<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1997
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. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 16
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 18
(CHECK APPROPRIATE BOX OR BOXES.)
----------------
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
ONE FINANCIAL CENTER 02111
BOSTON, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(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:
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
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
[X] 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)
[_] 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
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
AMOUNT PROPOSED MAXIMUM
OF SHARES MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER SHARE PRICE* FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Premier
Institutional Fund Shares
of Beneficial Interest
par value $0.01 per
share.................... 66,000 $1.00 $66,000
- -------------------------------------------------------------------------------
Merrill Lynch
Institutional Fund Shares
of Beneficial Interest
par value $0.01 per
share.................... 1,419,920,155 $1.00 $66,000
- -------------------------------------------------------------------------------
Merrill Lynch Government
Fund Shares of Beneficial
Interest par value $0.01
per share................ 66,000 $1.00 $66,000 $100
- -------------------------------------------------------------------------------
Merrill Lynch Treasury
Fund Shares of Beneficial
Interest par value $0.01
per share................ 66,000 $1.00 $66,000
- -------------------------------------------------------------------------------
Merrill Lynch Tax-Exempt
Fund Shares of Beneficial
Interest par value $0.10
per share................ 66,000 $1.00 $66,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. The total amount of
shares of beneficial interest redeemed or repurchased during the
Registrant's previous fiscal year was 68,867,606,220. Of such amount,
67,447,752,065 shares have been used for reductions pursuant to Rule 24e-
2(a) or Rule 24f-2(c) under the Investment Company Act of 1940 in previous
filings during the Registrant's current fiscal year. 1,419,854,155 shares of
beneficial interest redeemed during the Registrant's previous fiscal year
are being used for the reduction of the registration fee in this post-
effective amendment to the Registration Statement.
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 20, 1997.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<C> <S> <C>
PART A
Item 1. Cover Page.............. Cover Page
Item 2. Synopsis................ Fee Table
Item 3. Condensed Financial Financial Highlights; Yield
Information............ Information
Item 4. General Description of The Premier Institutional Fund and Its
Registrant............. 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 Cover Page; Dividends; Taxes;
Securities............. Additional Information
Item 7. Purchase of Securities Purchase of Shares; Distributor; Net
Being Offered.......... Asset Value
Item 8. Redemption or Redemptions
Repurchase.............
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 General Information
History................
Item 13. Investment Objectives Investment Objective and Policies
and Policies...........
Item 14. Management of the Fund.. Management of the Trust
Item 15. Control Persons and
Principal Holders of Management of the Trust; General
Securities............. Information
Item 16. Investment Advisory and Management of the Trust; Investment
Other Services......... Advisory and Other Services
Item 17. Brokerage Allocation and
Other Practices........ Portfolio Transactions
Item 18. Capital Stock and Other General Information
Securities.............
Item 19. Purchase, Redemption and
Pricing of Securities Net Asset Value; Distributor
Being Offered..........
Item 20. Tax Status.............. Taxes
Item 21. Underwriters............ Distributor
Item 22. Calculation of Yield Information
Performance Data.......
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>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH INSTITUTIONAL FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<C> <S> <C>
PART A
Item 1. Cover Page................ Cover Page
Item 2. Synopsis.................. Fee Table
Item 3. Condensed Financial Infor- Financial Highlights; Yield
mation................... Information
Item 4. General Description of The Institutional Fund and Its
Registrant............... 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 Cover Page; Dividends; Taxes;
Securities............... Additional Information
Item 7. Purchase of Securities Be- Purchase of Shares; Distributor; Net
ing Offered.............. Asset Value
Item 8. Redemption or Repurchase.. Redemptions
Item 9. Pending Legal Proceed- *
ings.....................
PART B
Item 10. Cover Page................ Cover Page
Item 11. Table of Contents......... Table of Contents
Item 12. General Information and General Information
History..................
Item 13. Investment Objectives and Investment Objective and Policies
Policies.................
Item 14. Management of the Fund.... Management of the Trust
Item 15. Control Persons and Prin-
cipal Holders of Securi- Management of the Trust; General
ties..................... Information
Item 16. Investment Advisory and Management of the Trust; Investment
Other Services........... Advisory and Other Services
Item 17. Brokerage Allocation and
Other Practices.......... Portfolio Transactions
Item 18. Capital Stock and Other General Information
Securities...............
Item 19. Purchase, Redemption and
Pricing of Securities Net Asset Value; Distributor
Being Offered............
Item 20. Tax Status................ Taxes
Item 21. Underwriters.............. Distributor
Item 22. Calculation of Performance Yield Information
Data.....................
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>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH GOVERNMENT FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<C> <S> <C>
PART A
Item 1. Cover Page................ Cover Page
Item 2. Synopsis.................. Fee Table
Item 3. Condensed Financial Infor- Financial Highlights; Yield
mation................... Information
Item 4. General Description of The Government Fund and Its
Registrant............... 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 Cover Page; Dividends; Taxes;
Securities............... Additional Information
Item 7. Purchase of Securities Be- Purchase of Shares; Distributor; Net
ing Offered.............. Asset Value
Item 8. Redemption or Repurchase.. Redemptions
Item 9. Pending Legal Proceed- *
ings.....................
PART B
Item 10. Cover Page................ Cover Page
Item 11. Table of Contents......... Table of Contents
Item 12. General Information and General Information
History..................
Item 13. Investment Objectives and Investment Objective and Policies
Policies.................
Item 14. Management of the Fund.... Management of the Trust
Item 15. Control Persons and Prin-
cipal Holders of Securi- Management of the Trust; General
ties..................... Information
Item 16. Investment Advisory and Management of the Trust; Investment
Other Services........... Advisory and Other Services
Item 17. Brokerage Allocation and
Other Practices.......... Portfolio Transactions
Item 18. Capital Stock and Other General Information
Securities...............
Item 19. Purchase, Redemption and
Pricing of Securities Net Asset Value; Distributor
Being Offered............
Item 20. Tax Status................ Taxes
Item 21. Underwriters.............. Distributor
Item 22. Calculation of Performance Yield Information
Data.....................
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>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH TREASURY FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<C> <S> <C>
PART A
Item 1. Cover Page............... Cover Page
Item 2. Synopsis................. Fee Table
Item 3. Condensed Financial In- Financial Highlights; Yield
formation............... Information
Item 4. General Description of The Treasury Fund and Its Objectives;
Registrant.............. 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 Cover Page; Dividends; Taxes;
Securities.............. Additional Information
Item 7. Purchase of Securities Purchase of Shares; Distributor; Net
Being Offered........... Asset Value
Item 8. Redemption or Repur- Redemptions
chase...................
Item 9. Pending Legal Proceed- *
ings....................
PART B
Item 10. Cover Page............... Cover Page
Item 11. Table of Contents........ Table of Contents
Item 12. General Information and General Information
History.................
Item 13. Investment Objectives and Investment Objective and Policies
Policies................
Item 14. Management of the Fund... Management of the Trust
Item 15. Control Persons and
Principal Holders of Management of the Trust; General
Securities.............. Information
Item 16. Investment Advisory and Management of the Trust; Investment
Other Services.......... Advisory and Other Services
Item 17. Brokerage Allocation and
Other Practices......... Portfolio Transactions
Item 18. Capital Stock and Other General Information
Securities..............
Item 19. Purchase, Redemption and
Pricing of Securities Net Asset Value; Distributor
Being Offered...........
Item 20. Tax Status............... Taxes
Item 21. Underwriters............. Distributor
Item 22. Calculation of Perfor- Yield Information
mance Data..............
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>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<C> <S> <C>
PART A
Item 1. Cover Page................ Cover Page
Item 2. Synopsis.................. Fee Table
Item 3. Condensed Financial Infor- Financial Highlights; Yield
mation................... Information
Item 4. General Description of The Tax-Exempt Fund and Its
Registrant............... 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 Cover Page; Dividends; Taxes;
Securities............... Additional Information
Item 7. Purchase of Securities Be- Purchase of Shares; Distributor; Net
ing Offered.............. Asset Value
Item 8. Redemption or Repurchase.. Redemptions
Item 9. Pending Legal Proceed- *
ings.....................
PART B
Item 10. Cover Page................ Cover Page
Item 11. Table of Contents......... Table of Contents
Item 12. General Information and General Information
History..................
Item 13. Investment Objectives and Investment Objective and Policies
Policies.................
Item 14. Management of the Fund.... Management of the Trust
Item 15. Control Persons and
Principal Holders of Management of the Trust; General
Securities............... Information
Item 16. Investment Advisory and Management of the Trust; Investment
Other Services........... Advisory and Other Services
Item 17. Brokerage Allocation and
Other Practices.......... Portfolio Transactions
Item 18. Capital Stock and Other General Information
Securities...............
Item 19. Purchase, Redemption and
Pricing of Securities Net Asset Value; Distributor
Being Offered............
Item 20. Tax Status................ Taxes; Special Tax Consideration
Item 21. Underwriters.............. Distributor
Item 22. Calculation of Performance Yield Information
Data.....................
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>
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH 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 Premier
Institutional Fund, Merrill Lynch 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 Premier Institutional Fund (the "Premier Institutional Fund"),
Merrill Lynch Institutional Fund (the "Institutional Fund", and, with the
Premier 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 banks 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>
PROSPECTUS
JULY 29, 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 4.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 July 29, 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
Financial Highlights............. 3
Yield Information................ 4
The Premier Institutional Fund
and Its Objectives.............. 4
Investment Adviser............... 7
Appendix
Investors for Whom the Funds are
Designed....................... A-1
Investment Adviser.............. A-2
Distributor...................... A-2
</TABLE>
<TABLE>
<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-12
Account Application..... A-19
</TABLE>
<PAGE>
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 (net of fee waiver).................. .14%*
Other Expenses
Dividend and Transfer Agency Fees............................ .00%
Other Fees and Expenses...................................... .03%
---
Total Other Expenses.......................................... .03%
---
Total Fund Operating Expenses (net of fee waiver)............. .17%*
===
</TABLE>
- --------
* During its initial offering period, the Fund's Investment Adviser has agreed
to waive a portion of its fee so that the effective annual fee was .14% of
the Fund's average daily net assets. If the Investment Adviser had not
agreed to waive a portion of the investment advisory fee, the Investment
Advisory Fees would be .15% of average net assets and Total Fund Operating
Expenses would be .18% 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 .17%, (2) a 5%
annual return throughout
the period and (3)
redemption at the end of
the period................. $2 $5 $10 $22
</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>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited by Deloitte &
Touche LLP, independent auditors. Financial statements for the period
beginning January 27, 1997 (commencement of operations) to April 30, 1997 and
the independent auditors' report thereon are included in the Statement of
Additional Information. Further information about the performance of the
Premier Institutional Fund is contained in the Trust's most recent annual
report to shareholders which may be obtained, without charge, by calling or
writing the Premier Institutional Fund at the telephone number or address on
the front cover of this Prospectus.
The following per share data and ratios for the Premier Institutional Fund
have been derived from information provided in the Fund's audited financial
statements.
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 27, 1997
(COMMENCEMENT OF OPERATIONS)
TO APRIL 30, 1997
----------------------------
<S> <C>
Net Asset Value, beginning of period.............. $ 1.00
Income from Investment Operations:
Net investment income............................ .014
Net realized and unrealized gain (loss) on
investments..................................... --
----------
Total from investment operations.................. .014
Less Distributions:
Dividends from net investment income............. (.014)
----------
Net Asset Value, end of period.................... $ 1.00
==========
Total Return...................................... 1.40%(2)
Ratios/Supplemental Data:
Net Assets, end of period (000).................. $2,823,196
Ratio of expenses to average net assets (before
waiver)......................................... .18%(1)
Ratio of expenses to average net assets (after
waiver)......................................... .17%(1)
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (before waiver).............. 5.26%(1)
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (after waiver)............... 5.27%(1)
</TABLE>
- --------
(1)On an annualized basis.
(2)Cumulative total return
Premier Institutional Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information as to the net annualized and compounded
yield for the seven-day period ended April 30, 1997.
<TABLE>
<S> <C>
Annualized Yield:
Including gains and losses............................................ 5.48%
Excluding gains and losses............................................ 5.47%
Compounded Annualized Yield............................................. 5.62%
Average Maturity of Portfolio at End of Period.......................... 51 days
</TABLE>
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.
Premier Institutional Fund
4
<PAGE>
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;
(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 will only invest in short-term obligations
that (1) have been rated in the highest rating category for short-term debt
obligations by at least two nationally recognized statistical rating
organizations ("NRSRO"); (2) have been rated in the highest rating category by
a single NRSRO if only one NRSRO has rated the security; (3) have been issued
by an issuer rated in the highest rating category by an NRSRO with respect to
a class of debt obligations that is comparable in priority and security with
the investment; or (4) 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.
Rule 2a-7 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 are not First Tier Securities (as defined in the Rule), not more
that 1%. In addition, Rule 2a-7 requires that not more than 5% of the Premier
Institutional Fund's total assets be invested in Second Tier Securities (as
defined in the Rule). As a matter of operating policy, the Premier
Institutional Fund will not invest in Second Tier Securities.
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)
Premier Institutional Fund
5
<PAGE>
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 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. Management of the Premier
Institutional 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 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 value of the
security on the delivery date may be more or less than its purchase or sale
price. 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
Premier Institutional Fund
6
<PAGE>
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 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. For the period beginning January 27, 1997 (commencement of
operations) to April 30, 1997, FAM was entitled to receive investment advisory
fees of $1,053,985 or .15% of the Premier Institutional Fund's average daily
net assets. During its initial offering period, FAM has agreed to waive a
portion of its fee so that the effective annual fee payable by the Premier
Institutional Fund to FAM was at the annual rate of 0.14% of the Fund's
average daily net assets. During the period beginning January 27, 1997
(commencement of operations) to April 30, 1997, such waiver amounted to
$45,574 or .01% of the Premier Institutional Fund's average daily net assets.
FAM therefore received $1,008,411 or .14% of the Fund's average daily net
assets during the period beginning January 27, 1997 (commencement of
operations) to April 30, 1997. FAM may discontinue waiver of the fee in whole
or in part at any time without notice. During the period beginning January 27,
1997 (commencement of operations) to April 30, 1997, the Premier Institutional
Fund's total expenses were $1,212,388 or .17% of its average daily net assets.
If FAM had not waived a portion of its fee, the Premier Institutional Fund's
total expenses would have been $1,257,962 or .18% of its average daily net
assets during the period beginning January 27, 1997 (commencement of
operations) to April 30, 1997.
Premier Institutional Fund
7
<PAGE>
[This page intentionally left blank]
<PAGE>
PROSPECTUS
JULY 29, 1997
MERRILL LYNCH INSTITUTIONAL FUND
OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
ONE FINANCIAL CENTER FOR GENERAL INFORMATION AND PURCHASES CALL
617-357-1460 OR TOLL FREE 800-225-1576
BOSTON, MASSACHUSETTS 02111
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 NOR HAS THE SECURITIES AND EXCHANGE 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 July 29, 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................... 7
Appendix
Investors for Whom the Funds are
Designed........................ A-1
Investment Adviser............... A-2
Distributor...................... A-2
</TABLE>
<TABLE>
<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-12
Account Application.............. A-19
Authorization for Redemption by
Check Form...................... A-21
</TABLE>
<PAGE>
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 (net of fee waiver).................. .20%*
Other Expenses
Dividend and Transfer Agency Fees............................ .01%
Other Fees and Expenses...................................... .04%
---
Total Other Expenses.......................................... .05%
---
Total Fund Operating Expenses (net of fee waiver)............. .25%*
===
</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, the Investment Advisory Fees would be .33% of
average daily net assets and Total Fund Operating Expenses would be .38% of
average daily 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 .25%, (2) a
5% annual return
throughout the period
and (3) redemption at
the end of the
period................ $3 $8 $14 $32
</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>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year
ended April 30, 1997 and the independent auditors' report thereon are included
in the Statement of Additional Information. Further information about the
performance of the Institutional Fund is contained in the Trust's most recent
annual report to shareholders which may be obtained, without charge, by
calling or writing the Institutional Fund at the telephone number or address
on the front cover of this Prospectus.
The following per share data and ratios for the Institutional Fund have been
derived from information provided in the Fund's audited financial statements.
<TABLE>
<CAPTION>
FIVE
MONTHS
YEAR ENDED APRIL 30, ENDED
---------------------------------------------------------------------------------- APRIL 30,
1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from
Investment
Operations:
Net investment
income......... .052 .056 .050 .031 .033 .050 .074 .033
Net realized and
unrealized gain
on
investments.... -- -- -- -- .001 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations..... .052 .056 .050 .031 .034 .050 .074 .033
Less
Distributions:
Dividends from
net investment
income......... (.052) (.056) (.050) (.031) (.034) (.050) (.074) (.033)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ========== ==========
Total Return.... 5.34% 5.81% 5.11% 3.20% 3.46% 5.12% 7.67% 8.11%*
Ratios/Supplemental
Data:
Net Assets, end
of year (000).. $6,197,878 $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)........ .38% .37% .37% .37% .38% .40% .42% .45%*
Ratio of
operating
expenses to
average net
assets
(after
waiver)........ .25% .24% .24% .24% .26% -- -- --
Ratio of net
investment
income,
including
realized and
unrealized
gains and
losses, to
average net
assets
(before
waiver)........ 5.12% 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)........ 5.25% 5.55% 5.13% 3.04% 3.41% -- -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------
1989 1988 1987
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00
Income from
Investment
Operations:
Net investment
income......... .088 .070 .062
Net realized and
unrealized gain
on
investments.... -- -- --
----------- ----------- -----------
Total from
investment
operations..... .088 .070 .062
Less
Distributions:
Dividends from
net investment
income......... (.088) (.070) (.062)
----------- ----------- -----------
Net Asset Value,
end of year.... $ 1.00 $ 1.00 $ 1.00
=========== =========== ===========
Total Return.... 9.16% 7.25% 6.36%
Ratios/Supplemental
Data:
Net Assets, end
of year (000).. $1,800,019 $1,258,741 $1,893,655
Ratio of
operating
expenses to
average net
assets
(before
waiver)........ .46% .45% .45%
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%
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 1993-1997 have
been audited by Deloitte & Touche LLP, independent auditors.
Institutional Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information as to the net annualized and compounded
yield for the seven-day period ended April 30, 1997.
<TABLE>
<S> <C>
Annualized Yield:
Including gains and losses............................................ 5.37%
Excluding gains and losses............................................ 5.37%
Compounded Annualized Yield............................................. 5.52%
Average Maturity of Portfolio at End of Period.......................... 62 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.
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;
Institutional Fund
4
<PAGE>
(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 will only invest in short-term obligations that (1)
have been rated in the highest rating category for short-term debt obligations
by at least two nationally recognized statistical rating organizations
("NRSRO"); (2) have been rated in the highest rating category by a single
NRSRO if only one NRSRO has rated the security; (3) have been issued by an
issuer rated in the highest rating category by an NRSRO with respect to a
class of debt obligations that is comparable in priority and security with the
investment; or (4) 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.
Rule 2a-7 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
are not First Tier Securities (as defined in the Rule), not more than 1%. In
addition, Rule 2a-7 requires that not more than 5% of the Institutional Fund's
total assets be invested in Second Tier Securities (as defined in the Rule).
As a matter of operating policy, the Institutional Fund will not invest in
Second Tier Securities.
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 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
Institutional Fund
5
<PAGE>
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 Institutional 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 Institutional 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.
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 value of the
security on the delivery date may be more or less than its purchase or sale
price. 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.
Institutional Fund
6
<PAGE>
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, 1997, FAM was entitled to receive investment
advisory fees of $24,155,920 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, 1997, such waiver amounted to $9,522,140 or .13% of the
Institutional Fund's average daily net assets. FAM therefore received
$14,633,780 or .20% of the Fund's average daily net assets during the fiscal
year ended April 30, 1997. FAM may discontinue waiver of the fee in whole or
in part at any time without notice. During the fiscal year ended April 30,
1997, the Institutional Fund's total expenses were $18,116,709 or .25% of its
average daily net assets. If FAM had not waived a portion of its fee, the
Institutional Fund's total expenses would have been $27,638,849 or .38% of its
average daily net assets during the fiscal year ended April 30, 1997.
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, 1997, the fees paid
to MLFD under the Plan totalled $3,589,356 or .05% of the Institutional Fund's
average daily net assets, all of which was paid to MLFD for providing
distribution-related services in connection with Fund shares.
Institutional Fund
7
<PAGE>
[This page intentionally left blank]
<PAGE>
PROSPECTUS
JULY 29, 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 NOR HAS THE SECURITIES AND EXCHANGE 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 July 29, 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
</TABLE>
<TABLE>
<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-12
Account Application.............. A-19
Authorization for Redemption by
Check Form...................... A-21
</TABLE>
<PAGE>
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 (net of fee waiver)..................... .20%*
Other Expenses
Dividend and Transfer Agency Fees............................... .02%
Other Fees and Expenses......................................... .04%
---
Total Other Expenses............................................. .06%
---
Total Fund Operating Expenses (net of fee waiver)................ .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, the Investment Advisory Fees would be .32% of
average daily net assets and Total Fund Operating Expenses would be .38% of
average daily 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>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year
ended April 30, 1997 and the independent auditors' report thereon are included
in the Statement of Additional Information. Further information about the
performance of the Government Fund is contained in the Trust's most recent
annual report to shareholders which may be obtained, without charge, by
calling or writing the Government Fund at the telephone number or address on
the front cover of this Prospectus.
The following per share data and ratios for the Government Fund have been
derived from information provided in the Fund's audited financial statements.
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED APRIL 30, ENDED
---------------------------------------------------------------------------------- APRIL 30,
1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from
Investment
Operations:
Net investment
income......... .052 .055 .049 .030 .030 .047 .070 .052
Net realized and
unrealized gain
on
investments.... -- -- -- -- .001 .002 .001 --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations..... .052 .055 .049 .030 .031 .049 .071 .052
Less
Distributions:
Dividends from
net investment
income......... (.052) (.055) (.049) (.030) (.031) (.049) (.071) (.052)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ========== ==========
Total Return.... 5.31% 5.67% 4.99% 3.06% 3.19% 5.05% 7.38% 8.15%*
Ratios/Supplemental
Data:
Net Assets, end
of period
(000).......... $2,017,399 $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% .38% .37% .38% .39% .41% .44% .46%*
Ratio of
expenses to
average net
assets (after
waiver)........ .26% .26% .24% .32% -- -- -- --
Ratio of net
investment
income,
including
realized and
unrealized
gains and
losses, to
average net
assets (before
waiver)........ 5.07% 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)........ 5.19% 5.49% 4.95% 2.89% -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------
1989 1988 1987
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00
Income from
Investment
Operations:
Net investment
income......... .083 .061 .053
Net realized and
unrealized gain
on
investments.... -- .001 .002
----------- ----------- -----------
Total from
investment
operations..... .083 .062 .055
Less
Distributions:
Dividends from
net investment
income......... (.083) (.062) (.055)
----------- ----------- -----------
Net Asset Value,
end of year.... $ 1.00 $ 1.00 $ 1.00
=========== =========== ===========
Total Return.... 8.65% 6.43% 5.61%
Ratios/Supplemental
Data:
Net Assets, end
of period
(000).......... $1,409,819 $1,469,766 $1,561,268
Ratio of
expenses to
average net
assets (before
waiver)........ .46% .46% .43%
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%
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 1993-1997 have
been audited by Deloitte & Touche LLP, independent auditors.
Government Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information as to the net annualized and compounded
yield for the seven-day period ended April 30, 1997.
<TABLE>
<S> <C>
Annualized Yield:
Including gains and losses............................................ 5.36%
Excluding gains and losses............................................ 5.35%
Compounded Annualized Yield............................................. 5.50%
Average Maturity of Portfolio at End of Period.......................... 54 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 IndexTM 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>
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. The Government Fund may also
invest in securities issued by U.S. government instrumentalities that are
international organizations designated or supported by multiple
governments, such as the International Bank for Reconstruction and
Development. 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 Government 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 Government 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.
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
Government Fund
5
<PAGE>
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 or sale
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, 1997, FAM was entitled to receive investment advisory fees of
$6,007,440 or .32% of the Government 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 Government 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, 1997, such
waiver amounted to $2,261,521 or .12% of the Government Fund's average daily
net assets. FAM therefore received $3,745,919 or .20% of the Government Fund's
average daily net assets for the fiscal year ended April 30, 1997. FAM may
discontinue waiver of the fee in whole or in part at any time without notice.
During the fiscal year ended April 30, 1997, the Government Fund's total
expenses were $4,784,010 or .26% of its average daily net assets. If FAM had
not waived a portion of its fee, the Government Fund's total expenses would
have been $7,045,531 or .38% of its average daily net assets during the fiscal
year ended April 30, 1997.
Government Fund
6
<PAGE>
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, 1997, the fees paid
to MLFD under the Plan totalled $882,834 or .05% of the Government Fund's
average daily net assets, all of which was paid to MLFD for providing
distribution-related services in connection with Government Fund shares.
Government Fund
7
<PAGE>
[This page intentionally left blank]
<PAGE>
PROSPECTUS
JULY 29, 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 NOR HAS THE SECURITIES AND EXCHANGE 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 July 29, 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............... 5
Distribution and Shareholder
Servicing Plan.................. 6
Appendix
Investors for Whom the Funds are
Designed....................... A-1
Investment Adviser.............. A-2
Distributor..................... A-2
</TABLE>
<TABLE>
<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-12
Account Application.............. A-19
Authorization for Redemption by
Check Form...................... A-21
</TABLE>
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
TREASURY
FUND
--------
<S> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge Im-
posed 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
(net of fee waiver)..... .20%*
Other Expenses
Dividend and Transfer
Agency Fees............ .02%
Other Fees and Ex-
penses................. .05%
---
Total Other Expenses..... .07%
---
Total Fund Operating Ex-
penses (net of fee waiv-
er)..................... .27%*
===
</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, the Investment Advisory Fees would be .35% of
average daily net assets and Total Fund Operating Expenses would be .42% of
average daily 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 .27%, (2) a 5% annual return
throughout the period and (3) redemption at
the end of the period......................... $ 3 $ 9 $15 $34
</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>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year
ended April 30, 1997 and the independent auditors' report thereon are included
in the Statement of Additional Information. Further information about the
performance of the Treasury Fund is contained in the Trust's most recent
annual report to shareholders which may be obtained, without charge, by
calling or writing the Treasury Fund at the telephone number or address on the
front cover of this Prospectus.
The following per share data and ratios for the Treasury Fund have been
derived from information provided in the Fund's audited financial statements.
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 18,
YEAR ENDED APRIL 30, 1989+ TO
-------------------------------------------------------------------- APRIL 30,
1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations:
Net investment income.. .049 .052 .045 .027 .028 .045 .066 .028
Net realized and
unrealized gain on
investments........... -- -- -- -- .001 .002 .003 --
-------- -------- -------- -------- -------- -------- -------- -------
Total from investment
operations............. .049 .052 .045 .027 .029 .047 .069 .028
Less Distributions:
Dividends from net
investment income..... (.049) (.052) (.045) (.027) (.029) (.047) (.069) (.028)
-------- -------- -------- -------- -------- -------- -------- -------
Net Asset Value, end of
year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== =======
Total Return............ 5.08% 5.37% 4.68% 2.82% 2.97% 4.79% 7.17% 7.75%*
Ratios/Supplemental
Data:
Net Assets, end of year
(000)................. $611,844 $514,123 $342,844 $266,953 $359,318 $320,686 $391,643 $64,392
Ratio of expenses to
average net assets
(before waiver)....... .42% .41% .44% .45% .45% .46% .50% .88%*
Ratio of expenses to
average net assets
(after waiver)........ .27% .26% .29% .39% -- -- .47% .51%*
Ratio of net investment
income, including
realized and
unrealized gains and
losses, to average net
assets (before
waiver)............... 4.85% 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)............... 5.00% 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 1993-1997 have
been audited by Deloitte & Touche LLP, independent auditors.
Treasury Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information as to the net annualized and compounded
yield for the seven-day period ended April 30, 1997.
<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.......................... 57 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.
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.
Treasury Fund
4
<PAGE>
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 or sale 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.)
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
Treasury Fund
5
<PAGE>
management of the Treasury Fund's business affairs. For the fiscal year ended
April 30, 1997, FAM was entitled to receive investment advisory fees of
$1,991,236 or .35% of the Treasury 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 Treasury 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, 1997, such
waiver amounted to $846,551 or .15% of the Treasury Fund's average net assets.
FAM therefore received $1,144,685 or .20% of the Fund's average daily net
assets for the fiscal year ended April 30, 1997. FAM may discontinue waiver of
the fee in whole or in part at any time without notice. During the fiscal year
ended April 30, 1997, the Treasury Fund's total expenses were $1,537,890 or
.27% of its average daily net assets. If FAM had not waived a portion of its
fee, the Treasury Fund's total expenses would have been $2,384,441 or .42% of
its average daily net assets during the fiscal year ended April 30, 1997.
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, 1997, the fees paid
to MLFD under the Plan totalled $331,142 or .06% of the Treasury Fund's
average daily net assets, all of which was paid to MLFD for providing
distribution-related services in connection with Treasury Fund shares.
Treasury Fund
6
<PAGE>
PROSPECTUS
JULY 29, 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 NOR HAS THE SECURITIES AND EXCHANGE 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 July 29, 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........ 9
Appendix
Investors for Whom the Funds are
Designed........................ A-1
Investment Adviser............... A-2
Distributor...................... A-2
</TABLE>
<TABLE>
<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-12
Account Application.............. A-19
Authorization for Redemption by
Check Form...................... A-21
</TABLE>
<PAGE>
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 (net of fee waiver)..................... .20%*
Other Expenses
Dividend and Transfer Agency Fees............................... .02%
Other Fees and Expenses......................................... .05%
---
Total Other Expenses............................................. .07%
---
Total Fund Operating Expenses (net of fee waiver)................ .27%
===
</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, the Investment Advisory Fees would have been .45% of average
daily net assets and Total Fund Operating Expenses would be .52% of average
daily 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
.27%, (2) a 5% annual return
throughout the period and (3)
redemption at the end of the
period........................ $3 $9 $15 $34
</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>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year
ended April 30, 1997 and the independent auditors' report thereon are included
in the Statement of Additional Information. Further information about the
performance of the Tax-Exempt Fund is contained in the Trust's most recent
annual report to shareholders which may be obtained, without charge, by
calling or writing the Tax-Exempt Fund at the telephone number or address on
the front cover of this Prospectus.
The following per share data and ratios for the Tax-Exempt Fund have been
derived from information provided in the Fund's audited financial statements.
<TABLE>
<CAPTION>
FIVE
MONTHS
YEAR ENDED APRIL 30, ENDED
------------------------------ APRIL 30,
1997 1996 1995 1994
---------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net Asset Value,
beginning of
period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment
income......... .03 .04 .03 .01
Less dividends
from net
investment
income......... (.03) (.04) (.03) (.01)
---------- -------- -------- --------
Net Asset Value,
end of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ========
Total Return.... 3.41% 3.68% 3.20% 2.14%*
Ratios/Supplemental
Data:
Net Assets, end
of period
(000).......... $1,003,655 $667,205 $403,903 $390,375
Ratio of
expenses to
average net
assets (before
waiver)........ .52% .54% .56% .59%*
Ratio of
expenses to
average net
assets (after
waiver)........ .27% .29% .31% .34%*
Ratio of net
investment
income to
average net
assets (before
waiver)........ 3.12% 3.35% 2.90% 1.92%*
Ratio of net
investment
income to
average net
assets (after
waiver)........ 3.37% 3.60% 3.15% 2.17%*
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
--------- --------- --------- --------- --------- --------- ---------
<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
Net investment
income......... .02 .03 .04 .05 .05 .04 .04
Less dividends
from net
investment
income......... (.02) (.03) (.04) (.05) (.06) (.04) (.04)
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
end of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= =========
Total Return.... 2.14% 2.74% 4.33% 5.55% 6.16% 4.86% 4.11%
Ratios/Supplemental
Data:
Net Assets, end
of period
(000).......... $278,697 $329,254 $377,154 $310,344 $281,839 $375,209 $679,892
Ratio of
expenses to
average net
assets (before
waiver)........ .62% .61% .61% .63% .63% .59% .58%
Ratio of
expenses to
average net
assets (after
waiver)........ .45% .53% .54% .56% .55% .52% .47%
Ratio of net
investment
income to
average net
assets (before
waiver)........ 1.96% 2.67% 4.21% 5.36% 5.92% 4.62% 3.90%
Ratio of net
investment
income to
average net
assets (after
waiver)........ 2.13% 2.75% 4.28% 5.43% 6.00% 4.69% 4.01%
</TABLE>
- -------
* On an annualized basis.
Note--The Financial Highlights shown for the fiscal years 1992-1997 have
been audited by Deloitte & Touche LLP, independent auditors.
Tax-Exempt Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information as to the net annualized and compounded
yield for the seven-day period ended April 30, 1997.
<TABLE>
<S> <C>
Annualized Yield:
Including gains and losses............................................ 4.21%
Excluding gains and losses............................................ 4.21%
Compounded Annualized Yield............................................. 4.30%
Average Maturity of Portfolio at End of Period.......................... 29 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-Exempt
Tax-Exempt Fund
4
<PAGE>
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 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
Tax-Exempt Fund
5
<PAGE>
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 Tax-Exempt 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 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.
Tax-Exempt Fund
6
<PAGE>
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."
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
Tax-Exempt Fund
7
<PAGE>
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, 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.
Tax-Exempt Fund
8
<PAGE>
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 fiscal
year ended April 30, 1997, FAM was entitled to receive investment advisory
fees of $3,731,200 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 FAM will be at the annual rate of .20% of
the Fund's average daily net assets. During the fiscal year ended April 30,
1997, such waiver amounted to $2,072,889 or .25% of the Tax-Exempt Fund's
average daily net assets. FAM therefore received $1,658,311 or .20% of the
Fund's average daily net assets for the fiscal year ended April 30, 1997. FAM
may discontinue waiver of the fee in whole or in part at any time without
notice. During the fiscal year ended April 30, 1997, the Tax-Exempt Fund's
total expenses were $2,247,163 or .27% 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 $4,320,052 or .52% of its average daily net assets during the
fiscal year ended April 30, 1997.
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, 1997, the fees paid to MLFD
under the Plan totalled $548,355 or .06% of the Tax-Exempt Fund's average
daily net assets, all of which was paid to MLFD for providing distribution-
related services in connection with Fund shares.
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
Tax-Exempt Fund
9
<PAGE>
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, 1997, the Tax-Exempt Fund had net capital loss carry-
overs of $254,048 of which $96,488 expire in 2001, $17,520 expire in 2002 and
$140,040 expire in 2003.
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.
Tax-Exempt Fund
10
<PAGE>
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
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APPENDIX
This Appendix constitutes part of the Prospectuses of Merrill Lynch Premier
Institutional Fund (the "Premier Institutional Fund"), Merrill Lynch
Institutional Fund (the "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
banks 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 value per share for investors. However, in these
circumstances each Fund is permitted to borrow amounts up to
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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 140 other registered
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 June 30, 1997, FAM and MLAM had a total of approximately
$256.6 billion in investment company and other portfolio assets under
management, including assets of certain affiliates.
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>
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 $30,000
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 (the "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 Premier Institutional Fund, the
Institutional Fund and the Government Fund, and as of the close of trading on
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 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.
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<PAGE>
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 Premier Institutional Fund,
the 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 Premier
Institutional Fund, the Institutional Fund and the Government 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 Premier Institutional Fund, the Institutional Fund and the
Government 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 Premier Institutional Fund, the
Institutional Fund or the Government Fund, but prior to the close (including
early closing of trading) on the Exchange on the business day prior to a
holiday* the proceeds of the wire will be invested in shares of the applicable
Fund as of the close of trading on the Exchange on that day, but will not
begin earning dividends on the investment until the next day on which State
Street Bank is open for business.
- --------
* The New York Stock Exchange is closed on the following holidays: New Year's
Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
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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 Premier Institutional Fund, Merrill Lynch 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.
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. All underlying subaccounts are
subject to each Fund's minimum balance requirements.
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
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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 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
on the business day prior to a holiday, or whose Federal Funds wire is
received after the close of trading (including early closing of trading) on
the Exchange on the business day 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.
In addition, investors whose Federal Funds wire is received after 3:00 p.m.
but prior to the close (including early closing of trading) on the Exchange on
the business day prior to a holiday will have the proceeds of the wire
invested in shares of the applicable Fund as of the close of trading on the
Exchange on that day, but will not begin earning dividends on the investment
until 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 Boston bank holidays. 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 Premier
Institutional Fund, the Institutional Fund and the Government 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 PREMIER INSTITUTIONAL FUND,
THE INSTITUTIONAL FUND AND THE GOVERNMENT 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 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
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<PAGE>
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 Premier Institutional Fund, the Institutional Fund and
the Government 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 Premier Institutional Fund, the Institutional Fund and
the Government 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 Premier Institutional Fund, the Institutional Fund and the
Government 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 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
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<PAGE>
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 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.
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<PAGE>
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 (namely, New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day), 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 Premier Institutional Fund, the Institutional Fund
and the Government 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 Premier Institutional Fund, the
Institutional Fund or the Government Fund and prior to the close of the
Federal Funds Wire and prior to the close (including early closing of trading)
on the Exchange, the order will become effective on that day; however,
dividends will be earned on the next business day that the Fund's Custodian is
open for business.
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 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 Premier Institutional Fund,
the Institutional Fund and the Government 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-
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Exempt Fund, 2:00 p.m. (Boston time) for the Treasury Fund and 3:00 p.m.
(Boston time) for the Premier Institutional Fund, the Institutional Fund and
the Government 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 Premier Institutional Fund,
the Institutional Fund and the Government Fund and before the close of trading
on the Exchange on that day. The net asset value of the Premier Institutional
Fund, 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 Premier Institutional Fund, 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 Premier Institutional Fund,
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
investment company taxable 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.
Investments by the Premier Institutional Fund and the Institutional Fund in
certain Eurodollar and Yankeedollar obligations may be subject to foreign
withholding taxes. See "The Premier Institutional Fund and Its Objectives" and
"The 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
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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 Premier Institutional Fund, 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 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.
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EXCHANGE PRIVILEGE
Shareholders of a Fund may exchange their shares for shares of any other
Fund of the Trust 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 are no-load funds and seek to maintain a
constant $1.00 net asset value per share, it is expected that any exchange
with a Fund 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. 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 existing 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, 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
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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 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.
A-13
<PAGE>
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; and,
A3 indicates a satisfactory capacity for timely repayment.
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. Prime-3 issues have an acceptable capacity for repayment.
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 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.
A-14
<PAGE>
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 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."
A-15
<PAGE>
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 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.
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
A-16
<PAGE>
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-annual 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 July 29, 1997, which forms a part 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 as separate Series of the Trust effective August 31,
1990. An additional series of the Trust, Merrill Lynch Institutional Tax-
Exempt Fund, commenced operations as a separate Series of the Trust effective
February 18, 1994. A fifth additional series of the Trust, Merrill Lynch
Premier Institutional Fund, commenced operations on January 27, 1997. 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-17
<PAGE>
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A-18
<PAGE>
ACCOUNT APPLICATION (CHECK ONE)
[_] MERRILL LYNCH PREMIER INSTITUTIONAL FUND
[_] MERRILL LYNCH TREASURY FUND
[_] MERRILL LYNCH INSTITUTIONAL FUND [_] MERRILL LYNCH INSTITUTIONAL TAX-
[_] MERRILL LYNCH GOVERNMENT FUND EXEMPT 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:
INITIAL INVESTMENT:--MINIMUM $25,000
(MERRILL LYNCH PREMIER INSTITUTIONAL
FUND MINIMUM $10,000,000)
------------------------------------
Name of Account
------------------------------------
------------------------------------
------------------------------------
Street
------------------------------------
[_]The account has been opened by
wire on ____________________________
City State Zip
------------------------------------
[_]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.
Occupation
------------------------------------
(Date) and the account no.
assigned is _______________________
Name of Employer
------------------------------------
Street
------------------------------------
City State Zip
-------------------
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
Premier Institutional Fund, Merrill Lynch Institutional Fund,
Merrill Lynch Government Fund, Merrill Lynch Treasury Fund, and/or
Merrill Lynch Institutional Tax-Exempt Fund, subject to the
requirements described in the Prospectus.
Redemption proceeds will be sent to the bank or
trust company listed below, for credit to the
investor's account. If the investor wishes to send
redemption proceeds to more than one such
institution, an additional application must be
submitted for each institution. The investor hereby
authorizes State Street Bank to honor telephone or
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.
EXPEDITED REDEMPTION PAYMENTS
(SEE PAGE A-7)
If desired check box
[_]
and complete the rest
of this section
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.
Name of Bank: _____________________ Bank Account No. ________________________
Address of Bank: ____________________________________________________________
Street City State Zip
Name on Account: ____________________________________________________________
PREMIER INSTITUTIONAL FUND EXCHANGE FOR ACCOUNTS WITH AVERAGE BALANCE OF
LESS THAN $10,000,000 (see page A-7).
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 Title (Corporate Account only)
- ------------------------------------ ------------------------------------
Signature Title (Corporate Account only)
A-19
<PAGE>
[This page intentionally left blank]
A-20
<PAGE>
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.
STEP 1 At the undersigned's request, State Street Bank and
INSERT ACCOUNT Trust Company (the "Bank") has established a
NUMBER IF KNOWN checking account for 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): __________________________
Merrill Lynch Institutional Fund
STEP 5 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
SUBJECT TO CONDITIONS ON REVERSE SIDE
A-21
<PAGE>
- -------------------------------------------------------------------------------
STEP 2 We hereby certify that each of the persons listed
IF OTHER THAN in Step 3 has been duly elected and is now legally
AN INDIVIDUAL, holding the office 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
(CORPORATION, action called for by this Continuing Redemption
TRUST, ETC.) Authorization.
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
NAMES AND certifications, authorizations and appointments in
SIGNATURES this document will continue until State Street Bank
and Trust Company receives actual written notice of
any change thereof.
(A) PLEASE PRINT OR TYPE (B) SIGN BELOW:
FULL NAMES AND TITLES:
------------------------- -------------------------
(INDIVIDUAL, PRESIDENT, (SIGNATURE)
TRUSTEE,
GENERAL PARTNER OR
REPRESENTATIVE)
------------------------- -------------------------
(IF JOINT ACCOUNT, (SIGNATURE)
INSERT THE NAME
OF JOINT ACCOUNT)
------------------------- -------------------------
(SECRETARY OF (SIGNATURE)
CORPORATION)
(The President or Vice President and Secretary or
Assistant Secretary of a corporation must sign.)
- -------------------------------------------------------------------------------
STEP 4
BANKER OR Signature(s) Guaranteed: ____________________________
BROKER SIGNS (Name of Guarantor Institution)
By: _____________________________________
(Authorized Signature)
- -------------------------------------------------------------------------------
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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 REPRESEN-
TATIONS, OTHER THAN THOSE CONTAINED IN THESE PROSPECTUSES AND IN THE STATE-
MENTS 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 DISTRIBU-
TOR. 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 PREMIER INSTITUTIONAL FUND
MERRILL LYNCH 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 PREMIER INSTITUTIONAL FUND
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND
MERRILL LYNCH PREMIER INSTITU-
TIONAL FUND, MERRILL LYNCH INSTI-
TUTIONAL FUND, MERRILL LYNCH GOV-
ERNMENT FUND, MERRILL LYNCH TREA-
SURY FUND AND MERRILL LYNCH IN-
STITUTIONAL TAX-EXEMPT FUND ARE
SEPARATE SERIES OF MERRILL LYNCH
FUNDS FOR INSTITUTIONS SERIES,
WHICH IS ORGANIZED AS A MASSACHU-
SETTS BUSINESS TRUST. NONE OF THE
FUNDS IS A BANK, NOR DOES IT OF-
FER FIDUCIARY OR TRUST SERVICES.
SHARES OF THE FUNDS ARE NOT
EQUIVALENT TO A BANK ACCOUNT.
WHILE THE FUNDS ATTEMPT TO MAIN-
TAIN 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 GUARAN-
TEED BY ANY GOVERNMENT AGENCY AND
ARE NOT SUBJECT TO THE PROTECTION
OF THE SECURITIES INVESTOR PRO-
TECTION CORPORATION.
July 29, 1997
Distributor
Merrill Lynch
Funds Distributor, Inc.
These Prospectuses should be retained
for future reference.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH 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 Premier Institutional Fund (the "Premier Institutional Fund"),
Merrill Lynch Institutional Fund (the "Institutional Fund" and, with the
Premier 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>
STATEMENT OF ADDITIONAL INFORMATION
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
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
Independent Auditors' Report......... 6
Audited Financial Statements for the
Period Beginning January 27, 1997
(commencement of operations) to
April 30, 1997...................... 7
Appendix A:
Management of the Trust............ A-1
Investment Advisory and Other Serv-
ices.............................. A-4
Portfolio Transactions............. A-7
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value............. A-8
Dividends................... A-10
Taxes....................... A-11
Federal................... A-11
Massachusetts Income Tax.. A-13
Other Taxes............... A-13
Distributor................. A-13
Yield Information........... A-15
General Information......... A-15
</TABLE>
The date of this Statement of Additional Information and the Prospectus is
July 29, 1997.
<PAGE>
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 will only invest in short-term obligations
(including short-term, promissory notes issued by corporations, partnerships,
trusts and other entities, whether or not secured) that (1) have been rated in
the highest rating category for short-term debt obligations by at least two
nationally recognized statistical rating organizations ("NRSRO"); (2) have
been rated in the highest rating category by a single NRSRO if only one NRSRO
has rated the security; (3) have been issued by an issuer rated in the highest
rating category by an NRSRO with respect to a class of debt obligations that
is comparable in priority and security with the investment; or (4) if not
rated, will be of comparable quality as determined by the Trustees of the
Trust. Currently there are six NRSROs: Duff & Phelps 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.
Premier Institutional Fund
2
<PAGE>
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.
(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.
Premier Institutional Fund
3
<PAGE>
(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. These borrowing provisions shall not apply to
reverse repurchase agreements as described in the Prospectus and Statement
of Additional Information. 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 10% of its total assets would be invested in such securities. This
restriction shall not 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. These borrowing provisions
shall not apply to reverse repurchase agreements as described in the
Prospectus and Statement of Additional Information.
Premier Institutional Fund
4
<PAGE>
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>
Premier Institutional Fund
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 Merrill Lynch Premier
Institutional Fund, 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, 1997, the related statements of
operations, the statements of changes in net assets 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, 1997, 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 Merrill Lynch Funds For Institutions Series at April 30,
1997, 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 28, 1997
6
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund
Schedule of Investments
April 30, 1997
<TABLE>
<CAPTION>
=============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
==============================================================================================================
<S> <C> <C> <C> <C> <C>
U.S. $ 15,000,000 U.S. Treasury Notes .................. 5.88% 01/31/99 $14,892,187
Government & 15,000,000 U.S. Treasury Notes .................. 5.88 02/28/99 14,880,470
Agency 5,000,000 Federal Farm Credit Banks ............ 5.65 02/03/98 4,985,900
Issues -- 4.2% 6,525,000 Federal Home Loan Banks ............ 5.42 02/06/98 6,502,163
15,000,000 Federal Home Loan Banks ............ 6.00 09/04/98 14,914,500
5,000,000 Federal National Mortgage Assoc. ... 5.79 10/16/97 4,998,400
6,000,000 Federal National Mortgage Assoc. ... 6.50 04/30/99 5,984,400
51,900,000 Federal Home Loan Banks D/N ......... 5.20 10/14/97 50,545,468
- -------------------------------------------------------------------------------------------------------------
Total U.S. Government & Agency
Issues (Cost $118,080,859) ......... 117,703,488
- -------------------------------------------------------------------------------------------------------------
U.S. 40,000,000 Federal Home Loan Banks ............ 5.56 01/15/98 39,982,793
Government 50,000,000 Federal Home Loan Mortgage Corp. .5.58 04/15/98 49,976,913
Agency 22,000,000 Federal National Mortgage Assoc. ... 5.57 03/26/98 21,988,370
Issues -- 40,000,000 Federal National Mortgage Assoc. ... 5.56 03/27/98 39,975,491
Variable 25,000,000 Federal National Mortgage Assoc. ... 5.60 04/24/98 24,994,651
Rate -- 9.2% 10,000,000 Federal National Mortgage Assoc. ... 5.68 07/26/99 9,962,245
18,000,000 Federal National Mortgage Assoc. ... 5.68 09/22/99 17,923,795
55,000,000 Student Loan Marketing Assoc. ...... 5.57 02/05/98 54,980,414
- -------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency
Issues -- Variable Rate
(Cost $259,784,672) .................. 259,784,672
- -------------------------------------------------------------------------------------------------------------
Certificates of 40,000,000 Morgan Guaranty Trust Co. ............ 5.82 01/30/98 39,907,156
Deposit -- 2.1% 20,000,000 Morgan Guaranty Trust Co. ............ 5.94 03/20/98 19,965,415
- -------------------------------------------------------------------------------------------------------------
Total Certificates of Deposit
(Cost $59,990,359) .................. 59,872,571
- -------------------------------------------------------------------------------------------------------------
Yankee 10,000,000 Deutsche Bank AG ..................... 5.63 02/26/98 9,959,353
Certificates of 20,000,000 Landesbank Hessen-Thuringen
Deposit -- 5.5% Girozentrale ..................... 5.78 01/27/98 19,950,889
25,000,000 Royal Bank of Canada ............... 5.79 01/30/98 24,940,281
15,000,000 Sumitomo Bank Ltd. .................. 5.68 05/09/97 15,000,000
60,000,000 Sumitomo Bank Ltd. .................. 5.65 05/12/97 60,000,000
25,000,000 Sumitomo Bank Ltd. .................. 5.65 05/14/97 25,000,074
- -------------------------------------------------------------------------------------------------------------
Total Yankee Certificates of
Deposit (Cost $154,978,732) ......... 154,850,597
- -------------------------------------------------------------------------------------------------------------
Time 100,000,000 Citibank N.A. ........................ 5.65 05/01/97 100,000,000
Deposits -- 100,000,000 Deutsche Bank AG ..................... 5.65 05/01/97 100,000,000
12.1%
</TABLE>
Premier Institutional Fund
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Time $100,000,000 First Union National Bank of
Deposits North Carolina .................. 5.66% 05/01/97 $100,000,000
(continued) 40,000,000 Morgan Guaranty Trust Co. ......... 5.69 05/01/97 40,000,000
- -------------------------------------------------------------------------------------------------------------
Total Time Deposits
(Cost $340,000,000) ............... 340,000,000
- -------------------------------------------------------------------------------------------------------------
Bank Notes -- 20,000,000 Barclays Bank PLC .................. 5.65 04/16/98 19,990,622
Variable 15,000,000 KeyBank National Association ...... 5.57 05/06/98 14,992,710
Rate -- 2.1% 17,000,000 Morgan Guaranty Trust Co. ......... 5.62 02/19/98 16,992,721
7,500,000 United States National Bank of
Oregon ........................... 5.67 04/14/98 7,496,154
- -------------------------------------------------------------------------------------------------------------
Total Bank Notes -- Variable Rate
(Cost $59,472,207) ............... 59,472,207
- -------------------------------------------------------------------------------------------------------------
Corporate 10,000,000 Abbey National Treasury Services
Notes -- 2.1% PLC .............................. 5.50 11/21/97 9,970,000
15,000,000 Abbey National Treasury Services
PLC .............................. 5.76 02/11/98 14,959,500
5,000,000 Abbey National Treasury Services
PLC .............................. 5.93 03/25/98 4,992,000
15,000,000 Beta Finance Inc. .................. 5.87 01/30/98 14,973,000
15,000,000 International Business Machines
Corp. ........................... 5.67 01/28/98 14,950,500
- -------------------------------------------------------------------------------------------------------------
Total Corporate Notes
(Cost $59,970,817) ............... 59,845,000
- -------------------------------------------------------------------------------------------------------------
Corporate 21,000,000 Abbey National North America Corp. 5.61 02/10/98 20,988,901
Notes -- 30,000,000 Abbey National Treasury Services
Variable PLC .............................. 5.59 02/25/98 29,980,925
Rate -- 5.9% 40,000,000 Abbey National Treasury Services
PLC .............................. 5.65 04/15/98 39,981,489
25,000,000 Bear Stearns Companies Inc. ...... 5.95 07/30/97 25,004,295
20,000,000 Bear Stearns Companies Inc. ...... 5.84 04/17/98 20,026,422
10,000,000 Chrysler Financial Corp. ......... 5.81 07/31/97 10,006,867
20,000,000 First Bank System, Inc. ............ 5.67 11/19/97 20,000,000
- -------------------------------------------------------------------------------------------------------------
Total Corporate Notes -- Variable
Rate (Cost $165,988,899) ......... 165,988,899
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Premier Institutional Fund
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Master Notes -- $100,000,000 Goldman Sachs Group L.P. ............ 5.51% 12/01/97 $100,000,000
Variable 30,000,000 Jackson National Life Insurance Co. 5.72 05/01/98 30,000,000
Rate -- 4.6%
- -------------------------------------------------------------------------------------------------------------
Total Master Notes -- Variable
Rate (Cost $130,000,000) ............ 130,000,000
- -------------------------------------------------------------------------------------------------------------
Commercial 17,000,000 Allomon Funding Corp. ............... 5.62 07/02/97 16,833,702
Paper -- 48.9% 25,000,000 Associates First Capital Corp. ...... 5.69 05/01/97 25,000,000
15,170,000 Atlantic Asset Securitization Corp. 5.57 05/09/97 15,151,223
14,425,000 Atlas Funding Corp. .................. 5.63 05/05/97 14,415,976
24,550,000 Atlas Funding Corp. .................. 5.61 05/07/97 24,527,046
12,980,000 Atlas Funding Corp. .................. 5.61 05/21/97 12,939,546
15,000,000 Bear Stearns Companies Inc. ......... 5.65 07/22/97 14,805,933
27,750,000 Broadway Capital Corp. ............... 5.61 05/30/97 27,624,593
25,000,000 Chrysler Financial Corp. ............ 5.57 05/21/97 24,922,639
58,166,000 Countrywide Home Loans, Inc. ...... 5.53 05/14/97 58,049,846
50,000,000 Daimler-Benz North America Corp. ... 5.27 05/15/97 49,897,528
10,000,000 Finova Capital Corp. ............... 5.30 05/15/97 9,979,389
20,000,000 Finova Capital Corp. ............... 5.30 05/20/97 19,944,055
30,000,000 Finova Capital Corp. ............... 5.29 05/23/97 29,903,016
25,000,000 Finova Capital Corp. ............... 5.61 06/03/97 24,871,437
15,000,000 Finova Capital Corp. ............... 5.60 06/05/97 14,918,333
15,000,000 Finova Capital Corp. ............... 5.65 07/21/97 14,808,300
50,000,000 General Electric Capital Corp. ...... 5.31 05/08/97 49,948,375
45,000,000 General Motors Acceptance Corp. ...... 5.43 07/29/97 44,368,100
15,000,000 General Motors Acceptance Corp. ...... 5.43 07/30/97 14,787,000
20,000,000 General Motors Acceptance Corp. ...... 5.38 08/04/97 19,699,166
10,000,000 General Motors Acceptance Corp. ...... 5.34 08/12/97 9,836,917
21,000,000 General Motors Acceptance Corp. ...... 5.32 08/13/97 20,654,200
15,000,000 General Motors Acceptance Corp. ...... 5.33 08/20/97 14,736,375
10,000,000 General Motors Acceptance Corp. ...... 5.33 08/26/97 9,814,750
20,000,000 Greenwich Funding Corp. ............ 5.53 05/06/97 19,984,639
20,000,000 Greenwich Funding Corp. ............ 5.46 05/20/97 19,942,367
32,000,000 Industrial Bank of Korea ............ 5.38 05/07/97 31,971,307
15,000,000 Industrial Bank of Korea ............ 5.38 05/12/97 14,975,342
19,875,000 International Securitization Corp. ... 5.31 05/12/97 19,842,753
15,000,000 International Securitization Corp. ... 5.43 05/27/97 14,941,175
31,655,000 International Securitization Corp. ... 5.67 07/25/97 31,230,471
36,000,000 Kingdom of Sweden .................. 5.30 08/28/97 35,321,700
</TABLE>
Premier Institutional Fund
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial $25,000,000 Korea Development Bank ............ 5.37% 05/06/97 $ 24,981,354
Paper 10,000,000 Korea Development Bank ............ 5.36 05/07/97 9,991,067
(continued) 16,000,000 Korea Development Bank ............ 5.58 05/08/97 15,982,640
25,000,000 Korea Development Bank ............ 5.34 05/12/97 24,959,208
30,000,000 Korea Development Bank ............ 5.30 05/27/97 29,885,167
25,000,000 Korea Development Bank ............ 5.70 07/25/97 24,664,722
25,000,000 Lehman Brothers Holdings Inc. ... 5.67 05/05/97 24,984,250
30,000,000 Lehman Brothers Holdings Inc. ... 5.65 05/07/97 29,971,750
45,000,000 Lehman Brothers Holdings Inc. ... 5.67 05/15/97 44,900,775
25,000,000 Monte Rosa Capital Corp. ......... 5.57 05/06/97 24,980,660
25,000,000 Morgan Stanley Group Inc. ......... 5.70 05/01/97 25,000,000
50,000,000 Morgan Stanley Group Inc. ......... 5.31 05/16/97 49,889,375
50,000,000 Morgan Stanley Group Inc. ......... 5.28 05/20/97 49,860,667
10,000,000 National Fleet Funding Corp. ...... 5.57 05/07/97 9,990,717
25,000,000 Nomura Holding America, Inc. ...... 5.40 05/05/97 24,985,000
28,557,000 Old Line Funding Corp. ............ 5.60 05/02/97 28,552,558
18,585,000 Old Line Funding Corp. ............ 5.59 05/05/97 18,573,456
10,000,000 Old Line Funding Corp. ............ 5.30 05/15/97 9,979,389
40,000,000 RTZ America Inc. .................. 5.64 07/21/97 39,488,800
15,000,000 Westpac Capital Corp. ............ 5.31 08/11/97 14,757,750
50,000,000 Windmill Funding Corp. ............ 5.28 05/05/97 49,970,667
10,089,000 Windmill Funding Corp. ............ 5.60 06/03/97 10,037,210
25,000,000 Windmill Funding Corp. ............ 5.68 07/28/97 24,652,889
- -------------------------------------------------------------------------------------------------------------
Total Commercial Paper
(Cost $1,381,874,973) ............ 1,381,687,270
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Premier Institutional Fund
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Repurchase $100,000,000 Fuji Securities, Inc., purchased
Agreements**-- on 04/30/97 .................. 5.55% 05/01/97 $100,000,000
3.5%
- -------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $100,000,000) ............ 100,000,000
- -------------------------------------------------------------------------------------------------------------
Total Investments -- 100.2%
(Cost $2,830,141,518) ............ 2,829,204,704
- -------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other
Assets -- (0.2%) ............... (6,008,449)
- -------------------------------------------------------------------------------------------------------------
Net Assets -- Equivalent to $1.00
Per Share on 2,824,133,069
Shares of Beneficial Interest
Outstanding -- 100.0% ......... $2,823,196,255
=============================================================================================================
</TABLE>
Note--Costs for federal income tax purposes are the same as those shown above.
At April 30, 1997, net unrealized depreciation amounted to $936,814 and is
comprised of $11,496 in appreciation and $948,310 in depreciation.
* 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, 1997. 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
Premier Institutional Fund
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund
Statement of Assets and Liabilities
April 30, 1997
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Assets:
Total investments at value (identified cost $2,830,141,518) (Note 1a) ......... $2,829,204,704
Cash ........................................................................... 3,467,456
Interest receivable ............................................................ 6,718,859
Prepaid expense and deferred organization expenses (Note 1e) .................. 189,200
---------------
Total assets ............................................................... 2,839,580,219
---------------
Liabilities:
Advisory fee payable (Note 2) ................................................ 360,034
Payable for investments purchased ............................................. 14,992,710
Dividends payable ............................................................... 971,343
Accrued expenses ............................................................... 59,877
---------------
Total liabilities ............................................................ 16,383,964
---------------
Net Assets: (Equivalent to $1.00 per share, offering and redemption price, based
on 2,824,133,069 shares of beneficial interest outstanding) .................. $2,823,196,255
===============
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund
Statement of Operations
For the Period January 27, 1997 (Commencement of Operations) to April 30, 1997
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income:
Interest and discount earned (Note 1d) ..............................$38,920,898
-----------
Expenses:
Investment advisory fee (Note 2) ..................... $1,053,985
Registration fees .................................... 115,617
Accounting and custodian services ..................... 51,160
Amortization of organization expenses (Note 1e) ...... 10,825
Dividend and transfer agency fees ..................... 9,183
Trustees' fees (Note 5) .............................. 8,000
Legal and audit fees ................................. 5,459
Printing and shareholder reports ..................... 3,733
----------
Total expenses ................................. 1,257,962
Waived investment advisory fee (Note 2) ............ (45,574) 1,212,388
---------- -----------
Net investment income ..........................................37,708,510
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain from investment transactions ...... 248,533
Net unrealized depreciation of investments ......... (936,814)
----------
Net realized and unrealized loss from investments .................. (688,281)
-----------
Net Increase in Net Assets Resulting From Operations ..................$37,020,229
===========
</TABLE>
Premier Institutional Fund
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund
Statement of Changes in Net Assets
For the Period January 27, 1997 (Commencement of Operations) to April 30, 1997
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Increase in Net Assets:
Operations:
Net investment income .................................... $ 37,708,510
Net realized gain from investment transactions ............ 248,533
Net unrealized depreciation of investments ............... (936,814)
--------------
Net increase in net assets resulting from operations ...... 37,020,229
Total declared as dividends to shareholders (Note 4) ...... (37,957,043)
Capital share transactions (Note 3) ........................ 2,824,033,069
--------------
Net increase in net assets ................................. 2,823,096,255
Net Assets:
Beginning of period (Note 3) .............................. 100,000
--------------
End of period ............................................. $2,823,196,255
==============
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Premier Institutional Fund
Financial Highlights
For the Period January 27, 1997 (Commencement of Operations) to April 30, 1997
================================================================================
<TABLE>
<S> <C>
Net Asset Value, beginning of period ....................................... $ 1.00
Income from Investment Operations:
Net investment income ...................................................... .014
Net realized and unrealized gain (loss) on investments .................. --
---------
Total from investment operations .......................................... .014
Less Distributions:
Dividends from net investment income .................................... (.014)
---------
Net Asset Value, end of period ............................................. $ 1.00
=========
Total Return ............................................................... 1.40%(2)
Ratios/Supplemental Data:
Net Assets, end of period (000) .......................................... $2,823,196
Ratio of expenses to average net assets (before waiver) .................. .18%(1)
Ratio of expenses to average net assets (after waiver) .................. .17%(1)
Ratio of net investment income, including realized and unrealized gains and
losses, to average net assets (before waiver) ........................... 5.26%(1)
Ratio of net investment income, including realized and unrealized gains and
losses, to average net assets (after waiver) ........................... 5.27%(1)
</TABLE>
(1) On an annualized basis
(2) Cumulative total return
Premier Institutional Fund
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
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
January 27, 1997, Merrill Lynch Premier Institutional Fund commenced operations
as a separate series of the Trust. 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 Premier Institutional, 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 value.
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 accretion of 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 Premier Institutional Fund, 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, 1997, Merrill Lynch Institutional
Tax-Exempt Fund reclassified amounts to reflect a decrease of $200 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:
Premier Institutional Fund
14
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Percentage of Average Daily Net Assets
------------------------------------------
Premier Institutional
Fund ............... .15%
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
During its initial offering period, FAM agreed to waive a portion of its
advisory fee for the Premier Institutional Fund. For the period ended April 30,
1997, the effective fee payable to FAM was 0.14% of the Fund's average daily
assets. FAM has agreed to waive a portion of its advisory fees for the
Institutional, Government, Treasury and Tax-Exempt Funds. 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, 1997, FAM waived a portion of its fees amounting
to $45,574 for the Premier Institutional Fund, $9,522,140 for the Institutional
Fund, $2,261,521 for the Government Fund, $846,551 for the Treasury Fund and
$2,072,889 for the Institutional Tax-Exempt Fund.
All officers and certain trustees of the Trust are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest in the Premier Institutional Fund, Institutional
Fund, Government Fund and Treasury Fund ($.01 par value) and Institutional Tax-
Exempt Fund ($.10 par value) of a single class. At April 30, 1997, capital
paid-in aggregated $2,824,133,069 for Premier Institutional Fund, $6,201,308,027
for Institutional Fund, $2,017,817,815 for Government Fund, $611,790,184 for
Treasury Fund and $1,003,777,618 for Institutional Tax-Exempt Fund. Transactions
in shares at a constant net asset value of $1.00 per share were as follows:
Period
Ended April 30,
-----------------
Premier Institutional Fund 1997
- ------------------------------- -----------------
Shares sold .................. 12,237,737,259
Shares issued to shareholders
in reinvestment of dividends 32,118,561
---------------
Total ..................... 12,269,855,820
Shares redeemed ............ 9,445,822,751
---------------
Net increase ............... 2,824,033,069
===============
Prior to January 27, 1997 (commencement of operations) there were 100,000
shares of beneficial interest outstanding which were owned by FAM.
Year Ended April 30,
-----------------------------------
Institutional Fund 1997 1996
- ------------------------------- ------------------- ---------------
Shares sold .................. 67,124,483,921 81,859,341,129
Shares issued to shareholders
in reinvestment of dividends 323,268,144 360,863,781
--------------- ---------------
Total ..................... 67,447,752,065 82,220,204,910
Shares redeemed ............ 68,867,606,220 81,179,030,074
--------------- ---------------
Net increase (decrease) ... (1,419,854,155) 1,041,174,836
=============== ===============
Year Ended April 30,
--------------------------------
Government Fund 1997 1996
- ------------------------------- ---------------- ---------------
Shares sold .................. 13,658,666,165 11,319,796,312
Shares issued to shareholders
in reinvestment of dividends 92,067,429 86,908,080
--------------- ---------------
Total ..................... 13,750,733,594 11,406,704,392
Shares redeemed ............ 13,376,732,157 11,363,934,579
--------------- ---------------
Net increase ............... 374,001,437 42,769,813
=============== ===============
Year Ended April 30,
--------------------------------
Treasury Fund 1997 1996
- -------------------------------- --------------- --------------
Shares sold .................. 3,277,418,270 2,984,431,147
Shares issued to shareholders
in reinvestment of dividends 27,446,045 25,665,244
-------------- --------------
Total ..................... 3,304,864,315 3,010,096,391
Shares redeemed ............... 3,207,207,792 2,838,827,671
-------------- --------------
Net increase ............... 97,656,523 171,268,720
============== ==============
Premier Institutional Fund
15
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Year Ended April 30,
--------------------------------
Institutional
Tax-Exempt Fund 1997 1996
- ---------------------------------- --------------- --------------
Shares sold ..................... 5,129,231,992 3,532,959,162
Shares issued to shareholders
in reinvestment of dividends . 26,648,229 15,674,384
-------------- --------------
Total ........................ 5,155,880,221 3,548,633,546
Shares redeemed ............... 4,819,426,973 3,285,337,991
-------------- --------------
Net increase .................. 336,453,248 263,295,555
============== ==============
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 Premier Institutional,
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, 1997, the Institutional Tax-Exempt Fund had net capital loss
carryovers of $254,048 of which $96,488 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 $30,000 by the Trust. Trustees' fees are allocated among the five
series of the Trust based on the net assets under management.
Premier Institutional Fund
16
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
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
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, 1997.... 6
Appendix A:
Management of the Trust............ A-1
Investment Advisory and Other Serv-
ices.............................. A-4
Portfolio Transactions............. A-7
Net Asset Value.................... A-8
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dividends................... A-10
Taxes....................... A-11
Federal................... A-11
Massachusetts Income Tax.. A-13
Other Taxes............... A-13
Distributor................. A-13
Yield Information........... A-15
General Information......... A-15
</TABLE>
---------------
The date of this Statement of Additional Information and the Prospectus is
July 29, 1997.
<PAGE>
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 will only invest in short-term obligations (including
short-term promissory notes issued by corporations, partnerships, trusts and
other entities, whether or not secured) that (1) have been rated in the
highest rating category for short-term debt obligations by at least two
nationally recognized statistical rating organizations ("NRSRO"); (2) have
been rated in the highest rating category by a single NRSRO if only one NRSRO
has rated the security; (3) have been issued by an issuer rated in the highest
rating category by an NRSRO with respect to a class of debt obligations that
is comparable in priority and security with the investment; or (4) if not
rated, will be of comparable quality as determined by the Trustees of the
Trust. Currently there are six NRSROs: Duff & Phelps 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."
Institutional Fund
2
<PAGE>
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 (for purposes of
this restriction, instruments, such as variable amount master notes or
funding agreements, which permit the Fund to resell the instrument to the
issuer (or another creditworthy party) or to require repayment of the
instrument by the issuer upon notice will not be considered to have legal
or contractual restrictions on resale).
(2) Make loans, except through the purchase of debt obligations in
accordance with the Institutional Fund's investment objective and policies.
(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
Institutional Fund
3
<PAGE>
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>
Institutional Fund
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 Merrill Lynch Premier
Institutional Fund, 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, 1997, the related statements of
operations, the statements of changes in net assets 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, 1997, 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 Merrill Lynch Funds For Institutions Series at April 30,
1997, 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 28, 1997
5
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Schedule of Investments
April 30, 1997
<TABLE>
<CAPTION>
=============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
U.S. $25,000,000 U.S. Treasury Notes .................. 8.50% 07/15/97 $25,156,250
Government & 25,000,000 U.S. Treasury Notes .................. 5.75 09/30/97 25,000,000
Agency 50,000,000 U.S. Treasury Notes .................. 8.75 10/15/97 50,664,065
Issues -- 13.2% 28,000,000 U.S. Treasury Notes .................. 5.63 10/31/97 27,978,126
29,500,000 U.S. Treasury Notes .................. 5.25 12/31/97 29,380,156
150,000,000 U.S. Treasury Notes .................. 5.00 01/31/98 148,968,751
35,000,000 U.S. Treasury Notes .................. 5.88 01/31/99 34,748,437
10,000,000 U.S. Treasury Notes .................. 5.88 02/28/99 9,920,313
40,000,000 Federal Farm Credit Banks ............ 5.85 10/01/97 40,000,000
20,000,000 Federal Farm Credit Banks ............ 5.65 02/03/98 19,943,600
25,000,000 Federal Home Loan Banks ............ 5.99 02/09/98 24,990,000
23,500,000 Federal Home Loan Banks ............ 6.00 09/04/98 23,366,050
32,000,000 Federal Home Loan Banks ............ 6.17 11/06/98 31,904,000
44,000,000 Federal Home Loan Mortgage Corp. .5.73 06/06/97 44,003,473
8,000,000 Federal Home Loan Mortgage Corp. .6.25 02/05/99 7,968,800
25,000,000 Federal National Mortgage Assoc. ... 5.53 10/14/97 24,964,750
5,000,000 Federal National Mortgage Assoc. ... 5.79 10/16/97 4,998,400
25,000,000 Federal National Mortgage Assoc. ... 5.19 01/08/98 24,865,000
10,000,000 Federal National Mortgage Assoc. ... 5.81 11/25/98 9,938,000
14,000,000 Federal National Mortgage Assoc. ... 6.50 04/30/99 13,963,600
38,500,000 Student Loan Marketing Assoc. ...... 5.50 10/24/97 38,438,400
13,000,000 Student Loan Marketing Assoc. ...... 6.02 11/20/98 12,944,100
50,000,000 Federal Home Loan Banks D/N ......... 5.22 10/23/97 48,624,306
50,000,000 Federal Home Loan Banks D/N ......... 5.17 11/17/97 48,419,444
23,160,000 Federal National Mortgage Assoc.
D/N ................................. 5.26 07/28/97 22,849,193
25,950,000 Federal National Mortgage Assoc.
D/N ................................. 5.27 07/28/97 25,601,751
- ------------------------------------------------------------------------------------------------------------
Total U.S. Government & Agency
Issues (Cost $822,089,952) ......... 819,598,965
- ------------------------------------------------------------------------------------------------------------
U.S. 25,000,000 Federal Farm Credit Banks ............ 5.56 02/06/98 24,994,580
Government 80,000,000 Federal Home Loan Banks ............ 5.55 12/10/97 79,976,412
Agency 50,000,000 Federal Home Loan Banks ............ 5.56 01/15/98 49,978,491
Issues -- 4,000,000 Federal Home Loan Banks ............ 5.85 01/26/98 3,990,421
Variable 72,000,000 Federal Home Loan Mortgage Corp. .5.56 04/15/98 71,966,755
Rate -- 18.8% 30,000,000 Federal National Mortgage Assoc. ... 5.54 05/14/97 29,999,062
135,000,000 Federal National Mortgage Assoc. ... 5.55 05/22/97 134,994,724
57,000,000 Federal National Mortgage Assoc. ... 5.70 06/20/97 57,002,357
59,000,000 Federal National Mortgage Assoc. ... 5.56 08/01/97 58,993,532
</TABLE>
Institutional Fund
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
U.S. $50,000,000 Federal National Mortgage Assoc. ... 5.56% 08/22/97 $ 49,991,011
Government 33,000,000 Federal National Mortgage Assoc. ... 5.55 09/29/97 32,991,854
Agency 57,000,000 Federal National Mortgage Assoc. ... 5.54 10/20/97 56,976,492
Issues -- 100,000,000 Federal National Mortgage Assoc. ... 5.74 01/15/98 99,965,656
Variable 49,000,000 Federal National Mortgage Assoc. ... 5.57 03/26/98 48,974,096
Rate (continued) 60,000,000 Federal National Mortgage Assoc. ... 5.56 03/27/98 59,963,237
60,000,000 Federal National Mortgage Assoc. ... 5.60 04/24/98 59,977,487
40,000,000 Federal National Mortgage Assoc. ... 5.68 09/22/99 39,830,657
15,150,000 Student Loan Marketing Assoc. ...... 5.71 11/20/97 15,158,937
18,000,000 Student Loan Marketing Assoc. ...... 5.70 01/27/98 18,013,667
60,000,000 Student Loan Marketing Assoc. ...... 5.57 02/05/98 59,978,365
50,000,000 Student Loan Marketing Assoc. ...... 5.61 04/21/98 49,988,373
59,000,000 Student Loan Marketing Assoc. ...... 5.55 08/20/98 58,943,078
- ------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency
Issues -- Variable Rate
(Cost $1,162,649,244) ............ 1,162,649,244
- ------------------------------------------------------------------------------------------------------------
Certificates of 25,000,000 Morgan Guaranty Trust Co. ......... 5.90 09/30/97 24,994,773
Deposit -- 0.8% 25,000,000 Morgan Guaranty Trust Co. ......... 5.94 03/20/98 24,956,769
- ------------------------------------------------------------------------------------------------------------
Total Certificates of Deposit
(Cost $50,011,870) ............... 49,951,542
- ------------------------------------------------------------------------------------------------------------
Yankee 15,000,000 Deutsche Bank AG .................. 5.63 02/26/98 14,939,030
Certificates of 25,000,000 Landesbank Hessen-Thuringen
Deposit -- 1.9% Girozentrale ..................... 5.78 01/27/98 24,938,611
75,000,000 Landesbank Hessen-Thuringen
Girozentrale ..................... 5.78 01/30/98 74,815,469
- ------------------------------------------------------------------------------------------------------------
Total Yankee Certificates of
Deposit (Cost $114,968,363) ...... 114,693,110
- ------------------------------------------------------------------------------------------------------------
Time 71,800,000 Chase Manhattan Bank N.A. ......... 5.63 05/01/97 71,800,000
Deposits -- 120,000,000 Citibank N.A. ..................... 5.65 05/01/97 120,000,000
10.5% 150,000,000 Deutsche Bank AG .................. 5.65 05/01/97 150,000,000
150,000,000 First Union National Bank of North
Carolina ........................ 5.66 05/01/97 150,000,000
160,000,000 Morgan Guaranty Trust Co. ......... 5.69 05/01/97 160,000,000
- ------------------------------------------------------------------------------------------------------------
Total Time Deposits
(Cost $651,800,000) ............... 651,800,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Institutional Fund
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
===========================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Bank Notes -- $35,000,000 Barclays Bank PLC ............... 5.65% 04/16/98 $34,983,588
Variable 25,000,000 KeyBank National Association ...... 5.59 07/22/97 24,995,619
Rate -- 2.7% 22,000,000 KeyBank National Association ...... 5.42 08/21/97 21,996,047
26,000,000 KeyBank National Association ...... 5.57 05/06/98 25,987,364
50,000,000 Morgan Guaranty Trust Co. ...... 5.62 02/19/98 49,978,593
8,000,000 United States National Bank of
Oregon ........................... 5.67 04/14/98 7,995,897
- ------------------------------------------------------------------------------------------------------------
Total Bank Notes -- Variable Rate
(Cost $165,937,108) ............... 165,937,108
- ------------------------------------------------------------------------------------------------------------
Corporate 15,000,000 Abbey National Treasury Services
Notes -- 2.0% PLC .............................. 5.50 11/21/97 14,955,000
50,000,000 Abbey National Treasury Services
PLC .............................. 5.76 02/11/98 49,865,000
5,000,000 Abbey National Treasury Services
PLC .............................. 5.93 03/25/98 4,992,000
30,000,000 International Business Machines
Corp. ........................... 5.67 01/28/98 29,901,000
25,000,000 NBD Bank, N.A. Detroit ............ 5.79 01/30/98 24,917,380
- ------------------------------------------------------------------------------------------------------------
Total Corporate Notes
(Cost $124,946,025) ............... 124,630,380
- ------------------------------------------------------------------------------------------------------------
Corporate 50,000,000 Abbey National Treasury Services
Notes -- PLC .............................. 5.61 02/10/98 49,973,573
Variable 50,000,000 Abbey National Treasury Services
Rate -- 6.9% PLC .............................. 5.59 02/25/98 49,968,208
60,000,000 Abbey National Treasury Services
PLC .............................. 5.65 04/15/98 59,972,233
25,000,000 Chrysler Financial Corp. ......... 5.81 07/31/97 25,017,168
175,000,000 CIT Group Holdings Inc. ......... 5.61 10/27/97 174,940,252
34,000,000 First Bank System, Inc. ......... 5.67 12/17/97 34,000,000
35,000,000 Morgan Stanley Group Inc. ...... 5.97 02/23/98 35,031,952
- ------------------------------------------------------------------------------------------------------------
Total Corporate Notes -- Variable
Rate (Cost $428,903,386) ......... 428,903,386
- ------------------------------------------------------------------------------------------------------------
Master Notes -- 225,100,000 Goldman Sachs Group L.P. ......... 5.51 07/03/97 225,100,000
Variable 50,000,000 Goldman Sachs Group L.P. ......... 5.59 08/01/97 50,000,000
Rate -- 4.4%
- ------------------------------------------------------------------------------------------------------------
Total Master Notes -- Variable
Rate (Cost $275,100,000) ......... 275,100,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Institutional Fund
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
============================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial $19,676,000 Allomon Funding Corp. ............... 5.62% 07/02/97 $ 19,483,525
Paper -- 37.2% 25,000,000 American Honda Finance Corp. ...... 5.65 07/21/97 24,680,500
20,000,000 Atlantic Asset Securitization Corp. 5.57 05/09/97 19,975,244
8,491,000 Atlantic Asset Securitization Corp. 5.55 05/09/97 8,480,528
15,817,000 Atlantic Asset Securitization Corp. 5.55 05/15/97 15,782,862
25,000,000 Bank of Scotland ..................... 5.31 05/12/97 24,959,437
15,000,000 Bear Stearns Companies Inc. ......... 5.65 07/22/97 14,805,933
18,000,000 Chrysler Financial Corp. ............ 5.57 05/21/97 17,944,300
25,000,000 Clipper Receivables Corp. ......... 5.62 05/06/97 24,980,486
15,000,000 Columbia/HCA Healthcare Corp. ...... 5.58 05/27/97 14,939,550
20,000,000 Columbia/HCA Healthcare Corp. ...... 5.58 05/28/97 19,916,300
50,000,000 Corporate Receivables Corp. ......... 5.65 07/08/97 49,463,555
40,000,000 Corporate Receivables Corp. ......... 5.65 07/14/97 39,532,978
29,000,000 Countrywide Home Loans, Inc. ...... 5.62 05/07/97 28,972,837
36,166,000 Countrywide Home Loans, Inc. ...... 5.62 05/13/97 36,098,249
12,834,000 Countrywide Home Loans, Inc. ...... 5.53 05/14/97 12,808,371
40,000,000 CXC Inc. ........................... 5.62 05/05/97 39,975,022
30,950,000 CXC Inc. ........................... 5.70 07/25/97 30,534,926
25,000,000 Eureka Securitization Inc. ......... 5.62 05/09/97 24,968,778
46,394,000 Falcon Asset Securitization Corp. ... 5.32 05/12/97 46,318,584
25,000,000 Finova Capital Corp. ............... 5.30 05/15/97 24,948,472
33,000,000 Finova Capital Corp. ............... 5.30 05/16/97 32,927,125
60,000,000 Finova Capital Corp. ............... 5.30 05/21/97 59,823,333
50,000,000 Finova Capital Corp. ............... 5.29 05/23/97 49,838,361
46,000,000 Finova Capital Corp. ............... 5.30 05/27/97 45,823,922
25,000,000 Finova Capital Corp. ............... 5.30 06/24/97 24,801,250
10,000,000 Finova Capital Corp. ............... 5.46 07/15/97 9,881,667
16,000,000 First Data Corp. .................. 5.64 07/15/97 15,810,667
100,000,000 General Electric Capital Corp. ...... 5.31 05/08/97 99,896,750
75,000,000 General Motors Acceptance Corp. ... 5.48 07/09/97 74,183,500
50,000,000 General Motors Acceptance Corp. ... 5.43 07/29/97 49,297,889
50,000,000 General Motors Acceptance Corp. ... 5.38 08/04/97 49,247,917
50,000,000 General Motors Acceptance Corp. ... 5.34 08/12/97 49,184,583
50,000,000 General Motors Acceptance Corp. ... 5.32 08/13/97 49,176,667
20,000,000 General Motors Acceptance Corp. ... 5.33 08/19/97 19,651,667
25,000,000 Goldman Sachs Group L.P. ............ 5.30 05/01/97 25,000,000
62,238,000 Greenwich Funding Corp. ............ 5.53 05/06/97 62,190,198
8,000,000 Industrial Bank of Korea ............ 5.62 05/05/97 7,995,004
22,000,000 Industrial Bank of Korea ............ 5.36 05/12/97 21,963,969
</TABLE>
Institutional Fund
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
============================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial $15,000,000 Industrial Bank of Korea ............ 5.38% 05/12/97 $ 14,975,342
Paper 5,000,000 Industrial Bank of Korea ............ 5.40 05/15/97 4,989,500
(continued) 9,510,000 International Securitization Corp. 5.43 05/27/97 9,472,705
100,000,000 International Securitization Corp. ... 5.55 05/30/97 99,552,917
17,336,000 International Securitization Corp. ... 5.62 06/17/97 17,208,802
30,000,000 Kingdom of Sweden .................. 5.30 08/28/97 29,434,750
25,000,000 Korea Development Bank ............... 5.37 05/06/97 24,981,354
25,000,000 Korea Development Bank ............... 5.36 05/07/97 24,977,667
93,000,000 Korea Development Bank ............... 5.58 05/08/97 92,899,095
45,000,000 Lehman Brothers Holdings Inc. ...... 5.67 05/05/97 44,971,650
55,000,000 Lehman Brothers Holdings Inc. ...... 5.65 05/07/97 54,948,208
54,188,000 Mont Blanc Capital Corp. ............ 5.54 05/21/97 54,021,221
25,000,000 Monte Rosa Capital Corp. ............ 5.57 05/06/97 24,980,660
78,322,000 Monte Rosa Capital Corp. ............ 5.53 05/15/97 78,153,564
75,000,000 Morgan Stanley Group Inc. ............ 5.70 05/01/97 75,000,000
50,000,000 Morgan Stanley Group Inc. ............ 5.31 05/16/97 49,889,375
15,000,000 Nomura Holding America Inc. ......... 5.39 05/16/97 14,966,312
34,943,000 Old Line Funding Corp. ............... 5.59 05/05/97 34,921,297
30,000,000 Old Line Funding Corp. ............... 5.62 05/08/97 29,967,217
13,635,000 Old Line Funding Corp. ............... 5.33 05/13/97 13,610,775
48,367,000 Old Line Funding Corp. ............... 5.58 05/14/97 48,269,541
12,755,000 Old Line Funding Corp. ............... 5.60 05/15/97 12,727,222
40,000,000 Preferred Receivables Funding
Corp. .............................. 5.65 07/25/97 39,463,556
32,100,000 RTZ America Inc. ..................... 5.30 05/02/97 32,095,274
25,151,000 Windmill Funding Corp. ............... 5.28 05/05/97 25,136,245
43,353,000 Windmill Funding Corp. ............... 5.57 05/20/97 43,225,554
25,000,000 Windmill Funding Corp. ............... 5.68 07/28/97 24,652,889
- ------------------------------------------------------------------------------------------------------------
Total Commercial Paper
(Cost $2,306,045,473) ............... 2,305,757,598
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Institutional Fund
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
============================================================================================================
<S> <C> <C> <C> <C> <C>
Repurchase $100,000,000 Fuji Securities, Inc.
Agreements**-- purchased on 04/30/97 ............ 5.55% 05/01/97 $ 100,000,000
1.6%
- ------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $100,000,000) ............ 100,000,000
- ------------------------------------------------------------------------------------------------------------
Total Investments -- 100.0%
(Cost $6,202,451,421) ............ 6,199,021,333
- ------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other
Assets -- (0.0%) ............... (1,143,394)
- ------------------------------------------------------------------------------------------------------------
Net Assets -- Equivalent to $1.00
Per Share on 6,201,308,027 Shares
of Beneficial Interest
Outstanding -- 100.0% ......... $6,197,877,939
============================================================================================================
</TABLE>
Note--Costs for federal income tax purposes are the same as those shown above.
At April 30, 1997, net unrealized depreciation amounted to $3,430,088 and is
comprised of $24,391 in appreciation and $3,454,479 in depreciation.
* 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, 1997. For variable 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
Institutional Fund
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Statement of Assets and Liabilities
April 30, 1997
<TABLE>
<CAPTION>
====================================================================================================
<S> <C>
Assets:
Total investments at value (identified cost $6,202,451,421) (Note 1a) ......... $6,199,021,333
Cash ........................................................................... 5,612,215
Interest receivable ............................................................ 22,916,889
Prepaid expenses ............................................................... 377,568
---------------
Total assets ............................................................... 6,227,928,005
---------------
Liabilities:
Advisory fee payable (Note 2) ................................................ 1,070,582
Payable for investments purchased ............................................. 25,987,364
Dividends payable ............................................................ 2,699,298
Accrued expenses ............................................................... 292,822
---------------
Total liabilities ......................................................... 30,050,066
---------------
Net Assets: (Equivalent to $1.00 per share, offering and redemption price, based
on 6,201,308,027 shares of beneficial interest outstanding) .................. $6,197,877,939
===============
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Statement of Operations
For the Year Ended April 30, 1997
<TABLE>
<CAPTION>
====================================================================================================
<S> <C> <C>
Investment Income:
Interest and discount earned (Note 1d) ....................................$398,767,235
-------------
Expenses:
Investment advisory fee (Note 2) ..................... $24,155,920
Registration fees .................................... 1,573,602
Dividend and transfer agency fees ..................... 966,439
Accounting and custodian services ..................... 513,259
Legal and audit fees ................................. 146,857
Printing and shareholder reports ..................... 118,433
Trustees' fees (Note 5) .............................. 85,709
Insurance ............................................. 40,274
Miscellaneous ....................................... 38,356
-----------
Total expenses ................................. 27,638,849
Waived investment advisory fee (Note 2) ............ (9,522,140) 18,116,709
----------- -------------
Net investment income ................................................ 380,650,526
Realized and Unrealized Gain on Investments:
Net realized gain from investment transactions ...... 874,595
Net unrealized appreciation of investments ......... 2,606,218
-----------
Net realized and unrealized gain from investments ..................... 3,480,813
-------------
Net Increase in Net Assets Resulting From Operations .....................$384,131,339
=============
</TABLE>
Institutional Fund
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------
1997 1996
====================================================================================================
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income .......................................... $ 380,650,526 $ 445,376,961
Net realized gain from investment transactions .................. 874,595 2,709,598
Net unrealized appreciation (depreciation) of investments ...... 2,606,218 (6,134,973)
--------------- --------------
Net increase in net assets resulting from operations ............ 384,131,339 441,951,586
Total declared as dividends to shareholders (Note 4) ............ (381,525,121) (448,086,559)
Capital share transactions (Note 3) ........................... (1,419,854,155) 1,041,174,836
--------------- --------------
Net increase (decrease) in net assets ........................... (1,417,247,937) 1,035,039,863
Net Assets:
Beginning of year ............................................. 7,615,125,876 6,580,086,013
--------------- --------------
End of year ................................................... $6,197,877,939 $7,615,125,876
=============== ==============
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------------------
1997 1996 1995 1994 1993
================================================================================================================
<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 .056 .050 .031 .033
Net realized and unrealized gain on
investments ................................. -- -- -- -- .001
--------- --------- --------- --------- ---------
Total from investment operations ............ .052 .056 .050 .031 .034
Less Distributions:
Dividends from net investment income ......... (.052) (.056) (.050) (.031) (.034)
--------- --------- --------- --------- ---------
Net Asset Value, end of year .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return ................................. 5.34% 5.81% 5.11% 3.20% 3.46%
Ratios/Supplemental Data:
Net Assets, end of year (000) ............... $6,197,878 $7,615,126 $6,580,086 $3,775,121 $4,712,639
Ratio of expenses to average net assets
(before waiver) ........................... .38% .37% .37% .37% .38%
Ratio of expenses to average net assets
(after waiver) .............................. .25% .24% .24% .24% .26%
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (before waiver) ......... 5.12% 5.42% 5.00% 2.91% 3.29%
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (after waiver) ......... 5.25% 5.55% 5.13% 3.04% 3.41%
</TABLE>
Institutional Fund
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
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
January 27, 1997, Merrill Lynch Premier Institutional Fund commenced operations
as a separate series of the Trust. 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 Premier Institutional, 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 value.
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 accretion of 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 Premier Institutional Fund, 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, 1997, Merrill Lynch Institutional
Tax-Exempt Fund reclassified amounts to reflect a decrease of $200 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>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Percentage of Average Daily Net Assets
------------------------------------------
Premier Institutional
Fund ............... .15%
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
During its initial offering period, FAM agreed to waive a portion of its
advisory fee for the Premier Institutional Fund. For the period ended April 30,
1997, the effective fee payable to FAM was 0.14% of the Fund's average daily
assets. FAM has agreed to waive a portion of its advisory fees for the
Institutional, Government, Treasury and Tax-Exempt Funds. 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, 1997, FAM waived a portion of its fees amounting
to $45,574 for the Premier Institutional Fund, $9,522,140 for the Institutional
Fund, $2,261,521 for the Government Fund, $846,551 for the Treasury Fund and
$2,072,889 for the Institutional Tax-Exempt Fund.
All officers and certain trustees of the Trust are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest in the Premier Institutional Fund, Institutional
Fund, Government Fund and Treasury Fund ($.01 par value) and Institutional Tax-
Exempt Fund ($.10 par value) of a single class. At April 30, 1997, capital
paid-in aggregated $2,824,133,069 for Premier Institutional Fund, $6,201,308,027
for Institutional Fund, $2,017,817,815 for Government Fund, $611,790,184 for
Treasury Fund and $1,003,777,618 for Institutional Tax-Exempt Fund. Transactions
in shares at a constant net asset value of $1.00 per share were as follows:
Period
Ended April 30,
-----------------
Premier Institutional Fund 1997
- ------------------------------- -----------------
Shares sold .................. 12,237,737,259
Shares issued to shareholders
in reinvestment of dividends 32,118,561
---------------
Total ..................... 12,269,855,820
Shares redeemed ............ 9,445,822,751
---------------
Net increase ............... 2,824,033,069
===============
Prior to January 27, 1997 (commencement of operations) there were 100,000
shares of beneficial interest outstanding which were owned by FAM.
Year Ended April 30,
-----------------------------------
Institutional Fund 1997 1996
- ------------------------------- ------------------- ---------------
Shares sold .................. 67,124,483,921 81,859,341,129
Shares issued to shareholders
in reinvestment of dividends 323,268,144 360,863,781
--------------- ---------------
Total ..................... 67,447,752,065 82,220,204,910
Shares redeemed ............ 68,867,606,220 81,179,030,074
--------------- ---------------
Net increase (decrease) ... (1,419,854,155) 1,041,174,836
=============== ===============
Year Ended April 30,
--------------------------------
Government Fund 1997 1996
- ------------------------------- ---------------- ---------------
Shares sold .................. 13,658,666,165 11,319,796,312
Shares issued to shareholders
in reinvestment of dividends 92,067,429 86,908,080
--------------- ---------------
Total ..................... 13,750,733,594 11,406,704,392
Shares redeemed ............ 13,376,732,157 11,363,934,579
--------------- ---------------
Net increase ............... 374,001,437 42,769,813
=============== ===============
Year Ended April 30,
--------------------------------
Treasury Fund 1997 1996
- -------------------------------- --------------- --------------
Shares sold .................. 3,277,418,270 2,984,431,147
Shares issued to shareholders
in reinvestment of dividends 27,446,045 25,665,244
-------------- --------------
Total ..................... 3,304,864,315 3,010,096,391
Shares redeemed ............... 3,207,207,792 2,838,827,671
-------------- --------------
Net increase ............... 97,656,523 171,268,720
============== ==============
Institutional Fund
15
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Year Ended April 30,
--------------------------------
Institutional
Tax-Exempt Fund 1997 1996
- ---------------------------------- --------------- --------------
Shares sold ..................... 5,129,231,992 3,532,959,162
Shares issued to shareholders
in reinvestment of dividends . 26,648,229 15,674,384
-------------- --------------
Total ........................ 5,155,880,221 3,548,633,546
Shares redeemed ............... 4,819,426,973 3,285,337,991
-------------- --------------
Net increase .................. 336,453,248 263,295,555
============== ==============
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 Premier Institutional,
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, 1997, the Institutional Tax-Exempt Fund had net capital loss
carryovers of $254,048 of which $96,488 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 $30,000 by the Trust. Trustees' fees are allocated among the five
series of the Trust based on the net assets under management.
Institutional Fund
16
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
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
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......... 3
Audited Financial Statements for the
Fiscal Year Ended April 30, 1997.... 4
Appendix A:
Management of the Trust............ A-1
Investment Advisory and Other Serv-
ices.............................. A-4
Portfolio Transactions............. A-7
Net Asset Value.................... A-8
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dividends................... A-10
Taxes....................... A-11
Federal................... A-11
Massachusetts Income Tax.. A-13
Other Taxes............... A-13
Distributor................. A-13
Yield Information........... A-15
General Information......... A-15
</TABLE>
---------------
The date of this Statement of Additional Information and the Prospectus is
July 29, 1997.
<PAGE>
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.
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
2
<PAGE>
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 Merrill Lynch Premier
Institutional Fund, 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, 1997, the related statements of
operations, the statements of changes in net assets, 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, 1997, 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, 1997, 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 28, 1997
Government Fund
3
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Government Fund
Schedule of Investments
April 30, 1997
<TABLE>
<CAPTION>
========================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
========================================================================================================
<S> <C> <C> <C> <C> <C>
U.S. $40,000,000 U.S. Treasury Notes ............... 5.63% 10/31/97 $ 39,968,752
Government 50,000,000 U.S. Treasury Strips ............... 5.28 08/15/97 49,225,000
& Agency 50,000,000 Federal Farm Credit Banks ......... 5.55 05/02/97 50,000,087
Issues -- 47.7% 10,000,000 Federal Farm Credit Banks ......... 5.85 10/01/97 10,000,000
12,500,000 Federal Home Loan Banks ............ 5.77 11/05/97 12,486,250
10,000,000 Federal Home Loan Banks ............ 5.80 01/23/98 9,979,000
15,000,000 Federal Home Loan Banks ............ 5.71 06/19/98 14,926,500
25,000,000 Federal Home Loan Mortgage Corp. .5.84 04/08/98 24,937,500
57,000,000 Federal National Mortgage Assoc. ... 9.20 06/10/97 57,236,686
20,000,000 Federal National Mortgage Assoc. ... 5.53 10/14/97 19,971,800
25,000,000 Federal Farm Credit Banks D/N ...... 5.30 11/05/97 24,257,139
10,145,000 Federal Farm Credit Banks D/N ...... 5.29 11/18/97 9,822,702
22,640,000 Federal Farm Credit Banks D/N ...... 5.29 11/21/97 21,910,011
12,000,000 Federal Home Loan Banks D/N ...... 5.30 05/07/97 11,989,400
6,000,000 Federal Home Loan Banks D/N ...... 5.36 05/30/97 5,974,093
8,500,000 Federal Home Loan Banks D/N ...... 5.26 06/27/97 8,429,209
25,000,000 Federal Home Loan Banks D/N ...... 5.26 06/30/97 24,773,333
30,000,000 Federal Home Loan Banks D/N ...... 5.23 07/10/97 29,679,750
25,000,000 Federal Home Loan Banks D/N ...... 5.54 08/29/97 24,535,833
13,250,000 Federal Home Loan Banks D/N ...... 5.31 09/04/97 12,990,300
47,250,000 Federal Home Loan Banks D/N ...... 5.31 09/12/97 46,265,100
12,890,000 Federal Home Loan Banks D/N ...... 5.25 09/30/97 12,585,223
20,000,000 Federal Home Loan Banks D/N ...... 5.61 11/03/97 19,412,034
3,785,000 Federal Home Loan Banks D/N ...... 5.34 12/11/97 3,650,759
6,250,000 Federal Home Loan Banks D/N ...... 5.23 02/09/98 5,967,479
41,000,000 Federal Home Loan Mortgage Corp.
D/N .............................. 5.24 05/12/97 40,934,417
15,000,000 Federal Home Loan Mortgage Corp.
D/N .............................. 5.29 06/06/97 14,920,650
32,152,000 Federal Home Loan Mortgage Corp.
D/N .............................. 5.44 06/23/97 31,894,498
21,259,000 Federal Home Loan Mortgage Corp.
D/N .............................. 5.45 06/30/97 21,066,252
27,391,000 Federal Home Loan Mortgage Corp.
D/N .............................. 5.44 06/30/97 27,142,655
47,000,000 Federal Home Loan Mortgage Corp.
D/N .............................. 5.51 07/11/97 46,491,108
62,000,000 Federal Home Loan Mortgage Corp.
D/N .............................. 5.54 07/25/97 61,196,325
</TABLE>
Government Fund
See Notes to Financial Statements.
4
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Government Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
========================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
========================================================================================================
<S> <C> <C> <C> <C> <C>
U.S. $50,000,000 Federal Home Loan Mortgage Corp.
Government D/N .............................. 5.54% 07/28/97 $49,329,000
& Agency 50,000,000 Federal National Mortgage Assoc. D/N 5.29 06/05/97 49,743,090
Issues 25,000,000 Federal National Mortgage Assoc. D/N 5.30 06/06/97 24,867,500
(continued) 25,000,000 Federal National Mortgage Assoc. D/N 5.31 09/15/97 24,467,222
4,000,000 Federal National Mortgage Assoc. D/N 5.59 10/14/97 3,895,605
5,000,000 Federal National Mortgage Assoc. D/N 5.34 12/18/97 4,817,125
10,770,000 Federal National Mortgage Assoc. D/N 5.33 12/22/97 10,369,266
- --------------------------------------------------------------------------------------------------------
Total U.S. Government & Agency Issues
(Cost $962,527,521) .................. 962,108,653
- --------------------------------------------------------------------------------------------------------
U.S. 50,000,000 Federal Farm Credit Banks ............ 5.49 05/22/97 49,996,357
Government 30,000,000 Federal Farm Credit Banks ............ 5.49 10/02/97 29,992,399
Agency 60,000,000 Federal Farm Credit Banks ............ 5.55 02/20/98 59,971,554
Issues -- 40,000,000 Federal Home Loan Banks ............ 5.55 12/10/97 39,988,206
Variable 50,000,000 Federal Home Loan Banks ............ 5.85 01/26/98 49,989,060
Rate -- 31.6% 45,000,000 Federal Home Loan Mortgage Corp. 5.55 07/03/97 44,994,683
40,000,000 Federal Home Loan Mortgage Corp. 5.58 04/15/98 39,981,531
3,000,000 Federal Home Loan Mortgage Corp. 6.00 05/13/98 3,000,000
25,000,000 Federal National Mortgage Assoc. ... 5.56 05/01/97 25,000,000
8,000,000 Federal National Mortgage Assoc. ... 5.54 05/14/97 7,999,750
31,000,000 Federal National Mortgage Assoc. ... 5.95 05/19/97 31,002,440
20,000,000 Federal National Mortgage Assoc. ... 5.54 07/16/97 19,997,184
20,000,000 Federal National Mortgage Assoc. ... 5.56 08/01/97 19,998,904
10,000,000 Federal National Mortgage Assoc. ... 5.55 09/03/97 9,997,496
8,000,000 Federal National Mortgage Assoc. ... 5.55 09/09/97 7,998,042
9,000,000 Federal National Mortgage Assoc. ... 5.55 09/29/97 8,997,778
14,000,000 Federal National Mortgage Assoc. ... 5.60 04/24/98 13,994,747
13,000,000 Federal National Mortgage Assoc. ... 6.00 05/14/98 13,000,000
20,000,000 Student Loan Marketing Assoc. ...... 5.51 05/08/97 20,000,000
75,000,000 Student Loan Marketing Assoc. ...... 5.54 08/21/97 74,998,451
67,000,000 Student Loan Marketing Assoc. ...... 5.61 04/21/98 66,984,420
- --------------------------------------------------------------------------------------------------------
Total U.S. Government Agency
Issues -- Variable Rate
(Cost $637,883,002) .................. 637,883,002
- --------------------------------------------------------------------------------------------------------
</TABLE>
Government Fund
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Government Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
============================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
============================================================================================================
<S> <C> <C> <C> <C> <C>
Repurchase $90,000,000 Donaldson, Lufkin & Jenrette Securi-
Agreements**-- ties Corp., purchased on 04/30/97 ... 5.35% 05/01/97 $ 90,000,000
20.1% 60,527,000 Goldman Sachs & Co., purchased on
04/30/97 ........................... 5.20 05/01/97 60,527,000
90,000,000 HSBC Securities Inc., purchased on
04/30/97 ........................... 5.45 05/01/97 90,000,000
90,000,000 Smith Barney Inc., purchased on
04/30/97 ........................... 5.30 05/01/97 90,000,000
75,000,000 SBC Warburg, Inc., purchased on
04/30/97 ........................... 5.30 05/01/97 75,000,000
- ------------------------------------------------------------------------------------------------------------
Repurchase Agreements
(Cost $405,527,000) ............... 405,527,000
- ------------------------------------------------------------------------------------------------------------
Total Investments -- 99.4%
(Cost $2,005,937,523) ............... 2,005,518,655
- ------------------------------------------------------------------------------------------------------------
Other Assets Less
Liabilities -- 0.6% ............... 11,880,292
- ------------------------------------------------------------------------------------------------------------
Net Assets -- Equivalent to $1.00
Per Share on 2,017,817,815 Shares
of Beneficial Interest
Outstanding -- 100.0% ............ $2,017,398,947
============================================================================================================
</TABLE>
Note--Costs for federal income tax purposes are the same as those shown above.
At April 30, 1997, unrealized depreciation amounted to $418,868 and is comprised
of $27,505 of appreciation and $446,373 in depreciation.
* U.S. Treasury Notes and Repurchase Agreements bear interest payable at fixed
dates or upon maturity. 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. Government and Agency Issues are purchased on a discount
basis; the interest rate shown is the discount paid at the time 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, 1997. 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
Government Fund
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Government Fund
Statement of Assets and Liabilities
April 30, 1997
<TABLE>
<CAPTION>
==============================================================================================================
<S> <C> <C>
Assets:
Investments in securities subject to repurchase agreements ............ $ 405,527,000
Investments in other marketable securities ........................... 1,599,991,655
--------------
Total investments at value (identified cost $2,005,937,523) (Note 1a) $2,005,518,655
Cash .................................................................. 3,709,619
Interest receivable ................................................... 8,857,367
Prepaid expenses ...................................................... 3,984
----------------
Total assets ...................................................... 2,018,089,625
----------------
Liabilities:
Advisory fee payable (Note 2) .......................................... 335,376
Dividends payable ...................................................... 224,053
Accrued expenses ...................................................... 131,249
----------------
Total liabilities ................................................... 690,678
----------------
Net Assets: (Equivalent to $1.00 per share, offering and redemption
price, based on 2,017,817,815 shares of beneficial interest outstanding) ..................$2,017,398,947
================
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Government Fund
Statement of Operations
April 30, 1997
<TABLE>
<CAPTION>
==============================================================================================================
<S> <C> <C>
Investment Income:
Interest and discount earned (Note 1d) ....................................$102,019,279
------------
Expenses:
Investment advisory fee (Note 2) ..................... $ 6,007,440
Registration fees .................................... 378,083
Dividend and transfer agency fees .................. 305,213
Accounting and custodian services .................. 208,519
Legal and audit fees ................................. 76,006
Printing and shareholder reports ..................... 30,278
Trustees' fees (Note 5) .............................. 22,322
Insurance .......................................... 8,590
Miscellaneous ....................................... 9,080
-----------
Total expenses ................................. 7,045,531
Waived investment advisory fee (Note 2) ............ (2,261,521) 4,784,010
----------- ------------
Net investment income ................................................ 97,235,269
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain from investment transactions ...... 199,811
Net unrealized depreciation of investments ......... (227,150)
-----------
Net realized and unrealized loss from investments ..................... (27,339)
------------
Net Increase in Net Assets Resulting From Operations .....................$ 97,207,930
============
</TABLE>
Government Fund
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Government Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------
1997 1996
====================================================================================================
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income .................................... $ 97,235,269 $ 92,115,643
Net realized gain from investment transactions ............ 199,811 318,832
Net unrealized depreciation of investments ............... (227,150) (230,159)
-------------- --------------
Net increase in net assets resulting from operations ...... 97,207,930 92,204,316
Total declared as dividends to shareholders (Note 4) ...... (97,435,080) (92,434,475)
Capital share transactions (Note 3) ........................ 374,001,437 42,769,813
-------------- --------------
Net increase in net assets ................................. 373,774,287 42,539,654
Net Assets:
Beginning of year .......................................... 1,643,624,660 1,601,085,006
-------------- --------------
End of year ................................................ $2,017,398,947 $1,643,624,660
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Government Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
=================================================================================================================
<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 .055 .049 .030 .030
Net realized and unrealized gain (loss) on
investments .............................. -- -- -- -- .001
--------- --------- --------- --------- ---------
Total from investment operations ............ .052 .055 .049 .030 .031
Less Distributions:
Dividends from net investment income ......... (.052) (.055) (.049) (.030) (.031)
--------- --------- --------- --------- ---------
Net Asset Value, end of year .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return ................................. 5.31% 5.67% 4.99% 3.06% 3.19%
Ratios/Supplemental Data:
Net Assets, end of year (000) ............... $2,017,399 $1,643,625 $1,601,085 $1,533,478 $1,355,044
Ratio of expenses to average net assets
(before waiver) ........................... .38% .38% .37% .38% .39%
Ratio of expenses to average net assets
(after waiver) .............................. .26% .26% .24% .32% --
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (before waiver) ......... 5.07% 5.37% 4.82% 2.83% 3.19%
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (after waiver) ......... 5.19% 5.49% 4.95% 2.89% --
</TABLE>
Government Fund
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
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
January 27, 1997, Merrill Lynch Premier Institutional Fund commenced operations
as a separate series of the Trust. 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 Premier Institutional, 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 value.
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 accretion of 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 Premier Institutional Fund, 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, 1997, Merrill Lynch Institutional
Tax-Exempt Fund reclassified amounts to reflect a decrease of $200 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
9
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Percentage of Average Daily Net Assets
------------------------------------------
Premier Institutional
Fund ............... .15%
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
During its initial offering period, FAM agreed to waive a portion of its
advisory fee for the Premier Institutional Fund. For the period ended April 30,
1997, the effective fee payable to FAM was 0.14% of the Fund's average daily
assets. FAM has agreed to waive a portion of its advisory fees for the
Institutional, Government, Treasury and Tax-Exempt Funds. 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, 1997, FAM waived a portion of its fees amounting
to $45,574 for the Premier Institutional Fund, $9,522,140 for the Institutional
Fund, $2,261,521 for the Government Fund, $846,551 for the Treasury Fund and
$2,072,889 for the Institutional Tax-Exempt Fund.
All officers and certain trustees of the Trust are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest in the Premier Institutional Fund, Institutional
Fund, Government Fund and Treasury Fund ($.01 par value) and Institutional Tax-
Exempt Fund ($.10 par value) of a single class. At April 30, 1997, capital
paid-in aggregated $2,824,133,069 for Premier Institutional Fund, $6,201,308,027
for Institutional Fund, $2,017,817,815 for Government Fund, $611,790,184 for
Treasury Fund and $1,003,777,618 for Institutional Tax-Exempt Fund. Transactions
in shares at a constant net asset value of $1.00 per share were as follows:
Period
Ended April 30,
-----------------
Premier Institutional Fund 1997
- ------------------------------- -----------------
Shares sold .................. 12,237,737,259
Shares issued to shareholders
in reinvestment of dividends 32,118,561
---------------
Total ..................... 12,269,855,820
Shares redeemed ............ 9,445,822,751
---------------
Net increase ............... 2,824,033,069
===============
Prior to January 27, 1997 (commencement of operations) there were 100,000
shares of beneficial interest outstanding which were owned by FAM.
Year Ended April 30,
-----------------------------------
Institutional Fund 1997 1996
- ------------------------------- ------------------- ---------------
Shares sold .................. 67,124,483,921 81,859,341,129
Shares issued to shareholders
in reinvestment of dividends 323,268,144 360,863,781
--------------- ---------------
Total ..................... 67,447,752,065 82,220,204,910
Shares redeemed ............ 68,867,606,220 81,179,030,074
--------------- ---------------
Net increase (decrease) ... (1,419,854,155) 1,041,174,836
=============== ===============
Year Ended April 30,
--------------------------------
Government Fund 1997 1996
- ------------------------------- ---------------- ---------------
Shares sold .................. 13,658,666,165 11,319,796,312
Shares issued to shareholders
in reinvestment of dividends 92,067,429 86,908,080
--------------- ---------------
Total ..................... 13,750,733,594 11,406,704,392
Shares redeemed ............ 13,376,732,157 11,363,934,579
--------------- ---------------
Net increase ............... 374,001,437 42,769,813
=============== ===============
Year Ended April 30,
--------------------------------
Treasury Fund 1997 1996
- -------------------------------- --------------- --------------
Shares sold .................. 3,277,418,270 2,984,431,147
Shares issued to shareholders
in reinvestment of dividends 27,446,045 25,665,244
-------------- --------------
Total ..................... 3,304,864,315 3,010,096,391
Shares redeemed ............... 3,207,207,792 2,838,827,671
-------------- --------------
Net increase ............... 97,656,523 171,268,720
============== ==============
Government Fund
10
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Year Ended April 30,
--------------------------------
Institutional
Tax-Exempt Fund 1997 1996
- ---------------------------------- --------------- --------------
Shares sold ..................... 5,129,231,992 3,532,959,162
Shares issued to shareholders
in reinvestment of dividends . 26,648,229 15,674,384
-------------- --------------
Total ........................ 5,155,880,221 3,548,633,546
Shares redeemed ............... 4,819,426,973 3,285,337,991
-------------- --------------
Net increase .................. 336,453,248 263,295,555
============== ==============
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 Premier Institutional,
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, 1997, the Institutional Tax-Exempt Fund had net capital loss
carryovers of $254,048 of which $96,488 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 $30,000 by the Trust. Trustees' fees are allocated among the five
series of the Trust based on the net assets under management.
Government Fund
11
<PAGE>
[This page intentionally left blank]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
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
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, 1997............ 5
Appendix A:
Management of the Trust............. A-1
Investment Advisory and Other Serv-
ices............................... A-4
Portfolio Transactions.............. A-7
Net Asset Value..................... A-8
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dividends................... A-10
Taxes....................... A-11
Federal................... A-11
Massachusetts Income Tax.. A-13
Other Taxes............... A-13
Distributor................. A-13
Yield Information........... A-15
General Information......... A-15
</TABLE>
The date of this Statement of Additional Information and the Prospectus is
July 29, 1997.
<PAGE>
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 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,
Treasury Fund
2
<PAGE>
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>
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 Premier
Institutional Fund, 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, 1997, the related statements of operations,
the statements of changes in net assets 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, 1997, 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, 1997, 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 28, 1997
Treasury Fund
4
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Treasury Fund
Schedule of Investments
April 30, 1997
<TABLE>
<CAPTION>
========================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
========================================================================================================
<S> <C> <C> <C> <C> <C>
U.S. $3,812,000 U.S. Treasury Bills ...... 5.00% 05/15/97 $3,804,595
Government 2,002,000 U.S. Treasury Bills ...... 4.95 05/22/97 1,996,219
Issues -- 98.8% 5,854,000 U.S. Treasury Bills ...... 5.18 05/22/97 5,836,311
1,917,000 U.S. Treasury Bills ...... 5.02 05/29/97 1,909,515
1,754,000 U.S. Treasury Bills ...... 4.98 05/29/97 1,747,206
15,900,000 U.S. Treasury Bills ...... 5.01 05/29/97 15,838,105
3,231,000 U.S. Treasury Bills ...... 5.07 05/29/97 3,218,259
2,631,000 U.S. Treasury Bills ...... 5.06 05/29/97 2,620,656
10,277,000 U.S. Treasury Bills ...... 5.10 05/29/97 10,236,235
1,813,000 U.S. Treasury Bills ...... 5.13 05/29/97 1,805,766
20,000,000 U.S. Treasury Bills ...... 5.06 06/05/97 19,901,611
9,000,000 U.S. Treasury Bills ...... 5.19 06/05/97 8,954,588
20,000,000 U.S. Treasury Bills ...... 5.17 06/05/97 19,899,472
10,381,000 U.S. Treasury Bills ...... 5.15 06/05/97 10,329,023
10,568,000 U.S. Treasury Bills ...... 5.09 06/05/97 10,515,703
25,000,000 U.S. Treasury Bills ...... 5.09 06/12/97 24,851,688
1,508,000 U.S. Treasury Bills ...... 5.12 06/12/97 1,499,001
10,749,000 U.S. Treasury Bills ...... 5.11 06/12/97 10,684,918
13,930,000 U.S. Treasury Bills ...... 5.15 06/12/97 13,846,304
5,994,000 U.S. Treasury Bills ...... 5.13 06/12/97 5,958,147
14,000,000 U.S. Treasury Bills ...... 5.03 06/12/97 13,917,843
21,000,000 U.S. Treasury Bills ...... 5.12 06/19/97 20,853,653
15,000,000 U.S. Treasury Bills ...... 5.14 06/19/97 14,895,160
5,572,000 U.S. Treasury Bills ...... 5.07 06/19/97 5,533,549
10,000,000 U.S. Treasury Bills ...... 5.19 07/24/97 9,881,933
10,000,000 U.S. Treasury Bills ...... 5.20 07/24/97 9,881,933
10,000,000 U.S. Treasury Bills ...... 5.29 08/14/97 9,847,896
9,959,000 U.S. Treasury Bills ...... 5.24 08/14/97 9,807,520
5,437,000 U.S. Treasury Bills ...... 5.26 08/14/97 5,354,301
2,980,000 U.S. Treasury Bills ...... 5.17 08/14/97 2,934,673
15,132,000 U.S. Treasury Bills ...... 5.32 08/21/97 14,885,786
5,015,000 U.S. Treasury Bills ...... 5.22 08/21/97 4,933,400
53,000,000 U.S. Treasury Notes ...... 6.50 05/15/97 53,023,609
26,000,000 U.S. Treasury Notes ...... 8.50 05/15/97 26,031,566
40,000,000 U.S. Treasury Notes ...... 6.38 06/30/97 40,068,752
</TABLE>
Treasury Fund
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Treasury Fund
Schedule of Investments--Continued
April 30, 1997
<TABLE>
<CAPTION>
===========================================================================================================
Interest Maturity Value
Face Amount Rate* Date (Note 1a)
===========================================================================================================
<S> <C> <C> <C> <C> <C>
U.S. 50,000,000 U.S. Treasury Notes ............ 5.63% 06/30/97 $ 50,023,440
Government 45,000,000 U.S. Treasury Notes ............ 8.50 07/15/97 45,281,250
Issues 71,500,000 U.S. Treasury Notes ............ 5.88 07/31/97 71,578,206
(continued) 20,000,000 U.S. Treasury Notes ............ 6.50 08/15/97 20,056,250
- -----------------------------------------------------------------------------------------------------------
Total Investments -- 98.8%
(Cost $604,190,368) ............ $604,244,042
- -----------------------------------------------------------------------------------------------------------
Other Assets Less
Liabilities -- 1.2% ............ 7,599,816
- -----------------------------------------------------------------------------------------------------------
Net Assets -- Equivalent to $1.00
Per Share on 611,790,184 Shares
of Beneficial Interest
Outstanding -- 100.0% ......... $611,843,858
===========================================================================================================
</TABLE>
Note--Costs for federal income tax purposes are the same as those shown above.
At April 30, 1997, net unrealized appreciation amounted to $53,674 and is
comprised of $55,998 in appreciation and $2,324 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
Notes bear interest payable at fixed dates or upon maturity.
Treasury Fund
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Treasury Fund
Statement of Assets and Liabilities
April 30, 1997
<TABLE>
<CAPTION>
======================================================================================================
<S> <C>
Assets:
Total investments at value (identified cost $604,190,368) (Note 1a) ............... $604,244,042
Cash .............................................................................. 950,811
Interest receivable ............................................................... 6,834,954
Prepaid expenses .................................................................. 1,258
-------------
Total assets .................................................................. 612,031,065
-------------
Liabilities:
Advisory fee payable (Note 2) ...................................................... 99,097
Accrued expenses .................................................................. 45,138
Dividends payable .................................................................. 42,972
-------------
Total liabilities ............................................................... 187,207
-------------
Net Assets: (Equivalent to $1.00 per share, offering and redemption price, based on
611,790,184 shares of beneficial interest outstanding) ........................... $611,843,858
=============
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Treasury Fund
Statement of Operations
April 30, 1997
<TABLE>
<CAPTION>
=====================================================================================
<S> <C> <C>
Investment Income:
Interest and discount earned (Note 1d) .................................$29,856,444
------------
Expenses:
Investment advisory fee (Note 2) ..................... $1,991,236
Registration fees .................................... 159,647
Dividend and transfer agency fees .................. 109,028
Accounting and custodian services .................. 88,639
Legal and audit fees ................................. 14,708
Printing and shareholder reports ..................... 8,409
Trustees' fees (Note 5) .............................. 6,616
Insurance .......................................... 2,706
Miscellaneous ....................................... 3,452
-----------
Total expenses ................................. 2,384,441
Waived investment advisory fee (Note 2) ............ (846,551) 1,537,890
----------- ------------
Net investment income ............................................. 28,318,554
Realized and Unrealized Gain on Investments:
Net realized gain from investment transactions ...... 209,801
Net unrealized appreciation of investments ......... 63,853
-----------
Net realized and unrealized gain from investments .................. 273,654
------------
Net Increase in Net Assets Resulting From Operations ..................$28,592,208
============
</TABLE>
Treasury Fund
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Treasury Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------
1997 1996
======================================================================================================
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income .................................... $ 28,318,554 $ 26,646,144
Net realized gain from investment transactions ............ 209,801 221,477
Net unrealized appreciation of investments ............... 63,853 10,300
------------ ------------
Net increase in net assets resulting from operations ...... 28,592,208 26,877,921
Total declared as dividends to shareholders (Note 4) ...... (28,528,355) (26,867,621)
Capital share transactions (Note 3) ........................ 97,656,523 171,268,720
------------ ------------
Net increase in net assets ................................. 97,720,376 171,279,020
Net Assets:
Beginning of year .......................................... 514,123,482 342,844,462
------------ ------------
End of year ................................................ $611,843,858 $514,123,482
============ ============
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Treasury Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
=============================================================================================================
<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 ..................... .049 .052 .045 .027 .028
Net realized and unrealized gain
on investments ........................... -- -- -- -- .001
------- ------- ------- ------- -------
Total from investment operations ............ .049 .052 .045 .027 .029
Less Distributions:
Dividends from net investment income ...... (.049) (.052) (.045) (.027) (.029)
------- ------- ------- ------- -------
Net Asset Value, end of year ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return ................................. 5.08% 5.37% 4.68% 2.82% 2.97%
Ratios/Supplemental Data:
Net Assets, end of year (000) ............... $611,844 $514,123 $342,844 $266,953 $359,318
Ratio of expenses to average net assets
(before waiver) ........................... .42% .41% .44% .45% .45%
Ratio of expenses to average net assets
(after waiver) ........................... .27% .26% .29% .39% --
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (before waiver) ......... 4.85% 5.09% 4.58% 2.67% 2.93%
Ratio of net investment income, including
realized and unrealized gains and losses, to
average net assets (after waiver) ......... 5.00% 5.24% 4.73% 2.73% --
</TABLE>
Treasury Fund
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
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
January 27, 1997, Merrill Lynch Premier Institutional Fund commenced operations
as a separate series of the Trust. 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 Premier Institutional, 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 value.
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 accretion of 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 Premier Institutional Fund, 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, 1997, Merrill Lynch Institutional
Tax-Exempt Fund reclassified amounts to reflect a decrease of $200 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
9
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Percentage of Average Daily Net Assets
------------------------------------------
Premier Institutional
Fund ............... .15%
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
During its initial offering period, FAM agreed to waive a portion of its
advisory fee for the Premier Institutional Fund. For the period ended April 30,
1997, the effective fee payable to FAM was 0.14% of the Fund's average daily
assets. FAM has agreed to waive a portion of its advisory fees for the
Institutional, Government, Treasury and Tax-Exempt Funds. 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, 1997, FAM waived a portion of its fees amounting
to $45,574 for the Premier Institutional Fund, $9,522,140 for the Institutional
Fund, $2,261,521 for the Government Fund, $846,551 for the Treasury Fund and
$2,072,889 for the Institutional Tax-Exempt Fund.
All officers and certain trustees of the Trust are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest in the Premier Institutional Fund, Institutional
Fund, Government Fund and Treasury Fund ($.01 par value) and Institutional Tax-
Exempt Fund ($.10 par value) of a single class. At April 30, 1997, capital
paid-in aggregated $2,824,133,069 for Premier Institutional Fund, $6,201,308,027
for Institutional Fund, $2,017,817,815 for Government Fund, $611,790,184 for
Treasury Fund and $1,003,777,618 for Institutional Tax-Exempt Fund. Transactions
in shares at a constant net asset value of $1.00 per share were as follows:
Period
Ended April 30,
-----------------
Premier Institutional Fund 1997
- ------------------------------- -----------------
Shares sold .................. 12,237,737,259
Shares issued to shareholders
in reinvestment of dividends 32,118,561
---------------
Total ..................... 12,269,855,820
Shares redeemed ............ 9,445,822,751
---------------
Net increase ............... 2,824,033,069
===============
Prior to January 27, 1997 (commencement of operations) there were 100,000
shares of beneficial interest outstanding which were owned by FAM.
Year Ended April 30,
-----------------------------------
Institutional Fund 1997 1996
- ------------------------------- ------------------- ---------------
Shares sold .................. 67,124,483,921 81,859,341,129
Shares issued to shareholders
in reinvestment of dividends 323,268,144 360,863,781
--------------- ---------------
Total ..................... 67,447,752,065 82,220,204,910
Shares redeemed ............ 68,867,606,220 81,179,030,074
--------------- ---------------
Net increase (decrease) ... (1,419,854,155) 1,041,174,836
=============== ===============
Year Ended April 30,
--------------------------------
Government Fund 1997 1996
- ------------------------------- ---------------- ---------------
Shares sold .................. 13,658,666,165 11,319,796,312
Shares issued to shareholders
in reinvestment of dividends 92,067,429 86,908,080
--------------- ---------------
Total ..................... 13,750,733,594 11,406,704,392
Shares redeemed ............ 13,376,732,157 11,363,934,579
--------------- ---------------
Net increase ............... 374,001,437 42,769,813
=============== ===============
Year Ended April 30,
--------------------------------
Treasury Fund 1997 1996
- -------------------------------- --------------- --------------
Shares sold .................. 3,277,418,270 2,984,431,147
Shares issued to shareholders
in reinvestment of dividends 27,446,045 25,665,244
-------------- --------------
Total ..................... 3,304,864,315 3,010,096,391
Shares redeemed ............... 3,207,207,792 2,838,827,671
-------------- --------------
Net increase ............... 97,656,523 171,268,720
============== ==============
Treasury Fund
10
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Year Ended April 30,
--------------------------------
Institutional
Tax-Exempt Fund 1997 1996
- ---------------------------------- --------------- --------------
Shares sold ..................... 5,129,231,992 3,532,959,162
Shares issued to shareholders
in reinvestment of dividends . 26,648,229 15,674,384
-------------- --------------
Total ........................ 5,155,880,221 3,548,633,546
Shares redeemed ............... 4,819,426,973 3,285,337,991
-------------- --------------
Net increase .................. 336,453,248 263,295,555
============== ==============
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 Premier Institutional,
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, 1997, the Institutional Tax-Exempt Fund had net capital loss
carryovers of $254,048 of which $96,488 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 $30,000 by the Trust. Trustees' fees are allocated among the five
series of the Trust based on the net assets under management.
Treasury Fund
11
<PAGE>
[This page intentionally left blank]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
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
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.............. 3
Independent Auditors' Report......... 5
Audited Financial Statements for the
Fiscal Year Ended April 30, 1997.... 6
Appendix A:
Management of the Trust............ A-1
Investment Advisory and Other Serv-
ices.............................. A-4
Portfolio Transactions............. A-7
Net Asset Value.................... A-8
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dividends......................... A-10
Taxes............................. A-11
Federal......................... A-11
Massachusetts Income Tax........ A-13
Other Taxes..................... A-13
Distributor....................... A-13
Yield Information................. A-15
General Information............... A-15
Appendix B: Information Concerning
Tax-Exempt Securities.............. B-1
</TABLE>
---------------
The date of this Statement of Additional Information and the Prospectus is
July 29, 1997.
<PAGE>
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 impact on value is lessened by the short-term maturities of the investment
of the Tax-Exempt Fund. Short-term securities tend to fluctuate
Tax-Exempt Fund
2
<PAGE>
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.
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
Tax-Exempt Fund
3
<PAGE>
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>
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 Premier
Institutional Fund, 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, 1997, the related statements of operations,
the statements of changes in net assets 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, 1997, 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, 1997, 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 28, 1997
Tax-Exempt Fund
5
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments
April 30, 1997
<TABLE>
<CAPTION>
======================================================================================================
Value
Face Amount Issue (Note 1a)
======================================================================================================
<S> <C> <C> <C>
Alabama -- $3,200,000 Birmingham, Alabama Medical Clinic Board Revenue
2.1% (University of Alabama Health Services Project) DDN
3.85% due 12/01/2026 (a) ................................ $ 3,200,000
17,700,000 McIntosh, Alabama IDB PCR (CIBA-Geigy Corp. Project)
DDN 4.00% due 07/01/2004 (a) .......................... 17,700,000
- ------------------------------------------------------------------------------------------------------
Alaska -- Valdez, Alaska Marine Terminal Revenue (Arco Trans-
1.4% portation Project) CP:
10,000,000 3.55% due 05/09/1997 .................................... 10,000,000
3,900,000 3.70% due 08/01/1997 .................................... 3,900,000
- ------------------------------------------------------------------------------------------------------
Arizona -- 13,000,000 Maricopa County, Arizona PCR (El Paso Electric Co.
2.6% Project) VRDN 4.65% due 07/01/2014 (a) ................. 13,000,000
2,100,000 Maricopa County, Arizona PCR (Southern Co. Edison
California) CP 3.70% due 08/01/1997 .................... 2,100,000
10,800,000 Salt River Project, Arizona Agricultural Improvement &
Power District Revenue CP 3.60% due 05/08/1997 ........ 10,800,000
- ------------------------------------------------------------------------------------------------------
Colorado -- 8,000,000 Denver, Colorado City & County Airport Revenue VRDN
1.4% 4.60% due 11/15/2025 (a) ................................ 8,000,000
6,000,000 Montrose, Colorado IDR (Scaled Manufacturing Inc.)
VRDN 4.75% due 12/01/2005 (a) .......................... 6,000,000
- ------------------------------------------------------------------------------------------------------
District of District of Columbia General Fund Recovery DDN:
Columbia -- 31,400,000 Series B-1 4.15% due 06/01/2003 (a) ..................... 31,400,000
7.3% 3,500,000 Series B-2 4.15% due 06/01/2023 (a) ..................... 3,500,000
3,100,000 Series B-2 4.15% due 06/01/2007 (a) ..................... 3,100,000
6,000,000 Series B-3 4.15% due 06/01/2003 (a) ..................... 6,000,000
29,700,000 District of Columbia Revenue (American Association
for the Advancement of Sciences) DDN 4.05% due
10/01/2022 (a) ......................................... 29,700,000
- ------------------------------------------------------------------------------------------------------
Florida -- 4,800,000 Lee County, Florida IDA Revenue (Raymond Building
0.8% Supply Corp. Project) VRDN 4.80% due 04/01/2017 (a) ..... 4,800,000
3,365,000 Sunshine State Governmental Financing Commission Fla.
Revenue (Series B) CP 3.70% due 08/01/1997 .............. 3,365,000
- ------------------------------------------------------------------------------------------------------
Georgia -- 6,860,000 Albany & Dougherty County, Georgia Hospital Authority
2.7% Revenue (Phoebe Putney Memorial Hospital) VRDN
4.50% due 09/01/2026 (a) ................................ 6,860,000
5,400,000 Atlanta, Georgia Urban Residential Finance Authority M/F
Revenue (New Community East Lake Project) VRDN
4.85% due 11/01/2028 (a) ................................ 5,400,000
1,000,000 Columbus, Georgia Development Authority IDR (Georgia
Packaging Inc.) VRDN 4.75% due 01/01/2012 (a) ........... 1,000,000
3,200,000 Eagles Tax-Exempt Trust (Georgia Residential Finance
Authority) FXRDN 3.75% due 06/01/1997 ................. 3,200,000
</TABLE>
Tax-Exempt Fund
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
========================================================================================================
Value
Face Amount Issue (Note 1a)
========================================================================================================
<S> <C> <C> <C>
Georgia $2,030,000 Georgia State Residential Finance Authority FXRDN
(continued) 3.75% due 06/01/1997 ...................................... $2,030,000
9,000,000 La Grange, Georgia Development Authority IDR (Reltec
Corp. Project) VRDN 4.70% due 12/01/2021 (a) .............. 9,000,000
- --------------------------------------------------------------------------------------------------------
Illinois -- 4,300,000 Chicago, Illinois IDR (Enterprise Center Project) VRDN
7.2% 4.80% due 06/01/2022 (a) ................................... 4,300,000
10,000,000 Chicago, Illinois Public Building Commission Revenue
FXRDN 4.20% due 12/01/1997 ................................ 10,016,781
7,000,000 Chicago, Illinois Solid Waste Disposal Facilities Revenue
(Groot Industries Inc. Project) VRDN 4.60% due
12/01/2015 (a) ............................................ 7,000,000
1,800,000 Illinois State Development Finance Authority IDR (Revcor
Inc. Project) VRDN 4.70% due 06/01/2008 (a) ................. 1,800,000
2,000,000 Illinois State Development Finance Authority Economic
Development Revenue (CPL Downers Grove Partner-
ship) VRDN 4.70% due 12/01/2005 (a) 2,000,000
2,500,000 Illinois State Educational Facilities Authority Revenue (Art
Institute of Chicago) VRDN 4.55% due 03/01/2027 (a) ........ 2,500,000
Illinois Health Facilities Authority Revenue (Evanston
Hospital Corp. Project) CP:
5,000,000 3.65% due 05/29/1997 ....................................... 5,000,000
12,000,000 3.95% due 08/15/1997 ....................................... 12,000,000
11,000,000 Illinois Health Facilities Authority Revenue (Northwestern
Community Hospital) VRDN 4.60% due 07/01/2027 (a) ........... 11,000,000
8,000,000 Illinois Health Facilities Authority Revenue (Advocate Health
Care Series B) VRDN 4.60% due 08/15/2022 (a) .............. 8,000,000
2,250,000 Kane County, Illinois School District TAN 4.25% due
09/29/1997 .................................................. 2,254,544
2,775,000 Peoria, Illinois IDR (CDC Realty L.P. Project) VRDN 4.80%
due 12/01/2014 (a) ......................................... 2,775,000
4,000,000 Upper Illinois River Valley Authority Solid Waste Disposal
Revenue (Exolon-Esk Co. Project) VRDN 4.70% due
12/01/2021 (a) ............................................ 4,000,000
- --------------------------------------------------------------------------------------------------------
Indiana -- 6,660,000 Anderson, Indiana Economic Development Revenue
4.0% (Applecreek Commons L.P. Project) VRDN 4.70% due
12/01/2027 (a) ............................................ 6,660,000
3,225,000 Bloomington, Indiana Economic Development Revenue
(Bloomington Square Project) VRDN 4.70% due
12/01/2008 (a) ............................................ 3,225,000
</TABLE>
Tax-Exempt Fund
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
================================================================================================
Value
Face Amount Issue (Note 1a)
================================================================================================
<S> <C> <C> <C>
Indiana $2,500,000 Connersville, Indiana Economic Development Revenue
(continued) (Inland Southern Group Project) VRDN 4.65% due
02/01/2012 (a) ...................................... $2,500,000
3,000,000 Greencastle, Indiana IDR (Crown Equipment Corp.
Project) VRDN 4.75% due 02/01/2011 (a) .............. 3,000,000
1,000,000 Greendale, Indiana Economic Development Revenue
(Pripak Inc. Project Series A) VRDN 4.75% due
12/01/2003 (a) ...................................... 1,000,000
5,000,000 Hamilton, Indiana Southeastern Schools Building Corp.
TAN 4.25% due 12/31/1997 ............................. 5,016,196
2,700,000 Indiana State Development Finance Authority Economic
Development Revenue (Hart Housing Group Inc.
Project) VRDN 4.80% due 06/01/2011 (a) .............. 2,700,000
2,530,000 Indiana State Development Finance Authority IDR
(Centurion Industries Inc. Project) VRDN 4.75% due
10/01/2005 (a) ...................................... 2,530,000
4,915,000 Indiana State Educational Facilities Authority Revenue
(Wesleyan University Project) VRDN 4.70% due
12/01/2015 (a) ...................................... 4,915,000
2,000,000 Muncie, Indiana IDR (Diamond Plastics Corp. Project)
VRDN 4.90% due 10/01/2006 (a) ....................... 2,000,000
1,915,000 New Castle, Indiana Economic Development Revenue
(Barden Homes of Indiana Inc. Project) VRDN 4.80%
due 08/01/2010 (a) ................................... 1,915,000
2,445,000 St. Joseph County, Indiana Hospital Authority (Madison
Center Inc. Project) VRDN 4.65% due 03/04/2015 (a) .. 2,445,000
2,500,000 Westfield, Indiana IDR (Standard Locknut Inc. Project)
VRDN 4.80% due 02/01/2002 (a) ....................... 2,500,000
- --------------------------------------------------------------------------------------------------------
Kansas -- 3,550,000 Overland Park, Kansas IDR (General Motors Corp.
0.5% Project) DDN 4.10% due 11/01/2021 (a) .............. 3,550,000
1,150,000 Spring Hill, Kansas IDR (Abrasive Engineering Manufac-
turing Inc. Project) VRDN 4.75% due 10/01/2016 (a) 1,150,000
- --------------------------------------------------------------------------------------------------------
Kentucky -- 3,500,000 Graves County, Kentucky IDR (Seaboard Farms Kentucky
7.2% Inc. Project) VRDN 4.85% due 12/01/2012 (a) ........ 3,500,000
3,400,000 Jefferson County, Kentucky Industrial Building Revenue
(Advanced Chemtech Inc. Project) VRDN 4.75% due
04/01/2016 (a) ...................................... 3,400,000
Jefferson County, Kentucky Industrial Building Revenue
(Thomas Development Project) VRDN:
1,900,000 4.75% due 04/10/2010 (a) ........................... 1,900,000
1,170,000 4.75% due 10/01/2011 (a) ........................... 1,170,000
</TABLE>
Tax-Exempt Fund
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=======================================================================================================
Value
Face Amount Issue (Note 1a)
=======================================================================================================
<S> <C> <C> <C>
Kentucky $9,835,000 Kentucky Economic Development Finance Authority
(continued) Hospital Facilities Revenue (St. Elizabeth's Medical
Center Inc.) VRDN 4.67% due 05/01/2017 (a) ............ $9,835,000
22,000,000 Kentucky Economic Development Finance Authority
Revenue (Sisters of Charity of Nazareth Health Sys-
tem) DDN 4.05% due 11/01/2020 (a) ...................... 22,000,000
10,000,000 Louisville & Jefferson County, Kentucky Regional Airport
System Revenue BAN/VRDN 4.70% due 06/30/1998 ........... 10,000,000
20,600,000 Perry County, Kentucky Health Care Systems Revenue
(Appalachian Regional Health Care) VRDN 4.75% due
08/01/2014 (a) ......................................... 20,600,000
- --------------------------------------------------------------------------------------------------------
Louisiana -- 11,000,000 Saint James Parish, Louisiana PCR (Texaco Project) CP
1.1% 4.10% due 05/21/1997 ................................... 11,000,000
- --------------------------------------------------------------------------------------------------------
Maine -- 2,530,000 Gray, Maine Revenue (Advance Realty Project) VRDN
2.1% 4.75% due 10/01/2011 (a) .............................. 2,530,000
9,085,000 Jay, Maine Solid Waste Disposal Revenue (International
Paper Co.) FXRDN 3.95% due 06/02/1997 ................. 9,085,000
6,600,000 Maine TAN 4.50% due 06/27/1997 ........................ 6,605,236
3,140,000 Maine School Administrative District #35 Eliot Commons
BAN 4.25% due 11/12/1997 .............................. 3,145,710
- --------------------------------------------------------------------------------------------------------
Maryland -- 1,900,000 Anne Arundel County, Maryland Economic Development
0.5% Revenue (Atlas Container Corp Project) VRDN 4.95%
due 04/01/2006 (a) .................................... 1,900,000
2,600,000 Maryland State Health & Higher Educational Facilities
Authority Revenue (Helix Health Hospital) VRDN
4.70% due 07/01/2026 (a) .............................. 2,600,000
- --------------------------------------------------------------------------------------------------------
Massachusetts -- 5,000,000 Bolton, Massachusetts BAN 4.50% due 04/17/1998 ......... 5,018,466
10.2% 5,400,000 Gardner, Massachusetts BAN 4.15% due 11/07/1997 ......... 5,407,648
7,000,000 Lynn, Massachusetts BAN 4.25% due 08/14/1997 ............ 7,006,625
10,000,000 Lynn, Massachusetts Water & Sewer Commission BAN
4.25% due 10/08/1997 .................................. 10,008,000
14,230,000 Massachusetts GO Tender Option FXRDN 3.53% due
05/29/1997 ............................................. 14,230,000
9,500,000 Massachusetts State Housing Finance Agency Housing
Projects (Series 13-C) VRDN 4.50% due 10/01/2008
(a) ................................................... 9,500,000
3,570,000 Massachusetts State Industrial Finance Agency Revenue
(WBC Extrusion Products) VRDN 3.75% due
04/01/2006 (a) ....................................... 3,570,000
10,000,000 Massachusetts State Water Resource Authority CP
4.00% due 05/21/1997 ................................... 10,000,000
</TABLE>
Tax-Exempt Fund
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=========================================================================================================
Value
Face Amount Issue (Note 1a)
=========================================================================================================
<S> <C> <C> <C>
Massachusetts $9,310,000 Mendon & Upton, Massachusetts Regional School
(continued) District BAN 3.85% due 05/09/1997 .................... $9,310,350
Middlesex County, Massachusetts BAN:
2,802,000 4.39% due 07/17/1997 ................................. 2,802,792
2,670,000 4.30% due 07/17/1997 ................................. 2,670,265
7,000,000 Pioneer Valley Regional Transit Authority Massachusetts
RAN 4.63% due 08/08/1997 ............................. 7,009,653
Springfield, Massachusetts BAN:
6,000,000 4.50% due 06/27/1997 ................................. 6,004,501
9,600,000 4.60% due 07/11/1997 ................................. 9,608,969
- --------------------------------------------------------------------------------------------------------
Michigan -- 14,700,000 Michigan State Building Authority Revenue CP 3.65%
3.4% due 05/01/1997 ......................................... 14,700,000
13,500,000 Michigan State Building Authority Revenue CP 3.50%
due 05/01/1997 ......................................... 13,500,000
5,600,000 Michigan State Strategic Fund Limited Obligation
Revenue (Detroit Edison Co.) DDN 4.10% due
09/01/2030 (a) ......................................... 5,600,000
- --------------------------------------------------------------------------------------------------------
Missouri -- 1,415,000 Jefferson County, Missouri IDA Revenue (Sinclair &
0.4% Rush Project) VRDN 4.80% due 11/01/2001 (a) ........... 1,415,000
2,700,000 Missouri State Development Finance Board IDR (Filtra-
tion Group Inc.) VRDN 4.76% due 03/01/2012 (a) ......... 2,700,000
- --------------------------------------------------------------------------------------------------------
New 9,830,000 New Hampshire Higher Educational & Health Facilities
Hampshire -- Authority Revenue (Dartmouth Educational Loan
1.9% Corp.) FXRDN 3.90% due 06/01/1997 .................... 9,830,000
1,230,000 New Hampshire State Business Finance Authority IDR
(Freed's Bakery Inc. Project) VRDN 4.80% due
05/02/2011 (a) ......................................... 1,230,000
3,000,000 New Hampshire State Business Finance Authority IDR
(Hydra Inc.) VRDN 4.75% due 11/01/2006 (a) ........... 3,000,000
4,500,000 Salem, New Hampshire TAN 4.00% due 12/18/1997 ......... 4,508,543
- --------------------------------------------------------------------------------------------------------
New York -- 11,085,000 Little Falls, New York School District BAN 4.50% due
4.3% 06/15/1997 ............................................ 11,091,651
5,955,000 New York City NY (Series B) DDN 4.25% due
10/01/2020 (a) ...................................... 5,955,000
11,200,000 New York City Municipal Water Finance Authority Systems
Revenue (Series C) DDN 4.05% due 06/15/2023 (a) ........ 11,200,000
15,100,000 New York State BAN/CP 3.65% due 05/22/1997 ............ 15,100,000
- --------------------------------------------------------------------------------------------------------
North Carolina -- 5,200,000 Raleigh-Durham, North Carolina Airport Authority Special
0.5 % Facilities Revenue (American Airlines Series B) DDN
4.05% due 11/01/2005 (a) .............................. 5,200,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
Tax-Exempt Fund
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=========================================================================================================
Value
Face Amount Issue (Note 1a)
=========================================================================================================
<S> <C> <C> <C>
Ohio -- $2,400,000 Cadiz, Ohio BAN 4.15% due 07/15/1997 .................. $2,402,764
7.9% 3,500,000 Cleveland, Ohio BAN 4.50% due 10/15/1997 ............... 3,507,687
13,900,000 Cuyahoga County, Ohio Hospital Revenue (University
Hospital of Cleveland) DDN 4.00% due 01/01/2016 (a) .. 13,900,000
3,500,000 Eagles Tax-Exempt Trust, Ohio Water Development Author-
ity (Ohio Edison) VRDN 4.67% due 07/01/2015 (a)........ 3,500,000
5,420,000 Franklin County, Ohio M/F Housing Revenue (Community
Housing Network) VRDN 4.65% due 03/01/2027 (a) ........ 5,420,000
1,000,000 Gates Mills, Ohio BAN 4.13% due 11/25/1997 ............ 1,002,343
4,000,000 Greene County, Ohio BAN 4.50% due 09/11/1997 ......... 4,005,874
4,475,000 Lucas-Beacon Place Housing Development Corp. M/F
Housing Revenue (Beacon Place Apartments Project)
FXRDN 3.80% due 09/15/1997 .......................... 4,475,000
7,295,000 Mahoning County, Ohio Health Care Facilities Revenue
(Shepherd of the Valley Lutheran Home & Retirement
Center) VRDN 4.70% due 09/01/2020 (a) ................. 7,295,000
Montgomery County, Ohio Hospital Revenue (Miami Valley
Hospital Series C) CP:
7,000,000 3.55% due 05/09/1997 ................................. 7,000,000
11,800,000 3.70% due 08/01/1997 ................................. 11,800,000
3,000,000 New Bremen, Ohio Local School District BAN 4.20% due
05/29/1997 ............................................ 3,001,252
4,500,000 Ohio State Air Quality Development Authority Revenue
(Cincinnati Gas & Electric) DDN 4.00% due 09/01/2030
(a) .................................................. 4,500,000
2,735,000 Ohio State Higher Educational Facilities Commission
Revenue (Ashland University Project) VRDN 4.65% due
09/01/2001 (a) ...................................... 2,735,000
5,000,000 Ottawa County, Ohio IDR (Adrian Sand & Stone Project)
VRDN 4.75% due 10/01/2008 (a) ....................... 5,000,000
- --------------------------------------------------------------------------------------------------------
Oklahoma -- 5,000,000 Muskogee, Oklahoma IDR PCR (Oklahoma Gas & Elec.
0.5% Co. Series a) VRDN 4.55% due 01/01/2025 (a) ........... 5,000,000
- --------------------------------------------------------------------------------------------------------
Oregon -- 1,000,000 Portland, Oregon M/F Revenue (Union Station) VRDN
0.1% 4.80% due 12/01/2027 (a) .............................. 1,000,000
- --------------------------------------------------------------------------------------------------------
Pennsylvania -- 13,425,000 Allegheny County, Pennsylvania Hospital Development
10.7% Authority Revenue (Presbyterian University Hospital)
VRDN 4.60% due 03/01/2018 (a) ....................... 13,425,000
1,200,000 Allegheny County, Pennsylvania IDA Revenue (Parkway
Center Mall Project) VRDN 4.60% due 05/01/2009 (a) .. 1,200,000
</TABLE>
Tax-Exempt Fund
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=========================================================================================================
Value
Face Amount Issue (Note 1a)
=========================================================================================================
<S> <C> <C> <C>
Pennsylvania Emmaus, Pennsylvania General Authority Revenue
(continued) VRDN:
$10,000,000 Series C-11 4.60% due 03/01/2024 (a) ..................... $10,000,000
8,600,000 Series D-11 4.60% due 03/01/2024 (a) ..................... 8,600,000
1,500,000 Series F-6 4.60% due 03/01/2024 (a) ..................... 1,500,000
10,000,000 Harrisburg, Pennsylvania Authority Revenue (Pooled
Loan Fund) VRDN 4.65% due 07/01/2021 (a) ................. 10,000,000
10,000,000 Lancaster, Pennsylvania Hospital Authority Revenue
(Masonic Homes Project) VRDN 4.65% due
07/01/2027 (a) ......................................... 10,000,000
23,000,000 Montgomery County, Pennsylvania Higher Education &
Health Authority Revenue VRDN 4.65% due
06/01/2021 (a) ......................................... 23,000,000
2,900,000 Montgomery County, Pennsylvania Higher Education &
Health Authority Revenue (Philadelphia Presbytery)
VRDN 4.60% due 07/01/2025 (a) .......................... 2,900,000
16,455,000 Pennsylvania GO Tender Option VRDN 4.65% due
04/15/2002 (a) ......................................... 16,455,000
10,400,000 Philadelphia, Pennsylvania TRAN 4.50% due
06/30/1997 ............................................... 10,409,032
- --------------------------------------------------------------------------------------------------------
Rhode Island -- 5,000,000 Cumberland, Rhode Island BAN 4.25% due 11/26/1997 ......... 5,009,650
1.7% 2,600,000 Rhode Island State Industrial Facilities Corp. IDR (Capi-
tal Development Corp. Project) VRDN 3.65% due
11/01/2005 (a) ......................................... 2,600,000
3,500,000 Rhode Island State Solid Waste Management Corp.
(Landfill Lease) CP 4.50% due 08/01/1997 ................. 3,511,760
6,350,000 West Warwick, Rhode Island BAN 4.25% due
08/01/1997 ............................................... 6,355,491
- --------------------------------------------------------------------------------------------------------
South Carolina -- 630,000 South Carolina Economic Development Authority IDR
1.1% (Trimite Powders Inc. Project) FXRDN 4.13% due
09/01/1997 ............................................... 630,000
9,989,000 South Carolina Public Services Authority Electrical
Systems Revenue CP 3.70% due 08/01/1997 ................. 9,989,000
- --------------------------------------------------------------------------------------------------------
South Dakota -- 3,000,000 South Dakota Housing Development Authority Revenue
0.3% FXRDN (Series G) 4.25% due 05/01/1997 .................... 3,000,000
- --------------------------------------------------------------------------------------------------------
Tennessee -- 9,500,000 Memphis & Shelby County, Tennessee Industrial Board
2.1% PCR (Birmingham Steel Corp. Project) VRDN 4.75%
due 10/01/2026 (a) ...................................... 9,500,000
7,000,000 Montgomery County, Tennessee Public Building Authority
(Pooled Financing Revenue) VRDN 4.70% due
07/01/2015 (a) ......................................... 7,000,000
4,300,000 Nashville & Davidson County, IDB Revenue (Gibson
Guitar Project) VRDN 4.75% due 03/01/2011 (a) ........... 4,300,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
Tax-Exempt Fund
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=========================================================================================================
Value
Face Amount Issue (Note 1a)
=========================================================================================================
<S> <C> <C> <C>
Texas -- $1,825,000 Montgomery County, Texas IDA Revenue (Sawyer
0.6% Research Products Inc.) VRDN 4.80% due
02/04/2015 (a) ...................................... $1,825,000
4,000,000 Texas State TRAN 4.75% due 08/29/1997 .................. 4,009,439
- --------------------------------------------------------------------------------------------------------
Utah -- 5,000,000 Salt Lake County, Utah PCR (Service Station Holdings
0.5% -The BP Co. Project) DDN 4.05% due 02/01/2008 (a) ..... 5,000,000
- --------------------------------------------------------------------------------------------------------
Vermont -- 2,600,000 Vermont IDA Revenue (Burlington PPTY LP Project)
0.3% VRDN 4.60% due 12/01/2011 (a) ....................... 2,600,000
- --------------------------------------------------------------------------------------------------------
Virginia -- 2,100,000 Brunswick County, Virginia IDA Exempt Facilities Rev-
1.2% enue (Aegis Waste Solutions Inc.) VRDN 4.65% due
01/01/2017 (a) ...................................... 2,100,000
10,000,000 Richmond, Virginia Public Utilities Revenue VRDN 4.75%
due 06/30/2001 (a) ................................... 10,000,000
- --------------------------------------------------------------------------------------------------------
Washington -- 3,000,000 Pierce County, Washington Housing Authority Revenue
2.1% (Eagles Watch Project) VRDN 4.55% due
09/01/2020 (a) ...................................... 3,000,000
5,000,000 Washington State Housing Finance Commission Rev-
enue (Emerald Heights Project) DDN 4.10% due
01/01/2021 (a) ...................................... 5,000,000
12,850,000 Washington State Housing Finance Commission Rev-
enue (Panorama City Project) DDN 4.60% due
01/01/2027 (a) ...................................... 12,850,000
- --------------------------------------------------------------------------------------------------------
West Virginia -- 2,600,000 Raleigh County, West Virginia Health Care Systems Rev-
0.3% enue (Appalachian Regional Health Care) VRDN
4.75% due 09/01/2006 (a) ............................. 2,600,000
- --------------------------------------------------------------------------------------------------------
Wisconsin -- 1,405,000 Appleton, Wisconsin IDR (Valley Packaging Industries
3.7% Inc. Project) VRDN 4.70% due 02/01/2011 (a) ........... 1,405,000
2,320,000 Arrowhead, Wisconsin School District TRAN 4.50% due
09/26/1997 ............................................ 2,323,608
Deerfield, Wisconsin IDR (Interpane Coatings Project)
VRDN:
1,600,000 4.60% due 05/01/2003 (a) .............................. 1,600,000
1,745,000 4.75% due 05/01/2003 (a) .............................. 1,745,000
1,750,000 Howard-Suamico, Wisconsin School District TRAN
4.40% due 08/22/1997 ................................ 1,752,082
2,650,000 Milwaukee, Wisconsin Redevelopment Authority Rev-
enue (Jensar Corp. Project) VRDN 4.80% due
03/01/2007 (a) ...................................... 2,650,000
1,265,000 Oshkosh, Wisconsin IDR (Automatic Handling Inc.
Project) VRDN 4.75% due 06/01/2006 (a) .............. 1,265,000
</TABLE>
Tax-Exempt Fund
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Schedule of Investments -- Continued
April 30, 1997
<TABLE>
<CAPTION>
=========================================================================================================
Value
Face Amount Issue (Note 1a)
=========================================================================================================
<S> <C> <C> <C>
Wisconsin $ 500,000 Plymouth, Wisconsin IDR (Great Lakes Cheese of
(continued) Wisconsin Inc. Project) VRDN 4.75% due 08/01/2024
(a) ..................................................... $ 500,000
4,000,000 Shorewood, Wisconsin School District TRAN 4.35% due
09/02/1997 ............................................... 4,004,556
5,000,000 Sturtevant, Wisconsin IDR (Andis Co. Project Series A)
VRDN 4.65% due 12/01/2016 (a) .......................... 5,000,000
2,100,000 Sun Prairie, Wisconsin School District TRAN 4.25% due
08/22/1997 ............................................... 2,101,558
4,250,000 Verona, Wisconsin School District TRAN 4.50% due
08/27/1997 ............................................ 4,255,433
9,000,000 Wisconsin State Health & Educational Facilities Authority
Revenue (Wheaton Franciscan System Revenue)
VRDN 4.60% due 08/15/2016 (a) .......................... 9,000,000
- --------------------------------------------------------------------------------------------------------
Wyoming -- 5,300,000 Converse County, Wyoming Environmental Improvement
4.8% Revenue (Pacificorp Projects) DDN 4.25% due
11/01/2025 (a) ......................................... 5,300,000
5,000,000 Laramie County, Wyoming IDR (Cheyenne Light Fuel &
Power Co.) VRDN 4.60% due 03/01/2027 (a) ................. 5,000,000
4,000,000 Lincoln County, Wyoming Environmental Improvement
Revenue (Pacificorp Projects) DDN 4.25% due
11/01/2025 (a) ......................................... 4,000,000
13,300,000 Sweetwater County, Wyoming Environmental Improve-
ment Revenue (Pacificorp Projects) DDN 4.25% due
11/01/2025 (a) ......................................... 13,300,000
20,900,000 Sweetwater County, Wyoming PCR (Idaho Power Co.
Project) DDN 4.10% due 07/15/2026 (a) .................... 20,900,000
- --------------------------------------------------------------------------------------------------------
Total Investments (Cost $998,272,459) -- 99.5% ............ 998,272,459
- --------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 0.5% ..................... 5,383,027
- --------------------------------------------------------------------------------------------------------
Net Assets -- Equivalent to $1.00 Per Share on
1,003,777,618 Shares of Beneficial Interest
Outstanding -- 100.0% ................................... $1,003,655,486
=========================================================================================================
</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, 1997. For variable rate
demand instruments, the next coupon date on which the interest rate is to be
adjusted is deemed the maturity date for valuation.
Note--Cost for federal income tax purposes is the same as that shown above.
- --------------------------------------------------------------------------------
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
IDB Industrial Development Board
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
- --------------------------------------------------------------------------------
Tax-Exempt Fund
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Statement of Assets and Liabilities
April 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at amortized cost and value (Note 1a) ................................. $ 998,272,459
Cash .............................................................................. 1,797,039
Interest receivable ............................................................... 7,612,391
Receivable for investments sold ................................................... 1,220,000
Prepaid expenses .................................................................. 1,794
---------------
Total assets .................................................................. 1,008,903,683
---------------
Liabilities:
Advisory fee payable (Note 2) ................................................... 160,350
Payable for investments purchased ................................................ 5,013,782
Accrued expenses .................................................................. 45,364
Dividends payable ............................................................... 28,701
---------------
Total liabilities ............................................................ 5,248,197
---------------
Net Assets: (Equivalent to $1.00 per share, offering and redemption price, based on
1,003,777,618 shares of beneficial interest outstanding) ........................ $1,003,655,486
===============
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Statement of Operations
April 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Interest and discount earned (Note 1d) ....................................$30,216,695
-----------
Expenses:
Investment advisory fee (Note 2) ..................... $ 3,731,200
Registration fees .................................... 207,440
Dividend and transfer agency fees .................. 147,047
Accounting and custodian services .................. 105,578
Amortization of organization expenses (Note 1e) ...... 76,980
Legal and audit fees ................................. 15,677
Printing and shareholder reports ..................... 12,143
Trustees' fees (Note 5) .............................. 9,724
Insurance .......................................... 3,489
Miscellaneous ....................................... 10,774
-----------
Total expenses ................................. 4,320,052
Waived investment advisory fee (Note 2) ............ (2,072,889) 2,247,163
----------- -----------
Net investment income ................................................27,969,532
Net realized loss from investment transactions ........................... (2,657)
-----------
Net Increase in Net Assets Resulting From Operations .....................$27,966,875
===========
</TABLE>
Tax-Exempt Fund
See Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------
1997 1996
======================================================================================================
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income ....................................... $ 27,969,532 $ 16,875,293
Net realized gain (loss) from investment transactions ......... (2,657) 796
-------------- ------------
Net increase in net assets resulting from operations ......... 27,966,875 16,876,089
Total declared as dividends to shareholders (Note 4) ......... (27,969,332) (16,870,256)
Capital share transactions (Note 3) ........................... 336,453,248 263,295,555
-------------- ------------
Net increase in net assets .................................... 336,450,791 263,301,388
Net Assets:
Beginning of year ............................................. 667,204,695 403,903,307
-------------- ------------
End of year, including undistributed net investment income of
$134,573 and accumulated capital losses of $256,705 and $254,248
respectively (Note 1g and Note 4) ........................... $1,003,655,486 $667,204,695
============== ============
</TABLE>
- --------------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund
Financial Highlights
<TABLE>
<CAPTION>
Five Months
Ended
Year Ended April 30, April 30, Year Ended November 30,
----------------------------------- ---------------- ---------------------
1997 1996 1995 1994 1993 1992
========================================================================================================================
<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 ..................... .03 .04 .03 .01 .02 .03
Dividends from net investment income ...... (.03) (.04) (.03) (.01) (.02) (.03)
---------- ------- ------- --------- ------- -------
Net Asset Value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======= ======= ========= ======= =======
Total Return .............................. 3.41% 3.68% 3.20% 2.14%(1) 2.14% 2.74%
Ratios/Supplemental Data:
Net Assets, end of period (000) ......... $1,003,655 $667,205 $403,903 $390,375 $278,697 $329,254
Ratio of expenses to average net assets
(before waiver) ........................ .52% .54% .56% .59%(1) .62% .61%
Ratio of expenses to average net assets
(after waiver) ........................... .27% .29% .31% .34%(1) .45% .53%
Ratio of net investment income, to average
net assets (before waiver) ............... 3.12% 3.35% 2.90% 1.92%(1) 1.96% 2.67%
Ratio of net investment income, to average
net assets (after waiver) ............... 3.37% 3.60% 3.15% 2.17%(1) 2.13% 2.75%
</TABLE>
(1) On an annualized basis
Tax-Exempt Fund
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
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
January 27, 1997, Merrill Lynch Premier Institutional Fund commenced operations
as a separate series of the Trust. 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 Premier Institutional, 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 value.
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 accretion of 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 Premier Institutional Fund, 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, 1997, Merrill Lynch Institutional
Tax-Exempt Fund reclassified amounts to reflect a decrease of $200 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
17
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Percentage of Average Daily Net Assets
------------------------------------------
Premier Institutional
Fund ............... .15%
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
During its initial offering period, FAM agreed to waive a portion of its
advisory fee for the Premier Institutional Fund. For the period ended April 30,
1997, the effective fee payable to FAM was 0.14% of the Fund's average daily
assets. FAM has agreed to waive a portion of its advisory fees for the
Institutional, Government, Treasury and Tax-Exempt Funds. 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, 1997, FAM waived a portion of its fees amounting
to $45,574 for the Premier Institutional Fund, $9,522,140 for the Institutional
Fund, $2,261,521 for the Government Fund, $846,551 for the Treasury Fund and
$2,072,889 for the Institutional Tax-Exempt Fund.
All officers and certain trustees of the Trust are affiliated with Merrill
Lynch & Co., Inc.
3. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest in the Premier Institutional Fund, Institutional
Fund, Government Fund and Treasury Fund ($.01 par value) and Institutional Tax-
Exempt Fund ($.10 par value) of a single class. At April 30, 1997, capital
paid-in aggregated $2,824,133,069 for Premier Institutional Fund, $6,201,308,027
for Institutional Fund, $2,017,817,815 for Government Fund, $611,790,184 for
Treasury Fund and $1,003,777,618 for Institutional Tax-Exempt Fund. Transactions
in shares at a constant net asset value of $1.00 per share were as follows:
Period
Ended April 30,
-----------------
Premier Institutional Fund 1997
- ------------------------------- -----------------
Shares sold .................. 12,237,737,259
Shares issued to shareholders
in reinvestment of dividends 32,118,561
---------------
Total ..................... 12,269,855,820
Shares redeemed ............ 9,445,822,751
---------------
Net increase ............... 2,824,033,069
===============
Prior to January 27, 1997 (commencement of operations) there were 100,000
shares of beneficial interest outstanding which were owned by FAM.
Year Ended April 30,
-----------------------------------
Institutional Fund 1997 1996
- ------------------------------- ------------------- ---------------
Shares sold .................. 67,124,483,921 81,859,341,129
Shares issued to shareholders
in reinvestment of dividends 323,268,144 360,863,781
--------------- ---------------
Total ..................... 67,447,752,065 82,220,204,910
Shares redeemed ............ 68,867,606,220 81,179,030,074
--------------- ---------------
Net increase (decrease) ... (1,419,854,155) 1,041,174,836
=============== ===============
Year Ended April 30,
--------------------------------
Government Fund 1997 1996
- ------------------------------- ---------------- ---------------
Shares sold .................. 13,658,666,165 11,319,796,312
Shares issued to shareholders
in reinvestment of dividends 92,067,429 86,908,080
--------------- ---------------
Total ..................... 13,750,733,594 11,406,704,392
Shares redeemed ............ 13,376,732,157 11,363,934,579
--------------- ---------------
Net increase ............... 374,001,437 42,769,813
=============== ===============
Year Ended April 30,
--------------------------------
Treasury Fund 1997 1996
- -------------------------------- --------------- --------------
Shares sold .................. 3,277,418,270 2,984,431,147
Shares issued to shareholders
in reinvestment of dividends 27,446,045 25,665,244
-------------- --------------
Total ..................... 3,304,864,315 3,010,096,391
Shares redeemed ............... 3,207,207,792 2,838,827,671
-------------- --------------
Net increase ............... 97,656,523 171,268,720
============== ==============
Tax-Exempt Fund
18
<PAGE>
- --------------------------------------------------------------------------------
Merrill Lynch Funds For Institutions Series
Notes to Financial Statements -- Continued
- --------------------------------------------------------------------------------
Year Ended April 30,
--------------------------------
Institutional
Tax-Exempt Fund 1997 1996
- ---------------------------------- --------------- --------------
Shares sold ..................... 5,129,231,992 3,532,959,162
Shares issued to shareholders
in reinvestment of dividends . 26,648,229 15,674,384
-------------- --------------
Total ........................ 5,155,880,221 3,548,633,546
Shares redeemed ............... 4,819,426,973 3,285,337,991
-------------- --------------
Net increase .................. 336,453,248 263,295,555
============== ==============
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 Premier Institutional,
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, 1997, the Institutional Tax-Exempt Fund had net capital loss
carryovers of $254,048 of which $96,488 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 $30,000 by the Trust. Trustees' fees are allocated among the five
series of the Trust based on the net assets under management.
Tax-Exempt Fund
19
<PAGE>
[This page intentionally left blank]
<PAGE>
APPENDIX A
This Appendix constitutes part of the Statements of Additional Information
of Merrill Lynch Premier Institutional Fund (the "Premier Institutional
Fund"), Merrill Lynch Institutional Fund (the "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 (61)--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 (67)--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. (67)--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 (57)--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 (56)--Trustee(1)(2)(4)--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. (66)--Trustee(2)--107 John Street, 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);
and Thoratec Laboratories Corporation (medical device manufacturer).
W. Carl Kester (45)--Trustee(2)--Harvard Business School, Morgan Hall 393,
Soldiers Field, Boston, Massachusetts 02163. James R. Williston Professor of
Business Administration of Harvard University Graduate School of Business
since 1997, having been 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 (64)--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>
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 (38)--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 (41)--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. (49)--Senior Vice President(2)(4)--Senior Vice
President and Department Head of the Global Fixed Income Division of the
Investment Adviser and associated therewith since 1977; Senior Vice President
of Princeton Services since 1993.
William Wasel (38)--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 (42)--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 (33)--Vice President(2)(3)--Employee of MLFD since 1982.
Donald C. Burke (37)--Vice President(2)(4)--Vice President and Director of
Taxation of MLAM since 1990.
Ann Catlin (36)--Vice President(2)(3)--Employee of MLFD since 1986.
Diana Frankland (62)--Vice President(2)(3)--Employee of MLFD since 1979.
Vincent R. Giordano (52)--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 (38)--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 (40)--Vice President(2)(3)--Vice President of MLAM since
1985.
Kevin Schiatta (42)--Vice President(2)(4)--Vice President of MLAM since
1985.
Gerald M. Richard (48)--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 (37)--Senior Vice President(2)(3)--Assistant Vice President
of MLFD since 1990.
John Ng (43)--Vice President(2)(4)--Vice President of MLAM since 1984;
Assistant Vice President of MLAM from 1981 to 1984.
A-2
<PAGE>
Barry F.X. Smith (32)--Senior Vice President(2)(3)--Employee of MLFD since
1987.
Dianne McDonough (36)--Vice President(2)(3)--Employee of MLFD since 1983.
Eric P. Lareau (28)--Vice President(2)(3)--Employee of MLFD since 1992.
Ira P. Shapiro (34)--Secretary(1)(2)(4)--Vice President of MLAM since 1997
and attorney associated with the Investment Adviser and MLAM since 1993. Prior
to 1993, Mr. Shapiro was an attorney in private practice.
Patricia A. Schena (39)--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, 1997,
compensation paid by the Trust to the disinterested Trustees and for the
calendar year ended December 31, 1996, the aggregate compensation paid by all
investment companies advised by the Investment Adviser and its affiliate, MLAM
("MLAM/FAM Advised Funds"), to the disinterested 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 Bracken-
ridge(1)............... $25,500 None $30,000
Charles C. Cabot,
Jr.(1)................. $25,500 None $30,000
James T. Flynn(1)....... $19,500 None $15,000
George W. Holbrook,
Jr.(1)................. $25,500 None $30,000
W. Carl Kester(1)....... $25,500 None $30,000
</TABLE>
- --------
(1) In addition to the Fund, the Trustees serve on other FAM/MLAM Advised
Funds as follows: Mr. Breckenridge (2) registered investment companies
consisting of (6) portfolios; Mr. Cabot (2) registered investment
companies consisting of (6) portfolios; Mr. Flynn (2) registered
investment companies consisting of (6) portfolios; Mr. Holbrook (2)
registered investing companies consisting of (6) portfolios; and Mr.
Kester (2) registered investment companies consisting of (6) portfolios.
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.
A-3
<PAGE>
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 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 July 15, 1997 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 July 15, 1997, the following were the only shareholders of record of
5% or more of the outstanding shares of any Fund; Panamsat Corporation,
Attention: Bill Raftery, 1 Pickwick Plaza, Greenwich, Connecticut 06830-5551,
which held 278,085,893.72 shares or 9.00% of Merrill Lynch Premier
Institutional Fund; Hotel Property Investments Inc., Attention: Steve Cotter,
Marriott Drive Dept. 52-924 11, Washington, DC 20058, which held
200,121,803.80 shares or 6.48% of Merrill Lynch Premier Institutional Fund;
Mid-America Waste Systems Inc., Attention: Donald Barry, 1006 West Walnut
Street, Canal Winchester, Ohio 43110-9757, which held 145,417,378.86 shares or
7.90% of Merrill Lynch Government Fund; SSE Holdings Inc., Attention: Donald
Miller, 115 W. College Drive, Marshall, Minnesota 562568-1747, which held
49,604,627.85 shares or 7.25% of Merrill Lynch Treasury Fund; Tel-Save
Holdings Inc., Attention: Joseph A. Schenk, 6805 Route 202, New Hope,
Pennsylvania 18938, which held 40,331,261.37 shares or 5.90% of Merrill Lynch
Treasury Fund; and Walmart Stores Inc., Attention: Elizabeth Branigan, Finance
Department, 702 S.W. Eight Street, Bentonville, Arkansas 72716-6299, which
held 200,000,000.00 shares or 14.93% of Merrill Lynch Institutional Tax-Exempt
Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser to each of the Funds is Fund Asset Management, L.P.
("FAM" or the "Investment Adviser"), 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.
("MLFD") 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.
A-4
<PAGE>
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:
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY NET ASSETS
--------------------------------------
<C> <S>
Premier Institutional Fund......... .15%
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
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
</TABLE>
Premier Institutional Fund. During its initial offering period, FAM agreed to
waive a portion of its advisory fee for the Premier Institutional Fund. For the
period beginning January 27, 1997 (commencement of operations) to April 30,
1997, the effective fee payable to FAM was .14% 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 period beginning January 27, 1997 (commencement of
operations) to April 30, 1997, the total advisory fees payable by the Premier
Institutional Fund to the Investment Adviser aggregated $1,053,985. The
Investment Adviser voluntarily waived $45,574 of the advisory fees payable for
the period beginning January 27, 1997 (commencement of operations) to April 30,
1997.
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, 1997, April 30, 1996 and April 30, 1995, the total
advisory fees payable by the Institutional Fund to the Investment Adviser
aggregated $24,155,920, $26,191,407 and $16,621,425, respectively. The
Investment Adviser voluntarily waived $9,522,140, $10,263,924 and $6,623,625 of
the advisory fees payable for the fiscal years ended April 30, 1997, April 30,
1996 and April 30, 1995, 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 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, 1997, April 30, 1996 and April 30, 1995,
the total advisory fees payable by the Government Fund to the Investment
Adviser aggregated $6,007,440, $5,423,149 and $4,718,056, respectively. The
Investment Adviser voluntarily waived $2,261,521, $2,066,757 and $1,831,019 of
the advisory fees payable for the fiscal years ended April 30, 1997, April 30,
1996 and April 30, 1995, 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 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
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April 30, 1997, April 30, 1996 and April 30, 1995, the total advisory fees
payable by the Treasury Fund to the Investment Adviser aggregated $1,991,236,
$1,792,930 and $1,104,980, respectively. The Investment Adviser voluntarily
waived $846,551, $765,429 and $473,563 of the advisory fees payable for the
fiscal years ended April 30, 1997, April 30, 1996 and April 30, 1995,
respectively.
Tax-Exempt Fund. Effective December 1, 1993, FAM 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 daily 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, 1997, April 30, 1996 and April 30, 1995, the
total advisory fees payable by the Tax-Exempt Fund to the Investment Adviser
aggregated $3,731,200, $2,109,495 and $1,515,253, respectively. The Investment
Adviser voluntarily waived $2,072,889, $1,171,941 and $841,807 of the advisory
fees payable for the fiscal years ended April 30, 1997, April 30, 1996 and
April 30, 1995, respectively.
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 (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 each Distribution Agreement, the Distributor will pay certain
of the expenses incurred in connection with the offering of shares of the
respective 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 a Fund 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.
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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 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 Premier Institutional Fund, 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 Premier Institutional Fund,
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 Premier Institutional Fund, 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
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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.
Premier Institutional Fund. For the period beginning January 27, 1997
(commencement of operations) to April 30, 1997, the Premier Institutional Fund
engaged in no such transactions.
Institutional Fund. During the fiscal year ended April 30, 1997, the
Institutional Fund engaged in 94 such transactions involving approximately
$4.5 billion. During the fiscal year ended April 30, 1996, the Institutional
Fund engaged in 118 such transactions involving approximately $5.6 billion.
Government Fund. During the fiscal year ended April 30, 1997, the Government
Fund engaged in 24 such transactions involving approximately $720.2 million.
During the fiscal year ended April 30, 1996, the Government Fund engaged in 19
such transactions involving approximately $511.2 million.
Treasury Fund. During the fiscal year ended April 30, 1997, the Treasury
Fund engaged in no such transactions. During the fiscal year ended April 30,
1996, the Treasury Fund engaged in three such transactions involving
approximately $50 million.
Tax-Exempt Fund. During the fiscal year ended April 30, 1997, the Tax-Exempt
Fund engaged in one principal transactions with Merrill Lynch involving
approximately $10.6 million. During the fiscal year ended April 30, 1996, the
Tax-Exempt Fund engaged in five principal transactions with Merrill Lynch
involving approximately $23 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 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
The net asset value of the Premier Institutional Fund, 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. Securities held by the Premier Institutional Fund, Institutional Fund,
Government Fund and Treasury Fund with a remaining maturity of 60 days or less
will be valued on an
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amortized cost basis, and securities with a remaining maturity of greater than
60 days for which market quotations are readily available are valued on a
current market basis. Other securities held by the Premier Institutional Fund,
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.
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 Premier
Institutional Fund, 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-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.
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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, (namely, New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day), 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 Premier Institutional
Fund, Institutional Fund and Government 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 Premier Institutional
Fund, 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
Premier Institutional Fund, the Institutional Fund or the Government Fund and
prior to the close of the Federal Funds Wire and prior to the close (including
early closing of trading) on the Exchange, the order will become effective
that day; however, dividends will be earned on the next business day that the
Fund's Custodian is open for business.
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.
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.
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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.
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.
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Premier Institutional Fund, Institutional Fund, Government Fund and Treasury
Fund. Dividends will be taxable to shareholders of the Premier Institutional
Fund, 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 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
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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.
DISTRIBUTOR
The Trust has entered into a Distribution Agreement with respect to each
Fund (the "Distribution Agreements") with Merrill Lynch Funds Distributor,
Inc. ("MLFD"), 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
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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 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 9, 1997. 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.
A-14
<PAGE>
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.
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.
A-15
<PAGE>
[This page intentionally left blank]
<PAGE>
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 Tax-Exempt 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 Tax-Exempt Fund may demand payment from
the issuer at par value plus accrued interest on short notice (typically three
to seven days). In addition, the Tax-Exempt 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 Tax-Exempt Fund to achieve its
investment objective is also dependent on the continuing ability of the
issuers of the Tax-Exempt Securities in which the Tax-Exempt 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 of 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.
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"
B-1
<PAGE>
dividends would be adversely affected and the Tax-Exempt 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 Tax-Exempt 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 Tax-Exempt 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 Tax-Exempt 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 Tax-Exempt 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 Tax-Exempt 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 Tax-Exempt
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
As described under "Investment Objectives and Policies" in the Statement of
Additional Information, the Tax-Exempt Fund reserves the right to engage in
put transactions. Set forth below is a description of certain characteristics
of the put transactions the Tax-Exempt Fund is permitted to enter into.
The right to put the securities to a counterparty depends on the
counterparty's ability to pay for the securities at the time the put is
exercised. The Tax-Exempt 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 and to
continue to monitor the financial strength of counterparties because adequate
current financial information may not be available. In the event that any
counterparty is unable to honor a put for financial reasons, the Tax-Exempt
Fund would be a general creditor (i.e., on a parity with all other unsecured
creditors) of the counterparty. Furthermore, particular provisions of the
contract between the Tax-Exempt Fund and the
B-2
<PAGE>
counterparty may excuse the counterparty 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 Tax-Exempt 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 Tax-
Exempt 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 also should be noted that while the market for put options in tax-exempt
securities to sellers of Tax-Exempt securities has developed over time, 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
Tax-Exempt 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 Tax-Exempt 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 Tax-Exempt 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 Tax-Exempt
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 Tax-Exempt 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.
B-3
<PAGE>
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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 REPRESEN-
TATIONS, OTHER THAN THOSE CONTAINED IN THE PROSPECTUSES AND IN THESE STATEMENTS
OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFER MADE BY THE PROSPECTUS-
ES, 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 OF-
FER TO BUY MAY NOT LAWFULLY BE MADE.
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH 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 PREMIER INSTITUTIONAL FUND
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND
MERRILL LYNCH PREMIER INSTITU-
TIONAL FUND, MERRILL LYNCH INSTI-
TUTIONAL FUND, MERRILL LYNCH GOV-
ERNMENT FUND, MERRILL LYNCH TREA-
SURY FUND AND MERRILL LYNCH IN-
STITUTIONAL TAX-EXEMPT FUND ARE
SEPARATE SERIES OF MERRILL LYNCH
FUNDS FOR INSTITUTIONS SERIES,
WHICH IS ORGANIZED AS A MASSACHU-
SETTS BUSINESS TRUST. NONE OF THE
FUNDS IS A BANK, NOR DOES IT OF-
FER FIDUCIARY OR TRUST SERVICES.
SHARES OF THE FUNDS ARE NOT
EQUIVALENT TO A BANK ACCOUNT.
WHILE THE FUNDS ATTEMPT TO MAIN-
TAIN 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 GUARAN-
TEED BY ANY GOVERNMENT AGENCY AND
ARE NOT SUBJECT TO THE PROTECTION
OF THE SECURITIES INVESTOR PRO-
TECTION CORPORATION.
July 29, 1997
Distributor
Merrill Lynch
Funds Distributor, Inc.
These Statements of Additional Information should be retained for future
reference.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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:
--Premier Institutional Fund for the period January 27, 1997
(commencement of operations) to April 30, 1997
--Institutional Fund-for the ten year period ended April 30, 1997
--Government Fund-for the ten year period ended April 30, 1997
--Treasury Fund-for the period December 18, 1989 (commencement of
operations) through April 30, 1997
--Tax-Exempt Fund-for the ten year period ended April 30, 1997
Contained in Part B:
--Schedules of Investments for Premier Institutional Fund,
Institutional Fund, Government Fund, Treasury Fund and Tax-Exempt
Fund as of April 30, 1997
--Statements of Assets and Liabilities for Premier Institutional
Fund, Institutional Fund, Government Fund, Treasury Fund and Tax-
Exempt Fund as of April 30, 1997
--Statements of Operations for Institutional Fund, Government Fund,
Treasury Fund and Tax-Exempt Fund, for the year ended April 30,
1997
--Statement of Operations for Premier Institutional Fund for the
period January 27, 1997 (commencement of operations) to April 30,
1997
--Statements of Changes in Net Assets for Institutional Fund,
Government Fund, Treasury Fund and Tax-Exempt Fund, for the two
years ended April 30, 1997
--Statement of Changes in Net Assets for Premier Institutional for
the period January 27, 1997 (commencement of operations) to April
30, 1997
--Financial Highlights for Premier Institutional Fund for the period
January 27, 1997 (commencement of operations) to April 30, 1997
--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, 1997
--Notes to Financial Statements
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 on Form N-1A (File No. 33-14190))
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 9, 1996 (incorporated by reference to Exhibit
1(d) to Post-Effective Amendment No. 15 to Registrant's Registration
Statement Form N-1A (File No. 33-14190))
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 (incorporated by reference to Exhibit 5(e) to
Post-Effective Amendment No. 15 to Registrant's Registration
Statement on Form N-1A (File No. 33-14190))
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))
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
6(f) --Distribution Agreement for Merrill Lynch Premier Institutional Fund
(incorporated by reference to Exhibit 6(f) to Post-Effective
Amendment No. 15 to Registrant's Registration Statement on Form N-1A
(File No. 33-14190))
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 20, 1997).
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))
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
16 --None
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))
18(a) Financial Data Schedule for shares of the Merrill Lynch Premier
Institutional Fund
18(b) Financial Data Schedule for shares of the Merrill Lynch Institutional
Fund
18(c) Financial Data Schedule for shares of the Merrill Lynch Government
Fund
18(d) Financial Data Schedule for shares of the Merrill Lynch Treasury Fund
18(e) Financial Data Schedule for shares of the Merrill Lynch Tax-Exempt
Fund
</TABLE>
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 JULY 21, 1997
-------------- -------------
<S> <C>
Shares of beneficial interest of Merrill Lynch Premier In-
stitutional Fund, par value $0.01 per share.............. 210
Shares of beneficial interest of Merrill Lynch Institu-
tional Fund, par value $0.01 per share................... 44,712
Shares of beneficial interest of Merrill Lynch Government
Fund, par value $0.01 per share.......................... 14,031
Shares of beneficial interest of Merrill Lynch Treasury
Fund, par value $0.01 per share.......................... 1,744
Shares of beneficial interest of Merrill Lynch Institu-
tional Tax-Exempt Fund, par value $0.10 per share........ 8,445
</TABLE>
Note: The number of holders shown in the table 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
C-4
<PAGE>
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. ("FAM" or the "Investment Adviser"), acts as the
investment adviser for the following other open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., Financial Institutions Series
Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc, Merrill Lynch
Emerging Tigers 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 registered investment companies:
Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc.,
MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., 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" or the "Investment Adviser"),
an affiliate of FAM, acts as investment adviser for the following open-end
registered investment companies: Merrill Lynch Adjustable
C-5
<PAGE>
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 Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch 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., Merrill Lynch Variable Series Fund, Inc. and Hotchkis and Wiley Funds
(advised by Hotchkis and Wiley, a division of MLAM), and the following closed-
end registered 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 is One Financial Center, Boston, Massachusetts,
02111. The address of the Investment Adviser, MLAM, Princeton Services, Inc.
("Princeton Services") and Princeton Administrator, L.P. is also P.O. Box
9011, Princeton, NJ 08543-9011. The address of Merrill Lynch Funds
Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281-1209. The address of
Merrill Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Deer Lake Drvie
East, Jacksonville, Florida 32246-6484.
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
---- ------------------ ----------------------------------
<C> <C> <S>
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 General Partner General Partner of MLAM
Services").............
Arthur Zeikel........... President and President of MLAM; President and
Director Director of Princeton Services;
Executive Vice President of ML &
Co. and Merrill Lynch; Director of
MLFD
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------ ----------------------------------
<C> <C> <S>
Terry K. Glenn.......... Executive Vice Executive Vice President of MLAM;
President Executive Vice President and
and Director Director of Princeton Services;
President and Director of MLFD;
Director of Merrill Lynch
Financial Data Services, Inc.
("MLFDS"); 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
Philip L. Kirstein...... Senior Vice Senior Vice President, General
President, General Counsel, and Secretary of MLAM;
Counsel, Senior Vice President, General
and Secretary Counsel, Director and Secretary of
Princeton Services; Director of
MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and
and Controller Controller of 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 Senior Vice President and Treasurer
and Treasurer of 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>
C-7
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each of
the open-end registered investment companies referred to in the first two
paragraphs of Item 28 except CBA Money Fund, CMA Government Securities Fund,
CMA Treasury Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, The Corporate Fund Accumulation Program, Inc., and The
Municipal Fund Accumulation Program, Inc. MLFD also acts as principal
underwriter for the following registered closed-end funds: Merrill Lynch High
Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc.
and Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
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 and Wasel 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
Michael G. Clark........ Vice President None
Gerald M. Richard....... Vice President and Treasurer Vice President
Michelle T. Lau......... Vice President None
Salvatore Venezia....... 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- Vice President None
Yaros..................
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-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS 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 29TH DAY OF JULY, 1997.
Merrill Lynch Funds For Institutions
Series
/s/ Robert W. Crook
By: _________________________________
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.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Robert W. Crook President and
- ------------------------------------- Trustee (Principal July 29, 1997
ROBERT W. CROOK Executive Officer)
/s/ William M. Breen Chief Financial
- ------------------------------------- Officer (Principal July 29, 1997
WILLIAM M. BREEN Financial and
Accounting 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
/s/ Robert W. Crook
*By: ________________________________ July 29, 1997
ROBERT W. CROOK ATTORNEY-IN-FACT
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
11 --Consent of Independent Auditors
18(a) --Financial Data Schedule for shares of the Merrill Lynch
Premier Institutional Fund
(b) --Financial Data Schedule for shares of the Merrill Lynch
Institutional Fund
(c) --Financial Data Schedule for shares of the Merrill Lynch
Government Fund
(d) --Financial Data Schedule for shares of the Merrill Lynch
Treasury Fund
(e) --Financial Data Schedule for shares of the Merrill Lynch
Tax-Exempt Fund
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> MERRILL LYNCH PREMIER INSTITUTIONAL FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> JAN-27-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 2830141518
<INVESTMENTS-AT-VALUE> 2829204704
<RECEIVABLES> 6718859
<ASSETS-OTHER> 3656656
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2839580219
<PAYABLE-FOR-SECURITIES> 14992710
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1391254
<TOTAL-LIABILITIES> 16383964
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2824133069
<SHARES-COMMON-STOCK> 2824133069
<SHARES-COMMON-PRIOR> 100000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (936814)
<NET-ASSETS> 2823196255
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38920898
<OTHER-INCOME> 0
<EXPENSES-NET> 1212388
<NET-INVESTMENT-INCOME> 37708510
<REALIZED-GAINS-CURRENT> 248533
<APPREC-INCREASE-CURRENT> (936814)
<NET-CHANGE-FROM-OPS> 37020229
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 37957043
<DISTRIBUTIONS-OF-GAINS> 256145
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12237737259
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<SHARES-REINVESTED> 32118561
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<GROSS-EXPENSE> 1257962
<AVERAGE-NET-ASSETS> 2728401100
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .014
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .014
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> MERRILL LYNCH INSTITUTIONAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-1-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 6202451421
<INVESTMENTS-AT-VALUE> 6199021333
<RECEIVABLES> 22916889
<ASSETS-OTHER> 5989783
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6227928005
<PAYABLE-FOR-SECURITIES> 25987364
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4062702
<TOTAL-LIABILITIES> 30050066
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6201308027
<SHARES-COMMON-STOCK> 6201308027
<SHARES-COMMON-PRIOR> 7621162182
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3430088)
<NET-ASSETS> 6197877939
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 398767235
<OTHER-INCOME> 0
<EXPENSES-NET> 18116709
<NET-INVESTMENT-INCOME> 380650526
<REALIZED-GAINS-CURRENT> 874595
<APPREC-INCREASE-CURRENT> 2606218
<NET-CHANGE-FROM-OPS> 384131339
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 381525121
<DISTRIBUTIONS-OF-GAINS> 1879626
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 67124483921
<NUMBER-OF-SHARES-REDEEMED> 68867606220
<SHARES-REINVESTED> 323268144
<NET-CHANGE-IN-ASSETS> (1419854155)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27638849
<AVERAGE-NET-ASSETS> 7316889818
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .052
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .052
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> MERRILL LYNCH GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-1-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 2005937523
<INVESTMENTS-AT-VALUE> 2005518655
<RECEIVABLES> 8857367
<ASSETS-OTHER> 3713603
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2018089625
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 690678
<TOTAL-LIABILITIES> 690678
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2017817815
<SHARES-COMMON-STOCK> 2017817815
<SHARES-COMMON-PRIOR> 1643816378
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (418868)
<NET-ASSETS> 2017398947
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 102019279
<OTHER-INCOME> 0
<EXPENSES-NET> 4784010
<NET-INVESTMENT-INCOME> 97235269
<REALIZED-GAINS-CURRENT> 199811
<APPREC-INCREASE-CURRENT> (227150)
<NET-CHANGE-FROM-OPS> 97207930
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 97435080
<DISTRIBUTIONS-OF-GAINS> 301356
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13658666165
<NUMBER-OF-SHARES-REDEEMED> 13376732157
<SHARES-REINVESTED> 92067429
<NET-CHANGE-IN-ASSETS> 374001437
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6007440
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7045531
<AVERAGE-NET-ASSETS> 1872959453
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .052
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .052
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> MERRILL LYNCH TREASURY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-1-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 604190368
<INVESTMENTS-AT-VALUE> 604244042
<RECEIVABLES> 6834954
<ASSETS-OTHER> 952069
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 612031065
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187207
<TOTAL-LIABILITIES> 187207
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 611790184
<SHARES-COMMON-STOCK> 611790184
<SHARES-COMMON-PRIOR> 514133661
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53674
<NET-ASSETS> 611843858
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29856444
<OTHER-INCOME> 0
<EXPENSES-NET> 1537890
<NET-INVESTMENT-INCOME> 28318554
<REALIZED-GAINS-CURRENT> 209801
<APPREC-INCREASE-CURRENT> 63854
<NET-CHANGE-FROM-OPS> 28592209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 28528355
<DISTRIBUTIONS-OF-GAINS> 249614
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3277418270
<NUMBER-OF-SHARES-REDEEMED> 3207207792
<SHARES-REINVESTED> 27446045
<NET-CHANGE-IN-ASSETS> 97656523
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1991236
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2384441
<AVERAGE-NET-ASSETS> 572342403
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .049
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .049
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .027
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-1-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 998272459
<INVESTMENTS-AT-VALUE> 998282459
<RECEIVABLES> 8832391
<ASSETS-OTHER> 1798833
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1008903683
<PAYABLE-FOR-SECURITIES> 5013782
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 234415
<TOTAL-LIABILITIES> 5248197
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1003777618
<SHARES-COMMON-STOCK> 1003777618
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</TABLE>
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 16 to Registration
Statement No. 33-14190 of Merrill Lynch Funds For Institutions Series of our
report dated May 28, 1997 appearing in the Statements of Additional
Information of Merrill Lynch Premier Institutional Fund, 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 Premier Institutional Fund, 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
July 28, 1997
