<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE , 1999
SECURITIES ACT FILE NO. 33-14190
INVESTMENT COMPANY ACT FILE NO. 811-5149
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 19 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 21 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------------
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------------
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(617) 357-1460
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------------
ROBERT W. CROOK
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
COUNSEL FOR THE FUND: MICHAEL J. HENNEWINKEL, ESQ.
ROGERS & WELLS LLP FUND ASSET MANAGEMENT, L.P.
200 PARK AVENUE P.O. BOX 9011
NEW YORK, NEW YORK 10166 PRINCETON, NEW JERSEY
ATTENTION: LEONARD B. MACKEY, JR., 08543-9011
ESQ.
------------------------
<TABLE>
<C> <S>
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a previously filed
post-effective amendment.
</TABLE>
------------------------
SECURITIES REGISTERED
Shares of beneficial interest of Merrill Lynch Premier Institutional Fund;
shares of beneficial interest of Merrill Lynch Institutional Fund; shares of
beneficial interest of Merrill Lynch Rated Institutional Fund; shares of
beneficial interest of Merrill Lynch Government Fund; shares of beneficial
interest of Merrill Lynch Treasury Fund; shares of beneficial interest of
Merrill Lynch Institutional Tax-Exempt Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not use this prospectus to sell securities until the registration statement
containing this prospectus, which has been filed with the Securities and
Exchange Commission, is effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
[LOGO]
PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE , 1999
Merrill Lynch Premier Institutional Fund
Merrill Lynch Institutional Fund
Merrill Lynch Rated Institutional Fund
Merrill Lynch Government Fund
Merrill Lynch Treasury Fund
Merrill Lynch Institutional Tax-Exempt Fund
August , 1999
This Prospectus contains information you should know
before investing, including information about risks.
Please read it before you invest and keep it for
future reference.
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
PAGE
<TABLE>
<S> <C>
[ICON] KEY FACTS
------------------------------------------------------
Merrill Lynch Premier Institutional Fund at a
Glance ............................................. 4
Risk/Return Bar Chart for Merrill Lynch Premier
Institutional Fund ................................. 5
Fees and Expenses for Merrill Lynch Premier
Institutional Fund ................................. 6
Merrill Lynch Institutional Fund at a Glance ....... 7
Risk/Return Bar Chart for Merrill Lynch Institutional
Fund ............................................... 8
Fees and Expenses for Merrill Lynch Institutional
Fund ............................................... 9
Merrill Lynch Rated Institutional Fund at a
Glance ............................................ 10
Risk/Return Bar Chart for Merrill Lynch Rated
Institutional Fund ................................ 11
Fees and Expenses for Merrill Lynch Rated
Institutional Fund ................................ 12
Merrill Lynch Government Fund at a Glance ......... 13
Risk/Return Bar Chart for Merrill Lynch Government
Fund .............................................. 14
Fees and Expenses for Merrill Lynch Government
Fund .............................................. 15
Merrill Lynch Treasury Fund at a Glance ........... 16
Risk/Return Bar Chart for Merrill Lynch Treasury
Fund .............................................. 17
Fees and Expenses for Merrill Lynch Treasury
Fund .............................................. 18
Merrill Lynch Institutional Tax-Exempt Fund at a
Glance ............................................ 19
Risk/Return Bar Chart for Merrill Lynch Institutional
Tax-Exempt Fund ................................... 21
Fees and Expenses for Merrill Lynch Institutional
Tax-Exempt Fund ................................... 22
[ICON] DETAILS ABOUT THE FUNDS
------------------------------------------------------
How Each Fund Invests ............................. 23
Merrill Lynch Premier Institutional Fund .......... 23
Merrill Lynch Institutional Fund .................. 23
Merrill Lynch Rated Institutional Fund ............ 23
Merrill Lynch Government Fund ..................... 25
Merrill Lynch Treasury Fund ....................... 26
Merrill Lynch Institutional Tax-Exempt Fund ....... 27
Investment Risks .................................. 28
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
<TABLE>
<S> <C>
Additional Risks of Merrill Lynch Premier
Institutional Fund, Merrill Lynch
Institutional Fund, Merrill Lynch Rated
Institutional Fund and Merrill Lynch
Government Fund ................................. 29
Additional Risks of Merrill Lynch Institutional
Tax-Exempt Fund ................................... 30
[ICON] YOUR ACCOUNT
------------------------------------------------------
How to Buy, Sell and Transfer Shares .............. 32
How Shares are Priced ............................. 40
Dividends and Taxes ............................... 41
[ICON] MANAGEMENT OF THE FUNDS
------------------------------------------------------
Fund Asset Management ............................. 43
Financial Highlights for Merrill Lynch Premier
Institutional Money Fund .......................... 44
Financial Highlights for Merrill Lynch Institutional
Fund .............................................. 45
Financial Highlights for Merrill Lynch Rated
Institutional Fund ................................ 46
Financial Highlights for Merrill Lynch Government
Fund .............................................. 47
Financial Highlights for Merrill Lynch Treasury
Fund .............................................. 48
Financial Highlights for Merrill Lynch Institutional
Tax-Exempt Fund ................................... 49
[ICON] FOR MORE INFORMATION
------------------------------------------------------
Shareholder Reports ....................... Back Cover
Statement of Additional Information ....... Back Cover
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
[ICON] KEY FACTS
In an effort to help you better understand the many concepts involved in making
an investment decision, we have defined the highlighted terms in this prospectus
in the sidebar.
U.S. GOVERNMENT SECURITIES -- obligations that are issued or have their
principal and interest guaranteed by the U.S. government and are backed by the
full faith and credit of the United States.
REPURCHASE AGREEMENTS -- agreements where another party sells securities to the
Fund and at the same time agrees to repurchase the securities at a particular
time and price.
FOREIGN BANK OBLIGATIONS -- debt securities issued by foreign depository
institutions and their foreign branches and subsidiaries.
MERRILL LYNCH PREMIER INSTITUTIONAL FUND AT A
GLANCE
--------------------------------------------------
WHAT ARE THE FUND'S STATED INVESTMENT OBJECTIVES?
The Fund is a no-load fund whose objectives are
maximum current income consistent with liquidity
and the maintenance of a portfolio of high quality
short term money market securities.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund tries to achieve its objectives by
investing in a diversified portfolio of U.S.
dollar denominated money market securities. These
securities consist primarily of short term U.S.
GOVERNMENT SECURITIES, U.S. Government agency
securities, bank obligations, commercial paper and
REPURCHASE AGREEMENTS. The Fund may also invest in
domestic bank obligations and FOREIGN BANK
OBLIGATIONS and other short term debt securities
issued by U.S. and foreign entities.
Fund management decides which of these securities
to buy and sell based on its assessment of the
relative values of different securities and future
interest rates. Fund management seeks to improve
the Fund's yield by taking advantage of
differences in yield that regularly occur between
securities of a similar kind. We cannot guarantee
that the Fund will achieve its objectives.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
WHO SHOULD INVEST?
The minimum purchase amount for the Merrill Lynch
Premier Institutional Fund is $10,000,000 per
account. The Fund may be an appropriate investment
for an institution that:
- Is looking for current income and
liquidity.
- Is looking for preservation of capital.
- Is investing with short term goals in
mind, such as for cash reserves.
4 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
RISK/RETURN BAR CHART FOR MERRILL LYNCH
PREMIER
INSTITUTIONAL FUND
--------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
the past ten calendar years. The table shows the average annual total returns of
the Fund for the periods shown. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1997* 5.64%
1998 5.56%
</TABLE>
*Total Return (annualized) Jan. 27, 1997 (commencement of operations) to Dec.
31, 1997.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST PAST PAST
(AS OF THE CALENDAR YEAR ENDED) ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
- ------------------------------------------------------------------------
Merrill Lynch Premier
Institutional Fund 5.56% --% --%
- ------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 5
<PAGE>
[ICON] KEY FACTS
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER (THESE COSTS ARE DEDUCTED FROM THE
FUND'S TOTAL ASSETS).
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
INVESTMENT ADVISORY FEE -- a fee paid to the Investment Adviser for managing the
Fund.
FEES AND EXPENSES FOR MERRILL LYNCH PREMIER
INSTITUTIONAL FUND
- --------------------------------------------------------------------
This table shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than those
indicated below.
<TABLE>
<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 FEE .15%
- --------------------------------------------------------------------
Other Expenses .03%
- --------------------------------------------------------------------
Total Fund Operating Expenses .18%
- --------------------------------------------------------------------
</TABLE>
EXAMPLE:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Merrill Lynch
Premier
Institutional
Fund $18 $58 $102 $230
- ----------------------------------------------------------
</TABLE>
6 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
U.S. GOVERNMENT SECURITIES -- obligations that are issued or have their
principal and interest guaranteed by the U.S. government and are backed by the
full faith and credit of the United States.
REPURCHASE AGREEMENTS -- agreements where another party sells securities to the
Fund and at the same time agrees to repurchase the securities at a particular
time and price.
FOREIGN BANK OBLIGATIONS -- Debt securities issued by foreign depository
institutions and their foreign branches and subsidiaries.
MERRILL LYNCH INSTITUTIONAL FUND AT A GLANCE
--------------------------------------------------
WHAT ARE THE FUND'S STATED INVESTMENT OBJECTIVES?
The Fund is a no-load fund whose objectives are
maximum current income consistent with liquidity
and the maintenance of a portfolio of high quality
short-term money market securities.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund tries to achieve its goals by investing
in a diversified portfolio of U.S. dollar
denominated money market securities. These
securities primarily consist of short term U.S.
GOVERNMENT SECURITIES, U.S. Government agency
securities, bank obligations, commercial paper and
REPURCHASE AGREEMENTS. The Fund may also invest in
domestic bank obligations and FOREIGN BANK
OBLIGATIONS and other short term debt securities
issued by U.S. and foreign entities.
Fund management decides which of these securities
to buy and sell based on its assessment of the
relative values of different securities and future
interest rates. Fund management seeks to improve
the Fund's yield by taking advantage of
differences in yield that regularly occur between
securities of a similar kind. We cannot guarantee
that the Fund will achieve its objectives.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
WHO SHOULD INVEST?
The minimum initial purchase amount for the
Merrill Lynch Institutional Fund is $25,000 per
account. The Fund may be an appropriate investment
for an institution that:
- Is looking for current income and
liquidity.
- Is looking for preservation of capital.
- Is investing with short term goals in
mind, such as for cash reserves.
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 7
<PAGE>
[ICON] KEY FACTS
RISK/RETURN BAR CHART FOR MERRILL LYNCH
INSTITUTIONAL FUND
--------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
the past ten calendar years. The table shows the average annual total returns of
the Fund for the periods shown. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 9.16%
1990 8.14%
1991 6.00%
1992 3.74%
1993 3.19%
1994 4.19%
1995 5.99%
1996 5.39%
1997 5.50%
1998 5.47%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST PAST PAST
(AS OF THE CALENDAR YEAR ENDED) ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Merrill Lynch Institutional Fund 5.47% 5.31% 5.66%
</TABLE>
8 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER (THESE COSTS ARE
DEDUCTED FROM THE FUND'S
TOTAL ASSETS).
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
INVESTMENT ADVISORY FEE -- a fee paid to the Investment Adviser for managing the
Fund.
FEES AND EXPENSES FOR MERRILL LYNCH INSTITUTIONAL FUND
- --------------------------------------------------------------------
This table shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than those
indicated below.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases None
- -------------------------------------------------------------------
Deferred Sales Charge None
- -------------------------------------------------------------------
Sales Charge Imposed on Dividend Reinvestments None
- -------------------------------------------------------------------
Redemption Fee None
- -------------------------------------------------------------------
Exchange Fee None
- -------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- -------------------------------------------------------------------
INVESTMENT ADVISORY FEES .20%*
- -------------------------------------------------------------------
Other Expenses .04%
- -------------------------------------------------------------------
Total Fund Operating Expenses .24%*
- -------------------------------------------------------------------
</TABLE>
* The Fund's Investment Adviser has agreed to waive a portion of its fee so
that the effective annual fee is .20% of the Fund's 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:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Merrill Lynch
Institutional
Fund $25 $77 $135 $306
- ----------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 9
<PAGE>
[ICON] KEY FACTS
U.S. GOVERNMENT SECURITIES -- obligations that are issued or have their
principal and interest guaranteed by the U.S. government and are backed by the
full faith and credit of the United States.
REPURCHASE AGREEMENTS -- agreements where another party sells securities to the
Fund and at the same time agrees to repurchase the securities at a particular
time and price.
FOREIGN BANK OBLIGATIONS -- debt securities issued by foreign depository
institutions and their foreign branches and subsidiaries.
MERRILL LYNCH RATED INSTITUTIONAL FUND AT A GLANCE
--------------------------------------------------
WHAT ARE THE FUND'S STATED INVESTMENT OBJECTIVES?
The Fund is a no-load fund whose objectives are
maximum current income consistent with liquidity
and the maintenance of a portfolio of high quality
short term money market securities. The Fund will
maintain a rating from one or more nationally
recognized statistical rating organization (an
"NRSRO") that maintains ratings on money market
funds.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund tries to achieve its objectives by
investing in a diversified portfolio of U.S.
dollar denominated money market securities. These
securities primarily consist of short term U.S.
GOVERNMENT SECURITIES, U.S. Government agency
securities, bank obligations, commercial paper and
REPURCHASE AGREEMENTS. The Fund my also invest in
domestic bank obligations and FOREIGN BANK
OBLIGATIONS and other short term debt securities
issued by U.S. and foreign entities.
Fund management decides which of these securities
to buy and sell based on its assessment of the
relative values of different securities and future
interest rates. Fund management seeks to improve
the Fund's yield by taking advantage of
differences in yield that regularly occur between
securities of a similar kind. We cannot guarantee
that the Fund will achieve its objectives.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
WHO SHOULD INVEST?
The minimum purchase amount for the Merrill Lynch
Rated Institutional Fund is $1,000,000 per
account. The Fund may be an appropriate investment
for an institution that:
- Is looking for a fund that has a rating
from an NRSRO.
- Is looking for current income and
liquidity.
- Is looking for preservation of capital.
- Is investing with short term goals in
mind, such as for cash reserves.
10 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
RISK/RETURN BAR CHART FOR MERRILL LYNCH
RATED INSTITUTIONAL FUND
--------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
the past ten calendar years. The table shows the average annual total returns of
the Fund for the periods shown. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998* 5.35%
</TABLE>
*Total Return (annualized) June 15, 1998 (commencement of operations) to Dec.
31, 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST PAST PAST
(AS OF THE CALENDAR YEAR ENDED) ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
- ------------------------------------------------------------------------
Merrill Lynch Rated Institutional
Fund % % %
- ------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 11
<PAGE>
[ICON] KEY FACTS
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses which all mutual funds may
charge:
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER (THESE COSTS ARE DEDUCTED FROM THE
FUND'S TOTAL ASSETS).
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
INVESTMENT ADVISORY FEE -- a fee paid to the Investment Adviser for managing the
Fund.
FEES AND EXPENSES FOR MERRILL LYNCH RATED
INSTITUTIONAL FUND
- --------------------------------------------------------------------
This table shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than those
indicated below.
<TABLE>
<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 .16%
- ---------------------------------------------------------------------------
Other Expenses .07%
- ---------------------------------------------------------------------------
Total Fund Operating Expenses .23%
- ---------------------------------------------------------------------------
</TABLE>
EXAMPLE:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Merrill Lynch
Rated
Institutional
Fund $24 $74 $130 $293
- ----------------------------------------------------------
</TABLE>
12 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
U.S. GOVERNMENT SECURITIES -- obligations that are issued or have their
principal and interest guaranteed by the U.S. government and are backed by the
full faith and credit of the United States.
REPURCHASE AGREEMENTS -- agreements where another party sells securities to the
Fund and at the same time agrees to repurchase the securities at a particular
time and price.
FORWARD COMMITMENT -- the purchase of a security for delivery beyond normal
settlement periods.
MERRILL LYNCH GOVERNMENT FUND AT A GLANCE
--------------------------------------------------
WHAT IS THE FUND'S STATED INVESTMENT OBJECTIVE?
The Fund is a no-load 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund tries to achieve its objectives by
investing in U.S. GOVERNMENT SECURITIES, U.S.
Government agency securities, U.S. Government
sponsored enterprise securities and securities
guaranteed by the U.S. Government, U.S. Government
agencies, and U.S. Government sponsored
enterprises. These securities will have maturities
of up to 762 days (25 months). The Fund may enter
into REPURCHASE AGREEMENTS and FORWARD COMMITMENTS
to purchase securities. The Fund will also invest
in securities issued by international
organizations that are supported by the U.S.
Government, such as the International Bank for
Reconstruction and Development.
Fund management decides which of these securities
to buy and sell based on its assessment of the
relative values of different securities and future
interest rates. Fund management seeks to improve
the Fund's yield by taking advantage of
differences in yield that regularly occur between
securities of a similar kind. We cannot guarantee
that the Fund will achieve its objectives.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
WHO SHOULD INVEST?
The minimum initial purchase amount for the
Merrill Lynch Government Fund is $25,000 per
account. The Fund may be an appropriate investment
for an institution that:
- Is looking for current income and
liquidity.
- Is looking for preservation of capital.
- Is investing with short term goals in
mind, such as for cash reserves.
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 13
<PAGE>
[ICON] KEY FACTS
RISK/RETURN BAR CHART FOR MERRILL LYNCH
GOVERNMENT FUND
--------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
the past ten calendar years. The table shows the average annual total returns of
the Fund for the periods shown. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 8.88%
1990 7.88%
1991 5.83%
1992 3.54%
1993 2.99%
1994 4.09%
1995 5.87%
1996 5.31%
1997 5.45%
1998 5.37%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST PAST PAST
(AS OF THE CALENDAR YEAR ENDED) ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Merrill Lynch Government Fund 5.37% 5.22% 5.51%
</TABLE>
14 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER (THESE COSTS ARE DEDUCTED FROM THE
FUND'S TOTAL ASSETS).
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
INVESTMENT ADVISORY FEE -- a fee paid to the Investment Adviser for managing the
Fund.
FEES AND EXPENSES FOR MERRILL LYNCH GOVERNMENT FUND
- --------------------------------------------------------------------
This table shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than those
indicated below.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases None
- ---------------------------------------------------------------------
Deferred Sales Charge None
- ---------------------------------------------------------------------
Sales Charge Imposed on Dividend Reinvestments None
- ---------------------------------------------------------------------
Redemption Fee None
- ---------------------------------------------------------------------
Exchange Fee None
- ---------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ---------------------------------------------------------------------
INVESTMENT ADVISORY FEES .20%*
- ---------------------------------------------------------------------
Other Expenses .04%
- ---------------------------------------------------------------------
Total Fund Operating Expenses .24%*
- ---------------------------------------------------------------------
</TABLE>
* The Fund's Investment Adviser has agreed to waive a portion of its fee so
that the effective annual fee is .20% of the Fund's 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:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Merrill Lynch
Government
Fund $25 $77 $135 $306
- ----------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 15
<PAGE>
[ICON] KEY FACTS
DIRECT OBLIGATIONS OF THE U.S. TREASURY -- Securities issued directly by the
U.S. Treasury rather than by any U.S. Government agency
or instrumentality.
REPURCHASE AGREEMENTS -- agreements where another party sells securities to the
Fund and at the same time agrees to repurchase the securities at a particular
time and price.
FORWARD COMMITMENT -- the purchase of a security for delivery beyond normal
settlement periods.
MERRILL LYNCH TREASURY FUND AT A GLANCE
--------------------------------------------------
WHAT ARE THE FUND'S STATED INVESTMENT OBJECTIVES?
The Fund is a no-load fund whose objectives are to
seek current income consistent with liquidity and
security of principal by investing in a portfolio
of securities that are DIRECT OBLIGATIONS OF THE
U.S. TREASURY.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund tries to achieve its objectives by
investing in Treasury bills, notes and other
direct obligations of the U.S. Treasury. These
securities will have maturities of up to 762 days
(25 months). The Fund may enter into REPURCHASE
AGREEMENTS and FORWARD COMMITMENTS to purchase
Treasury securities. Fund management decides which
securities to buy and sell based on its assessment
of the relative values of different securities and
future interest rates. Fund management seeks to
improve the Fund's yield by taking advantge of
differences in yield that regularly occur between
securities of a similar kind. We cannot guarantee
that the Fund will achieve its objectives.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
WHO SHOULD INVEST?
The minimum initial purchase amount for the
Merrill Lynch Treasury Fund is $25,000 per
account. The Fund may be an appropriate investment
for an institution that:
- Is looking for current income and
liquidity.
- Is looking for preservation of capital.
- Is investing with short term goals in
mind, such as for cash reserves.
16 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
RISK/RETURN BAR CHART FOR MERRILL LYNCH
TREASURY FUND
--------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
each complete calendar year since the Fund's inception. The table shows the
average annual total returns of the Fund for the periods shown. How the Fund
performed in the past is not necessarily an indication of how the Fund will
perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 7.72%
1991 5.57%
1992 3.31%
1993 2.75%
1994 3.81%
1995 5.57%
1996 5.08%
1997 5.16%
1998 5.06%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST PAST PAST
(AS OF THE CALENDAR YEAR ENDED) ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
- ------------------------------------------------------------------------
Merrill Lynch Treasury Fund 5.06% 4.93% --%
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 17
<PAGE>
[ICON] KEY FACTS
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER (THESE COSTS ARE DEDUCTED FROM THE
FUND'S TOTAL ASSETS).
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
INVESTMENT ADVISORY FEE -- a fee paid to the Investment Adviser for managing the
Fund.
FEES AND EXPENSES FOR MERRILL LYNCH TREASURY FUND
- --------------------------------------------------------------------
This table shows the different fees and expenses that you may pay if you buy and
hold shares of the Fund. Future expenses may be greater or less than those
indicated below.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases None
- --------------------------------------------------------------------
Deferred Sales Charge None
- --------------------------------------------------------------------
Sales Charge Imposed on Dividend Reinvestments None
- --------------------------------------------------------------------
Redemption Fee None
- --------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- --------------------------------------------------------------------
INVESTMENT ADVISORY FEES .20%*
- --------------------------------------------------------------------
Other Expenses .05%
- --------------------------------------------------------------------
Total Fund Operating Expenses .25%*
- --------------------------------------------------------------------
</TABLE>
* The Fund's Investment Adviser has agreed to waive a portion of its fee so
that the effective annual fee is .20% of the Fund's 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:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Merrill Lynch
Treasury Fund $26 $81 $140 $318
- ----------------------------------------------------------
</TABLE>
18 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
SHORT TERM TAX-EXEMPT SECURITIES -- securities with maturities of not more than
397 days (13 months) that pay interest exempt from Federal income tax.
MATURITY -- time at which the full principal amount of a money market instrument
is scheduled to be repaid.
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND AT A
GLANCE
--------------------------------------------------
WHAT ARE THE FUND'S STATED INVESTMENT OBJECTIVES?
The Fund's investment 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 money market
securities.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund tries to achieve its goals by investing
in a diversified portfolio of SHORT TERM
TAX-EXEMPT SECURITIES. These securities consist
principally of tax-exempt notes and commercial
paper, short-term municipal bonds, tax-exempt
variable rate demand obligations and short term
tax-exempt derivatives. Certain short term
tax-exempt securities have stated MATURITIES that
are longer than 397 days, but give the Fund the
right to demand payment from a financial
institution within that period. The Fund treats
these securities as having a maturity of 397 days
or less.
The Fund only invests in short term tax-exempt
securities having one of the two highest short
term ratings from a nationally recognized credit
rating organization or unrated securities which,
in the opinion of Fund management, are of similar
quality. Certain short term tax-exempt securities
are entitled to the benefit of insurance,
guarantees, letters of credit or similar
arrangements provided by a financial institution.
When this is the case, Fund management may
consider the obligation of the financial
institution and its creditworthiness in
determining whether the security is an appropriate
investment for the Fund.
The Fund does not presently intend to invest more
than 25% of its total assets in short term
tax-exempt securities of issuers located in the
same state.
Fund management determines which securities to buy
based on its assessment of relative values of
different securities and future interest rates.
Fund management seeks to improve the Fund's yield
by taking advantage of differences in yields of
similar kinds of securities.
We cannot guarantee that the Fund will achieve its
objectives.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 19
<PAGE>
[ICON] KEY FACTS
WHO SHOULD INVEST?
The minimum initial purchase amount for the
Merrill Lynch Institutional Tax-Exempt Fund is
$25,000 per account. The Fund may be an
appropriate investment for an institution that:
- Is looking for liquidity as well as
current income that is exempt from
Federal income tax.
- Is looking for preservation of capital.
- Is investing with short term goals in
mind, such as for cash reserves.
20 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
RISK/RETURN BAR CHART FOR MERRILL LYNCH
INSTITUTIONAL TAX-EXEMPT FUND
--------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
the past ten calendar years. The table shows the average annual total returns of
the Fund for the periods shown. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 6.17%
1990 5.55%
1991 4.16%
1992 2.62%
1993 2.11%
1994 2.69%
1995 3.77%
1996 3.42%
1997 3.57%
1998 3.39%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS PAST PAST PAST
(AS OF THE CALENDAR YEAR ENDED) ONE YEAR FIVE YEARS TEN YEARS
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Merrill Lynch Institutional
Tax-Exempt Fund 3.39% 3.37% 3.72%
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 21
<PAGE>
[ICON] KEY FACTS
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER (THESE COSTS ARE DEDUCTED FROM THE
FUND'S TOTAL ASSETS).
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
INVESTMENT ADVISORY FEE -- a fee paid to the Investment Adviser for managing the
Fund.
FEES AND EXPENSES FOR MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND
--------------------------------------------------
This table shows the different fees and expenses
that you may pay if you buy and hold shares of the
Fund. Future expenses may be greater or less than
those indicated below.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases None
- ----------------------------------------------------------------------
Deferred Sales Charge None
- ----------------------------------------------------------------------
Sales Charge Imposed on Dividend Reinvestments None
- ----------------------------------------------------------------------
Redemption Fee None
- ----------------------------------------------------------------------
Exchange Fee None
- ----------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ----------------------------------------------------------------------
INVESTMENT ADVISORY FEES .20%*
- ----------------------------------------------------------------------
Other Expenses .04%
- ----------------------------------------------------------------------
Total Fund Operating Expenses .24%*
- ----------------------------------------------------------------------
</TABLE>
* The Fund's Investment Adviser has agreed to waive a portion of its fee so
that the effective annual fee is .20% of the Fund's average daily net
assets. The Investment Adviser may discontinue the waiver of investment
advisory fees in whole or in part without any notice at any time.
EXAMPLE:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate you
will receive a 5% annual rate of return. Your annual return may be more or less
than the 5% used in this example. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Merrill Lynch
Institutional
Tax-Exempt
Fund $25 $77 $135 $306
- ----------------------------------------------------------
</TABLE>
22 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
DETAILS ABOUT THE FUNDS [ICON]
ABOUT THE
PORTFOLIO MANAGER
P. Michael Walsh is the portfolio manager of the Funds. Mr. Walsh has been a
Vice President of Merrill Lynch Asset Management since 1993 and associated
therewith since 1991.
ABOUT THE
INVESTMENT ADVISER
Each Fund is managed by Fund Asset Management.
HOW EACH FUND INVESTS
--------------------------------------------------
Merrill Lynch Premier Institutional Fund, Merrill
Lynch Institutional Fund, and Merrill Lynch Rated
Institutional Fund
The Funds seek current income, preservation of
capital and liquidity. Each Fund tries to achieve
its goals by investing in a diversified portfolio
of short term money market securities. These
instruments are dollar-denominated fixed-income
securities that mature or reset to a new interest
rate within 13 months (25 months if the U.S.
government or a government agency has issued or
guaranteed the debt). Other than U.S. government
and government agency securities, each Fund only
invests in money market instruments of issuers
with one of the two highest short-term ratings
from a nationally recognized credit rating
organization or unrated instruments which, in the
opinion of Fund management, are of similar credit
quality.
Fund management will vary the types of money
market instruments in each Fund's portfolio, as
well as the Fund's average maturity, in response
to its assessment of the relative value of
different securities and future short-term
interest rates. Each Fund's dollar-weighted
average maturity will not exceed 90 days.
Among the money market obligations each Fund may
buy are:
UNITED STATES GOVERNMENT SECURITIES -- Debt
securities issued by or guaranteed as to principal
and interest by the U.S. Government and supported
by the full faith and credit of the United States.
UNITED STATES GOVERNMENT AGENCY SECURITIES -- Debt
securities issued by U.S. Government AGENCIES,
GOVERNMENT-SPONSORED ENTERPRISES and government
INSTRUMENTALITIES. Agency securities may be
supported only by the credit of the issuer, not
the full faith and credit of the United States.
BANK MONEY INSTRUMENTS -- Obligations of
commercial banks or other depository institutions,
such as certificates of deposit, bankers'
acceptances, bank notes and time deposits. Each
Fund may only invest in obligations of savings
banks and savings and loan associations organized
and operating in the United States. Each Fund may
invest in obligations of commercial banks issued
by U.S. depository institutions, foreign branches
or subsidiaries of U.S. depository institutions
(called Eurodollar obligations) or U.S. branches
or subsidiaries of foreign depository institutions
(called Yankeedollar obligations). Each Fund may
invest in Eurodollar obligations only if they are
general obligations of the parent bank.
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 23
<PAGE>
[ICON] DETAILS ABOUT THE FUNDS
AGENCIES -- entities that are part of or sponsored by the federal government,
such as the Government National Mortgage Administration ("Ginnie Mae"), the
Tennessee Valley Authority or the Federal Housing Administration.
GOVERNMENT SPONSORED ENTERPRISES -- private corporations sponsored by the
federal government which have the legal status of government agencies, such as
the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Student Loan
Marketing Association ("Sallie Mae") or Fannie Mae.
INSTRUMENTALITIES -- supranational entities sponsored by the U.S. and other
governments, such as the World Bank or the Inter-American Development Bank.
ASSET-BACKED SECURITIES -- fixed-income securities issued by a trust or other
legal entity established for the purpose of issuing securities and holding
certain assets, such as credit card receivables or auto leases, that pay down
over time and generate sufficient cash to pay holders of the securities.
INDEX -- a measure of value or rates.
The Funds may also invest in bank money instruments issued by foreign branches
and subsidiaries of foreign banks.
The Funds may also invest in the following instruments:
- COMMERCIAL PAPER. Obligations, usually of nine months or less,
issued by corporations, securities firms and other businesses for
short-term funding.
- SHORT-TERM OBLIGATIONS. Corporate or foreign government debt and
ASSET-BACKED SECURITIES with a period of 397 days or less remaining
to maturity.
- FLOATING RATE OBLIGATIONS. Obligations of government agencies,
corporations, depository institutions or other issuers that
periodically reset their interest rate to reflect a current market
rate, such as the federal funds rate or a bank's prime rate, or the
level of an interest rate INDEX, such as LIBOR (a well-known
short-term interest rate index).
- INSURANCE COMPANY OBLIGATIONS. Short-term funding agreements and
guaranteed insurance contracts with fixed or floating interest
rates.
- MASTER NOTES. Variable principal amount demand instruments issued by
securities firms and other corporate issuers.
- OTHER ELIGIBLE INVESTMENTS. Other money market instruments permitted
by SEC rules governing money market funds.
REPURCHASE AGREEMENTS -- In a repurchase agreement, a Fund buys a security from
another party, which agrees to buy it back at an agreed upon time and price.
Each Fund may invest in repurchase agreements involving the money market
securities described above (without regard to maturity).
REVERSE REPURCHASE AGREEMENTS -- In a reverse repurchase agreement, a Fund sells
a security to another party and agrees to buy it back at a specific time and
price. Each Fund may engage in reverse repurchase agreements involving the money
market securities described above.
WHEN-ISSUED, DELAYED-DELIVERY AND FORWARD COMMITMENTS -- Each Fund may buy or
sell money market securities on a when-issued, delayed-delivery and forward
commitment basis. In these transactions, the Fund buys or sells the securities
at an established price with payment and delivery taking place in the future.
The value of the security on the delivery date may be more or less than its
purchase or sale price.
24 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
ABOUT THE
PORTFOLIO MANAGER
John Ng is the portfolio manager of the Fund. Mr. Ng has been a Director of
Merrill Lynch Asset Management since June 1998 and a Vice President from 1984 to
1998. He was Assistant Vice President from 1981 to 1984.
MERRILL LYNCH GOVERNMENT FUND
The Fund is a no-load 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 Fund also uses repurchase agreements with banks and
securities dealers that involve direct obligations of the U.S. Government.
In seeking to achieve the Fund's objectives, Fund management varies the kinds of
direct U.S. Government securities held in the portfolio and its average
maturity. Fund management decides on which securities to buy and sell based on
its assessment of the relative values of different securities and future
interest rates. Fund management seeks to improve the Fund's yield by taking
advantage of differences in yield that regularly occur among securities of a
similar kind. For example, market conditions frequently result in similar
securities trading at different prices. Fund management seeks to improve the
Fund's yield by buying and selling securities based on these yield differences.
Among the direct U.S. Government obligations the Fund may buy are:
- U.S. Treasury obligations
- U.S. Government agency securities
- Variable rate U.S. Government agency obligations, which have
interest rates that reset periodically prior to maturity based on a
specific index or interest rate.
- Deposit receipts, which represent interests in component parts of
U.S. Treasury bonds or other U.S. Government or U.S. Government
agency securities.
The Fund may invest in securities with maturities of up to 762 days (25 months).
The Fund's dollar-weighted average maturity will not exceed 90 days.
The Fund may also enter into repurchase and reverse repurchase agreements
involving securities described above. The Fund may also invest in the U.S.
Government securities described above pursuant to purchase and sale contracts.
The Fund may buy and sell U.S. Government securities on a when-issued,
delayed-delivery or forward commitment basis. In these transactions, the Fund
buys or sells a security at an established price with payment and delivery
taking place in the future. The value of the security on the delivery date may
be more or less than its purchase or sale price.
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 25
<PAGE>
[ICON] DETAILS ABOUT THE FUNDS
ABOUT THE
PORTFOLIO MANAGER
John Ng is the portfolio manager of the Fund. Mr. Ng has been a Director of
Merrill Lynch Asset Management from June 1998 and a Vice President from 1984 to
1998, and Assistant Vice President from 1981 to 1984.
MERRILL LYNCH TREASURY FUND
The Fund seeks current income consistent with liquidity and security of
principal. The Fund tries to achieve its goals by investing in a portfolio of
short-term marketable securities that are direct obligations of the U.S.
Treasury. The Fund also uses repurchase agreements with banks and securities
dealers that involve direct obligations of the U.S. Treasury.
In seeking to achieve the Fund's objectives, Fund management varies the kinds of
direct U.S. Treasury securities held in the portfolio and its average maturity.
Fund management decides on which securities to buy and sell based on its
assessment of the relative values of different securities and future interest
rates. Fund management seeks to improve the Fund's yield by taking advantage of
differences in yield that regularly occur among securities of a similar kind.
For example, market conditions frequently result in similar securities trading
at different prices. Fund management seeks to improve the Fund's yield by buying
and selling securities based on these yield differences.
Among the direct U.S. Treasury obligations the Fund may buy are:
- U.S. Treasury bills and notes
- Variable rate U.S. Treasury obligations, which have interest rates
that reset periodically prior to maturity based on a specific index
or interest rate.
- Deposit receipts, which represent interests in component parts of
U.S. Treasury Bonds.
The Fund may invest in securities with maturities of up to 762 days (25 months).
The Fund's dollar-weighted average maturity will not exceed 90 days.
The Fund may also enter into repurchase agreements involving U.S. Treasury
securities described above. The Fund may also invest in the U.S. Treasury
securities described above pursuant to purchase and sale contracts.
The Fund may buy and sell U.S. Treasury securities on a when-issued,
delayed-delivery or forward commitment basis. In these transactions, the Fund
buys or sells a security at an established price with payment and delivery
taking place in the future. The value of the security on the delivery date may
be more or less than its purchase or sale price.
26 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
ABOUT THE
PORTFOLIO MANAGER
Kevin Schiatta is the Portfolio Manager for the Fund. Mr. Schiatta has been a
Vice President of Merrill Lynch Asset Management since 1985.
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
The Fund seeks current income exempt from Federal income taxes, preservation of
capital and liquidity. The Fund tries to achieve its goals by investing in a
diversified portfolio of short term tax-exempt securities.
Management of the Fund will seek to keep its assets fully invested to maximize
the yield on the Fund's portfolio. There may be times when the Fund has invested
cash, however, which will reduce its yield. The Fund will not invest in taxable
securities except that certain municipal bonds, known as "private activity
bonds," may be subject to a Federal alternative minimum tax. No more than 10% of
the Fund's net assets will be invested in illiquid securities.
Among the short term tax-exempt securities the Fund may buy are:
TAX-EXEMPT NOTES -- short term municipal debt obligations often used to provide
interim financing in anticipation of tax collection, bond sales or other
revenues.
TAX-EXEMPT COMMERCIAL PAPER -- short term unsecured promissory notes used to
finance general short term credit needs.
TAX-EXEMPT BONDS -- long term debt obligations that pay interest exempt from
Federal income tax. The Fund will only invest in long-term debt obligations that
have remaining maturities of 397 days or less or that the Fund has a contractual
right to sell (put) periodically or on demand within that time.
VARIABLE RATE DEMAND NOTES -- floating rate securities that combine an interest
in a long term municipal bond with a right to demand payment periodically or on
notice. The Fund may also buy a participation interest in variable rate demand
note owned by a commercial bank or other financial institution. When the Fund
purchases a participation interest, it receives the right to demand payment on
notice to the owner of the note. [The Fund will not invest more than 20% of its
total assets in participation interests in variable rate demand notes.]
SHORT TERM TAX-EXEMPT DERIVATIVES -- a variety of securities that generally
represent the Fund's ownership interest in one or more municipal bonds held by a
trust or partnership coupled with a contractual right to sell (put) that
interest to a financial institution for a price equal to face value. Income on
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 27
<PAGE>
[ICON] DETAILS ABOUT THE FUNDS
the underlying municipal bonds in "passed through" the trust or partnership to
the Fund and other institutions that have an ownership interest. Depending on
the particular security, the Fund may receive pass-through income at a fixed
interest rate or a floating municipal money market interest rate.
[MUNICIPAL LEASE OBLIGATIONS -- participation certificates issued by government
authorities to finance the acquisition, development or construction of
equipment, land or facilities. The certificates represent participations in a
lease or similar agreement backed by the municipal issuer's promise to budget
for an appropriate fund to make payments due under the lease.]
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- The Fund may buy or sell short
term tax-exempt securities on a when-issued or delayed delivery basis. In these
transactions, the Fund buys or sells the securities at an established price with
payment and delivery taking place in the future. The value of the security on
the delivery date may be more or less than its purchase or sale price.
INVESTMENT RISKS
- ----------------------------------------------------------------------------
This section contains a summary discussion of the
general risks of investing in Merrill Lynch
Premier Institutional Fund, Merrill Lynch
Institutional Fund, Merrill Lynch Rated
Institutional Fund, Merrill Lynch Government Fund,
Merrill Lynch Treasury Fund and Merrill Lynch
Institutional Tax-Exempt Fund. As with any mutual
fund, there can be no guarantee that a Fund will
meet its goals or that a Fund's performance will
be positive for any period of time.
CREDIT RISK -- Credit risk is the risk that the
issuer of a security owned by the Fund will be
unable to pay the interest or principal when due.
The degree of credit risk depends on both the
financial condition of the issuer and the terms of
the obligation.
SELECTION RISK -- Selection risk is the risk that
the securities that Fund management selects will
underperform those of other funds with similar
investment objectives and investment strategies.
28 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
INTEREST RATE RISK -- Interest rate risk is the
risk that prices of money market securities
generally increase when interest rates decline and
decrease when interest rates increase. Prices of
longer term securities generally change more in
response to interest rate changes than prices of
shorter term securities.
BORROWING RISK -- The Fund may borrow only to meet
redemptions. Borrowing may exaggerate changes in
the net asset value of Fund shares and in the
yield on the Fund's portfolio. Borrowing will cost
the Fund interest expense and other fees. The cost
of borrowing money may reduce the Fund's return.
WHEN-ISSUED SECURITIES, DELAYED DELIVERY
SECURITIES AND FORWARD COMMITMENTS -- When-issued
and delayed delivery securities and forward
commitments involve the risk that the security the
Fund buys will lose value prior to its delivery.
There is also the risk that the security will not
be issued that the other party will not meet its
obligation. If this occurs, the Fund loses both
the investment opportunity for the assets it has
set aside to pay for the security and any gain in
the security's price. When issued and delayed
delivery securities also involve the risk that the
yields available in the market when delivery takes
place may be higher than those fixed in the
transaction at the time of commitment. If this
happens, the value of the when-issued or delayed
delivery security will generally decline.
REPURCHASE AGREEMENT RISK (APPLICABLE TO ALL THE
FUNDS, EXCEPT THE INSTITUTIONAL TAX-EXEMPT
FUND) -- If the party with whom the Fund has
entered into a repurchase agreement fails to meet
its obligation under the agreement, the Fund may
suffer delays and incur costs or even lose money
in exercising its rights under the agreement.
ADDITIONAL RISKS OF MERRILL LYNCH PREMIER
INSTITUTIONAL FUND, MERRILL LYNCH INSTITUTIONAL
FUND, MERRILL LYNCH RATED INSTITUTIONAL FUND AND
MERRILL LYNCH GOVERNMENT FUND
REVERSE REPURCHASE AGREEMENT RISK -- The Fund may
lose money if the other party defaults and the
Fund has to buy the underlying securities
elsewhere at more than the agreed-upon price. In
addition, in a declining market the Fund may be
unable to sell securities that are the subject of
a reverse repurchase agreement until it
repurchases them, which may result in the Fund
receiving a lower sale price than it otherwise
would have.
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 29
<PAGE>
[ICON] DETAILS ABOUT THE FUNDS
SECURITIES LENDING RISK -- The Fund may lend
securities to financial institutions that provide
cash or government securities as collateral.
Securities lending involves the risk that the
borrower may fail to return the securities in a
timely manner or at all. As a result, the Fund may
lose money if it is unable to recover its
securities or if the value of its collateral
falls. These events could trigger adverse tax
consequences to the Fund.
FOREIGN MARKET RISK -- The Fund may invest in U.S.
dollar denominated money market instruments and
other short-term debt obligations issued by
foreign banks and other foreign entities. Although
the Fund will invest in these securities only if
Fund management determines they are of comparable
quality to the Fund's U.S. investments, investing
in securities of foreign issuers involves some
additional risks. These risks include the possibly
higher costs of foreign investing, and the
possibility of adverse political, economic or
other developments.
ADDITIONAL RISKS OF MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND
VRDN AND MUNICIPAL DERIVATIVES CREDIT RISK -- When
the Fund invests in variable rate demand notes or
short-term municipal derivatives, it assumes
credit risk with respect to the financial
institution providing the Fund with the right to
demand payment or put (sell) the security. While
the Fund invests only in short-term municipal
securities of high quality issuers, or which are
backed by high quality financial institutions,
those issuers or financial institutions may still
default on their obligations.
SHORT TERM MUNICIPAL DERIVATIVES -- Short term
municipal derivatives present certain unresolved
tax, legal, regulatory and accounting issues not
presented by investments in other short term
municipal securities. These issues might be
resolved in a manner adverse to the Fund. For
example, the Internal Revenue Service has never
ruled on the subject of whether pass-through
income paid to the Fund is tax-exempt. The Fund
receives an opinion of counsel that pass-through
income is tax-exempt, but that does not mean that
the IRS will never rule that pass-through income
is taxable.
30 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
MUNICIPAL LEASE OBLIGATIONS -- In a municipal
lease obligation, the issuer agrees to budget for
and appropriate municipal funds to make payments
due on the lease obligation. However, this does
not ensure that funds will actually be
appropriated in future years. The issuer does not
pledge its unlimited taxing power for the payment
of the lease obligation. The obligation is
generally secured by a pledge of the leased
property, but disposition of the property in the
event of foreclosure might be difficult and the
proceeds of sale might not cover the Fund's loss.
ILLIQUID SECURITIES -- If the Fund buys illiquid
securities, it may be unable to quickly resell
them or may be able to sell them only at a price
below current value.
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------------------
If you would like further information about the Merrill Lynch Funds for
Institutions Series, including how each Fund invests, please see the Statement
of Additional Information.
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 31
<PAGE>
[ICON]
YOUR ACCOUNT [ICON]
HOW TO BUY, SELL AND TRANSFER SHARES
--------------------------------------------------
The chart below summarizes how to buy, sell and
transfer shares of each Fund through Merrill
Lynch. You may also buy shares through the
Transfer Agent. To learn more about buying shares
through the Transfer Agent, call 1-800-221-7210.
Because the selection of a mutual fund involves
many considerations, your Merrill Lynch Financial
Consultant may help you with this decision.
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Buy Shares First, determine the amount The minimum initial investment for each Fund is $25,000 for
of your investment all accounts, except that it is $1,000,000 for the Rated
Institutional Fund and $10,000,000 for the Premier
Institutional Fund.
----------------------------------------------------------------------------------------------
Next, purchase shares on a Each Fund will effect orders to purchase shares on every
Business Day day that both the New York Stock Exchange (the "Exchange")
and the Federal Reserve Bank of Boston are open for
business (a "Business Day"). On any day that the Exchange
closes early or that the Bond Market Association ("BMA")
recommends that the securities markets close early, the
times for which orders become effective may be advanced
(see "Net Asset Value").
----------------------------------------------------------------------------------------------
Then, either purchase by The Fund strongly recommends the use of Federal Funds to
Federal Funds Wire purchase shares because, while other forms of payment
described below will also be accepted, purchase orders do
not become effective until Federal Funds are made
available. To purchase shares of a Fund by wiring Federal
Funds, you must first telephone Merrill Lynch Fund
Distributor ("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: your name, address, tax identification number, and
dividend distribution election, the amount being wired and
the wiring bank. You should then instruct your 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 your name
and account number.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
32 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Buy Shares The price of your shares is based on next calculation of
(continued) net asset value after your order becomes effective, as
described below. Your 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 the Bank (at a
charge to the investor) into Federal Funds. Federal Funds
are monies credited to a bank's account with a Federal
Reserve Bank.
INSTITUTIONAL TAX-EXEMPT FUND -- If your order is received
by the Fund by 12:00 Noon (Boston time) and Federal Funds
are received by State Street Bank prior to the close of the
Federal Funds wire on that same day, the order will be
effected that day as of 12:00 Noon (Boston time) and
dividends will be earned that day. If your order is
received after 12:00 Noon (Boston time) but before the
close of the Exchange at 4:00 p.m., it will become
effective on that day, but dividends will not be earned
until the next Business Day.
TREASURY FUND -- If your order is received by the Fund by
2:00 p.m. (Boston time) and Federal Funds are received by
State Street Bank prior to the close of the Federal Funds
wire on that same day, the order will be effected that day
as of 2:00 p.m. (Boston time) and dividends will be earned
that day. If your order is received after 2:00 p.m. (Boston
time) but before the close of the Exchange at 4:00 p.m., it
will become effective on that day, but dividends will not
be earned until the next Business Day.
PREMIER INSTITUTIONAL, INSTITUTIONAL, RATED INSTITUTIONAL
AND GOVERNMENT FUNDS -- If your order is received and
accepted by the applicable Fund by 5:00 p.m. (Boston time)
and Federal Funds are received by State Street Bank prior
to the close of the Federal Funds wire on the same day, the
order will be effected as of 5:00 p.m. (Boston time) and
dividends will be earned that day. If your order is
received after 5:00 p.m. (Boston time) it will not become
effective, and dividends will not be earned, until the next
Business Day.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 33
<PAGE>
[ICON] YOUR ACCOUNT
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Buy Shares Or by check or Federal To purchase shares of a Fund by check or Federal Reserve
(continued) Reserve Draft Draft, you must submit a purchase order 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 the shares and, in the case of a new
account, a completed Account Application (see page ).
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 the name of the Fund. 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.
----------------------------------------------------------------------------------------------
You may also purchase shares If you are a business organization (such as a corporation,
through FACTS partnership or business trust), you may purchase shares of
the Funds through the Merrill Lynch Financial Assets
Control tracking System or 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.
You can arrange the purchase of shares of the Funds through
FACTS by completing a FACTS Account Application, which you
can obtain by calling 617-357-1460 or toll-free
800-225-1576, and returning it to Merrill Lynch Funds
Distributor in Boston. After your application is received,
an announcement card will be sent to you with an account
number and advising you that, after 15 days from the
printed date on the card, you may begin using ACH for
purchasing Fund shares.
After this waiting period, an authorized representative of
your organization may call the Funds' FACTS toll-free
number (800-343-3446) by 4:00 p.m. (Boston time), identify
your 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.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
34 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Add to Your Purchase additional shares The minimum investment for additional purchases is $1,000
Investment for all accounts except that if your account balance in the
Premier Institutional Fund has fallen below $10,000,000,
subsequent purchases of shares of the Premier Institutional
Fund by you will only be accepted if, after such purchase,
your accrued balance will be at least $10,000,000.
----------------------------------------------------------------------------------------------
Acquire additional shares All dividends and capital gains distributions are
through the automatic automatically reinvested without a sales charge, unless you
dividend reinvestment plan elect to receive cash.
- ----------------------------------------------------------------------------------------------------------------------
[Transfer Shares to Transfer to a participating You may transfer your Fund shares only to another
Another Securities securities dealer securities dealer that has entered into an agreement with
Dealer Merrill Lynch. All shareholder services will be available
for the transferred shares. You may only purchase
additional shares of Funds previously owned before the
transfer. All future trading of these assets must be
coordinated by the receiving firm.]
----------------------------------------------------------------------------------------------
Transfer to a You must either
non-participating securities - Transfer your shares to an account with the Transfer
dealer Agent;
or
- Sell your shares.]
- ----------------------------------------------------------------------------------------------------------------------
Sell Your Shares General Upon receipt by State Street Bank of a proper redemption
request (indicating the name of the Fund and the dollar
amount of shares to be redeemed), each Fund will redeem its
shares on every day that both the New York Stock Exchange
(the "Exchange") and the Federal Reserve Bank of Boston are
open for business (a "Business Day") at the net asset value
per share determined that day. Net asset value per share is
determined twice daily for the Tax-Exempt and Treasury
Funds, at 12:00 noon (Boston time) for the Tax-Exempt Fund,
at 2:00 p.m. (Boston time) for the Treasury Fund, and at
the close of trading on the Exchange. Net asset value is
determined daily for the Premier Institutional,
Institutional, Rated Institutional and Government Funds as
of 5:00 p.m. (Boston time). If the Exchange closes trading
prior to the times established above, or the "BMA"
recommends that the securities markets close early,
determination of net asset value may be advanced. See "Net
Asset Value."
A Fund may reject an order to sell shares under certain
circumstances.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 35
<PAGE>
[ICON] YOUR ACCOUNT
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Sell Your Shares Expedited Redemption Shareholders meeting the requirements stated below may
(continued) Procedure 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 Institutional Tax-Exempt Fund or prior to
2:00 p.m. (Boston time) for the Treasury 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. Shareholders of the Premier Institutional,
Institutional, Rated Institutional and Government Funds
will not earn a dividend on the day the redemption request
is received. 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, 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. 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 or
after 2:00 p.m. (Boston time) for the Treasury 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.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
36 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Sell Your Shares Expedited Redemption To utilize the expedited redemption procedure, all shares
(continued) Procedure (continued) must be held in non-certificate form in the shareholder's
account. In addition, an Account Application (page )
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 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.
With regards to expedited redemption orders received prior
to 5:00 p.m. (Boston time) for each of the Premier
Institutional, Institutional, Rated Institutional and
Government Funds, proceeds from such redemptions will be
wired out that same day. It is important to note that
redemption orders placed later in the day--especially
between 3:30 p.m. (Boston time) and 5:00 p.m. (Boston
time)--will be processed by the Fund and a wire will be
initiated by State Street Bank but payment may be delayed
if the Federal Reserve Bank of Boston is experiencing
delays in transfers of funds. After a redemption order has
been processed by the Fund and a redemption wire has been
initiated by State Street Bank, neither entity will assume
any responsibility for the performance of the shareholder's
receiving bank, or any of its intermediaries.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 37
<PAGE>
[ICON] YOUR ACCOUNT
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Sell Your Shares Ordinary Redemption Procedure You may submit your redemption request in writing to State
(continued) 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 you at the address on your
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.
----------------------------------------------------------------------------------------------
Checking Account Redemption State Street Bank will establish a checking account for any
Plan shareholder of the Institutional Fund, the Government Fund,
the Treasury Fund or the Institutional Tax-Exempt Fund at
the shareholder's request. 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.
[Shareholders wishing to consider this method of redemption
should complete the Authorization for Redemption by Check
Form and Signature Card which appear on pages and
of this Prospectus.]
- ----------------------------------------------------------------------------------------------------------------------
Exchange Your Shares Select the fund into which You can exchange your shares of a Fund for shares of any of
you want to exchange. Be sure the other Funds in the Trust. You must have held the shares
to read that fund's used in the exchange for at least 15 calendar days before
prospectus you can exchange to another fund, and you must exchange
shares with a current value of at least $1,000.
Although there is currently no limit on the number of
exchanges that you can make, the exchange privilege may be
modified or terminated at any time in the future.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL INFORMATION REGARDING THE PURCHASE OF 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 to the 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 shareholders.
If you redeem all of your shares in a Fund, your
dividends accrued for the month to date will be
simultaneously remitted by check. Redemption
requests received from you with respect to the
Premier Institutional, Institutional, Rated
Institutional and Government Funds will be
effected on
38 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
the day received, but you will not receive a
dividend that day. If you purchase shares other
than by a Federal Funds wire or bank wire, you may
not redeem those shares by the expedited procedure
or the checking account redemption plan until 15
calendar days after the purchase of the shares but
you may redeem the shares 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, Rated Institutional Fund,
Government Fund, Treasury Fund and Tax-Exempt Fund
reserves the right to redeem your shares, if at
any time the total investment in your account does
not have a value of at least $5,000. You will be
notified that the value of your account is less
than $5,000 and will be allowed 60 days to make an
additional investment into your account before the
redemption is processed. If your average account
balance in the Premier Institutional Fund falls
below $10,000,000 for any 30-day period, the
Premier Institutional Fund is authorized to
exchange your shares for shares of the
Institutional Fund unless you have elected in your
Account Application to have shares redeemed with
the proceeds of redemption paid to you. In either
case, you will be notified of the exchange or
redemption.
If certificates have been issued to you
representing shares to be redeemed, prior to
effecting a redemption with respect to such shares
State Street Bank must have received such
certificates. Your signature on the certificates
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. If you have questions
regarding proper documentation, you should contact
State Street Bank (toll free 800-225-5150, in
Massachusetts 800-972-5555).
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 39
<PAGE>
[ICON] YOUR ACCOUNT
NET ASSET VALUE -- the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
--------------------------------------------------
When you buy shares, you pay the NET ASSET VALUE
(normally $1.00 per share) without a sales charge.
For the Funds other than the Institutional Tax-
Exempt Fund, the "penny-rounding" method is used
in calculating net asset value, meaning that the
calculation is rounded to the nearest whole cent.
For the Institutional Tax-Exempt Fund, net asset
value is determined using the "amortized cost"
method, meaning that the calculation is based on a
valuation of the assets held by the Fund at cost,
with an adjustment for any discount or premium on
a security at the time of purchase. The net asset
value is the offering price. Shares are also
redeemed at their net asset value. The net asset
value per share for purposes of pricing orders for
both the purchase and the redemption of Fund
shares is determined daily on days that both the
Exchange and the Federal Reserve Bank of Boston
are open for business and do 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. On any day that the PSA recommends an
early close, the time for determination of net
asset value of the Fund will be 15 minutes
following the time that each Fund determines, in
its discretion, to cease accepting orders for
purchases and redemptions of shares. On days that
both the Exchange and the Federal Reserve Bank of
Boston are open for full days of trading and the
BMA does not recommend that the securities markets
close early, net asset value is determined as of
5:00 p.m. (Boston time) for the Premier
Institutional, Institutional, the Rated
Institutional and Government Funds. Net asset
value is determined on days that both the Exchange
and the Federal Reserve Bank of Boston are open
for business for full days of trading for the
Institutional Tax-Exempt Fund and for the Treasury
Fund at the close of trading on the Exchange (4:00
p.m. Boston time).
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). On these
holidays, you will not be able to purchase shares
by wiring Federal Funds because State Street Bank
is not open to receive such funds on behalf of the
Funds. If your check is received on the business
day prior to a holiday, or, in the case of the
Institutional Tax-Exempt or Treasury Funds, if
your order is received after the close of trading
(including early closing of trading) on the
Exchange on the business day prior to a holiday,
you will have the proceeds of the check or order
invested in shares of the applicable Fund as of
the first time that shares in that Fund may be
purchased on the next day on which State Street
Bank is open for business. In addition, if your
order for the Institutional Tax-Exempt Fund or
Treasury Fund is received after 12:00 noon (Boston
time) or 2:00 p.m. (Boston time), respectively,
but prior to the close (including early closing of
trading) on the Exchange on the business day
40 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
DIVIDENDS -- ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Fund shares as they are paid.
prior to a holiday, you will have the proceeds of any wire received on the same
day invested in shares of the applicable Fund as of the close of trading on the
Exchange on that day, but you will not begin earning dividends on the investment
until the next day on which State Street Bank is open for business. Also, you
will not be able to have redemption proceeds wired to your bank 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 you may have.
DIVIDENDS AND TAXES
--------------------------------------------
DIVIDENDS are declared and reinvested daily
in the form of additional shares at net
asset value or, at the shareholder's option,
paid in cash. Dividends are determined
immediately prior to the determination of
net asset value at the close of trading on
the Exchange for the Institutional
Tax-Exempt and Treasury Funds, and as of
5:00 p.m. for the Premier Institutional
Fund, Institutional Fund, the Rated
Institutional Fund and the Government Fund.
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 Institutional
Tax-Exempt Fund, 2:00 p.m. (Boston time) for
the Treasury Fund and 5:00 p.m. (Boston
time) for the Premier Institutional Fund,
the Institutional Fund, the Rated
Institutional Fund and the Government Fund
on days which the Exchange and the Federal
Reserve Bank of Boston are open for
business, and do not close early, or if the
Exchange closes early or the BMA recommends
that the securities market close early, at
such early closing time or (b) at the
previous close of trading on the Exchange on
days on which the Exchange or the Federal
Reserve Bank of Boston is not open for
business. Each Fund other than the
Institutional Tax-Exempt Fund intends to
make distributions, most of which will be
taxed as ordinary income, although each Fund
may distribute capital gains as well. The
Institutional Tax-Exempt Fund intends to
make distributions most of which will be
excludable from your gross income for
Federal income tax purposes, but may
distribute taxable capital gains as well.
You may receive your dividends in cash
monthly by completing the appropriate
section of the Account Application (page
). Such cash distributions will be paid
to you by check within seven days after the
end of each month. You may elect to receive
cash distributions at the time of purchase
of Fund shares or at any time subsequent
thereto by giving written
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 41
<PAGE>
[ICON] YOUR ACCOUNT
notice to State Street Bank. To be effective
with respect to a particular monthly
dividend, your written notice must be
received by State Street Bank at least seven
days prior to the end of the month.
If you redeem shares of a Fund or exchange
them for shares of another fund, any gain on
the transaction may be subject to tax.
Capital gain dividends are generally taxed
at different rates than ordinary income
dividends.
Generally, within 60 days after the end of
each Fund's taxable year, each Fund will
tell you the amount of exempt interest
dividends and capital gain dividends you
received that year. Capital gain dividends
are taxable as long term capital gains to
you regardless of how long you have held
your shares. The tax treatment of
distributions from a Fund is the same
whether you choose to receive distributions
in cash or to have them reinvested in shares
of the Fund.
If you are neither a lawful permanent
resident nor a citizen of the U.S., or if
you are a foreign entity, each Fund's
ordinary income dividends (which include
distributions of net short-term capital
gains) will generally be subject to a 30%
U.S. withholding tax, unless a lower treaty
rate applies.
By law, each Fund must withhold 31% of your
dividends and proceeds if you have not
provided a taxpayer identification number to
the Fund or the number is incorrect.
This section summarizes some of the
consequences under current Federal tax law
of an investment in each Fund. It is not a
substitute for personal tax advice. Consult
your personal tax adviser about the
potential tax consequences of an investment
in each Fund under all applicable tax laws.
42 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
MANAGEMENT OF THE FUNDS [ICON]
FUND ASSET MANAGEMENT
--------------------------------------------------
Fund Asset Management, the Investment Adviser for
each Fund, manages each Fund's investments and
business operations under the overall supervision
of each Fund's Board of Trustees. The Investment
Adviser has the responsibility for making all
investment decisions for the Fund.
<TABLE>
<CAPTION>
MANAGEMENT FEE
FOR FISCAL
YEAR ENDED % OF ITS
FUND NAME APRIL 30, 1999 AVG NET ASSETS
<S> <C> <C>
- --------------------------------------------------------------------
Premier Institutional Fund $ * %
- --------------------------------------------------------------------
Institutional Fund $ * %
- --------------------------------------------------------------------
Rated Institutional Fund $ * %
- --------------------------------------------------------------------
Government Fund $ * %
- --------------------------------------------------------------------
Treasury Fund $ * %
- --------------------------------------------------------------------
Institutional Tax-Exempt Fund $ * %
- --------------------------------------------------------------------
</TABLE>
* After giving effect to voluntary waivers and reimbursements of fees and
expenses by the Investment Adviser.
Fund Asset Management is part of Merrill Lynch
Asset Management Group, which had approximately
$ billion in investment company and other
portfolio assets under management as of May 1999.
This amount includes assets managed for Merrill
Lynch affiliates.
A NOTE ABOUT YEAR 2000
Many computer systems were designed using only two
digits to designate years. These systems may not
be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem").
Each Fund could be adversely affected if the
computer systems used by Fund management or other
Fund service providers do not properly address
this problem before January 1, 2000. Fund
management expects to have addressed this problem
before then, and does not anticipate that the
services it provides will be adversely affected.
Each Fund's other service providers has told Fund
management that it also expects to resolve the
Year 2000 Problem, and Fund management will
continue to monitor the situation as the Year 2000
approaches. However, if the problem has not been
fully addressed, each Fund could be negatively
affected. The Year 2000 Problem could also have a
negative impact on the issuers in which each Fund
invests, and this could hurt each Fund's
investment returns.
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 43
<PAGE>
[ICON]
MANAGEMENT OF THE FUNDS [ICON]
FINANCIAL HIGHLIGHTS FOR MERRILL LYNCH PREMIER INSTITUTIONAL MONEY FUND
- --------------------------------------------------------------------------------
The following Financial Highlights tables are intended to help you understand
each Fund's financial performance for the indicated periods through April 30,
1999. Certain information reflects financial results for a single Fund share.
The total returns in the tables represent the rate an investor would have earned
on an investment in the respective Fund (assuming reinvestment of all
dividends). This information has been audited by Deloitte & Touche LLP, whose
report, along with the Fund's financial statements, are included in the Funds'
Fund annual report to shareholders, which is available upon request.
<TABLE>
<CAPTION>
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
-----------------------------------------------
YEAR ENDED YEAR ENDED FOR THE PERIOD
APRIL 30, APRIL 30, JANUARY 27, 1997*
1999 1998 TO APRIL 30, 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Net Asset Value, beginning of
period $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
- ------------------------------------------------------------------------------------
Net investment income .052 .055 .014
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- ------------------------------------------------------------------------------------
Dividends from net investment
income (.052) (.055) (.014)
- ------------------------------------------------------------------------------------
Net Asset Value, end of period $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------
Total Return 5.32% 5.69% 1.40%(1)
- ------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------
Net Assets, end of period (000) $ 10,627,883 $6,644,523 $2,823,196
- ------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (before waiver) .18% .18% .18%(2)
- ------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (after waiver) -- -- .17%(2)
- ------------------------------------------------------------------------------------
Ratio of net investment income,
including realized and
unrealized gains and losses,
to average net assets (before
waiver) 5.13% 5.55% 5.26%(2)
- ------------------------------------------------------------------------------------
Ratio of net investment income,
including realized and
unrealized gains and losses,
to average net assets (after
waiver) -- -- 5.27%(2)
- ------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
(1) Cumulative total return
(2) On an annualized basis
44 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
FINANCIAL HIGHLIGHTS FOR MERRILL LYNCH INSTITUTIONAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERRILL LYNCH INSTITUTIONAL FUND
-------------------------------------------------------------------
YEAR ENDED APRIL 30,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Net Asset Value, beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
- -------------------------------------------------------------------------------------------------
Net investment income .051 .054 .052 .056 .050
- -------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- -------------------------------------------------------------------------------------------------
Dividends from net
investment income (.051) (.054) (.052) (.056) (.050)
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------
Total Return 5.25% 5.57% 5.34% 5.81% 5.11%
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------
Net Assets, end of period
(000) $ 8,060,111 $ 7,372,425 $ 6,197,878 $ 7,615,126 $ 6,580,086
- -------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets
(before waiver) .37% .38% .38% .37% .37%
- -------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (after
waiver) .24% .25% .25% .24% .24%
- -------------------------------------------------------------------------------------------------
Ratio of net investment
income, including
realized and unrealized
gains and losses, to
average net assets
(before waiver) 4.98% 5.34% 5.12% 5.42% 5.00%
- -------------------------------------------------------------------------------------------------
Ratio of net investment
income, including
realized and unrealized
gains and losses, to
average net assets
(after waiver) 5.11% 5.47% 5.25% 5.55% 5.13%
- -------------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 45
<PAGE>
[ICON]
MANAGEMENT OF THE FUNDS [ICON]
FINANCIAL HIGHLIGHTS FOR MERRILL LYNCH RATED INSTITUTIONAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERRILL LYNCH
RATED INSTITUTIONAL FUND
----------------------------
FOR THE PERIOD JUNE 15, 1998
(COMMENCEMENT OF OPERATIONS)
TO APRIL 30, 1999
<S> <C>
- --------------------------------------------------------------------
Net Asset Value, beginning of period $ 1.00
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
- --------------------------------------------------------------------
Net investment income .045
- --------------------------------------------------------------------
LESS DISTRIBUTIONS:
- --------------------------------------------------------------------
Dividends from net investment
income (.045)
- --------------------------------------------------------------------
Net Asset Value, end of period $ 1.00
- --------------------------------------------------------------------
Total Return 4.57%(1)
- --------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- --------------------------------------------------------------------
Net Assets, end of period (000) $437,664
- --------------------------------------------------------------------
Ratio of expenses to average net
assets (before waiver) .27%(2)
- --------------------------------------------------------------------
Ratio of expenses to average net
assets (after waiver) .23%(2)
- --------------------------------------------------------------------
Ratio of net investment income,
including realized and unrealized
gains and losses, to average net
assets (before waiver) 4.95%(2)
- --------------------------------------------------------------------
Ratio of net investment income,
including realized and unrealized
gains and losses, to average net
assets (after waiver) 4.99%(2)
- --------------------------------------------------------------------
</TABLE>
(1) Cumulative total return
(2) On an annualized basis
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
46
<PAGE>
MANAGEMENT OF THE FUNDS
[ICON]
FINANCIAL HIGHLIGHTS FOR MERRILL LYNCH GOVERNMENT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERRILL LYNCH GOVERNMENT FUND
-----------------------------------------------------
YEAR ENDED APRIL 30,
-----------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Net Asset Value, beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
- -----------------------------------------------------------------------------------
Net investment income .050 .053 .052 .055
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- -----------------------------------------------------------------------------------
Dividends from net
investment income (.050) (.053) (.052) (.055)
- -----------------------------------------------------------------------------------
Net Asset Value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------
Total Return 5.16% 5.48% 5.31% 5.67%
- -----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------
Net Assets, end of period
(000) $ 2,636,672 $ 2,114,592 $ 2,017,399 $ 1,643,625
- -----------------------------------------------------------------------------------
Ratio of expenses to
average net assets
(before waiver) .36% .37% .38% .38%
- -----------------------------------------------------------------------------------
Ratio of expenses to
average net assets (after
waiver) .24% .25% .26% .26%
- -----------------------------------------------------------------------------------
Ratio of net investment
income, including
realized and unrealized
gains and losses, to
average net assets
(before waiver) 4.90% 5.24% 5.07% 5.37%
- -----------------------------------------------------------------------------------
Ratio of net investment
income, including
realized and unrealized
gains and losses, to
average net assets
(after waiver) 5.02% 5.36% 5.19% 5.49%
- -----------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 47
<PAGE>
[ICON]
FINANCIAL HIGHLIGHTS FOR MERRILL LYNCH TREASURY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERRILL LYNCH TREASURY FUND
---------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Net Asset Value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
- -------------------------------------------------------------------------------------------------
Net investment income .046 .051 .049 .052 .045
- -------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
- -------------------------------------------------------------------------------------------------
Dividends from net investment
income (.046) (.051) (.049) (.052) (.045)
- -------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------
Total Return 4.76% 5.24% 5.08% 5.37% 4.68%
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------
Net Assets, end of period (000) $ 680,340 $ 759,197 $ 611,844 $ 514,123 $ 342,844
- -------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (before waiver) .39% .41% .42% .41% .44%
- -------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (after waiver) .25% .26% .27% .26% .29%
- -------------------------------------------------------------------------------------------------
Ratio of net investment income,
including realized and unrealized
gains and losses, to average net
assets (before waiver) 4.36% 5.11% 4.85% 5.09% 4.58%
- -------------------------------------------------------------------------------------------------
Ratio of net investment income,
including realized and unrealized
gains and losses, to average net
assets (after waiver) 4.50% 5.26% 5.00% 5.24% 4.73%
- -------------------------------------------------------------------------------------------------
</TABLE>
48 MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
FINANCIAL HIGHLIGHTS FOR MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
---------------------------------------------------------------
YEAR ENDED APRIL 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Net Asset Value, beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------
Net investment income .03 .04 .03 .04 .03
- ---------------------------------------------------------------------------------------------
Dividends from net
investment income (.03) (.04) (.03) (.04) (.03)
- ---------------------------------------------------------------------------------------------
Net Asset Value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------
Total Return 3.22% 3.59% 3.41% 3.68% 3.20%
- ---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------
Net Assets, end of period
(000) $ 1,953,075 $ 1,804,442 $ 1,003,655 $ 667,205 $ 403,903
- ---------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets
(before waiver) .49% .49% .52% .54% .56%
- ---------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (after
waiver) .24% .24% .27% .29% .31%
- ---------------------------------------------------------------------------------------------
Ratio of net investment
income, to average net
assets (before waiver) 2.92% 3.28% 3.12% 3.35% 2.90%
- ---------------------------------------------------------------------------------------------
Ratio of net investment
income, to average net
assets (after waiver) 3.17% 3.53% 3.37% 3.60% 3.15%
- ---------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES 49
<PAGE>
ACCOUNT APPLICATION (CHECK ONE)
<TABLE>
<S> <C> <C> <C>
/ / MERRILL LYNCH PREMIER INSTITUTIONAL FUND / / MERRILL LYNCH TREASURY FUND
/ / MERRILL LYNCH INSTITUTIONAL FUND / / MERRILL LYNCH INSTITUTIONAL
/ / MERRILL LYNCH RATED INSTITUTIONAL FUND TAX-EXEMPT FUND
/ / MERRILL LYNCH GOVERNMENT FUND
</TABLE>
Mail to: STATE STREET BANK AND TRUST COMPANY, P.O. Box 8500, Boston,
Massachusetts 02266-8500
<TABLE>
<C> <S>
REGISTRATION: THE ACCOUNT SHOULD BE REGISTERED AS INITIAL INVESTMENT:--MINIMUM $25,000 (MERRILL LYNCH
FOLLOWS: PREMIER INSTITUTIONAL FUND MINIMUM $10,000,000 AND
- ---------------------------------------- MERRILL LYNCH RATED INSTITUTIONAL FUND $1,000,000)
Name of Account / / The account has been opened by wire on
- ---------------------------------------- ------------------------
- ---------------------------------------- (Date) and the account no. assigned is
- ---------------------------------------- ----------------------------
Street / / Please establish an account with the enclosed check
- ---------------------------------------- for $-----------payable to Merrill Lynch Institutional
City State Zip Fund, Merrill Lynch Premium Institutional Fund,
- ---------------------------------------- Merrill Lynch Rated Institutional Fund, Merrill
Occupation Lynch Government Fund, Merrill Lynch Treasury Fund
- ---------------------------------------- or Merrill Lynch Street Institutional Tax-Exempt
Name of Fund, as applicable.
Employer --------------------------
- ---------------------------------------- Soc. Sec. No. (Individual)
Street ------------------------
- ---------------------------------------- Tax ID No. (Corporate)
City State Zip ( )
MONTHLY CASH DIVIDENDS -------------------------------------------------------
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.
/ / Check this box if dividends are to be paid monthly in cash. Otherwise dividends will be reinvested
automatically in additional shares of the Fund.
</TABLE>
CHECK REDEMPTION PRIVILEGE (SEE PAGE A-8) NOT AVAILABLE FOR MERRILL LYNCH
PREMIER INSTITUTIONAL FUND OR MERRILL LYNCH RATED INSTITUTIONAL FUND
/ / Check this box and complete Authorization for Redemption by Check Form and
Signature Card on pages A-21 and A-22.
<TABLE>
<S> <C> <C>
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 Rated 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.
</TABLE>
<TABLE>
<C> <S>
EXPEDITED REDEMPTION PAYMENTS Redemption proceeds will be sent to the bank or trust company listed below, for credit to
(SEE PAGE A-7) the investor's account. If the investor wishes to send redemption proceeds to more than
If desired check one such institution, an additional application must be submitted for each institution.
/ / The investor hereby authorizes State Street Bank to honor telephone or written
and complete the rest of this instructions, without a signature guarantee, for redemption of Fund shares. State Street
section 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.
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. / /
</TABLE>
<TABLE>
<S> <C>
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)
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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.
<TABLE>
<C> <S>
STEP 1 At the undersigned's request, State Street Bank and Trust Company (the
INSERT ACCOUNT "Bank") has established a checking account for the undersigned. When a check
NUMBER IF KNOWN 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):
----------------------------------------------------------------
STEP 5 Merrill Lynch Institutional Fund Account No.
Merrill Lynch Government Fund ----------------------------------
Merrill Lynch Treasury Fund
Merrill Lynch Institutional Tax-Exempt Fund
State Street Bank and Trust Company
SIGNATURE CARD
-----------------------------------------------------------------------
Account Name(s) as Registered
-----------------------------------------------------------------------
Authorized Signature(s) (a) Print or type full name (b) Sign below
1. 1.
-----------------------------------------------------------------------
2. 2.
-----------------------------------------------------------------------
3. 3.
-----------------------------------------------------------------------
4. 4.
-----------------------------------------------------------------------
/ / Check if all signatures are required
/ / Check if only one signature is required
/ / Check if combination of signatures is required and specify number
-------------
DATE
SUBJECT TO CONDITIONS ON REVERSE SIDE
</TABLE>
<PAGE>
<TABLE>
<C> <S>
STEP 2 We hereby certify that each of the persons listed in Step 3 has been duly
IF OTHER THAN elected and is now legally holding the office set opposite his name.
AN INDIVIDUAL, We further certify that the said ---------------------- is duly organized and
INSERT TYPE OF existing and has the power to take the action called for by this Continuing
ORGANIZATION Redemption Authorization.
(CORPORATION, We further certify that the signatures on the signature card which is
TRUST, ETC.) submitted with this Application and is incorporated into this Agreement as if
set forth herein, are authentic and represent individuals with legal capacity
to sign on behalf of the above.
STEP 3 We further certify and agree that the above certifications, authorizations and
NAMES AND appointments in this document will continue until State Street Bank and Trust
SIGNATURES Company receives actual written notice of any change thereof.
</TABLE>
<TABLE>
<S> <C> <C>
(A) PLEASE PRINT OR TYPE FULL NAMES AND (B) SIGN BELOW:
TITLES:
------------------------------------------ ------------------------------------------
(INDIVIDUAL, PRESIDENT, TRUSTEE, (SIGNATURE)
GENERAL PARTNER OR REPRESENTATIVE)
------------------------------------------ ------------------------------------------
(IF JOINT ACCOUNT, INSERT (SIGNATURE)
THE NAMES OF JOINT ACCOUNT)
------------------------------------------ ------------------------------------------
(SECRETARY OF CORPORATION) (SIGNATURE)
</TABLE>
<TABLE>
<C> <S>
(The President or Vice President and Secretary or Assistant Secretary of a corporation
must sign.)
STEP 4 Signature(s) Guaranteed: ----------------------------------------------------------
BANKER OR (Name of Guarantor Institution)
BROKER SIGNS By:
---------------------------------------------------------------------
(Authorized Signature)
</TABLE>
This completed authorization must be received by State Street Bank and Trust
Company before redemption requests by check will be honored. Any amendment or
modification of the above information will require that a new Authorization
Form be completed and submitted and may require the execution of new
signature cards.
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
THE PAYMENT OF FUNDS IS AUTHORIZED BY THE SIGNATURE(S) APPEARING ON THE REVERSE
SIDE.
If this card is signed by more than one person, all checks will require all
signatures appearing on the reverse side unless a lesser number is indicated. If
no indication is given, all checks will require all signatures. Each signatory
guarantees the genuineness of the other signatures.
The bank is hereby appointed agent by the person(s) (the "Depositor(s)") signing
this card and, as agent, is authorized and directed to present checks drawn on
this checking account to the Fund or its transfer agent as requests to redeem
shares of the Fund registered in the name of the Depositor(s) in the amounts of
such checks and to deposit the proceeds of such redemptions in this checking
account. The Bank will be liable only for its own negligence.
The Depositor(s) agrees to be subject to the rules and regulations of the Bank
pertaining to this checking account as amended from time to time. The Bank
reserves the right to change, modify or terminate this checking account and
authorization at any time.
<PAGE>
<TABLE>
<S> <C> <C>
POTENTIAL
------------------------- INVESTORS ----------------------------
| OPEN AN ACCOUNT (TWO OPTIONS). |
| |
| |
-1- -2-
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT
OR SECURITIES DEALER STATE STREET BANK AND TRUST COMPANY
P.O. Box 1713
ADVISES SHAREHOLDERS ON THEIR FUND Boston, Massachusetts 02266-8500
INVESTMENTS.
PERFORMS RECORDKEEPING
| AND REPORTING SERVICES.
|
| DISTRIBUTOR |
| |
| MERRILL LYNCH FUNDS DISTRIBUTOR, |
| A DIVISION OF PRINCETON FUNDS DISTRIBUTOR, INC. |
----------------- P.O. Box 9081 --------------------
Princeton, New Jersey 08543-9081
ARRANGES FOR THE SALE OF FUND SHARES.
|
|
|
|
THE FUND
----------------------- THE BOARD OF DIRECTORS ------------------------
| OVERSEES THE FUND. |
| |
| |
COUNSEL | | CUSTODIAN
| |
ROGERS & WELLS LLP | | STATE STREET BANK AND TRUST COMPANY
200 Park Avenue | | P.O. Box 351
New York, New York 10166 | | Boston, MA 02171
| |
PROVIDES LEGAL ADVICE TO THE FUND. | | HOLDS THE FUND'S ASSETS FOR SAFEKEEPING.
| |
| |
| |
| |
INDEPENDENT AUDITORS ------------------ ----------------- INVESTMENT ADVISER
DELOITTE & TOUCHE LLP FUND ASSET MANAGEMENT, L.P.
125 Summer Street
Boston, Massachusetts 02110-1617 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
AUDITS THE FINANCIAL Plainsboro, New Jersey 08536
STATEMENTS OF THE FUND ON BEHALF OF
THE SHAREHOLDERS. MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
MANAGES THE FUND'S DAY-TO-DAY ACTIVITIES.
</TABLE>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
<PAGE>
FOR MORE INFORMATION [ICON]
SHAREHOLDER REPORTS
Additional information about each Fund's in-vestments is available in the Fund's
annual and semi-annual reports to shareholders. You may obtain these reports at
no cost by calling 1-800-225-1576.
Each Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch Financial
Consultant or write to the Transfer Agent at its mailing address. Include your
name, address, tax identification number and Merrill Lynch brokerage or mutual
fund account number. If you have any questions, please call your Merrill Lynch
Financial Consultant or the Transfer Agent at 1-800- .
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains further information about each
Fund and is incorporated by reference (legally considered to be part of this
prospectus). You may request a free copy by writing the Fund at State Street
Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts 02266-8500 or by
calling 1-800-225-5150 in Massachusetts 800-972-5555.
Contact your Merrill Lynch Financial Consultant or the Fund at the telephone
number or address indicated above if you have any questions.
Information about each Fund (including the Statement of Additional Information)
can be re-viewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Wash-ington, D.C.
20549-6009.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS
AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM THE
INFORMATION CONTAINED IN THIS PROSPECTUS.
Investment Company Act file #811-5149
Code #-0799
- -C-Fund Asset Management, L.P.
PROSPECTUS
[LOGO]
Merrill Lynch Premier
Institutional Fund
Merrill Lynch
Institutional Fund
Merrill Lynch Rated
Institutional Fund
Merrill Lynch
Government Fund
Merrill Lynch
Treasury Fund
Merrill Lynch
Institutional
Tax-Exempt Fund
August , 1999
<PAGE>
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THIS STATEMENT OF ADDITIONAL INFORMATION IF NOT AN OFFER TO SELL
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH RATED INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND
One Financial Center, Boston Massachusetts 02111 - Phone No. (617) 342-
-------------------
Each Fund is a no-load money market fund seeking current income,
preservation of capital and liquidity available from investing in short-term
securities. Of the Funds offered by this Prospectus, Merrill Lynch Premier
Institutional Fund, Merrill Lynch Institutional Fund and Merrill Lynch Rated
Institutional Fund invests in money market securities generally; Merrill Lynch
Government Fund invests in direct U.S. Government obligations; and Merrill Lynch
Treasury Fund invests in U.S. Treasury securities; and Merrill Lynch
Institutional Tax-Exempt Fund invests in tax-exempt securities and pays
dividends exempt from Federal income taxation.
This Statement of Additional Information of the Funds is not a prospectus
and should be read in conjunction with the Prospectus of the Funds, dated
, 1999 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission (the "Commission") and can be obtained, without charge,
by calling (800) 225-5150 or by writing each Fund at the above address. The
Prospectus is incorporated by reference into this Statement of Additional
Information, and this Statement of Additional Information is incorporated by
reference into the Prospectus. Each Fund's audited financial statements are
incorporated in this Statement of Additional Information by reference to the
Funds' 1999 annual report to shareholders. You may request a copy of each annual
report at no charge by calling (800) 225-1576 between 8:00 a.m. and 8:00 p.m. on
any business day.
-------------------
FUND ASSET MANAGEMENT--INVESTMENT ADVISER
------------
The date of this Statement of Additional Information is August , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Investment Objectives and Policies......................................................................... 2
Premier Institutional Fund............................................................................. 2
Institutional Fund..................................................................................... 6
Rated Institutional Fund............................................................................... 10
Government Fund........................................................................................ 15
Treasury Fund.......................................................................................... 18
Institutional Tax-Exempt Fund.......................................................................... 19
Maturity and Quality Standards......................................................................... 24
Investment Restrictions................................................................................ 24
Management of the Trust.................................................................................... 25
Trustees and Officers.................................................................................. 25
Compensation of Trustees............................................................................... 27
Investment Advisory Arrangements........................................................................... 28
Portfolio Transactions..................................................................................... 30
Net Asset Value............................................................................................ 32
Dividends.................................................................................................. 33
Taxes...................................................................................................... 35
Federal................................................................................................ 35
Massachusetts Income Tax............................................................................... 37
Other Taxes............................................................................................ 37
Distributor................................................................................................ 37
Yield Information.......................................................................................... 38
General Information........................................................................................ 38
Financial Statements....................................................................................... 38
Appendix A-Commercial Paper, Bank Money Instruments and Corporate Bond Ratings............................. A-1
Appendix B-Information Concerning Tax-Exempt Securities.................................................... B-1
Description of Tax-Exempt Securities................................................................... B-1
Variable Rate Demand Notes............................................................................. B-2
Purchase of Securities with Rights to Put the Securities............................................... B-2
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
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 in 90 days or less.
The following is a description of the types of short-term "money market"
instruments in which the Premier Institutional Fund will principally invest:
(i) U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
(ii) U.S. dollar-denominated obligations of U.S. and foreign depository
institutions, including, but not limited to, certificates of deposit,
bankers' acceptances, time deposits, bank notes, thrift notes and deposit
notes:
(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.
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 than
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) 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
2
<PAGE>
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 herein.
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 increase 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 below 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 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.
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. bands 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
3
<PAGE>
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 dept 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 Appendix A for a description of commercial paper, bank money
instruments 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 above and 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 herein. 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
4
<PAGE>
Institutional Fund will be established with the 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.
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 securities
issued by the U.S. Government and its agencies and instrumentalities;
securities issued by any state of the U.S. or any political subdivision
thereof; instruments issued by domestic banks; and for purposes of this
restriction, issuers of asset-backed and mortgage-backed securities will not
be considered to be in any particular industry).
(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.
(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.
5
<PAGE>
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) Notwithstanding 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.
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.
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 following is a description of the types of short-term "money market"
instruments in which the Institutional Fund will principally invest:
(i) U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
(ii) U.S. dollar-denominated obligations of U.S. and foreign depository
institutions, including, but not limited to, certificates of deposit,
bankers' acceptances, time deposits, bank notes, thrift notes and thrift
deposit notes;
(iii) commercial paper and other short-term obligations issued by
corporations, partnerships, trusts or other entities, including U.S.
dollar-denominated obligations issued by foreign entities; and
(iv) other short-term obligations which in the opinion of the Trustees
of the Trust are of comparable credit quality.
6
<PAGE>
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 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 herein.
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 herein.
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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 not 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 below 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.
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,
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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 Appendix A for a
description of commercial paper, bank money instrument and bond ratings.
The Institutional Fund may also invest in U.S. dollar-denominated commercial
paper and other short-term obligations issued by foreign entities. Such
investments are subject to quality standards similar to those applicable to
investments in comparable obligations of domestic issuers. Investments in
foreign entities in general involve the same risks as those described in
connection with investments in Eurodollar and Yankeedollar obligations.
As described above and 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 above, the Institutional Fund may dispose of a commitment
prior to settlement. Risks relating to these trading practices are briefly
described 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) 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 secruities 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;
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<PAGE>
(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;
(4) 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).
(5) Make loans, except through the purchase of debt obligations in
accordance with the Institutional Fund's investment objective and policies.
(6) Borrow money, except from banks for extraordinary or emergency
purposes and then only in amounts up to 10% of the value of the
Institutional Fund's net assets, taken at cost, at the time the borrowing is
made. This borrowing provision is included solely to facilitate the orderly
sale of portfolio securities to accommodate abnormally heavy redemption
requests if they should occur and is not for investment purposes. (As a
matter of operating policy, the Institutional Fund will not purchase
securities when outstanding borrowings exceed 5% of the Institutional Fund's
asset value.)
(7) 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.
(8) Purchase or sell real estate, real estate investment trust
securities, commodities, commodity contracts or oil and gas interests.
(9) Acquire securities of other investment companies.
(10) Act as an underwriter of securities.
(11) 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.
RATED INSTITUTIONAL FUND
All investments of the Rated 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 Rated Institutional Fund will maintain a rating from one or more
nationally recognized statistical rating organizations ("NRSRO") that provide
ratings on money market funds. There can be no assurance that the Fund will
maintain any particular rating from any particular "NRSRO".
The dollar weighted average maturity of the Rated Institutional Fund's
portfolio will not exceed 90 days; however the Fund may seek to maintain a
dollar weighted average maturity that does not exceed a period of less than 90
days to the extent necessary to achieve a particular rating.
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<PAGE>
The following is a description of the types of short-term "money market"
instruments in which the Rated 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.
Rule 2a-7 of the Securities and Exchange Commission presently limits
investments by the Rated Institutional Fund in securities issued by any one
issuer (other than the U.S. Government, its agencies or instrumentalities or
securities guaranteed by a non-controlled person of the issuer) 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 Rated Institutional
Fund's total assets be invested in Second Tier Securities (as defined in the
Rule). As a matter of operating policy, the Rated Institutional Fund will not
invest in Second Tier Securities. Rule 2a-7 currently limits investments by the
Fund in securities guaranteed by a non-controlled person of the issuer to no
more than 10% of a Fund's total assets in respect of 75% of the Fund's total
assets.
The following is a description of some of the investments or investment
practices in which the Rated 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 Rated 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 Rated Institutional Fund may enter into
repurchase agreements. A repurchase agreement is an instrument under which
the purchaser (i.e., the Rated 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 Rated 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 Rated 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 Rated 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 Rated Institutional
Fund may suffer time delays and incur costs or losses in connection with the
disposition of the collateral.
REVERSE REPURCHASE AGREEMENTS: The Rated Institutional Fund may enter
into reverse repurchase agreements which involve the sale of money market
securities held by the Rated Institutional
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<PAGE>
Fund, with an agreement to repurchase the securities at an agreed upon
price, dated and interest payment. During the time a reverse repurchase
agreement is outstanding, the Rated Institutional Fund will maintain a
segregated custodial account containing U.S. Government or other appropriate
liquid securities having a value equal to the repurchase price.
LENDING OF PORTFOLIO SECURITIES: The Rated 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 Rated Institutional Fund receives income on the
loaned securities and either receives a fee or earns interest on any
investment made with cash collateral and thereby increases its yield.
COMMERCIAL PAPER AND OTHER SHORT-TERM OBLIGATIONS: The Rated
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 below for a discussion of
these structured financings.
BANK MONEY INSTRUMENTS: Obligations or depository institutions such as
certificates of deposit, including variable rate certificates of deposit,
bankers' acceptances, bank notes and time deposits.
FORWARD COMMITMENTS: The Rated 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 Rated 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 Rated Institutional
Fund invests generally are considered to have low principal risk, such
securities are not completely risk-free. There is a risk of 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 Rated 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 the Rated Institutional
Fund may suffer time delays and incur costs or possible losses in connection
with such transactions.
The Rated 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
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<PAGE>
obligations of foreign branches or subsidiaries of U.S. banks or of foreign
banks may be held outside of the United States and the Rated Institutional Fund
may be subject to the risks associated with the holding of such property
overseas. Any such obligations of the Rated Institutional Fund held overseas
will be held by foreign branches of the custodian for the Rated 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 Rated 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 Rated 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 NSRO 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: Standard & Poor's Ratings Group, Duff & Phelps
Credit Ratings Co., Fitch Investors Services, Inc., IBCA Limited and its
affiliate IBCA Inc., Moody's Investors Service, Inc., and Thomson Bankwatch,
Inc. See Appendix A for a description of commercial paper, bank money instrument
and bond ratings.
The Rated 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 above and in the Prospectus, the Rated 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 Rated Institutional Fund as described in the Prospectus. The
purchase of the underlying securities will be recorded on the date the Rated
Institutional Fund enters into the commitment and the value of the security will
thereafter be reflected in the calculation of the Rated Institutional Fund's net
asset value. A separate account of the Rated Institutional Fund will be
established with State Street Bank and Trust Company, the Rated 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 Rated
Institutional Fund may dispose of a commitment prior to settlement. Risks
relating to these trading practices are briefly described in the Prospectus.
The Rated Institutional Fund has adopted the following investment
restrictions, none of which may be changed without the approval of a majority of
the Rated Institutional Fund's outstanding shares, which for
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this purpose means the vote of (i) 67% or more of the Rated Institutional Fund's
shares present at a meeting, if the holders of more than 50% of the outstanding
shares of the Rated Institutional Fund are present or represented by proxy, or
(ii) more than 50% of the Rated Institutional Fund's outstanding shares,
whichever is less. The Rated 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 securities
issued by the U.S. Government and its agencies and instrumentalities;
securities issued by any state of the U.S. or any political subdivision
thereof; and instruments issued by domestic banks; and for purposes of this
restriction, issuers of asset-backed and mortgage-backed securities will not
be considered to be in any particular industry).
(2) Make investments for the purpose of exercising control or
management.
(3) Underwrite securities of other issuers except insofar as the Rated
Institutional Fund technically may be deemed an underwriter under the
Securities Act of 1933, as amended, in selling portfolio securities.
(4) Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Rated 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 Rated 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
Rated Institutional Fund may borrow up to an additional 5% of its total
assets for temporary purposes, (iii) the Rated 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 Rated 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
Rated Institutional Fund may not pledge its assets other than to secure such
borrowings or to the extent permitted by the Rated 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
instrument shall not be deemed to be the making of a loan, and except
further that the Rated 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 Rated
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 Rated Institutional Fund may do so in accordance with
applicable law and the Rated 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.
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In addition, the Rated Institutional Fund has adopted non-fundamental
restrictions which may be changed by the Board of Trustees without approval of
the Rated Institutional Fund's shareholders. Under the nonfundamental investment
restrictions, the Rated 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) Notwithstanding 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.
LENDING OF PORTFOLIO SECURITIES. Subject to investment restriction (6)
above, the Rated 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 Rated Institutional Fund. Such loans will be terminable at any
time. The Rated Institutional Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights. The Rated
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 Rated 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.
GOVERNMENT FUND
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.
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
15
<PAGE>
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 below.
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 below.
FORWARD COMMITMENTS: The Government Fund may purchase and sell U.S.
Government securities on a when-issued basis or forward commitment basis,
and it may purchase or sell such securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Government
Fund with payment and delivery taking place in the future to secure what is
considered an advantageous yield and price to the Government Fund at the
time of entering into the transaction. The value of the security on the
delivery date may be more or less than its purchase 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.
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"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.
Forward or firm commitments for the purchase of U.S. Government securities
may be entered into by the Government Fund, as described 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.
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.
(5) 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.)
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.
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TREASURY FUND
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.
The types of securities in which the Treasury Fund may invest include the
following:
U.S. TREASURY SECURITIES: The Treasury Fund will invest in Treasury
bills, notes and other direct obligations of the U.S. Treasury.
FORWARD COMMITMENTS: The Treasury Fund may purchase and sell U.S.
Treasury securities on a when-issued or forward commitment basis and it may
purchase or sell such securities for delayed delivery. These transactions
occur when securities are purchased or sold by the Treasury Fund with
payment and delivery taking place in the future to secure what is considered
an advantageous yield and price to the Treasury Fund at the time of entering
into the transaction. The value of the security on the delivery date may be
more or less than its purchase 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.
Forward or firm commitments for the purchaser of U.S. Government securities
may be entered into by the Treasury Fund, as described 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.
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The limitations 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.
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) 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.)
(3) 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.
(4) Act as an underwriter of securities;
(5) 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, 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
(6) 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.
INSTITUTIONAL TAX-EXEMPT FUND
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 subdivisons, 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
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the Tax-Exempt Fund. There can be no assurance that the objectives of the
Tax-Exempt Fund will be attained. The Tax-Exempt Fund may not purchase any
securities other than Tax-Exempt Securities, and, as a matter of operating
policy, the Tax-Exempt Fund under normal circumstances will invest at least 80%
of its assets in Tax-Exempt Securities which are not subject to the alternative
minimum tax described under "Taxes".
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 rating;
(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.
Appendix A 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 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 derivatives 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 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
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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 below and Appendix B.
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 the subject.
Were the IRS to issue an adverse ruling, there is a risk the the interest paid
on such Derivative Products would be deemed taxable.
The Tax-Exempt Fund may purchase and sell tax-exempt securities on a
when-issued basis or forward commitment basis, and it may purchase or sell such
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Tax-Exempt Fund with payment and delivery taking place
in the future to secure what is considered an advantageous yield and price to
the Tax-Exempt Fund at the time of entering into the transaction. The value of
the security on the delivery date may be more or less than its purchase price.
If management of the Tax-Exempt Fund deems it appropriate to do so, the Tax-
Exempt Fund may dispose of a commitment prior to settlement. There can, of
course, be no assurance that the judgments upon which these practices are based
will be accurate, and it is possible that in consequence of these practices the
Tax-Exempt Fund would be required to pay on a settlement date more than the
market value of the purchased securities at that time, or the Tax-Exempt Fund
would incur a loss by disposing of a commitment on terms less favorable than
those of its original purchase. The Tax-Exempt
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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 indicated under "How to Buy, Sell and Transfer Shares" in the Prospectus,
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 certain circumstances.)
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
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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 A.
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 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.
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.
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MATURITY AND QUALITY STANDARDS
As a money market fund, the Tax-Exempt Fund is required to meet certain
maturity and quality standards as set forth below.
SHORT-TERM MATURITY STANDARDS. All of the investments of the Tax-Exempt
Fund will be in securities with remaining maturities of 397 days (13 months) or
less. The dollar weighted average maturity of the Tax-Exempt Fund's portfolio
will be 90 days or less. The maturities of VRDNs (including Participating VRDNs)
are deemed to be the longer of (i) the notice period required before the
Tax-Exempt Fund is entitled to receive payment of the principal amount of the
VRDN on demand or (ii) the period remaining until the VRDN's next interest rate
adjustment. If not redeemed by the Tax-Exempt Fund through the demand feature,
VRDNs mature on a specified date which may range up to thirty years from the
date of issuance.
QUALITY STANDARDS. The Tax-Exempt Fund's portfolio investments in
Tax-Exempt Securities will be limited to those obligations which are rated, or
issued by issuers who have been rated, in one of the two highest rating
categories for short-term municipal debt obligations by a nationally recognized
statistical rating organization (an "NRSRO") or, if not rated, will be of
comparable quality as determined by the trustees of the Trust. The Tax-Exempt
Fund's investments in Tax-Exempt Securities (which must have maturities at the
date of purchase of 397 days (13 months) or less) will be in issuers who have
received from the requisite NRSROs a rating, with respect to a class of
short-term debt obligations that is comparable in priority and security with the
investment, in one of the two highest rating categories for short-term
obligations or, if not rated, will be of comparable quality as determined by the
Trustees of the Trust. Currently, there are three NRSROs which rate municipal
obligations: Fitch, Moody's and S&P. Certain tax-exempt obligations (primarily
VRDNs and Participating VRDNs) may be entitled to the benefit of letters of
credit or similar credit enhancements issued by financial institutions and, in
such instances, the Board of Trustees and the Investment Adviser will take into
account the obligation of the financial institution in assessing the quality of
such instruments. The Tax-Exempt Fund also may purchase other types of
tax-exempt instruments if, in the opinion of the Trustees of the Trust, such
obligations are equivalent to securities having the ratings described above.
INVESTMENT RESTRICTIONS
The Tax-Exempt Fund has adopted the following restrictions and policies
relating to the investment of its assets and its activities. These are
fundamental policies and may not be changed without the approval of the holders
of a majority of the Tax-Exempt Fund's outstanding shares (for this purpose a
majority of the shares means the lesser of (i) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares).
The Tax-Exempt Fund may not: (1) 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; (6) make investments for the
purpose of exercising control or management; (7) purchase securities of other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization; (8) purchase or sell real estate (provided that
such restriction shall not apply to tax-exempt
24
<PAGE>
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; (9) 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); (10) 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 (11) above or
insofar as the Tax-Exempt Fund may be deemed an underwriter under the Securities
Act of 1933 in selling portfolio securities; (12) 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; (13) purchase any securities on margin, except
for use of short-term credit necessary for clearance of purchases and sales of
portfolio securities; or (14) make short sales or 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 described 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, 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, 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.
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.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
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 (63) -- 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 (69) -- 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.
25
<PAGE>
CHARLES C. CABOT, JR. (69) -- 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 (59) -- 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 (58) -- 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.
TODD GOODWIN (67) -- TRUSTEE -- General Partner of Gibbons, Goodwin, van
Amerongen (investment banking firm) since 1984; Director of Wells Aluminum Co.
(aluminum extrusions), The Rival Company (electrical appliance manufacturer),
U.S. Energy Systems (independent power producer) and John Manville Corporation
(building materials).
GEORGE W. HOLBROOK, JR. (68) -- 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 (47) -- 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 M. BREEN (44) -- 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 (40) -- 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 (43) -- SENIOR VICE PRESIDENT (2)(3) -- Vice President of
MLAM since 1993; Vice President of MLFD since 1990 and Assistant Vice President
of MLFD prior thereto.
KEVIN MCKENNA (42) -- SENIOR VICE PRESIDENT (2)(4) -- First Vice President
of MLAM since 1997 and associated therewith since [1981].
JOSEPH T. MONAGLE, JR. (50) -- SENIOR VICE PRESIDENT (2)(4) -- Senior Vice
President and Department Head of the Global Fixed Income Division of the
Investment Advisor and associated therewith since 1977; Senior Vice President of
Princeton Services since 1993.
WILLIAM WASEL (40) -- SENIOR VICE PRESIDENT (2)(3) -- Vice President of MLAM
since 1993 and Vice President of MLFD since 1990 and Assistant Vice President of
MLFD prior thereto.
P. MICHAEL WALSH (31) -- VICE PRESIDENT -- Vice President of MLAM since 1993
and associated therewith since 1991.
KAREN D. YOUNG (35) -- VICE PRESIDENT (2)(3) -- Employee of MLFD since 1982.
ANN CATLIN (38) -- SENIOR VICE PRESIDENT (2)(3) -- Employee of MLFD since
1986.
DIANA FRANKLAND (64) -- VICE PRESIDENT (2)(3) -- Employee of MLFD since
1979.
VINCENT R. GIORDANO (54) -- 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 (40) -- VICE PRESIDENT (2)(4) -- First Vice President of MLAM
since 1997, Vice President of MLAM since 1988; Portfolio Manager of FAM since
1987; Vice President of Shawmut Bank, N.A. from 1984 to 1987.
26
<PAGE>
KEVIN SCHIATTA (44) -- VICE PRESIDENT (2)(4) -- Vice President of MLAM since
1985.
DONALD C. BURKE (38) -- VICE PRESIDENT AND TREASURER (2)(4) -- Senior Vice
President and Treasurer of MLAM and FAM since 1999, Senior Vice President and
Treasurer of MLAM and FAM since 1999; Senior Vice President and Treasurer of
Princeton Administrators, Inc. since 1999; Vice President of PFD since 1999;
First Vice President of MLAM from 1997 to 1999; Vice President of MLAM from 1990
to 1997; Director of Taxation of MLAM since 1990.
MARK E. MAGUIRE (38) -- SENIOR VICE PRESIDENT (2)(3) -- Assistant Vice
President of MLFD since 1990.
JOHN NG (45) -- VICE PRESIDENT (2)(4) -- Director of MLAM since 1998; Vice
President of MLAM since 1984; Assistant Vice President of MLAM from 1981 to
1984.
BARRY F.X. SMITH (33) -- SENIOR VICE PRESIDENT (2)(3) -- Employee of MLFD
since 1987.
DIANNE MCDONOUGH (37) -- VICE PRESIDENT (2)(3) -- Employee of MLFD since
1983.
ERIC P. LAREAU (29) -- VICE PRESIDENT (2)(3) -- Employee of MLFD since 1992.
PHILIP GILLESPIE (35) -- SECRETARY (1)(2)(4) -- Vice President of MLAM since
1999, attorney with MLAM from 1998 to 1999. Prior to 1998, Mr. Gillespie was
Assistant General Counsel of Chancellor LGT Asset Management, Inc. and from 1993
to 1997 was a Senior Counsel and Attorney in the Division of Investment
Management and the Office of General Counsel at the U.S. Securities and Exchange
Commission.
PETER THOMPSON (32) -- VICE PRESIDENT -- Employee of MLFD since 1996; Prior
employee of Colonial Investment Services since 1993.
PATRICIA A. SCHENA (41) -- VICE PRESIDENT AND ASSISTANT SECRETARY (2)(3) --
Assistant Vice President of MLFD since 1990, and an employee of MLFD since 1980.
- ------------
(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
COMPENSATION OF TRUSTEES
The following table sets forth the fiscal year ended April 30, 1999,
compensation paid by the Trust to the disinterested Trustees and for the
calendar year ended December 31, 1998, 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>
PENSION OR RETIREMENT AGGREGATE COMPENSATION FROM
COMPENSATION BENEFITS ACCRUED AS PART TRUST AND FAM/MLAM ADVISED
NAME OF TRUSTEE FROM THE TRUST OF TRUST EXPENSE FUNDS PAID TO TRUSTEES(1)
- ---------------------------------------- -------------- ------------------------- ---------------------------
<S> <C> <C> <C>
A. Bruce Brackenridge(1)................ $ None $
Charles C. Cabot, Jr.(1)................ $ None $
James T. Flynn(1)....................... $ None $
Todd Goodwin(1)......................... $ None $
George W. Holbrook, Jr.(1).............. $ None $
W. Carl Kester(1)....................... $ None $
</TABLE>
- ---------------
(1) In addition to the Fund, the Trustees serve on other FAM/MLAM Advised Funds
as follows: Mr. Breckenridge ( ) registered investment companies consisting
of ( ) portfolios; Mr. Cabot ( ) registered investment companies consisting
of ( ) portfolios; Mr. Flynn ( ) registered investment companies consisting
of ( ) portfolios, Mr. Goodwin ( ) registered investment companies
consisting of ( ) portfolios; Mr. Holbrook ( ) registered investment
companies consisting of ( ) portfolios; and Mr. Kester ( ) registered
investment companies consisting of ( ) portfolios.
The Trustees have an Audit and Nominating Committee, the members of which
are Messrs. Brackenridge, Cabot, Flynn, Goodwin, Kester and Holbrook.
Each Trustee who is not an officer or employee of Merrill Lynch & Co., Inc.
or its subsidiaries will be paid $36,000 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.
27
<PAGE>
No officer or employee of Merrill Lynch & Co., Inc. or its subsidiaries will
receive any compensation from any Fund for acting as a trustee or officer of the
Trust.
As a result of the responsibilities assumed by MLFD and FAM under the
Distribution Agreement and the Advisory Agreement, respectively (described below
and under "Distributor" and "Investment Advisory 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 June 15, 1999 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 June 15, 1999, the following were the only shareholders of record of
5% or more of the outstanding shares of any Fund:]
INVESTMENT ADVISORY ARRANGEMENTS
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.
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
-------------------------------------------------------------
<S> <C>
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
Rated Institutional Fund.......................... .20%
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
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY NET ASSETS
-------------------------------------------------------------
<S> <C>
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. For the fiscal year ended April 30, 1998, the total advisory fees payable
by the Premier Institutional Fund to the Investment Adviser aggregated
$8,073,755. For the fiscal year ended April 30, 1999, the total advisory fees
payable by the Premier Institutional Fund to the Investment Adviser aggregated
$13,596,700.
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, 1999, April 30, 1998 and April 30, 1997,
the total advisory fees payable by the Institutional Fund to the Investment
Adviser aggregated $26,504,478, $21,807,793 and $24,155,20, respectively. The
Investment Adviser voluntarily waived $10,424,799, $8,619,014 and $9,522,140 of
the advisory fees payable for the fiscal years ended April 30, 1999, April 30,
1998 and April 30, 1997, respectively.
RATED INSTITUTIONAL FUND. During its initial offering period, FAM agreed to
waive a portion of its advisory fee for the Rated Institutional Fund. For the
period beginning June 15, 1998 (commencement of operations) to April 30, 1999,
the effective fee payable to FAM was .16% 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 June 15, 1998 (commencement of
operations) to April 30, 1999, the total advisory fees payable by the Rated
Institutional Fund to the Investment Adviser aggregated $719,585. The Investment
Adviser voluntarily waived $154,017 of the advisory fees payable for the period
beginning June 15, 1998 (commencement of operations) to April 30, 1999.
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, 1999, April 30, 1998 and April 30, 1997,
the total advisory fees payable by the Government Fund to the Investment Adviser
aggregated $7,841,110, $6,330,489 and $6,007,440, respectively. The Investment
Adviser voluntarily waived $2,872,035, $2,369,204 and $2,261,521 of the advisory
fees payable for the fiscal years ended April 30, 1999, April 30, 1998 and April
30, 1997, 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 April 30, 1999, April 30, 1998 and April 30, 1997,
the total advisory fees payable by the Treasury Fund to the Investment Adviser
aggregated $2,628,306, $2,294,733, $1,991,236 and $1,792,930, respectively. The
Investment Adviser voluntarily waived $1,098,411, $974,269, $846,551 and
$765,429 of the advisory fees payable for the fiscal years ended April 30, 1999,
April 30, 1998 and April 30, 1997, 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
29
<PAGE>
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, 1999, April 30, 1998 and April 30, 1997, the total advisory fees payable by
the Tax-Exempt Fund to the Investment Adviser aggregated $8,910,128, $6,881,461
and $3,731,200, respectively. The Investment Adviser voluntarily waived
$4,885,992, $3,810,001 and $2,072,889 of the advisory fees payable for the
fiscal years ended April 30, 1999, April 30, 1998 and April 30, 1997,
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.
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 LLP, 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 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
30
<PAGE>
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 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 and exemptive order which
permits the Premier Institutional Fund, Institutional Fund, Rated 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, Rated 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, Rated Institutional Fund, Government Fund and Treasury Fund
no greater than their customary dealer spread for transactions of the type
involved.
The Securities and Exchange Commission has issued an exemptive order
permitting the Tax-Exempt Fund to conduct principal transactions with Merrill
Lynch in municipal securities with remaining maturities of one year or less
which have received one of the two highest ratings from at least one of the
nationally recognized rating agencies, subject to a number of conditions,
including conditions designed to insure that the prices to the Tax-Exempt Fund
available from Merrill Lynch are equal to or better than that available from
other sources. Merrill Lynch has informed the Tax-Exempt Fund that it will in no
way at any time attempt to influence or control the activities of the Tax-Exempt
Fund or the Investment Adviser in placing such principal transactions. The
exemptive order allows Merrill Lynch to receive a dealer spread on any
transaction with the Tax-Exempt Fund no greater than their customary dealer
spreads for transactions of the type involved.
PREMIER INSTITUTIONAL FUND. For the fiscal year ended April 30, 1998, the
Premier Institutional Fund engaged in 62 transactions. During the fiscal year
ended April 30, 1999, the Premier Institutional Fund engaged in 88 transactions
involving approximately $4,139.7 million.
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INSTITUTIONAL FUND. During the fiscal year ended April 30, 1998, the
Institutional Fund engaged in 35 such transactions involving approximately $1.33
billion. During the fiscal year ended April 30, 1999, the Institutional Fund
engaged in 61 such transactions involving approximately $2,314.1 billion.
RATED INSTITUTIONAL FUND. During the fiscal year ended April 30, 1999, the
Rated Institutional Fund engaged in 19 such transactions involving approximately
$238.6 million.
GOVERNMENT FUND. During the fiscal year ended April 30, 1998, the
Government Fund engaged in 24 such transactions involving approximately $720.2
million. During the fiscal year ended April 30, 1999, the Government Fund
engaged in 10 such transactions involving approximately 442.9 million.
TREASURY FUND. During the fiscal year ended April 30, 1998, the Treasury
Fund engaged in 8 such transactions involving approximately $56.0 million.
During the fiscal year ended April 30, 1999, the Treasury Fund engaged in 9 such
transactions involving approximately 285.4 million.
TAX-EXEMPT FUND. During the fiscal year ended April 30, 1998, the
Tax-Exempt Fund engaged in no such transactions. During the fiscal year ended
April 30, 1999, the Tax-Exempt Fund engaged in 13 such transactions involving
approximately 214.6 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 per share for purposes of pricing orders for both the
purchase and the redemption of Fund shares is determined daily on days that both
the New York Stock Exchange (the "Exchange") and the Federal Reserve Bank of
Boston are open for business and do 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. On any day that the PSA
recommends an early close, the time for determination of net asset value of the
Funds, will be 15 minutes following the time that each Fund determines, in its
discretion, to cease accepting orders for purchases and redemptions of shares.
On days that both the Exchange and the Federal Reserve Bank of Boston are open
for full days of trading and the PSA does not recommend that the securities
markets close early, net asset value is determined as of 5:00 p.m. (Boston time)
for the Premier Institutional, Institutional, the Rated Institutional and
Government Funds. Net asset value is determined on days that both the Exchange
and the Federal Reserve Bank of Boston are open for business for full days of
trading for the Tax-Exempt Fund and for the Treasury Fund at the close of
trading on the Exchange (4:00 p.m. Boston time).
The net asset value of the Premier Institutional Fund, Institutional Fund,
Rated 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
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the Premier Institutional Fund, Institutional Fund, Rated 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 on a current market basis. Other securities held by the
Premier Institutional Fund, Institutional Fund, Rated 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, Rated 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.
DIVIDENDS
All, or substantially 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.
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Each Fund's net income for dividend purposes is determined daily. On days on
which the New York Stock Exchange and the Federal Reserve Bank of Boston are
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 for the Tax-Exempt and Treasury Funds, and as of 5:00 p.m.
(Boston time) for the Premier Institutional Fund, Institutional Fund, Rated
Institutional Fund and Government Fund. 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 5:00 p.m. (Boston time) for the Premier Institutional Fund,
Institutional Fund, Rated Institutional Fund and Government Fund on days on
which the New York Stock Exchange and the Federal Reserve Bank of Boston are
open for business and do not close early, or if the Exchange closes early or the
BMA recommends that the securities markets close 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 or the Federal Reserve Bank of Boston is not
open for business. Net income of the Premier Institutional Fund, Institutional
Fund, Rated 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 the Tax-Exempt Fund is received after 12:00 Noon (Boston
Time), or after 2:00 p.m. (Boston Time), for the Treasury Fund and prior to the
close of the Exchange (including early closings), the order will become
effective on that day, but dividends will not be earned until the next Business
Day. For the Premier Institutional, the Institutional, the Rated Institutional
or the Government Funds, if an order is received after 5:00 p.m. (Boston Time)
it will not become effective, and dividends will not be earned, until the next
Business Day.
Net income of the Tax-Exempt Fund (from the time of the immediately
preceding determination thereof) consists of interest accrued and/or original
issue discount earned, less amortization of premiums and the estimated expenses
of the Tax-Exempt Fund (including the fees payable to FAM applicable to that
dividend period). The amount of discount or premium on portfolio securities is
fixed at the time of their purchase and consists of the difference between the
purchase price for such securities and the principal amount of such securities.
Realized gains and losses are reflected in the Tax-Exempt Fund's net asset value
and are not included in income.
Each Fund intends to use its best efforts to maintain its net asset value at
$1.00 per share. As a result of a significant expense or realized or unrealized
loss, it is possible that a Fund's net asset value may fall below $1.00 per
share.
Should any Fund incur or anticipate any unusual or unexpected significant
expense or loss which would affect disportionately that Fund's income for a
particular period, the Trustees would at that time consider whether to adhere to
the present dividend policy described or to revise it in the light of the then
prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on then existing shareholders.
Such expenses or losses may nevertheless result in a shareholder's receiving no
dividends for the period during which he held his shares and in his receiving
upon redemption a price per share lower than that which he paid.
Shareholders may receive their dividends in cash monthly by completing the
appropriate section of the Account Application contained in the Prospectus for
the applicable Fund. Such distributions will be paid by check within seven days
after the end of each month. The election to receive cash distributions may be
made at the time of purchase of Fund shares or at any time subsequent thereto by
giving written notice to State Street Bank. To be effective with respect to a
particular monthly dividend, such written notice must be received by State
Street Bank at least seven days prior to the end of the month. Dividends and
distributions are taxable to shareholders whether distributed in cash or
reinvested in additional shares. See "Taxes."
State Street Bank, the Transfer Agent, will send each shareholder a monthly
statement showing the total number of shares owned as of the last business day
of the month, as well as the current month's and
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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. Each Fund intends to qualify for tax treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). 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.
PREMIER INSTITUTIONAL FUND, INSTITUTIONAL FUND, RATED 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 portions 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,
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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. 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.
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 amount is
for informational purposes only. In addition, the Code provides that with
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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
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. 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 the Merrill Lynch Funds Distributor
division of Princeton Distributors, 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 by MLFD and by MLFD on 90 days' written notice
to the Trust.
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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.
FINANCIAL STATEMENTS
The Funds' audited financial statements are incorporated in this Statement
of Additional Information by reference to the Funds' 1999 annual report to
shareholders.
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APPENDIX A
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 strong capacity to pay interest and repay principal
and differ from the highest rated issues only in a small degree.
Bonds rated Aaa by Moody's are judged to be of the best quality. Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. Bonds rated Aa are judged to be of high quality by all
standards. They are rated lower than the best bonds because the margins of
protection may not be as large or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Moody's applies
numerical modifiers, 1, 2 and 3 in each generic rating classification from Aa
through B in its corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Bonds rated AAA by IBCA are obligations for which there is the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk significantly.
Bonds rated AA are obligations for which there is a very low expectation of
investment risk. Capacity for timely
A-1
<PAGE>
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 very 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."
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 of 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.
A-2
<PAGE>
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, net 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 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.
A-3
<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" dividends would be adversely affected and the Tax-Exempt Fund would
reevaluate its investment
B-1
<PAGE>
objective and policies and consider changes in its structure. See "Taxes" in the
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 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.
B-2
<PAGE>
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
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 LLP
200 Park Avenue
New York, New York 10166
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THE PROSPECTUSES AND IN THESE
STATEMENTS OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFER MADE BY THE
PROSPECTUSES, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY FUND OR ITS
DISTRIBUTOR. THE PROSPECTUSES AND THESE STATEMENTS OF ADDITIONAL INFORMATION DO
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY FUND
OR BY THE DISTRIBUTOR IN ANY STATE IN WHICH SUCH OFFER TO SELL OR SOLICITATION
OF ANY OFFER TO BUY MAY NOT LAWFULLY BE MADE.
MERRILL LYNCH PREMIER INSTITUTIONAL FUND
MERRILL LYNCH INSTITUTIONAL FUND
MERRILL LYNCH RATED 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 RATED INSTITUTIONAL FUND
MERRILL LYNCH GOVERNMENT FUND
MERRILL LYNCH TREASURY FUND
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND
MERRILL LYNCH PREMIER INSTITUTIONAL FUND, MERRILL LYNCH INSTITUTIONAL FUND,
MERRILL LYNCH RATED INSTITUTIONAL FUND, MERRILL LYNCH GOVERNMENT FUND, MERRILL
LYNCH TREASURY FUND AND MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT FUND ARE SEPARATE
SERIES OF MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES, WHICH IS ORGANIZED AS A
MASSACHUSETTS BUSINESS TRUST. NONE OF THE FUNDS IS A BANK, NOR DOES IT OFFER
FIDUCIARY OR TRUST SERVICES. SHARES OF THE FUNDS ARE NOT EQUIVALENT TO A BANK
ACCOUNT. WHILE THE FUNDS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE, THERE CAN BE NO ASSURANCE THAT THEY WILL BE ABLE TO DO SO. THE SHARES
OF THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY ANY GOVERNMENT AGENCY AND ARE
NOT SUBJECT TO THE PROTECTION OF THE SECURITIES INVESTOR PROTECTION CORPORATION.
August [ ], 1999
Distributor
Merrill Lynch
Funds Distributor
These Statements of Additional Information should be retained for future
reference.
- --------------------------------------------------------------------------------
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<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
1(a) -- Declaration of Trust, as amended, with Form of Amendment dated December 11, 1989 (incorporated by
reference to Exhibit 1 to Registrant's Registration Statement on Form N-1A (File No. 33-14190))
1(b) -- Establishment and Designation of Merrill Lynch Institutional Fund and Merrill Lynch Government Fund as
separate series of Merrill Lynch Funds For Institutions Series, dated June 18, 1990 (incorporated by
reference to Exhibit 1(b) to Post-Effective Amendment No. 6 to Registrant's Registration Statement on Form
N-1A (File No. 33-14190))
1(c) -- Establishment and Designation of Merrill Lynch Institutional Tax-Exempt Fund as a separate series of
Merrill Lynch Funds for Institutions Series, dated February 16, 1994 (incorporated by reference to Exhibit
1(c) to Post-Effective Amendment No. 10 of Registrant's Registration Statement on Form N-14 (File No.
33-14190))
1(d) -- Establishment and Designation of Merrill Lynch Premier Institutional Fund as a separate series of Merrill
Lynch Funds For Institutions Series, dated December 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))
1(e) -- Establishment and Designation of Merrill Lynch Rated Institutional Fund as a separate series of Merrill
Lynch Funds for Institutions Series, dated June 8, 1998 (incorporated by reference to Exhibit 1(e) to Post
Effective Amendment No. 18 to Registrant's Registration Statement on 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))
5(f) -- Investment Advisory Agreement for Merrill Lynch Rated Institutional Fund (incorporated by reference to
Exhibit 5(f) to Post Effective Amendment No. 18 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))
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
6(c) -- Form of Distribution Agreement for Merrill Lynch Institutional Fund (incorporated by reference to Exhibit
6(c) to Post-Effective Amendment No. 5 to Registrant's Registration Statement on Form N-1A (File No.
33-14190))
6(d) -- Form of Distribution Agreement for Merrill Lynch Government Fund (incorporated by reference to Exhibit
6(d) to Post-Effective Amendment No. 5 to Registrant's Registration Statement on Form N-1A (File No.
33-14190))
6(e) -- Form of Distribution Agreement for Merrill Lynch Institutional Tax-Exempt Fund (incorporated by reference
to Exhibit 6(e) to Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form N-1A
(File No. 33-14190))
6(f) -- Distribution Agreement for Merrill Lynch Premier Institutional Fund (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))
6(g) -- Distribution Agreement for Merrill Lynch Rated Institutional Fund (incorporated by reference to Exhibit
6(g) to Post Effective Amendment No. 18 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 -- None
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))
</TABLE>
- ------------------------
*To be filed by amendment.
ITEM 24. 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.
C-2
<PAGE>
ITEM 25. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust.
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a defense
to the action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds that
amount to which it is ultimately determined that he is entitled to receive from
the Registrant by reason of indemnification; and (iii)(a) such promise must be
secured by a surety bond, other suitable insurance of an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be found
entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENTS ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser" or "FAM") acts as the
investment adviser for the following open-end registered investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Puerto Rico Tax Exempt Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc. and The
Municipal Fund Accumulation Program, Inc.; and for the following closed-end
registered investment companies: Apex Municipal Fund, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies
Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund
2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund III, MuniHoldings Florida Insured Fund IV, MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings Insured Fund, Inc., MuniHoldings
Insured Fund II, Inc., MuniHoldings Michigan Insured Fund, Inc., MuniHoldings
New Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc.,
MuniHoldings New Jersey Insured Fund III, Inc., MuniHoldings New York Fund,
Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured
Fund II, Inc., MuniHoldings New York Insured Fund III, Inc., MuniHoldings
Pennsylvania Insured Fund, MuniInsured Fund Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield
Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California
Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield
Insured Fund, Inc., MuniYield Michigan
C-3
<PAGE>
Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund,
Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund,
Inc., MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management L.P. ("MLAM"), an affiliate of FAM, acts as
investment adviser for the following open-end registered investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch Global Convertible
Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill
Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Real Estate Fund, Inc., Merrill Lynch Ready Assets Trusts, 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 for the following closed-end
registered investment companies: Merrill Lynch High Income Municipal Bond Fund,
Inc., Merrill Lynch Senior Floating Rate Fund, Inc., and Merrill Lynch Senior
Floating Rate Fund II, Inc. MLAM also acts as sub-adviser to Merrill Lynch World
Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two
investment portfolios of EQ Advisors Trust.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds for
Institutions Series and Merrill Lynch Intermediate Bond Fund is One Financial
Center, 23rd Floor, Boston, Massachusetts 02111-2665. The address of the
Investment Adviser, MLAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch Funds Distributor ("MLFD") is also P.O.
Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch, and
Merrill Lynch & Co., Inc. ("ML & Co.") is North Tower, World Financial Center,
250 Vesey Street, New York, New York 10281-1201. The address of Financial Data
Services, Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each 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>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ----------------------------------- ----------------------------- ----------------------------------------------------
<S> <C> <C>
ML & Co............................ Limited Partner Financial Services Holding Company; Limited Partner
of MLAM
Princeton Services................. General Partner General Partner of MLAM
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ----------------------------------- ----------------------------- ----------------------------------------------------
<S> <C> <C>
Jeffrey M. Peek.................... President President of MLAM; President and Director of
Princeton Services; Executive Vice President of ML
& Co.; Managing Director and Co-Head of the
Investment Banking Division of Merrill Lynch in
1997; Senior Vice President and Director of the
Global Securities and Economic Division of Merrill
Lynch from 1995 to 1997
Terry K. Glenn..................... Executive Vice President Executive Vice President of MLAM; Executive Vice
President and Director of Princeton Services;
President of Princeton Funds Distributor, Inc.
since 1986 and Director thereof since 1991;
Director of FDS; President of Princeton
Administrators, L.P.
Donald C. Burke.................... Senior Vice President and Senior Vice President, Treasurer and Director of
Treasurer Taxation of MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice President of
PFD; First Vice President of MLAM from 1997 to
1999; Vice President of MLAM from 1990 to 1997
Michael G. Clark................... Senior Vice President Senior Vice President of MLAM; Senior Vice President
of Princeton Services; Treasurer and Director of
PFD; First Vice President of MLAM from 1997 to
1999; Vice President of MLAM from 1996 to 1997
Mark A. Desario.................... Senior Vice President Senior Vice President of MLAM; Senior Vice President
of Princeton Services
Linda L. Federici.................. Senior Vice President Senior Vice President of MLAM; Senior Vice President
of Princeton Services
Vincent R. Giordano................ Senior Vice President Senior Vice President of MLAM; Senior Vice President
of Princeton Services
Michael J. Hennewinkel............. Senior Vice President, Senior Vice President, General Counsel and Secretary
General Counsel and of MLAM; Senior Vice President of Princeton
Secretary Services
Philip L. Kirstein................. Senior Vice President Senior Vice President of MLAM; Senior Vice
President, Director and Secretary of Princeton
Services
Ronald M. Kloss.................... Senior Vice President Senior Vice President of MLAM; Senior Vice President
of Princeton Services
Debra W. Landsman-Yaros............ Senior Vice President Senior Vice President of MLAM; Senior Vice President
of Princeton Services; Senior Vice President of
PFD
Joseph T. Monagle, Jr.............. Senior Vice President Senior Vice President of MLAM; Senior Vice President
of Princeton Services
Brian A. Murdock................... Senior Vice President Senior Vice President of MLAM; Senior Vice President
of Princeton Services; Director of PFD
Gregory D. Upah.................... Senior Vice President Senior Vice President of MLAM; Senior Vice President
of Princeton Services
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end investment companies referred to in the first paragraph of Item
28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury
C-5
<PAGE>
Fund, The Corporate Fund Accumulation Program, Inc. and The Municipal Fund
Accumulation Program, Inc., and MLFD also acts as the principal underwriter for
the following closed-end investment companies: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
the Distributor. The principal business address of each such person is P.O. Box
9011, Princeton, New Jersey 08543-9081, except that the address of Messrs.
Crook, Aldrich, Brady, Breen, Fatseas, and Wasel is One Financial Center, 23rd
Floor, Boston, Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES
NAME WITH THE DISTRIBUTOR WITH REGISTRANT
- ----------------------------------- ---------------------------------------------------- -------------------
<S> <C> <C>
Terry K. Glenn..................... President and Director President
Thomas J. Verage................... Director None
Robert W. Crook.................... Senior Vice President None
Michael J. Brady................... Vice President None
William M. Breen................... Vice President None
Michael G. Clark................... Vice President None
James T. Fatseas................... Vice President None
Debra W. Landsman-Yaros............ Vice President None
Michelle T. Lau.................... Vice President None
Donald C. Burke.................... Vice President and Treasurer Treasurer
Salvatore Venezia.................. Vice President None
William Wasel...................... Vice President None
Robert Harris...................... Secretary None
</TABLE>
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder will be
maintained at the offices of the Registrant and its Custodian and Transfer
Agent.
ITEM 29. 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 30. UNDERTAKINGS.
None.
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<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 30th day of June, 1999.
<TABLE>
<S> <C> <C>
MERRILL LYNCH FUNDS FOR INSTITUTIONS SERIES
By /s/ ROBERT W. CROOK
------------------------------------------
Robert W. Crook, President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registrant's Registration Statement has been signed below by the
following persons in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- ------------
<C> <S> <C>
/s/ ROBERT W. CROOK President and Trustee June 30,
- ------------------------------ (Principal Executive 1999
Robert W. Crook Officer)
/s/ WILLIAM M. BREEN Chief Financial Officer June 30,
- ------------------------------ (Principal Financial and 1999
William M. Breen 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
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ROBERT W. CROOK June 30, 1999
- -------------------------------
Robert W. Crook
ATTORNEY-IN-FACT
</TABLE>
C-7
