<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1998
SECURITIES ACT FILE NO. 2-78702
INVESTMENT COMPANY ACT FILE NO. 811-3534
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 17 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 20 [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)
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>
Counsel for the Fund:
BROWN & WOOD LLP Michael J. Hennewinkel, Esq.
One World Trade Center MERRILL LYNCH ASSET MANAGEMENT
New York, New York 10048-0557 P.O. Box 9011
Attention: Thomas R. Smith, Jr., Esq. Princeton, New Jersey 08543-9011
</TABLE>
Thomas D. Jones, III, Esq.
MERRILL LYNCH ASSET MANAGEMENT
P.O. Box 9011
Princeton, New Jersey 08543-9011
------------------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
------------------------
TITLE OF SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, PAR VALUE
$.10 PER SHARE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT USE THIS PROSPECTUS TO SELL SECURITIES UNTIL
THE REGISTRATION STATEMENT CONTAINING THIS PROSPECTUS, WHICH HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
[MERRILL LYNCH LOGO]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 30, 1998
PROSPECTUS
Merrill Lynch U.S.A. Government Reserves
, 1998
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE
INVESTING, INCLUDING INFORMATION ABOUT RISKS. PLEASE READ
IT BEFORE YOU INVEST AND KEEP IT FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 3
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
[KEY FACTS ICON]
KEY FACTS
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Merrill Lynch U.S.A. Government Reserves at a Glance........ 3
Yield Information........................................... 3
Risk/Return Bar Chart....................................... 4
Fees and Expenses........................................... 5
[FUND DETAILS ICON]
DETAILS ABOUT THE FUND
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How the Fund Invests........................................ 6
Investment Risks............................................ 7
[YOUR ACCOUNT ICON]
YOUR ACCOUNT
- -----------------------------------------------------------------
How Shares are Priced....................................... 8
How to Buy, Sell and Transfer Shares........................ 8
Dividends and Taxes......................................... 12
[MANAGEMENT ICON]
MANAGEMENT OF THE FUND
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Merrill Lynch Asset Management.............................. 13
Financial Highlights........................................ 14
[MORE INFORMATION ICON]
FOR MORE INFORMATION
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Shareholder Reports....................................Back Cover
Statement of Additional Information....................Back Cover
</TABLE>
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
<PAGE> 4
Key Facts [KEY FACTS ICON]
IN AN EFFORT TO HELP YOU BETTER UNDERSTAND THE MANY CONCEPTS INVOLVED IN MAKING
AN INVESTMENT DECISION, WE HAVE DEFINED THE HIGHLIGHTED TERMS IN THIS PROSPECTUS
IN THE SIDEBAR.
SHORT-TERM SECURITIES -- securities with maturities of not more than 762 days
(25 months).
DIRECT U.S. GOVERNMENT OBLIGATIONS -- issued or have their principal and
interest guaranteed and backed by the full faith and credit of the United
States.
REPURCHASE AGREEMENTS -- agreements where another party sells securities to the
Fund and at the same time agrees to repurchase the securities at a particular
time and price.
YIELD -- the income generated by an investment in the Fund.
THE MERRILL LYNCH U.S.A. GOVERNMENT RESERVES AT A GLANCE
- --------------------------------------------------------------------------------
WHAT ARE THE FUND'S GOALS?
The Fund seeks preservation of capital, current income and liquidity. We cannot
guarantee that the Fund will achieve its goals.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund tries to achieve its goals by investing in a diversified portfolio of
SHORT-TERM SECURITIES. These securities consist of DIRECT U.S. GOVERNMENT
OBLIGATIONS and REPURCHASE AGREEMENTS with banks and securities dealers that
involve direct obligations of the U.S. Government.
WHAT ARE THE FUND'S MAIN RISKS?
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
WHO SHOULD INVEST?
The Fund may be an appropriate investment for you if you:
- Are looking for current income and liquidity.
- Are looking for preservation of capital.
- Are investing with short-term goals in mind, such as for cash
reserves, and want to focus on U.S. Government securities.
YIELD INFORMATION
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The YIELD on Fund shares normally will fluctuate on a daily basis. Therefore,
yield for any given past periods are not an indication or representation of
future yields. The Fund's yield is affected by changes in interest rates,
average portfolio maturity, the types and quality of portfolio securities held
and operating expenses. Current yield information may not provide the basis for
a comparison with bank deposits or other investments, which pay a fixed yield
over a stated period of time. To obtain the Fund's current 7-day yield, call
1-800-221-7210.
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES 3
<PAGE> 5
[KEY FACTS ICON] Key Facts
RISK/RETURN BAR CHART
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The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance
from year to year over a 10-year period. The table shows the average annual
total returns of the Fund for one, five and ten years. How the Fund performed in
the past is not necessarily an indication of how the Fund will perform in the
future.
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7% 9% 8% 6% 3% 3% 3% 5% 5% 5%
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 2.27% (quarter ended May 31, 1989) and the lowest return for a
quarter was 0.59% (quarter ended November 30, 1993). The Fund's year-to-date
return as of September 30, 1998 was 4.90%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(AS OF THE
CALENDAR YEAR ENDED PAST PAST PAST
DECEMBER 31, 1997) ONE YEAR 5 YEARS 10 YEARS
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<S> <C> <C> <C>
U.S.A. Government Reserves Fund 4.89% 4.17% 5.26%
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</TABLE>
4 MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
<PAGE> 6
UNDERSTANDING
EXPENSES
FUND INVESTORS PAY VARIOUS FEES AND EXPENSES, EITHER DIRECTLY OR INDIRECTLY.
LISTED BELOW ARE SOME OF THE MAIN TYPES OF EXPENSES, WHICH ALL MUTUAL FUNDS MAY
CHARGE:
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
MANAGEMENT FEE -- a fee paid to the investment adviser for managing the Fund.
DISTRIBUTION FEES -- fees used to support the Fund's marketing and distribution
efforts, such as compensating Financial Consultants.
FEES AND EXPENSES
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This table shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than those
indicated below.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES:
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MANAGEMENT FEE(a) 0.45%
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DISTRIBUTION (12b-1) FEES(b) 0.13%
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OTHER EXPENSES (INCLUDING TRANSFER AGENCY FEES)(c) 0.25%
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TOTAL ANNUAL FUND OPERATING EXPENSES 0.83%
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</TABLE>
(a) The Fund pays the investment adviser a fee at the annual rate of 0.45% of
the average daily net assets of the Fund.
(b) The Fund is authorized to pay Merrill Lynch distribution fees of 0.125% each
year under a distribution plan that the Fund has adopted under rule 12b-1.
For the fiscal year ended August 31, 1998, $670,043 was paid to Merrill
Lynch pursuant to the distribution plan.
(c) The Fund pays the Transfer Agent $15.00 for each shareholder account and
reimburses the Transfer Agent's out-of-pocket expenses. For the fiscal year
ended August 31, 1998, the Fund paid the Transfer Agent fees totaling
$1,079,630. The investment adviser provides accounting services to the Fund
at its cost. For the fiscal year ended August 31, 1998, the Fund reimbursed
the investment adviser $62,771 for these services.
EXAMPLE:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money-market funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------
<S> <C> <C> <C>
$85 $265 $461 $1,025
- ----------------------------------
</TABLE>
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES 5
<PAGE> 7
[DETAILS ABOUT THE FUND ICON] Details About the Fund
ABOUT THE PORTFOLIO MANAGER
Marie Dwyer is a Vice President and the portfolio manager of the Fund. Ms. Dwyer
has been a Vice President of Merrill Lynch Asset Management since 1991 and was
Assistant Vice President from 1990 to 1991. Ms. Dwyer has been primarily
responsible for the management of the Fund's portfolio since January 1998.
ABOUT THE INVESTMENT ADVISER
The Fund is managed by Merrill Lynch Asset Management.
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
The Fund seeks preservation of capital, current income and liquidity. The Fund
tries to achieve its goals by investing in a diversified portfolio of short-
term securities that are direct obligations of the U.S. Government. The Fund
also uses repurchase agreements with banks and securities dealers that involve
direct obligations of the U.S. Government.
In seeking to achieve the Fund's objectives, Fund management varies the kinds of
direct U.S. Government securities in the portfolio and the average maturity.
Fund management decides on which securities to buy and sell based on their
assessment of the relative values of different securities and future interest
rates. Fund management seeks to improve the Fund's yield by taking advantage of
yield differentials that regularly occur between securities of a similar kind.
For example, market conditions frequently result in similar securities trading
at different prices. Fund management seeks to improve the Fund's yield by buying
and selling securities based on these yield differences.
Among the direct U.S. obligations the Fund may buy are:
- U.S. Treasury bills, bonds, notes and strips, which differ
mainly in the length of their maturity.
- U.S. Government agency securities, that are backed by the full
faith and credit of the United States.
- Variable rate direct U.S. Government obligations, which have
interest rates that reset periodically prior to maturity
(usually at 30, 90 or 180-day intervals) based on a specific
index or interest rate.
- Deposit receipts, which represent interests in component parts
of U.S. Treasury bonds or other U.S. Government or U.S.
Government agency securities.
The Fund may also buy repurchase agreements involving the U.S. Government
securities described above. Repurchase agreements must involve a member bank of
the Federal Reserve System, a primary dealer in U.S. Government securities or an
affiliate of a primary dealer. The Fund may also invest in the U.S. Government
securities described above pursuant to purchase and sale contracts.
The Fund may buy or sell U.S. Government securities on a forward commitment
basis. In these transactions, the Fund buys the securities at an established
price with payment and delivery taking place in the future. These purchases may
be for periods of up to 180 days. The value of the security on the delivery date
may be more or less than its purchase price.
6 MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
<PAGE> 8
The Fund may not invest in securities that are issued or guaranteed by U.S.
Government entities, but not backed by the full faith and credit of the United
States.
INVESTMENT RISKS
- --------------------------------------------------------------------------------
This section contains a summary discussion of the general risks of investing in
the Fund. As with any mutual fund, there can be no guarantee that the Fund will
meet its goals or that the Fund's performance will be positive for any period of
time.
SELECTION RISK -- Selection risk is the risk that the securities that Fund
management selects will underperform other funds with similar investment
objectives and investment strategies.
INTEREST RATE RISK -- Prices of securities owned by the Fund generally increase
when interest rates decline and decrease when interest rate increase. This risk
is known as interest rate risk.
REPURCHASE AGREEMENT RISKS -- If the party with whom the Fund has entered into a
repurchase agreement defaults on its obligation, the Fund may suffer delays and
incur costs or even lose money in exercising its rights under the agreement.
SHARE REDUCTION RISK -- In order to maintain a constant net asset value of $1.00
per share, the Fund may reduce the number of shares held by its shareholders.
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES 7
<PAGE> 9
Your Account [YOUR ACCOUNT ICON]
NET ASSET VALUE -- the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
When you buy shares, you pay the NET ASSET VALUE (normally $1.00 per share)
without a sales charge. The "penny-rounding" method is used in calculating net
asset value, meaning that the calculation is rounded to the nearest whole cent.
This is the offering price. Shares are also redeemed at their net asset value.
The Fund calculates its net asset value each business day (generally, 4:00 p.m.
Eastern time). The net asset value used in determining your price is the one
calculated after your purchase or redemption order becomes effective. Share
purchase orders are effective on the date Federal Funds become available to the
Fund. You will begin accruing dividends on the day following the date your
purchase becomes effective.
HOW TO BUY, SELL AND TRANSFER SHARES
- --------------------------------------------------------------------------------
The chart below summarizes how to buy, sell, transfer and exchange shares
through Merrill Lynch or other securities dealers. You may also buy shares
through the Transfer Agent. To learn more about buying shares through the
Transfer Agent, call 1-800-221-7210. Because the selection of a mutual fund
involves many considerations, your Merrill Lynch Financial Consultant may help
you with this decision.
The Fund reserves the right to redeem shares of your account if you do not
maintain a total investment value of at least $1,000. You will be notified if
your account is less than $1,000 and will be allowed two months to make
additions before such redemption is processed.
8 MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
<PAGE> 10
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BUY SHARES Determine the amount of your The minimum initial investment for the Fund is $5,000 for
investment all accounts except: - $300 for accounts advised by
banks and registered investment advisers
- $100 for retirement plans
(The minimums for initial investments may be waived under
certain circumstances.)
-------------------------------------------------------------------------------------------------------
Have your Merrill Lynch Financial Share purchase orders are effective on the date Federal
Consultant or securities dealer Funds become available to the Fund. Generally, purchase
submit your purchase order orders placed through Merrill Lynch will be effective on the
day following the day the order is placed. Investors who
wish same-day effectiveness should purchase by wire as
described below.
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Purchase by Wire You may purchase shares of the Fund by wiring Federal Funds
to First Union National Bank of Florida. You should give
your financial institution the following wire 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.
-------------------------------------------------------------------------------------------------------
Or contact the Transfer Agent You can purchase shares of the Fund directly by mailing a
purchase application to the Transfer Agent at the address on
the inside back cover of this prospectus.
- --------------------------------------------------------------------------------------------------------------------------------
ADD TO YOUR Purchase additional shares The minimum investment for additional purchases is $1,000
INVESTMENT for all accounts except:
- $100 for accounts advised by banks and registered
investment advisers
- $1 for retirement plans.
(The minimums for additional purchases may be waived under
certain circumstances.)
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Acquire additional shares through the All dividends are automatically reinvested. If you want to
automatic dividend reinvestment plan receive your dividends in cash you may enroll in the Accrued
Monthly Payout Plan.
-------------------------------------------------------------------------------------------------------
Participate in the automatic You may invest a specific amount on a periodic basis through
investment plan certain Merrill Lynch investment or central asset accounts.
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</TABLE>
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES 9
<PAGE> 11
[YOUR ACCOUNT ICON] Your Account
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
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<S> <C> <C>
TRANSFER SHARES TO Transfer to a participating You may transfer your Fund shares only to another securities
ANOTHER SECURITIES securities dealer dealer that has entered into an agreement with Merrill
DEALER Lynch. All shareholder services will be available for the
transferred shares. You may only purchase additional shares
of funds previously owned before the transfer. All future
trading of these assets must be coordinated by the receiving
firm.
-------------------------------------------------------------------------------------------------------
Transfer to a non-participating You must either:
securities dealer - Transfer your shares to an account with the Transfer
Agent; or
- Sell your shares.
- --------------------------------------------------------------------------------------------------------------------------------
SELL YOUR SHARES Have your Merrill Lynch Financial To ensure that your redemption request will be priced at the
Consultant or securities dealer net asset value on the day of your request, you must submit
submit your sales order your request to your dealer prior to the determination of
net asset value of the Fund (generally 4:00 p.m. Eastern
time). Any redemption request received from a dealer after
that time will be priced at the net asset value at the close
of business on the next business day.
Securities dealers, including Merrill Lynch, may charge a
fee to process a redemption of shares.
The Fund may reject an order to sell shares under certain
circumstances.
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Sell through the Transfer Agent You may sell shares held at the Transfer Agent by writing to
the Transfer Agent at the address on the inside back cover
of this prospectus. All shareholders on the account must
sign the letter and signatures must be guaranteed. The
Transfer Agent will normally mail redemption proceeds within
seven days following receipt of a properly completed
request. If you make a redemption request before the Fund
has collected payment for the purchase of shares, the Fund
or the Transfer Agent may delay mailing your proceeds. This
delay will usually not exceed ten days.
Check with the Transfer Agent or your Merrill Lynch
Financial Consultant for details.
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</TABLE>
10 MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
<PAGE> 12
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELL YOUR SHARES Redemption by check You may redeem shares by check in an amount not less than
(CONTINUED) $500. You may request checks from the Transfer Agent. These
checks can be made payable to any person, except that they
may not be used to buy securities in transactions with
Merrill Lynch. The person to whom the check is made payable
may cash or deposit it like any check, drawn on any bank.
You will continue to earn daily dividends until the check
clears. You will be subject to the rules and regulations
governing such checking accounts including the right of the
Transfer Agent not to honor checks exceeding the value of
your account. The Fund or the Transfer Agent may modify or
terminate the redemption by check privilege on 30 days
notice.
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Federal Funds Redemption You may arrange to have redemption proceeds of $5,000 or
more wired in Federal Funds to a pre-designated bank
account. The application designating the bank must be
signature guaranteed. The redemption request may be made by
telephone, wire or letter to the Transfer Agent. If your
redemption request is made prior to the determination of net
asset value of the Fund (generally 4:00 p.m. Eastern time),
redemption proceeds will be wired to your pre-designated
bank account on the next business day.
-------------------------------------------------------------------------------------------------------
Automatic Redemption If you maintain other securities accounts with Merrill Lynch
(other than margin accounts), Merrill Lynch may utilize its
automatic redemption procedure to satisfy amounts you may
owe either as a result of account fees and expenses or as a
result of purchases or other transactions in those
securities accounts. Unless you notify Merrill Lynch to the
contrary, your securities account will be scanned each day
prior to the determination of net asset value of the Fund
(generally, 4:00 p.m. Eastern time) and, after application
of any cash balances in the account, a sufficient number of
Fund shares may be reduced to satisfy any amounts you may
owe Merrill Lynch. Such redemption will be made the day
before payment is due, and Merrill Lynch will receive
redemption proceeds on the day following such redemption.
Except under certain circumstances, you will receive all
dividends declared and reinvested through the date of
redemption.
- --------------------------------------------------------------------------------------------------------------------------------
SELL SHARES Participate in the Fund's Systematic You can choose to receive systematic payments from your Fund
SYSTEMATICALLY Withdrawal Plan account on a monthly or quarterly basis. Contact the
Transfer Agent at the telephone number on the inside back
cover of this prospectus for an application.
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</TABLE>
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES 11
<PAGE> 13
[YOUR ACCOUNT ICON] Your Account
DIVIDENDS -- income paid to shareholders. Dividends may be reinvested in
additional Fund shares as they are paid.
DISTRIBUTIONS -- capital gains paid to shareholders. Distributions may be
reinvested in additional Fund shares as they are paid.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
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 redeeming their holdings will receive all dividends
declared and reinvested through the date of redemption.
You will pay tax on dividends and DISTRIBUTIONS from the Fund whether you
receive them in cash or additional shares. If you redeem Fund shares or exchange
them for shares of another fund, any gain on the transaction may be subject to
tax. The Fund intends to make distributions most of which will be taxed as
ordinary income although the Fund may distribute capital gains as well.
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 your eliminated shares would be added to the basis of your remaining Fund
shares, and you could recognize a capital loss if you disposed of your shares at
that time. Distributions, including distributions reinvested in additional
shares of the Fund, will nonetheless be fully taxable, even if the number of
shares in your account has been reduced as described above.
If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.
By law, the Fund must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current Federal tax law
of an investment in the Fund. It is not a substitute for personal tax advice.
Consult your personal tax adviser about the potential tax consequences of an
investment in the Fund under all applicable tax laws.
12 MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
<PAGE> 14
[MANAGEMENT OF THE FUND ICON] Management of the Fund
MERRILL LYNCH ASSET MANAGEMENT
- --------------------------------------------------------------------------------
Merrill Lynch Asset Management, the Fund's investment adviser, manages the
Fund's investments and its business operations under the overall supervision of
the Fund's Board of Trustees. The investment adviser has the responsibility for
making all investment decisions for the Fund. The Fund pays the investment
adviser a fee at the annual rate of 0.45% of the average daily net assets of the
Fund.
Merrill Lynch Asset Management is part of Merrill Lynch Asset Management Group,
which had approximately $467.2 billion in investment company and other portfolio
assets under management as of September 1998. This amount includes assets
managed for Merrill Lynch affiliates.
A NOTE ABOUT YEAR 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund management that they also
expect to resolve the Year 2000 Problem, and the Fund management will continue
to monitor the situation as the Year 2000 approaches. However, if the problem
has not been fully addressed, the Fund could be negatively affected. The Year
2000 Problem could also have a negative impact on the companies in which the
Fund invests, and this could hurt the Fund's investment returns.
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES 13
<PAGE> 15
[MANAGEMENT OF THE FUND ICON] Management of the Fund
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Deloitte & Touche LLP, whose report, along with the Fund's
financial statements, are included in the Fund's annual report to shareholders,
which is available upon request.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
---------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Investment income -- net .0484 .0471 .0474 .0472 .0280
- ------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments -- net .0007 .0005 (.0002) .0017 (.0007)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .0491 .0476 .0472 .0489 .0273
- ------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
Investment income -- net (.0484) (.0471) (.0474) (.0472) (.0280)
Realized gain on investments -- net (.0001) (.0001) (.0003) (.0007) (.0002)
- ------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (.0485) (.0472) (.0477) (.0479) (.0282)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Return 4.92% 4.81% 4.97% 4.87% 2.84%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------
Expenses .83% .82% .82% .85% .81%
- ------------------------------------------------------------------------------------------------------------------------
Investment income and realized gain on investments -- net 4.82% 4.71% 4.78% 4.79% 2.82%
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $ 608,020 $ 558,125 $ 554,285 $ 558,929 $ 544,174
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
14 MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
<PAGE> 16
[ML POTENTIAL INVESTORS CHART]
MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
<PAGE> 17
For More Information [FOR MORE INFORMATION ICON]
SHAREHOLDER REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. You
may obtain these reports at no cost by calling 1-800-MER-FUND.
The Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch Financial
Consultant or write to the Transfer Agent at its mailing address. Include your
name, address, tax identification number and Merrill Lynch brokerage or mutual
fund account number. If you have any questions, please call your Merrill Lynch
Financial Consultant or the Transfer Agent at 1-800-221-7210.
STATEMENT OF ADDITIONAL INFORMATION
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing or calling the Fund
at Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289 or 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund, at the telephone
number or address indicated above, if you have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
YOU SHOULD RELY ONLY ON THE INFORMATION CON- TAINED IN THIS PROSPECTUS. NO ONE
IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
Investment Company Act file #811-3534
Code #10152-10-98
(C) Merrill Lynch Asset Management, L.P.
PROSPECTUS
[MERRILL LYNCH LOGO]
Merrill Lynch U.S.A.
Government Reserves
, 1998
<PAGE> 18
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
Preliminary Statement of Additional Information Dated October 30, 1998
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 marketable short-term
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
, 1998 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission (the "Commission") and can be obtained, without charge,
by calling (800) 637-3863 or by writing the Fund at the above address. The
Prospectus is incorporated by reference into this Statement of Additional
Information, and this Statement of Additional Information is incorporated by
reference into the Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR -- DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is , 1998.
<PAGE> 19
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.......................... 2
Management of the Fund...................................... 4
Trustees and Officers..................................... 4
Compensation of Trustees.................................. 6
Management and Advisory Arrangements...................... 6
Code of Ethics............................................ 8
Purchase of Shares.......................................... 8
Methods of Payment........................................ 9
Distribution Plan......................................... 10
Redemption of Shares........................................ 10
Methods of Redemption..................................... 11
Purchase and Redemption of Shares Through Merrill Lynch
Plans..................................................... 13
Purchase by Plans......................................... 13
Redemptions by Plans...................................... 13
Confirmations............................................. 14
Determination of Net Asset Value............................ 14
Yield Information........................................... 15
Portfolio Transactions...................................... 15
Shareholder Services........................................ 16
Investment Account........................................ 16
Automatic Investment Plan................................. 17
Accrued Monthly Payout Plan............................... 17
Systematic Withdrawal Plans............................... 17
Distributions and Taxes..................................... 18
Dividends and Distributions............................... 18
Taxes..................................................... 18
General Information......................................... 20
Description of Shares..................................... 20
Independent Auditors...................................... 20
Custodian................................................. 20
Transfer Agent............................................ 20
Legal Counsel............................................. 21
Reports to Shareholders................................... 21
Shareholder Inquiries..................................... 21
Additional Information.................................... 21
Financial Statements........................................ 21
</TABLE>
<PAGE> 20
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund are to seek preservation of capital,
current income and liquidity available from investing in a diversified portfolio
of short-term marketable securities that 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 that may not be changed without a vote of the majority of the
outstanding shares of the Fund.
Investment in the Fund offers several potential benefits. The Fund seeks to
provide as high a yield potential as is available, consistent with the
preservation of capital, from short-term U.S. Government securities utilizing
professional money market management, block purchases of securities and yield
improvement techniques. It is expected to provide 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"
or "MLAM") 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 that 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
U.S. 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 that 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. 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
2
<PAGE> 21
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. 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. 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.
The Fund may purchase or sell U.S. Government securities on a forward
commitment basis at fixed purchase terms with periods of up to 180 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, 1998,
the average maturity of its portfolio ranged from 62 days to 84 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.
In addition, 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
3
<PAGE> 22
(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
this Statement of Additional Information;
(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 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.
Subject to the supervision of the Board of Trustees, the Manager is
responsible for the actual management of the Fund's portfolio and constantly
reviews the Fund's holdings in light of its own research analysis and that from
other relevant sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Manager. The Manager performs certain
of the other administrative services and provides all of the office space,
facilities, equipment and necessary personnel for portfolio management of the
Fund.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Board of Trustees of the Fund consists of seven individuals, six of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act (the "non-interested Trustees"). The Trustees are responsible for
the overall supervision of the operations of the Fund and perform the various
duties imposed on the directors of investment companies by the Investment
Company Act.
Information about the Trustees, executive officers and the portfolio
manager of the Fund, including their ages and their principal occupations for at
least the last five years, is set forth below. Unless otherwise noted, the
address of each Trustee, executive officer and the portfolio manager is P.O. Box
9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (66) -- President and Trustee(1)(2) -- Chairman of the
Manager and Fund Asset Management, L.P. ("FAM") (which terms as used herein
include their corporate predecessors) since 1997; President of the Manager and
FAM from 1977 to 1997; Chairman of Princeton Services, Inc. ("Princeton
Services") since 1997 and Director thereof since 1993; President of Princeton
Services from 1993 to 1997; Executive Vice President of Merrill Lynch & Co.,
Inc. ("ML & Co.") since 1990.
DONALD CECIL (71) -- Trustee(2)(3) -- 1114 Avenue of the Americas, New
York, New York 10036. Special Limited Partner of Cumberland Partners (an
investment partnership) since 1982; Member of Institute of Chartered Financial
Analysts; Member and Chairman of Westchester County (N.Y.) Board of
Transportation.
4
<PAGE> 23
M. COLYER CRUM (66) -- Trustee(2)(3) -- 104 Westcliff Road, Weston,
Massachusetts 02193. Currently James R. Williston Professor of Investment
Management Emeritus, Harvard Business School; James R. Williston Professor of
Investment Management, Harvard Business School, from 1971 to 1996; Director of
Cambridge Bancorp, Copley Properties, Inc. and Sun Life Assurance Company of
Canada.
EDWARD H. MEYER (71) -- Trustee(2)(3) -- 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. (stereo and audio equipment manufacturers)
and Ethan Allen Interiors, Inc.
JACK B. SUNDERLAND (70) -- Trustee(2)(3) -- 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.
J. THOMAS TOUCHTON (59) -- Trustee(2)(3) -- Suite 3405, One Tampa City
Center, 201 North Franklin Street, Tampa, Florida 33062. 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).
FRED G. WEISS (57) -- Trustee(2)(3) -- 5141 Via de Amalfi Drive, Boca
Raton, Florida 33496. Managing Director of FGW Associates since 1997; Vice
President, Planning Investment, and Development of Warner Lambert Co. from 1979
to 1997; Director of Noven Corporation (a pharmaceutical company) since 1997.
TERRY K. GLENN (58) -- Executive Vice President(1)(2) -- Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of Princeton Funds
Distributor, Inc. ("PFD") since 1986 and Director thereof since 1991; President
of Princeton Administrators, L.P. since 1988.
KEVIN MCKENNA (41) -- Senior Vice President(1)(2) -- First Vice President
of the Manager since 1997; Vice President of the Manager from 1985 to 1997.
JOSEPH T. MONAGLE, JR. (50) -- Senior Vice President(1)(2) -- Senior Vice
President of the Manager and FAM since 1990; Vice President of the Manager from
1978 to 1990; Senior Vice President of Princeton Services since 1993.
DONALD C. BURKE (38) -- Vice President(1)(2) -- First Vice President of the
Manager since 1997; Vice President of the Manager from 1990 to 1997; Director of
Taxation of the Manager since 1990.
MARIE DWYER (34) -- Vice President and Portfolio Manager(1)(2) -- Vice
President of the Manager since 1991; Assistant Vice President of the Manager
from 1990 to 1991.
GERALD M. RICHARD (49) -- 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; Treasurer of PFD since 1984 and Vice President
thereof since 1981.
THOMAS D. JONES, III (33) -- Secretary(1)(2) -- Vice President of the
Manager since 1998; attorney with the Manager and FAM since 1992.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Trustee or officer is a director, trustee or officer of certain other
investment companies for which the Manager or FAM acts as the investment
adviser.
(3) Members of the Fund's Audit Committee, which is responsible for the
selection of the independent auditors and the selection of non-interested
Trustees.
5
<PAGE> 24
As of the date of this Statement of Additional Information, the Trustees
and officers of the Fund as a group (13 persons) owned an aggregate of less than
1% of the outstanding shares of the Fund. At such date, Mr. Zeikel, a Trustee
and officer of the Fund, and the other officers of the Fund owned an aggregate
of less than 1% of the outstanding shares of Common Stock of ML & Co.
COMPENSATION OF TRUSTEES
The Fund pays each non-interested Trustee a fee of $3,000 per year plus
$750 per meeting attended. The Fund also compensates members of its Audit
Committee (the "Committee"), which consists of all the non-interested Trustees,
a fee of $2,500 per year. The Fund pays the Chairman of the Committee an
additional fee of $1,000 per year. The Fund reimburses each non-interested
Trustee for his out-of-pocket expenses relating to attendance at Board and
Committee meetings.
The following table shows the compensation earned by the non-interested
Trustees for the fiscal year ended August 31, 1998 and also the aggregate
compensation paid to them from all registered investment companies advised by
Manager and its affiliate, FAM ("MLAM/FAM-advised funds"), for the calendar year
ended December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATE
PENSION OR ESTIMATED COMPENSATION FROM
RETIREMENT BENEFITS ANNUAL FUND AND OTHER
POSITION WITH COMPENSATION ACCRUED AS PART OF BENEFITS UPON MLAM/FAM-
NAME FUND FROM FUND FUND EXPENSE RETIREMENT ADVISED FUNDS(1)
- ---- ------------- ------------ ------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Donald Cecil.................... Trustee $ 9,500 None None $275,850
M. Colyer Crum.................. Trustee $ 8,500 None None $115,600
Edward H. Meyer................. Trustee $ 8,500 None None $222,100
Jack B. Sunderland.............. Trustee $ 8,500 None None $132,600
J. Thomas Touchton.............. Trustee $ 8,500 None None $132,100
Fred G. Weiss................... Trustee $ 6,542 None None $ 0(2)
</TABLE>
- ---------------
(1) The Trustees serve on the boards of MLAM/FAM-advised funds as follows: Mr.
Cecil (34 registered investment companies consisting of 34 portfolios); Mr.
Crum (15 registered investment companies consisting of 15 portfolios); Mr.
Meyer (34 registered investment companies consisting of 34 portfolios); Mr.
Sunderland (18 registered investment companies consisting of 30 portfolios);
Mr. Touchton (18 registered investment companies consisting of 30
portfolios); and Mr. Weiss (15 registered investment companies consisting of
15 portfolios).
(2) Mr. Weiss was elected a Trustee of the Fund and certain other MLAM/FAM
Advised Funds on February 3, 1998.
Trustees of the Fund, members of the Boards of other MLAM-advised
investment companies, ML & Co. and its subsidiaries (the term "subsidiaries,"
when used herein with respect to ML & Co., includes MLAM, FAM and certain other
entities directly or indirectly wholly owned and controlled by ML & Co.) and
their trustees/directors and employees, and any trust, pension, profit-sharing
or other benefit plan for such persons, may purchase shares of the Fund at net
asset value.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Management Services. The Manager provides the Fund with investment
advisory and management services. Subject to the supervision of the Board of
Trustees, the Manager is responsible for the actual management of the Fund's
portfolio and constantly reviews the Fund's holdings in light of its own
research analysis and that from other relevant sources. The responsibility for
making decisions to buy, sell or hold a particular security rests with the
Manager. The Manager performs certain of the other administrative services and
provides all the office space, facilities, equipment and necessary personnel for
management of the Fund.
Securities held by the Fund also may be held by, or be appropriate
investments for, other funds or clients (collectively referred to as "clients")
for which the Manager or FAM acts as an adviser or by investment advisory
clients of the Manager. Because of different objectives or other factors, a
particular security may be
6
<PAGE> 25
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.
Management Fee. The Fund has entered into a management agreement with the
Manager (the "Management Agreement"), pursuant to which the Manager receives for
its services to the Fund monthly compensation at the annual rate of 0.45% of the
average daily net assets of the Fund. The table below sets forth information
about the total management fees paid by the Fund to the Manager for the periods
indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, MANAGEMENT FEE
---------------------------- --------------
<S> <C>
1998.............................. $2,594,327
1997.............................. $2,476,982
1996.............................. $2,478,931
</TABLE>
Payment of Fund Expenses. The Management Agreement obligates the Manager
to provide management services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund, as well as the
fees of all Trustees of the Fund who are affiliated persons of ML & Co. or any
of its affiliates. The Fund pays all other expenses incurred in the operation of
the Fund, including among other things: taxes, expenses for legal and auditing
services, costs of printing proxies, stock certificates, shareholder reports,
prospectuses and statements of additional information, except to the extent paid
by Merrill Lynch Funds Distributor, a division of PFD (the "Distributor");
charges of the custodian and the transfer agent; expenses of redemption of
shares; Commission fees; expenses of registering the shares under Federal and
state securities laws; fees and expenses of unaffiliated Trustees; accounting
and pricing costs (including the daily calculations of net asset value);
insurance; interest; brokerage costs; litigation and other extraordinary or
non-recurring expenses; and other expenses properly payable by the Fund.
Accounting services are provided for the Fund by the Investment Adviser and the
Fund reimburses the Manager for its costs in connection with such services. See
"Purchase of Shares -- Distribution Plans."
Organization of the Manager. The Manager is a limited partnership, the
partners of which are ML & Co., a financial services holding company and the
parent of Merrill Lynch, and Princeton Services. ML & Co. and Princeton Services
are "controlling persons" of the Manager as defined under the Investment Company
Act because of their ownership of its voting securities or their power to
exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will continue in effect from year to year if approved
annually (a) by the Board of Trustees of the Fund or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Trustees who are not
parties to such contract or interested persons (as defined in the Investment
Company Act) of any such party. Such contracts are not assignable and may be
terminated without penalty on 60 days' written notice at the option of either
party or by vote of the shareholders of the Fund.
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant to
a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing 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 for out-of-
pocket expenses incurred by the Transfer Agent under the Transfer Agency
Agreement. Additionally, a $.20 monthly closed account charge will be assessed
on all accounts which close during the calendar year.
7
<PAGE> 26
Application of this fee will commence the month following the month the account
is closed. At the end of the calendar year, no further fees will be due. For
purposes of the Transfer Agency Agreement, the term "account" includes a
shareholder account maintained directly by the Transfer Agent and any other
account representing the beneficial interest of a person in the relevant share
class on a recordkeeping system, provided the recordkeeping system is maintained
by a subsidiary of ML & Co.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager pre-clear any personal
securities investment (with limited exceptions, such as government securities).
The pre-clearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
PURCHASE OF SHARES
Reference is made to "How to Buy, Sell and Transfer Shares" in the
Prospectus.
The 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.,
Eastern time) on any business day, the order will be effective on that day.
Shares purchased will begin accruing dividends on the day following the date of
purchase. Any order may be rejected by the Fund or the Distributor.
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". 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. The
minimum initial purchase under the Merrill Lynch
8
<PAGE> 27
Blueprint(SM) Program is $500 (or $50 if the shareholder elects to participate
in the automatic investment of sale proceeds option on the Merrill Lynch
Blueprint(SM) Program application form) and the minimum subsequent purchase is
$50. 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.
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
Blueprint(SM) Program ("Blueprint") in some circumstances may be executed two
business days following the day the order is placed with Merrill Lynch.
Investments in the Fund through Blueprint may be made only through Merrill
Lynch. Such orders should be sent to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Attention: The Blueprint(SM) 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 Transfer Agent. The Fund will
not be responsible for delays in the wiring system. To purchase shares by wiring
Federal Funds, payment should be wired to First Union National Bank of Florida.
Shareholders should give their financial institutions the following wiring
instructions: ABA #063000021, DDA #2112600061186, Financial Data Services, Inc.
The wire should be identified as a payment to Merrill Lynch U.S.A. Government
Reserves and should include the shareholder's name and account number. Failure
to submit the required information may delay investment. Investors are urged to
make payment by wire in Federal Funds.
Payment to the Transfer Agent. Purchase orders for which remittance is to
be made by check may be submitted directly by mail or otherwise to the Transfer
Agent. Purchase orders by mail should be sent to Financial Data Services, Inc.,
P.O. Box 45290, Jacksonville, Florida 32232-5290. Purchase orders which are sent
by hand should be delivered to 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 that they have
9
<PAGE> 28
received. Checks should be made payable to Merrill Lynch Funds Distributor.
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 the 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 between the Fund and the Manager (see
"Management of the Fund--Management and Advisory Arrangements").
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
year ended August 31, 1998, $670,043 was paid to Merrill Lynch pursuant to the
Plan (based on average daily net assets of approximately $573.4 million). 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 "How to Buy, Sell, Transfer and Exchange Shares" in
the Prospectus.
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.
10
<PAGE> 29
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.
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 (the "NYSE") is closed other than customary weekend
and holiday closings or (B) during which trading on the NYSE is restricted; (2)
for any period during which an emergency exists as a result of which (A)
disposal by the Fund of securities owned by it is not reasonably practicable or
(B) it is not reasonably practicable for the Fund fairly to determine the value
of its net assets; or (3) for such other periods as the Commission may by order
permit for the protection of security holders of the Fund. The Commission shall
by rules and regulations determine the conditions under which (i) trading shall
be deemed to be restricted and (ii) an emergency shall be deemed to exist within
the meaning of clause (2) above.
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.
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. 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 upon request.
Shareholders will be subject to the Transfer Agent's rules and regulations
governing such checking accounts, including the right of the Transfer Agent not
to honor checks in amounts exceeding the value of the shareholder's account at
the time the check is presented for payment. The Fund or the Transfer Agent may
modify or terminate the redemption by check privilege at any time on 30 days'
notice to participating shareholders. In order to be eligible for the redemption
by check privilege, purchasers should check the box under the caption "Check
Redemption Privilege" in the Purchase Application. The Transfer Agent will then
send checks to the shareholders.
Federal Funds Redemption. Shareholders also may arrange to have redemption
proceeds of $5,000 or more wired in Federal Funds to a pre-designated bank
account. In order to be eligible for Federal Funds redemption, the shareholder
must designate on his 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 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 pre-designated
bank account on the next business day. Shareholders may effect Federal Funds
redemptions by telephoning the Transfer Agent toll-free at (800) 221-7210. 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.
11
<PAGE> 30
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., Eastern 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
Blueprint(SM) 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 toll-free at (800) 637-3766. 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, Financial Data Services, Inc.,
P.O. Box 45290, Jacksonville, Florida 32232-5290. Redemption requests which are
sent by hand should be delivered to 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 signature(s) on the redemption request must
be guaranteed by an "eligible guarantor institution" as such term is defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, and the
existence and validity of it may be verified by the Transfer Agent through the
use of industry publications. Notarized signatures are not sufficient.
Automatic Redemption. Merrill Lynch has instituted an automatic redemption
procedure applicable to shareholders of the Fund who maintain securities
accounts with Merrill Lynch. This procedure, which is not applicable to margin
accounts, may be utilized by Merrill Lynch to satisfy amounts due it by the
shareholder as a result of account fees and expenses owed to Merrill Lynch or
one of its affiliates or as a result of purchases of securities or other
transactions in the shareholder's securities account. Under this procedure,
unless the shareholder notifies Merrill Lynch to the contrary, the shareholder's
Merrill Lynch securities account will be scanned each business day prior to the
determination of net asset value of the Fund (generally 4:00 p.m., New York
time); after application of any cash balances in the account, a sufficient
number of Fund shares may be redeemed at net asset value, as determined that
day, to satisfy any amounts for which the shareholder is obligated to make
payment to Merrill Lynch. Redemptions will be effected on the business day
preceding the date the shareholder is obligated to make such payment, and
Merrill Lynch will receive the redemption proceeds on the day following the
redemption date. Shareholders will receive all dividends declared and reinvested
through the date of redemption.
Unless otherwise requested, in those instances where shareholders request
transactions that settle on a "same-day" basis (such as Federal Funds wire
redemptions, branch office checks, transfers to other Merrill Lynch accounts and
certain securities transactions) the Fund shares necessary to effect such
transactions will be deemed to have been transferred to Merrill Lynch prior to
the Fund's declaration of dividends on that day. In such instances, shareholders
will receive all dividends declared and reinvested through the date immediately
preceding the date of redemption.
Due to the relatively high cost of maintaining accounts of less than
$1,000, the 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 an event, the $1,000 minimum on subsequent investment will not be
applicable.
12
<PAGE> 31
PURCHASE AND REDEMPTION OF SHARES THROUGH
MERRILL LYNCH PLANS
Merrill Lynch offers nine types of self-directed plans for which it acts as
an approved non-bank custodian ("Plans"). These Plans are the individual
retirement account ("IRA"); an individual retirement rollover account
("IRRA(R)"); a Roth individual retirement account ("Roth IRA"); the Merrill
Lynch Tax-Deferred Basic(SM) Retirement Plan designed for sole proprietors,
partnerships and small corporations ("Basic Plan"); the 403(6)(7) account; a
simplified employee pension plan ("SEP"); the SIMPLE retirement account ("SRA"),
an education individual retirement account ("Education IRA"); and the Medical
savings account ("MSA"). Information concerning the establishment and
maintenance of Plans and investments by Plan accounts is contained in the Plan
documents available from Merrill Lynch.
PURCHASE BY PLANS
Special purchase procedures apply in the case of the Plans. The minimum
initial purchase for participants in Plans is $100, and the minimum subsequent
purchase is $1. In addition, participants in certain of the Plans may elect to
have cash balances in their 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 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
Plan account. Proceeds giving rise to cash balances from the sale of securities
held in the Plan account settling on a same day basis and from principal
repayments on debt securities held in the account become available to the 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 Plan account or from a contribution to the Plan are invested in
shares of the Fund on the business day following the date the payment is
received in the Plan account. Cash balances of less than $1.00 will not be
invested and no return will be earned.
A participant in a Plan 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 PLANS
Distributions from certain Plans to a participant prior to the time the
participant reaches age 59 1/2 may subject the participant to penalty taxes.
There are, however, no adverse tax consequences resulting from redemptions of
shares of the Fund where the redemption proceeds remain in the Plan account or
are otherwise invested therein.
The Fund has instituted an automatic redemption procedure for participants
in the Plans who have elected to have cash balances in their accounts
automatically invested in shares of the Fund. 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 Plan account.
Any shareholder may redeem shares of the Fund by submitting a written
notice of redemption to Merrill Lynch. Participants in Plans should contact
their Merrill Lynch Financial Consultant to effect such redemptions. 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 Plan is maintained, signed exactly as his or her name
appears on his or her Plan adoption agreement.
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<PAGE> 32
CONFIRMATIONS
All purchases and redemptions of Fund shares and dividend reinvestments
will be confirmed to participants in Plans (rounded to the nearest share) in the
statement which is sent monthly or quarterly to all participants in Plans.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined by the Manager once daily,
immediately after the daily declaration of dividends, on each business day
during which the NYSE or New York banks are open for business. Such
determination is made as of the close of business on the NYSE (generally 4:00
p.m., New York time) or, on days when the NYSE is closed but New York banks are
open, at 4:00 p.m., New York time. As a result of this procedure, the net asset
value is determined each day except for days on which both the NYSE and New York
banks are closed. Both the NYSE and New York banks are closed on New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. The net asset value is determined
under the "penny-rounding" method by adding the value of all securities and
other assets in the portfolio, deducting the portfolio's liabilities, dividing
by the number of shares outstanding and rounding the result to the nearest whole
cent.
The Fund values its portfolio securities with remaining maturities of 60
days or less on an amortized cost basis and values its securities with remaining
maturities of greater than 60 days for which market quotations are readily
available at market value. Other securities held by the Fund are valued at their
fair value as determined in good faith by or under the direction of the Board of
Trustees.
In accordance with the Commission rule applicable to the valuation of its
portfolio securities, the Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less and will purchase instruments having remaining
maturities of not more than 397 days (13 months), with the exception of U.S.
Government Securities and U.S. Government agency securities, which may have
remaining maturities of up to 762 days (twenty-five months). The Fund will
invest only in securities determined by the Trustees to be of high quality with
minimal credit risks. In addition, the Trustees have established procedures
designed to stabilize, to the extent reasonably possible, the Fund's price per
share as computed for the purpose of sales and redemptions at $1.00. Deviations
of more than an insignificant amount between the net asset value calculated
using market quotations and that calculated on a "penny-rounded" basis will be
reported to the Trustees by the Manager. In the event the Trustees determine
that a deviation exists which may result in material dilution or other unfair
results to investors or existing shareholders, the Fund will take such
corrective action as it regards as necessary and appropriate, including the
reduction of the number of outstanding shares of the Fund by having each
shareholder proportionately contribute shares to the Fund's capital; the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; or establishing a net
asset value per share solely by using available market quotations. If the number
of outstanding shares is reduced in order to maintain a constant penny-rounded
net asset value of $1.00 per share, the shareholders will contribute
proportionately to the Fund's capital the number of shares which represents the
difference between the amortized cost valuation and market valuation of the
portfolio. Each shareholder will be deemed to have agreed to such contribution
by his or her investment in the Fund.
Since the net income of the Fund (including realized gains and losses on
the portfolio securities) is determined and declared as a dividend immediately
prior to each time the net asset value of the Fund is determined, the net asset
value per share of the Fund normally remains at $1.00 per share immediately
after each such dividend declaration. Any increase in the value of a
shareholder's investment in the Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of the Fund in his
or her account and any decrease in the value of a shareholder's investment may
be reflected by a decrease in the number of shares in his or her account. See
"Distributions and Taxes".
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<PAGE> 33
YIELD INFORMATION
The Fund normally computes its annualized yield by determining the net
income for a seven-day base period for a hypothetical pre-existing account
having a balance of one share at the beginning of the base period, dividing the
net income by the net asset value of the account at the beginning of the base
period to obtain the base period return, multiplying the result by 365 and then
dividing by seven. Under this calculation, the yield reflects realized and
unrealized gains and losses on portfolio securities. In accordance with
regulations adopted by the Commission, the Fund is required to disclose its
annualized yield for certain seven-day base periods in a standardized manner
that does not take into consideration any realized or unrealized gains or losses
on portfolio securities. The Commission also permits the calculation of a
standardized effective or compounded yield. This is computed by compounding the
unannualized base period return, which is done by adding one to the base period
return, raising the sum to a power equal to 365 divided by seven, and
subtracting one from the result. This compounded yield calculation also excludes
realized and unrealized gains or losses on portfolio securities.
The yield on the Fund's shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Fund of future yields or rates of return on its shares.
The yield is affected by such factors as changes in interest rates on the Fund's
portfolio securities, average portfolio maturity, the types and quality of
portfolio securities held and operating expenses. The yield on Fund shares for
various reasons may not be comparable to the yield on bank deposits, shares of
other money market funds or other investments.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
AUGUST 31, 1998
----------------------
<S> <C>
Excluding gains and losses... 4.79%
</TABLE>
On occasion, the Fund may compare its yield to (1) the Donoghue's Domestic
Prime Funds Average, an average compiled by Donoghue's Money Fund Report, a
widely recognized independent publication that monitors the performance of money
market mutual funds, (2) the average yield reported by the Bank Rate Monitor
National Index(TM) for money market deposit accounts offered by the 100 leading
banks and thrift institutions in the ten largest standard metropolitan
statistical areas, (3) yield data published by Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine and Fortune
Magazine, or (4) the yield on an investment in 91-day Treasury bills on a
rolling basis, assuming quarterly compounding. As with yield quotations, yield
comparisons should not be considered indicative of the Fund's yield or relative
performance for any future period.
PORTFOLIO TRANSACTIONS
The Fund has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policy
established by the Board of Trustees of the 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 U.S. Government securities in which the Fund invests are traded
primarily in the over-the-counter ("OTC") 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 principals for their own accounts.
On occasion, securities may be purchased directly from the issuer. U.S.
Government securities generally are traded on a net basis and normally do not
15
<PAGE> 34
involve either brokerage commissions or transfer taxes. The cost of executing
portfolio securities transactions of the Fund primarily will consist of dealer
spreads and underwriting commissions. Under the Investment Company Act, persons
affiliated with the Fund are prohibited from dealing with the Fund as principals
in the purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the Commission. Since OTC transactions are usually
principal transactions, affiliated persons of the Fund, including Merrill Lynch
Government Securities, Inc. ("GSI") and Merrill Lynch, may not serve as the
Fund's dealer in connection with such transactions except pursuant to the
exemptive order described below. However, an affiliated person of the Fund may
serve as its broker in OTC transactions conducted on an agency basis. The Fund
may not purchase securities from any underwriting syndicate of which Merrill
Lynch is a member.
The Commission has issued an exemptive order permitting the Fund to conduct
principal transactions with GSI in U.S. Government securities and U.S.
Government agency securities. This order contains a number of conditions,
including conditions designed to ensure that the price to the Fund from GSI is
equal to or better than that available from other sources. GSI has informed the
Fund that it will in no way, at any time, attempt to influence or control the
activities of the Fund or the Manager in placing such principal transactions.
The exemptive order allows GSI or its subsidiary, Merrill Lynch Money Markets,
Inc., to receive a dealer spread on any transaction with the Fund no greater
than its customary dealer spread from transactions of the type involved.
Generally, such spreads do not exceed 0.25% of the principal amount of the
securities involved.
The number and dollar volume of transactions engaged in by the Fund are set
forth in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, NUMBER DOLLAR VOLUME
- ---------------------------- ------ -------------
<S> <C> <C>
1998....................... 11 $281,077,734
1997....................... 4 $ 76,001,250
1996....................... 0 $ --
</TABLE>
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 the Management Agreement and the expenses of the Manager will not
necessarily be reduced as a result of the receipt of such supplemental
information.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below that are
designed to facilitate investment in shares of the Fund. Certain of such
services are not available to investors who place orders for the Fund's shares
through Blueprint. Full details as to each of such services and copies of the
various plans and instructions as to how to participate in the various services
or plans, or how to change options with respect thereto, can be obtained from
the Fund, by calling the telephone number on the cover page hereof, or from the
Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at 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
16
<PAGE> 35
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 toll-free at (800) 221-7210. 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.
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,
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.
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.
17
<PAGE> 36
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.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and reinvested daily in the form of additional
shares at net asset value. Shareholders will receive statements monthly as to
such reinvestments. Shareholders liquidating their holdings will receive on
redemption all dividends declared and reinvested through the date of redemption.
Since the net income (including realized gains and losses on the portfolio
assets) is declared as a dividend in shares each time the net income of the Fund
is determined, the net asset value per share of the Fund normally remains
constant at $1.00 per share.
Net income (from the time of the immediately preceding determination
thereof) consists of (i) interest accrued and/or discount earned (including both
original issue and marker discount), (ii) plus or minus all realized gains and
losses on portfolio securities, (iii) less amortization of premiums and the
estimated expenses of the Fund applicable to that dividend period.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as the Fund 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.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general on a October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are 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 options) ("capital gain dividends") are
taxable to shareholders as long-term gains, regardless of the length of time the
shareholder has owned Fund shares. Certain categories of capital gains are
taxable at different rates. Any loss upon the sale or exchange of Fund shares
held for six months or less will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder. Distributions
in excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are held
as a capital asset). Generally not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gains
dividends, as well as any amount of capital gains dividends in the different
categories of capital gain referred to above.
18
<PAGE> 37
Dividends and distributions are taxable to shareholders even though they
are reinvested in additional shares of the Fund. 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 that 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.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund reduces any sales charge the shareholder would have owed upon
the purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
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 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.
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 United States Government obligations. State
law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
19
<PAGE> 38
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 investment in the Fund.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust of the Fund permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, par value
$0.10 per share, of a single class and to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in the Fund. Each share represents an equal proportionate
interest in the Fund with each other share. Upon liquidation of the Fund,
shareholders are entitled to share pro rata in the net assets of the Fund
available for distribution to shareholders. Shares have no preemptive or
conversion rights. The rights of redemption and exchange are described elsewhere
herein and in the Prospectus. Shares are fully paid and non-assessable by the
Fund.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and vote in the election of Trustees
and on other matters submitted to the vote of shareholders. Voting rights are
not cumulative, so that the holders of more than 50% of the shares voting in the
election of Trustees can, if they choose to do so, elect all Trustees of the
Fund. No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Fund.
The Manager provided the initial capital for the Fund by purchasing 100,000
shares of the Fund for $100,000. Such shares were acquired for investment and
can be disposed of only by redemption. The organizational expenses of the Fund
were paid by the Fund and were 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.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the non-interested Directors of
the Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
CUSTODIAN
The Bank of New York, 90 Washington Street, 12th Floor, New York, New York
10286 (the "Custodian"), acts as custodian of the Fund's assets. The Custodian
is responsible for safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities and collecting interest and
dividends on the Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Fund's Transfer Agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts. See "How to Buy, Sell,
Transfer and Exchange Shares -- Through the Transfer Agent" in the Prospectus.
20
<PAGE> 39
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on August 31 of each year. The Fund sends
to its shareholders, at least semi-annually, reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year, shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information with respect to
the shares of the Fund do not contain all the information set forth in the
Registration Statement and the exhibits relating thereto, which the Fund has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act and the Investment Company Act, to which reference is hereby
made.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares as of December , 1998.
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.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated by reference in
this Statement of Additional Information to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
21
<PAGE> 40
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
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 the Registrant.(a)
3 -- None
4(a) -- Form of Management Agreement between the Registrant and
Merrill Lynch Asset Management, L.P.(a)
(b) -- Supplement to Investment Advisory Agreement between the
Registrant and Merrill Lynch Asset Management, L.P.(b)
5(a) -- Form of Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc. (now known as
Princeton Funds Distributor, Inc.)(the "Distributor").(a)
6 -- None.
7 -- Form of Custody Agreement between the Registrant and The
Bank of New York.(a)
8 -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the
Registrant and Merrill Lynch Financial Data Services, Inc.
(now known as Financial Data Services, Inc.)(a)
9 -- Opinion of Brown & Wood LLP, counsel to the Registrant.(a)
10 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
11 -- None.
12 -- Certificate of Merrill Lynch Asset Management, L.P.(a)
13(a) -- Form of Merrill Lynch Shareholder Servicing Plan and
Agreement pursuant to Rule 12b-1 between Registrant and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.(a)
14(a) -- Financial Data Schedule.
15 -- None.
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Filed on October 25, 1995 as an exhibit to Post-Effective
Amendment No. 14 to the Registrant's Registration Statement
on Form N-1A under the Securities Act of 1933, as amended
(File No. 2-78702)(the "Registration Statement").
(b) Filed on December 27, 1994 as an exhibit to Post-Effective
Amendment No. 13 to the Registrant's Registration Statement
under the Securities Act of 1933 on Form N-1A.
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 25. INDEMNIFICATION.
Reference is made to Section 5.3 of the Registrant's Declaration of Trust
and Section 9 of the Distribution Agreement.
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
C-1
<PAGE> 41
misfeasance, gross negligence or reckless disregard of his duties;
provided, however, that as to any matter disposed of by a compromise
payment by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless the Trust shall have received a written opinion from
independent legal counsel approved by the Trustee to the effect that if
either the matter of willful misfeasance, gross negligence or reckless
disregard of duty, or the matter of good faith and reasonable belief as to
the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any person
under these provisions shall not exclude any other right to which he may be
lawfully entitled; provided that no person may satisfy any right of
indemnity or reimbursement granted herein or in Section 5.1 or to which he
may be otherwise entitled except out of the property of the Trust, and no
Shareholder shall be personally liable to any person with respect to any
claim for indemnity or reimbursement or otherwise. The Trustees may make
advance payments in connection with indemnification under this Section 5.3,
provided that the indemnified person shall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he
is not entitled to such indemnification."
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act of 1940, as amended (the "Investment
Company Act") may be concerned, such payments will be made only on the following
conditions: (i) the advances must be limited to amounts used, or to be used, for
the preparation or presentation of a defense to the action, including costs
connected with the preparation of a settlement; (ii) advances may be made only
upon receipt of a written promise by, or on behalf of, the recipient to repay
that amount of the advance which exceeds the amount which it is ultimately
determined that he is entitled to receive from the Registrant by reason of
indemnification; and (iii) (a) such promise must be secured by a surety bond,
other suitable insurance or an equivalent form of security which assures that
any repayments may be obtained by the Registrant without delay or litigation,
which bond, insurance or other form of security must be provided by the
recipient of the advance, or (b) a majority of a quorum of the Registrant's
disinterested, non-party Trustees, or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts, that
the recipient of the advance ultimately will be found entitled to
indemnification.
In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), against certain types
of civil liabilities arising in connection with the Registration Statement or
Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Trustees, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer, or
controlling person of the Registrant and the principal underwriter in connection
with the successful defense of any action, suit or proceeding) is asserted by
such Trustee, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager"), acts as the
investment adviser for the following open-end registered investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund
For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for
C-2
<PAGE> 42
Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch
Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill
Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill
Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund,
Inc. and Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley funds
(advised by Hotchkis and Wiley, a division of MLAM); and for the following
closed-end registered investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts
as sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios of EQ Advisors Trust.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts as
the investment adviser for the following open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High
Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., and The Municipal Fund Accumulation
Program, Inc.; and for the following closed-end registered investment companies:
Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield
Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc.,
Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund,
Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings
California Insured Fund, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings California Insured Fund III, Inc., MuniHoldings Florida Insured
Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida Insured Fund
III, MuniHoldings Insured Fund, Inc., MuniHoldings New Jersey Insured Fund,
Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New York Fund,
Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured
Fund II, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II,
Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New
Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund,
Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield
New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of FAM, MLAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Princeton Funds
Distributor, Inc. ("PFD") and of Merrill Lynch Funds Distributor ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281-1201. The address of the
C-3
<PAGE> 43
Fund's transfer agent, Financial Data Services, Inc. ("FDS"), is 4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
October 1, 1996 for his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all of
the investment companies described in the first two paragraphs of this Item 26,
and Messrs. Giordano, Harvey, Kirstein and Monagle are directors, trustees or
officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
<S> <C> <C>
ML & Co.......................... Limited Partner Financial Services Holding
Company; Limited Partner of FAM
Princeton Services............... General Partner General Partner of FAM
Arthur Zeikel.................... Chairman Chairman of FAM; President of FAM
and MLAM from 1977 to 1997;
Chairman and Director of Princeton
Services; President of Princeton
Services from 1993 to 1997;
Executive Vice President of ML &
Co.
Jeffrey M. Peek.................. President President of FAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.
Terry K. Glenn................... Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
Director of FDS; President of
Princeton Administrators
Linda L. Federici................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Vincent R. Giordano.............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Elizabeth A. Griffin............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Norman R. Harvey................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Michael J. Hennewinkel........... Senior Vice President Senior Vice President and General
and General Counsel Counsel of FAM; Senior Vice
President of Princeton Services
Philip L. Kirstein............... Senior Vice President Senior Vice President and
and Secretary Secretary of FAM; Senior Vice
President, Director and Secretary
of Princeton Services
</TABLE>
C-4
<PAGE> 44
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
<S> <C> <C>
Ronald M. Kloss.................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Debra Landsman-Yaros............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Vice President of PFD
Stephen M. M. Miller............. Senior Vice President Executive Vice President of
Princeton Administrators; Senior
Vice President of Princeton
Services
Joseph T. Monagle, Jr. .......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Michael L. Quinn................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Managing Director and
First Vice President of Merrill
Lynch from 1989 to 1995
Richard L. Reller................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Director of PFD
Gerald M. Richard................ Senior Vice President Senior Vice President and
and Treasurer Treasurer of FAM; Senior Vice
President and Treasurer of
Princeton Services; Vice President
and Treasurer of PFD
Gregory D. Upah.................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
Ronald L. Welburn................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies referred
to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc. and The Municipal Fund Accumulation Program, Inc.; and MLFD also acts as
the principal underwriter for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
A separate division of PFD acts as the principal underwriter of a number of
other investment companies.
C-5
<PAGE> 45
(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen,
Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH PFD WITH REGISTRANT
---- ---------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn........................... President and Director Executive Vice President
Richard L. Reller........................ Director None
Thomas J. Verage......................... Director None
Robert W. Crook.......................... Senior Vice President None
Michael J. Brady......................... Vice President None
William M. Breen......................... Vice President None
Michael G. Clark......................... Vice President None
James T. Fatseas......................... Vice President None
Debra W. Landsman-Yaros.................. Vice President None
Michelle T. Lau.......................... Vice President None
Gerald M. Richard........................ Vice President and Treasurer Treasurer
Salvatore Venezia........................ Vice President None
William Wasel............................ Vice President None
Robert Harris............................ Secretary None
</TABLE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained at the
offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey
08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484).
ITEM 29. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the
Fund -- Merrill Lynch Asset Management" in the Prospectus constituting Part A of
the Registration Statement and under "Management of the Fund -- Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, the Registrant is not a party to any
management-related service contract.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-6
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Township of
Plainsboro, and the State of New Jersey, on the 29th day of October, 1998.
MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES
(Registrant)
By: /s/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn, Executive Vice
President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
ARTHUR ZEIKEL* President and Director
- ----------------------------------------------- (Principal Executive Officer)
(Arthur Zeikel)
GERALD M. RICHARD* Treasurer (Principal Financial
- ----------------------------------------------- and Accounting Officer)
(Gerald M. Richard)
DONALD CECIL* Director
- -----------------------------------------------
(Donald Cecil)
M. COLYER CRUM* Director
- -----------------------------------------------
(M. Colyer Crum)
EDWARD H. MEYER* Director
- -----------------------------------------------
(Edward H. Meyer)
JACK B. SUNDERLAND* Director
- -----------------------------------------------
(Jack B. Sunderland)
J. THOMAS TOUCHTON* Director
- -----------------------------------------------
(J. Thomas Touchton)
FRED G. WEISS* Director
- -----------------------------------------------
(Fred G. Weiss)
*By: /s/ TERRY K. GLENN October 29, 1998
- -----------------------------------------------
(Terry K. Glenn, Attorney-in-Fact)
</TABLE>
C-7
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10 Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
14 Financial Data Schedule.
</TABLE>
C-8
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch U.S.A. Government Reserves:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 17 to Registration Statement No. 2-78702 of our report dated October 5,
1998 appearing in the annual report to shareholders of the Merrill Lynch U.S.A.
Government Reserves for the year ended August 31, 1998, and to the reference to
us under the caption "Financial Highlights" in the Prospectus, which is a part
of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Princeton, New Jersey
October 29, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000704957
<NAME> MERRILL LYNCH U.S.A. GOVERNMENT RESERVES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 611937260
<INVESTMENTS-AT-VALUE> 612300947
<RECEIVABLES> 4115089
<ASSETS-OTHER> 57062
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 616473098
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8452814
<TOTAL-LIABILITIES> 8452814
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 607656597
<SHARES-COMMON-STOCK> 607656597
<SHARES-COMMON-PRIOR> 558079066
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 363687
<NET-ASSETS> 608020284
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32529956
<OTHER-INCOME> 0
<EXPENSES-NET> (4761507)
<NET-INVESTMENT-INCOME> 27768449
<REALIZED-GAINS-CURRENT> 29131
<APPREC-INCREASE-CURRENT> 317956
<NET-CHANGE-FROM-OPS> 28115536
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27768449)
<DISTRIBUTIONS-OF-GAINS> (29131)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1655219704
<NUMBER-OF-SHARES-REDEEMED> (1633427991)
<SHARES-REINVESTED> 27785818
<NET-CHANGE-IN-ASSETS> 49895487
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 4761507
<AVERAGE-NET-ASSETS> 573391184
<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> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>