SUMMIT
CASH RESERVES
FUND
Financial Institutions
Series Trust
FUND LOGO
Semi-Annual Report
November 30, 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.
<PAGE>
Summit Cash
Reserves Fund
Financial Institutions
Series Trust
Box 9011
Princeton, NJ
08543-9011
DEAR SHAREHOLDER
For the six months ended November 30, 1994, Summit Cash Reserves
Fund paid shareholders a net annualized yield of 3.94%.* The Fund's
7-day yield as of November 30, 1994 was 4.39% (excluding gains and
losses) and 4.39% (including gains and losses.)
The Environment
Volatility in the US financial markets continued during the period,
largely prompted by concerns of increasing inflationary pressures.
The possibility of continued monetary policy tightening by the
Federal Reserve Board was predominant in the minds of investors
throughout most of the period. Therefore, there was little surprise
when the central bank continued to raise short-term interest rates.
The weakness of the US dollar in foreign exchange markets also
prompted declines in US stock and bond prices, but some
strengthening of the US currency has occurred recently.
Despite widespread inflationary expectations, recently released data
show that the rate of inflation remains near a 30-year low, as
consumer prices barely rose in October. Other economic results show
little evidence of an overheating economy. Housing starts fell
during October, and higher interest rates will likely continue to
weaken housing demand. Although retail sales are rising, the real
strength in the economy is still in the manufacturing sector.
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether further increases
in short-term interest rates are likely. In addition, investor
interest will also be focused on the progress that the new Congress
makes on both reducing the Federal budget deficit and providing tax
cuts that promote savings and investment. Legislative progress,
combined with continued indications of moderate and sustainable
levels of economic growth, would be positive for the US capital
markets.
[FN]
*Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to the
investor after all expenses.
<PAGE>
Portfolio Matters
Since our last shareholder report, the fixed-income market continued
to weaken in response to two additional Federal Reserve Board
monetary tightenings. During the six-month period ended November 30,
1994, Summit Cash Reserves Fund's average portfolio maturity ranged
from a low of 29 days to a high of 60 days.
June was marked by changing investor psychology, as evidenced by an
early constructiveness that later gave way to a more bearish
sentiment. The early view was that the Federal Reserve Board would
choose not to alter monetary policy at the July Federal Open Market
Committee (FOMC) meeting. However, the US dollar's weakness sparked
speculation of an imminent monetary tightening. The Fund's average
portfolio maturity centered around 50 days for the majority of June
by utilizing overnight repurchase agreements and 90-day commercial
paper.
Early July's negative price action stemmed from an unexpectedly
large increase in non-farm payrolls. Utilizing one-month commercial
paper and repurchase agreements, we continued to reduce average
portfolio maturity, which stood at 30 days by mid-month. While
Chairman Alan Greenspan's Humphrey-Hawkin's testimony before
Congress was inconclusive and the US dollar began a modest recovery,
investors' patience wore thin, and short-term interest rates rose
slightly. To return the Fund's average life to the mid 30-day range
by July month-end, we made modest purchases of 90-day and 120-day
commercial paper at levels that were inexpensive to the curve.
In early August, the market focused on the release of the
unemployment data and the Fund's average life remained in the mid
30-day area. The market weakened in response to another substantial
increase in non-farm payrolls and an increase in average hourly
earnings. The Federal Reserve Board responded to the perceived
inflation threat by raising the Federal Funds rate and discount rate
by 50 basis points (0.50%) on August 16, 1994. The policy
committee's accompanying statement that the monetary tightening
would be sufficient to sustain noninflationary growth brought a
strong bid back to the market. Armed with the prospects of near-term
market stability, we extended the Fund's average life to 50 days
with purchases of six-month commercial paper and three-month
Treasury bills.
In early September, the market began to weaken in anticipation of
yet another Federal Reserve Board monetary tightening. After a
series of strong economic reports, it became increasingly likely
that the Federal Reserve Board might move to tighten credit in the
near future. In this environment we restricted portfolio purchases
to maturities with less than 30 days and built the repurchase
agreement position to more than 10% of net assets.
<PAGE>
In October, investors expressed disappointment in the Federal
Reserve Board's decision not to tighten monetary policy at the
September FOMC meeting. That sentiment was most evident by the
dollar's struggling performance. In this bearish environment, we
continued our strategy of building the Fund's overnight liquidity
and purchasing one-month commercial paper. The Fund's average life
was 48 days by mid-month.
With economic news moderating and technical conditions favorable,
the investment outlook became more positive. Taking advantage of a
positively sloped yield curve, we purchased six-month and one-year
Treasury bills, as well as January commercial paper. By October
month-end, the Fund's average maturity had returned to 60 days.
In early November, the combination of increased supply and strong
economic news again altered the investment environment. Investors
began to speculate that the central bank might tighten by more than
50 basis points. In preparation for the November 15, 1994 FOMC
meeting, we suspended new purchases, sold one-year Treasury bill
positions and rebuilt overnight repurchase agreement positions. With
the Fund's average life at 48 days, the Federal Reserve Board voted
to increase the Federal Funds rate and discount rate by an
aggressive 75 basis points.
During the remainder of November, investors contemplated the
ramifications of the Federal Reserve Board's action and changing
political landscape as a result of the Republican Party taking
control of Capitol Hill. Dramatic yield curve flattening occurred
bringing the spread between two-year notes and 30-year bonds from
109 basis points to 14 basis points. As short-term interest
rates rose, we remained defensive by restricting market
participation largely to overnight repurchase agreements.
Looking forward, we remain cautious that strong economic growth,
full capacity in the manufacturing sector, and price pressures in
crude and intermediate goods could force the Federal Reserve Board
to further raise short-term interest rates. We will maintain our
current defensive posture as we anticipate additional changes in
monetary policy.
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
<PAGE>
(Carlo J. Giannini)
Carlo J. Giannini
Vice President and Portfolio Manager
January 5, 1995
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Bankers' Acceptances--Yankee--4.8%
Mitsubishi Bank, NY $4,950 5.39% 1/05/95 $4,923
Total Bankers' Acceptances--Yankee
(Cost--$4,923) 4,923
Commercial Paper--Discount--74.6%
ANZ (Delaware), Inc. 5,000 5.00 1/30/95 4,950
Avco Financial 3,000 5.49 1/25/95 2,973
Services, Inc.
BBV Finance 1,500 5.38 1/19/95 1,488
(Delaware), Inc.
Bankers Trust, 3,000 5.10 1/17/95 2,977
New York Corporation 1,000 5.42 1/25/95 991
Bear Stearns 5,000 5.49 1/10/95 4,969
Companies, Inc.
CS First Boston, Inc. 1,000 5.20 12/08/94 999
CSW Credit, Inc. 1,000 5.00 12/07/94 999
4,000 5.50 1/26/95 3,964
<PAGE>
CXC Incorporated 4,000 5.05 12/09/94 3,995
Ciesco L.P. 1,318 5.47 1/11/95 1,309
Ford Motor Credit 3,000 5.80 2/21/95 2,960
Company
Generale Bank Inc. 4,500 5.35 1/03/95 4,477
Internationale 3,000 5.05 2/02/95 2,969
Nederlanden (US)
Funding Corp.
Kingdom of Sweden 1,000 5.72 1/13/95 993
McKenna Triangle 4,000 5.10 2/21/95 3,946
National Corporation
National Australia 2,500 5.00 1/26/95 2,477
Funding (Delaware)
Inc.
New Center Asset
Trust 5,000 5.05 1/23/95 4,957
Nomura Holding 5,000 5.20 12/19/94 4,987
America, Inc.
PACCAR Financial
Corp. 1,000 5.07 12/21/94 997
PNC Funding Corp. 3,000 5.73 4/26/95 2,926
Province of Alberta 1,210 5.25 3/07/95 1,190
Province of Quebec 1,000 5.82 2/17/95 987
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper--Discount (concluded)
<PAGE>
South Australia $5,000 5.02% 12/20/94 $4,986
Government Financing
Authority
Svenska 5,000 5.77 1/05/95 4,971
Handelsbanken, Inc.
Wool International 3,000 5.02 12/16/94 2,993
Total Commercial Paper--Discount
(Cost--$76,471) 76,430
Corporate Notes--4.9%
Goldman Sachs
Group, L.P.++ 5,000 5.03 5/26/95 5,000
Total Corporate Notes (Cost--$5,000) 5,000
US Government, Agency & Instrumentality Obligations--
Discount--4.8%
US Treasury Bills 5,000 4.91 3/16/95 4,918
Total US Government, Agency &
Instrumentality Obligations--Discount
(Cost--$4,928) 4,918
US Government, Agency & Instrumentality Obligations--
Non-Discount--10.0%
Federal Home 1,000 5.18 6/21/95 1,000
Loan Bank++ 1,000 5.18 12/28/95 1,000
1,000 5.21 6/17/96 1,000
Federal National 2,000 5.08 5/13/96 2,000
Mortgage Association++ 1,800 5.20 5/19/97 1,800
1,000 5.25 5/14/98 1,000
US Treasury Notes 2,500 3.875 2/28/95 2,488
Total US Government, Agency & Instrumentality
Obligations--Non-Discount (Cost--$10,301) 10,288
<PAGE>
Face
Amount Issue
Repurchase Agreements--1.8%
$1,807 HSBC Holdings PLC, purchased
on 11/30/1994 to yield 5.70%
to 12/01/1994 1,807
Total Repurchase Agreements (Cost--$1,807) 1,807
Total Investments (Cost--$103,430)--100.9% 103,366
Liabilities in Excess of Other Assets--(0.9%) (945)
--------
Net Assets--100.0% $102,421
========
[FN]
*Bankers' Acceptances, Commercial Paper and certain US Government
Agency 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 November 30, 1994.
++Variable Rate Notes.
See Notes to Financial Statements.
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of November 30, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$103,430,154*) (Notes 1a & 1e) $103,365,561
Cash 2,496
Receivables:
Interest $ 84,394
Beneficial interest sold 1,900 86,294
------------
Prepaid registration fees and other assets (Note 1d) 123,834
------------
Total assets 103,578,185
------------
Liabilities: Payables:
Beneficial interest redeemed 1,033,642
Administrator (Note 2) 25,102
Investment adviser (Note 2) 25,102 1,083,846
------------
Accrued expenses and other liabilities 73,529
------------
Total liabilities 1,157,375
------------
Net Assets: Net assets $102,420,810
============
Net Assets Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $ 10,248,540
Paid-in capital in excess of par 92,236,863
Unrealized depreciation on investments--net (64,593)
------------
Net assets--Equivalent to $1.00 per share based on 102,485,403 shares
of beneficial interest outstanding $102,420,810
============
<FN>
*Cost for Federal income tax purposes. As of November 30, 1994, net unrealized
depreciation for Federal income tax purposes amounted to $64,593, of which $264
related to appreciated securities and $64,857 related to depreciated securities.
</TABLE>
<PAGE>
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
November 30, 1994
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 2,990,760
Income
(Note 1c):
Expenses: Investment advisory fees (Note 2) $ 173,664
Administrative fees (Note 2) 173,664
Transfer agent fees (Note 2) 100,093
Registration fees (Note 1d) 33,350
Professional fees 24,814
Printing and shareholder reports 24,659
Trustees' fees and expenses 17,557
Accounting services (Note 2) 10,235
Custodian fees 9,374
Other 485
------------
Total expenses 567,895
------------
Investment income--net 2,422,865
------------
Realized & Realized gain on investments--net 556
Unrealized Gain Change in unrealized depreciation on investments--net 5,943
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 2,429,364
- --Net ============
(Note 1c):
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
Increase (Decrease) in Net Assets: Nov. 30,1994 May 31, 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 2,422,865 $ 3,592,553
Realized gain on investments--net 556 41,290
Change in unrealized depreciation on investments--net 5,943 (61,245)
------------ ------------
Net increase in net assets resulting from operations 2,429,364 3,572,598
------------ ------------
<PAGE>
Dividends & Investment income--net (2,422,865) (3,592,553)
Distributions Realized gain on investments--net (556) (41,290)
to Share- ------------ ------------
holders Net decrease in net assets resulting from dividends and
(Note 1f): distributions to shareholders (2,423,421) (3,633,843)
------------ ------------
Beneficial Net proceeds from sale of shares 197,799,177 553,322,448
Interest Net asset value of shares issued to shareholders in reinvestment
Transactions of dividends (Note 1f) 2,419,742 3,625,745
(Note 3): ------------ ------------
200,218,919 556,948,193
Cost of shares redeemed (233,105,321) (578,262,259)
------------ ------------
Net decrease in net assets derived from beneficial interest
transactions (32,886,402) (21,314,066)
------------ ------------
Net Assets: Total decrease in net assets (32,880,459) (21,375,311)
Beginning of period 135,301,269 156,676,580
------------ ------------
End of period $102,420,810 $135,301,269
============ ============
</TABLE>
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Six
Months Ended For the Year Ended May 31,
Increase (Decrease) in Net Asset Value: Nov. 30, 1994 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .0194 .0254 .0262 .0464 .0684
Realized and unrealized gain (loss)
on investments--net -- .0003 .0007 (.0001) .0024
---------- ---------- ---------- ---------- ----------
Total from investment operations .0194 .0257 .0269 .0463 .0708
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.0194) (.0254) (.0262) (.0463) (.0684)
Realized gain on investments--net --** (.0003) (.0007) -- (.0024)++
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.0194) (.0257) (.0269) (.0463) (.0708)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total investment return 3.94%* 2.57% 2.74% 4.44% 7.36%
========== ========== ========== ========== ==========
<PAGE>
Ratios to Expenses .90%* .90% .86% .79% .85%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income and realized gain
on investments--net 3.84%* 2.54% 2.72% 4.48% 7.14%++
========== ========== ========== ========== ==========
Supplemental Net assets, end of period $ 102,421 $ 135,301 $ 156,677 $ 237,868 $ 374,212
Data: (in thousands) ========== ========== ========== ========== ==========
<FN>
++Includes unrealized gain (loss).
*Annualized.
**Amount is less than $.0001 per share.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
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. These unaudited
interim financial statements reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are
of a normal recurring nature. 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 value. 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.
<PAGE>
(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.
(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 Inc. ("MLPF&S"), which is a subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."). The general partner of FAM
is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an indirect
wholly-owned subsidiary of ML & Co.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
Merrill Lynch Funds Distributor, Inc. ("MLFD"), a wholly-owned
subsidiary of FAMI, 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 Fund are officers and/or
directors of FAM, FAMI, MLFD, PSI, MLPF&S, FDS 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.
<PAGE>
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, Vice President
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
The Bank of New York
90 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
