Summit Cash
Reserves Fund
FUND LOGO
Annual Report May 31, 1994
This report is not authorized for use as an offer of
sale or a solicitation of an offer to buy shares of
the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in
this report should not be considered a representation
of future performance, which will fluctuate. The Fund
seeks to maintain a consistent $1.00 net asset value
per share, although this cannot be assured. An investment
in the Fund is neither insured nor guaranteed by the
US Government.
Summit Cash Reserves Fund
Financial Institutions Series Trust
Box 9011
Princeton, NJ 08543-9011
Summit Cash Reserves Fund
Dear Shareholder:
For the year ended May 31, 1994, Summit Cash Reserves Fund paid
shareholders a net annualized dividend of 2.57%.* For the six-
month period ended May 31, 1994, the Fund paid shareholders a net
annualized dividend of 2.66%.* The Fund's 7-day yield as of May
31, 1994 was 3.44% (excluding gains and losses) and 3.43%
(including gains and losses).
<PAGE>
The Environment
The six months ended May 31, 1994 proved to be turbulent for
the financial markets. Inflationary expectations and investor
sentiment changed for the worse during the period. Following
stronger-than-expected economic results through year-end 1993,
the Federal Reserve Board broke with tradition on February 4,
1994 and publicly announced a modest 25 basis point (0.25%)
increase in short-term interest rates, the first of four
tightening moves.
Rather than view the Federal Reserve Board's first tightening
move as a preemptive strike against inflation, fixed-income
investors focused on Chairman Greenspan's implicit promise of
further tightening should the rate of inflation accelerate, and
bond prices declined sharply. While the remaining increases in
the Federal Funds rate were less of a surprise, investors viewed
signs of economic strength as an indication that the rate of
inflation would soon accelerate. In addition, the impact of
highly leveraged investors forced to liquidate positions in the
face of declining stock and bond prices led to further market
turbulence.
In the weeks ahead, investors are likely to continue to focus
their attention on the direction of the economy and inflationary
trends.
[FN]
*Based on constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to the
investor after all expenses.
Evidence of stable and moderate economic growth, combined
with subdued inflationary pressures, would be a positive
development for the financial markets. The absence of these
trends, along with continued monetary policy tightening by the
central bank, would likely lead to continued volatility in stock
and bond prices over the near term.
Portfolio Matters
Since our last report to shareholders, interest rates have moved
higher as investors responded adversely to the Federal Reserve
Board's decision to tighten monetary policy. During this period,
Summit Cash Reserves Fund's average portfolio maturity ranged
from a high of 74 days to a low of 31 days.
<PAGE>
December was characterized by relatively stable interest rates as
investors struggled with improving economic conditions coupled
with favorable technicals and low inflation. In this environment
we sought to maintain an average life in the mid to high 60-day
range. To accomplish this strategy, we employed modest extension
swaps in US Treasury securities. Additionally, 60-day commercial
paper was purchased at a yield of 3.35% as we continued to take
advantage of what was left of year-end pressures.
January was marked by a modest rally as interest rates moved
lower. The market was driven by the belief that fourth quarter
economic gains were unsustainable. Responding to favorable
market conditions, we maintained the Fund's average life in the
70-day range. Purchases of two-year Treasury notes and one-year
Treasury bills were the primary source of our average life
maintenance. While maintaining a concentration in the short-term
end of the yield curve, we nonetheless participated in a
relatively steep yield curve with modest extension swaps at above
average spreads.
February brought the end of a long rally when on February 4 the
Federal Reserve Board announced its decision to increase pressure
on reserves. In anticipation of rising interest rates, we lowered
the Fund's average life to 65 days by January 31 and to 58 days
by February 4. It had become apparent that economic growth was
improving, and Chairman Greenspan hinted that interest rates
would eventually rise. This reduction was accomplished with the
sale of two-year Treasury notes and one-year Treasury bills. The
proceeds were reinvested in overnight repurchase agreements and
30-day commercial paper. Short-term interest rates continued to
rise through the month of February, and we maintained this
defensive strategy, increasing commercial paper holdings to 65%
of total assets and repurchase agreements to 10%.
The trend of rising interest rates continued in March. While the
fundamental economic news remained tainted by weather and
disasters, rumors of political misconduct and international
tensions placed additional pressure on domestic yields. On March
22, the Federal Reserve Board announced an additional short-term
interest rate increase of 25 basis points, bringing the Federal
Funds rate to 3.50%. We continued to reduce the Fund's average
portfolio maturity by investing in one-day repurchase agreements
and short-term commercial paper at interest rates in excess of
3.50%. At month-end the Fund's average life was 35 days, with
more than 85% of its holdings having maturities of 60 days or
less.
<PAGE>
The market continued to weaken in April in response to an
additional 25 basis point central bank tightening on April 18.
The increase in the Federal Funds target to 3.75% was followed by
major domestic banks raising the prime lending rates to 6.75%
from 6.25%. While the fundamentals were unfavorable, the
technical condition of the market was good, as evidenced by
favorable developments in the supply of weekly US Treasury bills.
Our primary strategy was to continue investing in overnight
repurchase agreements and short-term commercial paper, but we
expanded our activities to include modest amounts of 90-day
commercial paper at approximately 4.00%.
The market entered May under pressure in response to strong
payroll employment data. On May 17, the Federal Reserve Board
announced a 50 basis point rise in the Federal Funds rate to
4.25% and the discount rate to 3.50%. Following the same pattern
as in April, major domestic banks raised their prime lending
rates to 7.25% from 6.75%. The market's resoundingly positive
response to these rate hikes was partially short covering and
partially the opinion that the central bank had achieved
"neutrality" and would withhold any further restrictive move in
the near future. During the first two weeks of May, we maintained
the Fund's average life in the low 40-day range with purchases of
commercial paper at 4.00% and overnight repurchase agreements at
3.75%. By May 24, we had increased the Fund's average portfolio
maturity to the high 40-day area with purchases of 90-day
commercial paper at 4.45%.
Looking ahead, we remain cautious that the recent increases in
commodity prices and a weak dollar could signal further Federal
Reserve Board tightenings. We will maintain our current cautious
posture as we evaluate upcoming economic data releases.
In Conclusion
We appreciate your continued support of Summit Cash Reserves
Fund, and we look forward to assisting you with your financial
needs in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Carlo J. Giannini)
Carlo J. Giannini
Vice President and Portfolio Manager
June 27, 1994
<PAGE>
Summit Cash Reserves Fund
Schedule of Investments as of May 31, 1994 (in Thousands)
Issue Face Interest Maturity Value
Amount Rate* Date (Note 1a)
Bank Notes--0.7%
PNC Bank, N.A. $1,000 3.40% 10/14/94 $ 995
Total Bank Notes
(Cost--$1,000) 995
Bankers' Acceptances--Yankee--7.4%
Dai-Ichi Kangyo 5,000 3.79 6/10/94 4,995
Bank, NY
Mitsubishi Bank, NY 5,000 4.00 6/20/94 4,989
Total Bankers' Acceptances--Yankee
(Cost--$9,984) 9,984
Commercial Paper--Discount--68.2%
ANZ (Delaware), Inc. 5,000 4.48 8/26/94 4,946
British Columbia, 5,000 4.10 7/26/94 4,967
Province of
Caisse Nationale des 5,000 4.43 8/23/94 4,948
Telecommunications
Cargill Inc. 5,000 4.47 8/10/94 4,956
Daimler-Benz North 5,000 4.46 8/22/94 4,948
America Corp.
Halifax Building Society 3,000 4.28 6/20/94 2,993
3,000 3.93 7/19/94 2,982
Hanson Finance PLC 5,000 4.48 8/25/94 4,947
Kredietbank North 2,000 3.95 7/18/94 1,989
America Finance Corp. 3,000 4.17 7/29/94 2,979
McKenna Triangle 2,500 4.40 7/19/94 2,485
National Corp. 2,000 4.45 8/18/94 1,980
<PAGE>
National Rural Utilities 5,000 4.28 6/21/94 4,987
Cooperative Finance
Corp.
NationsBank Corp. 5,000 4.48 8/23/94 4,948
New South Wales 1,000 4.27 6/23/94 997
Treasury Corp.
Nomura Holding 5,000 3.80 6/14/94 4,993
America, Inc.
PHH Corp. 5,000 4.25 6/21/94 4,988
Panasonic Finance, Inc. 1,400 3.85 6/06/94 1,399
Preferred Receivables 855 3.92 6/07/94 854
Funding Corp. 3,000 4.30 6/17/94 2,994
Province of Quebec 2,000 3.93 7/18/94 1,988
Issue Face Interest Maturity Value
Amount Rate* Date (Note 1a)
Commercial Paper--Discount (concluded)
Sheffield Receivables $5,000 4.28% 6/20/94 $ 4,988
Corp.
Toshiba America, Inc. 5,000 3.95 6/29/94 4,984
WCP Funding Inc. 3,000 4.32 6/15/94 2,995
Xerox Credit 3,000 4.30 6/17/94 2,994
Corporation 3,000 4.10 7/25/94 2,980
Total Commercial Paper--Discount (Cost--$92,215) 92,209
Master Notes++--6.7%
Goldman Sachs 5,000 4.07 9/01/94 5,000
Group, L.P.
Kingdom of Sweden 4,000 4.437 7/15/94 4,000
Total Master Notes
(Cost--$9,000) 9,000
<PAGE>
US Government, Agency & Instrumentality
Obligations--Discount--4.4%
US Treasury Bills 6,040 3.21 6/23/94 6,026
Total US Government, Agency & Instrumentality
Obligations--Discount (Cost--$6,028) 6,026
US Government, Agency & Instrumentality
Obligations--Non-Discount--13.5%
Federal Home 1,000 4.18 6/21/95 1,000
Loan Bank+ 1,000 4.18 12/28/95 1,000
1,000 4.21 6/17/96 1,000
Federal National 2,000 4.08 5/13/96 2,000
Mortgage 1,800 4.20 5/19/97 1,800
Association++ 1,000 4.25 5/14/98 1,000
US Treasury Notes 6,000 4.25 8/31/94 5,996
2,000 6.00 11/15/94 2,010
2,500 3.875 2/28/95 2,475
Total US Government, Agency & Instrumentality
Obligations--Non-Discount (Cost--$18,338) 18,281
Total Investments (Cost--$136,565)--100.9% 136,495
Liabilities in Excess of Other Assets--(0.9%) (1,194)
--------
Net Assets--100.0% $135,301
========
[FN]
*Bankers' Acceptances, Commercial Paper and certain US
Government, Agency & Instrumentality Obligations are traded on a
discount basis; the interest rates shown are the discount rates
paid at the time of purchase by the Fund. The interest rates on
variable rate securities are adjusted periodically based upon
the appropriate indexes. Other securities bear interest at the
rates shown, payable at fixed dates or upon maturity. The
interest rates shown are the rates in effect at May 31, 1994.
++Variable Rate Notes.
See Notes to Financial Statements.
<PAGE>
<TABLE>
Summit Cash Reserves Fund
Statement of Assets and Liabilities as of May 31, 1994
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$136,565,324*) (Notes 1a & 1e) $136,494,788
Cash 4,417
Receivables:
Interest $ 167,163
Beneficial interest sold 3,100 170,263
------------
Prepaid registration fees and other assets (Note 1d) 122,846
------------
Total assets 136,792,314
------------
Liabilities:
Payables:
Beneficial interest redeemed 1,311,680
Administrator (Note 2) 33,378
Investment adviser (Note 2) 33,378 1,378,436
------------
Accrued expenses and other liabilities 112,609
------------
Total liabilities 1,491,045
------------
Net Assets $135,301,269
============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 13,537,180
Paid-in capital in excess of par 121,834,625
Unrealized depreciation on investments--net (70,536)
------------
Net Assets--Equivalent to $1.00 per share based on 135,371,805 shares of beneficial
interest outstanding $135,301,269
============
<FN>
*Cost of Federal income tax purposes. As of May 31, 1994, net unrealized depreciation for Federal
income tax purposes amounted to $70,536, of which $357 related to appreciated securities and
$70,893 related to depreciated securities.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Summit Cash Reserves Fund
Statement of Operations for the Year Ended May 31, 1994
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 4,878,240
Expenses:
Investment advisory fees (Note 2) $ 392,910
Administrative fees (Note 2) 392,910
Transfer agent fees (Note 2) 254,381
Professional fees 55,316
Printing and shareholder reports 42,752
Accounting services (Note 2) 42,001
Trustees' fees and expenses 36,709
Custodian fees 19,153
Registration fees (Note 1d) 15,249
Tax expense 9,917
Other 24,389
------------
Total expenses 1,285,687
------------
Investment income--net 3,592,553
Realized Gain on Investments--Net (Note 1c) 41,290
Change in Unrealized Depreciation on Investments--Net (61,245)
------------
Net Increase in Net Assets Resulting from Operations $ 3,572,598
============
</TABLE>
<TABLE>
<CAPTION>
Summit Cash Reserves Fund For the Year Ended May 31,
Statement of Changes in Net Assets 1994 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 3,592,553 $ 4,998,689
Realized gain on investments--net 41,290 138,080
Change in unrealized depreciation on investments--net (61,245) (2,061)
------------ ------------
Net increase in net assets resulting from operations 3,572,598 5,134,708
------------ ------------
<PAGE>
Dividends & Distributions to Shareholders (Note 1f):
Investment income--net (3,592,553) (4,998,689)
Realized gain on investments--net (41,290) (138,080)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to shareholders (3,633,843) (5,136,769)
------------ ------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 553,322,448 644,773,140
Net asset value of shares issued to shareholders in reinvestment of dividends (Note 1f) 3,625,745 5,121,386
------------ ------------
556,948,193 649,894,526
Cost of shares redeemed (578,262,259) (731,083,887)
------------ ------------
Net decrease in net assets derived from beneficial interest (21,314,066) (81,189,361)
------------ ------------
Net Assets:
Total decrease in net assets (21,375,311) (81,191,422)
Beginning of year 156,676,580 237,868,002
------------ ------------
End of year $135,301,269 $156,676,580
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Summit Cash Reserves Fund For the Year Ended May 31,
Financial Highlights 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
The following per share data and ratios have been derived
from information provided in the financial statements.
Increase (Decrease) in Net Asset Value:
<PAGE>
Per Share Operating Performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment income--net .0254 .0262 .0464 .0684 .0811
Realized and unrealized gain (loss) on investments--net .0003 .0007 (.0001) .0024 (.0003)
-------- -------- -------- -------- --------
Total from investment operations .0257 .0269 .0463 .0708 .0808
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.0254) (.0262) (.0463) (.0684) (.0808)
Realized gain on investments--net (.0003) (.0007) -- (.0024)* --
-------- -------- -------- -------- --------
Total dividends and distributions (.0257) (.0269) (.0463) (.0708) (.0808)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Investment Return 2.57% 2.74% 4.44% 7.36% 8.42%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses .90% .86% .79% .85% .74%
======== ======== ======== ======== ========
Investment income and realized gain on investments--net 2.54% 2.72% 4.48% 7.14%* 8.03%*
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $135,301 $156,677 $237,868 $374,212 $546,593
======== ======== ======== ======== ========
<FN>
*Includes unrealized gain (loss).
See Notes to Financial Statements.
</TABLE>
Summit Cash Reserves Fund
Notes to Financial Statements
<PAGE>
1. Significant Accounting Policies:
Summit Cash Reserves Fund (the "Fund") is a separate fund
offering a separate class of shares of Financial Institutions
Series Trust (the "Trust"). The Trust is registered under the
Investment Company Act of 1940 as a diversified, open-end
management investment company which comprises a series of
separate portfolios offering a separate class of shares to
selected groups of purchasers. The Fund is currently the only
operating series of the Trust. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--The money market securities in
which the Fund invests are traded primarily in the over-the-
counter markets. Investments maturing more than sixty days after
the valuation date are valued at the most recent bid price or
yield equivalent as obtained from dealers that make markets in
such securities. When such securities are valued with sixty days
or less to maturity, the difference between the valuation
existing on the sixty-first day before maturity and maturity
value is amortized on a straight-line basis to maturity.
Investments maturing within sixty days from their date of
acquisition are valued at amortized cost, which approximates
market. Assets for which market quotations are not readily
available are valued at fair value as determined in good faith by
or under the direction of the Trustees of the Trust. For purposes
of valuation, the maturity of a variable rate security is deemed
to be the next coupon date on which the interest rate is to be
adjusted.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income
to its shareholders. Therefore, no Federal income tax provision
is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are
charged to expense as the related shares are issued.
<PAGE>
(e) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in US
Government securities. Under such agreements, the bank or primary
dealer agrees to repurchase the security at a mutually agreed
upon time and price. The Fund takes possession of the underlying
securities, marks to market such securities and, if necessary,
receives additional securities daily to ensure that the contract
is fully collateralized.
(f) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
and back-up withholding tax) in additional fund shares at net
asset value. Dividends are declared from the total of net
investment income and net realized gain or loss on investments.
2. Investment Advisory and Administrative Agreements:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM" or "Investment Adviser") and
Broadcort Capital Corp. (the "Administrator"), a subsidiary of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."). Effective
January 1, 1994, the investment advisory business of FAM was
reorganized from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate control of FAM
was vested with ML & Co. The general partner of FAM is Princeton
Services, Inc., an indirect wholly-owned subsidiary of ML & Co.
The limited partners are ML & Co. and Merrill Lynch Investment
Management, Inc. ("MLIM"), which is also an indirect wholly-owned
subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Investment Adviser and the Administrator
each receive a fee from the Fund at the end of each month at the
annual rate of 0.275% of the average daily net assets of the Fund
not exceeding $500 million, and at the annual rate of 0.25% of
average daily net assets in excess of $500 million. Under their
respective agreements with the Fund, the Investment Adviser and
the Administrator are obligated to reimburse the Fund to the
extent the Fund's aggregate ordinary operating expenses
(excluding interest, taxes, brokerage fees and commissions, and
extraordinary charges such as litigation costs) exceed in any
fiscal year 2.5% of the Fund's first $30 million of average daily
net assets, 2.0% of the next $70 million of average daily net
assets, and 1.5% of the remaining average daily net assets. No
fee payment will be made to the Investment Adviser or
Administrator during the year which will cause such expenses to
exceed the pro rata expense limitation at the time of such
payment. The Investment Adviser and Administrator will share
equally with respect to any reimbursements made pursuant to the
expense limitations.
<PAGE>
Merrill Lynch Funds Distributor, Inc. ("MLFD"), a wholly-owned
subsidiary of MLIM, is the Distributor of the shares of the Fund.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Trust are officers and/or
directors of FAM, MLIM, MLFD, FDS, MLPF&S, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the periods
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
<AUDIT-REPORT>
Summit Cash Reserves Fund
Independent Auditors' Report
The Board of Trustees and Shareholders,
Summit Cash Reserves Fund
of Financial Institutions Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Summit
Cash Reserves Fund of Financial Institutions Series Trust as
of May 31, 1994, the related statements of operations for the
year then ended and changes in net assets for each of the years
in the two-year period then ended, and the financial highlights
for each of the years in the five-year period then ended. These
financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the financial highlights are free of
material misstatement.
<PAGE>
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at May 31,
1994 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of Summit Cash Reserves Fund of Financial
Institutions Series Trust as of May 31, 1994, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
June 30, 1994
</AUDIT-REPORT>
Officers and Trustees
Arthur Zeikel--President and Trustee
Joe Grills--Trustee
Walter Mintz--Trustee
Melvin R. Seiden--Trustee
Stephen B. Swensrud--Trustee
Harry Woolf--Trustee
Terry K. Glenn--Executive Vice President
Donald C. Burke--Vice President
Carlo J. Giannini--Vice President
Kevin J. McKenna--Vice President
Joseph T. Monagle, Jr.--Vice President
Gerald M. Richard--Treasurer
Robert Harris--Secretary
<PAGE>
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 221-7210
