<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1994
SECURITIES ACT FILE NO. 2-78702
INVESTMENT COMPANY ACT FILE NO. 811-3534
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 13 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 16 [X]
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
PHILIP L. KIRSTEIN, ESQ. COUNSEL FOR THE FUND: MARK B. GOLDFUS, ESQ.
MERRILL LYNCH BROWN & WOOD MERRILL LYNCH
ASSET MANAGEMENT ONE WORLD TRADE CENTER ASSET MANAGEMENT
P.O. BOX 9011 NEW YORK, NEW YORK 10048-0557 P.O. BOX 9011
PRINCETON, N.J. ATTENTION: THOMAS R. SMITH, JR. PRINCETON, N.J.
08543-9011 08543-9011
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX)
[_] immediately upon filing pursuant to paragraph (b)
[X] on December 28, 1994 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
----------------
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_]This post-effective amendment designates a new effective date
for a previously filed
post-effective amendment.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON OCTOBER 7, 1994 AND AMENDED ON OCTOBER 20, 1994.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT OF MAXIMUM MAXIMUM
TITLE OF SECURITIES SHARES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial
Interest (par value
$.10 per share)....... 1,607,523,265 $1.00 $290,000* $100
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*(1) The calculation of the maximum aggregate offering price is made pursuant
to Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during
Registrant's previous fiscal year was 1,607,233,265 Shares of Beneficial
Interest.
(3) None of the Shares described in (2) above have been used for reduction
pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment Company
Act of 1940 in previous filings during Registrant's current fiscal year.
(4) All of the Shares redeemed during Registrant's previous fiscal year are
being used for the reduction of the registration fee in this amendment to
the Registration Statement.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A ITEM NO.
- ------------
PART A LOCATION
- ------ --------
Item 1. Cover Page................ Cover Page
Item 2. Synopsis.................. Fee Table
Item 3. Condensed Financial
Information.............. Financial Highlights; Yield Informa-
Item 4. General Description of tion
Registrant............... Investment Objectives and Policies;
Additional Information
Item 5. Management of the Fund.... Fee Table; Management of the Fund;
Portfolio Transactions; Inside Back
Cover Page
Item 5A. Management's Discussion of
Fund Performance......... Not Applicable
Item 6. Capital Stock and Other
Securities............... Cover Page; Additional Information
Item 7. Purchase of Securities
Being Offered............ Cover Page; Fee Table; Purchase of
Shares; Redemption of Shares; Addi-
tional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase.. Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings. Not Applicable
PART B
------
Item 10. Cover Page................ Cover Page
Item 11. Table of Contents......... Back Cover Page
Item 12. General Information and
History.................. Not Applicable
Item 13. Investment Objectives and
Policies................. Investment Objectives and Policies
Item 14. Management of the Fund.... Management of the Fund
Item 15. Control Persons and
Principal Holders of
Securities............... Management of the Fund
Item 16. Investment Advisory and
Other Services........... Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation...... Portfolio Transactions
Item 18. Capital Stock and Other
Securities............... General Information
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............ Purchase of Shares; Redemption of
Shares; Purchase and Redemption of
Shares Through Certain Merrill Lynch
Retirement Plans; Determination of
Net Asset Value; Shareholder Services
Item 20. Tax Status................ Taxes
Item 21. Underwriters.............. Purchase of Shares
Item 22. Calculations of
Performance Data......... Yield Information
Item 23. Financial Statements...... Financial Statements
PART C
------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
DECEMBER 28, 1994
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
The investment objectives of Merrill Lynch U.S.A. Government Reserves (the
"Fund") are to seek preservation of capital, current income and liquidity
available from investing in a diversified portfolio of short-term marketable
securities, including variable rate securities, which are direct obligations
of the U.S. Government, and repurchase agreements pertaining to such
securities. For purposes of its investment policies, the Fund defines short-
term securities as securities having a maturity of no more than 762 days (25
months). Management of the Fund expects that substantially all the assets of
the Fund will be invested in securities maturing in less than one year, but at
times some portion may have longer maturities not exceeding two years.
The net income of the Fund is declared as dividends daily and reinvested at
net asset value in additional shares. The Fund seeks to maintain a constant
$1.00 net asset value per share, although this cannot be assured. In order to
maintain a constant net asset value of $1.00 per share, the Fund may reduce
the number of shares held by its shareholders. An investment in the Fund is
neither insured nor guaranteed by the U.S. Government.
Shares of the Fund 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 other retirement plans is
$100 and the minimum subsequent purchase with respect to these plans is $1.
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. 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 Fund that is
relevant to making an investment in the Fund. This Prospectus should be read
carefully and retained for future reference. A statement containing additional
information about the Fund, dated December 28, 1994 (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
Fund at the above telephone number or address. The Statement of Additional
Information is hereby incorporated by reference into this Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS
FOR THE YEAR ENDED AUGUST 31, 1994):
--------------------------------------
<S> <C>
Management Fees (a)................................................... 0.45%
Rule 12b-1 Fees (b)................................................... 0.12
Shareholder Servicing Fees (c)........................................ 0.15
Other Expenses........................................................ 0.09
----
Total Fund Operating Expenses......................................... 0.81%
====
</TABLE>
- --------
(a) See "Management of the Fund--Management and Advisory Arrangements"--page 7.
(b) See "Purchase of Shares--Distribution Plan"--page 10.
(c) See "Management of the Fund--Transfer Agency Services"--page 8.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
An investor would pay the
following expenses on a
$1,000 investment, assuming
an operating expense ratio
of 0.81% and a 5% annual re-
turn throughout the periods. $8 $26 $45 $100
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission regulations. The example should not be
considered a representation of past or future expenses or annual rate of return
and actual expenses or annual rate of return may be more or less than those
assumed for purposes of the example.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche llp, independent auditors. Financial statements for the year ended
August 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 such financial
statements.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 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 PER-
FORMANCE:
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.. .0280 .0248 .0365 .0602 .0755 .0813 .0607 .0521
Realized and unrealized
gain (loss) on
investments--net........ (.0007) .0007 .0046 .0013 .0004 -- -- .0003
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............... .0273 .0255 .0411 .0615 .0759 .0813 .0607 .0524
-------- -------- -------- -------- -------- -------- -------- --------
Less dividends and dis-
tributions:
Investment income--net.. (.0280) (.0248) (.0365) (.0602) (.0755) (.0813) (.0607) (.0521)
Realized gain on invest-
ments--net.............. (.0002) (.0013) (.0038) (.0013)* (.0004)* -- -- (.0003)*
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions............ (.0282) (.0261) (.0403) (.0615) (.0759) (.0813) (.0607) (.0524)
-------- -------- -------- -------- -------- -------- -------- --------
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:. 2.84% 2.63% 4.14% 6.35% 8.02% 8.43% 6.22% 5.33%
-------- -------- -------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding dis-
tribution fees........... .69% .63% .63% .61% .67% .74% .69% .67%
======== ======== ======== ======== ======== ======== ======== ========
Expenses................. .81% .75% .75% .73% .81% .84% .80% .77%
======== ======== ======== ======== ======== ======== ======== ========
Investment income and re-
alized gain on invest-
ments--net............... 2.82% 2.61% 4.10% 6.07%* 7.57%* 8.15%* 6.07%* 5.24%*
======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands)........... $544,174 $575,044 $584,067 $658,207 $438,829 $302,519 $260,959 $227,840
======== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
-----------------------------
1986 1985
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net asset value,
beginning of year........ $ 1.00 $ 1.00
-------- --------
Investment income--net.. .0636 .0785
Realized and unrealized
gain (loss) on
investments--net........ .0040 .0045
-------- --------
Total from investment
operations............... .0676 .0830
-------- --------
Less dividends and dis-
tributions:
Investment income--net.. (.0636) (.0785)
Realized gain on invest-
ments--net.............. (.0040)* (.0045)*
-------- --------
Total dividends and
distributions............ (.0676) (.0830)
-------- --------
Net asset value, end of
year..................... $ 1.00 $ 1.00
======== ========
TOTAL INVESTMENT RETURN:. 7.00% 8.71%
-------- --------
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding dis-
tribution fees........... .67% .71%
======== ========
Expenses................. .78% .82%
======== ========
Investment income and re-
alized gain on invest-
ments--net............... 6.76%* 8.19%*
======== ========
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands)........... $242,196 $219,180
======== ========
</TABLE>
- ----------
* Includes unrealized gain (loss).
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information for the indicated seven-day periods,
computed to include and exclude realized and unrealized gains and losses, and
information as to the compounded annualized yield, excluding gains and losses,
for the same periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
--------------------------------
AUGUST 31, 1994 OCTOBER 31, 1994
--------------- ----------------
<S> <C> <C>
Annualized Yield:
Including gains and losses................. 3.78% 3.98%
Excluding gains and losses................. 3.77% 3.98%
Compounded Annualized Yield................ 3.84% 4.06%
Average maturity of portfolio at end of pe-
riod...................................... 38 days 63 days
</TABLE>
The yield of the Fund refers to the income generated by an investment in the
Fund over a stated seven-day period. This income is then annualized; that is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of
the investment. The compounded annualized yield is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to
be reinvested. The compounded annualized yield will be somewhat higher than the
yield because of the effect of the assumed reinvestment.
The yield on Fund shares normally will fluctuate on a daily basis. Therefore,
the yield for any given past period is not an indication or representation by
the Fund of future yields or rates of return on its shares. The Fund's yield is
affected by changes in interest rates on money market securities, average
portfolio maturity, the types and quality of portfolio securities held and
operating expenses. Current yield information may not provide a basis for
comparison with bank deposits or other investments which pay a fixed yield over
a stated period of time.
On occasion, the Fund may compare its yield to (1) the Donoghue's Domestic
Prime Funds Average, an average compiled by Donoghue's Money Fund Report, a
widely recognized independent publication that monitors the performance of
money market mutual funds, (2) the average yield reported by the Bank Rate
Monitor National Index(TM) for money market deposit accounts offered by the 100
leading banks and thrift institutions in the ten largest standard metropolitan
statistical areas, (3) yield data published by Lipper Analytical Services,
Inc., Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine and Fortune
Magazine, or (4) the yield on an investment in 91-day Treasury bills on a
rolling basis, assuming quarterly compounding. As with yield quotations, yield
comparisons should not be considered indicative of the Fund's yield or relative
performance for any future period.
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund 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
marketable securities which are direct obligations of the U.S. Government and
repurchase agreements pertaining to such securities with banks and securities
dealers. The investment objectives are fundamental policies of the Fund which
may not be changed without a vote of the majority of the outstanding shares of
the Fund.
Investment in the Fund offers several benefits. The Fund seeks to provide as
high a yield potential as is available, consistent with the preservation of
capital, from short-term U.S. Government securities utilizing 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 Fund will be realized. Certain
expenses are borne by investors, including advisory and management fees,
administrative costs and operational costs.
In managing the Fund, 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
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 between securities of a
similar kind. For example, market conditions frequently result in similar
securities trading at different prices. The Fund seeks to enhance yield by
purchasing and selling securities based on these yield disparities.
Direct U.S. Government obligations consist of securities issued or guaranteed
as to principal and interest by the United States and which are backed by the
full faith and credit of the United States. Marketable securities issued by the
U.S. Government consist of U.S. Treasury bills, notes and bonds which differ
mainly in the length of their maturity. Treasury bills, the most frequently
issued marketable government security, have a maturity of up to one year and
are issued on a discount basis. U.S. Government agency securities which are
backed by the full faith and credit of the United States include securities
guaranteed by the Export-Import Bank of the United States and the Small
Business Administration. The Fund may invest in variable rate direct U.S.
Government obligations. Such obligations are securities on which the interest
rate is adjusted periodically prior to their stated maturity at stated
intervals (usually at 30, 90 or 180 day intervals) based on a predetermined
index or interest rate. The Fund may invest in direct obligations of the U.S.
Government by purchasing component parts of U.S. Treasury bonds or other U.S.
Government or Government agency securities through the acquisition of deposit
receipts which evidence ownership of direct interests in such component parts
of U.S. Government securities. The Fund may not invest in securities issued or
guaranteed by U.S. Government agencies, instrumentalities or Government-
sponsored enterprises which are not backed by the full faith and credit of the
United States.
The Fund may invest in the U.S. Government securities described above
pursuant to repurchase agreements. Repurchase agreements may be entered into
only with a member bank of the Federal Reserve System or a primary dealer in
U.S. Government securities or an affiliate thereof. Under such agreements, the
5
<PAGE>
seller agrees, on entering into the contract, to repurchase the security from
the Fund at a mutually agreed upon time and price, thereby determining the
yield during the term of agreement. This results in a fixed rate of return
insulated from market fluctuations during such period.
Preservation of capital is a prime investment objective of the Fund, and the
U.S. Government obligations in which it will invest generally are considered
to have the lowest principal risk among money market securities. 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 Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. With respect to repurchase agreements there is also the risk of the
failure of parties involved to return the securities involved in such
transactions, in which event the Fund may suffer time delays and incur costs
or possible losses in connection with such transactions.
The Fund may purchase U.S. Government securities on a forward commitment
basis at fixed purchase terms with periods of up to 90 days between the
commitment and settlement dates. The purchase will be recorded on the date the
Fund enters into the commitment and the value of the security thereafter will
be reflected in the calculation of the Fund'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 Fund will be established with its Custodian
consisting of cash or U.S. Government securities having a market value at all
times at least equal to the amount of the forward commitment. Although the
Fund generally will enter into forward commitments with the intention of
acquiring securities for its portfolio, the Fund may dispose of a commitment
prior to settlement if the Manager deems it appropriate to do so. There can,
of course, be no assurance that the judgments on which these techniques are
based will be accurate or that such techniques when applied will be effective.
For purposes of its investment policies, the Fund defines short-term
securities as securities having maturities of not more than 762 days (25
months). Management of the Fund expects that substantially all the assets of
the Fund will be invested in securities maturing in not more than 397 days (13
months), but at times some portion may have maturities up to 762 days (25
months). The maturity of variable rate obligations is deemed to be the next
date on which the interest rate is to be adjusted. The dollar-weighted average
maturity of the Fund's portfolio will not exceed 90 days. During the fiscal
year ended August 31, 1994, the average maturity of its portfolio ranged from
33 days to 85 days.
Investment Restrictions. The Fund has adopted a number of restrictions and
policies relating to the investment of its assets and its activities, which
are fundamental policies and may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities as defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act"). Among the more significant restrictions, the Fund may not: (1) purchase
any securities other than short-term marketable securities which are direct
obligations of the U.S. Government, and repurchase agreements and purchase and
sale contracts pertaining to such securities as defined under "Investment
Objectives and Policies"; (2) enter into repurchase agreements and purchase
and sale contracts referred to in (1) with any one bank or primary dealer, if,
immediately thereafter, more than 5% of the value of its total assets (taken
at market value) would be invested in repurchase agreements and purchase and
sale contracts with such bank or primary dealer, except that, with respect to
25% of the Fund's total assets, the Fund may invest up to 10% of its total
assets in repurchase agreements and purchase and sale contracts with any one
bank; or (3) enter into repurchase agreements or purchase and sale contracts
if, as a result thereof, more than 10% of its total assets (taken at market
value at the time of each investment) would be subject to repurchase
agreements or purchase and sale contracts maturing in more than seven days.
6
<PAGE>
MANAGEMENT OF THE FUND
TRUSTEES
The Board of Trustees of the Fund consists of six individuals, five of whom
are not "interested persons" of the Fund as defined in the Investment Company
Act. The Trustees of the Fund are responsible for the overall supervision of
the operations of the Fund and perform the various duties imposed on the
directors of investment companies by the Investment Company Act.
The Trustees of the Fund are:
Arthur Zeikel*--President and Chief Investment Officer of the Manager and
Fund Asset Management, L.P. ("FAM"); President and Director of Princeton
Services, Inc.; Executive Vice President of Merrill Lynch & Co., Inc. ("ML &
Co.") and of Merrill Lynch; and 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.
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 Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager, which is owned and controlled by ML & Co., a financial services
holding company, acts as the investment adviser for the Fund and provides the
Fund with management services. The Manager, or an affiliate, FAM, acts as the
investment adviser for more than 100 registered investment companies. The
Manager also provides investment advisory services to individual and
institutional accounts. As of October 31, 1994, the Manager and FAM had a total
of $167.6 billion in investment company and other portfolio assets under
management, including accounts of certain affiliates of the Manager.
The Management Agreement with the Manager (the "Management Agreement")
provides that, subject to the direction of the Board of Trustees, the Manager
is responsible for the actual management of the Fund's portfolio and constantly
reviews the Fund's holdings in light of its own research analysis and that from
other relevant sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Manager, subject to review by the
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 Fund.
As compensation for its services, the Manager receives a fee from the Fund at
the end of each month at the annual rate of 0.45% of the average net assets of
the Fund. For the fiscal year ended August 31, 1994, the total management fee
paid by the Fund to the Manager aggregated $2,581,756 (based on average net
assets of approximately $573.7 million). At October 31, 1994, the net assets of
the Fund aggregated approximately $541 million. At this asset level, the annual
management fee would aggregate approximately $2.4 million.
7
<PAGE>
The Management Agreement obligates the Fund to pay certain expenses incurred
in its operations, including, among other things, the management fee, legal and
audit fees, unaffiliated Trustees' fees and expenses, registration fees,
custodian and transfer agency fees, accounting and pricing costs and certain of
the costs of printing proxies, shareholder reports, prospectuses and statements
of additional information. Accounting services are provided to the Fund by the
Manager, and the Fund reimburses the Manager for its costs in connection with
such services on a semi-annual basis. For the fiscal year ended August 31,
1994, the amount of such reimbursement was $70,723. For the fiscal year ended
August 31, 1994, the ratio of total expenses, excluding distribution fees
(discussed under "Purchase of Shares--Distribution Plan"), to average net
assets was .69%.
Linda B. Costanzo is primarily responsible for the day-to-day management of
the Fund's portfolio. Ms. Costanzo is a Vice President of the Fund and has been
a Vice President of the Manager since 1985.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly-owned
subsidiary of ML & Co., acts as the Fund'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 Transfer Agency Agreement, the Transfer
Agent receives a fee of $15.00 per shareholder account and is entitled to
reimbursement from the Fund for out-of-pocket expenses incurred by the Transfer
Agent under the Transfer Agency Agreement. For the fiscal year ended August 31,
1994, the total fee paid by the Fund to the Transfer Agent pursuant to the
Transfer Agency Agreement was $882,238.
PURCHASE OF SHARES
The Fund is offering its shares without sales charge at a public price equal
to the net asset value (normally $1.00 per share) next determined after a
purchase order becomes effective. Share purchase orders are effective on the
date Federal Funds become available to the Fund. If Federal Funds are available
to the Fund prior to the determination of net asset value (generally 4:00 P.M.
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 Fund 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 Fund may, at its discretion, establish reduced
minimum initial and subsequent purchase requirements with respect to various
types of accounts. Participants in the self-directed retirement plans for which
Merrill Lynch acts as passive custodian may invest in shares of the Fund with a
minimum initial purchase of $100 and a minimum subsequent purchase of $1.
Information concerning investments in the Fund by participants in retirement
plans for which Merrill Lynch acts as passive custodian is set forth under
"Purchase and Redemption of Shares through Merrill Lynch Retirement Plans" in
the Statement of Additional Information. A variety of retirement plans are also
available from the Distributor. The minimum initial investment under these
plans is $100 and the minimum subsequent investment is $1. In addition, there
is no minimum investment under certain corporate pension and profit-sharing
plans which have established self-directed employee sub-accounts with Merrill
Lynch. The minimum initial purchase with respect to other retirement plans and
pension and
8
<PAGE>
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 Fund 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 Fund on behalf of the investor and will supply the
Fund 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 ("Blueprint") in some circumstances may be
executed two business days following the day the order is placed with Merrill
Lynch. Investments in the Fund through 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. 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 Fund on the day investors receive such
proceeds in their Merrill Lynch securities accounts. Investors with free cash
credit balances (i.e., immediately available funds) in securities accounts of
Merrill Lynch will not have their funds invested in the Fund 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
Fund on the day the order was placed with Merrill Lynch.
Payment by Wire. An expeditious method of investing in the Fund is through
the transmittal of Federal Funds by wire to the Fund's Transfer Agent. The Fund
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
U.S.A. Government Reserves 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.
9
<PAGE>
DISTRIBUTION PLAN
The Fund 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 Fund is authorized to pay Merrill Lynch a fee at the annual rate of
0.125% of average daily net asset value of Fund 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 Fund accounts through Merrill Lynch. The fee is for direct personal
services to Fund shareholders. For the fiscal year ended August 31, 1994,
$681,261 was paid to Merrill Lynch pursuant to the Plan (based on average net
assets subject to the Plan of approximately $573.7 million). At October 31,
1994, the net assets of the Fund subject to the Plan aggregated approximately
$541 million. At this asset level, the annual fee payable to Merrill Lynch
pursuant to the Plan would aggregate approximately $676,269.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all full and fractional shares of the
Fund. The redemption price is the net asset value per share next determined
after receipt by the Transfer Agent of proper notice of redemption as described
in accordance with one of the procedures set forth below. If such notice is
received by the Transfer Agent prior to the determination of net asset value on
that day (generally 4:00 P.M., New York time), 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 Fund'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 Fund may be requested to redeem shares for which good
payment has not yet been received. The Fund may delay, or cause to be delayed,
the payment of redemption proceeds until such time as good payment has been
collected for the purchase of such shares. Normally, this delay will not exceed
10 days. In addition, the Fund 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 Fund's Transfer Agent.
Information concerning redemptions by participants in the self-directed
retirement plans for which Merrill Lynch acts as passive custodian is set forth
in the Statement of Additional Information.
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 additional 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 Fund 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
10
<PAGE>
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 Fund 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 Fund 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 shareholders.
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 Application signature guaranteed. The redemption
request for Federal Funds redemption may be made by telephone, wire or by
letter to the Transfer Agent and, if received before the determination of net
asset value of the Fund on any business day (generally 4:00 P.M., New York
time), the redemption proceeds will be wired to the investor's predesignated
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
Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; if it does not, the Fund 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 Fund will repurchase shares
through securities dealers. The Fund 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 Fund (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 Fund; however, dealers may
impose a charge on the shareholder for transmitting the notice of repurchase to
the Fund. Redemption of Fund 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 Fund 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 Fund 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.
11
<PAGE>
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 Fund. The notice requires the signatures of all
persons in whose name 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 Fund who maintain securities
accounts with Merrill Lynch. This procedure, which is not applicable to margin
accounts, may be utilized by Merrill Lynch 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 Fund (generally 4:00
P.M., New York time); after application of any cash balances in the account, a
sufficient number of Fund shares may be redeemed at net asset value, as
determined that day, to satisfy any amounts for which the shareholder is
obligated to make payment to Merrill Lynch. Redemptions will be effected on the
business day preceding the date the shareholder is obligated to make such
payment, and Merrill Lynch will receive the redemption proceeds on the day
following the redemption date. Shareholders will receive all dividends declared
and reinvested through the date of redemption.
----------------
Due to the relatively high cost of maintaining accounts of less than $1,000,
the Fund 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 Fund offers a number of shareholder services designed to facilitate
investment in its shares. Certain of such services are not available to
investors who place purchase orders for the Fund's shares through the Merrill
Lynch BlueprintSM Program. 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 Fund, the Distributor or Merrill Lynch. Included in such
services are the following:
Investment Account. Each shareholder 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
12
<PAGE>
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 IRA from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the retirement account is to be transferred will not take delivery of
shares of the Fund, 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 Fund have an exchange privilege with
Class D shares of certain other mutual funds advised by the Manager or FAM
("MLAM-advised mutual funds"). Alternatively, shareholders may exchange shares
of the Fund for Class A shares of one of the MLAM-advised mutual funds if the
shareholder holds any Class A shares of that fund in his account in which the
exchange is made at the time of the exchange or is otherwise an eligible Class
A investor. Shareholders of the Fund also may exchange shares of the Fund into
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Fund shares. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated at any time in
accordance with the rules of the 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 and Automatic Investment Plans. A shareholder may elect
to receive systematic withdrawal checks from his Investment Account on either a
monthly or quarterly basis. 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.
PORTFOLIO TRANSACTIONS
The Government securities in which the Fund invests are traded primarily in
the over-the-counter market. Where possible, the Fund will deal directly with
the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. Such
dealers usually are acting as principal for their own account. On occasion,
securities may be purchased directly from the issuer. Government 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 Fund
are prohibited from dealing with the Fund 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 Fund 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 Fund 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 August 31, 1994, the Fund engaged in no transactions pursuant to such
order.
13
<PAGE>
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 time the net income
of the Fund is determined, the net asset value per share of the Fund normally
remains constant at $1.00 per share.
Net income (from the time of the immediately preceding determination
thereof) consists of (i) interest accrued and/or discount earned (including
both original issue and market discount), (ii) plus or minus all realized
gains and losses on portfolio securities, (iii) less amortization of premiums
and the estimated expenses of the Fund applicable to that dividend period.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined by the Manager once daily,
immediately after the daily declaration of dividends, on each 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 is determined pursuant to the "penny-rounding"
method by adding the fair value of all securities and other assets in the
portfolio, deducting the portfolio's liabilities and dividing by the number of
shares outstanding. The result of this computation will be rounded to the
nearest whole cent. Securities with remaining maturities of greater than 60
days for which market quotations are readily available will be valued at
market value. Securities with a remaining maturity of 60 days or less are
valued on an amortized cost basis, i.e., by 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. Other securities held by the Fund will be valued at
their fair value as determined in good faith by or under direction of the
Board of Trustees.
TAXES
The Fund 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 Fund (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
shareholders. The Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund'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 Fund'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 Fund
shares. Distributions in excess of the Fund's earnings and profits will first
reduce the adjusted tax basis of a holder's shares and, after such adjusted
tax basis is reduced to zero, will 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 Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by
14
<PAGE>
the Fund, whether from ordinary income or capital gains, will not be eligible
for the dividends received deduction allowed to corporations under the Code. If
the Fund pays a dividend in January which was declared in the previous October,
November, or December to shareholders of record on a specified date in one of
such months, then such dividend or distribution will be treated for tax
purposes as being paid by the Fund and received by its shareholders on December
31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund 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.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
If a shareholder exercises the 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 Fund
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 Fund will be
disallowed if other Fund 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 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 dividends and capital gain dividends may also be subject to
state and local taxes. Certain states exempt from state income taxation
dividends paid by RICs which are derived from interest on U.S. Government
obligations. State law varies as to whether dividend income attributable to
U.S. Government obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Fund.
ORGANIZATION OF THE FUND
The Fund was organized on November 17, 1987 under the laws of the
Commonwealth of Massachusetts. The Fund is a successor to a Massachusetts
business trust of the same name organized on July 24, 1982. 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
15
<PAGE>
the Fund, shareholders are entitled to share pro rata in the net assets of the
Fund available for distribution to shareholders. Shares are fully paid and
nonassessable by the Fund. 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.
The Declaration does not require that the Fund hold an annual meeting of
shareholders. However, the Fund will be required to call special meetings of
shareholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements, of a material
increase in distribution fees or of a change in the fundamental policies,
objectives or restrictions of the Fund. The Fund also would be required to hold
a special shareholders' meeting to elect new Trustees at such time as less than
a majority of the Trustees holding office have been elected by shareholders.
The Declaration provides that a shareholders' meeting may be called for any
reason at the request of 10% of the outstanding shares of the Fund 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, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Financial Data Services,
Inc. at 800-221-7210.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
----------------
The Declaration of Trust establishing the Fund, dated November 17, 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 U.S.A. Government Reserves" 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
Fund shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim of the Fund
but the "Trust Property" only shall be liable.
16
<PAGE>
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES PURCHASE APPLICATION
- -------------------------------------------------------------------------------
INSTRUCTIONS Send this completed form to: FINANCIAL DATA SERVICES, INC.,
Transfer Agency Money Market Operations, P.O. Box
45290, Jacksonville, Florida 32232-5290.
NOTE: This form may not be used for purchases through the Merrill
Lynch Blueprint SM Program. You may request a Merrill Lynch
Blueprint SM Program application form by calling toll free (800) 637-
3766.
- -------------------------------------------------------------------------------
1. TO REGISTER SHARES THE ACCOUNT SHOULD BE REGISTERED AS FOLLOWS:
(PLEASE PRINT
EXCEPT FOR [_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
SIGNATURES)
PRINT APPLICANT'S NAME. FOR CLARITY, PLEASE SKIP A SPACE BETWEEN
NAMES.
[_][_][_] [_][_] [_][_][_][_]
SOCIAL SECURITY
NO. OR TAX ID NO.
[_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
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.
_______________________________________________________________________________
STREET ADDRESS CITY STATE ZIP CODE
_______________________________________
NAME AND ADDRESS OF EMPLOYER
- ------------------------------- _______________________________________
OCCUPATION _______________________________________
Amount of Investment $
- -------------------------------------------------------------------------------
Please make any check payable to Merrill Lynch Funds Distributor, Inc.
Home Phone No. (Include Area Code)
Business Phone No.
- -------------------------------------------------------------------------------
2. CHECK REDEMPTION PRIVILEGE (SEE TERMS AND CONDITIONS IN THE PROSPECTUS)
[_] I hereby request and authorize Financial Data Services, Inc. (the
Check "Transfer Agent") to honor checks or automatic clearing house ("ACH")
box debits drawn by me on my Merrill Lynch U.S.A. Government Reserves (the
(if "Fund") account subject to acceptance by the Fund, with payment
desired) therefor to be made by redeeming sufficient shares in my account
without a signature guarantee. The Transfer Agent and the Fund do
hereby reserve all their lawful rights for honoring checks or ACH
debits drawn 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 Fund 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.
- -------------------------------------------------------------------------------
3. FEDERAL FUNDS REDEMPTION (SEE TERMS AND CONDITIONS IN THE PROSPECTUS)
[_] The undersigned hereby authorizes and directs Financial Data Services,
Check Inc. (the "Transfer Agent") to act on telephonic, telegraphic or other
box instructions (without signature guarantee) from any person
(if representing himself to be either the investor or any authorized
desired) representative of the investor, directing redemption of shares in an
amount of $5,000 or more of Merrill Lynch U.S.A. Government Reserves
(the "Fund") 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 Fund and the Transfer Agent reserve the right to
refuse any instructions.
The Transfer Agent requires additional documentation from corporations,
partnerships, trustees and similar institutional investors in addition to this
authorization (see No. 9 below).
Absent its own negligence, and so long as reasonable procedures to confirm the
validity of telephoned instructions are employed, neither the Fund 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.
FILL OUT THE REST OF THIS SPACE ONLY IF THE ABOVE BOX IS CHECKED. IN ADDITION,
YOUR SIGNATURE(S) MUST BE GUARANTEED. YOUR BANK MUST BE A MEMBER OF THE
FEDERAL RESERVE OR HAVE A CORRESPONDENT BANKING RELATIONSHIP WITH A BANK THAT
DOES BELONG TO THE FEDERAL RESERVE.
ENCLOSE A SPECIMEN COPY OF YOUR
PERSONAL CHECK (MARKED "VOID") FOR
THE BANK ACCOUNT LISTED BELOW.
IF YOUR BANK IS A MEMBER OF THE IF YOUR BANK IS NOT A MEMBER OF THE
FEDERAL RESERVE: FEDERAL RESERVE:
____________________________________ ________________________________________
Your Bank Name Bank Routing Code Correspondent Bank Name Routing
Code
____________________________________ ________________________________________
Your Account Name Account Number Your Bank Name Bank Routing Code
____________________________________ ________________________________________
Address of Bank City State Zip Your Account Name Your Account
Code Number
-----------------------------------------
Your Bank Address City State Zip
Code
4. AUTOMATIC INVESTMENT PLAN PRIVILEGE (SEE TERMS AND CONDITIONS IN THE
STATEMENT OF ADDITIONAL INFORMATION)
[_] Check this box only if you wish to have an Authorization Form sent to you.
17
<PAGE>
- -------------------------------------------------------------------------------
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 U.S.A. Government Reserves 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)
[_] the 24th of each month. payable to the order of (check only
one)
[_] March 24, June 24, September 24
and December 24. [_] the registered owner as indicated
in Item 1 hereinabove.
[_] to redeem a sufficient number of
shares in my account to generate [_] (other): _________________________
redemption proceeds of $ ____ or Such check or ACH debit shall be
mailed to (check only one)
[_] to redeem ___ % of the shares in [_] the address indicated in Item 1
my account on such date and pay hereinabove.
the redemption proceeds by check
or ACH debit [_] the following name and address:
______________________________________
- -------------------------------------------------------------------------------
6. ACCRUED MONTHLY PAYOUT PLAN (SEE TERMS AND CONDITIONS IN THE STATEMENT OF
ADDITIONAL INFORMATION)
Check
box The undersigned hereby authorizes and directs Financial Data
(if Services, Inc. to redeem on the last Friday of each month all shares
desired) purchased during such month through reinvestment of dividends and
[_] distributions and send the proceeds to me.
- -------------------------------------------------------------------------------
7. SIGNATURES
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security No. or Taxpayer Identification No. 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 a failure to report all interest or
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
Fund on behalf of the investor.
The investor hereby affirms that he has received a current Fund Prospectus and
appoints Financial Data Services, Inc. as his agent to receive dividends and
distributions for their automatic reinvestment in additional Fund shares.
______________________ ___________ ________________________________________
Signature of investor Date Signature of Joint Registrant, if any
Signature(s) Guaranteed
(only for those electing
No. 3 or No. 5):
By:
________________________________________
(Authorized Signatory or
Guarantor)
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 of a national
securities exchange. (A Notary Public's seal does not constitute a signature
guarantee.)
- -------------------------------------------------------------------------------
8. FOR DEALERS AND ADVISERS
[_] Dealer [_] Investment Adviser _____________________________________________
Name
_______________________________________________________________________________
Street City State Zip
_______________________________________________________________________________
If Dealer--Fill F/C's Name F/C's No. Customer Account Number
- -------------------------------------------------------------------------------
9. OTHER INFORMATION
This application enables you to take advantage of any or all of the optional
services available to Merrill Lynch U.S.A. Government Reserves 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 Financial Data Services, Inc. for your account to cover the
amount of any check 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 to draw ACH debits, must
be signed by an officer other than one empowered to execute transactions, with
his signature guarantee and with 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 must be guaranteed in the space provided above. 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.)
18
<PAGE>
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 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 08540-6619
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Financial Highlights....................................................... 3
Yield Information.......................................................... 4
Investment Objectives and Policies......................................... 5
Management of the Fund..................................................... 7
Trustees.................................................................. 7
Management and Advisory Arrangements...................................... 7
Transfer Agency Services.................................................. 8
Purchase of Shares......................................................... 8
Methods of Payment........................................................ 9
Distribution Plan......................................................... 10
Redemption of Shares....................................................... 10
Methods of Redemption..................................................... 10
Shareholder Services....................................................... 12
Portfolio Transactions..................................................... 13
Additional Information..................................................... 14
Dividends................................................................. 14
Determination of Net Asset Value.......................................... 14
Taxes..................................................................... 14
Organization of the Fund.................................................. 15
Shareholder Reports....................................................... 16
Shareholder Inquiries..................................................... 16
Purchase Application....................................................... 17
</TABLE>
Code #10152-1294
[LOGO] Merrill Lynch
Merrill Lynch
U.S.A. Government
Reserves
[ART]
Merrill Lynch U.S.A. Government
Reserves is organized as a
Massachusetts business trust. It
is not a bank nor does it offer
fiduciary or trust services.
Shares of the Fund are not
equivalent to a bank account. As
with any investment in
securities, the value of a
shareholder's investment in the
Fund will fluctuate. The shares
of the Fund are not insured by
any Government agency and are not
subject to the protection of the
Securities Investor Protection
Corporation. A shareholder's
investment in the Fund is not
insured by any government agency.
PROSPECTUS
December 28, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------------
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
The investment objectives of Merrill Lynch U.S.A. Government Reserves (the
"Fund") are to seek preservation of capital, current income and liquidity
available from investing in a diversified portfolio of short-term marketable
securities, including variable rate securities, which are direct obligations of
the U.S. Government, and repurchase agreements pertaining to such securities.
For purposes of its investment policies, the Fund defines short-term securities
as having a maturity of no more than 762 days (25 months). Management of the
Fund expects that substantially all the assets of the Fund will be invested in
securities maturing in not more than 397 days (13 months), but at times some
portion may have longer maturities not exceeding 762 days (25 months). There
can be no assurance that the investment objectives of the Fund will be
realized. The Fund pays Merrill Lynch, Pierce, Fenner & Smith Incorporated a
distribution fee for providing certain services in connection with the
distribution of Fund shares. See "Purchase of Shares".
----------------
This Statement of Additional Information of the Fund is not a prospectus and
should be read in conjunction with the prospectus of the Fund, dated December
28, 1994 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling or by
writing the Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
----------------
The date of this Statement of Additional Information is December 28, 1994.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund are to seek preservation of capital,
current income and liquidity available from investing in a diversified
portfolio of short-term marketable securities which are direct obligations of
the U.S. Government, and repurchase agreements pertaining to such securities
with banks and securities dealers. Reference is made to "Investment Objectives
and Policies" in the Prospectus for a discussion of the investment objectives
and policies of the Fund.
As discussed in the Prospectus, the Fund may invest in the U.S. Government
securities described therein pursuant to repurchase agreements. Repurchase
agreements may be entered into only with a member bank of the Federal Reserve
System or a primary dealer in U.S. Government securities or an affiliate
thereof. Under such agreements, the bank or primary dealer or an affiliate
thereof agrees, upon entering into the contract, to repurchase the security
from the Fund at a mutually agreed upon time and price, thereby determining the
yield during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period. Such agreements usually
cover short periods, such as under 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. The Fund will require the seller
to provide additional collateral if the market value of the securities falls
below the repurchase price at any time during the term of the repurchase
agreement. In the event of a default by the seller, the Fund ordinarily will
retain ownership of the securities underlying the repurchase agreement, and
instead of a contractually fixed rate of return, the rate of return to the Fund
shall be dependent upon intervening fluctuations of the market value of such
securities and the accrued interest on the securities. In such event, the Fund
would have rights against the seller for breach of contract with respect to any
losses arising from market fluctuations following the failure of the seller to
perform. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur
costs or losses in connection with the disposition of the collateral. From time
to time the Fund also may invest in money market securities pursuant to
purchase and sale contracts. While purchase and sale contracts are similar to
repurchase agreements, purchase and sale contracts are structured so as to be
in substance more like a purchase and sale of the underlying security than is
the case with repurchase agreements.
In addition to the investment restrictions set forth in the Prospectus, the
Fund has adopted the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities (which for this purpose means the lesser
of (i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares). The Fund may not: (1) act as an underwriter of securities issued by
other persons; (2) purchase any securities on margin, except for use of short-
term credit necessary for clearance of purchases and sales of portfolio
securities; (3) make short sales of securities or maintain a short position or
write, purchase or sell puts, calls, straddles, spreads or combinations
thereof; (4) make loans to other persons, provided that the Fund may purchase
U.S. Government securities and enter into repurchase agreements and purchase
and sale contracts referred to in investment restriction (1) in the Prospectus;
(5) borrow amounts in excess of 20% of its total assets, taken at market value
(including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes [Usually only "leveraged"
investment
2
<PAGE>
companies may borrow in excess of 5% of their assets; however, the Fund will
not borrow to increase income but only to meet redemption requests which might
otherwise require untimely dispositions of portfolio securities. Interest paid
on such borrowings will reduce net income.]; and (6) mortgage, pledge,
hypothecate or in any manner transfer as security for indebtedness any
securities owned or held by the Fund except as may be necessary in connection
with borrowings mentioned in (5) above, and then such mortgaging, pledging or
hypothecating may not exceed 10% of the Fund's net assets, taken at market
value.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Fund 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 Merrill
Lynch Asset Management, P.O. Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel--President and Trustee (1)(2)--President of Merrill Lynch Asset
Management, L.P. (the "Manager", which term as used herein includes the
Manager's corporate predecessors) since 1977 and Chief Investment Officer of
the Manager since 1976; President and Chief Investment Officer of Fund Asset
Management, L.P. ("FAM", which term as used herein includes FAM's 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 a Senior
Vice President thereof from 1985 to 1990; Director of Merrill Lynch Funds
Distributor, Inc. (the "Distributor").
Donald Cecil--Trustee (2)--1114 Avenue of the Americas, New York, New York
10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; General Partner of Cumberland Associates (an asset
management company) from 1970 to 1982; Member of Institute of Chartered
Financial Analysts; Member and Chairman of Westchester County (N.Y.) Board of
Transportation.
M. Colyer Crum--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--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., Harman International Industries,
Inc. and Ethan Allen Interiors, Inc.
Jack B. Sunderland--Trustee (2)--P.O. Box 1177, Scarsdale, New York 10583.
President and Director of American Independent Oil Company, Inc. (an energy
company) since 1987; Chairman of Murexco Petroleum, Inc. (an energy company)
from 1981 to 1988; Member of Council on Foreign Relations since 1971;
President, Director and Chief Executive Officer of Coroil, Inc. (an energy
company) from 1979 to 1985.
J. Thomas Touchton--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).
3
<PAGE>
Terry K. Glenn--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; and President of Princeton Administrators, L.P.
since 1988.
Joseph T. Monagle, Jr.--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--Vice President (1)(2)--Vice President and Director of
Taxation of the Manager since 1990; Employee of Deloitte & Touche llp from 1981
to 1990.
Linda B. Costanzo--Vice President (1)(2)--Vice President of the Manager since
1989; Assistant Vice President of the Manager from 1988 to 1989; employee of
the Manager from 1986 to 1988.
Gerald M. Richard--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 of the Distributor since 1984.
Mark B. Goldfus--Secretary (1)(2)--Vice President of the Manager and FAM
since 1985.
At December 1, 1994, the Trustees and officers of the Fund as a group (11
persons) owned an aggregate of less than 1% of the outstanding shares of
beneficial interest of the Fund. At such date, Mr. Zeikel, a trustee of the
Fund, and the other officers of the Fund, owned less than 1% of the outstanding
shares of Common Stock of ML & Co.
Pursuant to the terms of its management agreement with the Fund (the
"Management Agreement"), the Manager pays all compensation of all officers of
the Fund and all Trustees of the Fund who are affiliated with ML & Co. or its
subsidiaries. The Fund pays each unaffiliated Trustee an annual fee of $3,000
plus a fee of $750 per meeting attended and pays all Trustees' actual out-of-
pocket expenses relating to attendance at meetings. The Fund also pays each
member of the Audit Committee, which consists of all of the unaffiliated
Trustees, an annual fee of $2,500 and the chairman of the Audit Committee an
additional annual fee of $1,000. Fees and expenses paid to the unaffiliated
Trustees aggregated $43,900 for the fiscal year ended August 31, 1994.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund--Management and Advisory
Arrangements" in the Prospectus of the Fund for certain information concerning
management and advisory arrangements of the Fund.
- --------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Trustee or officer is a director, trustee or officer of certain
other investment companies for which the Manager or FAM acts as investment
adviser.
4
<PAGE>
Subject to the direction of the Board of Trustees, the Manager is responsible
for the actual management of the Fund's portfolio and constantly reviews the
Fund's holdings in light of its own research analysis and that from other
relevant sources. The responsibility for making decisions to buy, sell or hold
a particular security rests with the Manager. The Manager performs certain of
the other administrative services and provides all the office space,
facilities, equipment and necessary personnel for portfolio management of the
Fund.
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
U.S. 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. In addition, the total
securities and economic research facilities of Merrill Lynch are available to
the Manager.
Securities held by the Fund also may be held by, or be appropriate
investments for, other funds for which the Manager or its subsidiary acts as an
adviser or by investment advisory clients of the Manager. Because of different
objectives or other factors, a particular security may be bought for one or
more clients when one or more clients are selling the same security. If
purchases or sales of securities for the Fund or other advisory clients arise
for consideration at or about the same time, transactions in such securities
will be made, insofar as feasible, for the respective funds and clients in a
manner deemed equitable to all. To the extent that transactions on behalf of
more than one client of the Manager or 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 Fund, the Manager receives a fee from
the Fund at the end of each month at the annual rate of 0.45% of the average
net assets of the Fund. For the fiscal years ended August 31, 1992, 1993 and
1994, the total management fees paid by the Fund to the Manager aggregated
$2,809,380, $2,728,134 and $2,581,756, respectively.
California imposes limitations on the expenses of the Fund. At the date
hereof, those limitations require that the Manager reimburse the Fund in any
amount necessary to prevent such operating expenses (excluding interest, taxes,
brokerage fees and commissions, distribution fees and extraordinary charges
such as litigation costs) of the Fund from exceeding 2.5% of the Fund's first
$30 million of average daily net assets, 2.0% of the next $70 million of
average daily net assets and 1.5% of the remaining average daily net assets. No
fee payment will be made to the Manager during the year which will cause such
expenses to exceed the expense limitation at the time of such payment. Prior to
September 21, 1989, the Fund was subject to more restrictive expense limitation
provisions. At the date of this Statement of Additional Information, the
Manager has not been required to make any reimbursement to the Fund pursuant to
limitations on operating expenses.
The Management Agreement obligates the Manager to provide advisory,
administrative and management services, to furnish office space and facilities
for management of the affairs of the Fund and to pay all compensation of and
furnish office space and facilities for officers of the Fund, as well as the
fees of all Trustees of the Fund who are affiliated persons of ML & Co. or any
of its subsidiaries. The Fund pays all other expenses incurred in the operation
of the Fund, including, among other things, organizational expenses, taxes,
expenses for legal and auditing services, costs of printing proxy statements,
shareholder reports, prospectuses and statements of additional information
(except to the extent paid by the Distributor),
5
<PAGE>
charges of the custodian and transfer agent, expenses of redemption of shares,
expenses of registering and qualifying shares for sale under Federal and state
securities laws, fees and expenses of unaffiliated Trustees, accounting and
pricing costs (including the daily calculation of net asset value), insurance,
interest, expenses of portfolio transactions, litigation and other
extraordinary or nonrecurring expenses, and other expenses properly payable by
the Fund. Accounting services are provided for the Fund by the Manager, and the
Fund reimburses the Manager for its costs in connection with such services. For
the fiscal year ended August 31, 1994, the amount of such reimbursement was
$70,723.
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 Board of Trustees of the Fund or by a majority of the
outstanding voting shares of the Fund 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 Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund 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. It is anticipated that the net asset value will remain
constant at $1.00 per share, although this cannot be assured.
The Distributor acts as the distributor in the continuous offering of the
Fund'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 Fund that it does not charge such a fee.
The Fund's distribution agreement with the Distributor is renewable annually,
and may be terminated on 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 Fund's policy to be as fully invested as reasonably practicable at
all times to maximize the yield on the Fund's portfolio. The money markets in
which the Fund 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 Fund shares shall become effective on the day Federal Funds become
available to the Fund and the shares being purchased will be issued at the net
asset value per share next determined. If Federal Funds are
6
<PAGE>
available to the Fund prior to 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 Fund 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 Fund is authorized to pay Merrill Lynch a fee at the annual rate of
0.125% of average daily net asset value of Fund 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
Fund. The distribution fee is not compensation for the administrative and
operational services rendered to shareholders by Merrill Lynch which are
covered by the Management Agreement (see "Management of the Fund--Management
and Advisory Arrangements") between the Fund and the Manager.
The Trustees believe that the Fund's expenditures under the Plan benefit the
Fund and its shareholders by providing better shareholder services and by
affecting positively the sale and distribution of Fund shares. For the fiscal
years ended August 31, 1992, 1993 and 1994, $748,719, $724,281 and $681,261,
respectively, was paid to Merrill Lynch pursuant to the Plan (based on average
net assets subject to the Plan of approximately $622.0 million, $606.3 million
and $573.7 million, respectively). At October 31, 1994 the net assets of the
Fund subject to the Plan aggregated approximately $541 million. At this asset
level, the annual fee payable to Merrill Lynch pursuant to the Plan would
aggregate approximately $676,269. All of such amounts 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 Fund shall review quarterly reports of the 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 Fund and its shareholders.
The Plan further provides that, so long as the Plan remains in effect, the
selection and nomination of Trustees of the Fund who are not "interested
persons" of the Fund as defined in the Investment Company Act (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 of
a majority of the outstanding voting securities of the Fund. Finally, the Plan
cannot be amended to increase materially the amount to be spent by the Fund
thereunder without shareholder approval, and all material amendments are
required to be approved by vote of the Trustees of the Fund, including a
majority of the Independent Trustees, cast in person at a meeting called for
that purpose.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the repurchase and redemption of Fund 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 Fund of securities owned by it is not
7
<PAGE>
reasonably practicable or (B) it is not reasonably practicable for the Fund
fairly to determine the value of its net assets; or (3) for such other periods
as the Securities and Exchange Commission may by order permit for the
protection of security holders of the Fund. The Commission shall by rules and
regulations determine the conditions under which (i) trading shall be deemed
to be restricted and (ii) an emergency shall be deemed to exist within the
meaning of clause (2) above.
The total value of the shareholder's investment in the Fund at the time of
redemption may be more or less than his cost, depending on the market value of
the securities held by the Fund at such time and income earned.
PURCHASE AND REDEMPTION OF SHARES THROUGH MERRILL LYNCH RETIREMENT PLANS
Merrill Lynch offers four types of self-directed retirement plans for which
it acts as passive custodian ("Retirement Plans"). These plans are an
individual retirement account ("IRA"), The Merrill Lynch Tax-Deferred
Basic(TM) Retirement Plan, designed for sole proprietors, partnerships and
small corporations ("Basic Plan"), a simplified employee pension plan ("SEP"),
and a special IRA available through payroll deductions to individuals through
their employers, labor unions and other employee associations that have chosen
to make such IRAs available on a voluntary basis through the Merrill Lynch
Blueprint SM Program. Information concerning the establishment and maintenance
of Retirement Plans and investments by Retirement Plan accounts is contained
in the Retirement Plan documents available from Merrill Lynch.
PURCHASE BY RETIREMENT PLANS
Special purchase procedures apply in the case of the Retirement Plans. The
minimum initial purchase for participants in Retirement Plans is $100, and the
minimum subsequent purchase is $1. In addition, participants in the Retirement
Plans may elect to have cash balances in their Retirement Plan account
automatically invested in the Fund.
Cash balances of participants who elect to have such funds automatically
invested in the Fund will be invested as follows. Cash balances arising from
the sale of securities held in the Retirement Plan account which do not settle
on the day of the transaction (such as most common and preferred stock
transactions) become available to the Fund and will be invested in shares of
the Fund on the business day following the day that proceeds with respect
thereto are received in the Retirement Plan account. Proceeds giving rise to
cash balances from the sale of securities held in the Retirement Plan account
settling on a same day basis and from principal repayments on debt securities
held in the account become available to the Fund and will be invested in
shares of the Fund on the next business day following receipt. Cash balances
arising from dividends or interest payments on securities held in the
Retirement Plan account or from a contribution to the Retirement Plan are
invested in shares of the Fund on the business day following the date the
payment is received in the Retirement Plan account. Cash balances of less than
$1.00 will not be invested and no return will be earned.
A participant in the IRA, Basic or SEP Retirement Plans who has not elected
to have cash balances automatically invested in shares of the Fund may enter a
purchase order through his Merrill Lynch financial consultant.
8
<PAGE>
REDEMPTIONS BY RETIREMENT PLANS
Distributions from Retirement Plans to a participant prior to the time the
participant reaches age 59 1/2 may subject the participant to penalty taxes.
There are, however, no adverse tax consequences resulting from redemptions of
shares of the Fund where the redemption proceeds remain in the Retirement Plan
account or are otherwise invested therein.
The Fund has instituted an automatic redemption procedure for participants
in the Retirement Plans who have elected to have cash balances in their
accounts automatically invested in shares of the Fund. In the case of such
participants, unless directed otherwise, Merrill Lynch will redeem a
sufficient number of shares of the Fund to purchase other securities (such as
common stocks) that the participant has selected for investment in his
Retirement Plan account.
Any shareholder may redeem shares of the Fund by submitting a written notice
of redemption to Merrill Lynch. Participants in IRA, Basic and SEP Retirement
Plans should contact their Merrill Lynch financial consultant to effect such
redemptions. Participants in the IRA program through the Merrill Lynch
Blueprint SM Program should contact Merrill Lynch at the toll-free number
furnished to them to effect such redemptions. Redemption requests should not
be sent to the Fund. If inadvertently sent to the Fund, they will be forwarded
to Merrill Lynch. The notice must bear the signature of the person in whose
name the Retirement Plan is maintained, signed exactly as his name appears on
his Retirement Plan adoption agreement.
CONFIRMATIONS
All purchases and redemptions of Fund shares and dividend reinvestments will
be confirmed to participants in the IRA, Basic and SEP Retirement Plans
(rounded to the nearest share) in the statement which is sent quarterly to all
participants in IRA Retirement Plans and monthly to all participants in Basic
and SEP Retirement Plans.
Participants in the IRA program through the Merrill Lynch Blueprint SM
Program will receive quarterly statements reflecting all purchases,
redemptions and dividend reinvestments of Fund shares, and, at least monthly,
will receive an individual confirmation with respect to each redemption of
Fund shares and each purchase of such shares other than purchases which are
made automatically through payroll deductions.
PORTFOLIO TRANSACTIONS
The Fund has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policy
established by the Board of Trustees of the Fund, the Manager is primarily
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Fund to obtain the
best net results taking into account such factors as price (including the
applicable dealer spread), the size, type and difficulty of the transaction
involved, the firm's general execution and operational facilities, and the
firm's risk in positioning the securities involved. While the Manager
generally seeks reasonably competitive spreads or commissions, the Fund will
not necessarily be paying the lowest spread or commission available. The
Fund's policy of investing in securities with short maturities will result in
high portfolio turnover.
The Government securities in which the Fund invests are traded primarily in
the over-the-counter market. Where possible, the Fund will deal directly with
the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. Such
dealers usually are acting as principal for their own accounts. On occasion,
securities may be purchased directly from
9
<PAGE>
the issuer. Government securities generally are traded on a net basis and
normally do not involve either brokerage commissions or transfer taxes. The
cost of executing portfolio securities transactions of the Fund primarily will
consist of dealer spreads and underwriting commissions. Under the Investment
Company Act, persons affiliated with the Fund are prohibited from dealing with
the Fund as 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 are usually principal
transactions, affiliated persons of the Fund, including Merrill Lynch
Government Securities Inc. ("GSI") and Merrill Lynch, may not serve as the
Fund's dealer in connection with such transactions except pursuant to the
exemptive order described below. However, an affiliated person of the Fund may
serve as its broker in over-the-counter transactions conducted on an agency
basis. The Fund may not purchase securities from any underwriting syndicate of
which Merrill Lynch is a member.
The Securities and Exchange Commission has issued an order permitting the
Fund to conduct principal transactions with GSI in United States Government and
Government agency securities. This order contains a number of conditions,
including conditions designed to ensure that the price to the Fund from GSI is
equal to or better than that available from other sources. GSI has informed the
Fund that it will in no way, at any time, attempt to influence or control the
activities of the Fund or the Manager in placing such principal transactions.
The exemptive order allows GSI or its subsidiary, Merrill Lynch Money Markets
Inc., to receive a dealer spread on any transaction with the Fund no greater
than its customary dealer spread from transactions of the type involved.
Generally, such spreads do not exceed 0.25% of the principal amount of the
securities involved. During the fiscal year ended August 31, 1993, the Fund
engaged in three such transactions aggregating approximately $48.2 million.
During the fiscal year ended August 31, 1994, the Fund did not engage in any
such transactions.
The Trustees of the Fund have considered the possibilities of recapturing for
the benefit of the Fund expenses of possible portfolio transactions, such as
dealer spreads and underwriting commissions, by conducting such portfolio
transactions through affiliated entities, including GSI and Merrill Lynch. For
example, dealer spreads received by GSI or its subsidiary on transactions
conducted pursuant to the permissive order described above could be offset
against the management fee payable by the Fund to the Manager. After
considering all factors deemed relevant, the Board of Trustees made a
determination not to seek such recapture. The Trustees will reconsider this
matter from time to time.
The Fund does not expect to use one particular dealer, but, subject to
obtaining the best price and execution, dealers who provide supplemental
investment research (such as economic data and market forecasts) to the Manager
may receive orders for transactions of the Fund. Information so received will
be in addition to and not in lieu of the services required to be performed by
the Manager under 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 Fund is determined by the Manager once daily,
immediately after the daily declaration of dividends, on each day during which
the New York Stock Exchange 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
10
<PAGE>
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 is determined under the "penny-rounding"
method by adding the value of all securities and other assets in the portfolio,
deducting the portfolio's liabilities, dividing by the number of shares
outstanding and rounding the result to the nearest whole cent.
The Fund values its portfolio securities with remaining maturities of 60 days
or less on an amortized cost basis and values its securities with remaining
maturities of greater than 60 days for which market quotations are readily
available at market value. Other securities held by the Fund are valued at
their fair value as determined in good faith by or under the direction of the
Board of Trustees.
In accordance with the Securities and Exchange Commission rule applicable to
the valuation of its portfolio securities, the Fund will maintain a dollar-
weighted average portfolio maturity of 90 days or less and will purchase
instruments having remaining maturities of not more than 397 days (13 months),
with the exception of U.S. Government and U.S. Government agency securities,
which may have remaining maturities of up to 762 days (twenty-five months). The
Fund will invest only in securities determined by the Trustees to be of high
quality with minimal credit risks. In addition, the Trustees have established
procedures designed to stabilize, to the extent reasonably possible, the Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Deviations of more than an insignificant amount between the net asset value
calculated using market quotations and that calculated on a "penny-rounded"
basis will be reported to the Trustees by the Manager. In the event the
Trustees determine that a deviation exists which may result in material
dilution or other unfair results to investors or existing shareholders, the
Fund will take such corrective action as it regards as necessary and
appropriate, including the reduction of the number of outstanding shares of the
Fund by having each shareholder proportionately contribute shares to the Fund's
capital; the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding
dividends; or establishing a net asset value per share solely by using
available market quotations. If the number of outstanding shares is reduced in
order to maintain a constant net asset value of $1.00 per share, the
shareholders will contribute proportionately to the Fund's capital the number
of shares which represent the difference between the amortized cost valuation
and market valuation of the portfolio. Each shareholder will be deemed to have
agreed to such contribution by his investment in the Fund.
Since the net income of the Fund (including realized gains and losses on the
portfolio securities) is determined and declared as a dividend immediately
prior to each time the net asset value of the Fund is determined, the net asset
value per share of the Fund normally remains at $1.00 per share immediately
after each such dividend declaration. Any increase in the value of a
shareholder's investment in the Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of the Fund in his
account and any decrease in the value of a shareholder's investment may be
reflected by a decrease in the number of shares in his account. See "Taxes".
YIELD INFORMATION
The Fund normally computes its annualized yield by determining the net income
for a seven-day base period for a hypothetical pre-existing account having a
balance of one share at the beginning of the base
11
<PAGE>
period, dividing the net income by the net asset value of the account at the
beginning of the base period to obtain the base period return, multiplying the
result by 365 and then dividing by seven. Under this calculation, the yield
reflects realized and unrealized gains and losses on portfolio securities. In
accordance with regulations adopted by the Securities and Exchange Commission,
the Fund is required to disclose its annualized yield for certain seven-day
base periods in a standardized manner which does not take into consideration
any realized or unrealized gains or losses on portfolio securities. The
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 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.
SHAREHOLDER SERVICES
The Fund 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 can be obtained from the Fund,
the Distributor or Merrill Lynch.
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
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 Fund, certificates representing the Fund's shares will not be
issued physically. Shares are maintained by the Fund 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 Fund 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 Fund, the Transfer Agent
or the Distributor.
ACCRUED MONTHLY PAYOUT PLAN
The dividends of the Fund 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,
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<PAGE>
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 Plan may be terminated at any time without
charge or penalty by the shareholder, the Fund, 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 Fund
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 Fund, 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
Fund and 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 Fund may participate in a variety of qualified employee
benefit plans which are available from the Distributor. Participants in these
plans may invest in the Fund 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 and
"Purchase and Redemption of Shares through Merrill Lynch Retirement Plans"
herein.
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<PAGE>
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 Fund who have held all or part of their shares for at
least 15 days may exchange their shares of the Fund for Class D shares of
mutual funds advised by the Manager or FAM described below (collectively
referred to as the "MLAM-advised mutual funds") on the basis described below.
Shares with a net asset value of at least $250 are required to qualify for the
exchange privilege.
Alternatively, shareholders may exchange shares of the Fund for Class A
shares of one of the MLAM-advised mutual funds if the shareholder holds any
Class A shares of that fund in his account in which the exchange is made at the
time of the exchange or is otherwise an eligible Class A investor. An eligible
Class A investor includes the following: certain employer sponsored retirement
or savings plans, including eligible 401(k) plans, provided such plans meet the
required minimum number of eligible employees or required amount of assets
advised by MLAM or any of its affiliates; corporate warranty insurance reserve
fund programs provided that the program has $3 million or more initially
invested in MLAM-advised mutual funds; participants in certain investment
programs including TMAsm Managed Trusts to which Merrill Lynch Trust Company
provides discretionary trustee services and certain purchases made in
connection with the Merrill Lynch Mutual Fund Adviser program; and ML & Co. and
its subsidiaries and their directors and employees and members of the Boards of
MLAM-advised investment companies, including the Fund.
Shareholders of the Fund also may exchange shares of the Fund into shares of
Class A Share Money Market Funds, as listed below.
Under the exchange privilege, each of the funds offers to exchange its shares
("new shares") for shares ("outstanding shares") of any of the other funds, on
the basis of relative net asset value per share, plus an amount equal to the
difference, if any, between the sales charge previously paid on the outstanding
shares and the sales charge payable at the time of the exchange on the new
shares. At the present time, the shares of each of the funds 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 Fund, 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.
It is contemplated that the exchange privilege may be applicable to other new
mutual funds whose shares may be distributed by the Distributor. The exchange
privilege available to participants in the Merrill Lynch Blueprintsm Program
may be different from that available to other investors.
14
<PAGE>
The investment objectives of the other funds into which exchanges can be made
are as follows:
<TABLE>
<S> <C>
Merrill Lynch Adjustable Rate
Securities Fund, Inc. ....... High current income consistent with a policy of
limiting the degree of fluctuation in net asset
value of fund shares resulting from movements
in interest rates, through investment primarily
in a portfolio of adjustable rate 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 sur-
rounding waters).
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 in-
come taxes as is consistent with prudent in-
vestment management through investment in a
portfolio primarily of intermediate-term in-
vestment grade Arizona Municipal Bonds.
Merrill Lynch Arizona
Municipal
Bond Fund.................... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and Arizona income taxes as
is consistent with prudent investment manage-
ment.
Merrill Lynch Arkansas
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and Arkansas income taxes
as is consistent with prudent investment man-
agement.
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 secu-
rities the combination of which will be varied
both with respect to types of securities and
markets in response to changing market and eco-
nomic trends.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Merrill Lynch Asset Income
Fund, Inc.................... A high level of current income through invest-
ment primarily in United States fixed income
securities.
Merrill Lynch Balanced Fund
For Investment And
Retirement................... As high a level of total investment return as is
consistent with a relatively low level of risk
through investment in common stocks and other
types of securities, including fixed income se-
curities and convertible securities.
Merrill Lynch Basic Value
Fund, Inc. .................. Capital appreciation and, secondarily, income
through investment in securities, primarily eq-
uities, that are undervalued and therefore rep-
resent basic investment value.
Merrill Lynch California
Municipal Bond Fund.......... A portfolio of Merrill Lynch California Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and California income taxes
as is consistent with prudent investment man-
agement.
Merrill Lynch California
Insured Municipal Bond Fund.. A portfolio of Merrill Lynch California Munici-
pal Series Trust, a series fund, whose objec-
tive 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 pri-
marily 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 in-
vestment management through investment in a
portfolio primarily of intermediate-term in-
vestment grade California Municipal Bonds.
Merrill Lynch Capital Fund,
Inc. ........................ The highest total investment return consistent
with prudent risk through a fully managed in-
vestment policy utilizing equity, debt and con-
vertible securities.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Merrill Lynch Colorado
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and Colorado income taxes
as is consistent with prudent investment man-
agement.
Merrill Lynch Connecticut
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive 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.
Merrill Lynch Developing
Capital Markets Fund, Inc. .. Long-term appreciation through investment in se-
curities, principally equities, of issuers in
countries having smaller capital markets.
Merrill Lynch Dragon Fund,
Inc. ........................ Capital appreciation primarily through invest-
ment 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 invest-
ment in equity securities of corporations domi-
ciled 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 to provide as high a level
of income exempt from Federal income taxes as
is consistent with prudent investment manage-
ment while serving to offer shareholders the
opportunity to own securities exempt from Flor-
ida intangible personal property taxes through
investment in a portfolio primarily of interme-
diate-term investment grade Florida Municipal
Bonds.
</TABLE>
17
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<TABLE>
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Merrill Lynch Florida
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal income taxes as is consis-
tent with prudent investment management while
seeking to offer shareholders the opportunity
to own securities exempt from Florida intangi-
ble personal property taxes.
Merrill Lynch Fund for
Tomorrow, Inc. .............. Long-term growth through investment in a portfo-
lio of good quality securities, primarily com-
mon stock, potentially positioned to benefit
from demographic and cultural changes as they
affect consumer markets.
Merrill Lynch Fundamental
Growth Fund, Inc. ........... Long-term growth of capital through investment
in a diversified portfolio of equity securities
placing particular emphasis on companies that
have exhibited an above-average growth rate in
earnings.
Merrill Lynch Global
Allocation Fund, Inc. ....... High total return consistent with prudent risk,
through a fully managed investment policy util-
izing 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 the types of securities and
markets in response to changing market and eco-
nomic trends.
Merrill Lynch Global Bond Fund
For Investment And
Retirement................... High total investment return from investment in
government and corporate bonds denominated in
various currencies and multi-national currency
units.
Merrill Lynch Global
Convertible Fund, Inc. ...... High total return from investment primarily in
an internationally diversified portfolio of
convertible debt securities, convertible pre-
ferred stock and "synthetic" convertible secu-
rities consisting of a combination of debt se-
curities or preferred stock and warrants or op-
tions.
Merrill Lynch Global Holdings,
Inc. (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
Resources Trust.............. Long-term growth and protection of capital from
investment in securities of domestic and for-
eign companies that possess substantial natural
resource assets.
</TABLE>
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<TABLE>
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Merrill Lynch Global SmallCap
Fund, Inc. .................. Long-term growth of capital by investing primar-
ily in equity securities of companies with rel-
atively 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 domes-
tic and foreign companies primarily engaged in
the ownership or operation of facilities used
to generate, transmit or distribute electrici-
ty, tele-communications, 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 be-
lieves to be undervalued.
Merrill Lynch Healthcare Fund,
Inc. (residents of Wisconsin
must meet investor
suitability standards)....... Capital appreciation through worldwide invest-
ment in equity securities of companies that de-
rive or are expected to derive a substantial
portion of their sales from products and serv-
ices 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 Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and Maryland income taxes
as is consistent with prudent investment man-
agement.
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 in-
vestment management through investment in a
portfolio primarily of intermediate-term in-
vestment grade Massachusetts Municipal Bonds.
</TABLE>
19
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<TABLE>
<S> <C>
Merrill Lynch Massachusetts
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive 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 high a level
of income exempt from Federal and Michigan in-
come taxes as is consistent with prudent in-
vestment management through investment in a
portfolio primarily of intermediate-term in-
vestment grade Michigan Municipal Bonds.
Merrill Lynch Michigan
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and Michigan personal in-
come taxes as is consistent with prudent in-
vestment management.
Merrill Lynch Minnesota
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and Minnesota personal in-
come taxes as is consistent with prudent in-
vestment management.
Merrill Lynch Municipal Bond
Fund, Inc. .................. Tax-exempt income from three separate diversi-
fied portfolios of municipal bonds.
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 pos-
sible of income exempt from Federal income
taxes by investing in investment grade obliga-
tions 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 in-
vestment management through a portfolio primar-
ily of intermediate-term investment grade New
Jersey Municipal Bonds.
</TABLE>
20
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<TABLE>
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Merrill Lynch New Jersey
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and New Jersey income taxes
as is consistent with prudent investment man-
agement.
Merrill Lynch New Mexico
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and New Mexico income taxes
as is consistent with prudent investment man-
agement.
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 in-
vestment in a portfolio primarily of intermedi-
ate-term investment grade New York Municipal
Bonds.
Merrill Lynch New York
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive 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.
Merrill Lynch North Carolina
Municipal Bond Fund.......... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive 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 Munici-
pal Series Trust, a series fund, whose objec-
tive 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 Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal and Oregon income taxes as
is consistent with prudent investment manage-
ment.
</TABLE>
21
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<TABLE>
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Merrill Lynch Pacific Fund,
Inc. ........................ Capital appreciation by investing in equity se-
curities of corporations domiciled in Far East-
ern 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 in-
vestment 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 Munici-
pal Series Trust, a series fund, whose objec-
tive 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 eq-
uity and fixed income securities, including
tax-exempt securities, of issuers in weak fi-
nancial condition or experiencing poor operat-
ing results believed to be undervalued relative
to the current or prospective condition of such
issuer.
Merrill Lynch Short-Term
Global Income Fund, Inc. .... As high a level of current income as is consis-
tent with prudent investment management from a
global portfolio of high quality debt securi-
ties denominated in various currencies and mul-
tinational 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 stock, of rela-
tively 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 divi-
dend paying common stocks which yield more than
Standard & Poor's 500 Composite Stock Price In-
dex.
Merrill Lynch Technology Fund,
Inc. ........................ Capital appreciation through worldwide invest-
ment in equity securities of companies that de-
rive or are expected to derive a substantial
portion of their sales from products and serv-
ices in technology.
</TABLE>
22
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<TABLE>
<S> <C>
Merrill Lynch Texas Municipal
Bond Fund.................... A portfolio of Merrill Lynch Multi-State Munici-
pal Series Trust, a series fund, whose objec-
tive is to provide as high a level of income
exempt from Federal income taxes as is consis-
tent with prudent investment management by in-
vesting primarily in a portfolio of long-term,
investment grade obligations issued by the
State of Texas, its political subdivisions,
agencies and instrumentalities.
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 oper-
ation 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 denomi-
nated in various currencies, including multina-
tional currencies.
Class A Share Money Market Funds:
- --------------------------------
Merrill Lynch Ready Assets
Trust........................ Preservation of capital, liquidity and the high-
est possible current income consistent with the
foregoing objectives from the short-term money
market securities in which the Trust invests.
Merrill Lynch Retirement
Reserves Money Fund
(available only if the
exchange occurs within
certain retirement plans).... Currently the only portfolio of Merrill Lynch
Retirement Series Trust, a series fund, whose
objectives are to provide current income, pres-
ervation of capital and liquidity available
from investing in a diversified portfolio of
short-term money market securities.
Merrill Lynch U.S. Treasury
Money Fund................... Preservation of capital, liquidity and current
income through investment exclusively in a di-
versified portfolio of short-term marketable
securities which are direct obligations of the
U.S. Treasury.
</TABLE>
Before effecting an exchange, shareholders of the Fund should obtain a
currently effective prospectus of the fund into which the exchange is to be
made. Exercise of the exchange privilege is treated as a sale for Federal
income tax purposes and depending on the circumstances, a short- or long-term
capital gain or loss may be realized. In addition, an exchanging shareholder of
any of the funds may be subject to backup withholding unless such shareholder
certifies under penalty of perjury that the taxpayer identification number on
file with any such fund is correct, and that he is not otherwise subject to
backup withholding. See "Taxes".
23
<PAGE>
To exercise the exchange privilege, shareholders may either contact their
listed securities dealer, who will advise the Fund 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 signatures guaranteed by an
"eligible guarantor institution" as such is defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, the existence and validity of
which may be verified by the Transfer Agent through the use of industry
publications. Shareholders of the Fund, 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
Fund 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 Fund reserves the
right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares to
the general public at any time and may thereafter resume such offering from
time to time. The exchange privilege is available only to U.S. shareholders in
states where the exchange legally may be made.
TAXES
FEDERAL
The Fund 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 Fund (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
shareholders. The Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund'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 Fund'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 Fund shares.
Any loss upon the sale or exchange of Fund shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any long-
term capital gain dividend received by the shareholder. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of
a holder's shares and, after such adjusted tax basis is reduced to zero, will
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 Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, will not be eligible for the dividends received deduction allowed to
corporations under the Code. If the Fund pays a dividend in January which was
declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend or
distribution will be treated for tax purposes as being paid by the Fund 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 Fund declines, the Trustees may authorize
a reduction in the number of outstanding shares in shareholders' accounts so as
to preserve a net asset value of $1.00 per share. After such a reduction, the
basis of eliminated shares would be added to the basis of shareholders'
remaining Fund
24
<PAGE>
shares, and any shareholders disposing of shares at that time may recognize a
capital loss. Distributions, including distributions reinvested in additional
shares of the Fund, will nonetheless be fully taxable, even if the number of
shares in shareholders' accounts has been reduced as described above.
Ordinary income dividends paid by the Fund 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 Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
If a shareholder exercises the 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 Fund
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 Fund will be
disallowed if other Fund 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 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
that 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. The Fund anticipates that it will make sufficient
timely distributions to avoid imposition of the excise tax; however, there can
be no assurance that sufficient amounts of the Fund's taxable ordinary income
and capital gains will be distributed to avoid entirely the imposition of the
tax. In such event, the Fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirements.
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.
25
<PAGE>
Ordinary income dividends and capital gain dividends may also be subject to
state and local taxes. Certain states exempt from state income taxation
dividends paid by RICs which are derived in whole or in part from interest on
U.S. Government obligations. State law varies as to whether 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 Fund.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust of the Fund permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, par
value $0.10 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 Fund. Each share represents an equal
proportionate interest in the Fund with each other share. Upon liquidation of
the Fund, shareholders are entitled to share pro rata in the net assets of the
Fund available for distribution to shareholders. Shares have no preemptive or
conversion rights. The rights of redemption and exchange are described
elsewhere herein and in the Prospectus. Shares are fully paid and non-
assessable by the Fund.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held 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 can, if they choose to do so, elect all Trustees of the
Fund. No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Fund.
The Manager provided the initial capital for the Fund by purchasing 100,000
shares of the Fund for $100,000. Such shares were acquired for investment and
can be disposed of only by redemption. The organizational expenses of the Fund
were paid by the Fund and are being amortized over a period not exceeding five
years. The proceeds received by the Manager on the redemption of any of the
shares initially purchased by it will be reduced by the proportionate amount of
unamortized organizational expenses which the number of shares redeemed bears
to the number of shares it initially purchased.
CUSTODIAN
The Bank of New York, 90 Washington Street, 12th Floor, New York, New York
10286, acts as custodian of the Fund's assets. The Custodian is responsible for
safeguarding and controlling the Fund's cash and securities, handling the
delivery of securities and collecting interest on the Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, a subsidiary of ML & Co., acts as the Fund's transfer
agent. The Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening, maintenance and servicing of shareholder
accounts.
26
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche llp, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the shareholders of the
Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on August 31 of each year. The Fund 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, will be sent to shareholders each
year.
ADDITIONAL INFORMATION
The Prospectus and the Statement of Additional Information with respect to
the shares of the Fund do not contain all the information set forth in the
Registration Statement and the exhibits relating thereto which the Fund has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act, to which reference is
hereby made.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on November 30, 1994.
All time references are New York time.
----------------
The Declaration of Trust establishing the Fund, dated November 17, 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 U.S.A. Government Reserves" 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
Fund shall be held to any personal liability, nor shall resort be had to their
property for the satisfaction of any obligation or claim of the Fund but the
"Trust Property" only shall be liable.
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch U.S.A. Government Reserves:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch U.S.A. Government Reserves as of
August 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 Fund's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at August
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
U.S.A. Government Reserves as of August 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
September 30, 1994
28
<PAGE>
Merrill Lynch U.S.A. Government Reserves
Schedule of Investments as of August 31, 1994 (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations--27.2%
US Treasury Bills* $ 25,000 4.28 % 10/20/94 $ 24,847
20,000 4.42 10/20/94 19,877
20,000 4.575 12/01/94 19,768
20,000 4.92 2/09/95 19,567
20,000 4.91 3/02/95 19,505
US Treasury Notes 20,000 3.875 2/28/95 19,881
10,000 4.125 6/30/95 9,898
10,000 4.25 7/31/95 9,889
5,000 3.875 8/31/95 4,920
Total US Government Obligations
(Cost--$148,625) 148,152
Face
Amount Issue
Repurchase Agreements**--81.4%
$27,000 BT Securities Inc., purchased
on 8/26/94 to yield 4.63% to 9/02/94 27,000
27,000 Bear Stearns & Co. Inc., purchased
on 8/31/94 to yield 4.68% to 9/07/94 27,000
27,000 CS First Boston Corp., purchased
on 8/29/94 to yield 4.65% to 9/06/94 27,000
27,000 Chemical Securities, Inc., purchased
on 8/29/94 to yield 4.67% to 9/06/94 27,000
27,000 Citicorp Securities Inc., purchased on
8/31/94 to yield 4.70% to 9/07/94 27,000
27,000 Daiwa Securities America, Inc., NY,
purchased on 8/25/94 to yield 4.60% to
9/01/94 27,000
27,000 Dean Witter Reynolds, Inc., purchased on
8/26/94 to yield 4.63% to 9/02/94 27,000
Face Value
Amount Issue (Note 1a)
Repurchase Agreements** (concluded)
$10,996 First Chicago Capital Markets Inc.,
purchased on 8/31/94 to yield 4.80% to
9/01/94 $ 10,996
27,000 Fuji Securities, Inc., purchased
on 8/25/94 to yield 4.625% to 9/01/94 27,000
27,000 Goldman Sachs & Co., purchased
on 8/30/94 to yield 4.65% to 9/06/94 27,000
27,000 Morgan (J.P.) Securities, Inc., purchased
on 8/30/94 to yield 4.65% to 9/06/94 27,000
27,000 Nomura Securities International, Inc.,
purchased on 8/31/94 to yield 4.67% to
9/07/94 27,000
27,000 PaineWebber Inc., purchased on 8/31/94
to yield 4.68% to 9/07/94 27,000
27,000 Prudential Securities, Inc.,
purchased on 8/30/94 to yield 4.65%
to 9/06/94 27,000
27,000 SBC Government Securities Inc., purchased
on 8/26/94 to yield 4.625% to 9/02/94 27,000
27,000 Sanwa Securities USA Co., L.P., purchased
on 8/25/94 to yield 4.60% to 9/01/94 27,000
27,000 Smith Barney, Inc., purchased
on 8/29/94 to yield 4.68% to 9/06/94 27,000
Total Repurchase Agreements
(Cost--$442,996) 442,996
Total Investments (Cost--$591,621)--108.6% 591,148
Liabilities in Excess of Other Assets--(8.6%) (46,974)
--------
Net Assets--100.0% $544,174
========
[FN]
*US Treasury Bills are traded on a discount basis; the interest
rates shown are the discount rates paid at the time of purchase by
the Fund.
**Repurchase Agreements are fully collateralized by US Government &
Agency Obligations.
See Notes to Financial Statements.
29
<PAGE>
<TABLE>
Merrill Lynch U.S.A. Government Reserves
Statement of Assets and Liabilities as of August 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$591,621,454*) (Note 1a) $ 591,147,615
Cash 3,996
Receivables:
Interest $ 251,043
Beneficial interest sold 15,715 266,758
-------------
Prepaid registration fees and other assets (Note 1d) 67,934
--------------
Total assets 591,486,303
--------------
Liabilities:
Payables:
Securities purchased 39,271,747
Beneficial interest redeemed 7,506,369
Investment adviser (Note 2) 229,822
Distributor (Note 2) 134,019 47,141,957
-------------
Accrued expenses and other liabilities 170,045
--------------
Total liabilities 47,312,002
--------------
Net assets $ 544,174,301
==============
Net Assets Consist of:
Shares of beneficial interest, $0.10 par value, unlimited number of shares authorized $ 54,464,814
Paid-in capital in excess of par 490,183,326
Unrealized depreciation on investments--net* (473,839)
--------------
Net Assets--Equivalent to $1.00 per share, based on 544,648,140 shares of beneficial
interest outstanding $ 544,174,301
==============
<FN>
*Cost for Federal income tax purposes. As of August 31, 1994, net unrealized
depreciation for Federal income tax purposes amounted to $473,839, of which
$11,417 related to appreciated securities and $485,256 related to depreciated
securities.
</TABLE>
<TABLE>
Merrill Lynch U.S.A. Government Reserves
Statement of Operations for the Year Ended August 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 20,730,366
Expenses:
Investment advisory fees (Note 2) $ 2,581,756
Transfer agent fees (Note 2) 882,238
Distribution fees (Note 2) 681,261
Registration fees (Note 1d) 210,056
Professional fees 73,651
Accounting services (Note 2) 70,723
Printing and shareholder reports 67,053
Trustees' fees and expenses 43,900
Custodian fees 40,651
Other 10,225
-------------
Total expenses 4,661,514
--------------
Investment income--net 16,068,852
Realized Gain on Investments--Net (Note 1c) 99,437
Change in Unrealized Appreciation/Depreciation on Investments--Net (542,027)
--------------
Net Increase in Net Assets Resulting from Operations $ 15,626,262
==============
See Notes to Financial Statements.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch U.S.A. Government Reserves For the Year Ended August 31,
Statements of Changes in Net Assets 1994 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 16,068,852 $ 15,010,689
Realized gain on investments--net 99,437 808,358
Change in unrealized appreciation/depreciation on investments--net (542,027) (388,973)
-------------- --------------
Net increase in net assets resulting from operations 15,626,262 15,430,074
-------------- --------------
Dividends & Distributions to Shareholders (Note 1f):
Investment income--net (16,068,852) (15,010,689)
Realized gain on investments--net (99,437) (808,358)
-------------- --------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (16,168,289) (15,819,047)
-------------- --------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 1,560,756,479 1,541,281,030
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1f) 16,149,544 15,804,764
-------------- --------------
1,576,906,023 1,557,085,794
Cost of shares redeemed (1,607,233,265) (1,565,720,173)
-------------- --------------
Net decrease in net assets derived from beneficial
interest transactions (30,327,242) (8,634,379)
-------------- --------------
Net Assets:
Total decrease in net assets (30,869,269) (9,023,352)
Beginning of year 575,043,570 584,066,922
-------------- --------------
End of year $ 544,174,301 $ 575,043,570
============== ==============
</TABLE>
<TABLE>
Merrill Lynch U.S.A. Government Reserves
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment income--net .0280 .0248 .0365 .0602 .0755
Realized and unrealized gain (loss) on
investments--net (.0007) .0007 .0046 .0013 .0004
-------- -------- -------- -------- --------
Total from investment operations .0273 .0255 .0411 .0615 .0759
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.0280) (.0248) (.0365) (.0602) (.0755)
Realized gain on investments--net (.0002) (.0013) (.0038) (.0013)* (.0004)*
-------- -------- -------- -------- --------
Total dividends and distributions (.0282) (.0261) (.0403) (.0615) (.0759)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Investment Return 2.84% 2.64% 4.15% 6.37% 7.89%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, excluding distribution fees .69% .63% .63% .61% .67%
======== ======== ======== ======== ========
Expenses .81% .75% .75% .73% .81%
======== ======== ======== ======== ========
Investment income and realized gain on
investments--net 2.82% 2.61% 4.10% 6.07%* 7.57%*
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $544,174 $575,044 $584,067 $658,207 $438,829
======== ======== ======== ======== ========
<FN>
*Includes unrealized gain (loss).
See Notes to Financial Statements.
</TABLE>
31
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch U.S.A. Government Reserves (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
investment management company. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Investments maturing more than sixty
days after the valuation date are valued at the most recent bid
price or yield equivalent as obtained from dealers that make markets
in such securities. When securities are valued with sixty days or
less to maturity, the difference between the valuation existing on
the sixty-first day before maturity and maturity value is amortized
on a straight-line basis to maturity. Investments maturing within
sixty days from their date of acquisition are valued at amortized
cost, which approximates market. 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
trustees of the Fund.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
premium or 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) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank of
the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price.
The Fund takes possession of the underlying securities, marks to
market such securities and, if necessary, receives additional
securities daily to ensure that the contract is fully
collateralized.
(f) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
and backup withholding tax withheld) in additional fund shares 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 Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). Effective January 1,
1994, the investment advisory business of MLAM was reorganized from
a corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of MLAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of MLAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Merrill
Lynch Investment Management, Inc. ("MLIM"), which is also an
indirect wholly-owned subsidiary of ML & Co. For such services, the
Fund pays a monthly fee equal to an annual rate of 0.45% of the
average daily net assets of the Fund.
The Investment Advisory Agreement obligates MLAM to reimburse the
Fund to the extent the Fund's expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and extraordinary
items) exceed 2.5% of the
32
<PAGE>
Fund's first $30 million of average daily net assets, 2.0% of the
next $70 million of average daily net assets, and 1.5% of the
average daily net assets in excess thereof. No fee payment will
be made to the Investment Adviser during the year which will
cause such expenses to exceed the expense limitation at the time
of such payment.
The Fund has a Distribution and Shareholder Servicing Plan in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
pursuant to which Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S") receives a distribution fee under the Distribution
Agreement from the Fund at the end of each month at the annual rate
of 0.125% of average daily net assets of the accounts of Fund
shareholders who maintain their accounts through MLPF&S. The
distribution fee is to compensate MLPF&S financial consultants and
other directly involved branch office personnel for selling shares
of the Fund and providing direct personal services to shareholders.
The distribution fee is not compensation for the administrative and
operational services rendered to the Fund by MLPF&S in processing
share orders and administering sharebuilder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or trustees of the Fund are also officers
and/or directors of MLIM, FDS, PSI, MLAM, MLPF&S, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares sold and redeemed during the periods
corresponds to the amounts included in the Statements of Changes in
Net Assets with respect to net proceeds from sale of shares and cost
of shares redeemed, respectively, since shares are recorded at $1.00
per share.
33
<PAGE>
[INTENTIONALLY LEFT BLANK]
34
<PAGE>
[INTENTIONALLY LEFT BLANK]
35
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies......................................... 2
Management of the Fund..................................................... 3
Trustees and Officers..................................................... 3
Management and Advisory Arrangements...................................... 4
Purchase of Shares......................................................... 6
Distribution Plan......................................................... 7
Redemption of Shares....................................................... 7
Purchase and Redemption of Shares through Merrill Lynch Retirement Plans... 8
Purchase by Retirement Plans............................................. 8
Redemptions by Retirement Plans.......................................... 9
Confirmations............................................................ 9
Portfolio Transactions..................................................... 9
Determination of Net Asset Value........................................... 10
Yield Information.......................................................... 11
Shareholder Services....................................................... 12
Investment Account........................................................ 12
Automatic Investment Plan................................................. 12
Accrued Monthly Payout Plan............................................... 12
Systematic Withdrawal Plans............................................... 13
Retirement Plans.......................................................... 13
Exchange Privilege........................................................ 14
Taxes...................................................................... 24
Federal................................................................... 24
General Information........................................................ 26
Description of Shares..................................................... 26
Custodian................................................................. 26
Transfer Agent............................................................ 26
Independent Auditors...................................................... 27
Legal Counsel............................................................. 27
Reports to Shareholders................................................... 27
Additional Information.................................................... 27
Independent Auditors' Report............................................... 28
Financial Statements....................................................... 29
</TABLE>
Code #10281-1294
[LOGO]
Merrill Lynch U.S.A. Government Reserves
[ART]
Merrill Lynch U.S.A. Government
Reserves is organized as a
Massachusetts business trust. It
is not a bank nor does it offer
fiduciary or trust services.
Shares of the Fund are not
equivalent to a bank account. As
with any investment in
securities, the value of a
shareholder's investment in the
Fund will fluctuate. The shares
of the Fund are not insured by
any Government agency and are not
subject to the protection of the
Securities Investor Protection
Corporation. A shareholder's
investment in the Fund is not
insured by any government agency.
STATEMENT OF ADDITIONAL
INFORMATION
December 28, 1994
Distributor: Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the years in the ten year period
ended August 31, 1994.
Contained in Part B:
Schedule of Investments as of August 31, 1994.
Statement of Assets and Liabilities as of August 31, 1994.
Statement of Operations for the fiscal year ended August 31, 1994.
Statements of Changes in Net Assets for the fiscal years ended
August 31, 1994 and 1993.
Financial Highlights for each of the years in the five year period
ended August 31, 1994.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 --Declaration of Trust of Registrant, dated November 17, 1987. (a)
2 --By-Laws of Registrant. (b)
3 --None.
4 --None.
5(a) --Management Agreement between Registrant and Merrill Lynch Asset
Management. (c)
(b) --Supplement to Investment Advisory Agreement with Merrill Lynch Asset
Management.
6 --Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (d)
7 --None.
8 --Custody Agreement between Registrant and The Bank of New York. (d)
9 --Transfer Agency Agreement between Registrant and Merrill Lynch
Financial Data Service, Inc. (now known as Financial Data Services,
Inc.). (e)
10 --Opinion of Brown & Wood, counsel for Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for
Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management. (d)
14(a) --Prototype Individual Retirement Account Plan, Simplified Employee
Pension Plan and Corporate Individual Retirement Plan available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated. (f)
(b) --Prototype Merrill Lynch Basic Tax-Deferred Retirement Plan available
from Merrill Lynch, Pierce, Fenner & Smith Incorporated. (g)
15 --Merrill Lynch Shareholder Servicing Plan and Agreement pursuant to
Rule 12b-1 between Registrant and Merrill Lynch, Pierce, Fenner &
Smith Incorporated. (c)
16 --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22. (a)
17 --Financial Data Schedule.
</TABLE>
- --------
(a) Filed on October 31, 1988 as an exhibit to Registrant's Registration
Statement under the Securities Act of 1933 on Form N-1A.
(b) Filed on July 30, 1982 as an exhibit to Registrant's Registration Statement
under the Securities Act of 1933 on Form N-1 as part of the initial filing.
(c) Filed on October 31, 1984 as an exhibit to Post-Effective Amendment No. 3
to Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1A.
(d) Filed on November 12, 1982 as an exhibit to Pre-Effective Amendment No. 3
to Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1.
C-1
<PAGE>
(e) Filed on December 30, 1986 as an exhibit to Post-Effective Amendment No. 5
to Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1A.
(f) Incorporated by reference to Exhibit 14 to Pre-Effective Amendment No. 1 to
the Registration Statement under the Securities Act of 1933 on Form N-1
(File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed on
January 26, 1982.
(g) Incorporated by reference to Exhibit 14 to Post-Effective Amendment No. 3
to the Registration Statement under the Securities Act of 1933 on Form N-1A
(File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed on
December 29, 1983.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by, or under common control with, any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS NOVEMBER 30, 1994
-------------- -----------------
<S> <C>
Shares of beneficial in-
terest, par value $0.10
per share.............. 50,375
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of the Registrant's Declaration of Trust and
Section 9 of the Distribution Agreement.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees, and
agents (including persons who serve at its request as directors, officers
or trustees of another organization in which it has any interest as a
shareholder, creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as
fines and penalties, and as counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a trustee, officer, employee or agent, except
with respect to any matters as to which he shall have been adjudicated to
have acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties; provided, however, that as to any matter disposed
of by a compromise payment by such person, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustee to the
effect that if either the matter of willful misfeasance, gross negligence
or reckless disregard of duty, or the matter of good faith and reasonable
belief as to the best interests of the Trust, had been adjudicated, it
would have been adjudicated in favor of such person. The rights accruing to
any person under these provisions shall not exclude any other right to
which he may be lawfully entitled; provided that no person may satisfy any
right of indemnity or reimbursement granted herein or in Section 5.1 or to
which he may be otherwise entitled except out of the property of the Trust,
and no Shareholder shall be personally liable to any person with respect to
any claim for indemnity or reimbursement or otherwise. The Trustees may
make advance payments in connection with indemnification under this Section
5.3, provided that the indemnified person shall have given a written
undertaking to reimburse the Trust in the event it is subsequently
determined that he is not entitled to such indemnification."
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act may be concerned, such payments will be
made only on the following conditions: (i) the advances must be limited to
amounts used, or to be used, for the preparation or presentation of a defense
to the action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance which
C-2
<PAGE>
exceeds the amount which it is ultimately determined that he is entitled to
receive from the Registrant by reason of indemnification; and (iii) (a) such
promise must be secured by a surety bond, other suitable insurance or an
equivalent form of security which assures that any repayments may be obtained
by the Registrant without delay or litigation, which bond, insurance or other
form of security must be provided by the recipient of the advance, or (b) a
majority of a quorum of the Registrant's disinterested, non-party Trustees, or
an independent legal counsel in a written opinion, shall determine, based upon
a review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, against certain types of civil liabilities arising in
connection with the Registration Statement or Prospectus and Statement of
Additional Information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Trustee, officer,
or controlling person of the Registrant and the principal underwriter in
connection with the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P. (the "Manager") acts as investment
adviser for the following registered investment companies: Convertible
Holdings, Inc., Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Asset Growth Fund, Inc.,
Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Balanced Fund for
Investment and Retirement, Merrill Lynch Capital Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund
for Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch Global
Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch
Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Growth Fund for Investment and
Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Institutional Intermediate Fund,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury
Money Fund, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable
Series Funds, Inc. Fund Asset Management, L.P. ("FAM"), an affiliate of the
Manager, acts as the investment adviser for the following registered investment
companies: Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities
Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt
Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Emerging
Tigers Fund, Inc., Financial Institutions Series Trust, Income Opportunities
Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust,
Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited
Maturity Municipal Series
C-3
<PAGE>
Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., MuniAssets
Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida
Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield
Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan
Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York
Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II,
Inc., Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc.,
Taurus MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund, Inc. The
address of each of these investment companies is P.O. Box 9011, Princeton, New
Jersey 08543-9011. The address of Merrill Lynch Institutional Intermediate Fund
and Merrill Lynch Funds for Institutions Series is One Financial Center, 15th
Floor, Boston, Massachusetts 02111-2646. The address of the Manager, FAM,
Princeton Services, Inc. ("Princeton Services"), Merrill Lynch Funds
Distributor, Inc. ("MLFD") and Princeton Administrators, L.P. is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc.
("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. The address of Financial Data Services, Inc. ("FDS") is
4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since September
1, 1992 for his or its own account or in the capacity of director, officer,
partner or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is
Executive Vice President and Mr. Richard is Treasurer of substantially all of
the investment companies described in the preceding paragraph and Messrs.
Durnin, Giordano, Harvey, Hewitt, Kirstein, Monagle and Ms. Griffin are
officers or directors/trustees of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION WITH MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------- ----------------------------------
<S> <C> <C>
ML & Co................. Limited Partner Financial Services Holding Company
Merrill Lynch Investment
Management, Inc. ...... Limited Partner Investment Advisory Services
Princeton Services...... General Partner General Partner of FAM
Arthur Zeikel........... President President of FAM; President and Director of
Princeton Services; Director of MLFD;
Executive Vice President of ML & Co.;
Executive Vice President of Merrill Lynch
Terry K. Glenn.......... Executive Vice Executive Vice President of FAM; Executive
President Vice President and Director of Princeton
Services; President of MLFD; Director of
FDS; President of Princeton
Administrators, L.P.
Bernard J. Durnin....... Senior Vice Senior Vice President of FAM; Senior Vice
President President of Princeton Services
Vincent R. Giordano..... Senior Vice Senior Vice President of FAM; Senior Vice
President President of Princeton Services
Elizabeth Griffin....... Senior Vice Senior Vice President of FAM
President
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION WITH MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------- ----------------------------------
<S> <C> <C>
Norman R. Harvey........ Senior Vice Senior Vice President of FAM; Senior Vice
President President of Princeton Services
N. John Hewitt.......... Senior Vice Senior Vice President of FAM; Senior Vice
President President of Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President, General Counsel and
President, General Secretary of FAM; Senior Vice President,
Counsel and General Counsel, Director and Secretary of
Secretary Princeton Services; Director of MLFD
Ronald M. Kloss......... Senior Vice Senior Vice President and Controller of
President and FAM; Senior Vice President and Controller
Controller of Princeton Services
Stephen M.M. Miller..... Senior Vice Executive Vice President of Princeton
President Administrators, L.P.
Joseph T. Monagle, Jr. . Senior Vice Senior Vice President of FAM; Senior Vice
President President of Princeton Services
Gerald M. Richard....... Senior Vice Senior Vice President and Treasurer of FAM;
President and Vice President and Treasurer of MLFD;
Treasurer Senior Vice President and Treasurer of
Princeton Services
Richard L. Rufener...... Senior Vice Senior Vice President of FAM; Vice
President President of MLFD; Senior Vice President
of Princeton Services
Ronald L. Welburn....... Senior Vice Senior Vice President of FAM; Senior Vice
President President of Princeton Services
Anthony Wiseman......... Senior Vice Senior Vice President of FAM; Senior Vice
President President of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant. MLFD acts as
the principal underwriter for each of the investment companies referred to in
the first paragraph of Item 28 except Apex Municipal Fund, Inc., CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings,
Inc., The Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., MuniAssets
Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Fund,
MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield
Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield New York Insured Fund III,
Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield
Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income
Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus MuniCalifornia
Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and Worldwide DollarVest
Fund, Inc.
C-5
<PAGE>
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Brady, Breen, Crook, Fatseas, Graczyk and Wasel is One Financial Center, 15th
Floor, Boston, Massachusetts 02111-2633.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
---- --------------------- ---------------------
<S> <C> <C>
Terry K. Glenn............ President and Director Executive Vice President
Arthur Zeikel............. Director President and Trustee
Philip L. Kirstein........ Director None
William E. Aldrich........ Senior Vice President None
Robert W. Crook........... Senior Vice President None
Kevin P. Boman............ Vice President None
Michael J. Brady.......... Vice President None
William M. Breen.......... Vice President None
Sharon Creveling.......... Vice President and
Assistant Treasurer None
Mark A. DeSario........... Vice President None
James T. Fatseas.......... Vice President None
Stanley Graczyk........... Vice President None
Michelle T. Lau........... Vice President None
Debra W. Landsman-Yaros... Vice President None
Vice President and
Gerald M. Richard......... Treasurer Treasurer
Richard L. Rufener........ Vice President None
Salvatore Venezia......... Vice President None
William Wasel............. Vice President None
Robert Harris............. Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder will be maintained at the offices of the Registrant, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536 and its transfer agent, Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Fund--Management
and Advisory Arrangements" in the Prospectus constituting Part A of the
Registration Statement and under the caption "Management of the Fund--
Management and Advisory Arrangements" in the Statement of Additional
Information constituting Part B of the Registration Statement, Registrant is
not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
Not applicable.
C-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS AMENDMENT TO ITS REGISTRATION STATEMENT
PURSUANT TO RULE 485(B) OF THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS
AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND
STATE OF NEW JERSEY, ON THE 23RD DAY OF DECEMBER, 1994.
Merrill Lynch U.S.A. Government
Reserves (Registrant)
/s/ Arthur Zeikel
By___________________________________
(ARTHUR ZEIKEL, PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
ITS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Arthur Zeikel President and
- ------------------------------------- Trustee (Principal December 23,
(ARTHUR ZEIKEL) Executive Officer) 1994
/s/ Gerald M. Richard Treasurer
- ------------------------------------- (Principal December 23,
(GERALD M. RICHARD) Financial and 1994
Accounting
Officer)
Donald Cecil* Trustee
- -------------------------------------
(DONALD CECIL)
M. Colyer Crum* Trustee
- -------------------------------------
(M. COLYER CRUM)
Edward H. Meyer* Trustee
- -------------------------------------
(EDWARD H. MEYER)
Jack B. Sunderland* Trustee
- -------------------------------------
(JACK B. SUNDERLAND)
J. Thomas Touchton* Trustee
- -------------------------------------
(J. THOMAS TOUCHTON)
/s/ Arthur Zeikel
*By_________________________________ December 23,
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT) 1994
C-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S> <C>
5(b) --Supplement to Investment Advisory Agreement with Merrill Lynch
Asset Management.
10 --Opinion of Brown & Wood, counsel for Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for
Registrant.
17 --Financial Data Schedule.
</TABLE>
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents fair
and accurate narrative descriptions of graphic and image material omitted from
this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-START> SEP-01-1993
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 591621454
<INVESTMENTS-AT-VALUE> 591147615
<RECEIVABLES> 266758
<ASSETS-OTHER> 71930
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 591486303
<PAYABLE-FOR-SECURITIES> 39271747
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8040255
<TOTAL-LIABILITIES> 47312002
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 544648140
<SHARES-COMMON-STOCK> 544648140
<SHARES-COMMON-PRIOR> 574975382
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (473839)
<NET-ASSETS> 544174301
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20730366
<OTHER-INCOME> 0
<EXPENSES-NET> 4661514
<NET-INVESTMENT-INCOME> 16068852
<REALIZED-GAINS-CURRENT> 99437
<APPREC-INCREASE-CURRENT> (542027)
<NET-CHANGE-FROM-OPS> 15626262
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16068852
<DISTRIBUTIONS-OF-GAINS> 99437
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1560756479
<NUMBER-OF-SHARES-REDEEMED> 1607233265
<SHARES-REINVESTED> 16149544
<NET-CHANGE-IN-ASSETS> (30869269)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2581756
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4661514
<AVERAGE-NET-ASSETS> 573723577
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.5(b)
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
MERRILL LYNCH ASSET MANAGEMENT
As of January 1, 1994 Merrill Lynch Investment Management, Inc. d/b/a Merrill
Lynch Asset Management was reorganized as a limited partnership, formally known
as Merrill Lynch Asset Management, L.P. and continuing to do business under the
name Merrill Lynch Asset Management ("MLAM"). The general partner of MLAM is
Princeton Services, Inc. and the limited partners are Merrill Lynch Investment
Management, Inc. and Merrill Lynch & Co., Inc. Pursuant to Rule 202(a)(1)-1
under the Investment Advisers Act of 1940 and Rule 2a-6 under the Investment
Company Act of 1940 such reorganization did not constitute an assignment of this
investment advisory agreement since it did not involve a change of control or
management of the investment adviser. Pursuant to the requirements of Section
205 of the Investment Advisers Act of 1940, however, Merrill Lynch Asset
Management hereby supplements this investment advisory agreement by undertaking
to advise you of any change in the membership of the partnership within a
reasonable time after any such change occurs.
By /s/ Arthur Zeikel
----------------------
Dated: January 3, 1994
<PAGE>
EXHIBIT 99.10
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: (212) 839-5300
FACSIMILE: (212) 839-5599
December 27, 1994
Merrill Lynch U.S.A. Government Reserves
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Dear Sirs:
This opinion is furnished in connection with the registration by
Merrill Lynch U.S.A. Government Reserves, a Massachusetts business trust (the
"Trust") of 1,607,523,265 shares of beneficial interest, par value $0.10 per
share (the "Shares"), under the Securities Act of 1933 pursuant to a
registration statement on Form N-1A (File No. 2-78702), as amended (the
"Registration Statement").
As counsel for the Trust, we are familiar with the proceedings taken
by it in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Declaration of Trust of the
Trust, the By-Laws of the Trust and such other documents as we have deemed
relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable (except as otherwise provided in the Registration
Statement) shares of beneficial interest of the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the prospectus and
statement of additional information constituting parts thereof.
Very truly yours
/s/ BROWN & WOOD
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch U.S.A. Government Reserves:
We consent to the use in Post-Effective Amendment No. 13 to Registration
Statement No. 2-78702 of our report dated September 30, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
December 22, 1994
