<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1998
SECURITIES ACT FILE NO. 2-78646
INVESTMENT COMPANY ACT FILE NO. 811-3189
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 17
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 33
(CHECK APPROPRIATE BOX OR BOXES)
----------------
SUMMIT CASH RESERVES FUND
OF FINANCIAL INSTITUTIONS SERIES TRUST
(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
SUMMIT CASH RESERVES FUND OF FINANCIAL INSTITUTIONS SERIES TRUST
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
PHILIP L. KIRSTEIN, ESQ. COUNSEL FOR THE TRUST:
FUND ASSET MANAGEMENT BROWN & WOOD LLP
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, N.Y. 10048
ATTENTION: THOMAS R. SMITH, JR.
----------------
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT. Approximate Date of Proposed Public Offering
----------------
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:
[X] 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.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
SUMMIT CASH RESERVES FUND
FINANCIAL INSTITUTIONS SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<C> <S> <C>
PART A
Item 1. Cover Page................... Cover Page
Item 2. Synopsis..................... Fee Table
Item 3. Condensed Financial Supplementary Financial Information;
Information................. Yield Information
Item 4. General Description of Investment Objectives and Policies;
Registrant.................. Additional Information
Item 5. Management of the Fund....... Fee Table; Management of the Trust;
Portfolio Transactions; Inside Back
Cover Page
Item 5A. Management's Discussion of
Fund Performance............ Not Applicable
Item 6. Capital Stock and Other
Securities.................. Cover Page; Additional Information
Item 7. Purchase of Securities Being Fee Table; Purchase of Shares;
Offered..................... Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase..... Fee Table; Redemption of Shares
Item 9. Pending Legal Proceedings.... Not Applicable
PART B
Item 10. Cover Page................... Cover Page
Item 11. Table of Contents............ Back Cover Page
Item 12. General Information and
History..................... General Information
Item 13. Investment Objectives and
Policies.................... Investment Objectives and Policies
Item 14. Management of the Fund....... Management of the Trust
Item 15. Control Persons and Principal
Holders of Securities....... Management of the Trust
Item 16. Investment Advisory and Other Management of the Trust; Purchase of
Services.................... Shares; General Information
Item 17. Brokerage Allocation......... Portfolio Transactions; Financial
Statements
Item 18. Capital Stock and Other General Information--Description of
Securities.................. Series and Shares
Item 19. Purchase, Redemption and
Pricing of Securities Being Purchase of Shares; Redemption of
Offered..................... Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status................... Taxes
Item 21. Underwriters................. Purchase of Shares
Item 22. Calculation of Performance
Data........................ Yield Information
Item 23. Financial Statements......... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 31, 1998
PROSPECTUS
SEPTEMBER , 1998 SUMMIT CASH RESERVES FUND
FINANCIAL INSTITUTIONS SERIES TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543 PHONE NO. (609) 282-2800
The investment objectives of the Summit Cash Reserves Fund (the "Money Fund")
are current income, preservation of capital and liquidity available from
investing in a diversified portfolio of short-term money market securities.
These securities will consist primarily of U.S. Government and Government
agency securities, bank certificates of deposit and bankers' acceptances,
commercial paper and repurchase agreements. For purposes of its investment
policies, the Money Fund defines short-term money market securities as having a
maturity of no more than 762 days (25 months) in the case of U.S. Government
and Government agency securities and no more than 397 days (13 months) in the
case of all other securities. There can be no assurance that the investment
objectives of the Money Fund will be realized. See "Investment Objective and
Policies." The Money Fund is a separate series of Financial Institutions Series
Trust (the "Trust"), a no-load, diversified, open-end investment company
organized as a Massachusetts business trust. The net income of the Money Fund
is declared as dividends daily and reinvested monthly in additional shares at
net asset value. THE MONEY FUND SEEKS TO MAINTAIN A CONSTANT $1.00 NET ASSET
VALUE PER SHARE, ALTHOUGH THIS CANNOT BE ASSURED. AN INVESTMENT IN THE MONEY
FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. In order to
maintain a constant net asset value of $1.00 per share, the Money Fund may
reduce the number of shares held by its shareholders.
The Money Fund will offer two classes of shares designated Class A and Class
B (the "Shares"). The Shares will be available only upon exchange of shares
pursuant to the Exchange Program or pursuant to the exchange privilege
available to certain mutual funds advised by Merrill Lynch Asset Management,
L.P. ("MLAM"), its affiliate, Fund Asset Management, L.P. ("FAM" or the
"Investment Manager") or Mercury Asset Management International Limited
("Mercury"), an affiliate of FAM and MLAM. See "Exchange Privilege and Exchange
Program." Class A and Class B shares are offered at net asset value without any
sales charge; however Class B shares will be subject to an ongoing distribution
fee and may be subject to a contingent deferred sales charge ("CDSC"). Shares
may be redeemed at any time at net asset value as described herein. See
"Purchase of Shares" and "Redemption of Shares."
Shares may be purchased from securities dealers that have entered into
selected dealer agreements with Princeton Funds Distributor, Inc. (the
"Distributor" or "PFD") P.O. Box 9081, Princeton, New Jersey 08543-9081, Tel.
No. (609) 282-2800, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). See "Purchase of Shares."
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------
This Prospectus is a concise statement of information about the Money Fund
that is relevant to making an investment in the Money Fund. This Prospectus
should be read carefully and retained for future reference. A statement
containing additional information about the Money Fund, dated September , 1998
(the "Statement of Additional Information"), has been filed with the Securities
and Exchange Commission (the "Commission") and can be obtained, without charge,
by calling or by writing the Money Fund at the above telephone number or
address. The Commission maintains a Web site (http://www.sec.gov) that contains
the Statement of Additional Information, material incorporated by reference and
other information regarding the Money Fund. The Statement of Additional
Information is hereby incorporated by reference into this Prospectus.
--------------
FUND ASSET MANAGEMENT -- INVESTMENT MANAGER
PRINCETON FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
FEE TABLE
ANNUAL MONEY FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, whichever is lower).......... None None(a)
Management Fees............................................. 0.50% 0.50%
Rule 12b-1 Fees(b).......................................... None 0.75%
Other Expenses(c)
Dividend and Transfer Agency Fees(d)...................... 0.14% 0.14%
Other..................................................... 1.00% 1.00%
---- ----
Total Other Expenses...................................... 1.14% 1.14%
---- ----
TOTAL MONEY FUND OPERATING EXPENSES(E)........................ 1.64% 2.39%
==== ====
</TABLE>
- ------------
(a) If holders of the Money Fund's Class B shares redeem those shares instead
of exchanging back into shares of the original fund from which the
exchange occurred or another fund in the same fund complex, CDSC payments,
if any, will be assessed based upon the combined holding period for the
fund shares and the Money Fund Shares. See "Exchange Privilege and
Exchange Program," page 12.
(b) See "Purchase of Shares--Distribution Plan"--page 10.
(c) Due to the gap in active operations and significant changes to the Money
Fund's expense structure, the financial performance of the Money Fund will
vary significantly from its historical performance. Information under
"Other Expenses" is based on estimated amounts through the end of the
Money Fund's first fiscal year of operations as a money market fund
issuing multiple classes of shares, on an annualized basis.
(d) See "Management of the Trust--Transfer Agency Services"--page 9.
(e) The Money Fund has no minimum initial or subsequent purchase requirement.
Therefore, there are likely to be a large number of Money Fund accounts of
relatively small asset size, and as a result, the total operating expenses
of the Money Fund may be higher than the expenses incurred in other money
market funds.
2
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment assuming the Total
Money Fund Operating Expenses set forth on
page 2 and a 5% annual return throughout the
period.
Class A..................................... $17 $52 $ 89 $194
Class B(a).................................. $24 $75 $128 $273
</TABLE>
- ------------
(a) If holders of the Money Fund's Class B shares redeem those shares instead
of exchanging back into shares of the original fund from which the
exchange occurred or another fund in the same fund complex, CDSC payments,
if any, will be assessed based upon the combined holding period for the
fund shares and the Money Fund Shares. See "Exchange Privilege and
Exchange Program," page 12.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Money Fund will bear directly or
indirectly. The expenses set forth under "Other Expenses" for Class B shares
are based on estimated amounts through the end of the Money Fund's first
fiscal year of operations as a money market fund issuing multiple classes of
shares on an annualized basis. The Example set forth above assumes
reinvestment of all dividends and distributions and utilizes a 5% annual rate
of return as mandated by Commission regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATE OF
RETURN, AND ACTUAL EXPENSES AND ANNUAL RATE OF RETURN MAY BE MORE OR LESS THAN
THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Money Fund by
Deloitte & Touche LLP, independent auditors. Financial statements for the
fiscal year ended May 31, 1998 and the independent auditors' report thereon
are included in the Statement of Additional Information. The following per
share data and ratios have been derived from information provided in the Money
Fund's audited financial statements. The information provided is for periods
during which the Money Fund issued only Class A shares. During the fiscal year
ended May 31, 1998 and a portion of the fiscal year ending May 31, 1999, the
Money Fund was not publicly offering its shares, and as of May 31, 1998, all
of the Money Fund's outstanding shares were owned by the Investment Manager.
<TABLE>
<CAPTION>
FOR YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------- ------- -------- -------- -------- -------- -------- --------
Investment Income--net. .0531 .0432 .0476 .0444 .0254 .0262 .0464 .0684 .0811 .7099
Realized and unrealized
gain (loss) on
investments--net...... -- .0001 (.0011) .0014 .0003 .0007 (.0001) .0024 (.0003) .0002
------ ------ ------- ------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations............. .0531 .0433 .0465 .0458 .0257 .0269 .0463 .0708 .0808 .0801
------ ------ ------- ------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net. (.0531) (.0431) (.0476) (.0445) (.0257) (.0269) (.0463) (.0708) (.0808) (.0799)
Realized gain on
investment--net....... -- (.0431) --** (.0001) (.0003) (.0007) -- (.0024)* -- (.0002)*
------ ------ ------- ------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (.0531) (.0431) (.0476) (.0445) (.0257) (.0269) (.0463) (.0708) (.0808) (.0801)
------ ------ ------- ------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ======= ======= ======== ======== ======== ======== ======== ========
Total investment return. 5.44% 4.32% 4.87% 4.52% 2.57% 2.74% 4.44% 7.36% 8.42% 8.30%
====== ====== ======= ======= ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS
Expenses, net of
reimbursement.......... 0.00% 1.38% 1.13% .98% .90% .86% .79% .85% .74% .82%
====== ====== ======= ======= ======== ======== ======== ======== ======== ========
Expenses................ 72.77% 1.97% 1.13% .98% .90% .86% .79% .85% .74% .82%
====== ====== ======= ======= ======== ======== ======== ======== ======== ========
Investment income and
realized gain on
investments--net....... 5.30% 4.18% 4.83% 4.35% 2.54% 2.72% 4.48% 7.14% 8.03% 7.98%
====== ====== ======= ======= ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands)......... $ 253 $ 240 $34,865 $89,119 $135,301 $156,677 $237,868 $374,212 $546,593 $637,424
====== ====== ======= ======= ======== ======== ======== ======== ======== ========
</TABLE>
- ------------
* Includes unrealized gain (loss)
** Amount is less than $.0001 per share.
4
<PAGE>
YIELD INFORMATION
The yield of the Money Fund refers to the income generated by an investment
in the Money Fund over a stated seven-day period. This income is then
annualized; that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The compounded annualized yield is
calculated similarly but, when annualized, the income earned by an investment
in the Money Fund is assumed to be reinvested. The compounded annualized yield
will be somewhat higher than the yield because of the effect of the assumed
reinvestment.
The yield on Money Fund shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Money Fund of future yields or rates of return on its
shares. The Money Fund's yield is affected by changes in interest rates on
money market securities, average portfolio maturity, the types and quality of
portfolio securities held, and operating expenses. Current yield information
may not provide a basis for comparison with bank deposits or other investments
that pay a fixed yield over a stated period of time.
On occasion, the Money Fund may compare its yield to (i) the industry
averages compiled by Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market mutual
funds, (ii) 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, (iii) 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 and (iv) the yield on an investment in 90-day Treasury bills on a
rolling basis, assuming quarterly compounding. As with other performance data,
yield comparisons should not be considered indicative of the Money Fund's
yield or relative performance for any future period.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Money Fund are current income, preservation
of capital and liquidity available from investing in a diversified portfolio
of short-term money market securities. The investment objectives are
fundamental policies of the Money Fund that may not be changed without a vote
of the majority of the outstanding shares of the Money Fund.
Investment in the Money Fund offers several potential benefits. The Money
Fund seeks to provide as high a yield potential as is available, consistent
with the preservation of capital, from short-term money market securities
utilizing professional money market management, block purchases of securities
and yield improvement techniques. It provides high liquidity because of its
redemption features and seeks reduced risk that generally results from
diversification of assets. There can be no assurance that the investment
objectives of the Money Fund will be realized. Certain expenses are borne by
investors, including advisory and management fees, administrative costs and
operational costs and in the case of Class B shares, Rule 12b-1 fees.
In managing the Money Fund, the Investment Manager will employ a number of
professional money management techniques, including varying the composition of
the Money Fund's investments and the average maturity of the portfolio based
on its assessment of the relative values of the various money market
securities
5
<PAGE>
and future interest rate patterns. The Investment Manager's assessments will
respond to changing economic and money market conditions and to shifts in
fiscal and monetary policy. The Investment Manager also will seek to improve
yield by taking advantage of yield disparities that regularly occur in the
money market. For example, market conditions frequently result in similar
securities trading at different prices. Also, there are frequently differences
in the yield between the various types of money market securities. The Money
Fund seeks to enhance yield by purchasing and selling securities based on
these yield differences.
The following is a description of the types of money market securities in
which the Money Fund may invest:
(i) U.S. Treasury bills, notes and other obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities;
(ii) U.S. dollar-denominated obligations of U.S. and foreign depository
institutions, including, but not limited to, certificates of deposit,
bankers' acceptances, time deposits, bank notes, thrift notes and deposit
notes;
(iii) commercial paper and other short-term obligations issued by
corporations, partnerships, trusts or other entities, including U.S.
dollar-denominated obligations issued by foreign entities; and
(iv) other short-term obligations which in the opinion of the Trustees of
the Trust are of comparable credit quality.
The Money Fund will only invest in short-term obligations that (1) have been
rated in one of the two highest rating categories for short-term debt
obligations by a nationally recognized statistical rating organization
("NRSRO"); (2) have been issued by an issuer rated in one of the two highest
rating categories by an NRSRO with respect to a class of debt obligations that
is comparable in priority and security with the investment; or (3) if not
rated, will be of comparable quality as determined by the Trustees of the
Trust. Currently, there are five NRSROs: Duff & Phelps Credit Ratings Co.,
Fitch IBCA, Inc., Moody's Investors Service, Inc., Standard & Poor's and
Thomson BankWatch, Inc.
Rule 2a-7 under the Investment Company Act of 1940, as amended (the
"Investment Company Act") presently limits investments by the Money Fund in
securities issued by any one issuer (other than the U.S. Government, its
agencies or instrumentalities) ordinarily to not more than 5% of its total
assets, or, in the event that such securities are not First Tier Securities
(as defined in the Rule), not more than 1%. In addition, Rule 2a-7 requires
that not more than 5% of the Money Fund's total assets be invested in Second
Tier Securities (as defined in the Rule). The Rule requires the Money Fund to
be diversified (as defined in the Rule) other than with respect to government
securities and securities subject to a guarantee issued by a non-controlled
person (as defined in the Rule).
The following is a description of some of the investments or investment
practices in which the Money Fund may invest or engage:
Government Securities. U.S. Treasury bills and notes are supported by the
full faith and credit of the United States. The Money Fund also will invest
in debt securities issued by U.S. Government sponsored enterprises,
agencies and instrumentalities, including, but not limited to, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation,
the Student Loan Marketing Association, the Federal Agricultural Mortgage
Corporation, and the Federal Home Loan Bank. Such securities may also
include debt securities issued by international organizations designated or
supported by multiple
6
<PAGE>
governmental entities, such as the International Bank for Reconstruction
and Development. Government agency securities are not direct obligations of
the U.S. Treasury but involve various forms of U.S. Government sponsorship
or guarantees.
Repurchase Agreements. The Money Fund may enter into repurchase
agreements. A repurchase agreement is an instrument under which the
purchaser (i.e., the Money Fund) acquires the obligation (debt security)
and the seller agrees, at the time of the sale, to repurchase the
obligation at a mutually agreed- upon time and price, thereby determining
the yield during the purchaser's holding period. As a matter of operating
policy, the Money Fund will not enter into repurchase agreements with more
than seven days to maturity if it would result in the investment of more
than 10% of the value of the Money Fund's net assets in such repurchase
agreements. Repurchase agreements may be construed to be collateralized
loans by the purchaser to the seller secured by the securities transferred
to the purchaser. If a repurchase agreement is construed to be a
collateralized loan, the underlying securities will not be considered to be
owned by the Money Fund but only to constitute collateral for the seller's
obligation to pay the repurchase price, and, in the event of a default by
the seller, the Money Fund may suffer time delays and incur costs or losses
in connection with the disposition of the collateral.
Reverse Repurchase Agreements. The Money Fund may enter into reverse
repurchase agreements which involve the sale of money market securities
held by the Money Fund, with an agreement to repurchase the securities at
an agreed-upon price, date and interest payment. During the time a reverse
repurchase agreement is outstanding, the Money Fund will maintain a
segregated custodial account containing U.S. Government or other
appropriate liquid securities having a value equal to the repurchase price.
Management of the Money Fund does not consider entering into reverse
repurchase agreements to constitute borrowing money for purposes of the
Money Fund's investment restrictions set forth in the Statement of
Additional Information.
Lending of Portfolio Securities. The Money Fund may lend portfolio
securities to brokers, dealers and financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S.
Government which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. During the
period of the loan, the Money Fund will receive income on the loaned
securities and either will receive a fee or earn interest on any
investments made with cash collateral, thereby increasing its yield.
Commercial Paper and Other Short-Term Obligations. The Money Fund may
purchase commercial paper (including variable amount master notes and
funding agreements), which refers to short-term promissory notes issued by
corporations, partnerships, trusts or other entities to finance short-term
credit needs, and non-convertible debt securities (e.g., bonds and
debentures) with no more than 397 days (13 months) remaining to maturity at
the time of purchase. Short-term obligations issued by trusts may include,
but are not limited to, mortgage-related or asset-backed debt instruments,
including pass-through certificates such as participations in, or Treasury
bonds or notes backed by, pools of mortgages, or credit card, automobile or
other types of receivables. See "Investment Objectives and Policies" in the
Statement of Additional Information for a discussion of these structured
financings.
Bank Money Instruments. Obligations of depository institutions such as
certificates of deposit, including variable rate certificates of deposit,
bankers' acceptances, bank notes and time deposits.
Forward Commitments. The Money Fund may purchase and sell securities on a
when-issued basis or forward commitment basis, and it may purchase or sell
such securities for delayed delivery. The Money
7
<PAGE>
Fund will maintain a segregated account with its custodian of liquid
securities in an aggregate amount equal to the amount of its commitments in
connection with such purchase transactions.
While the types of money market securities in which the Money Fund invests
generally are considered to have low principal risk, such securities are not
completely risk-free. There is a risk of the failure of issuers to meet their
principal and interest obligations. With respect to repurchase agreements,
reverse repurchase agreements and the lending of portfolio securities by the
Money Fund, there is also the risk of the failure of parties involved to
repurchase at the agreed-upon price or to return the securities involved in
such transactions, in which event the Money Fund may suffer time delays and
incur costs or possible losses in connection with the disposition of the
collateral.
Investment Restrictions. The Money 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 Money Fund's outstanding voting securities.
Among the more significant restrictions, the Money Fund may not (1) invest
more than 25% of its total assets, taken at market value at the time of each
investment, in the securities of issuers in any particular industry (other
than U.S. Government securities, U.S. Government agency securities or domestic
bank money instruments). For purposes of this restriction, states,
municipalities and their political subdivisions are not considered part of any
industry, and investments in mortgage-related or asset-backed securities shall
not be considered investments in the securities of issuers in a particular
industry; (2) borrow money, except that the Money Fund may borrow from banks
(as defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), or for temporary purposes (up to
an additional 5% of its total assets), or as necessary for the clearance of
securities transactions, or for the purchase of securities on margin; or (3)
make loans to other persons, except that the purchase of debt instruments,
U.S. Government securities, commercial paper pass-through instruments,
certificates of deposit, bankers' acceptances, repurchase agreements or other
similar instruments are not deemed the making of a loan and that the Money
Fund may lend its portfolio securities in accordance with applicable law and
the guidelines set forth herein and in the Statement of Additional
Information.
MANAGEMENT OF THE TRUST
TRUSTEES
The Trustees of the Trust consist of six individuals, five of whom are not
"interested persons" of the Trust as defined in the Investment Company Act.
The Trustees of the Trust are responsible for the overall supervision of the
operations of the Trust and perform the various duties imposed on the
directors of investment companies by the Investment Company Act.
The Trustees of the Trust are:
Arthur Zeikel*--Chairman of the Investment Manager and its affiliate,
MLAM; Chairman and Director of Princeton Services, Inc. ("Princeton
Services"); Executive Vice President of Merrill Lynch & Co., Inc. ("ML &
Co.").
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*Interested person, as defined in the Investment Company Act, of the Trust.
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Joe Grills--Member of the Committee of Investment of Employee Benefit
Assets of the Financial Executives Institute ("CIEBA"); Member of CIEBA's
Executive Committee; Assistant Treasurer of International Business Machines
Corporation ("IBM") and Chief Investment Officer of IBM Retirement Funds;
Member of the Investment Advisory Committees of the State of New York
Common Retirement Fund, Howard Hughes Medical Institute and the Virginia
Retirement System; Director, Duke Management Company, Director, LaSalle
Street Fund and Director, Kimco Realty Corporation; Director of the
Hotchkis and Wiley Funds.
Walter Mintz--Special Limited Partner of Cumberland Associates
(investment partnership).
Robert S. Salomon, Jr.--Principal of STI Management (investment adviser).
Melvin R. Seiden--Director of Silbanc Properties, Ltd. (real estate,
investment and consulting).
Stephen B. Swensrud--Chairman of Fernwood Advisors (investment adviser);
Principal of Fernwood Associates (financial consultant).
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Investment Manager acts as the manager of the Money Fund and provides
the Money Fund and the Trust with management and investment advisory services.
The Investment Manager is an affiliate of MLAM and is owned and controlled by
ML & Co., a financial services holding company and the parent of Merrill
Lynch. The Asset Management Group of ML & Co. (which includes the Investment
Manager) acts as the investment adviser for more than 100 registered
investment companies and provides portfolio management services to individual
and institutional accounts. As of June 1998, the Asset Management Group had a
total of approximately $489 billion in investment company and other portfolio
assets under management. This amount includes assets managed for certain
affiliates of the Investment Manager.
The Investment Management Agreement (the "Investment Management Agreement")
provides that, subject to the supervision of the Trustees, the Investment
Manager is responsible for the actual management of the Money Fund and
constantly reviews the Money 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 Investment
Manager, subject to review by the Trustees. The Investment Manager performs
certain of the other administrative services necessary for the operation of
the Trust and the Money Fund, including regulatory compliance, and provides
all the office space, facilities, equipment and necessary personnel for
management of the Money Fund.
Pursuant to the Investment Management Agreement, the Investment Manager is
entitled to receive compensation at the annual rate of 0.50% of average daily
net assets of the Money Fund.
The Investment Management Agreement obligates the Money Fund to pay certain
expenses incurred in its operations, including, among other things, the
investment management fees, legal and audit fees, unaffiliated Trustees' fees
and expenses, registration fees, custodian and transfer agency fees,
accounting and pricing costs, and certain of the costs of printing proxies,
shareholder reports, prospectuses and statements of additional information.
Accounting services are provided to the Trust by the Investment Manager, and
the Trust reimburses the Investment Manager for its costs in connection with
such services.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly
owned subsidiary of ML & Co., acts as the Money Fund's transfer agent pursuant
to a transfer agency, shareholder servicing agency and proxy 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
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<PAGE>
a fee at the rate of $11.00 per Class A shareholder account and $14.00 per
Class B shareholder account and is entitled to reimbursement from the Money
Fund for certain transaction charges and out-of-pocket expenses incurred by it
under the Transfer Agency Agreement. Additionally, a $0.20 monthly closed
account charge will be assessed on all accounts which close during the
calendar year. 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.
PURCHASE OF SHARES
The Money Fund will offer Class A and Class B shares, without a sales
charge, at a public offering price equal to the net asset value (normally
$1.00 per share) next determined after a purchase order becomes effective.
Class A and Class B shares will be offered only (i) pursuant to the exchange
program with certain non-money market open-end management investment companies
for which Merrill Lynch serves as selected dealer and which are not advised by
FAM or MLAM (the "Exchange Program") and (ii) pursuant to the exchange
privilege available to certain mutual funds advised by FAM or MLAM ("MLAM-
advised funds") or by Mercury ("Mercury-advised funds"). See "Exchange
Privilege and Exchange Program." Share purchase orders are effective on the
date Federal Funds become available to the Money Fund. If Federal Funds are
available to the Money Fund prior to the determination of net asset value
(generally 4:00 P.M., New York time) on any business day, the order will be
effective on that day. Shares purchased will begin accruing dividends on the
day of purchase.
Class A shares will be offered without any front-end or deferred sales
charges and will bear no ongoing distribution fees.
DISTRIBUTION PLAN
The Money Fund has adopted a distribution plan pursuant to Rule 12b-1 under
the Investment Company Act with respect to distribution fees paid by the Money
Fund to Merrill Lynch and other selected dealers with respect to the Class B
shares (the "Class B Distribution Plan"). The Class B Distribution Plan
provides that such distribution fee is accrued daily and paid monthly at the
annual rate of 0.75% of the Money Fund's average daily net assets attributable
to Class B shares. This distribution fee will be used to compensate the
Distributor for providing sales and promotional activities and services
relating to the sale, promotion and marketing of Class B shares of the Fund
and payment related to the furnishing of services to Class B shareholders by
sales and marketing personnel. Such expenditures may consist of sales
commissions to financial consultants for selling Class B shares (including
reimbursement to the parties who have paid such commissions), compensation,
sales incentives and payments to sales and marketing personnel, and the
payment of expenses incurred in their sales and promotional activities
including advertising expenditures, the costs of preparing and distributing
promotional materials and the costs of providing services to Class B
shareholders including assistance in connection with inquiries related to
shareholder accounts.
Payments under the Class B Distribution Plan will be based on a percentage
of average daily net assets attributable to the Class B shares regardless of
the amount of expenses incurred, and accordingly, distribution-related
revenues from the Class B Distribution Plan may be more or less than
distribution-related expenses. Information with respect to the Class B
distribution-related revenues and expenses will be presented to the Trustees
for their consideration in connection with their deliberations as to the
continuance of the Class B Distribution Plan.
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The Trust has no obligation with respect to distribution-related expenses
incurred by the Distributor and Merrill Lynch or other selected dealers in
connection with Class B shares, and there is no assurance that the Trustees of
the Trust will approve the continuance of the Class B Distribution Plan from
year to year. However, the Distributor intends to seek annual continuation of
the Class B Distribution Plan. In their review of the Class B Distribution
Plan, the Trustees will be asked to take into consideration expenses incurred
in connection with the distribution of shares. The distribution fee received
with respect to Class B shares will not be used to subsidize the sale of Class
A shares. Payments of the distribution fee on Class B shares will terminate on
conversion of those Class B shares to Class A shares. See "Conversion of Class
B Shares to Class A Shares." The Distributor, 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, acts as principal underwriter of the shares of
the Money Fund. PFD is an affiliate of both the Investment Manager and of
Merrill Lynch.
CONVERSION OF CLASS B SHARES TO CLASS A SHARES
In the case of Class B Shares of the Money Fund acquired in an exchange from
Class B or Class C shares of a MLAM-advised fund or Mercury-advised fund,
after approximately ten years (the "Conversion Period"), the Class B shares
will be converted automatically into Class A shares of the Money Fund. Class A
shares are not subject to the distribution fee that is borne by Class B
shares. Automatic conversion of Class B shares into Class A shares will occur
at least once each month (on the "Conversion Date") on the basis of the
relative net asset values of the shares of the two classes on the Conversion
Date, without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class A shares will not be deemed a purchase
or sale of the shares for Federal income tax purposes.
Under the Exchange Program (described below, see "Exchange Privilege and
Exchange Program"), if shares of a Participating Fund have a conversion
feature providing that shares of one class of the Participating Fund will be
exchanged automatically for shares of another class of the Participating Fund,
this conversion feature will carry over to Class B shares of the Money Fund
acquired in exchange for those Participating Fund shares. At the end of the
particular conversion period, if the shareholder still holds the Money Fund
Class B shares, such shares will be converted to Class A shares of the Money
Fund that are not subject to any ongoing distribution fee.
REDEMPTION OF SHARES
The Trust is required to redeem for cash all full and fractional shares of
the Money Fund. The redemption price in the case of Class A shares is the net
asset value per share next determined after receipt by the Transfer Agent of
proper notice of redemption as described below. In the case of Class B Shares,
the redemption price is the net asset value less any applicable CDSC. See
"Exchange Privilege and Exchange Program." If such notice is received by the
Transfer Agent prior to the determination of net asset value (generally 4:00
P.M., New York time) on any business day during which the New York Stock
Exchange ("NYSE") is open for business, the redemption will be effective on
such day and payment generally 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. A direct shareholder liquidating
his or her holdings will receive upon redemption all dividends declared and
reinvested until the time of redemption.
METHODS OF REDEMPTION
Set forth below is information as to two methods pursuant to which
shareholders may redeem shares. In certain instances, the Transfer Agent may
require additional documents in connection with redemptions.
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<PAGE>
Repurchase Through Securities Dealers. The Trust will repurchase shares of
the Money Fund through securities dealers. The Trust will normally accept
orders to repurchase shares by wire or telephone from dealers for their
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 Money Fund
(generally 4:00 P.M., New York time) on any business day. These repurchase
arrangements are for the convenience of shareholders and do not involve a
charge by the Trust; however, dealers may impose a charge on the shareholder
for transmitting the notice of repurchase to the Trust. The Trust 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 Trust will promptly notify any shareholder of any rejection of a
repurchase with respect to shares of the Money Fund. For shareholders
requesting repurchases through their securities dealer, payment will be made
by the Transfer Agent to the dealer.
Regular Redemption. A shareholder may also redeem shares by submitting a
written notice of redemption directly to the Transfer Agent, Merrill Lynch
Financial Data Services, Inc., P.O. Box 45290, Jacksonville, Florida 32232-
5290. Redemption requests delivered other than by mail should be delivered to
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484. Redemption requests should not be sent to
the Trust. The notice requires the signature of all persons in whose name the
shares are registered, signed exactly as their names appear on the Transfer
Agent's register. The signatures on the notice must be guaranteed by a
national bank or other bank which is a member of the Federal Reserve System
(not a savings bank) or by a member firm of any national or regional stock
exchange. Notarized signatures are not sufficient.
EXCHANGE PRIVILEGE AND EXCHANGE PROGRAM
EXCHANGE PRIVILEGE
Class A shareholders of the Money Fund who acquired their Money Fund Shares
upon an exchange from Class A or Class D shares of certain MLAM-advised funds
will have an exchange privilege with Class A or Class D shares of certain
MLAM-advised funds. Shareholders may exchange Class A shares of the Money Fund
for Class A shares of one of the MLAM-advised funds if the shareholder holds
any Class A shares of that fund in the account in which the exchange is to be
made at the time of the exchange or is otherwise eligible to purchase Class A
shares of that fund. The holder of Money Fund Class A shares may subsequently
either exchange back into the same class of shares of the original MLAM-
advised fund without paying any sales charge or, alternatively, exchange into
Class A or Class D shares of another MLAM-advised fund in which case the
holder will be required to pay a sales charge equal to the difference, if any,
between the sales charge previously paid on the shares of the original MLAM-
advised fund and the sales charge payable at the time of the exchange on the
shares of the new MLAM-advised fund.
Class B shareholders of the Money Fund who acquired their Money Fund Shares
upon an exchange from Class B or Class C shares of MLAM-advised funds will
have an exchange privilege with Class B or Class C shares of MLAM-advised
funds. Similarly, Class B or Class C shareholders who acquired their Money
Fund shares upon exchange from Class B or Class C Mercury shares have an
exchange privilege with Class B or Class C shares of Mercury-advised funds.
When a shareholder exchanges Class B or Class C shares of a MLAM-advised fund
or a Mercury-advised fund for Class B shares of the Money Fund, the period of
time that the stockholder holds the Money Fund Class B shares will count
towards satisfaction of the holding period
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requirement for purposes of reducing the CDSC relating to the Class B or Class
C shares acquired upon exchange of the Money Fund Class B shares. With respect
to exchanges of Class B shares of a MLAM-advised fund or a Mercury-advised
fund into Money Fund Class B shares, the period of time the Money Fund Class B
shares are held will also count towards satisfaction of the conversion period
(the length of time until the Class B shares acquired upon exchange of the
Money Fund Class B shares are automatically converted into Class D shares).
Class A shareholders of the Money Fund who acquired their Money Fund Shares
upon an exchange from Class I or Class A shares of certain Mercury-advised
funds will have an exchange privilege with Class I or Class A shares of
certain Mercury-advised funds. Shareholders may exchange Class A shares of the
Money Fund for Class I shares of one of the Mercury-advised funds if the
shareholder is eligible to purchase Class I shares of that fund. Otherwise
Class A shares will be purchased. Class B shareholders of the Money Fund who
acquired their Money Fund Shares upon an exchange from Class B or C shares of
a Mercury-advised fund will have an exchange privilege with Class B or Class C
shares of the Mercury-advised funds. There is currently no limitation on the
number of times a shareholder may exercise the exchange privilege.
If Class B shares are redeemed from the Money Fund and not exchanged into
shares of a MLAM-advised fund or Mercury-advised fund, a CDSC will be charged
to the extent it would have been charged on a redemption of shares from the
original MLAM-advised fund or Mercury-advised fund.
Shares with a net asset value of at least $250 are required to qualify for
the exchange privilege and any shares utilized in an exchange must have been
held by the shareholder for at least 15 days. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares
are distributed by PFD or any of its subdivisions. The exchange privilege may
be modified or terminated at any time in accordance with the rules of the
Commission. Exercise of the exchange privilege is treated as a sale of the
exchanged shares and a purchase of the acquired shares for Federal income tax
purposes. For further information, see "Exchange Privilege and Exchange
Program" in the Statement of Additional Information.
EXCHANGE PROGRAM
The Money Fund participates in the Exchange Program with certain non-money
market open-end management investment companies for which Merrill Lynch serves
as selected dealer, which are not advised by the Investment Manager, MLAM, or
Mercury and not distributed by PFD or any of its subdivisions (each referred
to as a "Participating Fund"). The Exchange Program is available to investors
who purchase shares of a Participating Fund through Merrill Lynch. Pursuant to
the Exchange Program, exchanges may be made into Class A shares of the Money
Fund at net asset value without the imposition of a front-end sales load
("FESL") or a CDSC. Shares of a Participating Fund that are subject to an FESL
will be exchanged for Class A shares of the Money Fund without the imposition
of a sales charge. The holder of such Class A shares may subsequently either
exchange back into the same shares of the Participating Fund without incurring
any FESL or the holder of Class A shares may exchange into shares of another
Participating Fund that is subject to an FESL. In the latter case the Class A
shareholder must remit an amount equal to the difference, if any, between the
FESL previously paid on the shares of the original Participating Fund and the
FESL payable at the time of the exchange on the shares of the new
Participating Fund.
Exchanges may be made into Class B shares of the Money Fund at net asset
value without the imposition of an FESL. Shares of Participating Funds subject
to a CDSC will be exchanged for Class B shares of the Money Fund without the
payment of a CDSC that might otherwise be due on redemption of the
Participating Fund shares. The holder of such Money Fund Class B shares will
receive credit toward reduction of the CDSC that
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<PAGE>
would have been due on the Participating Fund shares for the time period
during which the Money Fund Class B shares are held. If the Participating Fund
shares were subject to a conversion feature, the period of time that the Money
Fund Class B shares are held will also count towards satisfaction of such
conversion period.
The holder of Class B shares of the Money Fund may subsequently either
exchange back into the same class of shares of the Participating Fund from
which the exchange into the Money Fund occurred, or into the same class of
shares of another Participating Fund in the same mutual fund complex as the
original Participating Fund. If Shares are redeemed from the Money Fund and
not exchanged into shares of a Participating Fund, a CDSC will be charged to
the extent it would have been charged on a redemption of shares from the
original Participating Fund.
The Participating Funds may impose administrative and/or redemption fees on
an exchange transaction with the Money Fund pursuant to the Exchange Program.
There will be no sales charge on exchange transactions into the Money Fund
pursuant to the Exchange Program. The Exchange Program may be modified or
terminated at any time in accordance with the rules of the Commission. An
exchange of shares through the Exchange Program, like an exchange of shares
pursuant to the exchange privilege, is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
A Participating Fund may modify or terminate the terms of its involvement in
the Exchange Program at any time in accordance with the rules of the
Commission. To effect an exchange under either the Exchange Program or the
exchange privilege, shareholders should contact their Merrill Lynch Financial
Consultant, who will advise the Money Fund of the exchange. Further
information regarding such exchanges is set forth under "Exchange Privilege
and Exchange Program" in the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
The money market securities in which the Money Fund invests are traded
primarily in the over-the-counter ("OTC") market. Where possible, the Money
Fund will deal 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 principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money
market securities generally are traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. The cost of executing
portfolio securities transactions of the Money Fund will primarily consist of
dealer spreads and underwriting commissions. Under the Investment Company Act,
persons affiliated with the Trust are prohibited from dealing with the Trust
as principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the Commission. An affiliated
person of the Trust may serve as its broker in OTC transactions conducted on
an agency basis. The Commission has issued an exemptive order permitting the
Trust to conduct certain principal transactions with Merrill Lynch, Merrill
Lynch Government Securities Inc. and Merrill Lynch Money Markets Inc., subject
to certain terms and conditions.
ADDITIONAL INFORMATION
DIVIDENDS
Dividends will be declared daily and reinvested monthly in the form of
additional shares at net asset value. Shareholders liquidating their holdings
will receive upon 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 Money Fund is determined, the net asset value per share of the
Money Fund normally remains constant at $1.00 per share. Fluctuations in value
may be reflected in the number of outstanding shares in the shareholder's
account. See "Taxes."
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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 market discount), (ii) plus or minus all realized
gains and losses on portfolio securities, (iii) less the estimated expenses of
the Money Fund applicable to that dividend period.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Money Fund is determined by the Investment
Manager once daily, immediately after the daily declaration of dividends, on
each day during which the NYSE is open for business. Such determination is
made as of the close of business on the NYSE (generally 4:00 P.M., New York
time). The net asset value per share is determined pursuant to the "penny-
rounding" method by adding the fair value of all securities and other assets
in the portfolio including interest accrued but not yet received, deducting
the portfolio's liabilities and dividing by the number of shares outstanding.
The result of this computation will be rounded to the nearest whole cent. It
is anticipated that net asset value will remain constant at $1.00 per share,
but no assurance can be offered in this regard. Securities with remaining
maturities of greater than 60 days for which market quotations are readily
available will be valued at market value. Securities with remaining maturities
of 60 days or less will be valued on an amortized cost basis. This involves
valuing the instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument. Other
securities held by the Money Fund will be valued at the fair value as
determined in good faith by or under the direction of the Board of Trustees.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services described below designed
to facilitate investment in shares of the Money Fund. Full details as to each
of such services and copies of the various plans described below can be
obtained from the Trust.
Investment Account. Every shareholder with a direct account at the Transfer
Agent has an Investment Account and will receive quarterly reports showing the
activity in his or her account since the preceding statement. A shareholder
may ascertain the number of shares in his Investment Account by telephoning
the Transfer Agent at (800) MER-FUND, or (800-637-3863) toll-free. 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.
Accrued Monthly Payout Plan. Shareholders desiring their dividends in cash
may enroll in this plan and receive monthly cash payments.
TAXES
The Trust intends to continue to qualify the Money Fund for the special tax
treatment afforded RICs under the Internal Revenue Code of 1986, as amended
(the "Code"). As long as it so qualifies, the Money Fund will not be subject
to Federal income tax on the part of its net ordinary income and net realized
capital gains that it distributes to shareholders. The Trust intends to cause
the Money Fund to distribute substantially all of such income.
Dividends paid by the Money 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
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over net short-term capital losses ("capital gain dividends") are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has owned Money Fund shares. Any loss upon the sale or exchange of
Money 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 Money 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). Recent legislation
creates additional categories of capital gain taxable at different rates.
Additional legislation eliminates the highest 28% category for most sales of
capital assets occurring after December 31, 1997. Generally not later than 60
days after the close of its taxable year, the Money Fund will provide its
shareholders with a written notice designating the amounts of any ordinary
income dividends or capital gain dividends, as well as the amounts of capital
gain dividends in the different categories of capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Money Fund. Distributions by the Money 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 Money Fund
pays a dividend in January which 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 Money Fund and received by its shareholders on December 31 of the year
in which the dividend was declared.
If the value of assets held by the Money 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 Money 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 Money Fund, will
nonetheless be fully taxable, even if the number of shares in shareholders'
accounts has been reduced as described above.
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 advisors concerning the applicability of the United States
withholding tax.
Dividends and interest received by the Money 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 taxpayers 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 Trust or who, to the Trust'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.
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
Money Fund on the exchanged shares reduces any sales charge the shareholder
would have owed upon 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.
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A loss realized on a sale or exchange of shares of the Money Fund will be
disallowed if other Money 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.
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.
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 an investment
in the Money Fund.
YEAR 2000 ISSUES
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"). Like other investment
companies and financial and business organizations, the Money Fund could be
adversely affected if the computer systems used by the Investment Manager or
other Money Fund service providers do not properly address this problem prior
to January 1, 2000. The Investment Manager has established a dedicated group
to analyze these issues and to implement any systems modifications necessary
to prepare for the Year 2000. Currently, the Investment Manager does not
anticipate that the transition to the 21st century will have any material
impact on its ability to continue to service the Money Fund at current levels.
In addition, the Investment Manager has sought assurances from the Money
Fund's other service providers that they are taking all necessary steps to
ensure that their computer systems will accurately reflect the Year 2000, and
the Investment Manager will continue to monitor the situation. At this time,
however, no assurance can be given that the Money Fund's other service
providers have anticipated every step necessary to avoid any adverse effect on
the Money Fund attributable to the Year 2000 Problem.
ORGANIZATION OF THE TRUST
The Trust was organized on July 10, 1987 under the laws of the Commonwealth
of Massachusetts. The Trust is a successor to a Massachusetts business trust
of the same name organized on May 28, 1981. It is a no-load, diversified open-
end investment company which is comprised of separate series ("Series"), each
of which is a separate portfolio offering a separate class or classes of
shares to selected groups of purchasers. The Declaration of Trust permits the
Trustees to create an unlimited number of Series and, with respect to each
Series, to issue an unlimited number of full and fractional shares, $.10 par
value per share, of different classes. Shareholder approval is not required
for the authorization of additional Series or classes of a Series of the
Trust. At the date of this Prospectus, the shares of the Money Fund are
divided into Class A and Class B shares. Class A and Class B shares represent
interests in the same assets of the Money Fund and are identical in all
respects, except that Class B shares bear certain expenses related to the
distribution of such shares and have exclusive
17
<PAGE>
voting rights with respect to matters relating to Class B distribution
expenditures. See "Purchase of Shares." The Trustees of the Trust may classify
and reclassify the shares of the Trust into additional classes at a future
date. Each issued and outstanding share is entitled to one vote and to
participate equally in dividends and distributions declared by the respective
Series and in net assets of such Series upon liquidation or dissolution
remaining after satisfaction of outstanding liabilities except that, as noted
above, Class B shares bear certain additional expenses. In the event a Series
were unable to meet its obligations, the remaining Series would assume the
unsatisfied obligations of that Series. The obligations and liabilities of a
particular Series are restricted to the assets of that Series and do not
extend to the assets of the Trust generally. The shares of each Series, when
issued, will be fully-paid and non-assessable by the Trust. At the date of
this Prospectus, the Money Fund is the only Series of the Trust.
The Declaration does not require that the Trust hold an annual meeting of
shareholders. However, the Trust will be required to call special meetings of
shareholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements, of a material
increase in distribution fees or of a change in the fundamental policies,
objectives or restrictions of the Money Fund or the Trust. The Trust also
would be required to hold a special shareholders' meeting to elect new
Trustees at such time as less than a majority of the Trustees holding office
have been elected by shareholders. The Declaration provides that a
shareholders' meeting may be called for any reason at the request of 10% of
the outstanding shares of any Series of the Trust or by a majority of the
Trustees. Except as set forth above, the Trustees shall continue to hold
office and appoint successor Trustees.
The Declaration of Trust establishing the Trust, dated July 10, 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 "Financial Institutions Series Trust" 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
Trust shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim of said
Trust but the "Trust Estate" (as defined in the Declaration) only shall be
liable.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
copies of each report and communication for all of the shareholder's related
accounts the shareholder should notify in writing:
Financial Data Services, Inc.
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, and/or mutual fund account numbers.
If you have any questions regarding this please call your Merrill Lynch
Financial Consultant or Financial Data Services, Inc. at (800) 221-7210.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Money Fund at the address or
telephone number set forth on the cover page of this Prospectus.
18
<PAGE>
INVESTMENT MANAGER
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Princeton Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
The Bank of New York
90 Washington Street
12th Floor
New York, New York 10286
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45290
Jacksonville, Florida 32232-5290
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<PAGE>
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- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST, THE INVESTMENT MANAGER OR THE DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Financial Highlights....................................................... 4
Yield Information.......................................................... 5
Investment Objectives and Policies......................................... 5
Management of the Trust.................................................... 8
Trustees.................................................................. 8
Management and Advisory Arrangements...................................... 9
Transfer Agency Services.................................................. 9
Purchase of Shares......................................................... 10
Distribution Plan......................................................... 10
Conversion of Class B Shares to Class A Shares............................ 11
Redemption of Shares....................................................... 11
Methods of Redemption..................................................... 11
Exchange Privilege and Exchange Program.................................... 12
Exchange Privilege........................................................ 12
Exchange Program.......................................................... 13
Portfolio Transactions..................................................... 14
Additional Information..................................................... 14
Dividends................................................................. 14
Determination of Net Asset Value.......................................... 15
Shareholder Services...................................................... 15
Taxes..................................................................... 15
Year 2000 Issues.......................................................... 17
Organization of the Trust................................................. 17
Shareholder Reports....................................................... 18
Shareholder Inquiries..................................................... 18
</TABLE>
Code # SUMMIT-0998
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
LOGO
- ------------------------------------
SUMMIT CASH
RESERVES FUND
FINANCIAL INSTITUTIONS SERIES TRUST
Principal Office of the Trust:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543 9011
This Prospectus should be
retained for future reference.
September , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
STATEMENT OF ADDITIONAL INFORMATION
SUMMIT CASH RESERVES FUND
FINANCIAL INSTITUTIONS SERIES TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE NUMBER (609) 282-2800
The investment objectives of the Summit Cash Reserves Fund (the "Money
Fund") are current income, preservation of capital and liquidity available
from investing in a diversified portfolio of short-term money market
securities. These securities will primarily consist of U.S. Government and
Government agency securities, bank certificates of deposit and bankers'
acceptances, commercial paper and repurchase agreements. For purposes of its
investment policies, the Money Fund defines short-term money market securities
as having a maturity of no more than 762 days (25 months) in the case of U.S.
Government and Government agency securities and no more than 397 days (13
months) in the case of other securities. See "Investment Objectives and
Policies." The Fund seeks to maintain a constant $1.00 net asset value per
share, although this cannot be assured. An investment in the Fund is neither
insured nor guaranteed by the U.S. Government. Management of the Fund expects
that substantially all 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 762 days. The dollar weighted-average maturity of the
Fund's portfolio will not exceed 90 days. There can be no assurance that the
investment objectives of the Money Fund will be realized. The Money Fund is a
separate series of Financial Institutions Series Trust (the "Trust"), a no-
load, diversified, open-end investment company organized as a Massachusetts
business trust.
----------------
The Money Fund will offer two classes of shares designated as Class A and
Class B (the "Shares"). The Shares will be available only upon exchange of
shares pursuant to the Exchange Program or pursuant to the exchange privilege
available to certain mutual funds advised by Merrill Lynch Asset Management,
L.P. ("MLAM"), Fund Asset Management, L.P. ("FAM" or the "Investment Manager")
or Mercury Asset Management International Limited ("Mercury"). See "Exchange
Privilege and Exchange Program." Shares of the Money Fund are offered at their
net asset value without any sales charge; however, Class B shares will be
subject to ongoing distribution fees and may be subject to a contingent
deferred sales charge ("CDSC"). Shares may be purchased from securities
dealers that have entered into selected dealer agreements with Princeton Funds
Distributor, Inc. (the "Distributor" or "PFD").
----------------
This Statement of Additional Information of the Money Fund is not a
prospectus and should be read in conjunction with the Prospectus of the Money
Fund, dated September , 1998 (the "Prospectus"), which has been filed with
the Securities and Exchange Commission (the "Commission") and can be obtained,
without charge, by calling or by writing the Money Fund at the above telephone
number or address. The Commission maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated
by reference and other information regarding the Money Fund. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
----------------
FUND ASSET MANAGEMENT -- INVESTMENT MANAGER
PRINCETON FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
The date of this Statement of Additional Information is September , 1998.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Money Fund are current income, preservation
of capital and liquidity available from investing in a diversified portfolio
of short-term money market securities. Reference is made to "Investment
Objectives and Policies" in the Prospectus for a discussion of the investment
objectives and policies of the Money Fund.
All investments of the Money Fund will be in securities with remaining
maturities of up to 762 days (25 months) in the case of U.S. Government and
Government agency securities and 397 days (13 months) in the case of all other
securities. The dollar weighed average maturity of the Money Fund portfolio
will be 90 days or less.
The Money Fund may invest in obligations issued by U.S. banks, foreign
branches or subsidiaries of U.S. banks or U.S. or foreign branches or
subsidiaries of foreign banks. Investment in obligations of foreign branches
or subsidiaries of U.S. banks or of foreign banks may involve different risks
from the risks of investing in obligations of U.S. banks. Such risks include
adverse political and economic developments, the possible imposition of
withholding taxes on interest income payable on such obligations, the possible
seizure or nationalization of foreign deposits and the possible establishment
of exchange controls or other foreign governmental laws or restrictions which
might adversely affect the payment of principal and interest. Generally, the
issuers of such obligations are subject to fewer U.S. regulatory requirements
than are applicable to U.S. banks. Foreign branches or subsidiaries of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than U.S. banks. U.S. branches or subsidiaries of foreign banks are subject to
the reserve requirements of the state in which they are located. There may be
less publicly available information about a U.S. branch or subsidiary of a
foreign bank or a foreign bank than about a U.S. bank, and such branches or
subsidiaries or banks may not be subject to the same accounting, auditing and
financial record keeping standards and requirements as U.S. banks. Evidence of
ownership of obligations of foreign branches or subsidiaries of U.S. banks or
of foreign banks may be held outside of the United States and the Money Fund
may be subject to the risks associated with the holding of such property
overseas. Any such obligations of the Money Fund held overseas will be held by
foreign branches of the custodian for the Money Fund's portfolio securities or
by other U.S. or foreign banks under subcustodian arrangements complying with
the requirements of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
FAM will consider the above factors in making investments in such
obligations and will not knowingly purchase obligations which, at the time of
purchase, are subject to exchange controls or withholding taxes. Generally,
the Money Fund will limit its investments in obligations of U.S. branches or
subsidiaries of foreign banks to obligations of banks organized in Canada,
France, Germany, Japan, the Netherlands, Switzerland, the United Kingdom and
other industrialized nations.
The Money Fund will only invest in short-term obligations (including short-
term, promissory notes issued by corporations, partnerships, trusts and other
entities, whether or not secured) that (1) have been rated in one of the two
highest rating categories for short-term debt obligations by a nationally
recognized statistical rating organization ("NRSRO"); (2) have been issued by
an issuer rated in one of the two highest rating categories by an NRSRO with
respect to a class of debt obligations that is comparable in priority and
security with the investment; or (3) if not rated, will be of comparable
quality as determined by the Trustees of the Trust. Currently there are five
NRSROs: Duff & Phelps Credit Ratings Co., Fitch IBCA Inc., Moody's Investors
Service, Inc., Standard & Poor's and Thomson BankWatch, Inc. See the Appendix
to this Statement of Additional Information.
2
<PAGE>
The Money Fund may also invest in U.S. dollar-denominated commercial paper
and other short-term obligations issued by foreign entities. Such investments
are subject to quality standards similar to those applicable to investments in
comparable obligations of domestic issuers. Investments in foreign entities in
general involve the same or similar risks as those described in connection
with investments in the obligations of foreign banks.
As described in the Prospectus, the Money Fund may invest in participations
in, or bonds and notes backed by, pools of mortgages, or credit card,
automobile or other types of receivables, with remaining maturities of no more
than 397 days (13 months). These structured financings will be supported by
sufficient collateral and other credit enhancements, including letters of
credit, insurance, reserve funds and guarantees by third parties, to enable
such instruments to obtain the requisite quality rating by an NRSRO.
Variable amount master notes and funding agreements described in the
Prospectus, permit a series of short-term borrowings under a single note. The
lender has the right to increase the amount under the note up to the full
amount provided by the note agreement. In addition the lender has the right to
reduce the amount of outstanding indebtedness.
Forward or firm commitments for the purchase or sale of securities may be
entered into by the Money Fund as described in the Prospectus. The purchase of
the underlying securities will be recorded on the date the Money Fund enters
into the commitment and the value of the security will thereafter be reflected
in the calculation of the Fund's net asset value. A separate account of the
Money Fund will be established with The Bank of New York, the Money Fund's
custodian, consisting of cash or other liquid securities having a market value
at all times until the delivery at least equal to the amount of the forward
purchase commitment. As stated in the Prospectus, the Money Fund may dispose
of a commitment prior to settlement. Risks relating to these trading practices
are briefly described in the Prospectus.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Fund Money has adopted the following investment restrictions, none of which
may be changed without the approval of a majority of the Money Fund's
outstanding shares, which for this purpose means the vote of (i) 67% or more
of the Money Fund's shares present at a meeting, if the holders of more than
50% of the outstanding shares of the Money Fund are present or represented by
proxy, or (ii) more than 50% of the Money Fund's outstanding shares, whichever
is less. The Money Fund may not:
(1) Invest more than 25% of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any particular
industry (other than U.S. Government securities, U.S. Government agency
securities or domestic bank money investments). For purposes of this
restriction, states, municipalities and their political subdivisions are
not considered part of any industry, and investments in mortgage-related or
asset-backed securities shall not be considered investments in the
securities of issuers in a particular industry.
(2) Make investments for the purpose of exercising control or management.
(3) Underwrite securities of other issuers except insofar as the Money
Fund technically may be deemed an underwriter under the Securities Act of
1933, as amended (the "Securities Act"), in selling portfolio securities.
3
<PAGE>
(4) Borrow money except that (i) the Money Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Money Fund may
borrow up to an additional 5% of its total assets for temporary purposes,
(iii) the Money Fund may obtain such short-term credit as may be necessary
for the clearance of purchases and sales of portfolio securities, and (iv)
the Money Fund may purchase securities on margin to the extent permitted by
applicable law. These borrowing provisions shall not apply to reverse
repurchase agreements as described in the Prospectus and Statement of
Additional Information. The Money Fund may not pledge its assets other than
to secure such borrowings or to the extent permitted by the Money Fund's
investment policies as set forth in its Prospectus and Statement of
Additional Information, as they may be amended from time to time, in
connection with when-issued, reverse repurchase and forward commitment
transactions and similar investment strategies.
(5) Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Money Fund may invest in securities secured by real
estate or interests therein or securities issued by companies that invest
in real estate or interests therein and may hold and sell real estate
acquired by the Money Fund as a result of the ownership of such securities.
(6) Make loans to other persons, except that the acquisition of bonds,
debentures or other debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Money Fund may lend its portfolio securities, provided
that the lending of portfolio securities may be made only in accordance
with applicable law and the guidelines set forth in the Money Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
(7) Issue senior securities to the extent such issuance would violate
applicable law.
(8) Purchase or sell commodities or contracts on commodities, except to
the extent that the Money Fund may do so in accordance with applicable law
and the Money Fund's Prospectus and Statement of Additional Information, as
they may be amended from time to time, and without registering as a
commodity pool operator under the Commodity Exchange Act.
In addition, the Money Fund has adopted non-fundamental restrictions
which may be changed by the Board of Trustees without approval of the Money
Fund's shareholders. Under the non-fundamental investment restrictions, the
Money Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, the Money Fund will not purchase shares of any
registered open-end investment company or registered unit investment
trust in reliance on Section 12(d)(1)(F) or (G) (the "fund of funds"
provisions) of the Investment Company Act, at any time its shares are
owned by another investment company that is part of the same group of
investment companies as the Money Fund.
b. Make short sales of securities or maintain a short position except
to the extent permitted by applicable law. The Money Fund currently
does not intend to engage in short sales.
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions, or which cannot otherwise be
marketed, redeemed, put to the issuer or to a third party, if at the
time of acquisition more than 10% of its total assets would be invested
in such securities. This restriction shall
4
<PAGE>
not apply to securities that mature within seven days or securities
that the Board of Trustees has otherwise determined to be liquid
pursuant to applicable law. Securities purchased in accordance with
Rule 144A under the Securities Act and certain commercial paper that is
exempt from registration pursuant to Section 4(2) of the Securities Act
and determined to be liquid by the Board of Trustees are not subject to
the limitations set forth in this investment restriction.
d. Notwithstanding fundamental investment restriction (4) above,
borrow amounts in excess of 5% of its total assets, taken at
acquisition cost or market value, whichever is lower, and then only
from banks as a temporary measure for extraordinary or emergency
purposes. These borrowing provisions shall not apply to reverse
repurchase agreements as described in the Prospectus and Statement of
Additional Information.
Lending of Portfolio Securities. Subject to investment restriction (6)
above, the Money Fund may from time to time lend securities from its portfolio
to brokers, dealers and financial institutions and receive collateral in cash
or securities issued or guaranteed by the U.S. Government which will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Such cash collateral will be invested
in short-term securities, the income from which will increase the return to
the Money Fund. Such loans will be terminable at any time. The Money Fund will
have the right to regain record ownership of loaned securities to exercise
beneficial rights. The Money Fund may pay reasonable fees in connection with
the arranging of such loans.
For purposes of the 25% limitation on investment in securities of issuers in
a particular industry, neither all utility companies (including telephone
companies) as a group nor all finance companies as a group will be considered
a single industry.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
Information about the Trustees, executive officers and portfolio manager of
the Trust, including their ages and their principal occupations for at least
the last five years is set forth below. Unless otherwise noted, the address of
the portfolio manager and of each Trustee and executive officer is P.O. Box
9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel (66)--President and Trustee (1)(2)--Chairman of the Investment
Manager and MLAM (which terms as used herein include their corporate
predecessors) since 1997; President of the Investment Manager and MLAM 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.
Joe Grills (63)--Trustee (2)--P.O. Box 98, Rapidan, Virginia 22733. Member
of the Committee of Investment of Employee Benefit Assets of the Financial
Executives Institute ("CIEBA") since 1986; Member of CIEBA's Executive
Committee since 1988 and its Chairman from 1991 to 1992; Assistant Treasurer
of International Business Machines Corporation ("IBM") and Chief Investment
Officer of IBM Retirement Funds
5
<PAGE>
from 1986 until 1993; Member of the Investment Advisory Committees of the
State of New York Common Retirement Fund, Howard Hughes Medical Institute and
the Virginia Retirement System; Director, Duke Management Company since 1993;
Director, LaSalle Street Fund since 1995; Director, Kimco Realty Corporation
since 1997; Director of the Hotchkis and Wiley Funds since 1996.
Walter Mintz (69)--Trustee (2)--1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Associates (investment
partnership) since 1982.
Robert S. Salomon, Jr. (61)--Trustee (2)--106 Dolphin Cove Quay, Stamford,
Connecticut 06902. Principal of STI Management (investment adviser); Chairman
and CEO of Salomon Brothers Asset Management Inc. from 1992 until 1995;
Chairman of Salomon Brothers equity mutual funds from 1992 until 1995;
Director of Stock Research and U.S. Equity Strategist at Salomon Brothers Inc.
from 1975 until 1991; Director, The Common Fund.
Melvin R. Seiden (67)--Trustee (2)--780 Third Avenue, Suite 2502, New York,
New York 10017. Director of Silbanc Properties, Ltd. (real estate, investment
and consulting) since 1987; Chairman and President of Seiden & de Cuevas, Inc.
(private investment firm) from 1964 to 1987.
Stephen B. Swensrud (65)--Trustee (2)--24 Federal Street, Suite 400, Boston,
Massachusetts 02110. Chairman of Fernwood Advisors (investment adviser) since
1996; Principal of Fernwood Associates (financial consultants) since 1975.
Terry K. Glenn (57)--Executive Vice President (1)(2)--Executive Vice
President of the Investment Manager and MLAM since 1983; President of
Princeton Funds Distributor, Inc. ("PFD") since 1986 and Director thereof
since 1991; Executive Vice President and Director of Princeton Services since
1993; President of Princeton Administrators, L.P. since 1988.
Joseph T. Monagle, Jr. (50)--Senior Vice President (1)(2)--Senior Vice
President of the Investment Manager and MLAM since 1990; Department Head of
the Global Fixed Income Division of the Investment Manager and MLAM since
1997; Senior Vice President of Princeton Services since 1993.
Kevin J. McKenna (41)--Senior Vice President (1)(2)--First Vice President of
MLAM since 1997; Vice President of MLAM from 1985 to 1997.
Carlo J. Giannini (54)--Vice President and Portfolio Manager (1)(2)--Vice
President of MLAM since 1981.
Gerald M. Richard (49)--Treasurer (1)(2)--Senior Vice President and
Treasurer of the Investment Manager and MLAM since 1984; Vice President of PFD
since 1981 and Treasurer thereof since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993.
Donald C. Burke (38)--Vice President (1)(2)--First Vice President of MLAM
since 1997; Vice President of MLAM from 1990 to 1997; Director of Taxation of
MLAM since 1990.
Robert Harris (46)--Secretary (1)(2)--First Vice President of MLAM since
1997; Vice President of MLAM from 1984 to 1997; Secretary of PFD since 1982.
- ------------
(1) Interested person, as defined in the Investment Company Act, of the Trust.
(2) Such Trustee or officer is a director or officer of certain other
investment companies for which the Investment Manager or MLAM acts as
investment adviser.
6
<PAGE>
At July 15, 1998, the Trustees and officers of the Trust as a group (13
persons) owned an aggregate of less than 1% of the outstanding shares of
beneficial interest of the Trust. At such date, Mr. Zeikel, an officer and
Trustee of the Trust, and the other officers of the Trust, owned less than 1%
of the outstanding shares of common stock of ML & Co.
COMPENSATION OF TRUSTEES
Pursuant to the terms of its Investment Management Agreement with the Trust,
the Investment Manager pays all compensation of officers and employees of the
Trust as well as the fees of all Trustees of the Trust who are affiliated
persons of ML & Co. or its subsidiaries. The Trust pays each Trustee who is
not affiliated with the Investment Manager (each a "non-affiliated Trustee") a
fee of $1,500 per year plus $250 per meeting attended and actual out-of-pocket
expenses relating to attendance at such meetings. The Trust also compensates
each member of the Audit Committee, which consists of the non-affiliated
Trustees, an annual fee of $1,500 per year plus a fee of $250 for each meeting
of the Audit Committee attended which is held on a day on which the Board of
Trustees does not also meet, together with all out-of-pocket expenses relating
to attendance at such meeting.
The following table sets forth for the fiscal year ended May 31, 1998, the
compensation paid by the Trust to the non-affiliated Trustees and for the
calendar year ended December 31, 1997, the aggregate compensation paid by all
registered investment companies advised by the Investment Manager and its
affiliate, MLAM ("FAM/MLAM Advised Funds"), to the non-affiliated Trustees.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
FROM TRUST AND
PENSION OR OTHER FAM/MLAM
NAME RETIREMENT BENEFITS ADVISED FUNDS
OF COMPENSATION ACCRUED AS PART OF PAID TO
RUSTEET FROM THE TRUST(1) TRUST EXPENSES TRUSTEES(2)
- ------- ----------------- ------------------- --------------
<S> <C> <C> <C>
Joe Grills................ $5,000 None $171,500
Walter Mintz.............. $5,000 None $159,500
Robert S. Salomon, Jr..... $5,000 None $159,500
Melvin R. Seiden.......... $5,000 None $159,500
Stephen B. Swensrud....... $5,000 None $175,500
</TABLE>
- ------------
(1) The amounts shown represent the fees payable if each Trustee attended the
four meetings of the Board and four meetings of the Audit Committee held
during the year. For the fiscal year ended May 31, 1998, the Trustees
waived both their annual and meeting attendance fees. At the date of this
Prospectus such waiver was still in effect, but may be rescinded by the
affirmative vote of a majority of the Trustees at any time.
(2) The Trustees serve on the boards of FAM/MLAM Advised Funds as follows: Mr.
Grills (21 registered investment companies consisting of 51 portfolios);
Mr. Mintz (20 registered investment companies consisting of 41
portfolios); Mr. Salomon (20 registered investment companies consisting of
41 portfolios); Mr. Seiden (20 registered investment companies consisting
of 41 portfolios); and Mr. Swensrud (23 registered investment companies
consisting of 56 portfolios).
7
<PAGE>
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Trust--Management and Advisory
Arrangements" in the Prospectus for certain information concerning management
and advisory arrangements of the Trust.
Subject to the direction of the Trustees, the Investment Manager performs,
or arranges for affiliates to perform, pursuant to the Investment Management
Agreement, the management and administrative services necessary for the
operation of the Trust and the Money Fund. The Investment Manager and its
affiliates will provide a variety of administrative and operational services
to shareholders of the Money Fund, including regulatory compliance processing
services related to the purchase and redemption of shares and the general
handling of shareholder relations. The Investment Manager is responsible for
the actual management of the Money Fund and constantly reviews the Money
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 Investment Manager, subject to review by
the Trustees. The Manager provides the Trust and the Money Fund with office
space, equipment and facilities and such other services as the Manager,
subject to supervision and review by the Trustees, shall from time to time
determine to be necessary to perform its obligations under the Investment
Management Agreement.
Securities held by the Money Fund may also be held by, or be appropriate
investments for, other funds or clients (collectively referred to as
"clients") for which the Investment Manager or MLAM acts as an adviser or by
investment advisory clients of MLAM. Because of different investment
objectives or other factors, a particular security may be bought for one or
more clients when one or more clients are selling the same security. If
purchases or sales of securities for the Money Fund or other 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 by the Investment Manager or MLAM. To the extent that
transactions on behalf of more than one client of the Investment Manager or
MLAM 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.
As compensation for its services to the Money Fund under the Investment
Management Agreement with the Trust, the Investment Manager is entitled to
receive a fee from the Money Fund at the end of each month at the annual rate
of 0.50% of average daily net assets of the Money Fund.
The Investment Management Agreement obligates the Investment Manager to
provide advisory, administrative and management services, to furnish office
space and facilities for management of the affairs of the Trust and the Money
Fund and to pay all compensation of and furnish office space for officers and
employees of the Trust, as well as the fees of all Trustees of the Trust who
are affiliated persons of ML & Co. or any of its subsidiaries. The Money Fund
pays all other expenses incurred in its operation and, if other Series should
be added, a portion of the Trust's general administrative expenses allocated
on the basis of the asset size of the respective Series. Expenses borne
directly by the Series include redemption expenses, expenses of portfolio
transactions, expenses of registering the shares under Federal and state
securities laws, pricing costs (including the daily calculation of net asset
value), fees for legal and auditing services, expenses of printing proxies,
shareholder reports, prospectuses and statements of additional information
(except to the extent paid by the Distributor), charges of the custodian and
transfer agent, the commission fees, interest, certain taxes, and other
expenses attributable to a particular Series. Expenses which are allocated on
the basis of asset size of the respective Series include fees and expenses of
non-affiliated Trustees, state franchise taxes and expenses related to
shareholder meetings, and other expenses properly payable by the Trust. See
"General Information--Description of Series and Shares." Depending upon the
nature of a lawsuit, litigation costs may be assessed to
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the specific Series to which the lawsuit relates or allocated on the basis of
the asset size of the respective Series. The Trustees have determined that
this is an appropriate method of allocation of expenses. As required by the
Distribution Agreements (defined below), the Distributor will pay certain of
the expenses of each Series incurred in connection with offering of shares of
each Series; 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 by it in connection
with the offering to investors. The Distributor will also pay for other
supplementary sales literature. The Distributor will only be responsible for
paying such expenses as are directly related to the sale of Money Fund shares
by such Distributor.
The Investment Manager is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. and Princeton Services are
"controlling persons" of the Investment Manager (as defined in 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 below, the
Investment Management Agreement will continue in effect from year to year if
approved annually (a) by the Trustees of the Trust or by a majority of the
outstanding shares of the Money 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 agreement terminates upon
assignment and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of the shareholders of the
Money Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Money Fund shares.
The Money Fund will offer two classes of shares designated Class A shares
and Class B shares (the "Shares"). Each Class A and Class B share of the Money
Fund represents identical interests in the investment portfolio of the Money
Fund and has the same rights, except that Class B shares bear the expenses of
the ongoing Class B distribution fees and may be subject to a contingent
deferred sales charge ("CDSC"). Class B shares have exclusive voting rights
with respect to the Rule 12b-1 distribution plan adopted with respect to such
class pursuant to which distribution fees are paid. Each class has exchange
privileges. See "Exchange Privilege and Exchange Program."
The Money Fund has entered into a separate distribution agreement with the
Distributor in connection with the continuous offering of each class of shares
of the Money Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the
offering of each class of shares of the Money Fund. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, the Distributor pays for the printing
and distribution of copies thereof used in connection with the offering to
dealers and investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to
the same renewal requirements and termination provisions as the Investment
Management Agreement described above.
Class B Distribution Plan. Reference is made to "Purchase of Shares--
Distribution Plan" in the Prospectus for certain information with respect to
the distribution plan for Class B shares (the "Class B Distribution Plan")
with respect to the distribution fees paid by the Money Fund to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and other selected
dealers with respect to such class.
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Payments of the distribution fees are subject to the provisions of Rule 12b-
1 under the Investment Company Act. Among other things, the Class B
Distribution Plan provides that Merrill Lynch, shall provide and the Trustees
shall review quarterly reports of the disbursement of the distribution fees
paid by the Money Fund. In their consideration of the Class B Distribution
Plan, the Trustees must consider all factors they deem relevant, including
information as to the benefits of the Class B Distribution Plan to the Money
Fund and to the Class B shareholders. The Class B Distribution Plan further
provides that, so long as the Plan remains in effect, the selection and
nomination of Trustees who are not "interested persons" of the Trust, as
defined in the Investment Company Act (the "Independent Trustees"), shall be
committed to the discretion of the Independent Trustees then in office. In
approving the Class B Distribution Plan in accordance with Rule 12b-1, the
Independent Trustees concluded that there is a reasonable likelihood that such
Plan will benefit the Money Fund and its Class B shareholders. The Class B
Distribution 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 Class B voting securities of the Money Fund. The
Class B Distribution Plan cannot be amended to increase materially the amount
to be spent by the Money Fund without the approval of the Class B
shareholders, and all material amendments are required to be approved by the
vote of the Trustees, including a majority of the Independent Trustees who
have no direct or indirect financial interest in such Distribution Plan, cast
in person at a meeting called for that purpose. Rule 12b-1 further requires
that the Trust preserve copies of the Class B Distribution Plan and any report
made pursuant to such Plan for a period of not less than six years from the
date of such Class B Distribution Plan or such report, the first two years in
an easily accessible place.
Limitations on the Payment of Deferred Sales Charges. The maximum sales
charge rule in the Conduct of Rules of the National Association of Securities
Dealers, Inc. ("NASD") imposes a limitation on certain asset-based sales
charges such as the distribution fee borne by the Class B shares. As
applicable to the Class B shares, the maximum sales charge rule limits the
aggregate of distribution fee payments payable by the Money Fund to (1) 6.25%
of eligible gross sales of Class B shares (defined to exclude shares issued
pursuant to dividend reinvestments and exchanges), plus (2) interest on the
unpaid balance for Class B, at the prime rate plus 1% (the unpaid balance
being the maximum amount payable minus amounts received from the payment of
the distribution fee, except that the maximum aggregate sales charges may be
increased to include sales charges of shares issued pursuant to the exchange
privilege, provided that such increase is deducted from the maximum aggregate
sales charges of the fund which redeemed the shares for the purpose of the
exchange).
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the repurchase and redemption of Money Fund shares.
The right to receive payment with respect to any redemption may be suspended
by the Money Fund 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 ("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 Trust of securities owned by the Money Fund is not reasonably
practicable or (B) it is not reasonably practicable for the Trust fairly to
determine the value of the net assets of the Money Fund; or (3) for such other
periods as the Commission may by order permit for the protection of security
holders of the Money 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.
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The value of the shareholder's investment 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 Money Fund at such time and income earned. In the case
of Class B shares, the redemption price will be reduced by any applicable
CDSC.
In the interest of economy and convenience and because of the operating
procedures of the Money Fund, certificates representing the Money Fund's
Shares will not be physically issued. Shares will be maintained by the Fund on
the register maintained by the transfer agent, and the holders thereof will
have the same rights of ownership with respect to such shares as if
certificates had been issued.
EXCHANGE PRIVILEGE AND EXCHANGE PROGRAM
EXCHANGE PRIVILEGE
Class A shareholders of the Money Fund who acquired their Money Fund Shares
upon an exchange from Class A or Class D shares of certain mutual funds
advised by the Investment Manager or MLAM (collectively referred to as the
"MLAM-advised funds") will have an exchange privilege with Class A or Class D
shares of certain MLAM-advised funds. Shareholders may exchange Class A shares
of the Money Fund for Class A shares of one of the MLAM-advised funds if the
shareholder holds any Class A shares of that MLAM-advised fund in the account
in which the exchange is to be made at the time of the exchange or is
otherwise eligible to purchase Class A shares of such MLAM-advised funds.
Otherwise Class D shares will automatically be purchased. An eligible Class A
investor includes the following: certain employer sponsored retirement or
savings plans, including eligible 401(k) plans, provided such plans meet the
required minimum number of eligible employees or required amount of assets
advised by MLAM or any of its affiliates, corporate warranty insurance reserve
fund programs provided that the program has $3 million or more initially
invested in MLAM-advised funds, participants in certain investment programs
including TMASM Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services and ML & Co. and its subsidiaries and their
directors and employees and members of the Boards of MLAM-advised investment
companies, including the Trust.
Class A shareholders of the Money Fund who acquired their Money Fund Shares
upon an exchange from Class I or Class A shares of certain funds advised by
Mercury Asset Management International, Limited ("Mercury-advised funds") will
have an exchange privilege with Class I or Class A shares of certain Mercury-
advised funds. Shareholders may exchange Class A shares of the Money Fund for
Class I shares of one of the Mercury-advised funds if the shareholder is
eligible to purchase Class I shares of that fund. Otherwise, Class A shares
will automatically be purchased. An eligible Class I investor includes the
following: certain employer sponsored retirement or savings plans, including
eligible 401(k) plans, provided such plans meet the required minimum number of
eligible employees or required amount of assets advised by Mercury;
participants in certain investment programs to which a bank, thrift or trust
company provides discretionary trustee services; certain purchases made in
connection with certain fee-based programs managed by affiliates of Mercury or
by selected dealers that have an agreement with Mercury; purchases through
certain financial advisers that meet and adhere to standards established by
Mercury and ML & Co. and its subsidiaries and their directors and employees
and employees of certain selected dealers, and members of the Boards of
Mercury or MLAM-advised investment companies, including the Trust.
If a holder of Money Fund Class A shares subsequently exchanges back into
the same class of shares of the original MLAM-advised fund or Mercury-advised
fund he or she will do so without paying any sales charge. If
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a holder of Money Fund Class A shares exchanges into Class A or Class D shares
of another MLAM-advised fund or Class I or Class A shares of another Mercury-
advised fund the holder will be required to pay a sales charge equal to the
difference, if any, between the sales charge previously paid on the shares of
the original MLAM-advised fund or Mercury-advised fund and the sales charge
payable at the time of the exchange on the shares of the new MLAM-advised fund
or Mercury-advised fund.
Class B shareholders of the Money Fund who acquired their Money Fund Shares
upon an exchange from Class B or Class C shares of certain MLAM-advised funds
or Mercury-advised funds will have an exchange privilege with Class B or Class
C shares of MLAM-advised funds or a Mercury-advised funds. When a shareholder
exchanges Class B or Class C shares of a MLAM-advised fund or a Mercury-
advised fund for Class B shares of the Money Fund, the period of time that the
stockholder holds the Money Fund Class B shares will count towards
satisfaction of the holding period requirement for purposes of reducing the
CDSC relating to the Class B or Class C shares acquired upon exchange of the
Money Fund Class B shares. With respect to exchanges of Class B shares of a
MLAM-advised fund or a Mercury-advised fund into Money Fund Class B shares,
the period of time the Money Fund Class B shares are held will also count
towards satisfaction of the conversion period (the length of time until the
Class B shares acquired upon exchange of the Money Fund Class B shares are
automatically converted into Class D shares).
If Class B shares are redeemed from the Money Fund and not exchanged into
shares of a MLAM-advised fund or Mercury-advised fund, a CDSC will be charged
to the extent it would have been charged on a redemption of shares from the
original MLAM-advised fund or Mercury-advised fund.
Shares with a net asset value of at least $250 are required to qualify for
the exchange privilege and any shares utilized in an exchange must have been
held by the shareholder for at least 15 days. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares
are distributed by the Distributor.
Under the exchange privilege, exchanges are made on the basis of the
relative net asset values of the shares being exchanged. Shares issued
pursuant to dividend reinvestment are sold on a no-load basis in each of the
MLAM-advised funds or Mercury-advised funds. For purposes of the exchange
privilege, dividend reinvestment shares shall be deemed to have been sold with
a sales charge equal to the shares charge previously paid on the shares on
which the dividend was paid. Based on this formula an exchange of Class A
shares of the Money Fund for Class A or Class D shares of a MLAM-advised fund
or a Mercury-advised fund generally will require the payment of a sales charge
equal to the difference, if any, between the sales charge previously paid on
the Class A or Class D shares originally exchanged for Class A shares of the
Money Fund and the sales charge payable at the time of the exchange on the
Class A or Class D shares of the MLAM-advised fund or Mercury-advised fund to
be acquired.
EXCHANGE PROGRAM
The Money Fund participates in an exchange program with certain non-money
market open-end management investment companies for which Merrill Lynch serves
as selected dealer which are not advised by the Investment Manager or MLAM,
and are not distributed by PFD (each referred to as a "Participating Fund").
The exchange program is available to investors who purchase shares of a
Participating Fund through Merrill Lynch. Exchanges may be made into Class A
shares of the Money Fund at net asset value without the imposition of a front-
end sales load ("FESL") or CDSC. Shares of a Participating Fund that are
subject to an
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FESL will be exchanged for Class A shares of the Money Fund without the
imposition of a sales charge. The holder of such Money Fund Class A shares may
subsequently either exchange back into the same class of shares of the
Participating Fund without incurring any FESL or exchange into shares of
another Participating Fund subject to an FESL in the same fund complex as the
original Participating Fund by remitting an amount equal to the difference, if
any, between the FESL previously paid on the shares of the original
Participating Fund and the FESL payable at the time of the exchange on the
shares of the new Participating Fund.
Exchanges may be made into Class B shares of the Money Fund at net asset
value without the imposition of an FESL. Shares of Participating Funds subject
to a CDSC will be exchanged for Class B shares of the Money Fund without the
payment of a CDSC that might otherwise be due on redemption of the
Participating Fund shares. The holder of such Money Fund Class B shares may
subsequently either exchange back into the same class of shares of the
Participating Fund or exchange into shares of another Participating Fund in
the same fund complex as the original Participating Fund. Upon such exchange,
the holder of the Money Fund Class B shares will receive credit toward
reduction of the CDSC that would have been due on the Participating Fund
shares for the time period during which the Money Fund Class B shares were
held. This period of time will also count towards satisfaction of any
conversion period applicable to the Participating Fund shares. If holders of
the Money Fund Class B shares redeem those shares instead of exchanging back
into shares of the original Participating Fund or of another Participating
Fund in the same fund complex, CDSC payments, if any, will be assessed based
upon the combined holding period for the Participating Fund shares and the
Money Fund Shares.
The Participating Funds may impose administrative and/or redemption fees on
an exchange transaction with the Money Fund. There will be no sales charge on
exchange transactions into the Money Fund.
Shares with a net asset value of at least $250 are required to qualify for
the exchange program into the Money Fund and any shares utilized in an
exchange must have been held by the shareholder for at least 15 days.
----------------
Before effecting an exchange, shareholders of the Money Fund should obtain a
currently effective prospectus of the Participating Fund or MLAM-advised fund
or Mercury-advised fund into which the exchange is to be made for information
regarding the fund and for further details regarding such exchange.
To effect an exchange, shareholders should contact their Merrill Lynch
Financial Consultant or other financial consultant, who will advise the Money
Fund of the exchange, or write to the Transfer Agent requesting that the
exchange be effected. Shareholders of Participating Funds and certain MLAM-
advised funds or Mercury-advised funds with shares for which certificates have
not been issued may effect an exchange by wire through their securities
dealers. The Exchange Program or the exchange privilege may be modified or
terminated at any time in accordance with the rules of the Commission. There
is currently no limitation on the number of times a shareholder may exercise
the exchange privilege into the Money Fund; however, the Money Fund reserves
the right to limit the number of times an investor may effect an exchange.
Certain Participating Funds and MLAM-advised funds and Mercury-advised funds
may suspend the continuous offering of their shares at any time and thereafter
may resume such offering from time to time. The Exchange Program and the
exchange privilege are available only to U.S. shareholders in states where the
exchange legally may be made.
An exchange pursuant to the exchange privilege or pursuant to the Exchange
Program is treated as a sale of the exchanged shares and a purchase of the new
shares for Federal income tax purposes. In addition, an exchanging shareholder
of any of the funds may be subject to backup withholding unless such
shareholder certifies under penalty of perjury that the taxpayer
identification number on file with any such fund is correct, and that he or
she is not otherwise subject to backup withholding. See "Taxes."
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PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities of the Money Fund.
Subject to policies established by the Board of Trustees and officers of the
Trust, the Investment Manager is primarily responsible for the Money Fund's
portfolio decisions and the placing of the portfolio transactions. In placing
orders, it is the policy of the Money 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 Investment Manager generally
seeks reasonably competitive spreads or commissions, the Money Fund will not
necessarily be paying the lowest spread or commission available. The Money
Fund's policy of investing in securities with short maturities will result in
high portfolio turnover.
The money market securities in which the Money Fund invests are traded
primarily in the over-the-counter ("OTC") market. Bonds and debentures are
usually traded OTC but may be traded on an exchange. Where possible, the Money
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 act as principal for their own
accounts. On occasion, securities may be purchased directly from the issuer.
Money market securities in which the Money Fund invests are generally traded
on a net basis and do not normally involve either brokerage commissions or
transfer taxes. The cost of executing portfolio securities transactions of the
Money Fund will primarily consist of dealer spreads and underwriting
commissions. Under the Investment Company Act, persons affiliated with the
Trust are prohibited from dealing with the Trust as a principal 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 Trust, including
Merrill Lynch, Merrill Lynch Government Securities Inc. ("GSI") and Merrill
Lynch Money Markets Inc., may not serve the Money Fund as dealer in connection
with such transactions, except pursuant to the exemptive order described
below. However, affiliated persons of the Trust may serve as its broker in OTC
transactions conducted on an agency basis. The Trust may not purchase
securities during the existence of any underwriting syndicate for such
securities of which Merrill Lynch is a member or in a private placement in
which Merrill Lynch serves as placement agent except pursuant to procedures
adopted by the Board of Trustees of the Trust that either comply with rules
adopted by the Commission or with interpretations of the Commission staff.
The Commission has issued an order permitting all Merrill Lynch-sponsored
money market funds, including Series of the Trust, to conduct principal
transactions with GSI in U.S. Government securities and U.S. Government agency
securities and with Merrill Lynch Money Markets, Inc., a subsidiary of GSI
("MMI"), in certificates of deposit and other short-term bank money
instruments and commercial paper. This order contains a number of conditions,
including conditions designed to insure that the price to the Money Fund from
Merrill Lynch, GSI or MMI is equal to or better than that available from other
sources. GSI and MMI have informed the Trust that they will in no way, at any
time, attempt to influence or control the activities of the Money Fund or the
Investment Manager in placing such principal transactions. The exemptive order
allows GSI or MMI to receive a dealer spread on any transaction with the Money
Fund no greater than its customary dealer spread for transactions of the type
involved. Generally such spreads do not exceed 0.25% of the principal amount
of the securities involved.
The Trustees of the Trust have considered the possibilities of recapturing
for the benefit of the Money Fund expenses of possible portfolio transactions,
such as dealer spreads and underwriting commissions, by conducting such
portfolio transactions through affiliated entities. For example, dealer
spreads received by GSI or MMI on
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transactions conducted pursuant to the exemptive order described above could
be offset against the management and administrative fees payable by the Money
Fund to the Investment Manager. After considering all factors deemed relevant,
the Trustees made a determination not to seek such recapture. The Trustees
will reconsider this matter from time to time. The Investment Manager has
arranged for the Money Fund's custodian to receive any tender offer
solicitation fees on behalf of the Money Fund payable with respect to
portfolio securities of the Money Fund.
The Money 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 information concerning money market securities,
economic data and market forecasts) to the Investment Manager may receive
orders for transactions by the Money Fund. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Investment Manager under the Investment Management Agreement and the expenses
of the Investment Manager will not necessarily be reduced as a result of the
receipt of such supplemental information.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Money Fund is determined by the
Investment Manager once daily, immediately after the daily declaration of
dividends, on each business day during which the New York Stock Exchange
("NYSE") is open for business. Such determination is made as of the close of
business on the NYSE (generally 4:00 P.M., New York time). As a result of this
procedure, the net asset value is determined each business day except for days
on which the NYSE is closed. The NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value is
determined pursuant to 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 money market securities in which the Money Fund invests are traded
primarily in the OTC markets. Except as set forth below, these securities are
valued at the most recent bid price or yield equivalent as obtained from
dealers that make markets in such securities. 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 Board of Trustees of the Trust.
Securities with a remaining maturity of 60 days or less are valued on an
amortized cost basis. Under this method of valuation, the security is
initially valued at cost on the date of purchase (or in the case of securities
purchased with more than 60 days remaining to maturity, the market value on
the 61st day prior to maturity); and thereafter the Money Fund assumes a
constant proportionate amortization in value until maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the security. For purposes of valuation, the maturity of a variable
rate security is deemed to be the next date on which the interest rate is to
be adjusted.
In accordance with the Commission rule applicable to the valuation of its
portfolio securities, the Money Fund will maintain a dollar-weighted 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 (25 months). The Money 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 Money Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
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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 Investment 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
Money Fund will take such corrective action as it regards as necessary and
appropriate, including the reduction of the number of outstanding shares of
the Money Fund by having each shareholder proportionately contribute shares to
the Money 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 Money
Fund's capital. Each shareholder will be deemed to have agreed to such
contribution by such shareholder's investment in the Money Fund.
Since the net income of the Money Fund (including realized gains and losses
on the portfolio securities) is declared as a dividend each time the net
income of the Money Fund is determined, the net asset value per share of the
Money Fund normally remains at $1.00 per share immediately after each
determination and dividend declaration. Any increase in the value of a
shareholder's investment in the Money Fund, representing the reinvestment of
dividend income, is reflected by an increase in the number of shares of the
Money Fund in the account and any decrease in the value of a shareholder's
investment may be reflected by a decrease in the number of shares in the
account. See "Taxes."
YIELD INFORMATION
The Money 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 gains and losses on portfolio securities. In accordance with
regulations adopted by the Commission, the Money Fund is required to disclose
its annualized yield for certain seven-day base periods in a standardized
manner which 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 Money 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 Money Fund of future yields or rates of return on its
shares. The yield is affected by such factors as changes in interest rates on
securities, average portfolio maturity, the types and quality of portfolio
securities held and operating expenses. The yield on Money Fund shares for
various reasons may not be comparable to the yield on shares of other money
market funds or other investments.
TAXES
The Trust intends to continue to qualify the Money Fund for the special tax
treatment afforded RICs under the Internal Revenue Code (the "Code"). As long
as it so qualifies, the Money 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 that it distributes to shareholders. The Money Fund
intends to distribute substantially all of such income.
16
<PAGE>
As discussed in the Money Fund's Prospectus, the Trust may establish other
series in addition to the Money Fund (together with the Money Fund, the
"Series"). Each Series of the Trust is treated as a separate corporation for
Federal income tax purposes. Each Series therefore is considered to be a
separate entity in determining its treatment under the rules for RICs
described in the Prospectus. Losses in one Series do not offset gains in
another Series, and the requirements (other than certain organizational
requirements) for qualifying for RIC status are determined at the Series level
rather than the Trust level.
Dividends paid by the Money 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 ("capital gain
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Money Fund shares. Any loss
upon the sale or exchange of Money 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 Money
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). Recent legislation creates additional categories of capital
gain taxable at different rates. Additional legislation eliminates the highest
28% category for most sales of capital assets occurring after December 31,
1997. Generally not later than 60 days after the close of its taxable year,
the Money Fund will provide its shareholders with a written notice designating
the amounts of any ordinary income dividends or capital gain dividends, as
well as the amounts of capital gain dividends in the different categories of
capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Money Fund. Distributions by the Money 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 Money Fund
pays a dividend in January which 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 Money Fund and received by its shareholders on December 31 of the year
in which the dividend was declared.
If the value of assets held by the Money Fund declines, the Trustees may
authorize a reduction in the number of outstanding shares in shareholder's
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 Money 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 Money Fund, will
nonetheless be fully taxable, even if the number of shares in shareholders'
accounts has been reduced as described above.
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 the applicability of the United States
withholding tax.
Dividends and interest received by the Money 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,
17
<PAGE>
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Trust or who, to the
Trust'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.
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
Money Fund on the exchanged shares reduces any sales charge the shareholder
would have owed upon 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 Money Fund will be
disallowed if other Money 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.
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 an October 31 year-end, plus certain undistributed
amounts from previous years. While the Money 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 Money
Fund's taxable income and capital gains will be distributed to avoid entirely
the imposition of the tax. In such event, the Money Fund will be liable for
the tax only on the amount by which it does not meet the foregoing
distribution requirements.
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 these
Treasury regulations are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Ordinary income dividends 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.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should also consider applicable foreign taxes in their evaluation of an
investment in the Money Fund.
GENERAL INFORMATION
DESCRIPTION OF SERIES AND SHARES
The Declaration of Trust provides that the Trust shall be comprised of
separate Series ("Series") each of which will consist of a separate portfolio
that will issue a separate class of shares. The Trustees are authorized to
create an unlimited number of Series and, with respect to each Series, to
issue an unlimited number of full and fractional shares of beneficial
interest, par value $.10 per share, of different classes and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in
18
<PAGE>
the Series. Shareholder approval is not necessary for the authorization of
additional Series or classes of a Series of the Trust. At the date of this
Statement of Additional Information, the Money Fund is the only existing
Series of the Trust, and shares of the Money Fund are divided into Class A and
Class B shares (although no Class B shares have been issued as of the date of
this Statement of Additional Information). Class A and Class B shares
represent an interest in the same assets of the Money Fund and are identical
in all respects, except that Class B shares bear certain expenses related to
the distribution of such shares and have exclusive voting rights with respect
to matters relating to such distribution expenditures. The Board of Trustees
of the Trust may classify and reclassify shares of any Series into additional
classes at a future date. All shares have equal voting rights, except that
only shares of the respective Series are entitled to vote on matters
concerning only that Series. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held in the
election of Trustees and on other matters submitted to the vote of
shareholders. Each issued and outstanding share is entitled to participate
equally in dividends and distributions declared by the respective Series and
in net assets of such Series upon liquidation or dissolution remaining after
satisfaction of outstanding liabilities.
In the event a Series were unable to meet its obligations, the remaining
Series would assume the unsatisfied obligations of that Series. The shares of
each Series, when issued, will be fully paid and nonassessable, have no
preference, preemptive, conversion, exchange or similar rights, and are freely
transferable. Shares do not have cumulative voting rights and the holders of
more than 50% of the shares of the Trust voting for the election of Trustees
can elect all of the Trustees if they choose to do so and in such event the
holders of the remaining shares would not be able to elect any Trustees. No
amendment may be made to the Declaration of Trust without the affirmative vote
of a majority of the outstanding shares of the Trust except under certain
limited circumstances set forth in the Declaration of Trust.
INVESTMENT ACCOUNT
Every direct shareholder has an Investment Account and will receive
quarterly reports showing the activity in his or her account since the
preceding statement. A shareholder may ascertain the number of shares in his
Investment Account by telephoning the Transfer Agent at 800-MER-FUND or (800-
637-3863). 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.
In the interest of economy and convenience and because of the operating
procedures of the Trust, certificates representing the Money Fund shares will
not be physically issued. Shares of the Money Fund are maintained by the Trust
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.
CUSTODIAN
The Bank of New York (the "Custodian"), 90 Washington Street, 12th Floor,
New York, New York 10286, acts as custodian of the Money Fund's assets. The
Custodian is responsible for safeguarding and controlling the Money Fund's
cash and securities, handling the delivery of securities and collecting
interest on the Money Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc. (the "Transfer Agent"), 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484, a subsidiary of ML & Co., acts as the
Money Fund's transfer agent. The Transfer Agent is responsible for the
issuance, transfer and redemption of shares and the opening and maintenance of
shareholder accounts.
19
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche LLP 117 Campus Drive, Princeton, New Jersey 08540, have
been selected as the independent auditors of the Money Fund. The selection of
independent auditors is subject to ratification by the independent Trustees of
the Trust. The independent auditors are responsible for auditing the financial
statements of the Money Fund.
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, New York 10048, is
counsel for the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of the Trust ends on May 31 of each year. The Trust will
send to shareholders of the Money Fund at least semi-annually reports showing
its portfolio securities and other information. An annual report containing
financial statements audited by independent auditors will be sent to
shareholders each year.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information with respect to
the shares of the Money Fund do not contain all of the information set forth
in the Registration Statement and the exhibits relating thereto, which the
Trust has filed with the Commission, Washington, D.C., under the Securities
Act of 1933 and the Investment Company Act, to which reference is hereby made.
Offerings of shares of separate Series of the Trust will be made by separate
prospectuses.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
At July 15, 1998 all 251,623 outstanding shares of the Money Fund were owned
by the Investment Manager.
The Declaration of Trust establishing the Trust, dated July 10, 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 "Financial Institutions Series Trust" 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
Trust shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim of said
Trust but the "Trust Estate" only shall be liable.
20
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER, BANK MONEY INSTRUMENTS
AND CORPORATE BOND RATINGS
COMMERCIAL PAPER AND BANK MONEY INSTRUMENTS
Commercial paper with the greatest capacity for timely payment is rated A by
Standard & Poor's ("S&P"). Issues within this category are further redefined
with designations 1, 2 and 3 to indicate the relative degree of safety; A-1,
the highest of the three, indicates the degree of safety is either
overwhelming or very strong; A-2 indicates that capacity for timely repayment
is strong.
Moody's Investors Service, Inc. ("Moody's") employs the designations of
Prime-1, Prime-2 and Prime-3 to indicate the relative capacity of the rated
issuers to repay punctually. Prime-1 issues have a superior capacity for
repayment. Prime-2 issues have a strong capacity for repayment, but to a
lesser degree than Prime-1.
Fitch IBCA, Inc. ("Fitch") employs the rating F1+ to indicate issues
regarded as having the strongest degree of assurance for timely payment. The
rating F1 reflects an assurance of timely payment only slightly less in degree
than issues rated F1+, while the rating F2 indicates a satisfactory degree of
assurance for timely payment, although the margin of safety is not as great as
indicated by the F1+ and F1 categories.
Duff & Phelps Credit Ratings Co. ("Duff & Phelps") employs the designation
of Duff 1 with respect to top grade commercial paper and bank money
instruments. Duff 1+ indicates the highest certainty of timely payment: short-
term liquidity is clearly outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations. Duff 1- indicates high certainty of timely
payment. Duff 2 indicates good certainty of timely payment: liquidity factors
and company fundamentals are sound.
Thomson BankWatch, Inc. ("TBW") employs the designations TBW-1, TBW-2, TBW-3
and TBW-4 as ratings for commercial paper, other senior short-term obligations
and deposit obligations of the entities to which the rating has been assigned.
TBW-1 is the highest category and indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis. TBW-2 is the
second highest category and indicates that while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
CORPORATE BONDS
Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in a small degree.
Bonds rated Aaa by Moody's are judged to be of the best quality. Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. Bonds rated Aa are judged to be of high quality by all
standards. They are rated lower than the best bonds because margins of
protection may not be as large or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Moody's applies
numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa
through B in its corporate bond rating system. The
21
<PAGE>
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and
of very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated AAA by Duff & Phelps are deemed to be of the highest credit
quality: the risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt. AA indicates high credit quality: protection
factors are strong, and risk is modest but may vary slightly from time to time
because of economic conditions.
Bonds rated AAA by TBW are accorded the highest rating category which
indicates that the ability to repay principal and interest on a timely basis
is very high. AA is the second highest rating category and indicates a
superior ability to repay principal and interest on a timely basis with
limited incremental risk versus issues rated in the highest rating category.
22
<PAGE>
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, 1998, 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, 1998 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, 1998, 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 16, 1998
23
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
<S> <C> <C> <C> <C>
US Treasury Bill $230,000 4.85% 8/06/98 $227,955
Total US Government Obligations--Discount (Cost--$227,955) 227,955
Total Investments (Cost--$227,955)--90.2% 227,955
Other Assets Less Liabilities--9.8% 24,797
--------
Net Assets--100.0% $252,752
========
<FN>
*Certain US Government Obligations are traded on a discount basis;
the interest rate shown is the discount rate paid at the time of
purchase by the Fund.
See Notes to Financial Statements.
</TABLE>
24
<PAGE>
Summit Cash Reserves Fund
May 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of May 31, 1998
<S> <S> <C>
Assets: Investments, at value (identified cost--$227,955*) (Notes 1a & 1e) $ 227,955
Cash 739
Investment adviser receivable (Note 2) 10,237
Prepaid registration fees and other assets (Note 1d) 96,211
------------
Total assets 335,142
------------
Liabilities: Payable to administrator (Note 2) 59
Accrued expenses and other liabilities 82,331
------------
Total liabilities 82,390
------------
Net Assets: Net assets $ 252,752
============
Net Assets Shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 25,275
Paid-in capital in excess of par 227,477
------------
Net assets--Equivalent to $1.00 per share based on 252,752 shares of
beneficial interest outstanding $ 252,752
============
<FN>
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
25
<PAGE>
Summit Cash Reserves Fund
May 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
May 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 13,040
(Note 1c):
Expenses: Professional fees $ 106,500
Registration fees (Note 1d) 43,689
Accounting services (Note 2) 15,492
Printing and shareholder reports 6,688
Trustees' fees and expenses 5,332
Investment advisory fees (Note 2) 677
Administrative fees (Note 2) 677
------------
Total expenses before reimbursement 179,055
Reimbursement of expenses (Note 2) (179,055)
------------
Total expenses after reimbursement 0
------------
Investment income--net 13,040
------------
Net Increase in Net Assets Resulting from Operations $ 13,040
============
See Notes to Financial Statements.
</TABLE>
26
<PAGE>
Summit Cash Reserves Fund
May 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 13,040 $ 457,144
Realized loss on investments--net -- (853)
Change in unrealized appreciation on investments--net -- 2,439
------------ ------------
Net increase in net assets resulting from operations 13,040 458,730
------------ ------------
Dividends to Investment income--net (13,040) (456,291)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends
to shareholders (13,040) (456,291)
------------ ------------
Beneficial Net proceeds from sale of shares -- 68,683,693
Interest Net asset value of shares issued to shareholders in
Transactions reinvestment of dividends (Note 1f) 13,013 451,377
(Note 3): ------------ ------------
13,013 69,135,070
Cost of shares redeemed -- (103,762,576)
------------ ------------
Net increase (decrease) in net assets derived from beneficial
interest transactions 13,013 (34,627,506)
Net Assets: Total increase (decrease) in net assets 13,013 (34,625,067)
Beginning of year 239,739 34,864,806
------------ ------------
End of year $ 252,752 $ 239,739
============ ============
See Notes to Financial Statements.
</TABLE>
27
<PAGE>
Summit Cash Reserves Fund
May 31, 1998
FINANCIAL INFORMATION (concluded)
<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: 1998 1997 1996 1995 1994
<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 .0531 .0432 .0476 .0444 .0254
Realized and unrealized gain (loss) on
investments--net -- .0001 (.0011) .0014 .0003
-------- -------- -------- -------- --------
Total from investment operations .0531 .0433 .0465 .0458 .0257
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.0531) (.0431) (.0476) (.0444) (.0254)
Realized gain on investments--net -- -- --++ (.0001) (.0003)
-------- -------- -------- -------- --------
Total dividends and distributions (.0531) (.0431) (.0476) (.0445) (.0257)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return 5.44% 4.40% 4.95% 4.51% 2.56%
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .00% 1.38% 1.13% .98% .90%
Net Assets: ======== ======== ======== ======== ========
Expenses 72.77% 1.97% 1.13% .98% .90%
======== ======== ======== ======== ========
Investment income and realized gain on
investments--net 5.30% 4.18% 4.83% 4.35% 2.54%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 253 $ 240 $34,865 $89,119 $135,301
Data: ======== ======== ======== ======== ========
<FN>
++Amount is less than $.0001 per share.
See Notes to Financial Statements.
</TABLE>
28
<PAGE>
Summit Cash Reserves Fund
May 31, 1998
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. As of May 31,
1998, all of the Fund's shares outstanding are owned by Fund Asset
Management, L.P. ("FAM"). Furthermore, the Fund is not offering
additional shares for purchase at the present time. 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 money market
securities pursuant to repurchase agreements. Under such agreements,
the counterparty 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 FAM. The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("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, 1998, FAM earned fees of $677, all of which were
waived. FAM also reimbursed the Fund for additional expenses of
$178,378. Pursuant to the Administrative Agreement, the Fund pays
FAM a monthly fee identical to the investment advisory fee, in
return for the performance of administrative services (other
29
<PAGE>
than investment advice and related portfolio activities) necessary for the
operation of the Fund.
Summit Cash Reserves Fund
May 31, 1998
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, 1998, 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.
30
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<TABLE>
<CAPTION>
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----
<S> <C>
Investment Objectives and Policies......................................... 2
Investment Restrictions................................................... 3
Management of the Trust.................................................... 5
Trustees and Officers..................................................... 5
Compensation of Trustees.................................................. 7
Management and Advisory Arrangements...................................... 8
Purchase of Shares......................................................... 9
Redemption of Shares....................................................... 10
Exchange Privilege and Exchange Program.................................... 11
Exchange Privilege........................................................ 11
Exchange Program.......................................................... 12
Portfolio Transactions..................................................... 13
Determination of Net Asset Value........................................... 15
Yield Information.......................................................... 16
Taxes...................................................................... 16
General Information........................................................ 18
Description of Series and Shares.......................................... 18
Investment Account........................................................ 19
Custodian................................................................. 19
Transfer Agent............................................................ 19
Independent Auditors...................................................... 20
Legal Counsel............................................................. 20
Reports to Shareholders................................................... 20
Additional Information.................................................... 20
Security Ownership of Certain Beneficial Owners........................... 20
Appendix................................................................... 21
Independent Auditors' Report............................................... 23
Financial Statements....................................................... 24
</TABLE>
Code #SUMMITSAI-0998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of
Additional Information
LOGO
- ------------------------------------
SUMMIT CASH
RESERVES FUND
FINANCIAL INSTITUTIONS SERIES TRUST
Principal Office of the Trust:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
September , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the years in the ten-year period ended
May 31, 1998
Contained in Part B:
Report of Independent Auditors
Schedule of Investments as of May 31, 1998
Statement of Assets and Liabilities as of May 31, 1998
Statement of Operations for the fiscal year ended May 31, 1998
Statement of Changes in Net Assets for each of the years in the two-
year period ended May 31, 1998
Financial Highlights for each of the years in the five-year period
ended May 31, 1998.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(a) --Declaration of Trust, dated July 10, 1987.(a)
(b) --Instrument establishing Summit Cash Reserves Fund (the "Fund") as a
series of the Registrant.(a)
(c) --Certificate of Amendment to Declaration of Trust and Establishment
and Designation of Classes.
2 --By-Laws of Registrant.(a)
3 --None.
4 --Portions of the Declaration of Trust, Establishment and Designation
and By-Laws of the Registrant defining the rights of holders of the
Fund as a series of the Registrant.(b)
5 --Investment Management Agreement between Registrant and Fund Asset
Management, L.P. relating to the Fund.
6(a) --Form of Class A Shares Distribution Agreement relating to the Fund
(including form of Selected Dealers Agreement) between Registrant and
Princeton Funds Distributor, Inc. ("PFD").
(b) --Form of Class B Shares Distribution Agreement relating to the Fund
(including form of Selected Dealers Agreement) between Registrant and
PFD.
7 --None.
8 --Custody Agreement between Registrant and The Bank of New York
relating to the Fund.(a)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Merrill Lynch
Financial Data Services, Inc. relating to the Fund.(a)
10 --None.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 --None.
13 --Certificate of Fund Asset Management, L.P. relating to the Fund.(a)
14 --None.
15(a) --Form of Class B Shares Distribution Plan (including form of Class B
Shares Distribution Plan Sub-Agreement) relating to the Fund.
(b) --Form of Exchange and Service Agreement relating to the Fund between
PFD and the Participating Underwriter.
16 --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22.(a)
17 --Financial Data Schedule.
18 --Plan pursuant to Rule 18f-3.
</TABLE>
C-1
<PAGE>
- --------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
(b) Reference is made to Article II, Section 2.3 and Articles V, VI, VIII, IX,
X and XI of the Registrant's Declaration of Trust, previously filed as
Exhibit 1(a) to the Registration Statement referred to in paragraph (a)
above to the Certificate of Amendment to the Declaration of Trust and
Establishment and Designation of Classes, which will be filed as Exhibit
1(c) to the Registration Statement; and to Articles I, V and VI of the
Registrant's By-Laws, previously filed as Exhibit 2 to the Registration
Statement referred to in paragraph (a) above.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS JULY 15, 1998
-------------- -------------
<S> <C>
Shares of beneficial interest, par value $.10 per share..... 1
</TABLE>
Note: The number of holders shown above includes holders of record plus
beneficial owners whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch").
ITEM 27. INDEMNIFICATION.
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
matter as to which he shall have been adjudicated to have acted in bad faith,
willful 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 Trustees 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 rights 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 Trustee
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 or indemnification moneys for actions
based upon the Investment Company Act of 1940 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
C-2
<PAGE>
the amount to 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 against certain types of civil liabilities arising in
connection with the Registration Statement or Prospectus.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 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 proceedings) 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 Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER.
Fund Asset Management, L.P. ("FAM" or the "Investment 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., 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 Institutional Tax-Exempt
Fund, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond
Fund, Inc., Merrill Lynch Municipal Strategy 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., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc.,
MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings California
Insured Fund, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings Insured
Fund, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New York
Fund, Inc., MuniHoldings New York Insured Fund, 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 Dollar Vest Fund, Inc.
C-3
<PAGE>
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the
Investment Adviser, acts as the investment adviser for the following
registered open-end 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 Fund
For Tomorrow, Inc., Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for 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, Inc., 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., 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.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 09543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Government Bond Intermediate
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665.
The address of the Investment Manager, MLAM and Princeton Funds Distributor,
Inc. (the "Distributor" or "PFD") is also 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. The
address of Financial Data Services, Inc. ("FDS") is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6494.
Set forth below is a list of each officer and partner of the Investment
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
June 1, 1996 for his or her or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President and Director
or Trustee, 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 28 and also hold the positions with all or
substantially all of the registered investment companies advised by MLAM as
they do with those advised by the Investment Manager. Messrs. Giordano,
Harvey, Kirstein and Monagle are directors or officers of one or more of such
companies.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------ ----------------------------------
<S> <C> <C>
ML & Co. ............... Limited Partner Financial Services Holding Company; Limited
Partner of MLAM
Princeton Services, General Partner
Inc. .................. General Partner of MLAM
Arthur Zeikel........... Chairman Chairman of MLAM; President of MLAM and the
Investment Manager from 1977 to 1997;
Chairman and Director of Princeton
Services; President of Princeton Services
from 1993 to 1997; Executive Vice
President of ML & Co.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------ ----------------------------------
<S> <C> <C>
Jeffrey M. Peek......... President President of MLAM; President and Director
of Princeton Services; Executive Vice
President of ML & Co.; Managing Director
and Co-Head of the Investment Banking
Division of Merrill Lynch in 1997; Senior
Vice President and Director of the Global
Securities and Economics Division of
Merrill Lynch from 1995-1997.
Terry K. Glenn.......... Executive Vice Executive Vice President of MLAM; Executive
President Vice President and Director of Princeton
Services; President and Director of PFD;
Director of FDS; President of Princeton
Administrators, L.P.
Linda L. Federici....... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Vincent R. Giordano..... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Elizabeth A. Griffin.... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Norman R. Harvey........ Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Michael J. Hennewinkel.. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President, General Counsel and
President, General Secretary of MLAM; Senior Vice President,
Counsel and General Counsel, Director and Secretary of
Secretary Princeton Services
Ronald M. Kloss......... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Debra W. Landsman-Yaros.
Senior Vice Senior Vice President of MLAM; Senior Vice
President President of Princeton Services; Vice
President of PFD
Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Michael L. Quinn........ Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Managing
Director and First Vice President of
Merrill Lynch from 1989 until 1995
Richard L. Reller....... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Director
of PFD
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer MLAM; Senior Vice President and Treasurer
of Princeton Services; Vice President and
Treasurer of PFD
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------ ----------------------------------
<S> <C> <C>
Gregory D. Upah......... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Ronald L. Welburn....... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) PFD acts as the principal underwriter for the Registrant, for each of
the open-end registered investment companies referred to in the first two
paragraphs of Item 28 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.; PFD 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.
(b) Set forth below is information concerning each director and officer of
the 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. Aldrich,
Breen, Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH DISTRIBUTOR 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 Secretary
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act and the rules thereunder will be
maintained at the offices of the Registrant, 800 Scudders Mill Road,
Plainsboro, New Jersey 08536 and the Transfer Agent, 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Trust--
Management and Advisory Arrangements" in the Prospectus constituting Part A
and the Statement of Additional Information constituting Part B of the
Registration Statement, Registrant is not a party to any management-related
service contract.
C-6
<PAGE>
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
C-7
<PAGE>
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 THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO,
AND STATE OF NEW JERSEY ON THE 31ST DAY OF JULY, 1998.
Financial Institutions Series Trust
(Registrant)
/s/ Arthur Zeikel
By __________________________________
(ARTHUR ZEIKEL, 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 DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Arthur Zeikel Trustee
- ------------------------------------- (Principal Executive Officer)
(ARTHUR ZEIKEL)
Gerald M. Richard* Treasurer (Principal Financial
- ------------------------------------- and Accounting
(GERALD M. RICHARD*) Officer)
Joe Grills* Trustee
- -------------------------------------
(JOE GRILLS)
Walter Mintz* Trustee
- -------------------------------------
(WALTER MINTZ)
Robert S. Salomon, Jr.* Trustee
- -------------------------------------
(ROBERT S. SALOMON, JR.)
Melvin R. Seiden* Trustee
- -------------------------------------
(MELVIN R. SEIDEN)
Stephen B. Swensrud* Trustee
- -------------------------------------
(STEPHEN B. SWENSRUD)
/s/ Arthur Zeikel July 31, 1998
*By: ________________________________
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT)
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(c) --Certificate of Amendment to Declaration of Trust and Establishment
and Designation of Classes.
5 --Investment Management Agreement between Registrant and Fund Asset
Management, L.P.
6(a) --Form of Class A Shares Distribution Agreement relating to the Fund
(including form of Selected Dealers Agreement) between Registrant and
PFD.
(b) --Form of Class B Shares Distribution Agreement relating to the Fund
(including form of Selected Dealers Agreement) between Registrant and
PFD.
11 --Consent of Deloitte & Touche LLP, independent auditors for
Registrant.
15(a) --Form of Class B Shares Distribution Plan (including form of Class B
Shares Distribution Plan Sub-Agreement) relating to the Fund.
(b) --Form of Exchange and Service Agreement relating to the Fund between
PFD and the Participating Underwriter.
17 --Financial Data Schedule.
18 --Plan pursuant to Rule 18f-3.
</TABLE>
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
BOX GRAPHIC Back cover of Prospectus and
ON BACK COVER back cover of Statement of
Additional Information
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> SUMMIT CASH RESERVES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 227955
<INVESTMENTS-AT-VALUE> 227955
<RECEIVABLES> 10237
<ASSETS-OTHER> 96950
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 335142
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82390
<TOTAL-LIABILITIES> 82390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 252752
<SHARES-COMMON-STOCK> 252752
<SHARES-COMMON-PRIOR> 239739
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 252752
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13040
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 13040
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13040
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13040)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 13013
<NET-CHANGE-IN-ASSETS> 13013
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 677
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 179055
<AVERAGE-NET-ASSETS> 246728
<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> 72.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.1C
FINANCIAL INSTITUTIONS SERIES TRUST
Certification of Amendment
To Declaration of Trust
and
Establishment and Designation of Classes
The undersigned, constituting a majority of the Trustees of Financial
Institutions Series Trust (the "Trust"), a Massachusetts business trust, hereby
certify that the Trustees of the Trust have duly adopted the following
amendments, as approved by the sole shareholder of the Trust, to the Trust's
Declaration of Trust (the "Declaration").
VOTED: That Section 1.2 of Article I of the Declaration be, and it hereby is,
amended in its entirety to read as follows:
1.2 Definitions. As used in this Declaration, the following terms
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shall have the following meanings:
The terms "Affiliated Person," "Assignment," "Commission," "Interested
----------------- ---------- ---------- ----------
Person," "Majority Shareholder Vote" (the 67% or more than 50%
------ -------------------------
requirement of the third sentence of Section 2(a)(42) of the 1940 Act,
whichever may be applicable) and "Principal Underwriter" shall have
---------------------
the meanings given them in the 1940 Act.
"Declaration" shall mean this Declaration as amended from time to
-----------
time. References in this Declaration to "Declaration," "hereof,"
----------- ------
"herein" and "hereunder" shall be deemed to refer to the Declaration
------- ---------
rather than the article or section in which such words appear.
"Fundamental Policies" shall mean the investment restrictions set
--------------------
forth in the Prospectus of any Series and designated as fundamental
policies therein.
"Person" shall mean and include individuals, corporations,
------
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"Prospectus" shall mean the currently effective Prospectus of any
----------
Series of the Trust under the Securities Act of 1933, as amended,
including the Statement of Additional Information incorporated by
reference therein.
<PAGE>
"Series" shall mean the separate series that may be established and
------
designated pursuant to Section 6.2.
"Shareholders" shall mean as of any particular time all holders of
------------
record of outstanding Shares at such time.
"Shares" shall mean the equal proportionate transferable units of
------
interest into which the beneficial interest in any Series of the Trust
shall be divided from time to time and includes fractions of Shares as
well as whole Shares. As provided in Article VI hereof, a Series of
the Trust may issue separate classes of Shares; all references to
Shares shall be deemed to be Shares of any or all Series or a single
class of a Series or all classes of a Series as the context may
require.
"Trustees" shall mean the signatories to this Declaration, so long as
--------
they shall continue in office in accordance with the terms hereof, and
all other persons who at the time in question have been duly elected
or appointed and have qualified as trustees in accordance with the
provisions hereof and are then in office, are herein referred to as
the "Trustees", and reference in this Declaration to a Trustee or
Trustees shall refer to such person or persons in their capacity as
Trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
--------------
property, real or personal, tangible or intangible, which at such time
is owned or held by or for the account of the Trust, any Series
thereof or the Trustees.
The "1940 Act" refers to the Investment Company Act of 1940, as
--------
amended from time to time, and shall include the rules and regulations
and any relevant order of exemption promulgated thereunder by the
Securities and Exchange Commission.
VOTED: That Section 6.2 of Article VI of the Declaration be, and it hereby
is, amended in its entirety to read as follows:
6.2. Series Designation. The Trustees, in their discretion from time to
------------------
time, may authorize the division of Shares into two or more Series, each Series
relating to a separate portfolio of investments. The different Series shall be
established and designated, and the variations in the relative rights and
preferences as between the different series shall be fixed and determined, by
the Trustees; provided that all Shares shall be identical except that there may
be variations between different Series as to purchase price, determination of
net asset value, the price, terms and manner of redemption, special and relative
rights as to dividends and on liquidation, conversion rights, and conditions
under which the several Series shall have separate voting rights. All
references to Shares in this Declaration shall be deemed to be shares of any or
all Series as the context may require.
The Trustees, in their discretion without a vote of the Shareholders, may
divide the shares of beneficial interest of any Series into classes. In such
event, each class of a Series shall represent interests in the Trust Property of
a Series and have identical voting, dividend, liquidation and other rights and
the same terms and conditions except that expenses related directly or
indirectly to the distribution of the Shares of a class of a Series may be borne
solely
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<PAGE>
by such class (as shall be determined by the Trustees) and, as provided in
Section 10.1, a class of a Series may have exclusive voting rights with respect
to matters relating to the expenses being borne solely by such class. The
bearing of such expenses solely by a class of Shares of a Series shall be
appropriately reflected (in the manner determined by the Trustees) in the net
asset value, dividend and liquidation rights of the Shares of such class of a
Series. The division of the Shares of a Series into classes and the terms and
conditions pursuant to which the Shares of the classes of a Series will be
issued must be made in compliance with the 1940 Act. No division of Shares of a
Series into classes shall result in the creation of a class of Shares having a
preference as to dividends or distributions or a preference in the event of any
liquidation, termination or winding up of the Trust. The Trustees may provide
that Shares of a class will be exchanged for Shares of another class without any
act or deed on the part of the holder of Shares of the class being exchanged,
whether or not Shares of such class are issued and outstanding, all on terms and
conditions as the Trustees may specify. The Trustees may redesignate a class or
Series of Shares of beneficial interest or a portion of a class or Series of
Shares of beneficial interest whether or not shares of such class or Series are
issued and outstanding, provided that such redesignation does not substantially
adversely affect the preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such issued and outstanding Shares of beneficial interest.
If the Trustees shall divide the Shares into two or more Series, the
following provisions shall be applicable:
(a) The number of Shares of each Series and of each class of a Series
that may be issued shall be unlimited. The Trustees may classify or reclassify
any unissued Shares or any Shares previously issued and reacquired of any Series
into one or more Series that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any Series reacquired by the Trust at their discretion
from time to time.
(b) The power of the Trustees to invest and reinvest the Trust Property
of each Series that may be established shall be governed by Section 3.2 of this
Declaration.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
In the event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series, the Trustees shall allocate them among any one or more of
the Series established and designated from time to time in such manner and on
such basis as they, in their sole discretion, deem fair and equitable. Each such
allocation by the Trustees shall be conclusive and binding upon the Shareholders
of all Series for all purposes.
3
<PAGE>
(d) The assets belonging to each particular Series shall be charged with
the liabilities of the Trust in respect of that Series only and all expenses,
costs, charges and reserves attributable to that Series and shall not be charged
with the liabilities, expenses, costs, charges and reserves attributable to
other Series, and any general liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as belonging to any particular
Series shall be allocated and charged by the Trustees to and among any one or
more of the Series established and designated from time to time in such manner
and on such basis as the Trustees in their sole discretion deem fair and
equitable. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the Shareholders of all
Series for all purposes. The Trustees shall have full discretion, to the extent
not inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
with respect to any one or more Series shall be governed by Section 9.2 of this
Declaration. Dividends and distributions on Shares of a particular Series may be
paid with such frequency as the Trustees may determine, to the holders of Shares
of that Series, from such of the income and capital gains, accrued or realized,
from the assets belonging to that Series, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that Series. All
dividends and distributions on Shares of a particular Series shall be
distributed pro rata to the holders of that Series in proportion to the number
of Shares of that Series held by such holders at the date and time of record
established for the payment of such dividends or distributions, except that such
dividends and distributions shall appropriately reflect expenses related
directly or indirectly to the distribution of Shares of a class of such Series.
The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth the establishment and designation of such Series. Such instrument
shall also set forth any rights and preferences of such Series which are in
addition to the rights and preferences of Shares set forth in this Declaration.
At any time that there are no Shares outstanding of any particular Series
previously established and designated, the Trustees may by an instrument
executed by a majority of their number abolish that Series and the establishment
and designation thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration.
VOTED: That Section 6.3 of Article VI of the Declaration be, and it hereby
is, amended in its entirety to read as follows:
6.3. Rights of Shareholders. The ownership of the Trust Property of every
----------------------
description and the right to conduct any business hereinbefore described are
vested exclusively in the Trustees, and the Shareholders shall have no interest
therein other than the beneficial interest conferred by their Shares with
respect to a particular Series, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights in this Declaration
specifically set forth. The Shares shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights (except for rights of
appraisal specified in Section 11.4 and except as may be specified by the
Trustees in connection with the division of
4
<PAGE>
shares into classes or the redesignation of classes or portions of classes in
accordance with Section 6.2).
VOTED: That Sections 9.1, 9.2 and 9.4 of Article IX of the Declaration be,
and they hereby are, amended in their entirety to read as follows:
9.1. Net Asset Value. The net asset value of each outstanding Share of
---------------
each Series of the Trust shall be determined at such time or times on such days
as the Trustees may determine, in accordance with the 1940 Act, with respect to
each Series. The method of determination of net asset value of Shares of each
class of a Series shall be determined by the Trustees and shall be as set forth
in the Prospectus with respect to the applicable Series with any expenses being
borne solely by a class of Shares being reflected in the net asset value of such
Shares. The power and duty to make the daily calculations for any Series may be
delegated by the Trustees to the adviser, administrator, manager, custodian,
transfer agent or such other person as the Trustees may determine. The Trustees
may suspend the daily determination of net asset value to the extent permitted
by the 1940 Act.
9.2. Distributions to Shareholders. The Trustees shall from time to time
-----------------------------
distribute ratably among the Shareholders of any Series such proportion of the
net profits, surplus (including paid-in-surplus), capital, or assets with
respect to such Series held by the Trustees as they deem proper with any
expenses being borne solely by a class of Shares of any Series being reflected
in the net profits or other assets being distributed to such class. Such
distribution may be made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof), and the Trustees may
distribute ratably among the Shareholders of any Series additional Shares of
such Series issuable hereunder in such manner, at such times, and on such terms
as the Trustees may deem proper. Such distributions may be among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust or to meet obligations of
the Trust, or as they deem desirable to use in the conduct of its affairs or to
retain for future requirements or extensions of the business. The Trustees may
adopt and offer to Shareholders of any Series such dividend reinvestment plans,
cash dividend payout plans or related plans as the Trustees shall deem
appropriate for such Series.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
9.4. Power to Modify Foregoing Procedures. Notwithstanding any of the
------------------------------------
foregoing provisions of this Article IX, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per share
net asset value of the Trust's shares or net income, or the declaration and
payment of dividends and distributions as they deem necessary or desirable or to
enable the Trust to comply with any provision of the 1940 Act, including any
rule or regulation adopted pursuant to Section 22 of the 1940 Act by the
Commission or any
5
<PAGE>
securities association registered under the Securities Exchange Act of 1934, all
as in effect now or hereafter amended or modified.
VOTED: That Sections 10.1 and 10.2 of Article X of the Declaration of Trust
be, and they hereby are, amended in their entirety to read as follows:
10.1. Voting Powers. The Shareholders shall have power to vote (i) for
-------------
the removal of Trustees as provided in Section 2.3; (ii) with respect to any
advisory or management contract of a Series as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in Section 11.3;
(iv) with respect to such additional matters relating to the Trust as may be
required or authorized by the 1940 Act, the laws of the Commonwealth of
Massachusetts or other applicable law or by this Declaration or the By-Laws of
the Trust; and (v) with respect to such additional matters relating to the Trust
as may be properly submitted for Shareholder approval. If the Shares of a
Series shall be divided into classes as provided in Article VI hereof, the
Shares of each class shall have identical voting rights except that the
Trustees, in their discretion, may provide a class of a Series with exclusive
voting rights with respect to matters related to expenses being borne solely by
such class whether or not Shares of such class are issued and outstanding.
10.2. Meetings of Shareholders. Special meetings of the Shareholders may
------------------------
be called at any time by a majority of the Trustees and shall be called by any
Trustee upon written request of Shareholders of any Series holding in the
aggregate not less than 10% of the outstanding Shares of such Series having
voting rights, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting shall be held within or without the
Commonwealth of Massachusetts on such day and at such time as the Trustees shall
designate. The holders of one-third of the outstanding Shares of each Series
present in person or by proxy shall constitute a quorum for the transaction of
any business, except as may otherwise be required by the 1940 Act, the laws of
the Commonwealth of Massachusetts or other applicable law or by this Declaration
or the By-Laws of the Trust. If a quorum is present at a meeting of a
particular Series, the affirmative vote of a majority of the Shares of each
Series represented at the meeting constitutes the action of the Shareholders,
unless the 1940 Act, the laws of the Commonwealth of Massachusetts or other
applicable law, the Declaration or by the By-Laws of the Trust requires a
greater number of affirmative votes. If the Shares of any Series shall be
divided into classes with a class having exclusive voting rights with respect to
certain matters, the aforesaid quorum and voting requirements with respect to
action to be taken by the Shareholders of the class of such Series on such
matters shall be applicable only to the Shares of such class.
VOTED: That Section 11.2 of Article XI of the Declaration be, and it hereby
is, amended in its entirety to read as follows:
11.2. Termination.
-----------
(a) The Trust may be terminated by the affirmative vote of the holders
of not less than two-thirds of the Shares of each Series of the Trust at any
meeting of Shareholders or by an instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the holders of not less
than two-thirds of such Shares. Any Series may be so
6
<PAGE>
terminated by vote or written consent of not less than two-thirds of the Shares
of such Series. Upon the termination of the Trust or any Series,
(i) The Trust or such Series shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
or such Series and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or such
Series shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust or such Series, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose
of all or part of the remaining Trust Property to one or more persons
at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and do all other acts appropriate to
liquidate its business; provided that any sale, conveyance,
assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by vote or consent of the holders of a majority of the
Shares entitled to vote.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property of any Series, in
cash or in kind or partly each, among the Shareholders of such Series
and each class of such Series, according to their respective rights
taking into account the proper allocation of expenses being borne
solely by any Series or any class of Shares of a Series.
(b) After termination of the Trust or a Series and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination. Upon termination of the Trust, the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Shareholders shall thereupon cease. Upon
termination of any Series, the Trustees shall thereupon be discharged from all
further liabilities and duties with respect to such Series, and the rights and
interests of all Shareholders of such Series shall thereupon cease.
The undersigned, constituting a majority of the Trustees of the Trust,
acting pursuant to Section 6.2 of the Declaration, do hereby divide the shares
of beneficial interest of the Series designated "Summit Cash Reserves Fund" (the
"Fund") of the Trust, par value $.10 per share ("Shares"), to create two classes
of Shares, within the meaning of said Section 6.2 as follows:
1. The two classes of Shares are designated "Class A Shares" and
"Class B Shares".
2. Class A Shares and Class B Shares shall be entitled to all of the
rights and preferences accorded to Shares under the Declaration.
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<PAGE>
3. The purchase price of Class A Shares and Class B Shares, the
method of determination of net asset value of Class A Shares and Class B Shares,
the price, terms and manner of redemption of Class A Shares and Class B Shares,
terms and manner of exchange of Shares of one class for Shares of another class,
and the relative dividend rights of holders of Class A Shares and Class B Shares
shall be established by the Trustees of the Trust in accordance with the
provisions of the Declaration and shall be set forth in the currently effective
prospectus and statement of additional information of the Trust relating to the
Fund, as amended from time to time, under the Securities Act of 1933, as
amended.
4. Class A and Class B Shares shall vote together as a single class
except that shares of a class may vote separately on matters affecting only that
class and shares of a class not affected by a matter will not vote on that
matter.
5. A class of shares of any series of the Trust may be terminated by
the Trustees by written notice to the Shareholders of the class.
6. All Shares issued prior to the filing of this instrument with the
Commonwealth of Massachusetts shall be deemed Class A Shares.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees of the Trust, have signed this certificate in duplicate original
counterparts and have caused a duplicate original to be lodged among the records
of the Trust as required by Article XI, Section 11.3(c) of the Declaration of
Trust, as of the 8th day of July, 1998.
/s/ Joe Grills /s/ Melvin R. Seiden
- -------------- --------------------
Joe Grills Melvin R. Seiden
P.O. Box 98 780 Third Avenue
Rapidan, Virginia 22733 New York, New York 10017
/s/ Walter Mintz /s/ Stephen B. Swensrud
- ---------------- -----------------------
Walter Mintz Stephen B. Swensrud
1114 Avenue of the Americas 24 Federal Street
New York, New York 10036 Boston, Massachusetts 02110
/s/ Robert S. Salomon, Jr. /s/ Arthur Zeikel
- -------------------------- -----------------
Robert S. Salomon, Jr. Arthur Zeikel
106 Dolphin Cove Quay 800 Scudders Mill Road
Stamford, Connecticut 06902 Plainsboro, New Jersey 08536
The Declaration of Trust establishing Financial Institutions Series Trust,
dated July 10, 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 "Financial Institutions Series Trust"
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 Financial Institutions Series Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of said Trust but the Trust Property only shall be liable.
9
<PAGE>
EXHIBIT 99.5
FINANCIAL INSTITUTIONS SERIES TRUST
SUMMIT CASH RESERVES FUND
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 9th day of July, 1997 by and between FINANCIAL
INSTITUTIONS SERIES TRUST, a Massachusetts business trust (hereinafter referred
to as the "Trust"), and FUND ASSET MANAGEMENT, L.P., a Delaware limited
partnership (hereinafter referred to as the "Investment Manager").
WITNESSETH:
WHEREAS, the Trust is engaged in business as a diversified open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Trust is authorized to establish separate series, each of
which will offer a separate class of shares; and
WHEREAS, the Trust has established the SUMMIT CASH RESERVES FUND (the
"Money Fund") as a series of the Trust; and
WHEREAS, the Investment Manager is engaged in business as a registered
investment adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Investment Manager is willing to provide management and
investment advisory services to the Money Fund on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
ARTICLE I
DUTIES OF THE INVESTMENT MANAGER
The Trust hereby retains the Investment Manager to act as the manager and
investment adviser of the Money Fund and to furnish, or arrange for affiliates
to furnish, the investment advisory and management services described below,
subject to the supervision of the Trustees of the Trust, for the period and on
the terms and conditions set forth in this Agreement. The Investment Manager
hereby accepts such employment and agrees during such period, at its expense, to
render, or arrange for the rendering of, such services and to assume the
obligations provided for herein. The Investment Manager shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Trust in any way or otherwise be deemed an agent of the Trust.
<PAGE>
(a) Investment Advisory Services. The Investment Manager shall provide,
or arrange for affiliates to provide, the Trust with such investment research,
advice and supervision as the latter may from time to time consider necessary
for the proper supervision of the funds of the Money Fund. The Investment
Manager shall act as an investment adviser to the Trust and as such shall
furnish continuously an investment program and shall determine from time to time
which securities shall be purchased, sold or exchanged and what portion of the
assets of the Money Fund shall be held in the various money market securities or
cash, subject always to the restrictions of the Declaration of Trust and By-Laws
of the Trust, as amended from time to time, the provisions of the Investment
Company Act and the statements relating to the Trust's investment objectives,
investment policies and investment restrictions as the same are set forth in the
currently effective prospectus and statement of additional information relating
to the shares of beneficial interest of the Money Fund under the Securities Act
of 1933, as amended (the "Prospectus"). The Investment Manager shall also make
decisions for the Trust as to the manner in which voting rights, rights to
consent to corporate action and any other rights pertaining to the Trust's
portfolio securities shall be exercised. Should the Trustees of the Trust at
any time, however, make any definite determination as to investment policy and
notify the Investment Manager thereof in writing, the Investment Manager shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination has been revoked. The
Investment Manager shall take, on behalf of the Money Fund, all actions which it
deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
portfolio securities for the Money Fund's account with brokers or dealers
selected by it, and to that end, the Investment Manager is authorized as the
agent of the Trust to give instructions to the Custodian of the Money Fund as to
deliveries of securities and payments of cash for the account of the Money Fund.
In connection with the selection of such brokers or dealers and the placing of
such orders, the Investment Manager is directed at all times to conduct
portfolio transactions for the Money Fund in accordance with the policies
determined by the Board of Trustees of the Trust and set forth in the
Prospectus. Subject to this requirement and the provisions of the Investment
Company Act, the Securities Exchange Act of 1934, as amended, and other
applicable provisions of law, the Investment Manager may select brokers or
dealers with which it or the Trust is affiliated.
(b) Management Services. In addition to investment advisory services, the
Investment Manager shall perform, or supervise the performance of, management
and administrative services in connection with the management of the Money Fund
and, on behalf of the Money Fund, conduct relations with custodians,
depositories, transfer agents, dividend disbursing agents, other shareholder
service agents, accountants, attorneys, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and such other persons in any such other
capacity deemed to be necessary or desirable. In this connection, the
Investment Manager shall provide the Money Fund with office space, equipment and
facilities and such other services as the Investment Manager shall from time to
time determine to be necessary or useful to perform its obligations under this
Agreement. The Investment Manager shall make reports to the Board of Trustees
of its performance of obligations hereunder and furnish advice and
recommendations with respect to such other aspects of the business and affairs
of the Money Fund as it shall determine to be desirable.
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<PAGE>
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Investment Manager. The Investment Manager assumes and shall pay
for maintaining the staff and personnel necessary to perform its obligations
under this Agreement, and shall, at its own expense, provide the office space,
equipment and facilities which it is obligated to provide under Article I(b)
hereof, and shall pay all compensation of officers of the Trust and all trustees
of the Trust who are affiliated persons of the Investment Manager.
(b) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Money Fund (except for the expenses incurred by the
Distributor), including general administrative expenses of the Trust which are
allocated among its separate series on the basis of their respective asset size.
The expenses to be paid by the Trust include, without limitation: redemption
expenses, expenses of portfolio transactions, expenses of registering shares
under Federal and state securities laws, pricing costs (including the daily
calculation of net asset value), expenses of printing shareholder reports and
prospectuses, charges of the Custodian and Transfer Agent, Securities and
Exchange Commission fees, interest, taxes, fees and actual out-of-pocket
expenses of trustees who are not affiliated persons of the Investment Manager,
fees for legal and auditing services, litigation expenses, costs of printing
proxies and other expenses related to shareholder meetings, and other expenses
properly payable by the Trust. The Distributor will pay certain of the expenses
of the Money Fund incurred in connection with the continuous offering of Money
Fund shares.
ARTICLE III
COMPENSATION OF THE INVESTMENT MANAGER
(a) Investment Management Fee. For the services rendered, the facilities
furnished and the expenses assumed by the Investment Manager, the Trust shall
pay to the Investment Manager compensation at the annual rate of 0.50 of 1.00%
(0.50%), commencing on the day following effectiveness hereof.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and paid monthly by applying the annual rate to the
average daily net assets of the Money Fund determined as of the close of
business each day. If this Agreement becomes effective subsequent to the first
day of a month or shall terminate before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees as set forth above. Subject
to the provisions of subsection (b) hereof, payment of the Investment Manager's
compensation for the preceding month shall be made as promptly as possible after
completion of the computations contemplated by subsection (b) hereof. To the
extent the Fund invests in shares of Merrill Lynch Retirement Reserves Money
Fund or shares of any other registered investment company advised by the
Investment Manager or its affiliates, the Investment Manager will not be paid a
separate management fee from the Trust.
(b) Expense Limitations. In the event the operating expenses of the Money
Fund, including amounts payable to the Investment Manager pursuant to subsection
(a) hereof, for any
3
<PAGE>
fiscal year ending on a date on which this Agreement is in effect exceed the
expense limitations applicable to the Money Fund imposed by applicable state
securities laws or regulations thereunder, as such limitations may be raised or
lowered from time to time, the Investment Manager shall reduce its management
fee by the extent of such excess and, if required pursuant to any such laws or
regulations, will reimburse the Money Fund in the amount of such excess;
provided, however, to the extent permitted by law, there shall be excluded from
such expenses the amount of any interest, taxes, brokerage commissions and
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by the Money Fund. Whenever the expenses of the Money Fund exceed a
pro rata portion of the applicable annual expense limitations, the estimated
amount of reimbursement under such limitations shall be applicable as an offset
against the monthly payment of the fee due to the Investment Manager. Should two
or more such expense limitations be applicable as at the end of the last
business day of the month, that expense limitation which results in the largest
reduction in the Investment Manager's fee shall be applicable.
ARTICLE IV
LIMITATION OF LIABILITY OF THE INVESTMENT MANAGER
The Investment Manager shall not be liable for any error of judgement or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Money Fund, except for willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder as used in this
Article IV, the term "Investment Manager" shall include directors, officers and
employees of the Investment Manager as well as that corporation itself.
ARTICLE V
ACTIVITIES OF THE INVESTMENT MANAGER
The services of the Investment Manager to the Money Fund are not to be
deemed to be exclusive, the Investment Manager being free to render services to
others. It is understood that trustees, officers, employees and shareholders of
the Trust and Money Fund are or may become interested in the Investment Manager,
as directors, officers, employees and shareholders or otherwise and that
directors, officers, employees and shareholders of the Investment Manager are or
may become similarly interested in the Fund and Money Fund, and that the
Investment Manager may become interested in the Trust and Money Fund as
shareholder or otherwise.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first above written
and shall remain in force until June 30, 1999 and thereafter, but only so long
as such continuance is specifically approved at least annually by (i) the Board
of Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Money Fund, and (ii) a majority of those Trustees who are not
interested persons of any party to this Agreement cast in person at a meeting
called for the purpose of voting on such approval.
4
<PAGE>
This Agreement may be terminated at any time, without the payment of any
penalty, by the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Money Fund, or by the Investment Manager,
on sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
ARTICLE VII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Money Fund, and (ii) a majority of those Trustees of the Trust
who are not interested persons of any party to this Agreement cast in person at
a meeting called for the purpose of voting on such approval.
ARTICLE VIII
DEFINITIONS OF CERTAIN TERMS
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
ARTICLE X
PERSONAL LIABILITY
The Declaration of Trust establishing Financial Institutions Series Trust,
dated July 10, 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 "Financial Institutions Series Trust"
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 Financial Institutions Series Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of said Financial Institutions Series Trust, but the Trust Estate only
shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
5
<PAGE>
FINANCIAL INSTITUTIONS SERIES TRUST
By_________________________________
FUND ASSET MANAGEMENT, L.P.
By_________________________________
6
<PAGE>
EXHIBIT 99.6(a)
CLASS A SHARES
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made this day of , 1998, between FINANCIAL
INSTITUTIONS SERIES TRUST, a trust organized under the laws of Massachusetts
(the "Trust") and PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation
(the "Distributor");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as a diversified open-end investment
company and it is affirmatively in the interest of the Trust to offer its shares
for sale in a continuous offering; and
WHEREAS, the Trust is authorized to establish separate series ("Series"),
each of which will offer a separate class of shares of beneficial interest, par
value $.10 per share (collectively referred to as "shares"), to selected groups
of purchasers; and
WHEREAS, the Trustees of the Trust (the "Trustees") have established and
designated the Summit Cash Reserves Fund (the "Fund") as a series of the Trust;
and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to investors or through
other securities dealers; and
WHEREAS, the Trust and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Class A shares of the
Fund in order to promote the growth of the Fund and facilitate the distribution
of its Class A shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Trust hereby appoints the
------------------------------
Distributor as the exclusive distributor and representative of the Trust to sell
Class A shares of beneficial
<PAGE>
interest of the Fund (the "Class A shares") to the selected groups of investors
specified as eligible investors in the currently effective prospectus and
statement of additional information (the "Prospectus") of the Fund and the
Distributor hereby accepts such appointment. The Trust during the term of this
Agreement shall sell Class A shares to the Distributor upon the terms and
conditions set forth below.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Trust to act as principal underwriter and
distributor of the Class A shares, except that:
(a) The Trust may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class A shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive rights granted to the Distributor to purchase Class A
shares from the Trust shall not apply to Class A shares issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Trust or the acquisition by purchase or otherwise of
all (or substantially all) the assets or the outstanding Class A shares of any
such company by the Trust.
(c) Such exclusive rights shall also not apply to Class A shares issued by
the Trust pursuant to reinvestment of dividends and capital gains distributions.
2
<PAGE>
(d) Such exclusive right also shall not apply to Class A shares issued
pursuant to any conversion, exchange or reinstatement privilege afforded
redeeming shareholders or to any other Class B shares as shall be agreed between
the Trust and the Distributor from time to time.
Section 3. Purchase of Class A Shares from the Trust.
-----------------------------------------
(a) The Distributor shall have the right to buy from the Trust the Class A
shares needed, but not more than the Class A shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class A shares of the
Trust placed with the Distributor by investors or securities dealers. The price
which the Distributor shall pay for the Class A shares so purchased from the
Trust shall be the net asset value, determined as set forth in Section 3(c)
hereof.
(b) The Class A shares are to be resold by the Distributor to investors at
net asset value, as set forth in Section 3(c) hereof, or to securities dealers
having agreements with the Distributor upon the terms and conditions set forth
in Section 7 hereof.
(c) The net asset value of Class A shares of the Fund shall be determined
by the Trust or any agent of the Trust in accordance with the method set forth
in the Prospectus and guidelines established by the Trustees.
(d) The Trust shall have the right to suspend the sale of Class A shares of
the Fund at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Trust shall also have the right to suspend
the sale of Class A shares of the Fund if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Trust, makes it impracticable or inadvisable to
sell the Class A shares.
3
<PAGE>
(e) The Trust, or any agent of the Trust designated in writing by it, shall
be promptly advised of all purchase orders for Class A shares received by the
Distributor. Any order may be rejected by the Trust or the Distributor,
provided, however, that neither will arbitrarily or without reasonable cause
refuse to accept or confirm orders for the purchase of Class A shares. The
Trust (or its agent) will confirm orders upon their receipt, or in accordance
with any exemptive order of the Securities and Exchange Commission, and will
make appropriate book entries pursuant to the instructions of the Distributor.
Purchase orders are effective when Federal Funds become available to the Trust.
The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Trust (or its agent).
Section 4. Redemption or Repurchase of Class A Shares by the Trust.
-------------------------------------------------------
(a) Any of the outstanding Class A shares may be tendered for redemption or
repurchase at any time, and the Trust shall redeem or repurchase the Class A
shares so tendered in accordance with its obligations and rights as set forth in
its Declaration of Trust, as amended from time to time, and in accordance with
the applicable provisions contained in the Prospectus relating to such Class A
shares. The Trust shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor and in
accordance with the terms set forth in the Prospectus relating to the Class A
shares being redeemed.
(b) Redemption of Class A shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
4
<PAGE>
Section 5. Duties of the Trust.
-------------------
(a) The Trust shall furnish to the Distributor copies of all information,
financial statements and other documents which the Distributor may reasonably
request for use in connection with the distribution of Class A shares of the
Fund, and this shall include one certified copy, upon request by the
Distributor, of all financial statements prepared for the Trust by independent
public accountants. The Trust shall make available to the Distributor such
number of copies of the Prospectus as the Distributor shall reasonably request.
(b) The Trust shall take, from time to time, all necessary action to
register Class A shares under the Securities Act of 1933, as amended (the
"Securities Act") to the end that there will be available for sale such number
of Class A shares as the Distributor may reasonably be expected to sell.
(c) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of Class A shares for sale under the
securities laws of such states as the Distributor and the Trust may approve.
Any such qualification may be withheld, terminated or withdrawn by the Trust at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Trust. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Trust in connection with such
qualifications.
(d) The Trust will furnish to the Distributor, in reasonable quantities
upon request by the Distributor, copies of annual and interim reports.
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect sales
of Class A shares of the Trust, but shall not be obligated to sell any specific
number of Class A shares. The
5
<PAGE>
services of the Distributor hereunder are not to be deemed exclusive and nothing
herein contained shall prevent the Distributor from entering into distribution
arrangements with other investment companies so long as the performance of its
obligations hereunder is not impaired thereby.
(b) In selling the Class A shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
federal and state laws and regulations and the regulations of the National
Association of Securities Dealers, Inc. (the "NASD") relating to the sale of
such securities. Neither the Distributor nor any other person is authorized by
the Trust to give any information or to make any representations, other than
those contained in the Prospectus or any sales literature specifically approved
by the Trust.
(c) The Distributor shall adopt and follow procedures, as approved by the
Trust, for the confirmation of sales to investors and selected dealers, the
collection of amounts payable by investors on such sales, and the cancellation
of unsettled transactions, as may be necessary to comply with the requirements
of the NASD, as such requirements may from time to time exist.
Section 7. Selected Dealer Agreements.
--------------------------
(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class A shares; provided, however, that the form of selected dealers
agreement shall be approved by the Trust. Class A shares sold to selected
dealers shall be for resale by such dealers only in accordance with the
provisions of the Prospectus relating to such Class A shares. The form of
agreement with selected dealers to be used during the continuous offering of the
shares is attached as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class A
shares only to such selected dealers as are members in good standing of the
NASD.
6
<PAGE>
Section 8. Payment of Expenses.
-------------------
(a) The Trust shall bear all of its costs and expenses, including fees and
disbursements of its counsel and auditors, in connection with the preparation,
setting in type and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
the expense of preparing, printing, mailing and otherwise distributing
prospectuses, annual or interim reports and proxy materials to Class A
shareholders.
(b) After the prospectuses and annual and interim reports have been
prepared, set in type and mailed to shareholders, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are
used in connection with the offering of the Class A shares. The Distributor
shall bear the costs and expenses of preparing, printing and distributing any
supplementary sales literature used by the Distributor in connection with the
offering of the Class A shares for sale. Any expenses of advertising incurred
in connection with such offering will also be the obligation of the Distributor.
(c) The Trust shall bear the cost and expenses of qualification of the
Class A shares for sale, and, if necessary or advisable in connection therewith,
of qualifying the Trust as a broker or dealer, in such states of the United
States or other jurisdictions as shall be selected by the Trust and the
Distributor, and the cost and expenses payable to each such state for continuing
qualification therein until the Trust decides to discontinue such qualification.
Section 9. Indemnification.
---------------
(a) The Trust shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or
7
<PAGE>
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel fees incurred
in connection therewith), as incurred, arising by reason of any person acquiring
any Class A shares, which may be based upon the Securities Act, or on any other
statute or at common law, on the ground that the registration statement or
related Prospectus, as from time to time amended and supplemented, or the annual
or interim reports to shareholders, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Trust in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the indemnity of the
Trust in favor of the Distributor and any such controlling persons to be deemed
to protect such Distributor or any such controlling persons thereof against any
liability to the Trust or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Trust in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Trust of any such claim shall not relieve it
from any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Trust will be entitled to participate at its own expense in the
defense, or, if it
8
<PAGE>
so elects, so assume the defense of any suit brought to enforce any such
liability, but if the Trust elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Distributor or such
controlling person or persons, defendant or defendants in the suit. In the event
the Trust elects to assume the defense of any such suit and retain such counsel,
the Distributor or such controlling person or persons, defendant or defendants
in the suit, shall bear the fees and expenses, as incurred, of any additional
counsel retained by them, but, in case the Trust does not elect to assume the
defense of any such suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the reasonable fees
and expenses of any counsel retained by them. The Trust shall promptly notify
the Distributor of the commencement of any litigation or proceedings against it
or any of its officers or Trustees in connection with the issuance or sale of
any of the Class A shares.
(b) The Distributor shall indemnify and hold harmless the Trust and each of
its Trustees and officers and each person, if any, who controls the Trust
against any loss, liability, claim, damage, or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Trust in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
Prospectus, as from time to time amended, or the annual or interim reports to
shareholders. In case any action shall be brought against the Trust or any
person so indemnified, in respect of which indemnity may be sought against the
Distributor, the Distributor shall have the rights and duties given to the
Trust, and the Trust and each person so indemnified shall have the rights and
duties given to the Distributor by the provisions of subsection (a) of this
Section 9.
9
<PAGE>
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection with
-----------------------------------------
the Merrill Lynch Mutual Fund Advisor Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Trust, to participants in
such program. The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Trust and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until _________________ __, 2000 and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Trustees of
the Trust, or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Fund, or by the Distributor, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment.
Section 12. Amendments. This Agreement may be amended by the parties
----------
hereto only if such amendment is specifically approved (i) by the Trustees of
the Trust, or by the vote of a majority of outstanding voting securities of the
Fund, and (ii) by a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party, which vote must be cast in
person at a meeting called for the purpose of voting on such approval.
10
<PAGE>
Section 13. Definitions of Certain Terms. The terms "vote of a majority
----------------------------
of the outstanding voting securities," "assignment," "interested person" and
"affiliated person," when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 14. Governing Law. This Agreement shall be construed in
-------------
accordance with the laws of the State of New York and the applicable provisions
of the Investment Company Act. To the extent applicable law of the State of New
York, or any of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
Section 15. Personal Liability. The Declaration of Trust establishing
------------------
Financial Institutions Series Trust, dated July 10, 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 "Financial Institutions Series Trust" 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 Financial Institutions
Series Trust, shall be held to any personal liability, nor shall resort be had
to their private property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of said Financial Institutions Series
Trust, but the Trust Estate only shall be liable.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
FINANCIAL INSTITUTIONS SERIES TRUST
By__________________________________
PRINCETON FUNDS DISTRIBUTOR, INC.
BY___________________________________
12
<PAGE>
EXHIBIT A
FINANCIAL INSTITUTIONS SERIES TRUST
CLASS A SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
-------------------------
Gentlemen:
Princeton Funds Distributor, Inc. (the "Distributor") has an agreement with
Financial Institutions Series Trust, a trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), pursuant to which it acts as the
distributor for the sale of Class A shares of beneficial interest, par value
$0.10 per share (herein referred to as the "Class A shares"), of the Summit Cash
Reserves Fund (the "Fund") and as such has the right to distribute Class A
shares of the Fund for resale. The Trust is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and the Class A
shares of the Fund being offered to the public are registered under the
Securities Act of 1933, as amended. You have received a copy of the Class A
Shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Trust and reference is made herein to certain provisions of such
Distribution Agreement. The terms "Prospectus" and "Statement of Additional
Information" as used herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement pursuant to
the Securities Act of 1933, as amended. We offer to sell to you, as a member of
the Selected Dealers Group, Class A shares of the Fund upon the following terms
and conditions:
1. In all sales of these Class A shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Trust, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Advisor
Program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Trust. The procedure
relating to the handling of orders shall be subject to Section 4 hereof and
instructions which we or the Trust shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
A-1
<PAGE>
3. You shall not place orders for any of the Class A shares unless you
have already received purchase orders for such Class A shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class A shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class A shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested within three business
days of receipt of the request, the Statement of Additional Information (as then
amended or supplemented) and will not furnish to any person any information
relating to the Class A shares of the Fund which is inconsistent in any respect
with the information contained in the Prospectus and Statement of Additional
Information (as then amended or supplemented) or cause any advertisement to be
published in any newspaper or posted in any public place without our consent and
the consent of the Trust.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class A shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Class A shares Distribution Agreement and
(ii) to tender Class A shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding: e.g., by a change in the
- -
"net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class
A shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class A shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Trust, and you agree that the Trust shall have no
liability or responsibility to you in these respects unless expressly assumed in
connection therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested (within three business days of receipt of the request),
the Statement of Additional Information and you agree thereafter to deliver to
such purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of Additional
Information, annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon request.
A-2
<PAGE>
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
11. Upon application to us, we will inform you as to the states in which
we believe the Class A shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class A shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class A shares, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
13. Your first order placed pursuant to this Agreement for the purchase
of Class A shares of the Fund will represent your acceptance of this Agreement.
14. You acknowledge that the Trust is participating in an exchange
program (the "Exchange Program"), pursuant to and subject to the terms and
conditions of an order of exemption granted by the Securities and Exchange
Commission (Release No. IC-22933, December 10, 1997) (the "Order"). As part of
the Exchange Program, your customers may exchange shares of one or more
"Participating Funds" for shares of the Fund, subject to the terms and
conditions of the Order. "Participating Funds" are non-money market open-end
management investment companies (or portfolios thereof) that have agreed to
participate in the Exchange Program. Each Participating Fund has an investment
adviser and principal underwriter that are not affiliated with the Trust or the
Distributor. You hereby acknowledge and agree that you shall be responsible for
tracking the payment of sales loads, administrative fees and redemption fees by
shareholders of Participating Funds and the Fund, and otherwise will conduct the
Exchange Program in accordance with the terms of the Order.
A-3
<PAGE>
PRINCETON FUNDS DISTRIBUTOR, INC.
By _________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
--------------------------------------
By:
---------------------------------------------
Address:
-----------------------------------------
-------------------------------------------------
Date:
-------------------------------------------
A-4
<PAGE>
EXHIBIT 99.6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of 1998, between Financial
Institutions Series Trust, a business trust organized under the laws of
Massachusetts (the "Trust"), and PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H :
-------------------
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Trust to offer its shares for
sale continuously; and
WHEREAS, the Trust is authorized to establish separate series ("Series"),
each of which will offer separate classes of shares of beneficial interest, par
value $.10 per share (collectively referred to as "shares"), to selected groups
of purchasers; and
WHEREAS, the Trustees of the Trust (the "Trustees") have established and
designated the Summit Cash Reserves Fund (the "Fund") as a series of the Trust;
and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Trust and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Class B shares of the
Fund in order to promote the growth of the Fund and facilitate the distribution
of its Class B shares.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
Section 1. Appointment of the Distributor. The Trust hereby appoints the
------------------------------
Distributor as the principal underwriter and distributor of the Trust to sell
Class B shares of beneficial interest in the Fund (sometimes herein referred to
as "Class B shares") to the selected groups of investors specified as eligible
investors in the currently effective prospectus and statement of additional
information of the Fund (the "prospectus" and "statement of additional
information", respectively) under the Securities Act of 1933, as amended (the
"Securities Act") relating to such Class B shares and the Distributor hereby
accepts such appointment. The Trust during the term of this Agreement shall
sell Class B shares of the Fund to the Distributor upon the terms and conditions
herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Trust to act as principal underwriter and
distributor of the Class B shares, except that:
(a) The Trust may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class B shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class B shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class B
shares from the Fund shall not apply to Class B shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Trust or
2
<PAGE>
the acquisition by purchase or otherwise of all (or substantially all) the
assets or the outstanding Class B shares of any such company by the Trust.
(c) Such exclusive right also shall not apply to Class B shares issued
pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive right also shall not apply to Class B shares issued
pursuant to any conversion, exchange or reinstatement privilege afforded
redeeming shareholders or to any other Class B shares as shall be agreed between
the Trust and the Distributor from time to time.
Section 3. Purchase of Class B Shares from the Trust.
-----------------------------------------
(a) The Distributor shall have the right to buy from the Trust the Class B
shares needed, but not more than the Class B shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class B shares of the
Fund placed with the Distributor by eligible investors or securities dealers.
The price which the Distributor shall pay for the Class B shares so purchased
from the Trust shall be the net asset value, determined as set forth in Section
3(c) hereof.
(b) The Class B shares are to be resold by the Distributor to investors at
net asset value, as set forth in Section 3(c) hereof, or to securities dealers
having agreements with the Distributor upon the terms and conditions set forth
in Section 7 hereof.
(c) The net asset value of Class B shares of the Fund shall be determined
by the Trust or any agent of the Trust in accordance with the method set forth
in the prospectus and statement of additional information and guidelines
established by the Trustees.
3
<PAGE>
(d) The Trust shall have the right to suspend the sale of Class B shares
of the Fund at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Trust shall also have the right to suspend
the sale of Class B shares of the Fund if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Trust, makes it impracticable or inadvisable to
sell the Class B shares.
(e) The Trust, or any agent of the Trust designated in writing by the
Trust, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Trust; provided,
however, that the Trust will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Trust (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Trust (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class B shares pursuant to the
instructions of the Distributor. Purchase orders are effective when Federal
Funds become available to the Trust. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the Trust (or its
agent).
Section 4. Repurchase or Redemption of Class B Shares by the Trust.
-------------------------------------------------------
(a) Any of the outstanding Class B shares may be tendered for redemption
at any time, and the Trust agrees to repurchase or redeem the Class B shares so
tendered in accordance with its obligations set forth in its Declaration of
Trust, as amended from time to time, and in accordance with the applicable
provisions set forth in the prospectus and statement of additional information
of the Fund. The price to be paid to redeem or repurchase the Class B shares
shall
4
<PAGE>
be equal to the net asset value calculated in accordance with the provisions of
Section 3(c) hereof, less any contingent deferred sales charge ("CDSC"),
redemption fee or other charge(s), if any, set forth in the prospectus and
statement of additional information of the Fund. All payments by the Trust
hereunder shall be made in the manner set forth below.
The Trust shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor on or before
the seventh day subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of shares shall be paid by the Fund
as follows: (i) any applicable CDSC shall be paid to the Distributor, and (ii)
the balance shall be paid to or for the account of the shareholder, in each case
in accordance with the applicable provisions of the prospectus and statement of
additional information.
(b) Redemption of Class B shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Trust.
-------------------
(a) The Trust shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class B shares of the
Fund, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent
5
<PAGE>
public accountants. The Trust shall make available to the Distributor such
number of copies of the prospectus and statement of additional information as
the Distributor shall reasonably request.
(b) The Trust shall take, from time to time, but subject to any necessary
approval of the shareholders, all necessary action to fix the number of
authorized shares and such steps as may be necessary to register the same under
the Securities Act to the end that there will be available for sale such number
of Class B shares as the Distributor reasonably may be expected to sell.
(c) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class B shares for sale under the
securities laws of such states as the Distributor and the Trust may approve.
Any such qualification may be withheld, terminated or withdrawn by the Trust at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Trust. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Trust in connection with such
qualification.
(d) The Trust will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Trust
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
6
<PAGE>
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class B shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws and regulations and the regulations of the National
Association of Securities Dealers, Inc. (the "NASD") relating to the sale of
such securities. Neither the Distributor nor any selected dealer, as defined in
Section 7 hereof, nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
registration statement or related prospectus and statement of additional
information and any sales literature specifically approved by the Trust.
(c) The Distributor shall adopt and follow procedures, as approved by the
officers of the Trust, for the confirmation of sales to investors and selected
dealers, the collection of amounts payable by investors and selected dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the NASD, as such requirements may from time
to time exist.
Section 7. Selected Dealer Agreements.
--------------------------
(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class B shares; provided, however, that the Trust shall approve the form
of agreements with dealers. Class B shares sold to selected dealers shall be
for resale by such dealers only at net asset value determined as set forth in
Section 3(c) hereof. The form of agreement with selected dealers to be used
during the continuous offering of the shares is attached hereto as Exhibit A.
7
<PAGE>
(b) Within the United States, the Distributor shall offer and sell Class B
shares only to such selected dealers that are members in good standing of the
NASD.
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class B
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to selected
dealers as reimbursement for their expenses associated with payments of sales
commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class B shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class B shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering. It is understood
and agreed that so long as the Trust's Class B Shares Distribution Plan pursuant
to Rule 12b-1 under the Investment
8
<PAGE>
Company Act remains in effect, any expenses incurred by the Distributor
hereunder may be paid from amounts recovered by it from the Trust under such
Plan.
(c) The Trust shall bear the cost and expenses of qualification of the
Class B shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Trust and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing qualification therein
until the Trust decides to discontinue such qualification pursuant to Section
5(c) hereof.
Section 9. Indemnification.
---------------
(a) The Trust shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class B shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to Class B
shareholders of the Trust, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Trust in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the
Trust in favor of the Distributor and any such controlling persons to be deemed
to protect such Distributor or any such controlling persons thereof against any
liability to
9
<PAGE>
the Trust or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of their duties or by reason of
the reckless disregard of their obligations and duties under this Agreement; or
(ii) is the Trust to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Distributor or any such
controlling persons, unless the Distributor or such controlling persons, as the
case may be, shall have notified the Trust in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the Distributor or such controlling
persons (or after the Distributor or such controlling persons shall have
received notice of such service on any designated agent), but failure to notify
the Trust of any such claim shall not relieve it from any liability which it may
have to the person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this paragraph. The Trust will be
entitled to participate at its own expense in the defense or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. In the event the Trust
elects to assume the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or defendants in
the suit shall bear the fees and expenses, as incurred, of any additional
counsel retained by them, but in case the Trust does not elect to assume the
defense of any such suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the reasonable fees
and expenses, as incurred, of any counsel retained by them. The Trust shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it
10
<PAGE>
or any of its officers or Trustees in connection with the issuance or sale of
any of the Class B shares.
(b) The Distributor shall indemnify and hold harmless the Trust and each
of its Trustees and officers and each person, if any, who controls the Trust
against any loss, liability, claim, damage or expense, as incurred, described in
the foregoing indemnity contained in subsection (a) of this Section, but only
with respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Trust in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to shareholders. In case any action
shall be brought against the Trust or any person so indemnified, in respect of
which indemnity may be sought against the Distributor, the Distributor shall
have the rights and duties given to the Trust, and the Trust and each person so
indemnified shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection with
-----------------------------------------
the Merrill Lynch Mutual Fund Advisor Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Trust, to participants in
such program. The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Trust and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until , 2000 and
11
<PAGE>
thereafter, but only for so long as such continuance is specifically approved at
least annually by (i) the Trustees or by the vote of a majority of the
outstanding voting securities of the Fund and (ii) by the vote of a majority of
those Trustees who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
----------------------------
by the parties only if such amendment is specifically approved by (i) the
Trustees or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
12
<PAGE>
Section 14. Personal Liability. The Declaration of Trust establishing
------------------
Financial Institutions Series Trust, dated July 10, 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 "Financial Institutions Series Trust" 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 Financial Institutions
Series Trust, shall be held to any personal liability, nor shall resort be had
to their private property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of said Financial Institutions Series
Trust, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FINANCIAL INSTITUTIONS SERIES TRUST
By ____________________________________
Title:
PRINCETON FUNDS DISTRIBUTOR, INC.
By ____________________________________
Title:
13
<PAGE>
EXHIBIT A
FINANCIAL INSTITUTIONS SERIES TRUST
CLASS B SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
-------------------------
Gentlemen:
Princeton Funds Distributor, Inc. (the "Distributor") has an agreement
with Financial Institutions Series Trust, a business trust organized under the
laws of Massachusetts (the "Trust"), pursuant to which it acts as the
distributor for the sale of Class B shares of beneficial interest, par value
$0.10 per share (herein referred to as the "Class B shares"), of the Summit Cash
Reserves Fund (the "Fund") and as such has the right to distribute Class B
shares of the Fund for resale. The Trust is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and the Class B
shares of the Fund being offered to the public are registered under the
Securities Act of 1933, as amended. You have received a copy of the Class B
Shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Trust and reference is made herein to certain provisions of such
Distribution Agreement. The terms "Prospectus" and "Statement of Additional
Information" as used herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement pursuant to
the Securities Act of 1933, as amended. We offer to sell to you, as a member of
the Selected Dealers Group, Class B shares of the Fund upon the following terms
and conditions:
1. In all sales of these Class B shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Trust, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
2. Orders received from you will be accepted through us only at the public
offering price applicable to each order, as set forth in the current Prospectus
and Statement of Additional Information of the Trust. The procedure relating to
the handling of orders shall be subject to Section 4 hereof and instructions
which we or the Trust shall forward from time to time to you. All orders are
subject to acceptance or rejection by the Distributor or the Fund in the sole
discretion of either. The minimum initial and subsequent purchase requirements
are as set forth in the current Prospectus and Statement of Additional
Information of the Fund.
3. You shall not place orders for any of the Class B shares unless you
have already received purchase orders for such Class B shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class B shares
except under circumstances that will result in compliance with
A-1
<PAGE>
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class B shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested within
three business days of receipt of the request, the Statement of Additional
Information (as then amended or supplemented) and will not furnish to any person
any information relating to the Class B shares of the Fund which is inconsistent
in any respect with the information contained in the Prospectus and Statement of
Additional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Trust.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class B shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Class B shares Distribution Agreement and
(ii) to tender Class B shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding: e.g., by a change in the
- -
"net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class B
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class B
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Trust, and you agree that the Trust shall have no
liability or responsibility to you in these respects unless expressly assumed in
connection therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus at or prior to the time of offering or
sale and, if requested (within three days of receipt of the request), the
Statement of Additional Information and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies from
such purchasers. Additional copies of the Prospectus and Statement of
Additional Information, annual or interim reports and proxy solicitation
materials of the Fund will be supplied to you in reasonable quantities upon
request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class B shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except
A-2
<PAGE>
for lack of good faith and for obligations expressly assumed by us herein.
Nothing contained in this paragraph is intended to operate as, and the
provisions of this paragraph shall not in any way whatsoever constitute, a
waiver by you of compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and Exchange
Commission issued thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
11. Upon application to us, we will inform you as to the states in which
we believe the Class B shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class B shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class B shares, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
13. Your first order placed pursuant to this Agreement for the purchase of
Class B shares of the Fund will represent your acceptance of this Agreement.
14. You acknowledge that the Trust is participating in an exchange program
(the "Exchange Program"), pursuant to and subject to the terms and conditions of
an order of exemption granted by the Securities and Exchange Commission (Release
No. IC-22933, December 10, 1997) (the "Order"). As part of the Exchange
Program, your customers may exchange shares of one or more "Participating Funds"
for shares of the Fund, subject to the terms and conditions of the Order.
"Participating Funds" are non-money market open-end management investment
companies (or portfolios thereof) that have agreed to participate in the
Exchange Program. Each Participating Fund has an investment adviser and
principal underwriter that are not affiliated with the Trust or the Distributor.
You hereby acknowledge and agree that you shall be responsible for tracking the
payment of sales loads, administrative fees and redemption fees by shareholders
of Participating Funds and the Fund, and otherwise will conduct the Exchange
Program in accordance with the terms of the Order.
A-3
<PAGE>
PRINCETON FUNDS DISTRIBUTOR, INC.
By _________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: _________________________________________________
By: ________________________________________________________
Address: ___________________________________________________
____________________________________________________________
Date: ______________________________________________________
A-4
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Summit Cash Reserves Fund
of Financial Institutions Series Trust:
We consent to the use in Post-Effective Amendment No. 17 to Registration
Statement No. 2-78646 of our report dated June 16, 1998 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ DELOITTE & TOUCHE, LLP
Deloitte & Touche, LLP
Princeton, New Jersey
July 31, 1998
<PAGE>
EXHIBIT 99.15(a)
CLASS B SHARES DISTRIBUTION PLAN
OF
SUMMIT CASH RESERVES FUND
OF
FINANCIAL INSTITUTIONS SERIES TRUST
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of , 1998, by and
between FINANCIAL INSTITUTIONS SERIES TRUST, a Massachusetts business trust (the
"Trust"), and PRINCETON FUNDS DISTRIBUTOR, INC., a Delaware corporation
("PFD").
W I T N E S S E T H :
-------------------
WHEREAS, the Trust is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, the Trust is authorized to establish separate series ("Series"),
each of which will offer separate classes of shares of beneficial interest, par
value $0.10 per share (the "Shares") to selected groups of purchasers; and
WHEREAS, PFD is a securities firm engaged in the business of selling
shares of investment companies either directly to Purchasers or through other
securities dealers; and
WHEREAS, the Trust proposes to enter into a Class B Shares Distribution
Agreement with PFD, pursuant to which PFD will act as the exclusive
distributor and representative of the Trust in the offer and sale of Class B
shares of beneficial interest, par value $0.10 per share (the "Class B shares"),
of the SUMMIT CASH RESERVES FUND (the "Fund") series of the Trust to the Public;
and
WHEREAS, the Trust desires to adopt this Class B Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Trust will pay a distribution fee to PFD with respect to the Fund's
Class B shares; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
Class B shareholders;
NOW, THEREFORE, the Trust hereby adopts, and PFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:
1. The Trust shall pay PFD a distribution fee under the Plan at the end
of each month at the annual rate of 0.75% of the Fund's average daily net assets
relating to Class B shares of the Fund to compensate PFD and Securities Firms
(as defined below) with which PFD enters into related agreements pursuant to
Paragraph 2(a) hereof ("Sub-Agreements") for
<PAGE>
providing sales and promotional activities and services, and Participating
Underwriters (as defined below) with which PFD enters into Exchange and Service
Agreements ("Service Agreements") pursuant to Paragraph 2(b) hereof. The
activities and services for which compensation will be paid hereunder will
relate to the direct or indirect sale, promotion and marketing of the Class B
shares of the Fund and payments related to the furnishing of services to
shareholders by sales and marketing personnel. Such expenditures may consist of
sales commissions to financial consultants for selling Class B shares of the
Fund, compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and promotional
activities, including advertising expenditures related to the Fund, the costs of
preparing and distributing promotional materials and the costs of providing
services to shareholders including assistance in connection with inquires
related to shareholder accounts. Without limiting the generality of the
foregoing, PFD may use all or a portion of the distribution fees paid hereunder
to compensate Participating Underwriters for their indirect efforts in selling
Class B shares of the Fund, it being recognized that the sale of Class B shares
of the Fund will result from their sales of CDSC Shares of Participating Funds
(each as defined below) and their participation in the exchange program between
the Fund and the Participating Funds (the "Exchange Program"). The distribution
fee may also be used to pay the financing costs of carrying the unreimbursed
expenditures described in this Paragraph 1. Payment of the distribution fee
described in this Paragraph 1 shall be subject to any limitations set forth in
any applicable regulation of the National Association of Securities Dealers,
Inc.
2. (a) The Trust hereby authorizes PFD to enter into Sub-Agreements
with certain securities firms ("Securities Firms"), including Merrill Lynch,
Pierce, Fenner & Smith Incorporated, to provide compensation to such Securities
Firms for activities and services of the type referred to in Paragraph 1 hereof.
PFD may reallocate all or a portion of its distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
compensation will be in an amount as set forth in the individual Sub-Agreements.
Such Sub-Agreement shall provide that the Securities Firms shall provide PFD
with such information as is reasonably necessary to permit PFD to comply with
the reporting requirements set forth in Paragraph 3 hereof.
(b) The Trust hereby authorizes PFD to enter into Service Agreements with
certain securities firms ("Participating Underwriters") that serve as the
principal underwriters to Participating Funds. Participating Funds are non-
money market open-end management investment companies (or separate portfolios
thereof) that have agreed to participate in the Exchange Program. Neither the
Participating Underwriter nor the investment adviser to any Participating Fund
will be an affiliated person of PFD or the Trust. Shares ("CDSC Shares") of a
Participating Fund that were purchased at net asset value, but subject to a
contingent deferred sales charge ("CDSC") and a distribution fee pursuant to a
Rule 12b-1 distribution plan will be exchanged into Class B shares of the Fund
pursuant to the Exchange Program. The Service Agreements generally shall
provide, among other things, that PFD will pay Participating Underwriters all
or a portion of distribution fees received by PFD and any CDSCs received by
PFD in respect of CDSC Shares exchanged for Class B shares of the Fund. Such
payments shall be to compensate the Participating Underwriters for their
activities referred to in Paragraph 1 hereof. Such compensation will be in an
amount as set forth in the individual Service Agreements. Such Service
Agreements shall provide that the Participating
<PAGE>
Underwriters shall provide PFD with such information as is reasonably necessary
to permit PFD to comply with the reporting requirements as set forth in
Paragraph 3 hereof.
3. PFD shall provide the Trust for review by the Board of Trustees, and
the Trustees shall review at least quarterly, a written report complying with
the requirements of Rule 12b-1 regarding the disbursement of the distribution
fee during such period. This report shall include an itemization of the
distribution expenditures incurred on behalf of the Fund and its Class B
shareholders, the purpose of such distribution expenditures and a description of
the benefits derived by the Fund and its Class B shareholders therefrom.
4. The Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Trustees of
the Trust and (b) those Trustees of the Trust who are not "interested persons"
of the Trust, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Trustees"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
5. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 4.
6. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees, or by vote of a majority of the outstanding Class B voting
securities of the Fund.
7. The Plan may not be amended to increase materially the rate of
payments by the Fund provided for herein unless such amendment is approved by at
least a majority, as defined in the Investment Company Act, of the outstanding
Class B voting securities of the Fund, and by the Trustees of the Trust in the
manner provided for in Paragraph 4 hereof, and no material amendment to the Plan
shall be made unless approved in the manner provided for approval and annual
renewal in Paragraph 4 hereof.
8. While the Plan is in effect, the selection and nomination of Trustees
who are not interested persons, as defined in the Investment Company Act, of the
Trust shall be committed to the discretion of the Trustees who are not
interested persons.
9. The Trust shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of this Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
10. The Declaration of Trust establishing the Trust, dated July 10,
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 "Financial Institutions Series Trust" 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
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim of the Trust
but the "Trust Property" only shall be liable.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the
date first above written.
FINANCIAL INSTITUTIONS SERIES TRUST
By ___________________________________________
PRINCETON FUNDS DISTRIBUTOR, INC.
By __________________________________________
<PAGE>
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of , 1998, by and between
PRINCETON FUNDS DISTRIBUTOR, INC. ("PFD"), and MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED (the "Securities Firm").
W I T N E S S E T H :
-------------------
WHEREAS, PFD has entered into an agreement with FINANCIAL INSTITUTIONS
SERIES TRUST, a Massachusetts business trust (the "Trust"), pursuant to which it
acts as the exclusive distributor for the sale of Class B shares of beneficial
interest, par value $0.10 per share (the "Class B shares"), of the SUMMIT CASH
RESERVES FUND (the "Fund") series of the Trust; and
WHEREAS, PFD and the Trust have entered into a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), pursuant to which PFD receives a
distribution fee from the Fund at the annual rate of 0.75% of average daily net
assets of the Fund relating to Class B shares for providing sales and
promotional activities and services related to the distribution of Class B
shares of the Fund; and
WHEREAS, PFD desires the Securities Firm to perform certain sales and
promotional activities and services for the Fund's Class B shareholders and the
Securities Firm is willing to perform such activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide sales and promotional activities and
services with respect to the sale of the Class B shares of the Fund, and incur
distribution expenditures, of the types referred to in Paragraph 1 of the Plan.
2. As compensation for its activities and services performed under this
Sub-Agreement, PFD shall pay the Securities Firm a distribution fee at the end
of each calendar month in an amount agreed upon by the parties hereto. Such fee
may thereupon be paid by the Securities Firm to distributors of unaffiliated
funds from which money has been exchanged into the Fund pursuant to the Exchange
Program described in the currently effective Prospectus of the Fund.
3. The Securities Firm shall provide PFD, at least quarterly, such
information as reasonably requested by PFD to enable PFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the
distribution fee during such period referred to in Paragraph 3 of the Plan.
4. This Sub-Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Trustees of the Trust and (b) those Trustees
of the Trust who are not "interested persons" of the Trust, as defined in the
Investment Company Act, and have no direct or indirect financial interest in the
operation of the Plan, this Agreement or any agreements
<PAGE>
related to the Plan or this Agreement (the "Rule 12b-1 Trustees"), cast in
person at a meeting or meetings called for the purpose of voting on this
Agreement.
5. This Agreement shall continue in effect for as long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 4.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PRINCETON FUNDS DISTRIBUTOR, INC.
By __________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By __________________________________
2
<PAGE>
EXHIBIT 99.15(b)
EXCHANGE AND SERVICE AGREEMENT
with respect to
FINANCIAL INSTITUTIONS SERIES TRUST
AGREEMENT made as of the ______ day of ___, 1998, by and between PRINCETON
FUNDS DISTRIBUTOR, INC. ("PFD") and _______ (the "Participating Underwriter").
W I T N E S S E T H
-------------------
WHEREAS, PFD has entered into distribution agreements (the "Summit
Distribution Agreements") with FINANCIAL INSTITUTIONS SERIES TRUST (the
"Trust"), a business trust organized under the laws of Massachusetts, on behalf
of its series, SUMMIT CASH RESERVES FUND ("Summit"), pursuant to which PFD acts
as the exclusive distributor for the sale of Class A and Class B shares of
beneficial interest, par value $0.10 per share, of Summit (the "Class A Summit
Shares" and the "Class B Summit Shares," respectively, and together the "Summit
Shares"); and
WHEREAS, the Participating Underwriter has entered into underwriting or
distribution agreements (each, an "Underwriting Agreement") with each of the
open-end management investment companies (and their separate series, if any)
(each a "Participating Fund") listed on Schedule A to this Agreement, as amended
from time to time; and
WHEREAS, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has
entered into selected dealer or agent agreements with the Participating
Underwriter with respect to each Participating Fund (the "Participating Fund
Dealer Agreements"),
<PAGE>
and with PFD with respect to Summit (the "Summit Dealer Agreements"), pursuant
to which MLPF&S may sell shares of Participating Funds ("Participating Fund
Shares") and Summit Shares to customers of MLPF&S (each a "Customer"); and
WHEREAS, PFD and the Participating Underwriter wish to offer the
opportunity to exchange Participating Fund Shares for Summit Shares, and Summit
Shares for Participating Fund Shares (the "Exchange Program"); and
WHEREAS, MLPF&S has agreed to administer the Exchange Program; and
WHEREAS, the Trust has adopted a Class B Shares Distribution Plan (the
"Summit Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "Act"), pursuant to which PFD receives a distribution fee from
Summit at the annual rate of 0.75% of Summit's average daily net assets relating
to Class B Summit Shares for providing sales and promotional activities and
services related to the direct or indirect distribution of Class B Summit
Shares; and
WHEREAS, the Summit Plan provides, inter alia, that PFD may use all or a
----- ----
portion of the distribution fees paid thereunder to compensate the Participating
Underwriter for its indirect efforts in distributing Class B Summit Shares;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. PFD and the Participating Underwriter agree that all offers of
exchange will be conducted in accordance with the terms and conditions of the
order of exemption (Release No. IC-22992, January 6, 1998) from the Securities
and Exchange Commission
2
<PAGE>
(the "SEC"), as such order may be amended from time to time (the "Order") by
PFD, MLPF&S and the Trust, among others, permitting the Exchange Program. A
copy of the Order and the related notice (Release No. IC-22933, December 10,
1997) and application to the SEC (the "Application") has been provided to the
Participating Underwriter by PFD, and the Participating Underwriter
acknowledges receipt of the Order and the Application.
2. PFD and the Participating Underwriter acknowledge that the Exchange
Program is intended to permit MLPF&S customers who hold Participating Fund
shares to participate in exchanges with Summit without the imposition of any
sales load, administrative fee or redemption fee at the time of exchange, except
as would be permissible under the Act and the Order. Shares of Participating
Funds of a class that are sold at an offering price that may include a front-end
sales load will exchange into Class A Summit Shares, and shares ("CDSC Shares")
of Participating Funds of a class that are sold at net asset value, but subject
to a contingent deferred sales charge ("CDSC") and a distribution fee pursuant
to a Rule 12b-1 Plan, will exchange into Class B Summit Shares. If a
Participating Fund has a conversion feature providing that CDSC Shares will be
exchanged automatically for shares of another class of the same Participating
Fund after a specified period of time, this feature will apply to the Class B
Summit Shares acquired upon exchange of CDSC Shares from the Participating Fund,
and such shares will convert into Class A Summit Shares in accordance with the
conversion schedule of the CDSC Shares of the Participating Fund.
3
<PAGE>
3. PFD represents and warrants that pursuant to the Summit Dealer
Agreements, MLPF&S will be responsible for tracking the payment of sales loads,
administrative fees and redemption fees by Participating Fund shareholders and
Summit shareholders, and otherwise will conduct the Exchange Program in
accordance with the terms of the Order.
4. The Participating Underwriter represents, warrants and covenants that
(a) each Participating Fund's prospectus will disclose, in compliance with
paragraph (b)(6) of Rule 11a-3, (i) the amount of any administrative or
redemption fee imposed on an exchange of the Participating Fund's shares for
Summit Shares or on an exchange of Summit Shares for shares of the Participating
Fund, and (ii) that the Exchange Program is subject to termination, and that its
terms are subject to change; (b) any sales literature or advertising prepared by
the Participating Underwriter or by a Participating Fund will disclose, in
compliance with paragraph (b)(7) of Rule 11a-3, (i) the existence of any
administrative or redemption fee imposed on an exchange between the
Participating Fund and Summit and (ii) that the Exchange Program is subject to
termination and that its terms are subject to change; and (c) if the Exchange
Program is to be terminated or materially amended with respect to any
Participating Fund, the Participating Fund will comply with the provisions of
paragraph (b)(8) of Rule 11a-3.
5. As payment for the Participating Underwriter's distribution services
with respect to Class B Summit Shares under the Exchange Program, PFD will pay
to the
4
<PAGE>
Participating Underwriter (i) Rule 12b-1 distribution fees received by PFD
under the Summit Plan in respect of Class B shares acquired in an exchange for
CDSC Shares of a Participating Fund, and (ii) any CDSCs received by PFD upon
the redemption of such shares.
6. The Participating Underwriter shall provide PFD, at least quarterly,
such information as reasonably requested by PFD to enable PFD to comply with
the reporting requirements of Rule 12b-1 regarding the disbursement of the
distribution fee during such period referred to in Paragraph 3 of the Summit
Plan.
7. (a) The Participating Underwriter hereby agrees to indemnify and hold
harmless PFD, each person, if any, who controls PFD, the Trust, and their
respective affiliates from and against any loss, liability, claim, damage or
expense (including the reasonable cost of investigating any alleged loss,
liability, claim, damage or expense and reasonable counsel fees incurred in
connection therewith) (collectively, "Losses"), as incurred, arising out of or
based upon the breach of any provision hereof by the Participating Underwriter
or the Participating Underwriter's failure to effect redemptions or purchases in
conformity with the terms and conditions of the Exchange Program as described
herein and in the Order.
(b) PFD hereby agrees to indemnify and hold harmless the Participating
Underwriter from and against any losses arising out of or based upon the breach
of any provision hereof by PFD.
5
<PAGE>
(c) Any person entitled to indemnification hereunder agrees to give prompt
written notice to the indemnifying party after the receipt by such person of any
written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing (collectively, a "Claim") for
which such person will claim indemnification hereunder. The indemnifying party
shall be entitled to assume the defense of any such Claim with counsel that is
reasonably satisfactory to the indemnified party, unless in the judgment of
counsel to the indemnified party a conflict of interest may exist between the
indemnified party and the indemnifying party with respect to such Claim.
Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such Claim.
8. This Agreement shall not take effect until it has been approved by vote
of a majority of both (a) the Trustees of the Trust and (b) those Trustees of
the Trust who are not "interested persons" of the Trust, as that term is defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Trustees"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
6
<PAGE>
9. This Agreement shall continue in effect for as long as such continuance
is specifically approved at least annually in the manner provided for initial
approval of this Agreement in Paragraph 8 hereof.
10. This Agreement shall automatically terminate in the event of its
assignment, in the event of the termination of the Summit Plan or any amendment
to the Summit Plan that requires such termination, or in the event the Exchange
Program is terminated. This Agreement may be terminated at any time, without
the payment of any penalty, by vote of a majority of the Rule 12b-1 Trustees or
by vote of a majority of the outstanding Class B Summit Shares on not more than
sixty days' written notice to the parties hereto.
11. If this Agreement is terminated for any reason, then any CDSCs or Rule
12b-1 distribution fees collected subsequent to the termination on any Class B
Summit Shares that were acquired in an exchange for Participating Fund Shares
prior to the termination date shall, nevertheless, be paid to the Participating
Underwriter as if this Agreement were still in effect.
12. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements,
arrangements and understandings whether written or oral, with respect thereto.
This Agreement may be amended only in writing signed by the parties hereto, and,
if required under Rule 12b-1,
7
<PAGE>
by agreement of the Trustees of the Trust in the manner provided for in
paragraph 8 hereof.
13. The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws, and the applicable provisions of the Act. To the extent
that the applicable laws of the State of New York, or any of the provisions
herein, conflict with the applicable provisions of the Act, the latter shall
control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PRINCETON FUNDS DISTRIBUTOR, INC.
By: ______________________________________
[PARTICIPATING UNDERWRITER]
By: ______________________________________
8
<PAGE>
EXHIBIT 99.18
FINANCIAL INSTITUTIONS SERIES TRUST
SUMMIT CASH RESERVES FUND
PLAN PURSUANT TO RULE 18f-3 UNDER THE INVESTMENT COMPANY ACT
Summit Cash Reserves Fund (the "Fund") of Financial Institutions
Series Trust offers Class A Shares and Class B Shares as follows:
Account Maintenance and Distribution Fees
- -------------------------------------------
Class B Shares bear the expenses of the ongoing account maintenance
fees applicable to such Class. Class B Shares bear the expenses of the ongoing
distribution fees applicable to such Class. Certain shareholders within each
Class may be subject to initial or contingent deferred sales charges as set
forth in the Fund's current prospectus and statement of additional information
(together, the "prospectus").
Transfer Agency Expenses
- ------------------------
Each class shall bear any incremental transfer agency cost applicable to
the particular Class.
Voting Rights
- -------------
Class B Shares have exclusive voting rights on any matter submitted to
shareholders that relates solely to its account maintenance fees or ongoing
distribution fees, as may be applicable. Each Class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
Class differ from the interests of the other Class.
Dividends
- ---------
Dividends paid on each Class will be calculated in the same manner at
the same time and will differ only to the extent that any account maintenance
fee, any distribution fee and any incremental transfer agency cost relates to a
particular Class.
Exchange Privileges
- -------------------
Holders of Class A Shares and Class B Shares shall have such exchange
privileges as set forth in the Fund's current prospectus. Exchange privileges
may vary among Classes and among holders of a Class.
Other Rights and Obligations
- ----------------------------
Except as otherwise described above, in all respects, each Class shall
have the same rights and obligations as each other Class.
