investment
Company Act. The Class II Distribution Plan provides that such distribution fee
will be accrued daily and paid monthly at the annual rate of 0.20% of the Fund's
average daily net assets attributable to the Class II shares. This distribution
fee will be used to help defray the expenses associated with marketing
activities and services related to the Class II shares, such as advertising
expenditures related to the Class II shares, the costs of systems enhancements,
expenditures for sales and marketing support and the costs of preparing and
distributing promotional materials relating to the Class II shares. Distribution
fees paid during the period October 2, 1998 (commencement of operations) to
October 31, 1998, pursuant to the Class II Distribution Plan aggregated $2,493.
Payments under the Class II Distribution Plan are based on a percentage of
average daily net assets attributable to the Class II shares regardless of the
amount of expenses incurred, and accordingly, distribution-related revenues from
the Class II Distribution Plan may be more or less than distribution-related
expenses. Information with respect to the Class II distribution-related revenues
and expenses will be presented to the Trustees for their consideration in
connection with their deliberations as to the continuance of the Class II
Distribution Plan. This information will be presented annually as of December 31
of each year on a "fully allocated accrual" basis and quarterly on a "direct
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the distribution fees and expenses consist of branch office and regional
operation center selling and transaction processing expenses, all expenses
associated with advertising, sales promotion and marketing of Class II shares,
corporate overhead and interest expense. On the direct revenue/cash basis,
revenues consist of distribution fees paid to Merrill Lynch.
The Class II Distribution Plan provides that Merrill Lynch shall provide
and the Trustees shall review quarterly reports of the disbursement of the
distribution fees paid to Merrill Lynch. In their consideration of the Class II
Distribution Plan, the Trustees must consider all factors they deem relevant,
including information as to the benefits of the Class II Distribution Plan to
the Fund and to the Class II shareholders. The Class II Distribution Plan
further provides that, so long as the Plan remains in effect, the selection and
nomination of Trustees who are not "interested persons" of the Trust, as defined
in the Investment Company Act (the "Independent Trustees"), shall be committed
to the discretion of the Independent Trustees then in office. In approving the
Class II Distribution Plan in accordance with Rule 12b-1, the Independent
Trustees concluded that there is reasonable likelihood that such Plan will
benefit the Fund and its Class II shareholders. The Class II Distribution Plan
can be terminated at any time, without penalty, by the vote of a majority of the
Independent Trustees or by the vote of the holders of a majority of the
outstanding Class II voting securities of the Fund. The Class II Distribution
Plan cannot be amended to increase materially the amount to be spent by the Fund
without the approval of the Class II shareholders, and all material amendments
are required to be approved by the vote of the Trustees, including a majority of
the Independent Trustees who have no direct or indirect financial interest in
such Distribution Plan, cast in person at a meeting called for that purpose.
Rule 12b-1 further requires that the Trust preserve copies of the Class II
Distribution Plan and any report made pursuant to such plan for a period of not
less than six years from the date of such Distribution Plan or such report, the
first two years in an easily accessible place.
12
<PAGE> 32
The Trust will have no obligation with respect to distribution-related
expenses incurred by the Distributor and Merrill Lynch in connection with Class
II shares, and there is no assurance that the Trustees of the Trust will approve
the continuance of the Class II Distribution Plan from year to year. However,
Merrill Lynch intends to seek annual continuation of the Class II Distribution
Plan. In their review of the Class II Distribution Plan, the Trustees will be
asked to take into consideration expenses incurred in connection with the
distribution of each class of shares separately. The distribution fee received
with respect to Class II shares will not be used to subsidize the sale of Class
I shares.
Most contributions to retirement plans are made through payroll deductions.
In addition to investing in the 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 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 Blueprint(SM) program, P.O. Box 30441, New Brunswick,
New Jersey 08989-0441.
Purchases of Fund shares by pension, profit-sharing and annuity plans are
made by payments by the trustee or sponsor of such plan directly to Merrill
Lynch.
Plans. There are ten types of Plans: the traditional individual retirement
account ("IRA"), the Roth individual retirement account ("Roth IRA"), the
individual retirement rollover account ("IRRA(R)"), a simplified employee
pension plan ("SEP"), a simple retirement account ("SRA") 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"), an education individual retirement account
("Education IRA") and the self-directed account of Blueprint. Although the
amount that may be contributed to a Plan account in any one year is subject to
certain limitations, assets already in a Plan account may be invested in the
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.
Plan Investments. Investment in shares of the Fund by participants in the
Plans are made as follows:
Participants in the Plans (except for Education IRAs) have two options
concerning cash balances that may arise in their Plan accounts. First,
participants may elect to have such balances automatically invested in shares of
the Fund or, in some cases, another money market mutual fund advised by the
Manager on a daily basis. Second, participants in the Plan (except for RSA
accounts) may elect to have such balances deposited in an FDIC-insured money
market account with a commercial bank designated by Merrill Lynch.
Cash balances of participants who elect to have such funds automatically
invested in the Fund will be invested as follows: Cash balances arising from the
sale of securities held in the 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 Fund on the
business day following the day that proceeds with respect thereto are received
in the Plan account. Proceeds giving rise to cash balances from the sale of
securities held in the Plan 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 Fund on the next business day
following receipt. Cash balances arising from dividends or interest payments on
securities held in the Plan account or from a contribution to the Plan are
invested in shares of the Fund on the business day following the date the
payment is received in the Plan account. Cash balances of less than $1.00 will
not be invested and no return will be earned.
A participant in these Plans (except retirement plans in association with
Blueprint) may enter a purchase order through his or her Merrill Lynch Financial
Consultant. Orders to invest either cash balances held in a
13
<PAGE> 33
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
received.
REDEMPTION OF SHARES
Reference is made to "How to Buy, Sell, and Transfer Shares" in the
Prospectus.
Distributions from certain Plans to a participant prior to the time the
participant reaches age 59 1/2 may subject the participant to penalty taxes and
income taxes on all or a portion of the distribution. There are, however, no
adverse tax consequences resulting from redemptions of shares of the Fund where
the redemption proceeds remain in the Plan account and are otherwise invested.
Shareholders other than participants in the Plans should consult their tax
advisers concerning tax consequences resulting from redemption of shares of the
Fund.
The 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 Fund will receive upon redemption all dividends declared
and reinvested until the time of redemption.
Any shareholder may redeem shares of the Fund by submitting a written
notice of redemption to Merrill Lynch. Participants in Plans should contact
their Merrill Lynch Financial Consultant to effect such redemptions.
Participants in 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 Fund or to its Transfer Agent. If
inadvertently sent to the 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 Plan is maintained, signed exactly as his or her name appears
on the Plan adoption agreement.
The Trust has instituted an automatic redemption procedure for participants
in the Plans who have elected to have cash balances in their accounts
automatically invested in shares of the Fund. In the case of such participants,
unless directed otherwise, Merrill Lynch will redeem a sufficient number of
shares of the Fund to purchase other securities which the participant has
selected for investment in his or her Plan account.
Limitations on the Payment of Deferred Sales Charges. The maximum sales
charge rule in the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD") imposes a limitation on certain asset-based sales charges
such as the distribution fee borne by the Class II shares. As applicable to the
Class II shares, the maximum sales charge rule limits the aggregate of
distribution fee payments payable by the Fund to (1) 7.25% of eligible gross
sales of Class II shares (defined to exclude shares issued pursuant to dividend
reinvestments and exchanges), plus (2) interest on the unpaid balance for Class
II, at the prime rate plus 1% (the unpaid balance being the maximum amount
payable minus amounts received from the payment of the distribution fee).
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined by the Manager once daily,
immediately after the daily declaration of dividends, on each business 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., Eastern time) or, on days when the NYSE is closed but New York banks are
open, at 4:00 p.m., Eastern 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,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and
14
<PAGE> 34
Christmas Day. The net asset value 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 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 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 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 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 Fund's price per
share as computed for the purpose of sales and redemptions at $1.00. Deviations
of more than an insignificant amount between the net asset value calculated
using market quotations and that calculated on a "penny-rounded" basis will be
reported to the Trustees by the Manager. In the event the Trustees determine
that a deviation exists which may result in material dilution or other unfair
results to investors or existing shareholders, the Fund will take such
corrective action as it regards as necessary and appropriate, including the
reduction of the number of outstanding shares of the Fund by having each
shareholder proportionately contribute shares to the Fund's capital; the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; or establishing a net
asset value per share solely by using available market quotations. If the number
of outstanding shares is reduced in order to maintain a constant penny-rounded
net asset value of $1.00 per share, the shareholders will contribute
proportionately to the Fund's capital the number of shares which represents the
difference between the amortized cost valuation and market valuation of the
portfolio. Each shareholder will be deemed to have agreed to such contribution
by his or her investment in the Fund.
Since the net income of the 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 Fund is determined, the net asset
value per share of the 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 Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of the Fund in his
or her account and any decrease in the value of a shareholder's investment may
be reflected by a decrease in the number of shares in his or her account. See
"Distributions and Taxes".
YIELD INFORMATION
The 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 Fund is required to disclose its
annualized yield for certain seven-day base periods in a standardized manner
that does not take into consideration any realized or unrealized gains or losses
on portfolio securities. The Commission also permits the calculation of a
standardized effective or compounded yield. This is computed by compounding the
unannualized base period return, which is done by adding one to the base period
return, raising the sum to a power equal to 365 divided by seven, and
subtracting one from the result. This compounded yield calculation also excludes
realized and unrealized gains or losses on portfolio securities.
The yield on the Fund's shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Fund of future yields or rates of return on its shares.
15
<PAGE> 35
The yield is affected by such factors as changes in interest rates on the Fund's
portfolio securities, average portfolio maturity, the types and quality of
portfolio securities held and operating expenses. The yield on Fund shares for
various reasons may not be comparable to the yield on bank deposits, shares of
other money market funds or other investments. The yield on the Fund's Class I
and Class II shares for the period indicated is shown below.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
OCTOBER 31, 1998
-----------------------
CLASS I CLASS II
------- --------
<S> <C> <C>
Excluding gains and losses..................... 4.76% 4.67%
</TABLE>
On occasion, the 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 91-day Treasury bills on a
rolling basis, assuming quarterly compounding. As with yield quotations, yield
comparisons should not be considered indicative of the Fund's yield or relative
performance for any future period.
PORTFOLIO TRANSACTIONS
The Fund 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 Board of Trustees of the Trust, the Manager is primarily
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Fund to obtain the best
net results taking into account such factors as price (including the applicable
dealer spread), the size, type and difficulty of the transaction involved, the
firm's general execution and operational facilities, and the firm's risk in
positioning the securities involved. While the Manager generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available. The Fund's policy of investing
in securities with short maturities will result in high portfolio turnover.
The money market securities in which the 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 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 principals for their own accounts. On
occasion, securities may be purchased directly from the issuer. The money market
securities generally are traded on a net basis and normally do not involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Fund primarily will consist of dealer spreads and
underwriting commissions. Under the Investment Company Act, persons affiliated
with the Fund are prohibited from dealing with the Fund as principals in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the Commission. Since OTC transactions are usually
principal transactions, affiliated persons of the Fund, including Merrill Lynch
Government Securities, Inc. ("GSI") and Merrill Lynch, may not serve as the
Fund's dealer in connection with such transactions except pursuant to the
exemptive order described below. However, an affiliated person of the Fund may
serve as its broker in OTC transactions conducted on an agency basis.
The Commission has issued an exemptive order permitting the Fund to conduct
principal transactions with GSI in U.S. Government securities and U.S.
Government agency securities. This order contains a number of conditions,
including conditions designed to ensure that the price to the Fund from GSI is
equal to or better than that available from other sources. GSI has informed the
Fund that it will in no way, at any time, attempt to influence or control the
activities of the Fund or the Manager in placing such principal transactions.
16
<PAGE> 36
The exemptive order allows GSI or its subsidiary, Merrill Lynch Money Markets,
Inc., to receive a dealer spread on any transaction with the 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.
The number and dollar volume of transactions engaged in by the Fund
pursuant to the exemptive order are set forth in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, NUMBER DOLLAR VOLUME
----------------------------- ------ -------------
<S> <C> <C>
1998................................ 41 $2,067,870,566
1997................................ 50 $2,128,655,272
1996................................ 48 $2,409,489,277
</TABLE>
The Trustees of the Trust have considered the possibilities of recapturing
for the benefit of the 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 Fund to the Manager. After considering
all factors deemed relevant, the Board of Trustees made a determination not to
seek such recapture. The Trustees will reconsider this matter from time to time.
The 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 economic data and market forecasts) to the Manager
may receive orders for transactions of the Fund. Information so received will be
in addition to and not in lieu of the services required to be performed by the
Manager under the Management Agreement and the expenses of the Manager will not
necessarily be reduced as a result of the receipt of such supplemental
information.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and reinvested daily in the form of additional
shares at net asset value. Shareholders will receive statements monthly as to
such reinvestments. Shareholders liquidating their holdings will receive on
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 Fund
is determined, the net asset value per share of the Fund normally remains
constant at $1.00 per share.
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 marker discount), (ii) plus or minus all realized gains and
losses on portfolio securities, (iii) less amortization of premiums and the
estimated expenses of the Fund applicable to that dividend period.
FEDERAL TAX
RICs. The following is a general summary of the treatment of regulated
investment companies ("RICs") and their shareholders under the Code. The Fund
intends to continue to qualify for the special tax treatment afforded RICs under
the Code. If it so qualifies, the Fund will not be subject to Federal income tax
with respect to the net ordinary income and net realized capital gains which it
distributes to Class I and II shareholders. The Fund intends to distribute
substantially all of such income.
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 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
17
<PAGE> 37
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.
Dividends paid by the 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 (including gains or
losses from certain transactions in futures and options) ("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 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 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 ordinarily constitute capital
gains to such holder (assuming the shares are held as a capital asset). Certain
categories of capital gain are taxable at different rates. Generally not later
than 60 days after the close of its taxable year, the Fund will provide its
shareholders with a written notice designating the amounts of any ordinary
income dividends or capital gain dividends, as well as any amounts of capital
gain dividends in the different categories of capital gain referred to above.
Dividends are ordinarily taxable to shareholders even though they are reinvested
in additional shares of the Fund.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Retirement Accounts. With the exception of CBA(R) accounts and CMA
SubAccounts(SM) established pursuant to the Uniform Gifts to Minors Acts or the
Uniform Transfers to Minors Acts (or similar state statutes), investment in the
Fund is limited to participants in retirement accounts for which Merrill Lynch
acts as custodian. Accordingly, the general description of the tax treatment of
RICs and their shareholders as set forth above is qualified for the
accountholders with respect to the special tax treatment afforded retirement
accounts under the Code. Under the Code, neither ordinary income dividends nor
capital gain dividends represent current income to shareholders holding shares
through a retirement account.
Generally, distributions from a retirement account (other than a Roth IRA)
will be taxable as ordinary income at the rate applicable to the participant at
the time of the distribution. For retirement accounts other than Roth IRAs, such
distributions would include (i) any pre-tax contributions to the retirement
account (including pre-tax contributions that have been rolled over from another
IRA or qualified retirement plan), 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 a 10 percent (or, in the case of certain SRA-IRA distributions, 25 percent)
excise tax on any amount withdrawn from a retirement account prior to the
participant's attainment of age 59 1/2, unless one of the exceptions discussed
below applies.
The exceptions to the 10% penalty include: 1) distributions after the death
of the shareholder; 2) distributions attributable to disability; 3)
distributions used to pay certain medical expenses; 4) distributions that are
part of a scheduled series of substantially equal periodic payments for the life
(or life expectancy) of the shareholder or the joint lives (or joint life and
last survivor expectancy) of the shareholder and the shareholder's beneficiary;
5) withdrawals for medical insurance if the shareholder has received
unemployment compensation for 12 weeks and the distribution is made in the year
such unemployment compensation is received or the following year; 6)
distributions to pay qualified higher education expenses of the shareholder or
certain family members of the shareholder; and 7) distributions used to buy a
first home (subject to a $10,000 lifetime limit).
For Roth IRA participants, distributions, including accumulated earnings on
contributions, will not be includible in income if such distribution is made
more than five years after the first tax year of contribution
18
<PAGE> 38
and the account holder is either age 59 1/2 or older, has become disabled, is
purchasing a first new home (subject to the $10,000 lifetime limit) or has died.
As with other retirement accounts, a 10% excise tax applies to amounts withdrawn
from the Roth IRA prior to reaching age 59 1/2 unless one of the exceptions
applies. Such a withdrawal would also be included in income to the extent of
earnings on contributions, with distributions treated as made first from
contributions and then from earnings.
Under certain limited circumstances (for example, if an individual for
whose benefit a retirement account is established engages in any transaction
prohibited under Section 4975 of the Code with respect to such account), the
retirement account could cease to qualify for the special treatment afforded
certain retirement accounts under the Code as of the first day of such taxable
year that such transaction causing disqualification occurred. If a retirement
account through which a shareholder holds Fund shares becomes ineligible for
special tax treatment, the shareholder will be treated as having received a
distribution on such first day of the taxable year from the retirement account
in an amount equal to the fair market value of all assets in the account. Thus,
a shareholder (except for shareholders in Roth IRAs) would be taxed currently on
the amount of any pre-tax contributions and previously untaxed dividends held
within the account. A Roth IRA shareholder would be taxed currently on the
distribution to the extent of accumulated earnings on contributions. All
shareholders would be taxed on the ordinary income and capital gain dividends
paid by the Fund subsequent to the disqualification event, whether such
dividends were 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 account disqualification, shareholders
also could be subject to the 10% (or 25%) excise tax described above.
Additionally, retirement account disqualification may subject a nonresident
alien shareholder to a 30% United States withholding tax on ordinary income
dividends paid by a Fund unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law.
Interest received by the Fund may give rise to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes.
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 TAX
Ordinary income and capital gain dividends on RIC shares held in a
disqualified retirement account or outside of a retirement account may also 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 account, and commence taxation on
amounts when actually distributed. Such amounts are generally treated as
ordinary income. Shareholders should consult their tax advisers regarding the
state tax treatment of amounts distributed from a Roth IRA.
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 that will issue
separate 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
different classes and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Series. Shareholder approval is not necessary for the authorization of
additional Series or classes of a Series of the
19
<PAGE> 39
Trust. At the date of this Statement of Additional Information, the Fund is the
only existing Series of the Trust, and shares of the Fund are divided into Class
I and Class II shares. Class I and Class II shares represent an interest in the
same assets of the Fund and are identical in all respects, except that Class II
shares bear certain expenses related to the distribution of such shares and have
exclusive voting rights with respect to matters relating to such distribution
expenditures. The Board of Trustees of the Trust may classify and reclassify
shares of any Series into additional classes at a future date.
All shares have equal voting rights, except that only shares of the
respective Series are entitled to vote on matters concerning only that Series
and, as noted above, Class II shares will have exclusive voting rights with
respect to matters relating to the distribution expenses borne solely by such
class. Each issued and outstanding share is entitled to one 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 with
respect to that Series and upon liquidation or dissolution of the Series in the
net assets of such Series remaining after satisfaction of outstanding
liabilities.
The obligations and liabilities of a particular Series are restricted to
the assets of that Series and do not extend to the assets of the Trust
generally. The shares of each Series, when issued, will be fully paid and non-
assessable, have no preference, pre-emptive, conversion, exchange or similar
rights, and will be freely transferable. Shareholders of the Trust are entitled
to redeem their shares as set forth under "How to Buy, Sell and Transfer Shares"
in the Prospectus and "Purchase of Shares" 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.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the non-interested Directors of
the Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
CUSTODIAN
The Bank of New York, 90 Washington Street, 12th Floor, New York, New York
10286 (the "Custodian"), acts as custodian of the Fund's assets. The Custodian
is responsible for safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities and collecting interest and
dividends on the Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the 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. See "How to Buy, Sell,
Transfer and Exchange Shares -- Through the Transfer Agent" in the Prospectus.
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on October 31 of each year. The Fund sends
to its shareholders, at least semi-annually, reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each
20
<PAGE> 40
year, shareholders will receive Federal income tax information regarding
dividends and capital gains distributions.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information with respect to
the shares of the Fund do not contain all the information set forth in the
Registration Statement and the exhibits relating thereto, which the Fund has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act and the Investment Company Act, to which reference is hereby
made.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares as of December 1, 1998.
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.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated in this Statement
of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
21
<PAGE> 41
APPENDIX A
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 ("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 regarding timely payment is
strong; A-2 indicates that capacity for timely repayment is satisfactory; A-3
indicates that capacity for timely payment is satisfactory, however, they are
more vulnerable to the adverse changes of circumstances than obligations rated
A-1 or A-2.
Moody's Investors Service, Inc. ("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, Prime-3 issues have an acceptable capacity for repayment.
Fitch IBCA, 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; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Bonds rated AAA by Fitch 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.
22
<PAGE> 42
Code #10093-2-99
<PAGE> 43
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
1(a) -- Declaration of Trust of Registrant, dated July 15, 1986.(a)
(b) -- Instrument establishing Merrill Lynch Retirement Reserves
Money Fund (the "Fund") as a series of the Registrant.(a)
(c) -- Amendment to Declaration of Trust of Registrant and
Establishment and Designation of Class I and Class II shares
of the Fund.
2 -- By-Laws of the Registrant.(a)
3 -- None.
4 -- Management Agreement between the Registrant and Merrill
Lynch Asset Management, L.P.(b)
5(a) -- Distribution Agreement between the Registrant and Merrill
Lynch Funds Distributor, Inc. (now known as Princeton Funds
Distributor, Inc.)(the "Distributor").(a)
(b) -- Class II Distribution Agreement between Registrant and
Distributor.
6 -- None.
7 -- Custody Agreement between the Registrant and The Bank of New
York.(a)
8 -- Transfer Agency, Shareholder Servicing Agency and Proxy
Agency Agreement between the Registrant and Merrill Lynch
Financial Data Services, Inc. (now known as Financial Data
Services, Inc.)(a)
9 -- Opinion of Brown & Wood LLP, counsel to the Registrant.(d)
10 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
11 -- None.
12 -- Certificate of Merrill Lynch Asset Management, L.P.(a)
13 -- Class II Distribution Plan pursuant to Rule 12b-1 between
Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
14(a) -- Financial Data Schedule for Class I shares.
(b) -- Financial Data Schedule for Class II shares.
15 -- Plan pursuant to Rule 18f-3(c).
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Filed on February 26, 1996 as an exhibit to Post-Effective
Amendment No. 16 to Registrant's Registration Statement on
Form N-1A under the Securities Act of 1933 as amended (File
No. 2-74584)(the "Registration Statement").
(b) Filed on February 21, 1997 as an exhibit to Post-Effective
Amendment No. 17 to the Registrant's Registration Statement
under the Securities Act of 1933 on Form N-1A.
(c) Filed on December 30, 1997 as an exhibit to Post-Effective
Amendment No. 18 to the Registrant's Registration Statement
under the Securities Act of 1933 on Form N-1A.
(d) Previously filed as an exhibit to the Registration
Statement.
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 25. INDEMNIFICATION.
Reference is made to Section 5.3 of the Registrant's Declaration of Trust
and Section 9 of the Distribution Agreement.
C-1
<PAGE> 44
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees,
and agents (including persons who serve at its request as directors,
officers or trustees of another organization in which it has any interest
as a shareholder, creditor or otherwise) against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while in office or
thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matters 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 Trustee to the effect that if either the matter of willful
misfeasance, gross negligence or reckless disregard of duty, or the matter
of good faith and reasonable belief as to the best interests of the Trust,
had been adjudicated, it would have been adjudicated in favor of such
person. The rights accruing to any person under these provisions shall not
exclude any other right to which he may be lawfully entitled; provided that
no person may satisfy any right of indemnity or reimbursement granted
herein or in Section 5.1 or to which he may be otherwise entitled except
out of the property of the Trust, and no Shareholder shall be personally
liable to any person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance payments in
connection with indemnification under this Section 5.3, provided that the
indemnified person shall have given a written undertaking to reimburse the
Trust in the event it is subsequently determined that he is not entitled to
such indemnification."
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act of 1940, as amended (the "Investment
Company Act") may be concerned, such payments will be made only on the following
conditions: (i) the advances must be limited to amounts used, or to be used, for
the preparation or presentation of a defense to the action, including costs
connected with the preparation of a settlement; (ii) advances may be made only
upon receipt of a written promise by, or on behalf of, the recipient to repay
that amount of the advance which exceeds the amount 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 a written
opinion, shall determine, based upon a review of readily available facts, that
the recipient of the advance ultimately will be found entitled to
indemnification.
In Section 9 of the 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, as amended (the "Securities Act"), against certain types
of civil liabilities arising in connection with the Registration Statement or
Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Trustees, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities 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
C-2
<PAGE> 45
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
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 Convertible 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
Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill
Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch
Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch 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 Hotchkis and Wiley funds
(advised by Hotchkis and Wiley, a division of MLAM); and for the following
closed-end registered investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts
as sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios of EQ Advisors Trust.
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 Corporate High
Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., and The Municipal Fund Accumulation
Program, Inc.; and for the following closed-end registered investment companies:
Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield
Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc.,
Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund,
Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings
California Insured Fund, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings California Insured Fund III, Inc., MuniHoldings Florida Insured
Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida Insured Fund
III, MuniHoldings Insured Fund, Inc., MuniHoldings New Jersey Insured Fund,
Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New York Fund,
Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured
Fund II, 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 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.,
C-3
<PAGE> 46
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of FAM, MLAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Princeton Funds
Distributor, Inc. ("PFD") and of Merrill Lynch Funds Distributor ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281-1201. The address of the Fund's transfer agent, Financial
Data Services, Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
November 1, 1996 for his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all of
the investment companies described in the first two paragraphs of this Item 26,
and Messrs. Giordano, Harvey, Kirstein and Monagle are officers of one or more
of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME 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.................... Chairman Chairman of FAM; President of FAM
and MLAM from 1977 to 1997;
Chairman and Director of Princeton
Services; President of Princeton
Services from 1993 to 1997;
Executive Vice President of ML &
Co.
Jeffrey M. Peek.................. President President of FAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.; Managing Director and Co-Head
of the Investment Banking Division
of Merrill Lynch in 1997; Senior
Vice President and Director of the
Global Securities and Economics
Division of Merrill Lynch from
1995 to 1997
Terry K. Glenn................... Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
Director of FDS; President of
Princeton Administrators
Mark A. Desario.................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Linda L. Federici................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
</TABLE>
C-4
<PAGE> 47
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
<S> <C> <C>
Vincent R. Giordano.............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Elizabeth A. Griffin............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
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, Secretary
Secretary and General and General Counsel of FAM; Senior
Counsel Vice President of Princeton
Services
Philip L. Kirstein............... Senior Vice President Senior Vice President of FAM;
Senior Vice President, Director
and Secretary of Princeton
Services
Ronald M. Kloss.................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Debra W. Landsman-Yaros.......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Vice President of PFD
Stephen M. M. Miller............. Senior Vice President Executive Vice President of
Princeton Administrators; Senior
Vice President of Princeton
Services
Joseph T. Monagle, Jr. .......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Gerald M. Richard................ Senior Vice President Senior Vice President and
and Treasurer Treasurer of FAM; Senior Vice
President and Treasurer of
Princeton Services; Vice President
and Treasurer of PFD
Gregory D. Upah.................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Ronald L. Welburn................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies referred
to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc. and The Municipal Fund Accumulation Program, Inc.; and MLFD also acts as
the principal underwriter for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
A separate division of PFD acts as the principal underwriter of a number of
other investment companies.
C-5
<PAGE> 48
(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen,
Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH PFD WITH REGISTRANT
---- ---------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn........................... President and Director Executive Vice President
Michael G. Clark......................... Director None
Thomas J. Verage......................... Director None
Robert W. Crook.......................... Senior Vice President None
Michael J. Brady......................... Vice President None
William M. Breen......................... Vice President None
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
Salvatore Venezia........................ Vice President None
William Wasel............................ Vice President None
Robert Harris............................ Secretary None
</TABLE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained at the
offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey
08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484).
ITEM 29. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the
Fund -- Merrill Lynch Asset Management" in the Prospectus constituting Part A of
the Registration Statement and under "Management of the Fund -- Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, the Registrant is not a party to any
management-related service contract.
ITEM 30. UNDERTAKINGS.
Not applicable.
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<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the registrant 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 29th day of
December, 1998.
MERRILL LYNCH RETIREMENT SERIES TRUST
(Registrant)
By: /s/ GERALD M. RICHARD
------------------------------------
(Gerald M. Richard, Treasurer)
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the date(s) indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
ARTHUR ZEIKEL* President and Trustee
- --------------------------------------------- (Principal Executive Officer)
(Arthur Zeikel)
GERALD M. RICHARD* Treasurer (Principal Financial
- --------------------------------------------- and Accounting Officer)
(Gerald M. Richard)
JOE GRILLS* Trustee
- ---------------------------------------------
(Joe Grills)
WALTER MINTZ* Trustee
- ---------------------------------------------
(Walter Mintz)
ROBERT S. SALOMON, JR.* Trustee
- ---------------------------------------------
(Robert S. Salomon, Jr.)
MELVIN R. SEIDEN* Trustee
- ---------------------------------------------
(Melvin R. Seiden)
STEPHEN B. SWENSRUD* Trustee
- ---------------------------------------------
(Stephen B. Swensrud)
*By: /s/ GERALD M. RICHARD December 29, 1998
- ---------------------------------------------
(Gerald M. Richard, Attorney-in-Fact)
</TABLE>
C-7
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1(c) Amendment to the Declaration of Trust and Establishment and
Designation of Class I and Class II shares of the Fund.
5(b) Class II Distribution Agreement between Registrant and
Distributor.
10 Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
13 Class II Distribution Plan pursuant to Rule 12b-1 between
Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
14(a) Financial Data Schedule for Class I shares.
(b) Financial Data Schedule for Class II shares.
</TABLE>
C-8
<PAGE> 1
Exhibit 1(c)
MERRILL LYNCH RETIREMENT SERIES TRUST
Certification of Amendment
To Declaration of Trust
and
Establishment and Designation of Classes
The undersigned, constituting a majority of the Trustees of Merrill
Lynch Retirement Series Trust the ("Trust"), a Massachusetts business trust,
hereby certify that the Trustees of the Trust have duly adopted the following
amendments, as approved by a majority of the shareholders of the Trust, to the
Trust's Declaration of Trust.
VOTED: That Section 1.2 of Article I of the Declaration be, and it
hereby is, amended in its entirety to read as follows:
1.2 Definitions. As used in this Declaration, the following terms shall
have the following meanings:
The terms "Affiliated Person", "Commission", "Interested Person",
"Majority Shareholder Vote" (the 67% or more than 50% requirement of
the third sentence of Section 2(a)(42) of the 1940 Act, whichever may
be applicable) and "Principal Underwriter" shall have the meanings
given them in the 1940 Act.
"Declaration" shall mean this Declaration as amended from time to time.
References in this Declaration to "Declaration", "hereof', "herein" and
"hereunder" shall be deemed to refer to the Declaration rather than the
article or section in which such words appear.
"Fundamental Policies" shall mean the investment restrictions set forth
in the Prospectus of any Series and designated as fundamental policies
therein.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"Prospectus" shall mean the currently effective Prospectus of any
Series of the Trust under the Securities Act of 1933, as amended,
including the Statement of Additional Information incorporated by
reference therein.
"Series" shall mean the separate series that may be established and
designated pursuant to Section 6.2.
"Shareholders" shall mean as of any particular time all holders of
record of outstanding Shares at such time.
<PAGE> 2
"Shares" shall mean the equal proportionate transferable units of
interest into which the beneficial interest in any Series of the Trust
shall be divided from time to time and includes fractions of Shares as
well as whole Shares. As provided in Article VI hereof, a Series of the
Trust may issue separate classes of Shares; all references to Shares
shall be deemed to be Shares of any or all Series or a single class of
a Series or all classes of a Series as the context may require.
"Trustees" shall mean the signatories to this Declaration, so long as
they shall continue in office in accordance with the terms hereof, and
all other persons who at the time in question have been duly elected or
appointed and have qualified as trustees in accordance with the
provisions hereof and are then in office, are herein referred to as the
"Trustees", and reference in this Declaration to a Trustee or Trustees
shall refer to such person or persons in their capacity as Trustees
hereunder.
"Trust Property" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time
is owned or held by or for the account of the Trust, any Series thereof
or the Trustees.
The "1940 Act" refers to the Investment Company Act of 1940, as amended
from time to time, and shall include the rules and regulations and any
relevant order of exemption promulgated thereunder by the Securities
and Exchange Commission.
VOTED: That Section 6.2 of Article VI of the Declaration be, and it
hereby is, amended in its entirety to read as follows:
6.2 Series Designation. The Trustees, in their discretion from time to
time, may authorize the division of Shares into two or more Series, each Series
relating to a separate portfolio of investments. The different Series shall be
established and designated, and the variations in the relative rights and
preferences as between the different series shall be fixed and determined, by
the Trustees; provided that all Shares shall be identical except that there may
be variations between different Series as to purchase price, determination of
net asset value, the price, terms and manner of redemption, special and relative
rights as to dividends and on liquidation, conversion rights, and conditions
under which the several Series shall have separate voting rights. All references
to Shares in this Declaration shall be deemed to be shares of any or all Series
as the context may require.
The Trustees, in their discretion from time to time without a vote of
the Shareholders, may divide the shares of beneficial interest of any Series
into classes. In such event, each class of a Series shall represent interests in
the Trust Property of a Series and have identical voting, dividend, liquidation
and other rights and the same terms and conditions except that expenses related
directly or indirectly to the distribution of the Shares of a class of a Series
may be borne solely by such class (as shall be determined by the Trustees) and,
as provided in Section 10. 1, a class of a Series may have exclusive voting
rights with respect to matters relating to the expenses being borne solely by
such class. The bearing of such expenses solely by a class of Shares of a Series
shall be appropriately reflected (in the manner determined by the Trustees) in
the net asset value, dividend and liquidation rights of the Shares of such class
of a Series. The division of the Shares of a Series into classes and the terms
and conditions pursuant to which the Shares of the
2
<PAGE> 3
classes of a Series will be issued must be made in compliance with the 1940 Act.
No division of Shares of a Series into classes shall result in the creation of a
class of Shares having a preference as to dividends or distributions or a
preference in the event of any liquidation, termination or winding up of the
Trust. The Trustees may provide that Shares of a class will be exchanged for
Shares of another class without any act or deed on the part of the holder of
Shares of the class being exchanged, whether or not Shares of such class are
issued and outstanding, all on terms and conditions as the Trustees may specify.
The Trustees may redesignate a class or Series of Shares of beneficial interest
or a portion of a class or Series of Shares of beneficial interest whether or
not shares of such class or Series are issued and outstanding, provided that
such redesignation does not substantially adversely affect the preference,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such issued
and outstanding Shares of beneficial interest.
If the Trustees shall divide the Shares into two or more Series, the
following provisions shall be applicable:
(a) The number of Shares of each Series and of each class of a Series
that may be issued shall be unlimited. The Trustees may classify or reclassify
any unissued Shares or any Shares previously issued and reacquired of any Series
into one or more Series that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any Series reacquired by the Trust at their discretion
from time to time.
(b) The power of the Trustees to invest and reinvest the Trust Property
of each Series that may be established shall be governed by Section 3.2 of this
Declaration.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series or all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books of account of the Trust. In
the event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series, the Trustees shall allocate them among any one or more of
the Series established and designated from time to time in such manner and on
such basis as they, in their sole discretion, deem fair and equitable. Each such
allocation by the Trustees shall be conclusive and binding upon the Shareholders
of all Series for all purposes.
(d) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series only and all
expenses, costs, charges and reserves attributable to that Series and shall not
be charged with the liabilities, expenses, costs, charges and reserves
attributable to other Series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular Series shall be allocated and charged by the Trustees to and
among any one or more of the Series established and designated from time to time
in such manner and on such basis as the Trustees in their sole
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<PAGE> 4
discretion deem fair and equitable. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive and binding upon
the Shareholders of all Series for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine which
items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
with respect to any one or more Series shall be governed by Section 9.2 of this
Declaration. Dividends and distributions on Shares of a particular Series may be
paid with such frequency as the Trustees may determine, to the holders of Shares
of that Series, from such of the income and capital gains, accrued or realized,
from the assets belonging to that Series, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that Series. All
dividends and distributions on Shares of a particular Series shall be
distributed pro rata to the holders of that Series in proportion to the number
of Shares of that Series held by such holders at the date and time of record
established for the payment of such dividends or distributions, except that such
dividends and distributions shall appropriately reflect expenses related
directly or indirectly to the distribution of Shares of a class of such Series.
The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth the establishment and designation of such Series. Such instrument
shall also set forth any rights and preferences of such Series which are in
addition to the rights and preferences of Shares set forth in this Declaration.
At any time that there are no Shares outstanding of any particular Series
previously established and designated, the Trustees may by an instrument
executed by a majority of their number abolish that Series and the establishment
and designation thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration.
VOTED: That Section 6.3 of Article VI of the Declaration be, and it
hereby is, amended in its entirety to read as follows:
6.3 Rights of Shareholders. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares
with respect to a particular Series, and they shall have no right to call for
any partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to share or assume any losses of the Trust or
suffer an assessment of any kind by virtue of their ownership of Shares. The
Shares shall be personal property giving only the rights in this Declaration
specifically set forth. The Shares shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights (except for rights of
appraisal specified in Section 11.4 and except as may be specified by the
Trustees in connection with the division of shares into classes or the
redesignation of classes or portions of classes in accordance with Section 6.2).
VOTED: That Sections 9.1, 9.2 and 9.4 of Article IX of the
Declaration be, and they hereby are, amended in their entirety
to read as follows:
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9. 1. The Net Asset Value. The net asset value of each outstanding
Share of each Series of the Trust shall be determined at such time or times on
such days as the Trustees may determine, in accordance with the 1940 Act, with
respect to each Series. The method of determination of net asset value of Shares
of each class of a Series shall be determined by the Trustees and shall be as
set forth in the Prospectus with respect to the applicable Series with any
expenses being borne solely by a class of Shares being reflected in the net
asset value of such Shares. The power and duty to make the daily calculations
for any Series may be delegated by the Trustees to the adviser, administrator,
manager, custodian, transfer agent or such other person as the Trustees may
determine. The Trustees may suspend the daily determination of net asset value
to the extent permitted by the 1940 Act.
9.2. Distributions to Shareholders. The Trustees shall from time to
time distribute ratably among the Shareholders of any Series such proportion of
the net profits, surplus (including paid-in-surplus), capital, or assets with
respect to such Series held by the Trustees as they deem proper with any
expenses being borne solely by a class of Shares of any Series being reflected
in the net profits or other assets being distributed to such class. Such
distribution may be made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof), and the Trustees may
distribute ratably among the Shareholders of any Series additional Shares of
such Series issuable hereunder in such manner, at such times, and on such terms
as the Trustees may deem proper. Such distributions may be among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust or to meet obligations of
the Trust, or as they deem desirable to use in the conduct of its affairs or to
retain for future requirements or extensions of the business. The Trustees may
adopt and offer to Shareholders of any Series such dividend reinvestment plans,
cash dividend payout plans or related plans as the Trustees shall deem
appropriate for such Series.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
9.4. Power to Modify Foregoing Procedure. Notwithstanding any of the
foregoing provisions of this Article IX, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per share
net asset value of the Trust's shares or net income, or the declaration and
payment of dividends and distributions as they deem necessary or desirable or to
enable the Trust to comply with any provision of the 1940 Act, including any
rule or regulation adopted pursuant to Section 22 of the 1940 Act by the
Commission or any securities association registered under the Securities
Exchange Act of 1934, all as in effect now or hereafter amended or modified.
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<PAGE> 6
VOTED: That Sections 10. 1 and 10. 2 of Article X of the Declaration
of Trust be, and they hereby are, amended in their entirety to
read as follows:
10.1. Voting Powers. The Shareholders shall have power to vote (i) for
the removal of Trustees as provided in Section 2.3; (ii) with respect to any
advisory or management contract of a Series as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in Section 11.3;
(iv) with respect to such additional matters relating to the Trust as may be
required or authorized by the 1940 Act, the laws of the Commonwealth of
Massachusetts or other applicable law or by this Declaration or the By-Laws of
the Trust; and (v) with respect to such additional matters relating to the Trust
as may be properly submitted for Shareholder approval. If the Shares of a Series
shall be divided into classes as provided in Article VI hereof, the Shares of
each class shall have identical voting rights except that the Trustees, in their
discretion, may provide a class of a Series with exclusive voting rights with
respect to matters related to expenses being borne solely by such class whether
or not Shares of such class are issued and outstanding.
10.2. Meetings of Shareholders. Special meetings of the Shareholders
may be called at any time by a majority of the Trustees and shall be called by
any Trustee upon written request of Shareholders of any Series holding in the
aggregate not less than 10% of the outstanding Shares of such Series having
voting rights, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting shall be held within or without the
Commonwealth of Massachusetts on such day and at such time as the Trustees shall
designate. The holders of a majority of the outstanding Shares of each Series
present in person or by proxy shall constitute a quorum for the transaction of
any business, except as may otherwise be required by the 1940 Act, the laws of
the Commonwealth of Massachusetts or other applicable law or by this Declaration
or the By-Laws of the Trust. If a quorum is present at a meeting of a particular
Series, the affirmative vote of a majority of the Shares of each Series
represented at the meeting constitutes the action of the Shareholders, unless
the 1940 Act, the laws of the Commonwealth of Massachusetts or other applicable
law, the Declaration or by the By-Laws of the Trust requires a greater number of
affirmative votes. If the Shares of any Series shall be divided into classes
with a class having exclusive voting rights with respect to certain matters, the
aforesaid quorum and voting requirements with respect to action to be taken by
the Shareholders of the class of such Series on such matters shall be applicable
only to the Shares of such class.
VOTED: That Section 11.2 of Article XI of the Declaration be, and it
hereby is, amended in its entirety to read as follows:
11.2. Termination.
(a) The Trust may be terminated by the affirmative vote of the holders
of not less than two-thirds of We Shares of each Series of the Trust at any
meeting of Shareholders or by an instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the holders of not less
than two-thirds of such Shares. Any Series may be so terminated by vote or
written consent of not less than two-thirds of the Shares of such Series. Upon
the termination of the Trust or any Series,
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(i) The Trust or such Series shall carry on no business except
for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust or such Series and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or such
Series shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust or such Series, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose
of all or part of the remaining Trust Property to one or more persons
at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge
or pay its liabilities, and do all other acts appropriate to liquidate
its business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by vote or
consent of the holders of a majority of the Shares entitled to vote.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property of any Series, in
cash or in kind or partly each, among the Shareholders of such Series
and each class of such Series, according to their respective rights
taking into account the proper allocation of expenses being home solely
by any Series or any class of Shares of a Series.
(b) After termination of the Trust or at Series and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination. Upon termination of the Trust, the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Shareholders shall thereupon cease. Upon
termination of any Series, the Trustees shall thereupon be discharged from all
further liabilities and duties with respect to such Series, and the rights and
interests of all Shareholders of such Series shall thereupon cease.
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 6.2 of the Declaration, do hereby divide the shares of
beneficial interest of the Series designated "Merrill Lynch Retirement Reserves
Money Fund" (the "Fund") of the Trust, par value $.10 per share ("Shares"), to
create two classes of Shares, within the meaning of said Section 6.2 as follows:
1. The two classes of Shares are designated "Class I
Shares" and "Class 11 Shares".
2. Class I Shares and Class 11 Shares shall be
entitled to all of the rights and preferences accorded to
Shares under the Declaration.
3. The purchase price of Class I Shares and Class 11
Shares, the method of determination of net asset value of
Class I Shares and Class 11 Shares, the
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<PAGE> 8
price, terms and manner of redemption, terms and manner of
exchange of Shares of one class for Shares of another class,
and the relative dividend rights of holders of Class I Shares
and Class 11 Shares shall be established by the Trustees of
the Trust in accordance with the provisions of the Declaration
and shall be set forth in the currently effective prospectus
and statement of additional information of the Trust relating
to the Fund, as amended from time to time, under the
Securities Act of 1933, as amended.
4. Class I Shares and Class 11 Shares shall vote
together as a single class except that shares of a class may
vote separately on matters affecting only that class and
shares of a class not affected by a matter will not vote on
that matter.
5. A class of shares of any series of the Trust may
be terminated by the Trustees by written notice to the
Shareholders of the class.
6. All Shares issued prior to the filing of this
instrument with the Commonwealth of Massachusetts shall be
deemed Class I Shares.
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<PAGE> 1
Exhibit 5(b)
CLASS II SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 2nd day of October, 1998, between Merrill
Lynch Retirement Series Trust, a business trust organized under the laws of
Massachusetts (the "Trust"), and MERRILL LYNCH FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Trust to offer its
shares for sale continuously; and
WHEREAS, the Trust is authorized to establish separate series
("Series"), each of which will offer separate classes of shares of beneficial
interest, par value $.10 per share (collectively referred to as "shares"), to
selected groups of purchasers; and
WHEREAS, the Trustees of the Trust (the "Trustees") have established
and designated the Merrill Lynch Retirement Reserves Money Fund (the "Fund") as
a series of the Trust; and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Trust and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class II shares
of the Fund in order to promote the growth of the Fund and facilitate the
distribution of its Class II shares.
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Trust hereby appoints
the Distributor as the principal underwriter and distributor of the Trust to
sell Class II shares of beneficial interest in the Fund (sometimes herein
referred to as "Class II shares") to the selected groups of investors specified
as eligible investors in the currently effective prospectus and statement of
additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act") relating to such Class II shares and the
Distributor hereby accepts such appointment. The Trust during the term of this
Agreement shall sell Class II shares of the Fund to the Distributor upon the
terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Trust to act as principal underwriter and
distributor of the Class II shares, except that:
(a) The exclusive right granted to the Distributor to purchase Class II
shares from the Fund shall not apply to Class II shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Trust or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding Class II
shares of any such company by the Trust.
(b) Such exclusive right also shall not apply to Class II shares issued
pursuant to reinvestment of dividends or capital gains distributions.
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<PAGE> 3
(c) Such exclusive right also shall not apply to Class II shares issued
pursuant to any conversion, exchange or reinstatement privilege afforded
redeeming shareholders or to any other Class II shares as shall be agreed
between the Trust and the Distributor from time to time.
Section 3. Purchase of Class II Shares from the Trust.
(a) The Distributor shall have the right to buy from the Trust the
Class II shares needed, but not more than the Class II shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class II
shares of the Fund placed with the Distributor by eligible investors or
securities dealers. The price which the Distributor shall pay for the Class II
shares so purchased from the Trust shall be the net asset value, determined as
set forth in Section 3(c) hereof.
(b) The Class II shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(c) hereof, or to
securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(c) The net asset value of Class II shares of the Fund shall be
determined by the Trust or any agent of the Trust in accordance with the method
set forth in the prospectus and statement of additional information (the
"Prospectus" and "Statement of Additional Information", respectively) and
guidelines established by the Trustees.
(d) The Trust shall have the right to suspend the sale of Class II
shares of the Fund at times when redemption is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Trust also shall have the right
to suspend the sale of Class II shares of the Fund if trading on the New York
Stock Exchange shall have been suspended, if a banking moratorium shall have
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<PAGE> 4
been declared by Federal or New York authorities, or if there shall have been
some other event, which, in the judgment of the Trust, makes it impracticable or
inadvisable to sell the Class II shares.
(e) The Trust, or any agent of the Trust designated in writing by the
Trust, shall be promptly advised of all purchase orders for Class II shares
received by the Distributor. Any order may be rejected by the Trust; provided,
however, that the Trust will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class II shares. The Trust (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Trust (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class II shares pursuant to
the instructions of the Distributor. Purchase orders are effective when Federal
Funds become available to the Trust. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the Trust (or its
agent).
Section 4. Repurchase or Redemption of Class II Shares by the Trust.
(a) Any of the outstanding Class II shares may be tendered for
redemption at any time, and the Trust agrees to repurchase or redeem the Class
II shares so tendered in accordance with its obligations set forth in its
Declaration of Trust, as amended from time to time, and in accordance with the
applicable provisions set forth in the Prospectus and Statement of Additional
Information of the Fund. The price to be paid to redeem or repurchase the Class
II shares shall be equal to the net asset value calculated in accordance with
the provisions of Section 3(c) hereof, less any contingent deferred sales
charge, redemption fee or other charge(s), if any, set forth in the Prospectus
and Statement of Additional Information of the Fund. All payments by the Trust
hereunder shall be made in the manner set forth below.
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<PAGE> 5
The Trust shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor to or for
the account of the shareholder, in each case in accordance with the applicable
provisions of the prospectus and statement of additional information.
(b) The Fund reserves the right to reject any order for repurchase
through a securities dealer. Redemption of Class II shares or payment may be
suspended at times when the New York Stock Exchange is closed, when trading on
said Exchange is suspended, when trading on said Exchange is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Trust fairly to determine the value of its net assets, or during any other
period when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Trust.
(a) The Trust shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class II
shares of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Trust shall make available to the Distributor such
number of copies of the prospectus and statement of additional information as
the Distributor shall reasonably request.
(b) The Trust shall take, from time to time, but subject to any
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may
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<PAGE> 6
be necessary to register the same under the Securities Act to the end that there
will be available for sale such number of Class II shares as the Distributor
reasonably may be expected to sell.
(c) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class II shares for sale under the
securities laws of such states as the Distributor and the Trust may approve. Any
such qualification may be withheld, terminated or withdrawn by the Trust at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Trust. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Trust in connection with such
qualification.
(d) The Trust will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class II shares of the Fund but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Trust
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class II shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
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<PAGE> 7
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Trust.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Trust, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD Regulation, Inc. (the
"NASD"), as such requirements may from time to time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class II shares; provided, however, that the Trust shall approve the
form of agreements with dealers. Class II shares sold to selected dealers shall
be for resale by such dealers only in accordance with the provisions of the
Prospectus and Statement of Additional Information. The form of agreement with
selected dealers to be used during the continuous offering of the shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell
Class II shares only to such selected dealers that are members in good standing
of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
the expense of preparing, printing, mailing and otherwise distributing
prospectuses,
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<PAGE> 8
statements of additional information, annual or interim reports or proxy
materials to Class II shareholders).
(b) After the prospectuses, statements of additional information and
annual and interim reports have been prepared, set in type and mailed to Class
II shareholders, the Distributor shall bear the costs and expenses of printing
and distributing any copies thereof which are to be used in connection with the
offering of Class II shares. The Distributor (or its affiliate, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), pursuant to the Fund's
Class II Distribution Plan and Agreement with Merrill Lynch) shall bear the
costs and expenses of preparing, printing and distributing any supplementary
sales literature used by the Distributor in connection with the offering of the
Class II shares for sale to the public. Any expenses of advertising incurred in
connection with such offering will also be the obligation of the Distributor (or
Merrill Lynch).
(c) The Trust shall bear the cost and expenses of qualification of the
Class II shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Trust and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing qualification therein
until the Trust decides to discontinue such qualification pursuant to Section
5(c) hereof.
Section 9. Indemnification.
(a) The Trust shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or
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<PAGE> 9
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class II shares, which
may be based upon the Securities Act, or on any other statute or at common law,
on the ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended and
supplemented, or an annual or interim report to Class II shareholders of the
Trust, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Trust in
connection therewith by or on behalf of the Distributor; provided, however, that
in no case (i) is the indemnity of the Trust in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Trust or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Trust to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Trust in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Trust of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this
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<PAGE> 10
paragraph. The Trust will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Trust elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses, as
incurred, of any additional counsel retained by them, but in case the Trust does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses, as incurred, of any counsel
retained by them. The Trust shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any of the Class II
shares.
(b) The Distributor shall indemnify and hold harmless the Trust and
each of its Trustees and officers and each person, if any, who controls the
Trust against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance upon,
and in conformity with, information furnished to the Trust in writing by or on
behalf of the Distributor for use in connection with the registration statement
or related prospectus and statement of additional information, as from time to
time amended, or the annual or interim reports to shareholders. In case any
action shall be brought against the Trust or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have
10
<PAGE> 11
the rights and duties given to the Trust, and the Trust and each person so
indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch are authorized, to the extent permissible, to offer and
sell shares of the Fund, as agent for the Trust, to participants in such
program. The terms of this Agreement shall apply to such sales, including terms
as to the offering price of shares, the proceeds to be paid to the Fund, the
duties of the Distributor, the payment of expenses and indemnification
obligations of the Trust and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until November 30, 1999 and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Trustees or by
the vote of a majority of the outstanding voting securities of the Fund and (ii)
by the vote of 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 or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
11
<PAGE> 12
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.
Section 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Trustees or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Trustees of the Trust 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.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law 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.
Section 14. 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 Estate only shall be liable.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH RETIREMENT SERIES TRUST
By /s/ Arthur Zeikel
-------------------------------------------------
Title: President
MERRILL LYNCH FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
--------------------------------------------------
Title: Executive Vice President
13
<PAGE> 14
EXHIBIT A
MERRILL LYNCH RETIREMENT SERIES TRUST
CLASS II SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the "Distributor") has an agreement with Merrill Lynch
Retirement Series Trust, a business trust organized under the laws of
Massachusetts (the "Trust"), pursuant to which it acts as the distributor for
the sale of Class II shares of beneficial interest, par value $0.10 per share
(herein referred to as the "Class II shares"), of the Merrill Lynch Retirement
Reserves Money Fund (the "Fund") and as such has the right to distribute Class
II shares of the Fund for resale. The Trust is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and the Class
II shares of the Fund being offered to the public are registered under the
Securities Act of 1933, as amended. You have received a copy of the Class II
Shares Distribution Agreement (the "Distribution Agreement") between ourselves
and the Trust and reference is made herein to certain provisions of such
Distribution Agreement. The terms "Prospectus" and "Statement of Additional
Information" as used herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement pursuant to
the Securities Act of 1933, as amended. As principal, we offer to sell to you,
as a selected dealer, Class II shares of the Fund upon the following terms and
conditions:
1. In all sales of these Class II shares to the public, you shall act
as dealer for your own account and in no transaction shall you have any
authority to act as agent for the Trust, or for us, except in connection with
the Merrill Lynch Mutual Fund Adviser program and such other special programs as
we from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such program.
2. Shares may be offered by you only as described in the Prospectus.
Orders received from you will be accepted through us only at the public offering
price applicable to each order, as set forth in the current Prospectus and
Statement of Additional Information. The procedure relating to the handling of
orders shall be subject to Section 4 hereof and instructions which we or the
Trust shall forward from time to time to you. All orders are subject to
acceptance or rejection by the Distributor or the Fund in the sole discretion of
either. The minimum initial and subsequent purchase requirements are as set
forth in the current Prospectus and Statement of Additional Information.
3. You shall not place orders for any Class II shares unless you have
already received purchase orders for such Class II shares at the applicable
public offering prices and subject to the
14
<PAGE> 15
terms hereof and of the Distribution Agreement. You agree that you will not
offer or sell any of the Class II shares except under circumstances that will
result in compliance with the applicable Federal and state securities laws and
that in connection with sales and offers to sell Class II shares you will
furnish to each person to whom any such sale or offer is made a copy of the
Prospectus and, if requested, the Statement of Additional Information (as then
amended or supplemented) and will not furnish to any person any information
relating to the Class II shares of the Fund which is inconsistent in any respect
with the information contained in the Prospectus and Statement of Additional
Information (as then amended or supplemented) or cause any advertisement to be
published in any newspaper or posted in any public place without our consent and
the consent of the Trust.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class II shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Class II shares Distribution Agreement and
(ii) to tender Class II shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class
II shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class II
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Trust, and you agree that the Trust shall have no
liability or responsibility to you in these respects unless expressly assumed in
connection therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class II shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
15
<PAGE> 16
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
10. You represent that you are a member of the NASD Regulation, Inc.
and, with respect to any sales in the United States, we both hereby agree to
abide by the Conduct Rules of such Association.
11. Upon application to us, we will inform you as to the states in
which we believe the Class II shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class II
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class II shares, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
13. Your first order placed pursuant to this Agreement for the purchase
of Class II shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By _________________________________
(Authorized Signature)
Please return one signed copy of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: _________________________________________________
By: ________________________________________________________
Address: ___________________________________________________
____________________________________________________________
Date: ______________________________________________________
16
<PAGE> 17
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees of the Trust, have signed this certificate in duplicate original
counterparts and have caused a duplicate original to be lodged among the records
of the Trust as required by Article XI, Section 11.3(c) of the Declaration of
Trust, as of the 27th day of April, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ Joe Grills /s/ Melvin R. Seiden
- --------------------------------------------- -----------------------------------------------------
Joe Grills Melvin R. Seiden
P.O. Box 98 780 Third Avenue
Rapidan, Virginia 22733 New York, New York 10017
/s/ Walter Mintz
- --------------------------------------------- /s/ Stephen B. Swensrud
Walter Mintz -----------------------------------------------------
1114 Avenue of the Americas Stephen B. Swensrud
New York, New York 10036 24 Federal Street
Boston, Massachusetts 02110
/s/ Robert S. Salmon, Jr. /s/ Arthur Zeikel
- --------------------------------------------- -----------------------------------------------------
Robert S. Salmon, Jr. Arthur Zeikel
106 Dolphin Cove Quay 800 Scudders Mill Road
Stamford, Connecticut 06902 Plainsboro, New Jersey 08536
</TABLE>
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
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 Trust but the Trust Property only shall be liable.
17
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Retirement Reserves Money Fund of
Merrill Lynch Retirement Series Trust:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 19 to Registration Statement No. 2-74584 of our report dated December 10,
1998 appearing in the annual report to shareholders of Merrill Lynch Retirement
Reserves Money Fund for the year ended October 31, 1998, and to the reference
to us under the caption "Financial Highlights" in the Prospectus, which is a
part of such Registration Statement.
Deloitte & Touche LLP
Princeton, New Jersey
December 29, 1998
<PAGE> 1
Exhibit 13
CLASS II SHARES DISTRIBUTION PLAN AND AGREEMENT
OF
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
OF
MERRILL LYNCH RETIREMENT SERIES TRUST
PURSUANT TO RULE 12b-1
CLASS II SHARES DISTRIBUTION PLAN AND AGREEMENT made as of the 2nd day
of October, 1998, by and between MERRILL LYNCH RETIREMENT SERIES TRUST, a
Massachusetts business trust (the "Trust"), and MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED, a Delaware corporation ("MLPF&S").
W I T N E S S E T H :
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, the Trust is authorized to establish separate series
("Series"), each of which will offer separate classes of shares of beneficial
interest, par value $0.10 per share (the "Shares") to selected groups of
purchasers; and
WHEREAS, MLPF&S is a securities firm engaged in the business of selling
shares of investment companies either directly to Purchasers or through other
securities dealers; and
WHEREAS, the Trust proposes to enter into a Class II Shares
Distribution Agreement with MLPF&S, pursuant to which MLPF&S will act as the
exclusive distributor and representative of the Trust in the offer and sale of
Class II shares of beneficial interest, par value $0.10 per share (the "Class II
shares"), of the MERRILL LYNCH RETIREMENT RESERVES MONEY FUND (the "Fund")
series of the Trust to the Public; and
WHEREAS, the Trust desires to adopt this Class II Distribution Plan and
Agreement (referred to herein as the "Class II Distribution Plan") in the manner
and on the terms and conditions hereinafter set forth, which Class II
Distribution Plan must be adopted in accordance with Rule 12b-1 under the
Investment Company Act;
WHEREAS, MLPF&S desires to enter into the Class II Distribution Plan on
said terms and conditions;
WHEREAS, MLPF&S acts as a dealer selling Class II shares of the Fund to
its customers and substantially all of the Class II shareholders of the Fund are
MLPF&S customers who maintain their Fund accounts through MLPF&S (such accounts
being referred to herein as the "MLPF&S Fund Accounts");
<PAGE> 2
WHEREAS, MLPF&S provides a variety of marketing activities and services
including advertising, sales and marketing support and systems, and preparing
and distributing promotional materials ("MLPF&S Marketing Services");
WHEREAS, pursuant to the provisions of Rule 12b-1 under the Investment
Company Act, the Trustees of the Trust have determined that the Fund should make
direct payments to MLPF&S for distribution to defray the expenses associated
with the MLPF&S Marketing Services and that such payments should be in addition
to the management compensation being paid to Merrill Lynch Asset Management,
L.P.; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of the Class II Distribution Plan will
benefit the Fund and its Class II shareholders;
NOW, THEREFORE, the Trust hereby adopts, and MLPF&S hereby agrees to
the terms of, the Class II Distribution Plan in accordance with Rule 12b-1 under
the Investment Company Act on the following terms and conditions:
1. The Fund is hereby authorized to utilize its assets to make
payments to MLPF&S pursuant to the Class II Distribution Plan
to defray the expenses associated with the MLPF&S Marketing
Services with respect to MLPF&S Fund Accounts.
2. The Fund shall pay MLPF&S a fee at the end of each month at
the annual rate of 0.20% of average daily net asset value of
the MLPF&S Fund Accounts.
3. In the event that the aggregate payments received by MLPF&S
under the Class II Distribution Plan in any year shall exceed
the Plan Expenditures in such fiscal year, MLPF&S shall not
reimburse the Fund the amount of such excess.
4. MLPF&S shall provide the Trust for review by the Trustees,
and the Trustees shall review, at least quarterly, a written
report complying with the requirements of Rule 12b-1 regarding
the disbursement of the fee for expenses during such period.
5. MLPF&S will use its best efforts in rendering and causing
its employees to render services to the Fund, but in the
absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations hereunder, MLPF&S shall
not be liable to the Fund or any of its Class II shareholders
for any error of judgment or mistake of law for any act of
omission or for any losses sustained by the Fund or its Class
II shareholders.
6. Nothing contained in the Class II Distribution Plan shall
prevent MLPF&S or any affiliated person of MLPF&S from
performing services similar to those to be performed hereunder
for any other person, firm or corporation or for its or their
own accounts or for the accounts of others.
2
<PAGE> 3
7. The Class II Distribution Plan shall not take effect until
it has been approved by a vote of at least a majority, as
defined in the Investment Company Act, of the outstanding
Class II voting securities of the Fund.
8. The Class II Distribution Plan shall not take effect until
it has been approved by votes of a majority of both (a) the
Trustees of the Trust and (b) those Trustees of the Trust who
are not "interested persons" of the Trust, as defined in the
Investment Company Act, and have no direct or indirect
financial interest in the operation of the Class II
Distribution Plan or any agreements related to it (the "Rule
12b-1 Trustees"), cast in person at a meeting or meetings
called for the purpose of voting on the Class II Distribution
Plan.
9. The Class II Distribution Plan shall continue in effect for
so long as such continuance is specifically approved at least
annually in the manner provided for approval of the Class II
Distribution Plan in Paragraph 8.
10. The Class II Distribution Plan may be terminated at any
time by vote of a majority of the Rule 12b-1 Trustees, or by
vote of a majority of the outstanding Class II voting
securities of the Fund.
11. The Class II Distribution Plan may not be amended to
increase materially the fee provided for in Paragraph 2 unless
and until such amendment is approved in the manner provided
for in Paragraphs 7 and 8, and no other material amendment to
the Class II Distribution Plan shall be made unless approved
in the manner provided for approval in Paragraph 8.
12. While the Class II Distribution Plan is in effect, the
selection and nomination of Trustees who are not interested
persons, as defined in the Investment Company Act, of the
Trust shall be committed to the discretion of the Trustees who
are not interested persons.
13. The Trust shall preserve copies of the Class II
Distribution Plan and any related agreements and all reports
made pursuant to Paragraph 4, for a period of not less than
six years, the first two years in an easily accessible place.
14. 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
the Trust but the "Trust Property" only shall be liable.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Class II
Distribution Plan as of the date first above written.
MERRILL LYNCH RETIREMENT SERIES TRUST
By /s/ Arthur Zeikel
--------------------------------------------
Arthur Zeikel, President
MERRILL LYNCH FUNDS DISTRIBUTOR, a division of
PRINCETON FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
-------------------------------------------
Terry K. Glenn, Executive Vice President
4
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<NAME> MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
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<DISTRIBUTIONS-OF-INCOME> (58259)
<DISTRIBUTIONS-OF-GAINS> (149)
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<NUMBER-OF-SHARES-SOLD> 85369645
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