SUMMIT
CASH RESERVES
FUND
Financial Institutions
Series Trust
[FUND LOGO]
STRATEGIC
Performance
Annual Report
May 31, 1997
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 Jr., Vice President
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 221-7210
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
Summit Cash Reserves Fund May 31, 1997
DEAR SHAREHOLDER
For the year ended May 31, 1997, Summit Cash Reserves Fund paid
shareholders a net annualized dividend of 4.32%.* For the six-month
period ended May 31, 1997, the Fund paid shareholders a net annualized
dividend of 4.00%.* The Fund's 7-day yield as of May 31, 1997 was 3.41%.
The average portfolio maturity for Summit Cash Reserves Fund at May 31,
1997 was 15 days, compared to 16 days as of November 30, 1996.
The Environment
Stock and bond market turbulence increased during the six-month period
ended May 31, 1997. Mounting evidence of stronger-than-expected economic
growth suggested to investors that the Federal Reserve Board would make
a preemptive strike to contain inflationary pressures. These concerns
were heightened by statements made by Federal Reserve Board Chairman
Alan Greenspan, and culminated in an increase in the Federal Funds rate
of 0.25% to 5.50% on March 25. As investors became concerned that this
might prove to be only the first in a series of monetary policy
tightening moves, interest rates rose and stock and bond prices
declined.
Following the Federal Reserve Board's action, investor sentiment
fluctuated from negative to more positive, depending upon whether the
latest economic data releases were perceived to suggest an overheating
or moderating trend. Stock prices were given a boost following a series
of strong corporate earnings reports and the likelihood that a capital
gains tax cut would be part of the Federal balanced budget agreement.
Nonetheless, clear-cut signs of continued low inflation and moderate
economic growth, as well as no further indications of monetary policy
tightening, are probably needed to bring stability to the financial
markets. Another potential positive for the US financial markets would
be a successful conclusion to the Federal budget agreement currently
under discussion by Congress and the Clinton Administration.
During the six-month period ended May 31, 1997, Summit Cash Reserves
Fund's asset base declined from approximately $372,000 to approximately
$240,000. The Fund is invested in short-term US Treasury bills and US
Government agency discount notes, an investment strategy we expect to
continue for the foreseeable future.
The portfolio's composition at the end of the May period and as of our
last report is detailed below:
- -----------------------------------------------------------------------
Issue 5/31/97 11/30/96
- -----------------------------------------------------------------------
US Government, Agency
& Instrumentality
Obligations - Discount 62.5% 103.0%
Liabilities in Excess of Other Assets -- (3.0)
Other Assets Less Liabilities 37.5 --
------- -------
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/CARLO J. GIANNINI
Carlo J. Giannini
Vice President and Portfolio Manager
July 1, 1997
* Based on a constant investment throughout the period, with dividends
compounded daily, and reflecting a net return to the investor after
all expenses.
<TABLE>
<CAPTION>
Summit Cash Reserves Fund May 31, 1997
SCHEDULE OF INVESTMENTS
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
<S> <C> <C> <C> <C>
US Government, Agency & Instrumentality Obligations -- Discount
Federal Home Loan Bank $100,000 5.40 % 6/19/97 $99,745
US Treasury Bills 50,000 5.075 6/05/97 49,979
Total US Government, Agency & Instrumentality Obligations -- Discount
(Cost -- $149,724) 149,724
Total Investments (Cost -- $149,724) -- 62.5% 149,724
Other Assets Less Liabilities -- 37.5% 90,015
--------
Net Assets -- 100.0% $239,739
========
* 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.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of May 31, 1997
<S> <C> <C>
Assets: Investments, at value (identified cost -- $149,724*) (Notes 1a & 1e) $149,724
Cash 2,538
Investment adviser receivable (Note 2) 60,655
Prepaid registration fees and other assets (Note 1d) 87,463
----------
Total assets 300,380
----------
Liabilities: Payables:
Administrator (Note 2) 58
Accrued expenses and other liabilities 60,583
----------
Total liabilities 60,641
----------
Net Assets: Net assets $239,739
==========
Net Assets Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized $23,974
Paid-in capital in excess of par 215,765
----------
Net assets -- Equivalent to $1.00 per share based on 239,739 shares
of beneficial interest outstanding $239,739
==========
* Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
May 31, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $608,163
(Note 1c):
Expenses: Professional fees $80,713
Registration fees (Note 1d) 46,228
Investment advisory fees (Note 2) 29,925
Administrative fees (Note 2) 29,925
Accounting services (Note 2) 13,839
Other 14,122
---------
Total expenses before reimbursement 214,752
Reimbursement of expenses (Note 2) (63,733)
---------
Total expenses after reimbursement 151,019
---------
Investment income -- net 457,144
---------
Realized & Realized loss on investments -- net (853)
Unrealized Change in unrealized appreciation/depreciation on
Gain (Loss) on investments -- net 2,439
Investments -- Net ---------
(Note 1c): Net Increase in Net Assets Resulting from Operations $458,730
=========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended May 31,
1997 1996
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations: Investment income -- net $457,144 $3,393,414
Realized gain (loss) on investments -- net (853) 244
Change in unrealized appreciation/depreciation on
investments -- net 2,439 (75,867)
------------ ------------
Net increase in net assets resulting from operations 458,730 3,317,791
------------ ------------
Dividends & Investment income -- net (456,291) (3,393,414)
Distributions to Realized gain on investments -- net -- (244)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends and
distributions to shareholders (456,291) (3,393,658)
------------ ------------
Beneficial Interest Net proceeds from sale of shares 68,683,693 307,144,408
Transactions Net asset value of shares issued to shareholders in
(Note 3): reinvestment of dividends and distributions (Note 1f) 451,377 3,383,655
------------ ------------
69,135,070 310,528,063
Cost of shares redeemed (103,762,576) (364,706,205)
------------ ------------
Net decrease in net assets derived from beneficial
interest transactions (34,627,506) (54,178,142)
------------ ------------
Net Assets: Total decrease in net assets (34,625,067) (54,254,009)
Beginning of year 34,864,806 89,118,815
------------ ------------
End of year $239,739 $34,864,806
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended May 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <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 .0432 .0476 .0444 .0254 .0262
Realized and unrealized gain (loss) on
investments -- net .0001 (.0011) .0014 .0003 .0007
-------- -------- -------- -------- --------
Total from investment operations .0433 .0465 .0458 .0257 .0269
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.0431) (.0476) (.0444) (.0254) (.0262)
Realized gain on investments -- net -- --+ (.0001) (.0003) (.0007)
-------- -------- -------- -------- --------
Total dividends and distributions (.0431) (.0476) (.0445) (.0257) (.0269)
-------- -------- -------- -------- --------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ========
Total investment return 4.32% 4.87% 4.52% 2.57% 2.74%
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 1.38% 1.13% .98% .90% .86%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.97% 1.13% .98% .90% .86%
======== ======== ======== ======== ========
Investment income and realized gain on
investments -- net 4.18% 4.83% 4.35% 2.54% 2.72%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $240 $34,865 $89,119 $135,301 $156,677
Data: ======== ======== ======== ======== ========
+ Amount is less than $.0001 per share.
See Notes to Financial Statements.
</TABLE>
Summit Cash Reserves Fund May 31, 1997
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 monthly 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 and an
Administrative Agreement with Fund Asset Management, L.P. ("FAM" or the
"Investment Adviser") and has entered into an Administrative Agreement
with 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 and equipment to provide
such services to the Fund. For such services, the Investment Adviser
receives 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. For the year ended May 31, 1997, FAM earned fees
of $29,925, all of which were waived. FAM also reimbursed the Fund for
additional expenses of $33,808. FAM and Broadcort each provide certain
administrative services to the Fund pursuant to their respective
Administrative Agreements. Pursuant to these Agreements, Broadcort
receives fees at the same rate as FAM's management fee with respect to
assets Broadcort has introduced to the Fund. FAM receives an identical
fee based on the other assets of the Fund.
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, 1997, the Fund had a net capital loss
carryforward of approximately $6,000, of which $5,000 expires in 2004
and $1,000 expires in 2005. This amount will be available to offset like
amounts of any future taxable gains.
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, 1997, 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, 1997 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, 1997, 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
July 1, 1997
