<PAGE> 1
PROSPECTUS
April 27, 1995
MERRILL LYNCH READY ASSETS TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Ready Assets Trust (the "Trust") is a no-load money market
fund organized as a Massachusetts business trust, seeking preservation of
capital, liquidity and the highest possible current income consistent with the
foregoing objectives available from investing in a diversified portfolio of
short-term money market securities. Portfolio securities principally consist of
short-term United States Government securities, Government agency securities,
bank money instruments, corporate debt instruments, including commercial paper
and variable amount master demand notes, and repurchase and reverse repurchase
agreements. The Trust shares common goals with those investors seeking to put
reserve assets to work in an income producing and prudent manner and to make
these assets readily available without penalty. There can be no assurance that
the investment objectives of the Trust will be realized. The Trust seeks to
maintain a constant $1.00 net asset value per share, although this cannot be
assured. An investment in the Trust is neither insured nor guaranteed by the
U.S. Government.
Shares of the Trust may be purchased at their net asset value without any
sales charge. The minimum initial purchase is $5,000 and subsequent purchases
generally must be $1,000 or more. For accounts advised by banks and registered
investment advisers, the minimum initial purchase is $300 and the minimum
subsequent purchase is $100. The minimum initial purchase with respect to
pension, profit sharing, individual retirement and certain other retirement
plans is $100 and the minimum subsequent purchase with respect to these plans is
$1, except that the minimum purchase requirements are waived for purchases of
Trust shares by certain Employer Sponsored Retirement or Savings Plans, as
defined herein. The minimum initial purchase under the Merrill Lynch BlueprintSM
Program is $500 (or $50 if the shareholder elects to participate in the
automatic investment of sale proceeds option on the Merrill Lynch BlueprintSM
Program application form) and the minimum subsequent purchase is $50. Shares may
be redeemed at any time at net asset value as described herein. The Trust pays
Merrill Lynch, Pierce, Fenner & Smith Incorporated a distribution fee for
providing certain services in connection with the distribution of Trust shares.
See "Purchase of Shares" and "Redemption of Shares".
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011, Tel. No.
(609) 282-2800, or from securities dealers which have entered into selected
dealer agreements with the Distributor including Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). See "Purchase of Shares".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Trust that
is relevant to making an investment in the Trust. This Prospectus should be
retained for future reference. A statement containing additional information
about the Trust, dated April 27, 1995 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
can be obtained, without charge, by calling or by writing the Trust at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
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MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE> 2
FEE TABLE
<TABLE>
<CAPTION>
ANNUAL TRUST OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994:
- -------------------------------------------------------------------------------------
<S> <C>
Management Fees(a)................................................................. 0.32%
Rule 12b-1 Fees(b)................................................................. 0.12%
Other Expenses(c).................................................................. 0.21%
-----
Total Trust Operating Expenses....................................................... 0.65%
=====
</TABLE>
- ---------------
(a) See "Management of the Trust--Management and Advisory Arrangements"--page 9.
(b) See "Purchase of Shares--Distribution Plan"--page 11.
(c) See "Management of the Trust--Transfer Agency Services"--page 9.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE
PERIOD OF:
---------------------------------
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
--- --- --- ---
An investor would pay the following expenses on a $1,000
investment, assuming an operating expense ratio of
0.65% and a 5% annual return throughout the periods... $ 7 $21 $36 $81
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Trust will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE.
2
<PAGE> 3
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Trust by
Deloitte & Touche LLP, independent auditors. Financial statements for the fiscal
year ended December 31, 1994 and the independent auditors' report thereon are
included in the Statement of Additional Information. The following per share
data and ratios have been derived from information provided in the Trust's
audited financial statements. Further information about the performance of the
Trust is contained in the Trust's most recent annual report to shareholders
which may be obtained, without charge, by calling or writing the Trust at the
telephone number or address on the front cover of this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
Investment
income--net........... .0366 .0272 .0332 .0556 .0771 .0860 .0695 .0616
Realized and unrealized
gain (loss) on
investments--net...... (.0012) .0003 .0009 .0029 .0010 .0005 (.0004) (.0005)
---------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
Total from investment
operations................ .0354 .0275 .0341 .0585 .0781 .0865 .0691 .0611
---------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
Less dividends and
distributions:
Investment
income--net........... (.0366) (.0272) (.0332) (.0556) (.0771) (.0860) (.0691) (.0611)
Realized gain on
investments--net...... (.0000)+ (.0005) (.0007) (.0029)* (.0010)* (.0005)* -- --
---------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
Total dividends and
distributions............. (.0366) (.0277) (.0339) (.0585) (.0781) (.0865) (.0691) (.0611)
---------- ---------- ---------- ---------- ----------- ----------- ---------- ----------
Net asset value, end of
year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========== ========== ========= =========
TOTAL INVESTMENT RETURN:.... 3.74% 2.81% 3.44% 6.02% 8.08% 9.05% 7.16% 6.30%
========= ========= ========= ========= ========== ========== ========= =========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
distribution fees......... .53% .53% .52% .50% .50% .52% .51% .51%
========= ========= ========= ========= ========== ========== ========= =========
Expenses.................... .65% .65% .64% .62% .62% .63% .62% .62%
========= ========= ========= ========= ========== ========== ========= =========
Investment income and
realized gain on
investments--net.......... 3.67% 2.78% 3.48% 5.87%* 7.80%* 8.65%* 6.88%* 6.10%*
========= ========= ========= ========= ========== ========== ========= =========
SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)................ $6,240,997 $6,523,187 $7,465,869 $9,077,226 $10,180,436 $10,650,487 $9,130,343 $9,864,068
========= ========= ========= ========= ========== ========== ========= =========
<CAPTION>
1986 1985
----------- -----------
<S> <<C> <C>
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year................... $ 1.00 $ 1.00
----------- -----------
Investment
income--net........... .0622 .0763
Realized and unrealized
gain (loss) on
investments--net...... .0004 .0015
----------- -----------
Total from investment
operations................ .0626 .0778
----------- -----------
Less dividends and
distributions:
Investment
income--net........... (.0622) (.0763)
Realized gain on
investments--net...... (.0004)* (.0015)*
----------- -----------
Total dividends and
distributions............. (.0626) (.0778)
----------- -----------
Net asset value, end of
year...................... $ 1.00 $ 1.00
========== ==========
TOTAL INVESTMENT RETURN:.... 6.47% 8.08%
========== ==========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
distribution fees......... .52% .52%
========== ==========
Expenses.................... .63% .64%
========== ==========
Investment income and
realized gain on
investments--net.......... 6.31%* 7.77%*
========== ==========
SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)................ $11,150,687 $11,875,311
========== ==========
</TABLE>
- ---------------
* Includes unrealized gain (loss).
+ Amount is less than $.0001 per share.
3
<PAGE> 4
YIELD INFORMATION
Set forth below is yield information for the indicated seven-day periods,
computed to include and exclude realized gains and losses for the seven-day
period ended December 31, 1994 and to include and exclude realized gains and
losses for the seven-day period ended February 28, 1995, and information as to
the compounded annualized yield, excluding gains and losses, for the same
periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------------------
DECEMBER 31, 1994 FEBRUARY 28, 1995
----------------- -----------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 5.09% 5.40%
Excluding gains and losses........................ 5.09% 5.40%
Compounded Annualized Yield......................... 5.22% 5.55%
Average maturity of portfolio at end of period...... 50 days 51 days
</TABLE>
The yield of the Trust refers to the income generated by an investment in
the Trust over a stated seven-day period. This income is then annualized; that
is, the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the investment. The compounded annualized yield is calculated similarly but,
when annualized, the income earned by an investment in the Trust is assumed to
be reinvested. The compounded annualized yield will be somewhat higher than the
yield because of the effect of the assumed reinvestment.
The yield on Trust shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Trust of future yields or rates of return on its shares.
The Trust's yield is affected by changes in interest rates on money market
securities, average portfolio maturity, the types and quality of portfolio
securities held and operating expenses. Current yield information may not
provide a basis for comparison with bank deposits or other investments which pay
a fixed yield over a stated period of time.
On occasion, the Trust may compare its yield to (1) yield data (including
Donoghue's Domestic Prime and Eurodollar and Yankeedollar Funds Average)
reported 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
reported by Lipper Analytical Services, Inc., Morningstar Publications, Inc.,
Money Magazine, U.S. News & World Report, Business Week, CDA Investment
Technology, Inc., Forbes Magazine and Fortune Magazine, or (4) the yield on an
investment in 90-day Treasury bills on a rolling basis, assuming quarterly
compounding. As with yield quotations, yield comparisons should not be
considered indicative of the Trust's yield or relative performance for any
future period.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Trust are to seek preservation of capital,
liquidity and the highest possible current income consistent with these
objectives available from investing in a diversified portfolio of short-term
money market securities. The investment objectives are fundamental policies of
the Trust which may not be changed without a vote of the majority of the
outstanding shares of the Trust.
Investment in the Trust offers several benefits. The Trust seeks to provide
as high a yield potential as is available, consistent with the preservation of
capital, from short-term money market securities utilizing
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<PAGE> 5
professional money market management, block purchases of securities and yield
improvement techniques. It provides high liquidity because of its redemption
features and seeks reduced risk resulting from diversification of assets. There
can be no assurance that the investment objectives of the Trust will be
realized. Certain expenses are borne by investors, including advisory and
management fees, administrative costs and operational costs.
In managing the Trust, Merrill Lynch Asset Management, L.P. (the
"Manager"), will employ a number of professional money management techniques,
including varying the composition of investments and the average maturity of the
portfolio based on its assessment of the relative values of the various money
market securities and future interest rate patterns. These assessments will
respond to changing economic and money market conditions and to shifts in fiscal
and monetary policy. The Manager also will seek to improve yield by taking
advantage of yield disparities that regularly occur in the money market. For
example, market conditions frequently result in similar securities trading at
different prices. Also, there frequently are differences in the yields between
the various types of money market securities. The Trust seeks to enhance yield
by purchasing and selling securities based on these yield disparities.
The following is a description of the types of money market securities in
which the Trust 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
Government-sponsored enterprises, Federal agencies and certain
international institutions which are not direct obligations of the United
States but involve Government sponsorship or guarantees by Government
agencies or enterprises. The U.S. Government is not obligated to provide
financial support to these instrumentalities.
Bank Money Instruments: The Trust may invest in U.S.
dollar-denominated obligations of U.S. and foreign depository institutions,
including commercial and savings banks and savings and loan associations.
Such obligations include certificates of deposit, bankers' acceptances,
time deposits and deposit notes. For example, the obligations may be issued
by U.S. or foreign depository institutions, foreign branches or
subsidiaries of U.S. depository institutions ("Eurodollar" obligations),
U.S. branches or subsidiaries of foreign depository institutions
("Yankeedollar" obligations) or foreign branches or subsidiaries of foreign
depository institutions. Eurodollar and Yankeedollar obligations and
obligations of branches or subsidiaries of foreign depository institutions
may be general obligations of the parent bank or may be limited to the
issuing branch or subsidiary by the terms of the specific obligations or by
government regulation. Investments in obligations of foreign depository
institutions and their foreign branches and subsidiaries will only be made
if determined to be of comparable quality to other investments permissible
for the Trust. The Trust will not invest more than 25% of its total assets
(taken at market value at the time of each investment) in obligations of
foreign depository institutions and their foreign branches and
subsidiaries.
Commercial Paper and Other Short-term Obligations: Commercial paper
(including variable amount master demand notes), which refers to
short-term, unsecured promissory notes issued by corporations, partnerships
and trusts to finance short-term credit needs, and non-convertible debt
securities (e.g., bonds and debentures) with no more than 397 days (13
months) remaining to maturity at the date of purchase. Short-term
obligations issued by trusts include mortgage-related or asset-backed debt
instruments, including pass-through certificates representing
participations in, or bonds and notes backed by, pools of mortgage, credit
card, automobile or other types of receivables.
5
<PAGE> 6
Foreign Short-term Debt Instruments. The Trust may also invest in
U.S. dollar-denominated commercial paper and other short-term obligations
issued by foreign entities. Such investments are subject to quality
standards similar to those applicable to investments in comparable
obligations of domestic issuers. Investments in foreign entities in general
involve the same risks as those described in the Statement of Additional
Information in connection with investments in Eurodollar and Yankeedollar
obligations and obligations of foreign depository institutions and their
foreign branches and subsidiaries.
The following is a description of other types of investments or investment
practices in which the Trust may invest or engage:
Repurchase Agreements; Purchase and Sale Contracts. The Trust may
invest in repurchase agreements or purchase and sale contracts involving
the money market securities described above. Repurchase agreements and
purchase and sale contracts may be entered into only with a member bank of
the Federal Reserve System or a primary dealer in U.S. Government
securities. Under such agreements, the bank or primary dealer agrees, on
entering into the contract, to repurchase the security at a mutually agreed
on 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. In the case of repurchase agreements, the
prices at which the trades are conducted do not reflect accrued interest on
the underlying obligations; whereas, in the case of purchase and sale
contracts, the prices take into account accrued interest. Such agreements
usually cover short periods, such as under one week. Repurchase agreements
may be construed to be collateralized loans by the purchaser to the seller
secured by the securities transferred to the purchaser. In the case of a
repurchase agreement, the Trust 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;
the Trust does not have the right to seek additional collateral in the case
of purchase and sale contracts. 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 Trust but only constitute
collateral for the seller's obligation to pay the repurchase price.
Therefore, the Trust may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. A purchase and
sale contract differs from a repurchase agreement in that the contract
arrangements stipulate that the securities are owned by the Trust. In the
event of a default under such a repurchase agreement or under a purchase
and sale contract, instead of the contractual fixed rate of return, the
rate of return to the Trust shall be dependent on intervening fluctuations
of the market value of such security and the accrued interest on the
security. In such event, the Trust 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.
Reverse Repurchase Agreements. The Trust may enter into reverse repurchase
agreements which involve the sale of money market securities held by the Trust,
with an agreement to repurchase the securities at an agreed on price, date and
interest payment. During the time a reverse repurchase agreement is outstanding,
the Trust will maintain a segregated custodial account containing U.S.
Government or other appropriate high-grade debt securities having a value equal
to the repurchase price.
Lending of Portfolio Securities. The Trust may lend portfolio securities
(with a value not in excess of 20% of its total assets) to brokers, dealers and
financial institutions and receive collateral in cash or securities issued or
guaranteed by the U.S. Government which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. During the period of the loan, the Trust receives the income on both
the loaned securities and the collateral and thereby increases its yield.
6
<PAGE> 7
Preservation of capital is a prime investment objective of the Trust, and
while the types of money market securities in which the Trust invests generally
are considered to have low principal risk, such securities are not completely
risk free. There is a risk of the failure of issuers to meet their principal and
interest obligations. Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by the securities
transferred to the purchaser. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Trust but only constitute collateral for the
seller's obligation to pay the repurchase price. With respect to repurchase
agreements, purchase and sale contracts, reverse repurchase agreements and the
lending of portfolio securities by the Trust, there is also the risk of the
failure of the parties involved to repurchase at the agreed upon price or to
return the securities involved in such transactions, in which event the Trust
may suffer time delays and incur costs or possible losses in connection with
such transactions.
Bank money instruments in which the Trust 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. Investments in Eurodollar and Yankeedollar obligations may not exceed
25% of total assets. For purposes of this requirement, the Trust treats bank
money instruments issued by U.S. branches or subsidiaries of foreign banks as
obligations issued by domestic banks (not subject to the 25% limitation) if the
branch or subsidiary is subject to the same banking regulation as U.S. banks.
The Trust's investments in short-term corporate debt and bank money
instruments will be rated, or will be issued by issuers who have been rated, in
one of the two highest rating categories for short-term debt obligations by a
nationally recognized statistical rating organization (an "NRSRO") or, if not
rated, will be of comparable quality as determined by the Trustees of the Trust.
The Trust's investments in corporate bonds and debentures (which must have
maturities at the date of purchase of 397 days (13 months) or less) will be in
issuers who have received from an NRSRO a rating, with respect to a class of
short-term debt obligations that is comparable in priority and security with the
investment, in one of the two highest rating categories for short-term
obligations or, if not rated, will be of comparable quality as determined by the
Trustees of the Trust. Currently, there are six NRSROs: Duff & Phelps Inc.,
Fitch Investors Services, Inc., IBCA Limited and its affiliate IBCA Inc.,
Thompson BankWatch, Inc., Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group.
A regulation of the Securities and Exchange Commission limits investments
by the Trust in securities issued by any one issuer (other than the U.S.
Government, its agencies or instrumentalities) ordinarily to not more than 5% of
its total assets, or in the event that such securities do not have the highest
rating, not more than 1% of its total assets. In addition, such regulation
requires that not more than 5% of the Trust's total assets be invested in
securities that do not have the highest rating.
The Trust may purchase money market securities on a forward commitment
basis at fixed purchase terms. The purchase will be recorded on the date the
Trust enters into the commitment and the value of the security thereafter will
be reflected in the calculation of the Trust's net asset value. The value of the
security on the delivery date may be more or less than its purchase price. A
separate account of the Trust will be established with its custodian consisting
of cash or liquid money market securities having a market value at all times at
least equal to the amount of the forward commitment.
For purposes of its investment policies, the Trust 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 Government agency securities and no
more than 397 days (13 months) in the case of all other securities. The dollar-
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<PAGE> 8
weighted average maturity of the Trust's Portfolio will not exceed 90 days.
During the Trust's fiscal year ended December 31, 1994, the average maturity of
its portfolio ranged from 41 days to 84 days.
Investment Restrictions. The Trust has adopted a number of restrictions
and policies relating to the investment of its assets and its activities, which
are fundamental policies and may not be changed without the approval of the
holders of a majority of the Trust's outstanding voting securities, as defined
in the Investment Company Act of 1940 (the "Investment Company Act"). Among the
more significant restrictions, the Trust 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 bank money instruments); (3) (i) invest more
than 5% of its total assets (taken at market value at the time of each
investment) in the securities (other than U.S. Government or Government agency
securities) of any one issuer (including repurchase agreements and purchase and
sale contracts with any one bank) except that up to 25% of the value of the
Trust's total assets may be invested without regard to such 5% limitation but
shall instead be subject to a 10% limitation, (ii) purchase more than 10% of the
outstanding securities of an issuer except that this restriction shall not apply
to U.S. Government or Government agency securities, bank money instruments,
repurchase agreements and purchase and sale contracts; (4) enter into repurchase
agreements or purchase and sale contracts if, as a result, more than 10% of the
Trust's net 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; and (5) borrow amounts in excess of 20% of its total
assets, taken at market value, and then only from banks as a temporary measure
for extraordinary or emergency purposes [usually only "leveraged" investment
companies may borrow in excess of 5% of their assets; however, the Trust will
not borrow to increase income but only to meet redemption requests which might
otherwise require untimely dispositions of portfolio securities; interest paid
on such borrowings will reduce net income]. The Trust will not purchase
securities while borrowings described in investment restriction (5) are
outstanding except to honor prior commitments.
MANAGEMENT OF THE TRUST
TRUSTEES
The Trustees of the Trust consist of six individuals, five of whom are not
"interested persons" of the Trust as defined in the Investment Company Act. The
Trustees of the Trust are responsible for the overall supervision of the
operations of the Trust and perform the various duties imposed on the directors
of investment companies by the Investment Company Act.
The Trustees of the Trust are:
ARTHUR ZEIKEL*--President of the Manager and its affiliate, Fund Asset
Management, L.P. ("FAM"); President and Director of Princeton Services,
Inc. ("Princeton Services"); Executive Vice President of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"); Executive Vice
President of Merrill Lynch & Co., Inc. ("ML&Co."); Director of the
Distributor.
DONALD CECIL--Special Limited Partner of Cumberland Partners (an
investment partnership).
M. COLYER CRUM--James R. Williston Professor of Investment Management,
Harvard Business School.
EDWARD H. MEYER--Chairman of the Board of Directors, President and
Chief Executive Officer of Grey Advertising Inc.
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<PAGE> 9
JACK B. SUNDERLAND--President and Director of American Independent Oil
Company, Inc. (an energy company).
J. THOMAS TOUCHTON--Managing Partner of The Witt-Touchton Company (a
private investment partnership).
- ---------------
* Interested person, as defined in the Investment Company Act, of the Trust.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, which is owned and controlled by ML&Co., a financial services
holding company, acts as the Manager for the Trust and provides the Trust with
management services. The Manager or an affiliate of the Manager, FAM, acts as
the investment adviser for more than 130 registered investment companies and
provides investment advisory services to individual and institutional accounts.
As of March 31, 1995, the Manager and FAM had a total of approximately $170.3
billion in investment company and other portfolio assets under management,
including accounts of certain affiliates of the Manager.
The investment advisory agreement with the Manager (the "Management
Agreement") provides that, subject to the direction of the Trustees, the Manager
is responsible for the actual management of the Trust's portfolio and constantly
reviews the Trust's holdings in light of its own research analysis and that from
other relevant sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Manager subject to review by the Board
of Trustees. The Manager performs certain of the other administrative services
and provides all the office space, facilities, equipment and necessary personnel
for management of the Trust.
The Manager receives compensation at the annual rate of 0.50% of the
portion of average net assets not exceeding $500 million; this rate is reduced
at several breakpoints for net assets in excess of $500 million. For the fiscal
year ended December 31, 1994, the total management fee paid by the Trust to the
Manager aggregated $23,487,917 (based on average net assets of approximately
$6.6 billion) and the effective fee rate was 0.32%. At March 31, 1995, the net
assets of the Trust aggregated approximately $6.5 billion. At this asset level,
the annual effective fee rate is approximately 0.36% of average net assets and
the annual management fee would aggregate approximately $23.4 million.
John Ng is Vice President and Portfolio Manager of the Trust who is
responsible for the day to day management of the Trust. Mr. Ng has been a
Portfolio Manager and Vice President of the Manager since 1985.
The Management Agreement obligates the Trust to pay certain expenses
incurred in its operations, including, among other things, the management fee,
legal and audit fees, unaffiliated Trustees' fees and expenses, registration
fees, custodian and transfer agency fees, accounting and pricing costs and
certain of the costs of printing proxies, shareholder reports, prospectuses and
statements of additional information. Accounting services are provided to the
Trust by the Manager, and the Trust reimburses the Manager for its costs in
connection with such services. For the fiscal year ended December 31, 1994, the
amount of such reimbursement was $280,057. During 1994, the ratio of operating
expenses, excluding distribution fees, to average net assets was 0.53%.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a
wholly-owned subsidiary of ML&Co., acts as the Trust's transfer agent pursuant
to a transfer 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
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Transfer Agency Agreement, the Transfer Agent receives a fee of $15.00 per
shareholder account, and is entitled to reimbursement for out-of-pocket expenses
incurred by it under the Transfer Agency Agreement. For the fiscal year ended
December 31, 1994, the total fee paid by the Trust to the Transfer Agent
pursuant to the Transfer Agency Agreement was $10,434,680. At March 31, 1995,
the Trust had 624,518 shareholder accounts. At this level of accounts, the
annual fee payable to the Transfer Agent would aggregate approximately $9.4
million (including certain subaccounts on which the standard annual transfer
agent fees are not assessed).
PURCHASE OF SHARES
The Trust is offering its shares without 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 Trust. If Federal Funds are
available to the Trust prior to the determination of net asset value (generally
4:00 P.M., New York time) on any business day, the order will be effective on
that day. Shares purchased will begin accruing dividends on the day following
the date of purchase. Any order may be rejected by the Trust or the Distributor.
The minimum initial purchase is $5,000 and the minimum subsequent purchase
is $1,000, except that lower minimums apply in the case of purchases made under
certain retirement plans. The Trust may, at its discretion, establish reduced
minimum initial and subsequent purchase requirements with respect to various
types of accounts. For pension, profit sharing, individual retirement and
certain other retirement plans, including self-directed retirement plans for
which Merrill Lynch acts as passive custodian, and the various retirement plans
available from the Distributor, the minimum initial purchase is $100 and the
minimum subsequent investment is $1. The minimum initial or subsequent purchase
requirements may be waived for certain employer sponsored retirement or savings
plans, such as tax qualified retirement plans within the meaning of Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), deferred
compensation plans within the meaning of Section 403(b) and Section 457 of the
Code, other deferred compensation arrangements, Voluntary Employee Benefits
Association ("VEBA") plans, and non-qualified After Tax Savings and Investment
programs, maintained on the Merrill Lynch Group Employee Services system,
referred to herein and in the Statement of Additional Information as "Employer
Sponsored Retirement or Savings Plans." The minimum initial purchase with
respect to other retirement plans and pension and profit-sharing plans is $100
and the minimum subsequent investment is $1. For accounts advised by banks and
registered investment advisers, the minimum initial purchase is $300 and the
minimum subsequent purchase is $100.
METHODS OF PAYMENT
Payment Through Securities Dealers. Investment in the Trust may be made
through securities dealers, including Merrill Lynch, who have entered into
selected dealer agreements with the Distributor. In such a case, the dealer will
transmit payment to the Trust on behalf of the investor and will supply the
Trust with the required account information. Generally, purchase orders placed
through Merrill Lynch will be made effective on the day following the day the
order is placed with Merrill Lynch, except that orders received through the
Merrill Lynch BlueprintSM Program in some circumstances may be executed two
business days following the day the order is placed with Merrill Lynch.
Investments in the Trust through the Merrill Lynch BlueprintSM Program
("Blueprint") may be made only through Merrill Lynch. Such orders should be sent
to Merrill Lynch, Pierce, Fenner & Smith Incorporated, Attention: The
BlueprintSM Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Blueprint maintains a toll-free telephone number for inquiries: (800) 637-3766.
Investors who are not placing orders through Blueprint and who desire same day
effectiveness should utilize the Payment by Wire procedure described below.
Investors with free cash credit
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balances (i.e., immediately available funds) in securities accounts of Merrill
Lynch will not have their funds invested in the Trust until the day after the
order is placed with Merrill Lynch and will not receive the daily dividend which
would have been received had their funds been invested in the Trust on the day
the order was placed with Merrill Lynch. Merrill Lynch has an order procedure
pursuant to which investors can have the proceeds from the sale of listed
securities invested in shares of the Trust on the day investors receive such
proceeds in their Merrill Lynch securities accounts and can have the proceeds
from the sale of most other securities invested in shares of the Trust on the
day following the day investors receive such proceeds in their Merrill Lynch
securities accounts.
Payment by Wire. An expeditious method of investing in the Trust is
available through the transmittal of Federal Funds by wire to the Trust's
Transfer Agent. The Trust will not be responsible for delays in the wiring
system. To purchase shares by wiring Federal Funds, payment should be wired to
First Union National Bank of Florida. Shareholders should give their financial
institutions the following wiring instructions: ABA #063000021, DDA
#2112600061186, Financial Data Services, Inc. The wire should be identified as a
payment to Merrill Lynch Ready Assets Trust and should include the shareholder's
name and account number. Failure to submit the required information may delay
investment. Investors are urged to make payment by wire in Federal Funds.
Payment to the Transfer Agent. Purchase orders for which remittance is to
be made by check may be submitted directly by mail or otherwise to the Transfer
Agent. Purchase orders by mail should be sent to Financial Data Services, Inc.,
Transfer Agency Money Market Operations, P.O. Box 45290, Jacksonville, Florida
32232-5290. Purchase orders which are sent by hand should be delivered to
Financial Data Services, Inc., Transfer Agency Money Market Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484. Investors opening a new
account must enclose a completed Purchase Application. Existing shareholders
should enclose the detachable stub from a monthly account statement which they
have received. Checks should be made payable to Merrill Lynch Funds Distributor,
Inc. Certified checks are not necessary, but checks are accepted subject to
collection at full face value in United States funds and must be drawn in United
States dollars on a United States bank. Payments for the accounts of
corporations, foundations and other organizations may not be made by third party
checks.
DISTRIBUTION PLAN
The Trust has adopted a Shareholder Servicing Plan and Agreement (the
"Plan") in compliance with Rule 12b-1 under the Investment Company Act pursuant
to which the Trust is authorized to pay Merrill Lynch a fee at the annual rate
of 0.125% of average daily net asset value of Trust accounts maintained through
Merrill Lynch. The Plan reimburses Merrill Lynch only for actual expenses
incurred in the fiscal year in which the fee is paid. The fee is principally to
provide compensation to Merrill Lynch financial consultants and other Merrill
Lynch personnel for providing certain services to shareholders who maintain
their Trust accounts through Merrill Lynch. The fee is for direct personal
services to Trust shareholders. Under the Plan, as amended to date, Merrill
Lynch, in its sole discretion, may expend out of the fee an amount not exceeding
0.01% of such average daily net asset value as reimbursement for expenditures
incurred in advertising activities promoting the sale, marketing and
distribution of the shares of the Trust.
For the fiscal year ended December 31, 1994, $7,661,910 was paid to Merrill
Lynch pursuant to the Plan (based on average net assets subject to the Plan of
$6.6 billion). At March 31, 1995, the net assets of the Trust subject to the
Plan aggregated approximately $6.5 billion. At this asset level, the annual fee
payable to Merrill Lynch pursuant to the Plan would aggregate approximately $8.1
million.
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REDEMPTION OF SHARES
The Trust is required to redeem for cash all full and fractional shares of
the Trust. The redemption price is the net asset value per share next determined
after receipt by the Transfer Agent of proper notice of redemption as described
in accordance with one of the procedures set forth below. If such notice is
received by the Transfer Agent prior to the determination of net asset value
(generally 4:00 P.M., New York time) on any day during which the New York Stock
Exchange or New York banks are open for business, the redemption will be
effective on such day and payment 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 thereafter. If notice of a redemption of shares held
in connection with the Merrill Lynch BlueprintSM Program is received by Merrill
Lynch prior to the Trust's determination of net asset value, it will be
effective on the business day following receipt of the redemption request. If
the notice is received after the determination of net asset value has been made,
the redemption will be effective on the second business day thereafter.
At various times, the Trust may be requested to redeem shares for which
good payment has not yet been received. The Trust may delay, or cause to be
delayed, the payment of redemption proceeds until such time as it or its
Transfer Agent has assured itself that good payment has been collected for the
purchase of such shares. Normally, this delay will not exceed 10 days. In
addition, the Trust reserves the right not to honor redemption checks or
requests for Federal Funds redemptions where the shares to be redeemed have been
purchased by check within 10 days prior to the date the redemption request is
received by the Trust's Transfer Agent.
METHODS OF REDEMPTION
Set forth below is information as to the five methods pursuant to which
shareholders may redeem shares. In certain instances, the Transfer Agent may
require documents in connection with redemptions.
Redemption by Check. Shareholders may redeem shares by check in an amount
not less than $500. At the shareholder's request, the Transfer Agent will
provide the shareholder with checks drawn on the custody account of the Trust
with its Custodian. These checks can be made payable to the order of any person
in any amount not less than $500; however, these checks may not be used to
purchase securities in transactions with Merrill Lynch. The payee of the check
may cash or deposit it like any check drawn on a bank. When such a check is
presented to the Transfer Agent for payment, the Transfer Agent will present the
check to the Trust as authority to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the check.
This enables the shareholder to continue earning daily dividends until the check
is cleared. Canceled checks will be returned to the shareholder by the Transfer
Agent.
Shareholders will be subject to the Transfer Agent's rules and regulations
governing such checking accounts, including the right of the Transfer Agent not
to honor checks in amounts exceeding the value of the shareholder's account at
the time the check is presented for payment. The Trust or the Transfer Agent may
modify or terminate the redemption by check privilege at any time on 30 days'
notice to participating shareholders. In order to be eligible for the redemption
by check privilege, purchasers should check the box under the caption "Check
Redemption Privilege" in the Purchase Application. The Transfer Agent will then
send checks to the shareholder.
Federal Funds Redemption. Shareholders also may arrange to have redemption
proceeds of $5,000 or more wired in Federal Funds to a pre-designated bank
account. In order to be eligible for Federal Funds redemption, the shareholder
must designate on his Purchase Application the domestic commercial bank and
account number to receive the proceeds of his redemption and must have his
signature on the Purchase
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Application guaranteed. The redemption request for Federal Funds redemption may
be made by telephone, wire or letter (no signature guarantee required) to the
Transfer Agent and, if received before the determination of net asset value of
the Trust on any business day (generally 4:00 P.M., New York time) the
redemption proceeds will be wired to the investor's pre-designated bank account
on the next business day. Shareholders may effect Federal Funds redemptions by
telephoning the Transfer Agent at (800) 221-7210 toll-free. The Trust will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; if it does not, the Trust may be liable for any losses
due to fraudulent or unauthorized instructions. Among other things, redemption
proceeds may only be wired into the bank account designated on the Purchase
Application. The investor must independently verify this information at the time
the redemption request is made.
Repurchase Through Securities Dealers. The Trust will repurchase shares
through securities dealers. The Trust normally will accept orders to repurchase
shares by wire or telephone from dealers for customers at the net asset value
next computed after receipt of the order from the dealer, provided that such
request for repurchase is received from the dealer prior to the determination of
net asset value of the Trust (generally 4:00 P.M., New York time) on any
business day. These repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Trust; however, dealers may
impose a charge on the shareholder for transmitting the notice of repurchase to
the Trust. Redemption of Trust shares held in connection with Blueprint may be
made only through Merrill Lynch. Such a redemption may be made by submitting a
written notice by mail directly to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Attention: The BlueprintSM Program, P.O. Box 30441, New Brunswick,
New Jersey 08989-0441. Investors whose shares are held through Blueprint also
may effect notice of redemption by telephoning Merrill Lynch at (800) 637-3766
toll-free. The Trust reserves the right to reject any order for repurchase
through a securities dealer, but it may not reject properly submitted requests
for redemption as described below. The Trust will promptly notify any
shareholder of any rejection of a repurchase with respect to his shares. For
shareholders repurchasing through their securities dealer, payment will be made
by the Transfer Agent to the dealer.
Regular Redemption. Shareholders may redeem shares by submitting a written
notice by mail directly to the Transfer Agent, Financial Data Services, Inc.,
Transfer Agency Money Market Operations, P.O. Box 45290, Jacksonville, Florida
32232-5290. Redemption requests which are sent by hand should be delivered to
Financial Data Services, Inc., Transfer Agency Money Market Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484. Redemption requests
should not be sent to the Trust. The notice requires the signatures of all
persons in whose names the shares are registered, signed exactly as their names
appear on the Transfer Agent's register. The signatures on the redemption
request must be guaranteed by an "eligible guarantor institution" as such is
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, the existence
and validity of which may be verified by the Transfer Agent through the use of
industry publications. Notarized signatures are not sufficient.
Automatic Redemption. Merrill Lynch has instituted an automatic redemption
procedure applicable to shareholders of the Trust who maintain securities
accounts with Merrill Lynch. Merrill Lynch may utilize this procedure, which is
not applicable to margin accounts, to satisfy amounts due it by the shareholder
as a result of account fees and expenses owed to Merrill Lynch or one of its
affiliates or as a result of purchases of securities or other transactions in
the shareholder's securities account. Under this procedure, unless the
shareholder notifies Merrill Lynch to the contrary, the shareholder's Merrill
Lynch securities account will be scanned each business day prior to the
determination of net asset value of the Trust (generally 4:00 P.M., New York
time) after application of any cash balances in the account, a sufficient number
of Trust shares will be redeemed at the net asset value, as determined on that
day, to satisfy any amounts for which the shareholder is obligated to make
payment to Merrill Lynch or one of its affiliates. Redemptions will be effected
on the
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business day preceding the date the shareholder is obligated to make such
payment, and Merrill Lynch or its affiliate will receive the redemption proceeds
on the business day following the redemption date. Shareholders will receive all
dividends declared and reinvested through the date of redemption, except that,
in those instances where shareholders request transactions that settle on a
"same-day" basis (such as Federal Funds wire redemptions, branch office checks,
transfers to other Merrill Lynch accounts and certain securities transactions)
the Trust shares necessary to effect such transactions will be deemed to have
been transferred to Merrill Lynch prior to the Trust's declaration of dividends
on that day. In such instances, shareholders will receive all dividends declared
and reinvested through the date immediately preceding the date of redemption.
------------------------
Due to the relatively high cost of maintaining accounts of less than
$1,000, the Trust reserves the right to redeem shares in any account for their
then current value (which will be promptly paid to the shareholder), if at any
time the total investment does not have a value of at least $1,000. Shareholders
will be notified that the value of their account is less than $1,000 and allowed
two months to make an additional investment before the redemption is processed.
In such event, the $1,000 minimum on subsequent investment will not be
applicable.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services designed to facilitate
investment in its shares. Full details as to each of such services, copies of
the various plans described below and instructions as to how to participate in
the various services or plans, or to change options with respect thereto can be
obtained from the Trust, the Distributor or Merrill Lynch. Included in such
services are the following:
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive from the Transfer
Agent a monthly report showing the activity in his account for the month. A
shareholder may make additions to his Investment Account at any time by
purchasing shares at the public offering price either through his securities
dealer, by wire or by mail directly to the Transfer Agent, acting as agent for
his dealer. A shareholder may ascertain the number of shares in his Investment
Account by telephoning the Transfer Agent at (800) 221-7210 toll-free. The
Transfer Agent will furnish this information only after the shareholder has
specified the name, address, account number and social security number of the
registered owner or owners. Shareholders also may maintain their accounts
through Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch
brokerage account, an Investment Account in the transferring shareholder's name
may be opened at the Transfer Agent. Shareholders considering transferring a
tax-deferred retirement account such as an individual retirement account 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.
Exchange Privilege. Shareholders of the Trust have an exchange privilege
with Class D shares of certain other mutual funds advised by the Manager or FAM
("MLAM-advised mutual funds"). Alternatively, shareholders may exchange shares
of the Trust for Class A shares of one of the MLAM-advised mutual funds if the
shareholder holds any Class A shares of that fund in his account in which the
exchange is made at the time of the exchange or is otherwise an eligible Class A
investor. Shareholders of the Trust also may exchange shares of the Trust into
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Trust shares. There is currently no
limitation on the number of times a
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shareholder may exercise the exchange privilege. The exchange privilege may be
modified or terminated at any time in accordance with the rules of the
Securities and Exchange Commission. Exercise of the exchange privilege is
treated as a sale for Federal income tax purposes. For further information, see
"Shareholder Services--Exchange Privilege" in the Statement of Additional
Information.
Accrued Monthly Payout Plan. Shareholders desiring their dividends in cash
may enroll in this plan and receive monthly cash payments resulting from the
redemption of the shares received on dividend reinvestments during the month.
Systematic Withdrawal Plan. A shareholder may elect to receive systematic
withdrawal payments from his Investment Account in the form of payments by check
or through automatic payment by direct deposit to his bank account on either a
monthly or quarterly basis.
Automatic Investment Plan. Regular additions may be made to an investor's
Investment Account by prearranged charges to his regular bank account at a
minimum of $50 per month.
Retirement Plans. Self-directed individual retirement accounts and other
retirement plans are available from Merrill Lynch. Under these plans,
investments may be made in the Trust and in certain of the other mutual funds
whose shares are distributed by the Distributor, as well as in other securities.
Merrill Lynch charges an initial establishment fee and an annual custodial fee
for each account. In addition, eligible shareholders of the Trust may
participate in a variety of qualified employee benefit plans which are available
from the Distributor. The minimum initial purchase to establish any such plan is
$100.
PORTFOLIO TRANSACTIONS
The money market securities in which the Trust invests are traded primarily
in the over-the-counter market. Where possible, the Trust will deal directly
with the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. Such
dealers usually are acting as principal for their own account. On occasion,
securities may be purchased directly from the issuer. Money market securities
generally are traded on a net basis and normally do not involve either brokerage
commissions or transfer taxes. The cost of executing portfolio transactions will
consist primarily of dealer spreads and underwriting commissions. Under the
Investment Company Act, persons affiliated with the Trust are prohibited from
dealing with the Trust as a principal in the purchase and sale of securities
unless an exemptive order allowing such transactions is obtained from the
Securities and Exchange Commission. An affiliated person of the Trust may serve
as its broker in over-the-counter transactions conducted on an agency basis. The
Securities and Exchange Commission has issued an exemptive order permitting the
Trust to conduct certain principal transactions with Merrill Lynch Government
Securities Inc. or its subsidiary, Merrill Lynch Money Markets Inc. subject to
certain terms and conditions. During the fiscal year ended December 31, 1994,
the Trust engaged in 47 transactions pursuant to such orders aggregating
approximately $2.0 billion.
ADDITIONAL INFORMATION
DIVIDENDS
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
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time the net income of the Trust is determined, the net asset value per share of
the Trust normally remains constant at $1.00 per share. Fluctuations in value
may be reflected in the number of outstanding shares in the shareholder's
account.
Net income (from the time of the immediately preceding determination
thereof) consists of (i) interest accrued and/or discount earned (including both
original issue and market discount), (ii) plus or minus all realized gains and
losses on portfolio securities, (iii) less the estimated expenses of the Trust
applicable to that dividend period.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Trust is determined by the Manager once daily,
immediately after the daily declaration of dividends, on each day during which
the New York Stock Exchange or New York banks are open for business. Such
determination is made as of the close of business on the New York Stock Exchange
(generally 4:00 P.M., New York time) or, on days when the New York Stock
Exchange is closed but New York banks are open, at 4:00 P.M., New York time. The
net asset value per share is computed pursuant to the "penny-rounding" method by
dividing the value of the securities held by the Trust plus any cash or other
assets (including interest accrued but not yet received) minus all liabilities
by the total number of shares outstanding at such time. The result of this
computation will be rounded to the nearest whole cent. It is anticipated that
net asset value will remain constant at $1.00 per share. The money market
securities in which the Trust invests are valued at the most recent bid price or
yield equivalent as obtained from dealers that make markets in such securities.
Assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Trustees of
the Trust. Securities with a remaining maturity of 60 days or less are valued on
an amortized cost basis. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument.
TAXES
The Trust intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Trust (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to
shareholders. The Trust intends to distribute substantially all of such income.
Dividends paid by the Trust from its ordinary income and distributions of
the Trust's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from the Trust's net realized long-term
capital gains ("capital gain dividends") are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder has
owned Trust shares. Distributions in excess of the Trust's earnings and profits
will first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Trust. Not later than 60 days after the close of its
taxable year, the Trust will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Trust, whether from ordinary income or capital
gains, will not be eligible for the dividends received deduction allowed to
corporations under the Code. If the Trust pays a dividend in January which was
declared in the previous October, November or December to shareholders of record
on a specified date in one of such
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months, then such dividend will be treated for tax purposes as being paid by the
Trust and received by its shareholders on December 31 of the year in which such
dividend was declared.
If the value of assets held by the Trust declines, the Board of Trustees
may authorize a reduction in the number of outstanding shares in shareholders'
accounts so as to preserve a net asset value of $1.00 per share. After such a
reduction, the basis of eliminated shares would be added to the basis of
shareholders' remaining Trust shares, and any shareholders disposing of shares
at that time may recognize a capital loss. Distributions, including
distributions reinvested in additional shares of the Trust, will nonetheless be
fully taxable, even if the number of shares in shareholders' accounts has been
reduced as described above.
Ordinary income dividends paid by the Trust to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisors concerning the applicability of the
United States withholding tax.
Dividends and interest received by the Trust may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Under certain 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 Trust or who, to the Trust's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent the sales charge
paid to the Trust on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Trust will be
disallowed if other Trust shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether and what percentage of dividend income attributable to U.S.
Government obligations is exempt from state income tax.
Shareholders are urged to consult their own tax advisors regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Trust.
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ORGANIZATION OF THE TRUST
The Trust was organized on May 14, 1987 under the laws of the Commonwealth
of Massachusetts. The Trust is a successor to a Massachusetts business trust of
the same name organized on January 21, 1975. It is a no-load, diversified,
open-end investment company. The Declaration of Trust permits the Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
of a single class. Upon liquidation of the Trust, shareholders are entitled to
share pro rata in the net assets of the Trust available for distribution to
shareholders. Shares are fully paid and nonassessable by the Trust. Shareholders
are entitled to one vote for each full share held and fractional votes for
fractional shares held and vote in the election of the Trustees and on other
matters submitted to the vote of shareholders.
The Declaration does not require that the Trust hold an annual meeting of
shareholders. However, the Trust will be required to call special meetings of
shareholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements, of a material
increase in distribution fees or of a change in the fundamental policies,
objectives or restrictions of the Trust. The Trust also would be required to
hold a special shareholders' meeting to elect new Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders. The Declaration provides that a shareholders' meeting may be
called for any reason at the request of 10% of the outstanding shares of the
Trust or by a majority of the Trustees. Except as set forth above, the Trustees
shall continue to hold office and appoint successor Trustees.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: TAMMO
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this please call your Merrill Lynch
financial consultant or Financial Data Services, Inc. at (800) 221-7210.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust at the address or
telephone number set forth on the cover page of this Prospectus.
------------------------
The Declaration of Trust establishing the Trust, dated May 14, 1987, 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 Ready Assets 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" only shall be liable.
18
<PAGE> 19
Merrill Lynch Ready Assets Trust PURCHASE APPLICATION
<TABLE>
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Send this completed form to: FINANCIAL DATA SERVICES, INC., Transfer Agency Money Market
Operations, P.O. Box 45290, Jacksonville, Florida 32232-5290
INSTRUCTIONS Note: This form may not be used for purchases through the Merrill Lynch BlueprintSM Program.
You may request a Merrill Lynch BlueprintSM Program application form by calling toll free (800)
637-3766.
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</TABLE>
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1. TO REGISTER SHARES. THE ACCOUNT SHOULD BE REGISTERED AS FOLLOWS:
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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(Please print except
for signatures)
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Print Applicant's Name. For clarity, please skip a space between names.
------------------------------------------------------------------------------------
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Print Joint Registrant's Name, if any. In case of joint registration, a joint tenancy with right of survivorship will be presumed,
unless otherwise indicated.
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
-----------------------------
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Street Address Social Security No. or Tax ID No.
</TABLE>
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City State Zip Code
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Occupation
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Name and Address of Employer
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<TABLE>
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Please make any check payable to Merrill Lynch Funds ------------------------------------------------------
Distributor, Inc. Amount of investment $ Home Phone No. (Include Area Code) Business Phone No.
</TABLE>
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2. CHECK REDEMPTION PRIVILEGE (SEE TERMS AND CONDITIONS IN THE PROSPECTUS)
<TABLE>
<C> <S>
I hereby request and authorize Financial Data Services, Inc. (the "Transfer Agent") to honor
checks or automatic clearing house ("ACH") debits drawn by me on my Merrill Lynch Ready Assets
Trust (the "Trust") account subject to acceptance by the Trust, with payment therefor to be made
/ / by redeeming sufficient shares in my account without a signature guarantee. The Transfer Agent
Check box and the Trust do hereby reserve all their lawful rights for honoring checks or ACH debits drawn
(if desired) by me and for effecting redemptions pursuant to the Check Redemption Privilege. I understand
that this election does not create a checking or other bank account relationship between myself
and the Transfer Agent or the Trust and that the relationship between myself and the Transfer
Agent is that of shareholder-transfer agent.
FOR JOINT ACCOUNT: CHECK HERE WHETHER EITHER OWNER / / IS AUTHORIZED, OR ALL OWNERS / / ARE
REQUIRED TO SIGN CHECKS.
</TABLE>
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3. FEDERAL FUNDS REDEMPTION (SEE TERMS AND CONDITIONS IN THE PROSPECTUS)
<TABLE>
<C> <S>
The undersigned hereby authorize(s) and direct(s) Financial Data Services, Inc. (the "Transfer
Agent") to act on telephonic, telegraphic, or other instructions (without signature guarantee)
from any person representing himself to be either the investor or any authorized representative
of the investor, directing redemption of shares in an amount of $5,000 or more of Merrill Lynch
Ready Assets Trust (the "Trust") held by the Transfer Agent on behalf of the undersigned, and to
transmit the proceeds by wire only to the bank account designated below.
Any change in the bank account designated to receive redemption proceeds shall require a
signature guarantee. The investor understands and agrees that the Trust and Transfer Agent
/ / reserve the right to refuse any instructions.
Check box
(if desired) The Transfer Agent requires additional documentation from corporations, partnerships, trustees
and similar institutional investors in addition to this authorization (see No. 7 below).
Absent its own negligence, and so long as reasonable procedures to confirm the validity of
telephoned instructions are employed, neither Merrill Lynch Ready Assets Trust nor Financial
Data Services, Inc. shall be liable for any redemption caused by unauthorized instructions.
Investors may effect notice of this type of redemption by telephoning the Transfer Agent at the
toll-free number (800) 221-7210. Shares which are being repurchased through securities dealers
will not qualify for Federal Funds redemption.
</TABLE>
Fill out the rest of this space only if the above box is checked. Your bank must
be a member of the Federal Reserve or have a correspondent banking relation with
a bank that does belong to the Federal Reserve.
<TABLE>
<S> <C>
ENCLOSE A SPECIMEN COPY OF YOUR PERSONAL CHECK
(MARKED "VOID") FOR THE BANK ACCOUNT LISTED BELOW. IF YOUR BANK IS NOT A MEMBER OF THE FEDERAL RESERVE:
------------------------------------------------------
IF YOUR BANK IS A MEMBER OF THE FEDERAL RESERVE: Correspondent Bank Name Routing Code
- ------------------------------------------------------ ------------------------------------------------------
Your Bank Name Bank Routing Code Your Bank Name Routing Code
- ------------------------------------------------------ ------------------------------------------------------
Your Account Name Your Account Number Your Account Name Your Account Number
- ------------------------------------------------------ ------------------------------------------------------
Address of Bank City State Zip Code Your Bank Address City State Zip Code
</TABLE>
(continued on reverse side)
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<PAGE> 20
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4. AUTOMATIC INVESTMENT PLAN PRIVILEGE (SEE TERMS AND CONDITIONS IN
STATEMENT OF ADDITIONAL INFORMATION)
/ / Check this box only if you wish to have an Authorization Form sent to you.
- --------------------------------------------------------------------------------
5. SYSTEMATIC WITHDRAWAL PLAN (SEE TERMS AND CONDITIONS IN THE STATEMENT OF
ADDITIONAL INFORMATION)
Minimum requirements: $10,000 for monthly disbursement, $5,000 for quarterly, of
shares in Merrill Lynch Ready Assets Trust at cost or current offering price. In
addition, your signature(s) must be guaranteed. This option is available only if
you do not check No. 6.
The undersigned hereby authorizes and directs Financial Data Services, Inc. on
(check only one)
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<S> <C>
/ / the 24th of each month / / the registered owner as indicated in item 1 herein
/ / March 24, June 24, September 24 and December 24 above.
/ / to redeem a sufficient number of Shares in my / / (other)
account to generate redemption proceeds of $ ; Such check or ACH debit should be mailed to (check only
or one)
/ / to redeem % of the Shares in my account on / / the address indicated in item 1 herein above.
such date and pay the redemption proceeds by check / / the following name and address:
or ACH debit payable to the order of (check only
one)
</TABLE>
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6. ACCRUED MONTHLY PAYOUT PLAN (SEE TERMS AND CONDITIONS IN STATEMENT OF
ADDITIONAL INFORMATION)
The undersigned hereby authorizes and directs Financial Data Services, Inc. to
redeem on the last Friday of each month all shares purchased during such month
through reinvestment of dividends and distributions and send the proceeds to me.
<TABLE>
<S> <C>
/ /
Check box
(if desired)
</TABLE>
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7. OTHER INFORMATION
This application enables you to take advantage of any or all of the optional
services available to Merrill Lynch Ready Assets Trust shareholders and will
update any options in effect for your account.
If you select the Check Redemption Privilege, a supply of checks imprinted
with your name and shareholder account number will be sent to you in
approximately 10 days. You should be certain that a sufficient number of shares
are held by the Transfer Agent for your account to cover the amount of any check
or ACH debit drawn by you. If insufficient shares are in the account, the check
will be returned or the ACH debit will be dishonored marked insufficient funds.
Since the dollar value of your account is constantly changing, the total value
of your account cannot be determined in advance and the account cannot be
entirely redeemed by check or ACH debit. If the Check Redemption Privilege is
being requested for an account in the name of a corporation or other
institution, the following additional documents must be submitted with this
authorization.
CORPORATIONS--"Certification of Corporate Resolution," indicating the names
and titles of officers authorized to write checks or draw ACH debits, must be
signed by an officer other than one empowered to execute transactions, with his
signature guaranteed and the corporate seal affixed.
PARTNERSHIPS--"Certification of Partnership," naming the partners and the
required number that may act in accordance with the terms of the Partnership
Agreement is to be executed by a general partner with his signature guaranteed.
TRUSTS--"Certification of Trustees," naming the trustees and the required
number that may act in accordance with the terms of the Trust Agreement, must be
executed by a certifying trustee with his signature guaranteed and under the
corporate seal.
If you are adding or reinstating the Federal Funds Redemption option, the
signature(s) must be guaranteed in the space provided below. Your signature(s)
must be guaranteed by a commercial bank (not a savings bank) in New York City or
one having a New York City correspondent, or by a member firm of any national
securities exchange. (A Notary Public's seal does not constitute a signature
guarantee.)
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8. SIGNATURES
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed under "Additional
Information--Taxes" in the Prospectus) either because I have not been notified
that I am subject thereto as a result of failure to report all interest and
dividends, or the Internal Revenue Service ("IRS") has notified me that I am no
longer subject thereto. Instructions: You must strike out the language in (2)
above if you have been notified that you are subject to backup withholding due
to underreporting and you have not received a notice from the IRS that backup
withholding has been terminated. By your signature below, you authorize the
furnishing of this certification to other Merrill Lynch-sponsored mutual funds.
By the execution of this Purchase Application, the investor represents and
warrants that the investor has full right, power and authority to make the
investment applied for pursuant to this Application, and the person or persons
signing on behalf of the investor represent and warrant that they are duly
authorized to sign this Application and to purchase or redeem shares of the
Trust on behalf of the investor.
The investor hereby affirms that he has received a current Trust Prospectus
and appoints Financial Data Services, Inc. as his agent to receive dividends and
distributions for their automatic reinvestment in additional Trust shares.
<TABLE>
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- --------------------------------------------- ------------------- ---------------------------------------------
Signature of Investor Date Signature of Joint Registrant, if any
NOTE: The Guarantor must be either a U.S. commercial bank (not a
savings bank) or a trust company in New York City or one that
is a correspondent of a New York City commercial bank or trust
company, or a member firm of a national securities exchange (a
Notary Public's seal does not constitute a signature
guarantee).
Signature(s) Guaranteed: (only for those electing No. 3 or No. 5)
By:
(Authorized Signatory)
</TABLE>
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21
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22
<PAGE> 23
Manager
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
Distributor
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
Custodian
The Bank of New York
90 Washington Street
12th Floor
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Money Market Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45290
Jacksonville, Florida 32232-5290
Independent Auditors
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
Counsel
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE> 24
LOGO
NO DEALER, SALESMAN, OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST, THE MANAGER, OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING IN ANY
STATE IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
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PAGE
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<S> <C> <C>
Fee Table.............................. 2
Financial Highlights................... 3 MERRILL LYNCH
Yield Information...................... 4 READY ASSETS TRUST
Investment Objectives and Policies..... 4
Management of the Trust................ 8
Trustees............................. 8
Management and Advisory
Arrangements...................... 9
Transfer Agency Services............. 9
Purchase of Shares..................... 10
Methods of Payment................... 10
Distribution Plan.................... 11
Redemption of Shares................... 12
Methods of Redemption................ 12
Shareholder Services................... 14 Prospectus
Portfolio Transactions................. 15
Additional Information................. 15 April 27, 1995
Dividends............................ 15
Determination of Net Asset Value..... 16 Distributor:
Taxes................................ 16 Merrill Lynch
Organization of the Trust............ 18 Funds Distributor, Inc.
Shareholder Reports.................. 18
Shareholder Inquiries................ 18 This prospectus should be retained
Purchase Application................... 19 for future reference.
Code#10053-0495
</TABLE>
<PAGE> 25
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH READY ASSETS TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
The Trust is a no-load money market fund, organized as a Massachusetts
business trust, seeking preservation of capital, liquidity and the highest
possible current income consistent with the foregoing objectives available from
investing in a diversified portfolio of short-term money market securities.
Portfolio securities principally consist of short-term United States Government
securities, Government agency securities, bank money instruments, corporate debt
instruments, including commercial paper and variable amount master demand notes,
and repurchase and reverse repurchase agreements. The Trust shares common goals
with those investors seeking to put reserve assets to work in an income
producing and prudent manner and to make these assets readily available without
penalty. There can be no assurance that the investment objectives of the Trust
will be realized. The Trust pays Merrill Lynch, Pierce, Fenner & Smith
Incorporated a distribution fee for providing certain services in connection
with the distribution of Trust shares. See "Purchase of Shares".
------------------------
This Statement of Additional Information of the Trust is not a prospectus
and should be read in conjunction with the prospectus of the Trust, dated April
27, 1995 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling or by
writing the Trust at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is April 27, 1995.
<PAGE> 26
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Trust are to seek preservation of capital,
liquidity and the highest possible current income consistent with these
objectives available from investing in a diversified portfolio of short-term
money market securities. Reference is made to "Investment Objectives and
Policies" in the Prospectus for a discussion of the investment objectives and
policies of the Trust.
As discussed in the Prospectus, the Trust may invest in U.S.
dollar-denominated obligations of U.S. and foreign depository institutions,
including commercial and savings banks and savings and loan associations. The
obligations may be issued by U.S. or foreign depository institutions, foreign
branches or subsidiaries of U.S. depository institutions ("Eurodollar"
obligations), U.S. branches or subsidiaries of foreign depository institutions
("Yankeedollar" obligations) or foreign branches or subsidiaries of foreign
depository institutions. Obligations of foreign depository institutions, their
branches and subsidiaries, and Eurodollar and Yankeedollar obligations may
involve additional investment risks to the risks of obligations of U.S.
institutions. 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 such obligations are subject
to fewer regulatory requirements than are applicable to U.S. banks. Foreign
depository institutions, their branches or subsidiaries, and foreign branches or
subsidiaries of U.S. banks may be subject to less stringent reserve requirements
than U.S. banks. U.S. branches or subsidiaries of foreign banks are subject to
the reserve requirements of the state in which they are located. There may be
less publicly available information about a foreign bank or a branch or
subsidiary of a foreign bank than about a U.S. institution, and such branches or
subsidiaries may not be subject to the same accounting, auditing and financial
record keeping standards and requirements as U.S. banks. Evidence of ownership
of foreign depository and Eurodollar obligations may be held outside of the
United States and the Trust may be subject to the risks associated with the
holding of such property overseas. Foreign depository and Eurodollar obligations
of the Trust held overseas will be held by foreign branches of the Custodian for
the Trust's portfolio securities or by other U.S. or foreign banks under
subcustodian arrangements complying with the requirements of the Investment
Company Act of 1940 (the "Investment Company Act"). The Trust's manager, Merrill
Lynch Asset Management, L.P. (the "Manager" or "MLAM"), will consider the above
factors in making investments in foreign depository, Eurodollar and Yankeedollar
obligations and will not knowingly purchase obligations which, at the time of
purchase, are subject to exchange controls or withholding taxes. Generally, the
Trust will limit its foreign depository and Yankeedollar investments to
obligations of banks organized in Canada, France, Germany, Japan, the
Netherlands, Switzerland, the United Kingdom and other western industrialized
nations. As discussed in the Prospectus, the Trust 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 above in connection with investments in Eurodollar and Yankeedollar
obligations and obligations of foreign depository institutions and their foreign
branches and subsidiaries.
Also as discussed in the Prospectus, the Trust may invest in money market
securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with a member bank of the Federal Reserve System or primary dealer in U.S.
Government securities. Under such agreements, the bank or primary dealer agrees,
on entering into the contract, to repurchase the security at a mutually agreed
upon time and price, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from market
fluctuations
2
<PAGE> 27
during such period. In the case of repurchase agreements, the prices at which
the trades are conducted do not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts, the prices take
into account accrued interest. Such agreements usually cover short periods, such
as under one week. Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities transferred to
the purchaser. In the case of a repurchase agreement, the Trust 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; the Trust does not have the right to seek additional collateral in
the case of purchase and sale contracts. 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 Trust but only constitute collateral
for the seller's obligation to pay the repurchase price. Therefore, the Trust
may suffer time delays and incur costs or possible losses in connection with the
disposition of the collateral. A purchase and sale contract differs from a
conventional repurchase agreement in that the contract arrangements stipulate
that the securities are owned by the Trust and, if the seller should fail to
repurchase the security, the Trust retains ownership of the security. The Trust
would also retain ownership of the securities in the event of a default under a
repurchase agreement that is construed not to be a collateralized loan. In the
event of a default under such a repurchase agreement or under a purchase and
sale contract, instead of the contractual fixed rate of return, the rate of
return to the Trust shall be dependent on intervening fluctuations of the market
value of such security and accrued interest on the security. In such event, the
Trust 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. While the substance of purchase and sale contracts is similar
to repurchase agreements, because of the different treatment with respect to
accrued interest and additional collateral, management believes that purchase
and sale contracts are not repurchase agreements as such term is understood in
the banking and brokerage community, although they are considered repurchase
agreements for purposes of the Investment Company Act.
The Trust's investments in short-term corporate debt and bank money
instruments will be rated, or will be issued by issuers who have been rated, in
one of the two highest rating categories for short-term debt obligations by a
nationally recognized statistical rating organization (an "NRSRO") or, if not
rated, will be of comparable quality as determined by the Trustees of the Trust.
The Trust's investments in corporate bonds and debentures (which must have
maturities at the date of purchase of 397 days (13 months) or less) will be in
issuers who have received from an NRSRO a rating with respect to a class of
short-term debt obligations that is comparable in priority and security with the
investment in one of the two highest rating categories for short-term
obligations or if not rated, will be of comparable quality as determined by the
Trustees of the Trust. Currently, there are six NRSROs: Duff and Phelps Inc.,
Fitch Investors Services, Inc., IBCA Limited and its affiliate IBCA Inc.,
Thompson BankWatch, Inc., Moody's Investors Service Inc. and Standard & Poor's
Ratings Group. See "Appendix--Description of Commercial Paper, Bank Money
Instruments and Corporate Bond Ratings".
In addition to the investment restrictions set forth in the Prospectus, the
Trust 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
Trust'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 Trust may not (1) make investments for the purpose of exercising
control or management; (2) purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition or
reorganization; (3) 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
3
<PAGE> 28
development programs; (4) purchase any securities on margin, except for use of
short-term credit necessary for clearance of purchases and sales of portfolio
securities; (5) make short sales of securities or maintain a short position or
write, purchase or sell puts, calls, straddles, spreads or combinations thereof;
(6) make loans to other persons, provided that the Trust 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 (7) below; (7)
lend its portfolio securities in excess of 20% of its total assets, taken at
market value, provided that such loans are made according to the guidelines of
the Securities and Exchange Commission and the Trust's Board of Trustees,
including maintaining collateral from the borrower equal at all times to the
current market value of the securities loaned; (8) borrow amounts in excess of
20% of its total assets, taken at market value, and then only from banks as a
temporary measure for extraordinary or emergency purposes (the borrowing
provisions shall not apply to reverse repurchase agreements with respect to
which see (12) below) [usually only "leveraged" investment companies may borrow
in excess of 5% of their assets; however, the Trust will not borrow to increase
income but only to meet redemption requests which might otherwise require
untimely dispositions of portfolio securities; interest paid on such borrowings
will reduce net income]; (9) mortgage, pledge, hypothecate or in any manner
transfer (except as provided in (7) above), as security for indebtedness any
securities owned or held by the Trust except as may be necessary in connection
with borrowings mentioned in (8) above, and then such mortgaging, pledging or
hypothecating may not exceed 25% of the Trust's total assets, taken at market
value [although the Trust has the authority to mortgage, pledge or hypothecate
up to 25% of total assets under this investment restriction (9), as a matter of
operating policy, it will not mortgage, pledge or hypothecate in excess of 10%
of net assets in order to comply with the requirements of certain state
securities commissions]; (10) invest in securities (except for repurchase
agreements, purchase and sale contracts or variable amount master demand notes)
with legal or contractual restrictions on resale or for which no readily
available market exists or in securities of issuers (other than issuers of
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; (11) act as an underwriter of securities; (12) enter into
reverse repurchase agreements if, as a result thereof, the Trust's obligations
with respect to reverse repurchase agreements would exceed one-third of the
Trust's net assets (defined to be total assets, taken at market value, less
liabilities other than reverse repurchase agreements). The Trust will not
purchase securities while borrowings described in investment restriction (8) are
outstanding except to honor prior commitments.
Lending of Portfolio Securities. Subject to investment restriction (7)
above, the Trust may from time to time loan securities from its portfolio to
brokers, dealers and financial institutions and receive collateral in cash or
cash equivalents 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 collateral
will be invested in short-term securities, the income from which will increase
the return to the Trust. The Trust will retain all rights of beneficial
ownership as to the loaned portfolio securities, including voting rights and
rights to interest or other distributions, and will have the right to regain
record ownership of loaned securities to exercise such beneficial rights. Such
loans will be terminable at any time. The Trust may pay reasonable fees to
persons unaffiliated with the Trust in connection with the arranging of such
loans.
4
<PAGE> 29
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Trustee is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (62)--President and Trustee(1)(2)--President of the Manager
(which term as used herein includes its corporate predecessors) since 1977;
President of Fund Asset Management, L.P. ("FAM", which term as used herein
includes its corporate predecessors) since 1977; President and Director of
Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML&Co.") since 1990; Executive Vice
President of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") since 1990 and Senior Vice President thereof from 1985 to 1990; and
Director of Merrill Lynch Funds Distributor, Inc. (the "Distributor").
DONALD CECIL (68)--Trustee(2)--1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
M. COLYER CRUM (62)--Trustee(2)--Soldiers Field Road, Boston, Massachusetts
02163. James R. Williston Professor of Investment Management, Harvard Business
School, since 1971; Director of Cambridge Bancorp, Copley Properties, Inc. and
Sun Life Assurance Company of Canada.
EDWARD H. MEYER (68)--Trustee(2)--777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since 1972; Director of The
May Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan
Allen Interiors, Inc. and Harman International Industries, Inc.
JACK B. SUNDERLAND (66)--Trustee(2)--P.O. Box 1177, Scarsdale, New York
10583. President and Director of American Independent Oil Company, Inc. (an
energy company) since 1987; Member of Council on Foreign Relations since 1971.
J. THOMAS TOUCHTON (56)--Trustee(2)--Suite 3405, One Tampa City Center,
Tampa, Florida 33602. Managing Partner of The Witt-Touchton Company and its
predecessor The Witt Co. (a private investment partnership) since 1972; Trustee
Emeritus of Washington and Lee University; Director of TECO Energy, Inc. (an
electric utility holding company).
TERRY K. GLENN (54)--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 the Distributor since
1986 and Director thereof since 1991; President of Princeton Administrators,
L.P. since 1988.
JOSEPH T. MONAGLE, JR. (46)--Executive Vice President(1)(2)--Senior Vice
President of the Manager and FAM since 1990; Vice President of the Manager from
1978 to 1990; Senior Vice President of Princeton Services since 1993.
DONALD C. BURKE (34)--Vice President(1)(2)--Vice President and Director of
Taxation of the Manager since 1990; employee of Deloitte & Touche LLP from 1982
to 1990.
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<PAGE> 30
JOHN NG (41)--Vice President(1)--Vice President of the Manager since 1985.
GERALD M. RICHARD (45)--Treasurer(1)(2)--Senior Vice President and
Treasurer of the Manager and FAM since 1984; Senior Vice President and Treasurer
of Princeton Services since 1993; Vice President of the Distributor since 1981
and Treasurer since 1984.
MARK B. GOLDFUS (48)--Secretary(1)(2)--Vice President of the Manager and
FAM since 1985.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Trust.
(2) Such Trustee or officer is a director or officer of certain other investment
companies for which the Manager or FAM acts as investment adviser.
At March 31, 1995, the Trustees and the officers of the Trust as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of
beneficial interest of the Trust. At such date, Mr. Zeikel, an officer and
Trustee of the Trust, and the other officers of the Trust, owned less than 1% of
the outstanding shares of common stock of ML&Co.
COMPENSATION OF TRUSTEES
Pursuant to the terms of its management agreement with the Trust (the
"Management Agreement"), the Manager pays all compensation of all officers and
employees of the Trust as well as the fees of all Trustees of the Trust who are
affiliated persons of ML&Co. or its subsidiaries. The Trust pays each
non-interested Trustee an annual fee of $14,000 plus a fee of $2,000 for each
meeting attended and pays all Trustees' actual out-of-pocket expenses relating
to attendance at meetings. Additionally, the Trust has established an Audit
Committee of the Board of Trustees of which all of the unaffiliated Trustees are
members. Each member of such committee receives an annual fee of $5,000 and the
chairman of such committee receives an additional annual fee of $2,500. The
total fees and expenses of the non-interested Trustees aggregated $138,000 for
the fiscal year ended December 31, 1994.
The following table sets forth for the fiscal year ended December 31, 1994,
compensation paid by the Trust to the non-interested Trustees and for the
calendar year ended December 31, 1994, the aggregate compensation paid by all
investment companies advised by MLAM and its affiliate, FAM ("MLAM/FAM Advised
Funds"), to the non-interested Trustees.
<TABLE>
<CAPTION>
TOTAL
PENSION COMPENSATION
OR FROM
RETIREMENT TRUST
BENEFITS AND
ACCRUED MLAM/FAM
AGGREGATE AS PART ADVISED
COMPENSATION OF FUNDS
NAME OF FROM TRUST PAID TO
TRUSTEE TRUST EXPENSES TRUSTEES
- --------------------------------- ------- ----- --------
<S> <C> <C> <C>
Donald Cecil(1).................. $29,500 None $276,350
M. Colyer Crum(1)................ $27,000 None $126,600
Edward H. Meyer(1)............... $27,000 None $251,600
Jack B. Sunderland(1)............ $27,000 None $134,600
J. Thomas Touchton(1)............ $27,000 None $134,600
</TABLE>
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(1) The Trustees serve on the boards of other MLAM/FAM Advised Funds as follows:
Mr. Cecil (34 funds), Mr. Crum (17 funds), Mr. Meyer (34 funds), Mr.
Sunderland (18 funds) and Mr. Touchton (18 funds).
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Trust--Management and Advisory
Arrangements" in the Prospectus for certain information concerning management
and advisory arrangements of the Trust.
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<PAGE> 31
Subject to the direction of the Board of Trustees, the Manager is
responsible for the actual management of the Trust's portfolio and constantly
reviews the Trust'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 portfolio management of the
Trust.
The Manager has access to the expertise of its affiliate, Merrill Lynch
Government Securities Inc. ("GSI"), which is a wholly-owned subsidiary of ML&Co.
In terms of dollar volume of trading, GSI is one of the largest dealers in
United States Government securities and Government agency securities, acting
both as a primary dealer and a secondary market trader. GSI is one of the
reporting dealers in U.S. Government securities who report their daily position
and activity to the Federal Reserve Bank of New York. A subsidiary of GSI acts
as a dealer in other money market securities including bankers' acceptances,
certificates of deposit and commercial paper. In addition, the total securities
and economic research facilities of Merrill Lynch are available to the Manager.
Securities held by the Trust also may be held by, or be appropriate
investments for, other funds or clients (collectively referred to as "clients")
for which the Manager or its affiliate, FAM, acts as an 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 Trust 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 its
subsidiary during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
As compensation for its services to the Trust, the Manager receives a fee
from the Trust at the end of each month at the following annual rates:
Portion of average daily value of net assets:
<TABLE>
<CAPTION>
RATE
-------
<S> <C>
Not exceeding $500 million.................................................. 0.500%
In excess of $500 million but not exceeding $1 billion...................... 0.400%
In excess of $1 billion but not exceeding $5 billion........................ 0.350%
In excess of $5 billion but not exceeding $10 billion....................... 0.325%
In excess of $10 billion but not exceeding $15 billion...................... 0.300%
In excess of $15 billion but not exceeding $20 billion...................... 0.275%
In excess of $20 billion.................................................... 0.250%
</TABLE>
The State of California imposes limitations on the expenses of the Trust.
This annual expense limitation applicable to the Trust requires that the Manager
reimburse the Trust to the extent that the Trust's ordinary operating expenses
exceed 2.5% of the first $30 million of average daily net assets, 2.0% of the
next $70 million of average daily net assets and 1.5% of the average daily net
assets in excess thereof. Expenses which are not subject to this limitation are
interest, taxes, brokerage commissions and extraordinary items such as
litigation costs. The obligation of the Manager to reimburse the Trust under
this limitation is not limited to the amount of the management fee. For the
fiscal years ended December 31, 1992, 1993 and 1994, the total management fees
paid by the Trust to the Manager aggregated $29,798,649, $25,841,742 and
$23,487,917, respectively. At the date of this Statement of Additional
Information, the Manager had not been required to make any reimbursement to the
Trust pursuant to limitations on operating expenses.
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<PAGE> 32
The Manager is obligated to provide investment advisory services, to
furnish administrative services, office space and facilities for management of
the Trust's affairs, to pay all compensation of officers of the Trust as well as
all Trustees of the Trust who are affiliated persons of ML&Co. and its
subsidiaries, and to bear the costs and expenses of the advertising of the
Trust. The Trust pays all other expenses incurred in the operation of the Trust
(except for certain expenses incurred by the Distributor--see "Purchase of
Shares"), including, among other things, taxes, expenses for legal, auditing and
accounting services, allocated portions of clerical salaries related to Trust
activities, costs of printing of prospectuses and statements of additional
information (to the extent not paid by the Distributor), shareholder reports and
proxy statements, charges of the custodian and transfer agent, expenses of
redemption of shares, expenses of registering and qualifying shares for sale
under Federal, state and other laws, costs of conducting shareholder relations,
fees and actual out-of-pocket expenses of unaffiliated Trustees, interest,
brokerage costs and other expenses properly payable by the Trust. Accounting
services are provided to the Trust by the Manager, and the Trust reimburses the
Manager for its costs in connection with such services. For the fiscal year
ended December 31, 1994, $280,057 was required to be reimbursed.
For information as to the fee to be paid by the Trust to Merrill Lynch
pursuant to the Shareholder Servicing Plan and Agreement, see the Prospectus
under "Purchase of Shares--Distribution Plan" and below under "Purchase of
Shares--Distribution Plan".
Duration and Termination. Unless earlier terminated as described below,
the Management Agreement will continue in effect from year to year if approved
annually (a) by the Trustees of the Trust or by a majority of the outstanding
voting shares of the Trust and (b) by a majority of Trustees who are not parties
to such contract or interested persons (as defined in the Investment Company
Act) of any such party. Such contract is not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Trust.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Trust shares.
The Trust is offering its shares without sales charge at a public offering
price equal to the net asset value next determined after a purchase order
becomes effective. Share purchase orders are effective on the day Federal Funds
become available to the Trust. The Trustees anticipate that the net asset value
will remain constant at $1.00 per share and that fluctuations in value will be
reflected in the number of outstanding shares in the shareholder's account
rather than in the per share dollar value. See "Determination of Net Asset
Value". The minimum initial purchase is $5,000. The minimum subsequent purchase
is $1,000. The minimum initial purchase with respect to pension, profit sharing,
individual retirement and certain other retirement plans is $100 and the minimum
subsequent purchase in connection with such plans is $1. The minimum initial or
subsequent purchase requirements may be waived for certain employer sponsored
retirement or savings plans, such as tax qualified retirement plans within the
meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), deferred compensation plans within the meaning of Section 403(b) and
Section 457 of the Code, other deferred compensation arrangements, Voluntary
Employee Benefits Association ("VEBA") plans, and non-qualified After Tax
Savings and Investment programs, maintained on the Merrill Lynch Group Employee
Services system, referred to herein and in the Prospectus as "Employer Sponsored
Retirement or Savings Plans." For accounts advised by banks and registered
investment advisers, including the Manager, the minimum initial purchase is $300
and the minimum subsequent purchase is $100. Any order may be rejected by the
Distributor or the Trust.
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<PAGE> 33
The Distributor acts as the distributor in the continuous offering of the
Trust's shares. Shares may be purchased directly from the Distributor or from
other securities dealers, including Merrill Lynch, with whom the Distributor has
entered into a selected dealer agreement. Securities dealers may charge
investors a fee in connection with such transactions. Merrill Lynch has informed
the Trust that it does not charge such a fee.
The Trust's distribution agreement with the Distributor is renewable
annually, and may be terminated upon 60 days' written notice by either party.
Under such agreement, after the prospectuses, statements of additional
information and periodic reports have been prepared and set in type, the
Distributor will pay for the printing and distribution of copies thereof used in
connection with the offering to dealers and investors. The Distributor also will
pay for other supplementary sales literature.
It is the Trust's policy to be invested as fully as reasonably practicable
at all times to maximize the yield on the Trust's portfolio. The money markets
in which the Trust will purchase and sell portfolio securities normally require
immediate settlement of transactions in Federal Funds. Federal Funds are a
commercial bank's deposits in a Federal Reserve Bank and can be transferred from
one member bank's account to that of another member bank on the same day and
thus are considered to be immediately available funds. Orders for the purchase
of Trust shares shall become effective on the day Federal Funds become available
to the Trust and the shares being purchased will be issued at the net asset
value per share next determined. If Federal Funds are available to the Trust
prior to the determination of net asset value (generally 4:00 P.M., New York
time) on any business day, the order will be effective on that day. Shares
purchased will begin accruing dividends on the day following the date of
purchase.
DISTRIBUTION PLAN
The Trust has adopted a Shareholder Servicing Plan and Agreement (the
"Plan") in compliance with Rule 12b-1 under the Investment Company Act pursuant
to which the Trust is authorized to pay Merrill Lynch a fee at the annual rate
of 0.125% of average daily net asset value of Trust accounts maintained through
Merrill Lynch. The Plan reimburses Merrill Lynch only for actual expenses
incurred in the fiscal year in which the fee is paid. The fee is principally to
provide compensation to Merrill Lynch financial consultants and other Merrill
Lynch personnel for providing direct personal services to shareholders of the
Trust. Under the Plan, as amended to date, Merrill Lynch, in its sole
discretion, may expend out of the fee an amount not exceeding 0.01% of the
average daily net asset value as reimbursement for expenditures incurred in
advertising activities promoting the sale, marketing and distribution of the
shares of the Trust.
The Trustees believe that the Trust's expenditures under the Plan benefit
the Trust and its shareholders by providing better shareholder services and by
affecting positively the sale and distribution of Trust shares. For the fiscal
years ended December 31, 1992, 1993 and 1994, $9,900,529, $8,501,923 and
$7,661,910, respectively, was paid to Merrill Lynch pursuant to the Plan. All of
the amounts expended for the years ended December 31, 1992, 1993 and 1994 were
allocated to Merrill Lynch financial consultants, other Merrill Lynch personnel
and related administrative costs.
Among other things, the Plan provides that Merrill Lynch shall provide and
the Trustees of the Trust shall review quarterly reports of the distribution
expenditures made by Merrill Lynch pursuant to the Plan. In their consideration
of the Plan, the Trustees must consider all factors they deem relevant,
including information as to the benefits of the Plan to the Trust and its
shareholders. The Plan further provides that, so long as the Plan remains in
effect, the selection and nomination of Trustees of the Trust 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. The 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
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<PAGE> 34
of a majority of the outstanding voting securities of the Trust. Finally, the
Plan cannot be amended to increase materially the amount to be spent by the
Trust thereunder without shareholder approval, and all material amendments are
required to be approved by vote of the Trustees of the Trust, including a
majority of the Independent Trustees, cast in person at a meeting called for
that purpose.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the repurchase and redemption of Trust shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended 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 is closed other than customary weekend and holiday
closings or (B) during which trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a result of
which (A) disposal by the Trust of securities owned by it is not reasonably
practicable or (B) it is not reasonably practicable for the Trust fairly to
determine the value of its net assets; or (3) for such other periods as the
Securities and Exchange Commission may by order permit for the protection of
security holders of the Trust. The Commission shall by rules and regulations
determine the conditions under which (i) trading shall be deemed to be
restricted and (ii) an emergency shall be deemed to exist within the meaning of
clause (2) above.
The total value of the shareholder's investment at the time of redemption
may be more or less than his cost, depending on the market value of the
securities held by the Trust at such time and income earned.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policy
established by the Board of Trustees of the Trust, the Manager is primarily
responsible for the Trust's portfolio decisions and the placing of the Trust's
portfolio transactions. In placing orders, it is the policy of the Trust 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 Trust will not
necessarily be paying the lowest spread or commission available. The Trust's
policy of investing in securities with short maturities will result in high
portfolio turnover.
The money market securities in which the Trust invests are traded primarily
in the over-the-counter market. Bonds and debentures usually are traded
over-the-counter, but may be traded on an exchange. Where possible, the Trust
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
securities generally are traded on a net basis and normally do not involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Trust will consist primarily of dealer spreads
and underwriting commissions. Under the Investment Company Act, persons
affiliated with the Trust are prohibited from dealing with the Trust as a
principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the Securities and Exchange
Commission. Since over-the-counter transactions usually are principal
transactions, affiliated persons of the Trust, including Merrill Lynch
Government Securities Inc. ("GSI") and Merrill Lynch, may not serve as the
Trust's dealer in
10
<PAGE> 35
connection with such transactions except pursuant to the exemptive orders
described below. However, affiliated persons of the Trust may serve as its
broker in over-the-counter transactions conducted on an agency basis.
The Securities and Exchange Commission has issued an exemptive order
permitting the Trust to conduct principal transactions with GSI in United States
Government and Government agency securities and with a subsidiary of GSI in
certificates of deposit and other short-term money instruments and commercial
paper. This order contains a number of conditions, including conditions designed
to ensure that the price to the Trust from GSI or its subsidiary is equal to or
better than that available from other sources. GSI and its subsidiary have
informed the Trust that they will in no way, at any time, attempt to influence
or control the activities of the Trust or the Manager in placing such principal
transactions. The exemptive order allows GSI or its subsidiary, Merrill Lynch
Money Markets Inc., to receive a dealer spread on any transaction with the Trust
no greater than their customary dealer spread for transactions of the type
involved. Generally, such spreads do not exceed 0.25% of the principal amount of
the securities involved. During the fiscal year ended December 31, 1992, the
Trust engaged in 206 such transactions aggregating approximately $5.1 billion.
During the fiscal year ended December 31, 1993, the Trust engaged in 152 such
transactions aggregating approximately $5.6 billion. During the fiscal year
ended December 31, 1994, the Trust engaged in 47 such transactions aggregating
approximately $2.0 billion.
The Trustees of the Trust have considered the possibilities of recapturing
for the benefit of the Trust 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 orders described above could be offset
against the management fee payable by the Trust to the Manager. After
considering all factors deemed relevant, the Trustees made a determination not
to seek such recapture. The Trustees will reconsider this matter from time to
time.
The Trust 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 by the Trust. Information so received will
be in addition to and not in lieu of the services required to be performed by
the Manager under its Management Agreement and the expenses of the Manager will
not necessarily be reduced as a result of the receipt of such supplemental
information.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Trust is determined by the Manager
once daily, immediately after the daily declaration of dividends, on each day
the New York Stock Exchange or New York banks are open for business. Such
determination is made as of the close of business on the New York Stock Exchange
(generally 4:00 P.M., New York time) or, on days when the New York Stock
Exchange is closed but New York banks are open, at 4:00 P.M., New York time. As
a result of this procedure, the net asset value is determined each day except
for days on which both the New York Stock Exchange and New York banks are
closed. Both the New York Stock Exchange and New York banks are closed on New
Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value per share is computed
pursuant to the "penny-rounding" method by adding the value of all securities
held by the Trust plus any cash or other assets (including interest accrued but
not yet received) deducting all liabilities (including accrued expenses),
dividing by the total number of shares outstanding at such time and
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<PAGE> 36
rounding the result to the nearest whole cent. Expenses, including the fees
payable to the Manager, are accrued daily.
The Trust 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 Trust 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 Securities and Exchange Commission rule applicable
to the valuation of its portfolio securities, the Trust will maintain a
dollar-weighted average portfolio maturity of 90 days or less and will purchase
instruments having remaining maturities of not more than 397 days (13 months),
with the exception of U.S. Government and U.S. Government agency securities,
which may have remaining maturities of up to 762 days (25 months). The Trust
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 Trust's price per
share as computed for the purposes of sales and redemptions at $1.00. Deviations
of more than an insignificant amount between the net asset value calculated
using market quotations and that calculated on a "penny-rounded" basis will be
reported to the Trustees by the Manager. In the event the Trustees determine
that a deviation exists which may result in the material dilution or other
unfair results to investors or existing shareholders, the Trust will take such
corrective action as it regards as necessary and appropriate, including the
reduction of the number of outstanding shares of the Trust by having each
shareholder proportionately contribute shares to the Trust'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 Trust's capital the number of shares which
represents their proportionate shares of the difference between the portfolio's
fair market value and net asset value based on $1.00 per share. Each shareholder
will be deemed to have agreed to such contribution by an investment in the
Trust.
Since the net income of the Trust (including realized gains and losses on
the portfolio securities) is determined and declared as a dividend immediately
prior to each time the net income of the Trust is determined, the net asset
value per share of the Trust normally remains at $1.00 per share immediately
after each such determination and dividend declaration. Any increase in the
value of a shareholder's investment in the Trust, representing the reinvestment
of dividend income, is reflected by an increase in the number of shares of the
Trust in the account and any decrease in the value of a shareholder's investment
may be reflected by a decrease in the number of shares in the account. (See
"Taxes".)
YIELD INFORMATION
The Trust 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 gains and
losses on portfolio securities. In accordance with regulations adopted by the
Securities and Exchange Commission, the Trust is required to disclose its
annualized yield for certain seven-day base periods in a standardized manner
which does not take into consideration any realized or unrealized gains or
losses on portfolio securities. The Securities and Exchange 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
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<PAGE> 37
power equal to 365 divided by seven, and subtracting one from the result. This
compounded yield calculation also excludes realized and unrealized gains or
losses on portfolio securities.
The yield on the Trust's shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Trust of future yields or rates of return on its shares.
The yield is affected by such factors as changes in interest rates on Treasury
securities, average portfolio maturity, the types and quality of portfolio
securities held and operating expenses. The yield on Trust shares for various
reasons may not be comparable to the yield on shares of other money market funds
or other investments.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services described below designed
to facilitate investment in its shares. Full details as to each of such services
and copies of the various plans described below and instructions as to how to
participate in the various services or plans, or to change options with respect
thereto, can be obtained from the Trust, the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive monthly statements from the Transfer Agent
showing any activity in his account since the preceding statement. A shareholder
may make additions to his Investment Account at any time by purchasing shares at
the applicable public offering price either through his securities dealer, by
wire or by mail directly to the Transfer Agent, acting as agent for his dealer.
A shareholder may ascertain the number of shares in his Investment Account by
telephoning the Transfer Agent at (800) 221-7210 toll-free. The Transfer Agent
will furnish this information only after the shareholder has specified the name,
address, account number and social security number of the registered owner or
owners.
In the interest of economy and convenience and because of the operating
procedures of the Trust, certificates representing the Trust's shares will not
be issued physically. Shares are maintained by the Trust on its register
maintained by the Transfer Agent and the holders thereof will have the same
rights and ownership with respect to such shares as if certificates had been
issued.
AUTOMATIC INVESTMENT PLAN
The Trust offers an Automatic Investment Plan in connection with accounts
maintained at the Transfer Agent whereby the Transfer Agent is authorized
through preauthorized checks of $50 or more to charge the regular bank account
of the shareholder on a regular basis to provide systematic additions to the
Investment Account of such shareholder. See the Purchase Application in the
Prospectus. A shareholder's Automatic Investment Plan may be terminated at any
time without charge or penalty by the shareholder, the Trust, the Transfer Agent
or the Distributor.
ACCRUED MONTHLY PAYOUT PLAN
The dividends of the Trust are reinvested automatically in additional
shares. Shareholders with accounts maintained at the Transfer Agent desiring
cash payments may enroll in the Accrued Monthly Payout Plan, under which shares
equal in number to shares credited through the automatic reinvestment of
dividends and distributions during each month are redeemed at net asset value on
the last Friday of such month in order to meet the monthly distribution.
Investors may open an Accrued Monthly Payout Plan by completing the appropriate
portion of the Purchase Application in the Prospectus. A shareholder's Accrued
Monthly Payout
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<PAGE> 38
Plan may be terminated at any time without charge or penalty by the shareholder,
the Trust, the Transfer Agent or the Distributor.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to make systematic withdrawals from an Investment
Account on either a monthly or quarterly basis as provided below. Quarterly
withdrawals are available for shareholders who have acquired shares of the Trust
having a value, based on cost or the current offering price, of $5,000 or more,
and monthly withdrawals for shareholders with shares with such a value of
$10,000 or more. The quarterly periods end on the 24th day of March, June,
September and December. See the Purchase Application in the Prospectus.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify either a dollar amount
or a percentage of the value of his shares. Redemptions will be made at net
asset value as determined at the close of business on the New York Stock
Exchange on the 24th day of each month or the 24th day of the last month of each
quarter, whichever is applicable. A shareholder's Systematic Withdrawal Plan may
be terminated at any time, without charge or penalty, by the shareholder, the
Trust, the Transfer Agent or the Distributor. A shareholder may not elect to
make systematic withdrawals while he is enrolled in the Accrued Monthly Payout
Plan.
Withdrawal payments should not be considered as dividends, yield or income.
Withdrawals are sales of shares and may result in taxable gain or loss. If
periodic withdrawals continuously exceed reinvested dividends, the shareholder's
original investment will be reduced correspondingly. Shareholders are cautioned
not to designate withdrawal programs that result in an undue reduction of
principal. There are no minimums on amounts that may be systematically
withdrawn. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Trust and in certain of the other mutual funds sponsored by Merrill Lynch as
well as in other securities. Merrill Lynch charges an initial establishment fee
and an annual custodial fee for each account. Information with respect to these
plans is available upon request from Merrill Lynch. In addition, eligible
shareholders of the Trust may participate in a variety of qualified employee
benefit plans which are available from the Distributor. Participants in these
plans may invest in the Trust and in certain other mutual funds sponsored by
Merrill Lynch. Information with respect to these plans is available upon request
from the Distributor. See "Purchase of Shares" in the Prospectus.
Capital gains and income received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Shareholders of the Trust who have held all or part of their shares for at
least 15 days may exchange their shares of the Trust for Class D shares of
mutual funds advised by the Manager or FAM described below (collectively
referred to as the "MLAM-advised mutual funds") on the basis described below.
Shares with a
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net asset value of at least $250 are required to qualify for the exchange
privilege. It is contemplated that the exchange privilege may be applicable to
other new mutual funds whose shares are distributed by the Distributor. The
exchange privilege available to participants in the Merrill Lynch Blueprint(SM)
Program may be different from that available to other investors.
Alternatively, shareholders may exchange shares of the Trust for Class A
shares of one of the MLAM-advised mutual funds if the shareholder holds any
Class A shares of that fund in the account in which the exchange is made at the
time of the exchange or is otherwise an eligible Class A investor. An eligible
Class A investor includes the following: certain employer sponsored retirement
or savings plans, including eligible 401(k) plans, provided such plans meet the
required minimum number of eligible employees or required amount of assets
advised by MLAM or any of its affiliates; corporate warranty insurance reserve
fund programs provided that the program has $3 million or more initially
invested in MLAM-advised mutual funds; participants in certain investment
programs including TMA(SM) Managed Trusts to which Merrill Lynch Trust Company
provides discretionary trustee services and certain purchases made in connection
with the Merrill Lynch Mutual Fund Adviser program; and ML&Co. and its
subsidiaries and their directors and employees and members of the Boards of
MLAM-advised investment companies, including the Trust.
Shareholders of the Trust also may exchange shares of the Trust into shares
of Class A Share Money Market Funds, as listed below.
Under the exchange privilege, each of the MLAM-advised mutual funds offers
to exchange its shares ("new shares") for shares ("outstanding shares") of any
of the other funds, on the basis of relative net asset value per share, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the outstanding shares and the sales charge payable at the time of the
exchange on the new shares. At the present time, the shares of each of the funds
are sold with varying sales charges. With respect to outstanding shares as to
which previous exchanges have taken place, the "sales charge previously paid"
shall include the aggregate of the charges paid with respect to such shares in
the initial purchase and any subsequent exchange. Shares issued pursuant to
dividend reinvestment are sold on a no-load basis in each of the funds. For
purposes of the exchange privilege, dividend reinvestment shares shall be deemed
to have been sold with a sales charge equal to the sales charge previously paid
on the shares on which the dividend was paid. Based on this formula an exchange
of shares of the Trust, which are sold on a no-load basis, for shares of the
other funds, which are sold with a sales charge, generally will require the
payment of a sales charge.
The investment objectives of the other funds into which exchanges can be
made are as follows:
Funds Issuing Class A, Class B, Class C and Class D Shares:
<TABLE>
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MERRILL LYNCH ADJUSTABLE RATE SECURITIES
FUND, INC.................................. High current income, consistent with a policy
of limiting the degree of fluctuation in net
asset value by investing primarily in a
portfolio of adjustable rate securities
consisting principally of mortgage-backed
and asset-backed securities.
MERRILL LYNCH AMERICAS INCOME
FUND, INC.................................. A high level of current income, consistent
with prudent investment risk, by investing
primarily in debt securities denominated in
a currency of a country located in the
Western Hemisphere (i.e., North and South
America and the surrounding waters).
</TABLE>
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<TABLE>
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MERRILL LYNCH ARIZONA LIMITED MATURITY
MUNICIPAL BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Arizona income taxes as is
consistent with prudent investment man-
agement through investment in a portfolio
primarily of intermediate-term investment
grade Arizona Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL BOND FUND,
INC. ...................................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arizona
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH ARKANSAS MUNICIPAL BOND FUND... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arkansas
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH ASSET GROWTH FUND, INC......... High total investment return, consistent with
prudent risk, from investment in United States
and foreign equity, debt and money market
securities the combination of which will be
varied both with respect to types of
securities and markets in response to chang-
ing market and economic trends.
MERRILL LYNCH ASSET INCOME FUND, INC......... A high level of current income through
investment primarily in United States fixed
income securities.
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT, INC............. As high a level of total investment return as
is con-sistent with reasonable risk by
investing in common stocks and other types
of securities, including fixed income
securities and convertible securities.
MERRILL LYNCH BASIC VALUE FUND, INC.......... Capital appreciation and, secondarily, income,
through investment in securities, primarily
equities, that are undervalued and therefore
represent basic investment value.
</TABLE>
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<TABLE>
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MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND........................ A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management through investment in
a portfolio primarily of insured California
Municipal Bonds.
MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and California income taxes as is
consistent with prudent investment man-
agement through investment in a portfolio
primarily of intermediate-term investment
grade California Municipal Bonds.
MERRILL LYNCH CALIFORNIA MUNICIPAL BOND
FUND....................................... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CAPITAL FUND, INC.............. The highest total investment return consistent
with prudent risk through a fully-managed
investment policy utilizing equity, debt and
convertible securities.
MERRILL LYNCH COLORADO MUNICIPAL
BOND FUND.................................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income
exempt from Federal and Colorado income
taxes as is consistent with prudent invest-
ment management.
MERRILL LYNCH CONNECTICUT MUNICIPAL BOND
FUND....................................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Connecticut
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CORPORATE BOND
FUND, INC. ................................ Current income from three separate diversified
portfolios of fixed income securities.
</TABLE>
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<TABLE>
<S> <C>
MERRILL LYNCH DEVELOPING CAPITAL MARKETS
FUND, INC. ................................ Long-term capital appreciation through
investment in securities, principally
equities, of issuers in countries having
smaller capital markets.
MERRILL LYNCH DRAGON FUND, INC. ............. Capital appreciation primarily through
investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin.
MERRILL LYNCH EUROFUND....................... Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES TRUST....... High current return through investments in
U.S. Government and Government agency
securities, including GNMA mortgage-backed
certificates and other mortgage-backed
Government securities.
MERRILL LYNCH FLORIDA LIMITED MATURITY
MUNICIPAL BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal income
taxes as is consistent with prudent
investment management while serving to offer
shareholders the opportunity to own
securities exempt from Florida intangible
personal property taxes through investment
in a portfolio primarily of
intermediate-term investment grade Florida
Municipal Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND.................................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as
is consistent with prudent investment
management while seeking to offer
shareholders the opportunity to own
securities exempt from Florida intangible
personal property taxes.
MERRILL LYNCH FUND FOR TOMORROW, INC. ....... Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially
positioned to benefit from demographic and
cultural changes as they affect consumer
markets.
</TABLE>
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<TABLE>
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MERRILL LYNCH FUNDAMENTAL GROWTH FUND,
INC........................................ Long-term growth through investment in a
diversified portfolio of equity securities
placing particular emphasis on companies
that have exhibited above- average growth
rate in earnings.
MERRILL LYNCH FUNDAMENTAL VALUE
PORTFOLIO.................................. A portfolio of Merrill Lynch Retirement Asset
(Available only for exchanges by certain Builder Program, Inc., a series fund, whose
individual retirement accounts for which objective is to provide capital appreciation and
Merrill Lynch acts as custodian) income by investing in securities, with at least
65% of the portfolio's assets being invested in
equities.
MERRILL LYNCH GLOBAL ALLOCATION
FUND, INC.................................. High total investment return, consistent with
prudent risk, through a fully-managed
investment policy utilizing United States
and foreign equity, debt and money market
securities, the combination of which will be
varied from time to time both with respect
to types of securities and markets in
response to changing market and economic
trends.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT
AND RETIREMENT............................. High total investment return from investment
in a global portfolio of debt instruments
denominated in various currencies and
multinational currency units.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC.................................. High total return from investment primarily in
an internationally diversified portfolio of
convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of
debt securities or preferred stock and
warrants or options.
MERRILL LYNCH GLOBAL HOLDINGS
(residents of Arizona must meet investor
suitability standards)..................... The highest total investment return consistent
with prudent risk through worldwide investment
in an internationally diversified portfolio
of securities.
MERRILL LYNCH GLOBAL OPPORTUNITY
PORTFOLIO.................................. A portfolio of Merrill Lynch Retirement Asset
(Available only for exchanges by certain Builder Program, Inc., a series fund, whose objective
individual retirement accounts for which is to provide a high total investment return through
Merrill Lynch acts as custodian) an investment policy utilizing United States and
foreign equity, debt and money market securities, the
combination of which will vary depending upon
changing market and economic trends.
</TABLE>
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<TABLE>
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MERRILL LYNCH GLOBAL RESOURCES TRUST......... Long-term growth and protection of capital
from investment in securities of domestic and
foreign companies that possess substantial
natural resource assets.
MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC.................................. Long-term growth of capital by investing
primarily in equity securities of companies
with relatively small market capitalizations
located in various foreign countries and in
the United States.
MERRILL LYNCH GLOBAL UTILITY FUND, INC....... Capital appreciation and current income
through investment of at least 65% of its
total assets in equity and debt securities
issued by domestic and foreign companies
which are primarily engaged in the own-
ership or operation of facilities used to
generate, transmit or distribute
electricity, telecommunications, gas or
water.
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND
RETIREMENT................................. Growth of capital and, secondarily, income,
from investment in a diversified portfolio of
equity securities placing principal emphasis
on those securities which management of the
fund believes to be undervalued.
MERRILL LYNCH HEALTHCARE FUND, INC.
(residents of Wisconsin must meet investor
suitability standards)..................... Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND................................ Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity securities of issuers located in
countries other than the United States.
MERRILL LYNCH LATIN AMERICA FUND, INC. ...... Capital appreciation by investing primarily in
Latin American equity and debt securities.
MERRILL LYNCH MARYLAND MUNICIPAL
BOND FUND.................................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Maryland
income taxes as is consistent with prudent
investment management.
</TABLE>
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<TABLE>
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MERRILL LYNCH MASSACHUSETTS LIMITED
MATURITY MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Massachusetts income taxes as is
consistent with prudent investment
management through investment in a portfolio
primarily of intermediate-term investment
grade Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS MUNICIPAL BOND
FUND....................................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Massachusetts
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as a high level of income exempt from
Federal and Michigan income taxes as is
consistent with prudent investment man-
agement through investment in a portfolio
primarily of intermediate-term investment
grade Michigan Municipal Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND.................................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Michigan
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH MINNESOTA MUNICIPAL BOND
FUND....................................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Minnesota
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC.................................. Tax-exempt income from three separate
diversified portfolios of municipal bonds.
</TABLE>
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<TABLE>
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MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM
FUND....................................... Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt from Federal
income taxes by investing in investment
grade obligations with a dollar-weighted
average maturity of five to twelve years.
MERRILL LYNCH NEW JERSEY LIMITED
MATURITY MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and New Jersey income taxes as is
consistent with prudent investment
management through a portfolio primarily of
intermediate-term investment grade New
Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY MUNICIPAL BOND
FUND....................................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Jersey
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NEW MEXICO MUNICIPAL BOND
FUND....................................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Mexico
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal, New York State and New York City
income taxes as is consistent with prudent
investment management through investment in
a portfolio primarily of intermediate-term
grade New York Municipal Bonds.
MERRILL LYNCH NEW YORK MUNICIPAL BOND FUND... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal, New York State
and New York City income taxes as is
consistent with prudent investment
management.
</TABLE>
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<TABLE>
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MERRILL LYNCH NORTH CAROLINA MUNICIPAL BOND
FUND....................................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and North
Carolina income taxes as is consistent with
prudent investment management.
MERRILL LYNCH OHIO MUNICIPAL
BOND FUND.................................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Ohio income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH OREGON MUNICIPAL
BOND FUND.................................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Oregon income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH PACIFIC FUND, INC.............. Capital appreciation by investing in equity
securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong and
Singapore.
MERRILL LYNCH PENNSYLVANIA LIMITED
MATURITY MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Pennsylvania income taxes as is
consistent with prudent investment
management through investment in a portfolio
of intermediate-term investment grade
Pennsylvania Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND
FUND....................................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Pennsylvania
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH PHOENIX FUND, INC.............. Long-term growth of capital by investing in
equity and fixed income securities, including
tax-exempt securities, of issuers in weak
financial condition or experiencing poor
operating results believed to be undervalued
relative to the current or prospective
condition of such issuer.
</TABLE>
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<TABLE>
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MERRILL LYNCH QUALITY BOND
PORTFOLIO.................................. A portfolio of Merrill Lynch Retirement Asset
(Available only for exchanges by Builder Program, Inc., a series fund, whose objective
certain individual retirement accounts for is to provide a high level of current income through
which Merrill Lynch acts as custodian) investment in a diversified portfolio of debt
obligations, such as corporate bonds and notes,
convertible securities, preferred stocks and governmental
obligations.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND,
INC........................................ As high a level of current income as is
consistent with prudent investment management
from a global portfolio of high quality debt
securities denominated in various currencies
and multinational currency units and having
remaining maturities not exceeding three
years.
MERRILL LYNCH SPECIAL VALUE FUND, INC........ Long-term growth of capital from investments
in securities, primarily common stocks, of
relatively small companies believed to have
special investment value and emerging growth
companies regardless of size.
MERRILL LYNCH STRATEGIC DIVIDEND FUND........ Long-term total return from investment in
dividend-paying common stocks which yield more
than Standard & Poor's 500 Composite Stock
Price Index.
MERRILL LYNCH TECHNOLOGY FUND................ Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL BOND FUND...... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as
is consistent with prudent investment
management by investing primarily in a
portfolio of long-term, investment grade
obligations issued by the state of Texas,
its political subdivisions, agencies and
instrumentalities.
MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO....................... A portfolio of Merrill Lynch Retirement Asset
(Available only for exchanges by certain Builder Program, Inc., a series fund, whose objective
individual retirement accounts for which is to provide a high current return through
Merrill Lynch acts as custodian) investments in U.S. Government and government agency
securities, including GNMA mortgage-backed certificates
and other mortgage-backed government securities.
</TABLE>
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<TABLE>
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MERRILL LYNCH UTILITY INCOME
FUND, INC. ................................ High current income through investment in
equity and debt securities issued by companies
which are primarily engaged in the ownership
or operation of facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME FUND, INC......... High current income by investing in a global
portfolio of fixed income securities
denominated in various currencies, including
multinational currencies.
</TABLE>
Class A Share Money Market Funds:
<TABLE>
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MERRILL LYNCH RETIREMENT RESERVES MONEY
FUND....................................... Currently the only portfolio of Merrill Lynch
(Available only if the exchange Retirement Series Trust, a series fund, whose
occurs within certain retirement plans) objectives are current income, preservation of capital
and liquidity available from investing in a
diversified portfolio of short-term money market
securities.
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES..... Preservation of capital, current income and
liquidity available from investing in direct
obligations of the U.S. Government and
repurchase agreements relating to such
securities.
MERRILL LYNCH U.S. TREASURY
MONEY FUND................................. Preservation of capital, liquidity and current
income through investment exclusively in a
diversified portfolio of short-term
marketable securities which are direct
obligations of the U.S. Treasury.
</TABLE>
Class B, Class C and Class D Share Money Market Funds:
<TABLE>
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MERRILL LYNCH GOVERNMENT FUND................ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in securities
issued or guaranteed by the U.S. Government,
its agencies and instrumentalities and in
repurchase agreements secured by such
obligations.
MERRILL LYNCH INSTITUTIONAL FUND............. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide maximum current
income consistent with liquidity and the
maintenance of a high quality portfolio of
money market securities.
</TABLE>
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<TABLE>
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MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND............................ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
exempt from Federal income taxes,
preservation of capital and liquidity
available from investing in a diversified
portfolio of short-term, high quality
municipal bonds.
MERRILL LYNCH TREASURY FUND.................. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in direct
obligations of the U.S. Treasury and up to
10% of its total assets in repurchase
agreements secured by such obligations.
</TABLE>
Before effecting an exchange, shareholders of the Trust should obtain a
currently effective prospectus of the fund into which the exchange is to be
made. Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes and, depending on the circumstances, a short- or long-term capital
gain or loss may be realized. In addition, an exchanging shareholder of any of
the funds may be subject to backup withholding unless such shareholder certifies
under penalty of perjury that the taxpayer identification number on file with
any such fund is correct, and that such shareholder is not otherwise subject to
backup withholding. See "Taxes".
To exercise the exchange privilege shareholders may either contact their
listed securities dealer, who will advise the Trust of the exchange, or write to
the Transfer Agent requesting that the exchange be effected. Such letter must be
signed exactly as the account is registered with the signatures guaranteed by a
national bank or member firm of any national or regional stock exchange.
Shareholders of the Trust, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealer. The Trust reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated at any time in accordance with the rules
of the Securities and Exchange Commission. The Trust reserves the right to limit
the number of times an investor may exercise the exchange privilege. Certain
funds may suspend the continuous offering of their shares at any time and may
thereafter resume such offering from time to time. The exchange privilege is
available only to U.S. shareholders in states where the exchange legally may be
made.
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<PAGE> 51
TAXES
The Trust intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Trust (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to
shareholders. The Trust intends to distribute substantially all of such income.
Dividends paid by the Trust from its ordinary income and distributions of
the Trust's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income for Federal income tax purposes. Distributions made from the
Trust's net realized long-term capital gains ("capital gain dividends") are
taxable to shareholders as long-term capital gains regardless of the length of
time the shareholder has owned Trust shares. Any loss upon the sale or exchange
of Trust shares held for six months or less, however, will be treated as
long-term capital loss to the extent of any capital gain dividends received by
the shareholder. Distributions in excess of the Trust's earnings and profits
will first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Trust. Not later than 60 days after the close of its
taxable year, the Trust will provide its shareholders with a written notice
designating the amounts of any ordinary income or capital gain dividends.
Distributions by the Trust, whether from ordinary income or capital gains, will
not be eligible for the dividends received deduction allowed to corporations
under the Code. If the Trust pays a dividend in January which was declared in
the previous October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be treated for tax
purposes as being paid by the Trust and received by its shareholders on December
31 of the year in which such dividend was declared.
If the value of assets held by the Trust declines, the Board of Trustees
may authorize a reduction in the number of outstanding shares in shareholders'
accounts so as to preserve a net asset value of $1.00 per share. After such a
reduction, the basis of eliminated shares would be added to the basis of
shareholders' remaining Trust shares, and any shareholders disposing of shares
at that time may recognize a capital loss. Distributions, including
distributions reinvested in additional shares of the Trust, will nonetheless be
fully taxable, even if the number of shares in shareholders' accounts has been
reduced as described above.
Ordinary income dividends paid by the Trust to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.
Dividends and interest received by the Trust may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Under certain 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 Trust or who, to the Trust's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
27
<PAGE> 52
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent the sales charge
paid to the Trust on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Trust will be
disallowed if other Trust shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during any 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 Trust intends to distribute its income
and capital gains in a manner necessary to avoid imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Trust's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Trust will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
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 or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends also may be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived in whole or in part from interest on U.S. Government
obligations. State law varies as to whether and what percentage of dividend
income attributable to U.S. Government obligations is exempt from state income
tax.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Trust.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust of the Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, par value
$.10 per share, of a single class and to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in the Trust. Each share represents an equal proportionate
interest in the Trust with each other share. Upon liquidation of the Trust,
shareholders are entitled to share pro rata in the net assets of the Trust
available for distribution to shareholders. Shares have no preemptive or
conversion rights. The rights of redemption are described elsewhere herein and
in the Prospectus. Shares are fully paid and nonassessable by the Trust.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and vote in the election of Trustees
and on other matters submitted to the vote of shareholders. Voting rights are
not cumulative, so that the holders of more than 50% of the shares voting in the
election of Trustees
28
<PAGE> 53
can, if they choose to do so, elect all Trustees of the Trust. No amendment may
be made to the Declaration of Trust without the affirmative vote of a majority
of the outstanding shares of the Trust except under certain limited
circumstances set forth in the Declaration of Trust.
CUSTODIAN
The Bank of New York, 90 Washington Street, 12th Floor, New York, New York
10286, acts as custodian of the Trust's assets (the "Custodian"). The Custodian
is responsible for safeguarding and controlling the Trust's cash and securities,
handling the delivery of securities and collecting interest on the Trust's
investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Trust's transfer agent (the "Transfer Agent").
The Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, have
been selected as the independent auditors of the Trust. The selection of the
independent auditors is subject to ratification by the shareholders of the
Trust. The independent auditors are responsible for auditing the annual
financial statements of the Trust.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of the Trust ends on December 31 of each year. The Trust
will send to its shareholders at least semi-annually reports showing its
portfolio securities and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year.
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: TAMMO
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this please call your Merrill Lynch
financial consultant or Financial Data Services, Inc. at (800) 221-7210.
29
<PAGE> 54
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information with respect to
the shares of the Trust do not contain all the information set forth in the
Registration Statement and the exhibits relating thereto which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act, to which reference is
hereby made.
To the knowledge of the Trust, no person or entity owned beneficially 5% or
more of the Trust's shares on April 3, 1995.
All time references are to New York time.
------------------------
The Declaration of Trust establishing the Trust, dated May 14, 1987, 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 Ready Assets 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" only shall be liable.
30
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
MERRILL LYNCH READY ASSETS TRUST:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Ready Assets Trust as of December
31, 1994, the related statements of operations for the year then ended, and
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the five-year period then
ended. These financial statements and the financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Ready
Assets Trust as of December 31, 1994, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
January 31, 1995
31
<PAGE> 56
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
ISSUE AMOUNT RATE* DATE (NOTE 1a)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------
BANK NOTES--0.4%
- --------------------------------------------------------------------
NationsBank $ 25,000 5.65 % 7/21/95 $ 24,812
North Carolina, N.A.
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
TOTAL BANK NOTES (COST--$24,976) 24,812
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--YANKEE--0.4%
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Banque Nationale 25,000 5.58 2/01/95 24,995
de Paris, NY
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
TOTAL CERTIFICATES OF DEPOSIT--YANKEE
(COST--$24,994) 24,995
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
COMMERCIAL PAPER--DISCOUNT--48.2%
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABN Amro North 20,000 5.41 1/05/95 19,982
American Finance 35,000 5.00 2/03/95 34,799
Inc.
- --------------------------------------------------------------------
AIG Funding, Inc. 11,200 5.90 1/03/95 11,193
- --------------------------------------------------------------------
APRECO, Inc. 25,400 5.425 1/23/95 25,303
31,500 5.50 2/01/95 31,330
- --------------------------------------------------------------------
AT&T, Inc. 16,850 5.70 1/23/95 16,785
- --------------------------------------------------------------------
AVCO Financial 65,000 5.40 1/18/95 64,804
Services, Inc. 20,000 5.68 2/13/95 19,850
- --------------------------------------------------------------------
Abbey National N.A. 50,000 5.44 1/24/95 49,800
Corp. 50,000 5.43 1/26/95 49,784
65,000 5.08 3/01/95 64,317
50,000 5.075 3/02/95 49,466
- --------------------------------------------------------------------
Allomon Funding 10,110 5.52 1/10/95 10,093
Corp. 5,055 6.10 1/17/95 5,040
- --------------------------------------------------------------------
American Express 100,000 5.80 1/05/95 99,903
Credit Corp.
- --------------------------------------------------------------------
Associates Corp. of 50,000 6.08 2/03/95 49,704
North America
- --------------------------------------------------------------------
Bankers Trust 50,000 5.57 4/17/95 49,055
NY Corp. 50,000 5.59 4/17/95 49,055
- --------------------------------------------------------------------
Bear Stearns 50,000 5.45 1/27/95 49,776
Companies, 50,000 5.50 2/01/95 49,730
Inc. (The) 50,000 5.90 2/06/95 49,688
50,000 5.80 2/13/95 49,625
25,000 5.77 2/15/95 24,804
- --------------------------------------------------------------------
Bellsouth 30,000 6.25 1/03/95 29,979
Telecommunications
Corp.
- --------------------------------------------------------------------
Beta Finance Inc. 19,000 5.42 1/26/95 18,918
10,000 5.80 2/16/95 9,920
- --------------------------------------------------------------------
Bowater PLC 17,965 5.40 1/17/95 17,914
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
ISSUE AMOUNT RATE* DATE (NOTE 1a)
- --------------------------------------------------------------------
COMMERCIAL PAPER--DISCOUNT (CONTINUED)
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
CIT Group Holdings, $ 50,000 6.08 % 1/24/95 $ 49,789
Inc. (The)
- --------------------------------------------------------------------
CSW Credit, Inc. 15,000 6.10 1/26/95 14,931
- --------------------------------------------------------------------
CXC Incorporated 10,000 5.425 1/19/95 9,968
35,000 6.10 1/25/95 34,846
25,000 5.75 1/30/95 24,874
- --------------------------------------------------------------------
Central & 25,000 5.50 1/25/95 24,896
SouthWest 15,000 5.50 1/30/95 14,924
Corp. 15,000 5.95 2/06/95 14,906
- --------------------------------------------------------------------
Corporate Asset 21,307 5.50 1/03/95 21,294
Funding Co. Inc.
- --------------------------------------------------------------------
Corporate Asset 35,000 6.08 1/20/95 34,876
Securitization
Australia Ltd., Inc.
- --------------------------------------------------------------------
Creditanstalt 10,852 5.80 1/03/95 10,845
Finance, Inc.
- --------------------------------------------------------------------
Daimler-Benz North 10,000 5.57 4/10/95 9,823
America Corp. 10,000 5.65 4/10/95 9,823
- --------------------------------------------------------------------
Deer Park Refining 50,000 6.10 1/19/95 49,831
L.P.
- --------------------------------------------------------------------
Eiger Capital 13,516 6.05 1/19/95 13,471
Corp. 26,745 6.05 1/20/95 26,651
14,073 6.05 1/27/95 14,007
- --------------------------------------------------------------------
Falcon Asset 16,025 5.48 1/03/95 16,015
Securitization Corp. 18,000 6.10 1/18/95 17,942
16,700 5.77 2/14/95 16,572
- --------------------------------------------------------------------
Ford Motor 75,000 5.42 1/11/95 74,862
Credit Company 50,000 5.81 2/17/95 49,592
- --------------------------------------------------------------------
General Electric 20,000 5.42 1/19/95 19,937
Capital Corp. 50,000 5.06 2/27/95 49,504
- --------------------------------------------------------------------
Goldman Sachs 50,000 5.95 1/23/95 49,802
Group, L.P. 50,000 5.08 3/01/95 49,475
- --------------------------------------------------------------------
Hanson Finance 54,000 5.42 1/23/95 53,793
(UK) PLC 100,000 5.70 2/13/95 99,250
50,000 5.82 2/16/95 49,612
- --------------------------------------------------------------------
IBM Credit Corp. 3,800 5.50 1/26/95 3,784
- --------------------------------------------------------------------
International Lease 30,000 5.07 3/01/95 29,685
Finance Corp. 29,750 6.27 4/13/95 29,209
10,000 6.27 4/20/95 9,806
- --------------------------------------------------------------------
Internationale 25,000 5.47 2/03/95 24,857
Nederlanden (U.S.)
Funding Corp.
- --------------------------------------------------------------------
</TABLE>
32
<PAGE> 57
SCHEDULE OF INVESTMENTS (CONTINUED) (IN THOUSANDS)
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
ISSUE AMOUNT RATE* DATE (NOTE 1a)
- --------------------------------------------------------------------
COMMERCIAL PAPER--DISCOUNT (CONCLUDED)
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kingdom of $100,000 5.76 % 1/17/95 $ 99,712
Sweden
- --------------------------------------------------------------------
Koch Industries, Inc. 100,000 6.00 1/03/95 99,933
- --------------------------------------------------------------------
Kredietbank North 25,000 5.47 1/03/95 24,985
American Finance
Corp.
- --------------------------------------------------------------------
McKenna Triangle 50,000 5.77 2/15/95 49,608
National Corp. 10,000 5.05 3/01/95 9,895
- --------------------------------------------------------------------
National Australia 100,000 5.75 2/14/95 99,233
Funding (Delaware)
Inc.
- --------------------------------------------------------------------
New Center 40,000 6.30 1/03/95 39,972
Asset Trust 75,000 6.15 1/13/95 74,821
50,000 6.12 1/17/95 49,847
50,000 6.12 1/18/95 49,839
50,000 5.45 1/23/95 49,808
- --------------------------------------------------------------------
New South Wales 6,900 5.72 1/18/95 6,878
Treasury Corp.
- --------------------------------------------------------------------
Nomura Holding 12,000 5.50 1/13/95 11,974
America Inc. 7,000 5.50 1/18/95 6,979
25,000 5.78 1/24/95 24,900
25,000 5.50 1/30/95 24,874
15,000 5.75 2/07/95 14,904
- --------------------------------------------------------------------
PNC Funding Corp. 25,000 5.08 3/02/95 24,733
- --------------------------------------------------------------------
Premium Funding, 9,283 5.78 1/04/95 9,276
Inc., Series A 50,717 5.85 2/13/95 50,337
- --------------------------------------------------------------------
RTZ America Inc. 10,350 5.80 2/15/95 10,269
26,500 5.82 2/22/95 26,262
- --------------------------------------------------------------------
Riverwoods Funding 25,000 5.95 1/19/95 24,917
Corporation
- --------------------------------------------------------------------
Schering-Plough 40,000 5.07 3/10/95 39,518
Corp.
- --------------------------------------------------------------------
SmithKline Beecham 10,900 5.70 1/25/95 10,855
Corporation
- --------------------------------------------------------------------
Transamerica 11,590 5.65 1/05/95 11,579
Finance Corp. 18,500 5.79 2/15/95 18,355
- --------------------------------------------------------------------
U.S. Borax Inc. 19,500 5.43 1/24/95 19,422
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
TOTAL COMMERCIAL PAPER--DISCOUNT
(COST--$3,008,961) 3,007,754
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
ISSUE AMOUNT RATE* DATE (NOTE 1a)
- --------------------------------------------------------------------
MASTER NOTES--3.1%
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goldman Sachs $150,000 6.07 % 5/26/95 $ 150,000
Group, L.P.
- --------------------------------------------------------------------
Smith Barney, 41,000 6.05 6/09/95 41,000
Inc.
- --------------------------------------------------------------------
TOTAL MASTER NOTES
(COST--$191,000) 191,000
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
US GOVERNMENT, AGENCY & INSTRUMENTALITY
OBLIGATIONS--DISCOUNT--20.0%
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home 29,660 5.31 1/25/95 29,540
Loan Bank 25,000 5.31 1/26/95 24,895
49,800 5.34 2/13/95 49,433
14,500 4.98 3/31/95 14,277
16,450 5.93 10/16/95 15,542
- --------------------------------------------------------------------
Federal Home Loan 25,000 5.58 2/02/95 24,863
Mortgage Corporation 30,000 5.65 2/16/95 29,762
20,000 5.67 2/16/95 19,841
1,036 5.43 4/03/95 1,019
71,782 5.45 4/03/95 70,626
- --------------------------------------------------------------------
Federal National 25,000 5.33 1/19/95 24,922
Mortgage Association 113,500 5.27 1/20/95 113,129
50,000 5.68 2/22/95 49,554
150,000 4.99 3/01/95 148,455
40,000 4.97 3/03/95 39,574
25,000 6.20 3/16/95 24,679
25,000 5.40 3/22/95 24,654
25,000 6.11 3/22/95 24,654
75,000 6.02 3/24/95 73,936
- --------------------------------------------------------------------
US Treasury Bills 25,000 3.41 2/09/95 24,843
50,000 4.80 2/09/95 49,685
50,000 5.425 4/27/95 49,036
37,500 5.25 8/24/95 35,878
40,000 5.26 8/24/95 38,270
34,000 5.265 8/24/95 32,529
25,000 5.27 8/24/95 23,919
37,500 5.275 8/24/95 35,878
30,000 5.29 8/24/95 28,702
50,000 5.825 10/19/95 47,314
85,000 6.72 12/14/95 79,510
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
TOTAL US GOVERNMENT, AGENCY &
INSTRUMENTALITY OBLIGATIONS--DISCOUNT
(COST--$1,271,992) 1,248,919
- --------------------------------------------------------------------
</TABLE>
33
<PAGE> 58
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (CONCLUDED) (IN THOUSANDS)
FACE INTEREST MATURITY VALUE
ISSUE AMOUNT RATE* DATE (NOTE 1a)
- --------------------------------------------------------------------
US GOVERNMENT, AGENCY & INSTRUMENTALITY
OBLIGATIONS--NON-DISCOUNT--29.8%
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Farm $ 20,000 5.19 % 3/01/95 $ 19,962
Credit Bank 50,000 5.85 5/01/95 49,844
- --------------------------------------------------------------------
Federal Home 23,000 5.30 4/27/95 22,986
Loan Bank++ 32,000 5.79 4/28/95 31,920
44,000 5.93 6/21/95 44,000
79,000 4.625 8/09/95 77,839
75,000 5.93 12/28/95 75,000
73,000 5.96 6/17/96 73,000
29,000 5.96 6/21/96 29,000
- --------------------------------------------------------------------
Federal Home Loan 136,000 5.782 1/06/95 135,999
Mortgage 79,000 4.635 8/09/95 77,839
Corporation++ 56,000 5.86 9/01/95 55,993
39,000 5.87 9/01/95 38,998
16,000 5.83 5/06/96 16,000
15,000 6.00 5/13/98 15,000
- --------------------------------------------------------------------
Federal National 85,000 8.85 3/10/95 85,411
Mortgage 86,000 5.70 6/01/95 85,996
Association++ 30,000 5.62 9/22/95 29,993
30,000 5.90 12/20/95 30,000
8,000 5.87 1/26/96 7,995
95,000 5.83 5/13/96 95,000
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE INTEREST MATURITY VALUE
ISSUE AMOUNT RATE* DATE (NOTE 1a)
- --------------------------------------------------------------------
US GOVERNMENT, AGENCY & INSTRUMENTALITY
OBLIGATIONS--NON-DISCOUNT (CONCLUDED)
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National $ 70,000 5.83 % 5/24/96 $ 70,000
Mortgage 110,000 6.092 10/11/96 110,000
Association++ 70,000 5.95 5/19/97 70,000
(concluded) 65,000 6.00 5/14/98 65,000
- --------------------------------------------------------------------
Student Loan 10,000 6.32 3/23/95 10,003
Marketing 10,000 6.30 4/24/95 10,003
Association+ 80,750 6.07 8/07/95 80,750
43,500 6.07 3/20/96 43,495
10,000 5.94 4/16/96 10,012
5,000 5.90 5/15/96 5,002
25,650 5.87 7/19/96 25,657
125,000 6.092 9/20/96 125,000
60,000 6.08 1/14/97 60,000
- --------------------------------------------------------------------
US Treasury Notes 80,000 3.875 2/28/95 79,680
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------
TOTAL US GOVERNMENT, AGENCY &
INSTRUMENTALITY OBLIGATIONS--NON-DISCOUNT
(COST--$1,845,426) 1,862,377
- --------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$6,367,349)--101.9% 6,359,857
LIABILITIES IN EXCESS OF OTHER ASSETS--(1.9%) (118,860)
----------
NET ASSETS--100.0% $6,240,997
==========
- --------------------------------------------------------------------
</TABLE>
*Commercial Paper and certain US Government, Agency &
Instrumentality Obligations are traded on a discount basis; the
interest rates shown are the discount rates paid at the time of
purchase by the Trust. Other securities bear interest at the rates
shown, payable at fixed dates or upon maturity. Interest rates on
variable rate securities are adjusted periodically based upon
appropriate indexes. Interest rates shown are the rates in effect at
December 31, 1994.
++Variable Rate Notes.
See Notes to Financial Statements.
34
<PAGE> 59
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS: Investments, at value (identified cost--$6,367,349,370*) (Note 1a) $6,359,857,424
Cash 661,133
Receivables:
Interest $ 19,957,684
Beneficial interest sold 2,228,979 22,186,663
------------
Prepaid registration fees and other assets (Note 1d) 183,517
--------------
Total assets 6,382,888,737
--------------
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES: Payables:
Securities purchased 79,526,000
Beneficial interest redeemed 55,481,791
Distributor (Note 2) 2,210,880
Investment adviser (Note 2) 1,919,417 139,138,088
------------
Accrued expenses and other liabilities 2,753,981
--------------
Total liabilities 141,892,069
--------------
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS: Net assets $6,240,996,668
==============
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS Shares of beneficial interest, $.10 par value, unlimited
CONSIST OF: number of shares authorized $ 624,848,861
Paid-in capital in excess of par 5,623,639,753
Unrealized depreciation on investments--net (7,491,946)
--------------
Net Assets--Equivalent to $1.00 per share based on 6,248,488,614
shares of beneficial interest outstanding $6,240,996,668
==============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Cost for Federal income tax purposes. As of December
31, 1994, net unrealized depreciation for Federal income tax
purposes amounted to $7,491,946, of which $10,349 related to
appreciated securities and $7,502,295 related to depreciated
securities.
See Notes to Financial Statements.
35
<PAGE> 60
FINANCIALINFORMATION (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME Interest and amortization of premium discount earned $282,232,055
(NOTE 1c):
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES: Investment advisory fees (Note 2) $ 23,487,917
Transfer agent fees (Note 2) 10,434,680
Distribution fees (Note 2) 7,661,910
Accounting services (Note 2) 280,057
Custodian fees 229,113
Printing and shareholder reports 201,546
Registration fees (Note 1d) 154,952
Trustees' fees and expenses 138,000
Professional fees 94,754
Other 78,204
------------
Total expenses 42,761,133
------------
Investment income--net 239,470,922
------------
- ------------------------------------------------------------------------------------------------------------------------
REALIZED AND Realized gain on investments--net 287,014
UNREALIZED GAIN Change in unrealized appreciation (depreciation)
(LOSS) ON on investments--net (7,986,580)
INVESTMENTS--NET ------------
(NOTE 1c): NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $231,771,356
============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS: 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS: Investment income--net $ 239,470,922 $ 197,862,626
Realized gain on investments--net 287,014 3,578,640
Change in unrealized appreciation (depreciation)
on investments--net (7,986,580) (1,103,997)
---------------- ---------------
Net increase in net assets resulting from operations 231,771,356 200,337,269
---------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS & Investment income--net (239,470,922) (197,862,626)
DISTRIBUTIONS TO Realized gain on investments--net (287,014) (3,578,640)
SHAREHOLDERS ---------------- ---------------
(NOTE 1e): Net decrease in net assets resulting from
distributions to shareholders (239,757,936) (201,441,266)
---------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net proceeds from sale of shares 12,651,358,878 14,756,129,434
TRANSACTIONS Net asset value of shares issued to shareholders in
(NOTE 3): reinvestment of dividends and distributions (Note 1e) 238,784,788 200,674,784
---------------- ---------------
12,890,143,666 14,956,804,218
Cost of shares redeemed (13,164,347,398) (15,898,382,152)
---------------- ---------------
Net decrease in net assets derived from beneficial
interest transactions (274,203,732) (941,577,934)
---------------- ---------------
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS: Total decrease in net assets (282,190,312) (942,681,931)
Beginning of year 6,523,186,980 7,465,868,911
---------------- ---------------
End of year $ 6,240,996,668 $ 6,523,186,980
================ ===============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
36
<PAGE> 61
FINANCIAL INFORMATION (CONCLUDED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED
FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
OPERATING ---------- ---------- ---------- ---------- -----------
PERFORMANCE: Investment income--net .0366 .0272 .0332 .0556 .0771
Realized and unrealized gain
(loss) on investments--net (.0012) .0003 .0009 .0029 .0010
---------- ---------- ---------- ---------- -----------
Total from investment operations .0354 .0275 .0341 .0585 .0781
---------- ---------- ---------- ---------- -----------
Less dividends and distributions:
Investment income--net (.0366) (.0272) (.0332) (.0556) (.0771)
Realized gain on investments--net (.0000)++ (.0005) (.0007) (.0029)* (.0010)*
---------- ---------- ---------- ---------- -----------
Total dividends and distributions (.0366) (.0277) (.0339) (.0585) (.0781)
---------- ---------- ---------- ---------- -----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ===========
Total investment return 3.74% 2.81% 3.44% 6.02% 8.08%
========== ========== ========== ========== ===========
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE Expenses, excluding distribution fees .53% .53% .52% .50% .50%
========== ========== ========== ========== ===========
NET ASSETS: Expenses .65% .65% .64% .62% .62%
========== ========== ========== ========== ===========
Investment income and realized gain
on investments--net 3.67% 2.78% 3.48% 5.87%* 7.80%*
========== ========== ========== ========== ===========
- -------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Net assets, end of year
DATA: (in thousands) $6,240,997 $6,523,187 $7,465,869 $9,077,226 $10,180,436
========== ========== ========== ========== ===========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes unrealized gain (loss).
++Amount is less than $.0001 per share.
See Notes to Financial Statements.
37
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Ready Assets Trust (the "Trust") is registered under
the Investment Company Act of 1940 as a diversified, open-end
management investment company. The following is a summary of
significant accounting policies followed by the Trust.
(a) Valuation of investments--Investments maturing more than sixty
days after the valuation date are valued at the most recent bid
price or yield equivalent as obtained from dealers that make markets
in such securities. When such securities are valued with sixty days
or less to maturity, the difference between the valuation existing
on the sixty-first day before maturity and maturity value is
amortized on a straight-line basis to maturity. Investments maturing
within sixty days from their date of acquisition are valued at
amortized cost, which approximates market value. For purposes of
valuation, the maturity of a variable rate security is deemed to be
the next coupon date on which the interest rate is to be adjusted.
Assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the
direction of the Board of Trustees.
(b) Income taxes--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified
cost basis.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends to shareholders--The Trust declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
and back-up withholding tax) in additional shares of beneficial
interest at net asset value. Dividends are declared from the total
of net investment income and net realized gain or loss on
investments.
2. INVESTMENT ADVISORY AGREEMENT AND
TRANSACTIONS WITH AFFILIATES:
The Trust has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
a limited partner. The Trust has also entered into a Distribution
Agreement and a Distribution Plan with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM provides the Trust with investment management, research,
statistical, and advisory services, and pays certain other expenses
of the Trust. For such services, the Trust pays a monthly fee based
upon the average daily value of the Trust's net assets at the
following annual rates:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
PORTION OF AVERAGE DAILY VALUE OF NET ASSETS: RATE
- -----------------------------------------------------------------
<S> <C>
Not exceeding $500 million 0.500%
In excess of $500 million but not exceeding $1 billion 0.400
In excess of $1 billion but not exceeding $5 billion 0.350
In excess of $5 billion but not exceeding $10 billion 0.325
In excess of $10 billion but not exceeding $15 billion 0.300
In excess of $15 billion but not exceeding $20 billion 0.275
In excess of $20 billion 0.250
- -----------------------------------------------------------------
</TABLE>
The most restrictive annual expense limitation requires that the
Adviser reimburse the Trust to the extent the Trust's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Trust's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. The obligation of the manager to
reimburse the Trust under this limitation is not limited to the
amount of the management fee.
The Trust has adopted a Shareholder Servicing Plan and Agreement in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
pursuant to which Merrill Lynch, Pierce, Fenner & Smith Inc.
38
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (concluded)
("MLPF&S"), a wholly-owned subsidiary of ML & Co., receives a fee
each month from the Trust at the annual rate of 0.125% of average
daily net assets of the accounts of Trust shareholders who maintain
their Trust accounts through MLPF&S. This fee is to compensate
MLPF&S financial consultants and other directly involved branch
office personnel for providing direct personal services to
shareholders. The fee is not compensation for administrative
services.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Trust's transfer agent.
Accounting services are provided to the Trust by MLAM at cost.
Certain officers and/or trustees of the Trust are officers and/or
directors of MLAM, FDS, PSI, MLFD, MLPF&S and/or ML & Co.
3. SHARES OF BENEFICIAL INTEREST:
The number of shares purchased and redeemed during the years ended
December 31, 1994 and December 31, 1993, corresponds to the amounts
included in the Statements of Changes in Net Assets for net proceeds
from sale of shares and cost of shares redeemed, respectively, since
shares are recorded at $1.00 per share.
39
<PAGE> 64
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER, BANK MONEY INSTRUMENTS
AND CORPORATE BOND RATINGS
COMMERCIAL PAPER AND BANK MONEY INSTRUMENTS
Commercial paper with the greatest capacity for timely payment is rated A
by Standard & Poor's Ratings Group ("S&P"). Issues within this category are
further redefined with designations 1, 2 and 3 to indicate the relative degree
of safety; A-1, the highest of the three, indicates the degree of safety is
either overwhelming or very strong; A-2 indicates that capacity for timely
repayment is strong.
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.
Commercial paper rated A.1+ by IBCA Limited or its affiliate IBCA Inc.
(together, "IBCA") are obligations supported by the highest capacity for timely
repayment. Commercial paper rated A.1 has a very strong capacity for timely
repayment. Commercial paper rated A.2 has a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
Fitch Investors Services, 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.
Thompson BankWatch, Inc. ("TBW") employs the designations TBW-1, TBW-2,
TBW-3 and TBW-4 as ratings for commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned. TBW-1 is the highest category and indicates a very high degree of
likelihood that principal and interest will be paid on a timely basis. TBW-2 is
the second highest category and indicates that while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
CORPORATE BONDS
Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. 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 then 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
40
<PAGE> 65
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 IBCA are obligations for which there is the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk significantly.
Bonds rated AA are obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk, albeit not very significantly.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated AAA by Duff & Phelps are deemed to be of the highest credit
quality: the risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt. AA indicates high credit quality: protection
factors are strong, and risk is modest but may vary slightly from time to time
because of economic conditions.
Bonds rated AAA by TBW are accorded the highest rating category which
indicates that the ability to repay principal and interest on a timely basis is
very high. AA is the second highest rating category and indicates a superior
ability to repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest rating category.
41
<PAGE> 66
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42
<PAGE> 67
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43
<PAGE> 68
LOGO
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Investment Objectives and Policies..... 2
Management of the Trust................ 5
Trustees and Officers................ 5
Compensation of Trustees............. 6
Management and Advisory
Arrangements...................... 6
Purchase of Shares..................... 8
Distribution Plan.................... 9
Redemption of Shares................... 10 MERRILL LYNCH
Portfolio Transactions................. 10 READY ASSETS TRUST
Determination of Net Asset Value....... 11
Yield Information...................... 12
Shareholder Services................... 13
Investment Account................... 13
Automatic Investment Plan............ 13
Accrued Monthly Payout Plan.......... 13
Systematic Withdrawal Plans.......... 14
Retirement Plans..................... 14
Exchange Privilege................... 14
Taxes.................................. 27
General Information.................... 28
Description of Shares................ 28 Statement of
Custodian............................ 29 Additional Information
Transfer Agent....................... 29
Independent Auditors................. 29
Legal Counsel........................ 29
Reports to Shareholders.............. 29 April 27, 1995
Additional Information............... 30
Independent Auditors' Report........... 31 Distributor:
Financial Statements................... 32 Merrill Lynch
Appendix............................... 40 Funds Distributor, Inc.
Code#10240-0495
</TABLE>
<PAGE> 69
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents fair
and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission File due to ASCII-incompatibility and cross-
references this material to location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- --------------------
Compass plates, circular graph Back cover of Prospectus and
paper and Merrill Lynch Logo back cover of Statement of
including stylized market bull. Additional Information.
