<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1995
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. 14 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 17 [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 PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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:
<TABLE>
<S> <C> <C>
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. 08543-9011 ATTENTION: THOMAS R. SMITH, JR. PRINCETON, N.J. 08543-9011
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] 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 20, 1995.
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)....... 1,500,356,112 $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 1,500,066,112 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
<TABLE>
<CAPTION>
N-1A ITEM NO.
-------------
PART A LOCATION
------ --------
<C> <S> <C>
Item 1. Cover Page................. Cover Page
Item 2. Synopsis................... Fee Table
Item 3. Condensed Financial Financial Highlights; Yield Informa-
Information............... tion
Item 4. General Description of Investment Objectives and Policies;
Registrant................ 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 Cover Page; Fee Table; Purchase of
Being Offered............. Shares; Redemption of Shares;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase... Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings.. Not Applicable
<CAPTION>
PART B
------
<C> <S> <C>
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 Management of the Fund; Purchase of
Other Services............ 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 Purchase of Shares; Redemption of
Being Offered............. Shares; Purchase and Redemption of
Shares Through Merrill Lynch Retire-
ment Plans; Determination of Net As-
set 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
<CAPTION>
PART C
------
</TABLE>
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 22, 1995
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 of 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 certain other retirement
plans is $100 and the minimum subsequent purchase with respect to these plans
is $1, except that the minimum purchase requirements are waived for purchases
of Fund shares by certain employer sponsored retirement or savings plans. 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 9081, Princeton, New Jersey 08543-9081, 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 22, 1995 (the "Statement of
Additional Information"), has been filed with the Securities and Exchange
Commission and can be obtained, without charge, by calling or by writing the
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, 1995):
--------------------------------------
<S> <C>
Investment Advisory Fees (a)........................................... .45%
Rule 12b-1 Fees (b).................................................... .12
Shareholder Servicing Fees (c)......................................... .21
Other Expenses......................................................... .07
---
Total Fund Operating Expenses.......................................... .85%
===
</TABLE>
- --------
(a) See "Management of the Fund--Management and Advisory Arrangements"--page 7.
(b) See "Purchase of Shares--Distribution Plan"--page 9.
(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 0.85% and a 5% annual re-
turn throughout the periods. $9 $27 $47 $105
</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, 1995 and the independent auditors' report thereon are included in
the Statement of Additional Information. The following per share data and
ratios have been derived from information provided in the Fund's audited
financial statements. Further information about the performance of the Fund is
contained in the Fund's most recent annual report to shareholders which may be
obtained, without charge, by calling or writing the Fund at the telephone
number or address on the front cover of this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
-------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <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 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment income--net.. .0472 .0280 .0248 .0365 .0602 .0755 .0813 .0607 .0521 .0636
Realized and unrealized
gain (loss) on
investments--net........ .0017 (.0007) .0007 .0046 .0013 .0004 -- -- .0003 .0040
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............... .0489 .0273 .0255 .0411 .0615 .0759 .0813 .0607 .0524 .0676
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and dis-
tributions:
Investment income--net.. (.0472) (.0280) (.0248) (.0365) (.0602) (.0755) (.0813) (.0607) (.0521) (.0636)
Realized gain on invest-
ments--net.............. (.0007) (.0002) (.0013) (.0038) (.0013)* (.0004)* -- -- (.0003)* (.0040)*
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions............ (.0479) (.0282) (.0261) (.0403) (.0615) (.0759) (.0813) (.0607) (.0524) (.0676)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:. 4.89% 2.85% 2.64% 4.15% 6.37% 8.02% 8.43% 6.22% 5.33% 7.00%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding dis-
tribution fees........... .73% .69% .63% .63% .61% .67% .74% .69% .67% .67%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Expenses................. .85% .81% .75% .75% .73% .81% .84% .80% .77% .78%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Investment income and re-
alized gain on invest-
ments--net............... 4.79% 2.82% 2.61% 4.10% 6.07%* 7.57%* 8.15%* 6.07%* 5.24%* 6.76%*
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands)........... $558,929 $544,174 $575,044 $584,067 $658,207 $438,829 $302,519 $260,959 $227,840 $242,196
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</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, 1995 OCTOBER 31, 1995
--------------- ----------------
<S> <C> <C>
Including gains and losses................. 4.84% 4.72%
Excluding gains and losses................. 4.80% 4.70%
Compounded annualized yield................ 4.92% 4.81%
Average maturity of portfolio at end of pe-
riod...................................... 70 days 71 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.
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
4
<PAGE>
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 U.S. 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 U.S. 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
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.
5
<PAGE>
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 most of 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, 1995, the average maturity of its portfolio ranged from 32 days to
83 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.
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 of the Manager and its affiliate, Fund Asset
Management, L.P. ("FAM"); President and Director of Princeton Services, Inc.
("Princeton Services"); Executive Vice President of Merrill Lynch & Co., Inc.
("ML & Co."); and Director of the Distributor.
6
<PAGE>
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 130 registered investment companies. The
Manager also provides investment advisory services to individual and
institutional accounts. As of November 30, 1995, the Manager and FAM had a
total of $194.2 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 of 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 daily net
assets of the Fund. For the fiscal year ended August 31, 1995, the total
management fee paid by the Fund to the Manager aggregated $2,408,559 (based on
average net assets of approximately $535.2 million). At November 30, 1995, the
net assets of the Fund aggregated approximately $574.2 million. At this asset
level, the annual management fee would aggregate approximately $2,584,106.
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,
1995, the ratio of total expenses, excluding distribution fees, to average net
assets was .73%.
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 1989.
7
<PAGE>
TRANSFER AGENCY SERVICES
Merrill Lynch 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, 1995, the total fee paid by the Fund to the Transfer Agent
pursuant to the Transfer Agency Agreement was $1,103,025.
PURCHASE OF SHARES
The Fund is offering its shares without a 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 profit-sharing plans is $100 and the minimum subsequent investment
is $1. The minimum initial or subsequent purchase requirements may be waived
for certain employer sponsored retirement or savings plans, such as tax
qualified retirement plans within the meaning of Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), deferred compensation plans
within the meaning of Section 403(b) and Section 457 of the Code, other
deferred compensation arrangements, Voluntary Employee Benefits Association
plans, and non-qualified After Tax Savings and Investment programs, maintained
on the Merrill Lynch Group Employee Services system. 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
8
<PAGE>
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 Merrill Lynch Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Purchase
orders which are sent by hand should be delivered to Merrill Lynch Financial
Data Services, Inc., 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
U.S. funds and must be drawn in U.S. dollars on a U.S. bank. Payments for the
accounts of corporations, foundations and other organizations may not be made
by third party checks.
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, 1995,
$617,903 was paid to Merrill Lynch pursuant to the Plan based on average net
assets subject to the Plan of approximately $535.2 million. At November 30,
1995, the net assets of the Fund subject to the Plan aggregated approximately
$574.2 million. At this asset level, the annual fee payable to Merrill Lynch
pursuant to the Plan would aggregate approximately $717,807.
9
<PAGE>
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 Blueprint 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 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 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.
10
<PAGE>
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 or her Purchase Application the domestic commercial bank
and account number to receive the proceeds of his or her redemption and must
have his or her 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 or
her shares. For shareholders repurchasing through their securities dealer,
payment will be made by the Transfer Agent to the dealer.
Regular Redemption. Shareholders may redeem shares by submitting a written
notice by mail directly to the Transfer Agent, Merrill Lynch Financial Data
Services, Inc., P.O. Box 45290, Jacksonville, Florida 32232-5290. Redemption
requests which are sent by hand should be delivered to Merrill Lynch Financial
Data Services, Inc., 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
11
<PAGE>
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 Blueprint.
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 or
her account for the month. A shareholder may make additions to his or her
Investment Account at any time by purchasing shares at the public offering
price either through his or her securities dealer, by wire or by mail directly
to the Transfer Agent, acting as agent for his or her dealer. A shareholder may
ascertain the number of shares in his or her Investment Account by telephoning
the Transfer Agent at (800) 221-7210 toll-free. The Transfer Agent will furnish
this information only after the shareholder has specified the name, address,
account number and social security number of the registered owner or owners.
Shareholders also may maintain their accounts through Merrill Lynch. Upon the
transfer of shares out of a Merrill Lynch brokerage account, an Investment
Account in the transferring shareholder's name may be opened at the Transfer
Agent. Shareholders considering transferring a tax-deferred retirement account
such as an 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 or her 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
12
<PAGE>
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 Plan. A shareholder may elect to receive systematic
withdrawal payments from his or her Investment Account on either a monthly or
quarterly basis.
Automatic Investment Plan. Regular additions may be made to an investor's
Investment Account by prearranged charges to his or her regular bank account at
a minimum of $50 per month.
PORTFOLIO TRANSACTIONS
The U.S. 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, 1995, the Fund engaged in no transactions pursuant to such
order.
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.
13
<PAGE>
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 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 or from an excess of net
short-term capital gains over net long-term capital losses (together referred
to hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses (including gains or losses from
certain transactions in futures and options) ("capital gain dividends") are
taxable to shareholders as long-term capital gains, regardless of the length
of time the shareholder has owned Fund shares. Any loss upon the sale or
exchange of Fund shares held for six months or less, however, will be treated
as long-term capital loss to the extent of any capital gain dividends received
by the shareholder. Distributions in excess of the 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 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
14
<PAGE>
such a reduction, the basis of eliminated shares would be added to the basis of
shareholders' remaining Fund 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 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.
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 a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether 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
15
<PAGE>
a no-load, diversified, open-end investment company. The Declaration of Trust
permits the Trustees to issue an unlimited number of full and fractional shares
of beneficial interest of a single class. Upon liquidation of the 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 of Trust 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 of Trust 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:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Merrill Lynch Financial
Data Services, Inc. at 800-221-7210.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the 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" (as defined in the Declaration) only shall be liable.
16
<PAGE>
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES PURCHASE APPLICATION
- -------------------------------------------------------------------------------
INSTRUCTIONS Send this completed form to: MERRILL LYNCH FINANCIAL DATA
SERVICES, INC., P.O. Box
45289, Jacksonville, Florida 32232-5289.
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 Merrill Lynch Financial Data Services,
Inc. (the "Transfer Agent") to honor checks or automatic clearing
house ("ACH") debits drawn by me on my Merrill Lynch U.S.A. Government
Reserves (the "Fund") account subject to acceptance by the Fund, with
payment 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.
Check box
(if desired)
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 Merrill Lynch Financial
Data Services, Inc. (the "Transfer Agent") to act on telephonic,
telegraphic or other instructions (without signature guarantee) from
any person representing himself to be either the investor or any
authorized representative of the investor, directing redemption of
shares in an amount of $5,000 or more of Merrill Lynch 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.
Check box
(if desired)
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 Merrill
Lynch 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 NOT A MEMBER OF THE
FEDERAL RESERVE:
IF YOUR BANK IS A MEMBER OF
THE FEDERAL RESERVE: ________________________________________
____________________________________ Correspondent Bank Name Routing
Code
Your Bank Name Bank Routing Code
____________________________________ ________________________________________
Your Bank Name Bank Routing Code
Your Account Name Account Number
____________________________________ ________________________________________
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 Merrill Lynch 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 [_] the registered owner as indicated
and December 24. in Item 1 hereinabove.
[_] to redeem a sufficient number [_] (other): _________________________
of shares in my account to Such check or ACH debit shall be
generate redemption proceeds of mailed to (check only one)
$____ or
[_] to redeem ____% of the shares in [_] the address indicated in Item 1
my account on such date hereinabove.
and pay the redemption proceeds [_] the following name and address:
by check or ACH debit
______________________________________
- -------------------------------------------------------------------------------
6. ACCRUED MONTHLY PAYOUT PLAN (SEE TERMS AND CONDITIONS IN THE STATEMENT OF
ADDITIONAL INFORMATION)
Check box
The undersigned hereby authorizes and directs Merrill Lynch Financial
Data Services, Inc. to redeem on the last Friday of each month all
shares purchased during such month through reinvestment of dividends
and distributions and send the proceeds to me.
(if desired)[_]
- -------------------------------------------------------------------------------
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 Merrill Lynch 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 By:
No. 3 or No. 5): ________________________________________
(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 Merrill Lynch 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 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
The Bank of New York
90 Washington Street, 12th Floor
New York, New York 10286
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
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
REPRESENTATIONS, 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......................................... 4
Management of the Fund..................................................... 6
Trustees.................................................................. 6
Management and Advisory Arrangements...................................... 7
Transfer Agency Services.................................................. 8
Purchase of Shares......................................................... 8
Methods of Payment........................................................ 8
Distribution Plan......................................................... 9
Redemption of Shares....................................................... 10
Methods of Redemption..................................................... 10
Shareholder Services....................................................... 12
Portfolio Transactions..................................................... 13
Additional Information..................................................... 13
Dividends................................................................. 13
Determination of Net Asset Value.......................................... 14
Taxes..................................................................... 14
Organization of the Fund.................................................. 15
Shareholder Reports....................................................... 16
Shareholder Inquiries..................................................... 16
Purchase Application....................................................... 17
</TABLE>
Code #10152-1295
[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 22, 1995
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 of 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. There can be no assurance that
the investment objectives of the Fund will be realized. The Fund pays Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") 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
22, 1995 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling or by
writing the 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 22, 1995.
<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. 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 the 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 companies may borrow in excess of 5% of their assets; however, the
Fund will not borrow to increase income
2
<PAGE>
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, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Trustee is
Merrill Lynch Asset Management, P.O. Box 9011, Princeton, New Jersey 08543-
9011.
Arthur Zeikel (63)--President and Trustee (1)(2)--President of Merrill Lynch
Asset Management, L.P. ("MLAM" or the "Manager", which term as used herein
includes the Manager's corporate predecessors) since 1977; President 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 from 1990 to 1995 and a Senior Vice President thereof from 1985
to 1990; Director of Merrill Lynch Funds Distributor, Inc. (the "Distributor").
Donald Cecil (68)--Trustee (2)--1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; 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 (63)--Trustee (2)--Soldiers Field Road, Boston, Massachusetts
02163. James R. Williston Professor of Investment Management, Harvard Business
School, since 1971; Director of Cambridge Bancorp, Copley Properties, Inc. and
Sun Life Assurance Company of Canada.
Edward H. Meyer (68)--Trustee (2)--777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since 1972; Director of The
May Department Stores Company, Bowne & Co., Inc. (financial printers), Harman
International Industries, Inc. and Ethan Allen Interiors, Inc.
Jack B. Sunderland (67)--Trustee (2)--P.O. Box 7, West Cornwall, Connecticut,
06796. President and Director of American Independent Oil Company, Inc. (an
energy company) since 1987; Member of Council on Foreign Relations since 1971.
3
<PAGE>
J. Thomas Touchton (57)--Trustee (2)--Suite 3405, One Tampa City Center,
Tampa, Florida 33602. Managing Partner of The Witt-Touchton Company and its
predecessor, The Witt Co. (a private investment partnership) since 1972;
Trustee Emeritus of Washington and Lee University; Director of TECO Energy,
Inc. (an electric utility holding company).
Terry K. Glenn (55)--Executive Vice President (1)(2)--Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of the Distributor since
1986 and Director thereof since 1991; President of Princeton Administrators,
L.P. since 1988.
Joseph T. Monagle, Jr. (47)--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 (35)--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 (45)--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 (46)--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 (49)--Secretary (1)(2)--Vice President of the Manager and
FAM since 1985.
- --------
(1) Interested person, as defined in the Investment Company Act of 1940, of
the 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.
At November 30, 1995, the Trustees and officers of the Fund as a group (12
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.
COMPENSATION OF TRUSTEES
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 $43,007 for the fiscal year ended August 31, 1995.
4
<PAGE>
The following table sets forth, for the fiscal year ended August 31, 1995,
compensation paid by the Fund to the non-interested Trustees and for the
calendar year ended December 31, 1994, the aggregate compensation paid by all
investment companies (including the Fund) advised by MLAM and its affiliate,
FAM ("MLAM/FAM-Advised Funds") to the non-interested Trustees:
<TABLE>
<CAPTION>
PENSION OR AGGREGATE
RETIREMENT COMPENSATION
BENEFITS FROM FUND AND
ACCRUED AS PART MLAM/FAM-
COMPENSATION OF FUND ADVISED FUNDS
DIRECTOR FROM THE FUND EXPENSE PAID TO TRUSTEES(1)
- -------- ------------- --------------- -------------------
<S> <C> <C> <C>
Donald Cecil.................. $9,500 none $276,350
M. Colyer Crum................ $8,500 none $126,600
Edward H. Meyer............... $7,750 none $251,600
Jack B. Sunderland............ $8,500 none $134,600
J. Thomas Touchton............ $8,500 none $134,600
</TABLE>
- --------
(1) In addition to the Fund, the Trustees serve on the boards of other
MLAM/FAM-Advised Funds as follows: Donald Cecil (48 funds), M. Colyer Crum
(17 funds), Edward H. Meyer (34 funds), Jack B. Sunderland (18 funds) and
J. Thomas Touchton (18 funds).
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund--Management and Advisory
Arrangements" in the Prospectus for certain information concerning management
and advisory arrangements of the Fund.
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 of 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 U.S. 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 or clients (collectively referred to as
"clients") for which the Manager or FAM acts as an adviser or by investment
advisory clients of the Manager. Because of different objectives or other
factors, a particular security may be bought for one or more clients when one
or more clients are selling the same security. If purchases or sales of
securities for the Fund or other advisory clients arise for consideration at
or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds and clients in a manner deemed equitable
to all. To the extent that transactions on behalf of more than one client of
the Manager or 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.
5
<PAGE>
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
daily net assets of the Fund. For the fiscal years ended August 31, 1993, 1994
and 1995, the total management fees paid by the Fund to the Manager aggregated
$2,728,134, $2,581,756 and $2,408,559, 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), 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.
The Manager is a limited partnership, the partners of which are ML & Co. and
Princeton Services. ML & Co. and Princeton Services are "controlling persons"
of the Manager (as defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act")) because of their ownership of its voting
securities or their power to exercise a controlling influence over its
management or policies.
Duration and Termination. Unless earlier terminated as described below, the
Management Agreement will continue in effect from year to year if approved
annually (a) by the 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.
6
<PAGE>
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 a 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 minimum initial purchase is $5,000. The minimum subsequent purchase is
$1,000. The minimum initial purchase with respect to pension, profit sharing,
individual retirement and certain other retirement plans is $100 and the
minimum subsequent purchase in connection with such plans is $1. The minimum
initial or subsequent purchase requirements may be waived for certain employer
sponsored retirement or savings plans, such as tax qualified retirement plans
within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), deferred compensation plans within the meaning of Section
403(b) and Section 457 of the Code, other deferred compensation arrangements.
Voluntary Employee Benefits Association plans, and non-qualified After Tax
Savings and Investment programs, maintained on the Merrill Lynch Group Employee
Services system. For accounts advised by banks and registered investment
advisers, including the Manager, the minimum initial purchase is $300 and the
minimum subsequent purchase is $100. Any order may be rejected by the
Distributor or the Fund.
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 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.
7
<PAGE>
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, 1993, 1994 and 1995, $724,281, $681,261 and $617,903,
respectively, was paid to Merrill Lynch pursuant to the Plan (based on average
net assets subject to the Plan of approximately $606.3 million, $573.7 million
and $535.2 million, respectively). At November 30, 1995 the net assets of the
Fund subject to the Plan aggregated approximately $574.2 million. At this asset
level, the annual fee payable to Merrill Lynch pursuant to the Plan would
aggregate approximately $717,807. 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 distribution
expenditures made by Merrill Lynch pursuant to the Plan. In their consideration
of the Plan, the Trustees must consider all factors they deem relevant,
including information as to the benefits of the Plan to the 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 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 or her 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
8
<PAGE>
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 or her Merrill Lynch financial consultant.
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 or her 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 or her name appears on
his Retirement Plan adoption agreement.
9
<PAGE>
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 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 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 U.S. Government securities
and U.S. Government agency securities. This order contains a number of
conditions, including conditions designed to ensure that the price to the Fund
from GSI is equal to or better than that available from other sources. GSI has
informed the Fund that it will in no way, at any time, attempt to influence or
control the activities of the Fund or the Manager in placing such principal
transactions. 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
10
<PAGE>
transactions aggregating approximately $48.2 million. During the fiscal years
ended August 31, 1994 and 1995 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 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 Securities and U.S. Government agency
securities, which may have remaining maturities of up to 762 days (twenty-five
months). The Fund will invest only in securities determined by the Trustees to
be of high quality with minimal credit risks. In addition, the Trustees have
established procedures designed to stabilize, to the extent reasonably
possible, the Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. Deviations of more than an insignificant amount between
the net asset
11
<PAGE>
value calculated using market quotations and that calculated on a "penny-
rounded" basis will be reported to the Trustees by the Manager. In the event
the Trustees determine that a deviation exists which may result in material
dilution or other unfair results to investors or existing shareholders, the
Fund will take such corrective action as it regards as necessary and
appropriate, including the reduction of the number of outstanding shares of the
Fund by having each shareholder proportionately contribute shares to the Fund's
capital; the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding
dividends; or establishing a net asset value per share solely by using
available market quotations. If the number of outstanding shares is reduced in
order to maintain a constant penny-rounded net asset value of $1.00 per share,
the shareholders will contribute proportionately to the Fund's capital the
number of shares which 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 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.
The yield on the Fund's shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Fund of future yields or rates of return on its shares.
The yield is affected by such factors as changes in interest rates on Treasury
securities, average portfolio maturity, the types and quality of portfolio
securities held and operating expenses. The yield on Fund shares for various
reasons may not be comparable to the yield on shares of other money market
funds or other investments.
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<PAGE>
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 Merrill Lynch Financial Data
Services, Inc. (the "Transfer Agent") has an Investment Account and will
receive from the Transfer Agent a monthly report showing the activity in his or
her account for the month. A shareholder may make additions to his or her
Investment Account at any time by purchasing shares at the applicable public
offering price either through his or her securities dealer, by wire or by mail
directly to the Transfer Agent, acting as agent for his or her dealer. A
shareholder may ascertain the number of shares in his or her 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, 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,
13
<PAGE>
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 or her 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 or she 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.
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 or her account in which
14
<PAGE>
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.
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 by investing primarily in a portfolio of
adjustable rate securities, consisting
principally of mortgage-backed and asset-backed
securities.
Merrill Lynch Americas Income
Fund, Inc. ................. A high level of current income, consistent with
prudent investment risk, by investing primarily
in debt securities denominated in a currency of
a country located in the Western Hemisphere
(i.e., North and South America and the
surrounding waters).
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Merrill Lynch Arizona Limited
Maturity Municipal Bond A portfolio of Merrill Lynch Multi-State Limited
Fund........................ Maturity Municipal Series Trust, a series fund,
whose objective is to provide as high a level
of income exempt from Federal and Arizona
income taxes as is consistent with prudent
investment management through investment in a
portfolio primarily of intermediate-term
investment grade Arizona Municipal Bonds.
Merrill Lynch Arizona
Municipal A portfolio of Merrill Lynch Multi-State
Bond Fund................... Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arizona income
taxes as is consistent with prudent investment
management.
Merrill Lynch Arkansas
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arkansas income
taxes as is consistent with prudent investment
management.
Merrill Lynch Asset Growth
Fund, Inc................... High total investment return, consistent with
prudent risk, from investment in United States
and foreign equity, debt and money market
securities the combination of which will be
varied both with respect to types of securities
and markets in response to changing market and
economic trends.
Merrill Lynch Asset Income A high level of current income through
Fund, Inc................... investment primarily in United States fixed
income securities.
Merrill Lynch Balanced Fund
For Investment And As high a level of total investment return as is
Retirement, Inc. ........... consistent with reasonable risk by investing in
common stocks and other types of securities,
including fixed income securities and
convertible securities.
Merrill Lynch Basic Value Capital appreciation and, secondarily, income
Fund, Inc. ................. through investment in securities, primarily
equities, that are undervalued and therefore
represent basic investment
value.
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Merrill Lynch California
Insured Municipal Bond Fund. A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management through investment in a
portfolio primarily of insured California
Municipal Bonds.
Merrill Lynch California
Limited Maturity Municipal A portfolio of Merrill Lynch Multi-State Limited
Bond Fund................... Maturity Municipal Series Trust, a series fund,
whose objective is to provide as high a level
of income exempt from Federal and California
income taxes as is consistent with prudent
investment management through investment in a
portfolio primarily of intermediate-term
investment grade California Municipal Bonds.
Merrill Lynch California
Municipal Bond Fund......... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management.
Merrill Lynch Capital Fund, The highest total investment return consistent
Inc. ....................... with prudent risk through a fully managed
investment policy utilizing equity, debt and
convertible securities.
Merrill Lynch Colorado
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Colorado income
taxes as is consistent with prudent investment
management.
Merrill Lynch Connecticut
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Connecticut
income taxes as is consistent with prudent
investment management.
Merrill Lynch Corporate Bond
Fund, Inc. ................. Current income from three separate diversified
portfolios of fixed income securities.
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Merrill Lynch Developing
Capital Markets Fund, Inc. . Long-term Capital appreciation through
investment in securities, principally equities,
of issuers in countries having smaller capital
markets.
Merrill Lynch Dragon Fund, Capital appreciation primarily through
Inc. ....................... investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin.
Merrill Lynch EuroFund....... Capital appreciation primarily through
investment in equity securities of corporations
domiciled in Europe.
Merrill Lynch Federal
Securities Trust............ High current return through investments in U.S.
Government and Government agency securities,
including GNMA mortgage-backed certificates and
other mortgage-backed Government securities.
Merrill Lynch Florida Limited
Maturity Municipal Bond A portfolio of Merrill Lynch Multi-State Limited
Fund........................ 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
management while serving to offer shareholders
the opportunity to own securities exempt from
Florida intangible personal property taxes
through investment in a portfolio primarily of
intermediate-term investment grade Florida
Municipal Bonds.
Merrill Lynch Florida
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as is
consistent with prudent investment management
while seeking to offer shareholders the
opportunity to own securities exempt from
Florida intangible personal property taxes.
Merrill Lynch Fund for
Tomorrow, Inc. ............. Long-term growth through investment in a
portfolio of good quality securities, primarily
common stock, potentially positioned to benefit
from demographic and cultural changes as they
affect consumer markets.
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.
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Merrill Lynch Fundamental
Value Portfolio.............. A portfolio of Merrill Lynch Asset Builder
(Available only for exchanges Program, Inc., a series fund, whose objective
by certain individual is to provide capital appreciation and income
retirement accounts for which by investing in securities, with at least 65%
Merrill Lynch acts as of the portfolio's assets being invested in
custodian) equities.
Merrill Lynch Global
Allocation Fund, Inc. ....... High total return consistent with prudent risk,
through a fully managed investment policy
utilizing United States and foreign equity,
debt and money market securities, the
combination of which will be varied from time
to time both with respect to the types of
securities and markets in response to changing
market and economic trends.
Merrill Lynch Global Bond Fund
For Investment And High total investment return from investment in
Retirement................... 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
preferred stock and "synthetic" convertible
securities consisting of a combination of debt
securities or preferred stock and warrants or
options.
Merrill Lynch Global Holdings,
Inc. (residents of Arizona
must meet investor The highest total investment return consistent
suitability standards)....... with prudent risk through worldwide investment
in an internationally diversified portfolio of
securities.
Merrill Lynch Global
Opportunity Portfolio........ A portfolio of Merrill Lynch Asset Builder
(Available only for exchanges Program, Inc., a series fund, whose objective
by certain individual is to provide a high total investment return
retirement accounts for which through an investment policy utilizing U.S. and
Merrill Lynch acts as foreign equity, debt and money market
custodian) securities, the combination of which will vary
depending upon changing market and economic
trends.
Merrill Lynch Global
Resources Trust.............. Long-term growth and protection of capital from
investment in securities of domestic and
foreign companies that possess substantial
natural resource assets.
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Merrill Lynch Global SmallCap
Fund, Inc. ................. Long-term growth of capital by investing
primarily in equity securities of companies
with relatively small market capitalizations
located in various foreign countries and in the
United States.
Merrill Lynch Global Utility
Fund, Inc. ................. Capital appreciation and current income through
investment of at least 65% of its total assets
in equity and debt securities issued by
domestic and foreign companies primarily
engaged in the ownership or operation of
facilities used to generate, transmit or
distribute electricity, 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
believes to be undervalued.
Merrill Lynch Healthcare
Fund, Inc. (residents of
Wisconsin must meet investor Capital appreciation through worldwide
suitability standards)...... investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in healthcare.
Merrill Lynch International
Equity Fund................. Capital appreciation and, secondarily, income by
investing in a diversified portfolio of equity
securities of issuers located in countries
other than the United States.
Merrill Lynch Latin America
Fund, Inc. ................. Capital appreciation by investing primarily in
Latin American equity and debt securities.
Merrill Lynch Maryland
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Maryland income
taxes as is consistent with prudent investment
management.
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Merrill Lynch Massachusetts
Limited Maturity Municipal A portfolio of Merrill Lynch Multi-State Limited
Bond Fund................... Maturity Municipal Series Trust, a series fund,
whose objective is to provide as high a level
of income exempt from Federal and Massachusetts
income taxes as is consistent with prudent
investment management through investment in a
portfolio primarily of intermediate-term
investment grade Massachusetts Municipal Bonds.
Merrill Lynch Massachusetts
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Massachusetts
income taxes as is consistent with prudent
investment management.
Merrill Lynch Michigan
Limited Maturity Municipal A portfolio of Merrill Lynch Multi-State Limited
Bond Fund................... Maturity Municipal Series Trust, a series fund,
whose objective is to provide as high a level
of income exempt from Federal and Michigan
income taxes as is consistent with prudent
investment management through investment in a
portfolio primarily of intermediate-term
investment grade Michigan Municipal Bonds.
Merrill Lynch Michigan
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Michigan
personal income taxes as is consistent with
prudent investment management.
Merrill Lynch Minnesota
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Minnesota
personal income taxes as is consistent with
prudent investment management.
Merrill Lynch Municipal Bond
Fund, Inc. ................. Tax-exempt income from three separate
diversified portfolios of municipal bonds.
Merrill Lynch Municipal
Intermediate Term Fund...... Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt from Federal income
taxes by investing in investment grade
obligations with a dollar weighted average
maturity of five to twelve years.
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Merrill Lynch New Jersey
Limited Maturity Municipal A portfolio of Merrill Lynch Multi-State Limited
Bond Fund................... Maturity Municipal Series Trust, a series fund,
whose objective is to provide as high a level
of income exempt from Federal and New Jersey
income taxes as is consistent with prudent
investment management through a portfolio
primarily of intermediate-term investment grade
New Jersey Municipal Bonds.
Merrill Lynch New Jersey
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Jersey
income taxes as is consistent with prudent
investment management.
Merrill Lynch New Mexico
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Mexico
income taxes as is consistent with prudent
investment management.
Merrill Lynch New York
Limited Maturity Municipal A portfolio of Merrill Lynch Multi-State Limited
Bond Fund................... Maturity Municipal Series Trust, a series fund,
whose objective is to provide as high a level
of income exempt from Federal, New York State
and New York City income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade New York
Municipal Bonds.
Merrill Lynch New York
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal, New York State and
New York City income taxes as is consistent
with prudent investment management.
Merrill Lynch North Carolina
Municipal Bond Fund......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and North Carolina
income taxes as is consistent with prudent
investment management.
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Merrill Lynch Ohio Municipal
Bond Fund.................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Ohio income
taxes as is consistent with prudent investment
management.
Merrill Lynch Oregon
Municipal Bond Fund........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Oregon income
taxes as is consistent with prudent investment
management.
Merrill Lynch Pacific Fund, Capital appreciation by investing in equity
Inc. ...................... securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong and
Singapore.
Merrill Lynch Pennsylvania
Limited Maturity Municipal A portfolio of Merrill Lynch Multi-State Limited
Bond Fund.................. Maturity Municipal Series Trust, a series fund,
whose objective is to provide as high a level
of income exempt from Federal and Pennsylvania
income taxes as is consistent with prudent
investment management through investment in a
portfolio of intermediate-term investment grade
Pennsylvania Municipal Bonds.
Merrill Lynch Pennsylvania
Municipal Bond Fund........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Pennsylvania
income taxes as is consistent with prudent
investment management.
Merrill Lynch Phoenix Fund, Long-term growth of capital by investing in
Inc. ...................... equity and fixed income securities, including
tax-exempt securities, of issuers in weak
financial condition or experiencing poor
operating results believed to be undervalued
relative to the current or prospective
condition of such issuer.
Merrill Lynch Quality Bond A portfolio of Merrill Lynch Asset Builder
Portfolio.. (Available only Program, Inc., a series fund, whose objective
for exchanges by certain is to provide a high level of current income
individual retirement through investment in a diversified portfolio
accounts for which Merrill of debt obligations, such as corporate bonds
Lynch acts as custodian) and notes, convertible securities, preferred
stock and governmental obligations.
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Merrill Lynch Short-Term
Global Income Fund, Inc. ... As high a level of current income as is
consistent with prudent investment management
from a global portfolio of high quality debt
securities denominated in various currencies
and multinational currency units and having
remaining maturities not exceeding three years.
Merrill Lynch Special Value
Fund, Inc. ................. Long-term growth of capital from investments in
securities, primarily common stock, of
relatively small companies believed to have
special investment value and emerging growth
companies regardless of size.
Merrill Lynch Strategic
Dividend Fund............... Long-term total return from investment in
dividend paying common stocks which yield more
than Standard & Poor's 500 Composite Stock
Price Index.
Merrill Lynch Technology Capital appreciation through worldwide
Fund, Inc. ................. investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in technology.
Merrill Lynch Texas Municipal
Bond Fund................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as is
consistent with prudent investment management
by investing primarily in a portfolio of long-
term, investment grade obligations issued by
the State of Texas, its political subdivisions,
agencies and instrumentalities.
Merrill Lynch U.S. Government
Securities Portfolio........ A portfolio of Merrill Lynch Asset Builder
(Available only for Program, Inc., a series fund, whose objective
exchanges by certain is to provide a high current return through
individual retirement investments in U.S. Government and government
accounts for which Merrill agency securities, including GNMA mortgage-
Lynch acts as custodian) backed certificates and other mortgage-backed
government securities.
Merrill Lynch Utility Income
Fund, Inc. ................. High current income through investment in equity
and debt securities issued by companies which
are primarily engaged in the ownership or
operation of facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
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Merrill Lynch World Income
Fund, Inc. .................. High current income by investing in a global
portfolio of fixed income securities Class A
Share Money Market Funds:denominated in various
currencies, including multinational currencies.
Merrill Lynch Ready Assets Preservation of capital, liquidity and the
Trust........................ highest 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 Currently the only portfolio of Merrill Lynch
exchange occurs within Retirement Series Trust, a series fund, whose
certain retirement plans).... objectives are to provide current income,
preservation 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
diversified portfolio of short-term marketable
securities which are direct obligations of the
U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
Merrill Lynch Government Fund. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in securities issued
or guaranteed by the U.S. Government, its
agencies and instrumentalities and in
repurchase agreements secured by such
obligations.
Merrill Lynch Institutional A portfolio of Merrill Lynch Funds for
Fund......................... Institutions Series, a series fund, whose
objective is to provide maximum current income
consistent with liquidity and the maintenance
of a high quality portfolio of money market
securities.
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Merrill Lynch Institutional
Tax-Exempt Fund.............. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income exempt
from Federal income taxes, preservation of
capital and liquidity available from investing
in a diversified portfolio of short-term, high
quality municipal bonds.
Merrill Lynch Treasury Fund... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in direct obligations
of the U.S. Treasury and up to 10% of its total
assets in repurchase agreements secured by such
obligations.
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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 or she is not otherwise subject
to backup withholding. See "Taxes".
To exercise the exchange privilege, shareholders may either contact their
listed securities dealer, who will advise the 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 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.
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Dividends paid by the Fund from its ordinary income or from an excess of net
short-term capital gains over net long-term capital losses (together referred
to hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses (including gains or losses from
certain transactions in futures and options) ("capital gain dividends") are
taxable to shareholders as long-term capital gains, regardless of the length of
time the shareholder has owned Fund shares. Any loss upon the sale or exchange
of Fund shares held for six months or less, however, will be treated as long-
term capital loss to the extent of any capital gain dividends received by the
shareholder. Distributions in excess of the 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 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 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 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.
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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 a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
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. While the Fund intends to distribute its income
and capital gains in the manner necessary to avoid imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition
of the tax. In such event, the Fund will be liable for the tax only on the
amount by which it does not meet the foregoing distribution requirements.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived 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
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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 were 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 (the "Custodian"), 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
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), 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.
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 this Statement of Additional Information with respect to
the shares of the Fund do not contain all of 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.
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To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on November 30, 1995.
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" (as defined in the Declaration) only shall be liable.
30
<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, 1995, the related statements of operations for the year then ended,
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, 1995 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, 1995, 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
October 6, 1995
31
<PAGE>
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations--23.1%
US Treasury Bills* $15,000 5.60 % 10/12/95 $ 14,905
20,000 5.835 10/12/95 19,873
7,000 5.605 5/02/96 6,743
US Treasury Notes 8,000 5.50 4/30/96 7,989
10,000 7.375 5/15/96 10,109
30,000 6.125 7/31/96 30,103
17,000 6.875 10/31/96 17,207
12,000 7.50 1/31/97 12,274
10,000 5.625 6/30/97 9,960
Total US Government Obligations
(Cost--$129,117) 129,163
Face
Amount Issue
Repurchase Agreements**--77.9%
$26,000 CS First Boston Corp., purchased on
8/31/95 to yield 5.73% to 9/07/95 26,000
26,000 Chemical Securities, Inc., purchased on
8/31/95 to yield 5.80% to 9/01/95 26,000
26,000 Citicorp Securities Inc., purchased on 8/28/95
to yield 5.70% to 9/01/95 26,000
26,000 Dean Witter Reynolds, Inc., purchased on
8/30/95 to yield 5.70% to 9/06/95 26,000
26,000 First Chicago Capital Markets Inc., purchased
on 8/31/95 to yield 5.82% to 9/01/95 26,000
26,000 Fuji Securities, Inc., purchased on 8/25/95 to
yield 5.67% to 9/01/95 26,000
26,000 Goldman Sachs & Co., purchased on 8/30/95
to yield 5.69% to 9/06/95 26,000
Face Value
Amount Issue (Note 1a)
Repurchase Agreements** (concluded)
$19,183 HSBC Securities, Inc., purchased on 8/31/95
to yield 5.77% to 9/01/95 $ 19,183
26,000 Morgan (J.P.) Securities, Inc., purchased on
8/28/95 to yield 5.73% to 9/01/95 26,000
26,000 Morgan Stanley & Co., Inc., purchased on
8/28/95 to yield 5.74% to 9/01/95 26,000
26,000 Nikko Securities International Inc., purchased
on 8/31/95 to yield 5.72% to 9/07/95 26,000
26,000 Nomura Securities International, Inc.,
purchased on 8/29/95 to yield 5.72% to 9/05/95 26,000
26,000 PaineWebber Inc., purchased on 8/25/95 to
yield 5.67% to 9/01/95 26,000
26,000 SBC Capital Markets Inc., purchased on
8/25/95 to yield 5.68% to 9/01/95 26,000
26,000 Sanwa Securities USA Co., L.P., purchased
on 8/31/95 to yield 5.80% to 9/01/95 26,000
26,000 Smith Barney, Inc., purchased on 8/31/95 to
yield 5.73% due 9/08/95 26,000
26,000 UBS Securities, Inc., purchased on 8/31/95
to yield 5.83% to 9/01/95 26,000
Total Repurchase Agreements
(Cost--$435,183) 435,183
Total Investments (Cost--$564,300)--101.0% 564,346
Liabilities in Excess of Other Assets--(1.0%) (5,417)
--------
Net Assets--100.0% $558,929
========
*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.
32
<PAGE>
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets and Liabilities as of August 31, 1995
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$564,299,936*) (Note 1a) $ 564,346,018
Cash 57
Receivables:
Interest $ 1,206,964
Beneficial interest sold 71,627 1,278,591
-------------
Prepaid registration fees and other assets (Note 1d) 116,585
-------------
Total assets 565,741,251
-------------
Liabilities: Payables:
Beneficial interest redeemed 6,159,789
Investment adviser (Note 2) 213,235
Distributor (Note 2) 130,378
Dividends to shareholders (Note 1f) 282 6,503,684
-------------
Accrued expenses and other liabilities 308,797
-------------
Total liabilities 6,812,481
-------------
Net Assets: Net assets $ 558,928,770
=============
Net Assets Shares of beneficial interest, $0.10 par value, unlimited
Consist of: number of shares authorized $ 55,888,269
Paid-in capital in excess of par 502,994,419
Unrealized appreciation on investments--net* 46,082
-------------
Net Assets--Equivalent to $1.00 per share, based on 558,882,687
shares of beneficial interest outstanding $ 558,928,770
=============
<FN>
*Cost for Federal income tax purposes. As of August 31, 1995, net
unrealized appreciation for Federal income tax purposes amounted to
$46,082, of which $118,906 related to appreciated securities and
$72,824 related to depreciated securities.
<CAPTION>
Statement of Operations
For the Year Ended August 31, 1995
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 29,807,933
(Note 1c):
Expenses: Investment advisory fees (Note 2) $ 2,408,559
Transfer agent fees (Note 2) 1,103,025
Distribution fees (Note 2) 617,903
Registration fees (Note 1d) 96,867
Accounting services (Note 2) 78,058
Professional fees 64,860
Printing and shareholder reports 64,089
Trustees' fees and expenses 43,007
Custodian fees 42,458
Other 10,708
-------------
Total expenses 4,529,534
-------------
Investment income--net 25,278,399
-------------
Realized & Realized gain on investments--net 351,372
Unrealized Gain on Change in unrealized appreciation/depreciation on investments--net 519,921
Investments--Net -------------
(Note 1c): Net Increase in Net Assets Resulting from Operations $ 26,149,692
=============
</TABLE>
See Notes to Financial Statements.
33
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 25,278,399 $ 16,068,852
Realized gain on investments--net 351,372 99,437
Change in unrealized appreciation/depreciation on
investments--net 519,921 (542,027)
------------- -------------
Net increase in net assets resulting from operations 26,149,692 15,626,262
------------- -------------
Dividends & Investment income--net (25,278,399) (16,068,852)
Distributions to Realized gain on investments--net (351,372) (99,437)
Shareholders ------------- -------------
(Note 1f): Net decrease in net assets resulting from dividends
and distributions to shareholders (25,629,771) (16,168,289)
------------- -------------
Beneficial Interest Net proceeds from sale of shares 1,488,684,962 1,560,756,479
Transactions Net asset value of shares issued to shareholders in
(Note 3): reinvestment of dividends and distributions (Note 1f) 25,615,698 16,149,544
------------- -------------
1,514,300,660 1,576,906,023
Cost of shares redeemed (1,500,066,112) (1,607,233,265)
------------- -------------
Net increase (decrease) in net assets derived from
beneficial interest transactions 14,234,548 (30,327,242)
------------- -------------
Net Assets: Total increase (decrease) in net assets 14,754,469 (30,869,269)
Beginning of year 544,174,301 575,043,570
------------- -------------
End of year $ 558,928,770 $ 544,174,301
============= =============
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .0472 .0280 .0248 .0365 .0602
Realized and unrealized gain (loss) on
investments--net .0017 (.0007) .0007 .0046 .0013
-------- -------- -------- -------- --------
Total from investment operations .0489 .0273 .0255 .0411 .0615
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.0472) (.0280) (.0248) (.0365) (.0602)
Realized gain on investments--net (.0007) (.0002) (.0013) (.0038) (.0013)*
-------- -------- -------- -------- --------
Total dividends and distributions (.0479) (.0282) (.0261) (.0403) (.0615)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return 4.89% 2.85% 2.64% 4.15% 6.37%
======== ======== ======== ======== ========
Ratios to Average Expenses, excluding distribution fees .73% .69% .63% .63% .61%
Net Assets: ======== ======== ======== ======== ========
Expenses .85% .81% .75% .75% .73%
======== ======== ======== ======== ========
Investment income and realized gain
on investments--net 4.79% 2.82% 2.61% 4.10% 6.07%*
======== ======== ======== ======== ========
Supplemental Data: Net assets, end of year (in thousands) $558,929 $544,174 $575,044 $584,067 $658,207
======== ======== ======== ======== ========
<FN>
*Includes unrealized gain (loss).
</TABLE>
See Notes to Financial Statements.
34
<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
management investment 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 market value. When
securities are valued with sixty days or less to maturity, the
difference between the valuation existing on the sixty-first day
before maturity and maturity value is amortized on a straight-line
basis to maturity. Investments maturing within sixty days from their
date of acquisition are valued at amortized cost, which approximates
market value. For 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"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. 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 and commissions, and extraordinary items) exceed
2.5% of the Fund's first $30 million of average daily net assets,
2.0% of the next $70 million of average daily net assets, and 1.5%
of the average daily net assets in excess thereof. No fee payment
will be made to MLAM 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.
35
<PAGE>
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of MLAM, PSI, MLFDS, MLFD, 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.
36
<PAGE>
[INTENTIONALLY LEFT BLANK]
37
<PAGE>
[INTENTIONALLY LEFT BLANK]
38
<PAGE>
[INTENTIONALLY LEFT BLANK]
39
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies......................................... 2
Management of the Fund..................................................... 3
Trustees and Officers..................................................... 3
Compensation of Trustees.................................................. 4
Management and Advisory Arrangements...................................... 5
Purchase of Shares......................................................... 7
Distribution Plan......................................................... 7
Redemption of Shares....................................................... 8
Purchase and Redemption of Shares through Merrill Lynch Retirement Plans... 8
Purchase by Retirement Plans............................................. 9
Redemptions by Retirement Plans.......................................... 9
Confirmations............................................................ 10
Portfolio Transactions..................................................... 10
Determination of Net Asset Value........................................... 11
Yield Information.......................................................... 12
Shareholder Services....................................................... 13
Investment Account........................................................ 13
Automatic Investment Plan................................................. 13
Accrued Monthly Payout Plan............................................... 13
Systematic Withdrawal Plans............................................... 13
Retirement Plans.......................................................... 14
Exchange Privilege........................................................ 14
Taxes...................................................................... 26
Federal................................................................... 26
General Information........................................................ 28
Description of Shares..................................................... 28
Custodian................................................................. 29
Transfer Agent............................................................ 29
Independent Auditors...................................................... 29
Legal Counsel............................................................. 29
Reports to Shareholders................................................... 29
Additional Information.................................................... 29
Independent Auditors' Report............................................... 31
Financial Statements....................................................... 32
</TABLE>
Code #10281-1295
[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.
STATEMENT OF
ADDITIONAL
INFORMATION
December 22, 1995
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, 1995.
Contained in Part B:
Schedule of Investments as of August 31, 1995.
Statement of Assets and Liabilities as of August 31, 1995.
Statement of Operations for the fiscal year ended August 31, 1995.
Statements of Changes in Net Assets for each of the fiscal years
ended August 31, 1995 and 1994.
Financial Highlights for each of the years in the five-year period
ended August 31, 1995.
(b) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(a) --Declaration of Trust of Registrant, dated November 17, 1987. (a)
(b) --Amendment to Declaration of Trust of Registrant, dated December 30,
1988. (a)
2 --By-Laws of Registrant. (a)
3 --None.
4 --None.
5(a) --Form of Management Agreement between Registrant and Merrill Lynch
Asset Management, L.P. (a)
(b) --Supplement to Investment Advisory Agreement with Merrill Lynch Asset
Management,
L.P. (b)
6 --Form of Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc. (a)
7 --None.
8 --Form of Custody Agreement between Registrant and The Bank of New
York. (a)
9 --Form of Transfer Agency Agreement between Registrant and Merrill
Lynch Financial Data Services, Inc. (a)
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, L.P. (a)
14 --None.
15 --Form of Merrill Lynch Shareholder Servicing Plan and Agreement
pursuant to Rule 12b-1 between Registrant and Merrill Lynch, Pierce,
Fenner & Smith Incorporated. (a)
16 --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22. (a)
17 --Financial Data Schedule.
18 --None.
</TABLE>
- --------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
(EDGAR) phase-in requirements.
(b) Filed on December 27, 1994 as an exhibit to Post-Effective Amendment No. 13
to Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1A.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by, or under common control with, any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
NOVEMBER 30,
TITLE OF CLASS 1995
-------------- ------------
<S> <C>
Shares of beneficial interest, par value $0.10 per share........ 51,007
</TABLE>
Note: The number of holders shown above includes holders of record
plus beneficial owners whose shares are held of record by
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
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 of 1940, as amended (the "Investment
Company Act") may be concerned, such payments will be made only on the
following conditions: (i) the advances must be limited to amounts used, or to
be used, for the preparation or presentation of a defense to the action,
including costs connected with the preparation of a settlement; (ii) advances
may be made only upon receipt of a written promise by, or on behalf of, the
recipient to repay that amount of the advance which exceeds the amount which it
is ultimately determined
C-2
<PAGE>
that he is entitled to receive from the Registrant by reason of
indemnification; and (iii) (a) such promise must be secured by a surety bond,
other suitable insurance or an equivalent form of security which assures that
any repayments may be obtained by the Registrant without delay or litigation,
which bond, insurance or other form of security must be provided by the
recipient of the advance, or (b) a majority of a quorum of the Registrant's
disinterested, non-party Trustees, or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts, that
the recipient of the advance ultimately will be found entitled to
indemnification.
In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), against certain
types of civil liabilities arising in connection with the Registration
Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Trustees, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Trustee,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities 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" or "MLAM") acts as
investment adviser for the following open-end registered investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Balanced Fund for Investment and Retirement, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund,
Inc., Merrill Lynch Fund for Tomorrow, Inc., Merrill Lynch Global Allocation
Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings,
Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund,
Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Institutional Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust, ,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income
Fund, Inc. and Merrill Lynch Variable Series Funds, Inc.; and the following
closed-end investment companies: Convertible Holdings, Inc., Merrill Lynch High
Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund,
Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM, acts as the
investment adviser for the following open-end investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund,
C-3
<PAGE>
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Puerto Rico Tax-Exempt Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc. and the Municipal Fund Accumulation
Program, Inc.; and the following closed-end investment companies: Apex
Municipal Fund, 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., Merrill Lynch Municipal Strategy
Fund, Inc., MuniAssets Fund, 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 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 is One Financial
Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of the
Manager, FAM, Princeton Services, Inc. ("Princeton Services"), and Princeton
Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey 08543-9011.
The address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081,
Princeton, New Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML &
Co.") is World Financial Center, North Tower, 250 Vesey Street, New York, New
York 10281. The address of Merrill Lynch Financial Data Services, Inc.
("MLFDS") 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, 1993 for his or her 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 paragraphs and Messrs.
Giordano, Harvey, Hewitt, Kirstein and Monagle 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
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.
Terry K. Glenn.......... Executive Vice Executive Vice President of FAM; Executive
President Vice President and Director of Princeton
Services; President of MLFD; Director of
MLFDS; President of Princeton
Administrators, L.P.
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
Richard L. Reller....... 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
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 open-end investment companies
referred to in the first two paragraphs of Item 28 except CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc. and The Municipal Fund Accumulation Program, Inc., and MLFD also
acts as principal underwriter for the following closed-end investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
(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 9081,
Princeton, New Jersey 08543-9081, 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
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
---- --------------------- ---------------------
<S> <C> <C>
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 and the rules thereunder will be maintained
at the offices of the Registrant, 800 Scudders Mill Road, Plainsboro, New
Jersey 08536 and its transfer agent, Merrill Lynch Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the 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.
(a)Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
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 21ST DAY OF DECEMBER, 1995.
Merrill Lynch U.S.A. Government
Reserves (Registrant)
/s/ Terry K. Glenn
By___________________________________
(TERRY K. GLENN, EXECUTIVE VICE
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
President and
Arthur Zeikel* Trustee (Principal
- ------------------------------------- Executive Officer)
(ARTHUR ZEIKEL)
Treasurer
Gerald M. Richard* (Principal
- ------------------------------------- Financial and
(GERALD M. RICHARD) 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/ Terry K. Glenn December 21, 1995
*By_________________________________
(TERRY K. GLENN, ATTORNEY-IN-FACT)
</TABLE>
C-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1(a) --Declaration of Trust of Registrant, dated November 17, 1987.
(a)
(b) --Amendment to Declaration of Trust of Registrant, dated
December 30, 1988. (a)
2 --By-Laws of Registrant. (a)
5(a) --Form of Management Agreement between Registrant and Merrill
Lynch Asset Management, L.P. (a)
6 --Form of Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (a)
8 --Form of Custody Agreement between Registrant and The Bank of
New York. (a)
9 --Form of Transfer Agency Agreement between Registrant and
Merrill Lynch Financial Data Services, Inc. (a)
10 --Opinion of Brown & Wood, counsel for Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for
Registrant.
13 --Certificate of Merrill Lynch Asset Management, L.P. (a)
15 --Form of Merrill Lynch Shareholder Servicing Plan and Agreement
pursuant to Rule
12b-1 between Registrant and Merrill Lynch, Pierce, Fenner &
Smith Incorporated. (a)
16 --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22.
(a)
17 --Financial Data Schedule.
</TABLE>
- --------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
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
<PAGE>
EXHIBIT 99.1(a)
DECLARATION OF TRUST
MERRILL LYNCH NEW GOVERNMENT RESERVES
THE DECLARATION OF TRUST of Merrill Lynch New Government Reserves is
made the 17 day of November, 1987 by the parties signatory hereto, as trustees
(such persons, so long as they shall continue in office in accordance with the
terms of this Declaration of Trust, and all other persons who at the time in
question have been duly elected or appointed as trustees in accordance with the
provisions of this Declaration of Trust and are then in office, being
hereinafter called the "Trustees").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust, all money and property contributed to the trust fund to manage and
dispose of the same for the benefit of the holders from time to time of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof, to wit:
<PAGE>
ARTICLE I
The Trust
---------
1.1. Name. The name of the trust created hereby (the "Trust", shall be
----
"Merrill Lynch New Government Reserves", and so far as may be practicable the
Trustees shall conduct the activities of the Trust, execute all documents and
sue or be sued under that name, which name (and the word "Trust" wherever
hereinafter used) shall refer to the Trustees as Trustees, and not individually,
and shall not refer to the officers, agents, employees or Shareholders of the
Trust. However, should the Trustees determine that the use of the name of the
Trust is not advisable, they may select such other name for the Trust as they
deem proper and the Trust may conduct its activities under such other name. Any
name change shall be effective upon the execution by a majority of the then
Trustees of an instrument setting forth the new name. Any such instrument shall
have the status of an amendment to this Declaration.
1.2. Definitions. As used in this Declaration, the following terms
-----------
shall have the following meanings:
The terms "Affiliated Person", "Assignment", "Commission", "Interested
----------------- ---------- ---------- ----------
Person", "Majority Shareholder Vote" (the 67% or more than 50% requirement of
- ------ -------------------------
the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings given them in
--------- -----------
the 1940 Act.
"Declaration" shall mean this Declaration of Trust as amended from
-----------
time to time. References in this Declaration to "Declaration", "hereof",
----------- ------
"herein" and "hereunder" shall be deemed to refer to the Declaration rather than
------ ---------
the article or section in which such words appear.
"Fundamental Policies" shall mean the investment restrictions set
--------------------
forth in the Prospectus and designated as fundamental policies therein.
"Person" shall mean and include individuals, corporations,
------
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"Prospectus" shall mean the currently effective Prospectus of the
----------
Trust under the Securities Act of 1933, as amended, including the Statement of
Additional Information incorporated by reference therein.
2.
<PAGE>
"Shareholders" shall mean as of any particular time all holders of
------------
record of outstanding Shares at such time.
"Shares" shall mean the equal proportionate transferable units of
------
interest into which the beneficial interest in the Trust shall be divided from
time to time and includes fractions of Shares as well as whole Shares.
"Trustees" shall mean the signatories to this Declaration of Trust, so
---------
long as they shall continue in office in accordance with the terms hereof, and
all other persons who at the time in question have been duly elected or
appointed and have qualified as trustees in accordance with the provisions
hereof and are then in office, are herein referred to as the "Trustees", and
reference in this Declaration of Trust to a Trustee or Trustees shall refer to
such person or persons in their capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
--------------
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees.
The "1940 Act" refers to the Investment Company Act of 1940 and the
--------
regulations promulgated thereunder, as amended from time to time.
3.
<PAGE>
ARTICLE II
Trustees
--------
2.1. Number and Qualification. The number of Trustees shall be fixed
------------------------
from time to time by written instrument signed by a majority of the Trustees
then in office, provided, however, that the number of Trustees shall in no event
be less than three or more than fifteen (except prior to the first public
offering of Shares). Any vacancy created by an increase in Trustees may, to the
extent permitted by the 1940 Act, be filled by the appointment of an individual
having the qualifications described in this Article made by a written instrument
signed by a majority of the Trustees then in office. Any such appointment shall
not become effective, however, until the individual named in the written
instrument of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of this Declaration. No reduction in
the number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of his term. Whenever a vacancy in the number of
Trustees shall occur, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees in office, regardless of their number, shall have all the
powers granted to the Trustees and shall discharge all the duties imposed upon
the Trustees by this Declaration. A Trustee shall be an individual at least 21
years of age who is not under legal disability. Trustees need not own Shares.
2.2. Term of Office. Each Trustee shall (except in the event of
--------------
resignations or removals or vacancies pursuant to Section 2.3 or 2.4 hereof)
hold office until his successor has been elected and is qualified to serve as
Trustee.
2.3. Resignation and Removal. Any Trustee may resign his trust
-----------------------
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered or mailed to the Chairman, if any, the President or
the Secretary and such resignation shall be effective upon such delivery, or at
a later date according to the terms of the instrument. Any of the Trustees may
be removed (provided the aggregate number of Trustees after such removal shall
not be less than the number required by Section 2.1 hereof) with cause, by the
action of two-thirds of the remaining Trustees. Any Trustee may be removed at
any special meeting of the Shareholders by a vote of two-thirds of the
outstanding Shares. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
successor Trustee or the remaining Trustees any Trust Property held in the name
of the resigning or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf such
4.
<PAGE>
documents as the remaining Trustees shall require as provided in the preceding
sentence.
2.4. Vacancies. The term of office of a Trustee shall terminate and a
---------
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of a Trustee. No such vacancy shall operate to annul this
Declaration or to revoke any existing agency created pursuant to the terms of
this Declaration. In the case of a vacancy, the Shareholders, acting at any
meeting of Shareholders held in accordance with Section 10.2 hereof, or, to the
extent permitted by the 1940 Act, a majority of the Trustees continuing in
office acting by written instrument or instruments, may fill such vacancy, and
any Trustee so elected by the Trustees shall hold office as provided in this
Declaration.
2.5. Meetings. Meetings of the Trustees shall be held from time to
--------
time upon the call of the Chairman, if any, the President, the Secretary or any
two Trustees. Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be mailed or otherwise given not
less than 48 hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. The Trustees may act with or without a meeting. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
provided otherwise in this Declaration of Trust, any action of the Trustees may
be taken at a meeting by vote of a majority of the Trustees present (a quorum
being present) or without a meeting by written consents of a majority of the
Trustees.
Any committee of the Trustees, including an executive committee, if
any, may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust within the meaning of
Section 1.2 hereof or otherwise interested in any action to be taken may be
counted for quorum purposes under this Section and shall be entitled to vote to
the extent permitted by the 1940 Act.
5.
<PAGE>
To the extent permitted by the 1940 Act, all or any one or more
Trustees may participate in a meeting of the Trustees or any committee thereof
by means of a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other and
participation in a meeting pursuant to such communications systems shall
constitute presence in person at such meeting.
2.6. Officers. The Trustees shall annually elect a President, a
--------
Secretary and a Treasurer and may elect a Chairman. The Trustees may elect or
appoint or authorize the Chairman, if any, or President to appoint such other
officers or agents with such powers as the Trustees may deem to be advisable.
The Chairman and President shall be and the Secretary and Treasurer may, but
need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and from time to time amend or
-------
repeal the By-Laws for the conduct of the business of the Trust.
6.
<PAGE>
ARTICLE III
Powers of Trustees
------------------
3.1. General. The Trustees shall have exclusive and absolute control
-------
over the Trust Property and over the business of the Trust to the same extent as
if the Trustees were the sole owners of the Trust Property and business in their
own right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees may perform such acts as in their sole discretion are
proper for conducting the business of the Trust. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid power. Such powers
of the Trustees may be exercised without order of or resort to any court.
3.2. Investments. The Trustees shall have power, subject to the
-----------
Fundamental Policies, to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
deal in or dispose of negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, reverse repurchase agreements and other
securities, including, without limitation, those issued, guaranteed or sponsored
by any state, territory or possession of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or by
the United States Government or its agencies or instrumentalities, or
international instrumentalities, or by any bank, savings institution,
corporation or other business entity organized under the laws of the United
States and, to the extent provided in the Prospectus and not prohibited by the
Fundamental Policies, organized under foreign laws; and to exercise any and all
rights, powers and privileges of ownership or interest in respect of any and all
such investments of every kind and description, including, without limitation,
the right to consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations or corporations to exercise
any of said rights, powers and privileges in respect of any of said instruments;
and the Trustees shall be deemed to have the foregoing powers with respect to
any additional securities in which the Trust may invest should the investment
policies set forth in the Prospectus or the Fundamental Policies be amended.
7.
<PAGE>
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3. Legal Title. Legal title to all the Trust Property shall be
-----------
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, on such terms as the Trustees may determine, provided
that the interest of the Trust therein is appropriately protected.
The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each person who may hereafter become a Trustee upon
his due election and qualification. Upon the resignation, removal or death of a
Trustee he shall automatically cease to have any right, title or interest in any
of the Trust Property, and the right, title and interest of such Trustee in the
Trust Property shall vest automatically in the remaining Trustees. Such vesting
and cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered.
3.4. Issuance and Repurchase of Securities. The Trustees shall have
-------------------------------------
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in, Shares, including
shares in fractional denominations, and, subject to the more detailed provisions
set forth in Articles VIII and IX, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
Trust whether capital or surplus or otherwise, to the full extent now or
hereafter permitted by the laws of the Commonwealth of Massachusetts governing
business corporations.
3.5. Borrow Money. Subject to the Fundamental Policies, the Trustees
------------
shall have power to borrow money or otherwise obtain credit and to secure the
same by mortgaging, pledging or otherwise subjecting as security the assets of
the Trust, including the lending of portfolio securities, and to endorse,
guarantee, or undertake the performance of any obligation, contract or
engagement of any other person, firm, association or corporation.
3.6. Delegation; Committees. The Trustees shall have power, consistent
----------------------
with their continuing exclusive authority over the management of the Trust and
the Trust Property, to delegate from time to time to such of their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Trustees or otherwise as the Trustees may deem expedient, to
8.
<PAGE>
the same extent as such delegation is permitted to directors of a Massachusetts
business corporation and is permitted by the 1940 Act.
3.7. Collection and Payment. The Trustees shall have power to collect
----------------------
all property due to the Trust; to pay all claims, including taxes, against the
Trust Property; to prosecute, defend, compromise or abandon any claims relating
to the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.
3.8. Expenses. The Trustees shall have power to incur and pay any
--------
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration of Trust, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
The Trustees may pay themselves such compensation for special services,
including legal, underwriting, syndicating and brokerage services, as they in
good faith may deem reasonable and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
3.9. Miscellaneous Powers. The Trustees shall have the power to: (a)
--------------------
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) purchase, and pay
for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisors, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (d) establish pension, profitsharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (e) make donations, irrespective of
benefit to the Trust, for charitable, religious, educational, scientific, civic
or similar purposes; (f) to the extent permitted by law, indemnify any Person
with whom the Trust has dealings, including any advisor, administrator, manager,
distributor and selected dealers, to such extent as the Trustees shall
determine; (g) guarantee indebtedness or contractual obligations of others; (h)
determine and change the fiscal year of the Trust and the method in which its
accounts shall be kept; and (i) adopt a seal for the Trust but the absence of
such seal shall not impair the validity of any instrument executed on behalf of
the Trust.
9.
<PAGE>
3.10. Further Powers. The Trustees shall have power to conduct the
--------------
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies,
colonies, possessions, agencies or instrumentalities of the United States of
America and of foreign governments, and to do all such other things and execute
all such instruments as they deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration, the presumption shall be in favor of a grant of
power to the Trustees. The Trustees will not be required to obtain any court
order to deal with the Trust Property.
10.
<PAGE>
ARTICLE IV
Advisory, Management and Distribution Arrangements
--------------------------------------------------
4.1. Advisory and Management Arrangements. Subject to a Majority
------------------------------------
Shareholder Vote, as required by the 1940 Act, the Trustees may in their
discretion from time to time enter into advisory or management contracts whereby
the other party to such contract shall undertake to furnish the Trustees such
advisory and management services as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the Trustees may in
their discretion determine. Notwithstanding any provisions of this Declaration
of Trust, the Trustees may authorize any adviser or manager (subject to such
general or specific instructions as the Trustees may from time to time adopt) to
effect purchases, sales, loans or exchanges of portfolio securities of the Trust
on behalf of the Trustees or may authorize any officer, employee or Trustee to
effect such purchases, sales, loans or exchanges pursuant to recommendations of
any such advisor, administrator or manager (and all without further action by
the Trustees). Any such purchases, sales, loans and exchanges shall be deemed to
have been authorized by all of the Trustees.
4.2. Distribution Arrangements. The Trustees may in their discretion
-------------------------
from time to time enter into a contract, providing for the sale of the Shares
of the Trust to net the Trust not less than the par value per share, whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article IV or
the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer agreements with registered
securities dealers to further the purpose of the distribution or repurchase-of
the Shares.
4.3. Parties to Contract. Any contract of the character described in
-------------------
Section 4.1 and 4.2 of this Article IV or in Article VII hereof may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
11.
<PAGE>
reasonable and fair and not inconsistent with the provisions of this Article IV
or the By-Laws. The same person (including a firm, corporation, trust, or
association) may be the other party to contracts entered into pursuant to
Sections 4.1 and 4.2 above or Article VII, and any individual may be financially
interested or otherwise affiliated with persons who are parties to any or all of
the contracts mentioned this Section 4.3.
4.4. Provisions and Amendments. Any contract entered into pursuant to
-------------------------
Section 4.1 and 4.2 of this Article IV shall be consistent with and subject to
the requirements of Section 15 of the 1940 Act with respect to its continuance
in effect, its termination, and the method of authorization and approval of
such contract or renewal thereof, and no amendment to any contract entered into
pursuant to Section 4.1 shall be effective unless assented to by a Majority
Shareholder Vote.
12.
<PAGE>
ARTICLE V
Limitations of Liability of Shareholders,
Trustees and Others
-----------------------------------------
5.1. No Personal Liability of Shareholders, Trustees, etc. No
-----------------------------------------------------
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from his bad faith, willful misfeasance, gross negligence
or reckless disregard of his duty to such Person; and all such Persons shall
look solely to the Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder,
Trustee, officer, employee, or agent, as such, of the Trust, is made a party to
any suit or proceeding to enforce any such liability, he shall not on account
thereof, be held to any personal liability. The Trust shall indemnify and hold
each Shareholder harmless from and against all claims and liabilities, to which
such Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
5.2. Non-Liability of Trustees, etc. No Trustee, officer, employee or
-------------------------------
agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties.
5.3. Mandatory Indemnification. 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
13.
<PAGE>
which he may be involved or with which he may be threatened, while in office or
thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties; provided, however, that as to
any matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of good faith and reasonable belief
as to the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any Person under
these provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 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.
5.4. No Bond Required of Trustees. No Trustee shall, as such, be
----------------------------
obligated to give any bond or security or other security for the performance of
any of his duties hereunder.
5.5. No Duty of Investigation; Notice in Trust Instruments, etc. No
----------------------------------------------------------
purchaser, lender, transfer agent or other person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, undertaking,
instrument, certificate, Share, other security of the Trust, and every other act
or thing whatsoever executed in connection with the Trust shall be conclusively
taken to have been executed or done by the executors thereof only in their
capacity as Trustees under this Declaration of Trust or in their capacity as
officers, employees or agents of the Trust. Every written obligation, contract,
undertaking, instrument, certificate, Share, other security of the Trust made or
issued by the Trustees or by any officers, employees or agents of the Trust, in
their capacity as such, shall contain an appropriate recital to the effect that
the Shareholders, Trustees, officers,
14.
<PAGE>
employees and agents of the Trust shall not personally be bound by or liable
thereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim thereunder, and appropriate references
shall be made therein to the Declaration of Trust, and may contain any further
recital which they may deem appropriate, but the omission of such recital shall
not operate to impose personal liability on any of the Trustees, Shareholders,
officers, employees or agents of the Trust. The Trustees may maintain insurance
for the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
5.6. Reliance on Experts, etc. Each Trustee and officer or employee of
-------------------------
the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by any investment adviser, administrator, manager,
distributor, selected dealer, accountant, appraiser or other expert or
consultant selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
15.
<PAGE>
ARTICLE VI
Shares of Beneficial Interest
-----------------------------
6.1. Beneficial Interest. The interest of the beneficiaries hereunder
-------------------
shall be divided into transferable shares of beneficial interest, all of one
class, with par value $0.10 per share. The number of such shares of beneficial
interest authorized hereunder is unlimited. All Shares issued hereunder
including, without limitation, Shares issued in connection with a dividend in
Shares or a split of Shares, shall be fully paid and nonassessable.
6.2. Rights of Shareholders. The ownership of the Trust Property of
----------------------
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares,
and they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Trust nor can they be called upon
to share or assume any losses of the Trust or suffer an assessment of any kind
by virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights in this Declaration specifically set forth. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights (except for rights of appraisal specified in Section 11.4).
6.3. Trust Only. It is the intention of the Trustees to create only
----------
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
6.4. Issuance of Shares. The Trustees, in their discretion, may from
------------------
time to time without vote of the Shareholders issue Shares, in addition to the
then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount not less than par value and type of
consideration, including cash or property, at such time or times (including,
without limitation, each business day in accordance with the maintenance of a
constant net asset value per share as set forth in Section 9.3 hereof), and on
such terms as the Trustees may deem best, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with
the assumption of, liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares. The Trustees may
16.
<PAGE>
from time to time divide or combine the Shares into a greater or lesser number
without thereby changing the proportionate beneficial interests of the Trust.
Reductions in the number of outstanding Shares may be made pursuant to the
constant net asset value per share formula set forth in Section 9.3.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or 1/1,OOOths of a Share or multiples thereof.
6.5. Register of Shares. A register shall be kept at the Trust or any
------------------
transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Such register shall be conclusive as to who are the holders of the
Shares and who shall be entitled to receive dividends or distributions or
otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall
be entitled to receive payment of any dividend or distribution, nor to have
notice given to him as herein provided, until he has given his address to a
transfer agent or such other officer or agent of the Trustees as shall keep the
register for entry thereon. It is not contemplated that certificates will be
issued for the Shares: however, the Trustees, in their discretion, may authorize
the issuance of share certificates and promulgate appropriate rules and
regulations as to their use.
6.6. Transfer Agent and Registrar. The Trustee shall have power to
----------------------------
employ a transfer agent or transfer agents, and a registrar or registrars, with
respect to the Shares. The transfer agent or transfer agents may keep the
applicable register and record therein the original issues and transfers, if
any, of the said Shares. Any such transfer agent and registrars shall perform
the duties usually performed by transfer agents and registrars of certificates
of stock in a corporation, except as modified bY the Trustees.
6.7. Transfer of Shares. Shares shall be transferable on the records
------------------
of the Trust only by the record holder thereof or by his agent thereto duly
authorized in writing, upon delivery to the Trustees or a transfer agent of the
Trust of a duly executed instrument of transfer, together with such evidence of
the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded on
the applicable register of the Trust. Until such record is made, the Shareholder
of record shall be deemed to be the holder of such Shares for all purposes
hereof and neither the Trustees nor any transfer agent or registrar nor any
officer, employee or agent of the Trust shall be affected by any notice of the
proposed transfer.
Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or
17.
<PAGE>
otherwise by operation of law, shall be recorded on the register of Shares as
the holder of such Shares upon production of the proper evidence thereof to the
Trustees or a transfer agent of the Trust, but until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereof and neither the Trustees nor any transfer agent or registrar nor
any officer or agent of the Trust shall be affected by any notice of such death,
bankruptcy or incompetence, or other operation of law.
6.8. Notices. Any and all notices to which any Shareholder hereunder
-------
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record act his
last known address as recorded on the register of the Trust.
18.
<PAGE>
ARTICLE VII
Custodian
---------
7.1. Appointment and Duties. The Trustees shall at all times employ a
----------------------
custodian or custodians, meeting the qualifications for custodians for portfolio
securities of investment companies contained in the 1940 Act, as custodian with
respect to the Trust. Any custodian shall have authority as agent of the Trust,
but subject to such restrictions, limitations and other requirements, if any, as
may be contained in the By-Laws of the Trust and the 1940 Act:
(1) to hold the securities owned by the Trust and deliver the
same upon written order;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department (if a bank) or
elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and accounts
of the Trust and furnish clerical and accounting services; and
(5) if authorized to do so by the Trustees, to compute the net
income of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize each custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall meet the qualifications for custodians
contained in the 1940 Act.
7.2. Central Certificate System. Subject to such rules, regulations
--------------------------
and order as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with
19.
<PAGE>
the 1940 Act, pursuant to which system all securities of any particular class
or series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery of
such securities, provided that all such deposits shall be subject to withdrawal
only upon the order of the Trust.
20.
<PAGE>
ARTICLE VIII
Redemption
----------
8.1. Redemptions. All outstanding Shares may be redeemed at the option
-----------
of the holders thereof, upon and subject to the terms and conditions provided in
this Article VIII. The Trust shall, upon application of any Shareholder or
pursuant to authorization from any Shareholder, redeem or repurchase from such
Shareholder outstanding Shares for an amount per share determined by the
application of a formula adopted for such purpose by the Trustees (which formula
shall be consistent with the 1940 Act); provided that (a) such amount per share
shall not exceed the cash equivalent of the proportionate interest of each share
in the assets of the Trust at the time of the purchase or redemption and (b) if
so authorized by the Trustees, the Trust may, at any time and from time to time,
charge fees for effecting such redemption, at such rates as the Trustees may
establish, as and to the extent permitted under the 1940 Act, and may, at any
time and from time to time, pursuant to such Act, suspend such right of
redemption. The procedures for effecting redemption shall be as set forth in the
Prospectus with respect to the applicable Series from time to time.
8.2. Redemption of Shares; Disclosure of Holding. If the Trustees
-------------------------------------------
shall, at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption a number, or principal amount, of Shares or other securities of
the Trust sufficient, in the opinion of the Trustees, to maintain or bring the
direct or indirect ownership of Shares or other securities of the Trust into
conformity with the requirements for such qualification and (ii) to refuse to
transfer or issue Shares or other securities of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust in question would in
the opinion of the Trustees result in such disqualification. The redemption
shall be effected at a redemption price determined in accordance with Section
8.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.
8.3. Redemptions of Accounts of Less than $1,000. Due to the
-------------------------------------------
relatively high cost of maintaining investment accounts of less
21.
<PAGE>
than $1,000, the Trustees shall have the power to redeem shares at a redemption
price determined in accordance with Section 8.1 if at any time the total
investment in such account does not have a value of at least $1,000; provided,
however, that the Trustees may not exercise such power with respect to Shares if
the Prospectus does not describe such power. In the event the Trustees determine
to exercise their power to redeem Shares provided in this Section 8.3,
shareholders shall be notified that the value of their account is less than
$1,000 and allowed 60 days to make an additional investment before redemption is
processed.
8.4. Redemptions Pursuant to Constant Net Asset Value Formula. The
--------------------------------------------------------
Trust may also reduce the number of outstanding Shares pursuant to the
provisions of Section 9.3.
22.
<PAGE>
ARTICLE IX
Determination of Net Asset Value,
Net Income and Distributions
---------------------------------
9.1. Net Asset Value. The net asset value of each outstanding Share of
---------------
the Trust shall be determined at such time or times on such days as the Trustees
may determine, in accordance with the 1940 Act. The method of determination of
net asset value shall be determined by the Trustees and shall be as set forth in
the Prospectus. The power and duty to make the daily calculations may be
delegated by the Trustees to the adviser, administrator, manager, custodian,
transfer agent or such other person as the Trustees may determine. The Trustees
may suspend the daily determination of net asset value to the extent permitted
by the 1940 Act.
9.2. Distributions to Shareholders. The Trustees shall from time to
-----------------------------
time distribute ratably among the Shareholders such proportion of the net
profits, surplus (including paid-in surplus), capital, or assets held by the
Trustees as they may deem proper. Such distribution may be made in cash or
property (including without limitation any type of obligations of the Trust or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders additional Shares in such manner, at such times, and on such terms
as the Trustees may deem proper. Such distributions may be among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust or to meet obligations of
the Trust, or as they may deem desirable to use in the conduct of its affairs or
to retain for future requirements or extensions of the business. The Trustees
may adopt and offer to Shareholders such dividend reinvestment plans, cash
dividend payout plans or related plans as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
9.3. Constant Net Asset Value: Reduction of Outstanding Shares. The
---------------------------------------------------------
Trustees shall have the power to determine the net income of the Trust on each
day the net asset value is determined as provided in Section 9.1 and at each
such determination declare such net income as dividends with the result that the
net asset
23.
<PAGE>
value per share of the Trust shall remain at a constant dollar value. The
determination of net income and the resultant declaration of dividends shall be
as set forth in the Prospectus. In such event fluctuations in value may be
reflected in the number of outstanding Shares in each Shareholder's account. It
is expected that the Trust will have a positive net income at the time of each
determination. If for any reason such net income is a negative amount, the Trust
may offset such amount against dividends accrued in the account of the
Shareholder. If and to the extent such negative amount exceeds such accrued
dividends, the Trust shall have authority to reduce the number of the
outstanding Shares. Such reduction will be effected by having each Shareholder
proportionately contributing to capital the necessary Shares that represent the
amount of the excess upon such determination. Each Shareholder will be deemed to
have agreed to such contribution in these circumstances by his investment in the
Trust. This procedure will permit the net asset value per share of the Trust to
be maintained at a constant dollar value per share.
The Trustees, by resolution, may discontinue or amend the practice of
maintaining the net asset value per share at a constant dollar amount at any
time and such modification shall be evidenced by appropriate changes in the
Prospectus.
9.4. Power to Modify Foregoing Procedures. Notwithstanding any of the
------------------------------------
foregoing provisions of this Article IX, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per share
net asset value of the Trust's Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, or any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by said Commission, all as in effect now or
hereafter amended or modified.
24.
<PAGE>
ARTICLE X
Shareholders
------------
10.1. Voting Powers. The Shareholders shall have power to vote (i) for
-------------
the removal of Trustees as provided in Section 2.3, (ii) with respect to any
advisory or management contract as provided in Section 4.1, (iii) with respect
to the amendment of this Declaration as provided in Section 11.3, (iv) with
respect to such additional matters relating to the Trust as may be required or
authorized by the 1940 Act, the laws of the Commonwealth of Massachusetts or
other applicable law or by this Declaration or by the By-Laws of the Trust, and
(v) with respect to such additional matters relating to the Trust as may be
properly submitted for Shareholder approval.
10.2. Meetings of Shareholders. Special meetings of the Shareholders
------------------------
may be called at any time by a majority of the Trustees and shall be called by
any Trustee upon written request of Shareholders holding in the aggregate not
less than 10% of the outstanding Shares having voting rights, such request
specifying the purpose or purposes for which such meeting is to be called. Any
such meeting shall be held within or without the Commonwealth of Massachusetts
on such day and at such time as the Trustees shall designate. The holders of a
majority of outstanding Shares present in person or by proxy shall constitute a
quorum for the transaction of any business, except as may otherwise be required
by the 1940 Act, the laws of the Commonwealth of Massachusetts or other
applicable law or by this Declaration or the By-Laws of the Trust. If a quorum
is present at a meeting, the affirmative vote of a majority of the Shares
represented at the meeting constitutes the action of the Shareholders, unless
the 1940 Act, the laws of the Commonwealth of Massachusetts or other applicable
law, this Declaration or the By-Laws of the Trust requires a greater number of
affirmative votes.
10.3. Notice of Meetings. Notice of all meetings of the Shareholders,
------------------
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his registered address, mailed at least
10 days and not more than 60 days before the meeting. Only the business stated
in the notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice.
10.4. Record Date for Meetings. For the purpose of determining the
------------------------
Shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding 30 days, as the Trustees may determine; or without closing the
transfer books the Trustees may fix a date not more than 60 days prior to the
date
25.
<PAGE>
of any meeting of Shareholders or daily dividends or other action as a record
date for the determination of the Persons to be treated as Shareholders of
record for such purposes, except for dividend payments which shall be governed
by Section 9.2 hereof.
10.5. Proxies, etc. At any meeting of Shareholders, any holder of
-------------
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each full Share shall be
entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person as regards the charge or management of such Share,
he may vote by his guardian or such other person appointed or having such
control, and such vote may be given in person or by proxy.
10.6. Reports. The Trustees shall cause to be prepared at least
-------
annually a report of operations containing a balance sheet and statement of
income and undistributed income of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent public
accountant on such financial statements. Copies of such reports shall be mailed
to all Shareholders of record within the time required by the 1940 Act, and in
any event within a reasonable period preceding the annual meeting of
Shareholders. The Trustees shall, in addition, furnish to the Shareholders at
least annually, interim reports containing an unaudited balance sheet as of the
end of such period and an unaudited statement of income and surplus for the
period from the beginning of the current fiscal year to the end of such period.
10.7. Inspection of Records. The records of the Trust shall be open to
---------------------
inspection by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
26.
<PAGE>
10.8. Shareholder Action by Written Consent. Any action which may be
-------------------------------------
taken by Shareholders may be taken without a meeting if a majority of
Shareholders entitled to vote on the matter (or such larger proportion thereof
as shall be required by any express provision of this Declaration) consent to
the action in writing and the written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
27.
<PAGE>
ARTICLE XI
Duration; Termination of Trust;
Amendment; Mergers, Etc.
------------------------
11.1. Duration. Subject to possible termination in accordance with the
--------
provisions of Section 11.2 hereof, the Trust created hereby shall continue until
the expiration of 20 years after the death of the last survivor of the initial
Trustees named herein and the following named persons:
<TABLE>
<CAPTION>
Name Address Date of Birth
---- ------- -------------
<S> <C> <C>
Avery Moores Bruno 25 Rutgers Place September 19, 1983
Scarsdale, N.Y. 10583
Daryl Lian Kleiman 375 South End Avenue May 9, 1986
New York, N.Y. 10280
Lindsay Rider MacKinnon Mountain Farm Road January 27, 1981
Tuxedo Park, N.Y. 10987
Eric Alfred Pietrzak 525 Monterey Avenue January 29, 1981
Pelham Manor, N.Y. 10803
Angus Washburn Smith 26 Prescott Avenue October 15, 1982
Bronxville, N.Y. 10708
Elisabeth Lyon Smith 26 Prescott Avenue October 15, 1982
Bronxville, N.Y. 10708
</TABLE>
11.2. Termination.
-----------
(a) The Trust may be terminated by the affirmative vote of the
holders of not less than two-thirds of the Shares at any meeting of Shareholders
or by an instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than two-thirds of such
Shares. Upon the termination of the Trust,
(i) The Trust shall carry on no business except for the purpose
of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust shall have been wound up, including
the power to fulfill or discharge the contracts of the Trust, collect its
28.
<PAGE>
assets, sell, convey, assign, exchange, transfer or otherwise dispose of
all or any part of the remaining Trust Property to one or more persons at
public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay
its liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require approval of the principal terms of the transaction
and the nature and amount of the consideration by vote or consent of the
holders of a majority of the Shares entitled to vote.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination. Upon termination of the Trust, the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Shareholders shall thereupon cease.
11.3. Amendment Procedure.
-------------------
(a) This Declaration may be amended by the affirmative vote of
the holders of not less than a majority of the Shares at any meeting of
Shareholders or by an instrument in writing, without a meeting, signed by a
majority of the Trustees and consented to by the holders of not less than a
majority of such Shares. The Trustees may also amend this Declaration without
the vote or consent of Shareholders if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code, but the Trustees shall not be liable for failing so to do.
(b) No amendment may be made, under Section 11.3 (a) above, which
would change any rights with respect to any Shares of the Trust by reducing the
amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares. Nothing contained in this
Declaration shall permit the amendment of this Declaration to
29.
<PAGE>
impair the exemption from personal liability of the Shareholders, Trustees,
officers, employees and agents of the Trust or to permit assessments upon
Shareholders.
(c) A certification in recordable form signed by a majority of
the Trustees setting forth an amendment and reciting that it was duly adopted by
the Shareholders or by the Trustees as aforesaid or a copy of the Declaration,
as amended, in recordable form, and executed by a majority of the Trustees,
shall be conclusive evidence of such amendment when lodged among the records of
the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration of Trust may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
11.4. Merger, Consolidation and Sale of Assets. The Trust may merge
----------------------------------------
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for the purpose by the affirmative vote of the holders of not less than
two-thirds of the Shares, or by an instrument or instruments in writing without
a meeting, consented to by the holders of not less than two-thirds of such
Shares, and any such merger, consolidation, sale, lease or exchange shall be
deemed for all purposes to have been accomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts. In respect of any such merger,
consolidation, sale or exchange of assets, any Shareholder shall be entitled to
rights of appraisal of his Shares to the same extent as a shareholder of a
Massachusetts business corporation in respect of a merger, consolidation, sale
or exchange of assets of a Massachusetts business corporation, and such rights
shall be his exclusive remedy in respect of his dissent from any such action.
11.5. Incorporation. With the approval of the holders of a majority of
-------------
the Shares, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or
30.
<PAGE>
securities of, and enter into any contracts with any such corporation, trust,
partnership, association or organization, or any corporation, partnership,
trust, association or organization in which the Trust holds or is about to
acquire shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to such organizations or
entities.
31.
<PAGE>
ARTICLE XII
Miscellaneous
-------------
12.1. Filing. This Declaration and any amendment hereto shall be filed
------
in the office of the Secretary of the Commonwealth of Massachusetts and in such
other places as may be required under the laws of Massachusetts and may also be
filed or recorded in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and acknowleged
by a Trustee stating that such action was duly taken in a manner provided
herein, and unless such amendment or such certificate sets forth some later time
for the effectiveness of such amendment, such amendment shall be effective upon
its filing. A restated Declaration, containing the original Declaration and all
amendments theretofore made, may be executed from time to time by a majority of
the Trustees and shall, upon filing with the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
12.2. Resident Agent. The Trust shall maintain a resident agent in the
--------------
Commonwealth of Massachusetts, which agent shall initially be CT Corporation
System, 10 Post Office Square, Boston, Massachusetts 02109. The Trustees may
designate a successor resident agent, provided, however, that such appointment
shall not become effective until written notice thereof is delivered to the
office of the Secretary of the Commonwealth.
12.3. Governing Law. This Declaration is executed by the Trustees and
-------------
delivered in the Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State and reference shall be specifically made to the business
corporation law of the Commonwealth of Massachusetts as to the construction of
matters not specifically covered herein or as to which an ambiguity exists.
12.4. Counterparts. This Declaration may be simultaneously executed in
------------
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
12.5. Reliance by Third Parties. Any certificate executed by an
-------------------------
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number
32.
<PAGE>
or identity of Trustees or Shareholders, (b) the name of the Trust (c) the due
authorization of the execution of any instrument or writing, (d) the form of any
vote passed at a meeting of Trustees or Shareholders, (e) the fact that the
number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (f) the form
of any By-Laws adopted by or the identity of any officers elected by the
Trustees, or (g) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any person dealing with the Trustees and their successors.
12.6. Provisions in Conflict With Law or Regulations.
----------------------------------------------
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
33.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
/s/ Philip L. Kirstein
-------------------------------
Philip L. Kirstein
79 West Shore Drive
Pennington, NJ 08534
/s/ Michael J. Hennewinkel
-------------------------------
Michael J. Hennewinkel
7 Lookout Way
Washington Crossing, PA 09617
/s/ Barbara G. Fraser
-------------------------------
Barbara G. Fraser
324 Cedar Lane
Swarthmore, PA 19081
/s/ Robert W. Crook
-------------------------------
Robert W. Crook
249 Nehoiden Street
Needham, MA 02192
<PAGE>
EXHIBIT 99.1(b)
MERRILL LYNCH U.S.A. GOVERNMENT RESERVE
The undersigned, constituting a majority of the Trustees of
Merrill Lynch New Government Reserves, a business trust organized
under the laws of the Commonwealth of Massachusetts (the "Fund"),
hereby certify that the Trustees of the Fund have duly adopted the
following amendment to the Declaration of Trust of the Fund dated
the 17th day of November 1987.
Voted: That the Declaration of Trust, dated November 17, 1987,
be, and it hereby is, amended to change the name of the
Fund from "Merrill Lynch New Government Reserves" to
"Merrill Lynch U.S.A. Government Reserves" in the
following manner:
1.1. Name. The name of the trust created hereby
----
(the "Fund") shall be "Merrill Lynch U.S.A. Government
Reserves", and so far as may be practicable the Trustees
shall conduct the activities of the Fund, execute all
documents and sue or be sued under that name, which name
(and the word "Fund" wherever hereinafter used) shall
refer to the Trustees as Trustees, and not individually,
and shall not refer to the officers, agents, employees
or Shareholders of the Fund. However, should the
Trustees determine that the use of the name of the Fund
is not advisable, they may select such other name for
the Fund as they deem proper and the Fund may conduct
its activities under such other name. Any name change
shall become effective upon the execution by a majority
of the then Trustees of an instrument setting forth the
new name. Any such instrument shall have the status of
an amendment to this Declaration.
IN WITNESS WHEREOF, the undersigned, constituting a majority
of the Trustees of the Fund, have signed this Certificate in
duplicate original counterparts and have caused a duplicate
original to be lodged among the records of the Fund as required by
Article XI of the Declaration of Trust, as of the 30th day of
December, 1988.
<PAGE>
/S/ Arthur Zeikel /S/ George F. James
Arthur Zeikel George F. James
279 Watchung Fork Ocean Reef Club
Westfield, New Jersey 07090 Key Large, Florida 33037
/S/ James I. Armstrong /S/ Edwward H. Meyer
James I. Armstrong Edwward H. Meyer
Box 528, R.D. 1 580 Park Avenue
South Berwick, Maine 03908 New York, New York 10021
/S/ Robert F. Bryan /S/ Jack B. Sunderland
Robert F. Bryan Jack B. Sunderland
200 North Ocean Boulevard 16 Hadden Road
Delray Beach, Florida 33444 Scarsdale, New York 10583
/S/ Donald Cecil /S/ J. Thomas Touchton
Donald Cecil J. Thomas Touchton
3 Stratford Road 2801 Hawthorne Road
Harrison, New York 10528 Tampa, Florida 33611
/S/ M. Colyer Crum
M. Colyer Crum
104 Westcliff Road
Weston, MA 02193
-2-
<PAGE>
EXHIBIT 99.2
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
BY-LAWS
-------
These By-Laws are made and adopted pursuant to Section
2.7 of the Declaration of Trust establishing Merrill Lynch
U.S.A. Government Reserves dated November 17, 1987, as from time
to time amended (hereinafter called the "Declaration"). All
words and terms capitalized in these By-Laws shall have the
meaning or meanings set forth for such words or terms in the
Declaration.
ARTICLE I
---------
Shareholder Meetings
--------------------
Section 1.1. Chairman. The Chairman, if any, shall
--------
act as chairman at all meetings of the Shareholders; in his
absence, the President shall act as chairman; and in the
absence of the Chairman and the President, the Trustee or
Trustees present at each meeting may elect a temporary
chairman for the meeting, who may be one of themselves.
<PAGE>
Section 1.2. Proxies; Voting. Shareholders may vote
---------------
either in person or by duly executed proxy and each full
share represented at the meeting shall have one vote, all
as provided in Article X of the Declaration. No proxy
shall be valid after eleven (11) months from the date of
its execution, unless a longer period is expressly stated
in such proxy.
Section 1.3. Closing of Transfer Books and Fixing
------------------------------------
Record Dates. For the purpose of determining the Sharehold-
------------
ers who are entitled to notice of or to vote or act at any
meeting, including any adjournment thereof, or who are en-
titled to participate in any dividends, or for any other
proper purpose, the Trustees may from time to time close the
transfer books or fix a record date in the manner provided
in Section 10.3 of the Declaration. If the Trustees do not
prior to any meeting of Shareholders so fix a record date or
close the transfer books, then the date of mailing notice of
the meeting or the date upon which the dividend resolution
is adopted, as the case may be, shall be the record date.
Section 1.4. Inspectors of Election. In advance of
----------------------
any meeting of Shareholders, the Trustees may appoint In-
spectors of Election to act at the meeting or any adjourn-
ment thereof. If Inspectors of Election are not so appointed,
-2-
<PAGE>
the Chairman, if any, of any meeting of Shareholders may,
and on the request of any Shareholder or his proxy shall,
appoint Inspectors of Election of the meeting. The number
of Inspectors shall be either one or three. If appointed
at the meeting on the request of one or more Shareholders
or proxies, a majority of Shares present shall determine
whether one or three Inspectors are to be appointed, but
failure to allow such determination by the Shareholders shall
not affect the validity of the appointment of Inspectors of
Election. In case any person appointed as Inspector fails to
appear or fails or refuses to act, the vacancy may be filled
by appointment made by the Trustees in advance of the con-
vening of the meeting or at the meeting by the person acting
as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the
meeting, the existence of a quorum, the authenticity, valid-
ity and effect of proxies, shall receive votes, ballots or
consents, shall hear and determine all challenges and ques-
tions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, deter-
mine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Shareholders.
If there are three Inspectors of Election, the decision, act
-3-
<PAGE>
or certificate of a majority is effective in all respects as
the decision, act or certificate of all. On request of the
Chairman, if any, of the meeting, or of any Shareholder or
his proxy, the Inspectors of Election shall make a report in
writing of any challenge or question or matter determined by
them and shall execute a certificate of any facts found by
them.
Section 1.5. Records at Shareholder Meetings. At each
-------------------------------
meeting of the Shareholders there shall be open for inspec-
tion the minutes of the last previous Annual or Special Meet-
ing of Shareholders of the Trust and a list of the Share-
holders of the Trust, certified to be true and correct by
the Secretary or other proper agent of the Trust, as of
the record date of the meeting or the date of closing of
transfer books, as the case may be. Such list of Share-
holders shall contain the name of each Shareholder in alpha-
betical order and the address and number of Shares owned by
such Shareholder. Shareholders shall have such other rights
and procedures of inspection of the book; and records of the
Trust as are granted to shareholders of a Massachusetts busi-
ness corporation.
-4-
<PAGE>
ARTICLE II
----------
Trustees
--------
Section 2.1. Annual and Regular Meetings. The Trustees
---------------------------
shall hold an annual meeting for the election of officers and
the transaction of other business which may come before such
meeting, as soon as practicable after the Annual Meeting of
Shareholders. Regular meetings of the Trustees may be held
without call or notice at such place or places and times as
the Trustees may by resolution provide from time to time.
Section 2.2. Special Meetings. Special Meetings of
----------------
the Trustees shall be held upon the call of the Chairman,
if any, the President, the Secretary or any two Trustees,
at such time, on such day, and at such place, as shall be
designated in the notice of the meeting.
Section 2.3. Notice. Notice of a meeting shall be
------
given by mail or by telegram (which term shall include a
cablegram) or delivered personally. If notice is given by
mail, it shall be mailed not later than 48 hours preceding
the meeting and if given by telegram or personally, such
telegram shall be sent or delivery made not later than 48
hours preceding the meeting. Notice by telephone shall con-
stitute personal delivery for these purposes. Notice of a
-5-
<PAGE>
meeting of Trustees may be waived before or after any meeting
by signed written waiver. Neither the business to be trans-
acted at, nor the purpose of, any meeting of the Board of
Trustees need be stated in the notice or waiver of notice
of such meeting, and no notice need be given of action pro-
posed to be taken by unanimous written consent. The attend-
ance of a Trustee at a meeting shall constitute a waiver of
notice of such meeting except where a Trustee attends a
meeting for the express purpose of objecting to the trans-
action of any business on the ground that the meeting has
not been lawfully called or convened.
Section 2.4. Chairman; Records. The Chairman, if any,
-----------------
shall act as chairman at all meetings of the Trustees; in
his absence the President shall act as chairman; and, in the
absence of the Chairman and the President, the Trustees pres-
ent shall elect one of their number to act as temporary
chairman. The results of all actions taken at a meeting
of the Trustees, or by unanimous written consent of the
Trustees, shall be recorded by the Secretary.
-6-
<PAGE>
ARTICLE III
-----------
Officers
--------
Section 3.1. Officers of the Trust. The officers of
---------------------
the Trust shall consist of a Chairman, if any, a President,
a Secretary, a Treasurer and such other officers or assis-
tant officers, including Vice-Presidents, as may be elected
by the Trustees. Any two or more of the offices may be
held by the same person, except that the same person may not
be both President and Secretary. The Trustees may designate
a Vice-President as an Executive Vice-President and may de-
signate the order in which the other Vice-Presidents may act.
The Chairman and the President shall be Trustees, but no
other officer of the Trust need be a Trustee.
Section 3.2. Election and Tenure. At the initial or-
-------------------
ganization meeting and thereafter at each annual meeting of
the Trustees, the Trustees shall elect the Chairman, if any,
President, Secretary, Treasurer and such other officers as
the Trustees shall deem necessary or appropriate in order to
carry out the business of the Trust. Such officers shall
hold office until the next annual meeting of the Trustees
and until their successors have been duly elected and quali-
-7-
<PAGE>
fied. The Trustees may fill any vacancy in office or add any
additional officers at any time.
Section 3.3. Removal of officers. Any officer may be
-------------------
removed at any time, with or without cause, by action of a
majority of the Trustees. This provision shall not prevent
the making of a contract of employment for a definite term
with any officer and shall have no effect upon any cause of
action which any officer may have as a result of removal in
breach of a contract of employment. Any officer may resign
at any time by notice in writing signed by such officer and
delivered or mailed to the Chairman, if any, President, or
Secretary, and such resignation shall take effect immediately
upon receipt by the Chairman, if any, President, or Secretary,
or at a later date according to the terms of such notice in
writing.
Section 3.4. Bonds and Surety. Any officer may be re-
----------------
quired by the Trustees to be bonded for the faithful perform-
ance of his duties in such amount and with such sureties as
the Trustees may determine.
Section 3.5. Chairman, President, and Vice-Presidents.
----------------------------------------
The Chairman, if any, shall, if present, preside at all meet-
ings of the Shareholders and of the Trustees and shall exer-
cise and perform such other powers and duties as may be from
-8-
<PAGE>
time to time assigned to him by the Trustees. Subject to
such supervisory powers, if any, as may be given by the
Trustees to the Chairman, if any, the President shall be
the chief executive officer of the Trust and, subject to
the control of the Trustees, shall have general supervision,
direction and control of the business of the Trust and of
its employees and shall exercise such general powers of
management as are usually vested in the office of President
of a corporation. In the absence of the Chairman, if any,
the President shall preside at all meetings of the Share-
holders and of the Trustees. The President shall be, ex
officio, a member of all standing committees. Subject to
direction of the Trustees, the Chairman, if any, and the
President shall each have power in the name and on behalf
of the Trust to execute any and all loan documents, con-
tracts, agreements, deeds, mortgages, and other instruments
in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees,
the Chairman, if any, and the President shall each have full
authority and power, on behalf of all of the Trustees, to
attend and to act and to vote, on behalf of the Trust at any
meetings of business organizations in which the Trust holds
an interest, or to confer such powers upon any other persons,
-9-
<PAGE>
by executing any proxies duly authorizing such persons. The
Chairman, if any, and the President shall have such further
authorities and duties as the Trustees shall from time to
time determine. In the absence or disability of the Presi-
dent, the Vice-Presidents in order of their rank as fixed
by the Trustees or, if more than one and not ranked, the
Vice-President designated by the Trustees,, shall perform
all of the duties of the President, and when so acting shall
have all the powers of and be subject to all of the restric-
tions upon the President. Subject to the direction of the
Trustees, and of the President, each Vice-President shall
have the power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements,
deeds, mortgages and other instruments in writing, and, in
addition, shall have such other duties and powers as shall
be designated from time to time by the Trustees or by the
President.
Section 3.6. Secretary. The Secretary shall keep the
---------
minutes of all meetings of, and record all votes of, Share-
holders, Trustees and the Executive Committee, if any. He
shall be custodian of the seal of the Trust, if any, and he
(and any other person so authorized by the Trustees) shall
affix the seal or, if permitted, a facsimile thereof, to any
-10-
<PAGE>
instrument executed by the Trust which would be sealed by a
Massachusetts corporation executing the same or a similar
instrument and shall attest the seal and the signature or
signatures of the officer or officers executing such instrument
on behalf of the Trust. The Secretary shall also perform
any other duties commonly incident to such office it a
Massachusetts business corporation, and shall have such
other authorities and duties as the Trustees shall from time
to time determine.
Section 3.7. Treasurer. Except as otherwise directed
---------
by the Trustees, the Treasurer shall have the general super-
vision of the monies, funds, securities, notes receivable
and other valuable papers and documents of the Trust, and
shall have and exercise under the supervision of the Trustees
and of the President all powers and duties normally incident
to his office. He may endorse for deposit or collection all
notes, checks and other instruments payable to the Trust or
to its order. He shall deposit all funds of the Trust it
such depositories as the Trustees shall designate. He shall
be responsible for such disbursement of the funds of the
Trust as may be ordered by the Trustees or the President.
He shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust, and
-11-
<PAGE>
which together with all other property of the Trust in his
possession, shall be subject at all times to the inspection
and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal
accounting officer of the Trust and shall also be the
principal financial officer of the Trust. He shall have
such other duties and authorities as the Trustees shall
from time to time determine. Notwithstanding anything to
the contrary herein contained, the Trustees may authorize
any adviser, administrator, manager or transfer agent to
maintain bank accounts and deposit and disburse funds of
the Trust.
Section 3.8. Other Officers and Duties. The Trustees
-------------------------
may elect such other officers and assistant officers as they
shall from time to time determine to be necessary or desir-
able in order to conduct the business of the Trust. Assis-
tant officers shall act generally in the absence of the of-
ficer whom they assist and shall assist that officer in the
duties of his office. Each officer, employee and agent of
the Trust shall have such other duties and authority as may
be conferred upon him by the Trustees or delegated to him by
the President.
-12-
<PAGE>
ARTICLE IV
----------
Miscellaneous
-------------
Section 4.1. Depositories. In accordance with Section
------------
7.1 of the Declaration, the funds of the Trust shall be de-
posited with such custodian or custodians as the Trustees
shall designate and shall be drawn out on checks, drafts or
other orders signed by such officer, officers, agent or
agents (including any adviser, administrator or manager), as
the Trustees may from time to time authorize.
Section 4.2. Signatures. All contracts and other in-
----------
struments shall be executed on behalf of the Trust by such
officer, officers, agent or agents, as provided in these
By-Laws or as the Trustees may from time to time by reso-
lution provide.
Section 4.3. Seal. The seal of the Trust, if any,
----
may be affixed to any document, and the seal and its attesta-
tion may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and
with the same effect as if done by a Massachusetts business
corporation.
-13-
<PAGE>
ARTICLE V
---------
Stock Transfers
---------------
Section 5.1. Certificates. Certificates representing
------------
Shares of the Trust shall not be issued.
Section 5.2. Transfer Agents, Registrars and the Like.
----------------------------------------
As provided in Section 6.6 of the Declaration, the Trustees
shall have authority to employ and compensate such transfer
agents and registrars with respect to the Shares of the
Trust as the Trustees shall deem necessary or desirable. In
addition, the Trustees shall have power to employ and com-
pensate such dividend disbursing agents, warrant agents and
agents for the reinvestment of dividends as they shall deem
necessary or desirable. Any of such agents shall have such
power and authority as is delegated to any of them by the
Trustees.
Section 5.3. Transfer of Shares. The Shares of the
------------------
Trust shall be transferable on the books of the Trust only
upon delivery to the Trustees or a transfer agent of the
Trust of proper documentation as provided in Section 6.7
of the Declaration. The Trust, or its transfer agents, shall
be authorized to refuse any transfer unless and until pre-
sentation of such evidence as may be reasonably required to
show that the requested transfer is proper.
-14-
<PAGE>
Section 5.4. Registered Shareholders. The Trust may
-----------------------
deem and treat the holder of record of any Share as the ab-
solute owner thereof for all purposes and shall not be re-
quired to take any notice of any right or claim of right of
any other person.
ARTICLE VI
----------
Amendment of By-Laws
--------------------
Section 6.1. Amendment and Repeal of By-Laws. In ac-
-------------------------------
cordance with Section 2.7 of the Declaration, the Trustees
shall have the power to alter, amend or repeal the By-Laws
or adopt new By-Laws at any time. Action by the Trustees
with respect to the By-Laws shall be taken by an affirmative
vote of a majority of the Trustees. The Trustees shall in
no event adopt By-Laws which are in conflict with the De-
claration, and any apparent inconsistency shall be construed
in favor of the related provisions in the Declaration.
The Declaration of Trust establishing Merrill Lynch
U.S.A. Government Reserves, dated July 29, 1982, 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
-15-
<PAGE>
Merrill Lynch U.S.A. Government Reserves shall be held to
any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or
claim or otherwise in connection with the affairs of said
Merrill Lynch U.S.A. Government Reserves but the Trust
Property only shall be liable.
-16-
<PAGE>
EXHIBIT 99.5
MANAGEMENT AGREEMENT
AGREEMENT made this 3Oth day of December, 1988 by and between MERRILL
LYNCH U.S.A. GOVERNMENT RESERVES, a Massachusetts business trust (hereinafter
referred to as the "Fund"), and MERRILL LYNCH ASSET MANAGEMENT, INC., a
Delaware corporation (hereinafter referred to as the "Manager").
WITNESSETH:
WHEREAS, the Fund is engaged in business as a diversified open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Fund on the terms and conditions hereinafter set forth.
Now, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Manager agree as follows:
ARTICLE I
DUTIES OF THE MANAGER
The Fund hereby employs the Manager to act as the manager and investment
adviser of the Fund and to furnish, or arrange for affiliates to furnish, the
management and investment advisory services described below, subject to the
supervision of the Trustees of the Fund, for the period and on the terms and
conditions set forth in this Agreement. The Manager hereby accepts such
employment and agrees during such period, at its own expense, to render, or
arrange for the rendering of, such services and to assume the obligations herein
set forth for the compensation provided for herein. The Manager and its
affiliates shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
(a) Management Services. The Manager shall perform (or arrange for the
performance by affiliates of) the management and administrative services
necessary for the operation of the Fund including processing shareholder orders,
administering shareholder accounts and handling shareholder relations. The
Manager shall provide the Fund with office space, equipment and facilities and
such other services as the Manager, subject to review by the Trustees, shall
from time to time determine to be necessary or useful to perform its obligations
under this Agreement. The Manager shall also, on behalf of the Fund. conduct
relations with custodians, depositories, transfer agents, accountants,
attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers,
banks and such other persons in any such other capacity deemed to be necessary
or desirable. The Manager shall make reports to the Trustees of its performance
of obligations hereunder and furnish advice and recommendations with respect to
such other aspects of the business and affairs of the Fund as it shall determine
to be desirable.
1
<PAGE>
(b) Investment Advisory Services. The Manager shall provide the Fund with
such investment research, advice and supervision as the later may from time to
time consider necessary for the proper supervision of the assets of the Fund,
shall furnish continuously an investment program for the Fund and shall
determine from time to time which securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held in the
various securities in which the Fund invests or cash, subject always to the
restrictions of the Declaration of Trust and By-Laws of the Fund, as amended
from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objectives, investment policies and
investment restrictions as the same are set forth in the currently effective
prospectus relating to the shares of beneficial interest of the Fund under the
Securities Act of 1933, as amended (the "Prospectus"). The Manager shall also
make decisions for the Fund as to the manner in which voting rights, rights to
consent to corporate action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. Should the Trustees at any time,
however, make any definite determination as to investment policy and notify the
Manager thereof in writing, the Manager shall be bound by such determination for
the period, if any specified in such notice or until similarly notified that
such determination has been revoked. The Manager shall take, on behalf of the
Fund, all actions which it deems necessary to implement the investment policies
determined as provided above, and in particular to place all orders for the
purchase or sale of portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end, the Manager is authorized as the agent
of the Fund to give instructions to the Custodian of the Fund as to deliveries
of securities and payments of cash for the account of the Fund. In connection
with the selection of such brokers or dealers and the placing of such orders
with respect to assets of the Fund, the Manager is directed at all times to seek
to obtain execution and price within the policy guidelines determined by the
Trustees of Fund and set forth in the Prospectus. Subject to this
requirement and the provisions of the Investment Company Act, the Securities
Exchange Act of 1934, as amended. and other applicable provisions of law, the
Manager may select brokers or dealers with which it or the Fund is affiliated.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Manager. The Manager assumes and shall pay for maintaining the
staff and personnel necessary to perform its obligations under this Agreement,
and shall at its own expense, provide the office space, equipment and facilities
which it is obligated to provide under Article I hereof, and shall pay all
compensation of officers of the Fund and all Trustees of the Fund who are
affiliated persons of the Manager.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund (except for the expenses incurred by the Distributor),
including, without limitation redemption expenses, expenses of portfolio
transactions, expenses of registering shares under Federal and state securities
laws, pricing costs (including the daily calculation of net asset value),
expenses of printing shareholder reports and prospectuses, Securities and
Exchange Commission fees, interest, taxes, fees and actual out-of-pocket
expenses of Trustees who are not affiliated persons of the Manager, fees for
legal and auditing services, litigation expenses, costs of printing proxies and
other expenses related to shareholders meetings, and other expenses properly
payable by the Fund. It is also understood that the Fund will reimburse the
Manager for its costs in providing accounting services to the Fund. The
Distributor will pay certain of the expenses of the Fund incurred in connection
with the continuous offering of Fund shares.
2
<PAGE>
ARTICLE III
COMPENSATION OF THE MANAGER
(a) Management Fee. For the services rendered, the facilities furnished and
the expenses assumed by the Manager, the Fund shall pay to the Manager
compensation at the annual rate of 0.45 of one percent (0.45%), calculated as
hereinafter set forth, commencing on the day following effectiveness hereof.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and paid monthly by applying the annual rate to the
average daily net assets of the Fund determined as of each business day. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth above. Subject to the provisions of
subsection (b) hereof, payment of the Manager's compensation for the preceding
month shall be made as promptly as possible after completion of the computations
contemplated by subsection (b) hereof.
(b) Expense Limitations. In the event the operating expenses of the Fund,
including amounts payable to the Manager pursuant to subsection (a) hereof, for
any fiscal year ending on a date which this Agreement is in effect exceed the
expense limitations applicable to the Fund imposed by applicable state
securities laws or regulations thereunder, as such limitations may be raised or
lowered from time to time. the Manager shall reduce its management fee by the
extent of such excess and, if required pursuant to any such laws or regulations,
will reimburse the Fund in the amount of such excess, provided, however, to the
extent permitted by law, there shall be excluded from such expenses the amount
of any interest, taxes, brokerage commissions and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation costs
and any indemnification related thereto) paid or payable by the Fund. Whenever
the expenses of the Fund exceed a pro rata portion of the applicable annual
expense limitations, the estimated amount of reimbursement under such
limitations shall be applicable as an offset against the monthly payment of the
fee due to the Manager. Should two or more such expense limitations be
applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Manager's fee shall be
applicable.
ARTICLE IV
LIMITATION OF LIABILITY OF THE MANAGER
The Manager shall not be liable for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Article IV, the term
"Manager" shall include any affiliates of the Manager performing services for
the Fund contemplated hereby and directors, officers and employees of the
Manager and such affiliates.
ARTICLE V
ACTIVITIES OF THE MANAGER
The services of the Manager to the Fund are not to be deemed to be
exclusive, the Manager being free to render services to others. It is understood
that Trustees, officers, employees and shareholders of
3
<PAGE>
the Fund are or may become interested in the Manager, as directors, officers,
employees and shareholders or otherwise and that directors, officers, employees
and shareholders of the Manager are or may become similarly interested in the
Fund, and that the Manager may become interested in the Fund as shareholder or
otherwise.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first above written
and shall remain in force until February 28, 1985 and thereafter, but only so
long as such continuance is specifically approved at least annually by (i) the
Trustees of the Fund, or by the vote of a majority of the outstanding voting
securities of the Fund, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of the Fund or by vote of a majority of the outstanding
voting securities of the Fund, or by the Manager, on sixty days written notice
to the other party. This Agreement shall automatically terminate in the event of
its assignment.
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with laws of the State of
New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
4
<PAGE>
ARTICLE X
PERSONAL LIABILITY
The Declaration of Trust establishing Merrill Lynch U.S.A. Government
Reserves, dated July 29, 1982. 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 Merrill Lynch U.S.A. Government Reserves shall be
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim of said Merrill Lynch
U.S.A. Government Reserves, but the Trust Property only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
By
......................................
MERRILL LYNCH ASSET MANAGEMENT INC.
By
......................................
5
<PAGE>
EXHIBIT 99.6
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made this 30th day of December, 1988
between MERRILL LYNCH U.S.A. GOVERNMENT RESERVES, a trust
organized under the laws of Massachusetts (the "Fund"), and
MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation
(the "Distributor");
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Fund is registered under the investment Company
Act of 1940, as amended (the "Investment Company Act"), as a
diversified open-end investment company and it is affirmatively
in the interest of the Fund to offer its shares for sale in a
continuous offering; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either
directly to investors or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Fund's shares to commence after the effectiveness of its
initial registration statement filed pursuant to the Securities
Act of 1933, as amended (the "Securities Act").
<PAGE>
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
------------------------------
appoints the Distributor as the exclusive distributor and
representative of the Fund to sell shares of beneficial interest,
par value $.10 per share (the "shares") to the public and the
Distributor hereby accepts such appointment. The Fund during the
term of this Agreement shall sell its shares to the Distributor
upon the terms and conditions set forth below.
Section 2. Exclusive Nature of Duties. The Distributor
--------------------------
shall be the exclusive representative of the Fund to act as
principal underwriter and distributor, except that such exclusive
rights shall not apply to shares issued by the Trust pursuant to
reinvestments of dividends and capital gains distributions.
Section 3. Purchase of Shares from the Fund.
--------------------------------
(a) The Distributor shall have the right to buy from the
Fund the shares needed, but not more than the shares needed
(except for clerical errors in transmission) to fill
unconditional orders for shares of the Fund placed with the
Distributor by investors or securities dealers. The price which
the Distributor shall pay for the shares so purchased from the
Fund shall be the net asset value, determined as set forth in
Section @(c) hereof, used in determining the public offering
price described below on which such orders were based.
(b) The shares are to be resold by the Distributor to
investors at the public offering price, as set forth in Section
2
<PAGE>
3(c) hereof, or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7
hereof.
(c) The public offering price of the shares, i.e., the price,
per share at which the Distributor may sell shares to the public,
shall be the public offering price as set forth in the currently
effective prospectus of the Fund under the Securities Act (the
"Prospectus") relating to such shares, which shall be the net
asset value thereof, as determined in accordance with the
description thereof contained in the Prospectus.
(d) The Fund, or any agent of the Fund designated in
writing by it, shall be promptly advised of all purchase orders
for shares received by the Distributor. Procedures may be
established by the Fund and the Distributor whereby purchase
orders for shares are presented directly to the Fund or an agent
designated by the Fund upon the condition that in such cases it
shall be deemed that the sale of the shares to be purchased is
made pursuant to this Section 3. Any order may be rejected by
the Fund or the Distributor, provided, however, that neither will
arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of shares. The Fund (or its
agent) will confirm orders upon their receipt, or in accordance
with any exemptive order of the Securities and Exchange
Commission, and will make appropriate book entries pursuant to
the instructions of the Distributor. Purchase orders are
3
<PAGE>
effective when Federal Funds become available to the Fund. The
Distributor agrees to cause such payment and such instructions to
be delivered promptly to the Fund (or its agent).
Section 4. Redemption or Repurchase of Shares by the Fund.
-----------------------------------------------
(a) Outstanding shares may be tendered for redemption or
repurchase in accordance with the Prospectus and the Fund shall
redeem or repurchase the shares so tendered in accordance with
its obligations and rights as set forth in its Declaration of
Trust, as amended from time to time, and in accordance with the
applicable provisions contained in the Prospectus. The Fund
shall pay the total amount of the redemption price as determined
in accordance with such procedures as are set forth in the
Declaration of Trust, as amended from time to time, and the
Prospectus.
(b) The Fund reserves the right to reject any order for
repurchase through a securities dealer, but the right to redeem
shares, or to receive payment with respect to any such
redemption, upon the presentation of properly submitted
redemption requests in accordance with the procedures set forth
in the Prospectus may only be suspended in accordance with the
provisions of the Investment Company Act.
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other documents which the
Distributor may reasonably request for use in connection with the
4
<PAGE>
distribution of shares of the Fund, and this shall include one
certified copy, upon request by the Distributor, of all financial
statements of the Fund by independent public accountants. The
Fund shall make available to the Distributor such number of
copies of the Prospectus as the Distributor shall reasonably
request.
(b) The Fund shall take, from time to time, all necessary
action to register shares under the Securities Act to the end
that there will be available for sale such number of shares as
the Distributor may reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of shares for
sale under the securities laws of such states as the Distributor
and the Fund may approve. Any such qualification may be
withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualifications.
(d) The Fund will furnish to the Distributor, in reasonable
quantities upon request by the Distributor, copies of annual and
interim reports.
Section 6. Duties of the Distributor.
-------------------------
5
<PAGE>
(a) The Distributor shall devote reasonable time and effort
to effect sales of shares of the Fund, but shall not be obligated
to sell any specific number of shares. The services of the
Distributor hereunder are not to be deemed exclusive and nothing
herein contained shall prevent the Distributor from entering into
distribution arrangements with other investment companies so long
as the performance of its obligations hereunder is not impaired
thereby.
(b) In selling the shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the
requirements of all federal and state laws and regulations and
the regulations of the National Association of Securities
Dealers, Inc. (the "NASD") relating to the sale of such
securities. Neither the Distributor nor any other person is
authorized by. the Fund to give any information or to make any
representations, other than those contained in the Prospectus or
any sales literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the Fund, for the confirmation of sales to investors
and selected dealers, the collection of amounts payable by
investors on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements
of the NASD, as such requirements may from time to time exist.
Section 7. Selected Dealer Agreements.
--------------------------
6
<PAGE>
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of shares; provided, however,
that the form of selected dealer agreement shall be approved by
the Trust. Shares sold to selected dealers shall be for resale
by such dealers only in accordance with
the provisions of the Prospectus. The form of selected dealer
agreement is appended hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell shares only to such selected dealers as are members in
good standing of the NASD.
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all of its costs and expenses,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required
registration statements and prospectuses under the Investment
Company Act, the Securities Act, and all amendments and
supplements thereto, and the expense of preparing, printing,
mailing and otherwise distributing prospectuses, annual or
interim reports and proxy materials to its shareholders.
(b) After the prospectuses and annual and interim reports
have been prepared, set in type and mailed to shareholders, the
Distributor shall bear the costs and expenses of printing and
distributing any copies thereof which are used in connection with
the offering of the shares. The Distributor shall bear the costs
7
<PAGE>
and expenses of preparing, printing and distributing any
supplementary Bales literature used by the Distributor in
connection with the offering of the shares for sale. Any
expenses of advertising incurred in connection with such offering
will also be the obligation of the Distributor.
(c) The Fund shall bear the cost and expenses of
qualification of the shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a
broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the
Distributor, and the cost and expenses payable to each such state
for continuing qualification therein until the Fund decides to
discontinue such qualification.
Section 9. Indemnification.
---------------
(a) The Fund shall indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith, arising by reason of any
person acquiring any shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the
ground that the registration statement or related Prospectus, as
from time to time amended and supplemented, or an annual or
interim report to shareholders of the Fund includes an untrue
8
<PAGE>
statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or
on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of the Fund in favor of the Distributor and
any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the
Distributor or any such controlling persons would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Fund to be liable under its indemnity
agreement contained in this paragraph with respect to any claim
made against the Distributor or any such controlling persons,
unless the Distributor or such controlling persons, as the case
may be, shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after
the Distributor or such controlling persons shall have received
notice-of such service on any designated agent), but failure to
notify the Fund of any such claim shall not relieve it from any
9
<PAGE>
liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any
such liability, but if the Fund elects to assume the defense,
such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the
Fund elects to assume the defense of any such suit and retain
such counsel, the Distributor or such controlling person or
persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in
case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them.
The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any
of its officers or Trustees in connection with the issuance or
sale of any of the shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Trustees and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage, or expense described in the foregoing indemnity contained
10
<PAGE>
in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the
registration statement or related Prospectus, as from time to
time amended, or the annual or interim reports to shareholders
of the Fund. In case any action shall be brought against the
Fund or any person so indemnified, in respect of which indemnity
may be sought against the Distributor, the Distributor shall have
the rights and duties given to the Fund, and the Fund and each
person so indemnified shall have the rights and duties given to
the Distributor by the provisions of subsection (a) of this
Section 9.
section 10. Duration and Termination of this Agreement.
------------------------------------------
This Agreement shall become effective as of the date-first above
written and shall remain in force until May 31, 1984 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Trustees of the Fund, or by
the vote of a majority of the outstanding voting securities of
the Fund, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Trustees of the Fund or by vote of
11
<PAGE>
a majority of the outstanding voting securities of the Fund, or
by the distributor, on sixty days' written notice to the other
party. This Agreement shall automatically terminate in the event
of its assignment.
Section 11. Amendments. This Agreement may be amended by
----------
the parties hereto only if such amendment is specifically
approved (i) by the Trustees of the Fund, or by the vote of a
majority of outstanding voting securities of the Fund, and
(ii) by a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party, which vote
must be cast in person at a meeting called for the purpose of
voting on such approval.
Section 12. Definitions of Certain Terms. The terms "vote
-----------------------------
of a majority of the outstanding voting securities",
"assignment", "interested person" and "affiliated person", when
used in this Agreement, shall have the respective meanings
specified in the Investment Company Act.
Section 13. Governing Law. This Agreement shall be
-------------
construed in accordance with the laws of the State of New York
and the applicable provisions of the Investment Company Act. To
the extent the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of
the Investment Company Act, the latter shall control.
Section 14. Personal Liability. The Declaration of Trust
------------------
establishing Merrill Lynch U.S.A. Government Reserves, dated
12
<PAGE>
July 29, 1982, 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 Merrill Lynch U.S.A. Government
Reserves shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the
affairs of said Merrill Lynch U.S.A. Government Reserves, but the
Trust Property only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above
written.
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
By
-------------------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-------------------------------------
13
<PAGE>
Exhibit A
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
-------------------------
1982
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch U.S.A. Government Reserves, a
Massachusetts business trust (the "Fund"), pursuant to which it
acts as the distributor for the sale of shares of beneficial
interest, par value $.10 per share (the "shares"), of the Fund,
and as such has the right to distribute shares for resale. The
Fund is a diversified open-end investment company registered
under the Investment Company Act of 1940, as amended, and the
shares being offered are registered under the Securities Act of
1933, as amended. You have received a copy of the Distribution
Agreement between ourselves and the Fund and reference is made
herein to certain provisions of such Distribution Agreement. The
term "Prospectus" as used herein refers to the prospectus on file
with the Securities and Exchange Commission which is part of the
most recent effective registration statement relating to the
shares filed pursuant to the Securities Act of 1933, as amended.
As principal, we offer to sell to you, as a selected dealer,
shares of the Fund upon the following terms and conditions:
1. In all sales of these shares to the public you shall act
as dealer for your own account, and in no transaction shall you
have any authority to act as agent for the Fund or for us.
<PAGE>
2. Shares may be offered by you only as described in the
Prospectus. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the Prospectus. The procedure relating to the
handling of orders shall be subject to Section 4 hereof and
instructions which we or the Fund shall forward to you from time
to time. All orders are subject to acceptance or rejection by
the Distributor or the Fund in the sole discretion of either.
The minimum initial and subsequent purchase requirements are as
set forth in the Prospectus.
3. You agree that you will not place orders for any shares
except in accordance with the procedures described in the
Prospectus. You agree that you will not offer or sell any of the
shares except under circumstances that will result in compliance
with the applicable Federal and state securities laws and that in
connection with sales and offers to sell shares you will furnish
to each person to whom any such sale or offer is made a copy of
the Prospectus (as then amended or supplemented) and will not
furnish to any person any information relating to the shares
which is inconsistent in any respect with the information
contained in the Prospectus (as then amended or supplemented) or
cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of
the Fund.
4. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for shares to be sold by us
to you subject to the applicable terms and conditions governing
the placement of orders by us set forth in Section 3 of the
Distribution Agreement, and (ii) to tender shares directly to the
Fund or its agent for redemption subject to the applicable terms
and conditions set forth in Section 4 of the Distribution
Agreement and the Prospectus.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such
withholding: e.g., by a change in the "net asset value" from that
used in determining the offering price to your customers.
6. No person is authorized to make any representations
concerning shares except those contained in the Prospectus and in
such printed information subsequently issued by us or the Fund as
information supplemental to such Prospectus. In purchasing
shares through us you shall rely solely on the representations
contained in the Prospectus and supplemental information above
mentioned. Any printed information which we furnish you other
than the Fund's Prospectus, periodic reports and proxy
solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall
2
<PAGE>
have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
7. You agree to deliver to any purchasers whose shares you
are holding as record holder copies of the Prospectus, as amended
from time to time, and the annual and interim reports and proxy
solicitation materials relating to the Fund. You further agree
to make reasonable efforts to endeavor to obtain proxies from
such purchasers whose shares you are holding as record holder.
Additional copies of the Prospectus, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to
you in reasonable quantities upon request.
8. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of shares entirely.
Each party hereto has the right to cancel this agreement upon
notice to the other party.
9. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering. We shall be under no liability to you
except for lack of good faith and for obligations expressly
assumed by us herein. Nothing contained in this paragraph is
intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of
compliance with any provisions of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any
sales in the United States, we both hereby agree to abide by the
Rules of Fair Practice of such Association.
11. upon application to us, we will inform you as to the
states or other jurisdictions in which we believe the shares have
been qualified for sale under, or are exempt from the
requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to
sell shares in any jurisdiction. We will file with the
Department of State in New York a Further State Notice with
respect to the shares, if necessary.
12. We shall have full authority to act upon your-express
instructions to effect transactions in shares-through us on
behalf of your customers under the terms and conditions provided
in the Prospectus. You agree to hold us free and harmless as a
result of action taken with respect to authorized repurchases or
exchanges upon your express instructions.
3
<PAGE>
13. All communications to us should be sent to 633 Third
Avenue, New York, New York 10017. Any notice to you shall be
duly given if mailed or telegraphed to you at the same address.
Please indicate your acceptance of this Agreement by signing
and returning one copy to us at our address specified above.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
------------------------------------
(Authorized Signature)
Accepted:
Firm Name:
----------------------------
By:
-----------------------------------
Address:
------------------------------
Date:
---------------------------------
4
<PAGE>
EXHIBIT 99.8
CUSTODY AGREEMENT
-----------------
Agreement made as of this 11th day of November , 1982
between MERRILL LYNCH U.S.A. GOVERNMENT RESERVES, an
unincorporated business trust organized under the laws of
the State of Massachusetts having its principal office and
place of business at 633 Third Ave., New York, New York 10017
(hereinafter called the "Fund"), and THE BANK OF NEW YORK, a
New York corporation authorized to do a banking business,
having its principal office and place of business at 48 Wall
Street, New York, New York 10015 (hereinafter called the
"Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises herein-
after set forth the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words
and phrases, unless the context otherwise requires, shall
have the following meanings:
1. "Authorized Person" shall be deemed to include the
Treasurer, the Controller or any other person, whether or
not any such person is an Officer or employee of the Fund,
duly authorized by the Board of Trustees of the Fund to give
Oral Instructions and Written Instructions on behalf of the
Fund and listed in the Certificate annexed hereto as Append-
ix-A or such other Certificate as may be received by the
Custodian from time to time.
2. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and
federal agency securities, its successor or successors and
its nominee or nominees.
3. "Certificate" shall mean any notice, instruction,
or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian which is actu-
ally received by the Custodian and signed on behalf of the
Fund by any two Officers of the Fund.
<PAGE>
4. "Depository" shall mean The Depository Trust Com-
pany ("DTC"), a clearing agency registered with the Securi-
ties and Exchange Commission, its successor or successors
and its nominee or nominees, provided the Custodian has
received a certified copy of a resolution of the Fund's
Board of Trustees specifically approving deposits in DTC.
The term "Depository" shall further mean and include any
other person authorized to act as a depository under the
Investment Company Act of 1940, its successor or successors
and its nominee or nominees, specifically identified in a
certified copy of a resolution of the Fund's Board of
Trustees specifically approving deposits, herein by the
Custodian.
5. "Officers" shall be deemed to include the Presi-
dent, any Vice President, the Secretary, the Treasurer, the
Controller, any Assistant Secretary, any Assistant Treasurer
or any other person or persons duly authorized by the Board
of Trustees of the Fund to execute any Certificate, instruc-
tion, notice or other instrument on behalf of the Fund and
listed in the Certificate annexed hereto as Appendix B or
such other Certificate as may be received by the Custodian
from time to time.
6. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Authorized Person
or from a person reasonably believed by the Custodian to be
an Authorized Person.
7. "Security" shall mean debt obligations issued or
guaranteed as to principal and interest by the government of
the United States or agencies or instrumentalities thereof,
commercial paper, certificates of deposit and bankers'
acceptances, variable amount master demand notes, repurchase
agreements with respect to the same and bank time deposits,
where the purchase and sale of such securities normally
requires settlement in federal funds on the same day as such
purchase or sale.
8. "Written Instructions" shall mean written communi-
cations actually received by the Custodian from an Autho-
rized Person or from a person reasonably believed by the
Custodian to be an Authorized Person by telex or any other
such system where by the receiver of such communications is
able to verify by codes or otherwise with a reasonable
degree of certainty the authenticity of the sender of such
communication.
- 2 -
<PAGE>
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby consitutes and appoints the Custo-
dian as custodian of all the Securities and moneys at any
time owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian of Securities and money owned by the Fund and
agrees to perform the duties thereof as hereinafter set
forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. The Fund will deliver or cause to be delivered to
the Custodian all Securities and all moneys owned by it,
including cash received for the issuance of its shares, at
any time during the period of this Agreement. The Custodian
will not be responsible for such Securities and such moneys
until actually received by it. The Custodian will be
entitled to reverse any credits made on the Fund's behalf
where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custo-
dian a certified resolution of the Board of Trustees of the
Fund approving, authorizing, and instructing the Custodian on
a continuous and on-going basis to deposit in the. Book-Entry
all Securities eligible for deposit therein and to utilize
the Book-Entry System to the extent possible in connection
with its performance hereunder, including, without limita-
tion, in connection with settlements of purchases and sales
of Securities, loans of Securities, and deliveries and
returns of Securities including, without limitation, in
connection with settlements of purchases and sales of Secu-
rities, loans of Securities, and deliveries and returns of
Securities collateral. Securities and moneys of the Fund
deposited in either the Book-Entry System or the Depository
will be represented in accounts which include only assets
held by the Custodian for customers, including, but not
limited to, accounts in which the Custodian acts In a fidu-
ciary or representative capacity.
2. The Custodian shall credit to a separate account
in the name of the Fund all moneys received by it for, the
account of the Fund, and shall disburse the same only:
- 3 -
<PAGE>
(a) In payment for Securities purchased, as pro-
vided in Article IV hereof;
(b) In payment of dividends or distributions as
provided in Article V hereof;
(c) In payment of original issue or other taxes,
as provided in Article VI hereof;
(d) In payment for capital stock of the Fund
redeemed by it, as provided in Article VI hereof;
(e) Pursuant to Certificates setting forth the
name and address of the person to whom the payment is to be
made, and the purpose for which payment is to be made; or
(f) In payment of the fees and in reimbursement
of the expenses and liabilities of the Custodian, as provid-
ed in Article IX hereof.
3. Promptly after the close of business on each day
the Custodian shall furnish the Fund with confirmations and
a summary of all, transfers to or from the account of the
Fund hereunder during said day. Where Securities are trans-
ferred to the account of the Fund hereunder, the Custodian
shall also by book entry or otherwise identify as belonging
to the Fund a quantity of Securities in a fungible bulk of
Securities registered in the name of the Custodian (or its
nominee) or shown on the Custuodian's account on the books of
the Book-Entry System or the Depository. At least monthly
and from time to time, the Custodian shall furnish the Fund
with a detailed statement of the Securities and moneys held
for the Fund hereunder.
4. All Securities held for the Fund hereunder, which
are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be
held by the Custodian in that form; all other Securities
held for the Fund hereunder may be registered in the name of
the Fund, in the name of any duly appointed registered nomi
nee of the Custodian as the Custodian may from time to time
determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their
nominee or nominees. The Fund agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to
hold or deliver in proper form for transfer, or to register
in the name of its registered nominee or in the name of the
Book-Entry System or the Depository any Securities which it
may hold hereunder for the account of the Fund and which may
from time to time be registered in the name of the Fund.
- 4 -
<PAGE>
The Custodian hold all such Securities which are not
held in the Book-Entry System or in the Depository in a
separate account in the name of the Fund physically segre-
gated at all times from those of any other person or
persons.
5. Unless otherwise instructed to the contrary by a
Certificate, the Custodian by itself, or through the use of
the Book-Entry System or the Depository with respect to
Securities therein deposited, shall with respect to all
Securities held for the Fund hereunder:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount
payable upon all Securities which may mature or be called
redeemed, or retired., or otherwise become payable;
(c) Surrender Securities in temporary form for
definitive Securities;
(d) Execute, as Custodian,, any necessary declara-
tions or certificates of ownership under the Federal Income
Tax Laws or the laws or regulations of any other taxing
authority now or hereafter in effect; and
(e) Hold directly, or through the Book-Entry Sys-
tem or the Depository with respect to Securities therein
deposited, for the account of the Fund all rights and
similar securities issued with respect to any Securities
held by the Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise,
the Custodian, directly or through the use of the Book-Entry
System or the Depository shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authoriza-
tions, and any other instruments whereby the authority of
the Fund as owner of any Securities held hereunder may be
exercised;
(b) Deliver any Securities held for the Fund
hereunder in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of
any corporation,. or the exercise of any conversion privl-
lege;
- 5 -
<PAGE>
(c) Deliver any Securities held for the Fund
hereunder to any protective committee, reorganization com-
mittee or other person in connection with the reorganiza-
tion, refinancing, merger, consolidation, recapitalization
or sale of assets of any corporation, and receive and hold
hereunder such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery; and
(d) Make such transfers or exchanges of the
assets of the Fund held hereunder and take such other steps
as shall be stated in said order to be for the purpose of
effectuating any duly authorized plan of liquidation, reor-
ganization, merger, consolidation or recapitalization of the
Fund.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
1. Promptly after each purchase of Securities by the
Fund to be held hereunder, the Fund shall deliver to the
Custodian, a Certificate, Oral Instructions, or Written
Instructions, specifying with respect to each such purchase:
(a) the name of the issuer and the title of the Securities,
(b) the number of shares or the principal amount purchased
and accrued interest, if any, (c) the date of purchase and
settlement, (d) the purchase price per unit, (e) the total
amount payable upon such purchase, and (f) the name of the
person from whom or the broker through whom the purchase was
made. The Custodian shall upon receipt of Securities pur-
chased by or for the Fund pay out of the moneys held for the
account of the Fund hereunder the total amount payable to
the person from whom or the broker through whom the purchase
was made, provided that the same conforms to the total
amount payable as set forth in such Certificate, Oral
Instructions, or Written Instructions.
2. Promptly after each sale of Securities by the
Fund held hereunder, the Fund shall deliver to the Custo-
dian, a Certificate, Oral Instructions, or Written Instruc-
tions, specifying with respect to each such sale: (a) the
name of the issuer and the title of the Security, (b) the
number of shares or principal amount sold, and accrued
interest, if any, (c) the date of sale, (d) the sale price
per unit, (e) the total amount payable to the Fund upon such
sale, and (f) the name of the broker through whom or the
- 6 -
<PAGE>
person to whom the sale was made. The Custodian shall
deliver the Securities upon receipt of the total amount pay-
able to the Fund upon such sale, provided that the same
conforms to the total amount payable as set forth in such
Certificate, Oral Instructions, or Written Instructions.
Subject to the foregoing, the Custodian may accept payment
in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the
customs prevailing among dealers in Securities.
ARTICLE V
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of
the resolution of the Board of Trustees, certified by the
Secretary or any Assistant Secretary, either (i) setting
forth the date of the declaration of a dividend or distri-
bution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined,
the amount payable per share to the shareholders of record
as of that date and the total amount payable to the Dividend
Agent of the Fund on the payment date, or (ii) authorizing
the declaration of dividends and distributions on a daily
basis and authorizing the Custodian to rely on a Certifi-
cate, Oral Instructions or Written Instructions settin-
forth the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date
as of which shareholders entitled to payment shall be deter-
mined, the amount payable per share to the shareholders of
record as of that date and the total amount payable to the
Dividend Agent on the payment date.
2. Upon the payment date specified in such resolu-
tion, Certificate, Oral Instructions, or Written Instruc-
tions, as the case may be, the Custodian shall pay out of
the moneys held for the account of the Fund hereunder the
total amount payable to the Dividend Agent of the Fund.
ARTICLE VI
SALE AND REDEMPTION OF SHARES OF CAPITAL STOCK OF THE FUND
1. Whenever the Fund shall sell any of its shares of
beneficial interest, it shall deliver to the Custodian a
Certificate duly specifying:
- 7 -
<PAGE>
(a) The number of shares sold, trade date, and
price, and
(b) The amount of money to be received by the
Custodian for the sale of such shares.
2. Upon receipt of such money from the Transfer
Agent, the Custodian shall credit such money to the account
of the Fund.
3. Upon issuance of any shares of beneficial interest
in accordance with the foregoing provisions of this Article,
the Custodian shall pay, out of the money held for the
account of the Fund, all original issue or other taxes
required to be paid by the Fund in connection with such
issuance upon the receipt of a Certificate specifying the
amount to be paid.
4. Except as provided hereinafter, whenever the Fund
shall hereafter redeem any of its shares of beneficial
interest, it shall furnish to the Custodian a Certificate
specifying:
(a) The number of shares to be redeemed; and
(b) The amount to be paid for the shares to be
redeemed.
5. Upon receipt from the Transfer Agent of an advice
setting forth the number of shares of beneficial interest
received by the Transfer Agent for redemption and that such
shares are in good form for redemption, the Custodian shall
pay the Transfer Agent, out of the moneys held for the
account of the Fund the total amount specified in the
Certificate issued pursuant to the foregoing paragraph 4 of
this Article.
6. Notwithstanding the above provisions regarding the
redemption of any shares of beneficial interest of the Fund,
whenever such shares are redeemed pursuant to any check
redemption privilege which may from time to time be offered
by the Fund, the Custodian, unless otherwise instructed by a
Certificate, shall, upon receipt of an advice from the Fund
or its agent setting forth that the redemption is in good
form for redemption in accordance with the check redemption
procedure, honor the check presented as part of such check
redemption privilege out of the money held in the account of
the Fund hereunder for such purposes.
- 8 -
<PAGE>
ARTICLE VII
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion
advance funds on behalf of the Fund which results in an
overdraft because the moneys held by the Custodian for the
account of the Fund shall be insufficient to pay the total
amount payable upon a purchase of Securities as set forth in
a Certificate or Oral Instructions issued pursuant to Arti-
cle IV, or which results in an overdraft because moneys held
by the Custodian for the account of the Fund shall be insuf-
ficient to pay an amount payable pursuant to an adjustment
referred to in paragraph 1 of Article III hereof, or which
results in an overdraft or some other reason, or if the
Fund is for any other reason indebted to the Custodian
(except a borrowing for investment or for temporary or
emergency purposes using Securities as collateral pursuant
to a separate agreement and subject to the provisions of
paragraph 2 of this Article VII), such overdraft or indebt-
edness shall be deemed to be a loan made by the Custodian to
the Fund payable on demand and shall bear interest from the
date incurred at a rate per annum (based on a 360-day year
for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from
time to time, such rate to be adjusted on the effective date
of any change in such prime commercial lending rate but in
no event to be less than 6% per annum. In addition, the
Fund hereby agrees that the Custodian shall have a continu-
ing lien and security interest in and to any property at any
time held by it for the benefit of the Fund or in which the
Fund may have an interest which is then in the Custodian's
possession or control or in possession or control of any
third party acting in the Custodian's behalf. The Fund
authorizes the Custodian, in its sole discretion, at any
time to charge any such overdraft or indebtedness together
with interest, due thereon against any balance of account
standing to the Fund's credit hereunder on the Custodian's
books.
2. The Fund will cause to be delivered to the Custo-
dian by any bank (including, if the borrowing is pursuant to
a separate agreement, the Custodian) from which it borrows
money for investment or for temporary or emerency purposes
using Securities held hereunder as collateral for such
borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which
such bank will loan to the Fund against delivery of a stated
- 9 -
<PAGE>
amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each
such borrowing: (a) the name of the bank, (b) the amount and
terms of the borrowing, which may be set forth by incorpo-
ration by reference an attached promissory note, duly
endorsed by the Fund, or other loan agreement, (c) the time
and date if known, on which the loan is to be entered into,
(d) the date on which the loan becomes due and payable, (e)
the total amount payable to the Fund on the borrowing date,
(f) the market value of Securities held hereunder to be
delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the prin-
cipal amount of any particular Securities, and (g) a state-
ment specifying whether such loan is for investment purposes
or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and
the Fund's prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified col-
lateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the
loan, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may,
at the option of the lending bank, keep such collateral in
its possession, but such collateral shall be subject to all
rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall
deliver such Securities as additional collateral as may be
specified in a Certificate to collateralize further any
transaction described in this paragraph. The Fund shall
cause all Securities released from collateral status in
connection with a loan described in this paragraph to be
returned directly to the Custodian, and the Custodian shall
receive from time to time such return of collateral as may
be tendered to it. In the event that the Fund fails to
specify in a Certificate the name of the issuer, the title
and number of shares or the principal amount of any
particular Securities to be delivered as collateral by the
Custodian, the Custodian shall not be under any obligation
to deliver any Securities.
ARTICLE VIII
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. If the Fund is permitted by the terms of its
Declaration of Trust and as disclosed in its most recent and
currently effective prospectus to lend portfolio Securities
- 10 -
<PAGE>
held hereunder within 24 hours after each such loan of
portfolio Securities the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with
respect to each such loan: (a) the name of the issuer and
the title of the Securities, (b) the number of shares or the
principal amount loaned, (c) the date of loan and delivery,
(d) the total amount to be delivered to the Custodian
against the loan of the Securities, including the amount of
collateral in cash or securities and the premium, if any,
separately identified, and (e) the name of the broker,
dealer, or financial institution to which the loan was
made. The Custodian shall deliver such Securities to be
loaned to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount
designated as to be delivered against the loan of Securi-
ties. The Custodian may accept payment in connection with a
delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's
check payable to the order of the Fund or the Custodian
drawn on New York Clearing House funds and may deliver
Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of a loan of
Securities by the Fund described in preceding paragraph 1 of
this Article VIII, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with
respect to each such loan termination and return of
securities: (a) the name of the issuer And the title of the
Securities to be returned, (b) the number of shares or the
principal amount to be returned. (c) the date of termina-
tion, (d) the total amount of collateral in cash or securi-
ties to be delivered by the Custodian (including the cash
collateral for such Securities minus any offsetting credits
as described in said Certificate), and (e) the name of the
broker, dealer, or financial institution from which the
Securities will be returned. The Custodian shall receive
all Securities returned from the broker, dealer, or finan-
cial institution to which such Securities were loaned and
upon receipt thereof shall pay, out of the moneys held for
the account of the Fund hereunder the total amount payable
upon such return of Securities as set forth in the Certifi-
cate.
- 11 -
<PAGE>
ARTICLE IX
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custo-
dian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omis-
sion to act or otherwise, except for any such loss or damage
arising out of its own negligence or willful misconduct.
The Custodian may, with respect to questions of law, apply
for and obtain the advice and opinion of counsel to the Fund
or of its own counsel, at the expense of the Fund, and shall
be fully protected with respect to anything done or omitted
by it in good faith in conformity with such advice or opin-
ion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or
any Depository arising by reason of any negligence, misfeas-
ance or willful misconduct on the part of the Custodian or
any of its employees or agents.
2. Without limiting the generality of the foregoing,
the Custodian shall be under no obligation to inquire into,
and shall not be liable for:
(a) The validity of the issue of any Securities
purchased by or for the Fund, the legality of the purchase
thereof, or the propriety of the amount paid therefor;
(b) The legality of the sale of any Securities by
or for the Fund, or the propriety of the amount for which
the same are sold;
(e) The legality of the issue or sale of any
shares of the Fund, or the sufficiency of the amount to be
received therefor;
(d) The legality of the redemption of any shares
of the Fund, or the propriety of the amount to be paid
therefor;
(e) The legality of the declaration or payment of
any dividend by the Fund;
(f) The legality of any borrowing by the Fund
using Securities as collateral; or
(g) The legality of any loan of portfolio
Securities pursuant to Article VIII of this Agreement, nor
shall the Custodian be under any duty or obligation to see
- 12 -
<PAGE>
to it that any cash collateral delivered to it by a broker,
dealer, or financial institution or held by it at any time
as a result of such loan of portfolio Securities of the Fund
is adequate collateral for the Fund aginst any loss it
might sustain as a result of such loan. The Custodian
specifically, but not by way of limitation, shall not be
under, any duty or obligation periodically to check or notify
the Fund that the amount of such cash collateral held by it
for the Fund is sufficient collateral for the Fund, but such
duty or obligation shall be the sole responsibility of the
Fund. In addition, the Custodian shall be under no duty or
obligation to see that any broker, dealer or financial
institution to which portfolio Securities of the Fund are
lent pursuant to Article VIII of this Agreement makes
payment to it of any dividends or interest which are payable
to or for the account of the Fund during the period of such
loan or at the termination of such loan, provided, however,
that the Custodian shall promptly notify the Fund in the
event, that such dividends or interest are not paid and
received when due.
3. The Custodian shall not be liable for, or consid-
ered to be the Custodian of, any money, whether or not
represented by any check, draft, or other instrument for the
payment of money, received by it on behalf of the Fund until
the Custodian actually receives and collects such money
directly or by the final crediting of the account represent-
ing the Fund's interest at the Book-Entry System or the
Depository.
4. The Custodian shall not be under any duty or obli-
gation to take action to effect collection of any amount due
to the Fund from the Transfer Agent of the Fund nor to take
any action to effect payment or distribution by the Transfer
Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agree-
ment.
5. The Custodian shall not be under any duty or obli-
gation to take action to effect collection of any amount, if
the Securities upon which such amount is payable are in
default, or if payment is refused alter due demand or
presentation, unless and until (i) it shall be directed to
take such act on by a Certificate and (ii) it shall be
assured to its satisfaction of reimbursement of its costs
and expenses in connection with any such action.
6. The Custodian may appoint one or move banking
institutions as Depository or Depositories or as Sub-
Custodian or Sub-Custodians, including, but not liminited to,
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<PAGE>
banking institutions located in foreign countries, of Secu-
rities and moneys at any time owned by the Fund, upon terms
and conditions approved in a Certificate.
7. The Custodian shall not be under any duty or obli-
gation to ascertain whether any Securities at any time
delivered to or held by it for the account of the Fund are
such as properly may be held by the Fund under the provi-
sions of its Articles of Incorporation.
8. The Custodian shall be entitled to receive and the
Fund agrees to pay to the Custodian all out-of-pocket
expenses and such compensation as may be agreed upon from
time to time between the Custodian and the Fund. The Custo-
dian may charge such compensation and any expenses Incurred
by the Custodian in the performance of its duties pursuant
to such agreement against any money held by it for the
account of the Fund. The Custodian shall also be entitled
to charge against any money held by it for the account of
the Fund the amount of any loss, damage, liability or
expense, including counsel fees, for which it shall be
entitled to reimbursement under the provisions of this
Agreement. The expenses which the Custodian may charge
against the account of the Fund held hereunder include, but
are not limited to, the expenses of Sub-Custodians and
foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase
and sale of Securities of the Fund.
9. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received
by the Custodian and reasonably believed by the Custodian to
be a Certificate. The Custodian shall be entitled to rely
upon any Oral Instructions and any Written Instructions
actually received by the Custodian pursuant to Articles IV
or V hereof. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral
Instructions or Written Instructions in such manner so that
such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other
similar device, or otherwise, by the close of business of
the same day that such Oral Instructions or Written Instruc-
tions are given to the Custodian. The Fund agrees that the
fact that such confirming Certificate or facsimile thereof
is not received by the Custodian shall in no way affect the
validity of the transactions or enforceability of the trans-
actions hereby authorized by the Fund. The Fund agrees that
the Custodian shall Incur no liability to the Fund in acting
upon Oral Instructions or Written Instructions given to the
Custodian hereunder concerning such transactions provided
- 14 -
<PAGE>
such instructions reasonably appear, to have been received
from an Authorized Person.
10. The books and records pertaining to the Fund which
are in the possession of the Custodian shall be the property
of the Fund. Such books and records shall be prepared and
maintained as required by the Investment Company Act of
1940, as amended, and other applicable securities laws and
rules and regulations. The Fund, or the Fund's authorized
representatives, shall have access to such books and records
during the Custodian's normal business hours. Upon the rea-
sonable request of the Fund, copies of any such books and
records shall be provided by the Custodian to the Fund or
the Fund's authorized representative at the Fund's expense.
11. The Custodian shall provide the Fund with any
report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System or the Deposi-
tory and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from
time to time.
12. The Fund agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims.,
losses and demands whatsoever, including autorney's fees,
howsoever arising or incurred because of or in connection
with the Custodian's payment or non-payment of checks pur-
suant to paragraph 6 of Article VI as part of any check
redemption privilege program of the Fund, except for any
such liability, claim, loss and demand arising out of the
Custodian's own negligence or willful misconduct.
13. The Custodian shall have no duties or responsibi-
lities whatsoever except such duties and responsibilities as
are specifically set forth in this Agreement, and no cove-
nant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE X
TERMINATION
1. Either of the parties hereto may terminate this
Agreement by giving to the other party a notice in Writing
specifying the date of such termination, which shall be not
less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it
- 15 -
<PAGE>
shall be accopanied by a copy of a resolution of the Board
of Directors of the Fund, certified by the Secretary or any
Assistant Secretary, electing to terminate this Agreement
and designating a successor custodian or custodians, each of
which shall be a bank or trust company having not less than
$2,000,000 aggregate capital, surplus and undivided profits.
In the event such notice is given by the Custodian, the Fund
shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of its Board of Trustees,
certified by the Secretary or any Assistant Secretary,
designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or
trust company having not less than $2,000,000 aggreate
capital, surplus and undivided profits. Upon the date set
forth in such notice this Agreement shall terminate, and the
Custodian shall upon receipt of a notice of acceptance by
the successor custodian on that date deliver directly to the
successor custodian all Securities and moneys then owned by
the Fund and held by it as Custodian, after deducting all
fees,expenses and other amounts for the payment or
reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the
Fund or the Custodian in accordance with the preceding para-
graph, the Fund shall upon the date specified in the notice
of termination of this Agreement and upon the delivery by
the Custodian of all Securities (other than Securities held
in the Book-Entry System which cannot be delivered to the
Fund) and moneys then owned by the Fund and held by the
Custodian hereunder be deemed to be Its own custodian and
the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the
duty with respect to Securities held in the Book Entry
System which cannot be delivered to the Fund to hold such
Securities hereunder in accordance with this Agreement.
ARTICLE XI
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate
signed by two of the present Officers of the Fund, setting
forth the names and the signatures of the present Authorized
Persons. The Fund agrees to furnish to the Custodian a new
Certificate in similar form in the event that any such
present Authorized Person ceases to be an Authorized Person
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<PAGE>
or in the events that other or additional Authorized Persons
are elected or appointed. Until such new Certificate shall
be received, the Custodian shall be fully protected in
acting under the provisions of this Agreement upon Oral
Instructions or signatures of the present Authorized Persons
as set forth in the last delivered Certificate.
2. Annexed hereto as Appendix B is a Certificate
signed by two of the present Officers of the Fund, setting
forth the names and the signatures of the present Officers
of the Fund. The Fund agrees to furnish to the Custodian a
new Certificate in similar form in the event any such
present Officer ceases to be an Officer of the Fund, or in
the event that other or additional Officers are elected or
appointed. Until such new Certificate shall be received,
the Custodian shall be fully protected in acting under the
provisions of this Agreement upon the signatures of the
Officers as set forth in the last delivered Certificate.
3. Any notice or other instrument in writing, author-
ized or required by this Agreement to be given to the Custo-
dian shall be sufficiently given if addressed to the Custo-
than and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10015, or at such
other place as the Custodian may from time to time designate
in writing.
4. Any notice or other instrument in writing, autho-
rized or required by this Agreement to be given to the Fund
shall be sufficiently given if addressed to the Fund and
mailed or delivered to it at its office at 633 Third Ave., New
York, New York 10017 or at such other place as the Fund may
from time to time designate in writing.
5. This Agreement may not be amended or modified in
any manner except by a written agreement executed by both
parties with the same formality as this Agreement and
approved by a resolution of the Board of Trustees of the
Fund.
6. This Agreement shall extend to and shall be bind-
ing upon the parties hereto, and their respective successors
and assigns; provided, however, that this agreement shall
not be assignable by the Fund without the written consent of
the Custodian, or by the Custodian without the written
consent of the Fund, authorized or approved by a resolution
of its Board of Trustees.
7. This Agreement shall be construed in accordance
with the takes of the State of New York.
- 17 -
<PAGE>
8. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an
original, but such counterparts shall, together, constitute
only one instrument.
9. No shareholder, Trustee, officer, employee or
agent of the Fund shall be subject to any liability whatso-
ever to the Custodian in connection with the Fund's property
or the acts, obligations or affairs of the Fund and the Cus-
todian shall look solely to the Fund's property for satis-
faction of claims of any nature arising in connection with
the affairs of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers,
thereunto duly authorized, as of the day and year firts,
above written.
MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES
By:
-------------------------------
Attest:
----------------------------
THE BANK OF NEW YORK
By:
-------------------------------
Attest
----------------------------
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<PAGE>
APPENDIX A
I, and I, ,
Secretary of MERRILL LYNCH U.S.A. GOVERNMENT RESERVES, an
unincorporated business trust organized under the laws of
the State of Massachusetts (the "Fund"), do hereby certify
that:
The following individuals have been duly authorized by
the Board of Trustees of the Fund in conformity with the
Fund's Declaration of Trust and By-Laws to give Oral
Instructions and Written Instructions on behalf of the Fund,
and the signatures set forth opposite their respective names
are their true and correct signatures:
Name Signature
--------------------------- ---------------------------
<PAGE>
APPENDIX B
I, and I, ,
Secretary of MERRILL LYNCH U.S.A. GOVERNMENT RESERVES, an
unincorporated business trust organized under the laws of
the State of Massachusetts (the "Fund"), do hereby certify
that:
The following individuals have been duly authorized by
the Board of Trustees of the Fund in conformity with the
Fund's Declaration of Trust and By-Laws to give Oral
Instructions and Written Instructions on behalf of the Fund,
and the signatures set forth opposite their respective names
are their true and correct signatures
Name Signature
--------------------------- ---------------------------
<PAGE>
EXHIBIT 99.9
TRANSFER AGENCY AGREEMENT
AGREEMENT made this 30th day of December, 1988 between
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES, an unincorporated
business trust organized and existing under the laws of the
Commonwealth of Massachusetts, having its principal office and
place of business at Plainsboro, New Jersey (hereinafter referred
to as the "Trust"), and Merrill Lynch Financial Data Services,
Inc., a corporation organized and existing under the laws of the
State of New Jersey, having its principal office and place of
business at Somerset, New Jersey (hereinafter referred to as the
"Transfer Agent").
W I T N E S S E T H
that for and in consideration of the mutual promises hereinafter
set forth, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
<PAGE>
1. "Authorized Officer" shall be deemed to be the
Chairman, President, any Vice President, the Secretary, and the
Treasurer of the Trust, or any other person duly authorized by
the Board of Trustees of the Trust to execute any certificate,
instruction, notice or other instrument on behalf of the Trust.
2. "Certificate" shall mean any notice, instruction
or other instrument in writing authorized or required by this
Agreement to be given to the Transfer Agent, which is actually
received by the Transfer Agent and signed on behalf of the
Trust by any two Authorized Officers.
3. "Custodian" shall mean the custodian of all
of the securities and all monies owned by the Trust.
4. "Shares" shall mean all or any part of the
shares of beneficial interest of the Trust which are autho-
rized and issued by the Trust.
5. "Written Instructions" shall mean written
communications by telex or any other such system whereby
the receiver of such communications is able to verify by
codes or otherwise with a reasonable degree of certainty
the authenticity of the sender of such communication.
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<PAGE>
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Trust hereby constitutes and appoints the
Transfer Agent as transfer agent for all of the Shares issued
by the Trust during the period of this Agreement as the same
shall from time to time be constituted.
2. The Transfer Agent hereby accepts appointment
as transfer agent and agrees to perform the duties thereof
as hereinafter set forth.
3. In connection with such appointment, the Trust
shall deliver or in the case of item (e), make available upon
request, the following documents to the Transfer Agent:
(a) A certified copy of the Declaration of Trust
or other document evidencing the Trust's form of organization
(such document hereinafter being referred to as the "Charter")
and all amendments thereto;
(b) A certified copy of the By-Laws of the Trust;
(c) A certified copy of a resolution of the
Board of Trustees of the Trust appointing the Transfer Agent
and appointing an Authorized Officer of the Trust to execute
this Transfer Agency Agreement;
(d) A certificate signed by the Secretary of
the Trust specifying the number of authorized Shares of the
Trust and the number of such authorized Shares issued and
- 3 -
<PAGE>
currently outstanding, the names and specimen signatures of
the officers of the Trust and the name and address of the
legal counsel for the Trust;
(e) Copies of the Registration Statements,
as amended to date, filed by the Trust with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended, and the investment Company Act of 1940, as amended,
together with any applications filed in connection therewith;
(f) A certified copy of the order or consent
of each governmental or regulatory authority, required by law
for the issuance of the Shares of the Trust, and an opinion of
legal counsel for the Trust that the order or consent of no
other governmental or regulatory authority is required;
(g) opinion of counsel for the Trust with
respect to the validity of the authorized and outstanding
Shares of the Trust and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable
federal or state law or regulation (i.e., if subject to
registration, that they have been registered and that the
- 4 -
<PAGE>
Registration Statement has become effective or, if exempt,
the specific grounds therefor); and
(h) A signature card bearing the signatures
of the Authorized Officers of the Trust who will be the only
persons authorized to sign Written Instructions and requests.
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Trust is authorized to issue an unlimited
number of Shares and shall deliver to the Transfer Agent the
following documents on or before the effective date of any
decrease in the total number of Shares of the Trust authorized
to be issued:
(a) A certified copy of the amendment to
the Charter giving effect to such decrease;
(b) A certified copy of the order or consent
of each governmental or regulatory authority, required by
law for the decrease in the number of Shares
authorized to be issued, and an opinion of counsel for the
Trust that the order or consent of no other governmental or
regulatory authority is required; and
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<PAGE>
(c) An opinion of counsel for the Trust with
respect to the validity of the Shares the Trust and the status
of such Shares under the Securities Act of 1933, as amended,
and any other applicable federal or state law or regulation
(i.e., if subject to registration, that they have been
registered and that the Registration Statement has become
effective or, if exempt, the specific grounds therefor)
as amended, and any other applicable federal or state law
or regulation (i.e., if subject to registration, that they
have been registered and that the Registration Statement has
become effective or, if exempt, the specific grounds therefor).
ARTICLE IV
ISSUE, REDEMPTION, AND TRANSFER OF SHARES
OF BENEFICIAL INTEREST OF THE TRUST
1. A written order for the purchase of Shares
actually received by the Transfer Agent through the mail
shall be accepted by the Transfer Agent if such order:
(a) Consists of a Share purchase application
designed by the Trust which is completed and signed by the
purchaser or his authorized agent, or, in the case of an order
for the account of an existing Shareholder, consists of either
the detachable stub from a Statement of an Account previously
sent to such Shareholder pursuant to paragraph 9 of this Article
IV, or a signed writing indicating the name, address, and social
security number of each person in whose name the Shares are to
be registered and the account number; and
- 6 -
<PAGE>
(b) Is accompanied by a check drawn in U.S. dollars on
a U.S. bank and payable to the order of Merrill Lynch Funds
Distributor, Inc. ("Distributor"), or such other entity as may be
approved in a Certificate, for an amount which satisfies the
minimum purchase requirements set forth in paragraph 5 of this
Article IV.
2. A bank wire order actually received by the Transfer
Agent for the purchase of full and fractional Shares ("bank wire
purchase order") shall be accepted by the Transfer Agent and the
wired funds delivered to the Custodian if such bank wire purchase
order:
(a) Is for an amount which satisfies the minimum
purchase requirements set forth in paragraph 4 of this Article IV;
(b) Includes the name of the Trust;
(c) Specifies (i) in the case of a bank wire
purchase order for the account of an existing Shareholder, the
name of the Shareholder and the Shareholder's account number, or
(ii) in the case of a bank wire purchase order for a person not an
existing Shareholder the name, address, and social security number
of each person in whose name the Shares are to be registered.
3. An order for the purchase of Shares actually
received by the Transfer Agent form the Distributor shall be
accepted by the Transfer Agent if such order:
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<PAGE>
(a) Is for an appropriate 'amount within the
meaning of paragraph 4 of this Article IV; and
(b) Specifies (i) in the case of an order for the
account of an existing Shareholder, such Shareholder's account
number, or (ii) in the case of an order for a person not an
existing Shareholder, the name, address, and social security
number of each person in whose name the Shares are to be
registered.
4. The Transfer Agent shall not accept any order for
the purchase of Shares unless such order satisfies the following
minimum purchases requirements:
(a) The minimum purchase in the case of an initial
purchase order the the account of a person not a Shareholder at
the time of such order is $5,000.00.
(b) The minimum purchase in the case of a purchase
order for the account of a Shareholder at the time of such order
is $1,000.00.
(c) The minimum purchase of the case of an initial
purchase order which states the such order is for a Keogh,
Pension, Profit-Sharing or Individual Retirement Account is
$250.00 per plan. There shall be no minimum applicable with
respect to subsequent purchase orders in connection with such
plans.
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<PAGE>
(d) The minimum purchase in the case of an initial
purchase order which states that such order is for an account
advised by a bank or an investment advisor registered under the
Investment Adviser Act of 1940, including the Investment Adviser
of the Trust, is $300.00.
(e) The minimum purchase in the case of a purchase
order which states that such order is for an existing account
advised by a bank or an investment adviser registered under the
Investment Advisers Act of 1940 is $100.00.
(f) There shall be no minimum purchase requirement
with respect to a purchase order for the account of an existing
Shareholder who has been advised by the Trust that the value of
his account is less than $1,000.00 and that the Shares in his
account may be redeemed unless additional Shares are purchased.
5. The Transfer Agent shall have no duty or obligation
to accept any purchase order not satisfying all the requirements
of any one of the first three paragraphs of this Article IV and
shall be free to reject any such order without the giving of any
notice.
- 9 -
<PAGE>
6. Upon the Transfer Agent's acceptance of an order
for the purchase of Shares, the Transfer Agent shall furnish
the Custodian with an advice specifying (a) the number of Shares
sold, trade date and price, and (b) the amount of money to be
received by the Custodian for the sale of such Shares.
7. A purchase order accepted pursuant to this
Article by the Transfer Agent shall become effective on the
day Federal Funds are made available to the Custodian with
respect to such order, provided, however, that in the event
Federal Funds are received with respect to a purchase order
after the close of trading on the New York Stock Exchange, Inc.
such order shall become effective on the next business day.
8. The Transfer Agent shall, when so instructed by
a Shareholder on forms prescribed by the Trust and acceptable
to the Transfer Agent draw a pre-authorized check of $50 or more on
the Shareholder's regular bank account on the specific date in
each month or quarter, as specified in such form, to be applied
to the purchase of full and fractional Shares to be held in the
Shareholder's account by the Transfer Agent and shall process
such check for collection. The Transfer Agent shall at all times
have the absolute right, without the prior consent of the Trust,
to amend or cancel this service for any Shareholder, and shall do
so whenever directed in a writing signed by the Shareholder that
is actually received by the Transfer Agent. The Transfer Agent
shall automatically cancel this service to any Shareholder whenever
any pre-authorized check is returned as being uncollected.
- 10 -
<PAGE>
9.(a) On the business day next succeeding the day
on which (i) a purchase order becomes effective or (ii) Federal
Funds with respect to a pre-authorized check drawn by the
Transfer Agent have been received, the Transfer Agent shall,
unless it would result in an over-issue of Shares as defined
in Section 8-104(2) of the Uniform Commercial Code, issue the
appropriate number of full and fractional Shares based on the
net asset value per Share as next determined after the purchase
order became effective or Federal Funds with respect to the
pre-authorized check were made available to the Custodian, as
the case may be, and hold such Shares in the account for which
the purchase order was accepted or the pre-authorized check
drawn; provided, however, that the Transfer Agent shall not
be required to issue any Shares after it has received from an
Authorized Officer of the Trust or from any appropriate Federal
or State authority written notification that the sale of the
Shares has been suspended or discontinued, and the Transfer
Agent shall be entitled to rely upon such written notification.
- 11 -
<PAGE>
Promptly after the issuance of such Shares, the Transfer Agent
shall send to the Purchaser or his authorized agent at the
address appearing on the books of the Transfer Agent a Statement
of Account indicating that amount of full and fractional Shares
purchased (in the case of fractional Shares, rounded to three
decimal places), the price per Share, and the balance in the
account as of the date of such Statement of Account. In no
event shall the Transfer Agent be required to issue any
certificate for any Shares.
(b) Notwithstanding paragraph 14 of this Article
IV, on the last Friday of each month the Transfer Agent
shall upon receipt of (i) an advice from an Authorized officer
of the Trust specifying the per Share dividend for each day
during such month and (ii) an advice from the Custodian that
the aggregate amount of such per Share dividends has been
received by it, unless it would result in an overissue as
defined in Section 8-104(2) of the Uniform Commercial Code,
issue to each Shareholder the appropriate amount of full and
fractional Shares, based on the net asset value per Share
determined as of the close of trading on the Mew York Stock
Exchange, Inc. on such day. Shares so issued shall be credited
to the account which holds the Shares on which the dividends
were paid. Notwithstanding the foregoing, the Transfer Agent
- 12 -
<PAGE>
shall not be required to issue any Shares after it has received
from an Authorized Officer of the Trust or from any appropriate
Federal or State authority written notifications that the sale of
the Shares has been suspended or discontinued and the Transfer
Agent shall be entitled to rely upon such written notification.
10. A written redemption request actually received
by the Transfer Agent for the redemption of Shares shall be
accepted by the Transfer Agent if:
(a) Such redemption request specifies either
(i) the number of full and fractional Shares to be redeemed,
or (ii) the dollar value, based on the net asset value next
determined after the Transfer Agent's acceptance of such:
request, of Shares to be redeemed;
(b) Such redemption request is signed by all
of the registered owners of the Shares; and
(c) Either (i) all the signatures contained
in the redemption request are subject to a signature guarantee
of a national bank or other bank which is a member of the
Federal Reserve System or a firm of any national or regional1
stock exchange acceptable to the Transfer Agent and the Trust
given not more than 30 days prior to the Transfer Agent's actual
receipt of the redemption request or (ii) if the redemption
proceeds are in excess of $1000, the request specifies a
- 13 -
<PAGE>
domestic bank account, previously designated in a signed writing
with appropriate signature guarantees received from the
Shareholder named in the written request, to which the redemption
proceeds are to be wired.
11. A telephone, telegraph, or telex (or other similar
device) redemption request actually received by the Transfer Agent
shall be accepted by the Transfer Agent if:
(a) Such redemption requests specifies either (i)
a number of full and fractional Shares having a value equal to or
in excess of $1,000 based on the net asset value next determined
after the Transfer Agent's acceptance of such request, or (ii) a
dollar value of Shares to be redeemed in excess of $1,000 based on
the net asset value next determined after the Transfer Agent's
acceptance of such request, and
(b) Such redemption request specifies the full
name of the Shareholder, the number of the account which the
Shares are held by the Transfer Agent and, in the case of a
telegraph, or telex (or other similar device) redemption request,
the name of the Trust; and
(c) The Transfer Agent has previously received a
signed writing from the Shareholder named in the telephone,
telegraph, or telex or other similar device redemption request
with each signature thereon guaranteed by a national bank or
- 14 -
<PAGE>
other bank which is a member of the Federal Reserve System or a
member firm of any national or regional stock exchange acceptable
to the Transfer Agent and the Trust, electing to utilize such
redemption procedures and designating the domestic bank account
specified in the redemption request.
12. A redemption request actually received by the
Transfer Agent from Distributor shall be accepted if such request
specifies (a) the number of full and fractional Shares to be
redeemed; and (b) the full name of the Shareholder and the number
of the account in which the Shares are held by the Transfer Agent.
13. The Transfer Agent shall, when instructed by a
Shareholder on a form prescribed by the Trust and acceptable to
the Transfer Agent, redeem on the 24th day of each calendar month
or calendar quarter, as the case may be, or if such day is not a
business day on the next succeeding day which is a business day, a
sufficient number of shares in the Shareholder's account to
generate the amount of redemption proceeds the Shareholder elects
from time to time to receive; provided, however, that a direction
from a Shareholder to redeem Shares shall be acted upon by the
Transfer Agent only if such Shareholder has previously purchased
Shares having a value, based on cost of the public offering price
on the day on which a redemption is to be made, of at least
$5,000, in the case of quarterly redemptions, and at least
$10,000, in the case of monthly redemptions.
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<PAGE>
Such redemptions shall be made at the net asset value per.
Share applicable to such last Friday of such month
or quarter, as the case may be.
14. The Transfer Agent shall, when instructed by
Shareholder on a form prescribed by the Trust and acceptable
to the Transfer Agent, redeem on the last Friday of each calendar
month the number of Shares Purchased-for such Shareholder
by the reinvestment of dividends and distributions paid during
such month, provided, however, that the Transfer Agent shall not,
act upon any such direction received from a Shareholder who has
directed the Transfer Agent to act pursuant to paragraph 13 of
this Article IV unless such direction has previously been
withdrawn. Redemptions pursuant to this paragraph shall be at
the net asset value per Share, including accrued dividends,
determined as of the close of the trading on the New York
Stock Exchange, Inc. on the last Friday of such month.
15. A redemption request actually received by the
Transfer Agent to redeem Shares held in the account of a Share-
holder for at least 60 days and pay the proceeds of such redemp-
tion to the Transfer Agent for any of the investment companies
in the most recent and currently effective prospectus for the
Trust shall be accepted by the Transfer Agent if such request:
- 16 -
<PAGE>
(a) Specifies the Shareholder account number
from which the Shares are to be redeemed;
(b) Specifies either (i) a number of full and
fractional Shares to be redeemed or (ii) a dollar value, based
on the net asset value next determined after the Transfer
Agent's acceptance of such request, of Shares to be redeemed;
(c) Specifies the name of the above investment
company to whose Transfer Agent the proceeds of redemption
are to be sent; and
(d) Consists of either (i) a writing signed
by each registered owner of the Shares to be redeemed with
each signatures guaranteed by a national bank or a member
firm of any regional stock exchange acceptable to the Transfer
Agent and the Trust or (ii) a wire received from Distributor.
16. The Transfer Agent shall accept a Certificate
directing the redemption of Shares ("a redemption direction"),
provided such Certificate:
(a) Specifies the number of the account in
which is held the Shares to be redeemed;
(b) Specifies either (i) the number of full
and fractional Shares to be redeemed or (ii) directs that
all the Shares in such account are to be redeemed; and
- 17 -
<PAGE>
(c) States that such redemption either (i) is
necessary in order for the Trust not to be deemed a personal
holding company within the meaning of the Internal Revenue Code of
1954, as amended, or (ii) is a proper exercise of the Trust's
right to redeem Shares in an account when the value of the Shares
in such account is below a minimum amount established by the Trust
and has remained below such amount after appropriate notice was
given to the owner of such account by the Trust.
17. The Transfer Agent shall accept checks drawn on the
Trust's account ("redemption checks") and effect a redemption of
full and fractional Shares having a value equal to the amount of
such check provided:
(a) Such check contains the Shareholder account
number of the signer(s) of such check;
(b) Such check is signed by each registered owner
of Shares in such account;
(c) Each drawer has previously elected in writing
to use the check redemption privilege and has supplied the
Transfer Agent with a signature card and any other documents
required by the Transfer Agent;
(d) Acceptance of such check would not conflict
with the rules, regulations and procedures of the account of the
Trust.
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<PAGE>
(e) Such check is for an amount of at least
$500.00; and
(f) The Shares in the account have a value
based on the net asset value next determined after presentment
of such check at least equal to the amount of such check.
18. A redemption request, a redemption direction,
and a redemption check accepted prior to the close of trading
on the New York Stock Exchange, Inc. shall become 'effective on
the day of acceptance. A redemption pursuant to paragraph 13
of this Article IV shall become effective on the 24th day of
the calendar month, or if such day is not a business day on the
next succeeding day which is a business day, and a redemption
pursuant to paragraph 14 of this Article IV shall become effective
on the last Friday of the calendar month, calendar year or
calendar quarter, as the case may be, and a redemption request,
a redemption direction, and a redemption check accepted after the
close of trading on the New York Stock Exchange, Inc. shall
become effective on the next succeeding business day. All redemptions
of Shares shall be at the net asset value, including accrued dividends,
next determined after the redemption, redemption request, redemption
direction, or redemption check became effective.
19. The Transfer Agent shall have no duty or obligation
to accept any redemption request, redemption check, redemption
direction or to effect any redemption except as hereinbefore provided.
- 19 -
<PAGE>
20. Upon the effectiveness of a redemption request,
redemption check, redemption direction or redemption pursuant
to paragraphs 10, 11, 12, 13, 14, 15, 16 or 17 of this Article,
the Transfer Agent shall deliver to the Custodian an advice
setting forth the number of Shares redeemed and the amount
to be paid for such Shares, and stating that such Shares are
valid and in good form for redemption. After the Transfer
Agent has received moneys paid to it by the Custodian for the
redemption of Shares the Transfer Agent shall (i) in the case of a
check redemption, deposit such moneys in the account of the Trust
on which the redemption check was drawn; (ii) in the case of a
redemption that specifies a previously designated domestic bank
account, wire Federal Funds to such account on the business day
next succeeding ,the business day on which the redemption request
became effective, (iii) in the case of a redemption request from
the Distributor, make payment to the Distributor on the business
day next succeeding the business day on which the redemption
request became effective; (iv) in the case of an exchange
privilege described in paragraph 15 of this Article pay the
proceeds of such redemption to the designated transfer agent for
such investment company on the business day next succeeding the
business day on which such redemption became effective; and (v) in
all other cases mail the redemption proceeds in the form of a
check, payable to the order of the registered owner(s) of the
- 20 -
<PAGE>
Shares, to the address as it appears on the books of the Transfer'
Agent on the business day next succeeding the business day on
which the redemption request or redemption direction became
effective, provided, however, that in the event Shares being
redeemed were purchased within 30 calendar days of the date of the
effectiveness of the redemption request, redemption check, or
redemption direction, the Transfer Agent may delay acting in
accordance with this paragraph until the second succeeding
business day after the redemption request, redemption check, or
redemption direction became effective.
21. All Shares redeemed pursuant to this Article shall
be canceled by the Transfer Agent.
22. The Transfer Agent shall effect a transfer of
Shares by the registered owner(s) thereof upon the Transfer
Agent's receipt of a letter of instructions signed by the
registered owner(s), with all signatures guaranteed by a national
bank or other bank which is a member of the Federal Reserve System
or by a member firm of any national or regional stock exchange,
acceptable to the Transfer Agent and the Trust dated not more than
30 days prior to the date of receipt by the Transfer Agent, which
specifies the name, address and social security number of the
transferee.
- 21 -
<PAGE>
23. Notwithstanding any provision contained in this
Agreement to the contrary, the Transfer Agent may require as a
condition when he transfers redemption of any Shares or such
documents as the Transfer Agent may deem necessary to evidence the
authority of the person requesting the transfer or redemption and
the payment of any taxes. In the case of small estates, where no
administration is contemplated, the Transfer Agent may, when
furnished with an appropriate surety bond, without further approval
of the Trust, transfer or redeem Shares registered in the name of
the deceased when the current market value of the Shares being
registered does not exceed $2,000.00. The Transfer Agent may, in
effecting transfers or redemptions, rely upon the uniform Act for
the Simplication of Fiduciary Securities Transfers or the Uniform
Commercial Code, as the same may be amended from time to time,
which in the opinion of legal counsel for the Trust or the Trans-
fer Agent's own legal counsel protect the Transfer Agent in not
requiring certain documents in connection with the transfer or
redemption of Shares, and the Trust shall indemnify the Transfer
Agent for any act done or omitted in reliance upon such laws or
opinions of counsel.
24. The Transfer Agent shall when so directed
in a Certificate, suspend the right of redemption or postpone
the date of payment of the proceeds of redemption for more
than 7 calendar days following the day on which tender for
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<PAGE>
redemption is made (1) for any period during which the New
York Stock Exchange, Inc. is closed other than on customary
weekend and holiday closings; (2) for any period during which,
as determined by the Securities and Exchange Commission by
rule, regulation or orders, (i) trading on the New York
Stock Exchange, Inc. is suspended or (ii) an emergency exists
as a result of which disposal by the Trust of its portfolio
securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Trust's net assets; or
(3) for such other periods as the Securities and Exchange
Commission may by order permit.
25. Prior to the close of business on each business
day the Trust shall deliver or cause to be delivered to the
Transfer Agent an advice setting forth the net asset value
of the Shares of the Trust, and the Transfer Agent shall be
entitled to rely upon such advice and shall not be responsible
for the accuracy of the same.
26. Not later than the last day of the first week
of each calendar month the Transfer Agent shall mail to each
Shareholder or his authorized agent, at the address appearing
on the books of the Transfer Agent, a Monthly Activity Statement
indicating each purchase and redemption by or for tile account of
such Shareholder for the prior calendar month, specifying the
date, amount of full and fractional Shares purchased or redeemed,
- 23 -
<PAGE>
as the case may be, the price at which the same were purchased
or redeemed, the balance in the Shareholder's account after giving
effect to each purchase or redemption, and the closing balance in
such account as of the Friday of the calendar month.
27. After the close of business on each business day
the Transfer Agent shall adjust the number of Shares outstanding
as of the close of business on such day by adding to the number of
Shares outstanding at the start of such day (i) the number of
shares for which purchase orders were accepted on such day, (ii)
the number of Shares for the pre-authorized checks were drawn by
the Transfer Agent on such day, and (iii) the number of Shares
purchased by the reinvestment of dividends or distributions on
such day, and subtract therefrom (a) the number of Shares for
which a redemption request was accepted on such day, (b) the
number of Shares for which a redemption direction was accepted on
such day, (c) the number of Shares for which a redemption check
was received on such day, and (d) thenumber of Shares redeemed
pursuant to paragraphs 13 or 14 of this Article on such day on
the next business day the Transfer Agent shall send to the Trust
an advice setting forth the number of Shares outstanding as of
the close of business on the preceding business day.
- 24 -
<PAGE>
28. The Transfer Agent shall orally advise any
telephone caller, without regard to the identity of the caller, of
the number of full and fractional Shares owned by any registered
owner at the time of receipt of such telephone call if, but only
if, the telephone called specifies either:
I. (a) The name(s) of the registered owner(s)-
(b) The address of the registered owner(s)
appearing on the books of the Transfer
Agent;
(c) The registered owner's(s') account number;
and
(d) The social security number of the registered
owner(s);
or
II. (a) The Financial Consultant number appearing on
the books of the Transfer Agents; and
(b) The account number of the registered owner.
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<PAGE>
ARTICLE V
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Trust shall furnish to the Transfer Agent a
certified resolution of the Board of Trustees of the Trust
authorizing the declaration of dividends or distributions on a
daily basis and I authorizing the Transfer Agent to rely on a
Certificate specifying the date of the declaration of such
dividend or distribution, the date of payment thereof, the
record date as of which Shareholders entitled to payment
shall be determined, the amount payable per Share to the
Shareholders of record as of that date.
2. Upon the payment date specified in such resolu-
tion, or Certificate the Transfer Agent shall accrue for each
Share issued and outstanding at the opening of business on such
payment date the total amount payable as a dividend or distri-
bution with respect to such Shares. On the last Friday of
each month the Transfer Agent shall act in accordance with the
provisions of Article IV.
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<PAGE>
3. The Transfer Agent shall in no way be responsible
for the determination of the rate of dividend or distributions due
to the Shareholders.
4. It is understood that the Transfer Agent shall file
such appropriate information returns concerning the payment of
dividends and capital gain distributions with the proper Federal,
State and local authorities as may be required by law to be filed
by the Trust, but shall in no way be responsible for the collec-
tion or withholding of taxes due on such dividends or distribu-
tions due to Shareholders unless required of it by applicable law.
ARTICLE VI
CONCERNING THE TRUST
1. The Trust shall promptly deliver to the Transfer
Agent written notice of any change in the officers authorized to
sign Written Instructions or requests, together with a specimen
signature of each new Authorized Officer.
2. At any time the Transfer Agent may apply to an
Authorized Officer of the Trust for Written Instructions, and may
consult counsel for the Trust or its own counsel, with respect to
any matter arising in connection with the appointment, and shall
not be liable for any action taken or omitted by it in good
faith in accordance with such Written Instructions or such
opinion of counsel.
27
<PAGE>
3. The copy of the Charter of the Trust and copies-
of all amendments thereto shall be certified by the Secretary
of State (or other appropriate official) of the state of organ-
ization, and if such Charter and/or amendments are required by
law also to be filed with a county or other officer or official
body, a certificate of such filing shall be filed with a
certified copy submitted to the Transfer Agent. A copy of the
order or consent of each governmental or regulatory authority
required by law as a prerequisite to the issuance of Shares of
the Trust shall be certified by the Secretary or other proper
officer of such governmental or regulatory authority The copy
of the By-Laws and copies of all amendments thereto, and copies
of resolutions of the Board of Trustees of the Trust, shall be
certified by the Secretary of the Trust under the corporate
seal.
4. The Trust or its authorized agent shall be respon-
sible for the valuation of its Shares with respect to all purchase
and redemption orders.
ARTICLE VII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent shall not be liable and shall be
fully protected in acting upon any paper, document, or telephone
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<PAGE>
instruction believed by it to be genuine and to have been signed
or made by the proper person or persons and shall not be held to
have any notice of any change of authority of any person until
receipt of written notice thereof from the Trust or such person.
2. The Transfer Agent shall keep such records in the
form and manner as it may deem advisable but not inconsistent with
the rules and regulations of appropriate government authorities.
The Transfer Agent may deliver to the Trust from time to time at
its discretion, for safekeeping or disposition by the Trust in
accordance with law, such records, papers or documents, including
checks drawn on the Trust's account and signed by Shareholders,
accumulated in the execution of its duties as such Transfer-Agent,,
as the Transfer Agent may deem expedient, and the Trust assume all
responsibility for any failure thereafter to produce any record,
paper or document so returned, if and when required. The records
maintained by the Transfer Agent pursuant this Paragraph,
including the records described in Schedule A annexed hereto and
made a part hereof, which have not been previously delivered to
the Trust pursuant to the foregoing provisions of this paragraph,
shall be considered to be the property of the Trust and such
records shall be delivered to the Trust on the date of termination
of this Agreement, as specified in Article IX of this Agreement,
in the form and manner kept by the Transfer Agent on such date of
termination.
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<PAGE>
3. The Transfer Agent may, in connection with its
appointment, employ agents or attorneys in fact, and shall not
be liable for any loss arising out of or in connection with its
actions under this appointment so long as it acts in good faith
and is not negligent or guilty of any willful misconduct. The
Trust shall indemnify and exonerate, save and hold harmless the
Transfer Agent from and against any and all claims (whether with
or without basis in fact or law), demands, expenses and liabilities
of any and every nature which the Transfer Agent may sustain or
incur or which may be asserted against the Transfer Agent by any
person by reason of or as a result of any action taken or omitted to
be taken by the Transfer Agent in good faith and without negligence
in reliance upon any (i) written, telephone or wire purchase order,
redemption request or instruction received by the Transfer Agent
pursuant to this Agreement, (ii) instrument or order believed by it
to be genuine and to be signed, countersigned or executed by any
duly authorized person or persons, (iii) Certificate or oral or
written Instruction of an Authorized Officer of the Trust or (iv)
opinion of legal counsel for the trust or the Transfer Agent. The
Trust shall indemnify and exonerate, save and hold the Transfer
Agent harmless from and against any and all claims (whether with or
without basis in fact or law), demands, expenses and liabilities of
any and every nature which the Transfer Agent may sustain or incur
or which
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<PAGE>
may be asserted against the Transfer Agent by any person by reason
of or as a result of any action taken or omitted to be taken by
the Transfer Agent in connection with its appointment in reliance
upon any law, act, regulation or interpretation of the same by an
appropriate governmental agency even though the same may
thereafter have been altered, changed, amended or repealed. In
order that the indemnification provision contained in this
paragraph 3 shall apply, upon the assertion of a claim for which
the Trust may be required to indemnify the Transfer Agent, the
Transfer Agent shall promptly notify the trust of such assertion,
and shall keep the Trust advised with respect to all developments
concerning such claim. The Trust shall have the option to
participate with the Transfer Agent in the defense of such claim.
The Transfer Agent shall in no case confess any claim of make any
compromise in any case in which the Trust may be required to
indemnify the Transfer Agent except with the Trust's prior written
consent.
4. Specifically, but not by way of limitation, the
Trust shall indemnify and exonerate, save and hold the Transfer
Agent harmless from and against any and all claims (whether with
or without basis in fact or law), demands, expenses and
liabilities of any and every nature which the Transfer Agent may
sustain by any person in connection with the Transfer Agent's
capacity and authorization to issue shares of the Trust and the
form and amount of authorized Shares of the Fund.
- 31 -
<PAGE>
5. The Transfer Agent will supply Shareholder lists
to the Trust from time to time upon receiving a request therefor
from an Authorized officer of the Trust.
6. In case of any requests or demands for the in-
spection of the Shareholder records of the Trust, the Transfer
Agent will endeavor to notify the Trust and to secure instructions
from an Authorized Officer of the Trust as to such inspection.
The Transfer Agent reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its
counsel that it nay be held liable for the failure to exhibit the
Shareholder records to such person.
7. At the request of an Authorized officer of the
Trust, the Transfer Agent will address and mail such appropriate
notices to Shareholders as the Trust may direct.
8. The Transfer Agent shall not be responsible for
the valuation of the Shares of the Trust with respect to purchase
and redemption orders, and shall be furnished such valuations by
the Trust or its agent.
9. The Transfer Agent shall not be responsible for
the payment of any original issue or other taxes required to be
paid by the Trust in connection with the issuance or transfer of
any Shares.
10. Notwithstanding any of the foregoing provisions of
this Agreement, the Transfer Agent shall be under no duty or
obligation to inquire into, and shall not be liable for:
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<PAGE>
(a) The legality of the issue or sale of any
Shares of the Trust, or the sufficiency of the amount to be
received therefor;
(b) The legality of the redemption of any Shares
of the Trust, or the propriety of the amount to be paid therefor;
(c) The legality of the declaration of any
dividend by the Trust, or the legality of the issue of any Shares
of the Trust, in payment of any stock dividend; or
(d) The legality of any recapitalization or
readjustment of the Shares of the Trust.
11. The Transfer Agent shall be entitled to receive and
the Trust hereby agrees to pay to the Transfer Agent its out-of-
pocket expenses and such compensation as may be agreed from time
to time by the Transfer Agent and the Trust.
12. The Transfer Agent hereby agrees to hire, purchase,
develop and maintain such dedicated personnel, facilities,
equipment, software, resources and capabilities as may be
reasonably determined by the Fund to be necessary for the
satisfactory performance of the duties and responsibilities of the
Transfer Agent under the Agreement.
ARTICLE X
TERMINATION
1. Either of the parties hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less
than 90 days after the date of receipt of such notice, in the
event such notice is given by the Trust, it shall be
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<PAGE>
accompanied by a copy of a resolution of the Board of Trustees
of the Trust, certified by the Secretary or any Assistant
Secretary electing to terminate this Agreement and designating
a successor transfer agent or transfer agents. In the event
such notice is given by the Transfer Agent, the Trust shall,
on or before the termination date, deliver to the Transfer
Agent a copy of a resolution of its Board of Directors certi-
fied by the Secretary or any Assistant Secretary designating a
successor transfer agent or transfer agents. In the absence of
such designation by the Trust, the Transfer Agent may designate
a successor transfer agent. If the Trust fails to designate a
successor transfer agent and if the Transfer Agent is unable
to find a successor transfer agent, the Trust shall upon the date
specified in the notice of termination of this Agreement be
deemed to be its own transfer agent and the Transfer Agent shall
thereby be relieved of all duties and responsibilities pursuant
to this Agreement.
ARTICLE XI
MISCELLANEOUS
1. Any notice or other instrument in writing, au-
thorized or required by this Agreement to be given to the Trust
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<PAGE>
shall be sufficiently given if addressed to the Trust and mailed
or delivered to it as its primary office in Plainsboro, New Jersey
or at such other place as the Trust may from time to time
designate in writing.
2. Any notices or other instrument in writing,
authorized or required by this Agreement to be given to the
Transfer Agent shall be sufficiently given if addressed to the
Transfer Agent and mailed or delivered to it at its primary office
in Somerset, New Jersey or at such other place as the Transfer
Agent may from time to time designate in writing.
3. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties with
the formality of this Agreement.
4. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Trust without the written consent of the
Transfer Agent.
5. This Agreement shall be construed in accordance with
the laws of the State of New York.
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<PAGE>
6. The Declaration of Trust establishing the Trust,
dated January 21, 1975, a copy of which, together with all
amendments thereto (the "Declaration") , is on file in the
office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Merrill Lynch Ready Assets Trust"
refers to the Trustees under the Declaration collectively
as Trustees, but not as individuals or personally; and no
Trustee, shareholder, officer, employee or agent of the Trust
shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any
obligation or claim otherwise in connection with the affairs
of said Trust by the Trust Estate only shall be liable.
7. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original;
but such counterparts shall, together, constitute only one
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers, thereunto
duly authorized and their respective seals to be hereunto affixed,
as of the day and year first above written.
MERRILL LYNCH U.S.A. Government Reserves
By
---------------------------------
ATTEST
- ---------------------------------
MERRILL LYNCH FINANCIAL DATA
SERVICE, INC.
BY
---------------------------------
ATTEST:
- ---------------------------------
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<PAGE>
Schedule A
The Transfer Agent will establish, maintain and provide to the
Trust the following:
A. Daily Journal of Subscription Receipts, Availability and
Funds Transfers to Custody.
B. Daily Journal of Redemption Payment Demand.
C. Daily Sales and Transaction Journals containing the day's
detail of all transactions.
D. Daily Closed Account Journal.
E. Daily Dividend Proof (Daily & Monthly).
F. Daily Redemption Blotter.
G. Daily Shares Proof (Daily & Monthly).
H. Daily Master Control Proof.
I. Daily Prospectus Mailing Report.
J. Daily Blue Sky Report (frequency as agreed upon).
K. Daily Quality Control Reports.
L. Large Item Report.
M. Weekly Status Report.
N. Research and Correspondence Status Report.
O. Monthly Sales by State and Dividends Reinvested.
P. Monthly Shareholders Master File List.
Q. Monthly Record of out-of-pocket Cost Incurred.
<PAGE>
EXHIBIT 99.13
CERTIFICATE OF SOLE SHAREHOLDER
Merrill Lynch Asset Management, Inc., the holder of
100,000 shares of beneficial interest, par value $0.10 per
share, of U.S.A. Government Reserves, a Massachusetts busi-
ness trust (the "Fund"), does hereby confirm to the Fund its
representation that it purchased such shares for investment
purposes, with no present intention of redeeming or reselling
any portion thereof, and does further agree that if it
redeems any portion of such shares prior to the amortization
of the Fund's organizational expenses, the proceeds thereof
will be reduced by the proportionate amount that the total
unamortized balance bears to the number of shares being
redeemed.
MERRILL LYNCH ASSET MANAGEMENT, INC.
By /S/ Arthur Zeikel
Dated: November 11, 1982
<PAGE>
EXHIBIT 99.15
MERRELL LYNCH SHAREHOLDER
SERVICING PLAN AND AGREEMENT
PLAN AND AGREEMENT made as of the 30th day of December, 1988 by and between
Merrill Lynch U.S.A. Government Reserves, a Massachusetts business trust (the
"Fund"), and Merrill Lynch. Pierce, Fenner & Smith Incorporated, a Delaware
corporation ("MLPF&S").
WHEREAS, the Fund is a no load open-end investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
which operates as a money market fund;
WHEREAS, MLPF&S acts as a dealer selling shares of the Fund to its customers
and substantially all of the shareholders of the Fund are MLPF&S customers who
maintain their Fund accounts through MLPF&S (such accounts being referred to
herein as the "MLPF&S Fund Accounts")
WHEREAS, MLPF&S provides a variety of administrative and operation services to
MLPF&S Fund Accounts including processing shareholder orders and administering
MLPF&S Fund Accounts (such services being referred to as "MLPF&S Administrative
Services") which are being provided pursuant to the management arrangements
between the Fund and Merrill Lynch Asset Management. Inc. ("MLAM");
WHEREAS MLPF&S account executives and other personnel spend substantial
amounts of time providing shareholder services to existing and prospective
MLPF&S Fund Accounts, including furnishing information as to the status of such
MLPF&S Fund Accounts and handling purchase and redemption orders for Fund
shares, for which they receive no compensation (such services being referred to
herein as "MLPF&S Shareholder Services and Activities");
WHEREAS, the Trustees of the Fund have determined that the Fund should make
direct payments to MLPF&S for distribution to its account executives and other
directly involved Merrill Lynch personnel as compensation for the MLPF&S
Shareholder Services and Activities and that such payments should be in addition
to the management compensation being paid MLAM.
WHEREAS, the Fund desires to adopt this Merrill Lynch Shareholder Servicing
Plan and Agreement (the "Plan") in the manner and on the terms and conditions
hereinafter set forth. which Plan must be adopted pursuant to Rule 12b-1 under
the Investment Company Act because the services for which compensation is to be
provided under the Plan may include services associated with the distribution of
Fund shares;
WHEREAS, MLPF&S desires to enter into the Plan on said terms and conditions;
and
WHEREAS, the Trustees of the Fund have determined that there is a reasonable
likelihood that adoption of the Plan will benefit the Fund and its shareholders:
Now, THEREFORE, the Fund hereby adopts the Plan in accordance with Rule 12b-1
under the Company Act and the parties hereto enter into this agreement on the
following terms and conditions:
1. The Fund is hereby authorized to utilize its assets to make payments to
MLPF&S pursuant to the Plan to compensate MLPF&S account executives and other
directly involved MLPF&S
1
<PAGE>
personnel for providing the MLPF&S Shareholder Services and Activities with
respect to MLPF&S Fund Accounts.
2. The Fund shall pay MLPF&S a fee at the end of each month at the annual rate
of 0. 125 % of average daffy net asset value of the MLPF&S Fund Accounts. MLPF&S
is obligated to expend the entire amount of the fee for compensation, including
incentives and bonuses, to MLPF&S account executives and other directly involved
MLPF&S personnel (the "Plan Expenditures"). The fee is for direct personal
services and is not to be considered compensation for the MLPF&S Administrative
Services.
3. MLPF&S shall provide the Fund for review by the Trustees, and the Trustees
shall review. at least quarterly, a written report complying with the
requirements of Rule 12b-1 regarding the disbursement of the fee for Plan
Expenditures during such period. The report shall include an itemization of the
Plan Expenditures made by MLPF&S, the purpose of such Plan Expenditures and a
description of the benefits derived by the Fund therefrom.
4. In the event that the aggregate payments received by MLPF&S under the Plan
in any year shall exceed the Plan Expenditures in such fiscal year. MLPF&S shall
be required to reimburse the Fund the amount of such excess.
5. MLPF&S will use its best efforts in rendering and causing its employees to
render services to the Fund, but in the absence of willful misfeasance, bad
faith gross negligence or reckless disregard of its obligations hereunder,
MLPF&S shall not be liable to the Fund or any of its shareholders for any error
of judgment or mistake of law or for any act of omission or for any sustained by
the Fund or its shareholders.
6. Nothing contained in the Plan shall prevent MLPF&S or any affiliated person
of MLPF&S from performing services similar to those to be performed hereunder
for any other person. firm or corporation or for its or their own accounts or
for the accounts of others.
7. The Plan shall not take effect until it has been approved by votes of a
majority of both (a) the Trustees of the Fund and (b) those Trustees of the Fund
who are not "interested persons" of the Fund, as defined in the Investment
Company Act, and have no direct or indirect financial interest in the operation
of this Plan Or any agreements related to it (the "Rule 12b-1 Trustees"), cast
in person at a meeting or meetings called for the purpose of voting on the Plan.
8. The Plan shall not take effect until it has been approved by a vote of at
least a majority. as defined in the Investment Company Act, of the outstanding
voting securities of the Fund.
9. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 7.
10. The Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Trustees. or by vote of a majority of the outstanding voting securities of
the Fund.
11. The Plan may not be amended to increase materially the fee provided for in
Paragraph 2 unless such amendment is approved in the manner provided for initial
approval in paragraphs 7 and 8, and no material amendment to the Plan shall be
made unless approved in the manner provided for approval and annual renewal in
Paragraph 7.
2
<PAGE>
12. While the Plan is in effect, the selection and nomination of the Trustees
who are not interested persons, as defined in the Investment Company Act, of the
Fund shall be committed to the discretion of the Trustees who are not interested
persons.
13. The Fund shall preserve copies of this Plan and any related agreements and
all reports made pursuant to Paragraph 2, for a period of not less than six
years from the date of the Plan, or the agreements or such report, as the case
may be, the first two years in an easily accessible place.
14. Tne Declaration of Trust establishing Merrill Lynch U.S.A. Government
Reserves Fund, dated July 29, 1982, 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 Merrill Lynch U.S.A. Government
Reserves shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim of said
Merrill Lynch U.S.A. Government Reserves, but the Trust Property only shall be
liable.
WHEREAS, the parties hereto have executed and delivered this Shareholder
Servicing Plan and Agreement as of the date first above written.
MERRILL LYNCH, U.S.A. GOVERNMENT RESERVES
By ....................................
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By ....................................
3
<PAGE>
EXHIBIT 99.16
U.S.A. Government Reserves
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
AS OF August 31, 1987
Base Period Return
------------------
<TABLE>
<CAPTION>
Including Excluding
gains and losses gains and losses
---------------- ----------------
<S> <C> <C>
Net Income of one share for
a seven-day base period .001331 .001333
Divided by
Net asset-value of one share
at beginning of base period $1.00 $1.00
Equals
Base period return (unannualized) .001331 .001333
Annualized Return
------------------
Base period return (unannualized) .001331 .001333
Divided by 7 .000190 .000190
Multiplied by 365 .069506 .069506
Equals
Annualized return 6.95 6.95
Effective or Compounded Yield
-----------------------------
Base period return (unannualized)* .001331 .001333
Divided by 7 .000190 .000190
Add
1
Equals 1.000190 1.000190
Sum raised to 365th power 1.07180422
Subract
1
Equals
Effective or Compounded Yield 7.19
</TABLE>
- ----------------------
* Calculated using base period return (unannualized) excluding gains and losses.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000704957
<NAME> MERRILL LYNCH USA GOVERNMENT RESERVES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 564299936
<INVESTMENTS-AT-VALUE> 564346018
<RECEIVABLES> 1278591
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 116642
<TOTAL-ASSETS> 565741251
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6812481
<TOTAL-LIABILITIES> 6812481
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 558882688
<SHARES-COMMON-STOCK> 558882687
<SHARES-COMMON-PRIOR> 544648140
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 46082
<NET-ASSETS> 558928770
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29807933
<OTHER-INCOME> 0
<EXPENSES-NET> 4529534
<NET-INVESTMENT-INCOME> 25278399
<REALIZED-GAINS-CURRENT> 351372
<APPREC-INCREASE-CURRENT> 519921
<NET-CHANGE-FROM-OPS> 26149692
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25278399
<DISTRIBUTIONS-OF-GAINS> 351372
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1488684962
<NUMBER-OF-SHARES-REDEEMED> 1500066112
<SHARES-REINVESTED> 25615698
<NET-CHANGE-IN-ASSETS> 14754469
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2408559
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4529534
<AVERAGE-NET-ASSETS> 535235261
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.10
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TELEPHONE: (212) 839-5300
FACSIMILE: (212) 839-5599
December 22, 1995
Merrill Lynch U.S.A. Government Reserves
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
This opinion is furnished in connection with the registration by Merrill
Lynch U.S.A. Government Reserves, a Massachusetts business trust (the "Trust"),
of 1,500,356,112 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, as amended, 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 shares of beneficial interest.
<PAGE>
In rendering this opinion, we have relied as to matters of Massachusetts
law upon an opinion of Bingham, Dana & Gould rendered to 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
2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch U.S.A. Government Reserves:
We consent to the use in Post-Effective Amendment No. 14 to Registration
Statement No. 2-78702 of our report dated October 6, 1995 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 20, 1995
