<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1994
SECURITIES ACT FILE NO. 33-20580
INVESTMENT COMPANY ACT FILE NO. 811-5011
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 7
(CHECK APPROPRIATE BOX OR BOXES)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 67
(CHECK APPROPRIATE BOX OR BOXES)
----------------
CMA CALIFORNIA MUNICIPAL MONEY FUND
OF CMA MULTI-STATE MUNICIPAL SERIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD 08536
PLAINSBORO, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
CMA MULTI-STATE MUNICIPAL SERIES TRUST
800 SCUDDERS MILL ROAD,PLAINSBORO, NEW JERSEY
MAILING ADDRESS: BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
COUNSEL FOR THE TRUST: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD FUND ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER, BOX 9011, PRINCETON,NEW JERSEY 08543-9011
NEW YORK, N.Y. 10048-0557
ATTENTION: THOMAS R. SMITH, JR., ESQ.
KEVIN J. MOYNIHAN, ESQ.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
WORLD FINANCIAL CENTER, NORTH TOWER, NEW YORK, N.Y. 10281
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[_] immediately upon filing pursuant to paragraph (b)
[X] on July 29, 1994 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a) of Rule 485.
The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The notice required by such Rule for the Registrant's most recent
fiscal year was filed on May 25, 1994.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT OF MAXIMUM MAXIMUM
TITLE OF SECURITIES SHARES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial
Interest (par value
$.10 per share)....... 18,760,825 $1.00 $290,000* $100
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*(1) The calculation of the maximum aggregate offering price is made pursuant
to Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 3,576,552,548 Shares of Beneficial Interest.
(3) 3,558,081,723 of the Shares described in (2) above have been used for
reduction pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment
Company Act of 1940 in previous filings during Registrant's current fiscal
year.
(4) 18,470,825 of the Shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
CMA MULTI-STATE MUNICIPAL SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------- --------
<C> <S> <C>
PART A
Item 1. Cover Page.............. Cover Page
Item 2. Synopsis................ Fee Table
Item 3. Condensed Financial
Information............ Financial Highlights; Yield
Information
Item 4. General Description of
Registrant............. Investment Objectives and Policies;
Organization of the Trust
Item 5. Management of the Fund.. Fee Table; Management of the Trust;
Portfolio Transactions; Inside Back
Cover Page
Item 5A. Management's Discussion
of Fund Performance.... Not Applicable
Item 6. Capital Stock and Other
Securities............. Organization of the Trust
Item 7. Purchase of Securities
Being Offered.......... Cover Page; Fee Table; Purchase of
Shares; Redemption of Shares; Inside
Back Cover Page
Item 8. Redemption or Repurchase
....................... Fee Table; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal
Proceedings............ Not Applicable
PART B
Item 10. Cover Page.............. Cover Page
Item 11. Table of Contents....... Cover Page
Item 12. General Information and
History................ Not Applicable
Item 13. Investment Objectives
and Policies........... Investment Objectives and Policies
Item 14. Management of the Fund.. Management of the Trust
Item 15. Control Persons and
Principal Holders of
Securities............. Management of the Trust
Item 16. Investment Advisory and
Other Services......... Management of the Trust; Purchase and
Redemption of Shares; General
Information
Item 17. Brokerage Allocation.... Portfolio Transactions
Item 18. Capital Stock and Other
Securities............. General Information--Description of
Series and Shares
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered.......... Purchase and Redemption of Shares;
Determination of Net Asset Value
Item 20. Tax Status.............. Taxes
Item 21. Underwriters............ Purchase and Redemption of Shares
Item 22. Calculation of
Performance Data....... Yield Information
Item 23. Financial Statements.... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
CMA MULTI-STATE MUNICIPAL SERIES TRUST
CMA Arizona Municipal Money Fund CMA New Jersey Municipal Money Fund
CMA California Municipal Money Fund CMA New York Municipal Money Fund
CMA Connecticut Municipal Money Fund CMA North Carolina Municipal Money Fund
CMA Massachusetts Municipal Money Fund CMA Ohio Municipal Money Fund
CMA Michigan Municipal Money Fund CMA Pennsylvania Municipal Money Fund
----------------
This document comprises the Prospectuses of CMA Arizona Municipal Money Fund,
CMA California Municipal Money Fund, CMA Connecticut Municipal Money Fund, CMA
Massachusetts Municipal Money Fund, CMA Michigan Municipal Money Fund, CMA New
Jersey Municipal Money Fund, CMA New York Municipal Money Fund, CMA North
Carolina Municipal Money Fund, CMA Ohio Municipal Money Fund and CMA
Pennsylvania Municipal Money Fund (the "CMA State Funds" or the "Funds"), ten
of the 14 money market mutual funds (collectively, the "CMA Funds"), the shares
of which are offered to participants in the Cash Management Account (R)
("CMA (R) account") financial service program of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") to provide a medium for the investment
of free credit cash balances held in CMA accounts.
----------------
A CMA account is a conventional Merrill Lynch cash securities account or
margin securities account ("Securities Account") which is linked to the CMA
Funds, to money market deposit accounts maintained with depository institutions
and to a Visa (R) card/check account ("Visa Account"). Subscribers to the CMA
service may automatically invest free credit balances held in their CMA
accounts in shares of one of the CMA Funds, or such balances may be deposited
automatically with a depository institution through the Insured SavingsSM
Account (the "Insured Savings Account"). The CMA Funds and the Insured Savings
Account are collectively referred to as the "Money Accounts".
Each CMA Fund is a no-load money market mutual fund seeking current income,
preservation of capital and liquidity available from investing in short-term
securities. The CMA Money Fund invests in money market securities generally;
the CMA Government Securities Fund invests in direct United States Government
obligations; the CMA Tax-Exempt Fund invests in tax-exempt securities and pays
dividends exempt from Federal income taxation; the CMA Treasury Fund invests in
U.S. Treasury securities; and each of the CMA State Funds invests in tax-exempt
securities and pays dividends exempt from Federal and a particular state's
(and, in certain instances, city's) income taxation.
Free credit balances held in CMA accounts will be invested automatically in
or deposited through the Money Account selected by the CMA subscriber as his or
her Primary Money Account. The subscriber may make manual investments in any of
the CMA Funds as described under "Purchase of Shares". The subscriber may
change the Primary Money Account designation at any time by following the
procedures set forth under "Purchase of Shares".
Merrill Lynch charges a program participation fee for the CMA service which
presently is $100 per year for individuals (an additional $25 annual program
fee is charged for participation in the CMA Visa (R) Gold Program described in
the CMA Program Description). A different fee may be charged to certain group
plans and special accounts. Merrill Lynch reserves the right to change the fee
for the CMA service or the CMA Visa (R) Gold Program at any time. As described
under "Purchase of Shares", shares of the CMA Funds may be purchased directly
through the Transfer Agent by investors who are not subscribers to the CMA
program. Shareholders of the CMA Funds not subscribing to the CMA program will
not be charged the CMA program fee but will not receive any of the additional
services available to CMA program subscribers.
----------------
The information in this document should be read in conjunction with the
description of the Merrill Lynch Cash Management Account Program which is
furnished to all CMA subscribers. Reference is made to such description for
information with respect to the CMA program, including the fees related
thereto. Information concerning the other CMA Funds is contained in the
prospectus relating to each of such Funds and information concerning the
Insured Savings Account is contained in the Insured Savings Account Fact Sheet.
All CMA subscribers are furnished with the prospectuses of CMA Money Fund, CMA
Government Securities Fund, CMA Tax-Exempt Fund and CMA Treasury Fund and the
Insured Savings Account Fact Sheet. For more information about the Merrill
Lynch Cash Management Account program, call toll-free from anywhere in the
U.S., 1-800-CMA-INFO (1-800-262-4636).
<PAGE>
PROSPECTUS
JULY 29, 1994 CMA MULTI-STATE MUNICIPAL SERIES TRUST
CMA Arizona Municipal Money Fund CMA New Jersey Municipal Money Fund
CMA California Municipal Money Fund CMA New York Municipal Money Fund
CMA Connecticut Municipal Money Fund CMA North Carolina Municipal Money Fund
CMA Massachusetts Municipal Money Fund CMA Ohio Municipal Money Fund
CMA Michigan Municipal Money Fund CMA Pennsylvania Municipal Money Fund
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Multi-State Municipal Series Trust (the "Trust") consists of CMA Arizona
Municipal Money Fund (the "Arizona Fund"), CMA California Municipal Money Fund
(the "California Fund"), CMA Connecticut Municipal Money Fund (the "Connecticut
Fund"), CMA Massachusetts Municipal Money Fund (the "Massachusetts Fund"), CMA
Michigan Municipal Money Fund (the "Michigan Fund"), CMA New Jersey Municipal
Money Fund (the "New Jersey Fund"), CMA New York Municipal Money Fund (the "New
York Fund"), CMA North Carolina Municipal Money Fund (the "North Carolina
Fund"), CMA Ohio Municipal Money Fund (the "Ohio Fund") and CMA Pennsylvania
Municipal Money Fund (the "Pennsylvania Fund") (together, the "Funds"). Each
Fund is a non-diversified, no-load money market mutual fund seeking current
income exempt from Federal income taxes, personal income taxes of the
designated state (and, in certain instances, local income taxes), preservation
of capital and liquidity. Each Fund seeks to achieve its investment objectives
by investing in a portfolio of short-term, high quality obligations, the
interest on which is exempt, in the opinion of counsel to the issuer, from
Federal income taxes, personal income taxes of the designated state (and, in
certain instances, local income taxes). The Funds may invest in certain tax-
exempt securities classified as "private activity bonds" that may subject
certain investors in the Funds to an alternative minimum tax. The Funds also
may invest in derivative or synthetic municipal instruments. See "Investment
Objectives and Policies--Portfolio Investments--Derivative or Synthetic
Municipal Instruments". All of the investments of each Fund will be in
securities with remaining maturities of 397 days (13 months) or less. The
dollar-weighted average maturity of each Fund's portfolio will be 90 days or
less. Dividends are declared and reinvested daily in the form of additional
shares at net asset value. There can be no assurance that the investment
objectives of any Fund will be realized. AN INVESTMENT IN A FUND IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. EACH FUND SEEKS TO MAINTAIN A
CONSTANT $1.00 PER SHARE NET ASSET VALUE. THERE CAN BE NO ASSURANCE THAT ANY
FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Shares are offered at their net asset value. There is no minimum purchase
requirement for CMA program participants. Shares of a Fund also may be
purchased by individual investors maintaining accounts directly with the
Trust's Transfer Agent who do not subscribe to the CMA program. The minimum
initial purchase for non-CMA subscribers is $5,000 and the minimum subsequent
purchase is $1,000. Such investors will not receive any of the additional
services available to CMA program participants, such as the Visa Account or the
automatic investment of free credit balances. Each Fund has adopted a
distribution and shareholder servicing plan in compliance with Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "Investment Company Act").
See "Purchase of Shares".
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
This Prospectus is a concise statement of information about the Trust and
each Fund that is relevant to making an investment in a Fund. This Prospectus
should be read carefully and retained for future reference. A statement
containing additional information about the Trust and each Fund, dated July 29,
1994 (the "Statement of Additional Information"), has been filed with the
Securities and Exchange Commission and can be obtained without charge by
calling or writing to the Trust at the above telephone number or address. The
Statement of Additional Information is hereby incorporated by reference into
this Prospectus.
<PAGE>
UNLESS OTHERWISE INDICATED, THE INFORMATION SET FORTH IN THIS PROSPECTUS IS
APPLICABLE TO EACH FUND. MANAGEMENT OF THE TRUST HAS CONSIDERED THE POSSIBILITY
THAT THE USE OF A COMBINED PROSPECTUS MAY SUBJECT A FUND OR FUNDS TO LIABILITY
FOR AN ALLEGED MISSTATEMENT RELATING TO ANOTHER FUND OR FUNDS. MANAGEMENT
BELIEVES THIS POSSIBILITY IS REMOTE.
FEE TABLE
<TABLE>
<CAPTION>
NORTH
ARIZONA CALIFORNIA CONNECTICUT MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK CAROLINA OHIO PENNSYLVANIA
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
------- ---------- ----------- ------------- -------- ---------- -------- -------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUALIZED FUND
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS):
Management
Fees(a)......... 0.50% 0.45% 0.50% 0.50% 0.50% 0.50% 0.48% 0.50% 0.50% 0.50%
Rule 12b-1
Fees(b)......... 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13
Other Expenses:
Dividend and
Transfer Agency
Fees(c)........ 0.02 0.01 0.01 0.02 0.01 0.01 0.01 0.02 0.01 0.02
Other Fees...... 0.33 0.03 0.06 0.13 0.08 0.06 0.05 0.06 0.08 0.07
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Other
Expenses....... 0.35 0.04 0.07 0.15 0.09 0.07 0.06 0.08 0.09 0.09
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Expenses,
Before
Reimbursement.. 0.98 .62 .70 .78 .72 .70 .67 .71 .72 .72
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Expense
Reimbursement... (0.35) -- -- -- -- -- -- (.10) -- --
----- --- --- --- --- --- --- ---- --- ---
Total Fund
Operating
Expenses........ 0.63% 0.62% 0.70% 0.78% 0.72% 0.70% 0.67% 0.61% 0.72% 0.72%
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- --------
(a) See "Management of the Trust--Management and Advisory Arrangements"-- page
24.
(b) See "Purchase of Shares"-- page 17.
(c) See "Management of the Trust--Transfer Agency Services"-- page 26.
EXAMPLE:
An investor would pay the following expenses on a $1,000 investment, assuming
the operating expense ratio set forth above for each Fund and a 5% annual
return throughout the periods:
<TABLE>
<CAPTION>
NORTH
CUMULATIVE EXPENSES ARIZONA CALIFORNIA CONNECTICUT MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK CAROLINA OHIO PENNSYLVANIA
PAYABLE FOR THE PERIOD OF: FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
- -------------------------- ------- ---------- ----------- ------------- -------- ---------- -------- -------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year....... $ 6.44 $ 6.34 $ 7.15 $ 7.96 $ 7.35 $ 7.15 $ 6.85 $ 6.23 $ 7.35 $ 7.35
3 years...... $20.17 $19.85 $22.39 $24.92 $23.02 $22.39 $21.44 $19.53 $23.02 $23.02
5 years...... $35.13 $34.58 $38.96 $43.33 $40.06 $38.96 $37.32 $34.03 $40.06 $40.06
10 years...... $78.63 $77.42 $87.05 $96.60 $89.45 $87.05 $83.45 $76.21 $89.45 $89.45
</TABLE>
The manager of the Trust, Fund Asset Management, L.P. (the "Manager"), has
agreed voluntarily to assume a portion of the operating expenses of the Arizona
and North Carolina Funds. The Manager may discontinue or reduce such assumption
of expenses at any time without notice. Absent the Manager's assumption of a
portion of the operating expenses, the total operating expenses of the Arizona
and North Carolina Funds would have been 0.98% and 0.71%, respectively, of
average net assets of the Fund.
MERRILL LYNCH CHARGES AN ANNUAL PROGRAM PARTICIPATION FEE, PRESENTLY $100 FOR
INDIVIDUALS, FOR THE CMA SERVICE (AN ADDITIONAL FEE, PRESENTLY $25, IS CHARGED
FOR PARTICIPATION IN THE CMA VISA(R) GOLD PROGRAM). SHAREHOLDERS OF THE FUNDS
WHOSE ACCOUNTS ARE MAINTAINED DIRECTLY WITH THE TRUST'S TRANSFER AGENT AND WHO
ARE NOT SUBSCRIBERS TO THE CMA PROGRAM WILL NOT BE CHARGED THE CMA PROGRAM FEE
BUT WILL NOT RECEIVE ANY OF THE ADDITIONAL SERVICES AVAILABLE TO CMA PROGRAM
SUBSCRIBERS.
2
<PAGE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that shareholders in the Funds will bear directly or
indirectly. The example set forth above assumes reinvestment of all dividends
and distributions. The example should not be considered a representation of
past or future expenses and actual expenses may be more or less than those
assumed for purposes of the example.
FINANCIAL HIGHLIGHTS
Financial statements for the periods ended March 31, 1994 and the independent
auditor's report thereon for each Fund are included in the Statement of
Additional Information. The following per share data and ratios have been
derived from information provided in financial statements of the Funds audited
by Deloitte & Touche, independent auditors.
<TABLE>
<CAPTION>
ARIZONA FUND CALIFORNIA FUND
--------------------- ---------------------------------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE FEBRUARY 8, JULY 5,
YEAR 1993+ FOR THE YEAR ENDED 1988+
ENDED TO MARCH 31, TO
MARCH 31, MARCH 31, ---------------------------------------------------------- MARCH 31,
1994 1993 1994 1993 1992 1991 1990 1989
--------- ----------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE
OPERATING PERFORMANCE:
Net asset value,
beginning of
period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ---------- ---------- ---------- ---------- ---------- --------
Investment
income--net.... .02 .002 .02 .02 .03 .05 .05 .04
Total from
investment
operations..... .02 .002 .02 .02 .03 .05 05 .04
------- ------- ---------- ---------- ---------- ---------- ---------- --------
Less dividends:
Investment in-
come--net...... (.02) (.002) (.02) (.02) (.03) (.05) (.05) (.04)
------- ------- ---------- ---------- ---------- ---------- ---------- --------
Net asset value,
end of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ========== ========== ========== ========== ========== ========
TOTAL INVESTMENT
RETURN......... 1.90% 1.78%* 1.93% 2.25% 3.48% 4.96% 5.59% 5.41%*
======= ======= ========== ========== ========== ========== ========== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement
and excluding
distribution
fees........... .47% .33%* .50% .51% .51% .50% .52% .51%*
======= ======= ========== ========== ========== ========== ========== ========
Expenses, net of
reimbursement.. .59% .46%* .63% .63% .62% .65% .64%*
======= ======= ========== ========== ========== ========== ========== ========
Expenses........ .98% 1.15%* .62% .63% .63% .62% .65% .72%*
======= ======= ========== ========== ========== ========== ========== ========
Investment
income--net.... 1.89% 1.86%* 1.91% 2.22% 3.42% 4.83% 5.44% 5.43%*
======= ======= ========== ========== ========== ========== ========== ========
SUPPLEMENTAL DATA:
Net assets, end
of period (in
thousands)..... $73,414 $41,437 $1,225,160 $1,014,800 $1,033,423 $1,163,288 $1,047,340 $702,698
======= ======= ========== ========== ========== ========== ========== ========
<CAPTION>
CONNECTICUT FUND
-------------------------------
FOR THE
FOR THE PERIOD
YEAR APRIL 29,
ENDED 1991+
MARCH 31, TO
------------------- MARCH 31,
1994 1993 1992
--------- --------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE
OPERATING PERFORMANCE:
Net asset value,
beginning of
period......... $ 1.00 $ 1.00 $ 1.00
--------- --------- -----------
Investment
income--net.... .02 .02 .03
Total from
investment
operations..... .02 .02 .03
--------- --------- -----------
Less dividends:
Investment in-
come--net...... (.02) (.02) (.03)
--------- --------- -----------
Net asset value,
end of period.. $ 1.00 $ 1.00 $ 1.00
========= ========= ===========
TOTAL INVESTMENT
RETURN......... 1.77% 2.20% 3.56%*
========= ========= ===========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement
and excluding
distribution
fees........... .58% .51% .28%*
========= ========= ===========
Expenses, net of
reimbursement.. .70% .63% .41%*
========= ========= ===========
Expenses........ .70% .73% .81%*
========= ========= ===========
Investment
income--net.... 1.76% 2.17% 3.46%*
========= ========= ===========
SUPPLEMENTAL DATA:
Net assets, end
of period (in
thousands)..... $250,038 $231,431 $197,895
========= ========= ===========
</TABLE>
- ------
* Annualized
+ Commencement of Operations
3
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MASSACHUSETTS FUND MICHIGAN FUND
-------------------------------------- ------------------------------
FOR THE
PERIOD FOR THE
JULY 30, PERIOD
1990+ FOR THE YEAR APRIL 29,
FOR THE YEAR ENDED TO ENDED 1991+
MARCH 31, MARCH MARCH 31, TO
---------------------------- 31, ------------------- MARCH 31,
1994 1993 1992 1991 1994 1993 1992
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------- -------- --------
Investment
income--net..... .02 .02 .04 .03 .02 .02 .03
Total from
investment
operations...... .02 .02 .04 .03 .02 .02 .03
-------- -------- -------- ------- -------- -------- --------
Less dividends:
Investment in-
come--net....... (.02) (.02) (.04) (.03) (.02) (.02) (.03)
Net asset value,
end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======== ======== ========
TOTAL INVESTMENT
RETURN.......... 1.74% 2.20% 3.66% 5.04% 1.81%* 2.24% 3.62%*
======== ======== ======== ======= ======== ======== ========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursement
and excluding
distribution
fees............ .66% .66% .73% .60%* .60% .53% .42%*
======== ======== ======== ======= ======== ======== ========
Expenses, net of
reimbursement... .78% .78% .85% .72%* .72% .65% .54%*
======== ======== ======== ======= ======== ======== ========
Expenses........ .78% .78% .87% .97%* .72% .74% .80%*
======== ======== ======== ======= ======== ======== ========
Investment
income--net..... 1.72% 2.15% 3.56% 4.92%* 1.79% 2.22% 3.53%*
======== ======== ======== ======= ======== ======== ========
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $150,804 $132,302 $116,340 $84,613 $236,435 $200,200 $194,433
======== ======== ======== ======= ======== ======== ========
<CAPTION>
NEW JERSEY FUND
-----------------------------------------
FOR THE
PERIOD
JULY 30,
FOR THE YEAR ENDED 1990+
MARCH 31, TO
----------------------------- MARCH 31,
1994 1993 1992 1991
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- -----------
Investment
income--net..... .02 .02 .03 .03
Total from
investment
operations...... .02 .02 .03 .03
--------- --------- --------- -----------
Less dividends:
Investment in-
come--net....... (.02) (.02) (.03) (.03)
Net asset value,
end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ===========
TOTAL INVESTMENT
RETURN.......... 1.82% 2.21% 3.49% 4.95%*
========= ========= ========= ===========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursement
and excluding
distribution
fees............ .58% .58% .62% .52%*
========= ========= ========= ===========
Expenses, net of
reimbursement... .70% .70% .74% .64%*
========= ========= ========= ===========
Expenses........ .70% .70% .74% .76%*
========= ========= ========= ===========
Investment
income--net..... 1.80% 2.16% 3.42% 4.74%*
========= ========= ========= ===========
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $441,846 $388,903 $350,058 $356,475
========= ========= ========= ===========
</TABLE>
- -----
* Annualized
+ Commencement of Operations
4
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
NEW YORK FUND NORTH CAROLINA FUND
----------------------------------------------------------- -------------------------------
FOR THE FOR THE
PERIOD PERIOD
JULY 5, MAY 28,
FOR THE YEAR ENDED 1988+ FOR THE YEAR ENDED 1991+
MARCH 31, TO MARCH 31, TO
------------------------------------------------ MARCH 31, -------------------- MARCH 31,
1994 1993 1992 1991 1990 1989 1994 1993 1992
-------- -------- -------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE
OPERATING PERFORMANCE:
Net asset value,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------- --------- --------
Investment
income--net..... .02 .02 .03 .05 .05 .04 .02 .02 .03
-------- -------- -------- -------- -------- -------- --------- --------- --------
Total from
investment
operations...... .02 .02 .03 .05 .05 .04 .02 .02 .03
-------- -------- -------- -------- -------- -------- --------- --------- --------
Less dividends:
Investment
income--net .... (.02) (.02) (.03) (.05) (.05) (.04) (.02) (.02) (.03)
-------- -------- -------- -------- -------- -------- --------- --------- --------
Net asset value,
end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========= ========= ========
TOTAL INVESTMENT
RETURN.......... 1.79% 2.19% 3.37% 4.86% 5.35% 5.04%* 1.85% 2.25% 3.49%*
======== ======== ======== ======== ======== ======== ========= ========= ========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursement
and excluding
distribution
fees............ .54% .55% .55% .57% .59% .58%* .48% .45% .33%*
======== ======== ======== ======== ======== ======== ========= ========= ========
Expenses, net of
reimbursement... .67% .67% .68% .69% .71% .70%* .61% .57% .45%*
======== ======== ======== ======== ======== ======== ========= ========= ========
Expenses........ .67% .67% .68% .69% .72% .79%* .71% .73% .83%*
======== ======== ======== ======== ======== ======== ========= ========= ========
Investment
income--net..... 1.78% 2.16% 3.31% 4.73% 5.23% 5.14%* 1.84% 2.20% 3.25%*
======== ======== ======== ======== ======== ======== ========= ========= ========
SUPPLEMENTAL
DATA:
Net assets, end
of period
(in thousands).. $772,760 $665,970 $625,768 $633,819 $544,197 $333,299 $ 293,452 $ 235,384 $221,060
======== ======== ======== ======== ======== ======== ========= ========= ========
<CAPTION>
OHIO FUND PENNSYLVANIA FUND
--------------------------------- -----------------------------------------
FOR THE FOR THE
PERIOD PERIOD
APRIL 29, AUGUST 27,
FOR THE YEAR ENDED 1991+ FOR THE YEAR ENDED 1990+
MARCH 31, TO MARCH 31, TO
--------------------- MARCH 31, ----------------------------- MARCH 31,
1994 1993 1992 1994 1993 1992 1991
---------- ---------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE
OPERATING PERFORMANCE:
Net asset value,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------- --------- --------- --------- -----------
Investment
income--net..... .02 .02 .03 .02 .02 .03 .03
---------- ---------- ----------- --------- --------- --------- -----------
Total from
investment
operations...... .02 .02 .03 .02 .02 .03 .03
---------- ---------- ----------- --------- --------- --------- -----------
Less dividends:
Investment
income--net .... (.02) (.02) (.03) (.02) (.02) (.03) (.03)
---------- ---------- ----------- --------- --------- --------- -----------
Net asset value,
end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== =========== ========= ========= ========= ===========
TOTAL INVESTMENT
RETURN.......... 1.88% 2.27% 3.65%* 1.87% 2.29% 3.58% 4.95%*
========== ========== =========== ========= ========= ========= ===========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursement
and excluding
distribution
fees............ .59% .61% .44%* .59% .60% .65% .63%*
========== ========== =========== ========= ========= ========= ===========
Expenses, net of
reimbursement... .72% .74% .57%* .72% .72% .77% .75%*
========== ========== =========== ========= ========= ========= ===========
Expenses........ .72% .74% .82%* .72% .72% .77% .80%*
========== ========== =========== ========= ========= ========= ===========
Investment
income--net..... 1.86% 2.24% 3.52%* 1.85% 2.22% 3.47% 4.75%*
========== ========== =========== ========= ========= ========= ===========
SUPPLEMENTAL
DATA:
Net assets, end
of period
(in thousands).. $ 213,655 $ 187,344 $192,173 $336,853 $318,954 $243,225 $225,622
========== ========== =========== ========= ========= ========= ===========
</TABLE>
- -----
* Annualized
+ Commencement of Operations
5
<PAGE>
YIELD INFORMATION
Set forth below is the annualized and compounded annualized yields for each
Fund for the indicated seven-day periods.
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA CONNECTICUT MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK NORTH CAROLINA OHIO
FUND FUND FUND FUND FUND FUND FUND FUND FUND
------- ---------- ----------- ------------- -------- ---------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Seven-Day Period
Ended March 31, 1994
Annualized Yield
................ 1.78% 1.80% 1.72% 1.59% 1.67% 1.67% 1.77% 1.63% 1.74%
Compounded
Annualized
Yield.......... 1.80% 1.82% 1.73% 1.60% 1.68% 1.68% 1.79% 1.64% 1.76%
Average Maturity
of Portfolio at
End of Period.. 49 days 48 days 58 days 58 days 49 days 54 days 67 days 31 days 67 days
Seven-Day Period
Ended May 31, 1994
Annualized
Yield........... 2.33% 2.28% 2.16% 2.02% 2.19% 2.18% 2.19% 2.24% 2.20%
Compounded
Annualized
Yield.......... 2.36% 2.31% 2.18% 2.04% 2.21% 2.20% 2.21% 2.27% 2.22%
Average Maturity
of Portfolio at
End of Period.. 27 days 35 days 79 days 63 days 52 days 45 days 61 days 37 days 67 days
<CAPTION>
PENNSYLVANIA
FUND
------------
<S> <C>
Seven-Day Period
Ended March 31, 1994
Annualized Yield
................ 1.67%
Compounded
Annualized
Yield.......... 1.68%
Average Maturity
of Portfolio at
End of Period.. 43 days
Seven-Day Period
Ended May 31, 1994
Annualized
Yield........... 2.23%
Compounded
Annualized
Yield.......... 2.25%
Average Maturity
of Portfolio at
End of Period.. 34 days
</TABLE>
From time to time, each Fund may quote information regarding its yield for
certain seven-day periods and information as to the compounded annualized yield
for the same periods.
The yield of a Fund refers to the income generated by an investment in the
Fund over a stated seven-day period. This income is then annualized; that is,
the amount of income generated by the investment during that period is assumed
to be generated each seven-day period over a 52-week period and is shown as a
percentage of the investment. The compounded annualized yield is calculated
similarly but, when annualized, the income earned by an investment in a Fund is
assumed to be reinvested. The compounded annualized yield will be somewhat
higher than the yield because of the effect of the assumed reinvestment.
The yield on Fund shares normally will fluctuate on a daily basis. Therefore,
the yield for any given past period is not an indication or representation by
the Fund of future yields or rates of return on its shares. A Fund's yield is
affected by changes in interest rates on short-term tax-exempt securities,
average portfolio maturity, the types and quality of portfolio securities held
and operating expenses.
On occasion, each Fund may compare its yield to (i) the Donoghue's Tax-Free
Funds Average, an average compiled by Donoghue's Money Fund Report, a widely
recognized independent publication that monitors the performance of money
market mutual funds, (ii) yield data published by Lipper Analytical Services,
Inc., (iii) performance data published by Morningstar Publications, Inc., Money
Magazine, U.S. News & World Report, Business Week, CDA Investment Technology,
Inc., Forbes and Fortune, or (iv) historical yield data relating to other
central asset accounts similar to the CMA program. As with yield quotations,
yield comparisons should not be considered representative of a Fund's yield or
relative performance for any future period. Current yield information may not
provide a basis for comparison with bank deposits or other investments that pay
a fixed yield over a stated period of time. In addition, from time to time a
Fund may include its Morningstar risk-adjusted performance ratings in
advertisements or supplemental sales literature.
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The investment objectives of each Fund are to seek current income exempt from
Federal and the designated state's personal income taxes, preservation of
capital and liquidity available from investing in a portfolio of short-term,
high quality tax-exempt securities. In addition to the investment objectives
stated above, the New York Fund also seeks income exempt from New York City
income taxes. Each Fund seeks to achieve its objectives by investing primarily
in a portfolio of obligations with remaining maturities of 397 days (13 months)
or less which are issued by or on behalf of the designated states, their
political subdivisions, agencies and instrumentalities, and obligations of
other qualifying issuers, such as issuers located in Puerto Rico, the Virgin
Islands and Guam and issuers of derivative or synthetic municipal instruments,
the interest from which is exempt, in the opinion of counsel to the issuer,
from Federal income taxation, the designated state's income taxation and, in
the case of the New York Fund, from New York City income taxation. Such
obligations are herein referred to as "State Municipal Securities". The
investment objectives of the Funds described in this paragraph are fundamental
policies of each Fund and may not be changed without a vote of the majority of
the outstanding shares of the respective Fund.
The Funds ordinarily do not intend to realize investment income not exempt
from Federal income taxes, the personal income taxes of the designated states
or, in the case of the New York Fund, New York City income taxes. However, to
the extent that suitable State Municipal Securities are not available for
investment by a Fund, that Fund may purchase high quality obligations with
remaining maturities of 397 days (13 months) or less which are issued by other
states, their agencies and instrumentalities and derivative or synthetic
municipal instruments, the interest income on which is exempt, in the opinion
of counsel to the issuer, from Federal taxation but not state or city taxation.
Such obligations, either separately or together with State Municipal
Securities, are herein referred to as "Municipal Securities".
Except during temporary defensive periods, each Fund will invest at least 65%
of its total assets in State Municipal Securities and at least 80% of its net
assets in Municipal Securities. The New Jersey Fund will invest at least 80% of
its total assets in New Jersey State Municipal Securities. However, interest
received on certain State Municipal Securities and Municipal Securities which
are classified as "private activity bonds" (in general, bonds that benefit non-
governmental entities) may be subject to an alternative minimum tax. The
percentage of each Fund's net assets invested in "private activity bonds" will
vary during the year. See "Taxes". Each Fund has the authority to invest as
much as 20% of its net assets in obligations that do not qualify as State
Municipal Securities or Municipal Securities. Such obligations include taxable
money market obligations, including repurchase agreements and purchase and sale
contracts, with maturities of 397 days (13 months) or less, and are referred to
herein as "Taxable Securities". In addition, each Fund except the New Jersey
Fund reserves the right as a defensive measure to invest temporarily more than
35% of its total assets in Municipal Securities other than its respective State
Municipal Securities and more than 20% of its net assets in Taxable Securities
when, in the opinion of the Manager, prevailing market or financial conditions
warrant. The New Jersey Fund reserves the right as a defensive measure to
invest temporarily more than 20% of its total assets in Municipal Securities
other than New Jersey Municipal Securities and more than 20% of its net assets
in Taxable Securities when, in the opinion of the Manager, prevailing market or
financial conditions warrant.
As noted above, each Fund may invest a portion of its assets in certain
otherwise tax-exempt securities which are classified, under the Internal
Revenue Code of 1986, as amended (the "Code"), as "private activity bonds". A
Fund's policy with respect to investments in "private activity bonds" is not a
fundamental policy of that Fund and may be amended by the Trustees of the Trust
without the approval of the Fund's shareholders. Each Fund may invest more than
25% of its assets in Municipal Securities secured by bank
7
<PAGE>
letters of credit. In view of this possible "concentration" in Municipal
Securities with bank credit enhancements, an investment in Fund shares should
be made with an understanding of the characteristics of the banking industry
and the risks that such an investment may entail. See "Other Factors".
The Funds are classified as non-diversified within the meaning of the
Investment Company Act, which means that a Fund is not limited by such Act in
the proportion of its assets that it may invest in obligations of a single
issuer. However, each Fund's investments will be limited so as to qualify as a
"regulated investment company" for purposes of the Code. See "Taxes". To
qualify, among other requirements, the Trust will limit each Fund's investments
so that, at the close of each quarter of the taxable year, (i) not more than
25% of the market value of each Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market value
of each Fund's total assets, not more than 5% of the market value of such
assets will be invested in the securities of a single issuer and the respective
Fund will not own more than 10% of the outstanding voting securities of a
single issuer. A fund which elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% and 10% requirements with
respect to 75% of its total assets. To the extent that a Fund assumes large
positions in the obligations of a small number of issuers, the Fund's yield may
fluctuate to a greater extent than that of a diversified company as a result of
changes in the financial condition or in the market's assessment of the
issuers.
POTENTIAL BENEFITS
Investment in Fund shares offers several benefits. The Funds are investment
vehicles designed to be suitable for investors of designated states seeking
income exempt from income taxation by those states as well as Federal income
taxation and, in the case of the New York Fund, New York City income taxation.
Each Fund seeks to provide as high a double (or, in the case of the New York
Fund, triple) tax-exempt yield potential as is available from the short-term
State Municipal Securities in which it invests utilizing professional
management and block purchases of securities. The Funds also provide liquidity
because of their redemption features. The investor also is relieved of the
burdensome administrative details involved in managing a portfolio of municipal
securities. These benefits are at least partially offset by the expenses
involved in operating an investment company. Such expenses primarily consist of
the management fee, distribution fee and operational costs of each Fund.
PORTFOLIO INVESTMENTS
The State Municipal Securities in which the Funds invest include municipal
notes, municipal commercial paper, municipal bonds with a remaining maturity of
397 days (13 months) or less, variable rate demand obligations and
participations therein, and derivative or synthetic municipal instruments. The
Funds may invest in all types of municipal and tax-exempt instruments currently
outstanding or to be issued in the future which satisfy the short-term maturity
and quality standards of the Funds.
Variable Rate Demand Obligations. Variable rate demand obligations ("VRDOs")
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 on a VRDO is adjustable at periodic intervals to a rate
calculated to maintain the market value of the VRDO at approximately the par
value of the VRDO on the adjustment date. The adjustment may be based on an
interest rate adjustment index.
The Funds also may invest in VRDOs in the form of participation interests
("Participating VRDOs") in variable rate tax-exempt obligations held by
financial institutions, typically commercial banks ("institutions").
8
<PAGE>
Participating VRDOs provide the Funds with specified undivided interests (up to
100%) in the underlying obligations and the right to demand payment of the
unpaid principal balance plus accrued interest on the Participating VRDOs from
the institutions on a specified number of days' notice, presently not to exceed
30 days. In addition, each Participating VRDO is backed by an irrevocable
letter of credit or similar commitment of the institution. The Funds have
undivided interests in the underlying obligations and thus participate on the
same basis as the institutions in such obligations except that the institutions
typically retain fees out of the interest paid on the obligations for servicing
the obligations, providing the letters of credit or issuing the repurchase
commitments.
VRDOs that contain an unconditional right of demand to receive payment of the
unpaid principal balance plus accrued interest on a notice period exceeding
seven days may be deemed to be illiquid securities. A VRDO with a demand notice
period exceeding seven days will therefore be subject to the Funds'
restrictions on illiquid investments unless, in the judgment of the Trustees,
such VRDO is liquid. The Trustees may adopt guidelines and delegate to the
Managers the daily function of determining and monitoring liquidity of such
VRDOs. The Trustees, however, will retain sufficient oversight and be
ultimately responsible for such determinations.
The Trust has been advised by its counsel that the Funds should be entitled
to treat the income received on Participating VRDOs as interest from tax-exempt
obligations provided that certain conditions are met. It is presently
contemplated that each Fund will not invest more than a limited amount (not
more than 20%) of its total assets in Participating VRDOs.
Derivative or Synthetic Municipal Instruments. The Funds may invest in a
variety of derivative or synthetic short-term municipal instruments
("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 a Fund holds an
interest in one or more long-term municipal bonds which are assets of the
applicable entity ("Underlying Bonds") coupled with a right to sell ("put")
that 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 Funds 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 municipal
bonds. There is some risk that certain issues could be resolved in a manner
which could adversely impact the performance of a 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 each Fund receives an
opinion of legal counsel to the effect that the income from each Derivative
Product is tax-exempt to the same extent as the Underlying Bond, the Internal
Revenue Service (the "IRS") has not issued a ruling on this subject. Were the
IRS to issue an adverse ruling, there is a risk that the interest paid on such
Derivative Products would be deemed taxable.
9
<PAGE>
Municipal Lease Obligations. Also included within the general category of the
State Municipal Securities are participation certificates in a lease, an
installment purchase contract or a conditional sales contract (hereinafter
collectively called "lease obligations") entered into by the designated state
or a political subdivision thereof to finance the acquisition or construction
of equipment, land or facilities. Although lease obligations do not constitute
general obligations of the issuer for which the lessee's unlimited taxing power
is pledged, a lease obligation is frequently backed by the lessee's covenant to
budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "nonappropriation" clauses which
provide that the lessee has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. Although "nonappropriation" lease obligations are secured by the
leased property, disposition of the property in the event of foreclosure might
prove difficult. These securities represent a relatively new type of financing
that has not yet developed the depth of marketability associated with more
conventional securities. Certain investments in lease obligations may be
illiquid. A Fund may not invest in illiquid lease obligations if such
investments, together with all other illiquid investments, would exceed 10% of
such Fund's net assets. A Fund may, however, invest without regard to such
limitation in lease obligations which the Manager, pursuant to guidelines which
have been adopted by the Board of Trustees and subject to the supervision of
the Board, determines to be liquid. Pursuant to Guidelines which apply to the
Funds and other funds managed by the Manager (which funds may be able to invest
in lower rated obligations than the Funds), the Manager will deem lease
obligations liquid if they are publicly offered and have received an investment
grade rating of Baa or better by Moody's Investors Service, Inc. ("Moody's"),
or BBB or better by Standard & Poor's Corporation ("Standard & Poor's") or
Fitch Investors Service, Inc. ("Fitch"). Unrated lease obligations will be
considered liquid if the obligations come to the market through an underwritten
public offering and at least two dealers are willing to give competitive bids.
In reference to the unrated lease obligations, the Manager must, among other
things, also review the creditworthiness of the municipality obligated to make
payment under the lease obligation and make certain specified determinations
based on such factors as the existence of a rating or credit enhancement such
as insurance, the frequency of trades or quotes for the obligation and the
willingness of dealers to make a market in the obligation.
SHORT-TERM MATURITY STANDARDS
All of the investments of the Funds will be in securities with remaining
maturities of 397 days (13 months) or less. The dollar-weighted average
maturity of each Fund's portfolio will be 90 days or less. For purposes of this
investment policy, an obligation will be treated as having a maturity earlier
than its stated maturity date if such obligation has technical features which,
in the judgment of the Manager, will result in the obligation being valued in
the market as though it has such earlier maturity.
The maturities of VRDOs (including Participating VRDOs) are deemed to be the
longer of (i) the notice period required before a Fund is entitled to receive
payment of the principal amount of the VRDO on demand or (ii) the period
remaining until the VRDO's next interest rate adjustment. If not redeemed by
the Funds through the demand feature, VRDOs mature on a specified date which
may range up to 30 years from the date of issuance.
QUALITY STANDARDS
Each Fund's portfolio investments in municipal notes and short-term tax-
exempt commercial paper will be limited to those obligations which are rated,
or issued by issuers who have been rated, in one of the two
10
<PAGE>
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 under procedures approved by
the Trustees of the Trust. Each Fund's investments in municipal bonds (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 Standard & Poor's.
Certain tax-exempt obligations (primarily VRDOs and Participating VRDOs) may be
entitled to the benefit of letters of credit or similar credit enhancements
issued by financial institutions. In such instances, in assessing the quality
of such instruments, the Trustees and the Manager will take into account not
only the creditworthiness of the issuers, but also the creditworthiness and
type of obligation of the financial institution. The type of obligation of the
financial institution concerns, for example, whether the letter of credit or
similar credit enhancement being issued is conditional or unconditional. The
Funds also may purchase other types of municipal instruments if, in the opinion
of the Trustees or the Manager (as determined in accordance with the procedures
established by the Trustees), such obligations are equivalent to securities
having the ratings described above.
Taxable Securities in which the Funds invest will be rated, or will be issued
by issuers who have been rated, in one of the two highest rating categories for
short-term debt obligations by an NRSRO or, if not rated, will be of comparable
quality as determined by the Trustees of the Trust. Currently, there are six
NRSROs that rate Taxable Securities: Fitch, Moody's, Standard & Poor's, Duff &
Phelps, Inc., IBCA Limited and its affiliate, IBCA, Inc. and Thomson Bankwatch,
Inc. The Funds may not invest in any security issued by a depository
institution unless such institution is organized and operating in the United
States, has total assets of at least $1 billion and is Federally insured.
Preservation of capital is a prime investment objective of the Funds, and,
while the types of Municipal Securities in which the Funds invest are not
completely risk free, such securities generally are considered by the Manager
to have low risk of the failure of issuers or credit enhancers to pay
principal, interest and repurchase price, if applicable. These securities have
a lower payment risk compared to lower rated obligations and generally to
longer term obligations which entail the risk of changing conditions over a
longer period of time.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Each Fund ordinarily will invest at least 65% (80% in the case of the New
Jersey Fund) of its total assets in its respective State Municipal Securities
and, therefore, it is more susceptible to factors adversely affecting issuers
of Municipal Securities in such state than is a tax-exempt mutual fund that is
not concentrated in issuers of State Municipal Securities to this degree.
Because each Fund's portfolio will be comprised primarily of short-term, high
quality securities, each Fund is expected to be less subject to market and
credit risks than a fund that invests in longer-term or lower quality State
Municipal Securities. Set forth below are special considerations and risk
factors specific to each Fund.
The Arizona Fund. Over the last several decades, the State's economy has
grown faster than that of most other regions of the country. Although the rate
of growth has slowed in recent years, diversification of the State's economy
has helped enable the State to maintain a moderate rate of growth. The
construction and real estate industries, which experienced steep declines
between 1985 and 1991, have experienced a modest recovery during the last two
years. The unemployment rate for the State in 1993 was 6.4%, the same as the
national rate.
11
<PAGE>
The State government's fiscal situation has improved in recent years. After
experiencing several years of budget shortfalls requiring mid-year adjustments,
the State has experienced budget surpluses for the last two fiscal years, and a
surplus for fiscal year 1994-95 is being projected. Owing in part to the
improved fiscal picture, the 1994 Legislature enacted a personal income tax
reduction of approximately $107 million and various business tax cuts that
raised concerns that the State may be undercutting its tax base. In addition,
voter approval in November 1992 of Proposition 108, which requires a 2/3
majority vote in both houses of the Legislature to pass a tax or fee increase,
has substantially constrained the State's ability to raise revenue. Maricopa
County, the State's most populous county, experienced a fiscal year 1993
deficit of $64.2 million, as compared to a total County budget of approximately
$1.2 billion. As a result of the County's continued financial difficulties,
Moody's lowered the County's rating from Aa1 to Aa in 1993, while Standard &
Poor's lowered its rating from AA to A in 1994. The County has proposed a
three-year plan which officials say will eliminate the deficit in two years
while avoiding a tax increase. The Manager does not believe that the current
economic conditions in Arizona will have a significant adverse effect on the
Fund's ability to invest in high quality Arizona State Municipal Securities.
See Appendix A, "Economic and Financial Conditions in Arizona", in the
Statement of Additional Information.
The California Fund. Recently, the State of California's bond rating was
lowered to A by Standard & Poor's and A by Fitch. Moody's also lowered the
State of California's long-term rating to A1. No assurance can be given that
such ratings will not be lowered in the future. The Manager does not believe
that the current economic conditions in California will have a significant
adverse effect on the California Fund's ability to invest in high quality
California State Municipal Securities. See Appendix B, "Economic and Financial
Conditions in California" in the Statement of Additional Information.
The Connecticut Fund. The Connecticut Comptroller's annual report for the
fiscal year ended June 30, 1992 reflected a Connecticut State General Fund
operating surplus of $110.2 million. The Connecticut Comptroller's annual
report for the fiscal year ending June 30, 1993 reflected a General Fund
operating surplus of $113.5 million. The Comptroller's report as of April 30,
1994 projects a General Fund operating surplus of $113.8 million for the fiscal
year ending June 30, 1994. On a GAAP basis, however, the Comptroller estimated
a cumulative projected deficit in the General Fund as of June 30, 1994 of $412
million. Currently, Moody's rates Connecticut's general obligation bonds Aa and
Connecticut's outstanding commercial paper P-1, Standard & Poor's rates
Connecticut's general obligation bonds AA- and Connecticut's outstanding
commercial paper A-1+ and Fitch rates Connecticut's general obligation bonds
AA+. The Manager does not believe that the current economic conditions in
Connecticut will have a significant adverse effect on the Connecticut Fund's
ability to invest in high quality Connecticut State Municipal Securities. See
Appendix C, "Economic and Financial Conditions in Connecticut" in the Statement
of Additional Information.
The Massachusetts Fund. The Commonwealth of Massachusetts is experiencing a
moderate economic recovery. In fiscal 1992, revenues exceeded spending and the
Commonwealth ended fiscal 1992 with positive fund balances of $549.4 million.
The budgeted operating funds of the Commonwealth ended fiscal 1993 with a
surplus of revenues and other sources over expenditures and other uses, and
with aggregate ending fund balances of approximately $562.5 million. As of the
date of this Prospectus and according to the Executive Office for
Administration and Finance, fiscal 1994 is expected to end with an operating
loss of $162.8 million, but with positive budgetary fund balances totaling
approximately $399.7 million, to be achieved through the use of the prior year
ending fund balances. Standard & Poor's, Fitch and Moody's have upgraded their
ratings of Massachusetts' general obligation bonds from A, A and Baa,
respectively, to A+, A+ and A, respectively. Ratings have been lowered on
short-term debt and some state agency obligations. From time to time, the
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<PAGE>
rating agencies may further change their ratings in response to budgetary
matters or other economic indicators. The Manager does not believe that the
current economic conditions in Massachusetts will have a significant adverse
effect on the Massachusetts Fund's ability to invest in high quality
Massachusetts State Municipal Securities. See Appendix D, "Economic and
Financial Conditions in Massachusetts" in the Statement of Additional
Information.
The Michigan Fund. The State of Michigan reported a balance in the General
Fund as of September 30, 1993 of $26.0 million after a transfer of $283 million
to the Michigan Budget Stabilization Fund, which after such transfer had an
accrued balance of $303 million. The State has improved financially after two
consecutive years of deficits in the 1989-90 and 1990-91 fiscal years and draws
on the Michigan Budget Stabilization Fund to balance the 1991-92 fiscal year
budget. Economically, the State remains closely tied to the economic cycles of
the automobile industry. Current increased automobile production has led to an
unemployment rate which, as of the date of this Prospectus, is lower than the
national average. Currently, Michigan's general obligation bonds are rated A1
by Moody's, AA by Standard & Poor's and AA by Fitch. The Manager does not
believe that the current economic conditions in Michigan will have a
significant adverse effect on the Michigan Fund's ability to invest in high
quality Michigan State Municipal Securities. See Appendix E, "Economic and
Financial Conditions in Michigan" in the Statement of Additional Information.
The New Jersey Fund. The State of New Jersey and certain of its public
authorities have undergone recent financial difficulties. Although there is
evidence that the State's economy is improving, a return to the economic boom
of the 1980s is unlikely and growth is likely to be slower than in the rest of
the nation. New Jersey is reliant on federal assistance and ranks high among
the states in the amount of Federal aid received. On June 4, 1992, Standard &
Poor's placed New Jersey general obligation bonds on CreditWatch with negative
implications. On July 6, 1992, Standard & Poor's removed New Jersey's general
obligation bonds from CreditWatch and reaffirmed its AA+ rating of such bonds
but with negative long-term implications. On July 27, 1994, Standard & Poor's
reaffirmed its AA+ rating but revised its assessment of the State's outlook
from negative to stable. On August 24, 1992, Moody's lowered its rating on New
Jersey's general obligation bonds to Aa1 from AAA. On December 6, 1992, Fitch
lowered its rating on New Jersey's general obligation bonds from AAA to AA+.
The Manager does not believe that the current economic conditions in New Jersey
will have a significant adverse effect on the New Jersey Fund's ability to
invest in high quality New Jersey State Municipal Securities. See Appendix F,
"Economic and Financial Conditions in New Jersey" in the Statement of
Additional Information.
The New York Fund. New York State, New York City and other New York public
bodies have, in recent years, encountered financial difficulties. Currently,
Moody's, Standard & Poor's and Fitch rate New York City's general obligation
bonds Baal, A- and A-, respectively, and Moody's and Standard & Poor's rate New
York State's general obligation bonds A and A-, respectively. The Manager does
not believe that the current economic conditions in New York will have a
significant adverse effect on the New York Fund's ability to invest in high
quality New York State Municipal Securities. See Appendix G, "Economic and
Financial Conditions in New York" in the Statement of Additional Information.
The North Carolina Fund. Growth of North Carolina tax revenues slowed
considerably during fiscal 1990-92, requiring tax increases and budget
adjustments, including hiring freezes and restrictions, spending constraints,
changes in timing of certain collections and payments, and other short-term
budget adjustments, that were needed to comply with North Carolina's
constitutional mandate for a balanced budget. Fiscal year 1993 ended with a
positive General Fund balance of approximately $537.3 million. By law, $134.3
million of such positive fund balance was required to be reserved in the
General Fund of North Carolina as part of a
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<PAGE>
"Budget Stabilization Fund". An additional $57 million of such positive fund
balance was reserved in the General Fund as part of a "Reserve for Repair and
Renovation of State Facilities", leaving an unrestricted fund balance at June
30, 1993 of $346 million. Currently, Moody's, Standard & Poor's and Fitch rate
North Carolina's general obligation bonds Aaa, AAA, and AAA, respectively. The
Manager does not believe that the current economic conditions in North Carolina
will have a significant adverse effect on the North Carolina Fund's ability to
invest in high quality North Carolina State Municipal Securities. See Appendix
H, "Economic and Financial Conditions in North Carolina" in the Statement of
Additional Information.
The Ohio Fund. The Ohio State General Revenue Fund had positive fund and cash
balances at the end of the 1994 Fiscal Year of $560.3 million and $841.9
million, respectively. Economic activity in Ohio, as in many other industrially
developed states, tends to be more cyclical than in some other states and in
the nation as a whole. Currently, Ohio's general obligation bonds are rated AA,
Aa and AA by Fitch, Moody's and Standard & Poor's, respectively. The Manager
does not believe that the current economic conditions in Ohio will have a
significant adverse effect on the Ohio Fund's ability to invest in high quality
Ohio Municipal Securities. See Appendix I, "Economic and Financial Conditions
in Ohio" in the Statement of Additional Information.
The Pennsylvania Fund. Many different social, environmental and economic
factors may affect the financial condition of Pennsylvania and its political
subdivisions. From time to time Pennsylvania and certain of its political
subdivisions have encountered financial difficulties which have adversely
affected their respective credit standings. For example, the financial
condition of the City of Philadelphia had impaired its ability to borrow and
resulted in its obligations generally being downgraded by the major rating
services (Moody's, Standard & Poor's and Fitch), below investment grade. Other
factors which may negatively affect economic conditions in Pennsylvania include
adverse changes in employment rates, federal revenue sharing or laws with
respect to tax-exempt financing. Currently, Pennsylvania's general obligation
bonds are rated AA- by Standard & Poor's and Fitch and A1 by Moody's. The
Manager does not believe that the current economic conditions in Pennsylvania
will have a significant adverse effect on the Pennsylvania Fund's ability to
invest in high quality Pennsylvania Municipal Securities. See Appendix J,
"Economic and Financial Conditions in Pennsylvania" in the Statement of
Additional Information.
Under prior Pennsylvania law, in order for the Pennsylvania Fund to qualify
to pass through to investors income exempt from Pennsylvania personal income
tax, the Pennsylvania Fund was required to adhere to certain investment
restrictions. In order to comply with this and other Pennsylvania law
requirements previously in effect, the Pennsylvania Fund adopted, as a
fundamental policy, a requirement that it invest in securities for income
earnings rather than trading for profit and that, in accordance with such
policy, it not vary its portfolio investments except to: (i) eliminate unsafe
investments or investments not consistent with the preservation of capital or
the tax status of the investments of the Pennsylvania Fund; (ii) honor
redemption orders, meet anticipated redemption requirements and negate gains
from discount purchases; (iii) reinvest the earnings from portfolio securities
in like securities; (iv) defray normal administrative expenses; or (v) maintain
a constant net asset value pursuant to, and in compliance with, an order or
rule of the United States Securities & Exchange Commission. Pennsylvania has
recently enacted legislation which eliminated the necessity for the foregoing
investment policies. Since such policies are fundamental policies of the
Pennsylvania Fund, which can only be changed by the affirmative vote of a
majority (as defined under the Investment Company Act) of the outstanding
shares, the Pennsylvania Fund continues to be governed by such investment
policies.
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<PAGE>
OTHER FACTORS
Management of the Funds will endeavor to be as fully invested as reasonably
practicable in order to maximize the yield on each Fund's portfolio. Not all
short-term municipal securities trade on the basis of same day settlements and,
accordingly, a portfolio of such securities cannot be managed on a daily basis
with the same flexibility as a portfolio of money market securities which can
be bought and sold on a same day basis. There may be times when a Fund has
uninvested cash resulting from an influx of cash due to large purchases of
shares or the maturing of portfolio securities. A Fund also may be required to
maintain cash reserves or incur temporary bank borrowings to make redemption
payments which are made on the same day the redemption request is received.
Such inability to be invested fully would lower the yield on such Fund's
portfolio.
A Fund may invest more than 25% of the value of its total assets in Municipal
Securities which are related in such a way that an economic, business or
political development or change affecting one such security also would affect
the other securities; for example, securities the interest upon which is paid
from revenues of similar types of projects. As a result, the Funds may be
subject to greater risk as compared to mutual funds that do not follow this
practice.
In view of the possible "concentration" of the Funds in Municipal Securities
secured by bank letters of credit or guarantees, an investment in a Fund should
be made with an understanding of the characteristics of the banking industry
and the risks which such an investment may entail. Banks are subject to
extensive governmental regulations which may limit both the amounts and types
of loans and other financial commitments which may be made and interest rates
and fees which may be charged. The profitability of the banking industry is
largely dependent on the availability and cost of capital funds for the purpose
of financing lending operations under prevailing money market conditions.
Furthermore, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations under a letter of credit.
Changes to the Internal Revenue Code limit the types and volume of securities
qualifying for the Federal income tax exemption of interest with the result
that the volume of new issues of Municipal Securities has declined
substantially. Such changes may affect the availability of Municipal Securities
for investment by the Funds, which could have a negative impact on the yield of
the portfolios. Each Fund reserves the right to suspend or otherwise limit
sales of its shares if, as a result of difficulties in acquiring portfolio
securities or otherwise, it is determined that it is not in the interests of
the Fund's shareholders to issue additional shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Municipal Securities at times may be purchased or sold on a delayed delivery
basis or on a when-issued basis. These transactions arise when securities are
purchased or sold by a 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. A Fund will make commitments to purchase such securities only with
the intention of actually acquiring the securities, but such Fund may sell
these securities prior to settlement date if it is deemed advisable. No new
when-issued commitments will be made if more than 40% of a Fund's net assets
would become so committed. Purchasing Municipal Securities on a when-issued
basis involves the risk that the yields available in the market when the
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 generally will decrease. Each Fund will maintain a separate account
at the Trust's custodian consisting of cash or liquid Municipal Securities
(valued on a daily basis) equal at all times to the amount of the when-issued
commitment.
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<PAGE>
REPURCHASE AGREEMENTS
Each Fund may invest in Taxable Securities pursuant to repurchase agreements.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government securities or an
affiliate thereof which meets the creditworthiness standards adopted by the
Trustees. Under such agreements, the bank or primary dealer or an affiliate
thereof agrees, upon entering into the contract, to repurchase the security at
a mutually agreed upon time and price, thereby determining the yield during the
term of the agreement. This results in a fixed rate of return insulated from
market fluctuations during such period.
INVESTMENT RESTRICTIONS
The Trust has adopted a number of restrictions and policies relating to the
investment of each Fund's assets and its activities which are fundamental
policies and may not be changed without the approval of the holders of a
majority of the respective Fund's outstanding shares as defined in the
Investment Company Act. Among the more significant restrictions, no Fund may:
(i) purchase any securities other than securities referred to under "Investment
Objectives and Policies" in the Statement of Additional Information or herein;
(ii) 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 Funds will not purchase
securities while borrowings are outstanding; (iii) mortgage, pledge,
hypothecate or in any manner transfer as security for indebtedness any
securities that it owns or holds except in connection with certain specified
transactions; (iv) invest in securities which cannot be readily resold because
of legal or contractual restrictions or which are not otherwise readily
marketable, including repurchase agreements maturing in more than seven days,
if, regarding all such securities, more than 10% of its total assets (taken at
market value at the time of each investment) would be invested in such
securities; and (v) 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.
In addition, to comply with tax requirements for qualification as "regulated
investment companies", the Funds' investments will be limited in a manner such
that, at the close of each quarter of each fiscal year, (a) no more than 25% of
each Fund's total assets are invested in the securities of a single issuer, and
(b) with regard to at least 50% of each Fund's total assets, no more than 5% of
its total assets are invested in the securities of a single issuer. For
purposes of this restriction, the Funds will regard each state and each
political subdivision, agency or instrumentality of such state and each multi-
state 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 a non-
governmental entity then the entity with the ultimate responsibility for the
payment of interest and principal may be regarded as the sole issuer. These
tax-related limitations may be changed by the Trustees of the Trust to the
extent necessary to comply with changes to the Federal tax requirements.
Investors are referred to the Statement of Additional Information for a
complete description of the Funds' investment restrictions.
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<PAGE>
PURCHASE OF SHARES
PURCHASE OF SHARES BY CMA SUBSCRIBERS
CMA Program. The shares of the Funds are offered to participants in the CMA
program to provide a medium for the investment of free credit balances held in
CMA accounts. Persons subscribing to the CMA program will have these balances
invested in shares of a CMA State Fund or CMA Money Fund, CMA Government
Securities Fund, CMA Tax-Exempt Fund or CMA Treasury Fund (collectively, the
"CMA National Funds" and together with the CMA State Funds, the "CMA Funds")
depending on which CMA Fund has been designated by the participant as the
primary investment account (the "Primary Money Account"). Alternatively,
subscribers may designate the Insured Savings Account as their Primary Money
Account. As described in the CMA Program Description, a subscriber to the CMA
Service may elect to have free credit balances in the CMA account deposited in
individual money market deposit accounts established for such subscriber at
designated depository institutions pursuant to the Insured Savings Account. The
CMA Funds and the Insured Savings Account are collectively referred to as the
"Money Accounts". However, this Prospectus does not purport to describe the
other CMA Funds or the Insured Savings Account and prospective participants in
such CMA Funds or Insured Savings Account are referred to the Prospectus with
respect to each such CMA Fund and the Fact Sheet with respect to the Insured
Savings Account. All CMA subscribers are furnished with the prospectuses of the
CMA National Funds and the Insured Savings Account Fact Sheet, as well as the
CMA Program Description. To the extent not inconsistent with information
contained herein, information set forth in the CMA Program Description with
respect to the CMA National Funds also is applicable to each CMA State Fund.
Shareholders of a CMA State Fund may also maintain positions in one or more of
the CMA National Funds or the Insured Savings Account but may not maintain
positions in more than one CMA State Fund at any given time.
Merrill Lynch charges a fee for the CMA service which presently is $100 per
year for individuals (an additional fee, presently $25, is charged for
participation in the CMA Visa (R) Gold Program). A different fee may be charged
to certain group plans and special accounts. Merrill Lynch reserves the right
to change the fee for the CMA service or the CMA Visa (R) Gold Program at any
time.
Purchase of shares of a CMA Fund designated as the Primary Money Account will
be made pursuant to the CMA automatic purchase procedures described below.
Purchases of shares of the CMA Funds also may be made pursuant to the manual
procedures described below. If a Fund exercises its right to suspend or
otherwise limit sales of its shares, as discussed under "Investment Objectives
and Policies--Other Factors", amounts that would have been applied to the
purchase of such Fund's shares will be applied to the purchase of shares of one
of the other CMA Funds or the Insured Savings Account depending on which is
designated by the participant as the secondary investment account (the
"Secondary Money Account"). However, dividends declared on shares of the CMA
Fund designated as the Primary Money Account will continue to be reinvested in
that Fund. If the participant has not designated a Secondary Money Account,
additional purchases through the CMA program will be made in shares of CMA Tax-
Exempt Fund rather than in shares of the CMA Fund designated as the Primary
Money Account.
Subscribers to the CMA service have the option to change the designation of
their Primary Money Account at any time by notifying their Merrill Lynch
Financial Consultants. At that time, a subscriber may instruct his or her
Financial Consultant to redeem shares of a CMA Fund designated as the Primary
Money Account and to transfer the proceeds to the newly-designated Primary
Money Account.
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<PAGE>
Merrill Lynch reserves the right to terminate a subscriber's participation in
the CMA program for any reason.
Shares of the Funds are offered continuously for sale by Merrill Lynch. The
purchase price for shares of each Fund is the net asset value per share
(normally $1.00) next determined after receipt by the Fund of an automatic or
manual purchase order in proper form. Shares purchased will receive the next
dividend declared after such shares are issued which will be immediately prior
to the 12 noon pricing on the following business day. A purchase order will not
be effective until cash in the form of Federal funds becomes available to the
Fund (see the next paragraph for information as to when free credit balances
held in CMA accounts become available to the Funds). There are no minimum
investment requirements for CMA subscribers other than for manual purchases.
Automatic Purchases of Fund Shares by CMA Subscribers. Free credit balances
arising in a CMA account are invested automatically in shares of the CMA Fund
designated as the Primary Money Account not later than the first business day
of each week on which either the New York Stock Exchange or New York banks are
open, which normally will be Monday. Free credit balances arising from the
following transactions will be invested automatically prior to the automatic
weekly sweeps. Free credit balances arising from the sale of securities which
do not settle on the day of the transaction (such as most common and preferred
stock transactions) and from principal repayments on debt securities become
available to such Fund and will be invested in shares on the business day
following receipt of the proceeds with respect thereto in the CMA account.
Proceeds from the sale of shares of Merrill Lynch Ready Assets Trust, Merrill
Lynch U.S.A. Government Reserves and Merrill Lynch U.S. Treasury Money Fund,
and from the sale of securities settling on a same day basis, also become
available to such Fund and will be invested in shares on the next business day
following receipt. Free credit balances of $1,000 or more arising from cash
deposits into a CMA account, dividend and interest payments or any other source
become available to such Fund and are invested in shares on the next business
day following receipt in the CMA account unless such balance results from a
cash deposit made after the cashiering deadline of the Merrill Lynch office in
which the deposit is made, in which case the resulting free credit balances are
invested on the second following business day. A CMA participant desiring to
make a cash deposit should contact his or her Merrill Lynch Financial
Consultant for information concerning the local office's cashiering deadline,
which is dependent on such office's arrangements with its commercial banks.
Free credit balances of less than $1,000 are invested in shares in the
automatic weekly sweep.
Manual Purchases by CMA Subscribers. A subscriber to the CMA service may make
manual investments of $1,000 or more at any time in shares of a CMA Fund not
selected as his or her Primary Money Account. Manual purchases shall be
effective on the day following the day the order is placed with Merrill Lynch,
except that orders involving cash deposits made on the date of a manual
purchase shall become effective on the second business day thereafter if they
are placed after the cashiering deadline referred to in the preceding
paragraph. As a result, CMA customers who enter manual purchase orders which
include cash deposits made on that day after such cashiering deadline will not
receive the daily dividend which would have been received had their orders been
entered prior to the deadline. Since there is a five-day settlement period
applicable to the sale of most securities, delays may occur when an investor is
liquidating other investments for investment in a CMA Fund. In addition, manual
purchases of $500,000 or more can be made effective on the same day the order
is placed with Merrill Lynch provided that requirements as to timely
notification and transfer of a Federal funds wire in the proper amount are met.
CMA customers desiring
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<PAGE>
further information on this method of purchasing shares should contact their
Merrill Lynch Financial Consultants.
All purchases of CMA Fund shares and dividend reinvestments will be
confirmed to CMA subscribers (rounded to the nearest share) in the CMA Account
Statement which is sent to all CMA participants monthly.
Merrill Lynch, in conjunction with another subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), has introduced a modified version of the CMA account
which has been designed for corporations and other businesses. This account,
the Working Capital Management SM account ("WCMA(R)"), provides participants
with the features of a regular CMA account and also optional lines of credit.
A brochure describing the WCMA program, as well as information concerning
charges for participation in the program, is available from Merrill Lynch.
Participants in the WCMA program are able to invest funds in one or more
designated CMA Funds. Checks and other funds transmitted to a WCMA account
generally will be applied first, to the payment of pending securities
transactions or other charges in the participant's securities account, second,
to reduce outstanding balances in the lines of credit available through such
program and third, to purchase shares of the designated CMA Fund. To the
extent not otherwise applied, funds transmitted by Federal funds wire or an
automated clearinghouse service will be invested in shares of the designated
CMA Fund on the business day following receipt of such funds by Merrill Lynch.
Funds received in a WCMA account from the sale of securities will be invested
in the designated CMA Fund as described above. The amount payable on a check
received in a WCMA account prior to the cashiering deadline referred to above
will be invested on the second business day following receipt of the check by
Merrill Lynch. Redemptions of CMA Fund shares will be effected as described
below under "Redemption of Shares--Redemption of Shares by CMA Subscribers--
Automatic Redemptions" to satisfy debit balances, such as those created by
purchases of securities or by checks written against a bank providing checking
services to WCMA participants. WCMA participants that have a line of credit
will, however, be permitted to maintain a minimum CMA Fund balance; for
participants who elect to maintain such a balance, debits from check usage
will be satisfied through the line of credit so that such balance is
maintained. However, if the full amount of available credit is not sufficient
to satisfy the debit, it will be satisfied from the minimum balance.
From time to time, Merrill Lynch also may offer the Funds to participants in
certain other programs sponsored by Merrill Lynch. Some or all of the features
of the CMA Account may not be available in such programs. For more information
on the services available under such programs, participants should contact
their financial consultants.
PURCHASE OF SHARES BY NON-CMA SUBSCRIBERS
Shares of the Funds may be purchased by individual investors who are not
subscribers to the CMA program but who maintain accounts directly with
Financial Data Services, Inc., the Trust's transfer agent (the "Transfer
Agent"). Such shareholders will not be charged the CMA program fee, but will
not receive any of the additional services available to CMA program
participants such as the Visa Account or the automatic investment of free
credit balances. The minimum initial purchase for non-CMA subscribers is
$5,000 and the minimum subsequent purchase is $1,000. Investors desiring to
purchase shares directly through the Transfer Agent as described below should
contact Financial Data Services, Inc., Transfer Agency Operations Department,
P.O. Box 45290, Jacksonville, Florida 32232-5290 or call (800) 221-7210.
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<PAGE>
Payment to the Transfer Agent. Investors who are not subscribers to the CMA
program may submit purchase orders directly by mail or otherwise to the
Transfer Agent. Purchase orders by mail should be sent to Financial Data
Services, Inc., Transfer Agency Operations Department, P.O. Box 45290,
Jacksonville, Florida 32232-5290. Purchase orders which are sent by hand should
be delivered to Financial Data Services, Inc., Transfer Agency Operations
Department, 4800 Deer Lake Drive East, Jacksonville, Florida 32246. Investors
opening a new account must enclose a completed Purchase Application which is
available from the Transfer Agent. Existing shareholders should enclose the
detachable stub from a monthly account statement which they have received.
Checks should be made payable to Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Certified checks are not necessary, but checks are accepted
subject to collection at full face value in United States funds and must be
drawn in United States dollars on a United States bank. Payments for the
accounts of corporations, foundations and other organizations may not be made
by third party checks. Since there is a five-day settlement period applicable
to the sale of most securities, delays may occur when an investor is
liquidating other investments for investment in one of the Funds.
The CMA Funds have been created for the purpose of being part of the CMA
program or as part of other Merrill Lynch central asset account programs, and
they do not offer certain typical money fund features such as exchange
privileges. There are money funds which have investment objectives similar to
the CMA Funds and which offer check writing and exchange privileges, including
others sponsored by Merrill Lynch (Merrill Lynch, however, does not sponsor
money funds outside the CMA program which seek to provide income exempt from
state or city income taxes). Prior to making an investment in any such money
fund, an investor should obtain and read the prospectus of such money fund.
Shares of each Fund are offered continuously for sale by Merrill Lynch
without a sales load at a public offering price equal to the net asset value
(normally $1.00 per share) next determined after a purchase order becomes
effective. Share purchase orders are effective on the date Federal funds become
available to the selling Fund. If Federal funds are available to such Fund
prior to 12 noon on any business day, the order will be effective on that day.
Shares purchased will begin accruing dividends on the day following the date of
purchase.
----------------
The Trust has entered into a distribution agreement with Merrill Lynch, a
wholly-owned subsidiary of ML & Co. (the "Distribution Agreement"), pursuant to
which Merrill Lynch acts as the distributor for the Funds.
Each Fund has adopted a separate distribution and shareholder servicing plan
(each a "Distribution Plan") in compliance with Rule 12b-1 under the Investment
Company Act. Pursuant to each Distribution Plan, Merrill Lynch receives a
distribution fee from each Fund at the end of each month at the annual rate of
0.125% of average daily net assets of that Fund attributable to subscribers to
the CMA program and to investors maintaining securities accounts at Merrill
Lynch or maintaining accounts directly with the Transfer Agent who are not
subscribers to such program, except that the value of Fund shares in accounts
maintained directly with the Transfer Agent which are not serviced by Merrill
Lynch Financial Consultants will be excluded. Each Distribution Plan reimburses
Merrill Lynch only for actual expenses of the respective Fund incurred during
the fiscal year in which the fee is paid. The distribution fees compensate
Merrill Lynch Financial Consultants and other directly involved branch office
personnel for selling shares of the Funds and for providing direct personal
services to shareholders.
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Set forth below are the fees paid by each Fund to Merrill Lynch pursuant to
its Distribution Plan for the year ended March 31, 1994, each Fund's net assets
as of May 31, 1994 and the approximate annual distribution fee payable by each
Fund as of May 31, 1994.
<TABLE>
<CAPTION>
DISTRIBUTION FEES
----------------------------------------------------
AS OF MAY 31, 1994
-------------------------------------
FEE PAID AT APPROXIMATE ANNUAL FEE
MARCH 31, 1994 NET ASSETS BASED ON NET ASSETS
-------------- -------------- ----------------------
<S> <C> <C> <C>
Arizona Fund............... $ 67,140 $ 73,062,197 $ 90,883
California Fund............ $1,364,634 $1,184,035,813 $1,476,141
Connecticut Fund........... $ 292,733 $ 250,420,737 $ 311,628
Massachusetts Fund......... $ 179,349 $ 146,296,864 $ 181,712
Michigan Fund.............. $ 265,504 $ 217,234,109 $ 270,233
New Jersey Fund............ $ 500,084 $ 439,031,608 $ 546,728
New York Fund.............. $ 872,640 $ 767,295,317 $ 958,577
North Carolina Fund........ $ 297,463 $ 295,919,479 $ 368,657
Ohio Fund.................. $ 237,695 $ 209,248,982 $ 260,152
Pennsylvania Fund.......... $ 395,631 $ 316,869,230 $ 394,781
</TABLE>
21
<PAGE>
REDEMPTION OF SHARES
Each Fund is required to redeem for cash all full and fractional shares of
such Fund. The redemption price of a Fund is the net asset value per share
next determined after receipt by the Transfer Agent of proper notice of
redemption as described in accordance with either the automatic or manual
procedures set forth below. If such notice is received by the Transfer Agent
prior to the determination of net asset value at 12 noon, New York time, on
any day that the New York Stock Exchange or New York banks are open for
business, the redemption will be effective on such day. Payment of the
redemption proceeds will be made on the same day the redemption becomes
effective. If the notice is received after 12 noon, the redemption will be
effective on the next business day and payment will be made on such next day.
REDEMPTION OF SHARES BY CMA SUBSCRIBERS
Automatic Redemptions. Redemptions will be effected automatically by Merrill
Lynch to satisfy debit balances in the Securities Account created by activity
therein or to satisfy debit balances created by Visa card purchases, cash
advances or checks written against the Visa Account. Each CMA account will be
scanned automatically for debits each business day prior to 12 noon. After
application of any free credit balances in the account to such debits, shares
of the designated Fund will be redeemed at net asset value at the 12 noon
pricing, and funds deposited pursuant to the Insured Savings Account will be
withdrawn, to the extent necessary to satisfy any remaining debits in either
the Securities Account or the Visa Account. Automatic redemptions or
withdrawals will be made first from the participant's Primary Money Account
and then, to the extent necessary, from Money Accounts not designated as the
Primary Money Account. Unless otherwise requested by the participant,
redemptions or withdrawals from non-Primary Money Accounts will be made in the
order the Money Accounts were established; thus, redemptions or withdrawals
will first be made from the non-Primary Money Account which the participant
first established. Margin loans through the Investor CreditLine SM Service
will be utilized to satisfy debits remaining after the liquidation of all
funds invested in or deposited through Money Accounts, and shares of the Funds
may not be purchased, nor may deposits be made pursuant to the Insured Savings
Account, until all debits and margin loans in the account are satisfied.
As set forth in the current description of the CMA Program, it is expected
that participants whose Securities Accounts are margin accounts with or
through the Investor CreditLine SM Service will be permitted to designate
minimum balances to be maintained in shares of a CMA Fund or in deposits made
pursuant to the Insured Savings Account (the "Minimum Money Accounts
Balance"). If a participant designates a Minimum Money Accounts Balance, the
shares or deposits representing such balance will not be redeemed or withdrawn
until loans equal to the available margin loan value of securities in the
Securities Account have been made. Participants considering the establishment
of a Minimum Money Accounts Balance should review the description of this
service contained in the description of the CMA program which is available
from Merrill Lynch.
Manual Redemptions. Shareholders who are subscribers to the CMA program may
redeem shares of a Fund directly by submitting a written notice of redemption
directly to Merrill Lynch, which will submit the requests to the Transfer
Agent. Cash proceeds from the manual redemption of Fund shares ordinarily will
be mailed to the shareholder at his or her address of record or on request,
mailed or wired (if $10,000 or more) to his or her bank account. Redemption
requests should not be sent to a Fund or the Transfer Agent. If inadvertently
sent to a Fund or the Transfer Agent, such redemption requests will be
forwarded to Merrill Lynch. The notice requires the signatures of all persons
in whose name the shares are registered, signed exactly as their names appear
on their monthly statement. The signature(s) on the redemption request must
22
<PAGE>
be guaranteed by an "eligible guarantor institution" as such is defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, the existence and validity
of which may be verified by the Transfer Agent through the use of industry
publications. Notarized signatures are not sufficient. In certain instances,
additional documents such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or certificates of
corporate authority may be required. Shareholders desiring to effect manual
redemptions should contact their Merrill Lynch Financial Consultants.
All redemptions of Fund shares will be confirmed to CMA subscribers in the
CMA Account Statement which is sent to all CMA participants monthly.
REDEMPTION OF SHARES BY NON-CMA SUBSCRIBERS
Shareholders may redeem shares of a Fund held in a Merrill Lynch securities
account directly as described under "Redemption of Shares--Redemption of Shares
by CMA Subscribers--Manual Redemptions".
Shareholders maintaining an account directly with the Transfer Agent, who are
not CMA program participants, may redeem shares of a Fund by submitting a
written notice by mail directly to the Transfer Agent, Financial Data Services,
Inc., Transfer Agency Operations Department, P.O. Box 45290, Jacksonville,
Florida 32232-5290. Redemption requests which are sent by hand should be
delivered to Financial Data Services, Transfer Agency Operations Department,
4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Cash proceeds from
the manual redemption of Fund shares will be mailed to the shareholder at his
or her address of record. Redemption requests should not be sent to a Fund or
Merrill Lynch. If inadvertently sent to a Fund or Merrill Lynch such redemption
requests will be forwarded to the Transfer Agent. The notice requires the
signatures of all persons in whose name the shares are registered, signed
exactly as their names appear on their monthly statement. The signature(s) on
the redemption request must be guaranteed by an "eligible guarantor
institution" as such is defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934, the existence and validity of which may be verified by the
Transfer Agent through the use of industry publications. Notarized signatures
are not sufficient. In certain instances, additional documents such as, but not
limited to, trust instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority may be required.
----------------
Shares of the Funds must be held in either a CMA account or through the
Transfer Agent. Shareholders who no longer maintain a CMA account will have
their shares automatically redeemed unless they elect to open an account for
such shares through the Transfer Agent. Such shareholders will no longer
receive any of the services available to CMA program participants.
At various times, a Fund may be requested to redeem shares, in manual or
automatic redemptions, with respect to which good payment has not yet been
received by Merrill Lynch. Such Fund may delay, or cause to be delayed, the
payment of the redemption proceeds until such time as it has assured itself
that good payment has been collected for the purchase of such shares. Normally,
this delay will not exceed 10 days. In addition, such Fund reserves the right
not to effect automatic redemptions where the shares to be redeemed have been
purchased by check within 15 days prior to the date the redemption request is
received.
23
<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES
The Trustees of the Trust consist of six individuals, five of whom are not
"interested persons" of the Trust as defined in the Investment Company Act. The
Trustees of the Trust are responsible for the overall supervision of the
operations of the Funds and perform the various duties imposed on the directors
of investment companies by the Investment Company Act.
The Trustees of the Trust are:
Arthur Zeikel*--President and Chief Investment Officer of the Manager and
Merrill Lynch Asset Management, L.P. ("MLAM"); Executive Vice President of
Merrill Lynch; Executive Vice President of ML & Co.; President and Director
of Princeton Services, Inc. ("Princeton Services"); and Director of Merrill
Lynch Funds Distributor, Inc. (the "Distributor").
Ronald W. Forbes--Professor of Finance, School of Business, State
University of New York at Albany.
Cynthia A. Montgomery--Professor of Finance, Harvard Business School.
Charles C. Reilly--Self-employed financial consultant; former President
and Chief Investment Officer of Verus Capital, Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor, Columbia
University Graduate School of Business.
Kevin A. Ryan--Professor of Education, Boston University; founder and
current Director of the Boston University Center for the Advancement of
Ethics and Character.
Richard R. West--Professor of Finance and former Dean, New York
University Leonard N. Stern School of Business Administration.
- --------
* Interested person, as defined in the Investment Company Act, of the Trust.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Fund Asset Management, L.P. (the "Manager") is owned and controlled by ML &
Co., a financial services holding company and the parent of Merrill Lynch. The
Manager acts as investment adviser for the Funds and provides the Funds with
management services pursuant to a management agreement with the Trust (the
"Management Agreement"). The Manager or MLAM, an affiliate of the Manager, acts
as investment adviser for more than 100 registered investment companies and
provides investment advisory services to individual and institutional accounts.
As of June 29, 1994, MLAM and the Manager had a total of approximately $161.4
billion in investment company and other portfolio assets under management,
including accounts of certain affiliates of MLAM.
The Management Agreement with the Manager provides that, subject to the
direction of the Trustees, the Manager is responsible for the actual management
of each Fund's portfolio and constantly reviews each Fund's holdings in light
of its own research analysis and that from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Manager, subject to the review of the Board of Trustees. The
Manager performs certain of the other administrative services and provides all
of the office space, facilities, equipment and necessary personnel for
portfolio management of the Funds.
As compensation for its services under the Management Agreement, the Manager
receives a fee from each Fund at the end of each month at the annual rates of
0.50% of the first $500 million of average daily
24
<PAGE>
net assets of the Fund, 0.425% of the average daily net assets in excess of
$500 million but not exceeding $1 billion and 0.375% of the average daily net
assets in excess of $1 billion.
The Management Agreement obligates each Fund to pay certain expenses incurred
in its operations, including, among other things, the management fee, legal and
audit fees, unaffiliated Trustees' fees and expenses, registration fees,
custodian and transfer agency fees, accounting and pricing costs and certain of
the costs of printing proxies, shareholder reports, prospectuses and statements
of additional information. Accounting services are provided to the Funds by the
Manager and each Fund reimburses the Manager for its costs in connection with
such services. The Manager may waive all or a portion of its management fee and
may voluntarily assume all or a portion of a Fund's expenses during the initial
period of such Fund's operations.
Set forth in the chart below is certain management fee and expense
information for each Fund for the year ended March 31, 1994 and at May 31,
1994.
<TABLE>
<CAPTION>
NORTH
ARIZONA CALIFORNIA CONNECTICUT MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK CAROLINA
FUND FUND FUND FUND FUND FUND FUND FUND OHIO FUND
-------- ---------- ----------- ------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee
for the Year
Ended March 31,
1994........... $269,875 $4,979,676 $1,176,254 $721,970 $1,067,163 $2,007,881 $3,347,951 $1,193,861 $ 955,932
Management Fee
Waived for the
Year Ended
March 31, 1994. $209,036 $ -- $ -- $ -- $ -- $ -- $ -- $ 238,772 $ -
Effective Fee
Rate as of
March 31, 1994
(in millions).. .50% .46% .50% .50% .50% .50% .48% .50% .50%
Net Assets at
May 31, 1994
(in millions).. $ 73.1 $ 1,184.0 $ 250.4 $ 146.3 $ 217.2 $ 439.0 $ 767.3 $ 295.9 $ 209.2
Approximate
Annual
Management Fee
as of May 31,
1994........... $365,311 $5,315,134 $1,252,104 $731,484 $1,086,171 $2,195,158 $3,636,005 $1,479,597 $1,046,245
Approximate
Effective Fee
Rate as of
May 31, 1994... .50% .45% .50% .50% .50% .50% .47% .50% .50%
Reimbursement
for Accounting
Services for
the Year Ended
March 31, 1994. $ 33,858 $ 52,406 $ 44,993 $ 58,813 $ 51,218 $ 77,262 $ 96,107 $ 34,996 $ 40,798
Ratio of
Operating
Expenses to
Average Net
Assets (Net of
Reimbursement
and excluding
Distribution
Fees) for the
Year Ended
March 31, 1994. .47% .50% .58% .66% .60% .58% .54% .48% .59%
<CAPTION>
PENNSYLVANIA
FUND
------------
<S> <C>
Management Fee
for the Year
Ended March 31,
1994........... $1,587,756
Management Fee
Waived for the
Year Ended
March 31, 1994. $ --
Effective Fee
Rate as of
March 31, 1994
(in millions).. .50%
Net Assets at
May 31, 1994
(in millions).. $ 316.9
Approximate
Annual
Management Fee
as of May 31,
1994........... $1,584,346
Approximate
Effective Fee
Rate as of
May 31, 1994... .50%
Reimbursement
for Accounting
Services for
the Year Ended
March 31, 1994. $ 63,695
Ratio of
Operating
Expenses to
Average Net
Assets (Net of
Reimbursement
and excluding
Distribution
Fees) for the
Year Ended
March 31, 1994. .59%
</TABLE>
25
<PAGE>
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), a wholly-owned
subsidiary of ML & Co., acts as the Trust's transfer agent pursuant to a
transfer agency, shareholder servicing agency and proxy agency agreement (the
"Transfer Agency Agreement"). Pursuant to the Transfer Agency Agreement, the
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening and maintenance of shareholder accounts. Pursuant to the
Transfer Agency Agreement, each Fund pays the Transfer Agent a fee of $5.25 per
shareholder account for the first one million accounts and $4.75 per
shareholder account thereafter and the Transfer Agent is entitled to
reimbursement from each Fund for out-of-pocket expenses incurred by the
Transfer Agent under the Transfer Agency Agreement.
Set forth below are the fees paid by each Fund to the Transfer Agent pursuant
to the Transfer Agency Agreement for the year ended March 31, 1994 and for the
two months ended May 31, 1994.
<TABLE>
<CAPTION>
TRANSFER AGENT FEES
-------------------------------------------
AS OF MAY 31, 1994
------------------------
FOR THE YEAR ENDED NUMBER OF APPROXIMATE
MARCH 31, 1994 SHAREHOLDERS FEE
------------------ ------------ -----------
<S> <C> <C> <C>
Arizona Fund........................ $ 11,369 1,603 $ 8,416
California Fund..................... $110,324 16,986 $89,177
Connecticut Fund.................... $ 24,778 3,612 $18,963
Massachusetts Fund.................. $ 28,770 3,890 $20,423
Michigan Fund....................... $ 35,711 4,720 $24,780
New Jersey Fund..................... $ 57,377 9,093 $47,738
New York Fund....................... $107,551 15,333 $80,498
North Carolina Fund................. $ 41,338 6,291 $33,028
Ohio Fund........................... $ 29,133 4,341 $22,790
Pennsylvania Fund................... $ 57,670 8,098 $42,515
</TABLE>
PORTFOLIO TRANSACTIONS
The portfolio securities in which the Funds invest are traded primarily in
the over-the-counter market. Where possible, the Funds will deal directly with
the dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available elsewhere. Such
dealers usually are acting as principals for their own accounts. On occasion,
securities may be purchased directly from the issuer. Such portfolio securities
generally are traded on a net basis and normally do not involve either
brokerage commissions or transfer taxes. The cost of executing portfolio
transactions primarily will consist of dealer spreads and underwriting
commissions. Under the Investment Company Act, persons affiliated with a Fund
are prohibited from dealing with such Fund as a principal in the purchase and
sale of securities unless an exemptive order allowing such transaction is
obtained from the Securities and Exchange Commission (the "Commission"). The
Trust has obtained exemptive relief permitting the Funds to engage in certain
principal transactions with Merrill Lynch involving high quality, short-term
Municipal Securities subject to certain conditions. In addition, the Trust may
not purchase State Municipal Securities for the Funds from any underwriting
syndicate of which Merrill Lynch is a member except pursuant to procedures
approved by the Trustees of the Trust which comply with rules adopted by the
Commission. An affiliated person of the Trust may serve as its broker in over-
the-counter transactions on behalf of a Fund conducted on an agency basis. In
allocating portfolio transactions, the Manager may take into consideration the
sale of shares of such Fund.
26
<PAGE>
Set forth below are the number of transactions engaged in by each Fund with
Merrill Lynch and the amount of securities involved for the year ended March
31, 1994.
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
TRANSACTIONS AMOUNT
------------ ------------
<S> <C> <C>
Arizona Fund.......................................... -- $ --
California Fund....................................... 174 $875,842,949
Connecticut Fund...................................... 3 $ 6,963,262
Massachusetts Fund.................................... 52 $ 95,300,000
Michigan Fund......................................... 10 $ 54,908,301
New Jersey Fund....................................... 7 $ 34,935,057
New York Fund......................................... 31 $155,221,281
North Carolina Fund................................... 15 $ 23,600,000
Ohio Fund............................................. 13 $ 26,365,273
Pennsylvania Fund..................................... 2 $ 12,336,864
</TABLE>
DIVIDENDS
All of the net income of each Fund is declared as dividends daily. Each
Fund's net income for dividend purposes is determined by the Manager at 12
noon, New York time, on each day the New York Stock Exchange or New York banks
are open for business immediately prior to the determination of each Fund's net
asset value on that day (see "Determination of Net Asset Value"). Net income of
each Fund (from the time of the immediately preceding determination thereof)
consists of interest accrued and/or original issue discount earned, less
amortization of premium and the estimated expenses of the Fund (including the
fees payable to the Manager and Merrill Lynch) applicable to that dividend
period. Dividends of each Fund are declared and reinvested daily in the form of
additional full and fractional shares of that Fund at net asset value.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund is determined by the Manager once daily,
immediately after the daily declaration of dividends, as of 12 noon, New York
time, on each day during which the New York Stock Exchange or New York banks
are open for business. It is anticipated that the net asset value of each Fund
will remain constant at $1.00 per share although this cannot be assured.
Each Fund values its portfolio securities based on their amortized cost. This
involves valuing an instrument 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 instrument.
TAXES
FEDERAL
The Trust intends to continue to qualify each Fund for the special tax
treatment afforded regulated investment companies ("RICs") under the Code. If a
Fund so qualifies, in any taxable year in which it distributes at least 90% of
its taxable net income and 90% of its tax-exempt net income (see below), the
Fund (but not its shareholders) will not be subject to Federal income tax to
the extent that it distributes its net investment income and net realized
capital gains. The Trust intends to cause the Funds to distribute substantially
all of such income.
27
<PAGE>
To the extent that the dividends distributed to a Fund's shareholders are
derived from interest income exempt from Federal tax under Code Section 103(a)
and are properly designated as "exempt-interest dividends" by the Trust, they
will be excludable from a shareholder's gross income for Federal income tax
purposes. Exempt-interest dividends are included, however, in determining the
portion, if any, of a person's social security benefits and railroad retirement
benefits subject to Federal income taxes. The Trust will inform shareholders
annually as to the portion of each Fund's distributions which constitutes
exempt-interest dividends. Interest on indebtedness incurred or continued to
purchase or carry shares of any of the Funds is not deductible for Federal
income tax purposes to the extent attributable to exempt-interest dividends.
Persons who may be "substantial users" (or "related persons" of substantial
users) of facilities financed by industrial development bonds or private
activity bonds held by a Fund should consult their tax advisers before
purchasing Fund shares.
To the extent that any Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered ordinary income for Federal income tax purposes. Such distributions
are not eligible for the dividends received deduction for corporations.
Distributions, if any, of net long-term capital gains from the sale of
securities ("capital gain dividends") are taxable as long-term capital gains
for Federal income tax purposes, regardless of the length of time the
shareholder has owned Fund shares. Under the Revenue Reconciliation Act of
1993, all or a portion of a Fund's gain from the sale or redemption of tax-
exempt obligations purchased at a market discount will be treated as ordinary
income rather than capital gain. This rule may increase the amount of ordinary
income dividends received by shareholders. Distributions in excess of a Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming the shares are held as a capital asset).
Any loss upon the sale or exchange of shares held for six months or less will
be treated as long-term capital loss to the extent of any capital gain
dividends received by the shareholder. In addition, such loss will be
disallowed to the extent of any exempt-interest dividends received by the
shareholder. If a Fund pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Fund and received by its shareholders on December 31 of
the year in which such dividend was declared.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. The alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference", which could subject investors in such bonds, including
shareholders of the Funds, to an alternative minimum tax. The Funds will
purchase such "private activity bonds", and the Trust will report to
shareholders within 60 days after each Fund's taxable year-end the portion of
its dividends declared during the year which constitutes an item of tax
preference for alternative minimum tax purposes. The Code further provides that
corporations are subject to an alternative minimum tax based, in part, on
certain differences between taxable income as adjusted for other tax
preferences and the corporation's "adjusted current earnings", which more
closely reflects a corporation's economic income. Because an exempt-interest
dividend paid by a Fund will be included in adjusted current earnings, a
corporate shareholder may be required to pay alternative minimum tax on exempt-
interest dividends paid by such Fund.
The Revenue Reconciliation Act of 1993 has added new marginal tax brackets of
36% and 39.6% for individuals and has created a graduated structure of 26% and
28% for the alternative minimum tax
28
<PAGE>
applicable to individual taxpayers. These rate increases may affect an
individual investor's after-tax return from an investment in a Fund as compared
with such investor's return from taxable investments.
Under certain Code provisions some shareholders may be subject to a 31%
withholding tax on certain ordinary income dividends and capital gain dividends
and on redemption payments ("backup withholding"). Generally, shareholders
subject to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
The Code provides that every person required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including any of the Funds) during the
taxable year.
A loss realized on a sale or exchange of shares of a Fund will be disallowed
if other Fund shares are acquired (whether through the automatic reinvestment
of dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal or foreign taxes.
STATE
The State Municipal Securities in which each Fund will invest consist of
obligations with remaining maturities of 397 days (13 months) or less which are
issued by or on behalf of the designated state, its political subdivisions,
agencies and instrumentalities and obligations of other qualifying issuers,
such as issuers located in Puerto Rico, the Virgin Islands and Guam and issuers
of derivative or synthetic municipal instruments, the interest from which is
exempt, in the opinion of counsel to the issuer, from Federal income taxation
and personal income taxation in the designated state. In the case of the New
York Fund, "State Municipal Securities" includes obligations as described in
the previous sentence, the interest from which is exempt, in the opinion of
counsel to the issuer, from Federal, New York State and New York City income
taxation.
Exempt-interest dividends attributable to interest income from State
Municipal Securities of a designated state generally will be exempt from income
taxation to shareholders otherwise subject to personal income taxation by such
designated state. Shareholders subject to income taxation by states other than
the Fund's designated state will realize a lower after-tax rate of return than
shareholders in that state since the dividends distributed by a Fund generally
will not be exempt, to any significant degree, from income taxation by any
state other than that Fund's designated state. The Trust will inform
shareholders annually as to the portion of a Fund's distributions which
constitutes exempt-interest dividends and the portion which is not subject to
state and, if applicable, city income or franchise taxes. Interest on
indebtedness incurred or continued to purchase or carry Fund shares generally
will not be deductible for state income tax purposes to the extent
29
<PAGE>
attributable to interest income exempt from income taxation by the designated
state. Further limitations on the deductibility of such interest may apply in
some states.
The foregoing description relates generally to state personal income tax
issues; investors should consult with their tax advisers with respect to such
taxes and as to the availability of any exemptions from other state or local
taxes. Additional considerations relating to income taxation in the various
states is set forth under "Taxes" in the Statement of Additional Information.
ORGANIZATION OF THE TRUST
The Trust is an unincorporated business trust organized on February 6, 1987
under the laws of Massachusetts. It is an open-end management investment
company comprised of separate series ("Series"), each of which is a separate
portfolio offering a separate class of shares to selected groups of purchasers.
Each of the Series is to be managed independently in order to provide to
shareholders who are residents of the state to which such Series relates as
high a level of income exempt from Federal, state and local income taxes as is
consistent with prudent investment management. At the date of this Prospectus,
the Arizona, California Connecticut, Massachusetts, Michigan, New Jersey, New
York, North Carolina, Ohio and Pennsylvania Funds are the only Series of the
Trust offering their shares to the public. The Trustees are authorized to
create an unlimited number of Series and, with respect to each Series, to issue
an unlimited number of full and fractional shares of a single class.
Shareholder approval is not required for the authorization of additional Series
of the Trust.
Shareholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Trustees (to the
extent hereafter provided) and on other matters submitted to the vote of
shareholders. All shares have equal voting rights, except that only shares of
the respective Series are entitled to vote on matters concerning only that
Series. The Declaration of Trust does not require that the Trust hold annual
meetings of shareholders. However, the Trust will be required to call special
meetings of shareholders in accordance with the requirements of the Investment
Company Act to seek approval of new management and advisory arrangements, of a
material increase in distribution fees or of a change in the fundamental
policies, objectives or restrictions of the Trust. The Trust also would be
required to hold a special shareholders' meeting to elect new Trustees at such
time as less than a majority of the Trustees holding office have been elected
by shareholders. The Declaration of Trust provides that a shareholders' meeting
may be called for any reason at the request of 10% of the outstanding shares of
the Trust or by a majority of the Trustees. Except as set forth above, the
Trustees shall continue to hold office and appoint successor Trustees.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared by the respective Series and in the net
assets of such Series on liquidation or dissolution remaining after
satisfaction of outstanding liabilities. The obligations and liabilities of a
particular Series are restricted to the assets of that Series and do not extend
to the assets of the Trust generally. The shares of each Series, when issued,
will be fully paid and non-assessable by the Trust.
The Declaration of Trust establishing the Trust refers to the Trustees under
the Declaration of Trust collectively as Trustees, but not as individuals or
personally; and except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim of the Trust but the "Trust Property"
(as defined in the Declaration of Trust) only shall be liable. A copy of the
Declaration of Trust, together with all amendments thereto, is on file in the
office of the Commonwealth of Massachusetts.
30
<PAGE>
SHAREHOLDER REPORTS AND INQUIRIES
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: Client Services
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch Financial Consultant or Financial Data Services,
Inc. at (800) 221-7210.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to a Fund at the address or telephone
number set forth on the cover page of this Prospectus.
31
<PAGE>
Manager
Fund Asset Management, L.P.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
Distributor
Merrill Lynch, Pierce, Fenner & Smith Incorporated
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Operations Department
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45290
Jacksonville, Florida 32232-5290
Independent Auditors
Deloitte & Touche
117 Campus Drive
Princeton, New Jersey 08540
Counsel
Brown & Wood
One World Trade Center
New York, New York 10048
Principal Office of the Trust:
800 Scudders Mill Road
Plainsboro, New Jersey 08536-9011
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Financial Highlights....................................................... 3
Yield Information.......................................................... 6
Investment Objectives and Policies......................................... 7
Purchase of Shares......................................................... 17
Redemption of Shares....................................................... 22
Management of the Trust.................................................... 24
Portfolio Transactions..................................................... 26
Dividends.................................................................. 27
Determination of Net Asset Value........................................... 27
Taxes...................................................................... 27
Organization of the Trust.................................................. 30
Shareholder Reports and Inquiries.......................................... 31
</TABLE>
No person has been authorized to
give any information or to make any
representations, other than those
contained in this Prospectus, in
connection with the offers con-
tained therein, and, if given or
made, such other information or
representations must not be relied
upon as having been authorized by
the Fund, the Manager, or Merrill
Lynch, Pierce, Fenner & Smith In-
corporated. This Prospectus does
not constitute an offering in any
state in which such offering may
not lawfully be made.
Code #16817
[LOGO OF CMA APPEARS HERE]
CMA MULTI-STATE MUNICIPAL SERIES TRUST
. ARIZONA
. CALIFORNIA
. CONNECTICUT
. MASSACHUSETTS
. MICHIGAN
. NEW JERSEY
. NEW YORK
. NORTH CAROLINA
. OHIO
. PENNSYLVANIA
Prospectus
The enclosed prospectus describes ten fully managed municipal money market
funds. Shares of the Funds are offered to participants in the Cash Management
Account (R) ("CMA (R) Account") program of Merrill Lynch, Pierce, Fenner &
Smith Incorporated and to other individual investors who maintain accounts
directly with the Transfer Agent.
Investors should be aware that the Cash Management Account service is not a
bank account and that a shareholder's investment in a Fund is not insured by
any governmental agency. As with any investment in securities, the value of a
shareholder's investment in a Fund may fluctuate.
- --------------------------------------------------------------------------------
PRINCIPAL OFFICE OF THE TRUST:
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536-9011
JULY 29, 1994
[LOGO OF MERRILL LYNCH APPEARS HERE]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CMA MULTI-STATE MUNICIPAL SERIES TRUST
CMA Arizona Municipal Money Fund CMA New Jersey Municipal Money Fund
CMA California Municipal Money Fund CMA New York Municipal Money Fund
CMA Connecticut Municipal Money Fund CMA North Carolina Municipal Money Fund
CMA Massachusetts Municipal Money Fund CMA Ohio Municipal Money Fund
CMA Michigan Municipal Money Fund CMA Pennsylvania Municipal Money Fund
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Multi-State Municipal Series Trust (the "Trust") consists of CMA Arizona
Municipal Money Fund (the "Arizona Fund"), CMA California Municipal Money Fund
(the "California Fund"), CMA Connecticut Municipal Money Fund (the "Connecticut
Fund"), CMA Massachusetts Municipal Money Fund (the "Massachusetts Fund"), CMA
Michigan Municipal Money Fund (the "Michigan Fund"), CMA New Jersey Municipal
Money Fund (the "New Jersey Fund"), CMA New York Municipal Money Fund (the "New
York Fund"), CMA North Carolina Municipal Money Fund (the "North Carolina
Fund"), CMA Ohio Municipal Money Fund (the "Ohio Fund") and CMA Pennsylvania
Municipal Money Fund (the "Pennsylvania Fund") (together, the "Funds"). Each
Fund is a non-diversified, no-load mutual fund seeking current income exempt
from Federal and the designated state's personal income taxes, preservation of
capital and liquidity available from investing in a portfolio of short-term,
high quality obligations, the interest on which is exempt, in the opinion of
counsel to the issuer, from Federal and the designated state's personal income
taxes. The Funds may invest in certain tax-exempt securities classified as
"private activity bonds" that may subject certain investors in the Funds to an
alternative minimum tax. The Funds also may invest in derivative or synthetic
municipal instruments. The Funds' shares are offered to participants in the
Cash Management Account(R) ("CMA(R)") financial service program of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to provide a
medium for the investment of free credit balances held in CMA accounts. A CMA
account is a conventional Merrill Lynch cash securities or margin securities
account ("Securities Account") which is linked to the Funds and certain other
mutual funds (collectively, the "CMA Funds"), money market deposit accounts
maintained with depository institutions and to a Visa card/check account ("Visa
Account"). Merrill Lynch markets its margin account under the name Investor
CreditLine service.
A customer of Merrill Lynch may subscribe to the CMA program with a minimum
of $20,000 in securities or cash. Subject to the conditions described in the
prospectus referred to below, free credit balances in the Securities Account of
CMA participants may be invested periodically in shares of one of the CMA Funds
or deposited with a depository institution through the Insured Savings Account.
This permits the subscriber to earn a return on such funds pending further
investment in other aspects of the CMA program or utilization of the Visa
Account. The shares of the Funds also may be purchased by individual investors
maintaining accounts directly with the Transfer Agent who do not subscribe to
the CMA program. The minimum initial purchase for non-CMA subscribers is $5,000
and subsequent purchases must be $1,000 or more.
Merrill Lynch charges a program participation fee for the CMA service which
presently is $100 per year for individuals (an additional $25 annual program
fee is charged for participation in the CMA Visa Gold Program described in the
CMA Program Description). A different fee may be charged to certain group plans
and special accounts. Merrill Lynch reserves the right to change the fee for
the CMA service or the CMA Visa (R) Gold Program at any time.
This Statement of Additional Information of the Fund is not a prospectus and
should be read in conjunction with the prospectus of the Funds dated July 29,
1994 (the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained without charge by calling or
writing to the Funds at the above telephone number or address. This Statement
of Additional Information has been incorporated by reference into the
Prospectus.
----------------
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS JULY 29, 1994.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund is a non-diversified, no-load mutual fund investing primarily in
short-term, high quality obligations the interest on which is exempt, in the
opinion of counsel to the issuer, from Federal and the designated state's
personal income taxes and, in the case of the New York Fund, from New York City
income taxes. Reference is made to "Investment Objectives and Policies" in the
Prospectus of the Funds for a discussion of the investment objectives and
policies of each Fund.
Each Fund is classified as non-diversified within the meaning of the
Investment Company Act of 1940 as amended (the "Investment Company Act"), which
means that the Fund is not limited by such Act in the proportion of its assets
that it may invest in obligations of a single issuer. However, each Fund's
investments will be limited so as to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"). See "Taxes".
As discussed in the Prospectus, the Funds may invest in variable rate demand
obligations ("VRDOs"). VRDOs 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 principal balance plus accrued
interest on a short notice period. The interest on a VRDO is adjustable at
periodic intervals to a rate calculated to maintain the market value of the
VRDO at approximately the par value of the VRDO on adjustment date. The
adjustment may be based on an interest rate adjustment index.
The Funds also may invest in VRDOs in the form of participation interests
("Participating VRDOs") in variable rate tax-exempt obligations held by
financial institutions, typically commercial banks ("institutions").
Participating VRDOs provide the Funds with a specified undivided interest (up
to 100%) of the underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the Participating VRDOs from
the institution on a specified number of days' notice, presently not to exceed
30 days. In addition, each Participating VRDO is backed by an irrevocable
letter of credit or similar commitment of the institution. A Fund that invests
in a VRDO has an undivided interest in an 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 or
issuing the repurchase commitment.
The Funds have been advised by counsel to the Trust that the interest
received on Participating VRDOs will be treated as interest from tax-exempt
obligations as long as it does not invest more than a limited amount (not more
than 20% each) of its total assets in such investments and certain other
conditions are met. It is contemplated that no Fund will invest more than a
limited amount of its total assets in Participating VRDOs.
The Funds can be expected to offer lower yields than longer-term municipal
bond funds because the types of securities in which the Funds will invest, as
described in the Prospectus (hereinafter referred to as "State Municipal
Securities" or "Municipal Securities"), have shorter maturities and therefore
tend to produce lower yields than longer-term municipal securities. Interest
rates in the short-term municipal securities market also may fluctuate more
widely from time to time than interest rates in the long-term municipal bond
market. Because the Funds invest solely in short-term securities, however, the
market value of each Fund's portfolio at any given time can be expected to
fluctuate less as a result of changes in interest rates. Because of the
interest rate adjustment formula on VRDOs (including Participating VRDOs), the
VRDOs are not comparable to fixed rate securities. A Fund's yield on VRDOs 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 where prevailing interest rates have increased,
a Fund's yield on VRDOs will increase and its shareholders will have a reduced
risk of capital depreciation.
The Funds' portfolio investments in municipal notes and short-term tax-exempt
commercial paper 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
2
<PAGE>
organization (an "NRSRO") or, if not rated, will be of comparable quality as
determined by the Trustees of the Trust. The Funds' investments in municipal
bonds (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 Investors
Service, Inc., Moody's Investors Service, Inc. and Standard & Poor's
Corporation. Certain tax-exempt obligations (primarily VRDOs and Participating
VRDOs) 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 Manager will take into account the obligation of the
financial institution in assessing the quality of such instrument. The Funds
also may purchase other types of tax-exempt instruments if, in the opinion of
the Trustees, such obligations are equivalent to securities having the ratings
described above. For a description of Municipal Securities and ratings, see
Appendix K-- "Information Concerning Municipal Securities".
PURCHASE OF MUNICIPAL SECURITIES ON A WHEN-ISSUED BASIS
Municipal 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 a 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. The Fund will make commitments to purchase such securities only
with the intention of actually acquiring the securities, but the Fund may sell
these securities prior to settlement date if it is deemed advisable. No new
when-issued commitments will be made if more than 40% of a Fund's net assets
would become so committed. Purchasing Municipal Securities on a when-issued
basis involves the risk that the yields available in the market when the
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 generally will decrease. The Funds will maintain separate accounts
at the Trust's custodian consisting of cash or liquid Municipal Securities
(valued on a daily basis) equal at all times to the amount of the when-issued
commitment.
TAXABLE MONEY MARKET SECURITIES
The Funds may invest in taxable money market securities subject to the
limitations set forth under "Investment Objectives and Policies" in the
Prospectus ("Taxable Securities"). The Taxable Securities in which the Funds
may invest consist of United States Government securities, United States
Government agency securities, domestic bank certificates of deposit and
bankers' acceptances, short-term corporate debt securities such as commercial
paper and repurchase agreements. These investments must have a stated maturity
not in excess of 397 days (13 months) from the date of purchase.
The standards applicable to Taxable Securities in which the Funds invest are
essentially the same as those described above with respect to Municipal
Securities. The Funds may not invest in any security issued by a depository
institution unless such institution is organized and operating in the United
States, has total assets of at least $1 billion and is Federally insured.
The Funds may invest in Taxable Securities pursuant to repurchase agreements.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or primary dealer in U.S. Government securities or an
affiliate thereof which meet the creditworthiness standards adopted by the
Board of Trustees. Under such agreements, the bank or primary dealer or an
affiliate thereof agrees, upon entering into the contract, to repurchase the
security at a mutually agreed upon time and price, thereby determining the
yield during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period. Repurchase agreements
may be construed to be collateralized loans by the purchaser to the seller
secured by the securities transferred to the purchaser. In the case of a
repurchase agreement, a Fund will require the seller to provide additional
collateral if the market value of the securities
3
<PAGE>
falls below the repurchase price at any time during the term of the repurchase
agreement. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, such Fund may suffer time delays and incur
costs or possible losses in connection with the disposition of the collateral.
In the event of a default under a repurchase agreement that is construed to be
a collateralized loan, instead of the contractual fixed rate of return, the
rate of return to such Fund shall be dependent upon intervening fluctuations of
the market value of such security and the accrued interest on the security. In
such event, such Fund would have rights against the seller for breach of
contract with respect to any losses arising from market fluctuations following
the failure of the seller to perform.
In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold". Therefore,
amounts earned under such agreements, even if the underlying securities are
tax-exempt securities, will not be considered tax-exempt interest.
From time to time, the Funds also may invest in money market securities
pursuant to purchase and sale contracts. While purchase and sale contracts are
similar to repurchase agreements, purchase and sale contracts are structured so
as to be in substance more like a purchase and sale of the underlying security
than is the case with repurchase agreements.
INVESTMENT RESTRICTIONS
The Trust has adopted a number of restrictions and policies relating to the
investment of each Fund's assets and activities, which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
respective 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). No Fund may: (1) purchase any securities other than
securities referred to under "Investment Objectives and Policies" in the
Prospectus and herein; (2) 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;
(3) make investments for the purpose of exercising control or management; (4)
purchase securities of other investment companies, except in connection with a
merger, consolidation, acquisition or reorganization; (5) purchase or sell real
estate (provided that such restriction shall not apply to Municipal 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; (6)
purchase any securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities; (7)
make short sales of securities or maintain a short position or invest in put,
call, straddle, or spread options or combinations thereof; provided, however,
that each Fund shall have the authority to purchase Municipal Securities
subject to put options as set forth herein under "Investment Objectives and
Policies" and Appendix K--"Information Concerning Municipal Securities"; (8)
make loans to other persons, provided that each Fund may purchase a portion of
an issue of Municipal Securities (the acquisition of a portion of an issue of
Municipal 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); (9) 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
including to meet redemptions and to settle securities transactions. [Usually
only "leveraged" investment companies may borrow in excess of 5% of their
assets; however, the Funds will not borrow to increase income but only to meet
redemption requests which might otherwise require untimely dispositions of
portfolio securities. The Funds will not purchase securities while borrowings
are outstanding except to honor prior commitments. Interest paid on such
borrowings will reduce net income.]; (10) mortgage, pledge, hypothecate or in
any manner transfer as security for indebtedness any securities owned or held
by the Fund except as may be necessary in connection with borrowings mentioned
in (9) above, and then such mortgaging, pledging or hypothecating may not
exceed 10% of its total assets, taken at market value; (11) invest in
securities with
4
<PAGE>
legal or contractual restrictions on resale for which no readily available
market exists, including repurchase agreements maturing in more than seven
days, if, regarding all such securities, more than 10% of its total assets
(taken at market value), would be invested in such securities; (12) act as an
underwriter of securities, except to the extent that the Fund technically may
be deemed an underwriter when engaged in the activities described in (8) above
or insofar as the Fund may be deemed an underwriter under the Securities Act of
1933 in selling portfolio securities; and (13) purchase or retain the
securities of any issuer, if those individual officers and Trustees of the
Trust, Fund Asset Management, L.P. (the "Manager") or any subsidiary thereof
each owning beneficially more than 1/2 of 1% of the securities of such issuer
own in the aggregate more than 5% of the securities of such issuer. In addition
to the foregoing, the Funds have undertaken with the State of Texas that they
will not invest in oil, gas or mineral leases.
In addition, to comply with tax requirements for qualification as a
"regulated investment company", each Fund's investments will be limited in a
manner such that, at the close of each quarter of each fiscal year, (a) no more
than 25% of the Fund's total assets are invested in the securities of a single
issuer, and (b) with regard to at least 50% of the Fund's total assets, no more
than 5% of its total assets are invested in the securities of a single issuer.
For purposes of this restriction, the Funds will regard each state and each
political subdivision, agency or instrumentality of such state and each multi-
state 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 a non-
government entity then the entity with the ultimate responsibility for the
payment of interest and principal may be regarded as the sole issuer. These
tax-related limitations may be changed by the Trustees of the Trust to the
extent necessary to comply with changes to the Federal tax requirements.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each Trustee and executive officer is P.O. Box
9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel--President and Trustee(1)(2)--President and Chief Investment
Officer of the Manager and its predecessor since 1977; President of Merrill
Lynch Asset Management, L.P. ("MLAM") and its predecessor since 1977 and Chief
Investment Officer since 1976; President and Director of Princeton Services,
Inc. ("Princeton Services") since 1993; Executive Vice President of Merrill
Lynch since 1990 and Senior Vice President thereof from 1985 to 1990; Executive
Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Director
of Merrill Lynch Funds Distributor, Inc. ("MLFD").
Ronald W. Forbes--Trustee(2)--1400 Washington Avenue, Albany, New York 12222.
Professor of Finance, School of Business, State University of New York at
Albany, since 1989, and Associate Professor prior thereto; Member, Task Force
on Municipal Securities Markets, Twentieth Century Fund.
Cynthia A. Montgomery--Trustee(2)--Harvard Business School, Soldiers Field
Road, Boston, Massachusetts 20163. Professor, Harvard Business School since
1989; Associate Professor, J.L. Kellogg Graduate School of Management,
Northwestern University from 1985 to 1989; Assistant Professor, Graduate School
of Business Administration, the University of Michigan from 1979 to 1985;
Director, UNUM Corporation.
Charles C. Reilly--Trustee(2)--9 Hampton Harbor Road, Hampton Bays, New York
11946. President and Chief Investment Officer of Verus Capital, Inc. from 1979
to 1990; Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973
to 1990; Adjunct Professor, Columbia University Graduate School of Business
since 1990; Adjunct Professor, Wharton School, University of Pennsylvania,
1990; Director, Harvard Business School Alumni Association.
Kevin A. Ryan--Trustee(2)--127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Founder, current Director and Professor of the Boston
University Center for the Advancement of Ethics &
5
<PAGE>
Character; Professor of Education at Boston University from 1982 until 1994;
formerly taught on the facilities of the University of Chicago, Stanford
University and Ohio State University.
Richard R. West--Trustee(2)--482 Tepi Drive, Southbury, Connecticut 06488.
Professor of Finance, and Dean from 1984 to 1993, New York University Leonard
N. Stern School of Business Administration; Professor of Finance, Amos Tuck
School of Business Administration from 1976 to 1984 and Dean from 1976 to 1983;
Director, Vornado, Inc. (real estate investment trust), Smith Corona
Corporation (manufacturer of typewriters and word processors), Alexander's Inc.
(retailer), Bowne & Co., Inc. (financial printer) and Re Capital Corp.
(reinsurance holding company).
Terry K. Glenn--Executive Vice President(1)(2)--Executive Vice President of
the Manager and MLAM and their predecessors since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of MLFD
since 1986 and Director since 1991; President of Princeton Administrators.
Vincent R. Giordano--Senior Vice President and Portfolio Manager(1)(2)--
Senior Vice President of the Manager and MLAM and their predecessors since 1984
and Vice President from 1980 to 1984.
Edward J. Andrews--Vice President and Portfolio Manager(1)(2)--Vice President
of MLAM and its predecessor since 1991; investment officer in the Private
Banking Division of Citibank, N.A. from 1982 to 1991.
Donald C. Burke--Vice President(1)(2)--Vice President and Director of
Taxation of MLAM and its predecessor since 1990; Tax Manager at Deloitte &
Touche from 1982 to 1990.
Peter J. Hayes--Vice President and Portfolio Manager(1)(2)--Vice President of
MLAM and its predecessor since 1989 and Assistant Vice President from 1987 to
1989; Assistant Vice President of Shawmut Bank, N.A. from 1985 to 1987.
Kenneth A. Jacob--Vice President and Portfolio Manager(1)(2)--Vice President
of MLAM and its predecessor since 1984.
Kevin A. Schiatta--Vice President and Portfolio Manager(1)(2)--Vice President
of MLAM and its predecessor since 1985.
Helen Marie Sheehan--Vice President(1)(2)--Vice President of MLAM and its
predecessor since 1991; Assistant Vice President of MLAM's predecessor from
1989 to 1991; employee of MLAM and its predecessor since 1985.
Gerald M. Richard--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Manager and MLAM and their predecessors since 1984; Vice President of MLFD
since 1981 and Treasurer since 1984.
Robert Harris--Secretary(1)(2)--Vice President of MLAM and its predecessor
since 1984; Secretary of MLFD since 1982.
- --------
(1) Interested person, as defined in the Investment Company Act, of the Trust.
(2) Such Trustee or officer is a director or officer of certain other
investment companies for which the Manager or MLAM acts as investment
adviser.
At June 15, 1994, the Trustees and officers of the Trust as a group (16
persons) owned an aggregate of less than 1/2 of 1% of the outstanding Common
Stock of ML & Co.
Pursuant to the terms of its management agreement with the Trust (the
"Management Agreement"), the Manager pays all compensation of officers and
employees of the Trust as well as the fees of all Trustees of the Trust who are
affiliated persons of ML & Co. or its subsidiaries. The Trust pays each
unaffiliated Trustee an annual fee of $4,000 plus a fee of $800 for each
meeting attended and pays all Trustees' actual out-of-pocket expenses relating
to attendance at meetings. The Trust also compensates members of its audit
committee, which consists of all of the non-affiliated Trustees.
6
<PAGE>
Set forth below is each Fund's share of the allocated fees and expenses paid
to the unaffiliated Trustees for the year ended March 31, 1994.
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA CONNECTICUT MASSACHUSETTS MICHIGAN NEW JERSEY NEW YORK NORTH CAROLINA OHIO PENNSYLVANIA
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
- ------- ---------- ----------- ------------- -------- ---------- -------- -------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$499 $12,020 $2,731 $1,574 $2,278 $4,846 $7,247 $3,053 $2,254 $3,675
</TABLE>
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Trust--Management and Advisory
Arrangements" in the Prospectus of the Funds for certain information concerning
the management and advisory arrangements of the Funds.
Subject to the direction of the Trustees, the Manager is responsible for the
actual management of each Fund's portfolio and constantly reviews each Fund's
holdings in light of its own research analysis and that from other relevant
sources. The responsibility for making decisions to buy, sell or hold a
particular security rests with the Manager, subject to the review of the Board
of Trustees. The Manager performs certain of the other administrative services
and provides all of the office space, facilities, equipment and necessary
personnel for portfolio management of the Funds.
Securities held by the Funds also may be held by, or be appropriate
investments for, other funds or clients (collectively referred to as "clients")
for which the Manager or MLAM acts as an investment adviser. Because of
different investment objectives or other factors, a particular security may be
bought for one or more clients when one or more clients are selling the
security. If purchases or sales of securities for a Fund or other clients arise
for consideration at or about the same time, transactions in such securities
will be made, insofar as feasible, for the respective clients in a manner
deemed equitable to all by the Manager or MLAM. To the extent that transactions
on behalf of more than one client of the Manager or MLAM during the same period
may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
The Manager presently receives a fee from each Fund at the end of each month
at the annual rates of 0.50% of the first $500 million of average daily net
assets of the Fund, 0.425% of average daily net assets in excess of $500
million but not exceeding $1 billion and 0.375% of average daily net assets in
excess of $1 billion.
In the interest of minimizing expenses of the Funds, the Manager may agree
voluntarily to assume a portion of the expenses of a Fund. The Manager may
discontinue or reduce such assumption of expenses at any time without notice.
Set forth below are the total management fees paid by each Fund to the
Manager and total management fees waived by the Manager for the years ended
March 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------
1994 1993 1992
-------------------------- -------------------------- -------------------------------
TOTAL FEE VOLUNTARILY TOTAL FEE VOLUNTARILY FEE VOLUNTARILY FEE VOLUNTARILY
MANAGEMENT WAIVED BY MANAGEMENT WAIVED BY WAIVED BY WAIVED BY
FEE MANAGER FEE MANAGER MANAGER MANAGER
---------- --------------- ---------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund*........... $ 269,875 $209,036 $ 25,112 $ 25,112 $ -- $ --
California Fund......... $4,979,676 $ -- $4,681,982 $ -- $4,852,788 $ --
Connecticut Fund**...... $1,176,254 $ -- $1,017,077 $203,282 $ 738,532 $598,548
Massachusetts Fund...... $ 721,970 $ -- $ 602,465 $ -- $ 493,264 $ 19,780
Michigan Fund**......... $1,067,163 $ -- $ 940,902 $163,597 $ 859,297 $439,185
New Jersey Fund......... $2,007,881 $ -- $1,771,517 $ -- $1,663,392 $ --
New York Fund........... $3,347,951 $ -- $3,028,869 $ -- $2,991,849 $ --
North Carolina Fund***.. $1,193,861 $238,772 $1,112,762 $360,075 $ 661,829 $497,731
Ohio Fund**............. $ 955,932 $ -- $ 962,179 $ 12,153 $ 751,763 $384,012
Pennsylvania Fund....... $1,587,756 $ -- $1,338,465 $ -- $1,139,072 $ --
</TABLE>
- --------
*Commenced operations February 8, 1993.
**Commenced operations April 29, 1991.
***Commenced operations May 28, 1991.
7
<PAGE>
California imposes limitations on the expenses of the Funds. These expense
limitations require that the Manager reimburse each Fund in any amount
necessary to prevent the ordinary operating expenses of each Fund (excluding
interest, taxes, distribution fees, brokerage fees and commissions and
extraordinary charges such as litigation costs) from exceeding in any fiscal
year 2.5% of such Fund's first $30 million of average daily net assets, 2.0% of
the next $70 million of average daily net assets and 1.5% of the remaining
average daily net assets. No fee payment will be made to the Manager during the
year which will cause such expenses to exceed the pro rata expense limitation
at the time of such payment. For the years ended March 31, 1994, 1993 and 1992,
no reimbursement was made to any of the Funds on account of the above-described
expense limitation.
The Management Agreement obligates the Manager to provide investment advisory
services, to furnish administrative services, office space and facilities for
management of the affairs of the Trust and each Fund and to pay all
compensation of and furnish office space for officers and employees of the
Trust, as well as the fees of all Trustees of the Trust who are affiliated
persons of ML & Co. or any of its subsidiaries. Except for certain expenses
incurred by Merrill Lynch (see "Purchase and Redemption of Shares"), each Fund
pays all other expenses incurred in its operations and a portion of the Trust's
general administrative expenses allocated on the basis of the asset size of the
respective Fund. Expenses that will be borne directly by the Funds include
redemption expenses, expenses of portfolio transactions, expenses of
registering the shares under Federal and state securities laws, pricing costs
(including the daily calculation of net asset value), expenses of printing
shareholder reports, prospectuses and statements of additional information
(except to the extent paid for by Merrill Lynch), fees for legal and auditing
services, Commission fees, interest, certain taxes, and other expenses
attributable to a particular Series. Expenses which will be allocated on the
basis of asset size of the respective Funds include fees and expenses of
unaffiliated Trustees, state franchise taxes, costs of printing proxies and
other expenses relating to shareholder meetings and other expenses properly
payable by the Trust. The organizational expenses of the Trust were paid by the
Trust and have been allocated among the Funds in a manner deemed equitable by
the Trustees. Depending upon the nature of a lawsuit, litigation costs may be
assessed to the specific Fund to which the lawsuit relates or allocated on the
basis of the asset size of the respective Funds. The Trustees have determined
that this is an appropriate method of allocation of expenses.
For information as to the distribution fee paid by the Funds to Merrill Lynch
pursuant to the Distribution Agreement, see "Purchase and Redemption of
Shares".
DURATION AND TERMINATION
Unless earlier terminated as described below, each Management Agreement will
continue in effect from year to year if approved annually (a) by the Trustees
of the Trust or by a majority of the outstanding voting shares of the
respective Fund and (b) by a majority of the Trustees who are not parties to
such contract or interested persons (as defined in the Investment Company Act)
of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party
thereto or by the vote of the shareholders of the respective Fund.
PURCHASE AND REDEMPTION OF SHARES
Reference is made to "Purchase of Shares" and to "Redemption of Shares" in
the Prospectus of the Funds for certain information as to the purchase and
redemption of Fund shares.
The Trust has entered into a distribution agreement on behalf of each Fund
with Merrill Lynch as distributor (the "Distribution Agreements"). Each
Distribution Agreement obligates Merrill Lynch to pay certain expenses in
connection with the offering of the shares of each Fund. After the
prospectuses, statements of additional information and periodic reports have
been prepared, set in type and mailed to shareholders, Merrill Lynch will pay
for the printing and distribution of copies thereof used in connection with the
offering to investors. Merrill Lynch also will pay for other supplementary
sales literature and advertising costs. The Distribution Agreements are subject
to the same renewal requirements and termination provisions as the Management
Agreements described above.
8
<PAGE>
Each Fund has adopted a separate distribution and shareholder servicing plan
(each, a "Distribution Plan") in compliance with Rule 12b-1 under the
Investment Company Act. Pursuant to each Distribution Plan, Merrill Lynch
receives a monthly distribution fee from each Fund at the annual rate of 0.125%
of average daily net assets of each Fund attributable to subscribers to the CMA
program and to investors maintaining securities accounts with Merrill Lynch or
maintaining accounts directly with the Transfer Agent who are not subscribers
to such program, except that the value of Fund shares in accounts maintained
directly with the Transfer Agent which are not serviced by Merrill Lynch
Financial Consultants will be excluded. The Distribution Plans reimburse
Merrill Lynch only for actual expenses incurred in the fiscal year in which the
fees are paid. The distribution fees principally compensate Merrill Lynch
Financial Consultants and other Merrill Lynch personnel for selling shares of
the Funds and for providing direct and personal services to shareholders. The
distribution fees are not compensation for the administrative and operational
services rendered to the Funds or their shareholders by Merrill Lynch which are
covered by the Management Agreements (see "Management of the Trust--Management
and Advisory Arrangements") between the Trust on behalf of each Fund and the
Manager. The Trustees believe that the Funds' expenditures under the
Distribution Plans benefit the Funds and their shareholders by providing better
shareholder services and by facilitating the sale and distribution of Fund
shares.
Set forth below are the distribution fees paid by each Fund to Merrill Lynch
pursuant to their respective Distribution Plans for the years ended March 31,
1994, 1993 and 1992. All of the amounts expended were allocated to Merrill
Lynch personnel and to related administrative costs.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Arizona Fund*...................... $ 67,140 $ 6,372 $ --
California Fund.................... $1,364,634 $1,260,633 $1,321,581
Connecticut Fund**................. $ 292,733 $ 252,560 $ 184,376
Massachusetts Fund................. $ 179,349 $ 149,303 $ 120,138
Michigan Fund**.................... $ 265,504 $ 233,124 $ 213,941
New Jersey Fund.................... $ 500,084 $ 438,570 $ 407,769
New York Fund...................... $ 872,640 $ 775,492 $ 766,258
North Carolina Fund***............. $ 297,463 $ 276,477 $ 165,471
Ohio Fund**........................ $ 237,695 $ 238,453 $ 187,621
Pennsylvania Fund.................. $ 395,631 $ 332,278 $ 284,075
</TABLE>
- --------
* Commenced operations February 8, 1993.
** Commenced operations April 29, 1991.
*** Commenced operations May 28, 1991.
Among other things, the Distribution Plans provide that Merrill Lynch shall
provide and the Trustees of the Trust shall review quarterly reports of the
distribution expenses made by Merrill Lynch. The Distribution Plans further
provide that, so long as the Distribution Plans remain in effect, the selection
and nomination of Trustees of the Trust who are not "interested persons" of the
Trust as defined in the Investment Company Act ("Independent Trustees") shall
be committed to the discretion of the Independent Trustees then in office. A
Distribution Plan can be terminated at any time, without penalty, by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
majority of the outstanding voting securities of the respective Fund. Finally,
a Distribution Plan cannot be amended to increase materially the amount to be
spent by the Fund thereunder without shareholder approval, and all material
amendments are required to be approved by vote of the Trustees of the Trust,
including a majority of the Independent Trustees, cast in person at a meeting
called for that purpose.
The right to receive payment with respect to any redemption of Fund shares
may be suspended by a Fund for a period of up to seven days. Suspensions of
more than seven days may not be made except (1) for
9
<PAGE>
any period (A) during which the New York Stock Exchange is closed other than
customary weekend and holiday closings or (B) during which trading on the New
York Stock Exchange is restricted; (2) for any period during which an emergency
exists as a result of which (A) disposal by such Fund of securities owned by it
is not reasonably practicable or (B) it is not reasonably practicable for such
Fund fairly to determine the value of its net assets; or (3) for such other
periods as the Commission may by order permit for the protection of security
holders of such Fund. The Commission may determine the conditions under which
(i) trading shall be deemed to be restricted and (ii) an emergency shall be
deemed to exist within the meaning of clause (2) above.
Merrill Lynch has offered the CMA program since September, 1977. While no
significant problems have occurred to date, no predictions can be made as to
the rate of purchases and redemptions of shares which will result from the
automatic features of the CMA program. The portfolio securities of the Funds
are highly liquid and each Fund has the right to borrow up to 20% of its total
assets on a temporary basis to meet unexpected redemptions. Nevertheless, an
erratic redemption pattern could force the Manager to invest in securities or
maintain an average portfolio maturity which might lessen the yield that would
otherwise be available to the Funds.
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 and officers of the Trust, the Manager is primarily
responsible for each Fund's portfolio decisions and the placing of each Fund's
portfolio transactions. In placing orders, it is the policy of the Trust to
obtain the best net results taking into account such factors as the price of
the securities and the firm's risk in positioning the securities involved.
While the Manager generally seeks reasonably competitive spreads or
commissions, the Funds will not necessarily be paying the lowest spread or
commission available. The Trust's policy of investing in securities with short
maturities will result in high portfolio turnover.
The securities in which the Funds invest are traded in the over-the-counter
market. Where possible, the Funds will deal directly with the dealers who make
a market in the securities involved except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting
as principals for their own accounts. On occasion, securities may be purchased
directly from the issuer. The Municipal Securities in which the Funds invest
generally are traded on a net basis and normally do not involve either
brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Funds primarily will consist of dealer spreads
and underwriting commissions. Under the Investment Company Act, persons
affiliated with the Trust are prohibited from dealing with the Trust or any
Fund as a principal in the purchase and sale of securities unless an exemptive
order allowing such transactions is obtained from the Commission. Since over-
the-counter transactions are usually principal transactions, affiliated persons
of the Trust may not serve as the Funds' dealer in connection with such
transactions, except pursuant to the exemptive order described below. Without
the relief provided by the exemptive order described below, the Funds could
purchase municipal securities from underwriting syndicates of which Merrill
Lynch was a member under certain conditions in accordance with the provisions
of a rule adopted under the Investment Company Act. In 1987, the Commission
issued an exemptive order to one of the CMA Funds which permits the Funds to
engage in certain principal transactions with Merrill Lynch in tax-exempt
securities subject to certain conditions. An affiliated person of the Trust may
serve as its broker in over-the-counter transactions conducted on an agency
basis.
10
<PAGE>
Set forth below are the number of principal transactions each Fund engaged in
with Merrill Lynch and the aggregate amount of those transactions during the
years ended March 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------------
1994 1993 1992
---------------------- ---------------------- ----------------------
NUMBER OF AGGREGATE NUMBER OF AGGREGATE NUMBER OF AGGREGATE
TRANSACTIONS AMOUNT* TRANSACTIONS AMOUNT* TRANSACTIONS AMOUNT*
------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund(1)......... -- $ -- -- $ -- -- $ --
California Fund......... 174 $875.8 165 $ 948.6 37 $240.3
Connecticut Fund(2)..... 3 $ 7.0 26 $ 62.9 14 $ 41.9
Massachusetts Fund...... 52 $ 95.3 13 $ 13.8 4 $ 3.1
Michigan Fund(2)........ 10 $ 54.9 22 $ 88.3 19 $ 40.9
New Jersey Fund......... 7 $ 34.9 18 $ 51.5 8 $ 21.2
New York Fund........... 31 $155.2 46 $ 152.0 18 $ 95.3
North Carolina Fund(3).. 15 $ 23.6 77 $ 117.4 0 $ 0
Ohio Fund(2)............ 13 $ 26.4 9 $ 13.0 5 $ 10.8
Pennsylvania Fund....... 2 $ 12.3 8 $ 26.6 7 $ 17
</TABLE>
- --------
*in millions
(1) Commenced operations February 8, 1993.
(2) Commenced operations April 29, 1991.
(3) Commenced operations May 28, 1991.
The Trustees of the Trust have considered the possibility of recapturing for
the benefit of the Funds expenses of possible portfolio transactions, such as
dealers' spreads and underwriting commissions, by conducting such portfolio
transactions through affiliated entities, including Merrill Lynch. After
considering all factors deemed relevant, the Trustees made a determination not
to seek such recapture. The Trustees will reconsider this matter from time to
time. The Manager has arranged for the Trust's custodian to receive any tender
offer solicitation fees on behalf of each Fund payable with respect to
portfolio securities of such Fund.
The Funds do not expect to use one particular dealer, but, subject to
obtaining the best execution, dealers who provide supplemental investment
research to the Manager may receive orders for transactions by the Funds.
Information so received will be in addition to and not in lieu of the services
required to be performed by the Manager under the Management Agreement and the
expenses of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund for the purpose of pricing orders for the
purchase and redemption of shares is determined by the Manager at 12 noon, New
York time, on each day the New York Stock Exchange or New York banks are open
for business, immediately after the daily declaration of dividends. As a result
of this procedure, net asset value is determined each day except for days on
which both the New York Stock Exchange and New York banks are closed. Both the
New York Stock Exchange and New York banks are closed on New Year's Day,
Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The net asset value of a Fund is determined by adding the
value of all securities and other assets in the portfolio, deducting its
liabilities and dividing by the number of shares outstanding.
Each Fund values its portfolio securities based on their amortized cost in
accordance with the terms of a rule adopted by the Commission. This involves
valuing an instrument 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 instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a
Fund would receive if it sold the instrument.
11
<PAGE>
In accordance with the Commission's rule applicable to the valuation of its
portfolio securities, each Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 days (13 months) or less, and invest only in
securities determined by the Trustees to be of high quality with minimal credit
risks. In addition, the Trustees have established procedures designed to
stabilize, to the extent reasonably possible, each Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. The Trustees will
review periodically each Fund's portfolio holdings to determine whether a
deviation exists between the net asset value calculated using market quotations
and that calculated on an amortized cost basis. In the event the Trustees
determine that a deviation exists in a Fund's portfolio which may result in
material dilution or other unfair results to investors or existing
shareholders, such Fund will take such corrective action which it regards as
necessary and appropriate, including the reduction of the number of outstanding
shares of the Fund by having each shareholder proportionately contribute shares
to the Fund's capital; the sale of portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; or establishing a net asset value per share by using
available market quotations. If the number of outstanding shares is reduced in
order to maintain a constant net asset value of $1.00 per share, the
shareholders will contribute proportionately to such Fund's capital the number
of shares which represent the difference between the amortized cost valuation
and market valuation of the portfolio. Each shareholder will be deemed to have
agreed to such contribution by such shareholder's investment in the 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 such 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 a Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of such Fund in the
account, and any decrease in the value of a shareholder's investment is
reflected by a decrease in the number of shares in the account. See "Taxes".
YIELD INFORMATION
Each Fund normally computes its annualized yield by determining the net
income for a seven-day base period for a hypothetical pre-existing account
having a balance of one share at the beginning of the base period, dividing the
net income by the net asset value of the account at the beginning of the base
period to obtain the base period return, multiplying the result by 365 and then
dividing by seven. Under this calculation, the yields on Fund shares reflect
realized gains and losses on portfolio securities. In accordance with
regulations adopted by the Commission, each Fund is required to disclose its
annualized yield for certain seven-day base periods in a standardized manner
which does not take into consideration any realized or unrealized gains or
losses on portfolio securities. The Commission also permits the calculation of
a standardized effective or compounded yield. This is computed by compounding
the unannualized base period return which is done by adding one to the base
period return, raising the sum to a power equal to 365, dividing by seven and
subtracting one from the result. This compounded yield calculation also
excludes realized and unrealized gains or losses on portfolio securities.
The yield on Fund shares normally will fluctuate on a daily basis. Therefore,
the yield for any given past period is not an indication or representation by a
Fund of future yields or rates of return on its shares. The yield is affected
by such factors as changes in interest rates on short-term Municipal
Securities, average portfolio maturity, the types and quality of portfolio
securities held and operating expenses.
TAXES
FEDERAL
The Trust intends to continue to qualify each Fund for the special tax
treatment afforded regulated investment companies ("RICs") under the Code. If a
Fund so qualifies, in any taxable year in which it distributes at least 90% of
its taxable net income and 90% of its tax-exempt net income (see below), the
Fund (but not its shareholders) will not be subject to Federal income tax to
the extent that it distributes its net investment income and net realized
capital gains. The Trust intends to cause the Funds to distribute substantially
all of such income.
12
<PAGE>
As discussed in the Prospectus for the Funds, the Trust has a number of
series each referred to herein as a Fund. Each Fund is treated as a separate
corporation for Federal income tax purposes, and therefore is considered to be
a separate entity in determining its treatment under the rules for RICs
described in the Prospectus. Losses in one Fund do not offset gains in another
Fund, and the requirements (other than certain organizational requirements) for
qualifying for RIC status will be determined at the Fund level rather than at
the Trust level.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year-end, plus certain undistributed
amounts from previous years. The required distributions, however, are based
only on the taxable income of a RIC. The excise tax, therefore, generally will
not apply to the tax-exempt income of RICs, such as the Funds, that pay exempt-
interest dividends. While each Fund intends to distribute its income and
capital gains in the manner necessary to avoid imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of a Fund's taxable income
and capital gains will be distributed to avoid entirely the imposition of the
tax. In such event, a Fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirements.
The Trust intends to qualify each Fund to pay "exempt-interest dividends" as
defined in Section 852(b)(5) of the Code. Under such section if, at the close
of each quarter of a Fund's taxable year, at least 50% of the value of its
total assets consists of obligations exempt from Federal income tax ("tax-
exempt obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Fund shall be qualified
to pay exempt-interest dividends to its shareholders. Exempt-interest dividends
are dividends or any part thereof paid by a Fund which are attributable to
interest on tax-exempt obligations and designated by the Trust as exempt-
interest dividends in a written notice mailed to such Fund's shareholders
within 60 days after the close of the Fund's taxable year. To the extent that
the dividends distributed to a Fund's shareholders are derived from interest
income exempt from Federal income tax under Code Section 103(a) and are
properly designated as exempt-interest dividends, they will be excludable from
a shareholder's gross income for Federal income tax purposes. Exempt-interest
dividends are included, however, in determining the portion, if any, of a
person's social security benefits and railroad retirement benefits subject to
Federal income taxes. The Trust will inform shareholders annually regarding the
portion of each Fund's distributions which constitutes exempt-interest
dividends. Interest on indebtedness incurred or continued to purchase or carry
shares of RICs paying exempt-interest dividends, such as the Funds, will not be
deductible by the investor for Federal income tax purposes to the extent
attributable to exempt-interest dividends. Each shareholder is advised to
consult a tax adviser with respect to whether exempt-interest dividends retain
the exclusion under Code Section 103(a) if a shareholder would be treated as a
"substantial user" or "related person" under Code Section 147(a) with respect
to property financed with the proceeds of an issue of "industrial development
bonds" or "private activity bonds", if any, held by a Fund.
To the extent that any Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered ordinary income for Federal income tax purposes. Such distributions
are not eligible for the dividends received deduction for corporations.
Distributions, if any, of net long-term capital gains from the sale of
securities ("capital gain dividends") are taxable as long-term capital gains
for Federal income tax purposes, regardless of the length of time a shareholder
has owned a Fund's shares. Under the Revenue Reconciliation Act of 1993, all or
a portion of a Fund's gain from the sale or redemption of tax-exempt
obligations purchased at a market discount will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders. Distributions in excess of a Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming the shares are held as a capital asset).
Any loss upon the sale or exchange of shares held for six months or less will
be treated as long-term capital loss to the extent of any capital gain
dividends received by the shareholder.
13
<PAGE>
In addition, such loss will be disallowed to the extent of any exempt-interest
dividends received by the shareholder. If a Fund pays a dividend in January
which was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, such dividend
will be treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. The alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference", which could subject investors in such bonds, including
shareholders of a Fund, to an alternative minimum tax. The Funds will purchase
such "private activity bonds", and the Trust will report to shareholders within
60 days after each Fund's taxable year-end the portion of its dividends
declared during the year which constitutes an item of tax preference for
alternative minimum tax purposes. The Code further provides that corporations
are subject to an alternative minimum tax based, in part, on certain
differences between taxable income as adjusted for other tax preferences and
the corporation's "adjusted current earnings", which more closely reflects a
corporation's economic income. Because an exempt-interest dividend paid by a
Fund will be included in adjusted current earnings, a corporate shareholder may
be required to pay alternative minimum tax on exempt-interest dividends paid by
such Fund.
The Revenue Reconciliation Act of 1993 has added new marginal tax brackets of
36% and 39.6% for individuals and has created a graduated structure of 26% and
28% for the alternative minimum tax applicable to individual taxpayers. These
rate increases may affect an individual investor's after-tax return from an
investment in a Fund as compared with such investor's return from taxable
investments.
A loss realized on a sale or exchange of shares of a Fund will be disallowed
if other Fund shares are acquired (whether through the automatic reinvestment
of dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
Under certain Code provisions, some shareholders may be subject to a 31%
withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
Ordinary income dividends paid by a Fund to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the United
States withholding tax.
The Code provides that every person required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including any of the Funds) during the
taxable year.
ENVIRONMENTAL TAX
The Code imposes a deductible tax (the "Environmental Tax") on a
corporation's modified alternative minimum taxable income (computed without
regard to the alternative tax net operating loss deduction and the deduction
for the Environmental Tax) at a rate of $12 per $10,000 (0.12%) of alternative
minimum
14
<PAGE>
taxable income in excess of $2,000,000. The Environmental Tax is imposed for
taxable years beginning after December 31, 1986 and before January 1, 1996. The
Environmental Tax is imposed even if the corporation is not required to pay an
alternative minimum tax because the corporation's regular income tax liability
exceeds its minimum tax liability. The Code provides, however, that RICs, such
as the Funds, are not subject to the Environmental Tax. However, exempt-
interest dividends paid by the Funds that create alternative minimum tax
preferences for corporate shareholders (as described above) may subject
corporate shareholders of the Funds to the Environmental Tax.
----------------
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the
pertinent Code sections and the Treasury regulations promulgated thereunder.
The Code and the Treasury regulations are subject to change by legislative or
administrative action either prospectively or retroactively.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal or foreign taxes.
STATE
Arizona. Exempt-interest dividends will not be subject to Arizona income tax
for shareholders who are Arizona residents to the extent that the dividends are
attributable to interest earned on Arizona State Municipal Securities. To the
extent that the Arizona Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses, such distributions are considered ordinary income for
Arizona income tax purposes. Such distributions are not eligible for the
dividends received deduction for corporations. Distributions, if any, of net
long-term capital gains from the sale of securities are taxable as ordinary
income for Arizona purposes.
California. Exempt-interest dividends will not be subject to California
personal income taxes for California resident individuals to the extent
attributable to interest from California State Municipal Securities, and such
exempt-interest dividends will also be excludable from the income base used in
calculating the California corporate income tax to the extent attributable to
interest from California Municipal Securities. Distributions of long-term
capital gains will be treated as capital gains which are taxed at ordinary
income tax rates for California state income tax purposes. Exempt-interest
dividends paid to a corporate shareholder subject to California state corporate
franchise tax will be taxable as ordinary income. Interest on indebtedness
incurred or continued to purchase or carry shares of the California Fund is not
deductible for California personal income tax purposes to the extent
attributable to interest income exempt from California personal income tax.
Connecticut. Distributions which are exempt-interest dividends under the
Federal income tax laws are not subject to the Connecticut income tax on
individuals, trusts and estates to the extent that such dividends are derived
from interest on Connecticut State Municipal Securities or from obligations the
interest on which the states are prohibited from taxing by Federal law. While
gains from the sale or exchange of Connecticut State Municipal Securities
generally are not included in taxable income under the Connecticut income tax,
shareholders should consult their own tax advisers as to the treatment of
capital gain dividends attributable to gains from the sale or exchange of
Connecticut State Municipal Securities.
Distributions from the Connecticut Fund are not eligible for the corporation
business tax dividends received deduction and therefore are included in the
taxable income of a taxpayer subject to the Connecticut corporation business
tax to the extent such distributions are treated as either exempt-interest
dividends or capital gain dividends for Federal income tax purposes.
Massachusetts. Under existing Massachusetts law, as long as the Massachusetts
Fund qualifies as a separate "regulated investment company" under the Code, (i)
the Massachusetts Fund will not be liable for
15
<PAGE>
any personal income or any corporate excise tax in the Commonwealth of
Massachusetts and (ii) shareholders of the Massachusetts Fund who are subject
to Massachusetts personal income taxation will not be required to include in
their Massachusetts taxable income (a) that portion of their exempt-interest
dividends from the Massachusetts Fund which the Massachusetts Fund clearly
identifies as directly attributable to interest received by the Massachusetts
Fund on Massachusetts State Municipal Securities or (b) that portion of their
dividends which is identified as attributable to interest received by the
Massachusetts Fund on obligations of the United States or its agencies or
possessions that are exempt from state taxation.
Any capital gains distributed by the Massachusetts Fund (except for capital
gains on certain Massachusetts State Municipal Securities which are
specifically exempt by statute), or gains realized by the shareholder on a
redemption or sale of shares of the Massachusetts Fund, will be subject to
Massachusetts personal income taxation.
In the case of any corporate shareholder subject to the Massachusetts
corporate excise tax, distributions received from the Massachusetts Fund, and
any gain on the sale or other disposition of Massachusetts Fund shares, will be
includable in the corporation's Massachusetts gross income and taxed
accordingly.
Michigan. Shareholders who are subject to the Michigan income tax or single
business tax will not be subject to the Michigan income tax or single business
tax on exempt-interest dividends to the extent they are attributable to
interest from Michigan State Municipal Securities. To the extent the
distributions from the Michigan Fund are attributable to sources other than
exempt-interest dividends, such distributions, including, but not limited to,
long- or short-term capital gains, will not be exempt from Michigan income tax
or the single business tax.
In 1986, the Michigan Department of Treasury issued a Bulletin stating that
holders of interests in regulated investment companies who are subject to the
Michigan intangibles tax will be exempt from the tax to the extent that such a
company's investment portfolio consists of items such as the Michigan State
Municipal Securities. In addition, shares owned by certain financial
institutions or by certain other persons subject to the Michigan single
business tax are not subject to the Michigan intangibles tax.
New Jersey. To the extent distributions are derived from interest or gains on
New Jersey State Municipal Securities, such distributions will be exempt from
New Jersey personal income tax. In order to pass through tax-exempt interest
for New Jersey personal income tax purposes, the New Jersey Fund, among other
requirements, must have not less than 80% of the aggregate principal amount of
its investments invested in New Jersey State Municipal Securities at the close
of each quarter of the tax year (the "80% Test"). For purposes of calculating
whether the 80% Test is satisfied, financial options, futures, forward
contracts and similar financial instruments relating to interest-bearing
obligations are excluded from the principal amount of the New Jersey Fund's
investments. The New Jersey Fund intends to comply with this requirement so as
to enable it to pass through tax-exempt interest. In the event the New Jersey
Fund does not so comply, distributions by the New Jersey Fund will be taxable
to shareholders for New Jersey personal income tax purposes. Exempt-interest
dividends and gains paid to a corporate shareholder will be subject to the New
Jersey corporation business (franchise) tax and the New Jersey corporation
income tax.
Under present New Jersey law, a RIC, such as the New Jersey Fund, pays a flat
tax of $250 per year. The New Jersey Fund might be subject to the New Jersey
corporation business (franchise) tax for any taxable year in which it does not
qualify as a RIC.
New York. The portion of exempt-interest dividends equal to the proportion
which the New York Fund's interest on New York State Municipal Securities bears
to all of the New York Fund's tax-exempt interest (whether or not distributed)
will be exempt from New York State and New York City personal income taxes. To
the extent the New York Fund's distributions are derived from interest on
taxable investments or from gain from the sale of investments, or are
attributable to the portion of the New York Fund's tax-exempt interest that is
not derived from New York State Municipal Securities, they will constitute
16
<PAGE>
taxable income for New York State and New York City personal income tax
purposes. Distributions from investment income and capital gains of the New
York Fund, including exempt-interest dividends paid to a corporate shareholder,
will be subject to New York State corporate franchise and New York City
corporation income tax.
North Carolina. Distributions of exempt-interest dividends, to the extent
attributable to interest from North Carolina State Municipal Securities and to
interest from direct obligations of the United States, are not subject to North
Carolina individual or corporate income tax. Distributions of gains
attributable to the disposition of certain obligations of the State of North
Carolina and its political subdivisions are not subject to North Carolina
individual or corporate income tax. Any loss upon the sale or exchange of
shares of the North Carolina Fund held for six months or less will be
disallowed for North Carolina income tax purposes to the extent of any exempt-
interest dividends received by the shareholder, even though some portion of
such dividends actually may have been subject to North Carolina income tax.
Except for income exempted from North Carolina income tax as described herein,
the North Carolina Fund's distributions will generally constitute taxable
income for taxpayers subject to North Carolina income tax.
Generally, the shares of the North Carolina Fund that are owned by residents
of North Carolina or that have a business, commercial or taxable situs in North
Carolina on December 31 of each year will be subject to the North Carolina
intangible personal property tax; however, the value of shares of the North
Carolina Fund will be exempt from the North Carolina intangible personal
property tax to the extent the North Carolina Fund's assets as of December 31
of each year consist of obligations of the State of North Carolina and its
political subdivisions and direct obligations of the United States (including
territories thereof). The Trust will inform shareholders annually regarding the
portion of the North Carolina Fund's assets as of December 31 which consists of
such obligations of the State of North Carolina and its political subdivisions
and direct obligations of the United States (including territories thereof).
An investment in the North Carolina Fund by a corporate shareholder generally
would be included in the capital stock, surplus and undivided profits base in
computing the North Carolina franchise tax.
Ohio. Exempt-interest dividends will not be subject to Ohio personal income
tax and will be excludable from the net income base used in calculating the
Ohio corporate franchise tax to the extent attributable to interest from Ohio
State Municipal Securities. To the extent that the Ohio Fund's distributions
are derived from interest on its taxable investments or, subject to certain
exceptions, from an excess of net short-term capital gains over net long-term
capital losses, such distributions are considered ordinary income subject to
the Ohio personal income tax and the Ohio corporate franchise tax. Subject to
certain exceptions, distributions, if any, of net long-term capital gains are
also subject to the Ohio personal income tax and the Ohio corporate franchise
tax.
Distributions treated as investment income or as capital gains for Federal
income tax purposes, including exempt-interest dividends, may be subject to
local taxes imposed by certain cities within Ohio. Additionally, the value of
shares of the Fund will be included in (i) the net worth measure of the issued
and outstanding shares of corporations and financial institutions for purposes
of computing the Ohio corporate franchise tax, (ii) the value of the property
included in the gross estate for purposes of the Ohio estate tax, (iii) the
value of capital and surplus for purposes of the Ohio domestic insurance
company franchise tax and (iv) the value of shares of and capital employed by
dealers in intangibles for purpose of the Ohio tax on dealers in intangibles.
Pennsylvania. To the extent distributions from the Pennsylvania Fund are
derived from interest on Pennsylvania State Municipal Securities, such
distributions will also be exempt from the Pennsylvania personal income tax. In
the case of residents of the City of Philadelphia, distributions which are
derived from interest on Pennsylvania Municipal Securities will be exempt from
the Philadelphia School District investment income tax.
17
<PAGE>
Shares of the Pennsylvania Fund will be exempt from Pennsylvania county
personal property taxes, the City of Pittsburgh personal property tax and the
School District of Pittsburgh personal property tax to the extent the
Pennsylvania Fund's portfolio securities consist of Pennsylvania State
Municipal Securities on the annual assessment date.
At present, it appears that an investment in the Pennsylvania Fund by a
corporate shareholder will be included in the Pennsylvania capital
stock/foreign franchise tax base by the Pennsylvania Department of Revenue. To
the extent exempt-interest dividends are excluded from taxable income for
Federal corporate income tax purposes (determined before net operating loss
carryovers and special deductions), they will not be subject to the
Pennsylvania corporate net income tax.
----------------
The foregoing is a general and abbreviated summary of the tax laws for the
designated states as presently in effect. For the complete provisions,
reference should be made to the applicable state tax laws. The state tax laws
described above are subject to change by legislative, judicial, or
administrative action either prospectively or retroactively. Shareholders of
each Fund should consult their tax advisers about other state and local tax
consequences of their investment in such Fund.
18
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SERIES AND SHARES
The Declaration of Trust provides that the Trust shall comprise separate
Series each of which will consist of a separate portfolio that will issue a
separate class of shares. Presently, the Arizona, California, Connecticut,
Massachusetts, Michigan, New Jersey, New York, North Carolina, Ohio and
Pennsylvania Funds are the only Series of the Trust offering their shares to
the public. The Trustees are authorized to create an unlimited number of full
and fractional shares of beneficial interest, par value $0.10 per share, of a
single class and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial
interests in the Series. Shareholder approval is not necessary for the
authorization of additional Series of the Trust. All shares have equal voting
rights, except that only shares of the respective Series are entitled to vote
on the matters concerning only that Series. Each issued and outstanding share
is entitled to one vote and to participate equally in dividends and
distributions declared by the respective Series and in net assets of such
Series upon liquidation or dissolution remaining after satisfaction of
outstanding liabilities. There normally will be no meetings of shareholders for
the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders'
meeting for the election of Trustees. Shareholders may, in accordance with the
terms of the Declaration of Trust, cause a meeting of shareholders to be held
for the purpose of voting on the removal of Trustees.
The obligations and liabilities of a particular Series are restricted to the
assets of that Series and do not extend to the assets of the Trust generally.
The shares of each Series, when issued, will be fully paid and nonassessable,
have no preference, preemptive, conversion, exchange or similar rights and are
freely transferable. Holders of shares of any Series are entitled to redeem
their shares as set forth elsewhere herein and in the Prospectus. Shares do not
have cumulative voting rights and the holders of more than 50% of the shares of
the Trust voting for the election of Trustees can elect all of the Trustees if
they choose to do so and in such event the holders of the remaining shares
would not be able to elect any Trustees. No amendment may be made to the
Declaration of Trust without the affirmative vote of a majority of the
outstanding shares of the Trust.
The Manager provided the initial capital for each Fund by purchasing 100,000
shares of each Fund. Such shares were acquired for investment and can only be
disposed of by redemption. The organizational expenses of each Fund were paid
by the respective Fund and are or were amortized over a period not exceeding
five years. Estimated organizational expenses of each of the Funds and the
dates they commenced operations are set forth below:
<TABLE>
<CAPTION>
ORGANIZATIONAL COMMENCEMENT
EXPENSES OF OPERATIONS
-------------- -------------
<S> <C> <C>
Arizona Fund....................................... $35,700 2/08/93
California Fund.................................... 84,818 7/05/88
Connecticut Fund................................... 60,166 4/29/91
Massachusetts Fund................................. 56,913 7/30/90
Michigan Fund...................................... 58,354 4/29/91
New Jersey Fund.................................... 52,238 7/30/90
New York Fund...................................... 78,650 7/05/88
North Carolina Fund................................ 59,972 5/28/91
Ohio Fund.......................................... 62,090 4/29/91
Pennsylvania Fund.................................. 57,043 8/27/90
</TABLE>
The proceeds realized by the Manager on the redemption of any of the shares
initially purchased by it will be reduced by the proportionate amount of
unamortized organizational expenses which the number of shares redeemed bears
to the number of shares initially purchased.
19
<PAGE>
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts
02101 (the "Custodian"), acts as custodian of the Funds' assets. The Custodian
is responsible for safeguarding and controlling each Fund's cash and
securities, handling the receipt and delivery of securities and collecting
interest on each Fund's investments.
Financial Data Services, Inc. (the "Transfer Agent"), a subsidiary of ML &
Co., P.O. Box 45290, Jacksonville, Florida 32232-5290, acts as the Trust's
transfer agent. The Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening, maintenance and servicing of
shareholder accounts.
INDEPENDENT AUDITORS
Deloitte & Touche, 117 Campus Drive, Princeton, New Jersey 08540, has been
selected as the independent auditors of the Trust. The selection of independent
auditors is subject to ratification by the shareholders of each Fund. The
independent auditors are responsible for auditing the annual financial
statements of the Funds.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of each Fund ends on March 31 of each year. The Trust sends
to each Fund's shareholders at least semi-annually reports showing the
respective Fund's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year, shareholders will receive Federal and
the designated state's (and, if applicable, city's) income tax information
regarding ordinary income dividends and capital gain dividends.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all of the information set forth in the Registration Statement and the exhibits
relating thereto, which each Fund has filed with the Commission under the
Securities Act of 1933 and the Investment Company Act, to which reference is
hereby made.
The Declaration of Trust establishing the Trust refers to the Trustees under
the Declaration of Trust collectively as Trustees, but not as individuals or
personally; and except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim of the Trust but the "Trust Property"
(as defined in the Declaration of Trust) only shall be liable. A copy of the
Declaration of Trust, together with all amendments thereto, is on file in the
office of the Commonwealth of Massachusetts.
20
<PAGE>
THE FOLLOWING APPENDICES CONTAIN CERTAIN INFORMATION REGARDING THE ECONOMIC
AND FINANCIAL CONDITIONS IN EACH DESIGNATED STATE AS OF THE DATE OF THIS
STATEMENT OF ADDITIONAL INFORMATION. THIS INFORMATION IS PROVIDED TO INVESTORS
IN EACH FUND IN VIEW OF EACH FUND'S CONCENTRATION OF INVESTMENTS IN THE ISSUERS
OF A SPECIFIC STATE. THE INFORMATION CONTAINED THEREIN CONSTITUTES ONLY A BRIEF
SUMMARY OF A NUMBER OF COMPLEX FACTORS THAT MAY AFFECT MUNICIPAL ISSUERS IN THE
VARIOUS STATES AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF ALL
CONDITIONS TO WHICH MUNICIPAL ISSUERS IN EACH STATE MAY BE SUBJECT. SUCH
INFORMATION IS DERIVED FROM SOURCES THAT ARE GENERALLY AVAILABLE TO INVESTORS,
SUCH AS OFFICIAL STATEMENTS PREPARED IN CONNECTION WITH THE ISSUANCE OF
MUNICIPAL SECURITIES AND OTHER STATE-RELATED PUBLICATIONS. NEITHER THE TRUST
NOR ANY FUND HAS INDEPENDENTLY VERIFIED THIS INFORMATION.
APPENDIX A
ECONOMIC AND FINANCIAL CONDITIONS IN ARIZONA
Arizona's total population of approximately 3,958,875 ranks it as the twenty-
fourth largest state by population. From 1980 to 1993, the State's population
increased by 45.64%. The U.S. Census Bureau has ranked Arizona (sometimes
referred to as the "State") third among states in percentage growth of
population between 1980 and 1990. The State's overall growth rate is expected
to continue to exceed the national average through the turn of the century.
Over the last several decades, the State's economy has grown faster than that
of most other regions of the country, as measured by nearly every major
indicator of economic growth, including aggregate personal income growth,
employment growth, gross state product and job creation. From 1988 to 1993, the
State's aggregate personal income grew nearly 35.5% to approximately $71.591
billion. Over the same period, the State's total secondary assessed valuation
of property, the measure used to assess property taxes to service general
obligation indebtedness, increased by 4.5%.
Although the rate of growth has slowed considerably in recent years,
diversification of the State's economy has helped enable the State to maintain
a moderate rate of growth. Jobs in industries such as mining and agriculture
have diminished in relative importance to the State's economy over the past two
decades, while substantial growth has occurred in the areas of aerospace, high
technology, light manufacturing, finance and insurance. Jobs in the
construction and real estate sectors have also experienced substantial growth
over the past 20 years, although substantial declines were experienced during
the late 1980's through 1991. The unemployment rate for the State in 1993 was
6.4%, the same as the national rate.
Maricopa County is the State's most populous county. Within Maricopa County's
boundaries lies the Phoenix Metropolitan Statistical Area, which includes the
City of Phoenix, the State's largest city and the eighth largest city in the
United States, and the Cities of Scottsdale, Tempe, Mesa, Glendale, Chandler
and Peoria, as well as the Towns of Paradise Valley and Gilbert. Maricopa
County accounts for 58% of the State's population, 65% of the State's non-
agricultural employment, and 64% of its aggregate personal income. The
population of Maricopa County grew from 1,509,262 in 1980 to approximately
2,291,200 persons in 1993, a growth of approximately 51.8%. Rapid population
growth has been accompanied by moderate employment growth. From 1989 to 1993,
non-agricultural employment in Maricopa County grew by 6.4%, bringing the
average number of persons employed in wage and salary jobs in Maricopa County
during 1993 to 1,023,800. Unemployment in Maricopa County averaged 5.1% in
1993, as compared to 6.4% nationally, continuing the trend that since 1977
Maricopa County's average annual unemployment rate has been below the national
average.
Good transportation facilities, a substantial pool of available labor, a
variety of support industries and a warm climate have made the Phoenix
Metropolitan Area a major business center in the southwestern United States.
Once dependent primarily upon an agriculturally based economy, Maricopa County
has substantially diversified its economic base. The service producing sector,
including transportation, communications, public utilities, hospitality and
entertainment, trade, finance, insurance, real estate, services and government,
is the leading source of employment in Maricopa County, employing an average of
833,900 persons in 1993,
A-1
<PAGE>
representing over 81.4% of Maricopa County's non-agricultural employment in
that year. The size of this sector reflects in part the substantial
contribution of tourism to the State's economy; during 1993, an estimated $8.1
billion of tourist expenditures were made in the State, of which approximately
$2.75 billion were made in Maricopa County.
Despite the modestly improving economic picture, Maricopa County experienced
a fiscal year 1993-94 deficit of approximately $64.2 million as compared to a
total County budget of approximately $1.2 billion. The County has proposed a
three-year plan which officials say would eliminate the deficit in two years
through the adoption of budget cuts, and a tax increase would be avoided.
Pima County is the State's second most populous county, and encompasses the
City of Tucson. The population of Pima County has grown nearly 34.1% since 1980
to its current population of approximately 722,700, representing nearly 18.1%
of Arizona's population. Pima County's economy is based primarily upon
manufacturing, mining, government, agriculture, tourism, education and finance.
The service producing sector is the largest employment source, employing an
average of 229,200 persons in 1993, representing nearly 84.5% of Pima County's
non-agricultural employment in that year. The Pima County manufacturing sector
employed an average of 24,100 persons in 1993. The declines in the real estate,
construction and related finance industries have adversely affected the Pima
County economy in recent years, and employment growth has remained relatively
flat over the past two years.
Much of the attention on the State's economic condition in recent years has
focused on the sharp declines in the real estate and construction industries,
which are now in modest recovery. The aggregate value of building permits in
the State decreased each year between 1985 and 1991, with a moderate increase
experienced in 1992, and again in 1993. While Arizona's real estate markets
have begun to stabilize, prior overbuilding, the relative unavailability of
real estate financing, the still substantial inventory of real estate held or
controlled by the Federal government, and various other factors make it likely
that the pace of recovery in real estate and related industries will continue
to be modest for the next several years.
The State government's fiscal situation has improved in recent years. After
experiencing several years of budget shortfalls requiring mid-year adjustments,
the State had a budget surplus of $86 million for fiscal year 1992-93, as
compared to a total State budget of $3.7 billion. For fiscal year 1993-94, the
Legislature is projecting a surplus of $107.1 million. For fiscal year 1994-95,
a surplus between $4.9 million and $47 million is projected. In part owing to
the improved fiscal picture, the 1994 Legislature enacted a personal income tax
reduction of approximately $107 million and various business tax cuts that
raised concerns that the State may be undercutting its tax base. In addition,
voter approval in November 1992 of Proposition 108, which requires a two-thirds
majority in both houses of the Legislature to pass a tax or fee increase, has
substantially constrained the State's ability to raise revenue.
A-2
<PAGE>
APPENDIX B
ECONOMIC AND FINANCIAL CONDITIONS IN CALIFORNIA
ECONOMIC CONDITIONS
California's economy is the largest among the 50 states and one of the
largest in the world. Total employment is about 14 million, the majority of
which is in the service, trade and manufacturing sectors.
Since the start of the 1990-91 fiscal year (July 1-June 30), the State of
California (sometimes referred to as the "State") has faced the worst economic,
fiscal, and budget conditions since the 1930s. Construction, manufacturing
(especially aerospace), exports and financial services, among others, have all
been severely affected.
Job losses have been the worst of any post-war recession and have continued
through the end of 1993. The State Department of Finance (the "Department of
Finance") projects that non-farm employment levels will be stable in 1994 and
show modest growth in 1995, but pre-recession job levels are not expected to be
reached for several more years. Unemployment is expected to remain well above
the national average through 1994. The Department of Finance foresees slow
recovery from the recession in California beginning in 1994. Both the
California and national economic recoveries are much weaker than in previous
business cycles, and could be harmed by several factors, including rising
interest rates.
California has lost over 850,000 payroll jobs, making this by far the longest
and deepest downturn of the post-World War II era. By contrast, in both the
1969-70 and 1981-82 recessions, the State had recovered its job losses by two
years after the start of the recession.
Major cuts in federal defense spending are now recognized as the main source
of the recession and the largest obstacle to recovery. This year and for the
next several years to come, the principal question in the California outlook is
when and whether other elements in the State's economy can muster sufficient
strength to overcome the continuing drag of defense cuts.
The State's tax revenue experience clearly reflects sharp declines in
employment, income and retail sales on a scale not seen in over 50 years. The
May 1994 Revision to the 1994-95 Governor's Budget, released May 20, 1994 (the
"May Revision"), assumes the State will start to recover from recessionary
conditions in 1994, with a modest upturn beginning in 1994 and continuing in
1995, a year later than predicted in the May 1993 Department of Finance
economic projection. Pre-recession job levels are not expected to be reached
until 1997. The following are excerpts from the May Revision discussion of
economic conditions.
Nation--Economic recovery is apparently proceeding at a steady pace for the
nation as a whole. The May Revision economic forecast for the United States is
moderately higher, reflecting both improved prospects and upward revisions in
several major data series.
The recovery gained momentum in the last quarter of 1993, with GDP expanding
at a 7 percent rate. This was stronger than assumed for the Budget forecast in
January, 1993. Strength in the recovery has been reflected in car sales,
housing starts, job gains, industrial production and corporate profits.
Business investment in equipment has strengthened beyond that expected for the
Budget forecast. Inflation remains under control, and appears to be coming in
lower than previously forecast.
On the down side, investment in nonresidential structures is coming in weaker
than anticipated. Federal spending for both defense and nondefense programs has
fallen more rapidly than forecast previously, and a surge in imports has
contributed to a large foreign trade deficit. California's Northridge
Earthquake was reflected in national data, although the effect was far smaller
and more temporary for the U.S. than it will be for the State.
B-1
<PAGE>
The May Revision forecast has incorporated these developments. Gross domestic
product (GDP) for the first quarter 1994 grew at essentially the rate forecast
late last year. For all of 1994, however, real GDP is now expected to grow by
3.6 percent, compared to the 2.8 percent forecast in the Budget. Growth for
1995 is expected to be reduced as concerns mount over the impact of higher
interest rates.
Although assumptions underlying the Budget forecast included rising interest
rates, policy moves by the Federal Reserve in recent weeks have pushed rates up
faster than expected. The mortgage rate is of particular concern. There are
reports that housing activity--resales, refinancings, and new building--is
already slowing down. It will be difficult to keep recovery going if rates edge
higher in coming months.
Another downside risk is the as yet unresolved issue of health care coverage
and costs. Both interest rates and the health care question are critical
factors for job creation. Small businesses, in particular, could be adversely
affected by rising health costs, and it is this sector which creates many of
the new jobs during an economic upturn.
The May Revision shows stronger employment gains in 1994, but renewed
weakness in 1995. Even so, the recovery is still quite moderate by historical
standards, and the unemployment rate--essentially the same as forecast for the
Budget--will remain a concern.
California--There is growing evidence that California is showing signs of an
economic turnaround, and the May Revision forecast is revised up from the
January Budget forecast. Since the January Budget forecast, 1993 nonfarm
employment has been revised upward by 31,000. Employment in the early months of
1994 has shown encouraging signs of growth, several months sooner than was
contemplated in the January Budget forecast. Between December and April,
payrolls were up by 50,000 jobs. The Northridge Earthquake may have dampened
economic activity briefly during late January and February, but the rebuilding
effects are now adding a small measure of stimulus.
Sectors which are contributing to California's recovery include construction
and related manufacturing, wholesale and retail trade, transportation and
several service industries such as amusements and recreation, business services
and management consulting. Electronics is showing modest growth and the rate of
decline in aerospace manufacturing is slowly diminishing. These trends are
expected to continue, and by next year, much of the restructuring in the
finance and utilities industries should be nearly completed. Thus, the State's
recovery should gain momentum over the next two years.
As a result of these factors, average 1994 nonfarm employment is now forecast
to maintain 1993 levels compared to a projected 0.6 percent decline in the
January budget. 1995 employment is expected to be up 1.6 percent, compared to
0.7 percent in the January budget.
The Northridge Earthquake resulted in a downward revision of this year's
personal income growth--from 4.0 percent in the January Budget to 3.6 percent.
However, this decline is more than explained by the $5.5 billion charge against
rental and proprietors' incomes--equal to 0.8 percent of total income--
reflecting uninsured damage from the quake. Next year, without the quake
effects, incomes grow 6.1 percent, compared to 5 percent in the January Budget.
Without these quake effects, income growth was little changed in the May
Revision compared to the January forecast contained in the Governor's Proposed
Budget.
The housing forecast remains essentially unchanged. Although existing home
sales have strengthened and subdivision surveys indicated increased new home
sales, building permits are up only slightly from recession lows. Gains are
expected in the months ahead, but higher mortgage interest rates will dampen
the upturn. Essentially, the earthquake adds a few thousand units to the
forecast, but this effect is offset by higher interest rates.
Interest rates represent one of several downside risks to the forecast. The
rise in interest rates has occurred more rapidly than contemplated in the
January Budget forecast. In addition to affecting housing,
B-2
<PAGE>
higher rates may also dampen consumer spending, given the high proportion of
California homeowners with adjustable-rate mortgages. The May Revision forecast
includes a further rise in the Federal Funds rate to nearly 5 percent by the
beginning of 1995. Should rates rise more steeply, housing and consumer
spending would be adversely affected.
The employment upturn is still tenuous. The Employment Development Department
revised down February's employment gain and March was revised to a small
decline. Unemployment rates in California have historically been volatile since
January ranging from a high of 10.1 percent to a low of 8.6 percent. The small
sample size coupled with changes made to the survey instrument in January
contribute to this volatility.
The State. The recession has seriously affected State tax revenues, which
basically mirror economic conditions. It has also caused increased expenditures
for health and welfare programs. The State has also been facing a structural
imbalance in its budget with the largest programs supported by the General
Fund--K-12 schools and community colleges, health and welfare, and
corrections--growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. As a result, the State has experienced
recurring budget deficits. The State Controller reports that expenditures
exceeded revenues for four of the five fiscal years ending with 1991-92 and
were essentially equal in 1992-93. By June 30, 1993, according to the
Department of Finance, the State's Special Fund for Economic Uncertainties had
a deficit, on a budget basis, of approximately $2.8 billion. The 1993-94 Budget
Act incorporated a Deficit Retirement and Reduction Plan to repay this deficit
over two fiscal years. The original budget for 1993-94 reflected revenues which
exceeded expenditures by approximately $2.0 billion. As a result of the
continuing recession, the excess of revenues over expenditures for the fiscal
year is now expected to be only about $500 million. Thus the accumulated budget
deficit at June 30, 1994 is now estimated by the Department of Finance to be
approximately $2.0 billion, and the deficit will not be retired by June 30,
1995 as planned.
The accumulated budget deficits over the past several years, together with
expenditures for school funding, which have not been reflected in the budget,
and reduction of available internal borrowable funds, have combined to
significantly deplete the State's cash resources to pay its ongoing expenses.
In order to meet its cash needs, the State has had to rely for several years on
a series of external borrowings, including borrowings past the end of a fiscal
year. Such borrowings are expected to continue in the future, provided that the
State may not issue any revenue anticipation notes, reimbursement warrants or
other registered warrants which by their terms are due and payable on or prior
to April 26, 1996, the maturity date of the 1994 Revenue Anticipation Warrants,
other than the Notes and the 1994 Revenue Anticipation Warrants. See "The
Notes", "Cash Management Plan" and "State Indebtedness--Short Term Borrowings".
Administration reports during the course of the 1993-94 Fiscal Year have
indicated that while economic recovery appears to have started in the second
half of the fiscal year, recessionary conditions continued longer than had been
anticipated when the 1993-94 Budget Act was adopted. Overall, revenues for the
1993-94 Fiscal Year were approximately $800 million lower than original
projections, and expenditures were approximately $780 million higher, primarily
because of higher health and welfare caseloads, lower property taxes which
require greater State support for K-14 education to make up the shortfall, and
lower than anticipated federal government payments for immigration-related
costs. The most recent reports, however, in May and June, 1994, indicated that
revenues in the second half of the 1993-94 Fiscal Year have been very close to
the projections made in the Governor's Budget of January 10, 1994, which is
consistent with a slow turnaround in the economy.
During the 1993-94 Fiscal Year, the State implemented the Deficit Retirement
and Reduction Plan, which was part of the 1993-94 Budget Act, by issuing $1.2
billion of revenue anticipation warrants in February 1994 maturing December 21,
1994. This borrowing reduced the cash deficit at the end of the 1993-94 Fiscal
Year. Nevertheless, because of the $1.5 billion variance from the original
Budget Act assumptions, the General Fund ended the Fiscal Year at June 30,
1994, carrying forward an accumulated deficit of approximately $2 billion.
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Because of the revenue shortfall and the State's reduced internal borrowable
cash resources, in addition to the $1.2 billion of revenue anticipation
warrants issued as part of the Deficit Retirement and Reduction Plan, the State
issued an additional $2.0 billion of revenue anticipation warrants which were
needed to fund the State's obligations and expenses through the end of the
1993-94 Fiscal Year.
Northridge Earthquake. On January 17, 1994, a major earthquake measuring an
estimated 6.8 on the Richter Scale struck Los Angeles. Significant property
damage to private and public facilities occurred in a four-county area
including northern Los Angeles County, Ventura County, and parts of Orange and
San Bernardino Counties. These areas were declared as State and federal
disaster areas by January 18. Current estimates of total property damage
(private and public) are in the range of $20 billion, but these estimates are
subject to change.
Despite such damage, on the whole, the vast majority of structures in the
areas, including large manufacturing and commercial buildings and all modern
high-rise offices, survived the earthquake with minimal or no damage,
validating the cumulative effect of strict building codes and thorough
preparation for such an emergency by the State and local agencies.
Damage to State-owned facilities included transportation corridors and
facilities such as Interstate Highways 5 and 10 and State Highways 14, 118 and
210. Most of the major highways (Interstates 5 and 10) have now been reopened.
The campus at California State University--Northridge (very near the epicenter)
suffered an estimated $350 million damage, resulting in temporary closure of
the campus. The campus has reopened on a reduced operating basis using borrowed
facilities elsewhere in the area and many temporary structures. There was also
some damage to University of California at Los Angeles. Overall, except for the
temporary road and bridge closures, and CSU-Northridge, the earthquake did not
and is not expected to significantly affect State government operations.
The President immediately allocated some available disaster funds, and
Congress has approved additional funds for a total of at least $9.5 billion of
federal funds for earthquake relief, including assistance to homeowners and
small businesses, and costs for repair of damaged public facilities. The
Governor has announced that the State's share for transportation projects would
come from existing Department of Transportation funds (thereby delaying other,
non-earthquake related projects), the State's share for certain other costs
(including local school building repairs) would come from reallocating existing
bond funds, and that a proposed program for homeowner and small business aid
supplemental to federal aid would have to be abandoned. Some other costs will
be borrowed from the federal government in a manner similar to that used by the
State of Florida after Hurricane Andrew. Pursuant to Senate Bill 2383,
repayment will have to be addressed in 1995-96 or beyond.
1994-95 Budget Act. The 1994-95 Fiscal Year represents the fourth consecutive
year the Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cuts and budgetary
adjustments have already been made in the last three years. The Governor's
Budget Proposal, as updated in May and June, 1994, recognized that the
accumulated deficit could not be repaid in one year, and proposed a two-year
solution. The budget proposal sets forth revenue and expenditure forecasts and
revenue and expenditure proposals which result in operating surpluses for the
budget for 1994-95, and lead to the elimination of the accumulated budget
deficit, estimated at about $2.0 billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projects
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
Also included in this figure is a projected receipt of about $360 million from
the Federal Government to reimburse the State's cost of incarcerating
undocumented immigrants. The State will not know how much the Federal
Government will actually provide until the Federal Fiscal Year 1995 Budget is
completed, which is expected to be by October, 1994. The Legislature took no
action on a proposal in the January Governor's Budget to undertake an expansion
of the transfer of certain programs to counties, which would also have
transferred to counties 0.5% of the State's current sales tax.
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The 1994-95 Budget Act contains no tax increases. Under legislation enacted
for the 1993-94 Budget, the renters' tax credit was suspended for two years
(1993 and 1994). A ballot proposition to permanently restore the renters' tax
credit after this year failed at the June, 1994 election. The Legislature
enacted a further one-year suspension of the renters' tax credit, for 1995,
saving approximately $390 million in the 1995-96 Fiscal Year. Subsequent to the
enactment of the 1994-95 Budget Act, the State of California's bond rating was
lowered to A by Standard & Poor's Corporation and to A by Fitch Investors
Service, Inc. Moody's Investors Service, Inc. also lowered the State of
California's long-term rating to A1.
Certain issuers of California Municipal Bonds receive subventions from the
State which are eligible to be used to make payments on said Bonds. No
prediction can be made as to what effect continued decreases in subventions may
have on the ability of some issuers to make such payments.
CONSTITUTIONAL AND STATUTORY LIMITATIONS; RECENT INITIATIVES; PENDING
LITIGATION
Article XIIIA of the California Constitution (which resulted from the voter-
approved Proposition 13 in 1978) limits the taxing powers of California public
agencies. Article XIIIA provides that the maximum ad valorem tax on real
property cannot exceed 1% of the "full cash value" of the property, and
effectively prohibits the levying of any other ad valorem property tax for
general purposes. However, on May 3, 1986, Proposition 46, an amendment to
Article XIIIA, was approved by the voters of the State of California, creating
a new exemption under Article XIIIA permitting an increase in ad valorem taxes
on real property in excess of 1% for bonded indebtedness approved by two-thirds
of the voters voting on the proposed indebtedness. "Full cash value" is defined
as "the County Assessor's valuation of real property as shown on the 1975-76
tax bill under "full cash value" or, thereafter, the appraised value of real
property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment". The "full cash value" is subject to annual
adjustment to reflect increases (not to exceed 2%) or decreases in the consumer
price index or comparable local data, or to reflect reductions in property
value caused by damage, destruction or other factors.
Article XIIIB of the California Constitution limits the amount of
appropriations of the State and of local governments to the amount of
appropriations of the entity for the prior year, adjusted for changes in the
cost of living, population and the services that the local government has
financial responsibility for providing. To the extent the revenues of the state
and/or local government exceed its appropriations, the excess revenues must be
rebated to the public either directly or through a tax decrease. Expenditures
for voter-approved debt services are not included in the appropriations limit.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) required that any tax for general
governmental purposes imposed by local governments be approved by a majority of
the electorate of the government entity, (ii) required that any special tax
(defined as taxes levied for other than general government purposes) imposed by
a local government entity be approved by a two-thirds vote of the voters within
that jurisdiction, (iii) restricted the use of revenues from a special tax to
the purposes or for the service for which the special tax is imposed, (iv)
prohibited the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIIA, (v) prohibited the
imposition of transaction taxes and sales taxes on the sale of real property by
local governments, (vi) required that any tax imposed by a local government on
or after August 1, 1985 be ratified by a majority vote of the electorate within
two years of the adoption of the initiative or be terminated by November 15,
1988, (vii) required that, in the event a local government fails to comply with
the provisions of this measure, a reduction in the amount of property tax
revenues allocated to such local government occur in an amount equal to the
revenues received by such entity attributable to the tax levied in violation of
the initiative, and (viii) permitted those provisions to be amended exclusively
by the voters of the State of California. While several recent decisions of the
California Courts of Appeal have held that all or portions of Proposition 62
are unconstitutional, the California Supreme Court has yet to consider the
matter.
At the November 9, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amends Article XIIIB to
require that (i) the California Legislature establish a prudent state
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reserve fund in an amount as it shall deem reasonable and necessary and (ii)
revenues in excess of amounts permitted to be spent and which would otherwise
be returned pursuant to Article XIIIB by revision of tax rates or fee
schedules, be transferred and allocated (up to a maximum of 40%) to the State
School Fund and be expended solely for purposes of instructional improvement
and accountability. Proposition 98 also amends Article XVI to require that the
State of California provide a minimum level of funding for public schools and
community colleges. Commencing with the 1988-89 fiscal year, money to be
applied by the State for the support of school districts and community college
districts shall not be less than the greater of: (i) the amount which, as a
percentage of the State general fund revenues which may be appropriated
pursuant to Article XIIIB, equals the percentage of such State general fund
revenues appropriated for school districts and community college districts,
respectively, in fiscal year 1986-87 or (ii) the amount required to ensure that
the total allocations to school districts and community college districts from
the State general fund proceeds of taxes appropriated pursuant to Article XIIIB
and allocated local proceeds of taxes shall not be less than the total amount
from these sources in the prior year, adjusted for increases in enrollment and
adjusted for changes in the costs of living pursuant to the provisions of
Article XIIIB. The initiative permits the enactment of legislation, by a two-
thirds vote, to suspend the minimum funding requirement for one year. As a
result of Proposition 98, funds that the State might otherwise make available
to its political subdivisions may be allocated instead to satisfy such minimum
funding level.
On November 3, 1992, voters approved an initiative statute, Proposition 163,
which exempts certain food products, including candy and other snack foods,
from California's sales tax. The sales tax had been broadened to include those
items as part of the 1991-92 budget legislation.
Article XIIIA, Article XIIIB and a number of propositions were adopted
pursuant to California's constitutional initiative process. From time to time,
other initiative measures could be adopted by California voters. The adoption
of any such initiatives may cause California issuers to receive reduced
revenues, or to increase expenditures, or both.
Recent Initiatives. In July 1991, California increased taxes by adding two
new marginal tax rates, at 10% and 11%, effective for tax years 1991 through
1995. After 1995, the maximum personal income tax rate is scheduled to return
to 9.3%, and the alternative minimum tax rate is scheduled to drop from 8.5% to
7%. In addition, legislation in July 1991 raised the sales tax by 1.25%, of
which 0.5% was a permanent addition. This tax increase will be cancelled if a
court rules that such tax increase violates any constitutional requirements.
Although 0.5% of the State tax rate was scheduled to expire on June 30, 1993,
such amount was extended for six months for the benefit of counties and cities.
On November 2, 1993, voters approved extension of this 0.5% levy as a permanent
source of funding for local government.
The November 2, 1993 special election ballot also contained an initiative
constitutional amendment providing parental choice regarding education. This
initiative would have required to state to allocate every school-age child a
scholarship in an amount equal to at least 50% of the prior year's per-pupil
State and local government expenditure for kindergarten through twelfth grade
education. Such scholarships would have been redeemable by public or private
schools. If passed, the parental choice initiative could have threatened the
fiscal stability of any school district in which a significant number of
students withdraw and enrolls elsewhere. Although the initiative failed, other
parental choice initiatives have already been filed in an attempt to qualify
them for future voter consideration.
Pending Litigation. On June 20, 1994, the United States Supreme Court, in two
companion cases, upheld the validity of California's prior method of taxing
multinational corporations under a "unitary" method of accounting for their
worldwide earnings. Barclays Bank PLC v. Franchise Tax Board concerned foreign
corporations, and Colgate-Palmolive v. Franchise Tax Board concerned domestic
corporations.
In the spring of 1991, the Richmond Unified School District ("RUSD") Board of
Directors attempted to end classes six weeks early because of a fiscal crisis.
In response to lawsuits, a lower court judge, in a case
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called Butt v. State of California, ordered the State, over objections from the
Governor, to provide funding to allow the school year to be completed, and an
emergency loan was arranged by the State Controller. On appeal, the California
Supreme Court in late December, 1992 upheld the lower court's action, ruling
that the State Constitution's guarantee of public education required the State
to ensure a full year's education in all school districts. The Court, however,
overturned a portion of the original order relating to the source of funds for
RUSD's emergency loan; the decision leaves unclear just where the State must
find funds to make any future loans of this kind.
In Parr v. State of California, a complaint was filed in federal court
claiming that payment of wages in registered warrants violated the Fair Labor
Standards Act ("FLSA"). The federal court held that the issuance of registered
warrants does violate the FLSA. The next phase of the trial will focus on the
issue of damages. The maximum amount of damages is the amount of the salary
originally owed or approximately $350 million.
The State is involved in a lawsuit seeking reimbursement for alleged state-
mandated costs. In Thomas Hayes v. Commission on State Mandates, the state
director of finance is appealing a 1984 decision by the State Board of Control.
The Board of Control decided in favor of local school districts' claims for
reimbursement for special education programs for handicapped students; however,
funds have not been appropriated. The amount of potential liability to the
State, if all potentially eligible school districts pursue timely claims, has
been estimated by the Department of Finance at over $1 billion.
The State is involved in two lawsuits related to contamination at the
Stringfellow toxic waste site. In one suit, the State is one of approximately
130 defendants in Penny Newman v. J. B. Stringfellow, et al. in which 3,800
plaintiffs are claiming damages of $850 million arising from contamination at
the Stringfellow toxic waste site. A conservative estimate of the State's
potential liability is $250 million to $550 million. A group of 17 of the
plaintiffs has received a verdict of $159,000 against the State. In a separate
lawsuit, United States, People of the State of California v. J. B.
Stringfellow, Jr. et al. the State is seeking recovery for past costs of
cleanup of the site, a declaration that the defendants are jointly and
severally liable for future costs, and an injunction ordering completion of the
cleanup. However, the defendants have filed a counterclaim against the State
for alleged negligent acts. Because the State is the present owner of the site,
the State may be found liable. Present estimates of the cleanup range from $200
million to $800 million.
In 1992 the State, as part of an experimental work incentive program, reduced
welfare payments to approximately 2.7 million people who receive Aid to
Families with Dependent Children. The State's reduction in welfare payments was
challenged in federal court. In a recent United States Court of Appeals ruling,
the Court held that the State welfare cuts were improper. To date, the decision
has not been appealed. The Court's decision could cost the State approximately
$202 million a year in increased welfare benefit costs. In such event, the
State may shift some or all of the increased burden to local governments.
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APPENDIX C
ECONOMIC AND FINANCIAL CONDITIONS IN CONNECTICUT
The State of Connecticut ("the State") finances its operations primarily
through the State's general fund (the "General Fund"). The State derives
approximately 70% of its revenues from taxes, including sales and use taxes,
corporation business taxes, and income taxes imposed by the State. The
remainder of the State's revenues are derived from federal grants,
miscellaneous fees, receipts and transfers.
For fiscal years ended June 30, 1984 to 1987, the Comptroller's annual report
to the Governor of the State stated a surplus in the General Fund. The State
had operating deficits in 1988 and 1989 of $115.6 million and $28.0 million,
respectively, stated on the modified cash basis of accounting used for
statutory financial reporting. As required by the General Statutes of the
State, these amounts were deemed to be appropriated from the Budget Reserve
Fund to fund the deficit.
The Comptroller's annual report to the Governor for the fiscal year ended
June 30, 1990 stated that the operating deficit was $259.5 million. This was
the net deficit after actions taken by the Governor and the General Assembly
which affected both revenues and expenditures. As required by statute, the
State Comptroller transferred the balance of the Budget Reserve Fund, $102.3
million, to the General Fund to partially fund the operating deficit. This
action brought the total deficit carried forward to fiscal 1990-91 to $157.2
million.
The Comptroller's annual report to the Governor for the fiscal year ended
June 30, 1991 stated that the operating deficit, after miscellaneous surplus
adjustments, was $808.5 million. Together with a deficit carried forward from
fiscal 1989-90, the total deficit for the fiscal year 1990-91 was $965.7
million.
The legislation enacting the fiscal 1991-92 budget contained two key
provisions designed to balance the budget in Fiscal Year 1991-92 and to address
and eliminate the cumulative deficit. They were the imposition of a broad based
personal income tax and a five-year note financing. In September and October,
the State issued $965.7 million of general obligation economic recovery notes
with a final maturity of June 15, 1996 to finance the cumulative General Fund
deficit. The Comptroller's annual report to the Governor for the fiscal year
ended June 30, 1992 found the General Fund to have a surplus of $110.2 million,
which was used to retire $110.1 million of the economic recovery notes.
The Comptroller's annual report for the fiscal year ended June 30, 1993
reported a General Fund operating surplus of $113.5 million.
The Comptroller is required to issue cumulative monthly financial statements
relating to the financial condition of the State. This report compares revenues
already received and expenditures already made to estimated revenues to be
collected and estimated expenditures to be made during the balance of the year.
The Comptroller's June 1, 1994 report on the State's fiscal position as of
June 30, 1994 estimates a General Fund operating surplus of $113.8 million due
to revisions in revenue estimates and expenditures. On a GAAP basis, however,
the Comptroller estimated a cumulative projected deficit in the General Fund as
of June 30, 1994, of $412 million.
Despite the recent slowdown in the State's economy, the State maintains a
high level of personal income compared to the nation and the New England
region. While the State's unemployment rate historically has been lower than
the unemployment rate for the country as a whole, and while it had increased to
7.0% as of January 1993, on a seasonally adjusted basis, it has fallen to 5.9%
at December 31, 1993, again on a seasonally adjusted basis.
Currently, Moody's Investors Service, Inc. rates Connecticut's general
obligation bonds Aa and Connecticut's outstanding commercial paper P-1,
Standard & Poor's Corporation rates Connecticut's general obligation bonds AA-
and Connecticut's outstanding commercial paper A-1+ and Fitch Investors
Service, Inc. rates Connecticut's general obligation bonds AA+.
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APPENDIX D
ECONOMIC AND FINANCIAL CONDITIONS IN MASSACHUSETTS
Throughout much of the 1980's, the Commonwealth had a strong economy which
was evidenced by low unemployment and high personal income growth as compared
to national trends. Economic growth in the Commonwealth has slowed since 1988,
however, particularly in the construction, real estate, financial and
manufacturing sectors, including certain high technology areas, with especially
adverse results in 1990 and the first half of 1991. The unemployment rate in
Massachusetts averaged 6.9% during 1993, after rising steadily during the
previous three years, from 3.4% at the beginning of 1989. As of May, 1994, the
Commonwealth's unemployment rate was 5.8% as compared to a national average of
6.0%. Increasing unemployment claims have also reduced the balances in the
unemployment compensation trust fund. In addition, per capita personal income
in the Commonwealth is currently growing at a rate lower than the national
average. Between the second quarter of 1992 and the second quarter of 1993,
aggregate personal income in the Commonwealth increased 4.0%, as compared to
5.5% for the nation as a whole.
Moreover, Commonwealth spending exceeded revenues in each of the five fiscal
years commencing fiscal 1987. In particular, from 1987 to 1990, spending in
five major expenditure categories--Medicaid, debt service, public assistance,
group health insurance and transit subsidies--grew at rates in excess of the
rate of inflation for the comparable period. In addition, the Commonwealth's
tax revenues during this period repeatedly failed to meet official forecasts.
For the budgeted funds, operating losses in fiscal 1988 of $370 million were
covered by surplus carried forward from the prior year. The operating losses in
fiscal 1989 and 1990, which totalled $672 million and $1.251 billion,
respectively, were covered primarily through deficit borrowings. During the
period, fund balances in the budgeted operating funds declined from an opening
balance of $1.072 billion in fiscal 1987 to an ending balance of negative
$1.104 billion in fiscal 1990. For fiscal 1991, these funds attained positive
ending balances of $237.1 million. Fiscal 1992 ended with positive fund
balances of $549.4 million, after carrying forward the fund balances from
fiscal 1991.
In fiscal 1993, which ended June 30, 1993, the total revenues of the budgeted
operating funds of the Commonwealth during such fiscal year increased by
approximately 7.1% over the prior fiscal year, to $14.709 billion. Expenditures
increased by 9.6% over the prior year, to $14.696 billion. As a result, the
Commonwealth ended fiscal 1993 with a positive closing fund balance of $562.5
million.
Standard & Poor's and Moody's have upgraded their ratings of the
Commonwealth's general obligation bonds from A and Baa, respectively, to A+ and
A, respectively. Fitch has recently upgraded its rating of the Commonwealth's
bonds from A to A+. Ratings have been lowered on short-term debt and some state
agency obligations. From time to time, the rating agencies may further change
their ratings.
On July 19, 1993, the Governor signed the Commonwealth's budget for fiscal
1994. The budget relies on estimated revenues of $15.483 billion. Fiscal 1994
revenues include an estimated $10.560 billion in tax revenue. The budget signed
by the Governor will result in projected expenditures of $15.463 billion.
Growth of tax revenues in the Commonwealth is limited by law. Tax revenues in
fiscal years 1988 through 1993 were lower than the limits set by law, and the
Executive Office for Administration and Finance estimates that state tax
revenues in fiscal 1994 will not reach the limits imposed by law. In addition,
effective July 1, 1990, limitations were placed on the amount of direct bonds
the Commonwealth may have outstanding in a fiscal year, and the amount of the
total appropriation in any fiscal year that may be expended for payment of
principal of and interest on general obligation debt of the Commonwealth was
limited to 10 percent of such appropriation. Bonds in the aggregate principal
amount of $1.399 billion issued in October and December 1990, under Chapter 151
of the Acts of 1990 to meet the fiscal 1990 deficit are excluded from the
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computation of these limitations, and principal of and interest on such bonds
are to be paid from up to 15% of the Commonwealth's income tax receipts in each
year that such principal or interest is payable.
Furthermore, certain of the Commonwealth's cities and towns have at times
experienced serious financial difficulties which have adversely affected their
credit standing. The recurrence of such financial difficulties, or financial
difficulties of the Commonwealth, could adversely affect the market values and
marketability of, or result in defaults in payment on, outstanding obligations
issued by the Commonwealth or its public authorities or municipalities. In
addition, the Massachusetts statutes which limit the taxing authority of the
Commonwealth or certain Massachusetts governmental entities may impair the
ability of issuers of some Massachusetts obligations to pay debt service on
their obligations.
In Massachusetts, the tax on personal property and real estate is virtually
the only source of tax revenues available to cities and towns to meet local
costs. "Proposition 2 1/2," an initiative petition adopted by the voters of the
Commonwealth of Massachusetts on November 4, 1980, limits the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of certain debt service. Proposition 2 1/2 required many
cities and towns to reduce their property tax levels to a stated percentage of
the full and fair cash value of their taxable real estate and personal property
and limited the amount by which the total property taxes assessed by a city or
town might increase from year to year. Although the limitations of Proposition
2 1/2 on tax increases may be overridden and amounts for debt service and
capital expenditures excluded from such limitation by the voters of the
relevant municipality, Proposition 2 1/2 will continue to restrain
significantly the ability of cities and towns to pay for local services,
especially in light of cost increases due to an inflation rate generally
exceeding 2.5% and the decrease and delay in local aid from the Commonwealth,
discussed below.
To offset shortfalls experienced by local governments as a result of the
implementation of Proposition 2 1/2, the government of the Commonwealth
increased direct local aid from the 1981 level of $1.632 billion to the fiscal
1989 level of $2.961 billion. Direct local aid decreased from fiscal 1989 to
$2.328 billion in fiscal 1992 and increased to $2.547 billion in fiscal 1993.
It is estimated that fiscal 1994 expenditures for direct local aid will be
$2.737 billion.
The Commonwealth's fiscal circumstances have led to delays in the
distribution of local aid. Of the $2.961 billion direct local aid payments for
fiscal 1989, $305 million in Chapter 70 school aid due on June 30, 1989, was
delayed and not disbursed until July 1989, because of the fiscal 1989 deficit.
The Commonwealth issued fiscal 1990 revenue anticipation notes in July in order
to make this local aid payment. Similarly, because of the Commonwealth's fiscal
1990 deficit, the Commonwealth deferred $1.26 billion of local aid due June 30,
1990 into fiscal 1991. All local aid due in fiscal 1991 has been paid, but no
assurance can be given that amounts appropriated for local aid in the fiscal
1992 budget will be forwarded or paid when due.
The aggregate unfunded actuarial liabilities of the pension systems of the
Commonwealth and the unfunded liability of the Commonwealth related to local
retirement systems are significant--estimated to be approximately $8.485
billion as of January 1, 1992 on the basis of certain actuarial assumptions
regarding, among other things, future investment earnings, annual inflation
rates, wage increases and cost of living increases. No assurance can be given
that these assumptions will be realized. The legislature adopted a
comprehensive pension bill addressing the issue in January 1988, which requires
the Commonwealth, beginning in fiscal year 1989, to fund future pension
liabilities currently and amortize the Commonwealth's unfunded liabilities over
40 years in accordance with funding schedules prepared by the Secretary of
Administration and Finance and approved by the legislature. The amounts
required for funding of current pension liabilities in fiscal years 1992, 1993
and 1994 are estimated to be $724 million, $778 million and $844 million,
respectively. As of June 30, 1993, the Commonwealth's state pension reserve was
approximately $3.877 billion.
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APPENDIX E
ECONOMIC AND FINANCIAL CONDITIONS IN MICHIGAN
The State's Constitution limits the amount of total State revenues raised
from taxes and other sources. State revenues (excluding federal aid and
revenues for payment of principal and interest on general obligation bonds) in
any fiscal year are limited to a specified percentage of State personal income
in the prior calendar year or average of the prior three calendar years,
whichever is greater. The percentage is based upon the ratio of the 1978-79
fiscal year revenues to total 1977 State personal income. If any fiscal year
revenues exceed the revenue limitation by one percent, the entire amount
exceeding the limitation must be rebated in the following fiscal year's
personal income tax or single business tax. Annual excesses of less than one
percent may be transferred into the State's Budget Stabilization Fund. The
State may raise taxes in excess of the limit in emergency situations.
The State Constitution limits the purposes for which State general obligation
debt may be issued. Such debt is limited to short-term debt for State operating
purposes, short and long-term debt for the purpose of making loans to school
districts and long-term debt for voter-approved purposes. The State's
Constitution also directs or restricts the use of certain revenues.
The State finances its operations through the State's General Fund and
special revenue funds. The General Fund receives revenues of the State that are
not specifically required to be included in the special revenue funds. General
Fund revenues are obtained approximately 59 percent from the payment of State
taxes and 41 percent from federal and non-tax revenue sources. The majority of
the revenues from State taxes are from the State's personal income tax, single
business tax, use tax, sales tax and various other taxes. Approximately 60
percent of total General Fund expenditures are for State support of public
education and for social services programs. The Department of Education
provides general supervision over all public education in the State, including
general, audit and special education. The Department of Social Services
administers economic, social and medical programs in the State, including
Medicare, Medicaid and Aid to Families with Dependent Children. Other
significant expenditures from the General Fund provide funds for law
enforcement, general State government, debt service and capital outlays. The
State Constitution requires that any prior year's surplus or deficit in any
Fund must be included in the succeeding year's budget for that Fund.
In recent years, the State of Michigan has reported its financial results in
accordance with generally accepted accounting principles. For each of the five
fiscal years ending with the fiscal year ended September 30, 1989, the State
reported positive year-end balances and positive cash balances in the combined
General Fund/School Aid Fund. For the fiscal years ended September 30, 1990 and
1991, the State reported negative year-end General Fund balances of $310.3
million and $169.4 million, respectively, but ended the 1992 fiscal year, with
its General Fund in balance. A positive cash balance in the combined General
Fund/School Aid Fund was recorded at September 30, 1990. In each of the three
prior fiscal years the State had undertaken mid-year actions to address
projected year-end budget deficits, including expenditure cuts and deferrals
and one-time expenditures or revenue recognition adjustments. The State
reported a balance in the General Fund as of September 30, 1993 of $26.0
million after a transfer of $283 million to the Budget Stabilization Fund
described below. From 1991 through 1993 the State experienced deteriorating
cash balances which necessitated short-term borrowings and the deferral of
certain scheduled cash payments to local units of government. The State
borrowed $700 million for cash flow purposes in the 1992 fiscal year and $900
million in the 1993 fiscal year. The State did not have to borrow for any
short-term cash flow purposes for the 1993-94 fiscal year due to improved cash
balances. The State has a Budget Stabilization Fund which had an accrued
balance of $20.1 million as of September 30, 1992; and, after a transfer of
$283 million on an accrual basis upon completion of the State's financial
reports, an ending balance of $303 million as of September 30, 1993.
State law provides for distributions of certain State collected taxes or
portions thereof to local units having a certain level of population as
determined by census figures and authorizes levy of certain local taxes by
local units having a certain level of population. Reductions in population in
local units resulting from
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periodic census could result in a reduction in the amount of State collected
taxes returned to those local units and in reductions in levels of local tax
collections for such local units unless the impact of the census is changed by
State law. No assurance can be given that any such State law will be enacted.
In the 1991 fiscal year, the State deferred certain scheduled payments to
municipalities, school districts, universities and community colleges. While
such deferrals were made up at later dates, similar future deferrals could have
an adverse impact on the cash position of some local units. Additionally, the
State reduced revenue sharing payments to municipalities below that level
provided under formulas by $10.9 million in the 1991 fiscal year, $34.4 million
in the 1992 fiscal year, $45.5 million in the 1993 fiscal year and $64.6
million (budgeted) in the 1994 fiscal year.
On March 15, 1994, the electors of the State voted to amend the State's
Constitution to increase the State sales tax rate from 4% to 6% and to place an
annual cap on property assessment increases for all property taxes. Companion
legislation also cut the State's income tax rate from 4.6% to 4.4%. In
addition, property taxes for school operating purposes will be reduced and
school funding will be provided from a combination of property taxes and state
revenues, some of which will be provided from new or increased State taxes. The
legislation also contains other provisions that may reduce or alter the
revenues of local units of government and tax increment bonds could be
particularly affected. While the ultimate impact of the constitutional
amendment and related legislation cannot yet be accurately predicted, investors
should be alert to the potential effect of such measures upon the operations
and revenues of Michigan local units of government, particularly school
districts.
The State is a party to various legal proceedings seeking damages or
injunctive or other relief. In addition to routine litigation, certain of these
proceedings could, if unfavorably resolved from the point of view of the State,
substantially affect State programs or finances. These lawsuits involve
programs generally in the areas of corrections, highway maintenance, social
services, tax collection, commerce and budgetary reductions to school districts
and governmental units and court funding.
The health of the State's economy, and in particular its durable goods
manufacturing industry, is susceptible to a long term increase in the cost of
energy and energy related products. As reflected in historical employment
figures, the State's economy has lessened its dependence upon durable goods
manufacturing. In 1960 employment in such industry accounted for 33% of the
State's workforce. This figure fell to 15.1% in 1993. However, manufacturing
(including auto-related manufacturing) continues to be an important part of the
State's economy. The State's economy could be affected by changes in the auto
industry, notably consolidation and plant closings resulting from competitive
pressures and overcapacity. The financial impact on the local units of
government in the areas in which plants are or have been closed could be more
severe than on the State as a whole. State appropriations and State economic
conditions in varying degrees affect the cash flow and budgets of local units
and agencies of the State, including school districts and municipalities and
the State itself.
Recently, as well as historically, the average monthly unemployment rate in
the State has been higher than the average figures for the United States. For
example, for 1993 the average monthly unemployment rate in the State was 7.0%
as compared to a national average of 6.8% in the United States. Improved
production and revenues from the automobile industry has led to an improved
unemployment rate of 5.2% in May, 1994, which is less than the national average
of 5.9%.
Currently, the State's general obligation bonds are rated "A1" by Moody's
Investors Service, Inc., "AA" by Standard & Poor's Corporation and "AA" by
Fitch Investors Service, Inc.
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APPENDIX F
ECONOMIC AND FINANCIAL CONDITIONS IN NEW JERSEY
On January 18, 1994, Christine Todd Whitman replaced James Florio as Governor
of the State of New Jersey (the "State"). As a matter of public record,
Governor Whitman during her campaign publicized her intention to reduce taxes
in the State. Effective January 1, 1994, the State's personal income tax rates
were cut by 5% for all taxpayers. Effective January 1, 1995, the State's
personal income tax rates will be cut by an additional 10% for most taxpayers.
At this time the effect of the tax reduction cannot be evaluated.
The State operates on a fiscal year beginning July 1 and ending June 30. For
example, "fiscal year 1994" refers to the State's fiscal year beginning July 1,
1993 and ending June 30, 1994.
The General Fund is the fund into which all State revenues not otherwise
restricted by statute are deposited and from which appropriations are made. The
largest part of the total financial operations of the State is accounted for in
the General Fund. Revenues received from taxes and unrestricted by statute,
most federal revenue and certain miscellaneous revenue items are recorded in
the General Fund.
The State's undesignated General Fund balance was $1.4 million for the fiscal
year 1991, $760.8 million for the fiscal year 1992, and $937 million for the
fiscal year 1993. For the fiscal year 1994, the balance in the undesignated
General Fund is projected to be $772.3 million and for the fiscal year 1995,
the balance in the undesignated General Fund is projected to be $303.1 million.
The State finances capital projects primarily through the sale of the general
obligation bonds of the State. These bonds are backed by the full faith and
credit of the State. State tax revenues and certain other fees are pledged to
meet the principal and interest payments required to pay the debt fully. No
general obligation debt can be issued by the State without prior voter
approval, except that no voter approval is required for any law authorizing the
creation of a debt for the purpose of refinancing all or a portion of
outstanding debt of the State, so long as such law requires that the
refinancing provide a debt service savings. All appropriations for capital
projects and all proposals for State bond authorizations are subject to the
review and recommendation of the New Jersey Commission on Capital Budgeting and
Planning.
The State has extensive control over school districts, cities, counties and
local financing authorities. State laws impose specific limitations on local
appropriations, with exemptions subject to state approval. The State shares the
proceeds of a number of taxes, with funds going primarily for local education
programs, homestead rebates, medicaid and welfare programs. Certain bonds are
issued by localities, but supported by direct state payments. In addition, the
State participates in local wastewater treatment programs.
The State's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture. After enjoying an extraordinary boom
during the mid-1980s, New Jersey, as well as the rest of the Northeast, slipped
into a slowdown well before the onset of the national recession which
officially began in July 1990 (according to the National Bureau of Economic
Research). By the beginning of the national recession, construction activity
had already been declining in New Jersey for nearly two years. As the rapid
acceleration of real estate prices forced many would-be homeowners out of the
market and high non-residential vacancy rates reduced new commitments for
offices and commercial facilities, construction employment began to decline.
Also growth had tapered off markedly in the service sectors and the long-term
downward trend of factory employment had accelerated, partly because of a
leveling off of industrial demand nationally. The onset of recession caused an
acceleration of New Jersey's job losses in construction and manufacturing, as
well as an employment downturn in such previously growing sectors as wholesale
trade, retail trade, finance, utilities and trucking and warehousing. The net
effect was a decline in the State's total non-farm wage and salary employment
from a peak of 3,706,400 in March 1989 to a low of 3,445,000 in March 1992.
This loss has been followed by an employment gain of 77,500 or 2.2% from March
1992 to March 1994.
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Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6% during the first quarter of 1989 to a recessionary peak of 9.3%
during 1992 (according to the U.S. Bureau of Labor Statistics and the New
Jersey Department of Labor, Division of Labor Market and Demographic Research).
The unemployment rate fell to 6.7% during the fourth quarter of 1993. The
jobless rate averaged 7.8% during the first quarter of 1994, but this estimate
is not comparable to those prior to January 1994 because of major changes in
the federal survey from which these statistics are obtained.
Evidence of the State's improving economy can be found in increased
homebuilding, and other areas of construction activity, rising consumer
spending for new cars and light trucks and the decline in the unemployment
rate. One of the major reasons for cautious optimism is found in the
construction industry. Total construction contracts awarded in New Jersey have
turned around, rising by 7.0% in 1993 compared with 1992. By far, the largest
boost came from residential construction awards which increased by 26% in 1993
compared with 1992. In addition, nonresidential building construction awards
have turned around, posting a 17% gain. In addition to increases in
construction contract awards, another reason for cautious optimism is rising
new car and light truck registrations. New passenger car registrations issued
during 1993 were up 15% in New Jersey from a year earlier. Registrations of new
light trucks and vans (up to 10,000 lbs.) advanced strongly in 1992 and jumped
nearly 30% during the January-to-February 1994 period relative to the same
period last year. Prospects for New Jersey are favorable, although a return to
the pace of the 1980s is highly unlikely. Although growth is likely to be
slower than in the nation, the locational advantages that have served New
Jersey well for many years will still be there. Structural changes that have
been going on for years can be expected to continue, with job creation
concentrated most heavily in the service sectors.
The fiscal years 1994 and 1995 State budgets project spending of funds
received from the Federal government. These projections do not take into
consideration any reductions to these anticipated funds that may occur as a
result of efforts to reduce the Federal deficit or required reductions to meet
spending limits. Any such reductions will require the State to adjust its
programs and budget to accommodate the reductions. As with prior reductions of
Federal financial support, the State would evaluate each program affected by
such cuts and act based on that evaluation and the amount of funds available.
Any reductions in Federal funds received by the State or its political
subdivisions could slow economic development. Also, changes to the Internal
Revenue Code, by restricting certain types of tax-exempt financing, may limit
the ability of New Jersey and its political subdivisions to incur indebtedness
to carry out their programs. Such developments also could have an adverse
effect on economic conditions in New Jersey.
On June 5, 1990, the State Supreme Court, in Abbott v. Burke, held the Public
Education Act of 1975 unconstitutional as applied to 28 "poor urban school
districts" described in the decision. In response to the Court's decree, the
State legislature soon thereafter enacted The Quality Education Act ("QEA").
The Abbott plaintiffs then challenged QEA contending the remedial statute
failed to comply with the Supreme Court's mandates. On July 12, 1994, the State
Supreme Court held that QEA is unconstitutional based on its failure to assure
parity of regular education expenditures between the special needs districts
and the more affluent districts. The State must achieve substantial equivalence
of expenditures per pupil for "regular education," along with provision for the
special educational needs of students in special needs districts, by the 1997-
1998 school year. The Court retained jurisdiction and will entertain
applications for relief under specified circumstances. At this time, the effect
of this decision cannot be evaluated.
Legislation approved June 30, 1992, effective immediately, called for
revaluation of several public employee pension funds and authorized an
adjustment to the assumed rate of return on the investment of pension fund
assets. The legislation also refunds $773 million in public employer
contributions to the State from various pension funds, to be reflected as a
revenue source for fiscal year 1992. In addition, it is estimated that this
plan will effect a further savings of $226 million in fiscal year 1993 and each
fiscal year thereafter. Several labor unions filed suit seeking a judgment
directing the State Treasurer to refund all monies transferred from the pension
funds and paid into the General Fund. On February 5, 1993, the Superior Court
granted the State's motion for summary judgement as to all claims. An appeal
was filed with the Appellate
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Division of Superior Court. On May 5, 1994, the Appellate Division affirmed the
decision of the trial court dismissing the complaint. An adverse determination
in this matter would have a significant impact on fiscal year 1993 and 1994
fund balances.
In July 1991, Standard & Poor's Corporation ("Standard & Poor's") downgraded
New Jersey general obligation bonds from AAA to AA+. On June 4, 1992, Standard
& Poor's placed New Jersey general obligation bonds on CreditWatch with
negative implications. On July 6, 1992, Standard & Poor's removed New Jersey's
general obligation bonds from CreditWatch and reaffirmed its AA+ rating of such
bonds but with negative long-term implications. On July 27, 1994, Standard &
Poor's reaffirmed its AA+ rating but revised its assessment of the State's
outlook from negative to stable. On August 24, 1992, Moody's Investors Service,
Inc. lowered its rating on New Jersey's general obligation bonds to Aa1 from
AAA. On December 6, 1992, Fitch Investors Service, Inc. lowered its rating on
New Jersey's general obligation bonds from AAA to AA+.
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APPENDIX G
ECONOMIC AND FINANCIAL CONDITIONS IN NEW YORK
During the mid-1970's, New York State (the "State"), some of its agencies,
instrumentalities and public authorities, and certain of its municipalities
faced serious financial difficulties. To address many of these financial
problems, the State developed various programs, many of which were successful
in ameliorating the financial crisis. Any further financial problems
experienced by these authorities or municipalities could have a direct adverse
effect on the New York State Municipal Securities in which the New York Fund
invests.
NEW YORK CITY
General. More than any other municipality, the fiscal health of New York City
(the "City") has a significant effect on the fiscal health of the State. The
national economic downturn which began in July 1990 adversely affected the
local economy, which had been declining since late 1989. As a result, the City
experienced job losses in 1990 and 1991 and real Gross City Product ("GCP")
fell in those two years. Beginning in calendar year 1992, the improvement in
the national economy helped stabilize conditions in the City. Employment losses
moderated toward year-end and real GCP increased, boosted by strong wage gains.
The City now projects, and its current four-year financial plan assumes, that
the City's economy will continue to improve and that a modest employment
recovery will occur during calendar year 1994.
For each of the 1991 through 1993 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP") and the City's 1994 fiscal year results are projected to be
balanced in accordance with GAAP. The City was required to close substantial
budget gaps in recent fiscal years in order to maintain balanced operating
results. There can be no assurance that the City will continue to maintain a
balanced budget as required by State law without additional tax or other
revenue increases or reductions in City services, which could adversely affect
the City's economic base.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1995 through 1998 fiscal
years (the "1995-1998 Financial Plan," or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions
and contingencies which are uncertain and which may not materialize. Changes in
major assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the timing and pace of
any regional and local economic recovery, the impact on real estate tax
revenues of the current downturn in the real estate market, wage increases for
City employees consistent with those assumed in the Financial Plan, employment
growth, the ability to implement proposed reductions in City personnel and
other cost reduction initiatives, provision of State and Federal aid and
mandate relief.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1995 through 1998 contemplates the
issuance of $10.4 billion of general obligation bonds primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make
capital investments. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The success of
projected public sales of City bonds and notes will be subject to prevailing
market conditions, and no assurance can be given that such sales will be
completed. If the City were unable to sell its general obligation bonds and
notes, it would be prevented from meeting its planned operating and capital
expenditures.
1995-1998 Financial Plan. The 1995-1998 Financial Plan projects revenues and
expenditures for the 1995 fiscal year balanced in accordance with GAAP. The
Financial Plan sets forth actions to close a projected budget gap of
approximately $2.3 billion in the 1995 fiscal year. The gap-closing actions for
the 1995 fiscal year include City actions aggregating $1.9 billion, a $288
million increase in State actions over the 1994 and
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1995 fiscal years, and a $200 million increase in Federal assistance. The City
actions include City agency productivity savings, tax and fee enforcement
initiatives, service reductions and savings from the restructuring of City
services. City actions also include savings resulting from proposed tort
reform, the transfer to the 1995 fiscal year of a projected 1994 fiscal year
surplus, savings for employee health care costs, reduced pension costs and
savings from refinancing City bonds and the proposed sale of certain City
assets. The proposed savings for employee health care costs are subject to
collective bargaining negotiation with the City's unions; the proposed savings
from tort reform will require the approval of the State Legislature; and the
$200 million increase in Federal assistance is subject to approval by Congress
and the President.
The Financial Plan also sets forth projections for the 1996 through 1998
fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $1.5 billion, $2.0 billion and $2.4 billion for the 1996 through
1998 years, respectively. These projections assume the extension by the State
Legislature of the 14% personal income tax surcharge beyond calendar year 1995
and the extension of the 12.5% personal income tax surcharge beyond calendar
year 1996, State assumption of certain Medicaid costs and $100 million and $200
million in proposed additional Federal assistance in the 1997 and 1998 fiscal
years, respectively. City actions include additional spending reductions, the
reduction of City personnel through attrition, government efficiency
initiatives, procurement initiatives, labor productivity initiatives, and the
proposed privatization of City sewage treatment plants. Certain of these
initiatives may be subject to negotiation with the City's municipal unions.
Various actions proposed in the Financial Plan for the 1996-1998 fiscal years,
including the proposed state actions, are subject to approval by the Governor
and the State Legislature, and the proposed increases in Federal assistance are
subject to approval by Congress and the President. The State Legislature has in
previous legislative sessions failed to approve certain of the City's proposals
for the State assumption of certain Medicaid costs and mandate relief, thereby
increasing the uncertainty as to the receipt of the State assistance included
in the Financial Plan. In addition, the Financial Plan assumes the continuation
of the current assumption with respect to wages for City employees and the
assumed 9% earnings on pension fund assets affecting the City's pension fund
contributions. Actual earnings on pension fund assets for the 1994 fiscal year
are expected to be substantially below the 9% assumed rate, which will increase
the City's future pension contributions. In addition, a review of the pension
fund earnings assumptions is currently being conducted which could further
increase the City's future pension contribution by a substantial amount.
On July 26, 1994, the Mayor announced the City would implement additional
spending reductions, over and above those included in the Financial Plan,
totaling $250 million during the 1995 fiscal year to compensate for a shortfall
in projected tax revenues and additional expenditures over projection for the
1994 fiscal year and failure by the State Legislature to approve City proposals
for tort reform and State mandate relief. The Mayor stated that the City would
also prepare contingency plans for an additional $200 million in spending
reductions during the 1995 fiscal year, such plans to be implemented in the
event other assumptions included in the Financial Plan do not materialize.
The City's financial plans have been the subject of extensive public comment
and criticism. On July 27, 1994, the Office of the State Deputy Comptroller of
New York issued a report reviewing the 1995-1998 Financial Plan. The report
concluded that a potential budget gap of $616 million exists for the 1995
fiscal year and that budget gaps for fiscal years 1996-1998 could exceed the
gaps projected by the Financial Plan by a total of $1.2 billion annually. On
July 11, 1994, the City Comptroller issued a report on the City's adopted
budget for the 1995 fiscal year. The City Comptroller stated that if none of
the uncertain proposals in the fiscal year 1995 budget are implemented, the
budget could suffer a shortfall of as much as $763 million to $1.02 billion. On
July 11, 1994, the three private members of the New York State Financial
Control Board issued a statement which concluded that the City's 1995 fiscal
year budget is not reasonably balanced and that further budget cuts are
unavoidable in the next six months. On July 11, 1994, the Financial Control
Board staff stated that the City faces budget risks of greater than $1 billion
and $2 billion for the 1995 and
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1996 fiscal years, respectively, and budget risks of approximately $3 billion
for each of the 1997 and 1998 fiscal years. It is reasonable to expect that
such reports and statements will continue to be issued and to engender public
comment.
Ratings
As of July 28, 1994, Moody's Investors Service, Inc. ("Moody's") rated the
City's general obligation bonds Baa1 and Standard & Poor's Corporation
("Standard & Poor's") and Fitch Investors Service, Inc. ("Fitch") each rated
such bonds A-. Such ratings reflect only the views of Moody's, Standard &
Poor's and Fitch, from which an explanation of the significance of such ratings
may be obtained. There is no assurance that such ratings will continue for any
given period of time or that they will be revised downward or withdrawn
entirely. Any such downward revision or withdrawal could have an adverse effect
on the market prices of bonds.
Outstanding Indebtedness
As of December 31, 1993, the City and the Municipal Assistance Corporation
("MAC") had, respectively, $21.404 billion and $4.461 billion of outstanding
net long-term debt.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. If the State experiences
revenue shortfalls or spending increases beyond its projections during its
1994-1995 fiscal year or subsequent years, such developments could result in
reductions in anticipated State aid to the City. In addition, there can be no
assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline and that there will not be adverse effects on the
City's cash flow and additional City expenditures as a result of such delays.
Litigation. The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, routine litigation incidental to
the performance of its governmental and other functions, actions commenced and
claims asserted against the City arising out of alleged constitutional
violations, alleged torts, alleged breaches of contracts and other violations
of law and condemnation proceedings and other tax and miscellaneous actions.
While the ultimate outcome and fiscal impact, if any, on the proceedings and
claims are not currently predictable, adverse determination in certain of them
might have a material adverse effect upon the City's ability to carry out the
Financial Plan. As of June 30, 1993, the City estimated its potential future
liability on account of all outstanding claims to be approximately $2.2
billion.
NEW YORK STATE
Current Economic Outlook. The national economy began to expand in 1991,
although the growth rate for the first two years of the expansion was modest by
historical standards. The State economy remained in recession until 1993, when
employment growth resumed. Since early 1993, New York has gained approximately
100,000 jobs.
New York's economy is expected to continue to expand during 1994. Industries
that export goods and services to the rest of the country and abroad are
expected to benefit from growing national and international markets. Both
upstate and downstate regions are expected to share in this renewed growth.
Employment is expected to grow moderately throughout the year, although the
rate of increase is expected to be below the experience of the 1980's due to
cutbacks in Federal spending and employment, as well as continued downsizing by
large corporations.
1993-1994 Fiscal Year. The State ended its 1993-94 fiscal year with a balance
of $1.140 billion in the tax refund reserve account, $265 million in its
Contingency Reserve Fund and $134 million in its Tax Stabilization Reserve
Fund. These fund balances were primarily the result of an improving national
economy, employment growth, tax collections that exceeded earlier projections
and disbursements that were below expectations.
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State Financial Plan for the 1994-1995 Fiscal Year. The State's budget for
the 1994-95 fiscal year was enacted by the Legislature on June 7, 1994, more
than two months after the start of the fiscal year. Prior to adoption of the
budget, the Legislature enacted appropriations for disbursements considered to
be necessary for State operations and other purposes, including all necessary
appropriations for debt service. The State Financial Plan for the 1994-95
fiscal year (the "1994-95 State Financial Plan" or "State Financial Plan") was
formulated on June 16, 1994 and is based on the State's budget as enacted by
the Legislature and signed into law by the Governor.
The State Financial Plan projects a General Fund balanced on a cash basis
with total projected receipts of $34.321 billion, an increase of $2.092 billion
over total receipts in the prior fiscal year. Total General Fund disbursements
in the current fiscal year are projected to be $34.248 billion, an increase of
$2.351 billion over the total amount disbursed and transferred in the prior
fiscal year.
The 1994-95 opening fund balance of $399 million includes $134 million which
is reserved in the Tax Stabilization Reserve Fund, as well as $265 million
which is reserved in the Contingency Reserve Fund. The Contingency Reserve Fund
was established in 1993-94 to set aside moneys to address adverse judgements or
settlements resulting from litigation against the State. The projected 1994-95
year-end closing balance in the General Fund of $207 million reflects: (i) a
balance of $157 million in the Tax Stabilization Reserve Fund, following an
additional payment of $23 million during the year, and (ii) a balance of $50
million in a reserve for payments in the 1995-96 fiscal year related to the
Liberty Scholarship program.
The State anticipates that its capital programs will be financed, in part, by
State and public authorities borrowings in 1994-95. The State expects to issue
$374 million in general obligation bonds (including $140 million for purposes
of redeeming outstanding BANs), $140 million in general obligation commercial
paper and up to $69 million in certificates of participation during the State's
1994-95 fiscal year for equipment purchases. Borrowings by public authorities
pursuant to lease-purchase and contractual-obligation financings for capital
programs of the State are projected to total $2.426 billion. Additionally, the
Local Government Assistance Corporation is authorized to provide net proceeds
of up to $315 million during the State's 1994-95 fiscal year.
The State Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and State
economies. Many uncertainties exist in forecasts of both the national and State
economies, including consumer attitudes toward spending, Federal financial and
monetary policies, the availability of credit, and the condition of the world
economy, which could have an adverse effect on the State. There can be no
assurance that the State economy will not experience worse-than-predicted
results in the 1994-95 fiscal year, with corresponding material and adverse
effects on the State's projections of receipts and disbursements.
Owing to these and other factors the State may face substantial potential
budget gaps in future years resulting from a significant disparity between tax
revenues projected from a lower recurring receipts base and the spending
required to maintain State programs at required levels. Any such recurring
imbalance would be exacerbated by the use by the State of nonrecurring
resources to achieve budgetary balance in a particular fiscal year. To correct
any recurring budgetary imbalance, the State would need to take significant
actions to align recurring receipts and disbursements in future fiscal years.
There can be no assurance, however, that the State's action will be sufficient
to preserve budget balances in the then current or future fiscal years.
The State Financial Plan contains actions that provide nonrecurring resources
or savings, as well as actions that impose nonrecurring losses of receipts or
costs. The Division of the Budget believes that the amount of such actions do
not materially affect the underlying financial condition of the State, and
represent less than one-half of one percent of the State's General Fund. This
amount is significantly lower than the amount included in the State Financial
Plans in recent years.
In addition to these nonrecurring actions, the 1994-95 State Financial Plan
reflects the use of $1.026 billion in the positive cash margin carried over
from the prior fiscal year, resources that are not expected to be available in
1995-96.
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Composition of the State Budget. The General Fund is the largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes. In the State's 1994-95 fiscal year, the General Fund is expected to
account for approximately 52 percent of total governmental-fund receipts and 51
percent of total governmental-fund disbursements. Special Revenue Funds receive
the preponderance of the State's Federal grants and other income where the use
is legally restricted to certain purposes. Activity in this fund type is
expected to comprise 39 percent of total government funds receipts and
disbursements in the 1994-95 fiscal year. Three quarters of that activity
relates to Federally-funded programs. Capital Projects Funds finance the
acquisition, construction, or rehabilitation of major capital facilities by the
State, and also account for aid to certain local governments or public
authorities in support of their capital projects. This fund type is expected to
comprise 5 percent of total governmental receipts and 6 percent of total
governmental disbursements in the State's 1994-95 fiscal year. Debt Service
Funds are used for the payment of principal of and interest on long-term debt
and to meet lease-purchase and other contractual-obligation commitments. In the
1994-95 fiscal year, this fund is expected to comprise 4 percent of total
governmental fund receipts and disbursements.
The Debt Service Fund is supported primarily by tax dollars transferred from
the General Fund and seven other funds. In the 1994-95 fiscal year, total
disbursements in this fund type are projected at $2.246 billion, an increase of
$314 million or 16.3 percent.
Local Government Assistance Corporation. In 1990, as part of a state fiscal
reform program, legislation was enacted creating the Local Government
Assistance Corporation ("LGAC"), a public benefit corporation empowered to
issue long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation authorized LGAC to issue its bonds and notes in an amount not in
excess of $4.7 billion (exclusive of certain refunding bonds) plus certain
other amounts. Over a period of years, the issuance of those long-term
obligations, which are to be amortized over no more than 30 years, was expected
to eliminate the need for continued short-term seasonal borrowing. The
legislation also dedicated revenues equal to one-quarter of the four cent State
sales and use tax to pay debt service on these bonds. The legislation also
imposed a cap on the annual seasonal borrowing of the State at $4.7 billion,
less net proceeds of bonds issued by LGAC and bonds issued to provide for
capitalized interest, except in cases where the Governor and the legislative
leaders have certified both the need for additional borrowing and provided a
schedule for reducing it to the cap. If borrowing above the cap is thus
permitted in any fiscal year, it is required by law to be reduced to the cap by
the fourth fiscal year after the limit was first exceeded. This provision
capping the seasonal borrowing was included as a covenant with LGAC's
bondholders in the resolution authorizing such bonds.
To date, LGAC has issued bonds to provide net proceeds of $3.856 billion and
has been authorized to issue its bonds to provide net proceeds of up to an
additional $315 million during the State's 1994-95 fiscal year. The impact of
this borrowing, together with the availability of certain cash reserves, is
that, for the first time in nearly 35 years, the State's 1994-95 Financial Plan
includes no short-term seasonal borrowing.
Financing Activities. State financing activities include general obligation
debt of the State and State-guaranteed debt, to which the full faith and credit
of the State has been pledged, as well as lease-purchase and contractual-
obligation financings, moral obligation financings and other financings through
public authorities and municipalities, where the State's obligation to make
payments for debt service is generally subject to annual appropriation by the
Legislature.
As of March 31, 1994, the total amount of outstanding general obligation debt
was approximately $5.370 billion, including $224 million in BANs, the total
amount of debt issued by the LGAC was approximately $4.462 billion, the total
amount of moral obligation debt was approximately $7.261 billion and $16.604
billion of bonds issued primarily in connection with lease-purchase and
contractual-obligation financings of State capital programs were outstanding.
Public Authorities. The fiscal stability of the State is related, in part, to
the fiscal stability of its public authorities. Public authorities are not
subject to the constitutional restrictions on the incurrence of debt which
apply to the State itself, and may issue bonds and notes within the amounts,
and as otherwise restricted by,
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their legislative authorization. As of September 30, 1993, the latest data
available, there were 18 public authorities that had outstanding debt of $100
million or more and the aggregate outstanding debt, including refunding bonds,
of these 18 public authorities was $63.5 billion. The State's access to the
public credit markets could be impaired and the market price of its outstanding
debt may be adversely affected, if any of its public authorities were to
default on their respective obligations.
Ratings. On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from A1 to A. On March 26, 1990, Standard
& Poor's changed its ratings of all of the State's outstanding general
obligation bonds from AA- to A. On January 13, 1992, Standard & Poor's changed
its ratings of all of the State's outstanding general obligation bonds from A
to A-. Ratings reflect only the respective views of such organizations, and an
explanation of the significance of such ratings must be obtained from the
rating agency furnishing the same. There is no assurance that a particular
rating will continue for any given period of time or that any such rating will
not be revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect
on the market price of the State Municipal Securities in which the New York
Fund invests.
Litigation. The State is a defendant in numerous legal proceedings including,
but not limited to, claims asserted against the State arising from alleged
torts, alleged breaches of contracts, condemnation proceedings and other
alleged violations of State and Federal laws. Included in the State's
outstanding litigation are a number of cases challenging the constitutionality
or the adequacy and effectiveness of a variety of significant social welfare
programs primarily involving the State's mental hygiene programs. Adverse
judgments in these matters generally could result in injunctive relief coupled
with prospective changes in patient care which could require substantial
increased financing of the litigated programs in the future.
On May 31, 1988 the Supreme Court of the United States took jurisdiction of a
claim of the State of Delaware that certain unclaimed dividends, interest and
other distributions made by issuers of securities and held by New York-based
brokers incorporated in Delaware for beneficial owners who cannot be identified
or located, had been, and were being, wrongfully taken by the State of New York
pursuant to New York's Abandoned Property Law (State of Delaware v. State of
New York, United States Supreme Court). Texas intervened, claiming a portion of
such distributions and similar property taken by the State of New York from New
York-based banks and depositories incorporated in Delaware. All other states
and the District of Columbia moved to intervene. In a decision dated March 30,
1993, the United States Supreme Court granted all pending motions of the states
and the District of Columbia to intervene and remanded the case to a Special
Master for further proceedings consistent with the Court's decision. The Court
determined that the abandoned property should be remitted first to the state of
the beneficial owner's last known address, if ascertainable and, if not, then
to the state of incorporation of the intermediary bank, broker or depository.
New York and Delaware have executed a settlement agreement which provides for
payments by New York to Delaware of $35 million in the State's 1993-94 fiscal
year and five annual payments thereafter of $33 million. New York and
Massachusetts have executed a settlement agreement which provides for aggregate
payments by New York of $23 million, payable over five consecutive years. The
claims of the other states and the District of Columbia remain.
In an action commenced on August 6, 1991 (Schulz, et al. v. State of New
York, et al., Supreme Court, Albany County), plaintiffs challenge the
constitutionality of two bonding programs of the New York State Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991. Plaintiffs
argue that cooperative highway contractual agreements and service contracts to
be entered into by the State and the Thruway Authority in connection with the
bonding programs constitute State debt and a gift or loan of State credit in
violation of Sections 8 and 11 of Article VII and Section 5 of Article X of the
State Constitution. In addition, plaintiffs challenge the fiscal year 1991-92
Judiciary budget as having been enacted in violation of Sections 1 and 2 of
Article VII of the State Constitution. The defendants' motion to dismiss the
action on procedural grounds was denied by order of the Supreme Court dated
January 2, 1992. By order dated November 5, 1992, the Appellate Division, Third
Department, reversed the order of the Supreme Court and granted defendants'
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motion to dismiss on grounds of standing and mootness. By order dated September
16, 1993, on motion to reconsider, the Appellate Division, Third Department,
ruled that plaintiffs have standing to challenge the bonding program authorized
by Chapter 166 of the Laws of 1991. The action is pending in Supreme Court,
Albany County.
In Schulz, et al. v. State of New York, et al. (Supreme Court, Albany County,
commenced May 24, 1993), plaintiffs challenge, among other things, the
constitutionality of, and seek to enjoin, certain highway, bridge and mass
transportation bonding programs of the New York State Thruway Authority and the
Metropolitan Transportation Authority authorized by Chapter 56 of the Laws of
1993. Plaintiffs contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and the Metropolitan Transportation Authority violates Sections 8 and
11 of Article VII and Section 5 of Article X of the State Constitution and due
process provisions of the State and Federal Constitutions. By order dated July
27, 1993, the Supreme Court granted defendants' motions for summary judgment,
dismissed the complaint and vacated the temporary restraining order previously
issued. By decision dated October 21, 1993, the Appellate Division, Third
Department, affirmed the judgment of the Supreme Court. By decision dated June
30, 1994, the Court of Appeals affirmed the judgment of the Appellate Division.
Plaintiffs' motion for reargument before the Court of Appeals is pending. As a
result of the decision by the Court of Appeals, the New York State Thruway
Authority expects that it will issue bonds pursuant to Chapter 56 in August of
1994.
In 1990 three actions were commenced in Supreme Court, Albany County
(McDermott, et al. v. Regan, et al.; Puma, et al. v. Regan, et al.; and Guzdek,
et al. v. Regan, et al.) challenging the constitutionality of legislation,
enacted during the 1990 Legislative session, which changed the actuarial
funding method for determining State and local contributions to the New York
State and Local Employees' Retirement Systems ("ERS"), resulting in initial
reductions in such contributions. In a decision dated August 10, 1992, the
Supreme Court, Albany County, estimating the reduction in State and local
contributions for the 1991 fiscal year at approximately $800 million, granted
summary judgment to plaintiffs in all three actions. On July 1, 1993 the
Appellate Division, Third Department affirmed. By opinion dated November 16,
1993, the Court of Appeals affirmed the order of the Appellate Division. As a
result of the decision by the Court of Appeals, in the State's 1994-95 fiscal
year the State Comptroller will return to the pre-1990 actuarial funding
method, using a four-year phase-in in the ERS, with State contributions to the
ERS capped at a percentage of payroll that increases each year during the
phase-in.
Adverse developments in these proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced State
Financial Plan. The State believes that the State Financial Plan includes
sufficient reserves for the payment of judgements that may be required during
the 1994-95 fiscal year. There can be no assurance, however, that an adverse
decision in any of these proceedings would not exceed the amount of the State
Financial Plan reserves for the payment of judgements and, therefore, could
affect the ability of the State to maintain a balanced State Financial Plan.
Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the State's 1994-95 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1994-95 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the State Legislature to assist Yonkers could result in allocation
of State resources in amounts that cannot yet be determined.
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APPENDIX H
ECONOMIC AND FINANCIAL CONDITIONS IN NORTH CAROLINA
The State of North Carolina (the "State") has two major operating funds: the
General Fund and the Highway Fund. In addition, the 1989 General Assembly
created the Highway Trust Fund to provide funding for a major highway
construction program. The State derives most of its revenue from taxes,
including individual income tax, corporation income tax, sales and use taxes,
corporation franchise tax, alcoholic beverage tax, insurance tax, inheritance
tax, tobacco products tax, soft drink tax and intangible personal property tax.
The State receives other non-tax revenues which are also deposited in the
General Fund. The most important are federal funds collected by State agencies,
university fees and tuitions, interest earned by the State Treasurer on
investments of General Fund moneys and revenues from the judicial branch. The
proceeds from the motor fuel tax, highway use tax and motor vehicle license tax
are deposited in the Highway Fund and the Highway Trust Fund.
During the 1989-92 budget years, growth of North Carolina tax revenues slowed
considerably, requiring tax increases and budget adjustments, including hiring
freezes and restrictions, spending constraints, changes in timing of certain
collections and payments, and other short-term budget adjustments necessary to
comply with the State's constitutional mandate for a balanced budget. Many
areas of State government were affected. Reductions in capital spending, local
government aid, and the use of the budget stabilization reserve, combined with
other budget adjustments, brought the budget into balance. Tax increases in the
fiscal 1992 budget included a $.01 increase in the State sales tax and
increases in the personal and corporate income tax rates, as well as increases
in the tax on cigarettes and alcohol, among other items.
Fiscal year 1992 ended with a positive fund balance of approximately $164.8
million. By law, $41.2 million of such positive fund balance was required to be
reserved in the General Fund of North Carolina as part of a "Budget
Stabilization Fund," leaving an unrestricted General Fund balance at June 30,
1992 of $123.6 million. Fiscal year 1993 ended with a positive General Fund
balance of approximately $537.3 million. Of this amount, $134.3 million was
reserved in the Budget Stabilization Fund and $57 million was reserved in a
Reserve for Repair and Renovation of State Facilities, leaving an unrestricted
General Fund balance at June 30, 1993 of $346 million.
For the 1993-95 biennium budget, the General Assembly reduced departmental
operating requirements by $120.3 million for fiscal 1994 and $122.7 million for
fiscal 1995 and authorized continuation funding of $8,327.7 million and
$8,603.4 million for fiscal 1994 and 1995, respectively. The savings reductions
were based on recommendations from the Governor, a Governmental Performance
Audit Committee, and selective savings identified by the General Assembly.
After review of the continuation budget, the General Assembly authorized
funding for planned expansion to existing programs and funded new initiatives
for children, economic development, education, human services, and
environmental programs. Expansion funds of $325.4 million for fiscal 1994 and
$412.9 million for fiscal 1995 were approved. The General Assembly provided
$257.7 million for one-time operating requirements in fiscal 1994, with the
largest area of funding for economic development initiatives. In addition to
addressing the operating requirements, the General Assembly authorized $166
million for capital improvements spending and initiated a Reserve for Repair
and Renovation of State Facilities.
The General Fund budget for the 1993-95 biennium projected revenue to
increase 1.9% in 1993-94 and to increase 5.2% in 1994-95. The Highway Fund
budget projected revenue to increase 5.3% in 1993-94 and to increase 0.7% in
1994-95. The Highway Trust Fund budget projected revenue to decrease 2.4% in
1993-94 and increase 3.3% in 1994-95.
In July 1994, the General Assembly reviewed and adjusted the 1994-95 budget
to add a $1.2 billion supplement, which included, among other appropriations,
pay raises for teachers and other State employees, increased funding for
education and human services, capital expenditures for the University of North
Carolina System, and the transfer of an additional $214 million to various
savings reserves.
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The State budget is based upon a number of existing and assumed State and
non-State factors, including State and national economic conditions,
international activity, Federal government policies and legislation and the
activities of the State's General Assembly. Such factors are subject to change
which may be material and affect the budget.
During recent years the State has moved from an agricultural to a service and
goods-producing economy. According to the North Carolina Employment Security
Commission (the "Commission"), in May 1993, the State ranked tenth among the
states in non-agricultural employment and eighth in manufacturing employment.
The Commission estimated the State's seasonally adjusted unemployment rate in
May 1994 to be 4.0% of the labor force, as compared with an unemployment rate
of 5.1% nationwide. As part of its 1993-95 budget, the General Assembly
provided major funding for economic initiatives in an effort to create
additional jobs.
In October 1993, the State issued a total of $194.7 million general
obligation bonds (consisting of $87.5 million Prison and Youth Services
Facilities Bonds, $61 million Public Improvement Refunding Bonds, $30.2 million
Highway Refunding Bonds, and $16 million Clean Water Refunding Bonds). An
additional $67.5 million general obligation bonds (Prison and Youth Services
Facilities Bonds) were issued in November 1993. On November 2, 1993, a total of
$740 million general obligation bonds (consisting of $310 million University
Improvement Bonds, $250 million Community College Bonds, $145 million Clean
Water Bonds, and $35 million State Parks Bonds) were approved by the voters of
the State. Pursuant to this authorization, the State issued $400 million
general obligation bonds (Capital Improvement Bonds) in January 1994. The
proceeds of these Capital Improvement Bonds may be used for any purpose for
which the proceeds of the University Improvement Bonds, Community College
Bonds, and State Parks Bonds may be used (none of such proceeds may be used for
Clean Water purposes). The offering of the remaining $340 million of these
authorized bonds is anticipated to occur over the next two years.
Currently, Moody's Investors Service, Inc., Standard & Poor's Corporation,
and Fitch Investors Service, Inc. rate North Carolina general obligation bonds
Aaa, AAA, and AAA, respectively.
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APPENDIX I
ECONOMIC AND FINANCIAL CONDITIONS IN OHIO
The State of Ohio (the "State") operates on a fiscal biennium for its
appropriations and expenditures. The State finances the majority of its
operations through the State's General Revenue Fund (the "GRF"). The GRF is
funded mainly by the State's personal income tax, sales and use tax, various
other taxes and grants from the Federal government. The State is precluded by
law from ending a fiscal year or a biennium in a deficit position. In 1981 the
State created the Budget Stabilization Fund ("BSF") for purposes of cash
management.
For the 1984-85, 1986-87, 1988-89, 1990-91 and 1992-93 bienniums, the GRF
ending fund balances were $297,600,000, $226,300,000, $475,100,000,
$135,365,000 and $111,013,000, respectively. Ending cash balances in the GRF
for the 1984-85, 1986-87, 1988-89, 1990-91 and 1992-93 bienniums were
$849,900,000, $632,700,000, $784,268,000, $326,576,000 and $393,634,000,
respectively. The GRF ending fund balance and cash balance for the Fiscal Year
ending June 30, 1994 was $560,300,000 and $841,900,000, respectively.
Based on year-to-date financial results and a then current economic forecast
for the State, both in light of the continuing uncertain nationwide economic
situation, the State's Office of the Budget and Management ("OBM") projected a
Fiscal Year 1992 imbalance in GRF resources and expenditures which was
subsequently timely addressed. As an initial action, the Governor of the State
ordered most State agencies to reduce GRF appropriations spending in the final
six months of Fiscal Year 1992 by a total of approximately $184,000,000. (Debt
service and lease rental obligations were not affected by the order.) Then,
with General Assembly authorization, in June 1992 the entire $100,400,000 BSF
balance and additional amounts from certain other funds were transferred to the
GRF. Other administration revenue and spending actions resolved the remaining
GRF imbalance for Fiscal Year 1992.
As a first step toward addressing a projected Fiscal Year 1993 GRF shortfall,
then estimated by OBM at approximately $520,000,000, the Governor ordered,
effective July 1, 1992, selected reductions in Fiscal Year 1993 GRF
appropriations spending totaling $300,000,000. Those selected GRF reductions
included appropriations for higher education but expressly excluded
appropriations for debt service (including lease rental appropriations) and for
primary and secondary education. Subsequent executive and legislative actions--
including tax revisions that produced an additional $194,500,000 and additional
appropriations spending reductions totalling approximately $50,000,000--
provided for positive biennium-ending GRF balances and a better basis for
appropriations for the current biennium.
As noted above, the GRF ended the 1992-93 biennium with a fund balance of
$111 million and cash balance of $393.6 million, and the 1994 Fiscal Year with
a fund balance of $560.3 million and a cash balance of $841.9 million. As a
first step toward BSF replenishment, OBM deposited $21 million in the BSF (as
contemplated by current law, and being the amount of the GRF ending balance as
of June 30, 1993 in excess of $90 million), and transferred another $260.3
million to the BSF at the end of Fiscal Year 1994 for a July 1, 1994 balance in
the BSF of $281.3 million.
The General Appropriations Act provides for total GRF biennial expenditures
of approximately $30.7 billion, an increase over those for the 1992-93 fiscal
biennium. Authorized expenditures in Fiscal Year 1994 are 9.2% higher than in
Fiscal Year 1993 and for Fiscal Year 1995 are 6.6% higher than in Fiscal Year
1994. The following are examples of higher authorized GRF biennial expenditures
in major programs: mental health and mental retardation 8.5%; primary and
secondary education 4.1%; human service 15.8%; justice and corrections 31.8%;
and higher education 13.2%.
Necessary GRF debt service appropriations for the entire biennium were
requested in the budget document and incorporated in the related appropriations
bill as introduced and in the versions as passed by the House and the Senate
and in the act as passed and signed.
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Because the schedule of GRF cash receipts and disbursements do not precisely
coincide, temporary GRF cash flow deficiencies may occur in some months of a
Fiscal Year. Statutory provisions provide for effective management of these
temporary GRF cash deficiencies by permitting the adjustment of payment
schedules and the use of a "Total Operating Fund" ("TOF"). The State has not
and does not do external revenue anticipation borrowing.
The TOF includes the total consolidated cash balances, revenues,
disbursements and transfers of the GRF and several other specified funds
(including the BSF, which currently has a zero balance). The TOF cash balance
at June 30, 1994 was $3.1099 billion. Those cash balances are consolidated only
for the purpose of meeting cash flow requirements, and, except for the GRF, a
positive cash balance must be maintained for each discrete fund included in the
TOF. The GRF is permitted to incur a temporary cash deficiency by drawing upon
the available consolidated cash balance in the TOF. The amount of that
permitted GRF cash deficiency at any time is limited to 10% of GRF revenues for
the then preceding Fiscal Year (raised from 7% by December 1992 legislation in
order to better avoid the need for even short delays in payments).
Cash flow deficiencies occurred in ten months of Fiscal Year 1992, requiring
a drawdown of $743.14 million from the TOF and in ten months of Fiscal Year
1993, requiring a drawdown of $768.64 million from the TOF.
All cash flow deficiencies have been within the TOF limitations discussed
above. Often, the GRF balancing steps described above ameliorated deficiencies
in later months of a Fiscal Year, significantly assisting in producing the
projected positive year-end GRF balances. OBM projects GRF cash flow
deficiencies in ten months of the current Fiscal Year.
The State's Constitution directs or restricts the use of certain revenues.
Highway fees and excise taxes, including gasoline taxes, are limited in use to
highway-related purposes including the payment of interest on certain
securities issued for purposes related to the State's highways. Not less than
50% of the receipts from State income and estate and inheritance taxes must be
returned to the political subdivisions and school districts where such receipts
originated. Since 1987 all net State lottery profits are allocated to
elementary, secondary, vocational and special education program purposes.
Litigation contesting the State's system of school funding has been filed in
two county common pleas courts (with efforts being made to move one to federal
court). One case, brought by the Board of Education of the Cleveland City
School District is stated to be in the nature of a class action on behalf of
all similarly situated State school districts. Named as defendants in both
cases are the State and several State agencies and officials.
Among other relief sought, the complaints essentially request a declaratory
judgment that the State's statutory system of funding public elementary and
secondary education violates various provisions of the Ohio Constitution; one
case also raises federal constitutional issues. As a remedy, the complaints
request decrees as may be required to compel the State and the General Assembly
to devise and enact a constitutionally acceptable system of school funding.
On July 1, 1994, the trial court in one of the cases ruled in favor of the
plaintiffs and ordered the State to revise its method of school funding; the
Governor has indicated that the State will appeal the trial court's decision.
Since one of these cases has not been tried, and since in any case the judgment
of the trial court is subject to appeal, it is not possible at this time to
state whether the suit will be successful or should plaintiffs prevail, the
effect on the State's present school funding system, including the amount of
and criteria for State basic aid allocations to school districts.
In prior litigation, the Ohio Supreme Court in 1979 upheld what was
essentially the then existing school funding system against similar claims that
the school funding system violated provisions of the Ohio Constitution. It
cannot be predicted if this prior decision will be determinative of any or all
of the issues raised in this new litigation.
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Federal courts have ruled that the State shared joint liability with the
local school districts for segregation in public schools in Cincinnati,
Cleveland, Columbus, Dayton and Lorain. Subsequent trial court orders directed
that remedial costs be shared equally by the State and the respective local
districts. For that purpose $74,164,968 was appropriated in the preceding
biennium and $70,000,000 for the current biennium, and $77,000,000 is proposed
for the next biennium.
The State's Constitution expressly provides that the State General Assembly
has no power to pass laws impairing the obligations of contracts.
At the present time, the State does not levy any ad valorem taxes on real or
tangible personal property. Local taxing districts and political subdivisions
currently levy such taxes. The State's Constitution limits the amount of the
aggregate levy of ad valorem property taxes, without a vote of the electors or
municipal charter provision, to 1% of true value in money. Statutes also limit
the amount of the aggregate levy, without a vote or charter provision.
Economic activity in the State, as in many other industrially developed
states, tends to be more cyclical than in some other states and in the nation
as a whole. Although manufacturing (including auto-related manufacturing)
remains an important part of the State's economy, the greatest growth in Ohio
employment in recent years, consistent with national trends, has been in the
nonmanufacturing area. Ohio ranked fourth in the nation in 1990 personal income
derived from manufacturing. That income was 20.9% of total Ohio personal
income, compared to 17.6% of that total being from "services". In addition,
agriculture and "agribusiness" continue as important elements of the Ohio
economy. Ohio continues as a major "headquarters" state. Of the top 500
industrial corporations (based on 1992 sales) as reported in 1993 by Fortune
magazine, 33 had headquarters in Ohio, placing Ohio tied for fourth as a
"headquarters" state for industrial corporations; and of the top 500 service
corporations, 24 had headquarters in Ohio, placing the State sixth as a
"headquarters" state for service corporations. Payroll employment in Ohio, in
the diversifying employment base, showed a steady upward trend until 1979, then
decreased until 1982. It reached an all-time high in the summer of 1992 after a
slight decrease early in 1991 and has since decreased slightly. Growth in
recent years has been concentrated among nonmanufacturing industries, with
manufacturing employment tapering off since its 1969 peak. Nonmanufacturing
industries now employ more than three-fourths of all payroll workers (non-
agricultural) in Ohio. Historically, the average monthly unemployment rate in
Ohio has been higher than the average figures for the United States, although
for 1993 the average monthly unemployment rate in Ohio was 6.5% as compared to
a national average of 6.8% in the United States.
Ohio's 1990 decennial census population of over 10,840,000 indicated a 0.5%
population growth since 1980 and Ohio as ranking seventh among the states in
population. In 1980 it ranked sixth. The State's 1991 population was
10,939,000.
Currently, the State's general obligation bonds are rated Aa, AA and AA by
Moody's Investors Service, Inc., Standard & Poor's Corporation and Fitch
Investors Service, Inc., respectively.
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APPENDIX J
ECONOMIC AND FINANCIAL CONDITIONS IN PENNSYLVANIA
Many factors affect the financial condition of the Commonwealth of
Pennsylvania (the "Commonwealth") and its political subdivisions, such as
social, environmental and economic conditions, many of which are not within the
control of such entities. Pennsylvania and certain of its counties, cities and
school districts and public bodies have from time to time in the past
encountered financial difficulties which have adversely affected their
respective credit standings. Such difficulties could affect outstanding
obligations of such entities, including obligations held by the Fund. For
example, the financial condition of the City of Philadelphia had impaired its
ability to borrow and has resulted in its obligations generally being
downgraded by the major rating services (Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("Standard & Poor's") and Fitch
Investors Service, Inc. ("Fitch")) in some cases below investment grade.
The General Fund, the Commonwealth's largest fund, receives all tax revenues,
non-tax revenues and federal grants and entitlements that are not specified by
law to be deposited elsewhere. The majority of the Commonwealth's operating and
administrative expenses are payable from the General Fund. Debt service on all
bonded indebtedness of the Commonwealth, except that issued for highway
purposes or for the benefit of other special revenue funds, is payable from the
General Fund. For its fiscal year ended June 30, 1991, the Pennsylvania General
Fund experienced an $861.2 million operating deficit resulting in a fund
balance deficit of $980.9 million at June 30, 1992 (determined on a generally
accepted accounting principles basis). On a budgetary basis, the Commonwealth
experienced a budget deficit of $453.6 million for the fiscal year ended June
30, 1991. For its fiscal year ended June 30, 1992, the General Fund recorded a
$1.1 billion operating surplus (determined on a generally accepted accounting
principals basis), resulting in an increase of the fund balance to $87.5
million. Tax increases enacted as a part of the fiscal 1992 budget are
estimated to have increased receipts for the fiscal 1992 year by over $2.7
billion. The budget revenue estimates for fiscal 1992 were revised downward
during the fiscal year to reflect continued recessionary economic activity.
Cost reductions were implemented during fiscal 1992 which contributed to $296.8
million of appropriation lapses. These appropriation lapses contributed to the
$8.8 million budget surplus at June 30, 1992 (determined on a budgeting basis).
The General Fund balance increased by $611.4 million during fiscal 1993 and
the Fund balance at June 30, 1993 was $698.9 million (determined on a generally
accepted accounting principles basis). On a budgetary basis, the 1993 fiscal
year closed with revenues higher than anticipated and expenditures about as
projected, resulting in an ending unappropriated balance surplus of $242.3
million. Cash revenues totalled $14.633 billion (representing less than a 1%
increase over revenues for the 1992 fiscal year). A reduction in the personal
income tax rate in July, 1992 and the one-time receipt of revenues from
retroactive corporate tax increases in fiscal 1992 were responsible, in part,
for the low revenue growth in fiscal 1993. Appropriations less lapses totalled
an estimated $13.870 billion representing a 1.1% increase over fiscal 1992
expenditures. The low growth in spending is a consequence of a low rate of
revenue growth, significant one-time expenses during fiscal 1992, increased tax
refund reserves to cushion against adverse decisions on pending litigations,
and the receipt of federal funds for expenditures previously paid out of
Commonwealth funds.
The enacted 1994 fiscal year budget provides for $14.995 billion of
appropriations of Commonwealth funds. The budget estimates revenue growth of
3.7% over fiscal 1993 actual revenues. The revenue estimate is based on an
expectation of continued economic recovery, but at a slow rate. In February,
1994, the Governor recommended $46.4 million of additional appropriations,
raising total appropriations to $15,041.7 million. Through May, 1994, revenues
are slightly above estimate. In June 1994 with the passage of the 1995 fiscal
year budget, supplemental appropriations in the amount of $69.6 million were
enacted providing additional appropriated funds for various education and
public welfare programs.
The fiscal 1995 budget was approved by the Governor on June 16, 1994 and
provides for $15,950.9 million of appropriations, an increase of 3.2% over
appropriations for fiscal 1994. The budget includes tax
J-1
<PAGE>
reductions totaling an estimated $166.4 million including an increase in the
dependent exemption for low income working families, a reduction in the
corporate net income tax rate from 12.25% to 9.99% to be phased in over 3 years
and reinstatement of a corporate net income tax net operating loss provision to
be phased in over 3 years with a $500,000 annual cap. Several other changes
were also made to the sales tax, the inheritance tax and the capital
stock/franchise tax.
The economy of Pennsylvania is composed of many diverse sectors including
manufacturing, mining, agriculture, services and wholesale and retail trade.
Certain industries traditionally strong in the Commonwealth, such as coal,
steel and railways, have declined and account for a decreasing share of total
employment. Service industries (including trade, health care, education and
finance) have grown, however, contributing increasingly to Pennsylvania's
economy and since 1985 have exceeded the manufacturing section as the largest
single source of employment.
Nonagricultural employment in the Commonwealth declined by 5.1% during the
recessionary period from 1980 to 1983. In 1984, the declining trend was
reversed as employment grew by 2.9% over 1983 levels. From 1983 to 1990,
commonwealth employment continued to grow each year, increasing an additional
14.3 percent. For the last 3 years, employment in the Commonwealth has declined
1.2%. The unemployment rate in Pennsylvania in March, 1994 stood at a
seasonally adjusted rate of 6.8%. The seasonally adjusted national unemployment
rate for March, 1994 was 6.5%.
The current Constitutional provisions pertaining to Commonwealth debt permit
the issuance of the following types of debt: (i) debt to suppress insurrection
or rehabilitate areas affected by disaster, (ii) electorate approved debt,
(iii) debt for capital projects subject to an aggregate debt limit of 1.75
times the annual average tax revenues of the preceding five fiscal years and
(iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Debt service on all bonded indebtedness of Pennsylvania, except that issued
for highway purposes or the benefit of other special revenue funds, is payable
from Pennsylvania's General Fund, which receives all Commonwealth revenues that
are not specified by law to be deposited elsewhere. As of June 30, 1993, the
Commonwealth had $5.039 billion of bonded indebtedness outstanding.
Other state-related obligations include "moral obligations". Moral obligation
indebtedness may be issued by the Pennsylvania Housing Finance Agency ("PHFA"),
a state-created agency which provides financing for housing for lower and
moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of
Philadelphia to, among other things, acquire and prepare various sites for use
as intermediate care facilities for the mentally retarded. PHFA's bonds, but
not its notes, are partially secured by a capital reserve fund required to be
maintained by PHFA in an amount equal to the maximum annual debt service on its
outstanding bonds in any succeeding calendar year. PHFA is not permitted to
borrow additional funds as long as any deficiency exists in the capital reserve
fund.
Certain state-created agencies have statutory authorization to incur debt for
which state appropriations to pay debt service thereon is not required. The
debt of these agencies is supported by assets of, or revenues derived from the
various projects financed and is not an obligation of the Commonwealth. Some of
these agencies, however, are indirectly dependent on Pennsylvania
appropriations. In addition, the Commonwealth maintains pension plans covering
state employees, public school employees and employees of certain state-related
organizations. The total unfunded actuarial accrued liability under these
pension plans for their fiscal years ended in 1993 was $3.30 billion.
The City of Philadelphia is the largest city in the Commonwealth with an
estimated population of 1,585,577 according to the 1990 Census. For the fiscal
year ending June 30, 1991, Philadelphia experienced a cumulative General Fund
balance deficit of $153.5 million. The audited findings for the fiscal year
ending June 30, 1992 placed the cumulative General Fund balance deficit at
$224.9 million.
J-2
<PAGE>
Legislation providing for the establishment of Pennsylvania Intergovernmental
Cooperation Authority ("PICA") to assist Philadelphia in remedying fiscal
emergencies was enacted by the Pennsylvania General Assembly and approved by
the Governor in June, 1991. PICA is designed to provide assistance through the
issuance of funding debt to liquidate budget deficits and to make factual
findings and recommendations to Philadelphia concerning its budgetary and
fiscal affairs. An intergovernmental cooperation agreement between Philadelphia
and PICA was approved by City Council on January 3, 1992, and approved by the
PICA Board and signed by the Mayor on January 8, 1992. At this time,
Philadelphia is operating under a 5-year fiscal plan approved by PICA on April
6, 1992. Full implementation of the 5-year plan was delayed due to labor
negotiations which were not completed until October 1992. The terms of the new
labor contracts are estimated to cost approximately $144.0 million more than
what was budgeted in the original 5-year plan. An amended 5-year plan was
approved by PICA in May 1993. The audit findings show a surplus of
approximately $3 million for the fiscal year ending June 30, 1993. The fiscal
1994 budget projects no deficit for the year ending June 30, 1994. The Mayor's
latest update of the 5-year financial plan was approved by PICA on May 2, 1994.
In June 1992, PICA issued $474,555,000 of its Special Tax Revenue Bonds to
provide financial assistance to Philadelphia and to liquidate the cumulative
General Fund balance deficit. In July 1993, PICA issued $643,430,000 of Special
Tax Revenue Bonds to refund certain general obligation bonds of the city and to
fund additional capital projects.
There is various litigation pending against the Commonwealth, its officers
and employees. An adverse decision in one or more of these cases could
materially affect the Commonwealth's governmental operations. One such
litigation--Fidelity Bank v. Commonwealth--involves a taxpayer's challenge to
the constitutionality of the Amended Bank Shares Tax signed into law in 1989.
Prior to its enactment, the two predecessor taxes on banks had been ruled
unconstitutional. The bank shares tax in effect prior to 1983 was held to be
unconstitutional because it included in the taxable base the value represented
by federal obligations. In response, the Pennsylvania legislature enacted a
single excise tax which was levied on banks to recover the refunds owing as a
result of the ruling that the bank shares tax was unconstitutional. The single
excise tax was subsequently held unconstitutional and the Amended Bank Shares
Tax was enacted. The new tax, which revised the bank shares tax by adjusting
the tax base and increased the tax rate, provided additional revenues to the
Commonwealth during the fiscal years 1989 through 1990 sufficient to meet the
refund liabilities resulting from the determination that the prior bank shares
tax and single excise tax were unconstitutional. The refunds to which
institutions were entitled as a result of those holdings were given in the form
of credits against the 1989 Amended Bank Shares Tax. Fidelity Bank challenged
this new statutory scheme.
On July 7, 1994, the Pennsylvania Commonwealth Court held that the 1989
Amended Bank Shares Tax was constitutional and that it was proper for the
Commonwealth to credit the tax refunds to which taxpayers were due against the
obligation under the new tax. The Court also held that a new bank credit which
had been a part of the 1989 legislation (to provide relief to new banks which
had not been entitled to refunds under the prior taxes) was unconstitutional
and invalidated that credit. The taxpayer has indicated that it will appeal the
decision of the Commonwealth Court to the Pennsylvania Supreme Court, which
appeal is a matter of right under Pennsylvania law. A decision adverse to the
Commonwealth in the Fidelity Bank litigation potentially exposes the
Commonwealth to an estimated $1.225 billion tax refund through April, 1994,
plus appropriate statutory interest.
Currently, Pennsylvania general obligation bonds are rated AA- by Standard &
Poor's and Fitch, and A1 by Moody's. There can be no assurance that the
economic conditions on which these ratings are based will continue or that
particular bond issues will not be adversely affected by changes in economic or
political conditions.
J-3
<PAGE>
APPENDIX K
INFORMATION CONCERNING MUNICIPAL SECURITIES
A. DESCRIPTION OF MUNICIPAL SECURITIES
Municipal 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 of 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. Such obligations are included within the term
Municipal Securities if the interest paid thereon is exempt from Federal income
tax.
The two principal classifications of Municipal Securities are "general
obligation" bonds 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 repayment of principal and the payment of 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 repayment of the
principal of and the payment of interest on such industrial revenue bonds
depends solely on the ability of the user of the facilities 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 Fund's
portfolio may 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 a state or municipality.
Yields on Municipal Securities are dependent on a variety of factors,
including the general condition of the money market and of the municipal bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. The ability of the Fund to achieve its investment
objective is also dependent on the continuing ability of the issuers of the
Municipal Securities in which the Fund invests to meet their obligations for
the payment of interest and the repayment of principal when due. There are
variations in the risks involved in holding Municipal Securities, both within a
particular classification and between classifications, depending on numerous
factors. Furthermore, the rights of holders of Municipal Securities and the
obligations of the issuers of such Municipal 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 Municipal 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 Municipal Securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the ability of the Fund to pay
"exempt-interest dividends" would be affected adversely and the Fund would re-
evaluate its investment objective and policies and consider changes in its
structure. See "Taxes".
B. RATINGS OF MUNICIPAL SECURITIES
MUNICIPAL NOTES AND SHORT-TERM TAX-EXEMPT COMMERCIAL PAPER
Commercial paper with the greatest capacity for timely payment is rated A by
Standard & Poor's Corporation ("Standard & Poor's"). Issues within this
category are further redefined with designations 1, 2 and 3 to indicate the
relative degree of safety; A-1, the highest of the three, indicates the degree
of safety
K-1
<PAGE>
regarding timely payment is strong; issues that possess extremely strong safety
characteristics will be denoted with a plus (+) sign; A-2 indicates that
capacity for timely repayment is satisfactory. A Standard & Poor's rating with
respect to certain municipal note issues with a maturity of less than three
years reflects the liquidity concerns and market access risks unique to notes.
SP-1, the highest note rating, indicates a very strong, or strong, capacity to
repay principal and pay interest. Issues that possess overwhelming safety
characteristics will be given an SP-1 designation. SP-2, the second highest
note rating, indicates a satisfactory capacity to repay principal and pay
interest.
Moody's Investors Service, Inc. ("Moody's") employs the designations of
Prime-1, Prime-2 and Prime-3 with respect to commercial paper to indicate the
relative capacity of the rated issuers (or related supporting institutions) 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. The two highest ratings of Moody's for short-term notes and VRDOs are
MIG1/VMIG1 and MIG2/VMIG2; MIG1/VMIG1 denotes "best quality", enjoying "strong
protection by established cash flows" and MIG2/VMIG2 denotes "high quality"
with margins of protection that are ample although not so large as MIG1/VMIG1.
Fitch Investors Service, Inc. ("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.
MUNICIPAL BONDS
Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree. A
Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
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 the
numerical modifier 1 to the classification Aa through B to indicate that
Moody's believes the issue possesses the strongest investment attributes in its
rating category. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
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 and prospective financial
condition and operative performance of the issuer and of any guarantor, as well
as the economic and political 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.
K-2
<PAGE>
CMA ARIZONA MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Arizona Municipal Money Fund of
CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of CMA
Arizona Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1994, the related statements
of operations for the year then ended and changes in net assets
and the financial highlights for the year then ended and for
the period February 8, 1993 (commencement of operations) to
March 31, 1993. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian and broker. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of CMA Arizona Municipal Money Fund of CMA
Multi-State Municipal Series Trust as of March 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA ARIZONA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Arizona-- Arizona Educational Loan Marketing Corp., Educational Loan Revenue Bonds,
91.8% VRDN, AMT (a):
$2,600 Series A, 2.35% due 3/01/2015 $ 2,600
2,700 Series A, 2.35% due 12/01/2020 2,700
1,100 Series D, 2.50% due 12/01/2008 1,100
Arizona Health Facilities Authority Revenue Bonds (Arizona Voluntary Hospital
Federation), VRDN (a):
1,150 Series A, 2.25% due 10/01/2015 1,150
795 Series B, 2.25% due 10/01/2015 795
l,000 Arizona State Transportation Board, Highway Revenue Bonds, 7.10% due
7/01/1994 1,010
1,500 Casa Grande, Arizona, IDA, Revenue Bonds (Mayville Project), VRDN, 2.40%
due 7/01/2015 (a) 1,500
350 Flagstaff, Arizona, IDA, IDR (W.L. Gore & Associates), 2.70% due 6/07/1994 350
1,900 Glendale, Arizona, IDA, Hospital Revenue Bonds (Flexible Dem-West Valley
Camelback), VRDN, 2.20% due 11/01/2011 (a) 1,900
870 Maricopa County, Arizona, IDA, Health Facilities Revenue Bonds (Catholic H.C.
West), Series A, 3% due 7/01/1994 870
480 Maricopa County, Arizona, IDA, Health Facilities Revenue Refunding Bonds
(Catholic Healthcare), Series A, 3% due 7/01/1994 481
200 Maricopa County, Arizona, Pollution Control Corp., IDA, PCR (Motorola Inc.
Project), VRDN, 2.20% due 10/01/1995 (a) 200
Maricopa County, Arizona, Pollution Control Corp., PCR, Arizona Public Service
Co. (Palo Verde Project), VRDN (a):
3,000 2.25% due 12/01/2009 3,000
3,600 2.30% due 12/01/2009 3,600
Maricopa County, Arizona, Pollution Control Corp., PCR, Southern California
Edison Co. (Palo Verde Project), CP:
1,500 Series B, 2.55% due 5/19/1994 1,500
500 Series D, 2.60% due 6/17/1994 500
600 Series E, 2.70% due 6/14/1994 600
500 Series G, 2.50% due 4/12/1994 500
2,000 Maricopa County, Arizona, School District Number-11 (Peoria), TAN, 3.375% due
7/29/1994 2,003
1,165 Maricopa County, Arizona, School District Number-40, Refunding Bonds
(Glendale), 3.10% due 7/01/1994 1,165
</TABLE>
<PAGE>
CMA ARIZONA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Arizona $1,000 Maricopa County, Arizona, School District Number-41 (Gilbert), TAN, 3.375% due
(concluded) 7/29/1994 $ 1,002
2,300 Maricopa County, Arizona, TAN, 3.10% due 7/29/1994 2,302
2,000 Mesa, Arizona, Utility Systems Revenue Refunding Bonds, 8.50% due 7/01/1994 2,029
Mohave County, Arizona, IDA, IDR (Citizens Utilities), AMT, CP:
1,000 2.60% due 6/14/1994 1,000
1,100 2.55% due 6/15/1994 1,100
2,800 2.90% due 6/15/1994 2,800
5,800 Phoenix, Arizona, AMT, DDN, Series 1, 3.25% due 6/01/2016 (a) 5,800
1,650 Pima County, Arizona, IDA, IDR, Refunding (Tucson Retirement Center), VRDN,
1.90% due 1/01/2009 (a) 1,650
4,850 Pima County, Arizona, TAN, Series A, 3.25% due 7/28/1994 4,859
2,500 Pinal County, Arizona, IDA, IDR (Calsonic Inc. Project), VRDN, 2.35% due
12/01/2005 (a) 2,500
1,400 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corp. Project),
VRDN, 2.90% due 12/01/2009 (a) 1,400
1,200 Pinal County, Arizona, IDA, PCR (Newmont), DDN, 2.90% due 12/01/2009 (a) 1,200
Salt River Project, Arizona, Agricultural Improvements and Power Distribution,
Electric System Revenue Bonds, CP:
700 2.70% due 6/14/1994 700
2,000 2.70% due 6/17/1994 2,000
1,500 2.75% due 6/23/1994 1,500
Special Fund of Industrial Community, Arizona, COP, TAN, CP:
2,300 2.40% due 5/02/1994 2,300
500 2.55% due 4/11/1994 500
880 Tempe, Arizona, Refunding Bonds, 4.75% due 7/01/1994 884
1,000 Tempe, Arizona, Union High School District Number 213, Refunding Bonds,
2.80% due 7/01/1994 1,000
1,500 Tucson, Arizona, M/F, IDA, Revenue Refunding Bonds (Lincoln Garden Project),
VRDN, 2.20% due 2/01/2006 (a) 1,500
1,900 Yavapai County, Arizona, IDA, IDR (Citizen Utilities), CP, AMT, 2.80% due
5/19/1994 1,900
Puerto Rico-- 2,500 Commonwealth of Puerto Rico, Goverment Development Bank, Revenue
8.9% Refunding Bonds, VRDN, 2% due 12/01/2015 (a) 2,500
1,000 Commonwealth of Puerto Rico, TRAN, Series A, 3% due 7/29/1994 1,001
3,000 Maritime Shipping Authority of Puerto Rico, CP, 2.60% due 7/21/1994 3,000
Total Investments (Cost--$73,951*)--100.7% 73,951
Liabilities in Excess of Other Assets--(0.7%) (537)
-------
Net Assets--100.0% $73,414
=======
<FN>
(a)The interest rate is subject to change periodically based on certain indexes.
The interest rates shown are the rates in effect at March 31, 1994.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA ARIZONA MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$73,950,776) (Note 1a) $ 73,950,776
Cash 72,772
Interest receivable 451,087
Deferred organization expenses (Note 1d) 27,119
Prepaid registration fees and other assets (Note 1d) 14,708
-------------
Total assets 74,516,462
-------------
Liabilities:
Payables:
Securities purchased $ 1,028,369
Distributor (Note 2) 11,878
Investment adviser (Note 2) 9,036 1,049,283
-------------
Accrued expenses and other liabilities 53,201
-------------
Total liabilities 1,102,484
-------------
Net Assets $ 73,413,978
=============
Net Assers Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 7,341,399
Paid-in capital in excess of par 66,072,595
Accumulated realized capital losses--net (16)
-------------
Net Assets--Equivalent to $1.00 per share based on 73,413,994 shares of beneficial
interest outstanding $ 73,413,978
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA ARIZONA MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 1,335,763
Expenses:
Investment advisory fees (Note 2) $ 269,875
Distribution fees (Note 2) 67,140
Registration fees (Note 1d) 63,585
Professional fees 40,179
Accounting services (Note 2) 33,858
Printing and shareholder reports 22,568
Transfer agent fees (Note 2) 11,369
Amortization of organization expenses (Note 1d) 7,583
Custodian fees 7,170
Pricing fees 3,044
Trustees' fees and expenses 499
Other 426
------------
Total expenses before reimbursement 527,296
Reimbursement of expenses (Note 2) (209,036)
------------
Total expenses after reimbursement 318,260
-------------
Investment income--net 1,017,503
-------------
Net Increase in Net Assets Resulting from Operations $ 1,017,503
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA ARIZONA MUNICIPAL MONEY FUND
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the
Period
For the Year February 8,
Ended 1993++ to
March 31, March 31,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <C> <C>
Operations:
Investment income--net $ 1,017,503 $ 93,333
Realized gain on investments--net -- 216
------------ -------------
Net increase in net assets resulting from operations 1,017,503 93,549
------------ -------------
Dividends and Distributions to Shareholders (Note 1e):
Investment income--net (1,017,503) (93,235)
Realized gain on investments--net (330) --
------------ -------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (1,017,833) (93,235)
------------ -------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 293,866,100 73,587,687
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions (Note 1e) 1,017,845 93,238
------------ -------------
294,883,945 73,680,925
Cost of shares redeemed (262,907,118) (32,343,758)
------------ -------------
Net increase in net assets derived from beneficial interest transactions 31,976,827 41,337,167
------------ -------------
Net Assets:
Total increase in net assets 31,976,497 41,337,481
Beginning of period 41,437,481 100,000
------------ -------------
End of period $ 73,413,978 $ 41,437,481
============ =============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA ARIZONA MUNICIPAL MONEY FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION> For the
Period
For the Year February 8,
The following per share data and ratios have been derived Ended 1993+ to
from information provided in the financial statements. March 31, March 31,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00
------------ ------------
Investment income--net .02 .002
------------ ------------
Total from investment operations .02 .002
------------ ------------
Less dividends:
Investment income--net (.02) (.002)
------------ ------------
Net asset value, end of period $ 1.00 $ 1.00
============ ============
Total Investment Return 1.90% 1.78%*
============ ============
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .47% .33%*
============ ============
Expenses, net of reimbursement .59% .46%*
============ ============
Expenses .98% 1.15%*
============ ============
Investment income--net 1.89% 1.86%*
============ ============
Supplemental Data:
Net assets, end of period (in thousands) $ 73,414 $ 41,437
============ ============
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA ARIZONA MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Arizona Municipal Money Fund (the "Fund") is part of CMA
Multi-State Municipal Series Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end investment management company. The
following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost, which approximates market. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be
adjusted. In the case of a floating rate instrument, the
remaining maturity is the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
withheld) in additional fund shares at net asset value. Dividends
are declared from the total of net investment income, excluding
discounts earned other than original issue discounts. Net
realized capital gains, if any, are normally distributed annually
after deducting prior years' loss carryforward. The Fund may
distribute capital gains more frequently than annually in order
to maintain the Fund's net asset value at $1.00 per share.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets, at the following
annual rates: 0.50% of the first $500 million of average daily
net assets; 0.425% of average daily net assets in excess of $500
million but not exceeding $1 billion; and 0.375% of average daily
net assets in excess of $1 billion. For the year ended March 31,
1994, FAM earned fees of $269,875, of which $209,036 was
voluntarily waived.
The most restrictive annual expense limitation requires that the
adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed in any fiscal year
2.5% of the Fund's first $30 million of average daily
<PAGE>
net assets,
2.0% of the Fund's next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess thereof. No
fee payment will be made to the Investment Adviser during any
year which will cause such expenses to exceed the pro rata
expense limitation at the time of such payment.
CMA ARIZONA MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of average daily net assets of
the Fund. The distribution fee is to compensate MLPF&S financial
consultants and other directly involved branch office personnel
for selling shares of the Fund and for providing direct personal
services to shareholders. The distribution fee is not
compensation for the administrative and operational services
rendered to the Fund by MLPF&S in processing share orders and
administering shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest
The number of shares purchased and redeemed during the period
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
<PAGE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA California Municipal Money Fund of
CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of CMA
California Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1994, the related statements of
operations for the year then ended and changes in net assets
for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of CMA California Municipal Money Fund of CMA
Multi-State Municipal Series Trust as of March 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
California-- $15,900 Anaheim, California, TRAN, 3.25% due 7/29/1994 $ 15,920
99.7% 11,200 Big Bear Lake, California, Industrial Revenue Bonds (Southwest Gas
Corporation), VRDN, AMT, Series A, 2.35% due 12/01/2028 (a) 11,200
California Floating Rate Trust Certificate, VRDN, Series 1992 (a):
20,000 3% due 10/02/1998 20,000
10,000 2.40% due 9/01/2006 10,000
2,000 California Health Facilities Financing Authority, Insured Hospital Bonds
(Children's Hospital), VRDN, 2% due 11/01/2021 (a) 2,000
California Health Facilities Financing Authority Revenue Bonds (Catholic
Health Care), VRDN (a):
5,000 Series A, 2.05% due 7/01/2009 5,000
2,700 Series A, 2.05% due 7/01/2016 2,700
2,500 Series B, 2.05% due 7/01/2016 2,500
15,000 Series C, 2.05% due 7/01/2020 15,000
California Health Facilities Financing Authority Revenue Bonds, VRDN (a):
21,045 (Huntington Memorial Hospital), 2.25% due 11/01/2010 21,045
2,800 (Pooled Loan Program), 2.20% due 9/01/2020 2,800
5,200 (Pooled Loan Program), 1985 Series B, 2.15% due 5/01/1995 5,200
1,000 (Pooled Loan Program), Series A, 2.20% due 6/01/2007 1,000
4,100 (Scripps Memorial Hospital), Series B, 2.15% due 12/01/2015 (a) 4,100
17,500 California Health Facilities Financing Authority, Revenue Refunding Bonds
(Memorial Health Services), VRDN, 2.25% due 10/01/2024 (a) 17,500
California HFA, M/F Revenue Refunding Bonds, VRDN (a):
5,400 (Hidden Hills Series C), 2.20% due 8/01/2013 5,400
4,830 (Oakbrook Ridge Series A), 2.20% due 8/01/2013 4,830
1,100 California Pollution Control Finance Authority, PCR, Refunding
(Shell Oil Company Project), DDN, 2.75% due 10/01/2007 (a) 1,100
California Pollution Control Finance Authority, Resource Recovery
Revenue Bonds, AMT (a):
1,900 (Honey Lake Power Project), DDN, 3% due 9/01/2018 1,900
2,400 (Sanger Energy Project), VRDN, Series A, 2.25% due 9/01/2020 2,400
California Pollution Control Finance Authority, Resource Recovery Revenue
Refunding Bonds, DDN, AMT (a):
9,200 (Delano Project), 3.05% due 8/01/2019 9,200
3,600 (Ultra Power Malaga), Series B, 3.10% due 4/01/2017 3,600
5,100 (Ultra Power Rocklin Project), Series A, 3.10% due 4/01/2017 5,100
2,700 (Ultra Power Rocklin Project), Series A, 3.10% due 6/01/2017 2,700
3,800 (Ultra Power Rocklin Project), Series B, 3.10% due 6/01/2017 3,800
</TABLE>
Portfolio Abbreviations for CMA California Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
CP Commercial Paper
DATES Daily Adjustable Tax-Exempt Securities
DDN Daily Demand Notes
GO General Obligation Bonds
HFA Housing Finance Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RAW Revenue Anticipation Warrants
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
<PAGE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
California California Pollution Control Finance Authority Revenue Bonds (Southern
(continued) California Edison):
$ 12,000 CP, Series A, 2.55% due 5/06/1994 $ 12,000
3,000 CP, Series D, 2.55% due 4/22/1994 3,000
9,000 VRDN, Series C, 2.70% due 2/28/2008 (a) 9,000
California Pollution Control Finance Authority, Revenue Refunding Bonds,
CP (Pacific Gas and Electric):
13,100 AMT, Series B, 2.65% due 4/27/1994 13,100
31,500 AMT, Series B, 2.65% due 4/28/1994 31,500
13,800 Series C, 2.15% due 4/08/1994 13,800
3,100 Series C, 2.55% due 4/22/1994 3,100
15,000 Series E, 2.55% due 4/25/1994 15,000
7,300 Series E, 2.30% due 5/16/1994 7,303
11,000 Series F, 2.55% due 4/21/1994 11,000
11,000 Series F, 2.55% due 4/22/1994 11,000
11,000 Series F, 2.55% due 4/25/1994 11,000
8,000 Series F, 2.55% due 4/28/1994 8,000
California Pollution Control Finance Authority, Solid Waste Disposal Revenue
Bonds (Colmac Energy Project), VRDN, AMT (a):
15,500 Series A, 2.25% due 12/01/2016 15,500
10,000 Series C, 2.25% due 12/01/2016 10,000
25,000 California Public Capital Improvements Finance Authority Revenue Bonds
(Pooled Project), Series D, 2.75% due 6/15/1994 25,000
30,800 California State Floating Rate Notes, VRDN, 2.39% due 6/28/1994 (a) 30,800
10,000 California State, GO, 4.375% due 10/01/1994 10,080
68,590 California State, RAW, Series B, 3.50% due 7/26/1994 68,722
California Statewide Community Development Authority Revenue Bonds:
1,700 (Saint Joseph Health System), COP, 3.25% due 12/01/2018 1,700
20,000 Series A, 3.25% due 6/30/1994 20,023
15,500 California Statewide Community Development Authority, Revenue Reserve
Bonds, Series A, 3.20% due 7/01/1994 15,502
Chula Vista, California, IDR, CP (San Diego Electric and Gas), AMT:
30,000 Series D, 2.50% due 4/08/1994 30,000
5,000 Series E, 2.55% due 4/22/1994 5,000
9,700 Contra Costa, California, Transportation Authority, Sales Tax Revenue Bonds,
VRDN, Series A, 2.20% due 3/01/2009 (a) 9,700
4,500 Contra Costa County, California, M/F Revenue Refunding Bonds (Delta Square
Project), VRDN, Series A, 2.20% due 8/01/2007 (a) 4,500
Eagle Tax Exempt Trust, California, VRDN (a):
22,800 Series 1994-C6, 2.39% due 8/01/2017 22,800
14,800 Series 1994-C7, 2.39% due 8/01/2023 14,800
6,400 Eastern Municipal Water District, California, Water and Sewer Revenue Bonds,
VRDN, COP, Series B, 2.15% due 7/01/2020 (a) 6,400
First Nationwide Bank, California, Grantor Trust 1991-1, VRDN (a):
2,000 City of Concord, M/F Mortgage Revenue Bonds (Crossroads Apartments),
Class E, 2.30% due 8/01/1996 2,000
2,100 City of Fontana, M/F Revenue Bonds (Oakrest Apartments), Class G,
2.30% due 8/01/1996 2,100
</TABLE>
<PAGE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
California $16,500 First Nationwide Bank Grantor Trust, City of Camarillo, California, Heritage
(continued) Park, 1991-1, VRDN, Class P, 2.45% due 8/01/1996 (a) $ 16,500
8,400 First Nationwide Bank Grantor Trust, City of Pittsburgh, California, Fountain
Plaza, 1991-1, VRDN, Class L, 2.30% due 7/01/1996 (a) 8,400
7,160 First Nationwide Bank Grantor Trust, City of Pleasanton, California, Valley
Plaza, 1991-1, VRDN, Class I, 2.30% due 8/01/1996 (a) 7,160
10,500 Fontana, California, M/F Housing Revenue Bonds (Springtime Apartments
Project), VRDN, AMT, Series A, 2.20% due 12/01/2016 (a) 10,500
4,000 Foothill East Transportation Corridor Agency Revenue Bonds (California Toll
Road), VRDN, 2.10% due 7/01/2023 (a) 4,000
7,500 Hemet, California, M/F Housing Revenue Bonds (Pacific Senior Estates), VRDN,
Series A, 2.10% due 7/01/2007 (a) 7,500
5,300 Irvine, California, Apartment Development Revenue Bonds (San Rafael
Apartments Project), DDN, AMT, 3.05% due 4/01/2022 (a) 5,300
18,600 Irvine, California, M/F Housing Revenue Bonds, VRDN, Series 1983 A, 2.10%
due 12/01/1995 (a) 18,600
3,000 Irvine Ranch, California, Water District Consolidated Bonds, DATES, DDN,
Series B, 2.05% due 6/01/2015 (a) 3,000
1,200 Irvine Ranch, California, Water District Consolidated Refunding Bonds, DDN,
Series A, 3.05% due 5/01/2009 (a) 1,200
Irvine Ranch, California, Water District, DDN, Series C (a):
3,100 2.80% due 10/01/2000 3,100
600 2.80% due 10/01/2005 600
1,800 Kern County, California, Revenue Bonds (Kern Public Facilities Project), VRDN,
Series A, 2.20% due 8/01/2006 (a) 1,800
Long Beach, California, Harbor Revenue Bonds, AMT, CP:
15,000 2.40% due 4/15/1994 15,000
6,200 2.55% due 5/18/1994 6,200
8,700 Los Angeles, California, M/F Housing Revenue Bonds (Beverly Park Apartments
Project), VRDN, AMT, Series A, 2% due 8/01/2018 (a) 8,700
73,900 Los Angeles, California, Unified School District, TRAN, 3.25% due 7/15/1994 74,018
Los Angeles, California, Wastewater Systems Revenue Bonds:
6,700 CP, 2.60% due 4/18/1994 6,700
15,250 VRDN, Series P, 2.55% due 6/21/2003 (a) 15,250
16,200 Los Angeles County, California, Metropolitan Transportation Authority, Sales
Tax Revenue Refunding Bonds, VRDN, Series A, 2.20% due 7/01/2020 (a) 16,200
Los Angeles County, California, TRAN, CP, Series B:
8,000 2.60% due 4/07/1994 8,000
5,000 2.50% due 4/08/1994 5,000
5,250 2.55% due 5/02/1994 5,250
4,400 2.55% due 5/06/1994 4,400
Los Angeles County, California, Transportation Commission Sales Tax Revenue
Bonds, CP, Series A:
16,700 2.55% due 4/26/1994 16,700
16,000 2.75% due 4/29/1994 16,000
8,500 Marin County, California, TRAN, Series A, 3% due 7/06/1994 8,503
35,500 Oakland, California, TRAN, 3.50% due 8/15/1994 35,571
3,555 Orange County, California, Apartment Development Revenue Bonds (Irvine
Co.), VRDN, Issue V, 2.45% due 4/18/1994 (a) 3,555
</TABLE>
<PAGE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
California $ 9,000 Orange County, California, Sanitation Districts, COP, Revenue Bonds, VRDN,
(concluded) Series A, 3% due 8/01/2015 (a) $ 9,000
30,195 Orange County, California, Sanitation Districts, COP, Revenue Refunding
Bonds, VRDN, 2.15% due 8/01/2013 (a) 30,195
28,750 Orange County, California, TRAN, Series A, 3% due 6/30/1994 28,765
8,800 Orange County, California, Unit Priced Apartment Development Revenue
Bonds (Irvine Company Project), CP, 2.45% due 4/18/1994 8,800
5,000 Oxnard, California, Union High School District, TRAN, 3.25% due 7/26/1994 5,005
12,000 Pasadena, California, TRAN, 3.25% due 9/12/1994 12,010
2,900 Redlands, California, M/F Housing Revenue Bonds (Orange Village Apartments
Project), VRDN, AMT, Series A, 2.20% due 8/01/2018 (a) 2,900
2,850 Redlands, California, M/F Housing Revenue Refunding Bonds (Parkview Terrace
Project), VRDN, Series A, 2.15% due 2/01/2016 (a) 2,850
Riverside County, California, TRAN:
9,600 CP, 2.55% due 4/28/1994 9,600
2,700 Series A, 3% due 6/30/1994 2,700
3,200 Roseville, California, Finance Authority, Hospital Lease Revenue Bonds
(Roseville Hospital), VRDN, Series A, 2.15% due 10/01/2014 (a) 3,200
5,000 Sacramento County, California, M/F Housing Revenue Bonds, VRDN, Series C,
2.35% due 4/15/2007 (a) 5,000
16,750 Sacramento County, California, Municipal Utility District, CP, 2.55%
due 4/22/1994 16,750
6,110 San Bernardino County, California, Residential Mortgage Revenue Refunding
Bonds (Ramona Garden Project), VRDN, Series A, 2.35% due 2/01/2017 (a) 6,110
4,500 San Diego, California, M/F Housing Revenue Refunding Bonds (Union Town
Center Apartments), VRDN, 1.90% due 10/01/2015 (a) 4,500
34,200 San Diego County, California, TRAN, 3.25% due 7/29/1994 34,264
63,300 San Francisco, California, City and County, TRAN, 3.25% due 7/15/1994 63,385
1,000 Santa Clara County, California, TRAN, 3.25% due 7/29/1994 1,002
5,325 Santa Rosa, California, M/F Housing Revenue Bonds (Oak Creek Apartments
Project), VRDN, AMT, Series A, 2.20% due 6/01/2018 (a) 5,325
3,275 Simi Valley, California, Community Redevelopment Agency, M/F Housing
Revenue Bonds (Ashley Manor Project), VRDN, AMT, Series A, 2.20%
due 10/01/2017 (a) 3,275
4,000 Solano County, California, TRAN, 3.25% due 11/01/1994 4,011
3,100 Stanislaus County, California, TRAN, 3.50% due 8/02/1994 3,104
7,900 Yolo County, California, TRAN, 3.25% due 7/06/1994 7,909
Puerto Rico--0.9% 10,700 Commonwealth of Puerto Rico, TRAN, Series A, 3% due 7/29/1994 10,709
Total Investments (Cost--$1,232,501*)--100.6% 1,232,501
Liabilities in Excess of Other Assets--(0.6%) (7,341)
----------
Net Assets--100.0% $1,225,160
==========
<FN>
(a)The interest rate is subject to change periodically based on certain indexes.
The interest rates shown are the interest rates in effect at March 31, 1994.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C>
Assets:
Investments, at value (identified cost--$1,232,500,737)(Note 1a) $ 1,232,500,737
Cash 59,666
Interest receivable 11,170,219
Prepaid registration fees and other assets (Note 1d) 18,288
---------------
Total assets 1,243,748,910
---------------
Liabilities:
Payables:
Securities purchased $ 17,789,184
Investment adviser (Note 2) 463,951
Distributor (Note 2) 209,731
Beneficial interest redeemed 339 18,463,205
---------------
Accrued expenses and other liabilities 125,518
---------------
Total liabilities 18,588,723
---------------
Net Assets $ 1,225,160,187
===============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 122,564,727
Paid-in capital in excess of par 1,103,082,546
Accumulated realized capital loss--net(Note 4) (487,086)
---------------
Net Assets--Equivalent to $1.00 per share based on 1,225,647,273 shares of
beneficial interest outstanding $ 1,225,160,187
===============
</TABLE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 27,655,714
Expenses:
Investment advisory fees (Note 2) $ 4,979,676
Distribution fees (Note 2) 1,364,634
Transfer agent fees (Note 2) 110,324
Registration fees (Note 1d) 82,748
Custodian fees 71,328
Printing and shareholder reports 65,714
Accounting services (Note 2) 52,406
Professional fees 38,434
Trustees' fees and expenses 12,020
Pricing fees 10,017
Other 9,080
---------------
Total expenses 6,796,381
---------------
Investment income--net 20,859,333
Realized Loss on Investments--Net (Note 1c) (467,649)
---------------
Net Increase in Net Assets Resulting from Operations $ 20,391,684
===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS For the Year Ended March 31,
1994 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 20,859,333 $ 22,575,002
Realized gain (loss) on investments--net (467,649) 196,908
--------------- ---------------
Net increase in net assets resulting from operations 20,391,684 22,771,910
--------------- ---------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (20,855,158) (22,563,862)
Realized gain on investments--net (100,764) (21,953)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (20,955,922) (22,585,815)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 3,766,542,841 3,390,248,737
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions (Note 1e) 20,933,840 22,585,779
--------------- ---------------
3,787,476,681 3,412,834,516
Cost of shares redeemed (3,576,552,548) (3,431,643,338)
--------------- ---------------
Net increase (decrease) in net assets derived from beneficial interest
transactions 210,924,133 (18,808,822)
--------------- ---------------
Net Assets:
Total increase (decrease) in net assets 210,359,895 (18,622,727)
Beginning of year 1,014,800,292 1,033,423,019
--------------- ---------------
End of year $ 1,225,160,187 $ 1,014,800,292
=============== ===============
</TABLE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
<CAPTION>
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- ---------- ---------- ----------
Investment income--net .02 .02 .03 .05 .05
---------- ---------- ---------- ---------- ----------
Total from investment operations .02 .02 .03 .05 .05
---------- ---------- ---------- ---------- ----------
Less dividends:
Investment income--net (.02) (.02) (.03) (.05) (.05)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 1.93% 2.25% 3.48% 4.96% 5.59%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .50% .51% .51% .50% .52%
========== ========== ========== ========== ==========
Expenses .62% .63% .63% .62% .65%
========== ========== ========== ========== ==========
Investment income--net 1.91% 2.22% 3.42% 4.83% 5.44%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $1,225,160 $1,014,800 $1,033,423 $1,163,288 $1,047,340
========== ========== ========== ========== ==========
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA California Municipal Money Fund (the "Fund") is part of CMA
Multi-State Municipal Series Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end investment management company. The
following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost which approximates market. For the purpose of valuation, the
maturity of a variable rate demand instrument is deemed to be the
next coupon date on which the interest rate is to be adjusted. In
the case of a floating rate instrument, the remaining maturity is
the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are
charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
withheld) in additional fund shares at net asset value. Dividends
are declared from the total of net investment income, excluding
discounts earned other than original issue discounts. Net
realized capital gains, if any, are normally distributed annually
after deducting prior years' loss carryforward. The Fund may
distribute capital gains more frequently than annually in order
to maintain the Fund's net asset value at $1.00 per share.
(f) Reclassifications--Undistributed investment income--net,
in the amount of $71,914 has been reclassified to accumulated
realized capital losses--net.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of the average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.375%
of the average daily net assets in excess of $1 billion.
The most restrictive annual expense limitation requires that the
Adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets,
<PAGE>
2.0% of the Fund's next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess thereof. No
fee payment
CMA CALIFORNIA MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
will be made to the Investment Adviser during any year which will
cause such expenses to exceed the pro rata expense limitation at
the time of such payment.
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of the average daily net
assets of the Fund. The distribution fee is to compensate MLPF&S
financial consultants and other directly involved branch office
personnel for selling shares of the Fund and for providing direct
personal services to shareholders. The distribution fee is not
compensation for the administrative and operational services
rendered to the Fund by MLPF&S in processing share orders and
administering shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the period
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
4. Capital Loss Carryforward:
At March 31, 1994, the Fund had a net capital loss carryforward
of approximately $472,000, all of which expires in 2002 and will
be available to offset a like amount of any future taxable gains.
<PAGE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Connecticut Municipal Money Fund of
CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of CMA
Connecticut Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1994, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for the two-year period then ended and the
period April 29, 1991 (commencement of operations) to March 31, 1992.
These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of CMA Connecticut Municipal Money Fund of
CMA Multi-State Municipal Series Trust as of March 31, 1994,
the results of its operations, the changes in its net assets,
and the financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Connecticut--77.5% $ 4,750 Canton, Connecticut, BAN, GO, 2.49% due 4/15/1994 $ 4,750
12,400 Connecticut State Development Authority, Health Care Revenue Bonds
(Independent Living Project), 2.25% due 7/01/2015 12,400
5,420 Connecticut State Development Authority, IDA, Revenue Bonds (Sealectro
Corporation Project), 2.70% due 12/01/1997 5,420
Connecticut State Development Authority, PCR, Refunding (Connecticut Light &
Power Co.), VRDN (a):
3,600 AMT, Series B, 2.45% due 9/01/2028 3,600
8,700 Series A, 2% due 9/01/2028 8,700
2,925 Connecticut State Development Authority Revenue Bonds (Jewish Community
Center Project), VRDN, 2.25% due 9/01/2017 (a) 2,925
Connecticut State Development Authority Revenue Bonds (Solid Waste--Exeter
Project), VRDN, AMT (a):
3,000 Series A, 2.15% due 12/01/2019 3,000
400 Series C, 2.15% due 12/01/2019 400
Connecticut State Economic Recovery Notes:
1,000 GO, Series A, 5.25% due 6/15/1994 1,006
9,500 VRDN, Series B, 2.20% due 6/01/1996 (a) 9,500
235 Connecticut State, GO, 8% due 5/01/1994 236
Connecticut State Health and Educational Facilities Authority Revenue Bonds:
1,400 (Kent School), VRDN, Series A, 2.10% due 7/01/2023 (a) 1,400
1,500 (Saint Raphael Hospital), Series A, 10.125% due 8/01/1994 1,568
5,250 (Windham Community Memorial Hospital), CP, 2.35% due 4/13/1994 5,250
Connecticut State Health and Educational Facilities Authority Revenue Bonds
(Yale University), CP:
950 Series L, 2.60% due 6/16/1994 950
4,125 Series L, 2.65% due 6/16/1994 4,125
4,600 Series M, 2.65% due 6/10/1994 4,600
5,450 Series N, 2.65% due 6/16/1994 5,450
1,450 Series O, 2.60% due 6/16/1994 1,450
1,400 Series P, 2.30% due 4/22/1994 1,400
3,600 Series P, 2.65% due 6/16/1994 3,600
Connecticut State, HFA (Housing Mortgage Finance Program), CP:
7,000 Series G, Subseries G-1, 2.65% due 5/16/1994 7,000
5,300 Subseries D-1, 2.65% due 5/16/1994 5,300
10,000 Subseries D-2, 2.75% due 5/16/1994 10,000
</TABLE>
Portfolio Abbreviations for CMA Connecticut Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
CP Commercial Paper
GO General Obligation Bonds
HFA Housing Finance Authority
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
S/F Single-Family
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
<PAGE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Connecticut Connecticut State, HFA (Housing Mortgage Finance Program), CP, AMT, Series D:
(concluded) $ 5,600 2.75% due 6/09/1994 $ 5,600
4,100 2.75% due 6/16/1994 4,100
20,000 Connecticut State Special Assessment Unemployment Compensation, Advanced
Fund Revenue Bonds, Series C, 3% due 7/01/1994 20,009
9,100 Connecticut State Special Assessment Unemployment Revenue Bonds, VRDN,
Series B, 2.20% due 11/01/2001 (a) 9,100
24,100 Connecticut State Special Tax Obligation Revenue Bonds, VRDN, 2.30% due
12/01/2010 (a) 24,100
Connecticut State Special Tax Obligation, Transportation Revenue Bonds:
1,000 Series A, 4.75% due 4/01/1995 1,015
400 Series B, 3.90% due 9/01/1994 402
5,000 Connecticut State Tender Option, GO, 2.70% due 6/01/1994 5,000
900 East Granby, Connecticut, BAN, GO, 2.59% due 7/14/1994 901
4,000 East Lyme, Connecticut, BAN, 2.60% due 8/05/1994 4,000
1,500 Enfield, Connecticut, BAN, GO, 2.11% due 4/15/1994 1,500
455 Meriden, Connecticut, GO, 6.40% due 1/15/1995 467
3,000 North Stonington, Connecticut, BAN, GO, 2.53% due 4/15/1994 3,000
310 Norwalk, Connecticut, Refunding Bonds, Second Series, 3.10% due 1/15/1995 310
600 Redding, Connecticut, BAN, 2.98% due 10/26/1994 601
6,000 Stamford, Connecticut, BAN, 3.07% due 3/22/1995 6,002
3,550 Winchester, Connecticut, BAN, 2.75% due 5/11/1994 3,551
Puerto Rico--21.2% 8,700 Puerto Rico Commonwealth, Government Development Bank, Revenue
Refunding Bonds, VRDN, 2% due 12/01/2015 (a) 8,700
5,000 Puerto Rico Commonwealth, Highway and Transportation Authority Revenue
Bonds, VRDN, Series X, 2.05% due 7/01/1999 (a) 5,000
12,425 Puerto Rico Commonwealth, TRAN, Series A, 3% due 7/29/1994 12,440
3,040 Puerto Rico Housing Finance Corporation, S/F Mortgage Revenue Bonds, AMT,
Series F, 4.60% due 4/15/1994 3,043
Puerto Rico Industrial, Medical and Environmental Pollution Control Facility,
Financing Authority Revenue Bonds:
5,500 (Anna G. Mendez Educational Project), CP, 2.55% due 6/10/1994 5,500
1,500 (Merck & Co. Inc. Project), Series A, VRDN, 2.70% due 12/01/1994 1,500
4,750 (Reynolds Metal Company Project), VRDN, 2.90% due 9/01/1994 4,752
Puerto Rico Maritime Shipping Authority, CP:
7,200 2.50% due 6/17/1994 7,200
5,000 2.60% due 7/22/1994 5,000
Total Investments (Cost--$246,823*)--98.7% 246,823
Other Assets Less Liabilities--1.3% 3,215
--------
Net Assets--100.0% $250,038
========
<FN>
(a)The interest rate is subject to change periodically based on certain indexes.
The interest rates shown are the rates in effect at March 31, 1994.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$246,823,434) (Note 1a) $246,823,434
Cash 263,624
Receivables:
Securities sold $ 1,900,775
Interest 1,254,833 3,155,608
------------
Deferred organization expenses (Note 1d) 15,524
Prepaid registration fees and other assets (Note 1d) 2,290
------------
Total assets 250,260,480
------------
Liabilities:
Payables:
Investment adviser (Note 2) 109,573
Distributor (Note 2) 44,733
Beneficial interest redeemed 13 154,319
------------
Accrued expenses and other liabilities 68,632
------------
Total liabilities 222,951
------------
Net Assets $250,037,529
============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 25,015,686
Paid-in capital in excess of par 225,141,174
Undistributed investment income--net 283
Accumulated realized capital losses--net (Note 4) (119,614)
------------
Net Assets--Equivalent to $1.00 per share based on 250,156,860 shares of
beneficial interest outstanding $250,037,529
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 5,791,804
Expenses:
Investment advisory fees (Note 2) $ 1,176,254
Distribution fees (Note 2) 292,733
Accounting services (Note 2) 44,993
Professional fees 33,280
Printing and shareholder reports 26,208
Transfer agent fees (Note 2) 24,778
Registration fees (Note 1d) 20,971
Custodian fees 19,106
Amortization of organization expenses (Note 1d) 7,476
Pricing fees 5,601
Trustees' fees and expenses 2,731
Other 1,932
------------
Total expenses 1,656,063
------------
Investment income--net 4,135,741
Realized Loss on Investments--Net (Note 1c) (18,319)
------------
Net Increase in Net Assets Resulting from Operations $ 4,117,422
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <C> <C>
Operations:
Investment income--net $ 4,135,741 $ 4,430,741
Realized loss on investments--net (18,319) (52,178)
------------ ------------
Net increase in net assets resulting from operations 4,117,422 4,378,563
------------ ------------
Dividends to Shareholders (Note 1e):
Investment income--net (4,132,578) (4,403,281)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (4,132,578) (4,403,281)
------------ ------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 850,975,709 855,168,263
Net asset value of shares issued to shareholders in reinvestment of dividends
(Note 1e) 4,132,548 4,403,402
------------ ------------
855,108,257 859,571,665
Cost of shares redeemed (836,486,718) (826,010,937)
------------ ------------
Net increase in net assets derived from beneficial interest transactions 18,621,539 33,560,728
------------ ------------
Net Assets:
Total increase in net assets 18,606,383 33,536,010
Beginning of year 231,431,146 197,895,136
------------ ------------
End of year* $250,037,529 $231,431,146
============ ============
*Undistributed investment income--net $ 283 $ 37,852
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The following per share data and ratios have been derived April 29,
from information provided in the financial statements. 1991++ to
For the Year Ended March 31, March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment income--net .02 .02 .03
-------- -------- --------
Total from investment operations .02 .02 .03
-------- -------- --------
Less dividends:
Investment income--net (.02) (.02) (.03)
-------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Investment Return 1.77% 2.20% 3.56%*
======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .58% .51% .28%*
======== ======== ========
Expenses, net of reimbursement .70% .63% .41%*
======== ======== ========
Expenses .70% .73% .81%*
======== ======== ========
Investment income--net 1.76% 2.17% 3.46%*
======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $250,038 $231,431 $197,895
======== ======== ========
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Connecticut Municipal Money Fund (the "Fund") is part of CMA
Multi-State Municipal Series Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end investment management company. The
following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost, which approximates market. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be
adjusted. In the case of a floating rate instrument, the
remaining maturity is the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
withheld) in additional fund shares at net asset value. Dividends
are declared from the total of net investment income, excluding
discounts earned other than original issue discounts. Net
realized capital gains, if any, are normally distributed annually
after deducting prior years' loss carryforward. The Fund may
distribute capital gains more frequently than annually in order
to maintain the Fund's net asset value at $1.00 per share.
(f) Reclassifications--Undistributed investment income--net, in
the amount of $40,732, has been reclassified to accumulated
realized capital losses--net.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets, not
exceeding $500 million; 0.425% of the average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.375%
of the average daily net assets in excess of $1 billion.
The most restrictive annual expense limitation requires that the
adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees,
<PAGE>
brokerage fees and commissions, and extraordinary items) exceed
2.5% of the Fund's first $30 million of average daily net assets,
2.0% of the Fund's next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess thereof. No
fee payment will be made to the Investment Adviser during any
year which will cause such expenses to exceed the pro rata
expense limitation at the time of such payment.
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of the average daily net
assets of the Fund. The distribution fee is to compensate MLPF&S
financial consultants and other directly involved branch office
personnel for selling shares of the Fund and for providing direct
personal services to shareholders. The distribution fee is not
compensation for the administrative and operational services
rendered to the Fund by MLPF&S in processing share orders and
administering shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the periods
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
4. Capital Loss Carryforward:
At March 31, 1994, the Fund had a net capital loss carryforward
of approximately $120,000, of which $80,000 expires in 2000,
$30,000 expires in 2001 and $10,000 expires in 2002, which will
be available to offset like amounts of any future taxable gains.
<PAGE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Massachusetts Municipal Money Fund
of CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of CMA
Massachusetts Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1994, the related statements of
operations for the year then ended and changes in net assets
for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the three-year
period then ended and the period July 30, 1990 (commencement of
operations) to March 31, 1991. These financial statements and
the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of CMA Massachusettes Municipal Money Fund of
CMA Multi-State Municipal Series Trust as of March 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Massachusetts-- Boston, Massachusetts, Tender Option, VRDN (a):
99.2% $ 2,000 Series MGT 11A, 2.40% due 2/01/2005 $ 2,000
3,000 Series MGT 11B, 2.40% due 2/01/2006 3,000
700 Boston, Massachusetts, Water & Sewer Commission Revenue Bonds, VRDN,
Series A, 1.90% due 11/01/2015 (a) 700
1,975 Brockton, Massachusetts, Area Transit Authority, RAN, 2.75% due 7/22/1994 1,978
2,500 Brockton, Massachusetts, RAN, 4% due 6/10/1994 2,505
Cape Ann, Massachusetts, Transit Authority:
350 BAN, 2.90% due 11/10/1994 351
600 RAN, 2.90% due 11/10/1994 601
2,222 Cape Cod, Massachusetts, Regional Transit Authority, RAN, 3% due 7/01/1994 2,226
2,000 Clipper Tax Exempt Trust, Massachusetts, Class A, VRDN, 2.18%
due 10/17/2002 (a) 2,000
6,500 Eagle Tax Exempt Trust, Massachusetts, Class A, VRDN, Series 93-J, 2.49%
due 8/01/2005 (a) 6,500
1,895 Edgartown, Massachusetts, BAN, 3% due 8/18/1994 1,898
3,400 Fitchburg, Massachusetts, Industrial Development Financing Authority
Revenue Bonds (Netstal Machinery Project), VRDN, AMT, 2.60% due 12/23/2007 (a) 3,400
7,000 Floating Rate Trust Certificate, Massachusetts State, Series 1993 B,
2.65% due 4/11/1994 (a) 7,000
8,500 Massachusetts Bay Transportation Authority Revenue Bonds (General
Transportation System), 1984 Series A, 2.75% due 9/01/1994 8,500
2,000 Massachusetts State Health and Educational Facilities Authority Revenue Bonds
(Boston University), CP, Series H, 2.40% due 4/07/1994 2,000
Massachusetts State Health and Educational Facilities Authority Revenue
Bonds, VRDN (a):
2,600 (Brigham and Women's Hospital), Series A, 2.10% due 7/01/2017 2,600
700 (Capital Assets Program), Series A, 2.30% due 1/01/2001 700
800 (Capital Assets Program), Series C, 2.80% due 7/01/2005 800
3,100 (Capital Assets Program), Series D, 2.15% due 1/01/2035 3,100
5,200 (Capital Assets Program), Series E, 2.10% due 1/01/2035 5,200
1,760 (Harvard University), Series I, 2.10% due 2/01/2016 1,760
5,000 (Massachusetts Institute of Technology), Series G, 2% due 7/01/2021 5,000
300 (Newbury College), Series A, 2.20% due 11/01/2018 300
2,000 (Wellesley College), Series B, 1.85% due 7/01/2022 2,000
100 (Williams College), DDN, Series B, 2.80% due 8/01/2014 100
Massachusetts State HFA, S/F Housing Revenue Bonds:
10,000 Series 23, 2.75% due 6/01/1994 10,000
3,000 Series 25, 2.95% due 9/01/1994 3,000
</TABLE>
Portfolio Abbreviations for CMA Massachusetts Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
CP Commercial Paper
DDN Daily Demand Notes
HFA Housing Finance Authority
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
S/F Single-Family
VRDN Variable Rate Demand Notes
<PAGE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Massachusetts $ 2,500 Massachusetts State Industrial Finance Agency, Cultural, Health and Educational
(concluded) Revenue Bonds (Berkshire Project), VRDN, 2.25% due 9/01/2020 (a) $ 2,500
2,200 Massachusetts State Industrial Finance Agency, Health Care Facility Revenue
Bonds (Beverly Enterprises, Inc.), DDN, 2.85% due 4/01/2009 (a) 2,200
2,055 Massachusetts State Industrial Finance Agency, Industrial Revenue Refunding
Bonds (Easy Day Project), VRDN, Series A, 2.35% due 7/01/2006 (a) 2,055
4,000 Massachusetts State Industrial Finance Agency, PCR (Holyoke Water & Power
Company Project), VRDN, AMT, 2.45% due 12/01/2020 (a) 4,000
Massachusetts State Industrial Finance Agency, PCR, Refunding (New England
Power Company Project), CP:
2,000 2.40% due 4/22/1994 2,000
2,300 2.55% due 5/06/1994 2,300
3,000 2.60% due 5/10/1994 3,000
2,000 2.55% due 5/12/1994 2,000
7,400 Massachusetts State Industrial Finance Agency, Resource Recovery Revenue Bonds
(Ogden Haverhill), VRDN, AMT, Series B, 2.30% due 12/01/2011 (a) 7,400
3,900 Massachusetts State Industrial Finance Agency, Revenue Bonds (New England
Deaconess Project), VRDN, 2.20% due 4/01/2023 (a) 3,900
1,000 Massachusetts State Industrial Finance Agency, Revenue Bonds
(Williston-Northampton School), VRDN, Series A, 2.20% due 4/01/2010 (a) 1,000
1,145 Massachusetts State Industrial Finance Agency, Revenue Refunding Bonds
(Museum of Science), 2.75% due 11/01/1994 1,148
800 Massachusetts State Industrial Finance Agency, Revenue Refunding Bonds
(Showa Women's Institute Inc.), DDN, 2.90% due 3/15/2004 (a) 800
900 Merrimack Valley, Massachusetts, Regional Transit Authority, BAN,
2.75% due 10/28/1994 902
2,400 Montachusett, Massachusetts, Regional Transit Authority, RAN, 2.75%
due 7/01/1994 2,401
2,300 New Bedford, Massachusetts, BAN, 3.75% due 8/12/1994 2,308
5,500 North Shore, Massachusetts, Regional Vocational School District, BAN,
3.15% due 7/08/1994 5,505
Pioneer Valley, Massachusetts, Transit Authority, RAN:
1,000 2.90% due 8/12/1994 1,000
2,000 3.10% due 8/12/1994 2,002
Southeastern Regional Transit Authority, Massachusetts:
1,350 BAN, 2.69% due 5/24/1994 1,350
2,975 RAN, 3% due 9/20/1994 2,981
3,600 Springfield, Massachusetts, RAN, 3.20% due 6/30/1994 3,607
1,600 Stoughton, Massachusetts, RAN, 2.50% due 5/06/1994 1,600
Worcester, Massachusetts, BAN:
2,500 2.99% due 8/24/1994 2,503
4,900 3.09% due 8/24/1994 4,907
5,000 Worcester, Massachusetts, Regional Transit Authority, RAN, 3% due 6/24/1994 5,004
Total Investments (Cost--$149,592*)--99.2% 149,592
Other Assets Less Liabilities--0.8% 1,212
--------
Net Assets--100.0% $150,804
========
(a)The interest rate is subject to change periodically based on certain indexes.
The interest rates shown are the rates in effect at March 31, 1994.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>]
<PAGE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$149,592,030) (Note 1a) $ 149,592,030
Cash 114,527
Interest receivable 1,103,378
Deferred organization expenses (Note 1d) 13,263
Prepaid registration fees and other assets (Note 1d) 142,046
-------------
Total assets 150,965,244
-------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 65,819
Distributor (Note 2) 26,887 92,706
------------
Accrued expenses and other liabilities 68,244
-------------
Total liabilities 160,950
-------------
Net Assets $ 150,804,294
=============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 15,081,564
Paid-in capital in excess of par 135,734,078
Undistributed investment income--net 7,020
Accumulated realized capital losses--net (Note 4) (18,368)
-------------
Net Assets--Equivalent to $1.00 per share based on 150,815,642 shares of beneficial
interest outstanding $ 150,804,294
=============
</TABLE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 3,615,058
Expenses:
Investment advisory fees (Note 2) $ 721,970
Distribution fees (Note 2) 179,349
Accounting services (Note 2) 58,813
Professional fees 36,717
Registration fees (Note 1d) 35,605
Printing and shareholder reports 32,896
Transfer agent fees (Note 2) 28,770
Custodian fees 15,271
Amortization of organization expenses (Note 1d) 9,982
Pricing fees 5,829
Trustees' fees and expenses 1,574
Other 1,185
------------
Total expenses 1,127,961
-------------
Investment income--net 2,487,097
Realized Loss on Investments--Net (Note 1c) (7,077)
-------------
Net Increase in Net Assets Resulting from Operations $ 2,480,020
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS For the Year Ended March 31,
1994 1993
Increase (Decrease) in Net Assets:
<S> <C> <C>
Operations:
Investment income--net $ 2,487,097 $ 2,595,827
Realized loss on investments--net (7,077) (4,332)
------------- -------------
Net increase in net assets resulting from operations 2,480,020 2,591,495
------------- -------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (2,487,097) (2,595,668)
Realized gain on investments--net -- (3,571)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (2,487,097) (2,599,239)
------------- -------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 770,729,466 542,195,660
Net asset value of shares issued to shareholders in reinvestment
of dividends (Note 1e) 2,487,010 2,599,306
------------- -------------
773,216,476 544,794,966
Cost of shares redeemed (754,707,003) (528,825,217)
------------- -------------
Net increase in net assets derived from beneficial interest transactions 18,509,473 15,969,749
------------- -------------
Net Assets:
Total increase in net assets 18,502,396 15,962,005
Beginning of year 132,301,898 116,339,893
------------- -------------
End of year* $ 150,804,294 $ 132,301,898
============= =============
<FN>
*Undistributed investment income--net $ 7,020 $ 7,020
============= =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The following per share data and ratios have been derived July 30,
from information provided in the financial statements. 1990++ to
For the Year Ended March 31, March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment income--net .02 .02 .04 .03
-------- -------- -------- --------
Total from investment operations .02 .02 .04 .03
-------- -------- -------- --------
Less dividends:
Investment income--net (.02) (.02) (.04) (.03)
-------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Investment Return 1.74% 2.20% 3.66% 5.04%*
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .66% .66% .73% .60%*
======== ======== ======== ========
Expenses, net of reimbursement .78% .78% .85% .72%*
======== ======== ======== ========
Expenses .78% .78% .87% .97%*
======== ======== ======== ========
Investment income--net 1.72% 2.15% 3.56% 4.92%*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $150,804 $132,302 $116,340 $ 84,613
======== ======== ======== ========
<FN>
++Commencement of Operations.
*Annualized.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Massachusetts Municipal Money Fund (the "Fund") is part of
CMA Multi-State Municipal Series Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end investment management company. The
following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost, which approximates market. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be
adjusted. In the case of a floating rate instrument, the
remaining maturity is the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
withheld) in additional Fund shares at net asset value. Dividends
are declared from the total of net investment income, excluding
discounts earned other than original issue discounts. Net
realized capital gains, if any, are normally distributed annually
after deducting prior years' loss carryforward. The Fund may
distribute capital gains more frequently than annually in order
to maintain the Fund's net asset value at $1.00 per share.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets, not
exceeding $500 million; 0.425% of the average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.375% of
the average daily net assets in excess of $1 billion.
The most restrictive annual expense limitation requires that the
adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the Fund's
next $70 million of average daily net assets, and 1.5% of the
average daily
<PAGE>
net assets in excess thereof. No fee payment will be made to the
Investment Adviser during any year which will cause such expenses
to exceed the pro rata expense limitation at the time of such
payment.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of the average daily net
assets of the Fund. The distribution fee is to compensate MLPF&S
financial consultants and other directly involved branch office
personnel for selling shares of the Fund and for providing direct
personal services to shareholders. The distribution fee is not
compensation for the administrative and operational services
rendered to the Fund by MLPF&S in processing share orders and
administering shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the period
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
4. Capital Loss Carryforward:
As of March 31, 1994, the Fund had a net capital loss
carryforward of approximately $11,000, of which $4,000 expires in
2001 and $7,000 expires in 2002. This amount will be available to
offset like amounts of any future taxable gains.
<PAGE>
CMA MIGHIGAN MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Michigan Municipal Money Fund of
CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of CMA
Michigan Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1994, the related statements
of operations for the year then ended and changes in net
assets for each of the years in the two-year period then
ended, and the financial highlights for the two-year period
then ended and the period April 29, 1991 (commencement of
operations) to March 31, 1992. These financial statements and the
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of CMA Michigan Municipal Money Fund of CMA
Multi-State Municipal Series Trust as of March 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Michigan-- Bruce Township, Michigan, Hospital Finance Authority, Health Care Revenue
92.9% Bonds (Sisters Charity--Saint Joseph's):
$1,525 Series B, 2.65% due 5/01/1994 $ 1,525
2,000 VRDN, Series A, 2.15% due 5/01/2018 (a) 2,000
4,000 Clinton Township, Michigan, Economic Development Corporation, Health Care
Revenue Bonds (Sisters Charity--Saint Joseph's), VRDN, 2.15% due 5/01/2013 (a) 4,000
Cornell Township, Michigan, Economic Development Corporation, IDR,
Refunding, CP:
2,000 2.65% due 7/14/1994 2,000
1,300 2.50% due 7/19/1994 1,300
Delta County, Michigan, Economic Development Corporation, Environmental
Improvement Revenue Bonds:
200 CP, 2.60% due 12/01/2023 200
700 CP, Series A, 2.50% due 5/19/1994 700
300 DDN, Series F, 2.90% due 12/01/2013 (a) 300
2,100 Detroit, Michigan, Downtown Development Authority, Revenue Refunding Bonds
(Millender Center Project), VRDN, 2.40% due 12/01/2010 (a) 2,100
750 Detroit, Michigan, GO, 3% due 7/01/1994 751
8,000 Detroit, Michigan, Sewage Disposal Revenue Refunding Bonds, VRDN, Series A,
2.60% due 7/01/2005 (a) 8,000
5,000 Detroit, Michigan, Water Supply System, Revenue Bonds, VRDN, 2.50% due
7/01/2013 (a) 5,000
900 Dexter, Michigan, Economic Development Corporation, Limited Obligation
Revenue Bonds (Dexter Auto Product Company Project), VRDN, AMT, 2.55% due
6/01/2003 (a) 900
3,500 Grand Rapids, Michigan, Economic Development Corporation Revenue Bonds,
VRDN, 2.35% due 12/01/2006 (a) 3,500
7,500 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds, DDN,
3% due 1/01/2020 (a) 7,500
950 Jackson County, Michigan, Economic Development Corporation, Limited
Obligation Revenue Bonds (Melling Tool Company Project), VRDN, AMT, 2.55%
due 12/01/2001 (a) 950
1,400 Melvindale, Michigan, Economic Development Corporation, Limited Obligation
Revenue Refunding Bonds (North American State Project), VRDN, 2.40% due
6/01/1998 (a) 1,400
1,600 Michigan Higher Education Facility Authority Revenue Bonds (Pooled Finance
Project), VRDN, 2.20% due 7/01/1995 (a) 1,600
</TABLE>
Portfolio Abbreviations for CMA Michigan Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
CP Commercial Paper
DDN Daily Demand Notes
GO General Obligation Bonds
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Michigan Michigan Higher Education Student Loan Authority Revenue Bonds, AMT:
(continued) $ 3,300 Refunding, VRDN, Series X11-B, 2.35% due 10/01/2013 (a) $ 3,300
6,600 Refunding, VRDN, Series X11-D, 2.35% due 10/01/2015 (a) 6,600
1,200 Series X11-F, 2.35% due 10/01/2020 1,200
2,395 Michigan Municipal Bonds Authority, RAN, Series B-11, 3% due 5/05/1994 2,395
Michigan Municipal Bonds Authority Revenue Bonds:
4,000 Series A-1, 3% due 5/05/1994 4,001
1,850 Series B-12, 3% due 5/05/1994 1,850
1,000 Series B-14, 3% due 5/05/1994 1,000
7,000 Series B-17, 3% due 5/05/1994 7,002
1,990 Series B-23, 3% due 5/05/1994 1,990
Michigan State Building Authority Revenue Bonds:
6,000 2.80% due 10/01/1994 6,000
1,500 CP, Series I, 2.35% due 4/21/1994 1,500
Michigan State Hospital Finance Authority Revenue Bonds (Hospital Equipment
Loan Program), VRDN (a):
300 2.20% due 11/01/1999 300
3,500 2.20% due 6/01/2001 3,500
200 Michigan State Hospital Finance Authority Revenue Bonds (Mt. Clemens General
Hospital), DDN, 2.50% due 11/01/2012 (a) 200
8,300 Michigan State Hospital Finance Authority Revenue Bonds (Providence Hospital),
VRDN, Series 84, 2.30% due 11/01/2014 (a) 8,300
900 Michigan State Hospital Finance Authority Revenue Bonds (Providence
Hospital--Daughters of Charity Systems, Inc.), 2.30% due 11/01/2014 900
400 Michigan State Hospital Finance Authority Revenue Refunding Bonds (Mercy
Memorial Hospital), 2.40% due 6/01/1994 400
Michigan State Housing Development Authority, Limited Obligation Revenue
Bonds:
4,000 (Bloomfield), CP, 2.70% due 7/26/1994 4,000
4,000 (Laurel Valley), 2.25% due 12/01/2007 4,000
2,900 (Pine Ridge), VRDN, 2.25% due 10/01/2007 (a) 2,900
4,800 (Shoal Creek), VRDN, 2.25% due 10/01/2007 (a) 4,800
Michigan State Housing Development Authority, M/F Housing Revenue Bonds,
CP, AMT, Series A:
5,225 2.80% due 6/10/1994 5,225
16,690 2.75% due 6/13/1994 16,690
3,300 2.55% due 7/14/1994 3,300
Michigan State Housing Development Authority, Rental Housing Revenue
Refunding Bonds:
2,185 Series A, 2.50% due 4/01/1994 2,185
6,750 Series C, 3.10% due 2/28/1995 6,750
1,200 Michigan State Job Development Authority, Limited Obligation Revenue Bonds
(Andersons), 2.40% due 9/01/2025 1,200
</TABLE>
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Michigan $ 3,500 Michigan State School Loan Notes, GO, 3.25% due 4/29/1994 $ 3,502
(concluded) 300 Michigan State Strategic Fund, Economic Development, Limited Obligation
Revenue Bonds (Yamaha Music), VRDN, AMT, 2.50% due 9/01/2008 (a) 300
2,000 Michigan State Strategic Fund, IDR (Norcer Manufacturing Project), VRDN,
2.15% due 12/01/2000 (a) 2,000
2,500 Michigan State Strategic Fund, Limited Obligation Revenue Bonds (Thorn Apple
Valley Incorporated Project), VRDN, AMT, 2.65% due 12/01/2005 (a) 2,500
5,000 Michigan State Strategic Fund, Limited Obligation, Revenue Refunding Bonds
(Consumers Power Company Project), 2.65% due 6/15/1994 5,000
6,500 Michigan State Strategic Fund, PCR (Consumer Power Project), DDN, Series A,
2.85% due 4/15/2018 (a) 6,500
11,000 Michigan State Strategic Fund, PCR (Dow Chemical Company), CP, AMT, 2.70%
due 6/07/1994 11,000
Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds, AMT,
VRDN (a):
600 (Genesee Power Station Project), 2.90% due 7/01/2033 600
9,500 (Grayling Generating Project), 2.45% due 1/01/2014 9,500
Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds (S.D.
Warren Company), CP, AMT:
5,000 Series A, 2.35% due 4/12/1994 5,000
3,500 Series A, 2.70% due 5/19/1994 3,500
1,100 Series B, 2.35% due 4/12/1994 1,100
6,000 Series B, 2.70% due 5/18/1994 6,000
10,050 Series C, 2.70% due 5/19/1994 10,050
600 Monroe County, Michigan, Economic Development Corporation, Limited
Obligation Revenue Refunding Bonds (Detroit, Edison), DDN, Series CC, 2.95%
due 10/01/2024 (a) 600
555 Monroe County, Michigan, Revenue Refunding Bonds (Frenchtown Resort
District), 2.75% due 5/01/1994 555
4,000 Port Huron, Michigan, Area School District State Aid Notes, 3.25% due 4/01/1994 4,000
2,695 University of Michigan, Revenue Bonds, VRDN, 2.30% due 4/01/2009 (a) 2,695
Puerto Rico-- 500 Commonwealth of Puerto Rico, Government Development Bank, Revenue
6.6% Refunding Bonds, 2% due 12/01/2015 500
10,000 Commonwealth of Puerto Rico, TRAN, Series A, 3% due 7/29/1994 10,010
5,100 Puerto Rico Maritime Shipping Authority, CP, 2.60% due 7/21/1994 5,100
Total Investments (Cost--$235,226*)--99.5% 235,226
Other Assets Less Liabilities--0.5% 1,209
--------
Net Assets--100.0% $236,435
========
<FN>
(a)The interest rate is subject to change periodically based on certain indexes.
The interest rates shown are the rates in effect at March 31, 1994.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$235,226,489) (Note 1a) $ 235,226,489
Cash 80,174
Interest receivable 1,321,811
Deferred organization expenses (Note 1d) 14,794
Prepaid registration fees and other assets (Note 1d) 1,208
-------------
Total assets 236,644,476
-------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 100,574
Distributor (Note 2) 40,841
Beneficial interest redeemed 24 141,439
------------
Accrued expenses and other liabilities 68,083
-------------
Total liabilities 209,522
-------------
Net Assets $ 236,434,954
=============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 23,650,296
Paid-in capital in excess of par 212,852,669
Accumulated realized capital losses--net (Note 4) (68,011)
-------------
Net Assets--Equivalent to $1.00 per share based on 236,502,965 shares of beneficial
interest outstanding $ 236,434,954
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note lc):
Interest and amortization of premium and discount earned $ 5,362,707
Expenses:
Investment advisory fees (Note 2) $ 1,067,163
Distribution fees (Note 2) 265,504
Accounting services (Note 2) 51,218
Transfer agent fees (Note 2) 35,711
Registration fees (Note 1d) 33,008
Professional fees 27,756
Custodian fees 19,916
Printing and shareholder reports 17,998
Amortization of organization expenses (Note 1d) 7,124
Pricing fees 6,479
Trustees' fees and expenses 2,278
Other 1,730
------------
Total expenses 1,535,885
-------------
Investment income--net 3,826,822
Realized Loss on Investments--Net (Note lc) (7,009)
-------------
Net Increase in Net Assets Resulting from Operations $ 3,819,813
=============
</TABLE>
CMA MICHIGAN MUNICIPAL MONEY FUND
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <C> <C>
Operations:
Investment income--net $ 3,826,822 $ 4,179,380
Realized loss on investments--net (7,009) (31,202)
------------- -------------
Net increase in net assets resulting from operations 3,819,813 4,148,178
------------- -------------
Dividends to Shareholders (Note 1e):
Investment income--net (3,824,891) (4,174,802)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (3,824,891) (4,174,802)
------------- -------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 959,801,295 944,601,874
Net asset value of shares issued to shareholders in reinvestment of dividends
(Note 1e) 3,824,978 4,174,742
------------- -------------
963,626,273 948,776,616
Cost of shares redeemed (927,386,005) (942,983,166)
------------- -------------
Net increase in net assets derived from beneficial interest transactions 36,240,268 5,793,450
------------- -------------
Net Assets:
Total increase in net assets 36,235,190 5,766,826
Beginning of year 200,199,764 194,432,938
------------- -------------
End of year $ 236,434,954 $ 200,199,764
============= =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The following per share data and ratios have been derived April 29,
from information provided in the financial statements. 1991++ to
For the Year Ended March 31, March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Investment income--net .02 .02 .03
---------- ---------- ----------
Total from investment operations .02 .02 .03
---------- ---------- ----------
Less dividends:
Investment income--net (.02) (.02) (.03)
---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total Investment Return 1.81% 2.24% 3.62%*
========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .60% .53% .42%*
========== ========== ==========
Expenses, net of reimbursement .72% .65% .54%*
========== ========== ==========
Expenses .72% .74% .80%*
========== ========== ==========
Investment income--net 1.79% 2.22% 3.53%*
========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $ 236,435 $ 200,200 $ 194,433
========== ========== ==========
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Michigan Municipal Money Fund (the "Fund") is part of CMA
Multi-State Municipal Series Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end investment management company. The
following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost, which approximates market. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be
adjusted. In the case of a floating rate instrument, the
remaining maturity is the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
withheld) in additional fund shares at net asset value. Dividends
are declared from the total of net investment income, excluding
discounts earned other than original issue discounts. Net
realized capital gains, if any, are normally distributed annually
after deducting prior years' loss carryforward. The Fund may
distribute capital gains more frequently than annually in order
to maintain the Fund's net asset value at $1.00 per share.
(f) Reclassifications--Undistributed investment income--net, in
the amount of $11,663, has been reclassified to accumulated
realized capital losses--net.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.375%
of average daily net assets in excess of $1 billion.
The most restrictive annual expense limitation requires that the
adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed in any fiscal year
2.5% of
43
<PAGE>
the Fund's first $30 million of average daily net assets,
2.0% of the Fund's next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess thereof. No
fee payment will be made to the Investment Adviser during any
year which will cause such expenses to exceed the pro rata
expense limitation at the time of such payment.
CMA MICHIGAN MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of average daily net assets of
the Fund. The distribution fee is to compensate MLPF&S financial
consultants and other directly involved branch office personnel
for selling shares of the Fund and for providing direct personal
services to shareholders. The distribution fee is not
compensation for the administrative and operational services
rendered to the Fund by MLPF&S in processing share orders and
administering shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the period
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
4. Capital Loss Carryforward:
At March 31, 1994, the Fund had a net capital loss carryforward
of approximately $68,000, of which $64,000 expires in 2001 and
$4,000 expires in 2002. These will be available to offset the
amounts of any future taxable gains.
44
<PAGE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, CMA New Jersey Municipal
Money Fund of CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and liabil-
ities, including the schedule of investments, of CMA New Jersey
Municipal Money Fund of CMA Multi-State Municipal Series Trust as
of March 31, 1994, the related statements of operations for the
year then ended and changes in net assets for each of the years
in the two-year period then ended, and the financial highlights
for each of the years in the three-year period then ended and the
period July 30, 1990 (commencement of operations) to March 31,
1991. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position
of CMA New Jersey Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1994, the results of its operations,
the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New Jersey-- $ 10,900 Atlantic County, New Jersey, Improvement Authority Revenue Bonds (Pooled
84.8% Government Loan Program), VRDN, 2.20% due 7/01/2026 (a) $ 10,900
6,000 Bergen County, New Jersey, BAN, 2.82% due 6/28/1994 6,000
10,750 Cape May County, New Jersey, Municipal Utilities Authority, Solid Waste
Resource Recovery Revenue Bonds (Daneco Project), AMT, 2.80% due 11/30/1994 10,750
11,950 Essex County, New Jersey, Improvement Authority Revenue Bonds (Pooled
Government Loan), VRDN, 2.20% due 7/01/2026 (a) 11,950
Floating Rate Trust Certificate, New Jersey:
20,500 Series 1993 A, VRDN, 2.65% due 2/16/1999 (a) 20,500
13,260 Series 1994 D, 2.65% due 5/23/1994 13,260
9,000 Galloway Township, New Jersey, BAN, 3.25% due 7/15/1994 9,012
8,000 Hudson County, New Jersey, BAN, 3.26% due 10/12/1994 8,011
9,410 Hudson County, New Jersey, Improvement Authority Revenue Bonds, VRDN,
2.50% due 7/15/2026 (a) 9,410
12,300 Jersey City, New Jersey, BAN, 3.25% due 9/30/1994 12,306
4,000 Marlboro Township, New Jersey, BAN, 2.65% due 4/15/1994 4,000
5,500 Mercer County, New Jersey, Improvement Authority Revenue Bonds, VRDN,
2.20% due 11/01/1998 (a) 5,500
24,700 Monmouth County, New Jersey, Improvement Authority Revenue Bonds (Pooled
Government Loan Program), VRDN, 2.20% due 8/01/2016 (a) 24,700
3,985 Monmouth County, New Jersey, Revenue Refunding Bonds, Series B, 4.75%
due 7/01/1994 4,006
11,500 New Jersey Building Authority, State Building Revenue Bonds, VRDN,
2.90% due 6/01/1994 (a) 11,500
New Jersey EDA, Dock Facilities Revenue Refunding Bonds
(Bayonne/IMTT Project), VRDN (a):
4,200 Series A, 2.90% due 12/01/2027 4,200
1,600 Series 1993 B, 2.85% due 12/01/2027 1,600
New Jersey EDA, Economic Development Revenue Bonds (a):
400 (Dow Chemical), DDN, 2.60% due 5/01/2001 400
1,500 Refunding (Church & Dwight), VRDN, 2.25% due 12/01/2008 1,500
New Jersey EDA, Economic Development Revenue Bonds, VRDN (a):
9,725 (Benedictine Abbey of Newark), 2.20% due 12/01/2019 9,725
1,900 (Branch/Jersey Avenue Project), 2.05% due 5/01/2011 1,900
7,800 (Center for Aging, Applewood Estates Project), 2.30% due 12/01/2019 7,800
5,000 (Epitaxx, Inc. Project), AMT, 2.45% due 8/01/2016 5,000
1,250 (Holt Hauling & Warehouse I ), AMT, 2.625% due 11/01/2023 1,250
1,900 (Office Courthouse Association Project), AMT, 2.30% due 4/01/2011 1,900
</TABLE>
Portfolio Abbreviations for CMA New Jersey Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
CP Commercial Paper
DDN Daily Demand Notes
EDA Economic Development Authority
GO General Obligation Bonds
PCR Pollution Control Revenue Bonds
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
<PAGE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New Jersey New Jersey EDA, Industrial and Economic Development Revenue Bonds (a):
(concluded) $ 2,900 (Burmah Castrol Inc.), VRDN, 2.05% due 8/01/2005 $ 2,900
2,675 (East Meadow Corp.), VRDN, Series A, 2.30% due 12/01/2006 2,675
4,770 (East Meadow Corp.), VRDN, Series B, 2.30% due 12/01/2006 4,770
1,400 (Elizabeth Realty Urban Renewal Associates), VRDN, AMT, 3.20% due
6/01/2000 1,400
3,200 (Marriott Corp. Project), VRDN, 2.35% due 10/01/2014 3,200
4,100 (Seton Company Project), VRDN, 2.05% due 9/01/2005 4,100
4,000 (Toys 'R' Us, Inc. Project), DDN, 3.05% due 4/01/2019 4,000
New Jersey EDA, PCR (a):
7,450 (Merck & Co. Project), VRDN, Series A, 2.45% due 10/01/2004 7,450
5,700 Refunding (Exxon Project), DDN, 2.60% due 4/01/2022 5,700
New Jersey EDA Revenue Bonds (Chambers Cogeneration Project), CP, AMT:
4,500 2.50% due 4/22/1994 4,500
8,000 2.55% due 4/26/1994 8,000
6,800 New Jersey EDA Revenue Bonds (Hoffman-La Roche Inc. Project), AMT, DDN,
2.90% due 11/01/2011 (a) 6,800
3,000 New Jersey EDA, Revenue Refunding Bonds (400 International Drive Partners),
DDN, 3.25% due 9/01/2005 (a) 3,000
3,150 New Jersey Educational Facilities Finance Authority Revenue Bonds
(College and University Equipment), VRDN, Series A, 2% due 12/01/1995 (a) 3,150
New Jersey Health Care Facilities Finance Authority Revenue Bonds
(Hospital Capital Asset Program), VRDN (a):
2,200 Series A, 2.20% due 7/01/2035 2,200
3,000 Series B, 2.20% due 7/01/2035 3,000
5,000 Series C, 2.20% due 7/01/2035 5,000
3,800 Series D, 2.20% due 7/01/2035 3,800
7,640 New Jersey Sports and Exposition Authority, VRDN, Series C,
2.20% due 9/01/2024 (a) 7,640
1,580 New Jersey State Educational Facilities Authority Revenue Bonds (Princeton
University), Series B, 3% due 7/01/1994 1,580
10,000 New Jersey State Housing and Mortgage Finance Agency Revenue Bonds, 2.90%
due 9/29/1994 10,000
13,300 New Jersey State, TRAN, Series A, 3% due 6/15/1994 13,316
25,000 New Jersey State Turnpike Authority Revenue Refunding Bonds, VRDN, Series
D, 2.15% due 1/01/2018 (a) 25,000
1,000 New Jersey Wastewater Treatment Trust Loan, Revenue Bonds, Series A, 4.75%
due 7/01/1994 1,005
1,020 Parsippany Troy Hills Township, New Jersey, GO, 4.60% due 12/01/1994 1,033
15,502 Passaic County, New Jersey, BAN, 3.25% due 9/30/1994 15,535
Port Authority of New York and New Jersey, CP:
500 2.50% due 4/14/1994 500
4,100 2.50% due 4/21/1994 4,100
7,500 Port Authority of New York and New Jersey, Revenue Bonds (Versatile
Structure Obligation), DDN, Series 1, 2.80% due 8/01/2038 (a) 7,500
3,145 Red Bank, New Jersey, BAN, 2.43% due 5/16/1994 3,146
Salem County, New Jersey, Industrial Pollution Control Financing Authority
Revenue Bonds, Series A :
7,300 (du Pont (E.I.) de Nemours), VRDN, 2.60% due 3/01/2012 (a) 7,300
3,200 (Philadelphia Electric), CP, 2.60% due 5/06/1994 3,200
1,400 Union County, New Jersey, Pollution Control Finance Authority, Revenue
Refunding Bonds (Exxon Project), CP, AMT, 2.45% due 4/28/1994 1,400
</TABLE>
<PAGE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Puerto Rico-- $12,500 Commonwealth of Puerto Rico, Government Development Bank, Revenue
14.7% Refunding Bonds, VRDN, 2% due 12/01/2015 (a) $ 12,500
28,400 Commonwealth of Puerto Rico, TRAN, Series A, 3% due 7/29/1994 28,437
Puerto Rico Industrial, Medical and Environmental, Pollution Control
Facilities Financing Authority Revenue Bonds:
3,300 (Anna G. Mendez Educational Project), CP, 2.55% due 5/06/1994 3,300
4,965 (Key Pharmaceuticals), Series A, 2.80% due 12/01/1994 4,970
2,040 (Merck & Co. Inc. Project), VRDN, Series A, 2.70% due 12/01/1994 (a) 2,039
2,800 (Reynolds Metal Company Project), VRDN, 2.90% due 9/01/1994 (a) 2,801
10,600 Puerto Rico Maritime Shipping Authority, CP, 2.10% due 5/06/1994 10,600
Total Investments (Cost--$439,627*)--99.5% 439,627
Other Assets Less Liabilities--0.5% 2,219
--------
Net Assets--100.0% $441,846
========
<FN>
(a)The interest rate is subject to change periodically based on
certain indexes. The interest rates shown are the rates in
effect at March 31, 1994.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$439,626,985) (Note 1a) $ 439,626,985
Cash. 17,067
Interest receivable 2,534,435
Deferred organization expenses (Note 1d) 11,771
Prepaid registration fees and other assets (Note 1d) 1,439
---------------
Total assets 442,191,697
---------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 188,817
Distributor (Note 2) 76,990
Beneficial interest redeemed 110 265,917
---------------
Accrued expenses and other liabilities 79,564
---------------
Total liabilities 345,481
---------------
Net Assets $ 441,846,216
===============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 44,189,461
Paid-in capital in excess of par 397,705,150
Undistributed investment income--net 657
Accumulated realized capital losses--net (49,052)
---------------
Net Assets--Equivalent to $1.00 per share based on 441,894,611 shares of
beneficial interest outstanding $ 441,846,216
===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
<TABLE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 10,030,257
Expenses:
Investment advisory fees (Note 2) $ 2,007,881
Distribution fees (Note 2) 500,084
Accounting services (Note 2) 77,262
Transfer agent fees (Note 2) 57,377
Printing and shareholder reports 44,119
Professional fees 39,784
Custodian fees 39,377
Registration fees (Note 1d) 29,171
Amortization of organization expenses (Note 1d) 8,858
Pricing fees 8,219
Trustees' fees and expenses 4,846
Other 3,333
---------------
Total expenses 2,820,311
---------------
Investment income--net 7,209,946
Realized Loss on Investments--Net (Note 1c) (33,363)
---------------
Net Increase in Net Assets Resulting from Operations $ 7,176,583
===============
</TABLE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <C> <C>
Operations:
Investment income--net $ 7,209,946 $ 7,679,877
Realized gain (loss) on investments--net (33,363) 18,368
--------------- ---------------
Net increase in net assets resulting from operations 7,176,583 7,698,245
--------------- ---------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (7,205,111) (7,675,535)
Realized gain on investments--net (42,440) (16,635)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (7,247,551) (7,692,170)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 1,451,838,155 1,330,654,723
Net asset value of shares issued to shareholders in reinvestment
of dividends and distributions (Note 1e) 7,227,727 7,691,903
--------------- ---------------
1,459,065,882 1,338,346,626
Cost of shares redeemed (1,406,051,737) (1,299,507,870)
--------------- ---------------
Net increase in net assets derived from beneficial
interest transactions 53,014,145 38,838,756
--------------- ---------------
Net Assets:
Total increase in net assets 52,943,177 38,844,831
Beginning of year 388,903,039 350,058,208
--------------- ---------------
End of year* $ 441,846,216 $ 388,903,039
=============== ===============
<FN>
*Undistributed investment income--net $ 657 $ 11,878
=============== ===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The following per share data and ratios have been derived July 30,
from information provided in the financial statements. For the Year Ended 1990++ to
March 31, March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment income--net . .02 .02 .03 .03
-------- -------- -------- --------
Total from investment operations .02 .02 .03 .03
-------- -------- -------- --------
Less dividends:
Investment income--net (.02) (.02) (.03) (.03)
-------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Investment Return 1.82% 2.21% 3.49% 4.95%*
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .58% .58% .62% .52%*
======== ======== ======== ========
Expenses, net of reimbursement .70% .70% .74% .64%*
======== ======== ======== ========
Expenses .70% .70% .74% .76%*
======== ======== ======== ========
Investment income--net 1.80% 2.16% 3.42% 4.74%*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $441,846 $388,903 $350,058 $356,475
======== ======== ======== ========
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA New Jersey Municipal Money Fund (the "Fund") is part of CMA
Multi-State Municipal Series Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end investment management company. The follow-
ing is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost which approximates market. For the purpose of valuation, the
maturity of a variable rate demand instrument is deemed to be the
next coupon date on which the interest rate is to be adjusted. In
the case of a floating rate instrument, the remaining maturity is
the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the re-
quirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security trans-
actions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization
of premium and discount) is recognized on the accrual basis. Re-
alized gains and losses on security transactions are determined
on the identified cost basis.
(d) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
withheld) in additional fund shares at net asset value. Dividends
are declared from the total of net investment income, excluding dis-
ounts earned other than original issue discounts. Net realized
capital gains, if any, are normally distributed annually after
deducting prior years' loss carryforward. The Fund may distribute
capital gains more frequently than annually in order to maintain
the Fund's net asset value at $1.00 per share.
(f) Reclassifications--Undistributed investment income--net in
the amount of $16,056 has been reclassified to accumulated re-
alized capital losses--net.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and cer-
tain other services necessary to the operations of the Fund. For
such services, the Fund pays a monthly fee based upon the average
daily value of the Fund's net assets, at the following annual rates:
0.50% of the first $500 million of average daily net assets; 0.425%
of average daily net assets in excess of $500 million but not ex-
ceeding $1 billion; and 0.375% of average daily net assets in excess
of $1 billion.
The most restrictive annual expense limitation requires that the
adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed in any fiscal year
2.5% of
<PAGE>
the Fund's first $30 million of average daily net assets, 2.0%
of the Fund's next $70 million of average daily net assets, and
1.5% of the average daily net assets in excess thereof. No fee
payment will be made to the Investment Adviser during any year
which will cause such expenses to exceed the pro rata expense lim-
itation at the time of such payment.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of average daily net assets of
the Fund. The distribution fee is to compensate MLPF&S financial
consultants and other directly involved branch office personnel
for selling shares of the Fund and for providing direct personal
services to shareholders. The distribution fee is not compensa-
tion for the administrative and operational services rendered to
the Fund by MLPF&S in processing share orders and administering
shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the periods
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
<PAGE>
CMA NEW YORK MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA New York Municipal Money Fund of
CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of
CMA New York Municipal Money Fund of CMA Multi-State
Municipal Series Trust as of March 31, 1994, the related
statements of operations for the year then ended and
changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial
statements and the financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of CMA New York Municipal Money Fund of CMA
Multi-State Municipal Series Trust as of March 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA NEW YORK MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New York-- $ 29,117 Albany County, New York, 2.90% due 6/15/1994 $ 29,117
98.9% 3,800 Babylon, New York, IDA, Resource Recovery Revenue Bonds, VRDN, AMT, 3.05%
due 12/01/2024 (a) 3,800
10,295 Brentwood, New York, Unified Free School District, TAN, 3.25% due 6/30/1994 10,301
1,715 Brookhaven, New York, Public Improvement Revenue Refunding Bonds, 2.70%
due 6/15/1994 1,715
7,800 Buffalo, New York, RAN, Series A, 2.75% due 7/14/1994 7,808
7,200 Eagle Tax Exempt Trust, New York, VRDN, Series 1994-C4, 2.24% due
8/01/2003 (a) 7,200
280 Fallsburg, New York, Public Improvement Refunding Bonds, Series B, 2.60%
due 4/01/1994 280
2,100 Great Neck, New York, Water and Sewer Authority Revenue Refunding Bonds,
VRDN, Series A, 2% due 1/01/2020 (a) 2,100
32,500 Metropolitan Transit Authority, New York, Commuter Facilities Revenue
Bonds, VRDN, 2.05% due 7/01/2021 (a) 32,500
Monroe County, New York:
11,000 BAN, 3% due 6/10/1994 11,009
23,400 RAN, 3% due 4/29/1994 23,405
20,000 RAN, 3.25% due 4/29/1994 20,009
1,000 Monroe County, New York, Public Improvement Bonds, 7% due 6/01/1994 1,007
1,265 Municipal Assistance Corporation, City of New York, New York, Series 68,
6.60% due 7/01/1994 1,277
Nassau County, New York, BAN:
15,000 3.25% due 8/15/1994 15,024
2,700 Series A, 3.25% due 8/15/1994 2,702
1,100 Nassau County, New York, IDA, Civic Facility Revenue Bonds (Cold Spring Harbor
Lab Project), DDN, 3.25% due 7/01/2019 (a) 1,100
2,200 New York City, New York, Cultural Resource Revenue Bonds (Museum of
Broadcasting), VRDN, 2.30% due 5/01/2014 (a) 2,200
New York City, New York, GO, DDN (a):
1,900 Series B, 2.60% due 10/01/2020 1,900
300 Series B, 2.60% due 10/01/2021 300
400 Series D, 2.85% due 2/01/2021 400
New York City, New York, Housing Development Corporation, Special
Obligation Revenue Bonds, VRDN, Series A (a):
14,000 (East 96th Street Project), 2.10% due 8/01/2015 14,000
2,000 (Upper Fifth Avenue Project), 1.80% due 1/01/2016 2,000
4,400 New York City, New York, IDA, Civic Facilities Revenue Bonds (Children's
Oncology Society/Ronald McDonald House), VRDN, 1.90% due 5/01/2021 (a) 4,400
New York City, New York, IDA, IDR, AMT, VRDN (a):
1,400 Composite XXV, Series E, 2.10% due 11/01/2010 1,400
1,950 Series K, 2.10% due 11/01/2010 1,950
3,000 New York City, New York, IDA, Revenue Bonds (Japan Airlines Co. Ltd.), AMT,
VRDN, 2.90% due 11/01/2015 (a) 3,000
New York City, New York, Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds, BAN, Series A:
24,275 2.75% due 4/15/1994 24,274
19,815 3.75% due 12/15/1994 19,939
75,530 New York City, New York, RAN, Series B, 3.50% due 6/30/1994 75,668
11,990 New York City, New York, TAN, CP, Series A, 3.125% due 4/08/1994 11,992
New York City, New York, Trust Cultural Resource Revenue Refunding
Bonds, VRDN (a):
9,000 (American Natural Museum), Series A, 2.10% due 4/01/2021 9,000
1,000 (Soloman R. Guggenheim), Series B, 3.25% due 12/01/2015 1,000
</TABLE>
Portfolio Abbreviations for CMA New York Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
CP Commercial Paper
DDN Daily Demand Notes
GO General Obligation Bonds
HFA Housing Finance Authority
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
S/F Single-Family
TAN Tax Anticipation Notes
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
<PAGE>
CMA NEW YORK MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New York New York City, New York, VRDN (a):
(continued) $ 600 Series B, 2.60% due 10/01/2022 $ 600
300 Subseries B-2, 2.60% due 8/15/2019 300
250 New York State Dormitory Authority Revenue Bonds (College Entrance Exam
Board), 2.80% due 7/01/1994 250
New York State Dormitory Authority Revenue Bonds (Memorial Sloan Kettering
Cancer Center), CP:
14,900 Series A, 2.75% due 6/14/1994 14,900
5,000 Series A, 2.75% due 7/15/1994 5,000
5,400 Series B, 2.40% due 5/16/1994 5,400
19,300 Series B, 2.75% due 6/14/1994 19,300
18,200 Series C, 2.75% due 6/17/1994 18,200
1,600 Series D, 2.35% due 5/16/1994 1,600
10,600 Series D, 2.75% due 6/14/1994 10,600
1,365 Series D, 2.75% due 6/17/1994 1,365
New York State Dormitory Authority Revenue Bonds:
8,000 (Metropolitan Museum of Art), VRDN, Series A, 1.90% due 7/01/2015 (a) 8,000
300 (Rochester Institute), 2.70% due 7/01/1994 300
16,815 (Saint Vincent's Hospital), 9.50% due 7/01/1994 (b) 17,435
8,000 New York State Energy Research and Development Authority, PCR (New York
State Electric and Gas Corp.), 2.80% due 12/01/1994 8,003
29,900 New York State Energy Research and Development Authority, PCR (Niagara
Mohawk Corporation Project), AMT, DDN, Series B, 2.75% due 7/01/2027 (a) 29,900
New York State Energy Research and Development Authority, PCR, Series A:
7,000 (Central Hudson Gas and Electric Company), VRDN, AMT, 1.90% due
6/01/2027 (a) 7,000
8,735 (Lilco Project), 3% due 3/01/1995 8,735
600 (Niagara Mohawk Corporation Project), DDN, 3.25% due 3/01/2027 (a) 600
700 (Niagara Mohawk Power), VRDN, AMT, 2.75% due 12/01/2023 (a) 700
5,000 New York State Energy Research and Development Authority Revenue Bonds (Long
Island Lighting Co.), AMT, Series B, 2.85% due 11/01/1994 5,000
New York State Environmental Facilities Corporation, Solid Waste Disposal
Revenue Bonds (General Electric Company Project), AMT, Series A:
3,300 2.65% due 6/17/1994 3,300
7,800 2.55% due 7/22/1994 7,800
12,000 New York State Floating Rate Treasury Certificates (Societe Generale),
VRDN, Series A, 2.30% due 3/02/2003 (a) 12,000
New York State HFA Revenue Bonds, VRDN (a):
18,000 (Normandie Court I), 2.30% due 5/15/2015 18,000
15,350 (Normandie Court II), AMT, Series A, 2.30% due 11/01/2002 15,350
New York State Job Development Authority (a):
1,950 DDN, AMT, Series A, 3.10% due 3/01/2003 1,950
285 DDN, AMT, Series B, 3.10% due 3/01/2003 285
125 VRDN, 1984 Series C, 2.45% due 3/01/1999 125
1,365 VRDN, 1984 Series E, 2.45% due 3/01/1999 1,365
215 VRDN, 1984 Series F, 2.45% due 3/01/1999 215
15 VRDN, 1984 Series G, 2.45% due 3/01/1999 15
340 VRDN, Series A, 2.50% due 3/01/2000 340
2,585 VRDN, Series B, 2.50% due 3/01/2000 2,585
5,080 VRDN, Series C, 2.50% due 3/01/2000 5,080
3,930 VRDN, Series D, 2.50% due 3/01/2000 3,930
</TABLE>
<PAGE>
CMA NEW YORK MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New York New York State Local Government Assistance Corporation, VRDN (a):
(concluded) $ 26,200 Series A, 2% due 4/01/2022 $ 26,200
16,000 Series B, 2.30% due 4/26/1994 16,000
New York State Medical Care Facilities, Finance Agency Revenue Bonds, VRDN (a):
6,400 (Children's Hospital of Buffalo), Series A, 2.10% due 11/01/2005 6,400
8,500 (Pooled Equipment Loan Program), 2% due 11/01/2015 8,500
6,285 New York State Mortgage Agency Revenue Bonds, Series 31C, 2.80% due
6/01/1994 6,285
31,345 New York State Power Authority, Revenue and General Purpose Bonds
(Junior Lien), 2.75% due 9/01/1994 31,345
500 Niagara Falls, New York, Revenue Refunding Bonds, Series A, 2.90% due
6/15/1994 500
365 North Greenbush, New York, IDA, IDR, Refunding (Rensselear Polytechnical
Institute), 2.75% due 4/01/1994 365
625 North Hempstead, New York, RAN, 3% due 5/27/1994 626
Port Authority, New York and New Jersey, CP:
6,500 2.70% due 6/10/1994 6,500
23,200 2.70% due 6/17/1994 23,200
230 Riverhead, New York, Refunding Bonds, Series B, 2.75% due 6/15/1994 230
11,547 Rochester, New York, 3.30% due 3/13/1995 11,549
2,380 Saint Lawrence County, New York, IDA, Civic Facilities Revenue Bonds (Clarkson
University Project), VRDN, 2.30% due 10/01/2005 (a) 2,380
37,400 Suffolk County, New York, IDA, IDR, Refunding (Nissequogue Cogen Partners),
VRDN, 2.20% due 12/15/2023 (a) 37,400
6,700 Suffolk County, New York, Water Authority, BAN, 3.25% due 5/02/1994 6,704
585 Sullivan County, New York, Public Improvement Refunding Bonds, 3.20% due
3/15/1995 585
Puerto Rico-- 4,100 Puerto Rico Commonwealth, Government Development Bank, Revenue Refunding
2.3% Bonds, VRDN, 2% due 12/01/2015 (a) 4,100
750 Puerto Rico Commonwealth, TRAN, Series A, 3% due 7/29/1994 751
4,460 Puerto Rico Housing Bank and Finance Agency, S/F Revenue Bonds, 7.0388% due
12/01/1994 (b) 4,729
4,300 Puerto Rico Industrial, Medical and Environmental Pollution Control
Facility Financing Authority Revenue Bonds, Series A, 2.80% due 12/01/1994 4,300
4,180 Puerto Rico Maritime Shipping Authority, CP, 2.50% due 6/17/1994 4,180
Total Investments (Cost--$782,134*)--101.2% 782,134
Liabilities in Excess of Other Assets--(1.2%) (9,374)
--------
Net Assets--100.0% $772,760
========
<FN>
(a)The interest rate is subject to change periodically based on
certain indexes. The interest rate shown is the rate in effect
at March 31, 1994.
(b)Prerefunded; to be called.
*Cost for Federal income tax purposes.
See Notes to Financial Statments.
</TABLE>
<PAGE>
CMA NEW YORK MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$782,134,190) (Note 1a) $ 782,134,190
Cash 22,895
Interest receivable 5,996,320
Prepaid registration fees and other assets (Note 1d) 294,731
---------------
Total assets 788,448,136
---------------
Liabilities:
Payables:
Securities purchased $ 15,110,593
Investment adviser (Note 2) 313,404
Distributor (Note 2) 134,165 15,558,162
---------------
Accrued expenses and other liabilities 130,171
---------------
Total liabilities 15,688,333
---------------
Net Assets $ 772,759,803
===============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 77,340,149
Paid-in capital in excess of par 696,061,344
Undistributed investment income--net 12,534
Accumulated realized capital losses--net (Note 4) (654,224)
---------------
Net Assets--Equivalent to $1.00 per share based on 773,401,493
shares of beneficial interest outstanding $ 772,759,803
===============
</TABLE>
CMA NEW YORK MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 17,080,144
Expenses:
Investment advisory fees (Note 2) $ 3,347,951
Distribution fees (Note 2) 872,640
Transfer agent fees (Note 2) 107,551
Accounting services (Note 2) 96,107
Printing and shareholder reports 59,641
Custodian fees 52,543
Professional fees 44,761
Registration fees (Note 1d) 41,325
Pricing fees 13,084
Trustees' fees and expenses 7,247
Amortization of organization expenses (Note 1d) 4,370
Other 5,868
--------------
Total expenses 4,653,088
---------------
Investment income--net 12,427,056
Realized Loss on Investments--Net (Note 1c) (358,449)
---------------
Net Increase in Net Assets Resulting from Operations $ 12,068,607
===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NEW YORK MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS For the Year Ended March 31,
1994 1993
Increase (Decrease) in Net Assets:
<S> <C> <C>
Operations:
Investment income--net $ 12,427,056 $ 13,528,113
Realized loss on investments--net (358,449) (210,554)
-------------- ---------------
Net increase in net assets resulting from operations 12,068,607 13,317,559
-------------- ---------------
Dividends to Shareholders (Note 1e):
Investment income--net (12,413,890) (13,526,666)
-------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (12,413,890) (13,526,666)
-------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 2,518,353,375 2,342,884,979
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1e) 12,413,591 13,527,081
-------------- ---------------
2,530,766,966 2,356,412,060
Cost of shares redeemed (2,423,631,596) (2,316,001,005)
-------------- ---------------
Net increase in net assets derived from beneficial interest transactions 107,135,370 40,411,055
-------------- ---------------
Net Assets:
Total increase in net assets 106,790,087 40,201,948
Beginning of year 665,969,716 625,767,768
-------------- ---------------
End of year* $ 772,759,803 $ 665,969,716
============== ===============
<FN>
*Undistributed investment income--net $ 12,534 $ 324,658
============== ===============
</TABLE>
<PAGE>
CMA NEW YORK MUNICIPAL MONEY FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment income--net .02 .02 .03 .05 .05
-------- -------- -------- -------- --------
Total from investment operations .02 .02 .03 .05 .05
-------- -------- -------- -------- --------
Less dividends:
Investment income--net (.02) (.02) (.03) (.05) (.05)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Investment Return 1.79% 2.19% 3.37% 4.86% 5.35%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .54% .55% .55% .57% .59%
======== ======== ======== ======== ========
Expenses, net of reimbursement .67% .67% .68% .69% .71%
======== ======== ======== ======== ========
Expenses .67% .67% .68% .69% .72%
======== ======== ======== ======== ========
Investment income--net 1.78% 2.16% 3.31% 4.73% 5.23%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of year (in thousands) $772,760 $665,970 $625,768 $633,819 $544,197
======== ======== ======== ======== ========
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NEW YORK MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA New York Municipal Money Fund (the "Fund") is part of CMA
Multi-State Municipal Series Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end investment management company. The
following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Investments are valued at
amortized cost which approximates market. For the purpose of
valuation, the maturity of a variable rate demand instrument is
deemed to be the next coupon date on which the interest rate is
to be adjusted. In the case of a floating rate instrument, the
remaining maturity is the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
withheld) in additional fund shares at net asset value. Dividends
are declared from the total of net investment income, excluding
discounts earned other than original issue discounts. Net
realized capital gains, if any, are normally distributed annually
after deducting prior years' loss carryforward. The Fund may
distribute capital gains more frequently than annually in order to
maintain the Fund's net asset value at $1.00 per share.
(f) Reclassification--Undistributed investment income--net, in
the amount of $325,290, has been reclassified to accumulated
realized capital losses--net.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.375%
of average daily net assets in excess of $1 billion.
The most restrictive annual expense limitation requires that the
Adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed in any fiscal year
2.5% of the Fund's first $30 million of average daily net assets,
2.0% of the Fund's next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess thereof. No
fee payment will be made to the Adviser
<PAGE>
during any year which will cause such expenses to exceed the
pro rata expense limitation at the time of such payment.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of the average daily net
assets of the Fund. The distribution fee is to compensate MLPF&S
financial consultants and other directly involved branch office
personnel for selling shares of the Fund and for providing direct
personal services to shareholders. The distribution fee is not
compensation for the administrative and operational services
rendered to the Fund by MLPF&S in processing share orders and
administering shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the period
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
4. Capital Loss Carryforward:
At March 31, 1994, the Fund had a net capital loss carryforward
of approximately $583,000, of which $87,000 expires in 1998,
$203,000 expires in 2001, and $293,000 expires in 2002. These
will be available to offset like amounts of any future taxable
gains.
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA North Carolina Municipal Money Fund
of CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of CMA
North Carolina Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1994, the related statements of
operations for the year then ended and changes in net assets
for each of the years in the two-year period then ended, and
the financial highlights for the two-year period then ended
and the period May 28, 1991 (commencement of operations) to
March 31, 1992. These financial statements and the financial
highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of CMA North Carolina Municipal Money Fund of
CMA Multi-State Municipal Series Trust as of March 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
North $ 1,000 Beaufort County, North Carolina, Industrial Facilities and Pollution Control
Carolina--84.5% Finance Authority Revenue Bonds (Texasgulf, Inc. Project), VRDN, Series 1985,
2.45% due 12/01/2000 (a) $ 1,000
1,100 Buncombe County, North Carolina (School and Community Project), BAN, 2.38%
due 4/27/1994 1,100
3,000 Carteret County, North Carolina, Industrial Facilities and Pollution Control
Finance Authority, IDR (Texasgulf, Inc. Project), VRDN, 2.45% due 10/01/2005 (a) 3,000
12,100 Charlotte, North Carolina, Airport Revenue Refunding Bonds, VRDN, Series A,
2.25% due 7/01/2016 (a) 12,100
Charlotte, North Carolina, Revenue Bonds:
1,000 5% due 7/01/1994 1,006
1,000 7% due 7/01/1994 1,011
6,600 Charlotte, North Carolina, Revenue Refunding Bonds, 6.70% due 7/01/1994 6,669
Craven County, North Carolina, Industrial Facilities and Pollution Control Finance
Authority Revenue Bonds (Cravenwood Energy Project), DDN, AMT (a):
2,440 Series A, 2.75% due 5/01/2011 2,440
10,600 Series B, 2.75% due 5/01/2011 10,600
300 Series C, 2.75% due 5/01/2011 300
Cumberland County, North Carolina, Industrial Facilities and Pollution Control
Finance Authority, Revenue Refunding Bonds (Monsanto Co. Project), VRDN (a):
1,715 2.10% due 6/01/2012 1,715
600 2.10% due 10/01/2014 600
2,524 Duplin County, North Carolina, Water District Bonds, BAN, 2.60% due 4/06/1994 2,524
9,769 FB North Carolina, Floating Trust Certificates, VRDN, Series I, 2.30% due
7/01/1995 (a) 9,769
2,000 Gaston County, North Carolina, Industrial Facilities and Pollution Control Finance
Authority Revenue Bonds (Mount Holly Enterprises/Queens G.P. Inc), VRDN,
AMT, 2.55% due 5/01/2004 (a) 2,000
Granville County, North Carolina, Industrial Facilities and Pollution Control
Finance Authority Revenue Bonds, VRDN, AMT (a):
4,000 (Mayville Metal Production Project), 2.40% due 5/23/2020 4,000
2,800 (Tuscarora Plastics, Inc. Project), 2.55% due 12/01/2001 2,800
500 Greene County, North Carolina, Industrial Facilities and Pollution Control
Finance Authority, IDA, Revenue Bonds (Federal Paper Board Company Inc.
Project), VRDN, AMT, 2.45% due 11/01/2009 (a) 500
850 Guilford County, North Carolina, GO, 5.25% due 4/01/1994 850
1,185 Guilford County, North Carolina, Refunding Bonds, GO, 4.80% due 4/01/1994 1,185
8,000 Halifax County, North Carolina, Industrial Facilities and Pollution Control Finance
Authority Revenue Bonds (Westmoreland Project), DDN, AMT, 3% due
12/01/2019 (a) 8,000
8,050 Iredell County, North Carolina, Industrial Facilities and Pollution Control Finance
Authority Revenue Bonds (Rubbermaid Specialty Products, Inc.), 2.65% due
6/01/1994 8,050
</TABLE>
Portfolio Abbreviations for CMA North Carolina Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
COP Certificates of Participation
CP Commercial Paper
DDN Daily Demand Notes
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
North Carolina $ 3,700 Lenoir County, North Carolina, Industrial Facilities and Pollution Control Finance
(continued) Authority Revenue Bonds (West Co. Nebraska, Inc. Project), VRDN, 2.40% due
10/01/2005 (a) $ 3,700
9,500 Lincoln County, North Carolina, Industrial Facilities and Pollution Control
Finance Authority Revenue Bonds (Hof Textiles Inc. Project), VRDN, AMT,
2.25% due 10/01/2011 (a) 9,500
Mecklenberg County, North Carolina, Industrial Facilities and Pollution Control
Finance Authority Revenue Bonds:
1,000 (Edgecomb Metals Company Project), VRDN, 2.325% due 12/01/2009 (a) 1,000
1,000 (Flawa Corp. Project), AMT, 2.10% due 12/01/2008 1,000
North Carolina Eastern Municipal Power Agency, Power System Revenue
Bonds, CP, Series B:
4,950 2.55% due 4/07/1994 4,950
2,000 2.50% due 5/19/1994 2,000
5,000 2.70% due 7/13/1994 5,000
5,800 2.50% due 7/14/1994 5,800
North Carolina Educational Facilities Finance Agency Revenue Bonds, VRDN (a):
7,350 (Bowman Grey School of Medicine Project), 2.20% due 9/01/2020 7,350
1,500 (Duke University Project), Series A, 2.15% due 6/01/2027 1,500
5,600 (Duke University Project), Series B, 2.15% due 12/01/2021 5,600
3,900 (Various Duke University Project), Series A, 2.15% due 12/01/2017 3,900
2,700 (Wake Forest University Project), 1.95% due 1/01/2009 2,700
North Carolina Medical Care Commission, Hospital Revenue Bonds:
5,100 (Duke University Hospital), VRDN, Series B, 2.15% due 6/01/2015 (a) 5,100
1,130 (Duke University Hospital), VRDN, Series D, 2.15% due 6/01/2015 (a) 1,130
11,600 (North Carolina Baptist Hospital Project), VRDN, Series B, 2.20% due
6/01/2022 (a) 11,600
8,900 (Park Ridge Hospital Project), VRDN, 2.25% due 8/15/2018 (a) 8,900
6,400 (Pooled Equipment Finance Project), VRDN, 2.30% due 12/01/2025 (a) 6,400
8,540 (Wesley Long Community Hospital Project), 2.85% due 4/01/1994 8,540
600 (Wilson Memorial Hospital Project), 5.80% due 11/01/1994 611
7,600 North Carolina Medical Care Commission Revenue Bonds (Carol Woods Project),
DDN, 3.05% due 4/01/2021 (a) 7,600
21,600 North Carolina Medical Care Commission, Revenue Refunding Bonds (Moses H.
Cone Memorial Hospital Project), VRDN, 2.20% due 10/01/2023 (a) 21,600
1,000 North Carolina State, GO, 5.70% due 6/01/1994 1,005
700 Rowan County, North Carolina, Industrial Facilities and Pollution Control
Finance Authority Revenue Bonds (Reynolds Metals Company Project), VRDN,
2.70% due 6/01/1994 (a) 700
</TABLE>
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
North Carolina $ 9,000 Union County, North Carolina, Industrial Facilities and Pollution Control
(concluded) Financing Authority, IDR, Refunding (Square D Co. Project), VRDN, 2.20% due
3/01/2003 (a) $ 9,000
4,500 University of North Carolina, Chapel Hill Foundation, Inc., COP, CP, 2% due
4/22/1994 4,500
4,250 University of North Carolina, Chapel Hill Revenue Bonds (Kenan Memorial
Stadium), VRDN, 2.30% due 11/01/2007 (a) 4,250
3,000 University of North Carolina, Chapel Hill, School of Medicine and Ambulatory
Care Clinic Revenue Bonds, 2.30% due 10/01/2002 3,000
Wake County, North Carolina, Industrial Facilities and Pollution Control Finance
Authority Revenue Bonds:
200 (Carolina Power and Light Company), DDN, AMT, 3.10% due 3/01/2017 (a) 200
4,500 (Carolina Power and Light Company), VRDN, Series C, 2.40% due
10/01/2015 (a) 4,500
5,000 (P and L Company Project), CP, 2.35% due 4/06/1994 5,000
2,000 Wayne County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority, Revenue Refunding Bonds, VRDN, 2.20% due 12/01/2000 (a) 2,000
1,350 Winston-Salem, North Carolina, Urban Redevelopment, Mortgage Revenue
Refunding Bonds (Summit Square Gardens Apts.), CP, 2.05% due 4/27/1994 1,350
6,000 Winston-Salem, North Carolina, Water and Sewer System Revenue Bonds, CP,
2.65% due 6/16/1994 6,000
Puerto Rico-- 30,185 Commonwealth of Puerto Rico, TRAN, Series A, 3% due 7/29/1994 30,218
15.0% 600 Puerto Rico Commonwealth, Government Development Bank, Revenue Refunding
Bonds, VRDN, 2% due 12/01/2015 (a) 600
5,000 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, VRDN, Series X, 2.05% due 7/01/1999 (a) 5,000
Puerto Rico, Industrial, Medical and Environmental Pollution Control Facilities,
Financing Authority Revenue Bonds:
1,700 (Anna G. Mendez Foundation), CP, 1.85% due 4/22/1994 1,700
2,250 (Merck & Co. Inc. Project), Series A, VRDN, 2.70% due 12/01/1994 2,250
4,000 (Reynolds Metal Co. Project), VRDN, 2.90% due 9/01/1994 4,002
Total Investments (Cost--$291,975*)--99.5% 291,975
Other Assets Less Liabilities--0.5% 1,477
--------
Net Assets--100.0% $293,452
========
<FN>
(a)The interest rate is subject to change periodically based on certain indexes.
The interest rates shown are the rates in effect at March 31, 1994.
* Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$291,974,570) (Note 1a) $ 291,974,570
Cash 199,935
Interest receivable 1,461,743
Deferred organization expenses (Note 1d) 17,459
Prepaid registration fees and other assets (Note 1d) 933
-------------
Total assets 293,654,640
-------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 98,249
Distributor (Note 2) 49,544
Beneficial interest redeemed 31 147,824
------------
Accrued expenses and other liabilities 54,984
-------------
Total liabilities 202,808
-------------
Net Assets $ 293,451,832
=============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 29,346,696
Paid-in capital in excess of par 264,120,266
Undistributed investment income--net 298
Accumulated realized capital losses--net (Note 4) (15,428)
-------------
Net Assets--Equivalent to $1.00 per share based on 293,466,962 shares of beneficial
interest outstanding $ 293,451,832
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 5,834,768
Expenses:
Investment advisory fees (Note 2) $ 1,193,861
Distribution fees (Note 2) 297,463
Transfer agent fees (Note 2) 41,338
Professional fees 35,378
Accounting services (Note 2) 34,996
Registration fees (Note 1d) 23,335
Custodian fees 21,411
Printing and shareholder reports 21,118
Amortization of organization expenses (Note 1d) 8,097
Pricing fees 7,678
Trustees' fees and expenses 3,053
Other 2,088
------------
Total expenses before reimbursement 1,689,816
Reimbursement of expenses (Note 2) (238,772)
------------
Total expenses after reimbursement 1,451,044
-------------
Investment income--net 4,383,724
Realized Loss on Investments--Net (Note 1c) (14,754)
-------------
Net Increase in Net Assets Resulting from Operations $ 4,368,970
=============
</TABLE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
1994 1993
Increase (Decrease) in Net Assets:
<S> <C> <C>
Operations:
Investment income--net $ 4,383,724 $ 4,913,631
Realized gain (loss) on investments--net (14,754) 105
------------- -------------
Net increase in net assets resulting from operations 4,368,970 4,913,736
------------- -------------
Dividends to Shareholders (Note 1e):
Investment income--net (4,380,466) (4,912,181)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (4,380,466) (4,912,181)
------------- -------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 819,514,191 856,834,367
Net asset value of shares issued to shareholders in reinvestment of dividends
(Note 1e) 4,380,479 4,912,146
------------- -------------
823,894,670 861,746,513
Cost of shares redeemed (765,815,611) (847,423,772)
------------- -------------
Net decrease in net assets derived from beneficial interest transactions 58,079,059 14,322,741
------------- -------------
Net Assets:
Total increase in net assets 58,067,563 14,324,296
Beginning of year 235,384,269 221,059,973
------------- -------------
End of year* $ 293,451,832 $ 235,384,269
============= =============
<FN>
* Undistributed investment income--net $ 298 $ 1,692
============= =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The following per share data and ratios have been derived May 28,
from information provided in the financial statements. 1991++
For the Year Ended March 31, to March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Investment income--net .02 .02 .03
---------- ---------- ----------
Total from investment operations .02 .02 .03
---------- ---------- ----------
Less dividends:
Investment income--net (.02) (.02) (.03)
---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total Investment Return 1.85% 2.25% 3.49%*
========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .48% .45% .33%*
========== ========== ==========
Expenses, net of reimbursement .61% .57% .45%*
========== ========== ==========
Expenses .71% .73% .83%*
========== ========== ==========
Investment income--net 1.84% 2.20% 3.25%*
========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $ 293,452 $ 235,384 $ 221,060
========== ========== ==========
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA North Carolina Municipal Money Fund (the "Fund") is part of
CMA Multi-State Municipal Series Trust (the "Trust"). The Fund
is registered under the Investment Company Act of 1940 as a non-
diversified, open-end investment management company. The
following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost, which approximates market. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be
adjusted. In the case of a floating rate instrument, the
remaining maturity is the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
withheld) in additional fund shares at net asset value. Dividends
are declared from the total of net investment income, excluding
discounts earned other than original issue discounts. Net
realized capital gains, if any, are normally distributed annually
after deducting prior years' loss carryforward. The Fund may
distribute capital gains more frequently than annually in order
to maintain the Fund's net asset value at $1.00 per share.
(f) Reclassifications--Undistributed investment income--net, in
the amount of $4,652, has been reclassified to accumulated
realized capital losses--net.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.375%
of average daily net assets in excess of $1 billion. FAM has
elected to waive a portion of its fee. For the year ended March
31, 1994, FAM earned a fee of $1,193,861, of which $238,772 was
voluntarily waived.
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
The most restrictive annual expense limitation requires that the
adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed in any fiscal year
2.5% of the Fund's first $30 million of average daily net assets,
2.0% of the next $70 million of average daily net assets, and
1.5% of the average daily net assets in excess thereof. No fee
payment will be made to the Investment Adviser during any year
which will cause such expenses to exceed the pro rata expense
limitation at the time of such payment.
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of the average daily net
assets of the Fund. The distribution fee is to compensate MLPF&S
financial consultants and other directly involved branch office
personnel for selling shares of the Fund and for providing direct
personal services to shareholders. The distribution fee is not
compensation for the administrative and operational services
rendered to the Fund by MLPF&S in processing share orders and
administering shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the period
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
4. Capital Loss Carryforward:
At March 31, 1994, the Fund had a net capital loss carryforward
of approximately $15,400, of which $5,100 expires in 2001 and
$10,300 expires in 2002. This amount will be available to offset
like amounts of any future taxable gains.
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Ohio Municipal Money Fund of
CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of
CMA Ohio Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1994, the related statements of
operations for the year then ended and changes in net assets
for each of the years in the two-year period then ended,
and the financial highlights for the two-year period then
ended and the period April 29,1991 (commencement of operations)
to March 31,1992. These financial statements and the financial
highlights are the responsibility of the Fund's managment.
Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of CMA Ohio Municipal Money Fund of CMA Multi-
State Municipal Series Trust as of March 31, 1994, the results of
its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Ohio--99.3% $3,500 Akron, Ohio, Sanitation Sewer System Improvement Notes, 2.80% due 6/15/1994 $ 3,502
1,800 Cadiz, Ohio, BAN, 3.20% due 9/14/1994 1,802
3,000 Centerville, Ohio, City School District, BAN, 2.50% due 6/29/1994 3,000
Cincinnati, Ohio, Student Loan Funding Corporation, Student Loan Revenue
Bonds, VRDN (a):
1,500 AMT, Series A-1, 2.30% due 1/01/2007 1,500
1,000 AMT, Series A-2, 2.30% due 1/01/2007 1,000
4,200 AMT, Series A-3, 2.30% due 1/01/2007 4,200
700 AMT, Series A-3, 2.30% due 1/01/2017 700
1,000 Series 1983 A, 2.25% due 12/29/1998 1,000
3,900 Clermont County, Ohio, IDR (Southern Ohio Fabricator), VRDN, AMT, Series A,
2.50% due 9/01/2005 (a) 3,900
3,750 Cleveland, Ohio, City School District, TRAN, 4.50% due 12/30/1994 3,789
2,000 Clinton County, Ohio, Airport Facilities Revenue Refunding Bonds (Wilmington
Air Park, Inc.), VRDN, 2.35% due 6/01/2011 (a) 2,000
2,000 Columbus, Ohio, Sewer Revenue Bonds, VRDN, Series B, 2.20% due 6/01/2011 (a) 2,000
1,500 Cuyahoga County, Ohio, Hospital Improvement Revenue Bonds (Cleveland
University Hospital), DDN, 2.90% due 1/01/2016 (a) 1,500
1,000 Cuyahoga County, Ohio, IDR (Allen Group Incorporated Project), VRDN, 2.25%
due 12/01/2005 (a) 1,000
2,800 Cuyahoga County, Ohio, IDR (Cleveland E Excel Ltd.), AMT, VRDN, 2.55% due
3/01/2019 (a) 2,800
Cuyahoga County, Ohio, IDR, Refunding, VRDN, AMT (a):
3,000 (Trebmal Landerhaven), 2.30% due 12/01/2006 3,000
1,100 (Trebmal Miles Ltd. Project), 2.30% due 12/01/2006 1,100
5,300 Dayton, Ohio, Airport Improvement, BAN, AMT, 2.90% due 10/25/1994 5,301
1,000 Dayton, Ohio, Special Facilities Revenue Bonds (Emery Air Freight Project),
DDN, AMT, Series D, 3.10% due 10/01/2009 (a) 1,000
500 Erie County, Ohio, IDR (Brighton Manor Company Project), VRDN, AMT, 2.25%
due 11/01/2016 (a) 500
2,010 Erie County, Ohio, IDR, Refunding (Huron Health Care Center Project), VRDN,
2.35% due 8/01/2007 (a) 2,010
1,500 Fairfield County, Ohio, BAN, 3.15% due 10/28/1994 1,503
700 Franklin County, Ohio, Health System Revenue Bonds (Saint Anthony Health
Facility), DDN, Series B, 2.90% due 7/01/2015 (a) 700
5,000 Franklin County, Ohio, Hospital Revenue Bonds (Children's Hospital Project),
VRDN, Series B, 2.45% due 12/01/2014 (a) 5,000
Franklin County, Ohio, IDR, VRDN, AMT (a):
3,100 Refunding (Grant Medical Center Project), 2.30% due 12/01/1994 3,100
2,855 Refunding (Heekin Can Inc. Project), 2.30% due 12/01/1994 2,855
2,500 Refunding (Heekin Can Inc. Project), 2.50% due 5/01/2007 2,500
2,000 (Tigeropoly Manufacturing, Inc.), 2.45% due 7/01/1997 2,000
3,000 Franklin County, Ohio (Solid Waste Facilities), BAN, 3% due 8/30/1994 3,005
</TABLE>
Portfolio Abbreviations for CMA Ohio Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
CP Commercial Paper
DDN Daily Demand Notes
GO General Obligation Bonds
HFA Housing Finance Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
TRAN Tax Revenue Anticipation Notes
UPDATES Unit Price Daily Adjustable Tax-Exempt
Securities
VRDN Variable Rate Demand Notes
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Ohio $4,000 Green, Ohio, Local School District Summit County, BAN, 3.30% due 4/14/1994 $ 4,001
(continued) 4,355 Greene County, Ohio, Certificates of Indebtedness, 2.98% due 7/20/1994 4,359
3,500 Greene County, Ohio, IDR, Refunding (Apple Valley Association), VRDN, 2.60%
due 8/01/2009 (a) 3,500
1,900 Hamilton County, Ohio, Health Care Systems Revenue Bonds (Franciscan Sister
Poor Health), Series A, DDN, 2.90% due 3/01/2017 (a) 1,900
590 Lakewood, Ohio, Sanitary Sewer Systems Special Obligation, BAN, 2.99% due
5/13/1994 590
3,000 Lorain County, Ohio, BAN, 3% due 2/10/1995 3,008
Lucas County, Ohio, BAN:
5,000 Series 1, 3.87% due 8/18/1994 5,007
2,000 Series 2, 3.60% due 12/15/1994 2,006
Marion County, Ohio, Hospital Improvement Revenue Bonds (Pooled Lease
Program):
2,435 2.90% due 4/01/1994 2,435
2,220 VRDN, 2.35% due 5/01/2019 (a) 2,220
2,250 Mason, Ohio, Sewage Systems Revenue Bonds, 3.47% due 9/15/1994 2,253
3,500 Mentor, Ohio, IDR (Metcor Partnership/Tridelt), VRDN, AMT, 2.55% due
12/01/2008 (a) 3,500
2,200 Middletown, Ohio, BAN, 2.97% due 4/15/1994 2,201
1,500 Mount Vernon, Ohio, City School District, BAN, 2.50% due 6/01/1994 1,500
5,150 Northwestern Ohio Local School District, Wayne and Ashland Counties,
School Improvement Notes, 3.11% due 8/01/1994 5,161
2,455 Ohio HFA, M/F Housing Revenue Bonds (Kenwood Congregate Retirement
Program), VRDN, 2.35% due 12/01/2015 (a) 2,455
7,735 Ohio HFA, S/F Mortgage Revenue Bonds, AMT, Series A-2, 2.95% due 6/01/1994 7,735
4,700 Ohio State Air Quality Development Authority, Multi-Mode Revenue Refunding
Bonds (Timken Company Project), VRDN, 2.25% due 6/01/2001 (a) 4,700
2,500 Ohio State Air Quality Development Authority, Pollution Control Facilities,
PCR (Duquesne Light), CP, AMT, 2.60% due 5/10/1994 2,500
Ohio State Air Quality Development Authority Revenue Bonds (a):
400 (Honda America Manufacturing), VRDN, 2.20% due 1/01/1997 400
3,600 (JMG Funding Ltd. Partnership Project), UPDATES, AMT, Series A, 2.30% due
10/01/2027 3,600
Ohio State Air Quality Development Authority, Revenue Refunding Bonds,
VRDN (a):
400 (Environmental Mead Corp.), UPDATES, 3.05% due 1/01/2010 400
2,000 (JMG Funding Ltd. Partnership), AMT, Series B, 2.45% due 10/01/2027 2,000
Ohio State Environmental Improvement Revenue Bonds, Ohio Water
Development (Mead Corporation Project), CP, AMT:
1,000 2.55% due 4/25/1994 1,000
1,500 2.55% due 5/10/1994 1,500
1,500 2.55% due 5/11/1994 1,500
4,000 Ohio State Environmental Improvement Revenue Bonds (US Steel Corp.), VRDN,
2.30% due 5/01/2011 (a) 4,000
500 Ohio State Environmental Water Development Authority Revenue Bonds
(Honda America), VRDN, 2.20% due 1/01/1997 (a) 500
3,505 Ohio State, GO, 4% due 8/01/1994 3,521
4,500 Ohio State, GO, Tender Option, Custodial Receipts, Series MGT-3, VRDN, 2.40%
due 9/01/2003 (a) 4,500
3,100 Ohio State Higher Educational Facilities Revenue Bonds (Kenyon College
Project), VRDN, 2.20% due 4/01/2022 (a) 3,100
750 Ohio State PCR, Refunding (Alcoa Project), DDN, 2.25% due 10/01/2000 (a) 750
</TABLE>
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Ohio $2,230 Ohio State Public Facilities Commission, Higher Education Capital Facilities,
(concluded) Refunding Bonds, Series II-A, 4.60% due 6/01/1994 $ 2,238
4,000 Ohio State Public Facilities Commission, Tender Option MGT-55, VRDN, 2.40%
due 6/01/2000 (a) 4,000
2,100 Ohio State University, General Receipts, VRDN, Series B, 2.20% due 12/01/2012 (a) 2,100
3,000 Ohio State Water Development Authority, Pollution Control Facilities, PCR
(Duquesne Light), CP, 2.65% due 5/06/1994 3,000
1,750 Ohio State Water Development Authority, Pollution Control Facilities Revenue
Bonds (Ohio Edison Co.), Series A, 4.65% due 5/01/1994 1,754
2,000 Richland County, Ohio, BAN, 2.96% due 9/15/1994 2,002
1,800 Rickenbacker, Ohio, Port Authority, IDR, Refunding (Rickenbacker Holdings,
Inc.), VRDN, 2.35% due 12/01/2010 (a) 1,800
1,300 Sandusky County, Ohio, IDR (Brighton Manor Co. Project), VRDN, AMT, 2.25%
due 12/01/2016 (a) 1,300
1,815 Scioto County, Ohio, Hospital Facilities Revenue Bonds (VHA Central Inc., Capital
Asset), VRDN, Series F, 2.20% due 12/01/2025 (a) 1,815
Stark County, Ohio, BAN:
1,500 3.02% due 10/26/1994 1,502
1,010 3.15% due 12/09/1994 1,012
Summit County, Ohio, IDR:
2,500 (American Laser Tech Inc. Project), VRDN, 2.55% due 3/01/2001 (a) 2,500
925 (Lucerne Production Project), VRDN, AMT, 2.55% due 6/01/2002 (a) 925
850 (Struktol Project), VRDN, AMT, Series A, 2.55% due 6/01/2002 (a) 850
1,270 (Texler Inc. Project), AMT, 3% due 5/01/1994 1,270
1,000 Toledo Lucas County, Ohio, Port Authority Development Revenue Bonds
(Frostbite Brands Inc. Project), VRDN, AMT, 2.65% due 12/01/2013 (a) 1,000
Toledo, Ohio, City Services Special Assessment Notes:
2,000 2.95% due 6/01/1994 2,000
5,000 3.33% due 7/28/1994 5,007
2,500 3.20% due 12/01/1994 2,504
1,000 Troy, Ohio, Economic Development Revenue Bonds (L&CP Corporation Project),
AMT, 2.90% due 6/01/1994 1,000
University of Cincinnati, Ohio, BAN:
3,000 General Receipts, Series S1, 4% due 3/23/1995 3,021
3,250 Series S, 3.02% due 9/01/1994 3,253
1,960 Vermilion, Ohio, IDR, Refunding (Landover Properties), VRDN, 2.30% due
10/01/2004 (a) 1,960
Warren County, Ohio, IDR, VRDN (a):
4,000 (Johnson and Hardin Enterprises), AMT, Series A, 2.50% due 2/01/2010 4,000
1,900 (Pioneer Industrial Components), 2.30% due 12/01/2005 1,900
3,385 Wood County, Ohio, Economic Development Revenue Bonds (Great Lakes
Window Project), AMT, 2.875% due 6/01/1994 3,385
Puerto 2,500 Commonwealth of Puerto Rico, TRAN, Series A, 3% due 7/29/1994 2,502
Rico--1.2%
Total Investments (Cost--$214,669*)--100.5% 214,669
Liabilities in Excess of Other Assets--(0.5%) (1,014)
--------
Net Assets--100.0% $213,655
========
<FN>
(a)The interest rate is subject to change periodically based on certain indexes.
The interest rates shown are the rates in effect at March 31, 1994.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$214,668,874)(Note 1a) $ 214,668,874
Cash 201,786
Interest receivable 1,220,318
Deferred organization expenses (Note 1d) 16,200
Prepaid registration fees and other assets (Note 1d) 1,206
-------------
Total assets 216,108,384
-------------
Liabilities:
Payables:
Securities purchased $ 2,252,632
Investment adviser (Note 2) 92,982
Distributor (Note 2) 38,101 2,383,715
-------------
Accrued expenses and other liabilities 69,686
-------------
Total liabilities 2,453,401
-------------
Net Assets $ 213,654,983
=============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 21,368,625
Paid-in capital in excess of par 192,317,628
Accumulated realized capital losses--net (Note 4) (31,270)
-------------
Net Assets--Equivalent to $1.00 per share based on 213,686,253 shares of beneficial
interest outstanding $ 213,654,983
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 4,920,421
Expenses:
Investment advisory fees (Note 2) $ 955,932
Distribution fees (Note 2) 237,695
Accounting services (Note 2) 40,798
Transfer agent fees (Note 2) 29,133
Professional fees 28,491
Registration fees (Note 1d) 22,896
Printing and shareholder reports 22,099
Custodian fees 15,835
Pricing fees 8,863
Amortization of organization expenses (Note 1d) 7,801
Trustees' fees and expenses 2,254
Other 1,613
-------------
Total expenses 1,373,410
-------------
Investment income--net 3,547,011
Realized Loss on Investments--Net (Note 1c) (3,204)
-------------
Net Increase in Net Assets Resulting from Operations $ 3,543,807
=============
</TABLE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <C> <C>
Operations:
Investment income--net $ 3,547,011 $ 4,321,650
Realized loss on investments--net (3,204) (7,574)
------------- -------------
Net increase in net assets resulting from operations 3,543,807 4,314,076
------------- -------------
Dividends to Shareholders (Note 1e):
Investment income--net (3,547,011) (4,319,265)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (3,547,011) (4,319,265)
------------- -------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 854,339,246 898,919,232
Net asset value of shares issued to shareholders in reinvestment of dividends
(Note 1e) 3,547,085 4,319,227
------------- -------------
857,886,331 903,238,459
Cost of shares redeemed (831,571,902) (908,062,703)
------------- -------------
Net increase (decrease) in net assets derived from beneficial interest transactions 26,314,429 (4,824,244)
------------- -------------
Net Assets:
Total increase (decrease) in net assets 26,311,225 (4,829,433)
Beginning of year 187,343,758 192,173,191
------------- -------------
End of year $ 213,654,983 $ 187,343,758
============= =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The following per share data and ratios have been derived April 29,
from information provided in the financial statements. 1991++
For the Year Ended March 31, to March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Investment income--net .02 .02 .03
---------- ---------- ----------
Total from investment operations .02 .02 .03
---------- ---------- ----------
Less dividends:
Investment income--net (.02) (.02) (.03)
---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total Investment Return 1.88% 2.27% 3.65%*
========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .59% .61% .44%*
========== ========== ==========
Expenses, net of reimbursement .72% .74% .57%*
========== ========== ==========
Expenses .72% .74% .82%*
========== ========== ==========
Investment income--net 1.86% 2.24% 3.52%*
========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $ 213,655 $ 187,344 $ 192,173
========== ========== ==========
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Ohio Municipal Money Fund (the "Fund") is part of CMA Multi-
State Municipal Series Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end investment management company. The
following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost, which approximates market. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be
adjusted. In the case of a floating rate instrument, the
remaining maturity is the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income (including
amortization of premium and discount) is recognized on the
accrual basis. Realized gains and losses on security transactions
are determined on the identified cost basis.
(d) Deferred organization expenses and prepaid registration
fees--Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration
fees are charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien tax
withheld) in additional fund shares at net asset value. Dividends
are declared from the total of net investment income, excluding
discounts earned other than original issue discounts. Net
realized capital gains, if any, are normally distributed annually
after deducting prior years' loss carryforward. The Fund may
distribute capital gains more frequently than annually in order
to maintain the Fund's net asset value at $1.00 per share.
(f) Reclassifications--Undistributed investment income--
net, in the amount of $5,932, has been reclassified to
accumulated realized capital losses--net.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of the average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.375%
of the average daily net assets in excess of $1 billion.
The most restrictive annual expense limitation requires that the
adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed in any fiscal year
2.5% of the Fund's first $30 million of average daily net assets,
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
2.0% of the next $70 million of average daily net assets, and
1.5% of the average daily net assets in excess thereof. No fee
payment will be made to the Investment Adviser during any year
which will cause such expenses to exceed the pro rata expense
limitation at the time of such payment.
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of the average daily net
assets of the Fund. The distribution fee is to compensate MLPF&S
financial consultants and other directly involved branch office
personnel for selling shares of the Fund and for providing direct
personal services to shareholders. The distribution fee is not
compensation for the administrative and operational services
rendered to the Fund by MLPF&S in processing share orders and
administering shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the period
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
4. Capital Loss Carryforward:
At March 31, 1994, the Fund had a net capital loss carryforward
of approximately $31,300, of which $22,800 expires in 2000,
$4,800 expires in 2001 and $3,700 expires in 2002. These will be
available to offset like amounts of any future taxable gains.
<PAGE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Pennsylvania Municipal Money Fund of
CMA Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and lia-
bilities, including the schedule of investments, of CMA Penn-
sylvania Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1994, the related statements of
operations for the year then ended and changes in net assets
for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the three-
year period then ended and the period August 27, 1990 (commence-
ment of operations) to March 31, 1991. These financial state-
ments and the financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial high-
lights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the financial highlights are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at March 31, 1994 by correspondence with the
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reason-
able basis for our opinion.
In our opinion, such financial statements and financial high-
lights present fairly, in all material respects, the financial
position of CMA Pennsylvania Municipal Money Fund of CMA Multi-
State Municipal Series Trust as of March 31, 1994, the results
of its operations, the changes in its net assets, and the fin-
ancial highlights for the respective stated periods in conform-
ity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
April 29, 1994
<PAGE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Pennsylvania-- Allegheny County, Pennsylvania, Allegheny Hospital Development Authority
98.0% Revenue Bonds, VRDN (a)(b):
$1,800 (Children's Hospital), Series B, 2.20% due 1/01/2021 $ 1,800
4,800 (Presbyterian University Health System), Series A, 2.25% due 3/01/2020 4,800
1,200 (Presbyterian University Health System), Series B, 2.25% due 3/01/2020 1,200
4,400 (Presbyterian University Health System), Series C, 2.25% due 3/01/2020 4,400
2,400 (Presbyterian University Health System), Series D, 2.25% due 3/01/2020 2,400
Allegheny County, Pennsylvania, IDA, PCR, Refunding (Duquesne Light
Project), CP, Series A:
2,000 2.70% due 7/12/1994 2,000
5,000 2.75% due 10/20/1994 5,000
1,500 2.80% due 10/20/1994 1,500
4,400 Allegheny County, Pennsylvania, Institution District, TRAN, Series B,
2.75% due 7/21/1994 4,407
2,500 Allegheny County, Pennsylvania, Port Authority Revenue Bonds, Series A,
2.90% due 8/01/1994 2,500
Beaver County, Pennsylvania, IDA, PCR (Duquesne Light Project):
2,700 (Beaver Valley), VRDN, Series A, 2.50% due 8/01/2020 (a) 2,700
2,100 CP, AMT, Series A, 2.60% due 5/06/1994 2,100
1,300 (Mansfield), VRDN, Series B, 2.50% due 8/01/2009 (a) 1,300
4,000 Bensalem Township, Pennsylvania, School District, TRAN, 2.74% due 6/30/1994 4,000
2,925 Berks County, Pennsylvania, IDA, IDR (Valley Forge Company, Inc., Project),
VRDN, AMT, Series A, 2.90% due 9/01/2006 (a) 2,925
2,900 Berks County, Pennsylvania, TRAN, 2.70% due 12/30/1994 2,900
5,000 Boyertown, Pennsylvania, Area School District, TRAN, 2.78% due 6/30/1994 5,001
2,000 Bucks County, Pennsylvania, IDA, Revenue Bonds (Edgecomb Metal Company),
VRDN, 2.325% due 10/01/2009 (a) 2,000
Bucks County, Pennsylvania, Revenue Bonds, VRDN, AMT (a):
2,445 IDA (DBL H Plastic Project), 2.90% due 10/01/2008 2,445
1,710 (Pennsylvania Associates Project), 2.90% due 12/15/2003 1,710
Cambria County, Pennsylvania, IDA, Resource Recovery Revenue Bonds
(Cambria Cogen Project), VRDN, AMT (a):
2,400 Series V-1, 2.35% due 9/01/2019 2,400
1,000 Series V-2, 2.35% due 9/01/2019 1,000
Carbon County, Pennsylvania, Resource Recovery Revenue Bonds, IDA
(Panther Creek Partners), CP, AMT:
2,600 Series A, 2.45% due 4/22/1994 2,600
2,550 Series B, 2.65% due 5/06/1994 2,550
3,200 Chichester School District, Pennsylvania, TRAN, 2.70% due 6/30/1994 3,200
5,400 Delaware County, Pennsylvania, Health Care Authority Revenue Bonds
(Capital Asset), VRDN, Series B, 2.50% due 7/01/2015 (a) 5,400
7,000 Delaware County, Pennsylvania, IDA, PCR, Refunding (Philadelphia Electric
Company Project), CP, 2.30% due 5/16/1994 7,003
</TABLE>
Portfolio Abbreviations for CMA Pennsylvania Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
CP Commercial Paper
DDN Daily Demand Notes
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
TAN Tax Anticipation Notes
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
<PAGE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Pennsylvania $ 6,100 Eagle Tax Exempt Trust, Pennsylvania, VRDN, Series A, 2.49% due 7/01/2025 (a) $ 6,100
(continued) Emmaus, Pennsylvania, General Authority Revenue Bonds, VRDN (a):
2,000 2.60% due 3/01/2024 2,000
2,500 Series G, 2.50% due 3/01/2024 2,500
4,000 Erie County, Pennsylvania, IDA, Revenue Bonds (McInnes Steel Co.), DDN,
AMT, 2.75% due 11/01/2001 (a) 4,000
11,000 Floating Rate Trust Certificates, Pennsylvania, Series H, VRDN, 2.70%
due 4/04/1994 (a) 11,000
350 Lehigh County, Pennsylvania, Sewer Authority Revenue Bonds, 1985 Series B,
VRDN, 2.25% due 3/15/2005 (a) 350
380 Lehigh County, Pennsylvania, Water Authority Revenue Bonds, VRDN, 2.25%
due 11/01/2004 (a) 380
3,195 Montgomery County, Pennsylvania, Higher Education and Health Authority
Revenue Bonds (Pottstown Healthcare Corporation), VRDN, 2.75% due
12/01/2002 (a) 3,195
1,700 Montgomery County, Pennsylvania, IDR (Merck & Company Project), VRDN,
Series A, 2.70% due 10/01/2017 (a) 1,700
3,850 Montour County, Pennsylvania, IDA, PCR (Merck & Co. Project), VRDN, Series A,
2.45% due 10/01/2003 (a) 3,850
3,200 Northampton County, Pennsylvania, IDA, Resource Recovery Revenue Bonds
(Glendon Energy Company Project), AMT, Series A, 3.75% due 10/01/1994 3,200
1,000 Northeastern York County, Pennsylvania, School District, TRAN, 2.77%
due 6/30/1994 1,000
Pennsylvania Economic Development Financing Authority, Economic
Development Revenue Bonds, VRDN (a):
2,200 AMT, Series B2, 2.50% due 12/01/2008 2,200
900 AMT, Series D-10, 2.50% due 7/01/2011 900
425 (Carson Industries Project), AMT, Series B-2, 2.50% due 6/01/2000 425
1,500 (Kerner Company Project), Series B4, 2.50% due 6/01/2007 1,500
2,300 (Kyowa American Project), AMT, Series B5, 2.50% due 6/01/2002 2,300
1,200 (Robert & Karen Wickerham Project), AMT, Series B-7, 2.50% due 5/01/2005 1,200
475 (Winter Welding Project), AMT, Series B-8, 2.50% due 6/01/2007 475
Pennsylvania Economic Development Financing Authority, Solid Waste
Disposal Revenue Bonds (Inter-Power/AHLCON Partners Project), 1992
Series A, CP, AMT:
6,800 2.55% due 4/21/1994 6,800
3,200 2.45% due 4/25/1994 3,200
5,000 2.70% due 5/25/1994 5,000
3,200 2.70% due 5/26/1994 3,200
13,150 Pennsylvania Energy Development Authority, Energy Development Revenue
Bonds (B&W Ebensburg Project), VRDN, AMT, 2.40% due 12/01/2011 (a) 13,150
Pennsylvania Energy Development Authority, Energy Development Revenue
Bonds (Piney Creek Project), VRDN, AMT (a):
14,000 Series A, 2.60% due 12/01/2011 14,000
900 Series C, 2.60% due 12/01/2011 900
Pennsylvania State Higher Education Assistance Agency, Student Loan
Revenue Bonds, VRDN, AMT (a)(b):
16,000 Series A, 2.45% due 1/01/2018 16,000
21,100 Series B, 2.25% due 7/01/2018 21,100
</TABLE>
<PAGE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
<TABLE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Pennsylvania Pennsylvania State Higher Education Facilities Authority, College and
(concluded) University Revenue Bonds:
$ 3,200 (Temple University), DDN, 3.25% due 10/01/2009 (a) $ 3,200
5,000 (Thomas Jefferson University), Series B, 2.70% due 6/01/1994 5,000
28,200 Pennsylvania State, TAN, First Series, 3.25% due 6/30/1994 28,240
4,000 Pennsylvania State University Revenue Bonds (University Project), Series B, 3%
due 12/05/1994 4,008
Philadelphia, Pennsylvania, Hospital and Higher Education Facilities Authority,
Hospital Revenue Bonds (a):
2,200 (Children's Hospital of Philadelphia Project), DDN, 3.25% due 3/01/2027 2,200
2,400 (Friends Hospital), VRDN, Series A, 2.35% due 3/01/2006 2,400
Philadelphia, Pennsylvania, IDA, Revenue Bonds, VRDN, AMT (a):
10,200 (30th Street Station Project), 2.35% due 1/01/2011 (b) 10,200
13,700 (Philadelphia Airport Hotel), 2.35% due 12/01/2017 13,700
6,400 Philadelphia, Pennsylvania, IDA, M/F Revenue Refunding Bonds (Harbor View
Towers), VRDN, 2.35% due 11/01/2027 (a) 6,400
2,000 Philadelphia, Pennsylvania, School District, Tender Option, VRDN, Series
MGT 26B, 2.40% due 7/01/2002 (a) 2,000
Philadelphia, Pennsylvania, TRAN:
8,500 Series A, 3.25% due 6/15/1994 8,507
5,500 Series B, 3.25% due 6/15/1994 5,505
1,000 Series C, 3.25% due 6/15/1994 1,001
4,240 Pittsburgh, Pennsylvania, Urban Redevelopment Authority, S/F Mortgage
Revenue Bonds, AMT, Series C, 2.80% due 6/01/1994 4,240
1,400 Pottstown, Pennsylvania, School District, TRAN, 2.79% due 6/30/1994 1,400
2,500 Red Lion, Pennsylvania, Area School District, TRAN, 2.78% due 6/30/1994 2,501
Venango, Pennsylvania, IDA, Resource Recovery Revenue Bonds (Scrubgrass
Project), CP, AMT:
1,300 Series 1993, 2.65% due 5/09/1994 1,300
1,500 Series A, 2.65% due 5/06/1994 1,500
2,000 Series A, 2.65% due 5/10/1994 2,000
1,800 Washington County, Pennsylvania, Higher Education Authority Revenue Bonds
(Pooled Equipment Lease), VRDN, 1985 Series A, 2.25% due 11/01/2005 (a) 1,800
4,838 Woodland Hills, Pennsylvania, School District, TRAN, 2.76% due 6/30/1994 4,839
1,000 York County, Pennsylvania, IDA, IDR (Edgecomb Metals Company Project),
VRDN, 2.325% due 7/01/2009 (a) 1,000
4,000 York County, Pennsylvania, IDA, PCR (Philadelphia Electric Company), VRDN,
Series A, 2.15% due 8/01/2016 (a) 4,000
Puerto Rico-- 3,500 Commonwealth of Puerto Rico, TRAN, Series A, 3% due 7/29/1994 3,503
1.4% 1,500 Puerto Rico, Industrial, Medical and Environment Pollution Control Facility
Revenue Bonds (Key Pharmaceuticals), Series A, 2.80% due 12/01/1994 1,500
Total Investments (Cost--$334,810*)--99.4% 334,810
Other Assets Less Liabilities--0.6% 2,043
--------
Net Assets--100.0% $336,853
========
<FN>
(a)The interest rate is subject to change periodically based on
certain indexes. The interest rates shown are the rates in
effect at March 31, 1994.
(b)MBIA Insured.
* Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<S> <C> <C>
Assets:
Investments, at value (identified cost--$334,809,833) (Note 1a) $334,809,833
Cash 107,119
Receivables:
Securities sold $ 3,200,000
Interest 2,203,420 5,403,420
------------
Deferred organization expenses (Note 1d) 13,782
Prepaid registration fees and other assets (Note 1d) 13,107
------------
Total assets 340,347,261
------------
Liabilities:
Payables:
Securities purchased 3,201,000
Investment adviser (Note 2) 147,173
Distributor (Note 2) 60,485
Beneficial interest redeemed 153 3,408,811
------------
Accrued expenses and other liabilities 85,808
------------
Total liabilities 3,494,619
------------
Net Assets $336,852,642
============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 33,686,795
Paid-in capital in excess of par 303,181,152
Accumulated realized capital losses--net (Note 4) (15,305)
------------
Net Assets--Equivalent to $1.00 per share based on 336,867,946 shares of beneficial
interest outstanding $336,852,642
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 8,140,370
Expenses:
Investment advisory fees (Note 2) $ 1,587,756
Distribution fees (Note 2) 395,631
Accounting services (Note 2) 63,695
Transfer agent fees (Note 2) 57,670
Printing and shareholder reports 42,579
Professional fees 39,034
Custodian fees 34,120
Registration fees (Note 1d) 30,167
Pricing fees 10,420
Amortization of organization expenses (Note 1d) 9,806
Trustees' fees and expenses 3,675
Other 2,786
------------
Total expenses 2,277,339
------------
Investment income--net 5,863,031
Realized Loss on Investments--Net (Note 1c) (3,224)
------------
Net Increase in Net Assets Resulting from Operations $ 5,859,807
============
</TABLE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
1994 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 5,863,031 $ 5,931,982
Realized loss on investments--net (3,224) (11,027)
--------------- ---------------
Net increase in net assets resulting from operations 5,859,807 5,920,955
--------------- ---------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (5,863,031) (5,931,982)
Realized gain on investments--net -- (30,536)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions to shareholders (5,863,031) (5,962,518)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 1,153,799,544 1,243,778,611
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions (Note 1e) 5,863,001 5,962,428
--------------- ---------------
1,159,662,545 1,249,741,039
Cost of shares redeemed (1,141,760,453) (1,173,970,762)
--------------- ---------------
Net decrease in net assets derived from beneficial interest transactions 17,902,092 75,770,277
--------------- ---------------
Net Assets:
Total increase in net assets 17,898,868 75,728,714
Beginning of year 318,953,774 243,225,060
--------------- ---------------
End of year $ 336,852,642 $ 318,953,774
=============== ===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The following per share data and ratios have been derived August 27,
from information provided in the financial statements. 1990++ to
For the Year Ended March 31, March 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment income--net .02 .02 .03 .03
-------- -------- -------- --------
Total from investment operations .02 .02 .03 .03
-------- -------- -------- --------
Less dividends:
Investment income--net (.02) (.02) (.03) (.03)
-------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Investment Return 1.87% 2.29% 3.58% 4.95%*
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .59% .60% .65% .63%*
======== ======== ======== ========
Expenses, net of reimbursement .72% .72% .77% .75%*
======== ======== ======== ========
Expenses .72% .72% .77% .80%*
======== ======== ======== ========
Investment income--net 1.85% 2.22% 3.47% 4.75%*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $336,853 $318,954 $243,225 $225,622
======== ======== ======== ========
<FN>
*Annualized.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Pennsylvania Municipal Money Fund (the "Fund") is part of CMA
Multi-State Municipal Series Trust (the "Trust"). The Fund is reg-
istered under the Investment Company Act of 1940 as a non-divers-
ified, open-end investment management company. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost, which approximates market. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to
be the next coupon date on which the interest rate is to be
adjusted. In the case of a floating rate instrument, the remaining
maturity is the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(c) Security transactions and investment income--Security trans-
actions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization
of premium and discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined
on the identified cost basis.
(d) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees
are charged to expense as the related shares are issued.
(e) Dividends to shareholders--The Fund declares dividends daily
and reinvests daily such dividends (net of non-resident alien
tax withheld) in additional fund shares at net asset value.
Dividends are declared from the total of net investment income,
excluding discounts earned other than original issue discounts.
Net realized capital gains, if any, are normally distributed
annually after deducting prior years' loss carryforward. The Fund
may distribute capital gains more frequently than annually in
order to maintain the Fund's net asset value at $1.00 per share.
(f) Reclassifications--Undistributed investment income--net,
in the amount of $11,988, has been reclassified to accumulated
realized capital losses--net.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee based upon the
average daily value of the Fund's net assets, at the following
annual rates: 0.50% of the Fund's average daily net assets not
exceeding $500 million; 0.425% of average daily net assets in
excess of $500 million but not exceeding $1 billion; and 0.375%
of average daily net assets in excess of $1 billion. The most
restrictive annual expense limitation requires that the adviser
reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and commissions,
and extraordinary items) exceed in any fiscal year 2.5% of the
Fund's first $30 million of average daily net assets, 2.0% of
the next $70 million of average daily net assets, and 1.5% of
<PAGE>
the average daily net assets in excess thereof. No fee payment
will be made to the Investment Adviser during any year which
will cause such expenses to exceed the pro rata expense limit-
ation at the time of such payment.
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of
1940, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S")
receives a distribution fee from the Fund at the end of each
month at the annual rate of 0.125% of the average daily net
assets of the Fund. The distribution fee is to compensate MLPF&S
financial consultants and other directly involved branch office
personnel for selling shares of the Fund and for providing direct
personal services to shareholders. The distribution fee is not
compensation for the administrative and operational services
rendered to the Fund by MLPF&S in processing share orders and
administering shareholder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, MLPF&S, FDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the period
corresponds to the amounts included in the Statements of Changes
in Net Assets for net proceeds from sale of shares and cost of
shares redeemed, respectively, since shares are recorded at $1.00
per share.
4. Capital Loss Carryforward:
At March 31, 1994, the Fund had a net capital loss carryforward
of approximately $15,000, all of which expires in 2002. These
will be available to offset like amounts of any future taxable
gains.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies......................................... 2
Management of the Trust.................................................... 5
Trustees and Officers..................................................... 5
Management and Advisory Arrangements...................................... 7
Duration and Termination.................................................. 8
Purchase and Redemption of Shares.......................................... 8
Portfolio Transactions..................................................... 10
Determination of Net Asset Value........................................... 11
Yield Information.......................................................... 12
Taxes...................................................................... 12
Federal................................................................... 12
Environmental Tax......................................................... 14
State..................................................................... 15
General Information........................................................ 19
Description of Series and Shares.......................................... 19
Custodian and Transfer Agent.............................................. 20
Independent Auditors...................................................... 20
Legal Counsel............................................................. 20
Reports to Shareholders................................................... 20
Additional Information.................................................... 20
Appendices................................................................. A-1
Financial Statements....................................................... FS-1
</TABLE>
Code #16818
CMA MULTI-STATE MUNICIPAL SERIES TRUST
. ARIZONA
. CALIFORNIA
. CONNECTICUT
. MASSACHUSETTS
. MICHIGAN
. NEW JERSEY
. NEW YORK
. NORTH CAROLINA
. OHIO
. PENNSYLVANIA
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
================================================================================
[LOGO OF CMA APPEARS HERE]
July 29, 1994
================================================================================
[LOGO OF MERRILL LYNCH APPEARS HERE]
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A)FINANCIAL STATEMENTS:
Financial Statements contained in Part A:
Financial Highlights for the period July 5, 1988 (commencement of
operations) to March 31, 1989 and for each of the years in the five-
year period ended March 31, 1994.
Financial Statements contained in Part B:
Schedule of Investments as of March 31, 1994.
Statement of Assets and Liabilities as of March 31, 1994.
Statement of Operations for the year ended March 31, 1994.
Statements of Changes in Net Assets for the years ended March 31,
1993 and March 31, 1994.
Financial Highlights for each of the years in the five-year period
ended March 31, 1994.
(B)EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.(a) --Declaration of Trust of the Registrant dated February 6,
1987.(a)
(b) --Amendment to the Declaration of Trust.(a)
(c) --Instrument establishing CMA California Municipal Money Fund
(the "Fund") as a series of the Registrant.(b)
2. --By-Laws of the Registrant.(a)
3. --None.
4. --Portion of the Declaration of Trust, Establishment and
Designation and By-Laws of the Registrant defining the rights of
holders of shares of the Fund as a series of the Registrant.(g)
5.(a) --Management Agreement between the Registrant and Fund Asset
Management, L.P.(b)
(b) --Supplement to Management Agreement with Fund Asset Management,
L.P.
6. --Distribution Agreement between the Registrant and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.(f)
7. --None.
8. --Custody Agreement between the Registrant and State Street Bank
and Trust Company.(b)
9.(a) --Amended Transfer Agency and Shareholder Servicing Agency
Agreement and Proxy Agency Agreement between the Registrant and
Financial Data Services, Inc.(e)
(b) --Form of Cash Management Account Agreement.(c)
10. --Opinion of Brown & Wood, counsel to the Registrant.
11. --Consent of Deloitte & Touche, independent auditors for the
Registrant.
12. --None.
13. --Certificate of Fund Asset Management, L.P.(b)
14. --None.
15. --Distribution and Shareholder Servicing Plan between the
Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.(f)
16. --Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22.(d)
</TABLE>
- --------
(a) Filed on March 11, 1988 as an exhibit to Registrant's Registration
Statement under the Securities Act of 1933 on Form N-1A (the "Registration
Statement").
(b) Filed on May 4, 1988 as an exhibit to Pre-Effective Amendment No. 1 to
Registration Statement.
C-1
<PAGE>
(c) Incorporated by reference to Exhibit 9(b) of Pre-Effective Amendment No. 1
to the Registration Statement under the Securities Act of 1933 on Form N-1A
of CMA Government Securities Fund (File No. 2-72724), filed on July 28,
1981.
(d) Filed on December 22, 1988 as an exhibit to Post-Effective Amendment No. 1
to the Registration Statement.
(e) Filed on July 30, 1990 as an exhibit to Post-Effective Amendment No. 3 to
the Registration Statement.
(f) Filed on July 29, 1992 as an exhibit to Post-Effective Amendment No. 5 to
the Registration Statement.
(g) Reference is made to Article II, Section 2.3 and Articles III, V, VI, VIII,
IX, X and XI of the Registrant's Declaration of Trust, previously filed as
Exhibit 1(a) to the Registration Statement; to the Certificate of
Establishment and Designation establishing the Fund as a series of the
Registrant, previously filed as Exhibit 1(c) to the Registration Statement;
and to Articles I, V and VI of the Registrant's By-Laws, previously filed
as Exhibit 2 to the Registration Statement.
Reference is made to the Registration Statements under the Securities Act of
1933 on Form N-1A in connection with exhibits relating to CMA Arizona Municipal
Money Fund (File No. 33-54492), CMA Connecticut Municipal Money Fund (File No.
33-38833), CMA Massachusetts Municipal Money Fund (File No. 33-34610), CMA
Michigan Municipal Money Fund (File No. 33-38834), CMA New Jersey Municipal
Money Fund (File No. 33-34609), CMA New York Municipal Money Fund (File No. 33-
20463), CMA North Carolina Municipal Money Fund (File No. 33-38780), CMA Ohio
Municipal Money Fund (File No. 33-38835) and CMA Pennsylvania Municipal Money
Fund (File No. 33-34608).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS
TITLE OF CLASS AT JULY 1, 1994
-------------- ---------------
<S> <C>
Shares of beneficial interest, par value $0.10
per share.............. 4
</TABLE>
ITEM 27. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees, and
agents (including persons who serve at its request as directors, officers
or trustees of another organization in which it has any interest as a
shareholder, creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as
fines and penalties, and as counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a trustee, officer, employee or agent, except
with respect to any matter as to which he shall have been adjudicated to
have acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties; provided, however, that as to any matter disposed
of by a compromise payment by such person, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence
or reckless disregard of duty, or the matter of good faith and reasonable
belief as to the best interests of the Trust, had been adjudicated, it
would have been adjudicated in favor of such person. The rights accruing to
any person under these
C-2
<PAGE>
provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he may be
otherwise entitled except out of the property of the Trust, and no
Shareholder shall be personally liable to any person with respect to any
claim for indemnity or reimbursement or otherwise. The Trustees may make
advance payments in connection with indemnification under this Section 5.3,
provided that the indemnified person shall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he
is not entitled to such indemnification."
The Registrant's By-Laws provide that insofar as the conditional advancing of
indemnification moneys pursuant to Section 5.3 of the Declaration of Trust 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 the 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 or an
equivalent form of security which assures that any repayments may be obtained
by the Registrant without delay or litigation, which bond, insurance or other
form of security must be provided by the recipient of the advance, or (b) a
majority of a quorum of the Registrant's disinterested, non-party Trustees, or
an independent legal counsel in a written opinion, shall determine, based upon
a review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
In Section 8 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Trustees, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Manager") acts as the investment adviser
for the following registered investment companies: Apex Municipal Fund, Inc.,
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate
High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial Institutions
Series Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund
2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill
C-3
<PAGE>
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 Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income
Fund, Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund,
Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York
Insured Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund,
Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New
York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund,
Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc.
and Worldwide DollarVest Fund, Inc. The address of each of these investment
companies is Box 9011, Princeton, New Jersey 08543-9011, except that the
address of Merrill Lynch Institutional Intermediate Fund and Merrill Lynch
Funds for Institutions Series is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Manager and its affiliate, Merrill
Lynch Asset Management, L.P. ("MLAM"), is also Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. The address of
Financial Data Services, Inc. ("FDS") is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
April 1, 1992 for his or her own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is
Executive Vice President and Mr. Richard is Treasurer of all or substantially
all of the investment companies described in the preceding paragraph. Messrs.
Zeikel, Glenn and Richard also hold the same position with all or substantially
all of the investment companies advised by MLAM as they do with those advised
by the Manager and Messrs. Durnin, Giordano, Harvey, Hewitt, Kirstein and
Monagle are directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------- ----------------------------------
<S> <C> <C>
ML & Co. ............... Limited Partner Financial Services Holding Company
Fund Asset Management,
Inc. .................. Limited Partner Investment Advisory Services
Princeton Services, General Partner of MLAM
Inc. ("Princeton
Services")............. General Partner
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------- ----------------------------------
<S> <C> <C>
Arthur Zeikel........... President President of MLAM; President and
Director of Princeton Services;
Director of MLFD; Executive Vice
President of ML & Co.; Executive Vice
President of Merrill Lynch
Terry K. Glenn.......... Executive Vice President Executive Vice President of MLAM;
and Director Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of FDS;
President of Princeton Administrators,
L.P.
Bernard J. Durnin....... 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
Elizabeth Griffin....... Senior Vice President Senior Vice President of MLAM
Norman R. Harvey........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General
General Counsel Counsel and Secretary of MLAM; Senior
and Secretary Vice President, General Counsel,
Director and Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller
and Controller of MLAM; Senior Vice President and
Controller of Princeton Services
Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer
and Treasurer of MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Senior Vice President of MLAM;
Vice President of MLFD; Senior Vice
President of Princeton Services
Ronald L. Welburn....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>
C-5
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Merrill Lynch acts as the principal underwriter for the Registrant.
Merrill Lynch also acts as the principal underwriter for CBA Money Fund, nine
other series of CMA Multi-State Municipal Series Trust, CMA Money Fund, CMA
Tax-Exempt Fund, CMA Treasury Fund and CMA Government Securities Fund and as
the depositor of the following unit investment trusts: The Corporate Income
Fund, Municipal Investment Trust Fund, The ML Trust for Government Guaranteed
Securities and The Government Securities Income Fund.
(b) With the exception of Arthur Zeikel, the President and a Trustee of the
Registrant who is an Executive Vice President of Merrill Lynch and ML & Co.,
none of the Trustees or officers of the Registrant is a director, officer or
employee of Merrill Lynch.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder will be maintained at the offices of the Registrant and FDS.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Trust--
Management and Advisory Arrangements" in the Prospectus constituting Part A of
the Registration Statement and under the caption "Management of the Trust--
Management and Advisory Arrangements" in the Statement of Additional
Information constituting Part B of the Registration Statement, and in response
to Item 31 in Part C of the Registration Statements of CMA Arizona Municipal
Money Fund, CMA Connecticut Municipal Money Fund, CMA Massachusetts Municipal
Money Fund, CMA Michigan Municipal Money Fund, CMA New Jersey Municipal Money
Fund, CMA New York Municipal Money Fund, CMA North Carolina Municipal Money
Fund, CMA Ohio Municipal Money Fund, and CMA Pennsylvania Municipal Money Fund,
the Registrant is not a party to any management-related services contract.
ITEM 32. UNDERTAKINGS.
None.
C-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE
485(B) AND DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
TOWNSHIP OF PLAINSBORO, AND STATE OF NEW JERSEY ON THE 28TH DAY OF JULY, 1994.
CMA Multi-state Municipal Series
Trust (Registrant)
By /s/ Terry K. Glenn
-----------------------------------
(TERRY K. GLENN, EXECUTIVE VICE
PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
Arthur Zeikel* President and
- ------------------------------------ Trustee (Principal
(ARTHUR ZEIKEL) Executive Officer)
Gerald M. Richard* Treasurer
- ------------------------------------ (Principal
(GERALD M. RICHARD) Financial and
Accounting
Officer)
Ronald W. Forbes* Trustee
- ------------------------------------
(RONALD W. FORBES)
Cynthia A. Montgomery* Trustee
- ------------------------------------
(CYNTHIA A. MONTGOMERY)
Charles C. Reilly* Trustee
- ------------------------------------
(CHARLES C. REILLY)
Kevin A. Ryan* Trustee
- ------------------------------------
(KEVIN A. RYAN)
Richard R. West* Trustee
- ------------------------------------
(RICHARD R. WEST)
*By /s/ Terry K. Glenn
-------------------------------- July 28, 1994
(TERRY K. GLENN, ATTORNEY-IN-FACT)
C-7
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of CMA Multi-State Municipal Series Trust (the
"Fund") hereby authorizes Arthur Zeikel, Terry K. Glenn, Gerald M. Richard and
Robert Harris, or any of them, as attorney-in-fact, to sign on her behalf, in
the capacity stated below, any amendments to the Registration Statement
(including post-effective amendments) of the Fund on Form N-1A and to file the
same, with all exhibits thereto, with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Cynthia A. Montgomery Trustee July 28, 1994
- ------------------------------------
(Cynthia A. Montgomery)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
5(b) --Supplement to the Management Agreement with Fund Asset Management,
L.P.
10 --Opinion of Brown & Wood, counsel to Registrant
11 --Consent of Deloitte & Touche, independent auditors for the
Registrant
</TABLE>
<PAGE>
Exhibit 5b
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
FUND ASSET MANAGEMENT
As of January 1, 1994 Fund Asset Management was reorganized as a limited
partnership, formally known as Fund Asset Management, L.P. ("FAM"). The general
partner of FAM is Princeton Services, Inc. and the limited partners are Fund
Asset Management, Inc. and Merrill Lynch & Co, Inc. Pursuant to Rule 202(a)(1)-
1 under the Investment Advisors Act of 1940 and Rule 2a-6 under the Investment
Company Act of 1940, such reorganization did not constitute an assignment of
this investment advisory agreement since it did not involve a change of control
or management of the investment adviser. Pursuant to the requirements of
Section 205 of the Investment Advisers Act of 1940, however, Fund Asset
Management hereby supplements this investment advisory agreement by undertaking
to advise you of any change in the membership of the partnership within a
reasonable time after any such change occurs.
By: /s/ Arthur Zeikel
-----------------
Dated: January 3, 1994
<PAGE>
Exhibit 10
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: (212) 839-5300
FACSIMILE: (212) 839-5599
July 28, 1994
CMA California Municipal Money Fund of
CMA Multi-State Municipal Series Trust
Box 9011
Princeton, New Jersey 08543-9011
Dear Sirs:
This opinion is furnished in connection with the registration by CMA Multi-
State Municipal Series Trust, a Massachusetts business trust (the "Trust"), of
18,760,825 shares of beneficial interest, par value $0.10 per share (the
"Shares"), of CMA California Municipal Money Fund, a series of the Trust, under
the Securities Act of 1933 pursuant to a registration statement on Form N-1A
(File No. 33-20580), as amended (the "Registration Statement").
As counsel for the Trust, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Declaration of Trust of the
Trust, as amended, the By-Laws of the Trust and such other documents as we have
deemed relevant to the matters referred to in this opinion.
<PAGE>
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of beneficial interest.
In rendering this opinion, we have relied as to matters of Massachusetts
law upon an opinion of Bingham, Dana & Gould rendered to the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus and
Statement of Additional Information constituting parts thereof.
Very truly yours,
/s/ BROWN & WOOD
2
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
CMA California Municipal Money Fund of
CMA Multi-State Municipal Series Trust:
We consent to the use in Post-Effective Amendment No. 7 to Registration
Statement No. 33-20580 of our report dated April 29, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ DELOITTE & TOUCHE
Princeton, New Jersey
July 28, 1994
