<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1996
FILE NO. 33-14190
FILE NO. 811-5149
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 14 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 16 [X]
(CHECK APPROPRIATE BOX OR BOXES.)
------------------------
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
ONE FINANCIAL CENTER 02111
BOSTON, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (617) 357-1460
ROBERT W. CROOK
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PHILIP L. KIRSTEIN, ESQ. LEONARD B. MACKEY, JR., ESQ.
FUND ASSET MANAGEMENT, L.P. ROGERS & WELLS
P.O. BOX 9011 200 PARK AVENUE
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10166
</TABLE>
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) 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
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON JUNE 25, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH INSTITUTIONAL FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
- --------------------------------------------------------- --------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page.................................. Cover Page
Item 2. Synopsis.................................... Fee Table
Item 3. Condensed Financial Information............. Financial Highlights; Yield Information
Item 4. General Description of Registrant........... The Institutional Fund and Its Objectives;
Investors For Whom The Funds Are Designed
Item 5. Management of the Fund...................... Management; Investment Adviser; Portfolio
Transactions; Additional Information
Item 5A. Management's Discussion of Fund
Performance............................... *
Item 6. Capital Stock and Other Securities.......... Cover Page; Dividends; Taxes; Additional
Information
Item 7. Purchase of Securities Being Offered........ Purchase of Shares; Distributor; Net Asset Value
Item 8. Redemption or Repurchase.................... Redemptions
Item 9. Pending Legal Proceedings................... *
PART B
Item 10. Cover Page.................................. Cover Page
Item 11. Table of Contents........................... Table of Contents
Item 12. General Information and History............. General Information
Item 13. Investment Objectives and Policies.......... Investment Objective and Policies
Item 14. Management of the Fund...................... Management of the Trust
Item 15. Control Persons and Principal Holders of
Securities................................ Management of the Trust; General Information
Item 16. Investment Advisory and Other Services...... Management of the Trust; Investment Advisory
and Other Services
Item 17. Brokerage Allocation and Other Practices.... Portfolio Transactions
Item 18. Capital Stock and Other Securities.......... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.................. Net Asset Value; Distributor
Item 20. Tax Status.................................. Taxes
Item 21. Underwriters................................ Distributor
Item 22. Calculation of Performance Data............. Yield Information
Item 23. Financial Statements........................ Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
- ---------------
* Item inapplicable or answer negative.
<PAGE> 3
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
- ---------------------------------------------------- ---------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page............................. Cover Page
Item 2. Synopsis............................... Fee Table
Item 3. Condensed Financial Information........ *
Item 4. General Description of Registrant...... The Premier Institutional Fund and Its
Objectives; Investors For Whom The
Funds Are Designed
Item 5. Management of the Fund................. Management; Investment Adviser;
Portfolio Transactions; Additional
Information
Item 5A. Management's Discussion of Fund
Performance.......................... *
Item 6. Capital Stock and Other Securities..... Cover Page; Dividends; Taxes;
Additional Information
Item 7. Purchase of Securities Being Offered... Purchase of Shares;
Distributor; Net Asset Value
Item 8. Redemption or Repurchase............... Redemptions
Item 9. Pending Legal Proceedings.............. *
PART B
Item 10. Cover Page............................. Cover Page
Item 11. Table of Contents...................... Table of Contents
Item 12. General Information and History........ General Information
Item 13. Investment Objectives and Policies..... Investment Objective and Policies
Item 14. Management of the Fund................. Management of the Trust
Item 15. Control Persons and Principal Holders
of Securities........................ Management of the Trust; General
Information
Item 16. Investment Advisory and Other
Services............................. Management of the Trust; Investment
Advisory and Other Services
Item 17. Brokerage Allocation and Other
Practices............................ Portfolio Transactions
Item 18. Capital Stock and Other Securities..... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............. Net Asset Value; Distributor
Item 20. Tax Status............................. Taxes
Item 21. Underwriters........................... Distributor
Item 22. Calculation of Performance Data........ Yield Information
Item 23. Financial Statements................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
- ---------------
* Item inapplicable or answer negative.
<PAGE> 4
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH GOVERNMENT FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
- ---------------------------------------------------- ---------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page............................. Cover Page
Item 2. Synopsis............................... Fee Table
Item 3. Condensed Financial Information........ Financial Highlights; Yield Information
Item 4. General Description of Registrant...... The Government Fund and Its Objectives;
Investors For Whom The Funds Are Designed
Item 5. Management of the Fund................. Management; Investment Adviser;
Portfolio Transactions; Additional
Information
Item 5A. Management's Discussion of Fund
Performance.......................... *
Item 6. Capital Stock and Other Securities..... Cover Page; Dividends; Taxes;
Additional Information
Item 7. Purchase of Securities Being Offered... Purchase of Shares; Distributor; Net Asset Value
Item 8. Redemption or Repurchase............... Redemptions
Item 9. Pending Legal Proceedings.............. *
PART B
Item 10. Cover Page............................. Cover Page
Item 11. Table of Contents...................... Table of Contents
Item 12. General Information and History........ General Information
Item 13. Investment Objectives and Policies..... Investment Objective and Policies
Item 14. Management of the Fund................. Management of the Trust
Item 15. Control Persons and Principal Holders
of Securities........................ Management of the Trust; General
Information
Item 16. Investment Advisory and Other
Services............................. Management of the Trust; Investment
Advisory and Other Services
Item 17. Brokerage Allocation and Other
Practices............................ Portfolio Transactions
Item 18. Capital Stock and Other Securities..... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............. Net Asset Value; Distributor
Item 20. Tax Status............................. Taxes
Item 21. Underwriters........................... Distributor
Item 22. Calculation of Performance Data........ Yield Information
Item 23. Financial Statements................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
- ---------------
* Item inapplicable or answer negative.
<PAGE> 5
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH TREASURY FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
- --------------------------------------------------------- --------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page.................................. Cover Page
Item 2. Synopsis.................................... Fee Table
Item 3. Condensed Financial Information............. Financial Highlights; Yield Information
Item 4. General Description of Registrant........... The Treasury Fund and Its Objectives;
Investors For Whom The Funds Are Designed
Item 5. Management of the Fund...................... Management; Investment Adviser; Portfolio
Transactions; Additional Information
Item 5A. Management's Discussion of Fund
Performance............................... *
Item 6. Capital Stock and Other Securities.......... Cover Page; Dividends; Taxes; Additional
Information
Item 7. Purchase of Securities Being Offered........ Purchase of Shares; Distributor; Net Asset Value
Item 8. Redemption or Repurchase.................... Redemptions
Item 9. Pending Legal Proceedings................... *
PART B
Item 10. Cover Page.................................. Cover Page
Item 11. Table of Contents........................... Table of Contents
Item 12. General Information and History............. General Information
Item 13. Investment Objectives and Policies.......... Investment Objective and Policies
Item 14. Management of the Fund...................... Management of the Trust
Item 15. Control Persons and Principal Holders of
Securities................................ Management of the Trust; General Information
Item 16. Investment Advisory and Other Services...... Management of the Trust; Investment Advisory
and Other Services
Item 17. Brokerage Allocation and Other Practices.... Portfolio Transactions
Item 18. Capital Stock and Other Securities.......... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.................. Net Asset Value; Distributor
Item 20. Tax Status.................................. Taxes
Item 21. Underwriters................................ Distributor
Item 22. Calculation of Performance Data............. Yield Information
Item 23. Financial Statements........................ Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
- ---------------
* Item inapplicable or answer negative.
<PAGE> 6
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
- --------------------------------------------------------- --------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page.................................. Cover Page
Item 2. Synopsis.................................... Fee Table
Item 3. Condensed Financial Information............. Financial Highlights; Yield Information
Item 4. General Description of Registrant........... The Tax-Exempt Fund and Its Objectives;
Investors For Whom The Funds Are Designed
Item 5. Management of the Fund...................... Management; Investment Adviser; Portfolio
Transactions; Additional Information
Item 5A. Management's Discussion of Fund
Performance............................... *
Item 6. Capital Stock and Other Securities.......... Cover Page; Dividends; Taxes; Additional
Information
Item 7. Purchase of Securities Being Offered........ Purchase of Shares; Distributor; Net Asset Value
Item 8. Redemption or Repurchase.................... Redemptions
Item 9. Pending Legal Proceedings................... *
PART B
Item 10. Cover Page.................................. Cover Page
Item 11. Table of Contents........................... Table of Contents
Item 12. General Information and History............. General Information
Item 13. Investment Objectives and Policies.......... Investment Objective and Policies
Item 14. Management of the Fund...................... Management of the Trust
Item 15. Control Persons and Principal Holders of
Securities................................ Management of the Trust; General Information
Item 16. Investment Advisory and Other Services...... Management of the Trust; Investment Advisory
and Other Services
Item 17. Brokerage Allocation and Other Practices.... Portfolio Transactions
Item 18. Capital Stock and Other Securities.......... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.................. Net Asset Value; Distributor
Item 20. Tax Status.................................. Taxes; Special Tax Consideration
Item 21. Underwriters................................ Distributor
Item 22. Calculation of Performance Data............. Yield Information
Item 23. Financial Statements........................ Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
- ---------------
* Item inapplicable or answer negative.
<PAGE> 7
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
------------------------
This document consists of the Prospectuses of Merrill Lynch Institutional
Fund, Merrill Lynch Premier Institutional Fund, Merrill Lynch Government Fund,
Merrill Lynch Treasury Fund and Merrill Lynch Institutional Tax-Exempt Fund and
an Appendix which constitutes part of each Prospectus. A Table of Contents may
be found on page 1 of each Prospectus.
------------------------
Merrill Lynch Institutional Fund (the "Institutional Fund"), Merrill Lynch
Premier Institutional Fund (the "Premier Institutional Fund", and, with the
Institutional Fund, the "Institutional Funds"), Merrill Lynch Government Fund
(the "Government Fund'), Merrill Lynch Treasury Fund (the "Treasury Fund") and
Merrill Lynch Institutional Tax-Exempt Fund (the "Tax-Exempt Fund") are separate
series of Merrill Lynch Funds For Institutions Series (the "Trust"). The
Institutional Funds are no-load money funds whose objectives are maximum current
income consistent with liquidity and the maintenance of a portfolio of high
quality short-term "money market" instruments. The Government Fund and the
Treasury Fund are no-load money funds seeking current income consistent with
liquidity and security of principal. The Government Fund invests in a portfolio
of securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The Treasury Fund invests in a portfolio of U.S. Treasury
securities. The Tax-Exempt Fund is a no-load money fund whose objectives are to
seek current income exempt from Federal income taxes, preservation of capital
and liquidity available from investing in a diversified portfolio of short-term,
high quality Tax-Exempt Securities. Each Fund seeks to maintain a constant $1.00
net asset value per share, although this cannot be assured. An investment in a
Fund is neither insured nor guaranteed by the U.S. Government.
The investment adviser of each Fund is Fund Asset Management, L.P. ("FAM"),
a subsidiary of Merrill Lynch & Co., Inc., a publicly held corporation. The
distributor of each Fund is Merrill Lynch Funds Distributor, Inc. ("MLFD"), an
indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc.
Each Fund is designed primarily for institutions as an economical and
convenient means for the investment of short-term funds. Such institutions
include banks and trust companies, corporations, investment bankers and brokers,
insurance companies, investment counsellors, pension funds, employee benefit
plans, law firms, trusts, estates, and educational, religious and charitable
institutions. Fund shares are sold and redeemed twice on each business day at
net asset value without any sales or redemption charge. All net income is
declared as dividends daily. Dividends are paid monthly and automatically
reinvested in additional shares or, at the option of the shareholder, paid in
cash. Purchase orders where payment is to be made by Federal Funds wire must be
submitted to MLFD in Boston by telephone and payment must be remitted by Federal
Funds wire directly to State Street Bank and Trust Company. While other forms of
payment will also be accepted, purchases of shares will not be effected until
Federal Funds are available. See "Purchase of Shares," page A-3.
<PAGE> 8
PROSPECTUS
JANUARY , 1997
MERRILL LYNCH INSTITUTIONAL FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER FOR GENERAL INFORMATION AND PURCHASES CALL
BOSTON, MASSACHUSETTS 02111 617-357-1460 OR TOLL FREE 800-225-1576
The Institutional Fund is a no-load money fund whose objectives are maximum
current income consistent with liquidity and the maintenance of a portfolio of
high quality short-term "money market" instruments. The Institutional Fund is a
series of Merrill Lynch Funds For Institutions Series (the "Trust"), a
diversified, open-end management investment company. The Institutional Fund
seeks to maintain a constant $1.00 net asset value per share, although this
cannot be assured. An investment in the Institutional Fund is neither insured
nor guaranteed by the U.S. Government. For more information on the Fund's
investment objectives, please see "The Institutional Fund and Its Objectives,"
page 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Prospectus sets forth in concise form the information about the
Institutional Fund that a prospective investor should know before investing in
the Institutional Fund. Investors should read and retain this Prospectus for
future reference. Additional information about the Institutional Fund has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information and is available upon request and without charge. Investors and
prospective investors may obtain a copy of the Statement of Additional
Information, which is dated January , 1997, by writing to or calling Merrill
Lynch Institutional Fund at the above address and telephone numbers. The
Statement of Additional Information has been incorporated by reference into this
Prospectus.
The minimum initial purchase for the Institutional Fund is $25,000 per
investor.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fee Table........................... 2
Financial Highlights................ 3
Yield Information................... 4
The Institutional Fund and Its
Objectives........................ 4
Investment Adviser.................. 7
Distribution and Shareholder
Servicing Plan.................... 8
Appendix
Investors for Whom the Funds are
Designed........................ A-1
Investment Adviser................ A-2
Distributor....................... A-2
<CAPTION>
PAGE
-----
<S> <C>
Management.......................... A-3
Purchase of Shares.................. A-3
Redemptions......................... A-6
Dividends........................... A-9
Net Asset Value..................... A-9
Taxes............................... A-10
Portfolio Transactions.............. A-11
Exchange Privilege.................. A-12
Additional Information.............. A-13
Account Application................. A-19
Authorization for Redemption by
Check Form........................ A-21
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 9
FEE TABLE
<TABLE>
<CAPTION>
INSTITUTIONAL
FUND
-------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases...................................... None
Deferred Sales Charge.......................................................... None
Sales Charge Imposed on Dividend Reinvestments................................. None
Redemption Fee................................................................. None
Exchange Fee................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees....................................................... .20%*
-------
Other Expenses
Dividend and Transfer Agency Fees........................................... .01%
Other Fees and Expenses..................................................... .03%
-------
Total Other Expenses...................................................... .04%
-------
TOTAL FUND OPERATING EXPENSES.................................................. .24%
=======
</TABLE>
- ---------------
* The Fund's Investment Adviser has agreed to waive a portion of its fee so that
the effective annual fee will be .20% of the Fund's average daily net assets.
If the Investment Adviser had not agreed to waive a portion of the investment
advisory fee, Total Fund Operating Expenses would be .37% of average net
assets. The Investment Adviser may discontinue the waiver of investment
advisory fees in whole or in part without notice at any time.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
----------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment
assuming (1) an operating expense ratio of .24%, (2) a 5% annual return
throughout the period and (3) redemption at the end of the period...... $2 $ 8 $14 $ 31
</TABLE>
The foregoing fee table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Institutional Fund will bear
directly or indirectly. The Example set forth above assumes reinvestment of all
dividends and distributions and uses a five percent annual rate of return as
mandated by Securities and Exchange Commission regulations. The actual rate of
return on the Institutional Fund's shares will vary, and may be more or less
than five percent. The Example should not be considered a representation of past
or future expenses, and actual expenses may be more or less than those assumed
for purposes of the Example. For a more detailed description of such costs and
expenses, see "Investment Adviser," "Distributor," "Purchase of Shares" and
"Redemptions."
Institutional Fund
2
<PAGE> 10
FINANCIAL HIGHLIGHTS
Selected data for a share of the Merrill Lynch Institutional Fund
outstanding throughout each period:
<TABLE>
<CAPTION>
FIVE
MONTHS
YEAR ENDED APRIL 30, ENDED
--------------------------------------------------------------------------- APRIL 30,
1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations:
Net investment income.... .056 .050 .031 .033 .050 .074 .033
Net realized and
unrealized gain on
investments............ -- -- -- .001 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations........... .056 .050 .031 .034 .050 .074 .033
Less Distributions:
Dividends from net
investment
income................. (.056) (.050) (.031) (.034) (.050) (.074) (.033)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, end of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ==========
Total Return.............. 5.81% 5.11% 3.20% 3.46% 5.12% 7.67% 8.11%*
Ratios/Supplemental Data:
Net Assets, end of period
(000).................. $7,615,126 $6,580,086 $3,775,121 $4,712,639 $2,156,878 $2,622,402 $1,732,563
Ratio of operating
expenses to average net
assets (before
waiver)................ .37% .37% .37% .38% .40% .42% .45%*
Ratio of operating
expenses to average net
assets (after
waiver)................ .24% .24% .24% .26% -- -- --
Ratio of net investment
income, including
realized and unrealized
gains and losses, to
average net assets
(before waiver)........ 5.42% 5.00% 2.91% 3.29% 4.99% 7.35% 7.99%*
Ratio of net investment
income, including
realized and unrealized
gains and losses to
average net assets
(after waiver)......... 5.55% 5.13% 3.04% 3.41% -- -- --
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------
1989 1988 1987 1986
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, beginning
of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations:
Net investment income.... .088 .070 .062 .064
Net realized and
unrealized gain on
investments............ -- -- -- .002
---------- ---------- ---------- ----------
Total from investment
operations........... .088 .070 .062 .066
Less Distributions:
Dividends from net
investment
income................. (.088) (.070) (.062) (.066)
---------- ---------- ---------- ----------
Net Asset Value, end of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total Return.............. 9.16% 7.25% 6.36% 6.78%
Ratios/Supplemental Data:
Net Assets, end of period
(000).................. $1,800,019 $1,258,741 $1,893,655 $1,371,548
Ratio of operating
expenses to average net
assets (before
waiver)................ .46% .45% .45% .46%
Ratio of operating
expenses to average net
assets (after
waiver)................ -- -- -- --
Ratio of net investment
income, including
realized and unrealized
gains and losses, to
average net assets
(before waiver)........ 8.83% 6.92% 6.19% 6.53%
Ratio of net investment
income, including
realized and unrealized
gains and losses to
average net assets
(after waiver)......... -- -- -- --
</TABLE>
----------------------
* On an annualized basis.
Note--The Financial Highlights shown for the fiscal years 1992-1996
have been audited by Deloitte & Touche LLP, independent auditors.
Institutional Fund
3
<PAGE> 11
YIELD INFORMATION
Set forth below is yield information as to the net annualized and
compounded yield for the seven-day period ended April 30, 1996.
<TABLE>
<S> <C>
Annualized Yield:
Including gains and losses............................................... 5.12%
Excluding gains and losses............................................... 5.12%
Compounded Annualized Yield................................................... 5.25%
Average Maturity of Portfolio at End of Period................................ 53 days
</TABLE>
The yield on Institutional Fund shares normally will fluctuate on a daily
basis. Therefore, the yield for any given past period is not an indication or
representation by the Institutional Fund of future yields or rates of return on
its shares. The Institutional Fund's yield is affected by changes in interest
rates on money market securities, average portfolio maturity, the types and
quality of portfolio securities held, and operating expenses.
On occasion, the Institutional Fund may compare its yield to (i) the IBC's
First Tier-Institutional Funds Only Average, an average compiled by IBC's Money
Fund Report, a widely recognized independent publication that monitors the
performance of money market mutual funds, (ii) the average yield reported by the
Bank Rate Monitor National Index(TM) for money market accounts offered by the
100 leading banks and thrift institutions in the 10 largest standard
metropolitan statistical areas, (iii) yield data published by Lipper Analytical
Services, Inc., (iv) the yield on an investment in 90-day Treasury bills on a
rolling basis, assuming quarterly compounding, or (v) performance data contained
in publications such as Morningstar Publications, Inc., Money Magazine, U.S.
News & World Report, Business Week, CDA Investment Technology, Inc., IBC's Money
Fund Report, Forbes and Fortune. As with yield quotations, yield comparisons
should not be considered indicative of the Institutional Fund's yield or
relative performance for any future period.
THE INSTITUTIONAL FUND AND ITS OBJECTIVES
The Institutional Fund is a no-load money fund whose objectives are maximum
current income consistent with liquidity and the maintenance of a portfolio of
high quality short-term "money market" instruments. The Institutional Fund
enables investors to invest short-term cash reserves in a portfolio of high
quality "money market" securities. Institutional Fund shares are sold and
redeemed twice on each business day at the net asset value next determined after
an order is received, and there is no sales or redemption charge. There can be
no assurance that the objectives of the Institutional Fund will be attained.
The Institutional Fund will attempt to accomplish its objectives of maximum
current income consistent with liquidity and the maintenance of a portfolio of
high quality "money market" instruments by investing in securities with
remaining maturities of up to 762 days (25 months) in the case of government
securities and 397 days (13 months) in the case of all other securities. The
dollar weighted average maturity of the Institutional Fund's portfolio will be
90 days or less.
Institutional Fund
4
<PAGE> 12
The following is a description of the types of short-term "money market"
instruments in which the Institutional Fund will principally invest:
(i) U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
(ii) U.S. dollar-denominated obligations of U.S. and foreign
depository institutions, including, but not limited to, certificates of
deposit, bankers' acceptances, time deposits, bank notes, thrift notes and
thrift deposit notes;
(iii) commercial paper and other short-term obligations issued by
corporations, partnerships, trusts or other entities, including U.S.
dollar-denominated obligations issued by foreign entities; and
(iv) other short-term obligations which in the opinion of the Trustees
of the Trust are of comparable credit quality.
The Institutional Fund's investments in short-term obligations will be
rated, or will be issued by issuers who have been rated, in one of the two
highest rating categories for short-term debt obligations by a nationally
recognized statistical rating organization (an "NRSRO") or, if not rated, will
be of comparable quality as determined by the Trustees of the Trust. The
Institutional Fund's investments in short-term obligations will be in issuers
who have received from the requisite NRSROs a rating, with respect to a class of
short-term debt obligations that is comparable in priority and security with the
investment, in one of the two highest rating categories for short-term
obligations or, if not rated, will be of comparable quality as determined by the
Trustees of the Trust. Currently, there are six NRSROs: Duff & Phelps Credit
Rating Co., Fitch Investors Service, Inc., IBCA Limited and its affiliate IBCA,
Inc., Moody's Investors Service, Inc., Standard & Poor's Rating Group and
Thomson BankWatch, Inc.
A regulation of the Securities and Exchange Commission presently limits
investments by the Institutional 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 do
not have the highest rating, not more than 1% of its total assets. In addition,
this regulation requires that not more than 5% of the Institutional Fund's total
assets be invested in securities that do not have the highest rating or are not
of comparable quality to securities with the highest rating as determined by the
Trustees of the Trust.
The following is a description of some of the investments or investment
practices in which the Institutional Fund may invest or engage:
Government Securities: U.S. Treasury bills and notes are supported by
the full faith and credit of the United States. The Institutional Fund also
invests in instruments 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
Institutional Fund
5
<PAGE> 13
U.S. Government sponsorship or guarantees. The U.S. Government is not
obligated to provide financial support to any of the above.
Repurchase Agreements: The Institutional Fund may enter into
repurchase agreements. A repurchase agreement is an instrument under which
the purchaser (i.e., the Institutional Fund) acquires the obligation (debt
security) and the seller agrees, at the time of the sale, to repurchase the
obligation at a mutually agreed upon time and price, thereby determining
the yield during the purchaser's holding period. As a matter of operating
policy, the Institutional 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 Institutional 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 Institutional 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 Institutional Fund may suffer
time delays and incur costs or losses in connection with the disposition of
the collateral.
Reverse Repurchase Agreements: The Institutional Fund may enter into
reverse repurchase agreements which involve the sale of money market
securities held by the Institutional 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 Institutional
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 in the Statement
of Additional Information.
Lending of Portfolio Securities: The Institutional Fund may lend
portfolio securities to brokers, dealers and financial institutions and
receive collateral in cash or securities issued or guaranteed by the U.S.
Government which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. During the
period of the loan, the Institutional Fund receives income on the loaned
securities and either receives a fee or earns interest on any investments
made with cash collateral and thereby increases its yield. Management of
the Fund does not consider the lending of portfolio securities to
constitute loans for purposes of the Fund's investment restrictions set
forth in the Statement of Additional Information.
Commercial Paper and Other Short-Term Obligations: The Institutional
Fund may purchase commercial paper (including variable amount master notes
and funding agreements), which refers to short-term promissory notes issued
by corporations, partnerships, trusts or other entities to finance short-
term credit needs, and non-convertible debt securities (e.g., bonds and
debentures) with no more than 397 days (13 months) remaining to maturity at
the time of purchase. Short-term obligations issued by trusts may include,
but are not limited to, mortgage-related or asset-backed debt instruments,
including pass-through certificates such as participations in, or Treasury
bonds or notes backed by, pools of mortgages, or credit card, automobile or
other types of receivables. See "Investment Objectives and Policies" in the
Statement of Additional Information for a discussion of these structured
financings.
Bank Money Instruments: Obligations of depository institutions such
as certificates of deposit, including variable rate certificates of
deposit, bankers' acceptances, bank notes and time deposits.
Institutional Fund
6
<PAGE> 14
Forward Commitments: The Institutional Fund may purchase and sell
securities on a when-issued basis or forward commitment basis, and it may
purchase or sell such securities for delayed delivery. The Institutional
Fund will maintain a segregated account with its custodian of liquid
securities in an aggregate amount equal to the amount of its commitments in
connection with such purchase transactions.
While the types of money market securities in which the Institutional 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
Institutional 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 Institutional Fund may suffer time delays and
incur costs or possible losses in connection with such transactions.
Investment Restrictions. The Institutional Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Institutional Fund's outstanding
voting securities. Among the more significant restrictions, the Institutional
Fund may not (1) invest more than 25% of its total assets in the securities of
issuers in any particular industry (other than U.S. Government securities,
Government agency securities or domestic bank money instruments); (2) purchase
the securities of any one issuer, other than the U.S. Government, if immediately
after such purchase more than 5% of the value of its total assets would be
invested in such issuer, except that up to 25% of the value of the Institutional
Fund's total assets may be invested without regard to this limitation; or (3)
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
Institutional Fund's assets in such repurchase agreements.
INVESTMENT ADVISER
The investment adviser to the Institutional Fund is Fund Asset Management,
L.P. ("FAM"), a subsidiary of Merrill Lynch & Co., Inc., a publicly held
corporation.
FAM, subject to the general supervision of the Trust's Board of Trustees,
renders investment advice to the Institutional Fund and is responsible for the
overall management of the Institutional Fund's business affairs. For the fiscal
year ended April 30, 1996, FAM was entitled to receive $26,191,407 or .33% of
the Institutional Fund's average daily net assets. FAM has agreed to waive a
portion of its fee so that the effective annual fee payable by the Institutional
Fund to FAM will be at the annual rate of .20% of the Fund's average daily net
assets. During the fiscal year ended April 30, 1996, such waiver amounted to
$10,263,924 or .13% of the Institutional Fund's average net assets. FAM
therefore received $15,927,483 or .20% of the Fund's average daily net assets
during the fiscal year ended April 30, 1996. FAM may discontinue waiver of the
fee in whole or in part at any time without notice. During the fiscal year ended
April 30, 1996, the Institutional Fund's total expenses were $19,155,092 or .24%
of its average net assets. If FAM had not waived a portion of its fee, the
Institutional Fund's total expenses would have been $29,419,016 or .37% of its
average net assets during the fiscal year ended April 30, 1996.
Institutional Fund
7
<PAGE> 15
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Institutional Fund has adopted a Distribution and Shareholder Servicing
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940. The Plan permits FAM to pay a fee to MLFD which in turn is authorized to
make payments to securities dealers with which MLFD has entered into selected
dealers agreements. MLFD may also use a portion of the fee it receives under the
Plan to compensate administrators who perform administrative services that would
otherwise be performed by FAM or its agent. The purpose of the Plan is to
promote distribution of the Institutional Fund's shares and to enhance the
provision of shareholder services. The Institutional Fund is not required or
permitted under the Plan to make payments over and above its investment advisory
fee; the Plan merely permits the reallocation of a portion of the advisory fee
FAM receives to pay for distribution-related and shareholder servicing
activities. For the fiscal year ended April 30, 1996, the fees paid to MLFD
under the Plan totalled $3,629,525 or .05% of the Institutional Fund's average
net assets, all of which was paid to MLFD for providing distribution-related
services in connection with Fund shares.
Institutional Fund
8
<PAGE> 16
PROSPECTUS
JANUARY , 1997
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER FOR GENERAL INFORMATION AND PURCHASES CALL
BOSTON, MASSACHUSETTS 02111 617-357-1460 OR TOLL FREE 800-225-1576
The Premier Institutional Fund is a no-load money fund whose objectives are
maximum current income consistent with liquidity and the maintenance of a
portfolio of high quality short-term "money market" instruments. The Premier
Institutional Fund is a series of Merrill Lynch Funds For Institutions Series
(the "Trust"), a diversified, open-end management investment company. The
Premier Institutional Fund seeks to maintain a constant $1.00 net asset value
per share, although this cannot be assured. An investment in the Premier
Institutional Fund is neither insured nor guaranteed by the U.S. Government. For
more information on the Fund's investment objectives, please see "The Premier
Institutional Fund and Its Objectives," page 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Prospectus sets forth in concise form the information about the Premier
Institutional Fund that a prospective investor should know before investing in
the Premier Institutional Fund. Investors should read and retain this Prospectus
for future reference. Additional information about the Premier Institutional
Fund has been filed with the Securities and Exchange Commission in a Statement
of Additional Information and is available upon request and without charge.
Investors and prospective investors may obtain a copy of the Statement of
Additional Information, which is dated January , 1997, by writing to or
calling Merrill Lynch Premier Institutional Fund at the above address and
telephone numbers. The Statement of Additional Information has been incorporated
by reference into this Prospectus.
The minimum initial purchase for the Premier Institutional Fund is
$10,000,000 per account.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fee Table........................... 2
Yield Information................... 3
The Premier Institutional Fund and
Its Objectives.................... 3
Investment Adviser.................. 6
Appendix
Investors for Whom the Funds are
Designed........................ A-1
Investment Adviser................ A-2
Distributor......................... A-2
<CAPTION>
PAGE
-----
<S> <C>
Management.......................... A-3
Purchase of Shares.................. A-3
Redemptions......................... A-6
Dividends........................... A-9
Net Asset Value..................... A-9
Taxes............................... A-10
Portfolio Transactions.............. A-11
Exchange Privilege.................. A-12
Additional Information.............. A-13
Account Application................. A-19
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 17
FEE TABLE
<TABLE>
<CAPTION>
PREMIER
INSTITUTIONAL
FUND
-------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases.................................... None
Deferred Sales Charge........................................................ None
Sales Charge Imposed on Dividend Reinvestments............................... None
Redemption Fee............................................................... None
Exchange Fee................................................................. None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees..................................................... .150%
Other Expenses*
Dividend and Transfer Agency Fees......................................... .002%
Other Fees and Expenses................................................... .028%
---
Total Other Expenses.................................................... .030%
---
TOTAL FUND OPERATING EXPENSES.................................................. .180%
===
</TABLE>
- ---------------
* Other Expenses is based on estimated amounts for the current fiscal year.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment
assuming (1) an operating expense ratio of .18%, (2) a 5% annual return
throughout the period and (3) redemption at the end of the period....... $2 $6 $10 $23
</TABLE>
The foregoing fee table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Premier Institutional Fund will
bear directly or indirectly. The Example set forth above assumes reinvestment of
all dividends and distributions and uses a five percent annual rate of return as
mandated by Securities and Exchange Commission regulations. The actual rate of
return on the Fund's shares will vary, and may be more or less than five
percent. The Example should not be considered a representation of past or future
expenses, and actual expenses may be more or less than those assumed for
purposes of the Example. For a more detailed description of such costs and
expenses, see "Investment Adviser," "Distributor," "Purchase of Shares" and
"Redemptions."
Premier Institutional Fund
2
<PAGE> 18
YIELD INFORMATION
The yield on Premier Institutional Fund shares normally will fluctuate on a
daily basis. Therefore, the yield for any given past period is not an indication
or representation by the Premier Institutional Fund of future yields or rates of
return on its shares. The Premier Institutional Fund's yield will be affected by
changes in interest rates on money market securities, average portfolio
maturity, the types and quality of portfolio securities held, and operating
expenses.
On occasion, the Premier Institutional Fund may compare its yield to (i)
the IBC's First Tier-Institutional Funds Only Average, an average compiled by
IBC's Money Fund Report, a widely recognized independent publication that
monitors the performance of money market mutual funds, (ii) the average yield
reported by the Bank Rate Monitor National Index(TM) for money market accounts
offered by the 100 leading banks and thrift institutions in the 10 largest
standard metropolitan statistical areas, (iii) yield data published by Lipper
Analytical Services, Inc., (iv) the yield on an investment in 90-day Treasury
bills on a rolling basis, assuming quarterly compounding, or (v) performance
data contained in publications such as Morningstar Publications, Inc., Money
Magazine, U.S. News & World Report, Business Week, CDA Investment Technology,
Inc., IBC's Money Fund Report, Forbes and Fortune. As with yield quotations,
yield comparisons should not be considered indicative of the Fund's yield or
relative performance for any future period.
THE PREMIER INSTITUTIONAL FUND AND ITS OBJECTIVES
The Premier Institutional Fund is a no-load money fund whose objectives are
maximum current income consistent with liquidity and the maintenance of a
portfolio of high quality short-term "money market" instruments. The Premier
Institutional Fund enables investors to invest short-term cash reserves in a
portfolio of high quality "money market" securities. Premier Institutional Fund
shares are sold and redeemed twice on each business day at the net asset value
next determined after an order is received, and there is no sales or redemption
charge. There can be no assurance that the objectives of the Premier
Institutional Fund will be attained.
The Premier Institutional Fund will attempt to accomplish its objectives of
maximum current income consistent with liquidity and the maintenance of a
portfolio of high quality "money market" instruments by investing in securities
with remaining maturities of up to 762 days (25 months) in the case of
government securities and 397 days (13 months) in the case of all other
securities. The dollar weighted average maturity of the Premier Institutional
Fund's portfolio will be 90 days or less.
The following is a description of the types of short-term "money market"
instruments in which the Premier Institutional Fund will principally invest:
(i) U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
(ii) U.S. dollar-denominated obligations of U.S. and foreign
depository institutions, including, but not limited to, certificates of
deposit, bankers' acceptances, time deposits, bank notes, thrift notes and
deposit notes;
Premier Institutional Fund
3
<PAGE> 19
(iii) commercial paper and other short-term obligations issued by
corporations, partnerships, trusts or other entities, including U.S.
dollar-denominated obligations issued by foreign entities; and
(iv) other short-term obligations which in the opinion of the Trustees
of the Trust are of comparable credit quality.
The Premier Institutional Fund's investments in short-term obligations will
be rated, or will be issued by issuers who have been rated, in one of the two
highest rating categories for short-term debt obligations by a nationally
recognized statistical rating organization (an "NRSRO") or, if not rated, will
be of comparable quality as determined by the Trustees of the Trust. The Premier
Institutional Fund's investments in short-term obligations will be in issuers
who have received from the requisite NRSROs a rating, with respect to a class of
short-term debt obligations that is comparable in priority and security with the
investment, in one of the two highest rating categories for short-term
obligations or, if not rated, will be of comparable quality as determined by the
Trustees of the Trust. Currently, there are six NRSROs: Duff & Phelps Credit
Rating Co., Fitch Investors Service, Inc., IBCA Limited and its affiliate IBCA,
Inc., Moody's Investors Service, Inc., Standard & Poor's Rating Group and
Thomson BankWatch, Inc.
A regulation of the Securities and Exchange Commission presently limits
investments by the Premier Institutional 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 do not have the highest rating, not more than 1% of its total assets.
In addition, this regulation requires that not more than 5% of the Premier
Institutional Fund's total assets be invested in securities that do not have the
highest rating or are not of comparable quality to securities with the highest
rating as determined by the Trustees of the Trust.
The following is a description of some of the investments or investment
practices in which the Premier Institutional Fund may invest or engage:
Government Securities: U.S. Treasury bills and notes are supported by
the full faith and credit of the United States. The Premier Institutional
Fund also will invest in debt securities issued by U.S. Government
sponsored enterprises, agencies and instrumentalities, including, but not
limited to, the Federal National Mortgage Association, the Federal Home
Loan Mortgage Corporation, the Student Loan Marketing Association, the
Federal Agricultural Mortgage Corporation, and the Federal Home Loan Bank.
Such securities may also include debt securities issued by international
organizations designated or supported by multiple 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. The U.S. Government is not obligated to provide financial
support to any of the above.
Repurchase Agreements: The Premier Institutional Fund may enter into
repurchase agreements. A repurchase agreement is an instrument under which
the purchaser (i.e., the Premier Institutional Fund) acquires the
obligation (debt security) and the seller agrees, at the time of the sale,
to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. As a
matter of operating policy, the Premier Institutional Fund will not enter
into
Premier Institutional Fund
4
<PAGE> 20
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 Premier
Institutional 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 Premier
Institutional 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 Premier Institutional Fund may suffer time delays and incur
costs or losses in connection with the disposition of the collateral.
Reverse Repurchase Agreements: The Premier Institutional Fund may
enter into reverse repurchase agreements which involve the sale of money
market securities held by the Premier Institutional 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
Premier Institutional Fund will maintain a segregated custodial account
containing U.S. Government or other appropriate liquid securities having a
value equal to the repurchase price.
Lending of Portfolio Securities: The Premier Institutional Fund may
lend portfolio securities to brokers, dealers and financial institutions
and receive collateral in cash or securities issued or guaranteed by the
U.S. Government which will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. During
the period of the loan, the Premier Institutional Fund will receive income
on the loaned securities and either receives a fee or earns interest on any
investments made with cash collateral and thereby increases its yield.
Commercial Paper and Other Short-Term Obligations: The Premier
Institutional Fund may purchase commercial paper (including variable amount
master notes and funding agreements), which refers to short-term promissory
notes issued by corporations, partnerships, trusts or other entities to
finance short-term credit needs, and non-convertible debt securities (e.g.,
bonds and debentures) with no more than 397 days (13 months) remaining to
maturity at the time of purchase. Short-term obligations issued by trusts
may include, but are not limited to, mortgage-related or asset-backed debt
instruments, including pass-through certificates such as participations in,
or Treasury bonds or notes backed by, pools of mortgages, or credit card,
automobile or other types of receivables. See "Investment Objectives and
Policies" in the Statement of Additional Information for a discussion of
these structured financings.
Bank Money Instruments: Obligations of depository institutions such
as certificates of deposit, including variable rate certificates of
deposit, bankers' acceptances, bank notes and time deposits.
Forward Commitments: The Premier Institutional Fund may purchase and
sell securities on a when-issued basis or forward commitment basis, and it
may purchase or sell such securities for delayed delivery. The Premier
Institutional Fund will maintain a segregated account with its custodian of
liquid securities in an aggregate amount equal to the amount of its
commitments in connection with such purchase transactions.
While the types of money market securities in which the Premier
Institutional 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
Premier Institutional Fund
5
<PAGE> 21
repurchase agreements and the lending of portfolio securities by the Premier
Institutional 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 Premier Institutional Fund may suffer time
delays and incur costs or possible losses in connection with the disposition of
the collateral.
Investment Restrictions. The Premier Institutional Fund has adopted a
number of restrictions and policies relating to the investment of its assets and
its activities, which are fundamental policies and may not be changed without
the approval of the holders of a majority of the Premier Institutional Fund's
outstanding voting securities. Among the more significant restrictions, the
Premier Institutional Fund may not (1) invest more than 25% of its total assets
in the securities of issuers in any particular industry (other than U.S.
Government securities, Government agency securities or bank money instruments);
(2) borrow money, except that the Premier Institutional Fund may borrow from
banks (as defined in the Investment Company Act) in amounts of up to 33 1/3% of
its total assets (including the amount borrowed), or for temporary purposes (up
to an additional 5% of its total assets), or as necessary for the clearance of
securities transactions, or for the purchase of securities on margin; or (3)
make loans to other persons, except that the purchase of debt instruments, U.S.
Government securities, commercial paper and other short-term obligations, bank
money instruments and repurchase agreements are not deemed the making of a loan
and that the Premier Institutional Fund may lend its portfolio securities in
accordance with applicable law and the guidelines set forth herein and in the
Statement of Additional Information.
INVESTMENT ADVISER
The investment adviser to the Premier Institutional Fund is Fund Asset
Management, L.P. ("FAM"), a subsidiary of Merrill Lynch & Co., Inc., a publicly
held corporation.
FAM, subject to the general supervision of the Trust's Board of Trustees,
renders investment advice to the Premier Institutional Fund and is responsible
for the overall management of the Premier Institutional Fund's business affairs.
For its services, FAM will receive a monthly fee payable by the Premier
Institutional Fund at the annual rate of .15% of the Fund's average daily net
assets.
Premier Institutional Fund
6
<PAGE> 22
PROSPECTUS
JANUARY , 1997
MERRILL LYNCH GOVERNMENT FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER FOR GENERAL INFORMATION AND PURCHASES CALL
BOSTON, MASSACHUSETTS 02111 617-357-1460 OR TOLL FREE 800-225-1576
The Government Fund is a no-load money fund whose objectives are to seek
current income consistent with liquidity and security of principal by investing
in a portfolio of securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Government Fund is a series of Merrill Lynch
Funds For Institutions Series (the "Trust"), a diversified, open-end management
investment company. The Government Fund seeks to maintain a constant $1.00 net
asset value per share, although this cannot be assured. An investment in the
Government Fund is neither insured nor guaranteed by the U.S. Government. For
more information on the Fund's investment objectives, please see "The Government
Fund and Its Objectives," page 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus sets forth in concise form the information about the
Government Fund that a prospective investor should know before investing in the
Government Fund. Investors should read and retain this Prospectus for future
reference. Additional information about the Government Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
and is available upon request and without charge. Investors and prospective
investors may obtain a copy of the Statement of Additional Information, which is
dated January , 1997, by writing to or calling Merrill Lynch Government Fund
at the above address and telephone numbers. The Statement of Additional
Information has been incorporated by reference into this Prospectus.
The minimum initial purchase for the Government Fund is $25,000 per
investor.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fee Table........................... 2
Financial Highlights................ 3
Yield Information................... 4
The Government Fund and Its
Objectives........................ 4
Investment Adviser.................. 6
Distribution and Shareholder
Servicing Plan.................... 7
Appendix
Investors for Whom the Funds are
Designed........................ A-1
Investment Adviser................ A-2
Distributor....................... A-2
<CAPTION>
PAGE
-----
<S> <C>
Management.......................... A-3
Purchase of Shares.................. A-3
Redemptions......................... A-6
Dividends........................... A-9
Net Asset Value..................... A-9
Taxes............................... A-10
Portfolio Transactions.............. A-11
Exchange Privilege.................. A-12
Additional Information.............. A-13
Account Application................. A-19
Authorization for Redemption by
Check Form........................ A-21
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 23
FEE TABLE
<TABLE>
<CAPTION>
GOVERNMENT
FUND
----------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases..................................... None
Deferred Sales Charge......................................................... None
Sales Charge Imposed on Dividend Reinvestments................................ None
Redemption Fee................................................................ None
Exchange Fee.................................................................. None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees...................................................... .20%*
------
Other Expenses
Dividend and Transfer Agency Fees.......................................... .02%
Other Fees and Expenses.................................................... .04%
------
Total Other Expenses..................................................... .06%
------
TOTAL FUND OPERATING EXPENSES................................................. .26%
======
</TABLE>
- ---------------
* The Fund's Investment Adviser has agreed to waive a portion of its fee so that
the effective annual fee will be .20% of the Fund's average daily net assets.
If the Investment Adviser had not agreed to waive a portion of the investment
advisory fee, Total Fund Operating Expenses would be .38% of average net
assets. The Investment Adviser may discontinue the waiver of investment
advisory fees in whole or in part without notice at any time.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment
assuming (1) an operating expense ratio of .26%, (2) a 5% annual
return throughout the period and (3) redemption at the end of the
period................................................................ $3 $8 $15 $33
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Government Fund will bear
directly or indirectly. The Example set forth above assumes reinvestment of all
dividends and distributions and uses a five percent annual rate of return as
mandated by Securities and Exchange Commission regulations. The actual rate of
return on the Government Fund's shares will vary, and may be more or less than
five percent. The Example should not be considered a representation of past or
future expenses, and actual expenses may be more or less than those assumed for
purposes of the Example. For a more detailed description of such costs and
expenses, see "Investment Adviser," "Distributor," "Purchase of Shares" and
"Redemptions."
Government Fund
2
<PAGE> 24
FINANCIAL HIGHLIGHTS
Selected data for a share of the Merrill Lynch Government Fund
outstanding throughout each period:
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED APRIL 30, ENDED
---------------------------------------------------------------------- APRIL 30,
1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations:
Net investment income.......... .055 .049 .030 .030 .047 .070 .052
Net realized and unrealized
gain on investments.......... -- -- -- .001 .002 .001 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations............... .055 .049 .030 .031 .049 .071 .052
Less Distributions:
Dividends from net investment
income....................... (.055) (.049) (.030) (.031) (.049) (.071) (.052)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, end of
period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ==========
Total Return.................... 5.67% 4.99% 3.06% 3.19% 5.05% 7.38% 8.15%*
Ratios/Supplemental Data:
Net Assets, end of period
(000)........................ $1,643,625 $1,601,085 $1,533,478 $1,355,044 $1,358,150 $1,438,197 $1,270,277
Ratio of expenses to average
net assets (before waiver)... .38% .37% .38% .39% .41% .44% .46%*
Ratio of expenses to average
net assets (after waiver).... .26% .24% .32% -- -- -- --
Ratio of net investment income,
including realized and
unrealized gains and losses,
to average net assets (before
waiver)...................... 5.37% 4.82% 2.83% 3.19% 4.93% 7.11% 7.97%*
Ratio of net investment income,
including realized and
unrealized gains and losses
to average net assets (after
waiver)...................... 5.49% 4.95% 2.89% -- -- -- --
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1989 1988 1987 1986
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations:
Net investment income.......... .083 .061 .053 .065
Net realized and unrealized
gain on investments.......... -- .001 .002 .003
---------- ---------- ---------- ----------
Total from investment
operations............... .083 .062 .055 .068
Less Distributions:
Dividends from net investment
income....................... (.083) (.062) (.055) (.068)
---------- ---------- ---------- ----------
Net Asset Value, end of
period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total Return.................... 8.65% 6.43% 5.61% 7.01%
Ratios/Supplemental Data:
Net Assets, end of period
(000)........................ $1,409,819 $1,469,766 $1,561,268 $1,757,524
Ratio of expenses to average
net assets (before waiver)... .46% .46% .43% .45%
Ratio of expenses to average
net assets (after waiver).... -- -- -- --
Ratio of net investment income,
including realized and
unrealized gains and losses,
to average net assets (before
waiver)...................... 8.31% 6.23% 5.41% 6.79%
Ratio of net investment income,
including realized and
unrealized gains and losses
to average net assets (after
waiver)...................... -- -- -- --
</TABLE>
----------------------
* On an annualized basis.
Note--The Financial Highlights shown for the fiscal years 1992-1996
have been audited by Deloitte & Touche LLP, independent auditors.
Government Fund
3
<PAGE> 25
YIELD INFORMATION
Set forth below is yield information as to the net annualized and
compounded yield for the seven-day period ended April 30, 1996.
<TABLE>
<S> <C>
Annualized Yield:
Including gains and losses.................................................. 5.10%
Excluding gains and losses.................................................. 5.06%
Compounded Annualized Yield.................................................... 5.19%
Average Maturity of Portfolio at End of Period................................. 41 days
</TABLE>
The yield on Government Fund shares normally will fluctuate on a daily
basis. Therefore, the yield for any given past period is not an indication or
representation by the Government Fund of future yields or rates of return on its
shares. The Government Fund's yield is affected by changes in interest rates on
money market securities, average portfolio maturity, the types and quality of
portfolio securities held, and operating expenses.
On occasion, the Government Fund may compare its yield to (i) the IBC's
Government Only Institutional Only Average, an average compiled by IBC's Money
Fund Report, a widely recognized independent publication that monitors the
performance of money market mutual funds, (ii) the average yield reported by the
Bank Rate Monitor National Index(TM) for money market accounts offered by the
100 leading banks and thrift institutions in the 10 largest standard
metropolitan statistical areas, (iii) yield data published by Lipper Analytical
Services, Inc., (iv) the yield on an investment in 90-day Treasury bills on a
rolling basis, assuming quarterly compounding, or (v) performance data contained
in publications such as Morningstar Publications, Inc., Money Magazine, U.S.
News & World Report, Business Week, CDA Investment Technology, Inc., IBC's Money
Fund Report, Forbes and Fortune. As with yield quotations, yield comparisons
should not be considered indicative of the Government Fund's yield or relative
performance for any future period.
THE GOVERNMENT FUND AND ITS OBJECTIVES
The Government Fund is a no-load money fund whose objectives are to seek
current income consistent with liquidity and security of principal by investing
in a portfolio of securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government securities"). The Government
Fund enables investors to invest short-term cash reserves in a portfolio of U.S.
Government securities. Government Fund shares are sold and redeemed twice on
each business day at net asset value, and there is no sales or redemption
charge. There can be no assurance that the objectives of the Government Fund
will be attained.
The Government Fund will attempt to accomplish its investment objectives by
investing in a portfolio of U.S. Government securities, with remaining
maturities not exceeding 762 days (25 months). The dollar weighted average
maturity of the Government Fund's portfolio will be 90 days or less.
Securities of the type included in the Government Fund's portfolio have
historically had lower rates of return than commercial obligations but have
involved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period of a shareholder's investment in the Government Fund.
Government Fund
4
<PAGE> 26
The types of securities in which the Government Fund may invest include the
following:
Government Securities: Certain Government securities, including U.S.
Treasury bills, notes and bonds and securities of the Government National
Mortgage Association and the Federal Housing Administration, are issued or
guaranteed by the U.S. Government and supported by the full faith and
credit of the United States. Other U.S. Government securities are issued or
guaranteed by federal agencies or government-sponsored enterprises and are
not direct obligations of the United States but involve sponsorship or
guarantees by Government agencies or enterprises. These obligations include
securities that are supported by the right of the issuer to borrow from the
Treasury, such as obligations of Federal Home Loan Banks, and securities
that are supported only by the credit of the instrumentality, such as
Federal National Mortgage Association bonds. Because the U.S. Government is
not obligated to provide support to its instrumentalities, the Fund will
invest in obligations issued by these instrumentalities where the
Investment Adviser believes that the credit risk with respect to the
issuers is minimal.
Repurchase Agreements: The Government Fund may invest in obligations
which are subject to repurchase agreements. A repurchase agreement is an
instrument under which the purchaser (i.e., the Government 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 that period. As a matter of operating policy, the Government 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 Government Fund's net assets in such repurchase agreements. If a
repurchase agreement is construed to be a collateralized loan, the
underlying securities will not be considered to be owned by the Government
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
Government Fund may suffer time delays and incur costs or losses in
connection with the disposition of the collateral.
Reverse Repurchase Agreements: The Government Fund may enter into
reverse repurchase agreements which involve the sale of portfolio
securities held by the Government 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 Government 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 in the Statement of Additional
Information.
Lending of Portfolio Securities: The Government Fund may lend
portfolio securities to brokers, dealers and financial institutions and
receive collateral in cash or securities issued or guaranteed by the U.S.
Government which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. During the
period of the loan, the Government Fund will receive income on the loaned
securities and either receives a fee or earns interest on any investments
made with cash collateral and thereby increases its yield. Management of
the Fund does not consider the lending of portfolio securities to
constitute loans for purposes of the Fund's investment restrictions set
forth in the Statement of Additional Information.
Government Fund
5
<PAGE> 27
Forward Commitments: The Government Fund may purchase and sell U.S.
Government securities on a when-issued basis or forward commitment basis,
and it may purchase or sell such securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Government
Fund with payment and delivery taking place in the future to secure what is
considered an advantageous yield and price to the Government Fund at the
time of entering into the transaction. The value of the security on the
delivery date may be more or less than its purchase price. If management of
the Government Fund deems it appropriate to do so, the Government Fund may
dispose of a commitment prior to settlement. There can, of course, be no
assurance that the judgments upon which these practices are based will be
accurate, and it is possible that in consequence of these practices the
Government Fund would be required to pay on a settlement date more than the
market value of the purchased securities at that time, or that the
Government Fund would incur a loss by disposing of a commitment on terms
less favorable than those of its original purchase. The Government Fund
will maintain a segregated account with its custodian of cash or U.S.
Government securities in an aggregate amount equal to the amount of its
commitments in connection with such purchase transactions.
"Stripped Coupon" Securities: The Government Fund may invest in
direct obligations of the U.S. Government by purchasing component parts of
U.S. Treasury bonds through the acquisition of deposit receipts which
evidence ownership of direct interest in such component parts of such
bonds.
Investment Restrictions. The Government Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Government Fund's outstanding
voting securities. Among the more significant restrictions, the Government Fund
may not (1) enter into repurchase agreements with any one counter-party if
immediately thereafter more than 5% of the value of its total assets would be
invested in repurchase agreements with such counter-party and (2) borrow money
except from banks for temporary purposes and in an amount not exceeding 10% of
the value of its total net assets, or mortgage, pledge or hypothecate its assets
except in connection with any such borrowing and in amounts not in excess of the
dollar amounts borrowed. (As a matter of operating policy, the Government Fund
will not invest in securities if outstanding borrowings exceed 5% of the net
asset value.)
INVESTMENT ADVISER
The investment adviser to the Government Fund is Fund Asset Management,
L.P. ("FAM"), a subsidiary of Merrill Lynch & Co., Inc., a publicly held
corporation.
FAM, subject to the general supervision of the Trust's Board of Trustees
and in conformance with the stated policies of the Government Fund, renders
investment advice to the Government Fund and is responsible for the overall
management of the Government Fund's business affairs. For the fiscal year ended
April 30, 1996, FAM was entitled to receive investment advisory fees of
$5,423,149 or .32% of the Government Fund's average net assets. FAM has agreed
to waive a portion of its fee so that the effective annual fee payable by the
Government Fund to FAM will be at the annual rate of .20% of the Government
Fund's average daily net assets. Such waiver amounted to $2,066,757 during the
fiscal year ended April 30, 1996, or .12% of the Fund's average net assets
during the period. FAM therefore received $3,356,392 or .20% of the Government
Fund's average net assets during the fiscal year ended April 30, 1996. FAM may
discontinue waiver of the fee in
Government Fund
6
<PAGE> 28
whole or in part at any time without notice. During the fiscal year ended April
30, 1996, the Government Fund's total expenses were $4,331,916 or .26% of its
average net assets. If FAM had not waived a portion of its fee, the Government
Fund's total expenses would have been $6,398,673 or .38% of its average net
assets.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Government Fund has adopted a Distribution and Shareholder Servicing
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940. The Plan permits FAM to pay a fee to MLFD which in turn is authorized to
make payments to securities dealers with which MLFD has entered into selected
dealers agreements. MLFD may also use a portion of the fee it receives under the
Plan to compensate administrators who perform administrative services that would
otherwise be performed by FAM or its agent. The purpose of the Plan is to
promote distribution of the Government Fund's shares and to enhance the
provision of shareholder services. The Government Fund is not required or
permitted under the Plan to make payments over and above its investment advisory
fee; the Plan merely permits the reallocation of a portion of the advisory fee
FAM receives to pay for distribution-related and shareholder servicing
activities. For the fiscal year ended April 30, 1996, the fees paid to MLFD
under the Plan totalled $662,495 or .04% of the Government Fund's average net
assets, all of which was paid to MLFD for providing distribution-related
services in connection with Government Fund shares.
Government Fund
7
<PAGE> 29
PROSPECTUS
JANUARY , 1997
MERRILL LYNCH TREASURY FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER FOR GENERAL INFORMATION AND PURCHASES CALL
BOSTON, MASSACHUSETTS 02111 617-357-1460 OR TOLL FREE 800-225-1576
The Treasury Fund is a no-load money fund whose objectives are to seek
current income consistent with liquidity and security of principal. The Fund
will attempt to achieve its investment objectives by investing in a portfolio of
U.S. Treasury securities. The Treasury Fund is a series of Merrill Lynch Funds
For Institutions Series (the "Trust"), a diversified, open-end management
investment company. The Treasury Fund seeks to maintain a constant $1.00 net
asset value per share, although this cannot be assured. An investment in the
Treasury Fund is neither insured nor guaranteed by the U.S. Government. For more
information on the Fund's investment objectives, please see "The Treasury Fund
and Its Objectives," page 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Prospectus sets forth in concise form the information about the
Treasury Fund that a prospective investor should know before investing in the
Treasury Fund. Investors should read and retain this Prospectus for future
reference. Additional information about the Treasury Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
and is available upon request and without charge. Investors and prospective
investors may obtain a copy of the Statement of Additional Information, which is
dated January , 1997 by writing to or calling Merrill Lynch Treasury Fund at
the above address and telephone numbers. The Statement of Additional Information
has been incorporated by reference into this Prospectus.
The minimum initial purchase for the Treasury Fund is $25,000 per investor.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fee Table........................... 2
Financial Highlights................ 3
Yield Information................... 4
The Treasury Fund and Its
Objectives........................ 4
Investment Adviser.................. 6
Distribution and Shareholder
Servicing Plan.................... 6
Appendix
Investors for Whom the Funds are
Designed........................ A-1
Investment Adviser................ A-2
Distributor....................... A-2
<CAPTION>
PAGE
-----
<S> <C>
Management.......................... A-3
Purchase of Shares.................. A-3
Redemptions......................... A-6
Dividends........................... A-9
Net Asset Value..................... A-9
Taxes............................... A-10
Portfolio Transactions.............. A-11
Exchange Privilege.................. A-12
Additional Information.............. A-13
Account Application................. A-19
Authorization for Redemption by
Check Form........................ A-21
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 30
FEE TABLE
<TABLE>
<CAPTION>
TREASURY
FUND
--------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases......................................... None
Deferred Sales Charge............................................................. None
Sales Charge Imposed on Dividend Reinvestments.................................... None
Redemption Fee.................................................................... None
Exchange Fee...................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees.......................................................... .20%*
-----
Other Expenses
Dividend and Transfer Agency Fees.............................................. .02%
Other Fees and Expenses........................................................ .04%
-----
Total Other Expenses......................................................... .06%
-----
TOTAL FUND OPERATING EXPENSES..................................................... .26%
=====
</TABLE>
- ---------------
* The Fund's Investment Adviser has agreed to waive a portion of its fee so that
the effective annual fee will be .20% of the Fund's average daily net assets.
If the Investment Adviser had not agreed to waive a portion of the investment
advisory fee, Total Fund Operating Expenses would be .41% of average net
assets. The Investment Adviser may discontinue the waiver of investment
advisory fees in whole or in part without notice at any time.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) an operating expense ratio of .26%,
(2) a 5% annual return throughout the period and (3)
redemption at the end of the period........................... $3 $8 $15 $33
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Treasury Fund will bear
directly or indirectly. The Example set forth above assumes reinvestment of all
dividends and distributions and uses a five percent annual rate of return as
mandated by Securities and Exchange Commission regulations. The actual rate of
return on the Treasury Fund's shares will vary, and may be more or less than
five percent. The Example should not be considered a representation of past or
future expenses, and actual expenses may be more or less than those assumed for
purposes of the Example. For a more detailed description of such costs and
expenses, see "Investment Adviser," "Distributor," "Purchase of Shares" and
"Redemptions."
Treasury Fund
2
<PAGE> 31
FINANCIAL HIGHLIGHTS
Selected data for a share of the Merrill Lynch Treasury Fund outstanding
throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 18,
YEAR ENDED APRIL 30, 1989+ TO
--------------------------------------------------------------- APRIL 30,
1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income............................ .052 .045 .027 .028 .045 .066 .028
Net realized and unrealized gain on
investments.................................... -- -- -- .001 .002 .003 --
-------- -------- -------- -------- -------- -------- -------
Total from investment operations............... .052 .045 .027 .029 .047 .069 .028
Less Distributions:
Dividends from net investment income............. (.052) (.045) (.027) (.029) (.047) (.069) (.028)
-------- -------- -------- -------- -------- -------- -------
Net Asset Value, end of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== =======
Total Return...................................... 5.37% 4.68% 2.82% 2.97% 4.79% 7.17% 7.75%*
Ratios/Supplemental Data:
Net Assets, end of period (000).................. $514,123 $342,844 $266,953 $359,318 $320,686 $391,643 $64,392
Ratio of expenses to average net assets (before
waiver)........................................ .41% .44% .45% .45% .46% .50% .88%*
Ratio of expenses to average net assets (after
waiver)........................................ .26% .29% .39% -- -- .47% .51%*
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (before waiver)............. 5.09% 4.58% 2.67% 2.93% 4.69% 6.63% 7.79%*
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (after waiver).............. 5.24% 4.73% 2.73% -- -- 6.66% 8.16%*
</TABLE>
- ---------------
* On an annualized basis.
+ Commencement of operations.
Note--The Financial Highlights shown for the fiscal years 1992-1996 have
been audited by Deloitte & Touche LLP, independent auditors.
Treasury Fund
3
<PAGE> 32
YIELD INFORMATION
Set forth below is yield information as to the net annualized and
compounded yield for the seven-day period ended April 30, 1996.
<TABLE>
<S> <C>
Annualized Yield:
Including gains and losses............................................... 4.92%
Excluding gains and losses............................................... 4.80%
Compounded Annualized Yield................................................... 4.92%
Average Maturity of Portfolio at End of Period................................ 47 days
</TABLE>
The yield on Treasury Fund shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Treasury Fund of future yields or rates of return on its
shares. The Treasury Fund's yield is affected by changes in interest rates on
money market securities, average portfolio maturity, the types and quality of
portfolio securities held, and operating expenses.
On occasion, the Treasury Fund may compare its yield to (i) the IBC's 100%
U.S. Treasury Funds Average, an average compiled by IBC's Money Fund Report, a
widely recognized independent publication that monitors the performance of money
market mutual funds, (ii) the average yield reported by the Bank Rate Monitor
National Index(TM) for money market accounts offered by the 100 leading banks
and thrift institutions in the 10 largest standard metropolitan statistical
areas, (iii) yield data published by Lipper Analytical Services, Inc., (iv) the
yield on an investment in 90-day Treasury bills on a rolling basis, assuming
quarterly compounding, or (v) performance data contained in publications such as
Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., IBC's Money Fund Report, Forbes
and Fortune. As with yield quotations, yield comparisons should not be
considered indicative of the Treasury Fund's yield or relative performance for
any future period.
THE TREASURY FUND AND ITS OBJECTIVES
The Treasury Fund is a no-load money fund whose objectives are to seek
current income consistent with liquidity and security of principal. The Treasury
Fund enables investors to invest short-term cash reserves in a portfolio of
direct obligations of the U.S. Treasury. Treasury Fund shares are sold and
redeemed twice on each business day at net asset value, and there is no sales or
redemption charge. There can be no assurance that the objectives of the Treasury
Fund will be attained.
The Treasury Fund will attempt to accomplish its investment objectives by
investing in a portfolio of U.S. Treasury securities with remaining maturities
not exceeding 762 days (25 months). The dollar weighted average maturity of the
Treasury Fund's portfolio will be 90 days or less.
Securities of the type included in the Treasury Fund's portfolio have
historically had lower rates of return than commercial obligations but have
involved little risk of loss of principal if held to maturity. However, due to
fluctuation in interest rates, the market value of such securities may vary
during the period of a shareholder's investment in the Treasury Fund.
Treasury Fund
4
<PAGE> 33
The types of securities in which the Treasury Fund may invest include the
following:
U.S. Treasury Securities: The Treasury Fund will invest in Treasury
bills, notes and other direct obligations of the U.S. Treasury.
Forward Commitments: The Treasury Fund may purchase and sell U.S.
Treasury securities on a when-issued or forward commitment basis and it may
purchase or sell such securities for delayed delivery. These transactions
occur when securities are purchased or sold by the Treasury Fund with
payment and delivery taking place in the future to secure what is
considered an advantageous yield and price to the Treasury Fund at the time
of entering into the transaction. The value of the security on the delivery
date may be more or less than its purchase price. If management of the
Treasury Fund deems it appropriate to do so, the Treasury Fund may dispose
of a commitment prior to settlement. There can, of course, be no assurance
that the judgments upon which these practices are based will be accurate,
and it is possible that in consequence of these practices the Treasury Fund
would be required to pay on a settlement date more than the market value of
the purchased securities at that time, or that the Treasury Fund would
incur a loss by disposing of a commitment on terms less favorable than
those of its original purchase. The Treasury Fund will maintain a
segregated account with its custodian of cash or U.S. Government securities
in an aggregate amount equal to the amount of its commitments in connection
with such purchase transactions.
Repurchase Agreements: The Treasury Fund may invest up to 10% of its
total assets in obligations subject to repurchase agreements. This
limitation on the Treasury Fund's investment in obligations subject to
repurchase agreements may adversely affect the Treasury Fund's yield under
certain market conditions.
A repurchase agreement is an instrument under which the purchaser
(i.e., the Treasury 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. Repurchase
agreements usually are for short periods, such as under one week. If a
repurchase agreement is construed to be a collateralized loan, the
underlying securities will not be considered to be owned by the Treasury
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
Treasury Fund may suffer time delays and incur costs or losses in
connection with the disposition of the collateral.
Investment Restrictions. The Treasury Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities which are fundamental policies and may not be changed without
the approval of the holders of a majority of the Treasury Fund's
outstanding voting securities. Among the more significant restrictions, the
Treasury Fund may not (1) enter into repurchase agreements if immediately
thereafter more than 10% of the value of its total assets would be invested
in repurchase agreements and (2) borrow money except from banks for
temporary purposes and in an amount not exceeding 10% of the value of its
total net assets, or mortgage, pledge or hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of the
dollar amounts borrowed. (As a matter of operating policy, the Treasury
Fund will not invest in securities if outstanding borrowings exceed 5% of
net asset value.)
Treasury Fund
5
<PAGE> 34
INVESTMENT ADVISER
The investment adviser to the Treasury Fund is Fund Asset Management, L.P.
("FAM"), a subsidiary of Merrill Lynch & Co., Inc., a publicly held corporation.
FAM, subject to the general supervision of the Trust's Board of Trustees
and in conformance with the stated policies of the Treasury Fund, renders
investment advice to the Treasury Fund and is responsible for the overall
management of the Treasury Fund's business affairs. For the fiscal year ended
April 30, 1996, FAM was entitled to receive investment advisory fees of
$1,792,930 or .35% of the Treasury Fund's average net assets. FAM has agreed to
waive a portion of its fee so that the effective annual fee payable by the
Treasury Fund to FAM will be at the annual rate of .20% of the Treasury Fund's
average daily net assets. Such waiver amounted to $765,429 during the fiscal
year ended April 30, 1996, or .15% of the Treasury Fund's average net assets
during the period. FAM therefore received $1,027,501 or .20% of the Fund's
average net assets during the fiscal year ended April 30, 1996. FAM may
discontinue waiver of the fee in whole or in part at anytime without notice.
During the fiscal year ended April 30, 1996, the Treasury Fund's total expenses
were $1,355,211 or .26% of its average net assets. If FAM had not waived a
portion of its fee, the Treasury Fund's total expenses would have been
$2,120,640 or .41% of its average net assets.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Treasury Fund has adopted a Distribution and Shareholder Servicing Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The Plan permits FAM to pay a fee to MLFD which in turn is authorized to make
payments to securities dealers with which MLFD has entered into selected dealers
agreements. MLFD may also use a portion of the fee it receives under the Plan to
compensate administrators who perform administrative services that would
otherwise be performed by FAM or its agent. The purpose of the Plan is to
promote distribution of the Treasury Fund's shares and to enhance the provision
of shareholder services. The Treasury Fund is not required or permitted under
the Plan to make payments over and above its investment advisory fee; the Plan
merely permits the reallocation of a portion of the advisory fee FAM receives to
pay for distribution-related and shareholder servicing activities. For the
fiscal year ended April 30, 1996, the fees paid to MLFD under the Plan totalled
$304,079 or .06% of the Treasury Fund's average net assets, all of which was
paid to MLFD for providing distribution-related services in connection with
Treasury Fund shares.
Treasury Fund
6
<PAGE> 35
PROSPECTUS
JANUARY , 1997
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER FOR GENERAL INFORMATION AND PURCHASES CALL
BOSTON, MASSACHUSETTS 02111 617-357-1460 OR TOLL FREE 800-225-1576
The Tax-Exempt Fund is a no-load money fund whose objectives are to seek
current income exempt from Federal income taxes, preservation of capital and
liquidity available from investing in a diversified portfolio of short-term,
high quality Tax-Exempt Securities. The Tax-Exempt Fund is a series of Merrill
Lynch Funds For Institutions Series (the "Trust"), a diversified, open-end
management investment company. The Tax-Exempt Fund seeks to maintain a constant
$1.00 net asset value per share, although this cannot be assured. An investment
in the Tax-Exempt Fund is neither insured nor guaranteed by the U.S.
Government.For more information on the Fund's investment objectives, please see
"The Tax-Exempt Fund and Its Objectives," page 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Prospectus sets forth in concise form the information about the
Tax-Exempt Fund that a prospective investor should know before investing in the
Tax-Exempt Fund. Investors should read and retain this Prospectus for future
reference. Additional information about the Tax-Exempt Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
and is available upon request and without charge. Investors and prospective
investors may obtain a copy of the Statement of Additional Information, which is
dated January , 1997, by writing to or calling Merrill Lynch Institutional
Tax-Exempt Fund at the above address and telephone numbers. The Statement of
Additional Information has been incorporated by reference into this Prospectus.
The minimum initial purchase for the Tax-Exempt Fund is $25,000 per
investor.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fee Table........................... 2
Financial Highlights................ 3
Yield Information................... 4
The Tax-Exempt Fund and Its
Objectives........................ 4
Investment Adviser.................. 9
Distribution and Shareholder
Servicing Plan.................... 9
Special Tax Considerations.......... 10
Appendix
Investors for Whom the Funds are
Designed........................ A-1
Investment Adviser................ A-2
Distributor......................... A-2
<CAPTION>
PAGE
-----
<S> <C>
Management.......................... A-3
Purchase of Shares.................. A-3
Redemptions......................... A-6
Dividends........................... A-9
Net Asset Value..................... A-9
Taxes............................... A-10
Portfolio Transactions.............. A-11
Exchange Privilege.................. A-12
Additional Information.............. A-13
Account Application................. A-19
Authorization for Redemption by
Check Form........................ A-21
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 36
FEE TABLE
<TABLE>
<CAPTION>
TAX-EXEMPT
FUND
----------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases...................................... None
Deferred Sales Charge.......................................................... None
Sales Charge Imposed on Dividend Reinvestments................................. None
Redemption Fee................................................................. None
Exchange Fee................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fees....................................................... .20%*
------
Other Expenses
Dividend and Transfer Agency Fees........................................... .02%
Other Fees and Expenses..................................................... .07%
------
Total Other Expenses...................................................... .09%
------
TOTAL FUND OPERATING EXPENSES.................................................. .29%
======
</TABLE>
- ---------------
* The Fund's Investment Adviser has agreed to waive a portion of its fee so that
the effective annual fee will be .20% of the Fund's average daily net assets.
If the Investment Adviser had not agreed to waive a portion of the management
fee, Total Fund Operating Expenses would be .54% of average net assets. The
Investment Adviser may discontinue the waiver of investment advisory fees in
whole or in part without notice at any time.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) an operating expense ratio of .29%,
(2) a 5% annual return throughout the period and (3)
redemption at the end of the period........................... $3 $9 $16 $37
</TABLE>
The foregoing fee table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Tax-Exempt Fund will bear
directly or indirectly. The Example set forth above assumes reinvestment of all
dividends and distributions and uses a five percent annual rate of return as
mandated by Securities and Exchange Commission regulations. The actual rate of
return on the Tax-Exempt Fund's shares will vary, and may be more or less than
five percent. The Example should not be considered a representation of past or
future expenses, and actual expenses may be more or less than those assumed for
purposes of the Example. For a more detailed description of such costs and
expenses, see "Investment Adviser," "Distributor," "Purchase of Shares" and
"Redemptions."
Tax-Exempt Fund
2
<PAGE> 37
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF THE MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
FIVE
MONTHS
YEAR ENDED APRIL ENDED
30, APRIL YEAR ENDED NOVEMBER 30,
------------------- 30, ----------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income..................... .04 .03 .01 .02 .03 .04 .05 .05
Less dividends from net investment
income.................................. (.04) (.03) (.01) (.02) (.03) (.04) (.05) (.06)
-------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
Total Return............................... 3.68% 3.20% 2.14%* 2.14% 2.74% 4.33% 5.55% 6.16%
Ratios/Supplemental Data:
Net Assets, end of period (000)........... $667,205 $403,903 $390,375 $278,697 $329,254 $377,154 $310,344 $281,839
Ratio of expenses to average net assets
(before waiver)......................... .54% .56% .59%* .62% .61% .61% .63% .63%
Ratio of expenses to average net assets
(after waiver).......................... .29% .31% .34%* .45% .53% .54% .56% .55%
Ratio of net investment income to average
net assets (before waiver).............. 3.35% 2.90% 1.92%* 1.96% 2.67% 4.21% 5.36% 5.92%
Ratio of net investment income to average
net assets (after waiver)............... 3.60% 3.15% 2.17%* 2.13% 2.75% 4.28% 5.43% 6.00%
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
1988 1987 1986
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, beginning of period....... $ 1.00 $ 1.00 $ 1.00
Net investment income..................... .04 .04 .04
Less dividends from net investment
income.................................. (.04) (.04) (.04)
-------- -------- --------
Net Asset Value, end of period.......... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return............................... 4.86% 4.11% 4.57%
Ratios/Supplemental Data:
Net Assets, end of period (000)........... $375,209 $679,892 $802,347
Ratio of expenses to average net assets
(before waiver)......................... .59% .58% .62%
Ratio of expenses to average net assets
(after waiver).......................... .52% .47% .45%
Ratio of net investment income to average
net assets (before waiver).............. 4.62% 3.90% 4.13%
Ratio of net investment income to average
net assets (after waiver)............... 4.69% 4.01% 4.30%
</TABLE>
- ---------------
* On an annualized basis.
Note--The Financial Highlights shown for the fiscal years 1991-1996 have
been audited by Deloitte & Touche LLP, independent auditors.
Tax-Exempt Fund
3
<PAGE> 38
YIELD INFORMATION
Set forth below is yield information as to the net annualized and
compounded yield for the seven-day period ended April 30, 1996.
<TABLE>
<S> <C>
Annualized Yield:
Including gains and losses............................................... 3.74%
Excluding gains and losses............................................... 3.74%
Compounded Annualized Yield................................................... 3.81%
Average Maturity of Portfolio at End of Period................................ 38 days
</TABLE>
The yield on Tax-Exempt Fund shares normally will fluctuate on a daily
basis. Therefore, the yield for any given past period is not an indication or
representation by the Tax-Exempt Fund of future yields or rates of return on its
shares. The Tax-Exempt Fund's yield is affected by changes in interest rates on
money market securities, average portfolio maturity, the types and quality of
portfolio securities held, and operating expenses.
On occasion, the Tax-Exempt Fund may compare its yield to (i) the IBC's
Tax-Free Fund Average, an average compiled by IBC's Money Fund Report, a widely
recognized independent publication that monitors the performance of money market
mutual funds, (ii) the average yield reported by the Bank Rate Monitor National
Index(TM) for money market accounts offered by the 100 leading banks and thrift
institutions in the 10 largest standard metropolitan statistical areas, (iii)
yield data published by Lipper Analytical Services, Inc., (iv) the yield on an
investment in 90-day Treasury bills on a rolling basis, assuming quarterly
compounding, or (v) performance data contained in publications such as
Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes and Fortune. As with
yield quotations, yield comparisons should not be considered indicative of the
Tax-Exempt Fund's yield or relative performance for any future period.
THE TAX-EXEMPT FUND AND ITS OBJECTIVES
The Tax-Exempt Fund is a no-load money fund whose objectives are to seek
current income exempt from Federal income taxes, preservation of capital and
liquidity available from investing in a diversified portfolio of short-term,
high-quality Tax-Exempt Securities. The Tax-Exempt Fund enables investors to
invest short-term cash reserves in a portfolio of high-quality tax-exempt "money
market" securities. Tax-Exempt Fund shares are sold and redeemed twice on each
business day at the net asset value next determined after an order is received,
and there is no sales or redemption charge. There can be no assurance that the
objectives of the Tax-Exempt Fund will be attained.
The Tax-Exempt Fund will attempt to accomplish its objectives of seeking
current income exempt from Federal income taxes, preservation of capital and
liquidity by investing in a diversified portfolio of obligations issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest from which is exempt from Federal income tax
(such obligations are herein referred to as "Tax-Exempt Securities"). The two
principal classifications of Tax-Exempt Securities are "general obligation" and
"revenue" bonds. The investment objectives of the Tax-Exempt Fund described
above in this paragraph are a fundamental policy of the Tax-Exempt Fund and may
not be changed without a vote of a majority of the outstanding shares of the
Tax-
Tax-Exempt Fund
4
<PAGE> 39
Exempt Fund. There can be no assurance that the objectives of the Tax-Exempt
Fund will be attained. The Tax-Exempt Fund may not purchase any securities other
than Tax-Exempt Securities, and, as a matter of operating policy, the Tax-Exempt
Fund under normal circumstances will invest at least 80% of its assets in
Tax-Exempt Securities which are not subject to the alternative minimum tax
described under "Special Tax Considerations".
The Tax-Exempt Fund will seek to achieve its objectives by investing
exclusively in securities with maturities not exceeding 397 days (13 months),
principally including:
(i) obligations issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from
which is exempt from Federal income tax and which are rated AAA or AA by
Standard & Poor's Rating Group ("S&P") or by Fitch Investors Services, Inc.
("Fitch"), or Aaa or Aa by Moody's Investors Service, Inc. ("Moody's") and
unrated Tax-Exempt Securities which, in the judgment of the Trustees of the
Trust, have as nearly as possible the same characteristics and quality as
bonds having the above ratings;
(ii) municipal notes (tax anticipation notes, bond anticipation notes
and revenue anticipation notes) rated MIG-1 or MIG-2 by Moody's, SP-1 or
SP-2 on the short-term debt-rating scale of S&P, or F-1 or F-2 by Fitch or,
if the notes are not rated, are obligations which, in the judgment of the
trustees of the Trust, are of a quality equivalent to obligations rated
MIG-1 or MIG-2 or SP-1 or SP-2 or F-1 or F-2;
(iii) variable rate demand notes and participations therein;
(iv) short-term tax-exempt commercial paper obligations (short-term
unsecured promissory notes issued to finance short-term credit needs) which
are rated at least A-1 by S&P, Prime-1 by Moody's or their equivalents as
determined by the Trustees of the Trust; and
(v) floating rate tax-exempt demand notes on which the Fund may demand
payment from the issuer at par value plus accrued interest on short notice.
The Appendix to this Prospectus and Appendix B to the Statement of
Additional Information sets forth a description of the above rating symbols. The
Tax-Exempt Fund presently contemplates that it will not invest more than 25% of
its total assets in Tax-Exempt Securities whose issuers are located in the same
state. The Tax-Exempt Fund does not intend to invest more than 25% of its total
assets in industrial development bonds where the entities supplying the revenues
from which the bonds are to be paid are in the same industry. Preservation of
capital is a prime investment objective of the Tax-Exempt Fund, and, while the
types of short-term Tax-Exempt Securities in which the Tax-Exempt Fund invests
are not completely risk free, the Tax-Exempt Fund believes that securities
having the rating characteristics described above have a lower principal risk
than lower rated obligations and generally have a lower principal risk than
longer term obligations which entail the risk of changing conditions over a
longer period of time.
Certain of the instruments in which the Tax-Exempt Fund invests, including
variable rate demand notes ("VRDNs") and derivative or synthetic municipal
instruments ("Derivative Products"), effectively provide the Tax-Exempt Fund
with economic interests in long-term municipal bonds, coupled with rights to
demand payment of the principal amounts of such instruments from designated
counterparties. Under Securities and Exchange Commission rules, the Tax-Exempt
Fund treats these instruments as having maturities shorter than
Tax-Exempt Fund
5
<PAGE> 40
the stated maturity dates of the notes, in the case of VRDNs, or the long-term
bonds underlying Derivative Products (the "Underlying Bonds"). Such maturities
are sufficiently short-term to allow such instruments to qualify as eligible
investments for money market funds such as the Tax-Exempt Fund. A demand right
is dependent on the financial ability of the counterparty, which is typically a
bank, broker-dealer or other financial institution, to purchase the instrument
at its principal amount. In addition, the right of the Tax-Exempt Fund to demand
payment from a counterparty may be subject to certain conditions, including the
creditworthiness of the instrument or the Underlying Bond. If a counterparty is
unable to purchase the instrument or, because of conditions on the right of the
Tax-Exempt Fund to demand payment, the counterparty is not obligated to purchase
the instrument on demand, the Tax-Exempt Fund may be required to dispose of the
instrument or the Underlying Bond in the open market, which may be at a price
which adversely affects the Tax-Exempt Fund's net asset value.
VRDNs and participation interests in VRDNs held by a financial institution
("Participating VRDNs") are tax-exempt obligations which utilize a floating or
variable interest rate adjustment formula and provide an unconditional right of
demand to receive payment of the unpaid principal balance plus accrued interest
on a short-notice period. The interest rates are adjustable at periodic
intervals to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment date. The
adjustments are frequently based upon the Public Securities Association (PSA)
Index or some other appropriate interest rate adjustment index. Because of the
interest rate adjustment formula on VRDNs (including Participating VRDNs), VRDNs
are not comparable to fixed rate securities. The Tax-Exempt Fund's yield on
VRDNs will decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods when prevailing interest rates have increased, the
Tax-Exempt Fund's yield on VRDNs will increase and its shareholders will have a
reduced risk of capital depreciation. See the Statement of Additional
Information for further information regarding VRDNs.
The Tax-Exempt Fund may invest in a variety of Derivative Products.
Derivative Products are typically structured by a bank, broker-dealer or other
financial institution. A Derivative Product generally consists of a trust or
partnership through which the Fund holds an interest in one or more Underlying
Bonds coupled with a conditional right to sell ("put") the Fund's interest in
the Underlying Bonds at par plus accrued interest to a financial institution (a
"Liquidity Provider"). Typically, a Derivative Product is structured as a trust
or partnership which provides for pass-through tax-exempt income. There are
currently three principal types of derivative structures: (1) "Tender Option
Bonds", which are instruments which grant the holder thereof the right to put an
Underlying Bond at par plus accrued interest at specified intervals to a
Liquidity Provider; (2) "Swap Products", in which the trust or partnership swaps
the payments due on an Underlying Bond with a swap counterparty who agrees to
pay a floating municipal money market interest rate; and (3) "Partnerships",
which allocate to the partners income, expenses, capital gains and losses in
accordance with a governing partnership agreement. The Tax-Exempt Fund may also
invest in other forms of Derivative Products.
Investments in Derivative Products raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in other Tax-Exempt
Securities. There is some risk that certain issues could be resolved in a manner
which could adversely impact the performance of the Tax-Exempt Fund. For
example, the tax-exempt treatment of the interest paid to holders of Derivative
Products is premised on the legal conclusion that the holders of such Derivative
Products have an ownership interest in the Underlying
Tax-Exempt Fund
6
<PAGE> 41
Bonds. While the Fund receives an opinion of legal counsel to the effect that
the income from each Derivative Product is tax-exempt to the same extent as the
Underlying Bond, the Internal Revenue Service (the "IRS") has not issued a
ruling on this subject. Were the IRS to issue an adverse ruling, there is a risk
that the interest paid on such Derivative Products would be deemed taxable.
The Tax-Exempt Fund may purchase and sell tax-exempt securities on a
when-issued basis or forward commitment basis, and it may purchase or sell such
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Tax-Exempt Fund with payment and delivery taking place
in the future to secure what is considered an advantageous yield and price to
the Tax-Exempt Fund at the time of entering into the transaction. The value of
the security on the delivery date may be more or less than its purchase price.
If management of the Tax-Exempt Fund deems it appropriate to do so, the
Tax-Exempt Fund may dispose of a commitment prior to settlement. There can, of
course, be no assurance that the judgments upon which these practices are based
will be accurate, and it is possible that in consequence of these practices the
Tax-Exempt Fund would be required to pay on a settlement date more than the
market value of the purchased securities at that time, or the Tax-Exempt Fund
would incur a loss by disposing of a commitment on terms less favorable than
those of its original purchase. The Tax-Exempt Fund will maintain a segregated
account with its custodian of cash or tax-exempt securities in an aggregate
amount equal to the amount of its commitments in connection with such purchase
transactions.
Management of the Tax-Exempt Fund will endeavor to be as fully invested as
reasonably practicable to maximize the yield on the Tax-Exempt Fund's portfolio.
However, because the Tax-Exempt Fund does not intend to realize taxable
investment income, it will not invest in taxable short-term money market
securities (other than securities subject to the alternative minimum tax
described under "Special Tax Considerations"). Accordingly, there may be times
when the Tax-Exempt Fund has uninvested cash resulting from an influx of cash
due to large purchases of shares or maturities of portfolio securities or
resulting from the need to maintain a reserve for redemptions. The yield on the
portfolio could also be negatively affected from time to time by the lack of
availability of short-term, high-quality Tax-Exempt Securities. The Tax-Exempt
Fund reserves the right to suspend or otherwise limit sales of its shares if, as
a result of difficulties in acquiring portfolio securities, it is determined
that it is not in the interests of the Tax-Exempt Fund's shareholders to issue
additional shares. See "Purchase of Shares."
As is described in the Statement of Additional Information, the Tax-Exempt
Fund has the authority, subject to certain conditions, to purchase securities
with puts.
As indicated under "Redemptions," payments of proceeds upon redemption of
shares generally will be made on the same day as a redemption request in proper
form is received. Tax-Exempt Securities generally do not trade on the basis of
same-day settlements. As a result, the Fund may be required to maintain cash
reserves or incur temporary bank borrowings so that it can make such redemption
payments. This will reduce the Tax-Exempt Fund's yield. The Trustees will
re-examine the Tax-Exempt Fund's policy of making redemption payments on the
date redemption orders are received if that policy has a significant impact on
the Tax-Exempt Fund's yield; however, redemption payments will in any case be
made within seven days of the date of redemption unless the Tax-Exempt Fund is
permitted to suspend payments for a period longer than seven days under the
circumstances described in the Appendix to this Prospectus under "Redemptions."
Tax-Exempt Fund
7
<PAGE> 42
MATURITY AND QUALITY STANDARDS
As a money market fund, the Tax-Exempt Fund is required to meet certain
maturity and quality standards as set forth below.
Short-Term Maturity Standards. All of the investments of the Tax-Exempt
Fund will be in securities with remaining maturities of 397 days (13 months) or
less. The dollar weighted average maturity of the Tax-Exempt Fund's portfolio
will be 90 days or less. The maturities of VRDNs (including Participating VRDNs)
are deemed to be the longer of (i) the notice period required before the
Tax-Exempt Fund is entitled to receive payment of the principal amount of the
VRDN on demand or (ii) the period remaining until the VRDN's next interest rate
adjustment. If not redeemed by the Tax-Exempt Fund through the demand feature,
VRDNs mature on a specified date which may range up to thirty years from the
date of issuance.
Quality Standards. The Tax-Exempt Fund's portfolio investments in
Tax-Exempt Securities will be limited to those obligations which are rated, or
issued by issuers who have been rated, in one of the two highest rating
categories for short-term municipal debt obligations by a nationally recognized
statistical rating organization (an "NRSRO") or, if not rated, will be of
comparable quality as determined by the trustees of the Trust. The Tax-Exempt
Fund's investments in Tax-Exempt Securities (which must have maturities at the
date of purchase of 397 days (13 months) or less) will be in issuers who have
received from the requisite NRSROs a rating, with respect to a class of
short-term debt obligations that is comparable in priority and security with the
investment, in one of the two highest rating categories for short-term
obligations or, if not rated, will be of comparable quality as determined by the
Trustees of the Trust. Currently, there are three NRSROs which rate municipal
obligations: Fitch, Moody's and S&P. Certain tax-exempt obligations (primarily
VRDNs and Participating VRDNs) may be entitled to the benefit of letters of
credit or similar credit enhancements issued by financial institutions and, in
such instances, the Board of Trustees and the Investment Adviser will take into
account the obligation of the financial institution in assessing the quality of
such instruments. The Tax-Exempt Fund also may purchase other types of
tax-exempt instruments if, in the opinion of the Trustees of the Trust, such
obligations are equivalent to securities having the ratings described above.
INVESTMENT RESTRICTIONS
The Tax-Exempt Fund has adopted a number of restrictions and policies
relating to the investment of its assets and its activities which are
fundamental policies and may not be changed without the approval of the holders
of a majority of the Tax-Exempt Fund's outstanding shares.
Among the more significant restrictions, the Tax-Exempt Fund may not: (1)
purchase any securities other than Tax-Exempt Securities referred to under "The
Tax-Exempt Fund and Its Objectives"; (2) invest more than 5% of its total assets
(taken at value at the time of each investment) in the securities of any one
issuer except that such restriction shall not apply to securities backed by the
U.S. Government or its agencies or instrumentalities; (3) borrow amounts in
excess of 20% of its total assets taken at market value (including the amount
borrowed), and then only from banks as a temporary measure for extraordinary or
emergency purposes (the Tax-Exempt Fund will not purchase securities while
borrowings are outstanding); (4) mortgage, pledge, hypothecate or in any manner
transfer as security for indebtedness any securities owned or held by the
Tax-Exempt Fund except as may be necessary in connection with borrowings
mentioned in (3) above,
Tax-Exempt Fund
8
<PAGE> 43
and then such mortgaging, pledging or hypothecating may not exceed 10% of its
total assets, taken at value; or (5) invest in securities with legal or
contractual restrictions on resale or for which no readily available market
exists if, regarding all such securities, more than 10% of its total assets
(taken at market value) would be invested in such securities.
Because of the affiliation of Merrill Lynch & Co., Inc. with the Tax-Exempt
Fund, the Tax-Exempt Fund is prohibited from engaging in certain transactions
involving Merrill Lynch & Co., Inc., or subsidiaries thereof, unless such
transactions are conducted pursuant to the terms of an exemptive order which has
been issued by the Securities and Exchange Commission. See "Portfolio
Transactions" in the Appendix to this Prospectus.
INVESTMENT ADVISER
The investment adviser to the Tax-Exempt Fund is Fund Asset Management,
L.P. ("FAM"), a subsidiary of Merrill Lynch & Co., Inc., a publicly held
corporation.
FAM, subject to the general supervision of the Trust's Board of Trustees,
renders investment advice to the Tax-Exempt Fund and is responsible for the
overall management of the Tax-Exempt Fund's business affairs. For the year ended
April 30, 1996, FAM was entitled to receive $2,109,495 or .45% of the Tax-Exempt
Fund's average daily net assets. FAM has agreed to waive a portion of its fee so
that the effective annual fee payable by the Tax-Exempt Fund to the investment
adviser will be at the annual rate of .20% of the Tax-Exempt Fund's average
daily net assets. For the year ended April 30, 1996, FAM waived a portion of its
fee equal to $1,171,941 or .25% of the Fund's average daily net assets. FAM
therefore received $937,554 or .20% of the Tax-Exempt Fund's average daily net
assets. FAM may discontinue waiver of the fee in whole or in part at any time
without notice. For the year ended April 30, 1996, the Tax-Exempt Fund's total
expenses were $1,372,459 or .29% of its average daily net assets. If FAM had not
waived a portion of its fee, the Tax-Exempt Fund's total expenses would have
been $2,544,400 or .54% of its average daily net assets.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Tax-Exempt Fund has adopted a Distribution and Shareholder Servicing
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940. The Plan permits FAM to pay a fee to MLFD which in turn is authorized to
make payments to securities dealers with which MLFD has entered into selected
dealers agreements. MLFD may also use a portion of the fee it receives under the
Plan to compensate administrators who perform administrative services that would
otherwise be performed by FAM or its agent. The purpose of the Plan is to
promote distribution of the Tax-Exempt Fund's shares and to enhance the
provision of shareholder services. The Tax-Exempt Fund is not required or
permitted under the Plan to make payments over and above its investment advisory
fee; the Plan merely permits the reallocation of a portion of the advisory fee
FAM receives to pay for distribution-related and shareholder servicing
activities. For the year ended April 30, 1996, the fees paid to MLFD under the
Plan totalled $293,369 or .06% of the Tax-Exempt Fund's average net assets, all
of which was paid to MLFD for providing distribution-related services in
connection with Fund shares.
Tax-Exempt Fund
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<PAGE> 44
SPECIAL TAX CONSIDERATIONS
FEDERAL
The Tax-Exempt Fund has elected to qualify to pay "exempt-interest"
dividends as defined in the Internal Revenue Code of 1986, as amended (the
"Code"). If it so qualifies, dividends or any part thereof (other than any
capital gain distributions) paid by the Tax-Exempt Fund which are attributable
to interest on tax-exempt obligations and which are designated by the Tax-Exempt
Fund as exempt-interest dividends in a written notice mailed to the Tax-Exempt
Fund's shareholders within 60 days after the close of its taxable year may be
treated by shareholders for all purposes as items of interest excludable from
their gross income under Section 103(a) of the Code. The recipient of tax-exempt
income is required to report such income on his or her federal income tax return
solely for informational purposes. However, shareholders are advised to consult
their tax advisers with respect to whether exempt-interest dividends are
excludable under Section 103(a) of the Code if such shareholders would be
treated as "substantial users" under Section 147(a)(1) of the Code with respect
to some or all of the tax-exempt obligations held by the Tax-Exempt Fund. The
Code provides that interest on indebtedness incurred or continued to purchase or
carry shares of the Tax-Exempt Fund is not deductible to the extent attributable
to exempt interest dividends. Also, any losses realized by individuals who
dispose of shares of the Tax-Exempt Fund within six months of their purchase are
disallowed to the extent of any exempt-interest dividends received with respect
to such shares.
Individual shareholders of the Tax-Exempt Fund may be subject to
alternative minimum tax to the extent the Tax-Exempt Fund holds "private
activity" bonds. The Tax-Exempt Fund expects that it will hold private activity
bonds; however, an individual shareholder filing a joint return who does not
have any tax preference items subject to the alternative minimum tax other than
income received from the Tax-Exempt Fund derived from private activity bonds
would have to receive more than $45,000 of such income from the Tax-Exempt Fund
before becoming subject to the alternative minimum tax.
Exempt-interest dividends paid by the Tax-Exempt Fund, whether or not
attributable to private activity bonds, may increase a corporate shareholder's
alternative minimum taxable income. In addition, the payment of exempt-interest
dividends may increase a corporate shareholder's liability for the environmental
tax imposed on a corporation's alternative minimum taxable income (computed
without regard to either the alternative tax net operating loss deduction or the
environmental tax deduction). The environmental tax, which is imposed at a rate
of $12 per $10,000 (0.12%) of alternative minimum taxable income in excess of
$2,000,000, is imposed even if the corporation is not required to pay an
alternative minimum tax because the corporation's regular income tax liability
exceeds its minimum tax liability.
The Tax-Exempt Fund may realize capital gains, which will constitute
taxable income. Distributions of the Tax-Exempt Fund's net realized short-term
capital gains will be taxable to shareholders as ordinary income. In order to
avoid taxation on its net long-term capital gains, the Tax-Exempt Fund may elect
to distribute "capital gain dividends" to its shareholders. Any distributions
designated as capital gain dividends, i.e., as being made from the Tax-Exempt
Fund's net long-term capital gains in a written notice furnished annually to
shareholders are taxable to shareholders as long-term capital gains, regardless
of the shareholders' holding period of shares of the Tax-Exempt Fund. As of
April 30, 1996, the Fund had net capital loss carry-overs of $254,248 of which
$96,688 expire in 2001, $17,520 expire in 2002 and $140,040 expire in 2003.
Tax-Exempt Fund
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<PAGE> 45
STATE AND LOCAL
Depending upon the extent of the Tax-Exempt Fund's activities in those
states and localities in which its offices are maintained or in which its agents
or independent contractors are located, the Tax-Exempt Fund may be subject to
the tax laws of such states or localities. In addition, the exemption of
interest income for federal income tax purposes does not necessarily result in
exemption under the income or other tax laws of any state or local taxing
authority. The laws of individual states and local taxing authorities vary with
respect to the taxation of such interest income, and each holder of shares of
the Tax-Exempt Fund is advised to consult his own tax adviser in that regard.
The Tax-Exempt Fund will report annually the percentage of interest income it
received during the preceding year on tax-exempt obligations, indicating, on a
state-by-state basis, the source of such income.
The Appendix and the Statement of Additional Information describes the
effect of other provisions of the Code on the Tax-Exempt Fund and its
shareholders.
------------------------
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
Tax-Exempt Fund
11
<PAGE> 46
APPENDIX
This Appendix constitutes part of the Prospectuses of Merrill Lynch
Institutional Fund (the "Institutional Fund"), Merrill Lynch Premier
Institutional Fund (the "Premier Institutional Fund"), Merrill Lynch Government
Fund (the "Government Fund"), Merrill Lynch Treasury Fund (the "Treasury Fund")
and Merrill Lynch Institutional Tax-Exempt Fund (the "Tax-Exempt Fund")
(collectively, the "Funds"). Unless otherwise indicated, the information set
forth herein is applicable to each of the Funds.
------------------------
INVESTORS FOR WHOM THE FUNDS ARE DESIGNED
Each of the Funds is designed primarily for institutions as an economical
and convenient means for the investment of short-term funds which they hold for
their own account or hold or manage for others. Such institutions include banks
and trust companies, savings institutions, corporations, investment bankers and
brokers, insurance companies, investment counsellors, pension funds, employee
benefit plans, law firms, trusts, estates and educational, religious and
charitable institutions.
Each Fund offers the economic advantages of block purchases of securities
and diversification. Securities of the types in which the Funds invest are not
generally available in denominations of less than $10,000. A higher yield may
also be available when such securities are bought directly from the issuer in
amounts of $1,000,000 or more. Likewise, when buying U.S. Government and taxable
and tax-exempt money market obligations from a dealer rather than the issuer,
the spread between the bid and asked price or the commission tends to decrease
as the size of the transaction increases, thereby increasing the yield. The
Funds also offer the investor the opportunity to participate in a more
diversified maturity schedule than the size of its portfolio might otherwise
permit.
Investment in the Funds may relieve the investor of many of the
administrative problems usually associated with the direct purchase of U.S.
Government and taxable and tax-exempt money market obligations, such as
scheduling maturities and reinvestments, safekeeping of securities, surveying
the market for the best price at which to buy and sell, and separate principal
and income recordkeeping. Furthermore, purchasers meeting the requirements for
the expedited redemption procedure have the convenience of receiving the
proceeds from the redemption of their shares the same day or the next business
day; therefore, at times when yields on longer term U.S. Government and money
market obligations are higher than yields on shorter term obligations, ownership
of Fund shares will allow an investor with a need for a short-term call on funds
to earn a higher yield than would be possible from investing directly in such
obligations. All such benefits will be reduced to the extent of the Fund's
expenses (see "Investment Adviser," "Distributor" and "Management") and during
any periods when interest rates are higher for U.S. Government and taxable and
tax-exempt money market obligations with shorter maturities than the weighted
average maturity date of the Fund's portfolio securities.
In general, if interest rates decline, then the yield to shareholders will
also decline. An increase in interest rates will generally reduce the value of
each Fund's investments and a decline in interest rates will generally increase
the value. If there are unusually heavy redemption requests because of changes
in interest rates or for any other reason, a Fund may have to sell a portion of
its investment portfolio at a time when it may be disadvantageous to do so.
Selling portfolio securities under these circumstances may result in a lower net
asset
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<PAGE> 47
value per share for investors. However, in these circumstances each Fund is
permitted to borrow amounts up to 10% of the value of its net assets, and the
Funds believe that such borrowings would help mitigate any adverse effects and
would make the sale of their portfolio securities unlikely.
INVESTMENT ADVISER
The investment adviser to each Fund is Fund Asset Management, L.P. ("FAM"),
a subsidiary of Merrill Lynch & Co., Inc., a publicly held corporation. The
principal business address of FAM is 800 Scudders Mill Road, Plainsboro, New
Jersey (mailing address: P.O. Box 9011, Princeton, New Jersey 08543-9011), and
the principal business address of Merrill Lynch & Co., Inc. is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281-1209.
FAM and its sister company, Merrill Lynch Asset Management, L.P. ("MLAM"),
together act as the manager or adviser for over 130 other investment companies.
FAM has access to the expertise of its affiliates, Merrill Lynch Government
Securities, Inc. ("GSI") and Merrill Lynch Money Markets, Inc. ("MLMM"). In
terms of dollar values of trading, GSI and MLMM are two of the largest dealers
in U.S. Government securities, U.S. Government agency securities and certain
other money market securities, acting both as primary dealers and secondary
market traders. In addition, the total securities and economic research
facilities of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") are available to FAM. MLAM also offers portfolio management and
portfolio analysis services to individuals and institutions. As of July 31,
1996, FAM and MLAM had a total of approximately $207.3 billion in investment
company and other portfolio assets under management, including accounts of
certain affiliates of FAM.
Securities held by the Funds may also be held by other funds for which FAM
or MLAM acts as the manager or adviser or by investment advisory clients of
MLAM. If purchases or sales of securities for a Fund or other funds for which
FAM or MLAM acts as the manager or adviser or for their 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 the transactions on
behalf of more than one client of FAM or MLAM during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price.
DISTRIBUTOR
The principal underwriter and distributor of shares of the Funds is Merrill
Lynch Funds Distributor, Inc. ("MLFD"), an indirect subsidiary of Merrill Lynch
& Co., Inc. The principal business address of MLFD is 800 Scudders Mill Road,
Plainsboro, New Jersey (mailing address: P.O. Box 9081, Princeton, New Jersey
08543-9081). MLFD makes a continuous offering of the Funds' shares and bears the
costs and expenses of printing and distributing any copies of any prospectuses
and annual and interim reports of the Funds (after such items have been prepared
and set in type) which are used in connection with the offering of shares to
selected dealers or investors, and the cost and expenses of preparing, printing
and distributing any other literature used by MLFD or furnished by it for use by
selected dealers in connection with the offering of the shares for sale to the
public. There will be no fee payable by the Funds in these services. There is no
sales or redemption charge.
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<PAGE> 48
MANAGEMENT
The Trustees of the Trust consist of seven individuals, five of whom are
not "interested persons" of the Trust as defined in the Investment Company Act
of 1940. The Trustees are responsible for the overall supervision of the
operations of the Funds and perform the various duties imposed on the trustees
of investment companies by the Investment Company Act of 1940. The Board of
Trustees elects officers annually.
The Trustees of the Trust are:
*Robert W. Crook -- Senior Vice President of MLAM and MLFD.
A. Bruce Brackenridge -- Retired Group Executive of J.P. Morgan & Co.,
Inc. and Morgan Guaranty Trust Company.
Charles C. Cabot, Jr. -- Partner in the law firm of Sullivan &
Worcester.
James T. Flynn -- Retired Chief Financial Officer of J.P. Morgan & Co.,
Inc.
*Terry K. Glenn -- Executive Vice President of MLAM and FAM and
President and Director of MLFD.
George W. Holbrook, Jr. -- Managing Partner of Bradley Resources
Company.
W. Carl Kester -- Professor, Business Administration, Harvard University
Graduate School of Business Administration.
- ---------------
* Interested person as defined in the Investment Company Act of 1940.
As described under the caption "Investment Adviser," FAM has assumed
responsibility for the actual management of the business affairs of the Funds,
subject to the general supervision of the Trust's Board of Trustees. The
responsibility for making decisions to buy, sell or hold a particular security
rests with FAM. FAM performs certain of the other administrative services and
provides all the office space, facilities, equipment and necessary personnel for
portfolio management of the Funds. Each Trustee who is not an officer or
employee of Merrill Lynch & Co., Inc. or its subsidiaries will be paid $24,000
annually in his capacity as trustee of the Trust, and all Trustees will be
reimbursed for any expenses incurred in attending meetings of the Board of
Trustees of the Trust or of any committee thereof. No officer or employee of
Merrill Lynch & Co., Inc. or its subsidiaries will receive any compensation from
any Fund for acting as a trustee or officer of the Fund. The Trust has no
employees other than its officers, all of whom are compensated by FAM or MLFD.
PURCHASE OF SHARES
Each Fund's shares are sold without a sales charge, on a continuous basis.
Each Fund will effect orders to purchase its shares twice on each day that the
New York Stock Exchange is open for business at the net asset value per share
(see "Net Asset Value") determined as of 12:00 Noon (Boston time) for the
Tax-Exempt Fund, 2:00 p.m. (Boston time) for the Treasury Fund, or as of 3:00
p.m. (Boston time) for the Institutional Fund, the Premier Institutional Fund
and the Government Fund, and as of the close of trading on the New York Stock
Exchange (the "Exchange"). On any day the Exchange closes early, orders to
purchase may be effected only once, at the close of trading, if the close of
trading occurs prior to the times established above. It
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is anticipated, although it cannot be assured, that the net asset value of each
of the Funds will remain constant at $1.00 per share. A purchase order does not
become effective until Federal Funds are received by State Street Bank and Trust
Company ("State Street Bank" or the "Bank") or other forms of payment are
converted by State Street Bank (at no charge to the investor) into Federal
Funds.
The minimum initial purchase of shares for each of the Funds is $25,000,
except for the Premier Institutional Fund which requires a minimum $10,000,000
initial purchase. Subsequent purchases may be made in amounts as small as
$1,000. Furthermore, subsequent purchases of shares of the Premier Institutional
Fund by an investor when the investor's account balance in the Premier
Institutional Fund is less than $10,000,000 will only be accepted by the Premier
Institutional Fund if, after such purchase, such investor's account balance will
be at least $10,000,000. Shares purchased as of 12:00 Noon (Boston time) for the
Tax-Exempt Fund, 2:00 p.m. (Boston time) for the Treasury Fund, or 3:00 p.m.
(Boston time) for the Institutional Fund, the Premier Institutional Fund and the
Government Fund, begin earning dividends on the day of purchase, and shares
purchased as of the close of trading (including early closing of trading) on the
Exchange begin earning dividends on the following business day. See "Dividends."
Investors are required to maintain a minimum balance of $5,000 in each account
maintained with an applicable Fund other than the Premier Institutional Fund. If
an account balance in such Fund falls below $5,000, an investor's shares in the
applicable Fund may be redeemed. If an investor's average account balance in the
Premier Institutional Fund falls below $10,000,000 for any 30-day period, such
investor's shares in the Premier Institutional Fund will be exchanged for shares
of the Institutional Fund unless the investor has elected in its Account
Application to have the shares redeemed with the proceeds of redemption paid to
the investor. See "Redemptions."
The Fund strongly recommends the use of Federal Funds to purchase shares
because, while the other forms of payment described below will also be accepted,
purchase orders do not become effective until Federal Funds are available.
PURCHASE BY FEDERAL FUNDS WIRE
Federal Funds are monies credited to a bank's account with a Federal
Reserve Bank. To purchase shares of any Fund by wiring Federal Funds, the
investor must first telephone MLFD, Boston (617-357-1460 or toll-free
800-225-1576) to receive a wire order number. On the telephone the following
information will be requested by MLFD: name of investor, address, tax
identification number, dividend distribution election, amount being wired and
wiring bank. Instructions should then be given by the investor to its bank to
wire transfer Federal Funds to State Street Bank and Trust Company-Boston,
Attention: Merrill Group, Credit (Name of Fund), Wire Order Number: (Assigned by
Fund) and the investor's name and account number.
The Funds have a procedure designed to facilitate the purchase of shares by
Federal Funds Wire. Under this procedure, if an order is received by a Fund by
12:00 Noon (Boston time) for the Tax-Exempt Fund, by 2:00 p.m. (Boston time) for
the Treasury Fund, or by 3:00 p.m. (Boston time) for the Government Fund, the
Institutional Fund and the Premier Institutional Fund, and Federal Funds are
received by State Street Bank prior to 4:00 p.m. (Boston time), the order is
effective as of 12:00 Noon (Boston time) for the Tax-Exempt Fund, as of 2:00
p.m. (Boston time) for the Treasury Fund, or as of 3:00 p.m. (Boston time) for
the Government Fund, the Institutional Fund and the Premier Institutional Fund.
If an order is received by a Fund after 12:00 Noon (Boston time) for the
Tax-Exempt Fund, after 2:00 p.m. (Boston time) for the Treasury Fund, or after
3:00 p.m. (Boston time) for the Government Fund, the Institutional Fund or the
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Premier Institutional Fund, and Federal Funds are received by State Street Bank
prior to the close of the Federal Funds Wire, the order will become effective
and dividends will be earned on the following business day on which State Street
Bank is open for business.
PURCHASE THROUGH FACTS
Business organizations (such as corporations, partnerships or business
trusts) may purchase shares of the Funds through the Merrill Lynch Financial
Assets Control Tracking System ("FACTS"). FACTS is a program designed to help
businesses manage their cash flow and earn money market returns through
investment in the Funds. FACTS utilizes the Automated Clearing House system
("ACH") to transfer funds electronically between the corporate investor's local
bank and the Funds.
The purchase of shares of the Funds through FACTS may be arranged by
completing a FACTS Account Application, which can be obtained by calling
617-357-1460 or toll-free 800-225-1576 and returning it to Merrill Lynch Funds
Distributor, Inc. in Boston. After the application is received, an announcement
card will be sent to the organization supplying it with an account number and
advising it that, after 15 days from the printed date on the card, the
organization may begin using ACH for purchasing Fund shares.
After this waiting period, an authorized representative of the organization
may call the Funds' FACTS toll-free number (800-343-3446) by 4:00 p.m. (Boston
time), identify the organization by name and account number, and tell the FACTS
operator how much cash the organization wishes to invest in the applicable Fund
from its local corporate checking account. On the morning of the following
business day funds will automatically be transferred to a Fund via ACH.
Dividends will be paid by the Fund on the day funds are transferred.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT
Purchase orders for which remittance is to be made by check or Federal
Reserve Draft must be submitted directly by mail to State Street Bank and Trust
Company, P.O. Box 8500, Boston, Massachusetts 02266-8500, together with payment
for the purchase price of such shares and, in the case of a new account, a
completed Account Application (see page A-19). Such orders will become effective
on the day the remittance is converted into Federal Funds, and shares will be
purchased at the net asset value next determined after such conversion. Checks
and Federal Reserve Drafts should be made payable to the order of Merrill Lynch
Institutional Fund, Merrill Lynch Premier Institutional Fund, Merrill Lynch
Government Fund, Merrill Lynch Treasury Fund or Merrill Lynch Institutional
Tax-Exempt Fund, as applicable. Money transmitted by check normally will be
converted into Federal Funds within two business days following receipt.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in United States funds and must be drawn on a
United States bank. In the event that the purchase price for shares of a Fund is
paid by Federal Funds in the form of a Federal Reserve Draft, Federal Funds will
be available to the Fund on the next business day and the investor's order will
be effected on such day. During the period of time prior to the conversion into
Federal Funds, an investor's money will not be invested and, therefore, will not
be earning dividends.
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GENERAL
All funds will be fully invested in full and fractional shares. To minimize
recordkeeping by banks and other institutions purchasing shares on behalf of
separate accounts, arrangements can be made through MLFD, Boston, to have State
Street Bank provide subaccounting services.
The issuance of shares of a Fund is recorded on the books of the Fund, and,
to avoid additional operating costs and for investor convenience, stock
certificates will not be issued unless expressly requested in writing by a
shareholder. Certificates will not be issued for fractional shares. State Street
Bank, the transfer agent, will send to each shareholder of record a monthly
statement and a statement of shares of the Fund(s) owned after each purchase or
redemption transaction relating to such shareholder.
Boston banks are closed on certain holidays on which the New York Stock
Exchange is open. These holidays are Martin Luther King, Jr. Day (the 3rd Monday
in January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring Federal Funds on such
holidays because State Street Bank is not open to receive such funds on behalf
of the Funds. Investors whose checks are received one business day prior to a
holiday, or whose Federal Funds wire is received after 3:00 p.m. on the business
prior to a holiday, will have the proceeds of the check or wire invested in
shares of the applicable Fund as of 12:00 Noon (Boston time) on the next day on
which State Street Bank is open for business. Also, investors will not be able
to have redemption proceeds wired to their banks on these days. The Funds'
offices will be open, however, and all phones will be operative. The Funds'
staff will be available to take orders for next day purchases and redemptions,
or answer any questions investors may have.
Each Fund reserves the right to reject any order for Fund shares.
REDEMPTIONS
Upon receipt by State Street Bank of a proper redemption request
(indicating the name and account number of the shareholder, the name of the Fund
and the dollar amount of shares to be redeemed), each Fund will redeem its
shares at the next determined net asset value on a day that the New York Stock
Exchange is open for business. On days that the Exchange is open for business
and does not close trading early, net asset value per share is determined twice
daily, at 12:00 Noon (Boston time) for the Tax-Exempt Fund, at 2:00 p.m. (Boston
time) for the Treasury Fund and at 3:00 p.m. (Boston time) for the Government
Fund, the Institutional Fund and the Premier Institutional Fund, and at the
close of trading on the Exchange. If the Exchange closes trading prior to the
times established above, net asset value will be determined once. See "Net Asset
Value." Shareholders may use either the ordinary or, if they elect, the
expedited redemption procedure. If in utilizing any of the redemption procedures
the shareholder redeems all shares owned, his or her dividends accrued for the
month to date will be simultaneously remitted by check. UNLESS PAYMENT IS
REQUIRED ON A SAME DAY BASIS, THE FUNDS STRONGLY RECOMMEND THAT ALL REDEMPTION
REQUESTS BE PLACED SO AS TO BECOME EFFECTIVE BETWEEN 12:00 NOON (BOSTON TIME)
FOR THE TAX-EXEMPT FUND, 2:00 P.M. (BOSTON TIME) FOR THE TREASURY FUND, OR 3:00
P.M. (BOSTON TIME) FOR THE GOVERNMENT FUND, THE INSTITUTIONAL FUND AND THE
PREMIER INSTITUTIONAL FUND, AND THE CLOSE OF TRADING ON THE EXCHANGE, OR TO
BECOME EFFECTIVE PRIOR TO THE CLOSE OF EARLY TRADING ON A DAY THE EXCHANGE
CLOSES EARLY, SINCE THE REDEEMING SHAREHOLDER WILL THEN QUALIFY AS A SHAREHOLDER
OF RECORD FOR THE DIVIDEND DECLARED THAT DAY. SEE "DIVIDENDS." Shares purchased
other than by a Federal Funds wire or bank wire may not be redeemed by the
expedited procedure or the checking
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account redemption plan until 15 calendar days after the purchase of such shares
but may be redeemed pursuant to the ordinary redemption procedure during such
period.
Due to the relatively high cost of maintaining small investment accounts,
each of the Institutional Fund, Government Fund, Treasury Fund and Tax-Exempt
Fund reserves the right to redeem shares, at a redemption price as determined in
accordance with the preceding paragraph, if at any time the total investment in
a shareholder's account does not have a value of at least $5,000. Shareholders
of such Funds will be notified that the value of their account is less than
$5,000 and will be allowed 60 days to make an additional investment into their
account before the redemption is processed. If an investor's average account
balance in the Premier Institutional Fund falls below $10,000,000 for any 30-day
period, the Premier Institutional Fund shall be authorized to exchange such
investor's shares for shares of the Institutional Fund unless such investor has
elected in its Account Application to have shares redeemed with the proceeds of
redemption paid to the investor. In either case, the shareholder will be
notified of the exchange or redemption.
EXPEDITED REDEMPTION PROCEDURE
Shareholders meeting the requirements stated below may initiate redemptions
by submitting their redemption requests by telephone to State Street Bank
(toll-free 800-225-5150, in Massachusetts 800-972-5555) or mail (P.O. Box 8500,
Boston, Massachusetts 02266-8500) (without signature guarantee) and have the
proceeds sent by a Federal Funds wire to a previously designated bank or trust
company account. The minimum amount to be wired is $1,000. A redemption request
received prior to 12:00 Noon (Boston time) for the Tax-Exempt Fund, prior to
2:00 p.m. (Boston time) for the Treasury Fund, or prior to 3:00 p.m. (Boston
time) for the Government Fund, the Institutional Fund and the Premier
Institutional Fund, will not earn a dividend on the day the request is received
and payment will be made in Federal Funds wired on the same business day. If an
expedited redemption request for which the redemption proceeds will be wired is
received after 12:00 Noon (Boston time) for the Tax-Exempt Fund, or after 2:00
p.m. (Boston time) for the Treasury Fund, or after 3:00 p.m. (Boston time) for
the Government Fund, Institutional Fund and the Premier Institutional Fund, and
prior to the close of trading on the Exchange, or if an expedited redemption
request is received prior to the close of trading on a day the Exchange closes
early, on a day on which MLFD and State Street Bank are open for business, the
redemption proceeds will be wired on the next business day following the
redemption request that State Street Bank is open for business. A redemption
request received on a day the Exchange is open for regular trading after 12:00
Noon (Boston time) for the Tax-Exempt Fund, after 2:00 p.m. (Boston time) for
the Treasury Fund, or after 3:00 p.m. (Boston time) for the Government Fund,
Institutional Fund and the Premier Institutional Fund, will earn a dividend on
the day the request is received. If an expedited redemption request is received
after the close of trading on the Exchange (including after the close of trading
on a day the Exchange closes early) or on a day on which either MLFD or State
Street Bank is closed, the redemption proceeds will be wired on the next
business day following receipt of the redemption request. Therefore, a redeeming
shareholder will receive a dividend on the day the request is received, but not
on the day that shares are redeemed out of his account.
To utilize the expedited redemption procedure, all shares must be held in
non-certificate form in the shareholder's account. In addition, an Account
Application (page A-19) with the expedited payment authorization section
properly completed must be on file with State Street Bank before an expedited
redemption request is submitted. This form requires a shareholder to designate
the bank or trust company
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account to which its redemption proceeds should be sent. Any change in the bank
or trust company account designated to receive the proceeds must be submitted in
proper form on a new Account Application with signature guaranteed. In making a
telephone redemption request, a shareholder must provide the shareholder's name
and account number, the dollar amount of the redemption requested, and the name
of the bank to which the redemption proceeds should be sent. If the information
provided by the shareholder does not correspond to the information on the
application, the transaction will not be approved. If, because of unusual
circumstances, a shareholder is unable to contact State Street Bank at the
telephone numbers listed above to make an expedited redemption request, he or
she may contact MLFD or his or her Merrill Lynch Financial Consultant to effect
such a redemption, or request redemption in writing as described under "Ordinary
Redemption Procedure" below.
ORDINARY REDEMPTION PROCEDURE
If this method of redemption is used, the shareholder may submit his
redemption request in writing to State Street Bank and Trust Company, P.O. Box
8500, Boston, Massachusetts 02266-8500. A Fund will make payment for shares
redeemed pursuant to the ordinary redemption procedure by check sent to the
shareholder at the address on such shareholder's Account Application. Such
checks will normally be sent out within one business day, but in no event more
than seven days after receipt of the redemption request in proper form. If
certificates have been issued representing the shares to be redeemed, prior to
effecting a redemption with respect to such shares State Street Bank must have
received such certificates. A shareholder's signature must be guaranteed by an
"eligible guarantor institution" as such term is defined by Rule 17Ad-15 of the
Securities Exchange Act of 1934, the existence and validity of which may be
verified by State Street Bank through the use of industry publications. A notary
public is not an acceptable guarantor. In certain instances, State Street Bank
may request additional documentation which it believes necessary to insure
proper authorization such as, but not limited to, trust instruments, death
certificates, appointment of executor or administrator, or certificates of
corporate authority. Shareholders having questions regarding proper
documentation should contact State Street Bank (toll-free 800-225-5150, in
Massachusetts 800-972-5555).
CHECKING ACCOUNT REDEMPTION PLAN
State Street Bank will establish a checking account for any shareholder of
the Institutional Fund, the Government Fund, the Treasury Fund and the
Tax-Exempt Fund at the shareholder's request. Shareholders of the Premier
Institutional Fund will not be able to utilize a checking account for
redemptions. Checks drawn on this account can be made payable to the order of
any person in any amount not less than $500. The payee of the check may cash or
deposit it like any other check drawn on a bank. When such a check is presented
to State Street Bank for payment, the Bank will present the check to the
applicable Fund as authority to redeem a sufficient number of shares in the
shareholder's account to cover the amount of the check. This enables the
shareholder to continue earning daily income dividends until the check is
cleared. Canceled checks will be returned to the shareholder by the Bank.
Shareholders will be subject to the Bank's rules and regulations governing
such checking accounts including the right of the Bank not to honor checks in
amounts exceeding the value of the shareholder's account at the time the check
is presented for payment. Also, the Bank may not honor checks drawn against
shares purchased, other than by Federal Funds wire, until 15 days after the
purchase of such shares. The Bank and the Funds offering this checking account
privilege have reserved the right to modify or terminate this
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checking account privilege upon 30 days' notice to participating shareholders.
Shareholders wishing to consider this method of redemption should complete the
Authorization for Redemption by Check Form and Signature Card which appear on
pages A-21 and A-22 of this Prospectus.
REDEMPTION THROUGH FACTS
Those shareholders who participate in the FACTS program may redeem shares
of a Fund through any of the methods described above.
DIVIDENDS
All of each Fund's net income is declared as dividends daily. Dividends are
paid monthly and automatically reinvested in additional Fund shares at net asset
value and credited to the shareholder's account or, at the shareholder's option,
paid in cash.
Each Fund's net income for dividend purposes is determined daily. On days
on which the Exchange is open for business, such determination will be made
immediately prior to the determination of net asset value at the close of
trading on the Exchange. On days on which the Exchange is not open for business,
such determination will be made as of 4:00 p.m. (Boston time). Immediately after
such determination, each Fund will declare a dividend payable to shareholders of
record either: (a) at 12:00 Noon (Boston time) for the Tax-Exempt Fund, 2:00
p.m. (Boston time) for the Treasury Fund and 3:00 p.m. (Boston time) for the
Government Fund, the Institutional Fund and the Premier Institutional Fund, on
days which the Exchange is open for business, and does not close early, or if
the Exchange closes early, at such early closing time or (b) at the previous
close of trading on the Exchange on days on which the Exchange is not open for
business. If an order to purchase shares of a Fund by Federal Funds Wire is
received by a Fund after 12:00 Noon (Boston time) for the Tax-Exempt Fund, after
2:00 p.m. (Boston time) for the Treasury Fund, or after 3:00 p.m. (Boston time)
for the Government Fund, the Institutional Fund or the Premier Institutional
Fund and prior to the close of the Federal Funds Wire, the order will become
effective and dividends will be earned on the following business day.
Each Fund intends to use its best efforts to maintain its net asset value
at $1.00 per share, although this cannot be assured.
Shareholders may receive their dividends in cash monthly by completing the
appropriate section of the Account Application (page A-19). Such cash
distributions will be paid by check within seven days after the end of each
month. The election to receive cash distributions may be made at the time of
purchase of Fund shares or at any time subsequent thereto by giving written
notice to State Street Bank. To be effective with respect to a particular
monthly dividend, such written notice must be received by State Street Bank at
least seven days prior to the end of the month. Dividends and distributions made
by the Funds are taxable to shareholders whether distributed in cash or
reinvested in additional shares. See "Taxes."
NET ASSET VALUE
The net asset value per share of each Fund for purposes of pricing orders
for both the purchase and the redemption of Fund shares is determined twice
daily on days that the Exchange is open for business and does not close early.
On any day the Exchange closes early, net asset value per share of each Fund for
such
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purposes will be determined 15 minutes after the early close of trading. Each
Fund will also determine its net asset value on any day on which there is
sufficient trading in portfolio securities that the net asset value might be
materially affected, but only if on any such day, the Fund is required to sell
or redeem shares. Net asset value is determined on days that the Exchange is
open for business for full days of trading at 12:00 Noon (Boston time) for the
Tax-Exempt Fund, 2:00 p.m. (Boston time) for the Treasury Fund and 3:00 p.m.
(Boston time) for the Government Fund, the Institutional Fund and the Premier
Institutional Fund, for the purpose of pricing orders received subsequent to the
previous close of trading on the Exchange and prior to 12:00 Noon (Boston time)
for the Tax-Exempt Fund, 2:00 p.m. (Boston time) for the Treasury Fund and 3:00
p.m. (Boston time) for the Government Fund, the Institutional Fund and the
Premier Institutional Fund, and is also determined at the close of trading on
the Exchange for the purpose of pricing orders received subsequent to 12:00 Noon
(Boston time) for the Tax-Exempt Fund, 2:00 p.m. (Boston time) for the Treasury
Fund and 3:00 p.m. (Boston time) for the Government Fund, the Institutional Fund
and the Premier Institutional Fund, and before the close of trading on the
Exchange on that day. The net asset value of the Institutional Fund, Premier
Institutional Fund, Government Fund and Treasury Fund is determined pursuant to
the "penny rounding" method by adding the fair 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.
In determining fair value, securities held by the Institutional Fund, Premier
Institutional Fund, Government Fund and Treasury Fund with a remaining maturity
of 60 days or less will be valued on an amortized cost basis, and securities
with a remaining maturity of greater than 60 days for which market quotations
are readily available are valued at market value. Other securities held by the
Institutional Fund, Premier Institutional Fund, Government Fund and Treasury
Fund are valued at their fair value as determined in good faith by or under the
direction of the Trust's Board of Trustees. The Tax-Exempt Fund relies on a rule
of the Securities and Exchange Commission pursuant to which the valuation of its
portfolio securities is based upon their amortized cost. This method involves
valuing a security at its cost and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Tax-Exempt
Fund would receive if it sold the securities.
TAXES
Each Fund in the past has elected the special tax treatment afforded
regulated investment companies under the Internal Revenue Code of 1986, as
amended (the "Code"). Each Fund believes that it has qualified for such
treatment and intends to continue to qualify therefor. If a Fund so qualifies,
in any fiscal year with respect to which it distributes at least 90% of its net
investment income, the Fund (but not its shareholders) will be relieved of
federal income tax liability on the amount distributed. Each Fund contemplates
declaring as dividends 100% of its net investment income. See "Dividends." If in
any taxable year a Fund does not qualify as a regulated investment company, all
of its taxable income and gains will be taxed to that Fund at corporate rates.
Taxable dividends and distributions will be taxable to shareholders as ordinary
income or long-term capital gains, whether received in cash or reinvested in
additional shares of a Fund. State Street Bank, the transfer agent, will send
each shareholder a monthly dividend statement which will include the amount of
dividends paid and will identify whether such dividends represent ordinary
income or long-term capital gains. In general, taxable dividends paid by the
Funds will be treated as ordinary income.
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Investments by the Institutional Fund and the Premier Institutional Fund in
certain Eurodollar and Yankeedollar obligations may be subject to foreign
withholding taxes. See "The Institutional Fund and Its Objectives" and "The
Premier Institutional Fund and Its Objectives."
The Statement of Additional Information for each Fund describes the effect
on other provisions of the Code on the Fund and its shareholders. The Prospectus
for the Tax-Exempt Fund describes certain special tax attributes of that Fund as
a result of its investment in tax-exempt securities.
Certain states exempt from state income taxation dividends paid by
regulated investment companies which are derived in whole or in part from
interest on U.S. Government obligations. State law varies as to whether dividend
income attributable to U.S. Government obligations is exempt from state income
tax. Each Fund intends to provide shareholders annually with information
relating to that Fund's income and assets necessary to permit shareholders to
determine whether and to what extent their dividend income from the Fund is
exempt from their state's income tax.
Investors are urged to consult their attorneys or tax advisors regarding
specific questions as to federal, state or local taxes.
PORTFOLIO TRANSACTIONS
The Funds have 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 trustees of the Trust, the Investment Adviser is primarily
responsible for each Fund's portfolio decisions and the placing of the Fund's
portfolio transactions. In placing orders, it is the policy of the Funds 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, the firm's
risk in positioning the securities involved, and the provision of supplemental
investment research by the firm. While the Investment Adviser generally seeks
reasonably competitive spreads or commissions, the Funds 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 U.S. Government obligations and money market securities in which the
Funds invest are traded primarily in the over-the-counter market. Where
possible, the Funds 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 account. On occasion, securities may be purchased directly from
the issuer. U.S. Government obligations and taxable and tax-exempt money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing the Funds'
portfolio transactions will consist primarily of dealer spreads and underwriting
commissions.
The Institutional Fund, Premier Institutional Fund, Government Fund and
Treasury Fund may conduct principal transactions with certain affiliates,
including Merrill Lynch Government Securities, Inc., Merrill Lynch Money
Markets, Inc., and Merrill Lynch, subject to a number of conditions imposed in
an exemptive order issued by the Securities and Exchange Commission. Similarly,
the Tax-Exempt Fund may conduct principal transactions with its affiliate,
Merrill Lynch, subject to a number of conditions imposed in an exemptive order
issued by the Securities and Exchange Commission. In addition, affiliated
persons of the
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Funds may serve as their brokers in over-the-counter transactions conducted on
an agency basis. The Funds may also purchase securities from underwriting
syndicates of which Merrill Lynch is a member under certain conditions in
accordance with the provisions of a rule adopted under the Investment Company
Act of 1940.
The Trustees of the Trust have considered the possibilities of recapturing
for the benefit of the Funds expenses of possible portfolio transactions, such
as dealer spreads and underwriting commissions, by conducting such portfolio
transactions through affiliated entities, including Merrill Lynch. After
considering all factors deemed relevant, the Trustees made a determination not
to seek such recapture. The Trustees will reconsider this matter from time to
time.
EXCHANGE PRIVILEGE
Shareholders of a Fund may exchange their shares for shares of any other
Fund, as well as shares of Merrill Lynch Institutional Intermediate Fund
(collectively referred to as the "funds"), on the basis described below. To
qualify for the Exchange Privilege, a shareholder must exchange shares with a
current value of at least $1,000. Under the Exchange Privilege, each of the
funds offers to exchange its shares for shares of any other fund, on the basis
of relative net asset value per share. Since all of the funds other than Merrill
Lynch Institutional Intermediate Fund are no-load funds and seek to maintain a
constant $1.00 net asset value per share, it is expected that any exchange with
those funds would be on a share-for-share basis. If in utilizing the Exchange
Privilege the shareholder exchanges all his shares of a Fund, all dividends
accrued on such shares for the month to date will be invested in shares of the
fund into which the exchange is being made. Before effecting an exchange of Fund
shares for shares of Merrill Lynch Institutional Intermediate Fund, shareholders
should obtain the current effective prospectus of Merrill Lynch Institutional
Intermediate Fund. The investment objective of Merrill Lynch Institutional
Intermediate Fund is to seek current income. Merrill Lynch Institutional
Intermediate Fund invests only in those assets which will permit its shares to
qualify both as "liquid assets" under the regulations of the Department of the
Treasury's Office of Thrift Supervision and as an investment permitted by the
regulations of the National Credit Union Administration. An exchange between
funds pursuant to the Exchange Privilege is treated as a sale for federal income
tax purposes and, depending upon the circumstances, a short- or long-term
capital gain or loss may be realized.
To exercise the Exchange Privilege, shareholders should contact MLFD,
Boston, or their Merrill Lynch Financial Consultants, who will advise the
applicable Fund of the exchange. A shareholder may make exchanges by telephone,
provided that (i) he has elected the telephone exchange option on the Account
Application, (ii) the registration of the account for the new fund will be the
same as for the Fund, and (iii) the shares to be exchanged are not in
certificate form. To make exchanges by telephone, a shareholder should call MLFD
at 617-357-1460 or toll-free 800-225-1576. The shareholder should identify
himself by name and account number and give the name of the fund into which he
wishes to make the exchange, the name of the Fund and the number of shares he
wishes to exchange. The shareholder also may write to State Street Bank
requesting that the exchange be effected. Such letter must be signed exactly as
the account is registered with signature(s) guaranteed by a commercial bank
which is a member of the FDIC or by a trust company or a member firm of a
domestic securities exchange. The Funds reserve the right to require a properly
completed Exchange Application.
Investors in certain other Merrill Lynch funds which impose a contingent
deferred sales load on redemption of shares ("deferred load funds") may exchange
shares of such funds for shares of the Funds,
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subject to the minimum initial investment requirements for each of the Funds,
without paying the contingent deferred sales load normally applicable to such
redemptions. Shares of the Funds which were acquired as a result of such an
exchange may, in turn, be exchanged back into a participating deferred load
fund, in which event the holding period for shares of the deferred load fund
will be aggregated with the previous deferred load fund holding periods for
purposes of calculating the contingent deferred sales load. The holding period
for shares of the Fund so acquired will not, however, be taken into account in
calculating the contingent deferred sales load. Furthermore, if shares of the
Fund which were acquired as a result of an exchange for shares of a deferred
load fund are subsequently redeemed or exchanged for shares of a fund other than
a deferred load fund, the shareholder will thereupon be charged the contingent
deferred sales load that would otherwise have been payable upon the exchange of
shares of the deferred load fund for shares of the applicable Fund.
These exchange privileges may be modified or terminated at any time.
ADDITIONAL INFORMATION
YIELD INFORMATION
The Funds may from time to time include information regarding their
respective yields in advertisements or information furnished to present or
prospective shareholders. Yield will be computed by annualizing net investment
income dividends for a given period and dividing by the average public offering
price. Each Fund's yield will vary from time to time depending upon market
conditions, the securities comprising the Fund's portfolio, and the Fund's
operating expenses. Yield should also be considered relative to changes in the
net asset value of the Fund's shares and the Fund's investment and dividend
payment policies.
DESCRIPTION OF SHARES OF THE TRUST
The Declaration of Trust of the Trust provides that the Trust may be
comprised of separate series (a "Series") each of which will consist of a
separate portfolio which will issue a separate class of shares. Each of the
Funds is a Series of the Trust. The Trustees of the Trust 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 of a
single class. All shares of the Trust have equal voting rights, except that only
shares of a particular Series are entitled to vote on matters concerning only
that Series, and each issued and outstanding share is entitled to one vote and
to participate equally in dividends and distributions declared by a particular
Series of the Trust, as the case may be, and in net assets of that Series upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities. In the event a Series is unable to meet its obligations, the
remaining Series would assume the unsatisfied obligations of that Series. The
shares of the Trust, when issued, will be fully paid and non-assessable by the
Trust, have no preference, preemptive, conversion or similar rights, and be
freely transferable. Holders of shares of the Trust are entitled to redeem their
shares as set forth under "Redemptions." 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. Shareholders' meetings will only be held in connection with
matters with respect to which shareholder approval is required under the
Investment Company Act of 1940. Therefore, there will normally be no meetings of
shareholders for the purpose of electing trustees unless and until such time as
less than a majority of the trustees holding office have been elected by
shareholders of the Trust, at which time the trustees then in office will call a
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shareholders' meeting for the election of trustees. Shareholders may, in
accordance with the applicable Declaration of Trust, cause a meeting of
shareholders to be held for the purpose of voting on the removal of 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.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, P.O. Box 8500, Boston, Massachusetts
02266-8500, is the Funds' custodian, transfer agent and dividend disbursing
agent.
COUNSEL AND INDEPENDENT AUDITORS
Rogers & Wells, counsel to the Trust, passes upon legal matters for the
Trust in connection with the shares offered by this Prospectus. Deloitte &
Touche LLP are the independent auditors of the Trust.
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 Ratings
Group ("S&P"). Issues within this category are further redefined with
designations 1, 2 and 3 to indicate the relative degree of safety; A1, the
highest of the three, indicates the degree of safety is either overwhelming or
very strong; A2 indicates that capacity for timely repayment is strong.
Moody's Investors Service ("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.
Commercial paper rated A-1+ by IBCA Limited or its affiliate IBCA Inc.
(together, "IBCA") are obligations supported by the highest capacity for timely
repayment. Commercial paper rated A-1 has a very strong capacity for timely
repayment. Commercial paper rated A-2 has a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
Fitch Investors Services, Inc. ("Fitch") employs the rating F-1+ to
indicate issues regarded as having the strongest degree of assurance for timely
payment. The rating F-1 reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+, while the rating F-2 indicates a
satisfactory degree of assurance for timely payment, although the margin of
safety is not as great as indicated by the F-1+ and F-1 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. ("BankWatch") employs the rating TBW-1 with respect
to the highest category of commercial paper and bank money instruments. A rating
of TBW-1 indicates the degree of safety regarding timely repayment of principal
and interest is very strong. A rating of TBW-2 indicates that while the
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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 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 the 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 IBCA are obligations for which there is the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk significantly.
Bonds rated AA are obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk, albeit not very significantly.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest 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.
Companies rated A by BankWatch possess exceptionally strong balance sheets
and earnings records, translating into excellent reputations and unquestioned
access to their natural money markets. If weakness or vulnerability exists in
any aspect of such a company's business, it is entirely mitigated by the
strength of the organization. Companies rated A/B by BankWatch are financially
very solid with favorable track records and no readily apparent weaknesses.
Their overall risk profiles, while low, are not quite as favorable as for
companies in the highest rating category.
RATINGS OF TAX-EXEMPT SECURITIES AND SHORT-TERM TAX-EXEMPT OBLIGATIONS
Set forth below are descriptions of the two highest ratings of Moody's, S&P
and Fitch for Tax-Exempt Securities and short-term tax-exempt obligations.
Ratings for commercial paper have been included since
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certain of the obligations which the Tax-Exempt Fund is authorized to purchase
have characteristics of commercial paper and have been rated as such by Moody's
and S&P.
DESCRIPTIONS OF MOODY'S RATINGS
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities 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.
Short-term Notes: The two highest ratings of Moody's for short-term notes
are MIG-1 and MIG-2; MIG-1 denotes "best quality, enjoying strong protection
from established cash flows"; MIG-2 denotes "high quality" with "ample margins
of protection."
Variable Rate Demand Obligations: Moody's has separate rating categories
for variable rate demand obligations ("VRDOs"). VRDOs will receive two ratings.
The first rating, depending on the maturity of the VRDO, will be assigned either
a bond or MIG rating which represents an evaluation of the risk associated with
scheduled principal and interest payments. The second rating, designated as
"VMIG," represents an evaluation of the degree of risk associated with the
demand feature. The new VRDO demand feature ratings symbols are:
VMIG 1: strong protection by established cash flows, superior
liquidity support, demonstrated access to the market for refinancing.
VMIG 2: ample margins of protection, high quality.
VMIG 3: favorable quality, liquidity and cash flow protection may be
narrow, market access for refinancing may be less well established.
VMIG 4: adequate quality, not predominantly speculative but there is
risk.
Commercial Paper: The highest rating of Moody's for commercial paper is
Prime-1. Issuers rated Prime-1 are judged to be of the highest quality. Their
short-term debt obligations carry the smallest degree of investment risk.
Margins of support for current indebtedness are large or stable with cash flow
and asset protection well assured. Currently liquidity provides ample coverage
of near-term liabilities and unused alternative financing arrangements are
generally available. While protective elements may change over the intermediate
or long term, such changes are most unlikely to impair the fundamentally strong
position of short-term obligations.
DESCRIPTION OF S&P RATINGS
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
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AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
Short-Term Notes: S&P has a separate rating category with respect to
certain municipal note issues with a maturity of less than three years. The note
ratings and symbols are:
SP-1 A very strong, or strong, capacity to pay principal and
interest. Issues that possess overwhelming safety characteristics will be
given a "+" designation.
SP-2 A satisfactory capacity to pay principal and interest.
SP-3 A speculative capacity to pay principal and interest.
S&P may continue to rate note issues with a maturity greater than three
years in accordance with the same rating scale currently employed for municipal
bond ratings.
Commercial Paper: S&P highest rating for commercial paper is A-1. This
designation indicates the degree of safety regarding timely payment as either
overwhelming or very strong. Those issues determined to have overwhelming safety
characteristics will be designated with a plus (+) sign designation.
DESCRIPTION OF FITCH'S RATINGS
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. The
ratings take into consideration special features of the issue, its relationship
to other obligations of the issuer, the current financial condition and
operative performance of the issuer and of any guarantor, as well as the
political and economic environment that might affect the issuer's future
financial strength and credit quality. Bonds that have the same rating are of
similar but not necessarily identical credit quality since the rating categories
do not fully reflect small differences in the degrees of credit risk.
Fitch employs the rating F-1+ to indicate short-term debt issues regarded
as having the strongest degree of assurance for timely payment. The rating F-1
reflects an assurance of timely payment only slightly less in degree than issues
rated F-1+. The rating F-2 indicates a satisfactory degree of assurance for
timely payment, although the margin of safety is not as great as indicated by
the F-1+ and F-1 categories.
REPORTS TO SHAREHOLDERS
The fiscal year of the Trust ends on April 30 of each year. The Trust
issues to its shareholders semi-annually reports containing unaudited financial
statements and annual reports containing audited financial statements.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information included in the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The Statement of
Additional Information, dated January , 1997, which forms a part
A-17
<PAGE> 63
of the Registration Statement, is incorporated by reference into this
Prospectus. The Statement of Additional Information may be obtained without
charge as provided on the cover page of this Prospectus. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the Securities and Exchange Commission in Washington, D.C.
------------------------
The Trust was organized as an unincorporated business trust under the laws
of Massachusetts on May 7, 1987, and commenced operations on December 18, 1989
with only one series, Merrill Lynch Treasury Fund. Two additional series of the
Trust, Merrill Lynch Institutional Fund and Merrill Lynch Government Fund,
commenced operations effective August 31, 1990. One additional series of the
Trust, Merrill Lynch Institutional Tax-Exempt Fund, commenced operations
effective February 18, 1994. A fifth additional series of the Trust, Merrill
Lynch Premier Institutional Fund, will commence operations as of the date of
this Prospectus. The executive offices of the Trust are located at One Financial
Center, Boston, Massachusetts 02111 (telephone 617-357-1460 or toll-free
800-225-1576).
The Declaration of Trust establishing the Trust, dated May 7, 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 "Merrill Lynch Funds For Institutions Series" 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 may be held to any personal liability, nor may resort by law to their
private property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Trust but only the Trust Property shall be
liable. The Trust issues shares in one or more series. All persons dealing with
the Trust must look solely to the property of the applicable series of the Trust
for the enforcement of any claims against it.
A-18
<PAGE> 64
ACCOUNT APPLICATION (CHECK ONE)
[ ] MERRILL LYNCH INSTITUTIONAL FUND [ ] MERRILL LYNCH TREASURY FUND
[ ] MERRILL LYNCH PREMIER INSTITUTIONAL [ ] MERRILL LYNCH INSTITUTIONAL
FUND TAX-EXEMPT FUND
[ ] MERRILL LYNCH GOVERNMENT FUND
MAIL TO: STATE STREET BANK AND TRUST COMPANY, P.O. BOX 8500, BOSTON,
MASSACHUSETTS 02266-8500
- --------------------------------------------------------------------------------
REGISTRATION: THE ACCOUNT SHOULD BE REGISTERED AS FOLLOWS:
- --------------------------------------------------------------------------------
Name of Account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
- --------------------------------------------------------------------------------
Occupation
- --------------------------------------------------------------------------------
Name of Employer
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
INITIAL INVESTMENT:--MINIMUM $25,000 (MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MINIMUM $10,000,000)
[ ] The account has been opened by wire on
-------------------------------------
(Date) and the account no. assigned is
-------------------------------------
[ ] Please establish an account with the enclosed check for $ ____________
payable to Merrill Lynch Institutional Fund, Merrill Lynch Premier
Institutional Fund, Merrill Lynch Government Fund, Merrill Lynch Treasury
Fund or Merrill Lynch Institutional Tax-Exempt Fund, as applicable.
- -
- -----------------------------
Soc. Sec. No. (Individual)
- ----------------------------- -
Tax ID No. (Corporate)
( )
- ------------------------------------------------------
Area code Telephone
Citizen of
[ ] U.S.
[ ] Other (please specify)
- ------------
- - Under the Federal income tax law, you are subject to certain penalties as well
as withholding of tax at a 31% rate if you do not provide a correct number.
MONTHLY CASH DIVIDENDS
[ ] Check this box if dividends are to be paid monthly in cash. Otherwise
dividends will be reinvested automatically in additional shares of the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CHECK REDEMPTION PRIVILEGE (SEE PAGE A-8) NOT AVAILABLE FOR MERRILL LYNCH
PREMIER INSTITUTIONAL FUND
[ ] Check this box and complete Authorization for Redemption by Check Form and
Signature Card on pages A-21 and A-22.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TELEPHONE EXCHANGE PRIVILEGE (SEE PAGE A-12)
YES NO I (We) hereby authorize telephone instructions to withdraw amounts
[ ] [ ] from my (our) Fund account and exchange for shares of Merrill Lynch
Institutional Fund, Merrill Lynch Premier Institutional Fund,
Merrill Lynch Government Fund, Merrill Lynch Treasury Fund, Merrill
Lynch Institutional Tax-Exempt Fund and/or Merrill Lynch
Institutional Intermediate Fund, subject to the requirements
described in the Prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
EXPEDITED REDEMPTION PAYMENTS Redemption proceeds will be sent to the bank or trust company listed below, for credit
(SEE PAGE A-7) to the investor's account. If the investor wishes to send redemption proceeds to more
If desired check box than one such institution, an additional application must be submitted for each
[ ] institution. The investor hereby authorizes State Street Bank to honor telephone or
and complete the rest of this section written instructions, without a signature guarantee, for redemption of Fund shares.
State Street Bank's records of such instructions will be binding on all parties and
State Street Bank and the Fund will not be liable for any loss, expense or cost
arising out of such transactions, unless the Fund or State Street Bank fail to employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine.
<CAPTION>
Enclose a specimen of your check or deposit slip (marked "VOID") for the bank account listed below. TO FACILITATE THE WIRING OF
YOUR REDEMPTION PROCEEDS THE INDICATED BANK SHOULD BE A COMMERCIAL BANK.
<S> <C>
Name of Bank: Bank Account No.
---------------------------------------------- ---------------------------------------------------
Address of Bank:
-----------------------------------------------------------------------------------------------------------------
Street City State Zip
Name on Account:
-----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREMIER INSTITUTIONAL FUND EXCHANGE FOR ACCOUNTS WITH AVERAGE BALANCE OF LESS
THAN $10,000,000 (SEE PAGE A- 6).
Unless I (we) have checked the box below, I (we) hereby authorize the exchange
of my (our) shares of Merrill Lynch Premier Institutional Fund for a
corresponding number of shares of Merrill Lynch Institutional Fund if during
any 30-day period my (our) average account balance in Merrill Lynch Premier
Institutional Fund is less than $10,000,000. If I (we) check the box below,
then, under such circumstances, I (we) hereby authorize the redemption of all
of my (our) shares of Merrill Lynch Premier Institutional Fund and the payment
of the proceeds of any such redemption to me (us) at the address indicated
above. [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CERTIFICATION: By the execution of this Application, the investor represents
and warrants that the investor has full right, power and authority to invest
in the Fund, and the person or persons signing on behalf of the investor
represent and warrant that they are duly authorized to sign this Application
and to purchase or redeem shares of the Fund on behalf of the investor. The
investor hereby affirms that he has received a current Fund Prospectus.
The undersigned hereby certifies under penalty of perjury that (1) the above
Social Security Number or Taxpayer Identification Number is correct and that
(2) he is not subject to backup withholding because (a) he is exempt from
backup withholding, OR (b) he has not been notified by the Internal Revenue
Service that he is subject to backup withholding as a result of a failure to
report all interest or dividends, OR (c) the IRS has notified him that he is
no longer subject to backup withholding.
Certification Instructions--You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding due
to underreporting of interest or dividends. The undersigned authorizes the
furnishing of this certification to other Merrill Lynch sponsored mutual
funds.
...............................................................................
Signature
...............................................................................
Signature
...............................................................................
Title (Corporate Account only)
...............................................................................
Title (Corporate Account only)
A-19
<PAGE> 65
[THIS PAGE INTENTIONALLY LEFT BLANK]
A-20
<PAGE> 66
AUTHORIZATION FOR REDEMPTION BY CHECK
MERRILL LYNCH INSTITUTIONAL FUND, MERRILL LYNCH GOVERNMENT FUND, MERRILL LYNCH
TREASURY FUND AND/OR MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
INSTRUCTIONS:
INDIVIDUAL ACCOUNT: Complete Steps 1, 3, 4 and 5.
INSTITUTIONAL ACCOUNT: Complete All Steps.
STEP 1--Fill in account title and address. (This information must be identical
to the registration of the shareholder account in the Fund). Also fill in your
shareholder account number, if known.
STEP 2--Institutions should enter type of organization. (i.e., Corporation,
Trust, Partnership, etc.)
STEP 3--Print name(s) in section (a) and sign in section (b). Officers of
organizations should give their titles.
STEP 4--Have your signature(s) guaranteed by an eligible guarantor institution.
STEP 5--Fill in account title and affix authorized signature(s). (Only
registered shareholder's signatures allowed for single name or joint accounts.
Corporate accounts may have multiple signatures.)
MAIL COMPLETED FORM ALONG WITH THE SIGNATURE CARD TO:
STATE STREET BANK AND TRUST CO., P.O. BOX 8500, BOSTON, MA 02266-8500.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
STEP 1 At the undersigned's request, State Street Bank and Trust
INSERT ACCOUNT Company (the "Bank") has established a checking account for
NUMBER IF KNOWN the undersigned. When a check is presented on the
undersigned's checking account for payment, the Bank will
present the check to the Fund as authority to redeem a
sufficient number of shares in the undersigned's shareholder
account with the Fund to cover the amount of the check. Checks
may not be for less than $500. The Fund is hereby authorized
and directed to accept and act upon checks presented to it by
the Bank and to redeem a sufficient number of shares for which
certificates have not been issued in the undersigned's
shareholder account with the Fund and forward the proceeds of
such redemption to the Bank. THE UNDERSIGNED UNDERSTANDS AND
AGREES THAT SHARES PURCHASED BY CHECK (INCLUDING CERTIFIED OR
CASHIER'S CHECK) WITHIN 15 CALENDAR DAYS PRIOR TO PRESENTATION
OF SUCH CHECK WILL NOT BE REDEEMED AND ANY CHECK DRAWN TO
REDEEM SUCH SHARES WILL BE RETURNED MARKED "UNCOLLECTED
FUNDS." The undersigned further understands and agrees that
the Fund and/or its agents will not be liable for any loss,
expense or cost arising out of check redemptions other than
for its negligence or willful misconduct. The undersigned will
be subject to the Bank's rules and regulations governing such
checking accounts, including the right of the Bank not to
honor checks in amounts exceeding the value of the
undersigned's shareholder account at the time the check is
presented for payment. The Fund and the Bank have reserved the
right to change, modify or terminate this checking account
privilege at any time.
STEPS 2, 3 & 4 Account Name(s):
ON REVERSE SIDE ----------------------------------------------------
Address:
------------------------------------------------------------
Account No. (if assigned):
------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
STEP 5 Merrill Lynch Institutional Fund Account No.
Merrill Lynch Government Fund --------------------------------------
Merrill Lynch Treasury Fund
Merrill Lynch Institutional Tax-Exempt Fund
State Street Bank and Trust Company
SIGNATURE CARD
------------------------------------------------------------------------------
Account Name(s) as Registered
------------------------------------------------------------------------------
Authorized Signature(s) (a) Print or type full name (b) Sign
below
1. 1.
------------------------------------------------------------------------------
2. 2.
------------------------------------------------------------------------------
3. 3.
------------------------------------------------------------------------------
4. 4.
------------------------------------------------------------------------------
[ ] Check if all signatures are required
[ ] Check if only one signature is required
[ ] Check if combination of signatures is required and specify number
--------
DATE
</TABLE>
SUBJECT TO CONDITIONS ON REVERSE SIDE
A-21
<PAGE> 67
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
STEP 2 We hereby certify that each of the persons listed in Step 3
IF OTHER THAN has been duly elected and is now legally holding the office
AN INDIVIDUAL, set opposite his name.
INSERT TYPE OF We further certify that the said ____________ is duly
ORGANIZATION organized and existing and has the power to take the action
(CORPORATION, called for by this Continuing Redemption Authorization.
TRUST, ETC.) We further certify that the signatures on the signature card
which is submitted with this Application and is incorporated
into this Agreement as if set forth herein, are authentic
and represent individuals with legal capacity to sign on
behalf of the above.
- -----------------------------------------------------------------------------------------------
STEP 3 We further certify and agree that the above certifications,
NAMES AND authorizations and appointments in this document will
SIGNATURES continue until State Street Bank and Trust Company receives
actual written notice of any change thereof.
(a) PLEASE PRINT OR TYPE FULL (b) SIGN BELOW:
NAMES AND TITLES:
----------------------------- -----------------------------
(INDIVIDUAL, PRESIDENT, (SIGNATURE)
TRUSTEE,
GENERAL PARTNER OR
REPRESENTATIVE)
----------------------------- -----------------------------
(IF JOINT ACCOUNT, INSERT THE (SIGNATURE)
NAME
OF JOINT ACCOUNT)
----------------------------- -----------------------------
(SECRETARY OF CORPORATION) (SIGNATURE)
(The President or Vice President and Secretary or Assistant
Secretary of a corporation must sign.)
- -------------------------------------------------------------------------------------------------
STEP 4
Signature(s) Guaranteed: -----------------------------------
(NAME OF GUARANTOR INSTITUTION)
BANKER OR
BROKER SIGNS
By: -----------------------------------
(AUTHORIZED SIGNATURE)
- -------------------------------------------------------------------------------------------------
</TABLE>
This completed authorization must be received by State Street Bank and Trust
Company before redemption requests by check will be honored. Any amendment
or modification of the above information will require that a new
Authorization Form be completed and submitted and may require the execution
of new signature cards.
- --------------------------------------------------------------------------------
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
THE PAYMENT OF FUNDS IS AUTHORIZED BY THE SIGNATURE(S) APPEARING ON THE REVERSE
SIDE.
If this card is signed by more than one person, all checks will require all
signatures appearing on the reverse side unless a lesser number is indicated. If
no indication is given, all checks will require all signatures. Each signatory
guarantees the genuineness of the other signatures.
The Bank is hereby appointed agent by the person(s) (the "Depositor(s)") signing
this card and, as agent, is authorized and directed to present checks drawn on
this checking account to the Fund or its transfer agent as requests to redeem
shares of the Fund registered in the name of the Depositor(s) in the amounts of
such checks and to deposit the proceeds of such redemptions in this checking
account. The Bank will be liable only for its own negligence.
The Depositor(s) agrees to be subject to the rules and regulations of the Bank
pertaining to this checking account as amended from time to time. The Bank
reserves the right to change, modify or terminate this checking account and
authorization at any time.
A-22
<PAGE> 68
- ------------------------------------------------------
- ------------------------------------------------------
ADMINISTRATOR & DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
One Financial Center
Boston, Massachusetts 02111
INVESTMENT ADVISER
Fund Asset Management, L.P.
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 LLP
125 Summer Street
Boston, Massachusetts 02110-1617
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THESE PROSPECTUSES AND IN THE
STATEMENTS OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFER MADE BY THESE
PROSPECTUSES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY FUND OR ITS
DISTRIBUTOR. THESE PROSPECTUSES DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY ANY FUND OR BY THE DISTRIBUTOR IN ANY STATE
IN WHICH SUCH OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY MAY NOT LAWFULLY
BE MADE.
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
PROSPECTUSES
MERRILL LYNCH
FUNDS FOR INSTITUTIONS SERIES
- ------------------------------------------------------
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND
- ------------------------------------------------------
MERRILL LYNCH INSTITUTIONAL FUND, MERRILL LYNCH PREMIER INSTITUTIONAL FUND,
MERRILL LYNCH GOVERNMENT FUND, MERRILL LYNCH TREASURY FUND AND MERRILL LYNCH
INSTITUTIONAL TAX-EXEMPT FUND ARE SEPARATE SERIES OF MERRILL LYNCH FUNDS FOR
INSTITUTIONS SERIES, WHICH IS ORGANIZED AS A MASSACHUSETTS BUSINESS TRUST.
NONE OF THE FUNDS IS A BANK, NOR DOES IT OFFER FIDUCIARY OR TRUST SERVICES.
SHARES OF THE FUNDS ARE NOT EQUIVALENT TO A BANK ACCOUNT. WHILE THE FUNDS
ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN
BE NO ASSURANCES THAT THEY WILL BE ABLE TO DO SO. THE SHARES OF THE FUNDS
ARE NEITHER INSURED NOR GUARANTEED BY ANY GOVERNMENT AGENCY AND ARE NOT
SUBJECT TO THE PROTECTION OF THE SECURITIES INVESTOR PROTECTION CORPORATION.
- ------------------------------------------------------
January , 1997
Distributor
Merrill Lynch
Funds Distributor, Inc.
These Prospectuses should be retained
for future reference.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 69
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
This document consists of the Statements of Additional Information of
Merrill Lynch Institutional Fund (the "Institutional Fund"), Merrill Lynch
Premier Institutional Fund (the "Premier Institutional Fund" and, with the
Institutional Fund, the "Institutional Funds"), Merrill Lynch Government Fund
(the "Government Fund"), Merrill Lynch Treasury Fund (the "Treasury Fund") and
Merrill Lynch Institutional Tax-Exempt Fund (the "Tax-Exempt Fund")
(collectively, the "Funds") and an Appendix A which constitutes part of each
Fund's Statement of Additional Information. A table of contents may be found on
page 1 of each Statement of Additional Information.
------------------------
The Institutional Funds are no-load money funds whose objectives are
maximum current income consistent with liquidity and the maintenance of a
portfolio of high quality short-term "money market" instruments. The Government
Fund and the Treasury Fund are no-load money funds seeking current income
consistent with liquidity and security of principal. The Government Fund invests
in a portfolio of securities issued or guaranteed by the U.S. Government, its
agencies or its instrumentalities. The Treasury Fund invests in a portfolio of
U.S. Treasury securities. The Tax-Exempt Fund is a no-load money fund seeking
current income exempt from federal income taxes, preservation of capital and
liquidity available from investing in a diversified portfolio of short-term,
high quality Tax-Exempt Securities.
<PAGE> 70
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH INSTITUTIONAL FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
FOR GENERAL INFORMATION AND PURCHASES CALL 617-357-1460 OR TOLL FREE
800-225-1576
Merrill Lynch Institutional Fund is a no-load money fund whose objectives
are maximum current income consistent with liquidity and the maintenance of a
portfolio of high quality short-term "money market" instruments. The
Institutional Fund is designed primarily for institutions as an economical and
convenient means for the investment of short-term funds. The Institutional Fund
is a separate series of Merrill Lynch Funds For Institutions Series (the
"Trust"), a diversified, open-end management investment company.
The Statement of Additional Information of the Institutional Fund is not a
prospectus and should be read in conjunction with the Prospectus of the
Institutional Fund (the "Prospectus") which has been filed with the Securities
and Exchange Commission and is available upon oral or written request without
charge. Copies of the Prospectus can be obtained by calling or by writing the
Institutional Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies....................................... 2
Independent Auditors' Report............................................. 5
Audited Financial Statements for the Fiscal Year Ended April 30, 1996.... 6
Appendix A:
Management of the Trust............................................. A-1
Investment Advisory and Other Services.............................. A-5
Portfolio Transactions.............................................. A-7
Net Asset Value..................................................... A-9
Dividends........................................................... A-10
Taxes............................................................... A-11
Federal........................................................ A-11
Massachusetts Income Tax....................................... A-13
Other Taxes.................................................... A-13
Distributor......................................................... A-14
Yield Information................................................... A-15
General Information................................................. A-16
</TABLE>
The date of this Statement of Additional Information and the Prospectus is
January , 1997.
<PAGE> 71
INVESTMENT OBJECTIVES AND POLICIES
Reference is made to "The Institutional Fund and Its Objectives" in the
Prospectus for a discussion of the investment objectives and policies of the
Institutional Fund.
All investments of the Institutional Fund will be in securities with
remaining maturities of up to 762 days (25 months) in the case of government
securities and 397 days (13 months) in the case of all other securities. The
dollar weighted average maturity of the Institutional Fund's portfolio will be
90 days or less.
The Institutional Fund may invest in obligations issued by U.S. banks,
foreign branches or subsidiaries of U.S. banks or U.S. or foreign branches or
subsidiaries of foreign banks. Investment in obligations of foreign branches or
subsidiaries of U.S. banks or of foreign banks may involve different risks from
the risks of investing in obligations of U.S. banks. Such risks include adverse
political and economic developments, the possible imposition of withholding
taxes on interest income payable on such obligations, the possible seizure or
nationalization of foreign deposits and the possible establishment of exchange
controls or other foreign governmental laws or restrictions which might
adversely affect the payment of principal and interest. Generally, the issuers
of such obligations are subject to fewer U.S. regulatory requirements than are
applicable to U.S. banks. Foreign branches or subsidiaries of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than U.S.
banks. U.S. branches or subsidiaries of foreign banks are subject to the reserve
requirements of the state in which they are located. There may be less publicly
available information about a U.S. branch or subsidiary of a foreign bank or a
foreign bank than about a U.S. bank, and such branches or subsidiaries may not
be subject to the same accounting, auditing and financial record keeping
standards and requirements as U.S. banks. Evidence of ownership of obligations
of foreign branches or subsidiaries of U.S. banks or of foreign banks may be
held outside of the United States and the Institutional Fund may be subject to
the risks associated with the holding of such property overseas. Any such
obligations of the Institutional Fund held overseas will be held by foreign
branches of the custodian for the Institutional Fund's portfolio securities or
by other U.S. or foreign banks under subcustodian arrangements complying with
the requirements of the Investment Company Act of 1940.
Fund Asset Management, L.P. ("FAM") will consider the above factors in
making investments in such obligations and will not knowingly purchase
obligations which, at the time of purchase, are subject to exchange controls or
withholding taxes. Generally, the Institutional Fund will limit its investments
in obligations of U.S. branches or subsidiaries of foreign banks to obligations
of banks organized in Canada, France, Germany, Japan, the Netherlands,
Switzerland, the United Kingdom and other industrialized nations.
The Institutional Fund's investments in commercial paper (including
short-term promissory notes issued by corporations, partnerships, trusts and
other entities, whether or not secured) will be rated in one of the two highest
rating categories for short-term debt obligations by a nationally recognized
statistical rating organization (an "NRSRO") or, if not rated, will be of
comparable quality as determined by the Trustees of the Trust. The Institutional
Fund's investments in bonds (which must have remaining maturities at the date of
purchase of 397 days (13 months) or less) will be in issuers which have received
from an NRSRO a rating, with respect to a class of short-term debt obligations
that is comparable in priority and security with the investment to be purchased
by the Fund, in one of the two highest rating categories for short-term
obligations or, if not rated, will be of comparable quality as determined by the
Trustees. Currently there are six NRSROs: Duff & Phelps
Institutional Fund
2
<PAGE> 72
Credit Ratings Co., Fitch Investors Services, Inc., IBCA Limited and its
affiliate IBCA Inc., Moody's Investors Service, Inc., Standard & Poor's Ratings
Group and Thomson Bankwatch, Inc. See the section of the Prospectus captioned
"Additional Information-Commercial Paper, Bank Money Instrument and Bond
Ratings."
The Institutional Fund may also invest in U.S. dollar-denominated
commercial paper and other short-term obligations issued by foreign entities.
Such investments are subject to quality standards similar to those applicable to
investments in comparable obligations of domestic issuers. Investments in
foreign entities in general involve the same risks as those described in
connection with investments in Eurodollar and Yankeedollar obligations.
As described in the Prospectus, the Institutional Fund may invest in
participations in, or bonds and notes backed by, pools of mortgages, or credit
card, automobile or other types of receivables, with remaining maturities of no
more than 397 days (13 months). These structured financings will be supported by
sufficient collateral and other credit enhancements, including letters of
credit, insurance, reserve funds and guarantees by third parties, to enable such
instruments to obtain the requisite quality rating by a nationally recognized
statistical rating organization, as described above.
Variable amount master notes, described in the Prospectus, permit a series
of short-term borrowings under a single note. The lender has the right to
increase the amount under the note at any time up to the full amount provided by
the note agreement. In addition the lender has the right to reduce the amount of
outstanding indebtedness.
Forward or firm commitments for the purchase or sale of securities may be
entered into by the Institutional Fund as described in the Prospectus. The
purchase of the underlying securities will be recorded on the date the
Institutional Fund enters into the commitment and the value of the security will
thereafter be reflected in the calculation of the Institutional Fund's net asset
value. A separate account of the Institutional Fund will be established with
State Street Bank and Trust Company, the Institutional Fund's custodian,
consisting of cash or other liquid securities having a market value at all times
until the delivery at least equal to the amount of the forward purchase
commitment. As stated in the Prospectus, the Institutional Fund may dispose of a
commitment prior to settlement. Risks relating to these trading practices are
briefly described in the Prospectus.
In addition to the investment restrictions set forth in the Prospectus, the
Institutional Fund has adopted the following investment restrictions, none of
which may be changed without the approval of a majority of the Institutional
Fund's outstanding shares, which for this purpose means the vote of (i) 67% or
more of the Institutional Fund's shares present at a meeting, if the holders of
more than 50% of the outstanding shares of the Institutional Fund are present or
represented by proxy, or (ii) more than 50% of the Institutional Fund's
outstanding shares, whichever is less. The Institutional Fund may not:
(1) Purchase common stocks or other voting securities, preferred
stocks, warrants, other equity securities, securities with legal or
contractual restrictions on resale, state bonds or municipal bonds.
(2) Make loans, except through the purchase of debt obligations in
accordance with the Institutional Fund's investment objective and policies.
Institutional Fund
3
<PAGE> 73
(3) Borrow money, except from banks for extraordinary or emergency
purposes and then only in amounts up to 10% of the value of the
Institutional Fund's net assets, taken at cost, at the time the borrowing
is made. This borrowing provision is included solely to facilitate the
orderly sale of portfolio securities to accommodate abnormally heavy
redemption requests if they should occur and is not for investment
purposes. (As a matter of operating policy, the Institutional Fund will not
purchase securities when outstanding borrowings exceed 5% of the
Institutional Fund's asset value.)
(4) Mortgage, pledge or hypothecate any assets except in an amount of
up to 15% of the value of the Institutional Fund's net assets, taken at
cost, but only to secure borrowings for extraordinary or emergency
purposes.
(5) Purchase or sell real estate, real estate investment trust
securities, commodities, commodity contracts or oil and gas interests.
(6) Acquire securities of other investment companies.
(7) Act as an underwriter of securities.
(8) Purchase securities on margin, make short sales of securities or
maintain a short position.
As a matter of operating policy, the Trustees of the Trust have determined
that the Institutional Fund will not write put or call options.
For purposes of the 25% limitation on investment or 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.
Institutional Fund
4
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
Merrill Lynch Funds For Institutions Series:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Merrill Lynch Funds For Institutions
Series (the "Trust"), consisting of the Merrill Lynch Institutional Fund,
Merrill Lynch Government Fund, Merrill Lynch Treasury Fund, and Merrill Lynch
Institutional Tax-Exempt Fund (the "Funds") as of April 30, 1996, the related
statements of operations for the year then ended, the statements of changes in
net assets for the years ended April 30, 1996 and 1995, and the financial
highlights for each of the respective fiscal periods then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and 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 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 the securities owned at
April 30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds of the Merrill Lynch Funds For Institutions Series at April 30,
1996, the results of their operations, the changes in their net assets, and
their financial highlights for each of the respective fiscal periods then ended
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachussetts
May 24, 1996
Institutional Fund
5
<PAGE> 75
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ----------------- ----------- ---------------------------------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
U.S. $
Government & $ 75,000,000 U.S. Treasury Bills 4.54 % 02/06/97 71,949,979
Agency 50,000,000 U.S. Treasury Bills 4.56 02/06/97 47,966,653
Issues -- 9.8% 50,000,000 U.S. Treasury Bills 4.59 02/06/97 47,966,653
25,000,000 U.S. Treasury Notes 6.50 09/30/96 25,113,283
50,000,000 U.S. Treasury Notes 6.87 10/31/96 50,351,565
79,000,000 U.S. Treasury Notes 5.25 12/31/97 78,086,562
190,000,000 U.S. Treasury Notes 5.00 01/31/98 186,793,750
20,000,000 Federal Farm Credit Banks 5.52 06/03/96 20,000,000
30,000,000 Federal Farm Credit Banks 5.10 08/01/96 29,976,600
10,900,000 Federal Home Loan Banks 6.03 10/24/97 10,879,562
12,000,000 Federal Home Loan Banks 6.04 11/03/97 11,968,128
20,480,000 Federal Home Loan Banks 5.78 12/22/97 20,364,800
25,250,000 Federal Home Loan Banks 6.19 05/08/98 25,182,936
35,000,000 Federal Home Loan Mortgage Corp. 6.00 05/13/96 34,998,699
Federal National Mortgage
25,000,000 Assoc. 5.19 01/08/98 24,656,250
Federal National Mortgage Assoc.
57,000,000 D/N 4.98 06/04/96 56,731,910
- ----------------- --------- -------------------------------- ------ ----- -----------
Total U.S. Government & Agency
Issues (Cost $748,843,865) 742,987,330
- ----------------- --------- -------------------------------- ------ ----- -----------
U.S. 25,000,000 Federal Farm Credit Banks 5.31 02/06/98 24,987,539
Government 25,000,000 Federal Home Loan Banks 5.75 05/10/96 24,999,878
Agency 48,000,000 Federal Home Loan Banks 5.71 06/17/96 48,000,000
Issues -- 20,000,000 Federal Home Loan Banks 5.71 06/21/96 20,000,000
Variable 10,000,000 Federal Home Loan Banks 5.81 12/23/96 10,003,649
Rate -- 26.7% 35,270,000 Federal Home Loan Banks 5.83 01/31/97 35,299,174
34,105,000 Federal Home Loan Banks 5.78 02/03/97 34,100,069
35,000,000 Federal Home Loan Banks 5.78 02/10/97 35,000,000
14,000,000 Federal Home Loan Banks 5.60 01/26/98 13,921,154
10,100,000 Federal Home Loan Mortgage Corp. 5.58 05/06/96 10,100,000
Federal National Mortgage
50,000,000 Assoc. 5.23 05/10/96 49,999,406
Federal National Mortgage
70,000,000 Assoc. 5.58 05/13/96 70,000,000
Federal National Mortgage
60,000,000 Assoc. 5.58 05/24/96 60,000,000
Federal National Mortgage
160,000,000 Assoc. 5.37 06/03/96 160,010,317
Federal National Mortgage
100,000,000 Assoc. 5.27 07/05/96 99,982,904
Federal National Mortgage
32,000,000 Assoc. 5.25 07/18/96 31,994,703
Federal National Mortgage
70,000,000 Assoc. 5.19 08/08/96 69,989,018
Federal National Mortgage
30,000,000 Assoc. 5.58 08/13/96 30,000,000
Federal National Mortgage
15,000,000 Assoc. 5.70 10/04/96 14,996,634
</TABLE>
Institutional Fund
6
<PAGE> 76
Merrill Lynch Institutional Fund
Schedule of Investments -- Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ----------------- --------- -------------------------------- ------ ----- -----------
<S> <C> <C> <C> <C> <C>
U.S. Federal National Mortgage
Government $ 30,000,000 Assoc. 5.85 % 10/07/96 $ 30,016,817
Agency Federal National Mortgage
Issues -- 110,000,000 Assoc. 5.26 10/11/96 110,000,000
Variable Federal National Mortgage
Rate 38,000,000 Assoc. 5.35 11/04/96 38,000,000
(continued) Federal National Mortgage
75,000,000 Assoc. 5.21 12/19/96 74,965,604
Federal National Mortgage
50,000,000 Assoc. 5.85 02/14/97 50,047,700
Federal National Mortgage
50,000,000 Assoc. 5.35 02/21/97 50,000,000
Federal National Mortgage
62,000,000 Assoc. 5.33 04/15/97 61,936,651
Federal National Mortgage
75,000,000 Assoc. 5.26 04/22/97 74,936,308
Federal National Mortgage
135,000,000 Assoc. 5.31 05/22/97 134,903,023
89,900,000 Student Loan Marketing Assoc. 5.31 05/14/96 89,902,074
28,000,000 Student Loan Marketing Assoc. 5.28 07/19/96 28,002,028
75,000,000 Student Loan Marketing Assoc. 5.33 08/08/96 75,000,000
15,000,000 Student Loan Marketing Assoc. 5.61 08/16/96 14,993,746
13,000,000 Student Loan Marketing Assoc. 5.58 08/22/96 13,012,146
101,500,000 Student Loan Marketing Assoc. 5.28 09/23/96 101,496,554
65,000,000 Student Loan Marketing Assoc. 5.35 10/04/96 65,000,000
14,100,000 Student Loan Marketing Assoc. 5.50 11/27/96 14,100,000
80,550,000 Student Loan Marketing Assoc. 5.34 12/20/96 80,545,579
20,000,000 Student Loan Marketing Assoc. 5.49 01/14/97 20,000,000
25,000,000 Student Loan Marketing Assoc. 5.70 01/21/97 25,013,211
18,940,000 Student Loan Marketing Assoc. 5.55 02/14/97 18,956,105
18,000,000 Student Loan Marketing Assoc. 5.45 01/27/98 18,032,074
- ----------------- --------- -------------------------------- ------ ----- -----------
Total U.S. Government Agency
Issues -- Variable Rate
(Cost $2,032,244,065) 2,032,244,065
- ----------------- --------- -------------------------------- ------ ----- -----------
Euro Australia and New Zealand
Certificates of Banking
Deposit -- 1.6% 25,000,000 Group Ltd., London 5.02 08/20/96 24,971,724
Bayerische Hypotheken-und
50,000,000 Wechsel-Bank AG, London 5.10 07/05/96 49,972,723
Bayerische Vereinsbank AG,
45,000,000 London 5.35 07/08/96 44,993,028
- ----------------- --------- -------------------------------- ------ ----- -----------
Total Euro Certificates of
Deposit (Cost $120,004,730) 119,937,475
- ----------------- --------- -------------------------------- ------ ----- -----------
Yankee Hongkong & Shanghai Banking
Certificates of 100,000,000 Corp., NY 5.35 05/06/96 100,000,000
Deposit -- 4.6% 250,000,000 Societe Generale, NY 5.37 06/07/96 250,002,550
- ----------------- --------- -------------------------------- ------ ----- -----------
Total Yankee Certificates of
Deposit (Cost $350,002,550) 350,002,550
</TABLE>
See Notes to Financial Statements
Institutional Fund
7
<PAGE> 77
Merrill Lynch Institutional Fund
Schedule of Investments -- Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ----------------- --------- -------------------------------- ------ ----- -----------
<S> <C> <C> <C> <C> <C>
Time
Deposits --
3.0% $225,000,000 Society National Bank (Cayman) 5.37 % 05/01/96 $225,000,000
- ----------------- --------- -------------------------------- ------ ----- -----------
Total Time Deposits
(Cost $225,000,000) 225,000,000
- ----------------- --------- -------------------------------- ------ ----- -----------
Bank Notes -- 125,000,000 Bank One, Texas N.A. 5.31 09/05/96 124,983,266
Variable 100,000,000 Key Bank of New York 5.30 08/16/96 99,985,903
Rate -- 2.9%
-------------------------------------------------------------------------------------------------------------
Total Bank Notes -- Variable
Rate
(Cost $224,969,169) 224,969,169
- ----------------- --------- -------------------------------- ------ ----- -----------
Corporate Abbey National Treasury Services
Notes -- 0.7% 35,000,000 PLC 6.45 05/15/96 34,999,612
18,800,000 Morgan (J.P.) Securities Inc. 5.75 08/07/96 18,789,815
- ----------------- --------- -------------------------------- ------ ----- -----------
Total Corporate Notes
(Cost $53,793,823) 53,789,427
- ----------------- --------- -------------------------------- ------ ----- -----------
Corporate Notes 39,000,000 Bear Stearns & Co., Inc. 5.62 05/22/96 39,002,508
-- 20,000,000 Bear Stearns & Co., Inc. 5.49 09/20/96 20,001,860
Variable 25,000,000 Beta Finance Inc. 5.37 08/26/96 25,000,000
Rate -- 10.5% 35,000,000 Beta Finance Inc. 5.38 09/16/96 35,000,000
30,000,000 Beta Finance Inc. 5.38 09/25/96 29,998,818
25,000,000 CIT Group Holdings, Inc. 5.30 09/20/96 24,990,005
50,000,000 CIT Group Holdings, Inc. 5.31 09/26/96 49,982,454
33,000,000 CIT Group Holdings, Inc. 5.49 11/14/96 33,014,582
70,000,000 CIT Group Holdings, Inc. 5.30 02/06/97 69,958,349
75,000,000 PHH Corp. 5.34 01/23/97 74,984,029
25,000,000 PHH Corp. 5.36 02/10/97 24,992,858
Short Term Card Account
150,000,000 Trust 1995-1 5.51 01/15/97 149,989,471
51,000,000 SMM Trust 1995-K 5.52 06/14/96 51,000,000
150,000,000 SMM Trust 1995-K 5.50 01/08/97 149,990,233
25,000,000 Toyota Motor Credit Corp. 5.33 09/13/96 24,993,739
- ----------------- --------- -------------------------------- ------ ----- -----------
Total Corporate Notes --
Variable Rate (Cost
$802,898,906) 802,898,906
- ----------------- --------- -------------------------------- ------ ----- -----------
Master Notes -- 231,982,000 Goldman Sachs Group, L.P. 5.33 10/08/96 231,982,000
Variable 50,000,000 Goldman Sachs Group, L.P. 5.38 11/08/96 50,000,000
Rate -- 3.7%
- ----------------- --------- -------------------------------- ------ -----
Total Master Notes -- Variable
Rate (Cost $281,982,000) 281,982,000
</TABLE>
See Notes to Financial Statements
Institutional Fund
8
<PAGE> 78
Merrill Lynch Institutional Fund
Schedule of Investments -- Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ----------------- --------- -------------------------------- ------ ----- -----------
<S> <C> <C> <C> <C> <C>
Commercial $ 11,753,000 Allomon Funding Corp. 5.35% 05/03/96 $ 11,749,507
Paper -- 33.5% 11,046,000 Alpine Securitization Corp. 5.35 05/15/96 11,023,018
47,864,000 Alpine Securitization Corp. 5.30 05/17/96 47,751,254
16,090,000 Alpine Securitization Corp. 5.30 06/18/96 15,976,297
25,000,000 American Express Credit Corp. 4.88 08/09/96 24,630,555
40,000,000 Ameritech Capital Funding Corp. 5.30 07/03/96 39,626,900
70,000,000 Caisse Des Depots Et
Consignations 5.35 05/08/96 69,927,181
20,000,000 Corporate Asset Funding Co.
Inc. 5.30 05/17/96 19,952,889
44,000,000 Corporate Receivables Corp. 5.32 05/14/96 43,915,471
50,000,000 Corporate Receivables Corp. 5.35 05/21/96 49,851,389
20,900,000 Corporate Receivables Corp. 5.33 05/29/96 20,813,358
8,100,000 CSW Credit, Inc. 5.34 05/16/96 8,081,977
37,090,000 Deer Park Refining Limited
Partnership 5.34 05/03/96 37,078,997
60,525,000 Eiger Capital Corp. 5.37 05/02/96 60,515,972
40,000,000 Eiger Capital Corp. 5.32 05/20/96 39,887,689
21,500,000 Eureka Securitization Inc. 5.30 05/23/96 21,430,364
30,000,000 Eureka Securitization Inc. 5.32 06/05/96 29,844,833
45,000,000 Eureka Securitization Inc. 5.31 07/01/96 44,593,587
49,760,000 Falcon Asset Securitization
Corp. 5.35 05/13/96 49,671,261
15,925,000 Falcon Asset Securitization
Corp. 5.32 05/21/96 15,877,933
25,000,000 Falcon Asset Securitization
Corp. 5.30 05/23/96 24,919,028
150,000,000 Ford Motor Credit Co. 5.32 05/06/96 149,889,167
100,000,000 Ford Motor Credit Co. 5.32 05/08/96 99,896,556
100,000,000 Ford Motor Credit Co. 5.30 05/31/96 99,558,333
120,000,000 General Motors Acceptance Corp. 5.39 05/06/96 119,910,167
25,000,000 General Motors Acceptance Corp. 5.13 05/13/96 24,957,250
85,000,000 General Motors Acceptance Corp. 5.40 05/16/96 84,808,750
50,000,000 Goldman Sachs Group, L.P. 5.30 05/31/96 49,779,167
76,000,000 Greenwich Funding Corp. 5.35 05/15/96 75,841,878
20,082,000 Greenwich Funding Corp. 5.30 05/15/96 20,040,609
18,969,000 Greenwich Funding Corp. 5.33 06/14/96 18,845,427
45,000,000 International Lease Finance
Corp. 5.32 05/23/96 44,853,700
75,325,000 International Securitization
Corp. 5.35 05/21/96 75,101,117
</TABLE>
See Notes to Financial Statements
Institutional Fund
9
<PAGE> 79
Merrill Lynch Institutional Fund
Schedule of Investments -- Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ----------------- --------- -------------------------------- ------ ----- -----------
<S> <C> <C> <C> <C> <C>
Commercial $24,000,000 International Securitization
Paper Corp. 5.32 % 05/21/96 $ 23,929,067
(continued) 50,000,000 International Securitization
Corp. 5.32 05/22/96 49,844,833
41,000,000 Kingdom of Sweden 5.50 05/01/96 41,000,000
17,000,000 Kingdom of Sweden 4.98 07/08/96 16,828,848
20,000,000 Korea Development Bank 5.10 05/08/96 19,980,167
30,000,000 Korea Development Bank 5.30 07/25/96 29,622,458
20,031,000 Matterhorn Capital Corp. 5.33 05/13/96 19,995,412
40,000,000 McKenna Triangle National Corp. 5.30 07/19/96 39,532,144
10,214,000 Monte Rosa Capital Corp. 5.31 05/20/96 10,185,375
45,908,000 Monte Rosa Capital Corp. 5.31 05/22/96 45,765,800
40,000,000 National Australia Funding (DE)
Inc. 5.33 05/09/96 39,952,622
10,000,000 National Australia Funding (DE)
Inc. 5.44 05/29/96 9,957,689
20,000,000 National Fleet Funding Corp. 5.20 05/03/96 19,994,222
50,000,000 National Fleet Funding Corp. 5.30 05/29/96 49,793,889
100,000,000 New Center Asset Trust 5.33 05/15/96 99,792,722
25,000,000 Nomura Holding America, Inc. 5.20 05/08/96 24,974,722
25,000,000 Nomura Holding America, Inc. 5.35 05/31/96 24,888,542
36,075,000 Preferred Receivables Funding
Corp. 5.30 05/28/96 35,931,602
13,400,000 Riverwoods Funding Corp. 5.32 05/17/96 13,368,316
43,300,000 Sheffield Receivables Corp. 5.33 05/03/96 43,287,178
35,950,000 Sheffield Receivables Corp. 5.35 05/15/96 35,875,204
31,325,000 Svenska Handelsbanken Inc. 5.10 05/08/96 31,293,936
31,136,000 Svenska Handelsbanken Inc. 5.35 05/10/96 31,094,356
40,000,000 Svenska Handelsbanken Inc. 5.10 05/13/96 39,932,000
9,200,000 Toshiba International Finance
(U.K.) PLC 5.32 07/15/96 9,097,842
18,850,000 Unilever Capital Corp. 5.30 05/10/96 18,825,024
50,000,000 Western Australia Treasury
Corp. 4.90 08/08/96 49,268,500
15,000,000 WCP Funding Inc. 5.18 05/31/96 14,935,250
25,000,000 WCP Funding Inc. 5.33 05/31/96 24,888,958
32,460,000 Windmill Funding Corp. 5.35 05/10/96 32,416,585
51,632,000 Windmill Funding Corp. 5.35 05/20/96 51,486,211
- ----------------- --------- -------------------------------- ------ ----- -----------
Total Commercial Paper 2,548,341,055
(Cost $2,548,449,175)
</TABLE>
See Notes to Financial Statements
Institutional Fund
10
<PAGE> 80
Merrill Lynch Institutional Fund
Schedule of Investments--Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ----------------- --------- -------------------------------- ------ ----- -----------
<S> <C> <C> <C> <C> <C>
Repurchase $215,000,000
Agreements**-- Lehman Brothers Inc., purchased
2.8% on 04/30/96 5.40% 05/01/96 $ 215,000,000
- ----------------- --------- -------------------------------- ------ ----- -----------
Repurchase Agreements
(Cost $215,000,000) 215,000,000
- ----------------- --------- -------------------------------- ------ ----- -----------
Total Investments -- 99.8%
(Cost $7,603,188,283) 7,597,151,977
- ----------------- --------- -------------------------------- ------ ----- -----------
Other Assets Less Liabilities
-- 0.2% 17,973,899
- ----------------- --------- -------------------------------- ------ ----- -----------
Net Assets -- Equivalent to
$1.00
Per Share on 7,621,162,182
Shares of Beneficial Interest
Outstanding -- 100.0% $7,615,125,876
- ----------------- --------- -------------------------------- ------ ----- -----------
</TABLE>
Note--Costs for Federal income tax purposes are the same as those shown above.
At April 30, 1996 gross and net unrealized depreciation amounted to $6,036,306.
*Commercial Paper and some U.S. Government and Agency Issues are traded on a
discount basis; the interest rate shown is the discount rate paid at the time
of purchase by the Fund. Other securities bear interest at the rates shown,
payable at fixed dates or upon maturity; the rates shown are the rates in
effect at April 30, 1996. For variable rate instruments, the next date on which
the interest rate is to be adjusted is deemed the maturity date for valuation.
**Repurchase Agreements are fully collateralized by U.S. Government and Agency
Obligations.
D/N--Discount Notes
See Notes to Financial Statements
Institutional Fund
11
<PAGE> 81
Merrill Lynch Institutional Fund
Statement of Assets and Liabilities
April 30, 1996
<TABLE>
<S> <C>
Assets:
Total investments at value (identified cost $7,603,188,283) (Note 1a) $7,597,151,977
Cash 10,207,706
Interest receivable 37,596,624
Receivable for investments sold 24,933,679
Prepaid expenses 177,355
-----------
Total assets 7,670,067,341
-----------
Liabilities:
Payable for investments purchased 50,153,142
Dividends payable 4,564,252
Accrued expenses 224,071
-----------
Total liabilities 54,941,465
-----------
Net Assets: (Equivalent to $1.00 per share, offering and redemption price,
based on 7,621,162,182 shares of beneficial interest outstanding) $7,615,125,876
-----------
</TABLE>
Merrill Lynch Institutional Fund
Statement of Operations
For the Year Ended April 30, 1996
<TABLE>
<S> <C> <C>
Investment Income:
Income:
Interest and discount earned (Note 1d) $464,532,053
-------------
Expenses:
Investment advisory fee (Note 2) $ 26,191,407
Registration fees 1,490,351
Dividend and transfer agency fees 724,627
Accounting and custodian services 579,649
Legal and audit fees 164,224
Printing and shareholder reports 96,679
Trustees' fees (Note 5) 93,069
Insurance 45,086
Miscellaneous 33,924
-------------
Total expenses 29,419,016
Waived investment advisory fee (Note 2) (10,263,924) 19,155,092
------------- -------------
Net investment income 445,376,961
Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain from investment transactions 2,709,598
Net unrealized depreciation of investments (6,134,973)
-------------
Net realized and unrealized loss from investments (3,425,375)
-------------
Net Increase in Net Assets Resulting From Operations $441,951,586
-------------
</TABLE>
See Notes to Financial Statements
Institutional Fund
12
<PAGE> 82
Merrill Lynch Institutional
Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30,
1996 1995
- -------------------------------------------------------- --------- -----------
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income $ 445,376,961 $ 251,886,269
Net realized gain from investment transactions 2,709,598 1,934,054
Net unrealized appreciation (depreciation) of
investments (6,134,973) 2,746,629
------------- -------------
Net increase in net assets resulting from operations 441,951,586 256,566,952
Total declared as dividends to shareholders (Note 4) (448,086,559) (253,820,323)
Capital share transactions (Note 3) 1,041,174,836 2,802,217,964
------------- -------------
Net increase in net assets 1,035,039,863 2,804,964,593
Net Assets:
Beginning of year 6,580,086,013 3,775,121,420
------------- -------------
End of year $ 7,615,125,876 $ 6,580,086,013
============= =============
</TABLE>
Merrill Lynch Institutional Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended April 30,
1996 1995 1994 1993 1992
- -------------------------------------------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net investment income .056 .050 .031 .033 .050
Net realized and unrealized gain on
investments -- -- -- .001 --
------- ------- ------- ------- ---------
Total from investment operations .056 .050 .031 .034 .050
Less Distributions:
Dividends from net investment income (.056) (.050) (.031) (.034) (.050)
------- ------- ------- ------- ---------
Net Asset Value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ---------
Total Return 5.81 % 5.11 % 3.20 % 3.46 % 5.12 %
Ratios/Supplemental Data:
Net Assets, end of year (000) $7,615,126 $6,580,086 $3,775,121 $4,712,639 $2,156,878
Ratio of expenses to average net assets
(before waiver) .37 % .37 % .37 % .38 % .40 %
Ratio of expenses to average net assets
(after waiver) .24 % .24 % .24 % .26 % --
Ratio of net investment income, including
realized and unrealized gains and losses,
to average net assets (before waiver) 5.42 % 5.00 % 2.91 % 3.29 % 4.99 %
Ratio of net investment income, including
realized and unrealized gains and losses, --
to average net assets (after waiver) 5.55 % 5.13 % 3.04 % 3.41 %
</TABLE>
See Notes to Financial Statements
Institutional Fund
13
<PAGE> 83
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements
1. Significant Accounting Policies
Merrill Lynch Funds For Institutions Series (the "Trust") was organized as a
Massachusetts business trust on May 7, 1987 and is registered under the
Investment Company Act of 1940 as a diversified, open-end management company.
On February 18, 1994 Merrill Lynch Institutional Tax-Exempt Fund was
reorganized as a separate series of the Trust. The Trust has a fiscal year end
of April 30. The following is a summary of significant accounting policies
consistently followed by the Trust in conformity with generally accepted
accounting principles.
(a) The value of the Institutional, Government and Treasury Fund portfolio
securities is determined on the basis of fair value as determined in good faith
by the Trustees of the Trust. In determining fair value, securities for which
market quotations are readily available are valued at market value. Other
securities, if any, are valued at their fair value in the best judgment of Fund
Asset Management, L.P., ("FAM") under procedures established by, and under the
supervision of, the Trustees. Securities with remaining maturities of 60 days
or less are valued by use of the amortized cost method. Institutional
Tax-Exempt Fund 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 is deemed to be the demand notice payment period.
(b) It is the Trust'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.
(e) Deferred organization expenses are amortized over a period not exceeding
five years. Prepaid registration fees are charged to income as the related
shares are sold.
(f) Repurchase agreements--The Institutional Fund and the Government Fund
invest in U.S. Government & Agency securities pursuant to repurchase agreements
with member banks of the Federal Reserve System or primary dealers in U.S.
Government securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price. The Trust
takes possession of the underlying securities, marks to market such securities
daily and, if necessary, receives additional securities to ensure that the
contract is adequately collateralized.
(g) During the year ended April 30, 1996, Merrill Lynch Institutional
Tax-Exempt Fund reclassified amounts to reflect a decrease of $5,037 in both
accumulated capital losses and undistributed net investment income as a result
of permanent differences arising from different treatments of market discount
for book and tax purposes.
2. Investment Advisory Fees and Other
Transactions with Affiliates
Fund Asset Management, L.P., a subsidiary of Merrill Lynch & Co., Inc.,
provides investment advisory and corporate administrative services to the Trust
for a fee, subject to certain limitations, at the following annual rates:
Institutional Fund
14
<PAGE> 84
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
Percentage of Average Daily Net Assets
----------------------------------------
Institutional Fund .40% up to and including $250,000,000
plus .375% over $250,000,000 up to and
including $500,000,000
plus .35% over $500,000,000 up to and
including $750,000,000
plus .325% over $750,000,000
Government Fund
and Treasury Fund .35% up to and including $500,000,000
plus .335% over $500,000,000 up to and
including $750,000,000
plus .32% over $750,000,000 up to and
including $1,000,000,000
plus .30% over $1,000,000,000
Institutional
Tax-Exempt Fund .45% up to and including $1,500,000,000
plus .425% over $1,500,000,000 up to and
including $2,000,000,000
plus .40% over $2,000,000,000
FAM has agreed to waive a portion of its advisory fees. The effective fee
payable to FAM will be at the annual rate of 0.20% of each Fund's average daily
net assets. FAM may discontinue waiver of the fee in whole or in part at any
time without notice.
For the year ended April 30, 1996 FAM waived a portion of its fees
amounting to $10,263,924 for the Institutional Fund, $2,066,757 for the
Government Fund, $765,429 for the Treasury Fund and $1,171,941 for the
Institutional Tax-Exempt Fund.
All officers and certain trustees of the Trust are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest in the Institutional Fund, Government Fund and
Treasury Fund ($.01 par value) and Institutional Tax-Exempt Fund ($.10 par
value) of a single class. At April 30, 1996, capital paid-in aggregated
$7,621,162,182 for Institutional Fund, $1,643,816,378 for Government Fund,
$514,133,661 for Treasury Fund and $667,324,370 for Institutional Tax-Exempt
Fund. Transactions in shares at a constant net asset value of $1.00 per share
were as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Institutional Fund 1996 1995
-------------- --------------
<S> <C> <C>
Shares sold 81,859,341,129 63,113,089,823
Shares issued to shareholders
in reinvestment of dividends 360,863,781 198,199,152
-------------- --------------
Total 82,220,204,910 63,311,288,975
Shares redeemed 81,179,030,074 60,509,071,011
-------------- --------------
Net increase 1,041,174,836 2,802,217,964
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Government Fund 1996 1995
-------------- --------------
<S> <C> <C>
Shares sold 11,319,796,312 8,314,763,207
Shares issued to shareholders
in reinvestment of dividends 86,908,080 65,230,079
-------------- --------------
Total 11,406,704,392 8,379,993,286
Shares redeemed 11,363,934,579 8,313,348,347
-------------- --------------
Net increase 42,769,813 66,644,939
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------
Treasury Fund 1996 1995
------------- -------------
<S> <C> <C>
Shares sold 2,984,431,147 2,288,760,430
Shares issued to shareholders
in reinvestment of dividends 25,665,244 14,088,128
------------- -------------
Total 3,010,096,391 2,302,848,558
Shares redeemed 2,838,827,671 2,226,955,175
------------- -------------
Net increase 171,268,720 75,893,383
============= =============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------
Institutional
Tax-Exempt Fund 1996 1995
------------- -------------
<S> <C> <C>
Shares sold 3,532,959,162 2,737,285,871
Shares issued to shareholders
in reinvestment of dividends 15,674,384 9,666,260
------------- -------------
Total 3,548,633,546 2,746,952,131
Shares redeemed 3,285,337,991 2,733,284,809
------------- -------------
Net increase 263,295,555 13,667,322
============= =============
</TABLE>
Institutional Fund
15
<PAGE> 85
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
4. Distributions
The Funds declare dividends daily, pay dividends monthly and automatically
reinvest such dividends in additional Fund shares at net asset value, unless
shareholders request payment in cash. Dividends for the Institutional,
Government and Treasury Funds are declared from the total of net investment
income, plus or minus realized gains or losses, if any, on investments.
Dividends for the Institutional Tax-Exempt Fund are declared from net
investment incomeexcluding 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 April 30, 1996, the Institutional Tax-Exempt Fund had net capital loss
carryovers of $254,248 of which $96,688 expire in the year 2001, $17,520 expire
in 2002 and $140,040 expire in 2003.
5. Trustees' Fees
Each Trustee who is not affiliated with the Trust or its adviser is paid an
annual fee of $24,000 by the Trust. Trustees' fees are allocated among the four
series of the Trust based on the net assets under management.
16
<PAGE> 86
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
FOR GENERAL INFORMATION AND PURCHASES CALL 617-357-1460 OR TOLL FREE
800-225-1576
Merrill Lynch Premier Institutional Fund is a no-load money fund whose
objectives are maximum current income consistent with liquidity and the
maintenance of a portfolio of high quality short-term "money market"
instruments. The Premier Institutional Fund is designed primarily for
institutions as an economical and convenient means for the investment of
short-term funds. The Premier Institutional Fund is a separate series of Merrill
Lynch Funds For Institutions Series (the "Trust"), a diversified, open-end
management investment company.
The Statement of Additional Information of the Premier Institutional Fund
is not a prospectus and should be read in conjunction with the Prospectus of the
Premier Institutional Fund (the "Prospectus") which has been filed with the
Securities and Exchange Commission and is available upon oral or written request
without charge. Copies of the Prospectus can be obtained by calling or by
writing the Premier Institutional Fund at the above telephone number or address.
This Statement of Additional Information has been incorporated by reference into
the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies......................................... 2
Appendix A:
Management of the Trust............................................... A-1
Investment Advisory and Other Services................................ A-5
Portfolio Transactions................................................ A-7
Net Asset Value....................................................... A-9
Dividends............................................................. A-10
Taxes................................................................. A-11
Federal.......................................................... A-11
Massachusetts Income Tax......................................... A-13
Other Taxes...................................................... A-13
Distributor........................................................... A-14
Yield Information..................................................... A-15
General Information................................................... A-16
</TABLE>
The date of this Statement of Additional Information and the Prospectus is
January , 1997.
<PAGE> 87
INVESTMENT OBJECTIVES AND POLICIES
Reference is made to "The Premier Institutional Fund and Its Objectives" in
the Prospectus for a discussion of the investment objectives and policies of the
Premier Institutional Fund.
All investments of the Premier Institutional Fund will be in securities
with remaining maturities of up to 762 days (25 months) in the case of
government securities and 397 days (13 months) in the case of all other
securities. The dollar weighed average maturity of the Premier Institutional
Fund portfolio will be 90 days or less.
The Premier Institutional Fund may invest in obligations issued by U.S.
banks, foreign branches or subsidiaries of U.S. banks or U.S. or foreign
branches or subsidiaries of foreign banks. Investment in obligations of foreign
branches or subsidiaries of U.S. banks or of foreign banks may involve different
risks from the risks of investing in obligations of U.S. banks. Such risks
include adverse political and economic developments, the possible imposition of
withholding taxes on interest income payable on such obligations, the possible
seizure or nationalization of foreign deposits and the possible establishment of
exchange controls or other foreign governmental laws or restrictions which might
adversely affect the payment of principal and interest. Generally, the issuers
of such obligations are subject to fewer U.S. regulatory requirements than are
applicable to U.S. banks. Foreign branches or subsidiaries of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than U.S.
banks. U.S. branches or subsidiaries of foreign banks are subject to the reserve
requirements of the state in which they are located. There may be less publicly
available information about a U.S. branch or subsidiary of a foreign bank or a
foreign bank than about a U.S. bank, and such branches or subsidiaries or banks
may not be subject to the same accounting, auditing and financial record keeping
standards and requirements as U.S. banks. Evidence of ownership of obligations
of foreign branches or subsidiaries of U.S. banks or of foreign banks may be
held outside of the United States and the Premier Institutional Fund may be
subject to the risks associated with the holding of such property overseas. Any
such obligations of the Premier Institutional Fund held overseas will be held by
foreign branches of the custodian for the Premier Institutional Fund's portfolio
securities or by other U.S. or foreign banks under subcustodian arrangements
complying with the requirements of the Investment Company Act of 1940.
Fund Asset Management, L.P. ("FAM") will consider the above factors in
making investments in such obligations and will not knowingly purchase
obligations which, at the time of purchase, are subject to exchange controls or
withholding taxes. Generally, the Premier Institutional Fund will limit its
investments in obligations of U.S. branches or subsidiaries of foreign banks to
obligations of banks organized in Canada, France, Germany, Japan, the
Netherlands, Switzerland, the United Kingdom and other industrialized nations.
The Premier Institutional Fund investments in commercial paper (including
short-term, promissory notes issued by corporations, partnerships, trusts and
other entities, whether or not secured) will be rated in one of the two highest
rating categories for short-term debt obligations by a nationally recognized
statistical rating organization (an "NRSRO") or, if not rated, will be of
comparable quality as determined by the Trustees of the Trust. The Premier
Institutional Fund investments in bonds (which must have remaining maturities at
the date of purchase of 397 days (13 months) or less) will be in issuers which
have received from an NRSRO a rating, with respect to a class of short-term debt
obligations that is comparable in priority and security with the investment to
be purchased by the Fund, in one of the two highest rating categories for
short-term obligations or, if not rated, will be of comparable quality as
determined by the Trustees. Currently there are six NRSROs: Duff & Phelps Credit
Ratings Co., Fitch Investors Services, Inc., IBCA Limited and its affiliate IBCA
Inc.,
Premier Institutional Fund
2
<PAGE> 88
Moody's Investors Service, Inc., Standard & Poor's Ratings Group and Thomson
Bankwatch, Inc. See the section of the Prospectus captioned "Additional
Information-Commercial Paper, Bank Money Instrument and Bond Ratings."
The Premier Institutional Fund may also invest in U.S. dollar-denominated
commercial paper and other short-term obligations issued by foreign entities.
Such investments are subject to quality standards similar to those applicable to
investments in comparable obligations of domestic issuers. Investments in
foreign entities in general involve the same risks as those described in
connection with investments in Eurodollar and Yankeedollar obligations.
As described in the Prospectus, the Premier Institutional Fund may invest
in participations in, or bonds and notes backed by, pools of mortgages, or
credit card, automobile or other types of receivables, with remaining maturities
of no more than 397 days (13 months). These structured financings will be
supported by sufficient collateral and other credit enhancements, including
letters of credit, insurance, reserve funds and guarantees by third parties, to
enable such instruments to obtain the requisite quality rating by a nationally
recognized statistical rating organization, as described above.
Variable amount master notes and funding agreements described in the
Prospectus, permit a series of short-term borrowings under a single note. The
lender has the right to increase the amount under the note up to the full amount
provided by the note agreement. In addition the lender has the right to reduce
the amount of outstanding indebtedness.
Forward or firm commitments for the purchase or sale of securities may be
entered into by the Premier Institutional Fund as described in the Prospectus.
The purchase of the underlying securities will be recorded on the date the
Premier Institutional 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 Premier Institutional Fund will be established
with State Street Bank and Trust Company, the Premier Institutional Fund's
custodian, consisting of cash or other liquid securities having a market value
at all times until the delivery at least equal to the amount of the forward
purchase commitment. As stated in the Prospectus, the Premier Institutional Fund
may dispose of a commitment prior to settlement. Risks relating to these trading
practices are briefly described in the Prospectus.
In addition to the investment restrictions set forth in the Prospectus, the
Premier Institutional Fund has adopted the following investment restrictions,
none of which may be changed without the approval of a majority of the Premier
Institutional Fund's outstanding shares, which for this purpose means the vote
of (i) 67% or more of the Premier Institutional Fund's shares present at a
meeting, if the holders of more than 50% of the outstanding shares of the
Premier Institutional Fund are present or represented by proxy, or (ii) more
than 50% of the Premier Institutional Fund's outstanding shares, whichever is
less. The Premier Institutional Fund may not:
(1) Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities and bank money
instruments).
(2) Make investments for the purpose of exercising control or
management.
Premier Institutional Fund
3
<PAGE> 89
(3) Underwrite securities of other issuers except insofar as the
Premier Institutional Fund technically may be deemed an underwriter under
the Securities Act of 1933, as amended, in selling portfolio securities.
(4) Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Premier Institutional Fund may invest in securities
directly or indirectly secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein.
(5) Borrow money, except that (i) the Premier Institutional Fund may
borrow from banks (as defined in the Investment Company Act) in amounts up
to 33 1/3% of its total assets (including the amount borrowed), (ii) the
Premier Institutional Fund may borrow up to an additional 5% of its total
assets for temporary purposes, (iii) the Premier Institutional Fund may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) the Premier
Institutional Fund may purchase securities on margin to the extent
permitted by applicable law. The Premier Institutional Fund may not pledge
its assets other than to secure such borrowings or to the extent permitted
by the Premier Institutional 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 hedging transactions, short sales,
when-issued, reverse repurchase and forward commitment transactions and
similar investment strategies.
(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 Premier Institutional 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
Premier Institutional 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 Premier Institutional Fund may do so in accordance
with applicable law and the Premier Institutional 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 Premier Institutional Fund has adopted non-fundamental
restrictions which may be changed by the Board of Trustees without approval of
the Premier Institutional Fund's shareholders. Under the non-fundamental
investment restrictions, the Premier Institutional Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not
Premier Institutional Fund
4
<PAGE> 90
apply to securities which mature within seven days or securities which the
Board of Trustees of the Trust has otherwise determined to be liquid
pursuant to applicable law.
c. Nothwithstanding fundamental investment restriction (5) 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.
Lending of Portfolio Securities. Subject to investment restriction (6)
above, the Premier Institutional 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 Premier Institutional Fund. Such loans will be terminable at any
time. The Premier Institutional Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights. The Premier
Institutional Fund may pay reasonable fees in connection with the arranging of
such loans.
As a matter of operating policy, the Trustees of the Trust have determined
that the Premier Institutional Fund will not write put or call options.
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.
Premier Institutional Fund
5
<PAGE> 91
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GOVERNMENT FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
FOR GENERAL INFORMATION AND PURCHASES CALL 617-357-1460 OR TOLL-FREE
800-225-1576
Merrill Lynch Government Fund is a no-load money fund whose objectives are
to seek current income consistent with liquidity and security of principal by
investing in a portfolio of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Government Fund is a series
of Merrill Lynch Funds For Institutions Series (the "Trust"), a diversified,
open-end management investment company.
The Statement of Additional Information of the Government Fund is not a
prospectus and should be read in conjunction with the Prospectus of the
Government Fund (the "Prospectus") which has been filed with the Securities and
Exchange Commission and is available upon oral or written request without
charge. Copies of the Prospectus can be obtained by calling or by writing the
Government Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies......................................... 2
Independent Auditors' Report............................................... 4
Audited Financial Statements for the Fiscal Year ended April 30, 1996...... 5
Appendix A:
Management of the Trust............................................... A-1
Investment Advisory and Other Services................................ A-5
Portfolio Transactions................................................ A-7
Net Asset Value....................................................... A-9
Dividends............................................................. A-10
Taxes................................................................. A-11
Federal.......................................................... A-11
Massachusetts Income Tax......................................... A-13
Other Taxes...................................................... A-13
Distributor........................................................... A-14
Yield Information..................................................... A-15
General Information................................................... A-16
</TABLE>
The date of this Statement of Additional Information and the Prospectus is
January , 1997.
<PAGE> 92
INVESTMENT OBJECTIVES AND POLICIES
Reference is made to "The Government Fund and Its Objectives" in the
Prospectus for a discussion of the investment objectives and policies of the
Government Fund. Subject to the investment restrictions described below, the
Government Fund's investment objectives can be changed without shareholder
approval.
All investments of the Government Fund will be in securities with remaining
maturities not exceeding 762 days (25 months). The dollar weighted average
maturity of the Government Fund's portfolio will be 90 days or less.
Forward or firm commitments for the purchase of U.S. Government securities
may be entered into by the Government Fund, as described in "The Government Fund
and Its Objectives" in the Prospectus. The purchase of the underlying securities
will be recorded on the date the Government Fund enters into the commitment, and
the value of the security will thereafter be reflected in the calculation of the
Government Fund's net asset value. A separate account of the Government Fund
will be established with State Street Bank and Trust Company, the Government
Fund's custodian, consisting of cash or U.S. Government securities having a
market value at all times until the delivery date at least equal to the amount
of the forward purchase commitment. As stated in the Prospectus, the Government
Fund may dispose of a commitment prior to settlement. Risks relating to these
trading practices are briefly described in the Prospectus.
In addition to the investment restrictions set forth in the Prospectus, the
Government Fund has adopted the following investment restrictions, none of which
may be changed without the approval of a majority of the Government 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 are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less. The Government
Fund may not:
(1) Purchase securities other than U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, some of which may be subject to repurchase
agreements. There is no limit on the amount of its assets which may be
invested in the securities of any one issuer of such obligations;
(2) Act as an underwriter of securities;
(3) Make loans, except that the Government Fund may purchase or hold
debt obligations in accordance with its investment objectives and policies,
may enter into repurchase agreements for such securities, and may lend its
portfolio securities against collateral consisting of cash, or securities
issued or guaranteed by the U.S. Government or its agencies, which is equal
at all times to at least 100% of the value of the securities loaned. There
is no investment restriction on the amount of portfolio securities that may
be loaned, except that payments received on such loans, including amounts
received during the loan on account of interest on the securities loaned,
will not (together with all non-qualifying income) exceed 10% of the
Government Fund's annual gross income (without offset for realized capital
gains) unless, in the opinion of counsel to the Government Fund, such
amounts are qualifying income under federal income tax provisions
applicable to regulated investment companies; and
(4) Purchase securities on margin or make short sales of securities.
Government Fund
2
<PAGE> 93
As a matter of operating policy, the Trustees of the Trust have determined
that the Government Fund will not write put or call options.
Collateral received by the Government Fund to secure loans of its portfolio
securities will be marked to market on a daily basis.
Government Fund
3
<PAGE> 94
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
Merrill Lynch Funds For Institutions Series:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Merrill Lynch Funds For Institutions
Series (the "Trust"), consisting of the Merrill Lynch Institutional Fund,
Merrill Lynch Government Fund, Merrill Lynch Treasury Fund, and Merrill Lynch
Institutional Tax-Exempt Fund (the "Funds") as of April 30, 1996, the related
statements of operations for the year then ended, the statements of changes in
net assets for the years ended April 30, 1996 and 1995, and the financial
highlights for each of the respective fiscal periods then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and 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 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 the securities owned at
April 30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds of the Merrill Lynch Funds For Institutions Series at April 30,
1996, the results of their operations, the changes in their net assets, and
their financial highlights for each of the respective fiscal periods then ended
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachussetts
May 24, 1996
Government Fund
4
<PAGE> 95
Merrill Lynch Government Fund
Schedule of Investments
April 30, 1996
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ------------- ----------- ---------------------------------- ------ ------- --------------
<S> <C> <C> <C> <C> <C>
U.S. $
Government $ 16,000,000 U.S. Treasury Bills 5.54 % 07/25/96 15,811,489
& Agency 25,000,000 U.S. Treasury Bills 4.69 09/19/96 24,504,542
Issues -- 12,500,000 U.S. Treasury Bills 4.55 02/06/97 11,991,663
46.5% 10,000,000 U.S. Treasury Bills 5.30 05/01/97 9,463,567
50,000,000 U.S. Treasury Notes 4.37 08/15/96 49,875,000
10,000,000 Federal Farm Credit Banks 5.17 10/01/96 9,987,000
1,000,000 Federal Home Loan Banks D/N 5.83 05/02/96 999,838
13,000,000 Federal Home Loan Banks D/N 5.19 05/09/96 12,985,007
6,110,000 Federal Home Loan Banks D/N 5.10 06/07/96 6,077,973
25,000,000 Federal Home Loan Banks D/N 5.02 06/25/96 24,808,264
25,000,000 Federal Home Loan Banks D/N 5.05 06/28/96 24,796,597
13,320,000 Federal Home Loan Banks D/N 5.19 07/03/96 13,199,021
6,000,000 Federal Home Loan Banks D/N 5.18 07/17/96 5,933,395
25,000,000 Federal Home Loan Banks D/N 5.00 07/19/96 24,715,271
16,855,000 Federal Home Loan Banks D/N 5.18 09/16/96 16,518,377
9,300,000 Federal Home Loan Banks D/N 5.16 10/21/96 9,065,816
34,500,000 Federal Home Loan Banks D/N 5.16 10/23/96 33,621,208
Federal Home Loan Mortgage Corp.
100,000,000 D/N 4.97 05/03/96 99,972,389
Federal Home Loan Mortgage Corp.
50,000,000 D/N 5.24 05/13/96 49,912,667
Federal Home Loan Mortgage Corp.
100,000,000 D/N 5.20 06/12/96 99,393,333
Federal Home Loan Mortgage Corp.
30,000,000 D/N 5.21 07/01/96 29,736,175
Federal Home Loan Mortgage Corp.
10,000,000 D/N 5.18 07/11/96 9,897,642
Federal Home Loan Mortgage Corp.
14,388,000 D/N 5.18 07/12/96 14,238,653
Federal Home Loan Mortgage Corp.
25,000,000 D/N 5.18 07/22/96 24,704,458
Federal National Mortgage Assoc.
25,000,000 D/N 4.97 05/07/96 24,979,292
Federal National Mortgage Assoc.
35,000,000 D/N 5.04 06/07/96 34,818,700
Federal National Mortgage Assoc.
5,000,000 D/N 5.19 07/24/96 4,939,450
Federal National Mortgage Assoc.
80,000,000 D/N 5.16 10/25/96 77,938,933
- ------------- --------- -------------------------------- ---- ----- ------------
Total U.S. Government & Agency Issues
(Cost $765,077,438) 764,885,720
</TABLE>
See Notes to Financial Statements
Government Fund
5
<PAGE> 96
Merrill Lynch Government Fund
Schedule of Investments -- Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ------------- --------- -------------------------------- ---- ----- ------------
<S> <C> <C> <C> <C> <C>
U.S. $
Government $20,000,000 Federal Farm Credit Banks 5.20 % 12/30/96 19,984,606
Agency 20,000,000 Federal Farm Credit Banks 5.24 02/07/97 19,981,113
Issues-- 13,000,000 Federal Home Loan Banks 5.71 06/17/96 13,000,000
Variable 6,000,000 Federal Home Loan Banks 5.71 06/21/96 6,000,000
Rate -- 10,000,000 Federal Home Loan Banks 5.19 08/05/96 9,995,891
36.4% 50,000,000 Federal Home Loan Banks 5.25 09/27/96 49,980,459
50,000,000 Federal Home Loan Banks 5.60 01/26/98 49,974,270
Federal Home Loan Mortgage
3,000,000 Corp. 5.75 05/13/98 3,000,000
Federal National Mortgage
30,000,000 Assoc. 5.58 05/13/96 30,000,000
Federal National Mortgage
15,000,000 Assoc. 5.58 05/24/96 15,000,000
Federal National Mortgage
9,000,000 Assoc. 5.23 08/08/96 8,998,588
Federal National Mortgage
50,000,000 Assoc. 5.25 09/03/96 49,993,410
Federal National Mortgage
40,000,000 Assoc. 5.27 10/11/96 40,000,000
Federal National Mortgage
40,000,000 Assoc. 5.24 10/15/96 39,989,143
Federal National Mortgage
7,800,000 Assoc. 5.35 11/04/96 7,800,000
Federal National Mortgage
25,000,000 Assoc. 5.35 02/21/97 25,000,000
Federal National Mortgage
10,000,000 Assoc. 5.30 03/14/97 10,000,000
Federal National Mortgage
15,000,000 Assoc. 5.31 03/19/97 14,990,291
Federal National Mortgage
14,000,000 Assoc. 5.33 04/15/97 13,985,695
Federal National Mortgage
25,000,000 Assoc. 5.29 04/28/97 24,983,152
Federal National Mortgage
10,000,000 Assoc. 5.26 04/29/97 9,989,865
Federal National Mortgage
17,000,000 Assoc. 5.70 05/19/97 17,000,000
Federal National Mortgage
25,000,000 Assoc. 5.75 05/14/98 25,000,000
50,000,000 Student Loan Marketing Assoc. 5.26 07/01/96 49,995,022
15,400,000 Student Loan Marketing Assoc. 5.28 07/19/96 15,401,081
20,000,000 Student Loan Marketing Assoc. 5.27 09/20/96 20,000,000
8,500,000 Student Loan Marketing Assoc. 5.35 10/04/96 8,500,000
Total U.S. Government Agency
Issues -- Variable Rate
(Cost $598,542,586) 598,542,586
- ------------- --------- -------------------------------- ---- ----- ------------
Repurchase Goldman Sachs Group, L.P.,
Agreements**-- 40,830,000 purchased on 04/30/96 5.25 05/01/96 40,830,000
17.1% HSBC Securities Inc., purchased
80,000,000 on 04/30/96 5.37 05/01/96 80,000,000
Lehman Brothers Inc., purchased
80,000,000 on 04/30/96 5.36 05/01/96 80,000,000
</TABLE>
See Notes to Financial Statements
Government Fund
6
<PAGE> 97
Merrill Lynch Government Fund
Schedule of Investments -- Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ------------- --------- -------------------------------- ---- ----- ------------
<S> <C> <C> <C> <C> <C>
Repurchase
Agreements** Nomura Securities International
(continued) $ 80,000,000 Inc., purchased on 04/30/96 5.37% 05/01/96 $ 80,000,000
- ------------- --------- -------------------------------- ---- ----- ------------
Repurchase Agreements
(Cost $280,830,000) 280,830,000
- ------------- --------- ---------------------------------- ------ ------- --------------
Total Investments--100.0%
(Cost $1,644,450,024) 1,644,258,306
- ------------- --------- ---------------------------------- ------ ------- --------------
Liabilities in Excess of Other
Assets--(0.0%) (633,646)
- ------------- --------- ---------------------------------- ------ ------- --------------
Net Assets--Equivalent to $1.00
Per Share on 1,643,816,378 Shares
of Beneficial Interest
Outstanding--100.0% $1,643,624,660
============= ========= ================================== ====== ======= ==============
</TABLE>
Note--Costs for Federal income tax purposes are the same as those shown above.
At April 30, 1996 unrealized net depreciation amounted to $191,718 and is
comprised of $21,794 of appreciation and $213,512 in depreciation. *U.S.
Treasury Notes and Repurchase Agreements bear interest payable at fixed dates
or upon maturity. U.S. Treasury Bills and some U.S. Government and Agency
Issues are purchased on a discount basis; the interest rate shown is the
discount paid at the time of purchase by the Fund. Other U.S. Government and
Agency Issues bear interest at the rates shown, payable at fixed dates or upon
maturity; the rates shown are the rates in effect at April 30, 1996. For
variable rate instruments, the next date on which the interest rate is to be
adjusted is deemed the maturity date for valuation.
**Repurchase Agreements are fully collateralized by U.S. Government and
Agency Obligations.
D/N--Discount Notes
See Notes to Financial Statements
Government Fund
7
<PAGE> 98
Merrill Lynch Government Fund
Statement of Assets and Liabilities
April 30, 1996
<TABLE>
<S> <C> <C>
Assets:
Investments in securities subject to
repurchase agreements $ 280,830,000
Investments in other marketable securities 1,363,428,306
----------
Total investments at value
(identified cost $1,644,450,024) (Note 1a) $1,644,258,306
Cash 4,773,565
Interest receivable 4,276,668
Prepaid expenses 95,289
------------
Total assets 1,653,403,828
------------
Liabilities:
Payable for investments purchased 9,464,111
Dividends payable 246,997
Accrued expenses 68,060
------------
Total liabilities 9,779,168
------------
Net Assets: (Equivalent to $1.00 per share,
offering and redemption price, based on
1,643,816,378 shares of beneficial
interest outstanding) $1,643,624,660
------------
</TABLE>
Merrill Lynch Government Fund
Statement of Operations
April 30, 1996
<TABLE>
<S> <C> <C>
Investment Income:
Income:
Interest and discount earned (Note 1d) $96,447,559
-------------
Expenses:
Investment advisory fee (Note 2) $ 5,423,149
Registration fees 390,750
Dividend and transfer agency fees 288,779
Accounting and custodian services 191,939
Legal and audit fees 40,910
Printing and shareholder reports 22,917
Trustees' fees (Note 5) 19,471
Insurance 10,935
Miscellaneous 9,823
-------------
Total expenses 6,398,673
Waived investment advisory fee (Note 2) (2,066,757) 4,331,916
------------- -------------
Net investment income 92,115,643
Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain from investment transactions 318,832
Net unrealized depreciation of investments (230,159)
-------------
Net realized and unrealized gain from investments 88,673
-------------
Net Increase in Net Assets Resulting From Operations $92,204,316
-------------
</TABLE>
See Notes to Financial Statements.
Government Fund
8
<PAGE> 99
Merrill Lynch Government Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30,
1996 1995
- -------------------------------------------------------- --------- -----------
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income $ 92,115,643 $ 70,187,087
Net realized gain from investment transactions 318,832 245,307
Net unrealized appreciation (depreciation) of
investments (230,159) 961,939
-------------- --------------
Net increase in net assets resulting from operations 92,204,316 71,394,333
Total declared as dividends to shareholders (Note 4) (92,434,475) (70,432,394)
Capital share transactions (Note 3) 42,769,813 66,644,939
-------------- --------------
Net increase in net assets 42,539,654 67,606,878
Net Assets:
Beginning of year 1,601,085,006 1,533,478,128
-------------- --------------
End of year $1,643,624,660 $1,601,085,006
============== ==============
</TABLE>
Merrill Lynch Government Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended April 30,
1996 1995 1994 1993 1992
- ----------------------------------------------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net investment income .055 .049 .030 .030 .047
Net realized and unrealized gain on
investments -- -- -- .001 .002
--------- --------- --------- --------- ---------
Total from investment operations .055 .049 .030 .031 .049
Less Distributions:
Dividends from net investment income (.055) (.049) (.030) (.031) (.049)
--------- --------- --------- --------- ---------
Net Asset Value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
========= ========= ========= ========= =========
Total Return 5.67 % 4.99 % 3.06 % 3.19 % 5.05 %
Ratios/Supplemental Data:
Net Assets, end of year (000) $1,643,625 $1,601,085 $1,533,478 $1,355,044 $1,358,150
Ratio of expenses to average net assets
(before waiver) .38 % .37 % .38 % .39 % .41 %
Ratio of expenses to average net assets
(after waiver) .26 % .24 % .32 % -- --
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (before waiver) 5.37 % 4.82 % 2.83 % 3.19 % 4.93 %
Ratio of net investment income, including
realized and unrealized gains and losses, to --
average net assets (after waiver) 5.49 % 4.95 % 2.89 % --
</TABLE>
See Notes to Financial Statements.
Government Fund
9
<PAGE> 100
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements
1. Significant Accounting Policies
Merrill Lynch Funds For Institutions Series (the "Trust") was organized as a
Massachusetts business trust on May 7, 1987 and is registered under the
Investment Company Act of 1940 as a diversified, open-end management company.
On February 18, 1994 Merrill Lynch Institutional Tax-Exempt Fund was
reorganized as a separate series of the Trust. The Trust has a fiscal year end
of April 30. The following is a summary of significant accounting policies
consistently followed by the Trust in conformity with generally accepted
accounting principles.
(a) The value of the Institutional, Government and Treasury Fund portfolio
securities is determined on the basis of fair value as determined in good faith
by the Trustees of the Trust. In determining fair value, securities for which
market quotations are readily available are valued at market value. Other
securities, if any, are valued at their fair value in the best judgment of Fund
Asset Management, L.P., ("FAM") under procedures established by, and under the
supervision of, the Trustees. Securities with remaining maturities of 60 days
or less are valued by use of the amortized cost method. Institutional
Tax-Exempt Fund 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 is deemed to be the demand notice payment period.
(b) It is the Trust's policy to comply with the requirements of the
Internal 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.
(e) Deferred organization expenses are amortized over a period not
exceeding five years. Prepaid registration fees are charged to income as the
related shares are sold.
(f) Repurchase agreements--The Institutional Fund and the Government Fund
invest in U.S. Government & Agency securities pursuant to repurchase agreements
with member banks of the Federal Reserve System or primary dealers in U.S.
Government securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price. The Trust
takes possession of the underlying securities, marks to market such securities
daily and, if necessary, receives additional securities to ensure that the
contract is adequately collateralized.
(g) During the year ended April 30, 1996, Merrill Lynch Institutional
Tax-Exempt Fund reclassified amounts to reflect a decrease of $5,037 in both
accumulated capital losses and undistributed net investment income as a result
of permanent differences arising from different treatments of market discount
for book and tax purposes.
2. Investment Advisory Fees and Other
Transactions with Affiliates
Fund Asset Management, L.P., a subsidiary of Merrill Lynch & Co., Inc.,
provides investment advisory and corporate administrative services to the Trust
for a fee, subject to certain limitations, at the following annual rates:
Government Fund
10
<PAGE> 101
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
Percentage of Average Daily Net Assets
----------------------------------------
Institutional Fund .40% up to and including $250,000,000
plus .375% over $250,000,000 up to and
including $500,000,000
plus .35% over $500,000,000 up to and
including $750,000,000
plus .325% over $750,000,000
Government Fund
and Treasury Fund .35% up to and including $500,000,000
plus .335% over $500,000,000 up to and
including $750,000,000
plus .32% over $750,000,000 up to and
including $1,000,000,000
plus .30% over $1,000,000,000
Institutional
Tax-Exempt Fund .45% up to and including $1,500,000,000
plus .425% over $1,500,000,000 up to and
including $2,000,000,000
plus .40% over $2,000,000,000
FAM has agreed to waive a portion of its advisory fees. The effective fee
payable to FAM will be at the annual rate of 0.20% of each Fund's average daily
net assets. FAM may discontinue waiver of the fee in whole or in part at any
time without notice.
For the year ended April 30, 1996 FAM waived a portion of its fees
amounting to $10,263,924 for the Institutional Fund, $2,066,757 for the
Government Fund, $765,429 for the Treasury Fund and $1,171,941 for the
Institutional Tax-Exempt Fund.
All officers and certain trustees of the Trust are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest in the Institutional Fund, Government Fund and
Treasury Fund ($.01 par value) and Institutional Tax-Exempt Fund ($.10 par
value) of a single class. At April 30, 1996, capital paid-in aggregated
$7,621,162,182 for Institutional Fund, $1,643,816,378 for Government Fund,
$514,133,661 for Treasury Fund and $667,324,370 for Institutional Tax-Exempt
Fund. Transactions in shares at a constant net asset value of $1.00 per share
were as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------
Institutional Fund 1996 1995
-------------- --------------
<S> <C> <C>
Shares sold 81,859,341,129 63,113,089,823
Shares issued to shareholders
in reinvestment of dividends 360,863,781 198,199,152
-------------- --------------
Total 82,220,204,910 63,311,288,975
Shares redeemed 81,179,030,074 60,509,071,011
-------------- --------------
Net increase 1,041,174,836 2,802,217,964
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------
Government Fund 1996 1995
-------------- --------------
<S> <C> <C>
Shares sold 11,319,796,312 8,314,763,207
Shares issued to shareholders
in reinvestment of dividends 86,908,080 65,230,079
-------------- --------------
Total 11,406,704,392 8,379,993,286
Shares redeemed 11,363,934,579 8,313,348,347
-------------- --------------
Net increase 42,769,813 66,644,939
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------
Treasury Fund 1996 1995
-------------- --------------
<S> <C> <C>
Shares sold 2,984,431,147 2,288,760,430
Shares issued to shareholders
in reinvestment of dividends 25,665,244 14,088,128
-------------- --------------
Total 3,010,096,391 2,302,848,558
Shares redeemed 2,838,827,671 2,226,955,175
-------------- --------------
Net increase 171,268,720 75,893,383
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------
Institutional
Tax-Exempt Fund 1996 1995
-------------- --------------
<S> <C> <C>
Shares sold 3,532,959,162 2,737,285,871
Shares issued to shareholders
in reinvestment of dividends 15,674,384 9,666,260
-------------- --------------
Total 3,548,633,546 2,746,952,131
Shares redeemed 3,285,337,991 2,733,284,809
-------------- --------------
Net increase 263,295,555 13,667,322
============== ==============
</TABLE>
Government Fund
11
<PAGE> 102
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
4. Distributions
The Funds declare dividends daily, pay dividends monthly and automatically
reinvest such dividends in additional Fund shares at net asset value, unless
shareholders request payment in cash. Dividends for the Institutional,
Government and Treasury Funds are declared from the total of net investment
income, plus or minus realized gains or losses, if any, on investments.
Dividends for the Institutional Tax-Exempt Fund are declared from net
investment incomeexcluding 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 April 30, 1996, the Institutional Tax-Exempt Fund had net capital loss
carryovers of $254,248 of which $96,688 expire in the year 2001, $17,520 expire
in 2002 and $140,040 expire in 2003.
5. Trustees' Fees
Each Trustee who is not affiliated with the Trust or its adviser is paid an
annual fee of $24,000 by the Trust. Trustees' fees are allocated among the four
series of the Trust based on the net assets under management.
Government Fund
12
<PAGE> 103
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH TREASURY FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
FOR GENERAL INFORMATION AND PURCHASES CALL 617-357-1460 OR TOLL-FREE
800-225-1576
Merrill Lynch Treasury Fund is a no-load money fund whose objectives are to
seek current income consistent with liquidity and security of principal. The
Treasury Fund will attempt to achieve its investment objectives by investing in
a portfolio of U.S. Treasury securities. The Treasury Fund is a series of
Merrill Lynch Funds For Institutions Series (the "Trust"), a diversified,
open-end management investment company.
The Statement of Additional Information of the Treasury Fund is not a
prospectus and should be read in conjunction with the Prospectus of the Treasury
Fund (the "Prospectus") which has been filed with the Securities and Exchange
Commission and is available upon oral or written request without charge. Copies
of the Prospectus can be obtained by calling or by writing the Treasury Fund at
the above telephone number or address. This Statement of Additional Information
has been incorporated by reference into the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies........................................... 2
Independent Auditors' Report................................................. 4
Financial Statements for the Fiscal Year ended April 30, 1996................ 5
Appendix A:
Management of the Trust................................................. A-1
Investment Advisory and Other Services.................................. A-5
Portfolio Transactions.................................................. A-7
Net Asset Value......................................................... A-9
Dividends............................................................... A-10
Taxes................................................................... A-11
Federal............................................................ A-11
Massachusetts Income Tax........................................... A-13
Other Taxes........................................................ A-13
Distributor............................................................. A-14
Yield Information....................................................... A-15
General Information..................................................... A-16
</TABLE>
The date of this Statement of Additional Information and the Prospectus is
January , 1997.
<PAGE> 104
INVESTMENT OBJECTIVES AND POLICIES
Reference is made to "The Treasury Fund and Its Objectives" in the
Prospectus for a discussion of the investment objectives and policies of the
Treasury Fund. Subject to the investment restrictions described below, the
Treasury Fund's investment objectives can be changed without shareholder
approval.
All investments of the Treasury Fund will be in securities with remaining
maturities not exceeding 762 days (25 months). The dollar weighted average
maturity of the Treasury Fund's portfolio will be 90 days or less.
Forward or firm commitments for the purchase of U.S. Government securities
may be entered into by the Treasury Fund, as described in "The Treasury Fund and
Its Objectives" in the Prospectus. The purchase of the underlying securities
will be recorded on the date the Treasury Fund enters into the commitment, and
the value of the security will thereafter be reflected in the calculation of the
Treasury Fund's net asset value. A separate account of the Treasury Fund will be
established with State Street Bank and Trust Company, the Treasury Fund's
custodian, consisting of cash or U.S. Government securities having a market
value at all times until the delivery date at least equal to the amount of the
forward purchase commitment. As stated in the Prospectus, the Treasury Fund may
dispose of a commitment prior to settlement. Risks relating to these trading
practices are briefly described in the Prospectus.
The Treasury Fund may invest up to 10% of its total assets in obligations
subject to repurchase agreements. The Treasury Fund will not acquire repurchase
agreements if, as a result thereof, more than 10% of the value of its total
assets would be invested in repurchase agreements.
The limitation on the Treasury Fund's investment in obligations subject to
repurchase agreements may adversely affect the Treasury Fund's yield, since the
Treasury Fund earns a fee for entering into a repurchase agreement which
increases the effective yield of the obligations underlying the repurchase
agreement. The adverse effect of this limitation on the Treasury Fund's yield
will be greater during periods in which yields on shorter term securities are
higher than yields on longer term securities.
In addition to the investment restrictions set forth in the Prospectus, the
Treasury Fund has adopted the following investment restrictions, none of which
may be changed without the approval of a majority of the Treasury Fund's
outstanding shares, which for this purpose means the vote of (i) 67% or more of
the Treasury Fund's shares present at a meeting, if the holders of more than 50%
of the outstanding shares of the Treasury Fund are present or represented by
proxy, or (ii) more than 50% of the Treasury Fund's outstanding shares,
whichever is less. The Treasury Fund may not:
(1) Purchase securities other than U.S. Treasury bills, notes, and
other obligations issued or guaranteed by the U.S. Government, some of
which may be subject to repurchase agreements. There is no limit on the
amount of its assets which may be invested in the securities of any one
issuer of such obligations;
(2) Act as an underwriter of securities;
(3) Make loans, except that the Treasury Fund may purchase or hold
debt obligations in accordance with its investment objectives and policies,
may enter into repurchase agreements for such
Treasury Fund
2
<PAGE> 105
securities, and may lend its portfolio securities against collateral
consisting of cash, or securities issued or guaranteed by the U.S.
Government or its agencies, which is equal at all times to at least 100% of
the value of the securities loaned. There is no investment restriction on
the amount of portfolio securities that may be loaned, except that payments
received on such loans, including amounts received during the loan on
account of interest on the securities loaned, will not (together with all
non-qualifying income) exceed 10% of the Treasury Fund's annual gross
income (without offset for realized capital gains) unless, in the opinion
of counsel to the Fund, such amounts are qualifying income under Federal
income tax provisions applicable to regulated investment companies; and
(4) Purchase securities on margin or make short sales of securities.
Even though the above restrictions would permit investment in securities
issued or guaranteed by U.S. Government agencies, the trustees, as a matter of
investment policy, have determined that the Treasury Fund will not purchase any
securities other than direct obligations of the U.S. Treasury. As a matter of
operating policy, the Trustees of the Trust have determined that the Treasury
Fund will not write put or call options.
Treasury Fund
3
<PAGE> 106
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
Merrill Lynch Funds For Institutions Series:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Merrill Lynch Funds For Institutions
Series (the "Trust"), consisting of the Merrill Lynch Institutional Fund,
Merrill Lynch Government Fund, Merrill Lynch Treasury Fund, and Merrill Lynch
Institutional Tax-Exempt Fund (the "Funds") as of April 30, 1996, the related
statements of operations for the year then ended, the statements of changes in
net assets for the years ended April 30, 1996 and 1995 and the financial
highlights for each of the respective fiscal periods then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and 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 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 the securities owned at
April 30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds of the Merrill Lynch Funds For Institutions Series at April 30,
1996, the results of their operations, the changes in their net assets, and
their financial highlights for each of the respective fiscal periods then ended
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
May 24, 1996
Treasury Fund
4
<PAGE> 107
Merrill Lynch Treasury Fund
Schedule of Investments
April 30, 1996
<TABLE>
<CAPTION>
Face Interest Maturity Value
Amount Rate* Date (Note 1a)
- ------------- ---------- -------------------------------- ------ ------- ------------
<S> <C> <C> <C> <C> <C>
U.S. $ 2,013,000 U.S. Treasury Bills 5.22 % 05/09/96 $ 2,010,663
Government 13,777,000 U.S. Treasury Bills 4.95 06/06/96 13,708,735
Issues -- 25,000,000 U.S. Treasury Bills 4.95 06/06/96 24,876,250
99.3% 4,779,000 U.S. Treasury Bills 4.94 06/06/96 4,755,392
50,000,000 U.S. Treasury Bills 4.92 06/06/96 49,753,750
6,500,000 U.S. Treasury Bills 4.77 06/13/96 6,462,966
13,500,000 U.S. Treasury Bills 4.76 06/13/96 13,423,164
9,000,000 U.S. Treasury Bills 4.75 06/13/96 8,948,938
67,854,000 U.S. Treasury Bills 4.94 06/13/96 67,453,624
11,332,000 U.S. Treasury Bills 4.95 07/11/96 11,221,371
4,302,000 U.S. Treasury Bills 4.97 07/11/96 4,260,002
6,366,000 U.S. Treasury Bills 4.96 07/11/96 6,303,852
2,477,000 U.S. Treasury Bills 4.96 07/11/96 2,452,818
92,000,000 U.S. Treasury Bills 4.98 07/11/96 91,101,850
15,000,000 U.S. Treasury Bills 4.75 08/08/96 14,794,162
79,000,000 U.S. Treasury Notes 5.87 05/31/96 79,043,742
15,000,000 U.S. Treasury Notes 6.12 07/31/96 15,031,641
10,000,000 U.S. Treasury Notes 6.50 09/30/96 10,045,313
25,000,000 U.S. Treasury Strips 5.15 05/15/96 24,950,176
60,000,000 U.S. Treasury Strips 4.94 05/15/96 59,884,640
- ------------- -------- ------------------------------ ---- ----- ----------
Total Investments -- 99.3%
(Cost $510,493,228) 510,483,049
- ------------- -------- ------------------------------ ---- ----- ----------
Other Assets Less Liabilities
-- 0.7% 3,640,433
- ------------- -------- ------------------------------ ---- ----- ----------
Net Assets -- Equivalent to
$1.00 Per Share on 514,133,661
Shares of Beneficial Interest
Outstanding -- 100.0% $514,123,482
============= ======== ============================== ==== ===== ==========
</TABLE>
Note--Costs for Federal income tax purposes are the same as those shown above.
At April 30, 1996 net unrealized depreciation amounted to $10,179 and is
comprised of $9,482 in appreciation and $19,661 in depreciation.
*U.S. Treasury Bills are purchased on a discount basis; the interest rate shown
is the discount paid at the time of purchase by the Fund. U.S. Treasury
Strips are purchased on a discount basis; the interest rate shown represents
the yield at the time of purchase by the Fund. U.S. Treasury Notes bear
interest payable at fixed dates or upon maturity.
See Notes to Financial Statements.
Treasury Fund
5
<PAGE> 108
Merrill Lynch Treasury Fund
Statement of Assets and Liabilities
April 30, 1996
<TABLE>
<S> <C>
Assets:
Total investments at value (identified cost $510,493,228) (Note 1a) $510,483,049
Cash 1,488,821
Interest receivable 2,224,936
Prepaid expenses 1,030
--------------
Total assets 514,197,836
--------------
Liabilities:
Dividends payable 43,010
Accrued expenses 31,344
--------------
Total liabilities 74,354
--------------
Net Assets: (Equivalent to $1.00 per share, offering and redemption price, based
on 514,133,661 shares of beneficial interest outstanding) $514,123,482
==============
</TABLE>
Merrill Lynch Treasury Fund
Statement of Operations
For the Year Ended April 30, 1996
<TABLE>
<S> <C> <C>
Investment Income:
Income:
Interest and discount earned (Note 1d) $28,001,355
------------
Expenses:
Investment advisory fee (Note 2) $ 1,792,930
Registration fees 121,429
Dividend and transfer agency fees 97,362
Accounting and custodian services 75,803
Legal and audit fees 13,259
Printing and shareholder reports 7,741
Trustees' fees (Note 5) 6,207
Insurance 2,447
Miscellaneous 3,462
------------
Total expenses 2,120,640
Waived investment advisory fee (Note 2) (765,429) 1,355,211
------------ ------------
Net investment income 26,646,144
Realized and Unrealized Gain on Investments:
Net realized gain from investment
transactions 221,477
Net unrealized appreciation of investments 10,300
------------
Net realized and unrealized gain
from investments 231,777
------------ ------------
Net Increase in Net Assets Resulting From Operations $26,877,921
============
</TABLE>
See Notes to Financial Statements.
Treasury Fund
6
<PAGE> 109
Merrill Lynch Treasury Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------
1996 1995
- -------------------------------------------------------- ----------- -------------
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income $ 26,646,144 $ 14,839,828
Net realized gain from investment transactions 221,477 92,135
Net unrealized appreciation (depreciation) of
investments 10,300 (2,366)
------------ ------------
Net increase in net assets resulting from operations 26,877,921 14,929,597
Total declared as dividends to shareholders (Note 4) (26,867,621) (14,931,963)
Capital share transactions (Note 3) 171,268,720 75,893,383
------------ ------------
Net increase in net assets 171,279,020 75,891,017
Net Assets:
Beginning of year 342,844,462 266,953,445
------------ ------------
End of year $514,123,482 $342,844,462
============ ============
</TABLE>
Merrill Lynch Treasury Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net investment income .052 .045 .027 .028 .045
Net realized and unrealized gain
on investments -- -- -- .001 .002
------- ------- ------- ------- -------
Total from investment operations .052 .045 .027 .029 .047
Less Distributions:
Dividends from net investment income (.052) (.045) (.027) (.029) (.047)
------- ------- ------- ------- -------
Net Asset Value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
Total Return 5.37 % 4.68 % 2.82 % 2.97 % 4.79 %
Ratios/Supplemental Data:
Net Assets, end of year (000) $514,123 $342,844 $266,953 $359,318 $320,686
Ratio of expenses to average net assets
(before waiver) .41 % .44 % .45 % .45 % .46 %
Ratio of expenses to average net assets
(after waiver) .26 % .29 % .39 % -- --
Ratio of net investment income, including
realized and unrealized gains and losses,
to average net assets (before waiver) 5.09 % 4.58 % 2.67 % 2.93 % 4.69 %
Ratio of net investment income, including
realized and unrealized gains and losses, --
to average net assets (after waiver) 5.24 % 4.73 % 2.73 % --
</TABLE>
See Notes to Financial Statements.
Treasury Fund
7
<PAGE> 110
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements
1. Significant Accounting Policies
Merrill Lynch Funds For Institutions Series (the "Trust") was organized as a
Massachusetts business trust on May 7, 1987 and is registered under the
Investment Company Act of 1940 as a diversified, open-end management company.
On February 18, 1994 Merrill Lynch Institutional Tax-Exempt Fund was
reorganized as a separate series of the Trust. The Trust has a fiscal year end
of April 30. The following is a summary of significant accounting policies
consistently followed by the Trust in conformity with generally accepted
accounting principles.
(a) The value of the Institutional, Government and Treasury Fund portfolio
securities is determined on the basis of fair value as determined in good faith
by the Trustees of the Trust. In determining fair value, securities for which
market quotations are readily available are valued at market value. Other
securities, if any, are valued at their fair value in the best judgment of Fund
Asset Management, L.P., ("FAM") under procedures established by, and under the
supervision of, the Trustees. Securities with remaining maturities of 60 days
or less are valued by use of the amortized cost method. Institutional
Tax-Exempt Fund 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 is deemed to be the demand notice payment period.
(b) It is the Trust'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.
(e) Deferred organization expenses are amortized over a period not
exceeding five years. Prepaid registration fees are charged to income as the
related shares are sold.
(f) Repurchase agreements--The Institutional Fund and the Government Fund
invest in U.S. Government & Agency securities pursuant to repurchase agreements
with member banks of the Federal Reserve System or primary dealers in U.S.
Government securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price. The Trust
takes possession of the underlying securities, marks to market such securities
daily and, if necessary, receives additional securities to ensure that the
contract is adequately collateralized.
(g) During the year ended April 30, 1996, Merrill Lynch Institutional
Tax-Exempt Fund reclassified amounts to reflect a decrease of $5,037 in both
accumulated capital losses and undistributed net investment income as a result
of permanent differences arising from different treatments of market discount
for book and tax purposes.
2. Investment Advisory Fees and Other
Transactions with Affiliates
Fund Asset Management, L.P., a subsidiary of Merrill Lynch & Co., Inc.,
provides investment advisory and corporate administrative services to the Trust
for a fee, subject to certain limitations, at the following annual rates:
Treasury Fund
8
<PAGE> 111
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
Percentage of Average Daily Net Assets
----------------------------------------
Institutional Fund .40% up to and including $250,000,000
plus .375% over $250,000,000 up to and
including $500,000,000
plus .35% over $500,000,000 up to and
including $750,000,000
plus .325% over $750,000,000
Government Fund
and Treasury Fund .35% up to and including $500,000,000
plus .335% over $500,000,000 up to and
including $750,000,000
plus .32% over $750,000,000 up to and
including $1,000,000,000
plus .30% over $1,000,000,000
Institutional
Tax-Exempt Fund .45% up to and including $1,500,000,000
plus .425% over $1,500,000,000 up to and
including $2,000,000,000
plus .40% over $2,000,000,000
FAM has agreed to waive a portion of its advisory fees. The effective fee
payable to FAM will be at the annual rate of 0.20% of each Fund's average daily
net assets. FAM may discontinue waiver of the fee in whole or in part at any
time without notice.
For the year ended April 30, 1996 FAM waived a portion of its fees
amounting to $10,263,924 for the Institutional Fund, $2,066,757 for the
Government Fund, $765,429 for the Treasury Fund and $1,171,941 for the
Institutional Tax-Exempt Fund.
All officers and certain trustees of the Trust are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest in the Institutional Fund, Government Fund and
Treasury Fund ($.01 par value) and Institutional Tax-Exempt Fund ($.10 par
value) of a single class. At April 30, 1996, capital paid-in aggregated
$7,621,162,182 for Institutional Fund, $1,643,816,378 for Government Fund,
$514,133,661 for Treasury Fund and $667,324,370 for Institutional Tax-Exempt
Fund. Transactions in shares at a constant net asset value of $1.00 per share
were as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Institutional Fund 1996 1995
-------------- ---------------
<S> <C> <C>
Shares sold 81,859,341,129 63,113,089,823
Shares issued to shareholders
in reinvestment of dividends 360,863,781 198,199,152
-------------- ---------------
Total 82,220,204,910 63,311,288,975
Shares redeemed 81,179,030,074 60,509,071,011
-------------- ---------------
Net increase 1,041,174,836 2,802,217,964
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Government Fund 1996 1995
-------------- ---------------
<S> <C> <C>
Shares sold 11,319,796,312 8,314,763,207
Shares issued to shareholders
in reinvestment of dividends 86,908,080 65,230,079
-------------- ---------------
Total 11,406,704,392 8,379,993,286
Shares redeemed 11,363,934,579 8,313,348,347
-------------- ---------------
Net increase 42,769,813 66,644,939
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Treasury Fund 1996 1995
-------------- ---------------
<S> <C> <C>
Shares sold 2,984,431,147 2,288,760,430
Shares issued to shareholders
in reinvestment of dividends 25,665,244 14,088,128
-------------- ---------------
Total 3,010,096,391 2,302,848,558
Shares redeemed 2,838,827,671 2,226,955,175
-------------- ---------------
Net increase 171,268,720 75,893,383
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Institutional
Tax-Exempt Fund 1996 1995
-------------- ---------------
<S> <C> <C>
Shares sold 3,532,959,162 2,737,285,871
Shares issued to shareholders
in reinvestment of dividends 15,674,384 9,666,260
-------------- ---------------
Total 3,548,633,546 2,746,952,131
Shares redeemed 3,285,337,991 2,733,284,809
-------------- ---------------
Net increase 263,295,555 13,667,322
============== ===============
</TABLE>
Treasury Fund
9
<PAGE> 112
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
4. Distributions
The Funds declare dividends daily, pay dividends monthly and automatically
reinvest such dividends in additional Fund shares at net asset value, unless
shareholders request payment in cash. Dividends for the Institutional,
Government and Treasury Funds are declared from the total of net investment
income, plus or minus realized gains or losses, if any, on investments.
Dividends for the Institutional Tax-Exempt Fund are declared from net
investment incomeexcluding 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 April 30, 1996, the Institutional Tax-Exempt Fund had net capital loss
carryovers of $254,248 of which $96,688 expire in the year 2001, $17,520 expire
in 2002 and $140,040 expire in 2003.
5. Trustees' Fees
Each Trustee who is not affiliated with the Trust or its adviser is paid an
annual fee of $24,000 by the Trust. Trustees' fees are allocated among the four
series of the Trust based on the net assets under management.
Treasury Fund
10
<PAGE> 113
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
FOR GENERAL INFORMATION AND PURCHASES CALL 617-357-1460 OR TOLL-FREE
800-225-1576
Merrill Lynch Institutional Tax-Exempt Fund is a no-load money fund whose
objectives are to seek current income exempt from federal income taxes,
preservation of capital and liquidity available from investing in a diversified
portfolio of short-term, high quality Tax-Exempt Securities. The Tax-Exempt Fund
is designed primarily for institutions as an economical and convenient means for
the investment of short-term funds. The Tax-Exempt Fund is a separate series of
Merrill Lynch Funds For Institutions Series (the "Trust"), a diversified,
open-end management investment company.
The Statement of Additional Information of the Tax-Exempt Fund is not a
prospectus and should be read in conjunction with the Prospectus of the
Tax-Exempt Fund (the "Prospectus") which has been filed with the Securities and
Exchange Commission and is available upon oral or written request without
charge. Copies of the Prospectus can be obtained by calling or by writing the
Tax-Exempt Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Investment Objectives and Policies....................................... 2
Investment Restrictions.................................................. 4
Independent Auditors' Report............................................. 5
Audited Financial Statements for the Five Month Period Ended April 30,
1996................................................................... 6
Appendix A:
Management of the Trust............................................. A-1
Investment Advisory and Other Services.............................. A-5
Portfolio Transactions.............................................. A-7
Net Asset Value..................................................... A-9
Dividends........................................................... A-10
Taxes............................................................... A-11
Federal........................................................... A-11
Massachusetts Income Tax.......................................... A-13
Other Taxes....................................................... A-13
Distributor......................................................... A-14
Yield Information................................................... A-15
General Information................................................. A-16
Appendix B: Information Concerning Tax-Exempt Securities................. B-1
</TABLE>
The date of this Statement of Additional Information and the Prospectus is
January , 1997.
<PAGE> 114
INVESTMENT OBJECTIVES AND POLICIES
Reference is made to "The Tax-Exempt Fund and Its Objectives" in the
Prospectus for a discussion of the investment objectives and policies of the
Tax-Exempt Fund.
All of the investments of the Tax-Exempt Fund will be in securities with
remaining maturities of up to 397 days (13 months). The dollar weighted average
maturity of the Tax-Exempt Fund's portfolio will be 90 days or less. The
Tax-Exempt Fund can be expected to offer a lower yield than longer-term
municipal bond funds since Tax-Exempt Securities (see Appendix B for a
description of Tax-Exempt Securities) with longer maturities tend to produce
higher yields. Interest rates in the short-term Tax-Exempt Securities market
also may fluctuate more widely from time to time than interest rates in the
long-term municipal bond market. However, because of the shorter maturities, the
market value of the Tax-Exempt Securities held by the Tax-Exempt Fund can be
expected to fluctuate less in value as a result of changes in interest rates.
The Tax-Exempt Fund may also invest in short-term municipal notes, variable
rate demand notes ("VRDNs"), participation interests in VRDNs held by a
financial institution ("Participating VRDNs"), short-term tax-exempt commercial
paper obligations and floating rate tax-exempt demand notes. See Appendix B for
a discussion of the above investment instruments.
VRDNs are tax-exempt obligations which contain a floating or variable
interest rate adjustment formula and an unconditional right of demand to receive
payment of the unpaid balance plus accrued interest upon a short notice period.
The interest rates are adjustable at periodic intervals to some prevailing
market rate for similar investments, such adjustment formula being calculated to
maintain the market value of the VRDN at approximately the par value of the VRDN
upon the adjustment date. The adjustments are frequently based upon the prime
rate of a bank or some other appropriate interest rate adjustment index.
The maturity of VRDNs (including Participating VRDNs) are deemed to be the
longer of (i) the notice period required before the Tax-Exempt Fund is entitled
to receive payment of the principal amount of the VRDN upon demand or (ii) the
period remaining until the VRDN's next interest rate adjustment. If not redeemed
by the Tax-Exempt Fund through the demand feature, VRDNs mature on a specified
date which may range up to thirty years from the date of issuance. The
Tax-Exempt Fund will not invest more than 20% of its total assets in
Participating VRDNs.
Certain tax-exempt instruments (primarily VRDNs and Participating VRDNs)
may be entitled to the benefit of standby letters of credit or similar
commitments issued by banks and, in such instances, the Trustees of the Trust
will take into account the obligation of the bank in assessing the quality of
such instrument. The Tax-Exempt Fund may also purchase other types of tax-exempt
instruments if, in the opinion of the Trustees of the Trust, such obligations
are equivalent to securities having the ratings described in the Appendix to the
Prospectus.
The performance of the Tax-Exempt Fund will be affected by general changes
in interest rates on short-term Tax-Exempt Securities. Such changes will affect
the yield on the Tax-Exempt Fund's subsequent investments, will result in
increases or decreases in the value of the obligations then held by the
Tax-Exempt Fund and will thereby affect the rate of return on the shares of the
Tax-Exempt Fund. If interest rates have increased since the time a security was
purchased, the value of that security will generally decrease. The
Tax-Exempt Fund
2
<PAGE> 115
impact on value is lessened by the short-term maturities of the investment of
the Tax-Exempt Fund. Short-term securities tend to fluctuate less in value due
to changes in interest rates than do longer term securities. Preservation of
capital is a prime investment objective of the Tax-Exempt Fund, and, while the
types of short-term Tax-Exempt Securities in which the Tax-Exempt Fund invests
are not completely risk free, the Tax-Exempt Fund believes that securities
having the rating characteristics described above have a lower principal risk
than lower rated obligations and generally have a lower principal risk than
longer term obligations which entail the risk of changing conditions over a
longer period of time.
As indicated under "Redemptions" in the Prospectus, payments of proceeds
upon redemption of shares generally will be made on the same day the redemption
request is received. Tax-Exempt Securities generally do not trade on the basis
of same-day settlements. As a result, the Tax-Exempt Fund may be required to
maintain cash reserves or incur temporary bank borrowings so that it can make
such redemption payments. This will reduce the Tax-Exempt Fund's yield. The
Trustees of the Trust will re-examine the Tax-Exempt Fund's policy of making
redemption payments on the date redemption orders are received if that policy
has a significant impact on the Tax Exempt Fund's yield.
Purchase of Tax-Exempt Securities on a when-issued basis. Tax-Exempt
Securities may at times be purchased or sold on a delayed delivery basis or a
when-issued basis. These transactions arise when securities are purchased or
sold by the Tax-Exempt Fund with payment and delivery taking place in the
future, often a month or more after the purchase. The payment obligation and the
interest rate are each fixed at the time the buyer enters into the commitment.
During the period between the making of the commitment and delivery of the
securities, the Tax-Exempt Fund will not earn any income on the securities
subject to the commitment, but will be exposed to changes in the market value of
such securities. The Tax-Exempt Fund will only make commitments to purchase such
securities with the intention of actually acquiring the securities, but the Tax-
Exempt Fund may sell these securities prior to settlement date if it is deemed
advisable. Purchasing Tax-Exempt Securities on a when-issued basis involves the
risk that the yield available in the market when delivery takes place may
actually be higher than those obtained in the transaction itself; if yields so
increase, the value of the when-issued obligation will generally decrease. The
Tax-Exempt Fund will maintain a separate account at its custodian bank
consisting of cash or liquid Tax-Exempt Securities (valued on a daily basis)
equal at all times to the amount of the when-issued commitment.
Purchase of securities with puts. The Tax-Exempt Fund has authority to
purchase securities at a price which would result in a yield to maturity lower
than that generally offered by the seller at the time of purchase when it can
simultaneously acquire the right to sell the securities back to the seller at an
agreed upon price at any time during a stated period or on a certain date. Such
a right is generally denoted as a "put." The Tax-Exempt Fund does not currently
intend to enter into such transactions but reserves the right to do so in the
future. No transactions will be entered into for the Tax-Exempt Fund unless the
Trustees of the Trust have approved the proposed terms of such transactions and
such terms are set forth in a subsequent prospectus which has been declared
effective by the Securities and Exchange Commission. In addition, the Tax-Exempt
Fund may be required to obtain an exemptive order from the Securities and
Exchange Commission permitting it to acquire puts. The right to engage in such
transactions is a fundamental policy of the Tax-Exempt Fund, which may only be
changed by shareholder vote.
Tax-Exempt Fund
3
<PAGE> 116
INVESTMENT RESTRICTIONS
In addition to those restrictions and policies set forth in "Investment
Restrictions" in the Prospectus, the Tax-Exempt Fund has adopted the following
restrictions and policies relating to the investment of its assets and its
activities. These are fundamental policies and may not be changed without the
approval of the holders of a majority of the Tax-Exempt Fund's outstanding
shares (for this purpose a majority of the shares means the lesser of (i) 67% of
the shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding shares).
The Tax-Exempt Fund may not: (1) make investments for the purpose of
exercising control or management; (2) purchase securities of other investment
companies, except in connection with a merger, consolidation, acquisition or
reorganization; (3) purchase or sell real estate (provided that such restriction
shall not apply to tax-exempt securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein), commodities or commodity contracts, interests in oil, gas or other
mineral exploration or development programs; (4) make loans to other persons,
provided that the Tax-Exempt Fund may purchase a portion of an issue of
tax-exempt securities (the acquisition of a portion of an issue of tax-exempt
securities or bonds, debentures or other debt securities which are not publicly
distributed is considered to be the making of a loan under the Investment
Company Act of 1940); (5) act as an underwriter of securities, except to the
extent that the Tax-Exempt Fund may technically be deemed an underwriter when
engaged in the activities described in (4) above or insofar as the Tax-Exempt
Fund may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities; (6) invest more than 5% of its total assets (taken at
market value at the time of each investment) in industrial revenue bonds where
the entity supplying the revenues from which the issue is to be paid, including
predecessors, has a record of less than three years of continuous operation; (7)
purchase any securities on margin, except for use of short-term credit necessary
for clearance of purchases and sales of portfolio securities; or (8) make short
sales of securities or maintain a short position or invest in put call, straddle
or spread options; provided, however, that the Tax-Exempt Fund shall have the
authority to purchase tax-exempt securities subject to put options as set forth
under "Investment Objectives and Policies" above.
For purposes of the restriction on the Tax-Exempt Fund's investing more
than 5% of its total assets in the securities of any one issuer except
securities backed by the U.S. Government or its agencies or instrumentalities
(as more fully set forth in "Investment Restrictions" in the Prospectus), the
Tax-Exempt Fund will regard each state and each political subdivision, agency or
instrumentality of such state and each multistate agency of which such state is
a member and each public authority which issues securities on behalf of a
private entity as a separate issuer, except that if the security is backed only
by the assets and revenues of an entity other than the issuer then the entity
with the ultimate responsibility for the payment of interest and principal may
be regarded as the sole issuer.
With respect to the restriction on the Tax-Exempt Fund's borrowing amounts
in excess of 20% of its total assets, as more fully set forth in "Investment
Restrictions" in the Prospectus, it should be noted that usually only
"leveraged" investment companies may borrow in excess of 5% of their assets;
however, the Tax-Exempt Fund will not borrow to increase income but only to meet
redemption requests which might otherwise require untimely dispositions of
portfolio securities. Interest paid on such borrowings will reduce net income.
Tax-Exempt Fund
4
<PAGE> 117
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
Merrill Lynch Funds For Institutions Series:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Merrill Lynch Funds For Institutions
Series (the "Trust"), consisting of the Merrill Lynch Institutional Fund,
Merrill Lynch Government Fund, Merrill Lynch Treasury Fund, and Merrill Lynch
Institutional Tax-Exempt Fund (the "Funds") as of April 30, 1996, the related
statements of operations for the year then ended, the statements of changes in
net assets for the years ended April 30, 1996 and 1995 and the financial
highlights for each of the respective fiscal periods then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and 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 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 the securities owned at
April 30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds of the Merrill Lynch Funds For Institutions Series at April 30,
1996, the results of their operations, the changes in their net assets, and
their financial highlights for each of the respective fiscal periods then ended
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachussetts
May 24, 1996
Tax-Exempt Fund
5
<PAGE> 118
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments
April 30, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Face Value
Amount Issue (Note 1a)
- ------------- ---------- ----------------------------------------------------- -------------
<S> <C> <C> <C>
Alabama -- Birmingham, Alabama Medical Clinic Board
2.5% Revenue (University of Alabama Health Services
$13,000,000 Project) DDN 4.20% due 12/01/2026 (a) $ 13,000,000
Jefferson County, Alabama Sewer Revenue VRDN
4,000,000 4.15% due 09/01/2025 (a) 4,000,000
- ------------ -------- ----------------------------------------------- ----------
Arizona -- Maricopa County, Arizona PCR (Arizona Public
2.1% 800,000 Service Co.) DDN 4.10% due 05/01/2029 (a) 800,000
Maricopa County, Arizona PCR (El Paso Electric
13,000,000 Co. Project) VRDN 4.50% due 07/01/2014 (a) 13,000,000
- ------------ -------- ----------------------------------------------- ----------
Colorado -- Denver, Colorado City & County Airport Revenue
1.2% 8,000,000 VRDN 4.20% due 11/15/2025 (a) 8,000,000
- ------------ -------- ----------------------------------------------- ----------
Connecticut Connecticut Special Assessment Unemployment
-- Compensation Revenue VRDN 4.35% due
1.3% 5,400,000 11/01/2001 (a) 5,400,000
Eagles Tax Exempt Trust VRDN 4.21% due
3,500,000 07/01/2015 (a) 3,500,000
- ------------ -------- ----------------------------------------------- ----------
District of
Columbia District of Columbia General Fund Recovery DDN
-- 14,300,000 4.30% due 06/01/2003 (a) 14,300,000
4.4% District of Columbia Revenue (Georgetown
University) VRDN:
6,825,000 4.60% due 04/01/2004 (a) 6,825,000
5,000,000 4.60% due 04/01/2017 (a) 5,000,000
District of Columbia Revenue (American
Association for the Advancement of Sciences)
DDN 4.15% due
3,100,000 10/01/2022 (a) 3,100,000
- ------------ -------- ----------------------------------------------- ----------
Florida -- 5,000,000 Jacksonville, Florida CP 3.50% due 07/12/1996 5,000,000
1.2% Sunshine State Governmental Financing
3,000,000 Commission CP 4.15% due 05/01/1996 3,000,000
- ------------ -------- ----------------------------------------------- ----------
Georgia -- Georgia State Residential Finance Authority
3.1% 6,410,000 FXRDN 3.70% due 06/01/1996 6,410,000
Municipal Electric Authority CP:
8,000,000 3.40% due 05/01/1996 8,000,000
6,000,000 3.45% due 07/12/1996 6,000,000
- ------------ -------- ----------------------------------------------- ----------
Illinois -- Chicago, Illinois IDR (Enterprise Center
15.5% 4,300,000 Project) VRDN 4.30% due 06/01/2022 (a) 4,300,000
Chicago, Illinois O'Hare International Airport
Revenue (American Airlines) DDN 4.10% due
21,900,000 12/01/2017 (a) 21,900,000
Chicago, Illinois Solid Waste Disposal
Facilities Revenue (Groot Industries Inc.
Project) VRDN 4.10% due
7,000,000 12/01/2015 (a) 7,000,000
</TABLE>
See Notes to Financial Statements.
Tax-Exempt Fund
6
<PAGE> 119
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments--Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount Issue (Note 1a)
- ------------- ---------- ----------------------------------------------------- -------------
<S> <C> <C> <C>
Illinois Illinois Educational Facilities Authority
(continued) Revenue (Art Institute of Chicago) VRDN 4.15%
$ 2,500,000 due 03/01/2027 (a) $ 2,500,000
Illinois Health Facilities Authority Revenue
(Evanston Hospital Corp. Project) CP:
5,000,000 3.75% due 10/31/1996 5,000,000
5,000,000 3.35% due 12/27/1996 5,000,000
Illinois Health Facilities Authority Revenue
(Northwest
Community Hospital) VRDN 4.40% due 07/01/2025
24,400,000 (a) 24,400,000
Illinois Health Facilities Authority Revenue
(Central Du Page County Healthcorp Project) DDN
24,100,000 4.40% due 11/01/2020 (a) 24,100,000
Kane Cook & Du Page Counties School District
6,500,000 TAN 3.94% due 09/30/1996 6,510,273
Peoria, Illinois IDR (CDC Realty L.P. Project)
2,870,000 VRDN 4.35% due 12/01/2014 (a) 2,870,000
- ------------ -------- ----------------------------------------------- ----------
Indiana -- Anderson, Indiana Economic Development Revenue
4.8% (Applecreek Commons L.P.) VRDN 4.25% due
6,660,000 12/01/2027 (a) 6,660,000
Bloomington, Indiana Economic Development
Revenue (Bloomington Square Project) VRDN 4.25%
due
3,645,000 12/01/2008 (a) 3,645,000
Greencastle, Indiana IDR (Crown Equipment Corp.
3,000,000 Project) VRDN 4.15% due 02/01/2011 (a) 3,000,000
Greendale, Indiana Economic Development Revenue
(Pripak Inc. Project) VRDN 4.35% due 12/01/2003
900,000 (a) 900,000
Indiana State Development Finance Authority
Economic Development Revenue (Hart Housing
Group Inc. Project) VRDN 4.30% due 06/01/2011
2,700,000 (a) 2,700,000
Indiana State Development Finance Authority IDR
(Centurion Industries Inc. Project) VRDN 4.35%
2,815,000 due 10/01/2005 (a) 2,815,000
Indiana State Educational Facilities Authority
Revenue (Wesleyan University Project) VRDN
4.25% due
5,000,000 12/01/2015 (a) 5,000,000
New Castle, Indiana Economic Development
Revenue (Barden Homes Indiana Inc.) VRDN 4.35%
due
2,105,000 08/01/2010 (a) 2,105,000
St. Joseph County, Indiana Hospital Authority
(Madison
Center Inc. Project) VRDN 4.15% due 03/04/2015
2,485,000 (a) 2,485,000
Westfield, Indiana IDR (Standard Locknut Inc.
3,000,000 Project) VRDN 4.35% due 02/01/2002 (a) 3,000,000
</TABLE>
See Notes to Financial Statements.
Tax-Exempt Fund
7
<PAGE> 120
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments--Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount Issue (Note 1a)
- ------------- ---------- ----------------------------------------------------- -------------
<S> <C> <C> <C>
Kentucky -- Kentucky Economic Development Finance Authority
5.2% Revenue (Sisters of Charity) DDN 4.40% due
$25,100,000 11/01/2020 (a) $25,100,000
Perry County, Kentucky Health Care Systems
Revenue (Appalachian Regional Health Care) VRDN
9,300,000 4.00% due 08/01/2014 (a) 9,300,000
- ------------ -------- ----------------------------------------------- ----------
Louisiana -- Louisiana Public Facilities Authority GO 4.50%
0.9% 6,050,000 due 08/29/1996 6,058,608
- ------------ -------- ----------------------------------------------- ----------
Maryland -- Anne Arundel County, Maryland Economic
1.2% Development Revenue (Atlas Container Corp.
2,000,000 Project) VRDN 4.25% due 04/01/2006 (a) 2,000,000
Maryland State Economic Development Corp.
Revenue (Grafco Industries L.P. Project) VRDN
3,500,000 4.35% due 03/01/2008 (a) 3,500,000
Maryland State Health & Higher Educational
Facilities Authority Revenue (Helix Health
2,700,000 Inc.) VRDN 4.20% due 07/01/2026 (a) 2,700,000
- ------------ ----------- ----------------------------------------------- -----------
Massachusetts Bridgewater, Massachusetts BAN 3.90% due
-- 6,000,000 11/19/1996 6,011,356
5.9% Fall River, Massachusetts RAN 4.25% due
1,850,000 06/28/1996 1,852,053
5,400,000 Gardner, Massachusetts BAN 4.00% due 04/01/1997 5,409,516
Lynn, Massachusetts Water & Sewer Commission
6,000,000 BAN 4.50% due 10/11/1996 6,008,204
Massachusetts State Industrial Finance Agency
10,000,000 (Goddard House) VRDN 4.15% due 11/01/2025 (a) 10,000,000
Massachusetts State Industrial Finance Agency
Revenue (WBC Extrusion Products) FXRDN 3.80%
due
3,935,000 04/01/2006 3,935,000
Massachusetts State Industrial Finance Agency
PCR (New England Power Co. Project) CP 3.50%
2,200,000 due 08/26/1996 2,200,000
Massachusetts State Industrial Finance Agency
Solid Waste Disposal Revenue (E.L. Harvey &
1,650,000 Sons) VRDN 3.80% due 01/01/2011 (a) 1,650,000
New Bedford, Massachusetts RAN 4.10% due
2,000,000 06/28/1996 2,001,867
- ------------ ----------- ----------------------------------------------- -----------
Michigan -- Michigan State Building Authority Revenue CP
2.1% 14,000,000 3.50% due 05/07/1996 14,000,000
- ------------ ----------- ----------------------------------------------- -----------
Minnesota -- Becker, Minnesota PCR (Northern State Power
1.2% 7,900,000 Co.) CP 3.50% due 05/10/1996 7,900,000
- ------------ ----------- ----------------------------------------------- -----------
Missouri -- Jefferson County, Missouri IDA Revenue
0.3% (Sinclair & Rush Inc. Project) VRDN 4.35% due
2,240,000 11/01/2001 (a) 2,240,000
</TABLE>
See Notes to Financial Statements.
Tax-Exempt Fund
8
<PAGE> 121
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments--Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount Issue (Note 1a)
- ------------- ---------- ----------------------------------------------------- -------------
<S> <C> <C> <C>
Nevada -- Nevada Housing Single Family Program Bond
1.4% Mortgage Revenue FXRDN:
$ 5,100,000 Series A-1 3.45% due 10/01/1996 $ 5,100,000
4,200,000 Series A-2 3.55% due 10/01/1996 4,200,000
- ------------ ----------- ----------------------------------------------- ------------
New New Hampshire Higher Educational & Health
Hampshire Facilities Authority Revenue (Dartmouth
-- Educational Loan Corp.) FXRDN 4.20% due
1.8% 9,830,000 06/01/1996 9,830,000
1,876,000 Salem, New Hampshire TAN 3.60% due 12/17/1996 1,877,135
- ------------ ----------- ----------------------------------------------- ------------
New York -- New York Power Authority Revenue FXRDN 3.25%
0.6% 4,300,000 due 09/01/1996 4,300,000
- ------------ ----------- ----------------------------------------------- ------------
North Dakota Grand Forks, North Dakota Health Care
-- Facilities Revenue (The United Hospital
1.4% 9,000,000 Obligation Group) DDN 4.20% due 12/01/2025 (a) 9,000,000
- ------------ ----------- ----------------------------------------------- ------------
Ohio -- Beavercreek, Ohio School District BAN 4.03% due
11.4% 10,800,000 07/18/1996 10,812,034
1,900,000 Cadiz, Ohio BAN 4.44% due 09/12/1996 1,901,930
Cincinnati, Ohio School District TAN:
7,000,000 4.31% due 06/28/1996 7,006,624
6,550,000 6.00% due 07/11/1996 6,580,983
Cuyahoga County, Ohio Hospital Revenue
(University
Hospital of Cleveland) DDN 4.15% due 01/01/2016
5,000,000 (a) 5,000,000
7,400,000 Dayton, Ohio BAN 4.10% due 07/25/1996 7,406,742
Dayton, Ohio Special Facilities Revenue (Emery
Air Freight Project) DDN 4.10% due 10/01/2009
6,000,000 (a) 6,000,000
Greater Cleveland Regional Transit Authority
8,240,000 BAN 3.90% due 10/17/1996 8,256,769
Lucas-Beacon Place Housing Development Corp.
M/F Revenue (Beacon Place Apartments Project)
4,560,000 FXRDN 3.35% due 09/15/1996 4,560,000
Mahoning County, Ohio Health Care Facilities
Revenue (Shepherd of the Valley Lutheran Home
and Retirement Center) VRDN 4.25% due
7,400,000 09/01/2020 (a) 7,400,000
Nelsonville York, Ohio School District BAN
2,731,199 4.65% due 05/15/1996 2,731,757
Ohio State Higher Educational Facilities
Commission Revenue (Ashland University Project)
1,000,000 VRDN 4.25% due 09/01/2001 (a) 1,000,000
Stark County, Ohio IDR (Superior Dairy Inc.
2,860,000 Project) VRDN 4.35% due 05/01/2003 (a) 2,860,000
State Water Development Authority Revenue
(Honda of America Project) VRDN 3.85% due
400,000 01/01/1997 (a) 400,000
Toledo, Ohio City Services Revenue GO 4.32% due
4,100,000 07/31/1996 4,106,191
</TABLE>
See Notes to Financial Statements.
Tax-Exempt Fund
9
<PAGE> 122
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments--Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount Issue (Note 1a)
- ------------ -------- ----------------------------------------------- ----------
<S> <C> <C> <C>
Oregon -- State Veterans Hospital Welfare Board VRDN
0.4% 4.10% due
$ 2,410,000 12/01/2017 (a) $ 2,410,000
- ------------ ------------ ----------------------------------------------- ------------
Pennsylvania Allegheny County, Pennsylvania Hospital
-- Development Authority Revenue (Presbyterian
8.3% University Hospital) VRDN 3.25% due 03/01/2020
13,000,000 (a) 13,000,000
Allegheny County, Pennsylvania IDA Revenue
(Parkway Center Project) VRDN 4.30% due
1,200,000 05/01/2009 (a) 1,200,000
Delaware County, Pennsylvania IDA PCR (BP Oil
3,500,000 Inc. Project) DDN 4.10% due 12/01/2009 (a) 3,500,000
Emmaus, Pennsylvania, General Authority Revenue
Local Government (Pool Program) VRDN:
10,000,000 Series B-8 4.30% due 03/01/2024 (a) 10,000,000
5,500,000 Series B-10 4.30% due 03/01/2024 (a) 5,500,000
5,000,000 Series D-11 4.30% due 03/01/2024 (a) 5,000,000
1,500,000 Series F-6 4.25% due 03/01/2024 (a) 1,500,000
Harrisburg, Pennsylvania Authority Revenue
10,000,000 (Pooled Loan) VRDN 4.45% due 07/01/2021 (a) 10,000,000
Montgomery County, Pennsylvania Higher
Education & Health Authority Revenue
(Philadelphia Presbytery) VRDN 4.15% due
3,000,000 07/01/2025 (a) 3,000,000
Washington County, Pennsylvania Authority Lease
Revenue Higher Education Bonds (Pooled
2,850,000 Equipment Lease) VRDN 4.30% due 11/01/2005 (a) 2,850,000
- ------------ ------------ ----------------------------------------------- ------------
Rhode Island
-- East Providence, Rhode Island TAN 3.64% due
1.1% 2,000,000 07/08/1996 2,000,501
Rhode Island Housing & Mortgage Finance Corp.
Homeownership Opportunity FXRDN 3.55% due
3,000,000 01/30/1997 3,000,000
Rhode Island Industrial Facilities Corp. IDR
(Capital Development Corp. Project) FXRDN 3.70%
due
2,600,000 11/01/2005 2,600,000
- ------------ ------------ ----------------------------------------------- ------------
Tennessee -- Clarksville, Tennessee Public Building
2.6% Authority Revenue (Pooled Loan) VRDN 4.20% due
6,000,000 10/01/2025 (a) 6,000,000
Montgomery County, Tennessee Public Building
7,000,000 Authority VRDN 4.20% due 07/01/2015 (a) 7,000,000
Nashville & Davidson County, IDA Revenue
(Gibson Guitar Corp. Project) VRDN 4.00% due
4,300,000 03/01/2011 (a) 4,300,000
- ------------ ------------ ----------------------------------------------- ------------
Texas -- El Paso, Texas IDA Revenue (Camden Wire Co.
4.1% 3,500,000 Inc. Project) VRDN 4.40% due 03/01/2016 (a) 3,500,000
Greater Texas Student Loan Corp. Revenue FXRDN
4,250,000 3.40% due 06/01/1996 4,250,000
</TABLE>
See Notes to Financial Statements.
Tax-Exempt Fund
10
<PAGE> 123
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments--Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount Issue (Note 1a)
- ------------ -------- ----------------------------------------------- ----------
<S> <C> <C> <C>
Texas Montgomery County, Texas IDA Revenue (Sawyer
(continued) Research Products Inc.) VRDN 4.30% due
$ 1,895,000 02/04/2015 (a) $ 1,895,000
Port Arthur, Texas Naval District PCR (Texaco
7,000,000 Inc. Project) DDN 4.15% due 10/01/2024 (a) 7,000,000
Texas State (Veterans Housing Program) FXRDN
5,000,000 3.90% due 11/06/1996 5,000,000
Texas State Water Development Board DDN 4.20%
5,500,000 due 03/01/2015 (a) 5,500,000
- ------------ ------------ ----------------------------------------------- ------------
Vermont -- Vermont IDA Revenue (Burlington Project) VRDN
2.1% 900,000 4.15% due 12/01/2011 (a) 900,000
13,000,000 Vermont State CP 3.35% due 06/13/1996 13,000,000
- ------------ ------------ ----------------------------------------------- ------------
Virginia -- Louisa, Virginia IDA PCR (Virginia Electric &
1.9% 13,000,000 Power) CP 3.40% due 09/09/1996 13,000,000
- ------------ ------------ ----------------------------------------------- ------------
Washington Pierce County, Washington Housing Authority
-- Revenue
1.0% (Eagles Watch Project) VRDN 4.05% due
3,000,000 09/01/2020 (a) 3,000,000
Pierce County, Washington Economic Development
Corp. Solid Waste Facilities Revenue (Simpson
Tacoma Kraft Co. Project) VRDN 4.20% due
3,500,000 11/01/2025 (a) 3,500,000
- ------------ ------------ ----------------------------------------------- ------------
West Raleigh County, West Virginia Health Care
Virginia Systems
-- Revenue (Appalachian Regional Health Care) VRDN
0.5% 2,700,000 4.00% due 09/01/2006 (a) 2,700,000
West Virginia State Hospital Finance Authority
Revenue (St. Mary's Hospital Project) VRDN
4.25% due
920,000 10/01/2012 (a) 920,000
- ------------ ------------ ----------------------------------------------- ------------
Wisconsin -- Appleton, Wisconsin IDR (Valley Packaging
4.9% 1,450,000 Industries) VRDN 4.25% due 02/01/2011 (a) 1,450,000
Deerfield, Wisconsin IDR (Interpane Coatings
Inc. Project) VRDN:
2,100,000 Series A 4.15% due 05/01/2003 (a) 2,100,000
2,545,000 Series B 4.30% due 05/01/2003 (a) 2,545,000
Kenosha, Wisconsin School District TRAN 4.50%
7,000,000 due 09/06/1996 7,010,649
Milwaukee, Wisconsin Redevelopment Authority
Revenue (Jensar Corp. Project) VRDN 4.35% due
2,650,000 03/01/2007 (a) 2,650,000
Oshkosh, Wisconsin IDR (Automatic Handling
500,000 Inc.) VRDN 4.35% due 06/01/2006 (a) 500,000
Oshkosh, Wisconsin School District TRAN 4.75%
12,000,000 due 09/12/1996 12,023,593
</TABLE>
See Notes to Financial Statements.
Tax-Exempt Fund
11
<PAGE> 124
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments--Continued
April 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount Issue (Note 1a)
- ------------ -------- ----------------------------------------------- ----------
<S> <C> <C> <C>
Wisconsin Plymouth, Wisconsin IDR (Great Lakes Cheese
(continued) $ 500,000 Inc. Project) VRDN 4.35% due 08/01/2024 (a) $ 500,000
Verona, Wisconsin School District TRAN 4.50%
3,725,000 due 08/28/1996 (a) 3,730,849
- ------------ ----------- ----------------------------------------------- ------------
Wyoming -- Converse County, Wyoming Environmental
3.4% Improvement Revenue (Pacificorp Projects) DDN
4.45% due
5,300,000 11/01/2025 (a) 5,300,000
Lincoln County, Wyoming Environmental
Improvement Revenue (Pacificorp Projects) DDN
4.45% due
4,000,000 11/01/2025 (a) 4,000,000
Sweetwater County, Wyoming Environmental
Improvement Revenue (Pacificorp Projects) DDN
13,300,000 4.45% due 11/01/2025 (a) 13,300,000
- ------------ ----------- ----------------------------------------------- ------------
Total Investments (Cost $665,557,634*) -- 99.8% 665,557,634
- ------------ ----------- ----------------------------------------------- ------------
Other Assets Less Liabilities -- 0.2% 1,647,061
- ------------ ----------- ----------------------------------------------- ------------
Net Assets -- Equivalent to $1.00 Per Share on
667,324,370 Shares of Beneficial Interest
Outstanding -- 100.0% $667,204,695
- ------------ ----------- ----------------------------------------------- ------------
</TABLE>
(a) The interest rate is subject to change periodically based on a certain
index. The rates shown are those in effect at April 30, 1996. 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.
Portfolio Abbreviations for Merrill Lynch Institutional Tax-Exempt
BAN Bond Anticipation Notes
CP Commercial Paper
DDN Daily Demand Notes
FXRDN Fixed Rate Demand Notes
GO General Obligation
IDA Industrial Development Authority
IDR Industrial Development Revenue
M/F Multi-Family
PCR Pollution Control Revenue
RAN Revenue Anticipation Notes
TAN Tax Anticipation Notes
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
Tax-Exempt Fund
12
<PAGE> 125
Merrill Lynch Institutional Tax-Exempt Fund
Statement of Assets and Liabilities
April 30, 1996
<TABLE>
<S> <C>
Assets:
Investments, at amortized cost and value (Note 1a) $665,557,634
Cash 1,854,450
Interest receivable 3,873,408
Deferred organization and prepaid expenses 78,036
-------------
Total assets 671,363,528
-------------
Liabilities:
Payable for investments purchased 4,106,191
Accrued expenses 31,800
Dividends payable 20,842
-------------
Total liabilities 4,158,833
-------------
Net Assets: (Equivalent to $1.00 per share, offering and redemption price, based
on 667,324,370 shares of beneficial interest outstanding) $667,204,695
-------------
</TABLE>
Merrill Lynch Institutional Tax-Exempt Fund
Statement of Operations
April 30, 1996
<TABLE>
<S> <C>
Investment Income:
Income:
Interest and discount earned (Note 1d) $18,247,752
-------------
Expenses:
Investment advisory fee (Note 2) $ 2,109,495
Registration fees 161,588
Dividend and transfer agency fees 113,861
Accounting and custodian services 94,841
Amortization of organization expenses 29,853
Legal and audit fees 14,830
Printing and shareholder reports 7,091
Trustees' fees (Note 5) 5,427
Insurance 2,434
Miscellaneous 4,980
-------------
Total expenses 2,544,400
Waived investment advisory fee (Note 2) (1,171,941) 1,372,459
------------- -------------
Net investment income 16,875,293
Net realized gain from investment transactions 796
-------------
Net Increase in Net Assets Resulting From Operations $16,876,089
=============
</TABLE>
See Notes to Financial Statements.
Tax-Exempt Fund
13
<PAGE> 126
<TABLE>
<CAPTION>
Merrill Lynch Institutional Tax-Exempt Fund
Statements of Changes in Net Assets YEAR ENDED APRIL 30,
----------------------------
1996 1995
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income $ 16,875,293 $ 10,615,967
Net realized gain (loss) from investment transactions 796 (143,818)
------------ ------------
Net increase in net assets resulting from operations 16,876,089 10,472,149
Total declared as dividends to shareholders (Note 4) (16,870,256) (10,611,603)
Capital share transactions (Note 3) 263,295,555 13,667,322
------------ ------------
Net increase in net assets 263,301,388 13,527,868
Net Assets:
Beginning of period 403,903,307 390,375,439
------------ ------------
End of period, including undistributed net investment income
of $134,573 and accumulated capital losses of $254,248 and
$260,081 respectively (Note 1g and Note 4) $667,204,695 $403,903,307
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Institutional Tax-Exempt Fund FIVE
Financial Highlights MONTHS
ENDED
YEAR ENDED APRIL YEAR ENDED NOVEMBER
APRIL 30, 30, 30,
------------ ---------- ----------------------
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $1.00 $1.00 $ 1.00 $1.00 $1.00 $1.00
Net investment income .04 .03 .01 .02 .03 .04
Dividends from net investment income (.04) (.03) (.01) (.02) (.03) (.04)
----- ----- ----- ----- ----- -----
Net Asset Value, end of period $1.00 $1.00 $ 1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== =====
Total Return 3.68% 3.20% 2.14%(1) 2.14% 2.74% 4.33%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net Assets, end of period (000) $667,205 $403,903 $390,375 $278,697 $329,254 $377,154
Ratio of expenses to average net assets
(before waiver) .54% .56% .59%(1) .62% .61% .61%
Ratio of expenses to average net assets
(after waiver) .29% .31% .34%(1) .45% .53% .54%
Ratio of net investment income, to
average
net assets (before waiver) 3.35% 2.90% 1.92%(1) 1.96% 2.67% 4.21%
Ratio of net investment income, to
average
net assets (after waiver) 3.60% 3.15% 2.17%(1) 2.13% 2.75% 4.28%
</TABLE>
(1) On an annualized basis
See Notes to Financial Statements.
Tax-Exempt Fund
14
<PAGE> 127
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements
1. Significant Accounting Policies
Merrill Lynch Funds For Institutions Series (the "Trust") was organized as a
Massachusetts business trust on May 7, 1987 and is registered under the
Investment Company Act of 1940 as a diversified, open-end management company.
On February 18, 1994 Merrill Lynch Institutional Tax-Exempt Fund was
reorganized as a separate series of the Trust. The Trust has a fiscal year end
of April 30. The following is a summary of significant accounting policies
consistently followed by the Trust in conformity with generally accepted
accounting principles.
(a) The value of the Institutional, Government and Treasury Fund portfolio
securities is determined on the basis of fair value as determined in good faith
by the Trustees of the Trust. In determining fair value, securities for which
market quotations are readily available are valued at market value. Other
securities, if any, are valued at their fair value in the best judgment of Fund
Asset Management, L.P., ("FAM") under procedures established by, and under the
supervision of, the Trustees. Securities with remaining maturities of 60 days
or less are valued by use of the amortized cost method. Institutional
Tax-Exempt Fund 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 is deemed to be the demand notice payment period.
(b) It is the Trust'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.
(e) Deferred organization expenses are amortized over a period not
exceeding five years. Prepaid registration fees are charged to income as the
related shares are sold.
(f) Repurchase agreements--The Institutional Fund and the Government Fund
invest in U.S. Government & Agency securities pursuant to repurchase agreements
with member banks of the Federal Reserve System or primary dealers in U.S.
Government securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price. The Trust
takes possession of the underlying securities, marks to market such securities
daily and, if necessary, receives additional securities to ensure that the
contract is adequately collateralized.
(g) During the year ended April 30, 1996, Merrill Lynch Institutional
Tax-Exempt Fund reclassified amounts to reflect a decrease of $5,037 in both
accumulated capital losses and undistributed net investment income as a result
of permanent differences arising from different treatments of market discount
for book and tax purposes.
2. Investment Advisory Fees and Other Transactions with Affiliates
Fund Asset Management, L.P., a subsidiary of Merrill Lynch & Co., Inc.,
provides investment advisory and corporate administrative services to the Trust
for a fee, subject to certain limitations, at the following annual rates:
Tax-Exempt Fund
15
<PAGE> 128
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
Percentage of Average Daily Net Assets
----------------------------------------
Institutional Fund .40% up to and including $250,000,000
plus .375% over $250,000,000 up to and
including $500,000,000
plus .35% over $500,000,000 up to and
including $750,000,000
plus .325% over $750,000,000
Government Fund
and Treasury Fund .35% up to and including $500,000,000
plus .335% over $500,000,000 up to and
including $750,000,000
plus .32% over $750,000,000 up to and
including $1,000,000,000
plus .30% over $1,000,000,000
Institutional
Tax-Exempt Fund .45% up to and including $1,500,000,000
plus .425% over $1,500,000,000 up to and
including $2,000,000,000
plus .40% over $2,000,000,000
FAM has agreed to waive a portion of its advisory fees. The effective fee
payable to FAM will be at the annual rate of 0.20% of each Fund's average daily
net assets. FAM may discontinue waiver of the fee in whole or in part at any
time without notice.
For the year ended April 30, 1996 FAM waived a portion of its fees
amounting to $10,263,924 for the Institutional Fund, $2,066,757 for the
Government Fund, $765,429 for the Treasury Fund and $1,171,941 for the
Institutional Tax-Exempt Fund.
All officers and certain trustees of the Trust are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest in the Institutional Fund, Government Fund and
Treasury Fund ($.01 par value) and Institutional Tax-Exempt Fund ($.10 par
value) of a single class. At April 30, 1996, capital paid-in aggregated
$7,621,162,182 for Institutional Fund, $1,643,816,378 for Government Fund,
$514,133,661 for Treasury Fund and $667,324,370 for Institutional Tax-Exempt
Fund. Transactions in shares at a constant net asset value of $1.00 per share
were as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Institutional Fund 1996 1995
-------------- ---------------
<S> <C> <C>
Shares sold 81,859,341,129 63,113,089,823
Shares issued to shareholders
in reinvestment of dividends 360,863,781 198,199,152
-------------- ---------------
Total 82,220,204,910 63,311,288,975
Shares redeemed 81,179,030,074 60,509,071,011
-------------- ---------------
Net increase 1,041,174,836 2,802,217,964
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Government Fund 1996 1995
-------------- ---------------
<S> <C> <C>
Shares sold 11,319,796,312 8,314,763,207
Shares issued to shareholders
in reinvestment of dividends 86,908,080 65,230,079
-------------- ---------------
Total 11,406,704,392 8,379,993,286
Shares redeemed 11,363,934,579 8,313,348,347
-------------- ---------------
Net increase 42,769,813 66,644,939
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Treasury Fund 1996 1995
-------------- ---------------
<S> <C> <C>
Shares sold 2,984,431,147 2,288,760,430
Shares issued to shareholders
in reinvestment of dividends 25,665,244 14,088,128
-------------- ---------------
Total 3,010,096,391 2,302,848,558
Shares redeemed 2,838,827,671 2,226,955,175
-------------- ---------------
Net increase 171,268,720 75,893,383
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------
Institutional
Tax-Exempt Fund 1996 1995
-------------- ---------------
<S> <C> <C>
Shares sold 3,532,959,162 2,737,285,871
Shares issued to shareholders
in reinvestment of dividends 15,674,384 9,666,260
-------------- ---------------
Total 3,548,633,546 2,746,952,131
Shares redeemed 3,285,337,991 2,733,284,809
-------------- ---------------
Net increase 263,295,555 13,667,322
============== ===============
</TABLE>
Tax-Exempt Fund
16
<PAGE> 129
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
4. Distributions
The Funds declare dividends daily, pay dividends monthly and automatically
reinvest such dividends in additional Fund shares at net asset value, unless
shareholders request payment in cash. Dividends for the Institutional,
Government and Treasury Funds are declared from the total of net investment
income, plus or minus realized gains or losses, if any, on investments.
Dividends for the Institutional Tax-Exempt Fund are declared from net
investment incomeexcluding 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 April 30, 1996, the Institutional Tax-Exempt Fund had net capital loss
carryovers of $254,248 of which $96,688 expire in the year 2001, $17,520 expire
in 2002 and $140,040 expire in 2003.
5. Trustees' Fees
Each Trustee who is not affiliated with the Trust or its adviser is paid an
annual fee of $24,000 by the Trust. Trustees' fees are allocated among the four
series of the Trust based on the net assets under management.
Tax-Exempt Fund
17
<PAGE> 130
APPENDIX A
This Appendix constitutes part of the Statements of Additional Information
of Merrill Lynch Institutional Fund (the "Institutional Fund"), Merrill Lynch
Premier Institutional Fund (the "Premier Institutional Fund"), Merrill Lynch
Government Fund (the "Government Fund"), Merrill Lynch Treasury Fund (the
"Treasury Fund") and Merrill Lynch Institutional Tax-Exempt Fund (the
"Tax-Exempt Fund") (collectively, the "Funds"). Each of the Funds is a separate
series of Merrill Lynch Funds For Institutions Series (the "Trust"). Unless
otherwise indicated, the information set forth herein is applicable to each of
the Funds.
------------------------
MANAGEMENT OF THE TRUST
The Trustees and executive officers of the Trust and their ages and
principal occupations for at least the last five years are set forth below.
Robert W. Crook (60)--President and Trustee(1)(2)(3)--Senior Vice President
of Merrill Lynch Asset Management, L.P. ("MLAM") and of Merrill Lynch Funds
Distributor, Inc. ("MLFD") since 1990 and Vice President of MLAM and MLFD prior
thereto.
A. Bruce Brackenridge (66)--Trustee(2)--9 Elm Lane, Bronxville, New York
10708. Group Executive of J.P. Morgan & Co., Inc. (banking) and Morgan Guaranty
Trust Company from 1979 to 1991 and an employee of J.P. Morgan in various
capacities from 1952 to 1991.
Charles C. Cabot, Jr. (66)--Trustee(2)--One Post Office Square, Boston,
Massachusetts 02109. Partner of the law firm Sullivan & Worcester and associated
with that firm since 1966.
James T. Flynn (56)--Trustee(2)--340 East 72nd Street, New York, New York
10021. Chief Financial Officer of J.P. Morgan & Co., Inc. from 1990 to 1995 and
an employee of J.P. Morgan in various capacities from 1967 to 1995.
Terry K. Glenn (55)--Executive Vice President(1)(2)--Executive Vice
President of Fund Asset Management, L.P. ("FAM") and MLAM since 1983; Executive
Vice President and Director of Princeton Services, Inc. since 1993; President of
MLFD since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
George W. Holbrook, Jr. (65)--Trustee(2)--P.O. Box 761, Southport,
Connecticut 06490. Managing Partner of Bradley Resources Company (private
investment company) and associated with that firm and its predecessors since
1953; Director of Canyon Resources Corporation (mineral exploration company).
W. Carl Kester (44)--Trustee(2)--Harvard Business School, Morgan Hall 393,
Soldiers Field, Boston, Massachusetts 02163. MBA Class of 1958 Professor of
Business Administration of Harvard University Graduate School of Business
Administration since 1981; Independent Consultant since 1978.
William E. Aldrich (63)--Executive Vice President(2)--Vice President of
MLAM since 1993 and Senior Vice President of MLFD since 1990; Vice President of
MLFD prior thereto and a Vice President of FAM since 1981.
A-1
<PAGE> 131
William M. Breen (42)--Senior Vice President, Chief Financial Officer and
Treasurer(2)(3)--Vice President of MLAM since 1993 and Vice President of MLFD
since 1990 and Assistant Vice President of MLFD prior thereto.
Michael J. Brady (37)--Senior Vice President(2)(3)--Vice President of MLAM
since 1993 and Vice President of MLFD since 1990 and an employee of MLFD prior
thereto.
James J. Fatseas (40)--Senior Vice President(2)(3)--Vice President of MLAM
since 1993 and Vice President of MLFD since 1990 and Assistant Vice President of
MLFD prior thereto.
Joseph T. Monagle, Jr. (48)--Senior Vice President(2)(4)--Senior Vice
President of MLAM and FAM since 1990 and Vice President of MLAM and FAM prior
thereto.
William Wasel (37)--Senior Vice President(2)(3)--Vice President of MLAM
since 1993 and Vice President of MLFD since 1990 and Assistant Vice President of
MLFD prior thereto.
Christopher G. Ayoub (41)--Vice President(2)(4)--Vice President of MLAM
since 1985; Assistant Vice President from 1984 to 1985 and an employee since
1982.
Karen D. Young (32)--Vice President(2)(3)--Employee of MLFD since 1982.
Donald C. Burke (36)--Vice President(2)(4)--P.O. Box 9011, Princeton, New
Jersey 08543-9011. Vice President of MLAM since 1990; employee of Deloitte &
Touche LLP from 1982 to 1990.
Ann Catlin (35)--Vice President(2)(3)--Employee of MLFD since 1986.
Charles O. Daly (61)--Vice President(2)(3)--Employee of MLFD since 1981.
Diana Frankland (61)--Vice President(2)(3)--Employee of MLFD since 1979.
Vincent R. Giordano (51)--Senior Vice President(2)(4)--Senior Vice
President of FAM and MLAM since 1984 and Vice President since 1980; Portfolio
Manager of FAM since 1977.
Peter Hayes (37)--Vice President(2)(4)--Vice President of MLAM since 1988;
Portfolio Manager of FAM since 1987; Vice President of Shawmut Bank, N.A. from
1984 to 1987.
Kevin J. McKenna (39)--Vice President(2)(3)--Vice President of MLAM since
1985.
Kevin Schiatta (41)--Vice President(2)(4)--Vice President of MLAM since
1985.
Gerald M. Richard (47)--Vice President(2)(4)--Senior Vice President and
Treasurer of MLAM and FAM since 1984; Vice President of MLFD since 1981;
Treasurer of MLFD since 1989 and Senior Vice President and Treasurer of
Princeton Administrators, Inc. since 1988.
Mark E. Maguire (36)--Senior Vice President(2)(3)--Assistant Vice President
of MLFD since 1990.
John Ng (42)--Vice President(2)(4)--Vice President of MLAM since 1984;
Assistant Vice President of MLAM from 1981 to 1984.
Barry F.X. Smith (31)--Senior Vice President(2)(3)--Employee of MLFD since
1987.
Dianne McDonough (35)--Vice President(2)(3)--Employee of MLFD since 1983.
Eric P. Lareau (27)--Vice President(2)(3)--Employee of MLFD since 1992.
A-2
<PAGE> 132
Jerry Weiss (38)--Secretary(2)(4)--Vice President of MLAM since 1990 and an
attorney in private practice prior thereto.
Patricia A. Schena (38)--Vice President and Assistant Secretary
(2)(3)--Assistant Vice President of MLFD since 1990.
- ---------------
(1) Interested person, as defined in the Investment Company Act of 1940.
(2) The officers of the Funds are officers of certain other investment companies
for which the Investment Adviser or MLAM acts as investment adviser.
(3) One Financial Center, Boston, MA 02111
(4) P.O. Box 9011, Princeton, NJ 08543-9011
The following table sets forth for the fiscal year ended April 30, 1996,
compensation paid by the Trust to non-interested Trustees and for the calendar
year ended December 31, 1995, the aggregate compensation paid by all investment
companies advised by the Investment Adviser and its affiliate, MLAM ("MLAM/FAM
Advised Funds"), to the non-interested Trustees.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM
TRUST AND
PENSION OR RETIREMENT FAM/MLAM ADVISED
COMPENSATION BENEFITS ACCRUED AS PART FUNDS PAID TO
NAME OF TRUSTEE FROM THE TRUST OF TRUST EXPENSE TRUSTEES(1)
- ---------------------------------------- -------------- ------------------------ ---------------------------
<S> <C> <C> <C>
A. Bruce Brackenridge(1)................ $ 24,000 None $30,000
Charles C. Cabot, Jr.(1)................ $ 24,000 None $30,000
Todd Goodwin(2)......................... $ 14,000 None $30,000
George W. Holbrook, Jr.(1).............. $ 24,000 None $30,000
W. Carl Kester(1)(3).................... $ 18,000 None $22,000
</TABLE>
- ---------------
(1) In addition to the Fund, the Trustees serve on the boards of other FAM/MLAM
Advised Funds as follows: Mr. Brackenridge (1 Fund); Mr. Cabot (1 Fund); Mr.
Holbrook (1 Fund); and Mr. Kester (1 Fund).
(2) Mr. Goodwin resigned from the Board of Trustees effective December 11, 1995.
(3) Mr. Kester was elected a Trustee on December 11, 1995.
The Trustees have an Audit and Nominating Committee, the members of which
are Messrs. Brackenridge, Cabot, Flynn, Kester and Holbrook.
Each Trustee who is not an officer or employee of Merrill Lynch & Co., Inc.
or its subsidiaries will be paid $30,000 annually in his capacity as a trustee
of the Trust, and all Trustees will be reimbursed for any expenses incurred in
attending meetings of the Board of Trustees of the Trust or of any committee
thereof. No officer or employee of Merrill Lynch & Co., Inc. or its subsidiaries
will receive any compensation from any Fund for acting as a trustee or officer
of the Trust.
As a result of the responsibilities assumed by MLFD and FAM under the
Distribution Agreement and the Advisory Agreement, respectively (described below
and under "Distributor" and "Investment Advisory
A-3
<PAGE> 133
and Other Services"), the Funds themselves have no employees other than their
officers, all of whom will be compensated by FAM or MLFD.
The officers and interested Trustees of the Trust owned on December 3, 1996
an aggregate of less than 1% of the outstanding shares of any Fund. On that date
the officers and interested Trustees of the Trust owned an aggregate of less
than 1/4 of 1% of the outstanding Common Stock of Merrill Lynch & Co., Inc.
As of December 3, 1996, there are no shareholders of record of 5% or more
of the outstanding shares of any Fund.
A-4
<PAGE> 134
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser to each of the Funds is Fund Asset Management, L.P.,
a subsidiary of Merrill Lynch & Co., Inc., a publicly held corporation. The
principal business address of FAM is 800 Scudders Mill Road, Plainsboro, New
Jersey (mailing address: P.O. Box 9011, Princeton, New Jersey 08543-9011), and
the principal business address of Merrill Lynch & Co., Inc. is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281.
Pursuant to the terms of a separate Investment Advisory Agreement for each
Fund, FAM, subject to the general supervision of the Board of Trustees of the
Trust and in conformance with the stated policies of the applicable Fund,
renders investment supervisory and corporate administrative services to the
Fund. In this regard, it is the responsibility of FAM to make investment
decisions for each Fund and to place the purchase and sale orders for the Funds'
portfolio transactions. In addition, FAM performs, or supervises the performance
of, administrative services in connection with each Fund, including (i)
supervising all aspects of the Fund's administration and operations, including
processing services related to the purchase and redemption of Fund shares, the
general handling of shareholder relations, and portfolio management; (ii)
providing the Fund, at FAM's expense, with the services of persons competent to
perform such administrative and clerical functions as are necessary in order to
provide effective administration of the Fund; and (iii) providing the Fund, at
FAM's expense, with adequate office space and related services. FAM may arrange
for the provision of these administrative services and functions by Merrill
Lynch Funds Distributor, Inc. or another affiliate of Merrill Lynch & Co., Inc.
Each Fund's accounting records are maintained, at the Fund's expense, by its
custodian, State Street Bank and Trust Company.
As compensation for the services rendered by FAM under the Investment
Advisory Agreements, each Fund pays FAM a fee, computed daily and payable
monthly, at the following annual rates:
PERCENTAGE OF AVERAGE DAILY NET ASSETS
--------------------------------------
Institutional Fund............ .40% up to and including $250,000,000
plus .375% over $250,000,000 up to and
including $500,000,000
plus .35% over $500,000,000 up to and
including $750,000,000
plus .325% over $750,000,000
Premier Institutional Fund..... .15%
Government Fund and Treasury
Fund......................... .35% up to and including $500,000,000
plus .335% over $500,000,000 up to and
including $750,000,000
plus .32% over $750,000,000 up to and
including $1,000,000,000
plus .30% over $1,000,000,000
Tax-Exempt Fund............... .45% up to and including $1,500,000,000
plus .425% over $1,500,000,000 up to and
including $2,000,000,000 plus
.40% over $2,000,000,000
A-5
<PAGE> 135
Institutional Fund. Effective July 6, 1992, FAM has agreed to waive a
portion of its advisory fee so that the effective fee payable to FAM will be at
the annual rate of .20% of the Fund's average daily net assets. FAM may
discontinue waiver of the fee in whole or in part at any time without notice.
For the fiscal years ended April 30, 1996, April 30, 1995 and April 30, 1994,
the total advisory fees payable by the Institutional Fund to the Investment
Adviser aggregated $26,191,407, $16,621,425 and $15,305,750, respectively. The
Investment Adviser voluntarily waived $10,263,924, $6,623,625 and $6,118,228 of
the advisory fee payable for the fiscal years ended April 30, 1996, April 30,
1995 and 1994 respectively.
Government Fund. Effective December 1, 1993, FAM has agreed to waive a
portion of its advisory fee so that the effective fee payable to FAM will be at
an annual rate of .20% of the Fund's average net assets. FAM may discontinue
waiver of the fee in whole or in part at any time without notice. For the fiscal
years ended April 30, 1996, April 30, 1995 and April 30, 1994, the total
advisory fees payable by the Government Fund to the Investment Adviser
aggregated $5,423,149, $4,718,056 and $4,567,099, respectively. The Investment
Adviser voluntarily waived $2,066,757, $1,831,019 and $759,434 of the advisory
fee payable for the fiscal years ended April 30, 1996, April 30, 1995 and April
30, 1994 respectively.
Treasury Fund. Effective December 1, 1993, FAM has agreed to waive a
portion of its advisory fee so that the effective fee payable to FAM will be at
an annual rate of .20% of the Fund's average net assets. FAM may discontinue
waiver of the fee in whole or in part at any time without notice. For the fiscal
years ended April 30, 1996, April 30, 1995 and April 30, 1994, the total
advisory fees payable by the Treasury Fund to the Investment Adviser aggregated
$1,792,930, $1,104,980 and $1,144,957, respectively. The Investment Adviser
voluntarily waived $765,429, $473,563 and $181,007 of the advisory fee payable
for the fiscal years ended April 30, 1996, April 30, 1995, and April 30, 1994
respectively.
Tax-Exempt Fund. Effective December 1, 1993, FAM has agreed to waive a
portion of its advisory fee so that the effective fee payable to FAM will be at
an annual rate of .20% of the Fund's average net assets. FAM may discontinue
waiver of the fee in whole or in part at any time without notice. Previously
effective February 8, 1993, FAM had voluntarily agreed to waive a portion of its
advisory fee so that the effective fee payable to FAM would be at an annual rate
of .26% of the Fund's average daily net assets. For the fiscal years ended April
30, 1996 and April 30, 1995 and for the five months ended April 30, 1994, the
total advisory fees payable by the Tax-Exempt Fund to the Investment Adviser
aggregated $2,109,495, $1,515,253 and $645,595, respectively. The Investment
Adviser voluntarily waived $1,171,941, $841,807, and $358,664 for the fiscal
years ended April 30, 1996, April 30, 1995, and the five months ended April 30,
1994.
Each Investment Advisory Agreement obligates the Investment Adviser to
provide advisory, administrative and management services, to furnish office
space and facilities for management of the affairs of the applicable Fund, to
pay all compensation of, and furnish office space for, officers and employees of
the Fund, as well as the fees of all Trustees of the Fund who are affiliated
persons of Merrill Lynch & Co., Inc. or any of its subsidiaries. Each Fund pays
all other expenses incurred in its operation and a portion of the Trust's
general administrative expenses allocated on the basis of the asset size of the
respective Funds. Expenses that will be borne directly by each Fund include
trustees' fees, redemption expenses, expenses of portfolio transactions,
shareholder servicing costs, expenses of registering its shares under federal
and state securities laws, pricing costs (including the daily calculation of net
asset value), interest, certain taxes, charges of the custodian and transfer
agent and other expenses attributable to a particular Fund. Expenses which will
be allocated on the basis of size of the respective Funds include trustees'
fees, legal expenses, auditing services, costs of printing proxies, stock
certificates, shareholder reports and prospectuses and statements of additional
information
A-6
<PAGE> 136
(except to the extent paid by MLFD), Securities and Exchange Commission fees,
accounting costs and other expenses properly payable by the Trust and allocable
on the basis of size of the respective Funds. Depending upon the nature of the
lawsuit, litigation costs may be directly applicable to a Fund or allocated on
the basis of the size of the respective Funds. The Board of Trustees of the
Trust has determined that this is an appropriate method of allocation of
expenses.
As required by the Distribution Agreement, the Distributor will pay certain
of the expenses incurred in connection with the offering of shares of the Fund.
After the prospectuses 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.
Each Investment Advisory Agreement will terminate automatically upon its
assignment and is terminable at any time without penalty by the Board of
Trustees of the Trust or by a vote of a majority of the applicable Fund's
outstanding voting shares on 60 days' written notice to FAM, or by FAM on 90
days' written notice to the applicable Fund.
The investment advisory services of FAM to the Funds are not exclusive
under the terms of the Investment Advisory Agreements and FAM is also free to,
and does, render such services to others. FAM and MLAM together act as the
manager or adviser for over 90 investment companies.
State Street Bank and Trust Company, P.O. Box 8500, Boston, Massachusetts
02266-8500, is each Fund's custodian, transfer agent and dividend disbursing
agent. It also maintains each Fund's accounting records.
Rogers & Wells, counsel to the Trust, passes upon legal matters for the
Funds in connection with the shares offered by the Prospectuses.
Deloitte & Touche LLP are the independent auditors of the Trust.
PORTFOLIO TRANSACTIONS
The securities in which the Funds invest are traded primarily in the
over-the-counter market. Where possible, the Funds 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 principal for their own account. On occasion,
securities may be purchased directly from the issuer. The securities in which
the Funds invest are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing the Funds'
portfolio transactions will consist primarily of dealer spreads and underwriting
commissions. Under the Investment Company Act of 1940, persons affiliated with
the Funds are prohibited from dealing with the Funds as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the Securities and Exchange Commission. Since
over-the-counter transactions are usually principal transactions, affiliated
persons of the Funds, including Merrill Lynch Government Securities, Inc.
("GSI"), Merrill Lynch Money Markets, Inc. ("MLMM") and Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), may not serve as the Funds'
dealer in connection with such transactions except pursuant to an exemptive
order such as that described below. However, affiliated persons of the Funds may
serve as their broker in over-the-counter transactions conducted on an agency
basis. The Funds may purchase securities from an underwriting
A-7
<PAGE> 137
syndicate of which Merrill Lynch is a member under certain conditions in
accordance with the provisions of a rule adopted under the Investment Company
Act of 1940.
The Securities and Exchange Commission has issued an exemptive order which
permits the Institutional Fund, Premier Institutional Fund, Government Fund and
Treasury Fund to conduct principal transactions with GSI, MLMM and Merrill Lynch
in U.S. Government and Government agency securities, and certain other money
market securities, subject to a number of conditions, including conditions
designed to insure that the prices to these Funds available from GSI, MLMM and
Merrill Lynch are at least as favorable as those available from other sources.
GSI and MLMM have informed the Institutional Fund, Premier Institutional Fund,
Government Fund and Treasury Fund that they will in no way, at any time, attempt
to influence or control the activities of these Funds or the Investment Adviser
in placing such principal transactions. The exemptive order allows GSI, MLMM and
Merrill Lynch to receive a dealer spread on any transaction with the
Institutional Fund, Premier Institutional Fund, Government Fund and Treasury
Fund no greater than their customary dealer spread for transactions of the type
involved.
The Securities and Exchange Commission has issued an exemptive order
permitting the Tax-Exempt Fund to conduct principal transactions with Merrill
Lynch in municipal securities with remaining maturities of one year or less
which have received one of the two highest ratings from at least one of the
nationally recognized rating agencies, subject to a number of conditions,
including conditions designed to insure that the prices to the Tax-Exempt Fund
available from Merrill Lynch are equal to or better than that available from
other sources. Merrill Lynch has informed the Tax-Exempt Fund that it will in no
way at any time attempt to influence or control the activities of the Tax-Exempt
Fund or the Investment Adviser in placing such principal transactions. The
exemptive order allows Merrill Lynch to receive a dealer spread on any
transaction with the Tax-Exempt Fund no greater than their customary dealer
spreads for transactions of the type involved.
Institutional Fund. During the fiscal year ended April 30, 1996, the
Institutional Fund engaged in 118 such transactions involving approximately $5.6
billion. During the fiscal year ended April 30, 1995, the Institutional Fund
engaged in 216 transactions involving approximately $9.83 billion.
Government Fund. During the fiscal year ended April 30, 1996, the
Government Fund engaged in 19 such transactions involving approximately $511.2
million. During the fiscal year ended April 30, 1995, the Government Fund
engaged in 15 such transactions involving approximately $478.6 million.
Treasury Fund. During the fiscal year ended April 30, 1996, the Treasury
Fund engaged in 3 such transactions involving approximately $130 million. During
the fiscal year ended April 30, 1995, the Treasury Fund engaged in three such
transactions with GSI involving approximately $50 million.
Tax-Exempt Fund. During the fiscal year ended April 30, 1996, the
Tax-Exempt Fund engaged in 5 principal transactions with Merrill Lynch,
involving approximately $23 million. During the fiscal year ended April 30,
1995, the Institutional Tax-Exempt Fund engaged in seven principal transactions
with Merrill Lynch amounting to approximately $38.3 million.
The Funds have 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 Trustees and officers of the Trust, the Investment Adviser is
primarily responsible for each Fund's portfolio decisions and for placing each
Fund's portfolio transactions. In placing orders, it is the policy of the Funds
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,
the firm's risk in positioning the securities
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involved and the firm's provision of supplemental investment research (such as
economic data and market forecasts). Information so received will be in addition
to and not in lieu of the services required to be performed by the Investment
Adviser under its Investment Advisory Agreements with the Funds, and the
expenses of the Investment Adviser will not necessarily be reduced as a result
of the receipt of such supplemental information. In some cases, the Investment
Adviser may use such supplemental research in providing investment advice to its
other investment advisory accounts. While the Investment Adviser generally seeks
reasonable competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available. The Funds' policy of investing
in securities with short maturities will result in high portfolio turnover.
NET ASSET VALUE
Each Fund's net asset value is determined by adding the value of all
securities and other assets in its portfolio, deducting the portfolio's
liabilities, dividing by the number of shares outstanding and rounding the
result to the nearest whole cent. Securities held by the Funds with a remaining
maturity of 60 days or less are valued on an amortized cost basis, and
securities with a remaining maturity of greater than 60 days are valued on a
current market basis.
In accordance with the Securities and Exchange Commission rule applicable
to the valuation of its portfolio securities and consistent with certain of the
Funds' operating policies, each Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase instruments having remaining
maturities of up to 762 days (25 months) in the case of U.S. Government
securities and 397 days (13 months) in the case of all other securities
(including Tax-Exempt Securities invested in by the Tax-Exempt Fund) and invest
only in securities determined by the trustees to be of high quality with minimal
credit risks. For purposes of calculating the Tax-Exempt Fund's dollar-weighted
average portfolio maturity, the remaining maturity of a VRDN (including a
Participating VRDN, is deemed to be the longer of (i) the notice period required
before the Tax-Exempt Fund is entitled to receive payment of the principal
amount of the VRDN upon demand, or (ii) the period required until the VRDN's
next interest rate adjustment. In addition, the Trustees have established
procedures designed to stabilize, to the extent reasonably possible, each 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 pursuant to the penny
rounding method, in the case of the Institutional Fund, Premier Institutional
Fund, Government Fund and Treasury Fund, or pursuant to the amortized cost
method, in the case of the Tax-Exempt Fund, will be reported to the Trustees by
FAM. 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 affected Fund will take such corrective action as it regards
as necessary and appropriate, including 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 by
using available market quotations. In addition, each of the Treasury Fund and
the Tax-Exempt Fund may reduce the number of its outstanding shares by having
each shareholder proportionately contribute shares to the Fund's capital. If the
number of outstanding shares of the Treasury Fund or the Tax-Exempt Fund is
reduced in order to maintain a constant net asset value of $1.00 per share, the
shareholders will contribute proportionately to the Fund's capital the number of
shares which represent the difference between valuation pursuant to the penny
rounding method, in the case of the Treasury Fund, or the amortized cost method,
in the case of the Tax-
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Exempt Fund, and the market valuation of the portfolio. Each shareholder will be
deemed to have agreed to such contribution by his investment in the Treasury
Fund or the Tax-Exempt Fund.
Since the net income of each Fund is determined and declared as a dividend
immediately prior to each time the net asset value of the Fund is determined,
the net asset value per share of each Fund normally remains at $1.00 per share
immediately after each such dividend declaration. Any increase in the value of a
shareholder's investment in any Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares in his account and
any decrease in the value of a shareholder's investment is reflected by a
decrease in the number of shares in his account.
DIVIDENDS
All of each Fund's net income is declared as dividends daily. Dividends are
paid monthly and automatically reinvested in additional Fund shares at net asset
value and credited to the shareholder's account or, at the shareholder's option,
paid in cash.
Each Fund's net income for dividend purposes is determined daily. On days
on which the New York Stock Exchange is open for business, such determination
will be made immediately prior to the determination of net asset value as of the
close of business on the New York Stock Exchange. On days on which the New York
Stock Exchange is not open for business, such determination will be made as of
4:00 p.m. (Boston time). Immediately after such determination, each Fund will
declare a dividend payable to shareholders of record either: (a) at 12:00 Noon
(Boston time) for the Tax-Exempt Fund, 2:00 p.m. (Boston time) for the Treasury
Fund or 3:00 p.m. (Boston time) for the Government Fund, Institutional Fund and
Premier Institutional Fund, on days on which the New York Stock Exchange is open
for business and does not close early, or if the Exchange closes early, at such
closing time or (b) at the previous close of business on the New York Stock
Exchange on days on which the New York Stock Exchange is not open for business.
Net income of the Institutional Fund, Premier Institutional Fund, Government
Fund and Treasury Fund (from the time of the immediately preceding determination
thereof) will consist of (i) interest accrued or discount earned (including both
original issue and market discount), (ii) plus or minus all realized gains and
losses, if any, on the portfolio securities of the Fund, (iii) less the
estimated expenses of the Fund (including the fee payable to FAM applicable to
that dividend period). If an order to purchase shares of a Fund by Federal Funds
Wire is received by a Fund after 12:00 Noon (Boston time) for the Tax-Exempt
Fund, after 2:00 p.m. (Boston time) for the Treasury Fund, or after 3:00 p.m.
(Boston time) for the Government Fund, the Institutional Fund or the Premier
Institutional Fund and prior to the close of the Federal Funds Wire, the order
will become effective and dividends will be earned on the following business
day.
Net income of the Tax-Exempt Fund (from the time of the immediately
preceding determination thereof) consists of interest accrued and/or original
issue discount earned, less amortization of premiums and the estimated expenses
of the Tax-Exempt Fund (including the fees payable to FAM applicable to that
dividend period). The amount of discount or premium on portfolio securities is
fixed at the time of their purchase and consists of the difference between the
purchase price for such securities and the principal amount of such securities.
Realized gains and losses are reflected in the Tax-Exempt Fund's net asset value
and are not included in income.
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Each Fund intends to use its best efforts to maintain its net asset value
at $1.00 per share. As a result of a significant expense or realized or
unrealized loss, it is possible that a Fund's net asset value may fall below
$1.00 per share.
Should any Fund incur or anticipate any unusual or unexpected significant
expense or loss which would affect disportionately that Fund's income for a
particular period, the Trustees would at that time consider whether to adhere to
the present dividend policy described or to revise it in the light of the then
prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on then existing shareholders.
Such expenses or losses may nevertheless result in a shareholder's receiving no
dividends for the period during which he held his shares and in his receiving
upon redemption a price per share lower than that which he paid.
Shareholders may receive their dividends in cash monthly by completing the
appropriate section of the Account Application contained in the Prospectus for
the applicable Fund. Such distributions will be paid by check within seven days
after the end of each month. The election to receive cash distributions may be
made at the time of purchase of Fund shares or at any time subsequent thereto by
giving written notice to State Street Bank. To be effective with respect to a
particular monthly dividend, such written notice must be received by State
Street Bank at least seven days prior to the end of the month. Dividends and
distributions are taxable to shareholders whether distributed in cash or
reinvested in additional shares. See "Taxes."
State Street Bank, the transfer agent, will send each shareholder a monthly
statement showing the total number of shares owned as of the last business day
of the month, as well as the current month's and year to date dividends paid in
terms of total cash distributed and, for those shareholders who have dividends
reinvested, the number of shares acquired through the reinvestment dividends.
TAXES
FEDERAL
General. In order to qualify for tax treatment as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), each
Fund is required, among other things, to derive less than 30% of its gross
income from the sale or other disposition of stock, securities and certain
options, futures and forward contracts held for less than three months. If in
any taxable year a Fund does not qualify as a regulated investment company, all
of its taxable income will be taxed to that Fund at corporate rates.
Some shareholders may be subject to a 31% withholding on reportable
dividends, capital gains distributions and redemption payments ("backup
withholding"). Generally, non-corporate shareholders for whom a taxpayer
identification number is not on file with the applicable Fund or who, to the
Fund's knowledge, have furnished an incorrect number will be subject to backup
withholding. When establishing an account, an investor must certify under
penalties of perjury that such number is correct and that he is not subject to
backup withholding.
The Code imposes a 4% nondeductible excise tax on a regulated investment
company, such as a Fund, if it does not distribute to its shareholders during
the calendar year an amount equal to at least 98% of the Fund's net investment
income, with certain adjustments, for such calendar year, plus at least 98% of
the Fund's capital gain net income for the one-year period ending, as a general
rule, by October 31 of such calendar year.
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For this purpose, any income or gain retained by a Fund that is subject to
corporate income tax will be treated as having been distributed at year-end. In
addition, an amount equal to any undistributed net investment income or capital
gain net income from the previous calendar year must also be distributed to
avoid the excise tax. The excise tax is imposed on the amount by which a Fund
does not meet the foregoing distribution requirements. While each Fund intends
to make distributions in the manner necessary to avoid imposition of the 4%
excise tax, there can be no assurance that sufficient amounts of taxable income
and gain will be distributed to avoid imposition of the tax. The excise tax will
not generally apply to the tax-exempt income of a regulated investment company
such as the Tax-Exempt Fund that pays exempt-interest dividends.
Any dividend declared by any Fund in October, November or December of any
year and made payable to shareholders of record on a specified date in that
month will be deemed to be received by such shareholders on December 31 of such
year and to be paid by a Fund not later than December 31 of that year if
actually paid during the following January. Accordingly, these dividends will be
taxable to shareholders in the year declared and not in the year in which
shareholders actually receive the dividend.
Institutional Fund, Premier Institutional Fund, Government Fund and
Treasury Fund. Dividends will be taxable to shareholders of the Institutional
Fund, Premier Institutional Fund, Government Fund and Treasury Fund as ordinary
income, except for (a) such portion as may exceed a shareholder's ratable share
of the applicable Fund's earnings and profits as determined for tax purposes
(which may differ from net income for book purposes), which excess will be
applied against and reduce the shareholder's cost or other tax basis for his
shares and (b) amounts representing distributions of realized net long-term
capital gains, if any. If the amount described in (a) above were to exceed the
shareholder's cost or other tax basis for his shares, the excess over such basis
would be treated as gain from the sale or exchange of such shares. Dividends and
distributions are taxable as described herein, whether received in cash or
reinvested in additional shares of the applicable Fund.
Tax-Exempt Fund. The Tax-Exempt Fund has elected to qualify to pay
"exempt-interest" dividends as defined in Section 852(b)(5) of the Code. Under
that section if, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of obligations exempt from Federal
income tax ("tax-exempt obligations"), pursuant to Section 103(a) of the Code
(relating to obligations of a state, territory, or a possession of the United
States, or any political subdivision of any of the foregoing, or of the District
of Columbia), the Tax-Exempt Fund will be qualified to pay exempt-interest
dividends to its shareholders. Exempt-interest dividends are dividends or any
part thereof (other than any short- or long-term capital gain distributions)
paid by the Tax-Exempt Fund which are attributable to interest on tax-exempt
obligations and designated by the Fund as exempt-interest dividends in a written
notice mailed to the Fund's shareholders within 60 days after the close of its
taxable year. The percentage of the total dividends paid by the Tax-Exempt Fund
during any taxable year which qualifies as exempt-interest dividends will be the
same for all shareholders receiving dividends during that year. Exempt-interest
dividends may be treated by shareholders for all purposes as items of interest
excludable from their gross income under Section 103(a) of the Code. However, a
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain the exclusion under Section 103(a) if such
shareholder would be treated as a "substantial user" under Section 147(a)(1)
with respect to some or all of the tax-exempt obligations held by the Tax-Exempt
Fund.
Distributions of the Tax-Exempt Fund's net realized short-term capital
gains will be taxable to shareholders as ordinary income. In order to avoid
taxation on its net long-term capital gains, the Tax-Exempt Fund may elect to
distribute "capital gain dividends" to its shareholders. Any distributions
designated as
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capital gain dividends, i.e., as being made from the Tax-Exempt Fund's net
long-term capital gains in a written notice furnished annually to shareholders
are taxable to shareholders as long-term capital gains, regardless of the
shareholders' holding period of shares of the Tax-Exempt Fund. To the extent the
Tax-Exempt Fund has taxable income, expenses of the Fund will be allocated
between the taxable income and the tax-exempt income on a proportional basis.
Since the Tax-Exempt Fund will not invest in the stock of domestic corporations,
shareholders of the Tax-Exempt Fund will not be entitled to the
dividends-received deduction for corporations. The Code provides that interest
on indebtedness incurred or continued to purchase or carry shares of the
Tax-Exempt Fund is not deductible to the extent attributable to exempt-interest
dividends.
Not later than 60 days after the end of each fiscal year of the Tax-Exempt
Fund, the Fund will send to its shareholders the written notice required by the
Code designating the amount of its dividends that constitutes exempt-interest
dividends, the amount of the dividends and distributions which is ordinary
taxable income and the amount of distributions which is taxable to shareholders
as long-term capital gain.
The Code requires that every person required to file a tax return must
disclose on that return the amount of exempt-interest dividends received from
the Tax-Exempt Fund during the taxable year. The disclosure of this amount is
for informational purposes only. In addition, the Code provides that with
respect to a shareholder who receives exempt-interest dividends on shares held
for less than six months, any loss on the sale or exchange of such shares will,
to the extent of the amount of such exempt-interest dividends, be disallowed.
The Code also provides that interest income with respect to certain
tax-exempt bonds, known as private activity bonds, is a preference item for
purposes of the corporate and individual alternative minimum tax. To the extent
that the Tax-Exempt Fund invests in private activity bonds, shareholders of the
Fund will have preference items attributable to their proportionate shares of
the interest income received by the Fund from such bonds. Interest income from
tax-exempt bonds held by the Fund would increase the alternative minimum taxable
income of corporate shareholders for purposes of this computation.
MASSACHUSETTS INCOME TAX
Under present Massachusetts law, a Fund will not be subject to any
Massachusetts income taxation during any fiscal year in which such Fund
qualifies as a Massachusetts business trust. A Fund might be subject to
Massachusetts income taxes for any taxable year in which it did not so qualify.
OTHER TAXES
In those states and localities which have income tax laws, the treatment of
shareholders of the Funds under such laws may differ from their treatment under
the Federal income tax laws. Under state or local law, distributions of net
investment income may be taxable to shareholders as dividend income even though
a portion of such distributions may be derived from interest on U.S. Government
obligations which, if realized directly, would be exempt from such income taxes.
Shareholders are advised to consult their tax advisors concerning the
application of state and local taxes.
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DISTRIBUTOR
The Trust has entered into a Distribution Agreement with respect to each
Fund (the "Distribution Agreements") with Merrill Lynch Funds Distributor, Inc.,
an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. Pursuant to the
terms of each Distribution Agreement, MLFD serves as the principal underwriter
and distributor of the applicable Fund's shares, and in that capacity makes a
continuous offering of that Fund's shares and bears the costs and expenses of
printing and distributing any copies of any prospectuses and annual and interim
reports of the Fund (after such items have been prepared and set in type) which
are used in connection with the offering of shares to selected dealers or
investors, and the costs and expenses of preparing, printing and distributing
any other literature used by MLFD or furnished by it for use by selected dealers
in connection with the offering of the shares for sale to the public. There will
be no fee payable by any Fund pursuant to the Distribution Agreements. There is
no sales or redemption charge. The continuance of the Distribution Agreements
must be approved in the same manner as the Investment Advisory Agreements, and
each Distribution Agreement will terminate automatically if assigned by either
party thereto and is terminable at any time without penalty by the Board of
Trustees of the Trust or by vote of a majority of the applicable Fund's
outstanding shares on 60 days' written notice to MLFD and by MLFD on 90 days'
written notice to the Trust.
The Trust has adopted a Distribution and Shareholder Servicing Plan (the
"Plans") with respect to each Fund, other than the Premier Institutional Fund,
pursuant to Rule 12b-1 under the Investment Company Act of 1940, pursuant to
which FAM is permitted to use a portion of the advisory fee compensation it
receives from any such Fund to promote the distribution of that Fund's shares
and to enhance the provision of shareholder services. Each Plan was approved by
a majority of (i) the Trustees of the Trust, and (ii) the Trustees of the Trust
who are not interested persons of the Trust, and who have no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan (the "Rule 12b-1 Trustees"), a majority of whom cast their votes in
person at a meeting called for the purpose of voting on the Plan. Each Plan
permits FAM to pay a fee to MLFD. The amount of the fees paid to MLFD is
determined by FAM in its sole discretion. Payments under a Fund's Plan are not
made directly by the Fund. From amounts received by it under each Plan, MLFD is
authorized to make payments to securities dealers with which MLFD has entered
into selected dealer agreements. No Fund is required or permitted under its Plan
to make payments over and above the amount of the investment advisory fee to
promote the sale of its shares; its Plan merely permits the reallocation of a
portion of the advisory fee FAM receives from that Fund to pay for
distribution-related activities. Since payments to securities dealers under the
Plans must come from FAM's investment advisory fee or its past profits, no Fund
will experience any adverse impact on its yield because of its Plan.
MLFD may also use a portion of the fee it receives under a Plan to
compensate administrators who perform administrative services that otherwise
would be performed by FAM or its agent. These services may include providing
office space, equipment, telephone facilities and various support personnel as
may be required on an ongoing basis, maintaining shareholders' accounts and
records, processing purchase and redemption transactions and furnishing other
services to the applicable Fund as the Fund may reasonably request. FAM also
intends to reimburse MLFD for payments it makes to institutions which enter into
servicing arrangements with MLFD in accordance with the terms of the Plans.
Rule 12b-1 requires each Fund having a Plan to preserve copies of any plan,
agreement or report made under the Rule for a period of not less than six years
from the date of the plan, agreement or report, the first two of which must be
maintained in an easily accessible place. The Rule also provides that the
minutes of the
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meeting of the Trust's board at which a decision is made to use a Fund's assets
for distribution must describe the factors considered and the basis for the
decision and that such minutes must be preserved for a period of at least six
years from the date of such report.
Each Plan will continue from year to year, provided that each such
continuance is approved at least annually by a vote of the Trustees, including a
majority vote of the Rule 12b-1 Trustees, cast in person at a meeting called for
the purpose of voting on such continuance. The Trustees of the Trust, including
Rule 12b-1 Trustees, last approved each Plan at a meeting held on June 10, 1996.
Each Fund's Plan may be terminated at any time, without penalty, by the vote of
a majority of the Rule 12b-1 Trustees or by the vote of the holders of a
majority of the outstanding shares of that Fund. No Plan may be amended
materially without the approval of the Trustees, including a majority of the
Rule 12b-1 Trustees, cast in person at a meeting called for that purpose. Any
modification to a Plan which would materially increase the amount of money to be
spent must be submitted to the applicable Fund's shareholders for approval. A
Shareholder Servicing Agreement between MLFD and an administrator will terminate
automatically in the event of its assignment.
Each Plan requires MLFD to provide and the trustees to review, at least
quarterly, a written report complying with the requirements of Rule 12b-1
regarding the disbursement of the payments made under the Plan. The report must
include an itemization of the expenditures made by MLFD on behalf of the
applicable Fund, the purpose of such expenditures and a description of the
benefits derived by that Fund. Each 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 applicable Fund, as defined in the Investment
Company Act of 1940, must be committed to the discretion of the disinterested
trustees.
YIELD INFORMATION
Each Fund normally computes its annualized yield by determining the net
change for a seven-day base period, exclusive of capital changes, in the value
of a hypothetical pre-existing account having a balance of one share at the
beginning of the period, dividing the net change in account value by the value
of the account at the beginning of the base period to obtain the base period
return, and multiplying the base period return by 365 and then dividing by seven
with the resulting yield figure carried to at least the nearest hundredth of one
percent. Under this calculation, the yield does not reflect realized and
unrealized gains and losses on portfolio securities. The Securities and Exchange
Commission also permits the calculation of a standardized effective or
compounded yield. This is computed by compounding the unannualized base period
return which is done by adding one to the base period return, raising the sum to
a power equal to 365 divided by seven and subtracting one from the result. This
compounded yield calculation also excludes realized or unrealized gains or
losses on portfolio securities.
The yield on shares of each Fund normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the applicable Fund of future yields or rates of return on its
shares. The yield is affected by changes in interest rates on short-term
securities, average portfolio maturity, the types and quality of portfolio
securities held, and operating expenses.
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GENERAL INFORMATION
The Prospectuses and the Statements of Additional Information do not
contain all the information set forth in the Registration Statements and the
exhibits relating thereto, which the Trust has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, to which reference is hereby made.
The Declaration of Trust establishing the Trust, 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 "Merrill
Lynch Funds For Institutions Series" 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 may be held to
any personal liability, nor may resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of the Trust but only property of the Trust shall be liable. The Trust
issues shares in one or more series. All persons dealing with the Trust must
look solely to the property of the applicable series of the Trust for the
enforcement of any claims against it.
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APPENDIX B
INFORMATION CONCERNING TAX-EXEMPT SECURITIES
DESCRIPTION OF TAX-EXEMPT SECURITIES
Tax-Exempt Securities include debt obligations issued to obtain funds for
various public purposes, including construction of a wide range of public
facilities, refunding of outstanding obligations and obtaining funds for general
operating expenses and loans to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to finance various facilities operated for private
profit, including pollution control facilities. Such obligations are included
within the term Tax-Exempt Securities if the interest paid thereon is exempt
from federal income tax. Tax-Exempt Securities also include short-term
tax-exempt municipal obligations such as tax anticipation notes, bond
anticipation notes and revenue anticipation notes, which are sold as interim
financing in anticipation of tax collections, bond sales and revenue receipts,
respectively. The Fund may also invest in short-term tax-exempt commercial paper
obligations, which are short-term unsecured promissory notes issued to finance
short-term credit needs, and floating rate tax-exempt demand notes on which the
Fund may demand payment from the issuer at par value plus accrued interest on
short notice (typically three to seven days). In addition, the Fund may invest
in variable rate demand notes and participations therein (see "Variable Rate
Demand Notes" below).
The two principal classifications of Tax-Exempt Securities are "general
obligation" and "revenue" or "special obligation" bonds. General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing power
for the payment of principal and interest. Revenue or special obligation bonds
are payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source such as from the user of the facility being
financed. Industrial development bonds are in most cases revenue bonds and do
not generally constitute the pledge of the credit or taxing power of the issuer
of such bonds. The payment of the principal of and interest on such industrial
revenue bonds depends solely on the ability of the user of the property financed
by the bonds to meet its financial obligations and the pledge, if any, of real
and personal property so financed as security for such payment. The portfolio
may also include "moral obligation" bonds which are normally issued by special
purpose public authorities. If an issuer of moral obligation bonds is unable to
meet its debt service obligations from current revenues, it may draw on a
reserve fund, the restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the issuer.
Yields on Tax-Exempt Securities are dependent on a variety of factors,
including the general condition of the money market and of the municipal bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. The ability of the Fund to achieve its investment
objective is also dependent on the continuing ability of the issuers of the
Tax-Exempt Securities in which the Fund invests to meet their obligations for
the payment of interest and principal when due. There are variations in the
risks involved in the holding Tax-Exempt Securities, both within a particular
classification and between classifications, depending on numerous factors.
Furthermore, the rights of holders of Tax-Exempt Securities and the obligations
of the issuers of Tax-Exempt Securities may be subject to applicable bankruptcy,
insolvency and similar laws and court decisions affecting the rights of
creditors generally, and such laws, if any, which may be enacted by Congress or
state legislatures affecting specifically the rights of holders of Tax-Exempt
Securities.
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From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Tax-Exempt Securities. Similar proposals may be introduced in the
future. If such proposals were enacted, the ability of the Fund to pay
"exempt-interest" dividends would be adversely affected and the Fund would
reevaluate its investment objective and policies and consider changes in its
structure. See "Taxes" in the Prospectus and Statement of Additional
Information.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes ("VRDNs") are tax-exempt obligations upon which
interest is payable at a floating or variable rate and upon which payment of the
unpaid principal balance plus accrued interest may be demanded at any time upon
a short notice period. The interest rate on a VRDN is adjusted at periodic
intervals pursuant to an adjustment formula which is based on some prevailing
market rate for similar investments and which is designed to maintain the market
value of the VRDN on each adjustment date at approximately the par value of the
VRDN. The adjustments are frequently based upon the prime rate of a bank or some
other appropriate interest rate adjustment index. The right of demand may be
either against the issuer or a third party (typically a bank pursuant to an
irrevocable letter of credit or guaranty arrangement).
The Fund may also invest in VRDNs in the form of participation interests
("Participating VRDNs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank ("institutions").
Participating VRDNs provide the Fund with a specified undivided interest (up to
100%) of the underlying obligations and the right to demand payment of the
unpaid principal balance plus accrued interest on the Participating VRDNs from
the institution upon a specified number of days' notice, presently not to exceed
seven days. In addition, the Participating VRDN is backed by an irrevocable
letter of credit or similar commitment of the institution. The Fund has an
undivided interest in the underlying obligation and thus participates on the
same basis as the institution in such obligation except that the institution
typically retains fees out of the interest paid on the obligation for servicing
the obligation, providing the letter of credit and issuing the repurchase
commitment.
The Fund has been advised by its counsel to the effect that the interest
received on Participating VRDNs will be treated as interest from tax-exempt
obligations as long as the Fund does not invest more than a limited amount (not
more than 20%) of its total assets in such investments and certain other
conditions are met. The Fund will not make any such investments until its
trustees have authorized such investments. It is contemplated that if the
trustees authorize such investments, the Fund will not invest more than a
limited amount of its total assets in Participating VRDNs.
PURCHASE OF SECURITIES WITH RIGHTS TO PUT THE SECURITIES TO THE SELLER
As described under "Investment Objectives and Policies" in the Statement of
Additional Information, the Fund reserves the right to engage in put
transactions, but it will not be permitted to engage in such transactions until,
among other things, it receives an exemptive order from the Securities and
Exchange Commission permitting the acquisition of puts. Set forth below is a
description of certain characteristics of the put transactions the Fund might
enter into if it were permitted to engage in such transactions.
The right to put the securities to the seller depends on the seller's
ability to pay for the securities at the time the put is exercised. The Fund
would limit its put transactions to institutions which the Investment Adviser
believes present minimum credit risk, and the Fund would use its best efforts to
determine initially
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and to continue to monitor the financial strength of the sellers because
adequate current financial information may not be available. In the event that
any seller is unable to honor a put for financial reasons, the Fund would be a
general creditor (i.e., on a parity with all other unsecured creditors) of the
seller. Furthermore, particular provisions of the contract between the Fund and
the seller may excuse the seller from repurchasing the securities; for example,
a change in the published rating of the underlying municipal securities or any
similar event that has an adverse effect on the issuer's credit or a provision
in the contract that the put will not be exercised except in certain special
cases, for example, to maintain portfolio liquidity. The Fund could, however, at
any time sell the underlying portfolio security in the open market or wait until
the portfolio security matures, at which time it should realize the full par
value of the security. If the Fund were to engage in such transactions at this
time, it would engage in such transactions with banks and, to the extent
permitted by applicable law, with broker-dealers.
It should be noted that the market for put options in tax-exempt securities
is a new and developing one, so that there can be no representation about the
future state of the market, i.e., the number of banks or dealers that might be
willing to sell securities to the Fund with a right for the Fund to put the
securities back to the seller, the spread between the price of the security if
sold without the right to put and with the right to put, the valuation of
securities subject to such puts and the value to be ascribed to the put itself,
if any, and whether and on what terms the Fund can renew any put options. The
municipal securities purchased which are subject to such a put may be sold to
third persons at any time, even though the put is outstanding, but the put
itself will generally not be marketable or otherwise assignable. Therefore, the
put would have value only to the Fund. Sale of the securities to third parties
or lapse of time with the put unexercised will terminate the right to put the
securities to the seller. Prior to the expiration of any put option, the Fund
could seek to negotiate terms for the extension of such an option. If such a
renewal cannot be negotiated on terms satisfactory to the Fund, the Fund could
sell the portfolio security. The maturity of the underlying security will
generally be different from that of the put. There will be no limit on the
percentage of portfolio securities that the Fund may purchase subject to a put
for its portfolio. The Fund has not determined the circumstances under which it
will enter into put transactions or what will be deemed to be the maturity of
securities subject to puts for purposes of calculating the weighted average
maturity of its portfolio.
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- -------------------------------------------------------
- -------------------------------------------------------
ADMINISTRATOR & DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
One Financial Center
Boston, Massachusetts 02111
INVESTMENT ADVISER
Fund Asset Management, L.P.
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 LLP
125 Summer Street
Boston, Massachusetts 02110-1617
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THE PROSPECTUSES AND IN THESE
STATEMENTS OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFER MADE BY THE
PROSPECTUSES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY FUND OR ITS
DISTRIBUTOR. THE PROSPECTUSES AND THESE STATEMENTS OF ADDITIONAL INFORMATION DO
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY FUND
OR BY THE DISTRIBUTOR IN ANY STATE IN WHICH SUCH OFFER TO SELL OR SOLICITATION
OF ANY OFFER TO BUY MAY NOT LAWFULLY BE MADE.
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
STATEMENTS OF ADDITIONAL INFORMATION
MERRILL LYNCH
FUNDS FOR INSTITUTIONS SERIES
- -------------------------------------------------------
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND
MERRILL LYNCH INSTITUTIONAL FUND, MERRILL LYNCH PREMIER INSTITUTIONAL FUND,
MERRILL LYNCH GOVERNMENT FUND, MERRILL LYNCH TREASURY FUND AND MERRILL LYNCH
INSTITUTIONAL TAX-EXEMPT FUND ARE SEPARATE SERIES OF MERRILL LYNCH FUNDS FOR
INSTITUTIONS SERIES, WHICH IS ORGANIZED AS A MASSACHUSETTS BUSINESS TRUST. NONE
OF THE FUNDS IS A BANK, NOR DOES IT OFFER FIDUCIARY OR TRUST SERVICES. SHARES OF
THE FUNDS ARE NOT EQUIVALENT TO A BANK ACCOUNT. WHILE THE FUNDS ATTEMPT TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE
THAT THEY WILL BE ABLE TO DO SO. THE SHARES OF THE FUNDS ARE NEITHER INSURED NOR
GUARANTEED BY ANY GOVERNMENT AGENCY AND ARE NOT SUBJECT TO THE PROTECTION OF THE
SECURITIES INVESTOR PROTECTION CORPORATION.
January , 1997
Distributor
Merrill Lynch
Funds Distributor, Inc.
These Statements of Additional Information should be retained for future
reference.
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE> 150
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Contained in Part A: Financial Highlights:
-- Institutional Fund-for the ten years ended April 30, 1996
-- Government Fund-for the ten years ended April 30, 1996
-- Treasury Fund-for the period December 18, 1989 (commencement of
operations) through April 30, 1996
-- Tax-Exempt Fund-for the ten years ended April 30, 1996
Contained in Part B:
-- Schedules of Investments for Institutional Fund, Government Fund,
Treasury Fund and Tax-Exempt Fund as of April 30, 1996
-- Statements of Assets and Liabilities for Institutional Fund,
Government Fund, Treasury Fund and Tax-Exempt Fund as of April 30,
1996
-- Statements of Operations for Institutional Fund, Government Fund,
Treasury Fund and Tax-Exempt Fund, for the year ended April 30, 1996
-- Statements of Changes in Net Assets for Institutional Fund,
Government Fund, Treasury Fund and Tax-Exempt Fund, for the two
years ended April 30, 1996
-- Financial Highlights for Institutional Fund, Government Fund,
Treasury Fund and Tax-Exempt Fund, for each of the periods in the
five year periods ended April 30, 1996
-- Notes to Financial Statements
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------------
<S> <C>
1(a) -- Declaration of Trust, as amended, with Form of Amendment dated December 11, 1989
(incorporated by reference to Exhibit 1 to Registrant's Registration Statement on Form
N-1A (File No. 33-14190))
1(b) -- Establishment and Designation of Merrill Lynch Institutional Fund and Merrill Lynch
Government Fund as separate series of Merrill Lynch Funds For Institutions Series, dated
June 18, 1990 (incorporated by reference to Exhibit 1(b) to Post-Effective Amendment No. 6
to Registrant's Registration Statement to Form N-1A (File No. 33-14190))
1(c) -- Establishment and Designation of Merrill Lynch Institutional Tax-Exempt Fund as a separate
series of Merrill Lynch Funds for Institutions Series, dated February 16, 1994
(incorporated by reference to Exhibit 1(c) to Post-Effective Amendment No. 10 of
Registrant's Registration Statement on Form N-14 (File No. 33-14190))
1(d) -- Establishment and Designation of Merrill Lynch Premier Institutional Fund as a separate
series of Merrill Lynch Funds For Institutions Series, dated December , 1996.
2 -- By-Laws of Registrant (incorporated by reference to Exhibit 2 to Registrant's Registration
Statement on Form N-1A (File No. 33-14190))
3 -- None
4 -- Form of Share Certificate (incorporated by reference to Exhibit 4 to Post-Effective
Amendment No. 3 to Registrant's Registration Statement to Form N-1A (File No. 33-14190))
5(a) -- Form of Investment Advisory Agreement for Merrill Lynch Treasury Fund (incorporated by
reference to Exhibit 5 to Registrant's Registration Statement on Form N-1A (File No.
33-14190))
5(b) -- Investment Advisory Agreement for Merrill Lynch Institutional Fund (incorporated by
reference to Exhibit 5(b) to Post-Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (File No. 33-14190))
5(c) -- Investment Advisory Agreement for Merrill Lynch Government Fund (incorporated by reference
to Exhibit 5(c) to Post-Effective Amendment No. 5 to Registrant's Registration Statement
on Form N-1A (File No. 33-14190))
5(d) -- Investment Advisory Agreement for Merrill Lynch Institutional Tax-Exempt Fund
(incorporated by reference to Exhibit 5(d) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (File No. 33-14190))
5(e) -- Investment Advisory Agreement for Merrill Lynch Premier Institutional Fund*
</TABLE>
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<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------------
<S> <C>
6(a) -- Distribution Agreement for Merrill Lynch Treasury Fund (incorporated by reference to
Exhibit 6(a) to Registrant's Registration Statement on Form N-1A (File No. 33-14190))
6(b) -- Form of Selected Dealer Agreement for Merrill Lynch Treasury Fund (incorporated by
reference to Exhibit 6(b) to Registrant's Registration Statement on Form N-1A (File No.
33-14190))
6(c) -- Form of Distribution Agreement for Merrill Lynch Institutional Fund (incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (File No. 33-14190))
6(d) -- Form of Distribution Agreement for Merrill Lynch Government Fund (incorporated by
reference to Exhibit 6(d) to Post-Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (File No. 33-14190))
6(e) -- Form of Distribution Agreement for Merrill Lynch Institutional Tax-Exempt Fund
(incorporated by reference to Exhibit 6(e) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (File No. 33-14190))
6(f) -- Distribution Agreement for Merrill Lynch Premier Institutional Fund*
7 -- None
8 -- Form of Custodian Agreement (incorporated by reference to Exhibit 8 to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-1A (File No. 33-14190))
9(a) -- Form of Transfer Agency, and Dividend Disbursing Agreement (incorporated by reference to
Exhibit 9(a) to Pre-Effective Amendment No. 1 to Registrant's Registration Statement on
Form N-1A (File No. 33-14190))
9(b) -- Form of Agreement relating to the use of the "Merrill Lynch" name (incorporated by
reference to Exhibit 9(b) to Registrant's Registration Statement on Form N-1A (File No.
33-14190))
9(c) -- Agreement and Plan of Reorganization of Merrill Lynch Institutional Fund Inc. and Merrill
Lynch Government Fund Inc., respectively (incorporated by reference to Exhibit 9(c) to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on Form N-1A (File
No. 33-14190))
9(d) -- Agreement and Plan of Reorganization of Merrill Lynch Institutional Tax-Exempt Fund
(incorporated by reference to Exhibit 10(a) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (File No. 33-14190))
10(a) -- Opinion of Counsel (filed with 24f-2 Notice on June 25, 1996).
10(b) -- Opinion and Consent of Special Massachusetts Counsel (incorporated by reference to Exhibit
11(b) to Registrant's Registration Statement on Form N-1A (File No. 33-14190))
11 -- Consent of Independent Auditors
12 -- None
13 -- None
14 -- None
15(a) -- Form of Distribution and Shareholder Servicing Plan pursuant to Rule 12b-1 and related
Shareholder Servicing Agreement for Merrill Lynch Treasury Fund (incorporated by reference
to Exhibit 15 to Registrant's Registration Statement on Form N-1A (File No. 33-14190))
15(b) -- Distribution and Shareholder Servicing Plan pursuant to Rule 12b-1 and related Shareholder
Servicing Agreement for Merrill Lynch Institutional Fund (incorporated by reference to
Exhibit 15(b) to Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form N-1A (File No. 33-14190))
15(c) -- Distribution and Shareholder Servicing Plan pursuant to Rule 12b-1 and related Shareholder
Servicing Agreement for Merrill Lynch Government Fund (incorporated by reference to
Exhibit 15(c) to Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form N-1A (File No. 33-14190))
15(d) -- Distribution and Shareholder Servicing Plan pursuant to Rule 12b-1 and related Shareholder
Servicing Agreement for Merrill Lynch Institutional Tax-Exempt Fund (incorporated by
reference to Exhibit 15(d) to Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A (File No. 33-14190))
16 -- None
</TABLE>
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<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------------
<S> <C>
17(a) -- Power of Attorney of W. Carl Kester (incorporated by reference to Exhibit 17(a) to
Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form N-1A (File
No. 33-14190))
17(b) -- Power of Attorney of James T. Flynn (incorporated by reference to Exhibit 17(b) to
Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form N-1A (File
No. 33-14190))
</TABLE>
- ---------------
* To be filed by Amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant does not control any other person, nor is the Registrant under
common control with any other person.
ITEM 26. NUMBERS OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS DECEMBER 3, 1996
- -------------------------------------------------------------------------------------- -----------------
<S> <C>
Shares of beneficial interest of Merrill Lynch Institutional Fund, par value $0.01 per
share............................................................................... 52,262
Shares of beneficial interest of Merrill Lynch Government Fund, par value $0.01 per
share............................................................................... 14,795
Shares of beneficial interest of Merrill Lynch Treasury Fund, par value $0.01 per
share............................................................................... 1,750
Shares of beneficial interest of Merrill Lynch Institutional Tax-Exempt Fund, par
value $0.10 per share............................................................... 12,609
</TABLE>
Note: The number of holders shown above includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust.
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a defense
to the action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds that
amount to which it is ultimately determined that he is entitled to receive from
the Registrant by reason of indemnification; and (iii)(a) such promise must be
secured by a surety bond, other suitable insurance of 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser") acts as the
investment adviser for the following other open-end investment companies: CBA
Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, 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 Federal Securities Trust, Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Municipal Bond 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 the
following closed-end investment companies: Apex Municipal Fund, Inc., Corporate
High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund,
Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., MuniAssets Fund, Inc., MuniEnhanced Fund,
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<PAGE> 153
Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
Munivest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured 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 Insured Fund II, 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 New York Insured Fund III, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew
York Holdings, Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of FAM, acts as
investment adviser for the following open-end investment companies: Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth
Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Fund for Tomorrow, Inc., Merrill Lynch Global Allocation Fund,
Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill
Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc.,
Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc.,
Merrill Lynch Growth Fund, Inc., Merrill Lynch Healthcare Fund, Inc., Merrill
Lynch Institutional Intermediate 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 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.A. Government Reserves, Merrill Lynch U.S. Treasury Money
Fund, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable Series
Fund, Inc., and the following closed-end investment companies: Convertible
Holdings, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc., and Merrill
Lynch Senior Floating Rate Fund, Inc. The address of each of these 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
Institutional Intermediate Fund is One Financial Center, 23rd Floor, Boston,
Massachusetts, 02111. The address of the Investment Adviser and of Merrill Lynch
Funds Distributor, Inc. ("MLFD"), and MLAM is also P.O. Box 9011, Princeton, New
Jersey 08543-9011. 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
10281-1209.
Set forth below is a list of each officer and director of FAM indicating
each business, profession, vocation or employment of a substantial nature in
which each such person has been engaged since November 30, 1987 for his or her
or its own account or in the capacity of director, officer, partner or trustee.
In addition, Messrs. Zeikel, Glenn and Richard hold the same positions with
substantially all of the investment companies described in the preceding
paragraph and Messrs. Giordano, Harvey and Monagle are directors or officers of
one or more of such companies. Messrs. Zeikel and Richard also hold the same
positions with all or substantially all of the investment companies advised by
MLAM as they do with the Investment Adviser. Messrs. Harvey and Monagle are
directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------- --------------------------- ---------------------------------------
<S> <C> <C>
ML & Co.................. Limited Partner Financial Services Holding Company;
Limited Partner of MLAM
Fund Asset Management,
Inc. .................. Limited Partner Investment Advisory Services
Princeton Services, Inc.
("Princeton
Services")............. General Partner General Partner of MLAM
Arthur Zeikel............ President and Director President of MLAM; President and
Director of Princeton Services;
Executive Vice President of ML & Co.
and Merrill Lynch; Director of MLFD
</TABLE>
C-4
<PAGE> 154
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------- --------------------------- ---------------------------------------
<S> <C> <C>
Terry K. Glenn........... Executive Vice President Executive Vice President of MLAM;
and Director Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of Merrill
Lynch Financial Data Services, Inc.
("FDS"); President of Princeton
Administrators, L.P.
Vincent R. Giordano...... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Elizabeth Griffin........ Senior Vice President Senior Vice President of MLAM
Norman R. Harvey......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Michael J. Hennewinkel... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
N. John Hewitt........... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Philip L. Kirstein....... Senior Vice President, Senior Vice President, General Counsel,
General Counsel, and and Secretary of MLAM; Senior Vice
Secretary President, General Counsel, Director
and Secretary of Princeton Services;
Director of MLFD
Ronald M. Kloss.......... Senior Vice President and Senior Vice President and Controller of
Controller MLAM; Senior Vice President and
Controller of Princeton Services
Stephen M. M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr.... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Michael L. Quinn......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch from 1989
to 1995.
Richard L. Reller........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Gerald M. Richard........ Senior Vice President and Senior Vice President and Treasurer of
Treasurer MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Ronald L. Welburn........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Anthony Wiseman.......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Merrill Lynch Funds Distributor, Inc. ("MLFD") acts as the principal
underwriter for the Registrant. MLFD acts as the principal underwriter for each
of the investment companies referred to in Item 28 except Apex Municipal Fund,
Inc., CBA Money Fund, CMA Government Securities Fund, CMA Treasury Fund, CMA
Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, Merrill
Lynch Corporate High Yield Fund, Inc., Merrill Lynch Corporate High Yield Fund
II, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., MuniEnhanced Fund,
Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest California Insured
Fund, Inc., MuniVest Florida Fund, MuniVest Fund II, Inc., MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured
Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield Arizona Fund II,
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<PAGE> 155
Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Insured Fund, Inc., MuniYield Insured Fund II,
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 New York Insured Fund III, Inc., MuniYield Pennsylvania Fund, Inc.,
MuniYield Fund, Inc., MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, The
Corporate Fund Accumulation Program, Inc., The Municipal Fund Accumulation
Program, Inc., World Wide Dollar Vest, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Crook,
Aldrich, Brady, Breen, Fatseas, Maguire and Wasel and Ms. Schena is One
Financial Center, Boston, Massachusetts 02111.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITION AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ----------------------------------------- -------------- -------------
<S> <C> <C>
Terry K. Glenn........................... President Trustee
Arthur Zeikel............................ Director None
Philip Kirstein.......................... Director None
William E. Aldrich....................... Senior Vice President Executive Vice President
Robert W. Crook.......................... Senior Vice President President and Trustee
Gerald M. Richard........................ Vice President and Treasurer Vice President
Mark A. DeSario.......................... Vice President None
Michelle T. Lau.......................... Vice President None
Salvatore Venezia........................ Vice President None
Kevin P. Boman........................... Vice President None
Michael J. Brady......................... Vice President Senior Vice President
William M. Breen......................... Vice President Senior Vice President,
Chief Financial Officer
and Treasurer
James T. Fatseas......................... Vice President Senior Vice President
William Wasel............................ Vice President Senior Vice President
Debra W. Landsman-Yaros.................. Vice President None
Robert Harris............................ Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
will be maintained at the offices of the Registrant and its Custodian and
Transfer Agent.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management" in the Prospectus
constituting Part A of the Registration Statement and under the caption
"Investment Advisory and Other Services" in the Statement of Additional
Information constituting Part B of the Registration Statement, Registrant is not
a party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
None.
C-6
<PAGE> 156
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO
ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE COUNTY OF SUFFOLK AND COMMONWEALTH OF
MASSACHUSETTS, ON THE 5TH DAY OF DECEMBER, 1996.
MERRILL LYNCH FUNDS FOR INSTITUTIONS
SERIES
BY: /S/ ROBERT W. CROOK
------------------------------------------
Robert W. Crook, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ -------------------------------------- ------------------
<C> <S> <C>
/s/ ROBERT W. CROOK President and Trustee December 5, 1996
- ------------------------------------------ (Principal Executive Officer)
Robert W. Crook
/s/ WILLIAM M. BREEN Chief Financial Officer December 5, 1996
- ------------------------------------------ (Principal Financial and Accounting
William M. Breen Officer)
* Trustee
- ------------------------------------------
A. Bruce Brackenridge
* Trustee
- ------------------------------------------
Charles C. Cabot, Jr.
* Trustee
- ------------------------------------------
James T. Flynn
* Trustee
- ------------------------------------------
Terry K. Glenn
* Trustee
- ------------------------------------------
George W. Holbrook, Jr.
* Trustee
- ------------------------------------------
W. Carl Kester
*By: /s/ ROBERT W. CROOK December 5, 1996
- ------------------------------------------
Robert W. Crook
Attorney-in-Fact
</TABLE>
C-7
<PAGE> 157
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ------ --------------------------------------------------------------------------------- --------
<S> <C> <C> <C>
1(d) -- Establishment and Designation of Merrill Lynch Premier Institutional Fund as a
separate series of Merrill Lynch Funds For Institutions Series, dated December
, 1996*
5(e) -- Investment Advisory Agreement for Merrill Lynch Premier Institutional Fund*
6(e) -- Distribution Agreement for Merrill Lynch Premier Institutional Fund*
11 -- Consent of Independent Auditors
</TABLE>
- ---------------
* To be filed by Amendment.
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 14 to
Registration Statement No. 33-14190 of Merrill Lynch Funds For Institutions
Series of our report dated May 24, 1996 appearing in the Statements of
Additional Information of Merrill Lynch Institutional Fund, Merrill Lynch
Government Fund, Merrill Lynch Treasury Fund and Merrill Lynch Institutional
Tax-Exempt Fund of Merrill Lynch Funds For Institutions Series, which are a part
of such Registration Statement, and to the reference to us under the heading
"Financial Highlights" appearing in the Prospectuses of Merrill Lynch
Institutional Fund, Merrill Lynch Government Fund, Merrill Lynch Treasury Fund
and Merrill Lynch Institutional Tax-Exempt Fund of Merrill Lynch Funds For
Institutions Series, which are a part of such Registration Statement.
Deloitte & Touche LLP
Boston, Massachusetts
December 4, 1996
