As filed with the Securities and Exchange Commission on September 28, 1999
Securities Act File No. 2-78646
Investment Company Act File No. 811-3189
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 19 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 35 |X|
(Check appropriate box or boxes)
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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
Terry K. Glenn
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)
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Copies to:
Counsel for the Fund Michael J. Hennewinkel, Esq.
BROWN & WOOD LLP FUND ASSET MANAGEMENT
One World Trade Center P.O. Box 9011
New York, New York 10048-0557 Princeton, New Jersey 08543-9011
Attention: Frank P. Bruno, Esq.
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IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
|X| immediately upon filing pursuant to paragraph (b)
|_| on March 1, 1999 pursuant to paragraph (b)
|_| 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:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Title of Securities Being Registered: Shares of Beneficial Interest, par value
$.10 per share.
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<PAGE>
Prospectus
[LOGO] Merrill Lynch
Summit Cash Reserves Fund
of Financial Institutions Series Trust
September 28, 1999
This Prospectus contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for future
reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
Table of Contents
PAGE
[CLIPART] KEY FACTS
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Summit Cash Reserves Fund at a Glance .......................... 3
Risk/Return Bar Chart .......................................... 4
Fees and Expenses .............................................. 5
[CLIPART] DETAILS ABOUT THE FUND
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How the Fund Invests ........................................... 7
Investment Risks ............................................... 9
[CLIPART] YOUR ACCOUNT
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How to Buy, Sell and Exchange Shares ........................... 11
How Shares Are Priced .......................................... 16
Dividends and Taxes ............................................ 16
[CLIPART] MANAGEMENT OF THE FUND
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Fund Asset Management .......................................... 18
Financial Highlights ........................................... 19
[CLIPART] FOR MORE INFORMATION
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Shareholder Reports ................................... Back Cover
Statement of Additional Information ................... Back Cover
SUMMIT CASH RESERVES FUND
<PAGE>
Key Facts [CLIPART]
In an effort to help you better understand the many concepts involved in making
an investment decision, we have defined the highlighted terms in this prospectus
in the sidebar.
Short Term Securities -- securities with maturities of not more than 762 days
(25 months) in the case of U.S. Government and agency securities and no more
than 397 days (13 months) in the case of all other securities.
Direct U.S. Government Obligations -- obligations that are issued or have their
principal and interest guaranteed and backed by the full faith and credit of the
United States.
Repurchase Agreements -- agreements where another party sells securities to the
Fund and at the same time agrees to repurchase the securities at a particular
time and price.
SUMMIT CASH RESERVES FUND AT A GLANCE
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What are the Fund's investment objectives?
The investment objectives of the Fund are to seek current income, preservation
of capital and liquidity available from investing in a diversified portfolio of
short term money market securities.
What are the Fund's main investment strategies?
The Fund tries to achieve its objectives by investing in a diversified portfolio
of U.S. dollar denominated money market securities. These securities consist
primarily of short term securities, such as direct U.S. Government obligations,
U.S. Government agency securities, bank obligations, commercial paper and
repurchase agreements. The Fund may also invest in obligations of domestic and
foreign banks and other short term debt securities issued by U.S. and foreign
entities.
Fund management decides which of these securities to buy and sell based on its
assessment of the relative values of different securities and future interest
rates. Fund management seeks to improve the Fund's yield by taking advantage of
yield differentials that regularly occur between securities of a similar kind.
We cannot guarantee that the Fund will achieve its objectives.
What are the main risks of investing in the Fund?
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. In addition, the Fund may
lose money if the other party to a repurchase agreement defaults on its
obligation. Foreign investing involves special risks including higher costs and
the possibility of adverse political, economic and other developments. Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund.
Who should invest?
Shares of the Fund are offered to participants in the exchange program or
exchange privilege. See "Your Account" below for more details.
The Fund may be an appropriate investment for you if you:
o Are looking for current income and liquidity
o Are looking for preservation of capital
o Are investing with short term goals in mind, such as for cash
reserves
SUMMIT CASH RESERVES FUND 3
<PAGE>
[CLIPART] Key Facts
RISK/RETURN BAR CHART
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The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
Class A shares for the past ten calendar years. The table shows the average
annual total returns of the Fund for one, five and ten years. How the Fund
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
[The following information was depicted as a bar chart in the printed material]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
8.98% 7.99% 5.61% 3.19% 2.49% 3.48% 5.18% 4.61% 5.22% 5.58%
During the ten year period shown in the bar chart, the highest return for a
quarter was 2.34% (quarter ended June 30, 1989) and the lowest return for a
quarter was 0.58% (quarter ended March 31, 1994). The Fund's year-to-date return
as of June 30, 1999 was 2.25%.
Average Annual Total Returns (as of the Past Past Past
calendar year ended December 31, 1998) One Year Five Years Ten Years
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Summit Cash Reserves Fund Class A 5.58% 4.81% 5.21%
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YIELD INFORMATION
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Yield -- the income generated by an investment in the Fund.
The yield on Fund shares normally will fluctuate on a daily basis. Therefore,
yields for any given past periods are not an indication or representation of
future yields. The Fund's yield is affected by changes in interest rates,
average portfolio maturity, the types and quality of portfolio securities held
and operating expenses. Current yield information may not provide the basis for
a comparison with bank deposits or other investments, which pay a fixed yield
over a stated period of time and may not be comparable to the yield on shares of
other money market funds. To obtain the Fund's current 7-day yield, call
1-800-MER-FUND.
4 SUMMIT CASH RESERVES FUND
<PAGE>
UNDERSTANDING EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses -- expenses that cover the costs of operating the
Fund.
Management Fee -- a fee paid to the Investment Manager for managing the Fund.
Distribution Fees -- fees used to support the Fund's marketing and distribution
efforts, such as compensating Financial Consultants, advertising and promotion.
FEES AND EXPENSES
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The Fund offers two classes of shares. Although your money will be invested the
same way no matter which class of shares you buy, there are differences among
the fees and expenses associated with each class. Not everyone is eligible to
buy each class. After determining which class you are eligible to buy, decide
which class best suits your needs. Your Merrill Lynch Financial Consultant can
help you with this decision.
This table shows the different fees and expenses that you may pay if you buy and
hold each class of shares of the Fund. Future expenses may be greater or less
than those indicated below.
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets) Class A Class B
- --------------------------------------------------------------------------------
Management Fees 0.50% 0.50%
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Distribution (12b-1) Fees(a) None 0.75%
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Other Expenses (including transfer agency fees)(b) 0.54% 0.21%
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Total Annual Fund Operating Expenses(c) 1.04% 1.46%
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(a) The Fund is authorized to pay Merrill Lynch distribution fees of 0.75%
each year under a distribution plan with respect to Class B shares that
the Fund has adopted under rule 12b-1. Because these fees are paid out of
the Fund's assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying an initial
sales charge. For the fiscal year ended May 31, 1999, $585,314 was paid to
Merrill Lynch pursuant to the distribution plan.
(b) The Fund pays the Transfer Agent $11.00 per Class A shareholder account
and $14.00 per Class B shareholder account and reimburses the Transfer
Agent's out of pocket expenses. The Fund also pays a $.20 monthly closed
account charge, which is assessed on all accounts that close during the
year. This fee begins the month following the month the account is closed
and ends at the end of the calendar year. 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. For the fiscal year ended May 31, 1999, the Fund
paid the Transfer Agent fees totaling $52,953. The Investment Manager
provides accounting services to the Fund at its cost. For the fiscal year
ended May 31, 1999, the Fund reimbursed the Investment Manager $64,596 for
these services.
(c) For the fiscal year ended May 31, 1999, the Investment Manager voluntarily
waived a portion of the management fee. Total Annual Fund Operating
Expenses, after giving effect to the waiver of fees, was 0.34% for Class A
shares and 1.10% for Class B shares.
SUMMIT CASH RESERVES FUND 5
<PAGE>
[CLIPART] Key Facts
Example:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A $106 $331 $574 $1,271
- --------------------------------------------------------------------------------
Class B $149 $462 $797 $1,746
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6 SUMMIT CASH RESERVES FUND
<PAGE>
Details About the Fund [CLIPART]
ABOUT THE PORTFOLIO MANAGER
Carlo J. Giannini is a Vice President and the portfolio manager of the Fund. Mr.
Giannini has been a Vice President of Fund Asset Management since 1981.
ABOUT THE INVESTMENT MANAGER
The Fund is managed by Fund Asset Management.
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
The Fund seeks current income, preservation of capital and liquidity. The Fund
tries to achieve its goals by investing in a diversified portfolio of short term
money market securities. These instruments are U.S. dollar-denominated fixed
income securities that mature or reset to a new interest rate within 13 months
(25 months if the U.S. Government or a Government agency has issued or
guaranteed the debt). Other than U.S. Government and Government agency
securities, the Fund only invests in money market instruments of issuers with
one of the two highest short term ratings from a nationally recognized credit
rating organization or unrated instruments which, in the opinion of Fund
management, are of similar credit quality.
Fund management will vary the types of money market instruments in the Fund's
portfolio, as well as the Fund's average maturity, in response to its assessment
of the relative value of different securities and future short term interest
rates. The Fund's dollar-weighted average maturity will not exceed 90 days. Fund
management seeks to improve the Fund's yield by taking advantage of yield
differentials that regularly occur between securities of a similar kind. For
example, market conditions frequently result in similar securities trading at
different prices. Fund management seeks to improve the Fund's yield by buying
and selling securities based on these yield differences.
Among the money market obligations the Fund may buy are:
United States Government Securities -- Debt securities issued by or guaranteed
as to principal and interest by the U.S. Government and supported by the full
faith and credit of the United States.
United States Government Agency Securities -- Debt securities issued by U.S.
Government agencies, government-sponsored enterprises, and government
instrumentalities. Agency securities may be supported only by the credit of the
issuer, not the full faith and credit of the United States.
Bank Money Instruments -- Obligations of commercial banks, savings banks, or
other depository institutions, such as certificates of deposit, bankers'
acceptances, bank notes and time deposits. The Fund may only invest in
obligations of savings banks and savings and loan associations organized and
operating in the United States. The Fund may invest in obligations of commercial
banks issued by U.S. depository institutions, foreign branches or subsidiaries
of U.S. depository institutions (called Eurodollar obligations) or U.S. branches
or subsidiaries of foreign depository institutions (called Yankeedollar
obligations). The Fund may invest in Eurodollar obligations only if they are
general obligations of the U.S. parent bank.
SUMMIT CASH RESERVES FUND 7
<PAGE>
[CLIPART] Details About the Fund
Commercial Paper And Other Short Term Obligations -- Commercial paper (including
variable amount master demand notes, funding agreements, and mortgage backed or
asset backed securities) with no more than 397 days (13 months) remaining to
maturity at the date of purchase.
Foreign Bank Money Instruments -- U.S. dollar denominated obligations of foreign
depository institutions and their foreign branches and subsidiaries, such as
certificates of deposits, bankers' acceptances, time deposits, bank notes and
deposit notes. Payment on securities of foreign branches and subsidiaries may be
a general obligation of the parent bank or may be an obligation only of the
issuing branch or subsidiary. The Fund will invest in these securities only if
Fund management determines they are of comparable quality to other investments
permissible for the Fund.
Foreign Short Term Debt Instruments -- U.S. dollar denominated commercial paper
and other short term obligations issued by foreign entities. The Fund may
purchase these securities only if Fund management determines they are of
comparable quality to the Fund's U.S. investments.
Repurchase Agreements -- In a repurchase agreement the Fund buys a security from
another party, which agrees to buy it back at an agreed upon time and price. The
Fund may invest in repurchase agreements involving the money market securities
described above.
Reverse Repurchase Agreements -- In a reverse repurchase agreement the Fund
sells a security to another party and agrees to buy it back at a specific time
and price. The Fund may engage in reverse repurchase agreements involving the
money market securities described above.
When-Issued, Delayed Delivery and Forward Commitments -- The Fund may buy or
sell money market securities on a when-issued, delayed delivery and forward
commitment basis. In these transactions, the Fund buys or sells the securities
at an established price with payment and delivery taking place in the future.
The value of the security on the delivery date may be more or less than its
purchase price.
8 SUMMIT CASH RESERVES FUND
<PAGE>
INVESTMENT RISKS
- --------------------------------------------------------------------------------
This section contains a summary discussion of general risks of investing in the
Fund. As with any mutual fund, there can be no guarantee that the Fund will meet
its goals or that the Fund's performance will be positive for any period of
time.
Credit Risk -- Credit risk is the risk that the issuer of a security owned by
the Fund will be unable to pay the interest or principal when due. The degree of
credit risk depends on both the financial condition of the issuer and the terms
of the obligation.
Selection Risk -- Selection risk is the risk that the securities that Fund
management selects will underperform other funds with similar investment
objectives and investment strategies.
Interest Rate Risk -- Interest rate risk is the risk that prices of money market
securities generally increase when interest rates decline and decrease when
interest rates increase. Prices of longer term securities generally change more
in response to interest rate changes than prices of shorter term securities.
Share Reduction Risk -- In order to maintain a constant net asset value of $1.00
per share, the Fund may reduce the number of shares held by its shareholders.
Borrowing Risk -- The Fund may borrow only to meet redemptions. Borrowing may
exaggerate changes in the net asset value of Fund shares and in the yield on the
Fund's portfolio. Borrowing will cost the Fund interest expense and other fees.
The cost of borrowing money may reduce the Fund's return.
Repurchase Agreement Risk -- If the party with whom the Fund has entered into a
repurchase agreement fails to meet its obligation under the agreement, the Fund
may suffer delays and incur costs or even lose money in exercising its rights
under the agreement.
Reverse Repurchase Agreement Risk -- The Fund may lose money if the other party
fails to meet its obligation under the agreement and the Fund has to buy the
underlying securities elsewhere at more than the agreed-upon price. In addition,
in a declining market the Fund may be unable to sell securities that are the
subject of a reverse repurchase agreement until it repurchases them, which may
result in the Fund receiving a lower sale price than it otherwise would have.
SUMMIT CASH RESERVES FUND 9
<PAGE>
[CLIPART] Details About the Fund
When-Issued Securities, Delayed Delivery Securities and Forward Commitments --
When-issued and delayed delivery securities and forward commitments involve the
risk that the security the Fund buys will lose value prior to its delivery.
There is also the risk that the security will not be issued or that the other
party will not meet its obligation. If this occurs, the Fund loses both the
investment opportunity for the assets it has set aside to pay for the security
and any gain in the security's price. When issued and delayed delivery
securities also involve the risk that the yields available in the market when
delivery takes place may be higher than those fixed in the transaction at the
time of commitment. If this happens, the value of the when-issued or delayed
delivery security will generally decline.
Securities Lending Risk -- The Fund may lend securities to financial
institutions that provide cash or government securities as collateral.
Securities lending involves the risk that the borrower may fail to return the
securities in a timely manner or at all. As a result, the Fund may lose money if
it is unable to recover its securities or if the value of its collateral falls.
These events could trigger adverse tax consequences to the Fund.
Foreign Market Risk -- The Fund may invest in U.S. dollar denominated money
market instruments and other short term debt obligations issued by foreign banks
and other foreign entities. Although the Fund will invest in these securities
only if Fund management determines they are of comparable quality to the Fund's
U.S. investments, investing in securities of foreign issuers involves some
additional risks. These risks include the possibility of higher costs of foreign
investing and of adverse political, economic or other developments.
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
If you would like further information about the Fund, including how it invests,
please see the Statement of Additional Information.
10 SUMMIT CASH RESERVES FUND
<PAGE>
Your Account [CLIPART]
HOW TO BUY, SELL AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
The chart below summarizes how to buy, sell, and exchange shares through Merrill
Lynch or other securities dealers. You may also sell and exchange shares through
the Transfer Agent. To learn more about selling and exchanging shares through
the Transfer Agent, call 1-800-MER-FUND. Because the selection of a mutual fund
involves many considerations, your Merrill Lynch Financial Consultant may help
you with this decision.
SUMMIT CASH RESERVES FUND 11
<PAGE>
Your Account [CLIPART]
<TABLE>
<CAPTION>
If You Want To Your Choices Information Important For You To Know
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<S> <C> <C>
Buy Shares First, determine the exchange Class A shares and Class B shares will be offered only:
arrangement through which you are
eligible to purchase shares o to participants in the exchange privilege available to certain
mutual funds advised by the Investment Manager or MLAM or by
Mercury Asset Management International Limited ("Mercury"); and
o to participants in the exchange program with certain non-money
market mutual funds for which Merrill Lynch serves as selected
dealer and that are not advised by the Investment Manager, MLAM
or Mercury.
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Next, determine the amount of your Shares with a net asset value of at least $100 are required to qualify
investment for the exchange program and the exchange privilege and shares used in
an exchange must have been held for at least fifteen days.
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Have your Merrill Lynch Financial You may request a Merrill Lynch Financial Consultant or a securities
Consultant or securities dealer dealer that has entered into a selected dealer agreement with
submit your purchase order Princeton Funds Distributor, Inc. (the "Distributor") to place a
purchase order for your account pursuant to the exchange privilege or
exchange program.See below for more details.
The price of your shares will be the net asset value next calculated
after your order becomes effective. Share purchase orders are
effective on the date Federal Funds become available to the Fund. If
Federal Funds are available to the Fund prior to the determination of
net asset value (generally 4:00 p.m. Eastern time) on any business
day, the order will be effective on that day. Shares purchased will
begin accruing dividends on the day of purchase.
The Fund may reject any order to buy shares and may suspend the sale
of shares at any time.
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Add To Your Purchase additional shares There is no minimum investment for additional purchases for all
Investment accounts.
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Sell Your Shares Submit a sell order directly to the Although you must have held shares used in an exchange for at least 15
Transfer Agent calendar days before effecting an exchange, after this requirement is
met, you may redeem shares held in your account at any time. You may
redeem shares by submitting a written notice of redemption directly to
the Transfer Agent, Financial Data Services, Inc., P.O. Box 45289,
Jacksonville, Florida 32232-5289. Redemption requests should not be
sent directly to the Trust. The notice requires the signature of all
persons in whose names the shares are registered signed exactly as
their name appears on the Transfer Agent's register. In some cases a
signature guarantee may be required. Please see the Statement of
Additional Information for details on when a signature guarantee is
needed.
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</TABLE>
12 SUMMIT CASH RESERVES FUND
<PAGE>
<TABLE>
<CAPTION>
If You Want To Your Choices Information Important For You To Know
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<S> <C> <C>
Sell Your Shares Submit a sell order directly to the The price of your shares will be the net asset value next calculated
(continued) Transfer Agent after receipt by the Transfer Agent of proper notice of redemption as
(continued) described above. If such notice is received by the Transfer Agent
prior to the determination of net asset value (generally 4:00 p.m.
Eastern time) on any business day, the redemption will be effective on
that day and payment will generally be made on the next business day.
If 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 generally be made on the second business day
thereafter. For your redemption request to be priced at the net asset
value on the day of your request, you must submit your request to the
Transfer Agent prior to the determination of net asset value of the
Fund (generally 4:00 p.m. Eastern time). Any redemption request placed
after that time will be priced at the net asset value at the close of
business on the next business day.
The Fund may reject an order to sell shares under certain
circumstances.
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Repurchase through securities You may request your securities dealer to place an order for the Trust
dealers to repurchase your shares. The Trust will normally accept orders to
repurchase shares by wire or telephone from dealers. The price of your
shares will be the net asset value next calculated after your order is
placed. For your repurchase request to be priced at the net asset
value on the day of your request, you must submit your request to your
dealer prior to the determination of net asset value of the Fund
(generally 4:00 p.m., Eastern time). Any repurchase request placed by
a dealer after that time will be priced at the net asset value at the
close of business on the next business day. These repurchase
arrangements 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. For shareholders requesting repurchases
through their securities dealer, payment will be made by the Transfer
Agent to the dealer.
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Exchange Your Shares Exchange Privilege Class A shareholders: You will have an exchange privilege with Class A
and Class D shares of certain MLAM-advised funds.
If you acquired your shares upon
an exchange from a fund advised You may exchange Class A shares of the Fund with Class A shares of one
by the Investment Manager or of the MLAM-advised funds if you hold any Class A shares of the
MLAM ("MLAM-advised fund") MLAM-advised fund or you are otherwise eligible to purchase Class A
shares of that fund. Otherwise, Class D shares will automatically be
purchased.
You may exchange back into the same class of shares of the original
MLAM-advised fund without incurring any sales charge or you may
exchange into Class A (if you are eligible) or Class D shares of
another MLAM-advised fund and pay the difference, if any, between the
sales charge previously paid and the sales charge payable at the time
of the exchange into the new MLAM-advised fund.
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</TABLE>
SUMMIT CASH RESERVES FUND 13
<PAGE>
Your Account [CLIPART]
<TABLE>
<CAPTION>
If You Want To Your Choices Information Important For You To Know
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<S> <C> <C>
Exchange Your Exchange Privilege Class B shareholders: You will have an exchange privilege with Class B
Shares (continued) (continued) and Class C shares of certain MLAM-advised funds.
If you acquired your shares upon You may exchange back into the same class of shares of the original
an exchange from a fund advised MLAM-advised fund or another MLAM-advised fund. The period of time
by the Investment Manager or that you held your Class B shares of the Fund will count towards
MLAM ("MLAM-advised fund") satisfaction of the holding period requirement for reducing the
(continued) contingent deferred sales charge ("CDSC") and towards the conversion
period (the length of time until Class B shares are automatically
converted into Class D shares) relating to the shares of the
MLAM-advised fund.
If Class B shares are redeemed from the Fund and not exchanged into a
MLAM-advised fund, a CDSC will be charged to the extent that it would
have been charged on a redemption of shares from the original
MLAM-advised fund.
If you acquired your shares upon Class A shareholders: You will have an exchange privilege with Class A
an exchange from a fund advised or Class I shares of certain Mercury-advised funds.
by Mercury Asset Management
International Limited
("Mercury-advised fund")
You may exchange Class A shares of the Fund for Class I shares of one
of the Mercury-advised funds if you are eligible to purchase Class I
shares of that fund. Otherwise Class A shares will automatically be
purchased.
You may exchange back into the same class of shares of the original
Mercury-advised fund without incurring any sales charge or you may
exchange into Class I or Class A shares of another Mercury-advised
fund and pay the difference, if any, between the sales charge
previously paid and the sales charge payable at the time of the
exchange into the new Mercury-advised fund.
Class B shareholders: You will have an exchange privilege with Class B
and Class C shares of certain Mercury-advised funds.
You may exchange back into the same class of shares of the original
Mercury-advised fund or another Mercury-advised fund. The period of
time that you held your Class B shares of the Fund will count towards
satisfaction of the holding period requirement for reducing the CDSC
and towards the conversion period (the length of time until Class B
shares are automatically converted into Class D shares) relating to
the shares of the Mercury-advised fund.
If Class B shares are redeemed from the Fund and not exchanged into a
Mercury-advised fund, a CDSC will be charged to the extent that it
would have been charged on a redemption of shares from the original
Mercury-advised fund.
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</TABLE>
14 SUMMIT CASH RESERVES FUND
<PAGE>
<TABLE>
<CAPTION>
If You Want To Your Choices Information Important For You To Know
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Exchange Program Shares of the Participating Fund that are subject to a front end sales
charge will be exchanged for Class A shares of the Fund at net asset
If you purchase shares of certain value without imposition of a sales charge.
non-money market mutual funds
not advised by the Investment You may exchange back into the original Participating Fund without
Manager, MLAM or Mercury and incurring a sales charge or you may exchange into another
not distributed by the Distributor, Participating Fund in the same fund complex and pay the difference, if
but for which Merrill Lynch acts any, between the sales charge previously paid and the sales charge
as selected dealer("Participating payable at the time of the exchange into the new Participating Fund.
Fund")
Shares of the Participating Fund that are subject to a CDSC will be
exchanged for Class B shares of the Fund at net asset value without
imposition of a CDSC.
You may exchange back into the same class of the original
Participating Fund or another Participating Fund in the same fund
complex. The period of time that you held your Class B shares of the
Fund will count towards satisfaction of the holding period requirement
for reducing the CDSC and towards the conversion period (the length of
time until Class B shares are automatically converted into Class D
shares) relating to the shares of the Participating Fund.
If Class B shares are redeemed from the Fund and not exchanged into a
Participating Fund within the same fund complex as the fund from which
the exchange into the Fund occurred, a CDSC will be charged to the
extent that it would have been charged on a redemption of shares from
the original Participating Fund.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUMMIT CASH RESERVES FUND 15
<PAGE>
[CLIPART] Your Account
Net Asset Value -- the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
When you buy shares, you pay the net asset value (normally $1.00 per share)
without a sales charge. The "penny-rounding" method is used in calculating net
asset value, meaning that the calculation is rounded to the nearest whole cent.
This is the offering price. Shares are also redeemed at their net asset value.
The Fund calculates its net asset value each day the New York Stock Exchange is
open, after the close of business on the Exchange (generally, 4:00 p.m. Eastern
time). The net asset value used in determining your price is the next one
calculated after your purchase or redemption order is placed. Share purchase
orders are effective on the date Federal Funds become available to the Fund. You
will begin accruing dividends on the day following the date your purchase
becomes effective.
Dividends -- ordinary income and capital gains paid to shareholders. Dividends
and capital gains may be reinvested in additional Fund shares as they are paid.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends of ordinary income are declared daily and reinvested monthly in the
form of additional shares at net asset value. Shareholders will receive
statements monthly or quarterly as to such reinvestments. Shareholders redeeming
their holdings will receive all dividends declared and reinvested through the
date of redemption. Dividends of capital gains, if any, will be paid to
shareholders at least annually. It is expected that ordinary income will
comprise most of the Fund's distributions, although the Fund may distribute
capital gains as well.
You will pay tax on dividends from the Fund whether you receive them in cash or
additional shares. If you redeem Fund shares or exchange them for shares of
another fund, any gain on the transaction may be subject to tax. Capital gain
dividends are generally taxed at different rates than ordinary income dividends.
If the value of the assets held by the 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 your eliminated shares would be added to the basis of your remaining
Fund shares, and you could recognize a capital loss if you disposed of your
shares at that time. Dividends from the Fund, including dividends reinvested in
additional shares of the Fund, will nonetheless be fully taxable, even if the
number of shares in your account has been reduced as described above.
16 SUMMIT CASH RESERVES FUND
<PAGE>
If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.
Dividends and interest received by the 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.
By law, the Fund must withhold 31% of your dividends and proceeds if you have
not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current Federal tax law
of an investment in the Fund. It is not a substitute for personal tax advice.
Consult your personal tax adviser about the potential tax consequences of an
investment in the Fund under all applicable tax laws.
SUMMIT CASH RESERVES FUND 17
<PAGE>
Management of the Fund [CLIPART]
FUND ASSET MANAGEMENT
- --------------------------------------------------------------------------------
Fund Asset Management, the Fund's Investment Manager, manages the Fund's
investments and its business operations under the overall supervision of the
Fund's Board of Trustees. The Investment Manager has the responsibility for
making all investment decisions for the Fund. The Fund pays the Investment
Manager a fee at the annual rate of 0.50% of the average daily net assets of the
Fund.
Fund Asset Management is part of Merrill Lynch Asset Management Group, which had
approximately $520 billion in investment company and other portfolio assets
under management as of August 1999. This amount includes assets managed for
Merrill Lynch affiliates.
A Note About Year 2000
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"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund management that they also
expect to resolve the Year 2000 Problem, and the Fund management will continue
to monitor the situation as the Year 2000 approaches. However, if the problem
has not been fully addressed, the Fund could be negatively affected. The Year
2000 Problem could also have a negative impact on the companies in which the
Fund invests, and this could hurt the Fund's investment returns.
18 SUMMIT CASH RESERVES FUND
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the periods shown. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Deloitte & Touche LLP, whose report, along with the Fund's
financial statements, are included in the Fund's annual report to shareholders,
which is available upon request. During the fiscal year ended May 31, 1998 and a
portion of the fiscal year ended May 31, 1999, the Fund was not publicly
offering its shares, and , all of the Fund's outstanding shares were owned by
the Investment Manager.
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------------------------------- --------------
For the period
For The Year Ended May 31, October 9, 1998+
--------------------------------------------------------------------- to May 31,
Increase (Decrease) In Net Asset Value: 1999 1998 1997 1996 1995 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income -- net .0556 .0531 .0432 .0476 .0444 .0260
- ---------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss)
on investments -- net (.0004) -- .0001 (.0011) .0014 (.0002)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .0052 .0531 .0433 .0465 .0458 .0258
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
Investment income -- net (.0556) (.0531) (.0431) (.0476) (.0444) (.0260)
Realized gain on investments -- net --++ -- -- --++ (.0001) --++
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (.0556) (.0531) (.0431) (.0476) (.0445) (.0260)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Return 5.71% 5.36% 4.40% 4.95% 4.51% 4.12%*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net Assets:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement .34% .00% 1.38% 1.13% .98% 1.10%*
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses 1.04% 72.77% 1.97% 1.13% .98% 1.46%*
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income and realized gain
on investments -- net 4.75% 5.30% 4.18% 4.83% 4.35% 3.99%*
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $56,512 $253 $240 $34,865 $89,119 $166,818
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Commencement of Operations.
++ Amount is less than $.0001 per share.
SUMMIT CASH RESERVES FUND 19
<PAGE>
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SUMMIT CASH RESERVES FUND
<PAGE>
(This page intentionally left blank)
SUMMIT CASH RESERVES FUND
<PAGE>
(This page intentionally left blank)
SUMMIT CASH RESERVES FUND
<PAGE>
---------------------------------
POTENTIAL
INVESTORS
Open an account (two options)
---------------------------------
(1) (2)
- ---------------------------- -----------------------------------
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT Financial Data Services, Inc.
OR SECURITIES DEALER P.O. Box 45289
Jacksonville, Florida 32232-5289
Advises shareholders on 1-800-MER-FUND
their fund investments.
- ---------------------------- Performs recordkeeping and
reporting services.
-----------------------------------
----------------------------------------------------
DISTRIBUTOR
Princeton Funds Distributor,
P.O. Box 9081
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
----------------------------------------------------
- ------------------------ -----------------------------------
COUNSEL CUSTODIAN
------------------
Brown & Wood LLP THE FUND The Bank of New York
One World Trade Center 90 Washington Street
New York, New York The Board of 12th Floor
10048-0557 Trustees oversees New York, New York 10286
the Fund.
Provides legal advice ------------------ Holds the Fund's
to the Fund. assets for safekeeping.
- ------------------------ -----------------------------------
- ----------------------------------- ------------------------------------
INDEPENDENT AUDITORS INVESTMENT MANAGER
Deloitte & Touche LLP Fund Asset Management, L.P.
117 Campus Drive
Princeton, New Jersey 08540-6400 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Audits the financial Plainsboro, New Jersey 08536
statements of the Fund on behalf of
the shareholders. MAILING ADDRESS
- ----------------------------------- P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's
day-to-day activities.
------------------------------------
SUMMIT CASH RESERVES FUND
<PAGE>
For More Information [CLIPART]
Shareholder Reports
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. You
may obtain these reports at no cost by calling 1-800-MER-FUND.
The Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch Financial
Consultant or write to the Transfer Agent at its mailing address. Include your
name, address, tax identification number and Merrill Lynch brokerage or mutual
fund account number. If you have any questions, please call your Merrill Lynch
Financial Consultant or the Transfer Agent at 1-800-MER-FUND.
Statement Of Additional Information
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing the Fund at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289
or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund, at the telephone
number or address indicated above, if you have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
You should rely only on the information contained in this Prospectus. No one is
authorized to provide you with information that is different from information
contained in this Prospectus.
Investment Company Act file #811-3189
Code #SUMMIT-09-99
(C)Fund Asset Management, L.P.
Prospectus
[LOGO] Merrill Lynch
Summit Cash Reserves Fund
of Financial Institutions Series Trust
September 28, 1999
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Summit Cash Reserves Fund
of Financial Institutions Series Trust
P.O. Box 9011, Princeton, New Jersey 08543-9011 o Phone No. (609) 282-2800
----------
The investment objectives of the Summit Cash Reserves Fund (the "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
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. 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 Fund will be realized.
The Fund is a separate series of Financial Institutions Series Trust (the
"Trust"), a diversified, open-end investment company organized as a
Massachusetts business trust.
----------
The 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." Class A shares of the Fund are offered at their
net asset value without any sales charge. Class B shares of the Fund are offered
at their net asset value and 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 Fund is not a prospectus
and should be read in conjunction with the Prospectus of the Fund, dated
September 28, 1999 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission (the "Commission") and can be obtained, without charge,
by calling (800) 637-3863 or by writing the Fund at the above address. The
Prospectus is incorporated by reference into this Statement of Additional
Information, and this Statement of Additional Information is incorporated by
reference into the Prospectus. The Fund's audited financial statements are
incorporated in this Statement of Additional Information by reference to its
1999 annual report to shareholders. You may request a copy of the annual report
or the Prospectus at no charge by calling (800) 456-4587 ext. 789 between 8:00
a.m. and 8:00 p.m. on any business day.
----------
Fund Asset Management -- Investment Manager
Princeton Funds Distributor, Inc. -- Distributor
----------
The date of this Statement of Additional Information is September 28, 1999.
<PAGE>
TABLE OF CONTENTS
Page
----
Investment Objectives and Policies ........................................ 2
Investment Restrictions ................................................ 4
Management of the Trust ................................................... 6
Trustees and Officers .................................................. 6
Compensation of Trustees ............................................... 7
Management and Advisory Arrangements ................................... 8
Code of Ethics ......................................................... 9
Purchase of Shares ........................................................ 10
Distribution Plan ...................................................... 10
Conversion of Class B Shares to Class A Shares ......................... 12
Redemption of Shares ...................................................... 12
Methods of Redemption .................................................. 13
Exchange Privilege and Exchange Program ................................... 13
Exchange Privilege ..................................................... 13
Exchange Program ....................................................... 15
Determination of Net Asset Value .......................................... 16
Yield Information ......................................................... 17
Taxes ..................................................................... 17
Portfolio Transactions .................................................... 19
General Information ....................................................... 20
Description of Series and Shares ....................................... 20
Independent Auditors ................................................... 21
Custodian .............................................................. 21
Transfer Agent ......................................................... 21
Legal Counsel .......................................................... 21
Reports to Shareholders ................................................ 21
Shareholder Inquiries .................................................. 21
Additional Information ................................................. 22
Security Ownership of Certain Beneficial Owners ........................ 22
Financial Statements ...................................................... 22
Appendix A ................................................................ A-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the 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 Fund that may not be changed without a vote of the majority of
the outstanding shares of the Fund.
The Fund's investments in U.S. Government and Government Agency Securities
will be in instruments with remaining maturities of up to 762 days (25 months)
or less. The Fund's other investments will be in instruments with a remaining
maturity of 397 days (13 months) or less and 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. The Fund will
determine the remaining maturity of its investments in accordance with
Commission regulations. The dollar weighted average maturity of the Fund
portfolio will be 90 days or less. During the Fund's fiscal year ended May 31,
1999, the average maturity of its portfolio ranged from 1 to 83 days.
Investment in the Fund offers several potential benefits. The 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 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 Fund, Fund Asset Management, L.P., ("the Investment
Manager") will employ a number of professional money management techniques,
including varying the composition of the Fund's investments and the average
maturity of the portfolio based on its assessment of the relative values of the
various money market securities 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 Fund seeks to enhance yield by purchasing and selling
securities based on these yield differences.
The following is a description of some of the investments or investment
practices in which the Fund may invest or engage:
U.S. Government Securities. Marketable securities issued by or guaranteed
as to principal and interest by the U.S. Government and supported by the full
faith and credit of the United States.
U.S. Government Agency Securities. 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 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 and are issued, in general,
under the authority of an act of Congress. The U.S. Government is not obligated
to provide financial support to any of these agencies, instrumentalities or
organizations.
Bank Money Instruments: U.S. dollar-denominated obligations of commercial
banks, savings banks, savings and loan associations or other depository
institutions such as, but not limited to, certificates of deposit, including
variable rate certificates of deposit, time deposits, deposit notes, bank notes
and bankers' acceptances. The obligations of commercial banks may be issued by
U.S. banks, foreign branches or subsidiaries of U.S. banks ("Eurodollar"
obligations) or U.S. branches or subsidiaries of foreign banks ("Yankeedollar"
obligations). The Fund may invest only in Eurodollar obligations which by their
terms are general obligations of the U.S. parent
2
<PAGE>
bank. Yankeedollar obligations in which the Fund may invest must be issued by
U.S. branches or subsidiaries of foreign banks which are subject to state or
Federal banking regulations in the U.S. and by their terms must be general
obligations of the foreign parent.
Eurodollar and Yankeedollar obligations, as well as other obligations of
foreign depository institutions and short-term obligations issued by other
foreign entities, may involve additional investment risks, including 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 repayment of principal and the payment of interest. The
issuers of such obligations may not be subject to U.S. regulatory requirements.
Foreign branches or subsidiaries of U.S. 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 states in which they are
located. There may be less publicly available information about a U.S. branch or
subsidiary of a foreign bank or other issuer than about a U.S. bank or other
issuer, and such entities may not be subject to the same accounting, auditing
and financial record keeping standards and requirements as U.S. issuers.
Evidence of ownership of Eurodollar and foreign obligations may be held outside
the United States, and the Fund may be subject to the risks associated with the
holding of such property overseas. Eurodollar and foreign obligations of the
Fund held overseas will be held by foreign branches of the Fund's custodian 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").
The Investment Adviser will carefully consider the above factors in making
investments in Eurodollar obligations, Yankeedollar obligations of foreign
depository institutions and other foreign short-term obligations, and will not
knowingly purchase obligations which, at the time of purchase, are subject to
exchange controls or withholding taxes. Generally, the Fund will limit its
Yankeedollar investments to obligations of banks organized in Canada, France,
Germany, Japan, the Netherlands, Switzerland, the United Kingdom and other
industralized nations.
Bank money instruments in which the Fund invests must be issued by
depository institutions with total assets of at least $1 billion, except that
the Fund may invest in certificates of deposit of smaller institutions if such
certificates of deposit are Federally insured and if, as a result of such
purchase, no more than 10% of total assets (taken at market value), are invested
in such certificates of deposit.
Commercial Paper and Other Short-Term Obligations. 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, corporations, partnerships or other entities 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, automobile, manufactured housing or other types
of consumer loans; or credit card or other types of receivables. 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
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.
Foreign Bank Money Instruments. U.S. dollar-denominated obligations of
foreign depository institutions and their foreign branches and subsidiaries,
such as, but not limited to, certificates of deposit, bankers' acceptances, time
deposits, bank notes and deposit notes. The obligations of such foreign
depository institutions and their foreign branches and subsidiaries may be the
general obligations of the parent bank or may be limited to the issuing branch
or subsidiary by the terms of the specific obligation or by government
regulation. Such investments will only be made if determined to be of comparable
quality to other investments permissible for the Fund. The Fund will not invest
more than 25% of its total assets (taken at market value at the time of each
investment) in these obligations.
Foreign Short-Term Debt Instruments. 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.
3
<PAGE>
The following is a description of other types of investments or investment
practices in which the Fund may invest or engage:
Repurchase Agreements. The Fund may enter into repurchase agreements
involving the money market securities described above. A repurchase agreement is
an instrument under which the purchaser (i.e., the 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. This results in a fixed rate of
return insulated from market fluctuations during such period. Such agreements
usually cover short periods, such as under one week. As a matter of operating
policy, the 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 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 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 Fund may suffer time delays and incur costs or losses
in connection with the disposition of the collateral.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements which involve the sale of money market securities held by the 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 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 Fund does not consider entering into reverse repurchase
agreements to constitute borrowing money for purposes of the Fund's investment
restrictions set forth below.
Forward Commitments. The Fund may purchase and sell money market
securities on a when-issued basis or forward commitment basis, and it may
purchase or sell such securities for delayed delivery. The purchase of the
underlying securities will be recorded on the date the 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 Fund will
be established with The Bank of New York, the 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. The
Fund may dispose of a commitment prior to settlement. There can be no assurance
that a security purchased or sold through a forward commitment will be
delivered. The value of securities in these transactions on the delivery date
may be more or less than the Trust's purchase price. The Trust may bear the risk
of a decline in the value of the security in these transactions and may not
benefit from an appreciation in the value of the security during the commitment
period.
----------
Preservation of capital is a prime investment objective of the Fund, and
while the types of money market securities in which the 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 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 Fund may suffer time delays and incur costs or possible losses in connection
with the disposition of the collateral.
Rule 2a-7 under the Investment Company Act presently limits investments by
the 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% of its total assets. In addition, Rule
2a-7 requires that not more than 5% of the Fund's total assets be invested in
Second Tier Securities (as defined in the Rule). The Rule requires the 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).
Investment Restrictions
The Fund has adopted the following investment restrictions, none of which
may be changed without the approval of a majority of the Fund's outstanding
shares, which for this purpose means the vote of (i) 67% or more of the Fund's
shares present at a meeting, if the holders of more than 50% of the outstanding
shares of the Fund
4
<PAGE>
are present or represented by proxy, or (ii) more than 50% of the Fund's
outstanding shares, whichever is less. The 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 Fund
technically may be deemed an underwriter under the Securities Act of 1933, as
amended (the "Securities Act"), in selling portfolio securities.
(4) Borrow money except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 331/3% of its total
assets (including the amount borrowed), (ii) the Fund may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) the Fund may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities, and (iv) the Fund may purchase securities on
margin to the extent permitted by applicable law. These borrowing provisions
shall not apply to reverse repurchase agreements. The Fund may not pledge its
assets other than to secure such borrowings or to the extent permitted by the
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 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 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 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
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 Fund may do so in accordance with applicable law and the
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 Fund has adopted non-fundamental restrictions which may
be changed by the Board of Trustees without approval of the Fund's shareholders.
Under the non-fundamental investment restrictions, the 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 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 Fund.
b. Make short sales of securities or maintain a short position except to
the extent permitted by applicable law. The 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
not apply to securities that
5
<PAGE>
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 this Statement of Additional
Information.
Lending of Portfolio Securities. Subject to investment restriction (6)
above, the 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 Fund. Such
loans will be terminable at any time. The Fund will have the right to regain
record ownership of loaned securities to exercise beneficial rights. The 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
The Trustees of the Trust consists of seven individuals, five of whom are
not "interested persons" of the Trust as defined in the Investment Company Act
(the "non-interested Trustees"). The Trustees are responsible for the overall
supervision of the operations of the Fund and perform the various duties imposed
on the directors of investment companies by the Investment Company Act.
Information about the Trustees, executive officers and the portfolio
manager of the Fund, including their ages and their principal occupations for at
least the last five years, is set forth below. Unless otherwise noted, the
address of each Trustee, executive officer and the portfolio manager is P.O. Box
9011, Princeton, New Jersey 08543-9011.
TERRY K. GLENN (59) -- President and Trustee(1)(2) -- Executive Vice
President of the Investment Manager and Merrill Lynch Asset Management, L.P.
("MLAM") (which terms as used herein inside their corporate predecessors) since
1983; Executive Vice President and Director of Princeton Services, Inc.
("Princeton Services") since 1993; President of Princeton Funds Distributor,
Inc. ("PFD") since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
JOE GRILLS (64) -- Trustee(2) -- P.O. Box 98, Rapidan, Virginia 22733.
Member of the Committee on 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 Incorporated ("IBM") and Chief Investment
Officer of IBM Retirement Funds from 1986 until 1993; Member of the Investment
Advisory Committees of the State of New York Common Retirement Fund and the
Howard Hughes Medical Institute since 1997; Director, Duke Management Company
since 1992 and Vice Chairman since 1998; Director, LaSalle Street Fund since
1995; Director, Hotchkis and Wiley Mutual Funds since 1996; Director, Kimco
Realty Corporation since January 1997; Member of the Investment Advisory
Committee of the Virginia Retirement System since 1998; Director, Montpelier
Foundation since 1998.
WALTER MINTZ (70) -- 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. (62) -- Trustee(2) -- 106 Dolphin Cove Quay,
Stamford, Connecticut 06902. Principal of STI Management (investment adviser)
since 1994; Trustee, The Common Fund since 1980; Chairman and CEO of Salomon
Brothers Asset Management from 1992 until 1995; Chairman of Salomon
6
<PAGE>
Brothers equity mutual funds from 1992 until 1995; Monthly columnist with Forbes
magazine since 1992; Director of Stock Research and U.S. Equity Strategist at
Salomon Brothers from 1975 until 1991.
MELVIN R. SEIDEN (68) -- 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 (66) -- Trustee(2) -- 24 Federal Street, Suite 400,
Boston, Massachusetts 02110. Chairman of Fernwood Advisors (investment adviser)
since 1996; Principal, Fernwood Associates (financial consultant) since 1975.
ARTHUR ZEIKEL (67) -- Trustee(1)(2) -- 300 Woodland Avenue, Westfield, New
Jersey 07090. Chairman of the Investment Manager and MLAM from 1997 to 1999;
President of the Investment Manager and MLAM from 1977 to 1997; Chairman of
Princeton Services from 1997 to 1999, and Director thereof from 1993 to 1999;
President of Princeton Services from 1993 to 1997; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co.") from 1990 to 1999.
JOSEPH T. MONAGLE, JR. (51) -- 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 (42)-- Senior Vice President(1)(2)-- First Vice President
of MLAM since 1997; Vice President of MLAM from 1985 to 1997.
CARLO J. GIANNINI (55) -- Vice President and Portfolio Manager(1)(2) --
Vice President of MLAM since 1981.
DONALD C. BURKE (39) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of the Investment Manager and MLAM since 1999; First
Vice President of MLAM from 1997 to 1999; Vice President of MLAM from 1990 to
1997; Director of Taxation of MLAM since 1990; Senior Vice President and
Treasurer of Princeton Services since 1999; Vice President of PFD since 1999.
ROBERT HARRIS (47) -- 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 Fund.
(2) Such Trustee or officer is a director, trustee or officer of one or more
investment companies for which the Investment Manager, or its affiliate
MLAM, acts as investment adviser or manager.
As of September 1, 1999, the Trustees, officers of the Trust and officers
of the Fund as a group (12 persons) owned an aggregate of less than 1% of the
outstanding shares of the Fund. At such date, Mr. Zeikel, a Trustee of the Fund,
Mr. Glenn, a Trustee and officer of the Fund, and the other officers of the Fund
owned an aggregate of less than 1% of the outstanding shares of common stock of
ML & Co.
Compensation of Trustees
For the fiscal year ended May 31, 1999, the Fund paid each non-interested
Trustee a fee of $1,500 per year plus $250 per meeting attended. The Fund also
compensated members of its Audit Committee (the "Committee"), which consisted of
all the non-interested Trustees, a fee of $1,500 per year plus a fee of $250 per
meeting of the Audit Committee, which is held on a day on which the Board of
Trustees does not meet. The Fund reimburses each non-interested Trustee for his
out-of-pocket expenses relating to attendance at Board and Committee meetings.
The following table shows the compensation earned by the non-interested
Trustees for the fiscal year ended May 31, 1999 and also the aggregate
compensation paid to them from all registered investment companies advised by
Investment Manager and its affiliate, MLAM ("MLAM/FAM-advised funds"), for the
calendar year ended December 31, 1998.
7
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Pension or Estimated Compensation from
Retirement Benefits Annual Fund and Other
Position with Compensation Accrued as Part of Benefits upon MLAM/FAM-
Name Fund From Fund Fund Expense Retirement Advised Funds(1)
- ----- ----------- ------------ ----------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Joe Grills ...................... Trustee $1,750 None None $198,333
Walter Mintz .................... Trustee $1,750 None None $178,583
Robert S. Salomon, Jr. .......... Trustee $1,750 None None $178,583
Melvin R. Seiden ................ Trustee $1,750 None None $178,583
Stephen B. Swensrud ............. Trustee $1,750 None None $195,583
</TABLE>
- ----------
(1)The Directors serve on the boards of MLAM/FAM-advised funds as follows: Joe
Grills (24 registered investment companies consisting of 56 portfolios),
Walter Mintz (22 registered investment companies consisting of 43
portfolios), Robert S. Salomon, Jr. (22 registered investment companies
consisting of 43 portfolios), Melvin R. Seiden (22 registered investment
companies consisting of 43 portfolios), Stephen B. Swensrud (25 registered
investment companies consisting of 58 portfolios).
Trustees of the Fund, members of the Boards of other MLAM-advised
investment companies, ML & Co. and its subsidiaries (the term "subsidiaries,"
when used herein with respect to ML & Co., includes MLAM, FAM and certain other
entities directly or indirectly wholly owned and controlled by ML & Co.) and
their trustees/directors and employees, and any trust, pension, profit-sharing
or other benefit plan for such persons, may purchase shares of the Fund at net
asset value.
Management and Advisory Arrangements
Management Services. The Investment Manager provides the Fund with
investment advisory and management services. Subject to the supervision of the
Board of Trustees, the Investment Manager is responsible for the actual
management of the Fund's portfolio and constantly reviews the 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. The Investment Manager performs certain of
the other administrative services and provides all the office space, facilities,
equipment and necessary personnel for management of the Fund.
Securities held by the Fund also may 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 the Investment Manager. Because of different 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 Fund or other advisory 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. To the extent that transactions on behalf of more than one client of the
Investment Manager or an affiliate 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.
Management Fee. The Fund has entered into a management agreement with the
Investment Manager (the "Investment Management Agreement"), pursuant to which
the Investment Manager receives for its services to the Fund monthly
compensation at the annual rate of 0.50% of the average daily net assets of the
Fund. The table below sets forth information about the total management fees
paid by the Fund to the Investment Manager for the periods indicated.
Fiscal Year Ended May 31, Management Fee Amount Waived
------------------------ ---------------
1999 $ 522,703 $361,294
1998 $ 677 $ 677*
1997 $ 29,925 $ 29,925
- ----------
* During the fiscal year ended May 31, 1998 and a portion of the fiscal year
ended May 31, 1999, the Fund was not publicly offering its shares and all of the
Fund's outstanding shares were owned by the Investment Manager.
Payment of Fund Expenses. The Investment Management Agreement obligates the
Investment Manager to provide management services, to furnish office space and
facilities for management of the affairs of the Trust and the 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 affiliates. The Fund
8
<PAGE>
pays all other expenses incurred in its operation, and, if other Series should
be added, a portion of the Trust's general administrative expenses will be
allocated on the basis of asset size of the respective Series. Expenses that
will be 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 PFD (the "Distributor") as described
below), charges of the custodian and transfer agent, Commission fees, insurance,
interest, brokerage costs, certain taxes, and other expenses attributable to a
particular Series. Expenses that will be allocated on the basis of asset size of
the respective Series include fees and expenses of unaffiliated Trustees, state
franchise taxes, expenses related to shareholder meetings, and other expenses
properly payable by the Trust. If additional Series are added to the Trust, the
organizational expenses will be allocated among the Series in a manner deemed
equitable by the Trustees. Depending upon the nature of a lawsuit, litigation
costs may be assessed to 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 the
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 in connection with the offering to investors. The Distributor will also pay
for other supplementary sales literature. Accounting services are provided for
the Fund by the Investment Manager and the Fund reimburses the Investment
Manager for its costs in connection with such services. See "Purchase of Shares
- -- Class B Distribution Plan."
Organization of the Investment Manager. The Investment Manager is a
limited partnership, the partners of which are ML & Co., a financial services
holding company and the parent of Merrill Lynch, and Princeton Services. ML &
Co. and Princeton Services are "controlling persons" of the Investment Manager
as defined under 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 herein,
the Investment Management Agreement will continue in effect from year to year if
approved annually (a) by the Board of Trustees of the Trust or by a majority of
the outstanding shares of the 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 contracts are not assignable and may be
terminated without penalty on 60 days' written notice at the option of either
party or by vote of the shareholders of the Fund.
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Trust'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 a fee of $11.00 per Class
A shareholder account and $14.00 per Class B shareholder account and is entitled
to reimbursement for out-of-pocket expenses incurred by the Transfer Agent under
the Transfer Agency Agreement. Additionally, a $.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.
Code of Ethics
The Board of Trustees of the Trust has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act that incorporates the Code of Ethics of the
Investment Manager (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Investment Manager and, as
described below, impose additional, more onerous, restrictions on Fund
investment personnel.
The Codes require that all employees of the Investment Manager pre-clear
any personal securities investment (with limited exceptions, such as government
securities). The pre-clearance requirement and
9
<PAGE>
associated procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive restrictions
applicable to all employees of the Investment Manager include a ban on acquiring
any securities in a "hot" initial public offering and a prohibition from
profiting on short-term trading in securities. In addition, no employee may
purchase or sell any security that at the time is being purchased or sold (as
the case may be), or to the knowledge of the employee is being considered for
purchase or sale, by any fund advised by the Investment Manager. Furthermore,
the Codes provide for trading "blackout periods" which prohibit trading by
investment personnel of the Fund within periods of trading by the Fund in the
same (or equivalent) security (15 or 30 days depending upon the transaction).
PURCHASE OF SHARES
Reference is made to "How to Buy, Sell and Exchange Shares" in the
Prospectus.
The Fund will offer Class A and Class B shares (the "Shares") 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 Fund. If Federal Funds are available to
the Fund prior to the determination of net asset value (generally 4:00 P.M.,
Eastern time) on any business day, the order will be effective on that day.
Shares purchased will begin accruing dividends on the day of purchase. The Fund
or the Distributor may suspend the continuous offering of the Fund's shares of
any class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any order
may be rejected by the Fund or the Distributor. Neither the Distributor nor the
dealers are permitted to withhold placing orders to benefit themselves by a
price change. Merrill Lynch may charge its customers a processing fee (presently
$5.35) to confirm a sale of shares to such customers. Purchases made directly
through the Transfer Agent are not subject to the processing fee.
Each Class A and Class B share of the Fund represents identical interests
in the investment portfolio of the 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 A shares
will be offered without any front-end or deferred sales charges and will bear no
ongoing distribution fees. 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 Fund has entered into a separate distribution agreement with the
Distributor in connection with the continuous offering of each class of shares
of the 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 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.
Distribution Plan
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act with respect to distribution fees paid by the 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 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
10
<PAGE>
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. 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.
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 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 Fund and to the Class B
shareholders. The Trustees will also 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 Fund. PFD is an affiliate of both the Investment Manager
and of Merrill Lynch.
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 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 Fund. The Class B Distribution Plan cannot be amended to increase
materially the amount to be spent by the 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.
For the fiscal year ended May 31, 1999, the Fund paid the Distributor
$585,314 pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $121.2
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares.
Limitations on the Payment of Distribution Fee. 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 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).
11
<PAGE>
The following table sets forth comparative information as of May 31, 1999
with respect to Class B shares of the Fund indicating the maximum allowable
payments that can be made under the NASD maximum sales charge rule and the
Distributor's voluntary maximum.
<TABLE>
<CAPTION>
Data Calculated as of May 31, 1999
----------------------------------------------------------------------------
(in thousands)
Annual
Distribution
Allowable Amounts Fee at
Interest on Maximum Previously Aggregate Current Net
Net Cap Unpaid Amount Paid to Unpaid Asset
on Exchanges Balance(1) Payable Distributor(2) Balance Level(3)
------------ ----------- ------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class B Shares for the period
October 9, 1998
(commencement of
operations) to May 31, 1999
Under NASD Rule as
Adopted ....................... $25,758 $910 $26,668 $1,112 $25,556 $1,251
</TABLE>
- ----------
(1)Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0%, as permitted under the NASD
Rule.
(2)Consists of CDSC payments, distribution fee payments and accruals. See "What
are the Fund's fees and expenses?" in the Prospectus. This figure may include
CDSCs that were deferred when a shareholder redeemed shares prior to the
expiration of the applicable CDSC period and invested the proceeds, without
the imposition of a sales charge, in Class A shares in conjunction with the
shareholder's participation in the Merrill Lynch Mutual Fund Advisor (Merrill
Lynch MFASM) Program (the "MFA Program"). The CDSC is booked as a contingent
obligation that may be payable if the shareholder terminates participation in
the MFA Program.
(3)Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee will
reach either the voluntary maximum (with respect to Class B shares) or the
NASD maximum (with respect to Class B shares).
Conversion of Class B Shares to Class A Shares
In the case of Class B Shares of the Fund acquired in an exchange from
Class B or Class C shares of a MLAM-advised fund or a Mercury-advised fund,
after approximately ten years (the "Conversion Period"), the Class B shares will
be converted automatically into Class A shares of the 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 Fund acquired in
exchange for those Participating Fund shares. At the end of the particular
conversion period, if the shareholder still holds the Class B shares of the
Fund, such shares will be converted to Class A shares of the Fund that are not
subject to any ongoing distribution fee.
REDEMPTION OF SHARES
Reference is made to "How to Buy, Sell, and Exchange Shares" in the
Prospectus.
The Trust is required to redeem for cash all full and fractional shares of
the 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.,
Eastern 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.
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<PAGE>
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.
Repurchase Through Securities Dealers. The Trust will repurchase shares of
the 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 Fund (generally 4:00 p.m., Eastern
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 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, Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption
requests delivered other than by mail should be delivered to 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 Signature on the
redemption request may require a guarantee by an "eligible guarantor
institution" as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended (the"Exchange Act"), the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications. In the
event a signature guarantee is required, notarized signatures are not
sufficient. In general, signature guarantees are waived on redemptions of less
than $50,000 as long as the following requirements are met: (i) all requests
require the signature(s) of all persons in whose name(s) shares are recorded on
the Transfer Agent's register; (ii) all checks must be mailed to the stencil
address of record on the Transfer Agent's register and (iii) the stencil address
must not have changed within 30 days. Certain rules may apply regarding certain
account types such as but not limited to UGMA/UTMA accounts, Joint Tenancies
With Rights of Survivorship, contra broker transactions, and institutional
accounts.
The right to receive payment with respect to any redemption may be
suspended by the 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 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
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 Fund; or (3)
for such other periods as the Commission may by order permit for the protection
of security holders of the 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.
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 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 Fund, certificates representing the 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 Fund who acquired their 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-
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<PAGE>
advised funds. Shareholders may exchange Class A shares of the 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 TMA(SM) 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 Fund who acquired their 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 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 Class A shares of the Fund 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 a holder of Class
A shares of the Fund 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 Fund who acquired their 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. A holder of Class B
shares of the Fund may subsequently exchange back into the original MLAM-advised
fund or Mercury-advised Fund. 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 Fund, the period of time that the stockholder holds the Class B shares of
the Fund 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 Class B shares of the Fund. With respect to exchanges of
Class B shares of a MLAM-advised fund or a Mercury-advised fund into Class B
shares of the Fund, the period of time the Class B shares of the Fund 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 Class B shares of
the Fund are automatically converted into Class D shares).
If Class B shares are redeemed from the 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 $100 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
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<PAGE>
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 Fund for Class I, 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
I, Class A or Class D shares originally exchanged for Class A shares of the Fund
and the sales charge payable at the time of the exchange on the Class I, Class A
or Class D shares of the MLAM-advised fund or Mercury-advised fund to be
acquired.
Exchange Program
The 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 or
Mercury, and are not distributed by PFD or any of its subdivisions (each
referred to as a "Participating Fund") (the "Exchange Program"). 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 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 FESL will be exchanged
for Class A shares of the Fund without the imposition of a sales charge. The
holder of Class A shares of the Fund 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 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 Fund without the payment of a
CDSC that might otherwise be due on redemption of the Participating Fund shares.
The holder of such Class B shares of the Fund 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 Class B shares of the
Fund 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 Class B
shares of the Fund 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 Class B shares of the Fund 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 Shares.
The Participating Funds may impose administrative and/or redemption fees
on an exchange transaction with the Fund. There will be no sales charge on
exchange transactions into the Fund. 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.
Shares with a net asset value of at least $100 are required to qualify for
the Exchange Program into the 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 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 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
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<PAGE>
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 Fund; however, the 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."
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by the
Investment Manager once daily, immediately after the daily declaration of
dividends, on each business day during which the NYSE is open for business. Such
determination is made after the close of business on the NYSE (generally 4:00
p.m., Eastern 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 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 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 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 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 Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. 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 Fund will take such corrective action
as it regards as necessary and appropriate, including the reduction of the
number of outstanding shares of the Fund by having each shareholder
proportionately contribute shares to the 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 Fund's capital. Each shareholder will be deemed to have
agreed to such contribution by such shareholder's investment in the Fund.
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<PAGE>
Since the net income of the Fund (including realized gains and losses on
the portfolio securities) is declared as a dividend each time the net income of
the Fund is determined, the net asset value per share of the 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
Fund, representing the reinvestment of dividend income, is reflected by an
increase in the number of shares 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 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 and
unrealized gains and losses on portfolio securities. In accordance with
regulations adopted by the Commission, the Fund is required to disclose its
annualized yield for certain seven-day base periods in a standardized manner
that 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. The annualized compounded yield will be
somewhat higher than the yield because of the effect of assumed reinvestment.
This compounded yield calculation also excludes realized and unrealized gains or
losses on portfolio securities.
The yield on the 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 Fund of future yields or rates of return on its shares.
The yield is affected by such factors as changes in interest rates on the Fund's
portfolio 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. The yield on Fund shares for
various reasons may not be comparable to the yield on bank deposits, shares of
other money market funds or other investments. The yield on the Fund's Class A
and Class B shares for the period indicated is shown below.
Seven-Day Period Ended
May 31, 1999
----------------------
Class A Class B
------- -------
Excluding gains and losses ...................... 4.51% 3.71%
On occasion, the Fund may compare its yield to (1) the Donoghue's Domestic
Prime Funds Average, an average compiled by Donoghue's Money Fund Report, a
widely recognized independent publication that monitors the performance of money
market mutual funds, (2) the average yield reported by the Bank Rate Monitor
National IndexTM for money market deposit accounts offered by the 100 leading
banks and thrift institutions in the ten largest standard metropolitan
statistical areas, (3) 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, or (4) the yield on an investment in 91-day Treasury bills on a
rolling basis, assuming quarterly compounding. As with yield quotations, yield
comparisons should not be considered indicative of the Fund's yield or relative
performance for any future period.
TAXES
The Trust intends to continue to qualify the Fund for the special tax
treatment afforded RICs under the Internal Revenue Code (the "Code"). As long as
it so qualifies, the 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 Fund intends to
distribute substantially all of such income.
The Trust may establish other series in addition to the Fund (together
with the 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.
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<PAGE>
Dividends paid by the 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 Fund shares. Any loss upon the
sale or exchange of 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 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). Certain categories of
capital gain are taxable at different rates. Generally not later than 60 days
after the close of its taxable year, the Fund will provide its shareholders with
a written notice designating the amounts of any 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 Fund. Distributions by the 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 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 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 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 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 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 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, 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 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 Fund will be
disallowed if other 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 Fund intends to distribute its income and
capital gains in the manner necessary to minimize imposition
18
<PAGE>
of the 4% excise tax, there can be no assurance that sufficient amounts of the
Fund's taxable income and capital gains will be distributed to avoid entirely
the imposition of the tax. In such event, the 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 Fund.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policy
established by the Board of Trustees and officers of the Trust, the Investment
Manager is primarily responsible for the Fund's portfolio decisions and the
placing of portfolio transactions. In placing orders, it is the policy of the
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 Manager
generally seeks reasonably competitive spreads or commissions, the Fund will not
necessarily be paying the lowest spread or commission available. The Fund's
policy of investing in securities with short maturities will result in high
portfolio turnover.
The money market securities in which the 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 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 are acting as principals for their own accounts. On
occasion, securities may be purchased directly from the issuer. The money market
securities generally are traded on a net basis and normally do not involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Fund primarily will consist of dealer spreads and
underwriting commissions. Under the Investment Company Act, persons affiliated
with the Fund are prohibited from dealing with the Fund as principals 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 Fund, including Merrill Lynch
Government Securities, Inc. ("GSI") and Merrill Lynch Money Markets, Inc., may
not serve as the Fund's dealer in connection with such transactions except
pursuant to the exemptive order described below. However, an affiliated person
of the Fund 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 exemptive order permitting the 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 ensure that the price to the Fund
from Merrill Lynch, GSI or MMI is equal to or better than that available from
other sources. GSI have informed the
19
<PAGE>
Trust that they will in no way, at any time, attempt to influence or control the
activities of the 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 Fund no greater than its customary dealer spread
from transactions of the type involved. Generally, such spreads do not exceed
0.25% of the principal amount of the securities involved.
The number and dollar volume of transactions engaged in by the Fund
pursuant to the exemptive order are set forth in the following table:
Fiscal Year Ended May 31, Number Dollar Volume
------------------------- ------- -------------
1999 ............................. 13 $46,135,343
1998 ............................. 0 $ --
1997 ............................. 4 $ 3,318,217
The Trustees of the Trust have considered the possibilities of recapturing
for the benefit of the Fund expenses of possible portfolio transactions, such as
dealer spreads and underwriting commissions, by conducting such portfolio
transactions through affiliated entities, including GSI, MMI and Merrill Lynch.
For example, dealer spreads received by GSI or MMI on transactions conducted
pursuant to the exemptive order described above could be offset against the
management fee payable by the Fund to the Investment Manager. After considering
all factors deemed relevant, the Board of 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 Fund's custodian to receive any
tender offer solicitation fees on behalf of the Fund payable with respect to
portfolio securities of the Fund.
The 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 of the 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.
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 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 Fund is
the only existing Series of the Trust, and shares of the 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 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.
20
<PAGE>
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.
Independent Auditors
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the non-interested Directors of
the Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
Custodian
The Bank of New York, 90 Washington Street, 12th Floor, New York, New York
10286 (the "Custodian"), acts as custodian of the Fund's assets. The Custodian
is responsible for safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities and collecting interest and
dividends on the Fund's investments.
Transfer Agent
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Fund's Transfer Agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts. See "How to Buy, Sell and
Transfer Shares" in the Prospectus.
Legal Counsel
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557,
is counsel for the Fund.
Reports to Shareholders
The fiscal year of the Fund ends on May 31 of each year. The Fund sends to
its shareholders, at least semi-annually, reports showing the Fund's portfolio
and other information. An annual report, containing financial statements audited
by independent auditors, is sent to shareholders each year. After the end of
each year, shareholders will receive Federal income tax information regarding
dividends and capital gains distributions.
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
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
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 1-800-MER-FUND.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.
21
<PAGE>
Additional Information
The Prospectus and this Statement of Additional Information with respect
to the shares of the Fund do not contain all the information set forth in the
Registration Statement and the exhibits relating thereto, which the Fund has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act and the Investment Company Act, to which reference is hereby
made.
Security Ownership of Certain Beneficial Owners
To the knowledge of the Fund, no persons or entities owned beneficially 5%
or more of a class of the Fund's shares as of September 1, 1999.
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 Property" (as defined in the Declaration) only shall be liable.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated in this Statement
of Additional Information by reference to its 1999 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
22
<PAGE>
APPENDIX A
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 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.
A-1
<PAGE>
CODE #: SUMMITSAI 09-99
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. Exhibits.
Exhibit
Number Description
------- ----------
1(a) -- Declaration of Trust of Registrant, 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.(b)
2 -- By-Laws of the Registrant.(a)
3 -- 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.
(c)
4 -- Investment Management Agreement between the Registrant and
Fund Asset Management, L.P. relating to the Fund.(b)
5(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)
(b) -- Form of Class B Shares Distribution Agreement relating to
the Fund (including form of Selected Dealers Agreement)
between Registrant and PFD.(b)
6 -- None.
7 -- Custody Agreement between Registrant and The Bank of New
York relating to the Fund.(a)
8 -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency between the Registrant and Financial Data
Services, Inc. relating to the Fund. (a)
9(a) -- Opinion of Brown & Wood LLP, counsel to the Registrant.(a)
(b) -- Consent of Brown &Wood LLP, counsel to the Registrant.
10 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
11 -- None.
12 -- Certificate of Fund Asset Management, L.P. relating to the
Fund.(a)
13(a) -- Form of Class B Shares Distribution Plan (including form of
Class B Shares Distribution Plan Sub-Agreement) relating to
the Fund.(b)
(b) -- Form of Exchange and Service Agreement relating to the Fund
between PFD and the Participating Underwriter.(b)
14 -- None
15 -- Plan pursuant to Rule 18f-3.(b)
- ----------
(a) Refiled on September 27, 1995 as an exhibit to Post-Effective Amendment
No. 14 to Registrant's Registration Statement on Form N-1A under the
Securities Act of 1933 as amended (File No. 2-78646) (the "Registration
Statement").
(b) Filed on July 31, 1998 as an exhibit to Post-Effective Amendment No. 17 to
the Registrant's Registration Statement.
(c) 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 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
C-1
<PAGE>
Item 25. Indemnification
Reference is made to Section 5.3 of the Registrant's Declaration of Trust
and Section 9 of the Distribution Agreement.
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 matters 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 Trustee 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 right 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 of indemnification moneys for actions
based upon the Investment Company Act of 1940, as amended (the "Investment
Company Act") 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 the amount 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, as amended (the "Securities Act"), against certain types
of civil liabilities arising in connection with the Registration Statement or
Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Securities
Act 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 Securities 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 proceeding) 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 Securities
Act and will be governed by the final adjudication of such issue.
C-2
<PAGE>
Item 26. Business and Other Connections of the Investment Manager.
Fund Asset Management, L.P. ("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., Financial Institutions Series Trust, 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 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., Debt Strategies Fund
III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
California Insured Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings
Florida Insured Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings
Florida Insured Fund IV, MuniHoldings Florida Insured Fund V, MuniHoldings
Insured Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Insured
Fund III, Inc., MuniHoldings Michigan Insured Fund, Inc., MuniHoldings New
Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc.,
MuniHoldings New Jersey Insured Fund III, Inc., MuniHoldings New Jersey Insured
Fund IV, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York Insured
Fund, Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York
Insured Fund III, Inc., MuniHoldings New York Insured Fund IV, 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 DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the
Investment Manager, acts as the investment adviser for the following open-end
registered 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
Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, 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, 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. and 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., Merrill Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch
Senior Floating Rate Fund II, 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.
C-3
<PAGE>
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of FAM, MLAM, Princeton Services, Inc. ("Princeton Services"), Princeton
Administrators, L.P. ("Princeton Administrators") and Princeton Funds
Distributor, Inc. (the "Distributor" or "PFD") is also P.O. Box 9011, Princeton,
New Jersey 08543-9011. The address of Princeton Funds Distributor, Inc. ("PFD")
and of Merrill Lynch Funds Distributor ("MLFD") is 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
10281-1201. The address of Financial Data Services, Inc. ("FDS") is 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive 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 May 1, 1997 for his, her or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Glenn is President and,
Mr. Burke is Vice President and Treasurer all or of substantially all of the
investment companies described in the first two paragraphs of this Item 26, and
Messrs. Giordano and Monagle are officers of one or more of such companies.
<TABLE>
<CAPTION>
Position(s) with Investment Other Substantial Business,
Name Manager Profession, Vocation or Employment
- ---- --------------------------- ----------------------------------
<S> <C> <C>
ML & Co ................... Limited Partner Financial Services Holding Company; Limited Partner of MLAM
Princeton Services ........ General Partner General Partner of MLAM
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
Terry K. Glenn ............ Executive Vice Executive Vice President of MLAM; Executive Vice President and
President Director of Princeton Services; President and Director of PFD;
Director of FDS; President of Princeton Administrators
Gregory A. Bundy .......... Chief Operating Chief Operating Officer and Managing Director of MLAM; Chief
Officer and Managing Operating Officer and Managing Director of Princeton Services;
Director Co-CEO of Merrill Lynch Australia from 1997 to 1999; Managing
Director of Merrill Lynch from 1992 to 1996
Donald C. Burke ........... Senior Vice President Senior Vice President, Treasurer and Director of Taxation of MLAM;
and Treasurer Senior Vice President and Treasurer of Princeton Services; Vice
President of PFD; First Vice President of FAM from 1997 to 1999;
Vice President of FAM from 1990 to 1997
Michael G. Clark ......... Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton
Services; Treasurer and Director of PFD; First Vice President of
FAM from 1997 to 1999; Vice President of FAM from 1996 to 1997
Robert C. Doll ............ Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton
Services. Chief Investment Officer of Oppenheimer Funds, Inc. in
1999 and Executive Vice President thereof from 1991 to 1999
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
Michael J. Hennewinkel .... Senior Vice President, Senior Vice President, Secretary and General Counsel of MLAM;
Secretary and General Senior Vice President of Princeton Services
Counsel
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Position(s) with Investment Other Substantial Business,
Name Manager Profession, Vocation or Employment
- ---- --------------------------- ----------------------------------
<S> <C> <C>
Philip L. Kirstein ........ Senior Vice President Senior Vice President of MLAM; Senior Vice President, Director,
General Counsel and Secretary of Princeton Services
Debra W. Landsman-Yaros ... Senior Vice President Senior Vice President of MLAM; Senior Vice 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
Brian A. Murdock .......... Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton
Services
Gregory D. Upah ........... Senior Vice President Senior Vice President of MLAM; Senior Vice President of Princeton
Services
</TABLE>
Item 27. 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 26 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.; and 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.,
Merrill Lynch Senior Floating Rate Fund, Inc. and Merrill Senior Floating Rate
Fund II,Inc. A separate division of PFD acts as the principal underwriter of a
number of other investment companies.
(b) Set forth below is information concerning each director and officer of
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. Breen,
Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
Position(s) and Office(s) Position(s) and Office(s)
Name with PFD with the Registrant
- ---- ------------------------- -------------------------
Terry K. Glenn ........... President and Director President and Director
Michael G. Clark ......... Director and Treasurer 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
Donald C. Burke .......... Vice President Vice President and
Treasurer
James T. Fatseas ......... Vice President None
Debra W. Landsman-Yaros .. Vice President None
Michelle T. Lau .......... Vice President None
Salvatore Venezia ........ Vice President None
William Wasel ............ Vice President None
Robert Harris ............ Secretary Secretary
(c) Not applicable.
Item 28. 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 are
maintained at the offices of the Registrant (800 Scudders Mill Road, Plainsboro,
New Jersey 08536), and its transfer agent, Financial Data Services, (4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484).
C-5
<PAGE>
Item 29. Management Services.
Other than as set forth under the caption "Management of the Fund -- Fund
Asset Management" in the Prospectus constituting Part A of the Registration
Statement and under "Management of the Fund --Management and Advisory
Arrangements" in the Statement of Additional Information constituting Part B of
the Registration Statement, the Registrant is not a party to any
management-related service contract.
Item 30. Undertakings.
Not applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the registrant certifies, that it meets all the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act and has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Township of
Plainsboro, and the State of New Jersey, on the 28th day of September, 1999.
SUMMIT CASH RESERVES FUND OF
FINANCIAL INSTITUTIONS SERIES TRUST
(Registrant)
By /s/ DONALD C. BURKE
-------------------------------------
(Donald C. Burke, Vice President
and Treasurer)
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the date(s) indicated.
Signature Title Date
--------- ----- ----
TERRY K. GLENN* President and Trustee
----------------------------- (Principal Executive
(Terry K. Glenn) Officer)
/s/ DONALD C. BURKE Vice President and September 28, 1999
----------------------------- Treasurer (Principal
(Donald C. Burke) Financial and Accounting
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)
ARTHUR ZEIKEL* Trustee
-----------------------------
(Arthur Zeikel)
*By: /s/DONALD C. BURKE September 28, 1999
-----------------------------
(Donald C. Burke,
Attorney-in-Fact)
C-7
<PAGE>
POWER OF ATTORNEY
The undersigned, the Directors/Trustees and the officers of each of the
registered investment companies listed below, hereby authorzize Terry K. Glenn,
Donald C. Burke and Joseph T. Monagle, Jr. or any of them, as attorney-in-fact,
to sign on his behalf in the capacities indicated any Registration Statement or
amendment thereto (including post-effective amendments) for each of the
following registered investment companies and to file the same, with all
exhibits thereto, with the Securities and Exchange Commission: Merrill Lynch
Adjustable Rate Securities Fund, Inc.; Apex Municipal Fund, Inc.; Merrill Lynch
Asset Builder Program, Inc.; Corporate High Yield Fund, Inc.; Corporate High
Yield Fund II, Inc.; Corporate High Yield Fund III, Inc.; Merrill Lynch Federal
Securities Trust; Merrill Lynch Fundamental Growth Fund, Inc.; Income
Opportunities Fund 1999, Inc.; Income Opportunities Fund 2000, Inc.:
MuniHoldings Insured Fund II, Inc.; MuniHoldings Insured Fund III, Inc.;
MuniInsured Fund, Inc.; MuniYield Insured Fund, Inc.; Merrill Lynch Phoenix
Fund, Inc.; Merrill Lynch Real Estate Fund, Inc.; Merrill Lynch Retirement
Reserves Money Fund of Merrill Lynch Retirement Series Trust and Summit Cash
Reserves Fund of Financial Institution Series Trust.
Signature Title Date
--------- ----- ----
/s/ TERRY K. GLENN* President (Principal
----------------------------- Executive Officer)
(Terry K. Glenn) Director and Trustee April 13, 1999
/s/ DONALD C. BURKE Vice President and
----------------------------- Treasurer (Principal
(Donald C. Burke) Financial and Accounting
Officer)
/s/ JOE GRILLS* Director/Trustee April 13, 1999
-----------------------------
(Joe Grills)
/s/ WALTER MINTZ* Director/Trustee April 13, 1999
-----------------------------
(Walter Mintz)
/s/ ROBERT S. SALOMON, JR.* Director/Trustee April 13, 1999
-----------------------------
(Robert S. Salomon, Jr.)
/s/ MELVIN R. SEIDEN* Director/Trustee April 13, 1999
-----------------------------
(Melvin R. Seiden)
/s/ STEPHEN B. SWENSRUD* Director/Trustee April 13, 1999
-----------------------------
(Stephen B. Swensrud)
/s/ ARTHUR ZEIKEL* Director/Trustee April 13, 1999
-----------------------------
(Arthur Zeikel)
C-8
<PAGE>
EXHIBIT INDEX
Exhibit
Numbers Description
- -------- -----------
9(b) -- Consent of Brown & Wood LLP, counsel to the Registrant.
10 -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
EXHIBIT 9(b)
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
September 28, 1999
Summit Cash Reserves Fund of
Financial Institutions Series Trust
800 Scudders MillRoad
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 18 to the Registration Statement on Form N-1A (File Nos. 2-78646 and
811-3189) of our opinion, dated November 11, 1982, filed on November 12, 1982,
as anExhibit to Pre-Effective Amendment No. 1 to such Registration Statement and
to the use of our name in the prospectus and statement of additional information
constituting parts thereof.
Very truly yours,
/s/ Brown & Wood LLP
EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
Summit Cash Reserves Fund of
Financial Institutions Series Trust:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 19 to Registration Statement No. 2-78646 of our report dated July 13, 1999
appearing in the annual report to shareholders of Summit Cash Reserves Fund for
the year ended May 31, 1999, and to the reference to us under the caption
"Financial Highlights" in the Prospectus, which is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Princeton, New Jersey
September 27, 1999
