SUMMIT
CASH RESERVES
FUND
Financial Institutions
Series Trust
FUND LOGO
Annual Report
May 31, 1996
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. Statements and
other information herein are as dated and are subject to change.
Summit Cash
Reserves Fund
Financial Institutions
Series Trust
Box 9011
Princeton, NJ
08543-9011
DEAR SHAREHOLDER
For the year ended May 31, 1996, Summit Cash Reserves Fund paid
shareholders a net annualized dividend of 4.87%.* For the six-month
period ended May 31, 1996, the Fund paid shareholders a net
annualized dividend of 4.48%.* The Fund's 7-day yield as of May 31,
1996 was 3.84%.
The average portfolio maturity for Summit Cash Reserves Fund at May
31, 1996 was 21 days, compared to 57 days as of November 30, 1995.
The Environment
Conflicting economic indicators began to create greater uncertainty
in the investment outlook during the six-month period ended May 31,
1996. Although there were expectations of a slowing economy early in
the period, the release of stronger-than-expected employment data
for February and March changed dramatically the consensus outlook
for the rate of future economic growth. Investors began to
anticipate renewed economic growth, which caused interest rates to
rise throughout the yield curve. Although some data indicate the US
economy actually grew more slowly in the first quarter of 1996 than
had been originally reported, economic momentum remains evident in
most sectors.
Investors also became concerned that inflationary pressures may be
increasing because of higher prices for agricultural commodities and
a sharp upturn in the price of crude oil. Nevertheless, other
wholesale and consumer price increases remain subdued.
For the six months ended May 31, 1996, Summit Cash Reserves Fund
maintained an average life reflective of two distinctive interest
rate trends as market sentiment shifted. Our outlook was at first
optimistic, but as the period progressed, the Fund's investment
outlook reflected our more cautious view that the Federal Reserve
Board would remain on hold as evidence of a stronger economy
unfolded. As preliminary evidence of economic strength started to
mount, we reduced the Fund's exposure to rising interest rates
through attrition, selective sales, and restricting investments to
30-day or less money market securities and overnight repurchase
agreements. With the future course of monetary policy unclear, the
Fund's average life remains in the mid 20-day range.
[FN]
*Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to the
investor after all expenses.
Investors will continue to focus on the relative strength of the
economy and corresponding inflationary pressures as they anticipate
Federal Reserve Board monetary policy in the weeks ahead.
The portfolio's composition at the end of the May period and as of
our last report is detailed below:
Issue 5/31/96 11/30/95
Certificates of Deposit-Yankee 2.9% 4.5%
Commercial Paper-Discount 40.7 44.4
Corporate Notes 2.9 3.0
Master Notes -- 4.5
Repurchase Agreements 7.5 0.4
US Government Agency Coupon
Obligations -- 3.0
US Government, Agency
& Instrumentality
Obligations-Discount 22.9 5.9
US Government, Agency
& Instrumentality
Obligations-Non-Discount 24.5 35.6
Liabilities in Excess of Other Assets (1.4) (1.3)
------ ------
Total 100.0% 100.0%
====== ======
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 28, 1996
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Certificates of Deposit--Yankee--2.9%
Societe Generale, NY $1,000 5.39 % 6/17/96 $ 1,000
Total Certificates of Deposit--Yankee
(Cost--$1,000) 1,000
Commercial Paper--Discount--40.7%
ANZ (Delaware) Inc. 1,000 5.10 7/22/96 992
Allomon Funding 1,150 5.31 6/04/96 1,149
Corp.
Banc One Corp. 1,400 5.33 6/03/96 1,399
Bear Stearns 1,300 5.29 6/03/96 1,300
Companies Inc.
Cargill Incorporated 1,000 5.30 6/07/96 999
Ciba-Geigy Corp. 1,300 5.25 6/04/96 1,299
Ciesco, L.P. 1,099 5.27 6/21/96 1,096
General Motors 1,300 5.34 6/21/96 1,296
Acceptance Corp.
Monte Rosa 1,250 5.29 6/28/96 1,245
Capital Corp.
National Fleet 1,300 5.28 6/03/96 1,300
Funding Corp.
Sandoz Corporation 1,000 5.30 6/06/96 999
Sheffield 1,150 5.30 6/11/96 1,148
Receivables Corp.
Total Commercial Paper--Discount
(Cost--$14,222) 14,222
Corporate Notes--2.9%
SMM Trust (1995-K) 1,000 5.4497 6/14/96 1,000
Total Corporate Notes
(Cost--$1,000) 1,000
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government, Agency & Instrumentality Obligations--
Discount--22.9%
Federal Home $7,000 5.30 % 6/03/96 $ 6,997
Loan Mortgage
Corporation
Federal National 1,000 5.11 10/30/96 978
Mortgage
Association
Total US Government, Agency & Instrumentality
Obligations--Discount (Cost--$7,975) 7,975
US Government, Agency & Instrumentality Obligations--
Non-Discount--24.5%
Federal National 285 8.75 6/10/96 285
Mortgage Association 250 5.50 6/12/96 250
2,000 5.31++ 7/08/96 2,000
1,000 5.32++ 8/08/96 1,000
3,000 5.38++ 2/21/97 3,000
US Treasury Notes 2,000 6.875 10/31/96 2,011
Total US Government, Agency & Instrumentality
Obligations--Non-Discount (Cost--$8,548) 8,546
Face
Amount Issue
Repurchase Agreements**--7.5%
$1,400 Fuji Securities, Inc., purchased on
5/31/1996 to yield 5.37% to 6/03/1996 1,400
1,203 PaineWebber Inc., purchased on
5/31/1996 to yield 5.33% to 6/03/1996 1,203
Total Repurchase Agreements (Cost--$2,603) 2,603
Total Investments (Cost--$35,348)--101.4% 35,346
Liabilities in Excess of Other Assets--(1.4%) (481)
-------
Net Assets--100.0% $34,865
=======
[FN]
*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. Other
securities bear interest at the rates shown, payable at fixed dates
or upon maturity. The interest rates on variable rate securities are
adjusted periodically based upon the appropriate indexes; the
interest rates shown are the rates in effect at May 31, 1996.
**Repurchase Agreements are fully collateralized by US Government
Obligations.
++Variable Rate Notes.
See Notes to Financial Statements.
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of May 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$35,348,330*)
(Notes 1a & 1e) $ 35,345,891
Cash 1,494
Receivables:
Interest $ 64,313
Beneficial interest sold 12,000 76,313
------------
Prepaid registration fees and other assets (Note 1d) 104,249
------------
Total assets 35,527,947
------------
Liabilities: Payables:
Beneficial interest redeemed 497,114
Administrator (Note 2) 8,027
Investment adviser (Note 2) 8,027 513,168
------------
Accrued expenses and other liabilities 149,973
------------
Total liabilities 663,141
------------
Net Assets: Net assets $ 34,864,806
============
Net Assets Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $ 3,486,725
Paid-in capital in excess of par 31,380,520
Unrealized depreciation on investments--net (2,439)
------------
Net assets--Equivalent to $1.00 per share based on 34,867,245 shares
of beneficial interest outstanding $ 34,864,806
============
<FN>
*Cost for Federal income tax purposes. As of May 31, 1996, net
unrealized depreciation for Federal income tax purposes
amounted to $2,439, of which $188 related to appreciated securities
and $2,627 related to depreciated securities.
</TABLE>
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended May 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 4,190,853
(Note 1c):
Expenses: Transfer agent fees (Note 2) $ 195,372
Investment advisory fees (Note 2) 193,099
Administrative fees (Note 2) 193,099
Professional fees 55,279
Registration fees (Note 1d) 38,737
Accounting services (Note 2) 36,639
Trustees' fees and expenses 26,874
Printing and shareholder reports 23,477
Custodian fees 20,396
Other 14,467
------------
Total expenses 797,439
------------
Investment income--net 3,393,414
------------
Realized & Realized gain on investments--net 244
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net (75,867)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 3,317,791
(Note 1c): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 3,393,414 $ 4,854,999
Realized gain on investments--net 244 5,155
Change in unrealized appreciation/depreciation on
investments--net (75,867) 143,964
------------ ------------
Net increase in net assets resulting from operations 3,317,791 5,004,118
------------ ------------
Dividends & Investment income--net (3,393,414) (4,854,999)
Distributions to Realized gain on investments--net (244) (5,155)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends and
distributions to shareholders (3,393,658) (4,860,154)
------------ ------------
Beneficial Interest Net proceeds from sale of shares 307,144,408 386,906,148
Transactions Net asset value of shares issued to shareholders in
(Note 3): reinvestment of dividends and distributions (Note 1f) 3,383,655 4,849,989
------------ ------------
310,528,063 391,756,137
Cost of shares redeemed (364,706,205) (438,082,555)
------------ ------------
Net decrease in net assets derived from beneficial
interest transactions (54,178,142) (46,326,418)
------------ ------------
Net Assets: Total decrease in net assets (54,254,009) (46,182,454)
Beginning of year 89,118,815 135,301,269
------------ ------------
End of year $ 34,864,806 $ 89,118,815
============ ============
</TABLE>
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended May 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .0476 .0444 .0254 .0262 .0464
Realized and unrealized gain (loss) on
investments--net (.0011) .0014 .0003 .0007 (.0001)
-------- -------- -------- -------- --------
Total from investment operations .0465 .0458 .0257 .0269 .0463
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.0476) (.0444) (.0254) (.0262) (.0463)
Realized gain on investments--net --++ (.0001) (.0003) (.0007) .0000
-------- -------- -------- -------- --------
Total dividends and distributions (.0476) (.0445) (.0257) (.0269) (.0463)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return 4.87% 4.52% 2.57% 2.74% 4.44%
======== ======== ======== ======== ========
Ratios to Average Expenses 1.13% .98% .90% .86% .79%
Net Assets: ======== ======== ======== ======== ========
Investment income and realized gain
on investments--net 4.83% 4.35% 2.54% 2.72% 4.48%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 34,865 $ 89,119 $135,301 $156,677 $237,868
Data: ======== ======== ======== ======== ========
<FN>
++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. 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.
(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 and distributions 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 and distributions 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 Corporation (the "Administrator"), 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., which is the limited partner.
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.
NOTES TO FINANCIAL STATEMENTS (concluded)
Merrill Lynch Funds Distributor, Inc. ("MLFD"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc., is the Distributor of the
shares of the Fund.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFD, MLFDS, 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.
4. Capital Loss Carryforward:
At May 31, 1996, the Fund had a net capital loss carryforward of
approximately $4,800, all of which expires in 2004. This amount will
be available to offset like amounts of any future taxable gains.
<AUDIT-REPORT>
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,
1996, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements
and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at May 31,
1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Summit Cash Reserves Fund of Financial Institutions Series Trust as
of May 31, 1996, the results of its operations, the changes in its
net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
June 28, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
None of the ordinary income distributions paid daily by Summit Cash
Reserves Fund of the Financial Institutions Series Trust during its
fiscal year ended May 31, 1996 qualify for the dividends received
deduction for corporations. Additionally, there were no long-term
capital gains distributed during the year.
The law varies in each state as to whether and what percentage of
dividend income attributable to Federal Obligations is exempt from
state income tax. We recommend that you consult your tax adviser to
determine if any portion of the dividends you received is exempt
from state income tax.
Listed below are the percentages of total assets of the Fund
invested in Federal Obligations as of the end of each quarter of the
fiscal year:
Federal
For the Quarter Ended Obligations*
August 31, 1995 22.92%
November 30, 1995 24.93%
February 29, 1996 19.71%
May 31, 1996 5.66%
Of the Fund's ordinary income dividends paid during the fiscal year
ended May 31, 1996, 19.95% was attributable to Federal Obligations.
In calculating the foregoing percentages, Fund expenses have been
allocated on a pro rata basis.
Please retain this information for your records.
[FN]
*For purposes of this calculation, Federal Obligations include US
Treasury Notes, US Treasury Bills and US Treasury Bonds. Also included
are obligations issued by the following agencies: Banks for
Cooperatives, Federal Intermediate Credit Banks, Federal Land Banks,
Federal Home Loan Banks, and the Student Loan Marketing Association.
Repurchase Agreements are not included in this calculation.
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Joe Grills, Trustee
Walter Mintz, Trustee
Robert S. Salomon Jr., Trustee
Melvin R. Seiden, Trustee
Stephen B. Swensrud, 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, 12th Floor
New York, New York 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 221-7210
