Dear Shareholder:
We are pleased to provide you with this Annual Report for Merrill Lynch
Institutional Tax-Exempt Fund. For the year ended November 30, 1993, the Fund's
net yield was 2.12%. For the three-month period then-ended the Fund's net
annualized yield was 2.15%. The seven-day net annualized yield at November 30,
1993 was 2.02%.
During the three-month period ended November 30, 1993, national economic data
once again portrayed an ambiguous picture for inflation and economic growth.
Data released in September indicated a favorable inflation environment, thus
causing yields to fall. However, statistics released in October and November
began to show an accelerating pace of economic growth for the final months of
1993. As a result, yields on short-term U.S. Treasury bills rose over concerns
of a tighter monetary policy by the Federal Reserve Board and ended the November
quarter approximately 20 basis points (0.20%) higher than their levels at the
onset of the quarter. Consequently, yields on the one-year U.S. Treasury bill
closed the quarter at 3.57%, even though the Federal Funds rate remained
unchanged at about 3.00%.
Yields in the short-term tax-exempt market, unlike those in the taxable market,
closed the period substantially lower than their August 31, 1993 levels.
Short-term tax-exempt yields rose in September as supply out-paced demand, but
fell dramatically in October and November as assets of the money fund industry
rose substantially and new-issue volume began to abate. New-issue supply for the
quarter was $9.3 billion, a 64% decrease from the $25.5 billion brought to
market in the previous period. Additionally, assets of the tax-exempt money fund
industry closed the quarter at approximately $107 billion, a substantial
increase over the $101.5 billion level for August 31, 1993. Consequently,
interest rates on short-term tax-exempt securities fell 55-65 basis points
(0.55%-0.65%) by November quarter-end.
The Fund's average portfolio maturity was in the 70-day range at the beginning
of the November quarter and was reduced to the 50-day range in September to take
advantage of higher interest rates on short-term variable rate instruments. The
portfolio's maturity was extended again to the 70-day range in the beginning of
October as municipal securities represented an excellent relative value when
compared to taxable alternatives. For instance, with the increase in yields from
new issuance at the beginning of the quarter, one-year municipal notes traded at
yields that were 90% of the one-year U.S. Treasury bill, as compared to the more
historical relationship of 75% - 80%. Additionally, short-term municipal
securities now offer substantially more value after the new higher marginal tax
rates went into effect with the ratification of President Clinton's Federal
budget reconciliation bill. For these reasons and the anticipated reduction in
supply that traditionally takes place in the upcoming quarter, we expect to
maintain a relatively aggressive average portfolio maturity in the 80-day range
in the coming months.
Diversification and credit quality remain paramount in importance to the Fund,
and we will continue to monitor the ever-changing marketplace. We thank you for
your continued support of Merrill Lynch Institutional Tax-Exempt Fund, and we
look forward to serving your investment needs in the future.
Sincerely,
[Signature of Robert W. Crook]
Robert W. Crook
President and Trustee
Peter J. Hayes
Vice President and Portfolio Manager
December 22, 1993
<PAGE>
ADMINISTRATOR & DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
One Financial Center
Boston, Massachusetts 02111-2646
INVESTMENT ADVISER
Fund Asset Management, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8500
Boston, Massachusetts 02266-8500
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
AUDITORS
Deloitte & Touche
125 Summer Street
Boston, Massachusetts 02110-1617
This report is not authorized for use as an
offer of sale or a solicitation of an offer
to buy shares of the Fund unless accompanied
or preceded by the Fund's current
prospectus. Past performance results shown
in this report should not be considered a
representation of future performance since
interest rates on short-term obligations
fluctuate. An investment in the Fund is
neither insured nor guaranteed by the U.S.
Government and there can be no assurance
that the Fund will be able to maintain a
stable $1.00 net asset value.
Merrill Lynch Institutional
Tax-Exempt Fund
One Financial Center
Boston, Mass. 02111-2646
Merrill Lynch Institutional
Tax-Exempt Fund
Annual Report
November 30, 1993
<PAGE>
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments
November 30, 1993
<TABLE>
<CAPTION>
Face Value
Amount Issue (Note 1a)
<S> <C> <S> <C>
Alabama $ 7,100,000 Alabama Special Care Facilities Financing
5.2% Authority, Mobile Hospital Revenue
VRDN 2.50% due 06/01/2014 (a) $ 7,100,000
6,400,000 Birmingham, Alabama Medical Clinic Board
Revenue (University of Alabama Health
Services Project) DDN 1.90% due
12/01/2026 (a) 6,400,000
1,100,000 McIntosh, Alabama IDB Solid Waste Disposal
Revenue (Ciba-Geigy Corp. Project) VRDN
2.35% due 07/01/2004 (a) 1,100,000
Arizona 3,225,000 Arizona State Transportation Board Highway
1.2% Revenue Bond 2.60% due 07/01/1994 3,225,000
California California Higher Education Loan Authority.
11.4% Inc Student Loan Revenue FXRDN:
5,000,000 2.80% due 07/01/1994 5,000,000
2,500,000 2.70% due 07/01/1994 2,500,000
8,150,000 California State RAN 3.50% due 06/28/1994 8,184,840
2,000,000 California State GO/VRDN 2.42% due
06/28/1994 (a) 2,000,000
2,000,000 Los Angeles, California M/F Revenue
(Beverly Park Apartments) DDN 2.30% due
08/01/2018 (a) 2,000,000
11,950,000 Los Angeles County, California TRAN 3.00%
due 06/30/1994 11,979,527
Connecticut 900,000 Connecticut State Special Tax Obligation
0.3% Revenue VRDN 2.45% due 12/01/2010 (a) 900,000
District of 5,815,000 District of Columbia General Fund Recovery
Columbia GO/DDN 2.00% due 06/01/2003 (a) 5,815,000
2.1%
Florida 3,875,000 Dade County, Florida Aviation Revenue VRDN
4.5% 2.50% due 10/01/2007 (a) 3,875,000
3,200,000 Pinellas County, Florida Health Facilities
Authority Revenue (Pooled Hospital Loan
Program) DDN 2.00% due 12/01/2015 (a) 3,200,000
Portfolio Abbreviations for Merrill Lynch Institutional Tax-Exempt Fund
BAN Bond Anticipation Notes
DDN Daily Demand Notes
FXRDN Fixed Rate Demand Notes
GO General Obligation
IDA Industrial Development Authority
IDB Industrial Development Board
M/F Multi-Family
PCR Pollution Control Revenue
RAN Revenue Anticipation Notes
S/F Single Family
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
<PAGE>
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments Continued
November 30, 1993
Face Value
Amount Issue (Note 1a)
Florida 5,600,000 Sarasota County, Florida Health Facilities
(continued) Authority Hospital Revenue (Venice Hospital
Project) DDN 2.00% due 12/01/2022 (a) 5,600,000
Georgia 2,000,000 Georgia State Housing & Finance Authority
0.7% Revenue VRDN 2.55% due 06/01/2025 (a) 2,000,000
Illinois 3,000,000 Chicago, Illinois GO 2.50% due 03/31/1994 2,996,006
5.9% 2,800,000 Chicago, Illinois O'Hare International
Airport Revenue (American Air Project)
DDN 2.00% due 12/01/2017 (a) 2,800,000
5,250,000 Illinois Health Facilities Authority Revenue
(Carle Foundation Project) VRDN 2.25%
due 01/01/2022 (a) 5,250,000
5,400,000 Illinois State Toll Highway Authority
Priority VRDN 2.45% due 01/01/2010 (a) 5,400,000
Indiana 5,000,000 Indiana Health Facilities Finance Authority
5.0% Hospital Revenue (Daughters of Charity
National Health Systems) VRDN 2.50% due
11/01/2022 (a) 5,000,000
9,000,000 Indiana Secondary Market Educational Loan
Revenue VRDN 2.35% due 12/01/2014 (a) 9,000,000
Iowa 8,500,000 Iowa Finance Authority Solid Waste Disposal
3.0% Revenue (Cedar River Paper Company Project)
DDN 2.05% due 07/01/2023 (a) 8,500,000
Louisiana 1,100,000 Saint Charles Parish, Louisiana PCR DDN 2.25%
0.4% due 10/01/2022 (a) 1,100,000
Maine 3,500,000 Maine State Housing Authority Mortgage
1.3% Purchase Series GO 4.60% due 01/03/1994 3,505,669
Massachusetts 13,800,000 Massachusetts Bay Transportation Authority
8.4% GO 3.25% due 09/30/1994 13,840,866
3,000,000 Massachusetts State GO/DDN 1.75% due
12/01/1997 (a) 3,000,000
4,600,000 Massachusetts State Housing Finance Agency
Housing Revenue VRDN 2.30% due 10/02/2002
(a) 4,600,000
2,000,000 Massachusetts State Housing Finance Agency
Housing S/F Revenue FXRDN 3.30% due
12/01/1993 2,000,000
See Notes to Financial Statements.
<PAGE>
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments Continued
November 30, 1993
Face Value
Amount Issue (Note 1a)
Mississippi $ 1,200,000 Perry County, Mississippi PCR (Leaf River
0.4% Forest Project) DDN 1.90% due 03/01/2002
(a) $ 1,200,000
Nevada 5,000,000 Clark County, Nevada Airport Improvement
1.8% Revenue VRDN 2.25% due 07/01/2012 (a) 5,000,000
New Hampshire 6,800,000 New Hampshire Higher Educational & Health
6.8% Facilities Authority Revenue VRDN 2.20%
due 12/01/2025 (a) 6,800,000
5,000,000 New Hampshire Higher Educational & Health
Facilities Authority Revenue FXRDN 2.75%
due 06/01/1994 5,000,000
7,200,000 New Hampshire State Business Finance
Authority PCR (New England Power Company
Project) FXRDN 2.95% due 07/01/1994 7,200,000
New Jersey 3,375,000 Camden County, New Jersey BAN 2.75% due
3.0% 02/23/1994 3,377,251
5,000,000 Hudson County, New Jersey Improvement
Authority Solid Waste Resource Recovery
Revenue VRDN 2.35% due 12/01/2019 (a) 5,000,000
New York 2,000,000 Nassau County, New York IDA Civic Facilities
3.5% Revenue (Cold Spring Harbor Laboratory
Project) DDN 1.85% due 07/01/2019 (a) 2,000,000
4,600,000 New York City DDN 2.15% due 08/01/2017 (a) 4,600,000
3,100,000 New York State TRAN 2.75% due 12/31/1994 3,100,908
North Carolina 9,000,000 North Carolina Medical Care Commission Hospital
6.0% Revenue (Moses H. Cone Memorial Hospital
Project) DDN 2.25% due 10/01/2023 (a) 9,000,000
7,600,000 Wake County, North Carolina Industrial
Facilities & PCR (North Carolina Power &
Light Company) VRDN 2.45% due 09/01/201
5 (a) 7,600,000
Pennsylvania 3,000,000 Allegheny County, Pennsylvania Hospital
9.5% Development Authority Revenue
(Presbyterian University Hospital) VRDN
2.20% due 03/01/2020 (a) 3,000,000
1,000,000 Delaware County, Pennsylvania IDA Revenue
(Scott Paper Co.) VRDN 2.20% due
12/01/2018 (a) 1,000,000
2,400,000 Geisinger, Pennsylvania Health System
Authority Revenue DDN 1.90% due
07/01/2022 (a) 2,400,000
4,000,000 Northampton County, Pennsylvania IDA Revenue
(Glendon Energy Co.) FXRDN 3.00% due
04/01/1994 4,000,000
See Notes to Financial Statements.
<PAGE>
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments Continued
November 30, 1993
Face Value
Amount Issue (Note 1a)
Pennsylvania $ 5,100,000 Pennsylvania State Higher Educational
(continued) Facilities Authority College & University
Revenue (Carnegie-Mellon) VRDN 2.20% due
11/01/2015 (a) $ 5,100,000
4,200,000 Pennsylvania State Higher Educational
Facilities Authority College &
University Revenue (Temple 11.90% due
10/01/2009 (a) 4,200,000
3,100,000 Philadelphia, Pennsylvania IDA (Institute
Cancer Research Project) DDN 1.90% due
07/01/2013 (a) 3,100,000
3,600,000 Washington County, Pennsylvania Higher
Education Authority Revenue VRDN 2.30%
due 11/01/2005 (a) 3,600,000
South Carolina 2,000,000 South Carolina State GO 6.50% due 02/01/1994 2,013,073
2.9% South Carolina State Housing Finance &
Development Authority (Homeownership
Mortgage Purchase Program) FXRDN:
3,000,000 3.20% due 12/01/1993 3,000,000
3,000,000 2.80% due 09/01/1994 3,000,000
Tennessee 2,000,000 Bradley County, Tennessee IDB Industrial
0.7% Revenue (Olin Corp. Project) DDN 1.90%
due 02/01/2017 (a) 2,000,000
Texas 1,000,000 Dallas, Texas Waterworks & Sewer Systems
9.5% Revenue BAN 2.40% due 04/01/1994 1,000,000
1,100,000 Harris County, Texas Health Facilities
Development Corp., (St. Lukes Episcopal
Hospital) DDN 1.90% due 02/15/2016 (a) 1,100,000
2,000,000 Harris county, Texas Industrial Development
Corp. PCR (Exxon Project) DDN 1.85% due
03/01/2024 (a) 2,000,000
2,600,000 Harris county, Texas Toll Road VRDN 2.30%
due 08/01/2015 (a) 2,600,000
Houston, Texas Health Facilities
Development Corp. Revenue (Methodist
Hospital Project) DDN:
7,000,000 1.90% due 12/01/2015 (a) 7,000,000
3,000,000 1.90% due 12/01/2021 (a) 3,000,000
1,100,000 Panhandle-Plains Texas Higher Education
Authority Student Loan Revenue FXRDN 2.90%
due 09/01/1994 1,100,000
8,500,000 Texas State TRAN 3.25% due 08/31/1994 8,538,978
Virginia 300,000 Peninsula Port Authority, Virginia (Shell Oil
1.9% Project) DDN 1.85% due 12/01/2005 (a) 300,000
See Notes to Financial Statements.
<PAGE>
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments Continued
November 30, 1993
Face Value
Amount Issue (Note 1a)
Virginia $ 5,000,000 Virginia State Housing Development Authority
(continued) FXRDN 2.90% due 11/04/1994 $ 5,000,000
Wisconsin 11,100,000 Wisconsin State Health & Educational
4.0% Facilities Authority Revenue (Daughters of
Charity National Health Systems) VRDN
2.50% due 11/01/2022 (a) 11,100,000
Total Investments (Cost $276,902,118*)-99.4% 276,902,118
Other Assets Less Liabilities 0.6% 1,794,403
Net Assets-Equivalent to $1.00 Per Share on
278,687,767 Shares of beneficial Interest
Outstanding-100.0% $278,696,521
<FN>
(a) The interest rate is subject to change periodically based on a certain index. The
rates shown are those in effect at November 30,1993. For variable rate demand instruments,
the next coupon date on which the interest is to be adjusted is deemed the maturity date
for valuation.
*Cost for Federal income tax purposes.
</TABLE>
See Notes to Financial Statements.
<PAGE>
Merrill Lynch Institutional Tax-Exempt Fund
Statement of Assets and Liabilities
November 30, 1993
<TABLE>
<S> <C>
Assets:
Investments, at amortized cost and value (Note 1) $276,902,118
Cash 9,573,609
Interest receivable 1,403,632
Prepaid expenses 43,372
Total assets 287,922,731
Liabilities:
Payable for investments purchased 9,095,920
Accrued investment advisory fee (Note 2) 56,750
Accrued expenses 37,239
Dividends payable (Note 4) 36,301
Total liabilities 9,226,210
Net Assets: (Equivalent to $1.00 per share, offering and
redemption price, based on 278,687,767 shares of beneficial
interest outstanding.) $278,696,521
</TABLE>
Merrill Lynch Institutional Tax-Exempt Fund
Statement of Operations
For the Year Ended November 30, 1993
<TABLE>
<S> <C> <C>
Investment Income:
Income:
Interest and discount earned $7,167,928
Expenses:
Investment advisory fee (Note 2) $1,247,564
Registration fees 157,846
Accounting and custodian services 89,369
Dividend and transfer agency fees 84,334
Legal and audit fees 74,352
Trustees' fees (Note 5) 36,128
Printing and shareholder reports 25,861
Insurance 5,870
Miscellaneous 2,966
Total expenses 1,724,290
Waived investment advisory fee (Note 2) (460,377) 1,263,913
Net investment income 5,904,015
Net realized loss from investment transactions (106,427)
Net increase in net assets resulting from operations $5,797,588
</TABLE>
See Notes to Financial Statements.
<PAGE>
Merrill Lynch Institutional Tax-Exempt Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November 30,
<S> <C> <C>
1993 1992
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 5,904,015 $ 8,453,637
Net realized loss from investment transactions (106,427) (11,633)
Increase in net assets resulting from operations 5,797,588 8,442,004
Dividends to shareholders (Note 4) (5,898,152) (8,441,261)
Capital share transactions (Note 3) (50,456,626) (47,901,509)
Net decrease in net assets (50,557,190) (47,900,766)
Net Assets:
Beginning of year 329,253,711 377,154,477
End of year, including undistributed net investment
income of $221,830 and $215,967 and accumulated capital
losses of $ 213,076 and $106,649 respectively (Note 4) $278,696,521 $329,253,711
</TABLE>
Merrill Lynch Institutional Tax-Exempt Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended November 30,
<S> <C> <C> <C> <C> <C>
1993 1992 1991 1990 1989
Net asset value, beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income .02 .03 .04 .05 .06
Dividends from net investment income (.02) (.03) (.04) (.05) (.06)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
Total return 2.14% 2.74% 4.33% 5.55% 6.16%
Ratios/Supplemental Data:
Net assets, end of period (000) $278,697 $329,254 $377,154 $310,344 $281,839
Ratio of operating expenses to
average net assets (before waiver*) .62% .61% .61% .63% .63%
Ratio of operating expenses to
average net assets (after waiver*) .45% .53% .54% .56% .55%
Ratio of net investment income to
average net assets (before waiver*) 1.96% 2.67% 4.21% 5.36% 5.92%
Ratio of net investment income to
average net assets (after waiver*) 2.13% 2.75% 4.28% 5.43% 6.00%
<FN>
* The investment advisor has voluntarily waived a portion of its fee throughout each
period.
</TABLE>
See Notes to Financial Statements.
<PAGE>
Merrill Lynch Institutional Tax-Exempt Fund
Notes to Financial Statements
1. Significant Accounting Policies
The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end management company. The following is a summary of
significant accounting policies consistently followed by the Fund. These
policies are in conformity with generally accepted accounting principles.
(a) investments are carried at amortized cost which approximates market.
For the purpose of valuation, the maturity of a variable rate demand
instrument is deemed to be the next coupon date on which the interest rate is to
be adjusted. In the case of a floating rate instrument, the remaining maturity
would be the demand notice payment period.
(b) It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders. Therefore no Federal income tax
provision is required.
(c) Realized gains and losses on investments are computed on the basis of
identified cost of the security sold.
(d) Security transactions are accounted for on the date the securities are
purchased or sold (the trade date). Interest income (after adjustment for
amortization of premium or discount) is recorded as earned.
2. Investment Advisory Fees and Other
Transactions with Affiliates
Fund Asset Management, Inc., a wholly-owned subsidiary of Merrill Lynch Asset
Management, Inc., (doing business as Merrill Lynch Asset Management) which is
an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc., provides
investment advisory and corporate administrative services to the Fund for a fee,
subject to certain limitations, computed daily and payable monthly, at an annual
rate of .45% of the Fund's net assets up to and including $1,500,000,000, plus
.425% of net assets over $1,500,000,000 up to and including $2,000,000,000, plus
.40% of net assets over $2,000,000,000. For the year ended November 30, 1993,
the investment adviser voluntarily waived a portion of its fee, amounting to
$460,377.
All officers and certain trustees of the Fund are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest ($.10 par value) of a single class. At November
30, 1993, capital paid-in aggregated $278,687,767. Transactions in shares at a
constant net asset value of $1.00 per share were as follows:
Year Ended November 30,
1993 1992
Shares sold 3,279,737,452 2,872,273,028
Shares issued to shareholders
in reinvestment of dividends and
distributions 5,105,388 7,799,962
Total 3,284,842,840 2,880,072,990
Shares redeemed 3,335,299,466 2,927,974,499
Net decrease (50,456,626) (47,901,509)
4. Distributions
The Fund declares dividends daily, pays dividends monthly and automatically
reinvests such dividends in additional Fund shares at net asset value, unless
shareholders request payment in cash. Dividends are declared from a total of
net investment income except for discounts earned other than original issue
discounts. Net realized capital gains, if any, are normally distributed
annually, after deducting prior years' loss carryovers. The Fund may distribute
capital gains more frequently than annually in order to maintain the Fund's net
asset value at $1.00 per share.
At November 30, 1993, the Fund had net capital loss carryovers of $105,210
of which $2,689 expire in 1995, $78 expire in the year 2000 and $102,443 expire
in 2001.
5. Trustees' Fees
Each Trustee who is not affiliated with the Fund or its adviser is paid an
annual fee of $6,000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
Merrill Lynch Institutional Tax-Exempt Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Institutional Tax-Exempt Fund as
of November 30, 1993, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended November 30,
1993 and 1992, and the financial highlights for each of the years in the
five-year period ended November 30, 1993. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at November
30, 1993 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Institutional Tax-Exempt Fund at November 30, 1993, the results of its
operations, the changes in its net assets, and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche
Boston, Massachusetts
December 22, 1993
