<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 fourteen money market mutual funds (collectively, the "CMA Funds"), the
shares of which are offered to participants in the Cash Management Account (R)
("CMA 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"). Merrill
Lynch markets its margin account under the name Investor CreditLine SM
service. 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 U.S. 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 Gold Program at any time. As described
under "Purchase of Shares", shares of the CMA Funds may be purchased directly
through the Funds' 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
AUGUST 2, 1995
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
P.O. 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. For more information on the Funds'
investment objectives and policies, please see "Investment Objectives and
Policies" on page 9. 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 August
2, 1995 (the "Statement of Additional Information"), has been filed with the
Securities and Exchange Commission (the "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) FOR THE
FISCAL YEAR ENDED
MARCH 31, 1995:
Management
Fees(a)......... 0.50% 0.45% 0.50% 0.50% 0.50% 0.50% 0.47% 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 0.03 0.02 0.02 0.02 0.02 0.03 0.02
Other Fees...... 0.20 0.04 0.07 0.10 0.08 0.06 0.05 0.07 0.08 0.06
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Other
Expenses....... 0.22 0.05 0.08 0.13 0.10 0.08 0.07 0.09 0.11 0.08
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund
Operating
Expenses........ 0.85% 0.63% 0.71% 0.76% 0.73% 0.71% 0.67% 0.72% 0.74% 0.71%
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- --------
(a) See "Management of the Trust--Management and Advisory Arrangements"-- page
26.
(b) See "Purchase of Shares"-- page 19.
(c) See "Management of the Trust--Transfer Agency Services"-- page 27.
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 period:
<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........ $ 9 $ 6 $ 7 $ 8 $ 7 $ 7 $ 7 $ 7 $ 8 $ 7
3 years....... $ 27 $20 $23 $24 $23 $23 $21 $23 $24 $23
5 years....... $ 47 $35 $40 $42 $41 $40 $37 $40 $41 $40
10 years....... $105 $79 $88 $94 $91 $88 $83 $89 $92 $88
</TABLE>
As of March 31, 1995, Fund Asset Management, L.P. (the "Manager") was
voluntarily waiving a portion of its management fee. The Fee Table has been
restated to assume the absence of any waiver because the Manager may
discontinue or reduce such waiver at any time without notice. During the fiscal
year ended March 31, 1995, the Manager waived management fees totaling .31% and
.10% for the Arizona and North Carolina Funds, respectively, after which each
Fund's total expense ratio was .54% and .62%, respectively.
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 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, 1995 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 llp, independent auditors.
<TABLE>
<CAPTION>
ARIZONA FUND
------------------------------
FOR THE
PERIOD
FOR THE FEBRUARY 8,
YEAR ENDED 1993+
MARCH 31, TO
----------------- MARCH 31,
1995 1994 1993
-------- ------- -----------
<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..... .03 .02 .002
-------- ------- -------
Total from
investment
operations...... .03 .02 .002
-------- ------- -------
Less dividends:
Investment in-
come--net....... (.03) (.02) (.002)
-------- ------- -------
Net asset value,
end of period... $1.00 $ 1.00 $ 1.00
======== ======= =======
TOTAL INVESTMENT
RETURN.......... 2.83% 1.90% 1.78%*
======== ======= =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement
and excluding
distribution
fees............ .41% .47% .33%*
======== ======= =======
Expenses, net of
reimbursement... .54% .59% .46%*
======== ======= =======
Expenses........ .85% .98% 1.15%*
======== ======= =======
Investment
income--net..... 2.84% 1.89% 1.86%*
======== ======= =======
SUPPLEMENTAL DATA:
Net assets, end
of period (in
thousands)...... $103,717 $73,414 $41,437
======== ======= =======
<CAPTION>
CALIFORNIA FUND
-----------------------------------------------------------------------------------
FOR THE
PERIOD
JULY 5,
FOR THE YEAR ENDED 1988+
MARCH 31, TO
----------------------------------------------------------------------- MARCH 31,
1995 1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- ----------- -----------
<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..... .03 .02 .02 .03 .05 .05 .04
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from
investment
operations...... .03 .02 .02 .03 .05 05 .04
----------- ----------- ----------- ----------- ----------- ----------- -----------
Less dividends:
Investment in-
come--net....... (.03) (.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
=========== =========== =========== =========== =========== =========== ===========
TOTAL INVESTMENT
RETURN.......... 2.66% 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............ .51% .50% .51% .51% .50% .52% .51%*
=========== =========== =========== =========== =========== =========== ===========
Expenses, net of
reimbursement... .63% .62% .63% .63% .62% .65% .64%*
=========== =========== =========== =========== =========== =========== ===========
Expenses........ .63% .62% .63% .63% .62% .65% .72%*
=========== =========== =========== =========== =========== =========== ===========
Investment
income--net..... 2.62% 1.91% 2.22% 3.42% 4.83% 5.44% 5.43%*
=========== =========== =========== =========== =========== =========== ===========
SUPPLEMENTAL DATA:
Net assets, end
of period (in
thousands)...... $1,168,234 $1,225,160 $1,014,800 $1,033,423 $1,163,288 $1,047,340 $702,698
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
- ----
* Annualized
+ Commencement of Operations
3
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CONNECTICUT FUND MASSACHUSETTS FUND
--------------------------------------- -------------------------------------------------
FOR THE FOR THE
FOR THE PERIOD PERIOD
YEAR APRIL 29, JULY 30,
ENDED 1991+ FOR THE YEAR ENDED 1990+
MARCH 31, TO MARCH 31, TO
---------------------------- MARCH 31, -------------------------------------- MARCH 31,
1995 1994 1993 1992 1995 1994 1993 1992 1991
-------- -------- -------- --------- -------- -------- -------- -------- ---------
<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.. .03 .02 .02 .03 .02 .02 .02 .04 .03
-------- -------- -------- -------- -------- -------- -------- -------- -------
Total from investment
operations.............. .03 .02 .02 .03 .02 .02 .02 .04 .03
-------- -------- -------- -------- -------- -------- -------- -------- -------
Less dividends:
Investment income--net.. (.03) (.02) (.02) (.03) (.02) (.02) (.02) (.04) (.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. 2.54% 1.77% 2.20% 3.56%* 2.46% 1.74% 2.20% 3.66% 5.04%*
======== ======== ======== ======== ======== ======== ======== ======== =======
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of
reimbursement and
excluding distribution
fees.................... .58% .58% .51% .28%* .64% .66% .66% .73% .60%*
======== ======== ======== ======== ======== ======== ======== ======== =======
Expenses, net of
reimbursement........... .71% .70% .63% .41%* .76% .78% .78% .85% .72%*
======== ======== ======== ======== ======== ======== ======== ======== =======
Expenses................ .71% .70% .73% .81%* .76% .78% .78% .87% .97%*
======== ======== ======== ======== ======== ======== ======== ======== =======
Investment income--net.. 2.53% 1.76% 2.17% 3.46%* 2.43% 1.72% 2.15% 3.56% 4.92%*
======== ======== ======== ======== ======== ======== ======== ======== =======
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands)... $260,398 $250,038 $231,431 $197,895 $161,076 $150,804 $132,302 $116,340 $84,613
======== ======== ======== ======== ======== ======== ======== ======== =======
</TABLE>
- -----
* Annualized
+ Commencement of Operations
4
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
MICHIGAN FUND NEW JERSEY FUND
--------------------------------------- -------------------------------------------------
FOR THE FOR THE
PERIOD PERIOD
APRIL 29, JULY 30,
FOR THE YEAR ENDED 1991+ FOR THE YEAR ENDED 1990+
MARCH 31, TO MARCH 31, TO
---------------------------- MARCH 31, -------------------------------------- MARCH 31,
1995 1994 1993 1992 1995 1994 1993 1992 1991
-------- -------- -------- --------- -------- -------- -------- -------- ---------
<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.. .03 .02 .02 .03 .02 .02 .02 .03 .03
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. .03 .02 .02 .03 .02 .02 .02 .03 .03
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends:
Investment income--net.. (.03) (.02) (.02) (.03) (.02) (.02) (.02) (.03) (.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. 2.57% 1.81% 2.24% 3.62%* 2.52% 1.82% 2.21% 3.49% 4.95%*
======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement and
excluding distribution
fees.................... .60% .60% .53% .42%* .59% .58% .58% .62% .52%*
======== ======== ======== ======== ======== ======== ======== ======== ========
Expenses, net of
reimbursement........... .73% .72% .65% .54%* .71% .70% .70% .74% .64%*
======== ======== ======== ======== ======== ======== ======== ======== ========
Expenses................ .73% .72% .74% .80%* .71% .70% .70% .74% .76%*
======== ======== ======== ======== ======== ======== ======== ======== ========
Investment income--net.. 2.54% 1.79% 2.22% 3.53%* 2.51% 1.80% 2.16% 3.42% 4.74%*
======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands)... $220,171 $236,435 $200,200 $194,433 $525,747 $441,846 $388,903 $350,058 $356,475
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- -----
* Annualized
+ Commencement of Operations
5
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
NEW YORK FUND
---------------------------------------------------------------------
FOR THE
PERIOD
JULY 5,
FOR THE YEAR ENDED 1988+
MARCH 31, TO
---------------------------------------------------------- MARCH 31,
1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- ---------
<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..... .03 .02 .02 .03 .05 .05 .04
-------- -------- -------- -------- -------- -------- --------
Total from
investment
operations...... .03 .02 .02 .03 .05 .05 .04
-------- -------- -------- -------- -------- -------- --------
Less dividends:
Investment
income--net .... (.03) (.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
======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT
RETURN.......... 2.59% 1.79% 2.19% 3.37% 4.86% 5.35% 5.04%*
======== ======== ======== ======== ======== ======== ========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursement
and excluding
distribution
fees............ .54% .54% .55% .55% .57% .59% .58%*
======== ======== ======== ======== ======== ======== ========
Expenses, net of
reimbursement... .67% .67% .67% .68% .69% .71% .70%*
======== ======== ======== ======== ======== ======== ========
Expenses........ .67% .67% .67% .68% .69% .72% .79%*
======== ======== ======== ======== ======== ======== ========
Investment
income--net..... 2.59% 1.78% 2.16% 3.31% 4.73% 5.23% 5.14%*
======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL
DATA:
Net assets, end
of period
(in thousands).. $919,852 $772,760 $665,970 $625,768 $633,819 $544,197 $333,299
======== ======== ======== ======== ======== ======== ========
<CAPTION>
NORTH CAROLINA FUND
-----------------------------------------
FOR THE
PERIOD
MAY 28,
FOR THE YEAR ENDED 1991+
MARCH 31, TO
----------------------------- MARCH 31,
1995 1994 1993 1992
--------- --------- --------- -----------
<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..... .03 .02 .02 .03
--------- --------- --------- -----------
Total from
investment
operations...... .03 .02 .02 .03
--------- --------- --------- -----------
Less dividends:
Investment
income--net .... (.03) (.02) (.02) (.03)
--------- --------- --------- -----------
Net asset value,
end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ===========
TOTAL INVESTMENT
RETURN.......... 2.61% 1.85% 2.25% 3.49%*
========= ========= ========= ===========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses, net of
reimbursement
and excluding
distribution
fees............ .50% .48% .45% .33%*
========= ========= ========= ===========
Expenses, net of
reimbursement... .62% .61% .57% .45%*
========= ========= ========= ===========
Expenses........ .72% .71% .73% .83%*
========= ========= ========= ===========
Investment
income--net..... 2.58% 1.84% 2.20% 3.25%*
========= ========= ========= ===========
SUPPLEMENTAL
DATA:
Net assets, end
of period
(in thousands).. $278,704 $293,452 $235,384 $221,060
========= ========= ========= ===========
</TABLE>
- -----
* Annualized
+ Commencement of Operations
6
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<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,
1995 1994 1993 1992 1995 1994 1993 1992 1991
-------- -------- -------- --------- -------- -------- -------- -------- ----------
<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.. .03 .02 .02 .03 .03 .02 .02 .03 .03
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. .03 .02 .02 .03 .03 .02 .02 .03 .03
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends:
Investment
income--net ............ (.03) (.02) (.02) (.03) (.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 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN. 2.65% 1.88% 2.27% 3.65%* 2.65% 1.87% 2.29% 3.58% 4.95%*
======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement and
excluding distribution
fees.................... .62% .59% .61% .44%* .59% .59% .60% .65% .63%*
======== ======== ======== ======== ======== ======== ======== ======== ========
Expenses, net of
reimbursement........... .74% .72% .74% .57%* .71% .72% .72% .77% .75%*
======== ======== ======== ======== ======== ======== ======== ======== ========
Expenses................ .74% .72% .74% .82%* .71% .72% .72% .77% .80%*
======== ======== ======== ======== ======== ======== ======== ======== ========
Investment income--net.. 2.64% 1.86% 2.24% 3.52%* 2.64% 1.85% 2.22% 3.47% 4.75%*
======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands)... $237,655 $213,655 $187,344 $192,173 $353,635 $336,853 $318,954 $243,225 $225,622
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- -----
* Annualized
+ Commencement of Operations
7
<PAGE>
YIELD INFORMATION
Set forth below are 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, 1995
Annualized
Yield.. 3.67% 3.28% 3.18% 3.17% 3.32% 3.20% 3.31% 3.39% 3.46%
Compounded
Annualized
Yield.......... 3.74% 3.33% 3.23% 3.22% 3.38% 3.25% 3.37% 3.45% 3.52%
Average Maturity
of Portfolio at
End of Period.. 31 days 45 days 28 days 35 days 38 days 25 days 38 days 22 days 35 days
Seven-Day Period
Ended June 30, 1995
Annualized
Yield........... 3.78% 3.39% 3.22% 3.23% 3.44% 3.35% 3.41% 3.42% 3.56%
Compounded
Annualized
Yield.......... 3.85% 3.45% 3.27% 3.28% 3.50% 3.41% 3.47% 3.48% 3.62%
Average Maturity
of Portfolio at
End of Period.. 24 days 36 days 32 days 41 days 26 days 40 days 50 days 52 days 59 days
Thirty-Day Period
Ended June 30, 1995
Taxable Equiva-
lent Yield*.... 4.90% 4.47% 4.22% 4.17% 4.44% 4.26% 4.44% 4.40% 4.49%
<CAPTION>
PENNSYLVANIA
FUND
------------
<S> <C>
Seven-Day Period
Ended March 31, 1995
Annualized
Yield.. 3.34%
Compounded
Annualized
Yield.......... 3.40%
Average Maturity
of Portfolio at
End of Period.. 23 days
Seven-Day Period
Ended June 30, 1995
Annualized
Yield........... 3.56%
Compounded
Annualized
Yield.......... 3.62%
Average Maturity
of Portfolio at
End of Period.. 26 days
Thirty-Day Period
Ended June 30, 1995
Taxable Equiva-
lent Yield*.... 4.46%
</TABLE>
- --------
* Based upon a Federal income tax rate of 28%; does not take into account state
or local income taxes.
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) the average yield reported by the Bank Rate Monitor
National Index(TM) for money market deposit accounts offered by the 100 leading
banks and thrift institutions in the ten largest standard metropolitan
statistical areas, (iii) yield data published by Lipper Analytical Services,
Inc., (iv) performance data published by Morningstar Publications, Inc., Money
Magazine, U.S. News & World Report, Business Week, CDA Investment Technology,
Inc., Forbes Magazine and Fortune Magazine, or (v) historical yield data
relating to other central asset accounts similar to the CMA program. As with
yield quotations, yield comparisons should not be considered indicative of a
Fund's yield
8
<PAGE>
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.
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.
9
<PAGE>
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 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.
Certain of the instruments in which the Funds invest, including Variable Rate
Demand Obligations ("VRDOs") and derivative or synthetic short-term municipal
instruments ("Derivative Products"), effectively provide the Funds with
economic interests in long-term municipal bonds (or a portion of the income
derived therefrom), coupled with rights to demand payment of the principal
amounts of such instruments from designated persons (a "demand right"). Under
Commission rules, the Funds treat these instruments as having maturities
shorter than the stated maturity dates of the VRDOs or of the long-term bonds
underlying the Derivative Products (the "Underlying Bonds"). Such maturities
are sufficiently short-
10
<PAGE>
term to allow such instruments to qualify as eligible investments for money
market funds such as the Funds. A demand right is dependent on the financial
ability of the issuer of the demand right (or, if the instrument is subject to
credit enhancement, a bank or other financial institution issuing a letter of
credit or other credit enhancement supporting the demand right), to purchase
the instrument at its principal amount. In addition, the right of a Fund to
demand payment from the issuer of a demand right may be subject to certain
conditions, including the creditworthiness of the Underlying Bond. If the
issuer of a demand right is unable to purchase the instrument, or if, because
of conditions on the right of the Fund to demand payment, the issuer of a
demand right is not obligated to purchase the instrument on demand, the Fund
may be required to dispose of the instrument or the Underlying Bond in the open
market, which may be at a price which adversely affects the Fund.
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").
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 Products. The Funds may invest in a variety of Derivative
Products. Derivative Products are typically structured by a bank, broker-dealer
or other financial institution. A Derivative Product generally consists of a
trust or partnership through which a Fund holds an interest in one or more
Underlying Bonds coupled with a conditional right to sell ("put") that Fund's
interest in the Underlying Bonds at par plus
11
<PAGE>
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 portions of income, expenses, capital gains and losses associated
with holding an underlying Bond in accordance with a governing agreement. The
Funds may also invest in other forms of short term Derivative Products eligible
for investment by money market funds.
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.
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 Ratings Group ("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
12
<PAGE>
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 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 Credit Ratings Co., 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
13
<PAGE>
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 past several decades, the State's economy has
grown faster than most other regions of the country, as measured by nearly
every major indicator of economic growth, including population, employment, and
aggregate personal income. Although the rate of growth in these and other areas
slowed considerably during the late 1980s and early 1990s, the State's efforts
to diversify its economy have enabled it to realize, and then sustain, moderate
growth in more recent years. In 1994, however, Maricopa County, the State's
most populous county, incurred a $66.53 million budget deficit, leading Moody's
and Standard & Poor's to lower the County's rating from Aa1 to Aa and from AA
to A, respectively. In addition, several irrigation districts filed for
bankruptcy after failing to service their bonded debt, and the Arizona Supreme
Court ruled that the State's current system for financing public education was
unconstitutional, thus requiring the legislature to create a new system of
public school financing. The Manager does not believe that the current economic
conditions in Arizona will have a significant adverse effect on the Arizona
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. In 1994, all three of the rating agencies rating the
State of California's long-term debt lowered their ratings of the State's
general obligation bonds. Standard & Poor's lowered its rating from A+ to A,
Moody's lowered its rating from Aa to A1 and Fitch lowered its rating from AA
to A. 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. Fiscal stress is reflected in the State's economic and
revenue forecasts, a rising debt burden that reflects a significant increase in
bond activity since fiscal 1987-88, a cumulative general fund deficit for
fiscal 1990-91 of over $965 million, and uncertainty concerning the solutions
for these imbalances. Accumulated surpluses in a budget stabilization fund
created in 1983 to protect against future deficit problems were exhausted in
1990. The lack of a contingency fund balance, combined with reduced revenue-
raising flexibility in the near term, places additional constraints on managing
these financial problems and any others that may arise. As a result of
recurring budgetary problems, Connecticut's general obligation bonds were
downgraded by Standard & Poor's from AA+ to AA in April 1990 and, in September
1991, to AA-; by Moody's from Aa1 to Aa in April 1990; and by Fitch from AA+ to
AA in March 1995. The
14
<PAGE>
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. The
Commonwealth ended fiscal 1994 with a positive closing fund balance of $589.3
million. As of the date of this Prospectus and according to the Executive
Office for Administration and Finance, fiscal 1995 is expected to end with an
operating loss of $87.8 million, but with positive budgetary fund balances
totaling approximately $501.5 million, to be achieved through the use of the
prior year ending fund balances. Currently, Massachusetts' general obligation
bonds are rated by Standard & Poor's, Fitch and Moody's as A+, A+ and A-1,
respectively. 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 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, 1994 of $26.0 million after a transfer of $464 million
to the Michigan Budget Stabilization Fund, which after such transfer had an
accrued balance of $779 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 and succeeding
fiscal year budgets. 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 near 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. Currently, New Jersey State's
general obligation bonds are rated AA+ by Standard & Poor's, Aa1 by Moody's and
AA+ by Fitch. 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. In recent years, New York State, New York City and other
New York public bodies have encountered financial difficulties which could have
an adverse effect with respect to the
15
<PAGE>
performance of the New York Fund. Currently, Moody's, Standard & Poor's and
Fitch rate New York State's general obligation bonds A, A- and A+,
respectively, and Moody's, Standard & Poor's and Fitch rate New York City's
general obligation bonds Baa1, BBB+ 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 years 1993 and 1994,
however, ended with a positive General Fund balance of approximately $500
million each year on a budgetary basis. By law, 25% of such positive fund
balance was required to be reserved in the General Fund of North Carolina as
part of a "Savings Reserve" (subject to a maximum reserve of 5% of the
preceding fiscal year's operating appropriation). An additional portion of such
positive fund balance was reserved in the General Fund as part of a "Reserve
for Repair and Renovation of State Facilities", leaving the remaining
unrestricted fund balance at the end of each such year available for future
appropriations. 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 1995 Fiscal Year of $928.0 million and $1,312.2
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.
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
16
<PAGE>
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 enacted legislation
which eliminates 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.
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.
17
<PAGE>
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.
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
18
<PAGE>
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.
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 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 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",
19
<PAGE>
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.
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
20
<PAGE>
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 three-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 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.
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<PAGE>
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 Merrill
Lynch 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
Merrill Lynch Financial Data Services, Inc., P.O. Box 45290, Jacksonville,
Florida 32232-5290 or call (800) 221-7210.
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 Merrill Lynch
Financial Data Services, Inc., P.O. Box 45290, Jacksonville, Florida 32232-
5290. Purchase orders which are sent by hand should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. 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 U.S. funds
and must be drawn in U.S. dollars on a U.S. bank. Payments for the accounts of
corporations, foundations and other organizations may not be made by third
party checks. Since there is a three-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 market 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
market 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
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<PAGE>
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.
Set forth below are the fees paid by each Fund to Merrill Lynch pursuant to
its Distribution Plan for the year ended March 31, 1995, each Fund's net assets
as of June 30, 1995 and the approximate annual distribution fee payable by each
Fund as of June 30, 1995.
<TABLE>
<CAPTION>
DISTRIBUTION FEES
----------------------------------------------------
AS OF JUNE 30, 1995
-------------------------------------
FEE PAID AT APPROXIMATE ANNUAL FEE
MARCH 31, 1995 NET ASSETS BASED ON NET ASSETS
-------------- -------------- ----------------------
<S> <C> <C> <C>
Arizona Fund............... $ 106,900 $ 105,190,136 $ 131,488
California Fund............ $1,492,270 $1,158,511,504 $1,448,139
Connecticut Fund........... $ 320,966 $ 270,207,603 $ 337,760
Massachusetts Fund......... $ 187,724 $ 155,161,828 $ 193,952
Michigan Fund.............. $ 277,622 $ 220,638,291 $ 275,798
New Jersey Fund............ $ 573,696 $ 513,119,683 $ 641,400
New York Fund.............. $1,013,471 $ 910,566,922 $1,138,209
North Carolina Fund........ $ 366,625 $ 253,306,828 $ 315,624
Ohio Fund.................. $ 268,476 $ 243,815,696 $ 304,770
Pennsylvania Fund.......... $ 420,594 $ 374,840,682 $ 468,551
</TABLE>
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
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<PAGE>
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, in
those instances where shareholders request transactions that settle on a
"same-day" basis (such as Federal Funds wire redemptions, branch office
checks, transfers to other Merrill Lynch accounts and certain securities
transactions) the Fund shares necessary to effect such transactions will be
deemed to have been transferred to Merrill Lynch prior to the Fund's
declaration of dividends on that day. In such instances, shareholders will
receive all dividends declared and reinvested through the date immediately
preceding the date of redemption. 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 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.
24
<PAGE>
REDEMPTION OF SHARES BY NON-CMA SUBSCRIBERS
Shareholders may redeem shares of a Fund held in a Merrill Lynch securities
account directly as described above 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, Merrill Lynch Financial
Data Services, Inc., P.O. Box 45290, Jacksonville, Florida 32232-5290.
Redemption requests which are sent by hand should be delivered to Merrill Lynch
Financial Data Services, 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.
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 of the Manager and Merrill Lynch Asset
Management, L.P. ("MLAM"); Executive Vice President of ML & Co.; Executive
Vice President of Merrill Lynch; President and Director of Princeton
Services, Inc. ("Princeton Services"); and Director of Merrill Lynch Funds
Distributor, Inc. (the "Distributor").
- --------
* Interested person, as defined in the Investment Company Act, of the Trust.
25
<PAGE>
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.; and former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.
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.
MANAGEMENT AND ADVISORY ARRANGEMENTS
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
130 registered investment companies and provides investment advisory services
to individual and institutional accounts. As of June 30, 1995, MLAM and the
Manager had a total of approximately $180.4 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 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. The Manager may
discontinue or reduce the amount of such waiver or assumption of expenses at
any time without notice.
26
<PAGE>
Set forth in the chart below is certain management fee and expense
information for each Fund for the year ended March 31, 1995 and at June 30,
1995.
<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,
1995........... $430,110 $5,371,374 $1,290,608 $756,123 $1,117,988 $2,299,467 $3,831,293 $1,474,176 $1,078,893
Management Fee
Waived for the
Year Ended
March 31, 1995. $267,373 $ -- $ -- $ -- $ -- $ -- $ -- $ 294,835 $ --
Effective Fee
Rate as of
March 31, 1995
(in millions).. .50% .45% .50% .50% .50% .50% .47% .50% .50%
Net Assets at
June 30, 1995
(in millions).. $ 105.2 $ 1,158.5 $ 270.2 $ 155.2 $ 220.6 $ 513.1 $ 910.6 $ 253.3 $ 243.8
Approximate
Annual
Management Fee
as of June 30,
1995........... $525,951 $5,219,418 $1,351,038 $775,809 $1,103,191 $2,555,759 $4,244,909 $1,266,534 $1,219,078
Approximate
Effective Fee
Rate as of June
30, 1995....... .50% .45% .50% .50% .50% .50% .47% .50% .50%
Reimbursement
for Accounting
Services for
the Year Ended
March 31, 1995. $ 34,475 $ 147,332 $ 34,816 $ 23,525 $ 33,121 $ 86,286 $ 89,857 $ 57,506 $ 67,499
Ratio of
Operating
Expenses to
Average Net
Assets (Net of
Reimbursement
and excluding
Distribution
Fees) for the
Year Ended
March 31, 1995. .54% .63% .71% .76% .73% .71% .67% .62% .74%
<CAPTION>
PENNSYLVANIA
FUND
------------
<S> <C>
Management Fee
for the Year
Ended March 31,
1995........... $1,689,896
Management Fee
Waived for the
Year Ended
March 31, 1995. $ --
Effective Fee
Rate as of
March 31, 1995
(in millions).. .50%
Net Assets at
June 30, 1995
(in millions).. $ 374.8
Approximate
Annual
Management Fee
as of June 30,
1995........... $1,874,203
Approximate
Effective Fee
Rate as of June
30, 1995....... .50%
Reimbursement
for Accounting
Services for
the Year Ended
March 31, 1995. $ 35,994
Ratio of
Operating
Expenses to
Average Net
Assets (Net of
Reimbursement
and excluding
Distribution
Fees) for the
Year Ended
March 31, 1995. .71%
</TABLE>
TRANSFER AGENCY SERVICES
Merrill Lynch 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 $10.00
per shareholder account 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.
27
<PAGE>
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, 1995 (during a
portion of which a lower fee schedule was in effect) and for the three months
ended June 30, 1995.
<TABLE>
<CAPTION>
TRANSFER AGENT FEES
-------------------------------------------
AS OF JUNE 30, 1995
------------------------
FOR THE YEAR ENDED NUMBER OF APPROXIMATE
MARCH 31, 1995 SHAREHOLDERS FEE
------------------ ------------ -----------
<S> <C> <C> <C>
Arizona Fund........................ $ 18,741 1,915 $ 19,150
California Fund..................... $186,485 16,954 $169,540
Connecticut Fund.................... $ 39,502 3,842 $ 38,420
Massachusetts Fund.................. $ 44,690 4,237 $ 42,370
Michigan Fund....................... $ 52,817 4,833 $ 48,330
New Jersey Fund..................... $ 99,854 5,903 $ 59,030
New York Fund....................... $179,256 9,998 $ 99,980
North Carolina Fund................. $ 68,413 17,020 $170,200
Ohio Fund........................... $ 46,965 4,664 $ 46,640
Pennsylvania Fund................... $101,396 8,741 $ 87,410
</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 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.
28
<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, 1995.
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
TRANSACTIONS AMOUNT
------------ ------------
<S> <C> <C>
Arizona Fund.......................................... 3 $ 7,000,000
California Fund....................................... 191 $823,101,765
Connecticut Fund...................................... 0 $ 0
Massachusetts Fund.................................... 42 $ 54,800,000
Michigan Fund......................................... 6 $ 14,925,000
New Jersey Fund....................................... 6 $ 14,802,160
New York Fund......................................... 8 $153,482,763
North Carolina Fund................................... 14 $ 14,200,000
Ohio Fund............................................. 2 $ 2,400,000
Pennsylvania Fund..................................... 0 $ 0
</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 during which 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.
29
<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 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 reflect 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 added new marginal tax brackets of 36%
and 39.6% for individuals and created a graduated structure of 26% and 28% for
the alternative minimum tax applicable
30
<PAGE>
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.
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.
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 invests 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 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.
31
<PAGE>
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 (in certain instances)
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 or her other 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.
32
<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:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch and/or mutual fund account numbers. If
you have any questions regarding this please call your Merrill Lynch Financial
Consultant or Merrill Lynch 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.
33
<PAGE>
Manager
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. 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
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45290
Jacksonville, Florida 32232-5290
Independent Auditors
Deloitte & Touche llp
117 Campus Drive
Princeton, New Jersey 08540-6400
Counsel
Brown & Wood
One World Trade Center
New York, New York 10048-0557
Principal Office of the Trust
800 Scudders Mill Road
Plainsboro, New Jersey 08536
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Financial Highlights....................................................... 3
Yield Information.......................................................... 8
Investment Objectives and Policies......................................... 9
Purchase of Shares......................................................... 19
Redemption of Shares....................................................... 23
Management of the Trust.................................................... 25
Portfolio Transactions..................................................... 28
Dividends.................................................................. 29
Determination of Net Asset Value........................................... 29
Taxes...................................................................... 29
Organization of the Trust.................................................. 32
Shareholder Reports and Inquiries.......................................... 33
</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
contained 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
Incorporated. This Prospectus does
not constitute an offering in any
state in which such offering may
not lawfully be made.
CMA(R)
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
AUGUST 2, 1995
LOGO MERRILL LYNCH
Code #16817-0895
<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
P.O. 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,
and the designated state's personal income taxes and, in certain instances,
local 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
income taxes, personal income taxes of the designated state and, in certain
instances, local 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 SM 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 SM Account (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 (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 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 August 2,
1995 (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 AUGUST 2, 1995.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund is a non-diversified, no-load money market 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 Ratings
Group. 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 Fund Asset Management, (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 DELAYED DELIVERY OR WHEN-ISSUED BASIS
Municipal Securities may at times 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. 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 U.S. Government securities, U.S. 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, 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, their ages 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 (63)--President and Trustee(1)(2)--President of the Manager
(which term as used herein includes its corporate predecessors) since 1977;
President of Merrill Lynch Asset Management, L.P. ("MLAM", which term as used
herein includes its corporate predecessors) since 1977; President and Director
of Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Executive Vice
President of Merrill Lynch since 1990 and Senior Vice President thereof from
1985 to 1990; Director of Merrill Lynch Funds Distributor, Inc. ("MLFD").
Ronald W. Forbes (54)--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 (42)--Trustee(2)--Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 02163. 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 (64)--Trustee(2)--9 Hampton Harbor Road, Hampton Bays, New
York 11946. Self-employed financial consultant since 1990; 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, 1990; Adjunct
Professor, Wharton School, The University of Pennsylvania, 1990, Partner, Small
Cities Cable Television since 1986.
Kevin A. Ryan (62)--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 (57)--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), Bowne & Co., Inc.
(financial printer), Smith Corona Corporation (manufacturer of typewriters and
word processors) and Alexander's Inc. (real estate company).
Terry K. Glenn (54) --Executive Vice President(1)(2)--Executive Vice
President of the Manager and MLAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of MLFD since 1986 and
Director thereof since 1991; President of Princeton Administrators, L.P. since
1988.
Vincent R. Giordano (50)--Senior Vice President and Portfolio Manager(1)(2)--
Senior Vice President of the Manager and MLAM since 1984 and Vice President
from 1980 to 1984.
Edward J. Andrews (35)--Vice President and Portfolio Manager(1)(2)--Vice
President of MLAM since 1991; investment officer in the Private Banking
Division of Citibank, N.A. from 1982 to 1991.
Donald C. Burke (35)--Vice President(1)(2)--Vice President and Director of
Taxation of MLAM since 1990; employee of Deloitte & Touche llp from 1982 to
1990.
Peter J. Hayes (36)--Vice President and Portfolio Manager(1)(2)--Vice
President of MLAM 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 (44)--Vice President and Portfolio Manager(1)(2)--Vice
President of MLAM since 1984.
Kevin A. Schiatta (40)--Vice President and Portfolio Manager(1)(2)--Vice
President of MLAM since 1985.
Helen Marie Sheehan (35)--Vice President(1)(2)--Vice President of MLAM since
1991; Assistant Vice President of MLAM from 1989 to 1991; employee of MLAM
since 1985.
Gerald M. Richard (46)--Treasurer(1)(2)--Senior Vice President and Treasurer
of the Manager and MLAM since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; Vice President of MLFD since 1981 and Treasurer
since 1984.
Robert Harris (43)--Secretary(1)(2)--Vice President of MLAM 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 30, 1995, the Trustees and officers of the Trust as a group (16
persons) owned an aggregate of less than of 1% of the outstanding Common Stock
of ML & Co. At such date, Mr. Zeikel, an officer and Trustee of the Trust, and
the other officers of the Trust, owned less than 1% of the outstanding shares
of common stock of ML & Co.
COMPENSATION OF TRUSTEES
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 a fee of $4,000 per year plus a fee of $800 per meeting
attended and pays all Trustees' actual out-of-pocket expenses relating to
attendance at meetings. The Trust also pays an annual fee of $1,500 to members
of its audit committee, which consists of all of the non-affiliated Trustees,
and pays all Trustees' actual out-of-pocket expenses relating to attendance at
meetings.
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, 1995.
<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>
$1,019 $15,839 $3,428 $2,004 $3,082 $5,882 $10,348 $3,769 $2,895 $4,521
</TABLE>
The following table sets forth for the fiscal year ended March 31, 1995
compensation paid by the Funds to the non-interested Trustees and for the
calendar year ended December 31, 1994 the aggregate compensation paid by all
investment companies advised by MLAM and its affiliate, FAM ("MLAM/FAM Advised
Funds") to the non-interested Trustees.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
FROM FUND AND
PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS PART FUNDS PAID TO
NAME OF TRUSTEE FROM FUND OF FUND EXPENSE TRUSTEES(/1/)
--------------- ------------ ------------------------ ----------------
<S> <C> <C> <C>
Arizona Fund
- ------------
Ronald W. Forbes(/1/).. $ 185.71 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $ 185.71 None $133,817
Charles C. Reilly(/1/). $ 185.71 None $276,900
Kevin A. Ryan(/1/)..... $ 185.71 None $154,400
Richard R. West(/1/)... $ 203.09 None $300,900
California Fund
- ---------------
Ronald W. Forbes(/1/).. $3,018.18 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $3,018.18 None $133,817
Charles C. Reilly(/1/). $3,018.18 None $276,900
Kevin A. Ryan(/1/)..... $3,018.18 None $154,400
Richard R. West(/1/)... $3,319.19 None $300,900
Connecticut Fund
- ----------------
Ronald W. Forbes(/1/).. $ 645.02 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $ 645.02 None $133,817
Charles C. Reilly(/1/). $ 645.02 None $276,900
Kevin A. Ryan(/1/)..... $ 645.02 None $154,400
Richard R. West(/1/)... $ 710.00 None $300,900
Massachusetts Fund
- ------------------
Ronald W. Forbes(/1/).. $ 380.52 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $ 380.52 None $133,817
Charles C. Reilly(/1/). $ 380.52 None $276,900
Kevin A. Ryan(/1/)..... $ 380.52 None $154,400
Richard R. West(/1/)... $ 419.01 None $300,900
Michigan Fund
- -------------
Ronald W. Forbes(/1/).. $ 578.31 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $ 578.31 None $133,817
Charles C. Reilly(/1/). $ 578.31 None $276,900
Kevin A. Ryan(/1/)..... $ 578.31 None $154,400
Richard R. West(/1/)... $ 637.96 None $300,900
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
FROM FUND AND
PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS PART FUNDS PAID TO
NAME OF TRUSTEE FROM FUND OF FUND EXPENSE TRUSTEES(/1/)
--------------- ------------ ------------------------ ----------------
<S> <C> <C> <C>
New Jersey Fund
- ---------------
Ronald W. Forbes(/1/).. $1,116.60 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $1,116.60 None $133,817
Charles C. Reilly(/1/). $1,116.60 None $276,900
Kevin A. Ryan(/1/)..... $1,116.60 None $154,400
Richard R. West(/1/)... $1,226.78 None $300,900
New York Fund
- -------------
Ronald W. Forbes(/1/).. $1,967.77 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $1,967.77 None $133,817
Charles C. Reilly(/1/). $1,967.77 None $276,900
Kevin A. Ryan(/1/)..... $1,967.77 None $154,400
Richard R. West(/1/)... $2,163.31 None $300,900
North Carolina Fund
- -------------------
Ronald W. Forbes(/1/).. $ 712.58 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $ 712.58 None $133,817
Charles C. Reilly(/1/). $ 712.58 None $276,900
Kevin A. Ryan(/1/)..... $ 712.58 None $154,400
Richard R. West(/1/)... $ 783.46 None $300,900
Ohio Fund
- ---------
Ronald W. Forbes(/1/).. $ 545.07 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $ 545.07 None $133,817
Charles C. Reilly(/1/). $ 545.07 None $276,900
Kevin A. Ryan(/1/)..... $ 545.07 None $154,400
Richard R. West(/1/)... $ 600.10 None $300,900
Pennsylvania Fund
- -----------------
Ronald W. Forbes(/1/).. $ 850.24 None $154,400
Cynthia A. Montgom-
ery(/1/).............. $ 850.24 None $133,817
Charles C. Reilly(/1/). $ 850.24 None $276,900
Kevin A. Ryan(/1/)..... $ 850.24 None $154,400
Richard R. West(/1/)... $ 937.10 None $300,900
</TABLE>
- --------
(1) In addition to these Funds, the Trustees serve on the boards of other
MLAM/FAM Advised Funds as follows: Mr. Forbes (36 funds); Ms. Montgomery
(36 funds); Mr. Reilly (53 funds); Mr. Ryan (36 funds); and Mr. West (53
funds).
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.
8
<PAGE>
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 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.
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, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------
1995 1994 1993
-------------------------- -------------------------- --------------------------
TOTAL FEE VOLUNTARILY TOTAL FEE VOLUNTARILY TOTAL FEE VOLUNTARILY
MANAGEMENT WAIVED BY MANAGEMENT WAIVED BY MANAGEMENT WAIVED BY
FEE MANAGER FEE MANAGER FEE MANAGER
---------- --------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Arizona Fund*........... $ 430,110 $267,373 $ 269,875 $209,036 $ 25,112 $ 25,112
California Fund......... $5,371,374 $ -- $4,979,676 $ -- $4,681,982 $ --
Connecticut Fund........ $1,290,608 $ -- $1,176,254 $ -- $1,017,077 $203,282
Massachusetts Fund...... $ 756,123 $ -- $ 721,970 $ -- $ 602,465 $ --
Michigan Fund........... $1,117,988 $ -- $1,067,163 $ -- $ 940,902 $163,597
New Jersey Fund......... $2,299,467 $ -- $2,007,881 $ -- $1,771,517 $ --
New York Fund........... $3,831,293 $ -- $3,347,951 $ -- $3,028,869 $ --
North Carolina Fund..... $1,474,176 $294,835 $1,193,861 $238,772 $1,112,762 $360,075
Ohio Fund............... $1,078,893 $ -- $ 955,932 $ -- $ 962,179 $ 12,153
Pennsylvania Fund....... $1,689,896 $ -- $1,587,756 $ -- $1,338,465 $ --
</TABLE>
- --------
*Commenced operations February 8, 1993.
The State of 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, 1995,
1994 and 1993, 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
9
<PAGE>
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 separate distribution agreements on behalf of each
Fund with Merrill Lynch as distributor (each, a "Distribution Agreement"). 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.
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
10
<PAGE>
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,
1995, 1994 and 1993. All of the amounts expended were allocated to Merrill
Lynch personnel and to related administrative costs.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Arizona Fund*...................... $ 106,900 $ 67,140 $ 6,372
California Fund.................... $1,492,270 $1,364,634 $1,260,633
Connecticut Fund................... $ 320,966 $ 292,733 $ 252,560
Massachusetts Fund................. $ 187,724 $ 179,349 $ 149,303
Michigan Fund...................... $ 277,622 $ 265,504 $ 233,124
New Jersey Fund.................... $ 573,696 $ 500,084 $ 438,570
New York Fund...................... $1,013,471 $ 872,640 $ 775,492
North Carolina Fund................ $ 366,625 $ 297,463 $ 276,477
Ohio Fund.......................... $ 268,476 $ 237,695 $ 238,453
Pennsylvania Fund.................. $ 420,594 $ 395,631 $ 332,278
</TABLE>
- --------
* Commenced operations February 8, 1993.
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 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.
11
<PAGE>
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 policies
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.
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, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------------------
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)......... 3 $ 7.0 -- $ -- -- $ --
California Fund......... 191 $823.1 174 $875.8 165 $ 948.6
Connecticut Fund........ 0 $ 0.0 3 $ 7.0 26 $ 62.9
Massachusetts Fund...... 42 $ 54.8 52 $ 95.3 13 $ 13.8
Michigan Fund........... 6 $ 14.9 10 $ 54.9 22 $ 88.3
New Jersey Fund......... 6 $ 14.8 7 $ 34.9 18 $ 51.5
New York Fund........... 8 $153.5 31 $155.2 46 $ 152.0
North Carolina Fund..... 14 $ 14.2 15 $ 23.6 77 $ 117.4
Ohio Fund............... 2 $ 2.4 13 $ 26.4 9 $ 13.0
Pennsylvania Fund....... 0 $ 0.0 2 $ 12.3 8 $ 26.6
</TABLE>
- --------
*in millions
(1) Commenced operations February 8, 1993.
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
12
<PAGE>
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. It is anticipated
that the net asset value per share of each Fund will remain constant at $1.00
per share, but no assurance can be offered in this regard.
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.
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. 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 may be
reflected by a decrease in the number of shares in the account. See "Taxes"
below.
13
<PAGE>
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.
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
14
<PAGE>
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. 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 reflect 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.
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<PAGE>
The Revenue Reconciliation Act of 1993 added new marginal tax brackets of 36%
and 39.6% for individuals and 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.
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.
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.
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 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
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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. 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 tax 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 on California State 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.
Connecticut. Dividends paid by the Connecticut Fund that qualify as exempt-
interest dividends for Federal income tax purposes are not subject to the
Connecticut personal income tax, on individuals, trusts and estates, to the
extent that they are derived from Connecticut State Municipal Securities. Other
Connecticut Fund dividends and distributions, whether received in cash or
additional shares, are subject to this tax, except that capital gain dividends
derived from obligations issued by or on behalf of the State of Connecticut or
its political subdivisions are not subject to the tax. Dividends and
distributions paid by the Connecticut Fund that constitute items of tax
preference for purposes of the Federal alternative minimum tax, other than any
derived from Connecticut State Municipal Securities, could cause liability for
the net Connecticut minimum tax, applicable to investors subject to the
Connecticut personal income tax who are required to pay the Federal alternative
minimum tax.
Dividends paid by the Fund, including those that qualify as exempt-interest
dividends for Federal income tax purposes, are taxable for purposes of the
Connecticut Corporation Business Tax. However, 70% (100% if the investor owns
at least 20% of the total voting power and value of the Fund's shares) of
amounts that are treated as dividends and not as exempt-interest dividends or
capital gain dividends for Federal income tax purposes are deductible for
purposes of this tax, but no deduction is allowed for expenses related thereto.
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 any personal income or 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 that
portion of dividends paid by the Massachusetts Fund that is identified in a
year-end statement as (a) exempt-interest dividends directly attributable to
interest received by the Massachusetts Fund on Massachusetts State Municipal
Securities that is exempt from Massachusetts taxation, or (b) dividends
attributable to interest received by the Massachusetts Fund on obligations of
the United States 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 a 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 on Michigan State Municipal Securities. To the extent the
distributions from the
17
<PAGE>
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. The intangibles
tax is being phased out, with reductions of twenty-five percent (25%) in 1994
and 1995, fifty percent (50%) in 1996 and seventy-five percent (75%) in 1997,
with total repeal effective January 1, 1998.
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
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 on North Carolina State Municipal Securities and to
interest on direct obligations of the United States (including territories
thereof), 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 issued prior to
July 1, 1995 are not subject to North Carolina individual or corporate income
tax; however, for such obligations issued after June 30, 1995, distributions of
gains attributable to disposition will be 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.
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<PAGE>
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.
An investment in the North Carolina Fund prior to 1995 was potentially
subject to the North Carolina intangible personal property tax, subject to
certain exemptions. This tax, however, has been repealed by the North Carolina
General Assembly, effective for taxable years beginning on or after January 1,
1995.
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 State Municipal Securities will be exempt
from the Philadelphia School District investment income tax.
Shares of the Pennsylvania Fund will be exempt from the personal property
taxes imposed by various Pennsylvania municipalities to the extent the
Pennsylvania Fund's portfolio securities consist of Pennsylvania State
Municipal Securities on the annual assessment date.
At present, it is unclear whether 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.
19
<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 will
be 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.
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<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.
Merrill Lynch 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 LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Trust. 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.
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:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch and/or mutual fund account numbers. If
you have any questions regarding this please call your Merrill Lynch financial
consultant or Merrill Lynch Financial Data Services, Inc. at (800) 221-7210.
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 or her other 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.
To the knowledge of the Funds, no person owned beneficially 5% or more of any
Fund's shares on July 1, 1995, except that Dunlop Light, Jr., 920 Wellington
Road, Winston Salem, North Carolina 27106 owned 5.26% of the shares of the
North Carolina Fund.
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<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 SECURITIES
OF ISSUERS IN A SPECIFIC STATE.
APPENDIX A
ECONOMIC AND FINANCIAL CONDITIONS IN ARIZONA
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
Over the past 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 population, employment and aggregate
personal income. Although the rate of growth in these and other areas slowed
considerably during the late 1980s and early 1990s, the State's efforts to
diversify its economy have enabled it to realize, and then sustain, moderate
growth in more recent years. While jobs in industries such as mining and
agriculture have diminished in relative importance to the State's economy over
the past two decades, substantial growth has occurred in the areas of
aerospace, high technology, light manufacturing, and the service industry.
Other important industries that contributed to the State's growth in past years
such as construction and real estate, have rebounded from substantial declines
during the late 1980s and early 1990s, and, like the rest of the State, have
experienced positive growth.
Arizona's strong economy, warm climate and reasonable cost of living have
encouraged many people to move to the State in recent years. Between 1985 and
1990, the state ranked fifth in the country in population growth, and Maricopa
County, the State's most populous county, had the single largest population
inflow (in absolute terms) of any county in the country during that period.
Since 1991, as a result of both the State's relatively good economy and the
troubles experienced in surrounding areas like California, the State's
population has grown by approximately 287,000, or 7.6%. The net 115,000 who
came to the State in 1994 put the State's aggregate population over 4 million
for the first time. Population growth in 1995 is expected to equal or exceed
the 1994 levels.
Part of the State's popularity in recent years can be attributed to the
favorable job climate. Building upon the moderate job growth sustained since
the early 1990s, the State's employment figures reached near-record levels in
1994, rising 6.4% from 1993 as the State recorded more than 99,000 new jobs.
The industries that created the most jobs in 1994 included construction, where
employment rose 21.9%, and manufacturing (including the aircraft and missile
sectors), which was up 9.2%. Transportation, communications, public utilities,
trade, finance, insurance and real estate also experienced job growth. Overall,
the service sector of the economy, which represents more than 28% of all jobs
in the State, grew by 6.4%, while only the mining and government job sectors
showed declines. The 1994 results are not expected to be matched in 1995,
partly due to a decline in single-family home construction, but a relatively
sound United States economy, a potential economic upswing in California (which
historically has been a prime market for Arizona goods and services), and
continued growth in manufacturing and high technology should enable the State
to realize moderate gains in job growth in 1995. The 1994 unemployment rate was
6.3%.
The State's economic growth in recent times has enabled Arizonans to realize
substantial gains in personal income. While the State's per capita personal
income generally varies between 5% and 15% below the national average due to
such factors as the chronic poverty on the State's Indian reservations, the
State's relatively high numbers of retirees and children, and the State's below
average wage scale, the State's aggregate personal income grew nearly 22.8%
between 1991 and 1994 to approximately $77.094 billion, which translated into a
gain in real personal income of 14.8% to $60.980 billion. Among other things,
the gains in per capita personal income helped create a retail sales boom in
1994. According to Arizona
A-1
<PAGE>
Department of Revenue figures (which measure taxable retail sales in specified
categories), retail sales were up 12.3% in 1994, led by major gains in sales of
durable goods. The current rate of growth in the retail sales area may not be
sustainable over the long term, but continued strength in employment growth and
personal income should produce good, though more modest, results in 1995.
The State government's fiscal situation has improved substantially in recent
years. After experiencing several years of budget shortfalls requiring mid-year
adjustments, the State had budget surpluses of $86 million and $107 million in
fiscal years 1993 and 1994, respectively. So far in 1995, the State has
improved on this performance, at times achieving mid-year operating surpluses
of more than $1 billion. The positive economic outlook enabled the Legislature
to enact a two-year, $431 million tax cut, the largest in the State's history.
Signed into law in March 1995, the fiscal year 1996 budget and tax package
provides for a $200 million cut in personal income taxes this year and a $200
million cut in property taxes next year, and eliminates income taxes for
families of four making less than $20,000 per year. Businesses will also
receive some tax relief. While voter approval of Proposition 108 in November
1992, which requires a 2/3 majority vote in both houses of the Legislature to
enact a tax or fee increase, constrains the State's ability to raise additional
revenue, the State has placed some of its excess operating revenue in a rainy-
day fund, which has a current balance of more than $100 million.
In July 1994, a sharply divided Arizona Supreme Court ruled that the State's
current system for financing public education itself created substantial
disparities in facilities among school districts and therefore violated the
provisions of Article XI, (S) 1 of the Arizona Constitution, which requires the
Legislature to establish and maintain "a general and uniform public school
system". The Court remanded the case to the trial court "to determine whether,
within a reasonable time, legislative action has been taken [to correct this
situation]". In response to a subsequent motion for clarification, the Supreme
Court ordered that, pending such legislative action or further order of the
Supreme Court, "which would have prospective application only", the public
school system "continue under existing statutes, and the validity and
enforceability of past and future bond acts, bonded indebtedness and
obligations incurred under applicable statutes, as long as they are in force
and effect, is assured." In May 1995, a court dismissed a taxpayer's challenge
to a school district bond issue that was authorized at an election subsequent
to the Supreme Court decision on the ground that the decision contemplated and
approved such bond issues pending legislative action or further court order. A
joint legislative committee is expected to issue recommendations regarding a
new system of public school financing later in 1995.
Maricopa County is the State's most populous county. Within Maricopa County's
boundaries lie the City of Phoenix, the State's largest city and one of the ten
largest cities 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, 63% of its
wage and salary employment, and 65% of its aggregate personal income. Between
1992 and 1994, Maricopa County's population rose more than 5.2% to
approximately 2,355,000; over the same period, the unemployment rate fell from
6.4% to 4.7%. These factors enabled Maricopa County residents to realize an
increase in aggregate personal income of 14.9% which, in turn, contributed to
significant increases in retail sales and construction.
Good transportation facilities, a substantial pool of available labor, a
variety of support industries and a warm climate have helped make Maricopa
County a major business center in the southwestern United States. Once
dependent primarily on agriculture, Maricopa County has substantially
diversified its economic base. Currently, the service sector, including
transportation, communications, public utilities, hospitality and
entertainment, trade, finance, insurance, real estate and government, is the
leading source of employment in Maricopa County, creating more than 14,000 new
jobs in 1994. In addition, several large, publicly-traded companies, such as
Dial Corp., Phelps Dodge, and MicroAge, have their headquarters in Maricopa
County, while others, such as Motorola, Intel and Honeywell, conduct major
operations there. Already home to a variety of professional sports teams,
including the Phoenix Suns and Arizona Cardinals, the County was recently
awarded one of two new major league baseball franchises. The Arizona
Diamondbacks are expected to begin play in 1998 upon completion of a new
stadium in downtown Phoenix.
A-2
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Despite the overall economic growth in recent years, the Maricopa County
government spent in excess of its revenues from 1990 through 1993, and ended
its fiscal 1994 year with a $66.53 million budget deficit, as compared to a
total County budget of approximately $1.2 billion. Recently, County officials
have indicated that savings brought about through budget cuts, a hiring freeze
and other restructuring moves undertaken since that time could enable the
County to pay off the deficit as early as the June 1995 fiscal year end.
Pima County is the State's second most populous county, and includes the City
of Tucson. Pima County is home to approximately 730,000 people, or 18% of the
State's population. Traditionally, Pima County's economy has been based
primarily upon manufacturing, mining, government, agriculture, tourism,
education and finance. Hughes Aircraft, which transferred its Hughes Missile
Systems division to Tucson from Canoga Park, California several years ago, and
several large mining companies, including Magma Copper, ASARCO and Phelps
Dodge, anchor the non-public sector of the Tucson economy, employing more than
14,000 people. More recently, the County, and Tucson in particular, has become
a base for more than 300 computer software companies, as well as a number of
companies operating in the areas of environmental technology, bioindustry and
telecommunications. The 16% growth in manufacturing employment during 1994 and
an unemployment rate of less than 5% reflect the County's current strong
economy.
In 1994, two special purpose irrigation districts, formed for the purpose of
issuing bonds to finance the purchase of Colorado River water from the Central
Arizona Project ("CAP"), filed for bankruptcy under Chapter 9 of the United
States Bankruptcy Code due to the districts' inability to collect tax revenue
in amounts and at times sufficient to service their bonded debt. The financial
problems that led to the districts' default arose from a combination of the
unexpectedly high cost of constructing the CAP and delivering the water to the
districts, plummeting land values associated the increased property taxes
assessed to finance the districts' debt, and the refusal by many land owners in
the districts to shoulder the increased tax burden. A third irrigation district
is expected to file for bankruptcy later in 1995.
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APPENDIX B
ECONOMIC AND FINANCIAL CONDITIONS IN CALIFORNIA
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
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.
The State of California's (sometimes referred to as the "State") tax revenue
experience in the past few years clearly reflects sharp declines in employment,
income and retail sales on a scale not seen in over 50 years. The 1995-96
Governor's Budget, released January 10, 1995 (the "Governor's Budget"),
indicates the State has embarked on a steady economic recovery since late 1993,
somewhat sooner than predicted in the May 1994 Revision of the 1994-95
Governor's Budget. The following are excerpts from the Governor's Budget
discussion of economic conditions.
California. Revised employment data indicate that California's recession
ended in 1993, and following a period of stability, a recovery is now underway.
The State's unemployment rate fell last year, from 10.1 percent in January to
7.7 percent in October and November. The gap between the national and
California jobless rates narrowed from 3.4 percentage points at the beginning
of 1994 to an average of 2 percentage points in October and November. The
number of unemployed Californians fell by nearly 400,000 during the year, while
civilian employment increased more than 300,000.
Other indicators, including retail sales, homebuilding activity, existing
home sales and bank lending volume all confirm the State's recovery. U.S.
Department of Commerce survey data show retail sales up over 8 percent in
September and October 1994 from year-earlier data. Information from major
credit card companies and the leading check verification service suggest that
the 1994 holiday-season sales growth in California outpaced the national
performance. Despite rising interest rates, existing home sales were up 18
percent through the first ten months of last year, while permits to build new
homes rose 16 percent over the same period. Nonresidential construction has
stabilized, and office occupancy rates are moving up in most areas. Commercial
lending by the State's major banks is also on the rise after a three-year
decline.
Personal income was severely affected by the Northridge Earthquake, which
reduced the first quarter 1994 figure by $22 billion at an annual rate,
reflecting the uninsured damage to residences and unincorporated businesses. As
a result, personal income growth for all of 1994 was about 4.2 percent.
However, excluding the Northridge effects, growth would have been in excess of
5 percent. Moreover, after several years of accelerating income ahead of
promised Federal tax hikes, it appears that many individuals may have deferred
the recognition of income (including bonuses and stock options) into 1995,
given a strong possibility that the new Congress may enact tax cuts at the
Federal level.
Only nonfarm wage and salary employment figures have yet to confirm the
recovery. Federal figures indicate that jobs reached a low in December 1993 and
have shown little growth since then (although the November 1994 figure was up
slightly from the year-earlier level). However, State payroll tax data, which
will form the basis for the March 1995 revision in the California Employment
Development Department's ("EDD") wage and salary job figures, paint a brighter
picture. These tax-based data, reflecting the entire universe of employers,
indicate that employment bottomed in the spring of 1993, and after a period of
stability, began a sustained recovery later that year. Based on preliminary
second quarter payroll tax data, the Department of Finance estimates that
employment grew by more than 150,000 last year.
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The gap between the data compiled by the EDD on contract with the U.S. Bureau
of Labor Statistics ("BLS") and the State payroll tax data is because the EDD
survey on which these figures are based is unable to pick up new business
starts (only firms in operation prior to the first quarter of 1992 are
included) and samples only a fraction of smaller employers. On the other hand,
all very large firms--including most aerospace manufacturers, banks, utilities
and major retailers--are included in the EDD/BLS survey. These larger firms are
the source of most of the layoffs, down sizing and restructuring in the
economy. Thus, the survey reports the vast majority of layoffs, but understates
growth in small firms and misses entirely jobs created by new business.
Payroll tax data indicate employment growth is concentrated in services,
construction, and wholesale and retail trade. Manufacturing continues to be
affected by Federal defense spending cuts and the weak market for commercial
aircraft. Aerospace (aircraft, missiles and space equipment and search and
navigation instruments) lost 36,000 jobs last year, and employment is now down
by more than half from the 1988 peak. Electronics has stabilized and is showing
some growth particularly in the components industry. Excluding these high-
technology industries, manufacturing is now posting small employment gains.
Many of the new jobs in the service-producing sector are in high-wage
industries, including motion pictures, business services (which includes
computer software and consulting), and engineering and management consulting.
Much of the growth in wholesale trade is related to foreign trade. Dollar
volumes through California ports were up an estimated 16 percent last year,
considerably above the nationwide gain of about 9 percent. Job gains in these
high-wage service industries are helping to cushion the ongoing losses in
aerospace.
California should not be significantly affected by the prospective slowing of
U.S. economic growth. The State will benefit from continued strength in
business equipment sales--mainly computers, instruments and other high-tech
products--and from the ongoing recoveries overseas. The recent upswing in
Japan--California's largest trading partner--and faster than expected growth in
Western Europe are encouraging signs for California.
Homebuilding in the State has continued to recover despite the rise in fixed
rate mortgages since late 1993. Job growth seems to be the key: in a reversal
of traditional roles, the rest of the State's economy is pulling housing out of
the doldrums. Lower interest rates, which should appear on the horizon later
this year, will give homebuilding an extra boost in the second half of 1995 and
throughout 1996. Permit volume is forecast to rise from an estimated 96,000
units last year to 109,000 units in 1995 and over 150,000 new homes in 1996.
Following the addition of over 150,000 new jobs in 1994, this year should see
growth in the 220,000 range, led by services, construction and trade.
Manufacturing is expected to stabilize, despite the loss of another 20,000 or
more aerospace jobs. In 1996, job growth is projected to exceed 300,000, with
gains in all major sectors of the State's economy, again led by services and
construction.
Personal income is expected to grow 6.6 percent this year, well above the
quake-impacted 1994 estimate of 4.2 percent. Without the quake-related losses
in rental income, growth would have been 5.1 percent last year, and this year's
forecast gain would be 5.7 percent. In 1996, income is expected to grow by 6
percent.
The quality of income is also improving, with wages and salaries and
proprietors' incomes accelerating, while transfer payments--which include
welfare payments, unemployment compensation and social security--are slowing.
During the recession, transfer payments grew at a double-digit pace.
Inflation in California, which has traditionally run slightly above the
national average, is now lagging the U.S. by a considerable margin. The
California consumer price index (a weighted average of published indexes for
the five-county Los Angeles and ten-county San Francisco Bay regions) averaged
only a 1 1/2 percent rise last year, compared to a 2.7 percent estimate for the
nation. In 1995 and 1996, the California
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price measure should average 3 percent annual increases, still below the
expected national pace of 3 1/2 percent. Subtracting inflation from the rise in
personal income, real incomes rose 2.7 percent last year, and without the quake
the gain would have been 3.5 percent. In both 1995 and 1996, real income growth
is expected to exceed 3 percent.
The Department of Finance Bulletin for April 1995 reports on the State's
continued economic recovery. Despite wet weather, nonfarm employment in the
State increased by 17,000 in March and was up 127,500, or 1.1 percent, from
March 1994. Due to heavy rainstorms, construction employment decreased by 6,900
jobs in March after increasing by more than 35,000 in February. Even so, 22,500
new construction jobs were added since March 1994, a gain of almost 5 percent.
Most other major private industry groups posted gains for March, with services
gaining 18,500 jobs and durable goods factories adding 2,800, despite a drop of
700 jobs in aerospace industries. The State's unemployment rate rose slightly
in March to 7.6 percent from 7.3 percent in February, but was down from 8.8
percent in March 1994.
Home building in February (the most recent month for which information was
available) advanced strongly from the January level, which was depressed by
severe rains and flooding. On a year-over-year basis, building permits rose 4.9
percent, with the number of multi-family permits nearly doubling. Improvement
was also shown with respect to nonresidential construction, with valuation for
nonresidential building increasing 14.6 percent from February 1994.
Finally, the Mexican currency crisis is expected to have some mild dampening
effect on the California economy. The peso's devaluation will make California
exports much more expensive in Mexican markets. Although the economic impact of
this is unknown, an export reduction of 20 percent would reduce trade by
approximately $1.5 billion. This represents less than two percent of all
exports through California ports. San Diego, however, is likely to be more
severly affected due to substantial reductions in cross-border traffic.
Northridge Earthquake. On January 17, 1994, a major earthquake measuring an
estimated 6.8 on the Richter Scale struck the Los Angeles metropolitan area,
centered in the Northridge area of the City of 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, which 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 still subject
to change.
The State. From mid-1990 to late 1993, the State suffered a recession with
the worst economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others,
were all severely affected. Job losses were the worst of any post-war
recession. Employment levels stabilized by late 1993 and steady growth occurred
in 1994 and is expected to continue in 1995, but pre-recession job levels are
not expected to be reached until late 1996. Economic indicators show a steady
recovery underway in the State since the start of 1994.
The recession seriously affected State tax revenues, which basically mirror
economic conditions. It 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 State
General Fund. As a result, the State experienced recurring budget deficits in
the late 1980s and early 1990s. The State Controller reports that expenditures
exceeded revenues for four of the five fiscal years ending with 1991-92; the
State had an operating surplus of about $109 million
in 1992-93 and $836 million in 1993-94. However, at June 30, 1994, according to
the Department of Finance, the State's Special Fund for Economic Uncertainties
still had an accumulated deficit, on a budget basis, of approximately $1.8
billion.
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,
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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 future
fiscal years. To meet its cash flow needs in the 1994-95 Fiscal Year, the State
has issued, in July and August, 1994, $4.0 billion of revenue anticipation
warrants which mature on April 25, 1996, and $3.0 billion of revenue
anticipation notes maturing on June 28, 1995.
On July 15, 1994, all three of the rating agencies rating the State's long-
term debt lowered their ratings of the State's general obligation bonds.
Moody's Investors Service lowered its rating from Aa to A1, Standard & Poor's
Ratings Group lowered its rating from A+ to A and termed its outlook as
"stable," and Fitch Investors Service lowered its rating from AA to A.
The 1994-95 Fiscal Year represented 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 had 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 set forth
revenue and expenditure forecasts and revenue and expenditure proposals which
result in operating surpluses for the budget for both 1994-95 and 1995-96, and
lead to the elimination of the accumulated budget deficit, estimated at about
$1.8 billion at June 30, 1994, by June 30, 1996.
The 1995-96 Governor's Budget, issued January 10, 1995, contains a reforecast
of revenues and expenditures for the 1994-95 Fiscal Year. The Department of
Finance Bulletin for April 1995 reports that General Fund revenues for March
1995 were $28 million, or 1.1 percent, below forecast, and that year-to-date
General Fund revenues were $110 million, or 0.4 percent, below forecast. The
largest component of the decrease is attributable to personal income tax
receipts, which were $134 million, or 1.1 percent, below the year-to-date
forecast. In addition, sales and use tax receipts were $117 million, or 1.1
percent, below the year-to-date forecast. The sales and use tax revenues for
March alone were $91 million, or 8.0%, below forecast, but the Department of
Finance believes that the recent floods in the State could be the cause of this
shortfall. Retailers who were impacted by the floods were allowed to delay
their sales tax payments. In addition, the floods may have been the cause of a
temporary slump in sales, which could be recovered as the weather improves. The
April Bulletin also reported that year-to-date bank and corporation tax
receipts were as forecast, and that miscellaneous revenues were $141 million
above the year-to-date forecast. This gain is mostly attributable to revenues
such as those relating to trial courts, state lands, and unclaimed property.
The Department of Finance believes the gain in unclaimed property revenues ($40
million above forecast) to be real, and expects it to grow slightly by the end
of the fiscal year.
Initial analysis of the federal Fiscal Year 1995 budget by the Department of
Finance indicates that about $98 million was appropriated for California to
offset costs of incarceration of undocumented and refugee immigrants, less than
the $356 million which was assumed in the State's 1994-95 Budget Act. Because
of timing considerations in applying for these federal funds, the Department of
Finance estimates that about $33 million of these funds will be received during
the State's 1994-95 Fiscal Year, with the balance received in the following
fiscal year. It does not appear that the federal budget contains any of the
additional $400 million in funding for refugee assistance and health costs
which were also assumed in the 1994-95 Budget Act, but the Department of
Finance expects the State to continue its efforts to obtain some or all of
these federal funds.
Pursuant to the Budget Adjustment Law (the "Law," Government Code Section
12467), the State Controller was required to make a report by November 15, 1994
on whether the projected cash resources for the General Fund as of June 30,
1995 would decrease more than $430 million from the amount projected by the
State in its Official Statement in July, 1994 for the sale of $4,000,000,000 of
Revenue Anticipation Warrants. On November 15, 1994, the State Controller
issued the report on the State's cash position required by the Budget
Adjustment Law. The report indicated that the cash position of the General Fund
on June 30,
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1995 would be $581 million better than was estimated in the July, 1994 cash
flow projections and therefore, no budget adjustment procedures will be invoked
for the 1994-95 Fiscal Year. As explained earlier, the Law would only be
implemented if the State Controller estimated that borrowable resources on June
30, 1995 would be at least $430 million lower than projected.
The State Controller's report identified a number of factors which have led
to the improved cash position of the State. Estimated revenues and transfers
for the 1994-95 Fiscal Year other than federal reimbursement for immigration
costs were up about $650 million. The largest portion of this was in higher
bank and corporation tax receipts, but all major tax sources were above
original projections. However, most of the federal immigration aid revenues
projected in connection with the 1994-95 Budget Act and in the July, 1994 cash
flows will not be received, as indicated above, leaving a net increase in
revenues of $322 million.
On the expenditure side, the State Controller reported that estimated reduced
caseload growth in health and welfare programs, reduced school enrollment
growth, and an accounting adjustment reducing a transfer from the General Fund
to the Special Fund for Economic Uncertainties resulted in overall General Fund
expenditure reductions (again before adjusting for federal aid) of $672
million. However, the July, 1994 cash flows projected that General Fund health
and welfare and education expenditures would be offset by the anticipated
receipt of $407 million in federal aid for illegal immigrant costs. The State
Controller now estimates that none of these funds will be received, so the net
reduction in General Fund expenditures is $265 million.
Finally, the State Controller indicated that a review of balances in special
funds available for internal borrowing resulted in an estimated reduction of
such borrowable resources of $6 million. The combination of these factors
results in the estimated improvement of the General Fund's cash position of
$581 million. The State Controller's revised cash flow projections for 1994-95
have allocated this improvement to two line items: an increase from $0 to $427
million in the estimated ending cash balance of the General Fund on June 30,
1995, and an increase in unused borrowable resources of $154 million.
The State Controller's report indicated that there was no anticipated cash
impact in the 1994-95 Fiscal Year for recent initiatives on "three strikes"
criminal penalties and illegal immigration which were approved by voters on
November 8, 1994. At a hearing before a committee of the Legislature on
November 15, 1994, both the Legislative Analyst and the Department of Finance
concurred in the reasonableness of the State Controller' report. (The
Legislative Analyst had issued a preliminary analysis on November 1, 1994 which
reached a conclusion very close to that of the State Controller.) The State
Controller's report makes no projections about whether the Law may have to be
implemented in 1995-96. However, both the State Controller and the Legislative
Analyst in the November 15 hearing noted that the July, 1994 cash flows for the
1995-96 Fiscal Year place continued reliance on large amounts of federal
assistance for immigration costs, which did not materialize this year,
indicating significant budget pressures for next year. The Department of
Finance indicated that the budgetary issues identified in the hearing would be
addressed in the Governor's Budget proposal for the 1995-96 Fiscal Year.
1995-96 Budget Proposal. For the first time in four years, the State entered
the current fiscal year with strengthening revenues based on an improving
economy. On January 10, 1995, the Governor presented his 1995-96 Fiscal Year
Budget Proposal (the "Proposed Budget"). The Proposed Budget estimates General
Fund revenues and transfers of $42.5 billion (an increase of 0.2 percent over
1994-95). This nominal increase from the 1994-95 Fiscal Year reflects the
Governor's realignment proposal and the first year of his tax cut proposal (see
principal features of the Proposed Budget below for further discussions).
Without these two proposals, General Fund revenues would be projected at
approximately $43.8 billion, or an increase of 3.3 percent over 1994-95.
Expenditures are estimated at $41.7 billion (essentially unchanged from 1994-
95). Special Fund revenues are estimated at $13.5 billion (10.7 percent higher
than 1994-95) and Special Fund expenditures are estimated at $13.8 billion
(12.2 percent higher than 1994-95). The Proposed Budget projects that the
General Fund will end the fiscal year at June 30, 1996 with a budget surplus in
the Special Fund for
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Economic Uncertainties of about $92 million, or less than 1 percent of General
Fund expenditures, and will have repaid all of the accumulated budget deficits.
The 1995-96 Budget will be subject to the Budget Adjustment or "Trigger"
legislation enacted in June 1994. The Proposed Budget contains a cash flow
projection (based on all the assumptions described above) which shows about $1
billion of unused borrowable resources at June 30, 1996, providing this amount
of "cushion" before the budget "trigger" would have to be invoked.
However, a report issued by the Legislative Analyst in February 1995 notes
that the Proposed Budget (and hence the margin of cushion under the "trigger")
is subject to a number of major risks, including receipt of the expected
federal immigration aid and other federal actions to allow health and welfare
cuts, and the outcome of several lawsuits concerning previous budget actions
which the State has lost at the trial court level, and which are under appeal.
This Analyst's Report also estimates that, despite more favorable revenues, the
two-year budget estimates made in July 1994 are about $2 billion out of
balance, principally because federal immigration aid appears likely to be much
lower than previously estimated. This shortfall is much smaller than the State
has faced in recent years, and has been addressed in the Governor's Budget. The
State Legislature has not adopted a budget for the current fiscal year even
though the California Constitution requires that a budget be adopted by July 1
of each year.
Orange County Bankruptcy. On December 6, 1994, Orange County, California (the
"County"), together with its pooled investment funds (the "Funds") filed for
protection under Chapter 9 of the federal Bankruptcy Code, after reports that
the Funds had suffered significant market losses in their investments, causing
a liquidity crisis for the Funds and the County. More than 180 other public
entities, most of which, but not all, are located in the County, were also
depositors in the Funds. As of mid-January, 1995, following a restructuring of
most of the Funds' assets to increase their liquidity and reduce their exposure
to interest rate increases, the County estimated the Funds' loss at about $1.69
billion, or about 23% of their initial deposits of approximately $7.5 billion.
Many of the entities which deposited moneys in the Funds, including the County,
are facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. This may also affect their
ability to meet their outstanding obligations.
The State has no existing obligation with respect to any outstanding
obligations or securities of the County or any of the other participating
entities. However, in the event the County is unable to maintain county
administered State programs because of insufficient resources, it may be
necessary for the State to intervene, but the State cannot presently predict
what, if any, action may occur. As of mid-January, it appeared that school
districts may have collectively lost up to $230 million from the amounts they
had on deposit in the Funds.
On May 2, 1995, the United States Bankruptcy Court approved the Comprehensive
Settlement Agreement re Orange County Investment Pools. The agreement resulted
in school participants in the Funds receiving a cash distribution totalling
approximately 90 percent of the schools' investment balances.
Under existing legal precedent, the State is obligated to intervene when a
school district's fiscal problems would otherwise deny its students basic
educational equality. The State is not presently able to predict whether any
school districts will face insolvency because of their participation in the
Funds, and if so, the potential amount or form of aid which the State may have
to provide.
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
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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 occurs 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 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
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broadened to include those items as part of the 1991-92 budget legislation. The
State Legislative Analyst estimates a revenue reduction of $300 million per
year ($200 million in 1992-93).
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.
PROPOSITION 187
On November 8, 1994 the voters approved Proposition 187, an initiative
statute ("Proposition 187"). Proposition 187 specifically prohibits public
funding of social services, health care services and public school education
for the benefit of any person not verified as either a United States citizen or
a person legally admitted to the United States. Among the provisions in
Proposition 187 the measure requires, commencing January 1, 1995, that every
school district in the state verify the legal status of every child enrolling
in the district for the first time. By January 1, 1996, each school district
must also verify the legal status of children already enrolled in the district
and of all parents or guardians of all students. If the district "reasonably
suspects" that a student, parent or guardian is not legally in the United
States, that district must report the student to the United States Immigration
and Naturalization Service and certain other parties. The Legislative Analyst
estimates that verification costs could be in the tens of millions of dollars
on a statewide level (including verification costs incurred by other local
governments) with first-year costs potentially in excess of $100 million.
The reporting requirements may violate the Family Educational Rights and
Privacy Act ("FERPA"), which generally prohibits schools that receive federal
funds from disclosing information in student records without parental consent.
Compliance with FERPA is a condition of receiving federal education funds,
which total $2.3 billion annually to California school districts. The Secretary
of the United States Department of Education has indicated that the reporting
requirement in Proposition 187 could jeopardize the ability of school districts
to receive these funds.
Opponents of Proposition 187 have filed at least eight lawsuits challenging
the constitutionality and validity of the measure. A United States District
Court judge overseeing four of the lawsuits has granted a preliminary
injunction enjoining the implementation of most of the provisions of
Proposition 187, pending a trial on the merits scheduled for Fall, 1995. A
United States Court of Appeals denied the State's request for termination of
the preliminary injunction and immediate enforcement of Proposition 187 on July
14, 1995.
Pending Litigation. The State is a party to numerous legal proceedings, many
of which normally recur in governmental operations. Some of the more
significant lawsuits pending against the State are described herein.
The State is a defendant in 12 lawsuits involving the exclusion of small
business stock gains from preference tax and in some cases, also from taxation.
The lead cases are Mervin Morris v. Franchise Tax Board and James Lennane v.
Franchise Tax Board. The majority of the remaining cases had been deferred
pending the outcome of the Morris and Lennane cases. The Supreme Court has
ruled against the State in Lennane
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but has not yet ruled in Morris. The State could be required to refund an
estimated $250 million and will not be able to collect previous assessments of
$250 million.
The State has lost several tax cases relating to the State's method of
determining the tax on gross health insurance premiums. The loss to the State
could amount to $200 million.
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 and will attempt to determine whether there was a good faith
belief that the issuance of the registered warrants was not a violation of
FLSA. If the State loses, the maximum amount of damages will be approximately
$375 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.
In another case, the State is a defendant in Long Beach Unified School
District v. State of California. In this case, the school district seeks
reimbursement for voluntary desegregation costs incurred in the implementation
of California Department of Education guidelines. The years of reimbursement
are from fiscal year 1977-78 and each fiscal year thereafter to the present.
The district prevailed in a superior court, and the case has been decided by a
State appellate court against the State. A petition for review was denied and
the superior court judgment has become final, but the court retains
jurisdiction to oversee payment. The State anticipates that the unfavorable
outcome will affect pending claims by other school districts, and the total
loss could be in excess of $300 million.
A federal Court of Appeals in the case of Deanna Beno, et al. v. Donna
Shalala, et al., reversing a trial court ruling in favor of the State, recently
determined that the Secretary of the United States Department of Health and
Human Services violated the federal Administrative Procedure Act when she
approved California's Assistance Payment Demonstration Project, which, in part,
granted California a waiver from complying with requirements for state
participation in the federal program for medical assistance (Medicaid). The
waiver had allowed California to reduce payments under the Aid to Families with
Dependent Children program (AFDC) below 1988 payment levels without violating
Medicaid requirements relating to maintenance of AFDC payment levels.
California had relied, in part, on the waiver to reduce state AFDC payments in
1992, 1993 and 1994. The Court of Appeals remanded the case to the trial court
with instructions to remand the demonstration project to the Secretary for
additional consideration of objections raised by the plaintiffs. The effect of
the court's decision on California is uncertain at this time.
One of the features of the 1994-95 Budget Act is a 2.3 percent reduction in
AFDC payments. In Walsh v. Anderson, on August 19, 1994, the San Francisco
Superior Court issued a preliminary injunction against the California Director
of Social Services to prevent the 2.3 percent AFDC cuts from becoming effective
September 1, 1994. While September cuts were already in process and could not
be halted, the court ordered the cuts to be restored. The case has been
appealed, and the effect of the court's order cannot be determined until the
appellate process is complete.
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. The State is a defendant
because it chose the site and approved the deposit of toxic wastes. A group of
17 of the plaintiffs
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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. The State has been
found liable on a counterclaim based on its selection of the site.
The State is a defendant in a coordinated action involving 3,000 plaintiffs
seeking recovery for damages caused by the Yuba River flood of February 1986.
The trial court has found liability in inverse condemnation and awarded damages
of $500,000 to 12 sample plaintiffs. Potential liability to the remaining 300
plaintiffs, from claims filed, ranges from $800 million to $1.5 billion. An
appeal has been filed.
The State is a defendant in California Teachers Association v. Russell S.
Gould, et al., where the petitioners are challenging a recharacterization of
$1.083 billion of appropriations for fiscal year 1991-92 and $190 million in
the 1992-93 fiscal year as emergency loans rather than Proposition 98 funds.
The petitioners are seeking a declaration that all appropriated funds are
Proposition 98 funds and, therefore, must be included in the minimum funding
guarantee for schools. A Sacramento Superior Court ruled that the
appropriations are not Proposition 98 funds and should not be included in the
minimum funding calculation in future years. These funds should be considered
excess appropriations in the respective fiscal year budget and the State cannot
receive credit and offset these excess appropriations against the following
years' guarantee.
The petitioners also challenged the characterization of an additional $973
million in the 1992-93 fiscal year and $787 million in the 1993-94 fiscal year
as "loans" rather than Proposition 98 funds. As loans, these funds would not be
included in the minimum funding guarantee. The court, however, ruled that these
appropriations should be considered Proposition 98 funds and as such must be
included in calculating the minimum funding guarantee in future years. The
State appealed this decision in the Third Appellate District Court.
The State is involved in a case concerning the default by Triad Healthcare on
a $167 million loan guaranteed by the Cal-Mortgage Loan Insurance Division of
the Office of Statewide Health Planning and Development (Cal-Mortgage). Monies
for the loan were raised through the sale of Certificates of Participation and
Cal-Mortgage insured the debt service payments. Since July 1993, Triad has
failed to make its monthly debt service payments; therefore, the reserve
account of the bonds has been used to make the payments. However, these funds
are only expected to last until February 1995. After that time, Cal-Mortgage
anticipates that additional debt service payments will be made from the Health
Facility Construction Loan Insurance Fund as they become due. However, if there
is any shortfall in this fund, the State's General Fund will be used to make up
the difference.
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APPENDIX C
ECONOMIC AND FINANCIAL CONDITIONS IN CONNECTICUT
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
Manufacturing has historically been of prime economic importance to
Connecticut. The manufacturing industry is diversified, with transportation
equipment (primarily aircraft engines, helicopters and submarines) the dominant
industry, followed by non-electrical machinery, fabricated metal products, and
electrical machinery. From 1970 to 1993, however, there was a rise in
employment in service-related industries. During this period, manufacturing
employment declined 33.5%, while the number of persons employed in other non-
agricultural establishments (including government) increased 63.3%,
particularly in the service, trade and finance categories. In 1993,
manufacturing accounted for only 19.2% of total non-agricultural employment in
Connecticut. Defense-related business represents a relatively high proportion
of the manufacturing sector. On a per capita basis, defense awards to
Connecticut have traditionally been among the highest in the nation, and
reductions in defense spending have had a substantial adverse impact on
Connecticut's economy. Moreover, the State's largest defense contractors have
announced substantial planned labor force reductions scheduled to occur over
the next four years.
The annual average unemployment rate (seasonally adjusted) in Connecticut
decreased from 6.9% in 1982 to a low of 3.0% in 1988 but rose to 6.6% in 1993.
While these rates were lower than those recorded for the U.S. as a whole for
the same periods, as of May 1993, the estimated rate of unemployment in
Connecticut on a seasonably adjusted basis reached 7.4%, compared to 6.0% for
the nation as a whole, and pockets of significant unemployment and poverty
exist in some of Connecticut's cities and towns. Moreover, Connecticut is now
in a recession, the depth and duration of which are uncertain.
The State derives over 70% of its revenues from taxes imposed by the State.
The two major taxes have been the sales and use taxes and the corporation
business tax, each of which is sensitive to changes in the level of economic
activity in the State, but the Connecticut income tax on individuals, trusts,
and estates enacted in 1991 has superseded each of them in importance.
The State's General Fund budget for the 1986-87 fiscal year anticipated
appropriations and revenues of approximately $4,300,000,000. The General Fund
ended the 1986-87 fiscal year with an operating surplus of $365,200,000. The
General Fund budget for the 1987-88 fiscal year anticipated appropriations and
revenues of approximately $4,915,800,000. However, the General Fund ended the
1987-88 fiscal year with an operating deficit of $115,600,000. The General Fund
budget for the 1988-89 fiscal year anticipated that General Fund expenditures
of $5,551,000,000 and certain educational expenses of $206,700,000 not
previously paid through the General Fund would be financed in part from
surpluses of prior years and in part from higher tax revenues projected to
result from tax laws in effect for the 1987-88 fiscal year and stricter
enforcement thereof; a substantial deficit was projected during the third
quarter of the 1988-89 fiscal year, but, largely because of tax law changes
that took effect before the end of the fiscal year, the operating deficit was
kept to $28,000,000. The General Fund budget for the 1989-90 fiscal year
anticipated appropriations of approximately $6,224,500,000 and, by virtue of
tax increases enacted to take effect generally at the beginning of the fiscal
year, revenues slightly exceeding such amount. However, largely because of tax
revenue shortfalls, the General Fund ended the 1989-90 fiscal year with an
operating deficit for the year of $259,000,000, wiping out reserves for such
events built up in prior years. The General Fund budget for the 1990-91 fiscal
year anticipated expenditures of $6,433,000,000, but no significant new or
increased taxes were enacted. Primarily because of significant declines in tax
revenues and unanticipated expenditures reflective of economic adversity, the
General Fund ended the 1990-91 fiscal year alone with a further deficit of
$809,000,000. A General Fund budget was not enacted for the 1991-92 fiscal year
until August 22, 1991. This budget anticipated General
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Fund expenditures of $7,007,861,328 and revenues of $7,426,390,000. Anticipated
decreases in revenues resulting from a 25% reduction in the sales tax rate
effective October 1, 1991, the repeal of the taxes on the capital gains and
interest and dividend income of resident individuals for years starting after
1991, and the phase-out of the corporation business tax surcharge over two
years commencing with years starting after 1991 were expected to be more than
offset by a new general personal income tax imposed at effective rates not to
exceed 4.5% on the Connecticut taxable income of resident and non-resident
individuals, trusts, and estates. The General Fund ended the 1991-92 fiscal
year with an operating surplus of $110,000,000. The General Fund budget for the
1992-93 fiscal year anticipated General Fund expenditures of $7,372,062,859 and
revenues of $7,372,210,000, and the General Fund ended the 1992-93 fiscal year
with an operating surplus of $113,500,000. Balanced General Fund budgets for
the biennium ending June 30, 1995, were adopted in 1993 appropriating
expenditures of $7,829,000,000 for the 1993-94 fiscal year and $8,266,000,000
for the 1994-95 fiscal year. The General Fund ended the 1993-94 fiscal year
with an operating surplus of $19,700,000. In 1994 the budgeted General Fund
appropriations for the 1994-95 fiscal year were increased to $8,567,200,000.
General Fund budgets for the biennium ending June 30, 1997, were adopted in
1995 anticipating expenditures of $8,987,907,123 and revenues of $8,988,180,000
for the 1995-96 fiscal year and anticipating expenditures of $9,311,125,170 and
revenues of $9,311,700,000 for the 1996-97 fiscal year.
The primary method for financing capital projects by the State is through the
sale of the general obligation bonds of the State. These bonds are backed by
the full faith and credit of the State. As of March 1, 1995, there was a total
legislatively authorized bond indebtedness of $10,194,811,925, of which
$8,673,257,677 had been approved for issuance by the State Bond Commission and
$7,334,468,663 had been issued.
To fund operating cash requirements, prior to the 1991-92 fiscal year the
State borrowed up to $750,000,000 pursuant to authorization to issue commercial
paper and on July 29, 1991, it issued $200,000,000 General Obligation Temporary
Notes, none of which temporary borrowings were outstanding as of December 1,
1994. To fund the cumulative General Fund deficit for the 1989-90 and 1990-91
fiscal years, the legislation enacted on August 22, 1991 authorized the State
Treasurer to issue Economic Recovery Notes up to the aggregate amount of such
deficit, which must be payable no later than June 30, 1996; at least
$50,000,000 of such Notes, but not more than a cap amount, is to be retired
each fiscal year commencing with the 1991-92 fiscal year, and any
unappropriated surplus up to $205,000,000 in the General Fund at the end of
each of the three fiscal years commencing with the 1991-92 fiscal year must be
applied to retire such Notes as may remain outstanding at those times. On
September 25, 1991 and October 24, 1991, the State issued $640,710,000 and
$325,000,000, respectively, of such Economic Recovery Notes, of which
$455,610,000 were outstanding as of March 1, 1995.
To meet the need for reconstructing, repairing, rehabilitating and improving
the State transportation system (except Bradley International Airport), the
State adopted legislation which provides for, among other things, the issuance
of special tax obligation ("STO") bonds the proceeds of which will be used to
pay for improvements to the State's transportation system. The STO bonds are
special tax obligations of the State payable solely from specified motor fuel
taxes, motor vehicle receipts, and license, permit and fee revenues pledged
therefor and deposited in the special transportation fund. The cost of the
infrastructure program for the twelve years beginning in 1984, to be met from
federal, state, and local funds, was recently estimated at $9.4 billion. To
finance a portion of the State's $4.1 billion share of such cost, the State
expects to issue $3.7 billion of STO bonds over the twelve-year period.
As of March 1, 1995, the General Assembly has authorized STO bonds for the
program in the aggregate amount of $3,794,938,104, of which $3,144,650,752 had
been issued. It is anticipated that additional STO bonds will be authorized by
the General Assembly annually in an amount necessary to finance and to complete
the infrastructure program. Such additional bonds may have equal rank with the
outstanding bonds provided certain pledged revenue coverage requirements of the
STO indenture controlling the issuance of such bonds are met. The State expects
to continue to offer bonds for this program.
The State's budget problems led to the ratings of its general obligation
bonds being reduced by Standard and Poor's ("Standard & Poor's") from AA+ to AA
on March 29, 1990, and by Moody's Investors Service,
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Inc. from Aa1 to Aa on April 9, 1990. Because of concerns over Connecticut's
lack of a plan to deal during the current fiscal year with the accumulated
projected deficits in its General Fund, on September 13, 1991, Standard &
Poor's further reduced its ratings of the State's general obligation bonds and
certain other obligations that depend in part on the creditworthiness of the
State to AA-. On March 17, 1995, Fitch Investors Service, Inc. reduced its
ratings of the State's general obligation bonds from AA+ to AA.
The State, its officers and employees are defendants in numerous lawsuits.
According to the Attorney General's Office, an adverse decision in any of the
cases which are summarized herein could materially affect the State's financial
position: (i) an action by inmates of the Department of Correction seeking
damages and injunctive relief with respect to alleged violations of statutory
and constitutional rights as a result of the monitoring and recording of their
telephone calls from the State's correctional institutions; (ii) litigation on
behalf of black and Hispanic school children in the City of Hartford seeking
"integrated education" within the greater Hartford metropolitan area; (iii)
litigation involving claims by Indian tribes to less than 1/10 of 1% of the
State's land area; (iv) litigation challenging the State's method of financing
elementary and secondary public schools on the ground that it denies equal
access to education; (v) an action in which two retarded persons seek placement
outside a State hospital, new programs and damages on behalf of themselves and
all mentally retarded patients at the hospital; (vi) litigation involving
claims for refunds of taxes by several cable television companies; (vii) an
action on behalf of all persons with retardation or traumatic brain injury,
claiming that their constitutional rights are violated by placement in State
hospitals alleged not to provide adequate treatment and training, and seeking
placement in community residential settings with appropriate support services;
(viii) an action by the Connecticut Hospital Association and 33 hospitals
seeking to require the State to reimburse hospitals for in-patient medical
services on a basis more favorable to them; (ix) a class action by the
Connecticut Criminal Defense Lawyers Association claiming a campaign of illegal
surveillance activity and seeking damages and injunctive relief; (x) two
actions for monetary damages brought by a former patient at a State mental
hospital stemming from an attempted suicide that left her brain-damaged; (xi)
an action challenging the validity of the State's imposition of surcharges on
hospital charges to finance certain uncompensated care costs incurred by
hospitals; (xii) an action to enforce the spending cap provision of the State's
constitution by seeking to require that the General Assembly define certain
terms used therein and to enjoin certain increases in "general budget
expenditures" until this is done; (xiii) an action challenging the validity of
the State's imposition of gross earnings taxes on hospital revenues to finance
certain uncompensated care costs; and (xiv) negligence actions brought by two
former students of a State school who were severely burned in a fire there. In
addition, a number of corporate taxpayers have filed requests for refunds of
corporation business tax, asserting that interest on federal obligations may
not be included in the measure of that tax, on the grounds that to do so
allegedly violates federal law because interest on certain obligations of the
State is not included in the measure of the tax.
General obligation bonds issued by municipalities are usually payable from ad
valorem taxes on property subject to taxation by the municipality. Certain
Connecticut municipalities have experienced severe fiscal difficulties and have
reported operating and accumulated deficits in recent years. The most notable
of these is the City of Bridgeport, which filed a bankruptcy petition on June
7, 1991. The State opposed the petition. The United States Bankruptcy Court for
the District of Connecticut has held that Bridgeport has authority to file such
a petition but that its petition should be dismissed on the grounds that
Bridgeport was not insolvent when the petition was filed.
In addition to general obligation bonds backed by the full faith and credit
of the municipality, certain municipal authorities may issue bonds that are not
considered to be debts of the municipality. Such bonds may only be repaid from
the revenues of projects financed by the municipal authority, which revenues
may be insufficient to service the authority's debt obligations.
Regional economic difficulties, reductions in revenues, and increased
expenses could lead to further fiscal problems for the State and its political
subdivisions, authorities, and agencies. This could result in declines in the
value of their outstanding obligations, increases in their future borrowing
costs, and impairment of their ability to pay debt service on their
obligations.
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APPENDIX D
ECONOMIC AND FINANCIAL CONDITIONS IN MASSACHUSETTS
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
Economic growth in the Commonwealth has slowed since 1988, particularly in
the construction, real estate, financial and manufacturing sectors, including
certain high technology areas. Economic conditions have improved somewhat,
since 1993. 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 June, 1995, however, the Commonwealth's unemployment
rate was 5.6% as compared to a national average of 5.6%. Per capita personal
income in the Commonwealth is currently higher than the national average, but
is, however, growing at a rate lower than the national average.
Commonwealth spending exceeded revenues in each of the five fiscal years
commencing fiscal 1987 and the Commonwealth's tax revenues during this period
repeatedly failed to meet official forecasts. 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 for
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. Fiscal 1993
ended with positive fund balances of $562.5 million.
In fiscal 1994, which ended June 30, 1994, the total revenues of the budgeted
operating funds of the Commonwealth during such fiscal year increased by
approximately 5.7% over the prior fiscal year, to $15.550 billion. Expenditures
increased by 5.6% over the prior year, to $15.523 billion. As a result, the
Commonwealth ended fiscal 1994 with a positive closing fund balance of $589.3
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
A1, respectively. Fitch has recently upgraded its rating of the Commonwealth's
bonds from A to A+. From time to time, the rating agencies may further change
their ratings.
Budgeted revenues and other sources in fiscal 1995, which ended June 30,
1995, are currently estimated by the Executive Office for Administration and
Finance to be approximately $16.311 billion, including estimated tax revenues
of $11.151 billion. It is estimated that fiscal 1995 budgeted expenditures will
be $16.399 billion.
Growth of tax revenues in the Commonwealth is limited by law. Tax revenues in
fiscal years 1988 through 1994 were lower than the limits set by law, and the
Executive Office for Administration and Finance estimates that state tax
revenues in fiscal 1995 and 1996 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 repayment of
principal of and payment of 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 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.
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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 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%.
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, increased to $2.547 billion in fiscal 1993 and
increased to $2.727 billion in fiscal 1994. It is estimated that fiscal 1995
expenditures for direct local aid will be $2.982 billion.
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 $9.651
billion as of January 1, 1993 (the last date that such liability was
calculated) 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 for Administration and Finance
and approved by the legislature. The amounts required for funding of current
pension liabilities in fiscal years 1995, 1996, 1997 and 1998 are estimated to
be $959.9 million, $1.007 billion, $1.061 billion and $1.128 billion,
respectively.
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APPENDIX E
ECONOMIC AND FINANCIAL CONDITIONS IN MICHIGAN
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
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 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, 1993 and 1994 fiscal years with its General Fund in balance after
transfers in 1993 and 1994 from the General Fund to the Budget Stabilization
Fund of $283 million and $464 million, respectively. Those transfers raised the
balance in the Budget Stabilization Fund to $779 million as of September 30,
1994. 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. 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 between $500 million and $900 million for cash flow purposes in
the 1992 to 1993 fiscal years and $500 million in the 1995 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.
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, $54.5 million
in the 1994 fiscal year and $67.0 million (budgeted) in the 1995 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%, reduced
some property taxes for school operating purposes and shifted the balance of
school funding sources among property taxes and state revenues, some of which
are being 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 or local 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.
Historically, the average monthly unemployment rate in the State has been
higher than the average figures for the United States. More recently, the
State's unemployment rate has remained near the national average. During 1994,
the average monthly unemployment rate in the State was 5.9% as compared to a
national average of 6.1% in the United States.
Currently, the State's general obligation bonds are rated A1 by Moody's, AA
by Standard & Poor's and AA by Fitch.
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APPENDIX F
ECONOMIC AND FINANCIAL CONDITIONS IN NEW JERSEY
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
Effective January 1, 1994, personal income tax rates in the State of New
Jersey (the "State") were cut by 5% for all taxpayers. Effective January 1,
1995, the personal income tax rates were cut by an additional 10% for most
taxpayers. By a bill signed into law on July 4, 1995, New Jersey personal
income tax rates have been further reduced so that coupled with the prior rate
reductions, beginning with tax year 1996, personal income tax rates will be,
depending on a taxpayer's level of income and filing status, 30%, 15% or 9%
lower than 1993 rates. 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 1995" refers to the State's fiscal year beginning July 1,
1994 and ending June 30, 1995.
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, $937 million for the fiscal
year 1993, and $926 million (estimated), for the fiscal year 1994. For the
fiscal year 1995, the balance in the undesignated General Fund is estimated to
be $563 million.
The State finances capital projects primarily through the sale of 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 repayments 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
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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
3,689,800 in March 1989 to a low of 3,445,000 in March 1992. This loss has been
followed by an employment gain of 118,700 from March 1992 to September 1994.
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 8.4%
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).
Since then, the unemployment rate fell to 6.9% during the first quarter of
1995.
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 11.8% in the first two months of 1995 compared with
1994. By far, the largest boost came from residential construction awards which
increased by 32.8% in 1995 compared with 1994. In addition, nonresidential
building construction awards have turned around, posting a 2.3% gain from 1994.
Nonbuilding construction awards increased approximately 12% in the first two
months of 1995 compared with the same period in 1994. In addition to increases
in construction contract awards, another reason for cautious optimism is rising
new light truck registrations. New passenger car registrations issued during
1994 were up 12% in New Jersey from a year earlier. However, registrations of
new light trucks and vans (up to 10,000 lbs.) advanced strongly in 1994,
increasing 19%. Retail sales for 1994 were up 7.5% compared to 1993. 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.
New Jersey Education Association et. al v. State of New Jersey et. al.
represents a challenge to amendments to the pension laws enacted on June 30,
1994 (P.L. 1994, Chapter 62), which concerned the funding of the Teachers
Pension and Annuity Fund (TPAF), the Public Employee's Retirement System
(PERS), the Police and Fireman's Retirement System (PFRS), the State Police
Retirement System (SPRS) and the Judicial Retirement System (JRS). The
complaint was filed in the United States District Court of New Jersey on
October 17, 1994. The statute, as enacted, made several changes affecting these
retirement systems including changing the actuarial funding method to projected
unit credit; continuing the prefunding of post-retirement medical benefits but
at a reduced level for TPAF and PERS; revising the employee member contribution
rate to a flat 5% for TPAF and PERS; extending the phase in period for the
revised TPAF actuarial assumptions; changing the phase-in period for funding of
cost-of-living adjustments and reducing the inflation assumption for the Cost
of Living Adjustment for all retirement systems; and decreasing the average
salary increase assumption for all retirement systems. Plaintiffs allege that
the changes resulted in lower employer contributions in order to reduce a
general budget deficit. The complaint further alleges that certain provisions
of Chapter 62 violate the contract, due process, and taking clauses of the
United States and New Jersey Constitutions, and further constitute a breach of
the State's fiduciary duty to participants in TPAF and PERS. Plaintiffs seek to
permanently enjoin the State from administering, enforcing or otherwise
implementing Chapter 62. An adverse determination against the State would have
a significant impact upon the fiscal year 1996 budget. The State has filed a
motion to dismiss and a motion for summary judgment. The State intends to
vigorously defend this action.
Currently, the State's general obligation bonds are rated AA+ by Standard &
Poor's, Aa1 by Moody's, and AA+ by Fitch.
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APPENDIX G
ECONOMIC AND FINANCIAL CONDITIONS IN NEW YORK
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT SPECIFIC ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON
ONE OR MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS
OF STATE ISSUERS; HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED
DURING THE YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
In recent years, New York State (the "State"), some of its agencies,
instrumentalities, and public authorities and certain of its municipalities
have faced serious financial difficulties that could have an adverse effect on
the sources of payment for or the market value of New York State Municipal
Securities in which the New York Fund invests.
NEW YORK CITY (THE "CITY")
General. More than any other municipality, the fiscal health of 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. In 1993 and
1994, the City experienced job gains of 2,000 and 21,000, respectively. The
City now projects, and its current four-year financial plan assumes, that
economic growth will slow in calendar years 1995 and 1996 with local employment
increasing modestly.
For each of the 1981 through 1994 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
recent fiscal years in order to maintain balanced operating results. For the
City's 1995 fiscal year, the City adopted a budget which halted the trend in
recent years of substantial increases in City spending from one year to the
next and the City budget for fiscal year 1996 reduces City-funded spending for
the second consecutive year. There can be no assurance that the City will
continue to maintain a balanced budget as required by State law without
additional reductions in City services or entitlement programs or tax or other
revenue increases 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 1996 through 1999 fiscal
years (the "1996-1999 Financial Plan" or "City Financial Plan"). The City's
projections set forth in the City 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, among others, the condition of the regional and local economies, the
impact on real estate tax revenues of the real estate market, wage increases
for City employees consistent with those assumed in the City 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 and the impact of proposed federal and State welfare
reforms on City revenues.
Implementation of the City 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 1996 through 1999 contemplates the
issuance of $9.3 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 notes 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. 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.
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1996-1999 Financial Plan. In July 1995, the City published the City Financial
Plan for the 1996-1999 fiscal years. The 1996-1999 Financial Plan projects
revenues and expenditures for the 1996 fiscal year (July 1, 1995-June 30, 1996)
balanced in accordance with GAAP. The City Financial Plan sets forth proposed
actions to close a previously projected budget gap of approximately $3.1
billion for the 1996 fiscal year. Such gap-closing actions for the 1996 fiscal
year include, among others, substantial reductions in entitlement programs,
City service and personnel reductions, saving initiatives related to labor and
pension costs, increases in federal and State aid, the sale of certain City
assets and increases in certain lease and fee payments due the City.
The City Financial Plan also sets forth projections for the 1997 through 1999
fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $888 million, $1.46 billion and $1.44 billion for the 1997
through 1999 fiscal years, respectively, after the successful implementation of
the $3.1 billion gap-closing program for the 1996 fiscal year. Proposed gap-
closing actions for the 1997 through 1999 fiscal years include additional
service and expenditure reductions, labor productivity gains and fee
initiatives.
The City Financial Plan is subject to the ability of the City to implement
the proposed reductions in City services and personnel and entitlement
expenditures which are difficult to implement. The City Financial Plan also
assumes the successful renegotiation of certain lease payments due the City.
Certain initiatives included in the City Financial Plan are subject to
negotiation with the City's municipal labor unions and various actions are
subject to approval by the State and federal governments.
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
1995-1996 fiscal year or subsequent fiscal years, such developments could
result in reductions in anticipated State aid to the City. In addition, State
budgets in future fiscal years may continue to be delayed beyond the April 1
statutory deadline and there may be adverse effects on the City's cash flow and
additional City expenditures as a result of such reductions or delays.
From time to time, various State and City entities issue reports regarding
the City Financial Plan and the City's financial condition. In July of 1995,
the City Comptroller, the New York State Financial Control Board and the Office
of the State Deputy Comptroller of New York each issued reports on the City
Financial Plan. The report issued by the City Comptroller concluded that budget
risks of up to $1 billion, $2.5 billion, $3.3 billion and $3.4 billion exist
for the City's 1996 through 1999 fiscal years, respectively. The Financial
Control Board identified budget risks of $873 million, $2.1 billion, $2.8
billion and $2.8 billion for the 1996 through 1999 fiscal years, respectively.
The State Deputy Comptroller's report stated that the City faces potential
budget shortfalls of $800 million, $1.5 billion, $2 billion and $1.8 billion
for the 1996 through 1999 fiscal years, respectively. In May 1995, the New York
City Comptroller issued two reports that noted the City's economy has weakened
during the previous six months and that, with no immediate prospect of a
recovery in the City's economy, and with retrenchment in Medicaid and public
assistance programs, the City's economic and budget problems will continue for
the next several fiscal years. It was also noted that the City's current fiscal
problems are as serious as those which the City faced in the mid-1970's, and
may be more difficult to solve, since the City's economy remains weak and the
State and federal governments are reducing support for the City. In May 1995,
the New York State Comptroller issued a report concluding that the City economy
has slowed significantly since 1994 and that proposed reductions in Medicaid
spending at the state and local levels could cause significant job displacement
in the City's health sector, and additional downsizing by utilities, banks and
other companies could further constrain job prospects. It is reasonable to
expect that such reports will continue to be issued and to engender public
comment.
Ratings. As of March 22, 1995, Moody's Investors Service, Inc. ("Moody's")
rated the City's general obligation bonds Baa1 and Fitch Investors Service,
Inc. ("Fitch") rated such bonds A-. On July 10, 1995, Standard & Poor's revised
downward its rating on City general obligation bonds from A- to BBB+. Standard
& Poor's stated that the downgrade was a reflection of the City's inability to
eliminate a structural budget imbalance due to persistent softness in the
City's economy, weak job growth, a trend of using nonrecurring
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budget devices, optimistic projections of State and federal aid and high levels
of debt service. Such ratings reflect only the view 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 not be revised downward or withdrawn
entirely. Any such downward revision or withdrawal could have an adverse effect
on the market prices of City bonds.
Outstanding Indebtedness. As of March 31, 1995, the City had approximately
$24.5 billion of long-term debt and as of June 30, 1994, the New York City
Municipal Water Finance Authority (the "Water Authority") had approximately
$5.6 billion of long-term debt.
Debt service on Water Authority obligations is secured by fees and charges
collected from the users of the City's water and sewer system. State and
federal regulations require the City's water supply to meet certain standards
to avoid filtration. The City's water supply now meets all technical standards
and the City's current efforts are directed toward protection of the watershed
area. The City has taken the position that increased regulatory, enforcement
and other efforts to protect its water supply, relating to such matters as land
use and sewage treatment, will preserve the high quality of water in the
upstate water supply system and prevent the need for filtration. The U.S.
Environmental Protection Agency has granted the City a waiver of filtration
regulations through 1996. If filtration of the City's water supply is
ultimately required, the capital expenditure required could be between $4
billion and $5 billion. Such an expenditure could cause significant increases
in City water and sewer charges.
Litigation. The City is a defendant in a significant number of lawsuits.
While the outcome and fiscal impact, if any, of the proceedings and claims are
not currently predictable, adverse determinations might have a material adverse
effect upon the City's ability to carry out the City Financial Plan. As of June
30, 1994, the City estimated its potential future liability on account of all
outstanding claims to be approximately $2.6 billion.
NEW YORK STATE
Current Economic Outlook. The national economy began the current expansion in
1991 and has added over 7 million jobs since early 1992. Although the State has
added approximately 185,000 jobs since November 1992, employment growth in the
State has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, defense and banking industries.
The State expects New York's economy to continue to expand modestly during
1995, but there is expected to be a pronounced slow-down during the course of
the year. On an average annual basis, employment growth is expected to be about
the same as 1994. Both personal income and wages are expected to record
moderate gains in 1995.
State Financial Plan for the 1995-1996 Fiscal Year. The State's budget for
its 1995-1996 fiscal year (April 1, 1995-March 31, 1996) was enacted by the
State Legislature on June 7, 1995, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the State Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for debt
service. The 1995-1996 fiscal year budget includes a planned three-year 20%
reduction in the State's personal income tax and is the first budget in over 50
years which projects a decline in General Fund disbursements and spending on
State operations. On June 20, 1995, the State published the State Financial
Plan for the 1995-1996 fiscal year (the "State Financial Plan") based on the
enacted 1995-1996 budget.
The State Financial Plan projects a General Fund balanced on a cash basis
with total projected receipts of $33.110 billion and total projected
disbursements of $33.055 billion. The State Financial Plan includes gap-closing
actions to offset a previously projected budget gap of $5 billion, the largest
in the State's history. Such gap-closing actions include, among others,
substantial reductions in social and medical entitlement
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programs, reductions in State services and capital programs and increased
lottery revenues. There can be no assurance that additional gap-closing
measures will not be required and there is no assurance that any such measures
will enable the State to achieve a balanced budget for its 1995-1996 fiscal
year.
The State Financial Plan and the 1995-1996 fiscal year budget are 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 1995-1996 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 baseline losses of receipts. The
Division of the Budget estimates the net amount of nonrecurring resources used
in the State Financial Plan to be at least $600 million. In addition to these
nonrecurring actions, the adoption of the three-year 20% reduction in the
State's personal income tax in combination with business tax reductions enacted
in 1994 will reduce State tax receipts by $5.5 billion by the 1997-1998 fiscal
year.
The State anticipates that its capital programs will be financed, in part, by
State and public authorities borrowings in the 1995-1996 fiscal year. The State
expects to issue $248 million in general obligations bonds (including $70
million for purposes of redeeming outstanding Bond Anticipation Notes
("BANs")), $186 million in general obligation commercial paper and up to $47
million in certificates of participation during the State's fiscal year for
equipment purchases and capital purposes. Borrowings by public authorities
pursuant to lease-purchase and contractual-obligation financings for capital
programs of the State are projected to total $2.7 billion. Additionally, the
Local Government Assistance Corporation ("LGAC") issued net proceeds of $529
million during the 1995-1996 fiscal year.
Local Government Assistance Corporation. In 1990, as part of a state fiscal
reform program, legislation was enacted creating 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. As of June 1995, LGAC has issued bonds to provide net proceeds of
$4.7 billion completing the program. The impact of LGAC's borrowing is that the
State is able to meet its cash flow needs without relying on 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
State Legislature.
As of March 31, 1995, the total amount of outstanding general obligation debt
was approximately $5.181 billion, including $149 million in BANs, the total
amount of moral obligation debt was approximately $7.010 billion and $17.98
billion of bonds issued primarily in connection with lease-purchase and
contractual-obligation financing of State capital programs were outstanding.
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In 1994 and 1995, the State legislature passed a proposed constitutional
amendment on debt reform. The proposed amendment would permit the State to
issue non-voter approved revenue bonds secured by a pledge or certain tax
receipts, up to a cap equal to 5% of State personal income. If approved by the
voters in November 1995, such amendment would become effective January 1, 1996.
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 of,
and as otherwise restricted by, their legislative authorization. As of
September 30, 1994, 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 $70.3
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. Currently, Moody's, Standard & Poor's and Fitch rate New York
State's outstanding general obligation bonds A, A- and A+, respectively.
Ratings reflect only the respective views of such organizations, and
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.
Under settlements of inter-state escheat disputes, New York has recently
agreed to make aggregate payments totalling $351.4 million. Annual payments
from the State to the various parties began in the State's 1994-1995 fiscal
year and will continue through the 2002-2003 fiscal year and will not exceed
$48.4 million for any fiscal year.
Several cases challenge the rationality and the retroactive application of
State regulations recalibrating nursing home Medicaid rates. In 1994, the New
York Court of Appeals held invalid the State Department of Health's retroactive
application to rate years 1989 through 1991 of the nursing home Medicaid
reimbursements rate recalibration adjustment. A case challenging the new
recalibration regulations for rate years commencing 1992 is pending.
Adverse developments in existing legal 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 judgments that may be required during
the 1995-1996 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 judgments 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 1995-1996 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 1995-1996 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for 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 FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
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 and soft drink 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 "Savings Reserve,"
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 Savings Reserve 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. Fiscal year 1994 ended with a positive General
Fund balance of approximately $444.7 million. An additional $178 million was
available from a reserved fund balance. Of this aggregate amount, $155.7
million was reserved in the Savings Reserve (bringing the total reserve to
$210.6 million after prior withdrawals) and $60 million was reserved in a
Reserve for Repair and Renovation of State Facilities (bringing the total
reserve to $60 million after prior withdrawals), leaving an unrestricted
General Fund balance at June 30, 1994 of $407 million.
The foregoing results are presented on a budgetary basis. Accounting
principles applied to develop data on a budgetary basis differ significantly
from those principles used to present financial statements in conformity with
generally accepted accounting principles "GAAP". Based on a modified accrual
basis, the General Fund balance at June 30, 1993 and 1994 was $681.5 million
and $1,240.9 million, respectively.
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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For the fiscal 1995 budget, the General Assembly reduced departmental
operating requirements by $357.6 million and authorized continuation funding of
$8,489.3 million. 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
$1,650.4 million for fiscal 1995 were approved. In addition to the transfers to
the Savings Reserve from the fiscal year-end credit balance, the General
Assembly in 1993 appropriated $66.7 million for the Savings Reserve. The
General Assembly authorized $189.4 million for capital improvements spending
and $60 million for the Reserve for Repair and Renovation of State Facilities
for fiscal 1995.
Under the State's constitutional and statutory scheme, the Governor is
required to prepare and propose a biennial budget to the General Assembly. The
General Assembly is responsible for considering the budget proposed by the
Governor and enacting the final budget. In enacting the final budget, the
General Assembly may modify the budget proposed by the Governor as it deems
necessary. The Governor is responsible for administering the budget enacted by
the General Assembly. The Governor has proposed a 1995-97 biennium budget,
which is currently under consideration by the General Assembly. The final
budget is expected to be enacted by the General Assembly during July 1995. The
General Assembly is also considering various other bills that, if enacted,
could have an impact on the State.
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. The Congress of the United States
is considering a number of matters affecting the Federal government's
relationship with state governments that, if enacted into law, could affect
fiscal and economic policies of the states, including the State.
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 November 1994, the State ranked
ninth among the states in non-agricultural employment and eighth in
manufacturing employment. The Commission estimated the State's seasonally
adjusted unemployment rate in March 1995 to be 3.9% of the labor force, as
compared with an unemployment rate of 5.5% nationwide. As part of its 1993-95
budget, the General Assembly provided major funding for economic initiatives in
an effort to create additional jobs.
The following are certain cases pending in which the State faces the risk of
either a loss of revenue or an unanticipated expenditure which, in the opinion
of the Department of State Treasurer, would not materially adversely affect the
State's ability to meet its financial obligations:
1. Swanson v. State of North Carolina--State Tax Refunds--Federal
Retirees. In Davis v. Michigan (1989), the United States Supreme Court ruled
that a Michigan income tax statute which taxed Federal retirement benefits
while exempting those paid by state and local governments violated the
constitutional doctrine of intergovernmental tax immunity. At the time of the
Davis decision, North Carolina law contained similar exemptions in favor or
state and local retirees. Those exemptions were repealed prospectively,
beginning with the 1989 tax year. All public pension and retirement benefits
are now entitled to a $4,000 annual exclusion.
Following Davis, Federal retirees filed a class action suit in Federal court
in 1989 seeking damages equal to the North Carolina income tax paid on Federal
retirement income by the class members. A companion suit was filed in state
court in 1990. The complaints alleged that the amount in controversy exceeded
$140 million. The North Carolina Department of Revenue estimate of refunds and
interest liability is $280.89 million as of June 30, 1994. In 1991, the North
Carolina Supreme Court ruled in favor of the State in the state court action,
concluding that Davis could only be applied prospectively and that the taxes
collected from
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the Federal retirees were thus not improperly collected. In 1993, the United
States Supreme Court vacated that decision and remanded the case back to the
North Carolina Supreme Court. The North Carolina Supreme Court then ruled in
favor of the State on the grounds that the Federal retirees had failed to
comply with state procedures for challenging unconstitutional taxes. Plaintiffs
petitioned the United States Supreme Court for review of that decision, and the
Supreme Court denied that petition. The United States District Court has ruled
in favor of the defendants in the companion Federal case, and a petition for
reconsideration was denied. Plaintiffs have appealed to the United States Court
of Appeals. Oral arguments were heard in the Court of Appeals in February 1995,
and its decision concurs with the lower court's ruling.
An additional lawsuit was recently filed in State Court by Federal pensioners
to recover State income taxes paid on Federal retirement benefits. This case
grew out of a claim by Federal pensioners in the original Federal court case in
Swanson. In the new lawsuit, the plaintiffs allege that when the State granted
an increase in retirement benefits to State retirees in the same legislation
that equalized tax treatment between state and Federal retirees, the increased
benefits to State retirees constituted an indirect violation of Davis. The
lawsuit seeks a refund of taxes paid by Federal retirees on Federal retirement
benefits received in the years 1989 through 1993 and refunds or monetary relief
sufficient to equalize the alleged on-going discriminatory treatment for those
years. An extension of time to answer the complaint has been filed by the North
Carolina Attorney General, who believes that sound legal authority and
arguments support the denial of this claim.
2. Bailey v. State of North Carolina--State Tax Refunds--State
Retirees. State and local governmental retirees filed a class action suit in
1990 as a result of the repeal of the income tax exemptions for state and local
government retirement benefits. The original suit was dismissed after the North
Carolina Supreme Court ruled in 1991 that the plaintiffs had failed to comply
with state law requirements for challenging unconstitutional taxes and the
United States Supreme Court denied review. In 1992, many of the same plaintiffs
filed a new lawsuit alleging essentially the same claims, including breach of
contract, unconstitutional impairment of contract rights by the State in taxing
benefits that were allegedly promised to be tax-exempt, and violation of
several state constitutional provisions.
On May 31, 1995 the Superior Court issue an order ruling in favor of the
plaintiffs. Under the terms of the order, the Superior Court found that the act
of the General Assembly that repealed the tax exemption on State and local
government retirement benefits is null, void, and unenforceable and that
retirement benefits which were vested before August 1989 are exempt from
taxation. The North Carolina Attorney General intends to pursue an appeal from
this order.
The North Carolina Attorney General's Office estimates that the amount in
controversy is approximately $40-$45 million annually for the tax years 1989
through 1991. In addition, it is anticipated that the decision reached in this
case will govern the resolution of tax refund claims made by retired state and
local government employees for taxes paid on retirement benefit income for tax
years after 1991. Furthermore, if the order of the Superior Court is upheld,
its provisions would apply prospectively to prevent future taxation of State
and local government retirement benefits that were vested before August 1989.
3. Fulton Corp. v. Justus. The State's intangible personal property tax
levied on certain shares of stock has been challenged by the plaintiff on
grounds that it violates the United States Constitution Commerce Clause by
discriminating against stock issued by corporations that do all or part of
their business outside of the State. The plaintiff in the action is a North
Carolina corporation that does all or part of its business outside of the
State. The plaintiff seeks to invalidate the tax in its entirety and to recover
tax paid on the value of its shares in other corporations. The North Carolina
Court of Appeals invalidated the taxable percentage deduction and excised it
from the statute beginning with the 1994 tax year. The effect of this ruling
was to increase collections by rendering all stock taxable on 100% of its
value. The North Carolina Supreme Court reversed the Court of Appeals and held
that the tax is valid and constitutional. The plaintiff's petition for review
by the United States Supreme Court was granted. Oral argument is expected in
Fall 1995 and a decision expected by mid-1996. Net collections from the tax for
the fiscal year ended June 30, 1993 amounted to $120.6 million. The North
Carolina Attorney General's Office believes that sound legal arguments support
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the State's position. In April 1995, the North Carolina General Assembly
repealed, effective for taxable years beginning on or after January 1, 1995,
the State's intangible personal property tax.
In October 1993, the State issued a total of $194.7 million in general
obligation bonds (consisting of $87.5 million in Prison and Youth Services
Facilities Bonds, $61 million in Public Improvement Refunding Bonds, $30.2
million in Highway Refunding Bonds, and $16 million in Clean Water Refunding
Bonds). An additional $67.5 million in general obligation bonds (Prison and
Youth Services Facilities Bonds) were issued in November 1993. On November 2,
1993, a total of $740 million in general obligation bonds (consisting of $310
million in University Improvement Bonds, $250 million in Community College
Bonds, $145 million in Clean Water Bonds, and $35 million in State Parks Bonds)
were approved by the voters of the State. Pursuant to this authorization, the
State issued $400 million in 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). An additional $60 million in
general obligation bonds (Clean Water Bonds) were issued in September and
October 1994. The remaining $85 million in general obligation bonds (Clean
Water Bonds) were issued in June and July 1995. The offering of the remaining
$195 million of these authorized bonds is anticipated to occur over the next
two years.
Currently, Moody's, Standard & Poor's and Fitch rate North Carolina general
obligation bonds Aaa, AAA, and AAA, respectively.
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APPENDIX I
ECONOMIC AND FINANCIAL CONDITIONS IN OHIO
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
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.
The GRF ending fund and cash balances for the State's 1984-85 through 1994-95
bienniums were as follows:
<TABLE>
<CAPTION>
ENDING FUND ENDING CASH
BEGINNING ENDING BALANCE BALANCE
BIENNIUM JULY 1 JUNE 30 (IN THOUSANDS) (IN THOUSANDS)
-------- --------- ------- -------------- --------------
<S> <C> <C> <C> <C>
1984-85................... 1983 1985 $297,600 $849,900
1986-87................... 1985 1987 226,300 632,700
1988-89................... 1987 1989 475,100 784,268
1990-91................... 1989 1991 135,365 326,576
1992-93................... 1991 1993 111,013 393,634
1994-95................... 1993 1995 928,000 1,312,200
</TABLE>
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 next biennium.
The GRF budget for the 1994-95 biennium provided for total GRF expenditures
of approximately $30.7 billion, with Fiscal Year 1994 expenditures 9.2% higher
than in Fiscal Year 1993, and Fiscal Year 1995 expenditures 6.6% higher than in
Fiscal Year 1994.
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As noted above, the GRF ended the 1994-95 biennium with a fund balance of
$928 million and cash balance of $1,312.2 million. As steps toward BSF
replenishment, OBM deposited $21 million in the BSF (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
and $535.2 million in July 1995, for a July 1995 balance in the BSF of $828.3
million.
The General Appropriations Act for the 1996-97 biennium provides for total
GRF biennial expenditures of approximately $33.5 billion, an increase over
those for the 1994-95 fiscal biennium. Authorized expenditures in Fiscal Year
1996 are higher than in Fiscal Year 1995 and for Fiscal Year 1997 are higher
than in Fiscal Year 1996.
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.
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). 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, with the
highest month requiring a drawdown of $743.14 million from the TOF, in ten
months of Fiscal Year 1993, with the highest month requiring a drawdown of
$768.64 million from the TOF, in six months of Fiscal Year 1994, with the
highest month requiring a drawdown of $500.64 million from the TOF, and in four
months of Fiscal Year 1995, with the highest month requiring a drawdown of
$337.96 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.
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.
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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.
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 $75,752,659 was expended in the 1992-93 biennium
and $119,382,294 was appropriated for the 1994-95 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 third in the nation in 1990 gross state
product derived from manufacturing. That income was 27.5% of total Ohio gross
state product, compared to 17.1% 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
corporations (based on 1994 sales) as reported in 1995 by Fortune magazine, 48
had headquarters in Ohio, placing Ohio fifth as a "headquarters" state for
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 1993 after a slight decrease early in 1992
and then decreased slightly, but is now at a new high. Growth in recent years
has been concentrated among nonmanufacturing industries, with manufacturing
employment tapering off since its 1969 peak. Nonmanufacturing industries now
employ approximately 78.6% 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 1994 the average
monthly unemployment rate in Ohio was 5.5% as compared to a national average of
6.1% 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 1993 population was estimated
at 11,091,000.
Currently, the State's general obligation bonds are rated Aa, AA and AA by
Moody's, Standard & Poor's and Fitch, respectively.
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APPENDIX J
ECONOMIC AND FINANCIAL CONDITIONS IN PENNSYLVANIA
THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE ECONOMY
OF THE STATE AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH FACTORS.
OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED PRIMARILY UPON ONE OR
MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO DEBT OFFERINGS OF STATE
ISSUERS, HOWEVER, IT HAS NOT BEEN UPDATED NOR WILL IT BE UPDATED DURING THE
YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION.
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 resulted in its obligations generally being downgraded by
the major rating services (Moody's, Standard & Poor's and 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, 1992, the General Fund
recorded a $1.1 billion operating surplus (determined on a generally accepted
accounting principles basis), resulting in an increase in the fund balance to
$87.5 million. The surplus was achieved through legislated tax rate increases
and tax base broadening measures enacted in August 1991, and by controlling
expenditures through numerous cost reduction measures implemented throughout
the fiscal year. 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.
For fiscal 1994, the General Fund balance increased $194 million (determined
on a generally accepted accounting principles basis) due largely to an
increased reserve for encumbrances and an increase in other designated funds.
Revenues and other sources increased by 1.8% over the prior fiscal year while
expenditures and other uses increased by 4.3%. As a result, the operating
surplus declined to $179.4 million for fiscal 1994 from $686.3 million for
fiscal 1993. On a budgetary basis, Commonwealth revenues during the fiscal year
totalled $15.2 billion, $38.6 million above the fiscal year estimate, and an
increase of 3.9% over Commonwealth revenues during the prior fiscal year.
Expenditures (excluding pooled financing expenditures and net of appropriation
lapses) totalled $14.93 billion, representing a 7.2% increase over fiscal 1993
expenditures. Medical assistance and corrections spending contributed to the
rate of spending growth for the fiscal year.
J-1
<PAGE>
The approved fiscal 1995 budget provides for $15.7 billion of appropriations,
an increase of 4% over appropriations for fiscal 1994. The 1995 budget also
includes several tax reductions totalling an estimated $173.4 million (as
revised upward), including a reduction in the corporate net income tax rate
from 12.25% to 9.99% to be phased-in over a four-year period (which tax rate
reduction is accelerated pursuant to the fiscal 1996 budget) and reinstatement
of a corporate net income tax net operating loss provision to be phased-in over
three years with a $500,000 annual cap (which is increased to $1 million under
the fiscal 1996 budget). For the March, 1995 fiscal year-to-date period,
Commonwealth revenue collections were reportedly $301 million above the fiscal
year-to-date official estimate used for enactment of the budget.
The fiscal 1996 budget was passed by the Pennsylvania legislature on June 15,
1995 and signed by the Governor on June 30, 1995. It provides for spending of
approximately $16.16 billion. In addition, it includes tax reductions totalling
an estimated $282.9 million. The tax reductions include accelerating the
corporate net income tax rate reduction to 9.99% effective for taxable years
commencing in 1995 (the corporate net income tax rate was, pursuant to prior
legislation, scheduled to be reduced on a graduated schedule whereby the 9.99%
rate would have taken effect in tax years beginning in 1997), increasing the
net operating loss carryover deduction to $1 million (effective for losses
incurred in taxable years beginning in 1995), increasing the capital
stock/foreign franchise tax exemption to $100,000 (effective for taxable years
beginning in 1995), changing the formula by which sales are apportioned to
Pennsylvania for purposes of the corporate net income (tax effective for
taxable years beginning in 1995), repealing the 2% tax on annuity
considerations (effective for tax years beginning in 1996) and eliminating the
inheritance tax on transfers of non-jointly owned property from a decedent to a
surviving spouse (in the case of decedents dying on or after January 1, 1995).
A tax amnesty program is also instituted for delinquent taxes as of December
31, 1993.
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 now exceed 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, 1995 stood at a
seasonally adjusted rate of 6.0%. The seasonally adjusted national unemployment
rate for March, 1995 was 5.5%.
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 $5.08 billion of general obligation debt 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
J-2
<PAGE>
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 year ended in 1994 was $3.8 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.
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 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. The Mayor's latest update of the 5-year financial
plan was approved by PICA on April 17, 1995.
To date, PICA has issued $1.42 billion of its Special Tax Revenue Bonds. This
financial assistance has included the refunding of certain general obligation
bonds, funding of capital projects and the liquidation of the cumulative
General Fund balance deficit as of June 30, 1992 of $224.9 million. The audited
General Fund balance of Philadelphia as of June 30, 1994 reflects a surplus of
approximately $15.4 million, up from approximately $3 million as of June 30,
1993.
There is various litigation pending against the Commonwealth, its officers
and employees. In 1978, the Pennsylvania General Assembly approved a limited
waiver of sovereign immunity. Damages for any loss are limited to $250,000 for
each person and $1 million for each accident. The Supreme Court held that this
limitation is constitutional. Approximately 3,500 suits against the
Commonwealth are pending.
The following are among the cases with respect to which the Office of
Attorney General and the Office of General Counsel have determined that an
adverse decision may have a material effect on government operations of the
Commonwealth:
Baby Neal v. Commonwealth, et al.
In 1990, the American Civil Liberties Union and other various named
plaintiffs filed an action against the Commonwealth in Federal court seeking an
order that would require the Commonwealth to provide additional funding for
child welfare services. No figures for the amount of funding sought are
available. However, a similar lawsuit filed in the Commonwealth Court of
Pennsylvania was resolved through a court approved settlement which provides,
among other things, for Commonwealth funding for such services in fiscal year
1991 and a commitment to pay Pennsylvania counties $30 million over five years.
In December 1994, the Third Circuit Court of Appeals reversed the District
Court's denial of the plaintiff's motion for class certification with respect
to the interests of 16 minor plaintiffs. As a result, the District Court has
recently certified the class and the parties have resumed discovery.
J-3
<PAGE>
County of Allegheny v. Commonwealth of Pennsylvania
On December 7, 1987, the Supreme Court of Pennsylvania held that the
statutory scheme for county funding of the judicial system is in conflict with
the Pennsylvania Constitution. However, judgment was stayed in order to afford
the General Assembly an opportunity to enact appropriate funding legislation
consistent with its opinion. Since that time, the Supreme Court has denied
various actions and motions by several Pennsylvania municipalities to compel
the Commonwealth to comply with the Supreme Court's 1987 decision or to restore
funding for local courts and district justices to levels existing in 1987. On
December 7, 1992, the State Association of County Commissioners filed a new
action in mandamus seeking to compel the Commonwealth to comply with the
Supreme Court's decision in County of Allegheny. The Commonwealth has filed a
response in opposition to the new action and a request was made by the counties
to continue the action until Spring, 1995. The Court has not apparently acted
on the new action and the General Assembly has yet to consider legislation
implementing the Supreme Court's decision.
Fidelity Bank v. Commonwealth of Pennsylvania
On November 30, 1989, Fidelity Bank, N.A. ("Fidelity") filed an action in
challenging the constitutional validity of a 1989 amendment increasing the bank
shares tax and related legislation. The Commonwealth Court ruled in favor of
the Commonwealth finding no constitutional deficiencies in the tax increase,
but invalidating one element of the legislation which provided a credit to new
banks (the "new bank tax credit"). Fidelity, the Commonwealth and certain
intervener banks appealed to the Pennsylvania Supreme Court. However, pursuant
to a Settlement Agreement dated as of April 21, 1995, the Commonwealth agreed
to enter a credit in favor of Fidelity in the amount of $4,100,000 in
settlement of the constitutional and non-constitutional issues. The credit
represents approximately 5% of the potential claim of Fidelity, had the
constitutional issues been resolved in its favor.
Pursuant to a separate Settlement Agreement dated as of April 21, 1995, the
Commonwealth also settled with the intervening banks with respect to issues
concerning the new bank tax credit.
Notwithstanding the foregoing settlements, other banks have filed protective
petitions which are currently pending at the various administrative agencies
challenging the validity of the 1989 tax increase. At least one of those cases
- -- Mellon Bank, N.A. -- has progressed to Commonwealth Court. Based upon the
favorable decision of the Commonwealth Court on the constitutional issues in
the Fidelity Bank litigation and the terms of the settlement with Fidelity, the
Commonwealth does not expect that substantial liability remains with respect to
the remaining cases.
Pennsylvania Association of Rural and Small Schools (PARSS) v. Casey
In January 1991, the Association of Rural and Small Schools and several other
parties filed a lawsuit against then Governor Robert P. Casey and former
Secretary of Education, Donald M. Carroll challenging the constitutionality of
the Commonwealth system for funding local school districts. The litigation
consists of two parallel cases, one in the Commonwealth Court of Pennsylvania
and one in the United States District Court for the Middle District of
Pennsylvania. The federal court case has been indefinitely stayed pending
resolution of the state court case. The state court case is currently in the
pre-trial discovery stage.
Austin v. Department of Corrections, et al.
In November 1990, the American Civil Liberties Union filed a class action
lawsuit in the United States District Court for the Eastern District of
Pennsylvania on behalf of inmate populations in various Pennsylvania
correctional institutions, challenging the conditions of confinement and
seeking injunctive relief. On January 17, 1995, the Court approved a Settlement
Agreement between the parties, pursuant to which the Commonwealth paid $1.3
million in attorneys' fees to the plaintiffs' attorneys, with an additional
$100,000 to be paid upon dismissal of a preliminary injunction relating to
certain health issues. The parties are presently complying with monitoring
provisions outlined in the Settlement Agreement.
J-4
<PAGE>
Scott v. Snider
In 1991, a consortium of public interest law firms filed a class action suit
in the U.S. District Court for the Eastern District of Pennsylvania against
various Commonwealth officers alleging that the Commonwealth had failed to
comply with the 1989 federal mandate to provide and pay for early and periodic
screening, diagnostic and treatment services for Medicaid-eligible children. If
the federal court were to grant all of the relief requested, the Commonwealth
would be obligated, among other things, to substantially revise the methods by
which it presently identifies children in need of treatment and to expand the
scope of services and treatment presently provided to such children, and to
increase fees paid to pediatric providers. The Court has denied the plaintiffs'
request to proceed as a class action and dismissed five of the eighteen
plaintiff organizations from the case. The parties have reached a tentative
settlement agreement which they have submitted to the Court for approval.
Pennsylvania Medical Society v. Karen F. Snider
As a result of litigation brought by the Pennsylvania Medical Society against
the Commonwealth in connection with the amount payable to medical assistance
clients who are also eligible for Medicare under the Commonwealth's medical
assistance program, the Commonwealth has implemented a new payment system,
effective January 23, 1995. Preliminary estimated costs to the Commonwealth are
approximately $50 million per year.
Envirotest/Synterra Partners
Envirotest Systems Corporation, Envirotest Partners ("Envirotest") and the
Commonwealth of Pennsylvania have entered into a Standstill Agreement pursuant
to which the parties will proceed to discuss resolution of claims which
Envirotest might have against the Commonwealth arising from the suspension of
an emissions testing program. Under the program, Envirotest entered into a
contract with the Commonwealth for the operation of emissions inspection
facilities and, incident thereto, acquired land to construct approximately 85
such facilities. The Standstill Agreement authorizes Envirotest to file a
Statement of Claim with the Pennsylvania Board of Claims to preserve its
position before the Board. Although a formal Statement of Claim has not been
filed and a formal demand has not been submitted, the Office of General Counsel
has been informed by representatives of Envirotest that it has expended
approximately $200 million to date to acquire land and construct and maintain
the inspection facilities.
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-5
<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. 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 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
K-1
<PAGE>
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 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 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, 1995, 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 two-year period 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 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, 1995 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 Arizona Municipal Money Fund of CMA Multi-State Municipal Series
Trust as of March 31, 1995, 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 LLP
Princeton, New Jersey
May 2, 1995
<PAGE>
Portfolio Abbreviations for CMA Arizona Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
CP Commercial Paper
DATES Daily Adjustable Tax-Exempt Securities
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
TAN Tax Anticipation Notes
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
CMA ARIZONA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Arizona-- $ 4,300 Apache County, Arizona, IDA, PCR (Tucson Electric Power Co.
97.0% Project), VRDN, Series B, 4.25% due 10/01/2021 (a) $ 4,300
Arizona Educational Loan Marketing Corp., Educational Loan Revenue
Bonds, VRDN, AMT, Series A (a):
3,700 4.15% due 3/01/2015 3,700
1,300 4.15% due 12/01/2020 1,300
Arizona Health Facilities Authority Revenue Bonds (Arizona Voluntary
Hospital Federation), VRDN (a):
1,460 Series A, 4.05% due 10/01/2015 1,460
1,245 Series B, 4.05% due 10/01/2015 1,245
1,500 Casa Grande, Arizona, IDA, Revenue Bonds (Mayville Project),
VRDN, 4.05% due 7/01/2015 (a) 1,500
4,000 Chandler, Arizona, IDA, M/F Housing Revenue Refunding Bonds
(Southpark Apartments Project), VRDN, 4.05% due 12/01/2002 (a) 4,000
3,300 Cochise County, Arizona, Pollution Control Corp., Solid Waste Disposal
Revenue Bonds (Arizona Electric Power Cooperative, Inc. Project), AMT,
4.45% due 9/01/1995 3,300
3,700 Coconino County, Arizona, Pollution Control Corp., Arizona Public Service
Revenue Bonds (Navajo Project), VRDN, Series A, 4.55% due 10/01/2029 (a) 3,700
500 Flagstaff, Arizona, IDA, IDR (W.L. Gore & Associates), CP, 4.30%
due 6/06/1995 500
2,000 Glendale, Arizona, IDA, Hospital Revenue Bonds (West Valley Camelback),
VRDN, 4.05% due 11/01/2011 (a) 2,000
2,200 Glendale, Arizona, IDA, IDR (Superior Bedding Co. Project), VRDN, 4.30%
due 10/01/2014 (a) 2,200
Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds, VRDN, AMT (a):
3,700 (Privado Park Apartments Project), Series A, 4.35% due 6/01/2034 3,700
4,000 (Vista Ventana Apartments Project), Series D, 4.35% due 6/01/2034 4,000
200 Maricopa County, Arizona, IDA, PCR (Motorola Inc. Project), VRDN, 4.15%
due 10/01/1995 (a) 200
Maricopa County, Arizona, Pollution Control Corp., PCR, CP, Southern
California Edison (Palo Verde Project):
500 Series D, 4.10% due 4/05/1995 500
600 Series E, 4.10% due 4/12/1995 600
3,700 Maricopa County, Arizona, Pollution Control Corp., PCR (El Paso
Electric Co.-Palo Verde Project), VRDN, Series E, 4.95% due 12/01/2014 (a) 3,700
15,500 Maricopa County, Arizona, TAN, UT, 5% due 7/28/1995 15,525
</TABLE>
<PAGE>
<TABLE>
CMA ARIZONA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Arizona Mesa, Arizona, Municipal Development Corp., Special Tax Obligations, CP:
(concluded) $ 2,500 4.15% due 4/25/1995 $ 2,500
2,000 3.80% due 5/10/1995 2,000
2,700 Mohave County, Arizona, IDA, IDR (Citizens Utilities), CP, AMT, 4.15%
due 5/01/1995 2,700
4,375 Phoenix, Arizona, IDA, M/F Housing Revenue Refunding Bonds (Lynwood
Apartments Project), VRDN, 4.25% due 10/01/2025 (a) 4,375
2,200 Phoenix, Arizona, UT, VRDN, Series 1, 4.25% due 6/01/2018 (a) 2,200
1,650 Pima County, Arizona, IDA, IDR, Refunding (Tucson Retirement Center),
VRDN, 4% due 1/01/2009 (a) 1,650
Pima County, Arizona, IDA, M/F Housing Revenue Bonds, VRDN, AMT (a):
5,200 (Quail Ridge Apartments), Series B, 4.35% due 6/01/2034 5,200
900 (Saguaro Crest Apartments), Series A, 4.35% due 6/01/2034 900
Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corp.) (a):
1,800 DATES, 4.25% due 12/01/2009 1,800
2,300 VRDN, 4.25% due 12/01/2009 2,300
3,800 Salt River Project, Arizona, Agricultural Improvements and Power
Distribution, Electric System Revenue Bonds, CP, 4.10% due 4/03/1995 3,800
1,200 Special Fund of Industrial Community, Arizona, Tax-Exempt COP,
Refunding Bonds, CP, 4.15% due 5/17/1995 1,200
1,000 Tempe, Arizona, IDA, M/F Housing Revenue Bonds (Elliots Crossing),
VRDN, 4.05% due 10/01/2008 (a) 1,000
1,765 Tucson, Arizona, IDA, IDR, Refunding (Santa Rita Hotel), VRDN, AMT,
Series B, 4.45% due 12/01/2016 (a) 1,765
1,155 Tucson, Arizona, IDA, M/F Housing Revenue Refunding Bonds (Lincoln
Garden Project), VRDN, 4.10% due 2/01/2006 (a) 1,155
Yavapai County, Arizona, IDA, IDR (Citizens Utilities), CP, AMT:
1,500 4.25% due 4/05/1995 1,500
1,200 4.15% due 5/01/1995 1,200
1,900 3.95% due 5/05/1995 1,900
3,500 Yavapai County, Arizona, IDA, IDR, Refunding (Kachina Pointe
Project), VRDN, 4% due 1/01/2009 (a) 3,500
500 Yuma, Arizona, IDA, IDR (Ardco Inc. Project), VRDN, 4.30%
due 7/01/2003 (a) 500
Puerto Rico-- 300 Puerto Rico Commonwealth Government Development Bank, Revenue
0.3% Refunding Bonds, VRDN, 4.10% due 12/01/2015 (a) 300
Total Investments (Cost--$100,875*)-- 97.3% 100,875
Other Assets Less Liabilities--2.7% 2,842
--------
Net Assets--100.0% $103,717
========
<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, 1995.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA ARIZONA MUNICIPAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<S> <C> <C>
Assets:
Investments, at value (identified cost--$100,874,722) (Note 1a) $ 100,874,722
Cash 152,519
Receivables:
Securities sold $ 1,906,754
Interest 864,205 2,770,959
-------------
Deferred organization expenses (Note 1d) 21,691
Prepaid registration fees and other assets (Note 1d) 2,155
-------------
Total assets 103,822,046
-------------
Liabilities:
Payables:
Distributor (Note 2) 28,947
Investment adviser (Note 2) 5,872 34,819
-------------
Accrued expenses and other liabilities 70,368
-------------
Total liabilities 105,187
-------------
Net Assets $ 103,716,859
=============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 10,371,442
Paid-in capital in excess of par 93,342,983
Undistributed realized capital gains--net 2,434
-------------
Net Assets--Equivalent to $1.00 per share based on 103,714,424 shares of
beneficial interest outstanding $ 103,716,859
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA ARIZONA MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 2,907,188
Expenses:
Investment advisory fees (Note 2) $ 430,110
Distribution fees (Note 2) 106,900
Professional fees 56,675
Registration fees (Note 1d) 37,065
Accounting services (Note 2) 34,475
Transfer agent fees (Note 2) 18,741
Printing and shareholder reports 15,542
Custodian fees 11,489
Amortization of organization expenses (Note 1d) 7,583
Pricing fees 6,041
Trustees' fees and expenses 1,019
Other 3,264
-------------
Total expenses before reimbursement 728,904
Reimbursement of expenses (Note 2) (267,373)
-------------
Total expenses after reimbursement 461,531
-------------
Investment income--net 2,445,657
Realized Gain on Investments--Net (Note 1c) 2,450
-------------
Net Increase in Net Assets Resulting from Operations $ 2,448,107
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA ARIZONA MUNICIPAL MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C>
Operations:
Investment income--net $ 2,445,657 $ 1,017,503
Realized gain on investments--net 2,450 --
------------- -------------
Net increase in net assets resulting from operations 2,448,107 1,017,503
------------- -------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (2,445,657) (1,017,503)
Realized gain on investments--net -- (330)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (2,445,657) (1,017,833)
------------- -------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 389,748,845 293,866,100
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions (Note 1e) 2,445,654 1,017,845
------------- -------------
392,194,499 294,883,945
Cost of shares redeemed (361,894,068) (262,907,118)
------------- -------------
Net increase in net assets derived from beneficial interest
transactions 30,300,431 31,976,827
------------- -------------
Net Assets:
Total increase in net assets 30,302,881 31,976,497
Beginning of year 73,413,978 41,437,481
------------- -------------
End of year $ 103,716,859 $ 73,413,978
============= =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA ARIZONA MUNICIPAL MONEY FUND
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
For the Year Ended March 31, Feb. 8, 1993++ to
Increase (Decrease) in Net Asset Value: 1995 1994 March 31, 1993
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
------------- ------------- -------------
Investment income--net .03 .02 .002
------------- ------------- -------------
Total from investment operations .03 .02 .002
------------- ------------- -------------
Less dividends from investment income--net (.03) (.02) (.002)
------------- ------------- -------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
============= ============= =============
Total Investment Return 2.83% 1.90% 1.78%*
============= ============= =============
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .41% .47% .33%*
============= ============= =============
Expenses, net of reimbursement .54% .59% .46%*
============= ============= =============
Expenses .85% .98% 1.15%*
============= ============= =============
Investment income--net 2.84% 1.89% 1.86%*
============= ============= =============
Supplemental Data:
Net assets, end of period (in thousands) $ 103,717 $ 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 management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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" or "Adviser"). The general partner of
FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the limited
partner.
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, 1995, FAM earned fees of
$430,110, of which $267,373 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 net assets, 2.0% of
the Fund's
<PAGE>
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 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 STATMENTS (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, PSI, 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, 1995, 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, 1995 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, 1995, 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 LLP
Princeton, New Jersey
April 28, 1995
<PAGE>
Portfolio Abbreviations for CMA California Municipal Money Fund
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
CP Commercial Paper
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
RAW Revenue Anticipation Warrants
TRAN Tax Revenue Anticipation Notes
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
California-- $ 6,000 Alameda County, California, IDA, IDR, Refunding (Hoover University
92.9% Inc. Project), VRDN, 4.25% due 6/01/2004 (a) $ 6,000
2,500 Anaheim, California, M/F Housing Authority Revenue Bonds (Bel Age
Project), VRDN, AMT, Series A, 4.10% due 8/01/2020 (a) 2,500
2,500 Berkeley, California, TRAN, 4.25% due 7/11/1995 (b) 2,501
11,200 Big Bear Lake, California, IDR (Southwest Gas Corporation Project),
VRDN, AMT, Series A, 4.05% due 12/01/2028 (a) 11,200
California Health Facilities Financing Authority Revenue Bonds,
VRDN (a):
5,000 (Catholic Health Care), Series A, 3.95% due 7/01/2009 5,000
6,600 (Catholic Health Care), Series B, 3.95% due 7/01/2016 6,600
9,145 (Huntington Memorial Hospital), 3.90% due 11/01/2010 9,145
2,700 (Pooled Loan Program), 4.20% due 9/01/2020 2,700
1,000 (Saint Joseph Health System), Series B, 4.10% due 7/01/2009 1,000
4,100 (Scripps Memorial Hospital), Series B, 4.15% due 12/01/2015 4,100
California Pollution Control Financing Authority, PCR, Refunding
(Pacific Electric & Gas), CP:
19,130 AMT, Series A, 3.85% due 4/03/1995 19,130
6,000 AMT, Series A, 4.10% due 5/01/1995 6,000
15,000 AMT, Series A, 4% due 5/08/1995 15,000
14,100 AMT, Series B, 4.15% due 5/31/1995 14,100
12,175 Series C, 3.55% due 4/05/1995 12,175
5,000 Series E, 4% due 4/04/1995 5,000
2,000 Series E, 3.65% due 4/05/1995 2,000
7,600 Series E, 3.75% due 5/11/1995 7,600
11,000 Series F, 3.85% due 5/01/1995 11,000
11,500 Series F, 4% due 5/30/1995 11,500
California Pollution Control Financing Authority, PCR (Southern
California Edison):
4,900 CP, Series C, 3.80% due 4/03/1995 4,900
1,500 CP, Series C, 3.55% due 4/06/1995 1,500
1,350 CP, Series C, 3.95% due 5/19/1995 1,350
2,600 CP, Series D, 3.95% due 5/12/1995 2,600
27,300 VRDN, Series A, 4.25% due 2/28/2008 (a) 27,300
5,100 VRDN, Series B, 4.25% due 2/28/2008 (a) 5,100
14,000 VRDN, Series C, 4.25% due 2/28/2008 (a) 14,000
13,900 VRDN, Series D, 4.25% due 2/28/2008 (a) 13,900
</TABLE>
<PAGE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
California California Pollution Control Financing Authority, Resource Recovery
(continued) Revenue Bonds, VRDN, AMT (a):
$ 6,200 (Atlantic Richfield Company Project), Series A, 4.50% due
12/01/2024 $ 6,200
12,500 (Delano Project), 4.25% due 8/01/2019 12,500
5,700 (Honey Lake Power Project), 4.25% due 9/01/2018 5,700
2,400 (Sanger Project), Series A, 4.05% due 9/01/2020 2,400
California Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Shell Oil Co.--Martinez Project), VRDN, AMT (a):
11,700 Series A, 4.45% due 10/01/2024 11,700
3,100 Series B, 4.45% due 12/01/2024 3,100
25,000 California Public Capital Improvements Financing Authority Revenue
Bonds (Pooled Loan Program), Series D, 4.30% due 6/15/1995 25,000
California State:
84,750 RAN, Series A, 5% due 6/28/1995 84,871
30,000 RAW, Series C, 5.75% due 4/25/1996 30,259
7,500 California State Department of Water Resource Revenue Bonds (Central
Valley Project), VRDN, Series N-V2, 3.90% due 12/01/2025 (a) 7,500
3,800 California State Department of Water Resource Revenue Bonds, CP,
3.60% due 4/05/1995 3,800
10,000 California State GO, VRDN, 4.35% due 11/01/2020 (a) 10,000
3,200 California Statewide Community Development Authority, Revenue Refunding
Bonds (Saint Joseph Health System), VRDN, COP, 4% due 7/01/2008 (a) 3,200
Chula Vista, California, IDR (San Diego Electric & Gas), CP, AMT:
10,000 Series C, 4% due 5/19/1995 10,000
20,000 Series D, 3.95% due 5/09/1995 20,000
15,000 Series E, 4.25% due 4/11/1995 15,000
6,800 Contra Costa, California, Transportation Authority, Sales Tax Revenue
Bonds, VRDN, Series A, 3.90% due 3/01/2009 (a) 6,800
Eagle Tax Exempt Trust, VRDN (a):
9,500 4.30% due 2/01/2006 9,500
19,400 Series 1994 C-6, 4.30% due 8/01/2017 19,400
14,800 Series 1994 C-7, 4.25% due 8/01/2023 14,800
2,000 East Bay, Municipal Utility District, California, Wastewater Treatment
System Revenue Bonds, CP, 4.05% due 5/25/1995 2,000
20,560 Eastern Municipal Water District, California, Water and Sewer Revenue
Refunding Bonds, VRDN, COP, Series B, 4% due 7/01/2020 (a) 20,560
22,334 FB California Floating Trust Certificates, VRDN, Series 9, 4.35% due
4/25/1996 (a) 22,334
20,000 Floating Rate Trust Certificates, VRDN, Series 1992 H, 4.60% due
10/02/1998 (a) 20,000
8,050 Fontana, California, M/F Housing Revenue Bonds (Springtime Apartments
Project), VRDN, Series A, 4.05% due 12/01/2016 (a) 8,050
22,200 Fresno Unified School District, California, TRAN, 4.75% due 7/19/1995 (b) 22,251
7,500 Hemet, California, M/F Housing Revenue Bonds (Pacific Senior Estates),
VRDN, Series A, 4% due 7/01/2007 (a) 7,500
3,260 Kings County, California, Board of Education, TRAN, UT, 4.25% due
7/28/1995 (b) 3,261
</TABLE>
<PAGE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
California Long Beach, California, Harbor Revenue Bonds, CP, AMT, Series A:
(continued) $15,000 4.10% due 4/11/1995 $ 15,000
15,000 4.10% due 4/12/1995 15,000
4,000 4.20% due 4/12/1995 4,000
23,000 3.90% due 5/08/1995 23,000
22,500 3.90% due 5/11/1995 22,500
8,700 Los Angeles, California, M/F Housing Revenue Bonds (Beverly Park
Apartments Project), VRDN, AMT, Series A, 4% due 8/01/2018 (a) 8,700
2,000 Los Angeles, California, Metropolitan Transportation Authority Revenue
Bonds (Union Station Gateway Project), VRDN, Series A, 4.10% due
7/01/2025 (a) 2,000
10,865 Los Angeles, California, Wastewater System Revenue Bonds, CP, 4.05% due
5/25/1995 10,865
9,200 Los Angeles County, California, Metropolitan Transportation Authority,
Sales Tax Revenue Refunding Bonds (Proposition C--Second Senior), VRDN,
Series A, 4% due 7/01/2020 (a) 9,200
3,660 Los Angeles County, California, TRAN, UT, 4.50% due 6/30/1995 3,660
Los Angeles County, California, Transportation Commission Sales Tax
Revenue Bonds, Series A:
6,200 CP, 4.10% due 4/07/1995 6,200
3,000 Refunding, VRDN, 3.90% due 7/01/2012 (a) 3,000
15,000 Marin County, California, TRAN, 4.25% due 7/06/1995 (b) 15,019
3,000 Monterey Penninsula, California, Water Management District, COP
(Wastewater Reclamation Project), VRDN, 4.10% due 7/01/2022 (a) 3,000
6,000 Moor Park, California, M/F Mortgage Revenue Refunding Bonds (Le Club
Apartments Project), VRDN, Series A, 4.10% due 11/01/2015 (a) 6,000
20,000 Oakland, California, TRAN, UT, 4.50% due 7/24/1995 (b) 20,031
Oxnard, California, Unified School District, TRAN:
1,280 4.50% due 7/13/1995 1,282
5,120 4.50% due 7/13/1995 (b) 5,129
Palm Springs, California, Community Redevelopment Agency, COP,
VRDN (a):
1,000 Headquarters Hotel 3, 4.10% due 12/01/2014 1,000
1,700 Headquarters Hotel 9, 4.10% due 12/01/2014 1,700
11,470 Pittsburg, California, Mortgage Obligation Bonds, VRDN, Series A,
4.25% due 12/30/2022 (a) 11,470
2,900 Redlands, California, M/F Housing Revenue Bonds (Orange Village
Apartments Project), VRDN, AMT, Series A, 4.05% due 8/01/2018 (a) 2,900
Riverside County, California, COP (Riverside County Public Facilities),
ACES, VRDN (a):
13,300 Series A, 4.15% due 12/01/2015 13,300
6,300 Series B, 4.15% due 12/01/2015 6,300
1,660 Series D, 4.15% due 12/01/2015 1,660
Riverside County, California, Housing Authority, M/F Mortgage Revenue
Bonds, VRDN (a):
3,850 (Emeritus Park), Series B, 4% due 8/01/2018 3,850
6,000 (Woodcreek Village), Series D, 4% due 8/01/2018 6,000
</TABLE>
<PAGE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
California $13,600 Roseville, California, Finance Authority, Hospital Lease Revenue
(concluded) Bonds (Roseville Hospital), VRDN, Series A, 4.05% due 10/01/2014 (a) $ 13,600
16,200 Sacramento Municipal Utility District, California, CP, 4% due
5/01/1995 16,200
6,110 San Bernardino County, California, Residential Mortgage Revenue
Refunding Bonds (Ramona Garden), VRDN, Series A, 4.10% due 2/01/2017 (a) 6,110
San Diego, California, M/F Housing Authority Revenue Bonds, VRDN (a):
6,035 (La Cima Apartments), Series K, 4.10% due 12/01/2008 6,035
18,000 (Nobel Court Apartments), 4.10% due 12/01/2008 18,000
San Diego County, California, Regional Transportation Commission Sales
Tax Revenue Bonds (Second Senior), VRDN, Series A (a):
32,500 3.90% due 4/01/2008 32,500
8,500 4.15% due 4/01/2008 8,500
10,000 San Leandro, California, M/F Revenue Bonds (Parkside Commons), VRDN,
Series A, 4% due 7/15/2018 (a) 10,000
39,940 San Mateo County, California, TRAN, GO, 4.50% due 7/13/1995 (b) 40,018
32,800 Santa Clara County, California, TRAN, UT, 4.25% due 7/07/1995 (b) 32,833
8,900 Santa Cruz County, California, TRAN, 4.50% due 8/01/1995 (b) 8,922
5,325 Santa Rosa, California, M/F Housing Revenue Bonds (Oak Creek Apartments
Project), VRDN, AMT, Series A, 4.05% due 6/01/2018 (a) 5,325
3,675 Simi Valley, California, Community Redevelopment Agency, M/F Housing
Revenue Bonds (Ashlee Manor Project), VRDN, AMT, Series A, 4.05% due
10/01/2017 (a) 3,675
8,900 Simi Valley, California, M/F Housing Revenue Refunding Bonds (Cochran
Street Project), Issue A, VRDN, 3.95% due 11/15/2004 (a) 8,900
14,000 Tulare County, California, TRAN, 4.75% due 8/25/1995 (b) 14,027
6,650 Ventura County, California, TRAN, 4.50% due 8/01/1995 (b) 6,633
Puerto Rico--6.8% Puerto Rico Commonwealth, Government Development Bank Revenue
Bonds, CP:
8,500 3.45% due 4/03/1995 8,500
10,800 3.75% due 4/06/1995 10,800
20,000 3.60% due 4/07/1995 20,000
10,000 3.85% due 4/11/1995 10,000
20,000 3.75% due 5/01/1995 20,000
10,000 3.70% due 5/09/1995 10,000
Total Investments (Cost--$1,164,931*)-- 99.7% 1,164,931
Other Assets Less Liabilities--0.3% 3,303
----------
Net Assets--100.0% $1,168,234
==========
<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, 1995.
(b)MBIA Insured.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<S> <C> <C>
Assets:
Investments, at value (identified cost--$1,164,931,184) (Note 1a) $ 1,164,931,184
Cash 289,170
Receivables:
Interest $ 13,333,341
Beneficial interest sold 316,708 13,650,049
---------------
Prepaid registration fees and other assets (Note 1d) 210,582
---------------
Total assets 1,179,080,985
---------------
Liabilities:
Payables:
Securities purchased 9,837,365
Investment adviser (Note 2) 465,086
Distributor (Note 2) 386,769 10,689,220
---------------
Accrued expenses and other liabilities 157,346
---------------
Total liabilities 10,846,566
---------------
Net Assets $ 1,168,234,419
---------------
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 116,921,595
Paid-in capital in excess of par 1,052,294,357
Undistributed investment income--net 13,584
Accumulated realized capital losses--net (Note 4) (995,117)
---------------
Net Assets--Equivalent to $1.00 per share based on 1,169,215,952 shares of
beneficial interest outstanding $ 1,168,234,419
===============
</TABLE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 39,037,823
Expenses:
Investment advisory fees (Note 2) $ 5,371,374
Distribution fees (Note 2) 1,492,270
Transfer agent fees (Note 2) 186,485
Accounting services (Note 2) 147,332
Printing and shareholder reports 77,857
Custodian fees 75,602
Professional fees 54,972
Registration fees (Note 1d) 23,971
Trustees' fees and expenses 15,839
Pricing fees 12,877
Other 144,972
---------------
Total expenses 7,603,551
---------------
Investment income--net 31,434,272
Realized Loss on Investments--Net (Note 1c) (508,031)
---------------
Net Increase in Net Assets Resulting from Operations $ 30,926,241
===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
1995 1994
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 31,434,272 $ 20,859,333
Realized loss on investments--net (508,031) (467,649)
--------------- ---------------
Net increase in net assets resulting from operations 30,926,241 20,391,684
--------------- ---------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (31,420,688) (20,855,158)
Realized gain on investments--net -- (100,764)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (31,420,688) (20,955,922)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 4,208,416,998 3,766,542,841
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions (Note 1e) 31,421,185 20,933,840
--------------- ---------------
4,239,838,183 3,787,476,681
Cost of shares redeemed (4,296,269,504) (3,576,552,548)
--------------- ---------------
Net increase (decrease) in net assets derived from beneficial interest
transactions (56,431,321) 210,924,133
Net Assets:
Total increase (decrease) in net assets (56,925,768) 210,359,895
Beginning of year 1,225,160,187 1,014,800,292
--------------- ---------------
End of year* $ 1,168,234,419 $ 1,225,160,187
=============== ===============
<FN>
*Undistributed investment income-- net $ 13,584 --
=============== ===============
</TABLE>
<TABLE>
CMA CALIFORNIA MUNICIPAL MONEY FUND
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: 1995 1994 1993 1992 1991
<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 .03 .02 .02 .03 .05
---------- ---------- ---------- ---------- ----------
Total from investment operations .03 .02 .02 .03 .05
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.03) (.02) (.02) (.03) (.05)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 2.66% 1.93% 2.25% 3.48% 4.96%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .51% .50% .51% .51% .50%
========== ========== ========== ========== ==========
Expenses .63% .62% .63% .63% .62%
========== ========== ========== ========== ==========
Investment income--net 2.62% 1.91% 2.22% 3.42% 4.83%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $1,168,234 $1,225,160 $1,014,800 $1,033,423 $1,163,288
========== ========== ========== ========== ==========
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 management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM" or "Adviser"). The general partner of
FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the limited
partner.
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.
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 during any year which will cause such
expenses to exceed the pro rata expense limitation at the time of
such payment.
<PAGE>
CMA CALIFORNIA 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, PSI, 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, 1995, the Fund had a net capital loss carryforward of
approximately $948,000, of which $472,000 expires in 2002, and
$476,000 expires in 2003. This amount will be available to offset
like amounts 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, 1995, 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
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 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, 1995 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 Connecticut Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1995, 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 LLP
Princeton, New Jersey
April 28, 1995
<PAGE>
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 Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
UPDATES Unit Priced Demand Adjustable
Tax-Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Connecticut-- $ 2,000 Branford, Connecticut, BAN, UT, 4.50% due 8/22/1995 $ 2,004
88.8% 1,075 Bristol, Connecticut, BAN, UT, 3.72% due 5/18/1995 1,075
5,000 Cheshire, Connecticut, BAN, GO, 4.25% due 8/10/1995 5,009
4,500 Columbia, Connecticut, BAN, UT, 4.25% due 4/12/1995 4,501
12,900 Connecticut State Development Authority, Health Care Revenue Bonds
(Independent Living Project), VRDN, 4.05% due 7/01/2015 (a) 12,900
5,420 Connecticut State Development Authority, IDA, Revenue Bonds (Sealectro
Corporation Project), 4.625% due 12/01/1997 (a) 5,420
Connecticut State Development Authority, PCR, Refunding, VRDN (a):
4,100 (Connecticut Light & Power Co., Project), AMT, Series B, 4.25% due
9/01/2028 4,100
8,600 (Connecticut Light & Power Co., Project), Series A, 4.10% due 9/01/2028 8,600
7,700 (Western Massachusetts Electric Co.), Series A, 4.05% due 9/01/2028 7,700
Connecticut State Development Authority Revenue Bonds (Solid Waste Exeter
Project), VRDN, AMT (a):
3,000 Series A, 4.15% due 12/01/2019 3,000
400 Series C, 4.15% due 12/01/2019 400
24,600 Connecticut State Economic Recovery Notes, VRDN, Series B, 4.10% due
6/01/1996 (a) 24,600
700 Connecticut State GO, Series B, 5.50% due 5/15/1995 702
Connecticut State Health and Educational Facilities Authority Revenue Bonds,
VRDN (a):
1,400 (Kent School), Series A, 3.80% due 7/01/2023 1,400
3,815 (Yale-New Haven Hospital), Series E, 3.70% due 6/01/2012 3,815
5,250 Connecticut State Health and Educational Facilities Authority Revenue Bonds
(Windham Community Memorial Hospital), UPDATES, CP, 3.40% due
4/11/1995 (a) 5,250
Connecticut State Health and Educational Facilities Authority Revenue Bonds
(Yale University), CP:
5,075 Series L, 4.05% due 4/06/1995 5,075
3,050 Series L, 3.75% due 5/09/1995 3,050
4,900 Series M, 4.05% due 4/06/1995 4,900
5,800 Series N, 4.05% due 4/06/1995 5,800
200 Series O, 3.70% due 4/06/1995 200
1,450 Series O, 4.05% due 4/06/1995 1,450
5,000 Series P, 4.05% due 4/06/1995 5,000
</TABLE>
<PAGE>
<TABLE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Connecticut Connecticut State HFA (Housing Mortgage Finance Program):
(concluded) $ 9,365 CP, AMT, Series D, 4.20% due 4/06/1995 $ 9,365
1,800 CP, AMT, Series D, 4.10% due 4/11/1995 1,800
5,350 CP, AMT, Series D, 3.85% due 5/08/1995 5,350
1,975 Series A, 3.30% due 5/15/1995 1,975
4,100 Series G, Sub-Series G-1, 3.55% due 5/15/1995 4,100
2,775 Sub-Series D-2, 3.65% due 5/15/1995 2,775
13,000 Connecticut State Municipal Electric Energy Power Supply System Revenue
Bonds, CP, Series A, 3.75% due 5/05/1995 13,000
Connecticut State Special Assessment Unemployment Compensation, Advanced
Fund Revenue Bonds:
5,000 Series A, 3.60% due 5/15/1995 4,999
33,000 VRDN, Series B, 4.20% due 11/01/2001 (a) 33,000
9,800 Connecticut State Special Assessment Unemployment Compensation, Advanced
Fund Revenue Bonds (Connecticut Unemployment), Series C, 3.85% due
7/01/1995 9,800
Connecticut State Special Tax Obligation Revenue Bonds (Transportation
Infrastructure):
1,000 Series A, 4.75% due 4/01/1995 1,000
7,595 VRDN, Second Lien, Series 1, 4.35% due 12/01/2010 (a) 7,595
2,800 Groton City, Connecticut, BAN, 4.50% due 11/15/1995 2,808
1,000 Hartford, Connecticut, GO, UT, 6.50% due 6/15/1995 1,006
2,250 New Canaan, Connecticut, BAN, UT, 4.25% due 8/15/1995 2,252
1,000 Newtown, Connecticut, BAN, UT, 4.25% due 6/15/1995 1,000
4,085 Norwich, Connecticut, BAN, 4.50% due 10/05/1995 4,099
7,500 Stamford, Connecticut, Housing Authority Revenue Bonds (Morgan Street
Project), VRDN, 4.15% due 8/01/2024 (a) 7,500
1,700 Winchester, Connecticut, BAN, 4.375% due 5/10/1995 1,701
Puerto Rico-- 1,200 Puerto Rico Commonwealth Government Development Bank Revenue
14.1% Refunding Bonds, VRDN, 4.10% due 12/01/2015 (a) 1,200
5,000 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, VRDN, Series X, 3.60% due 7/01/l999 (a) 5,000
775 Puerto Rico Commonwealth, Public Improvement Bonds, 9.375% due
7/01/1995 815
10,500 Puerto Rico Housing Finance Corporation, Medical Revenue Bonds, VRDN,
3.95% due 10/01/2011(a) 10,500
Puerto Rico Industrial, Medical and Environmental Pollution Control
Facilities, Financing Authority Revenue Bonds:
6,500 (Ana G. Mendez Educational Project), CP, 3.70% due 5/09/1995 6,500
2,250 (Reynolds Metals Co. Project), 4% due 9/01/1995 2,250
Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority, Series A, CP:
6,000 3.65% due 4/06/1995 6,000
4,500 3.70% due 5/09/1995 4,500
Total Investments (Cost--$267,841*)--102.9% 267,841
Liabilities in Excess of Other Assets--(2.9%) (7,443)
--------
Net Assets--100.0% $260,398
========
<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, 1995.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<S> <C> <C>
Assets:
Investments, at value (identified cost--$267,841,159) (Note 1a) $ 267,841,159
Cash 296,575
Interest receivable 1,603,077
Deferred organization expenses (Note 1d) 8,049
Prepaid registration fees and other assets (Note 1d) 17,559
--------------
Total assets 269,766,419
--------------
Liabilities:
Payables:
Securities purchased $ 9,108,107
Investment adviser (Note 2) 115,354
Distributor (Note 2) 84,004 9,307,465
--------------
Accrued expenses and other liabilities 60,678
--------------
Total liabilities 9,368,143
--------------
Net Assets $ 260,398,276
==============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 26,053,572
Paid-in capital in excess of par 234,482,149
Undistributed investment income--net 9,081
Accumulated realized capital losses--net (Note 4) (146,526)
--------------
Net Assets--Equivalent to $1.00 per share based on 260,535,721 shares of
beneficial interest outstanding $ 260,398,276
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 8,348,335
Expenses:
Investment advisory fees (Note 2) $ 1,290,608
Distribution fees (Note 2) 320,966
Professional fees 46,726
Transfer agent fees (Note 2) 39,502
Registration fees (Note 1d) 36,737
Accounting services (Note 2) 34,816
Custodian fees 22,473
Printing and shareholder reports 15,530
Amortization of organization expenses (Note 1d) 7,475
Pricing fees 6,106
Trustees' fees and expenses 3,428
Other 6,016
--------------
Total expenses 1,830,383
--------------
Investment income--net 6,517,952
Realized Loss on Investments--Net (Note 1c) (31,149)
--------------
Net Increase in Net Assets Resulting from Operations $ 6,486,803
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C>
Operations:
Investment income--net $ 6,517,952 $ 4,135,741
Realized loss on investments--net (31,149) (18,319)
-------------- --------------
Net increase in net assets resulting from operations 6,486,803 4,117,422
-------------- --------------
Dividends to Shareholders (Note 1e):
Investment income--net (6,504,917) (4,132,578)
-------------- --------------
Net decrease in net assets resulting from dividends to shareholders (6,504,917) (4,132,578)
-------------- --------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 944,440,136 850,975,709
Net asset value of shares issued to shareholders in reinvestment of dividends
(Note 1e) 6,504,738 4,132,548
-------------- --------------
950,944,874 855,108,257
Cost of shares redeemed (940,566,013) (836,486,718)
-------------- --------------
Net increase in net assets derived from beneficial interest transactions 10,378,861 18,621,539
-------------- --------------
Net Assets:
Total increase in net assets 10,360,747 18,606,383
Beginning of year 250,037,529 231,431,146
-------------- --------------
End of year* $ 260,398,276 $ 250,037,529
============== ==============
<FN>
*Undistributed investment income--net (Note 1f) $ 9,081 $ 283
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA CONNECTICUT MUNICIPAL MONEY FUND
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: 1995 1994 1993 1992
<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 .03 .02 .02 .03
-------- -------- -------- --------
Total from investment operations .03 .02 .02 .03
-------- -------- -------- --------
Less dividends from investment income--net (.03) (.02) (.02) (.03)
-------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Investment Return 2.54% 1.77% 2.20% 3.56%*
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .58% .58% .51% .28%*
======== ======== ======== ========
Expenses, net of reimbursement .71% .70% .63% .41%*
======== ======== ======== ========
Expenses .71% .70% .73% .81%*
======== ======== ======== ========
Investment income--net 2.53% 1.76% 2.17% 3.46%*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $260,398 $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 management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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--Generally accepted accounting principles
require that certain differences between undistributed net
investment income for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net realized capital
losses. Accordingly, current year's permanent book/tax differences
of $4,237 have been reclassified from undistributed net investment
income to accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset value
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" or "Adviser"). The general partner of
FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
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
<PAGE>
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.
CMA CONNECTICUT 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 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 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 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, PSI, 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, 1995, the Fund had a net capital loss carryforward of
approximately $147,000, of which $80,000 expires in 2000, $30,000
expires in 2001, $10,000 expires in 2002 and $27,000 expires in
2003. This amount 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, 1995, 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 four-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, 1995 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 Massachusetts Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1995, 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 LLP
Princeton, New Jersey
April 28, 1995
<PAGE>
<TABLE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Massachusetts-- Boston, Massachusetts, Water and Sewer Commission Revenue Bonds, VRDN,
100.6% Series A (a):
$ 700 3.75% due 11/01/2015 $ 700
5,500 3.85% due 11/01/2024 5,500
2,450 Chicopee, Massachusetts, BAN, 4% due 8/01/1995 2,451
2,000 Clipper Tax Exempt Trust, Massachusetts, VRDN, Class A, 4.17% due
10/17/2002 (a) 2,000
4,000 Fitchburg, Massachusetts, Industrial Development Financing Authority
Revenue Bonds (Netstal Machinery Project), VRDN, AMT, 4.45% due
12/23/2007 (a) 4,000
2,000 Framingham, Massachusetts, BAN, 4.08% due 8/30/1995 2,000
5,800 Massachusetts Bay Transportation Authority Revenue Bonds (General
Transportation System), 1984 Series A, 4.40% due 9/01/1995 5,800
2,000 Massachusetts State GO, Refunding, VRDN, Series A, 4.37% due
2/01/2006 (a) 2,000
1,500 Massachusetts State GO, UT, Series A, 5% due 6/15/1995 1,502
Massachusetts State Health and Educational Facilities Authority Revenue
Bonds, CP:
7,000 (Boston University Hospital), Series H, Subseries 2, 3.90% due 4/07/1995 7,000
5,000 (Fallon Health Care System), Series 1, 4.05% due 4/10/1995 5,000
Massachusetts State Health and Educational Facilities Authority
Revenue Bonds, VRDN (a):
2,600 (Brigham and Woman's Hospital), Series A, 3.70% due 7/01/2017 2,600
700 (Capital Asset Program), Series A, 3.85% due 1/01/2001 700
1,300 (Capital Asset Program), Series B, 4.10% due 7/01/2005 1,300
3,200 (Capital Asset Program), Series C, 4.10% due 7/01/2005 3,200
2,000 (Capital Asset Program), Series E, 3.80% due 1/01/2035 2,000
1,700 (Harvard University), Series I, 3.75% due 8/01/2017 1,700
5,000 (Massachusetts Institute of Technology), Series G, 3.75% due 7/01/2021 5,000
2,300 (Newbury College), Series A, 3.90% due 11/01/2018 2,300
2,000 (Wellesley College), Series B, 3.80% due 7/01/2022 2,000
6,000 (Williams College), Series E, 4% due 8/01/2014 6,000
5,200 Massachusetts State HFA, S/F Housing Revenue Bonds, AMT, Series 34,
3.85% due 6/01/1995 5,200
2,500 Massachusetts State Industrial Finance Agency, Cultural, Health and
Educational Revenue Bonds (Berkshire Project), VRDN, 4.10% due
9/01/2020 (a) 2,500
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Portfolio Abbreviations for CMA Massachusetts Municipal Money Fund
<S> <C>
AMT Alternative Minimum Tax (subject to) RAN Revenue Anticipation Notes
BAN Bond Anticipation Notes S/F Single-Family
CP Commercial Paper UPDATES Unit Priced Demand Adjustable
GO General Obligation Bonds Tax-Exempt Securities
HFA Housing Finance Agency UT Unlimited Tax
PCR Pollution Control Revenue Bonds VRDN Variable Rate Demand Notes
</TABLE>
<PAGE>
<TABLE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Massachusetts $ 7,500 Massachusetts State Industrial Finance Agency, Health Care Facility
(concluded) Revenue Bonds (Beverly Enterprises, Inc.), VRDN, 4.20% due 4/01/2009 (a) $ 7,500
1,860 Massachusetts State Industrial Finance Agency, Industrial Revenue
Refunding Bonds (Easy Day Project), VRDN, Series A, 4.10% due 7/01/2006 (a) 1,860
4,000 Massachusetts State Industrial Finance Agency, PCR (Holyoke Water &
Power Company Project), VRDN, AMT, 4.25% due 12/01/2020 (a) 4,000
Massachusetts State Industrial Finance Agency, PCR, Refunding
(New England Power Company Project), CP:
4,300 4.15% due 4/07/1995 4,300
3,000 4.25% due 5/12/1995 3,000
6,700 Massachusetts State Industrial Finance Agency, Resource Recovery Revenue
Bonds (Ogden Haverhill), VRDN, AMT, Series B, 3.90% due 12/01/2011 (a) 6,700
Massachusetts State Industrial Finance Agency Revenue Bonds, VRDN (a):
800 (Hockomock YMCA), Series A, 3.95% due 6/01/2011 800
2,000 (New England Deaconess Project), Series B, 3.90% due 4/01/2023 2,000
4,500 (Williston-Northampton School Project), Series B, 4.15% due 4/01/2024 4,500
17,000 Massachusetts State Municipal Wholesale Electric Company, Power
Supply System, Revenue Bonds, VRDN, Series C, 4% due 7/01/2019 (a) 17,000
Massachusetts State, UPDATES, VRDN (a):
5,600 Series B, 4.35% due 12/01/1997 5,600
2,200 Series D, 4.35% due 6/01/1995 2,200
3,000 Series E, 4.35% due 12/01/1997 3,000
1,500 Montachusett, Massachusetts, Regional Transit Authority, RAN, 4.25% due
6/30/1995 1,502
2,440 Natick, Massachusetts, BAN, UT, 4.50% due 9/01/1995 2,445
New Bedford, Massachusetts:
2,600 BAN, UT, 4.75% due 8/11/1995 2,605
1,400 RAN, GO, 4.90% due 6/30/1995 1,403
1,000 North Adams, Massachusetts, BAN, UT, 4.25% due 6/30/1995 1,001
2,000 Peabody, Massachusetts, BAN, GO, 4.50% due 7/28/1995 2,003
4,500 Pioneer Valley Transit Authority, Massachusetts, RAN, 4.25% due
8/11/1995 4,506
1,500 Reading, Massachusetts, BAN, GO, 4.25% due 7/14/1995 1,501
3,500 Springfield, Massachusetts, RAN, GO, 5.10% due 6/30/1995 3,506
Worcester, Massachusetts, Regional Transit Authority, RAN:
4,000 4% due 6/23/1995 4,001
2,575 4.10% due 6/23/1995 2,577
Total Investments (Cost--$161,963*)--100.6% 161,963
Liabilities in Excess of Other Assets--(0.6%) (887)
-----------
Net Assets--100.0% $ 161,076
===========
<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, 1995.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
STATEMENTS OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$161,963,008) (Note 1a) $ 161,963,008
Cash 170,688
Interest receivable 1,109,087
Deferred organization expenses (Note 1d) 3,282
Prepaid registration fees and other assets (Note 1d) 2,920
--------------
Total assets 163,248,985
--------------
Liabilities:
Payables:
Securities purchased $ 2,001,753
Investment adviser (Note 2) 67,725
Distributor (Note 2) 49,326 2,118,804
--------------
Accrued expenses and other liabilities 54,339
--------------
Total liabilities 2,173,143
--------------
Net Assets $ 161,075,842
==============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 16,108,754
Paid-in capital in excess of par 144,978,788
Accumulated realized capital losses--net (Note 4) (11,700)
--------------
Net Assets--Equivalent to $1.00 per share based on 161,087,542 shares of
beneficial interest outstanding $ 161,075,842
==============
</TABLE>
<TABLE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 4,833,524
Expenses:
Investment advisory fees (Note 2) $ 756,123
Distribution fees (Note 2) 187,724
Professional fees 51,526
Transfer agent fees (Note 2) 44,690
Registration fees (Note 1d) 29,405
Accounting services (Note 2) 23,525
Printing and shareholder reports 21,681
Custodian fees 15,762
Amortization of organization expenses (Note 1d) 9,982
Pricing fees 6,325
Trustees' fees and expenses 2,004
Other 3,920
--------------
Total expenses 1,152,667
--------------
Investment income--net 3,680,857
Realized Loss on Investments--Net (Note 1c) (622)
--------------
Net Increase in Net Assets Resulting from Operations $ 3,680,235
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C>
Operations:
Investment income--net $ 3,680,857 $ 2,487,097
Realized loss on investments--net (622) (7,077)
-------------- --------------
Net increase in net assets resulting from operations 3,680,235 2,480,020
-------------- --------------
Dividends to Shareholders (Note 1e):
Investment income-- net (3,680,587) (2,487,097)
-------------- --------------
Net decrease in net assets resulting from dividends to shareholders (3,680,587) (2,487,097)
-------------- --------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 566,759,318 770,729,466
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1e) 3,680,721 2,487,010
-------------- --------------
570,440,039 773,216,476
Cost of shares redeemed (560,168,139) (754,707,003)
-------------- --------------
Net increase in net assets derived from beneficial interest
transactions 10,271,900 18,509,473
-------------- --------------
Net Assets:
Total increase in net assets 10,271,548 18,502,396
Beginning of year 150,804,294 132,301,898
-------------- --------------
End of year* $ 161,075,842 $ 150,804,294
============== ==============
<FN>
*Undistributed investment income--net (Note 1f) $ -- $ 7,020
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA MASSACHUSETTS MUNICIPAL MONEY FUND
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. July 30, 1990++
For the Year Ended March 31, to March 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Investment income--net .02 .02 .02 .04 .03
--------- --------- --------- --------- ---------
Total from investment operations .02 .02 .02 .04 .03
--------- --------- --------- --------- ---------
Less dividends from investment income--net (.02) (.02) (.02) (.04) (.03)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Investment Return 2.46% 1.74% 2.20% 3.66% 5.04%*
========= ========= ========= ========= =========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .64% .66% .66% .73% .60%*
========= ========= ========= ========= =========
Expenses, net of reimbursement .76% .78% .78% .85% .72%*
========= ========= ========= ========= =========
Expenses .76% .78% .78% .87% .97%*
========= ========= ========= ========= =========
Investment income--net 2.43% 1.72% 2.15% 3.56% 4.92%*
========= ========= ========= ========= =========
Supplemental Data:
Net assets, end of period (in thousands) $ 161,076 $ 150,804 $ 132,302 $ 116,340 $ 84,613
========= ========= ========= ========= =========
<FN>
*Annualized.
++Commencement of Operations.
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 management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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--Generally accepted accounting principles
require that certain differences between undistributed net
investment income for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net realized capital
losses. Accordingly, current year's permanent book/tax differences
of $7,290 have been reclassified from undistributed net investment
income to accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset value
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" or "Adviser"). The general partner
of FAM is Princeton Services, Inc. ("PSI"), an indirect
<PAGE>
wholly-owned subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the
limited partner.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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.
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 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 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, PSI, 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, 1995, the Fund had a net capital loss carryforward of
approximately $12,000, of which $4,000 expires in 2001, and $8,000
expires in 2002. This amount will be available to offset like
amounts of any future taxable gains.
<PAGE>
CMA MICHIGAN 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, 1995, 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
three-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 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, 1995 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, 1995, 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 LLP
Princeton, New Jersey
April 28, 1995
<PAGE>
Portfolio Abbreviations for CMA Michigan Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
CP Commercial Paper
GO General Obligation Bonds
IDR Industrial Development Revenue Bonds
M/F Multi-Family
RAN Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
CMA MICHIGAN MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Michigan-- $ 1,100 Bedford Township, Michigan, Economic Development Corp. Revenue
96.8% Bonds (Tech Steel Inc., Project), VRDN, 4.45% due 3/01/2010 (a) $ 1,100
6,600 Bruce Township, Michigan, Hospital Finance Authority, Health Care
System Revenue Bonds (Sisters Charity-Saint Joseph's), VRDN, Series A,
4% due 5/01/2018 (a) 6,600
1,000 Clinton Township, Michigan, Economic Development Corporation, Health
Care System Revenue Bonds (Sisters Charity-Saint Joseph's), VRDN, 4%
due 5/01/2013 (a) 1,000
Cornell Township, Michigan, Economic Development Corp., IDR, CP,
Refunding (Mead-Escambia Paper Co.):
2,100 4.10% due 4/04/1995 2,100
1,140 4.20% due 4/24/1995 1,140
1,000 4.10% due 5/10/1995 1,000
1,300 4.05% due 5/15/1995 1,300
5,060 Delta County, Michigan, Economic Development Corporation, Environmental
Improvement Revenue Bonds (Mead-Escambia Paper Co.), CP, Series B,
4.05% due 4/03/1995 5,060
1,700 Detroit, Michigan, Downtown Development Authority, Revenue Refunding
Bonds (Millender Center Project), VRDN, 4.25% due 12/01/2010 (a) 1,700
2,300 Detroit, Michigan, Tax Increment Finance Authority, Democratic Tax
Increment Revenue Bonds (Central Industrial Park Project), VRDN, 4.05%
due 10/01/2010 (a) 2,300
500 Detroit, Michigan, Tax Increment Finance Authority, Increment Reserve
Fund Revenue Bonds (Central Industrial Park Project), VRDN, 4.05% due
10/01/2010 (a) 500
4,000 Detroit, Michigan, Water Supply System Revenue Bonds, VRDN, 4.25% due
7/01/2013 (a) 4,000
3,600 East Detroit, Michigan, School District State Aid, 3.50% due 4/04/1995 3,600
3,300 Georgetown Charter Township, Michigan, IDR, Limited Obligation (J & F
Steel Corp.), VRDN, AMT, 4.30% due 2/01/2009 (a) 3,300
1,200 Grand Rapids, Michigan, Economic Development Corp., Economic Development
Revenue Refunding Bonds (Amway Hotel Corp. Project), VRDN, Series B,
4.20% due 8/01/2017 (a) 1,200
2,000 Grand Rapids, Michigan, IDR, Refunding (Etheridge Company Project),
VRDN, AMT, 4.30% due 7/01/2009 (a) 2,000
6,700 Grand Rapids, Michigan, Water Supply System Revenue Refunding Bonds,
VRDN, 4.30% due 1/01/2020 (a) 6,700
1,750 Melvindale, Michigan, Economic Development Corporation, Limited
Obligation Revenue Refunding Bonds (North American Steel Project),
VRDN, 4.20% due 6/01/1998 (a) 1,750
Michigan Higher Education Student Loan Authority Revenue Bonds, VRDN,
AMT (a):
1,000 Refunding, Series XII-B, 4.25% due 10/01/2013 1,000
500 Series XII-D, 4.25% due 10/01/2015 500
2,000 Series XII-F, 4.25% due 10/01/2020 2,000
20,250 Michigan Municipal Bond Authority, RAN, Series B, 4.75% due 7/20/1995 20,294
7,500 Michigan State Building Authority Revenue Bonds, CP, Series 1, 4.10%
due 4/27/1995 7,500
</TABLE>
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(CONCLUDED) (IN THOUSANDS)
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Michigan $22,500 Michigan State GO Notes, 5% due 9/29/1995 $ 22,604
(concluded) 9,100 Michigan State Hospital Finance Authority Revenue Bonds (Providence
Hospital), VRDN, 4.25% due 11/01/2014 (a) 9,100
Michigan State Housing Development Authority, Limited Obligation
Revenue Bonds:
4,000 (Bloomfield), CP, Series 1, 4.25% due 5/19/1995 4,000
3,500 (Laurel Valley), VRDN, 4.10% due 12/01/2007 (a) 3,500
3,400 (Pine Ridge), VRDN, 4.10% due 10/01/2007 (a) 3,400
4,800 (Shoal Creek), VRDN, 4.10% due 10/01/2007 (a) 4,800
Michigan State Housing Development Authority, M/F Housing Revenue
Bonds, CP, AMT, Series A:
9,595 4.20% due 4/04/1995 9,595
1,000 4.15% due 4/11/1995 1,000
10,595 4.20% due 4/24/1995 10,595
1,700 4.20% due 4/25/1995 1,700
5,225 4.25% due 5/10/1995 5,225
4,500 Michigan State School Loan Notes, GO, Series B, 4.25% due 4/11/1995 4,500
2,000 Michigan State Strategic Fund, IDR (Norcer Manufacturing Project),
VRDN, 4% due 12/01/2000 (a) 2,000
3,200 Michigan State Strategic Fund, Limited Obligation, IDR (Baron Drawn
Steel), VRDN, AMT, 4.50% due 12/01/2006 (a) 3,200
10,000 Michigan State Strategic Fund, Limited Obligation Revenue Bonds,
CP (Dow Chemical Co. Project), AMT, 4.20% due 4/03/1995 10,000
Michigan State Strategic Fund, Limited Obligation Revenue Bonds,
VRDN (a):
3,000 (Midbrook Products Inc. Project), AMT, 4.30% due 10/01/2014 3,000
2,000 (Miller Inc. Project), AMT, 4.25% due 12/01/2009 2,000
8,800 Refunding (Consumers Power Company Project), Series A, 4.25% due
6/15/2010 8,800
4,850 Refunding (Lake Shore Inc.), AMT, 4.45% due 11/01/2019 4,850
640 Refunding (Park Village Pines Project), 4.20% due 5/01/2006 640
10,000 Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds
(Grayling Generating Project), VRDN, AMT, 4.25% due 1/01/2014 (a) 10,000
Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds
(S. D. Warren Company), CP:
1,000 Series A, 3.85% due 5/09/1995 1,000
1,000 Series B, 3.75% due 4/03/1995 1,000
1,000 Series C, 3.75% due 4/03/1995 1,000
7,100 Monroe County, Michigan, Economic Development Corporation, Limited
Obligation Revenue Refunding Bonds (Detroit Edison), VRDN, Series CC,
4.25% due 10/01/2024 (a) 7,100
800 University of Michigan, University Hospital Revenue Refunding Bonds,
VRDN, Series A, 4.20% due 12/01/2019 (a) 800
Puerto Rico-- Puerto Rico Commonwealth Government Development Bank Revenue Bonds:
2.5% 5,000 CP, 3.75% due 5/01/1995 5,000
600 Refunding, VRDN, 4.10% due 12/01/2015 (a) 600
Total Investments (Cost--$218,653*)-- 99.3% 218,653
Other Assets Less Liabilities--0.7% 1,518
--------
Net Assets--100.0% $220,171
========
<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, 1995.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$218,653,090) (Note 1a) $ 218,653,090
Cash 149,574
Interest receivable 1,577,163
Deferred organization expenses (Note 1d) 7,670
Prepaid registration fees and other assets (Note 1d) 2,685
-------------
Total assets 220,390,182
-------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 96,303
Distributor (Note 2) 72,652 168,955
-------------
Accrued expenses and other liabilities 50,557
-------------
Total liabilities 219,512
-------------
Net Assets $ 220,170,670
=============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 22,028,873
Paid-in capital in excess of par 198,259,857
Accumulated realized capital losses--net (Note 4) (118,060)
-------------
Net Assets--Equivalent to $1.00 per share based on 220,288,731 shares of
beneficial interest outstanding $ 220,170,670
=============
</TABLE>
See Notes to Financial Statements.
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 7,308,100
Expenses:
Investment advisory fees (Note 2) $ 1,117,988
Distribution fees (Note 2) 277,622
Transfer agent fees (Note 2) 52,817
Professional fees 47,923
Registration fees (Note 1d) 34,798
Accounting services (Note 2) 33,121
Printing and shareholder reports 21,503
Custodian fees 20,941
Pricing fees 7,296
Amortization of organization expenses (Note 1d) 7,124
Trustees' fees and expenses 3,082
Other 5,598
-------------
Total expenses 1,629,813
-------------
Investment income--net 5,678,287
Realized Loss on Investments--Net (Note 1c) (50,049)
-------------
Net Increase in Net Assets Resulting from Operations $ 5,628,238
=============
</TABLE>
See Notes to Financial Statements.
<PAGE>
CAM MICIGAN MUNICIPAL MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C>
Operations:
Investment income--net $ 5,678,287 $ 3,826,822
Realized loss on investments--net (50,049) (7,009)
------------- -------------
Net increase in net assets resulting from operations 5,628,238 3,819,813
------------- -------------
Dividends to Shareholders (Note 1e):
Investment income--net (5,678,287) (3,824,891)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (5,678,287) (3,824,891)
------------- -------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 929,669,029 959,801,295
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1e) 5,678,120 3,824,978
------------- -------------
935,347,149 963,626,273
Cost of shares redeemed (951,561,384) (927,386,005)
------------- -------------
Net increase (decrease) in net assets derived from beneficial interest
transactions (16,214,235) 36,240,268
------------- -------------
Net Assets:
Total increase (decrease) in net assets (16,264,284) 36,235,190
Beginning of year 236,434,954 200,199,764
------------- -------------
End of year $ 220,170,670 $ 236,434,954
============= =============
</TABLE>
See Notes to Financial Statements.
<PAGE>
CMA MICHIGAN MUNICIPAL MONEY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<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: 1995 1994 1993 1992
<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 .03 .02 .02 .03
Total from investment operations .03 .02 .02 .03
-------- -------- -------- --------
Less dividends from investment income--net (.03) (.02) (.02) (.03)
-------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Investment Return 2.57% 1.81% 2.24% 3.62%*
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .60% .60% .53% .42%*
======== ======== ======== ========
Expenses, net of reimbursement .73% .72% .65% .54%*
======== ======== ======== ========
Expenses .73% .72% .74% .80%*
======== ======== ======== ========
Investment income--net 2.54% 1.79% 2.22% 3.53%*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $220,171 $236,435 $200,200 $194,433
======== ======== ======== ========
<FN>
*Annualized.
++Commencement of Operations.
</TABLE>
See Notes to Financial Statements.
<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 management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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" or "Adviser"). The general partner of
FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the limited
partner.
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.
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
<PAGE>
$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 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, PSI, 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, 1995, the Fund had a net capital loss carryforward of
approximately $118,000, of which $64,000 expires in 2001, $4,000
expires in 2002 and $50,000 expires in 2003. This amount will be
available to offset like amounts of any future taxable gains.
<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
liabilities, including the schedule of investments, of CMA New
Jersey Municipal Money Fund of CMA Multi-State Municipal Series
Trust as of March 31, 1995, 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 four-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, 1995 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, 1995, 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 LLP
Princeton, New Jersey
May 1, 1995
<PAGE>
Portfolio Abbreviations for CMA New Jersey Municipal Money Fund
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
CP Commercial Paper
EDA Economic Development Authority
GO General Obligation Bonds
PCR Pollution Control Revenue Bonds
TAN Tax Anticipation Notes
TRAN Tax Revenue Anticipation Notes
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New Jersey-- $ 3,800 Atlantic County, New Jersey, Improvement Authority Revenue Bonds (Pooled
93.3% Government Loan Program), ACES, 4.15% due 7/01/2026 (a) $ 3,800
1,400 Burlington Township, New Jersey, BAN, 4.25% due 6/30/1995 1,402
6,365 Camden County, New Jersey, BAN, Series A, 5.25% due 2/14/1996 6,389
17,500 Eagle Tax Exempt Trust, VRDN, Series 94C 3001, 4.25% due 10/01/2015 (a) 17,500
5,200 Elizabeth, New Jersey, BAN, 4.54% due 7/18/1995 5,202
Essex County, New Jersey, Improvement Authority Revenue Bonds (Pooled
Government Loan Program), ACES (a):
8,000 4.15% due 12/01/1998 8,000
14,650 4.15% due 7/01/2026 14,650
13,260 Floating Rate Trust Certificates, VRDN, Series 1994 D, 4.25% due
7/02/1999 (a) 13,260
9,000 Galloway Township, New Jersey, BAN, 4.25% due 7/12/1995 9,008
9,410 Hudson County, New Jersey, Improvement Authority Revenue Bonds (Pooled
Government Loan Program), VRDN, 4.35% due 7/15/2026 (a) 9,410
8,500 Jersey City, New Jersey, BAN, UT, 5% due 9/29/1995 8,524
5,700 Mercer County, New Jersey, Improvement Authority Revenue Bonds, VRDN,
4.15% due 11/01/1998 (a) 5,700
20,000 Mercer County, New Jersey, TAN, 4.375% due 4/12/1995 20,006
25,600 Monmouth County, New Jersey, Improvement Authority Revenue Bonds
(Pooled Government Loan Program), ACES, 4.15% due 8/01/2016 (a) 25,600
4,300 Morristown, New Jersey, BAN, UT, 4.50% due 5/25/1995 4,305
New Jersey EDA, Dock Facility Revenue Refunding Bonds (Bayonne IMTT
Project), Series A, VRDN (a):
9,100 4.20% due 12/01/2027 9,100
7,000 4.25% due 12/01/2027 7,000
New Jersey EDA, Economic Development Revenue Bonds, VRDN (a):
2,300 (400 International Drive Partners), 4.20% due 9/01/2005 2,300
9,625 (Benedictine Abbey of Newark), 4.10% due 12/01/2019 9,625
1,800 (Branch/Jersey Avenue Project), 4.05% due 5/01/2011 1,800
7,600 (Center for Aging, Applewood Estates Project), 4% due 12/01/2019 7,600
5,000 (Epitaxx, Inc. Project), AMT, 4.375% due 8/01/2016 5,000
1,850 (Office Courthouse Association Project), AMT, 4.20% due 4/01/2011 1,850
1,500 Refunding (Church & Dwight), 3.90% due 12/01/2008 1,500
2,500 Refunding (RJB Association Project), 4.15% due 8/01/2008 2,500
1,375 (Saint Peter's Preparatory School), 4.10% due 1/01/2010 1,375
</TABLE>
<PAGE>
<TABLE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(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
(continued) Bonds, VRDN (a):
$ 2,675 (East Meadow Corp.), Series A, 4.30% due 12/01/2006 $ 2,675
4,770 (East Meadow Corp.), Series B, 4.30% due 12/01/2006 4,770
1,200 (Elizabeth Realty Urban Renewal Associations-1986 Project),
AMT, 5% due 6/01/2000 1,200
3,200 (Marriott Corp. Project), 4% due 10/01/2014 3,200
4,100 (Seton Company Project), 3.95% due 9/01/2005 4,100
5,200 (Toys 'R' Us, Inc. Project), 3.70% due 4/01/2019 5,200
7,450 New Jersey EDA, PCR (Merck & Co.), VRDN, Series A, 4.375% due
10/01/2004 (a) 7,450
1,900 New Jersey EDA, Port Facility Revenue Bonds (Trailer Marine Crowle),
VRDN, 3.85% due 2/01/2002 (a) 1,900
New Jersey EDA Revenue Bonds:
1,625 (Akma, Inc.), VRDN, AMT, Series I, 4% due 8/01/2014 (a) 1,625
2,150 (Andy Boy), VRDN, AMT, Series H, 4% due 8/01/2004 (a) 2,150
9,000 (Chambers Cogeneration Project), CP, AMT, 4.05% due 4/12/1995 9,000
4,500 (Chambers Cogeneration Project), CP, AMT, 3.75% due 5/11/1995 4,500
1,305 (E.P. Henry Corp. Project), VRDN, 4.20% due 3/01/2005 (a) 1,305
10,900 (Hoffman-La Roche Inc. Project), VRDN, AMT, 4.10% due
11/01/2011 (a) 10,900
1,000 (Keystone Project), CP, 4.05% due 4/07/1995 1,000
2,000 (Peddie School Project), VRDN, Series B, 4.15% due 2/01/2019 (a) 2,000
38,100 New Jersey Sports and Exposition Authority State Contract Revenue
Bonds, VRDN, Series C, 4% due 9/01/2024 (a) 38,100
New Jersey State, GO:
2,500 7% due 4/01/1995 (b) 2,500
3,000 CP, 3.80% due 4/03/1995 3,000
20,000 CP, 3.55% due 4/12/1995 20,000
5,000 CP, 3.60% due 4/12/1995 5,000
17,000 TRAN, Series A, 5% due 6/15/1995 17,031
8,950 New Jersey State Turnpike Authority, Turnpike Revenue Refunding
Bonds, VRDN, Series D, 3.85% due 1/01/2018 (a) 8,950
1,500 North Brunswick Township, New Jersey, BAN, 5.04% due 7/26/1995 1,504
4,405 Paramus, New Jersey, BAN, 3.82% due 7/05/1995 4,405
6,000 Passaic County, New Jersey, BAN, UT, 4.50% due 7/06/1995 6,011
Port Authority of New York and New Jersey, CP, AMT:
405 3.80% due 5/05/1995 405
6,320 4% due 5/05/1995 6,320
3,540 3.75% due 5/10/1995 3,540
Port Authority of New York and New Jersey, Special Obligation
Revenue Bonds (Versatile Structure Obligation), VRDN (a):
52,000 Series 1, 4.40% due 8/01/2028 52,000
5,700 Series 2, 4.10% due 5/01/2019 5,700
3,000 Princeton Township, New Jersey, BAN, 4.50% due 8/31/1995 3,002
</TABLE>
<PAGE>
<TABLE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New Jersey Rutgers State University of New Jersey, Revenue Bonds:
(concluded) $ 1,000 Series 1, 7.625% due 5/01/1995 (c) $ 1,023
1,355 Series A, 6.60% due 5/01/1995 (b) 1,359
Salem County, New Jersey, Industrial Pollution Control Financing
Authority Revenue Bonds:
7,300 (du Pont (E.I.) de Nemours), VRDN, Series A, 4% due 3/01/2012 (a) 7,300
3,200 (Philadelphia Electric), CP, Series A, 3.70% due 4/06/1995 3,200
1,760 Somerset County, New Jersey, GO, UT, 5.875% due 12/01/1995 1,773
5,000 South Brunswick Township, New Jersey, Board of Education Temporary
Notes, 4.625% due 4/28/1995 5,002
Union County, New Jersey, Industrial Pollution Control Financing
Authority, PCR, Refunding:
2,200 (Allied Signal Project), VRDN, 4.30% due 12/01/2020 (a) 2,200
6,000 (Exxon Project), CP, AMT, 3.95% due 5/10/1995 6,000
19,700 (Exxon Project), VRDN, 4.20% due 7/01/2033 (a) 19,700
Puerto Rico-- Puerto Rico Commonwealth, Government Development Bank Revenue
6.0% Bonds, CP:
12,500 3.70% due 5/09/1995 12,500
5,000 3.75% due 5/10/1995 5,000
3,400 Puerto Rico Commonwealth, Government Development Bank, Revenue
Refunding Bonds, VRDN, 4.10% due 12/01/2015 (a) 3,400
Puerto Rico Industrial, Medical and Environmental Pollution Control
Facilities, Financing Authority Revenue Bonds:
3,300 (Ana G. Mendez Educational Project), 3.65% due 4/06/1995 3,300
2,800 (Reynolds Metal Co. Project), VRDN, 4% due 9/01/1995 (a) 2,800
4,600 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority, CP, Series A, 3.65% due
4/06/1995 4,600
Total Investments (Cost--$522,006*)--99.3% 522,006
Other Assets Less Liabilities--0.7% 3,741
----------
Net Assets--100.0% $ 525,747
==========
<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, 1995.
(b)Escrowed to maturity.
(c)Prerefunded.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<S> <C> <C>
Assets:
Investments, at value (identified cost--$522,005,944) (Note 1a) $ 522,005,944
Cash 254,444
Interest receivable 3,959,069
Deferred organization expenses (Note 1d) 2,912
Prepaid registration fees and other assets (Note 1d) 13,805
---------------
Total assets 526,236,174
---------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 221,584
Distributor (Note 2) 155,108 376,692
---------------
Accrued expenses and other liabilities 112,276
---------------
Total liabilities 488,968
---------------
Net Assets $ 525,747,206
===============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 52,581,909
Paid-in capital in excess of par 473,237,178
Accumulated realized capital losses--net (Note 4) (71,881)
---------------
Net Assets--Equivalent to $1.00 per share based on 525,819,087 shares of
beneficial interest outstanding $ 525,747,206
===============
</TABLE>
<TABLE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 14,846,642
Expenses:
Investment advisory fees (Note 2) $ 2,299,467
Distribution fees (Note 2) 573,696
Transfer agent fees (Note 2) 99,854
Accounting services (Note 2) 86,286
Registration fees (Note 1d) 60,722
Professional fees 57,569
Printing and shareholder reports 46,936
Custodian fees 33,868
Amortization of organization expenses (Note 1d) 8,858
Pricing fees 8,204
Trustees' fees and expenses 5,882
Other 7,776
---------------
Total expenses 3,289,118
---------------
Investment income--net 11,557,524
Realized Loss on Investments--Net (Note 1c) (30,343)
---------------
Net Increase in Net Assets Resulting from Operations $ 11,527,181
===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C>
Operations:
Investment income--net $ 11,557,524 $ 7,209,946
Realized loss on investments--net (30,343) (33,363)
--------------- ---------------
Net increase in net assets resulting from operations 11,527,181 7,176,583
--------------- ---------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (11,550,666) (7,205,111)
Realized gain on investments--net -- (42,440)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (11,550,666) (7,247,551)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 1,629,827,901 1,451,838,155
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions (Note 1e) 11,550,723 7,227,727
--------------- ---------------
1,641,378,624 1,459,065,882
Cost of shares redeemed (1,557,454,149) (1,406,051,737)
--------------- ---------------
Net increase in net assets derived from beneficial interest transactions 83,924,475 53,014,145
--------------- ---------------
Net Assets:
Total increase in net assets 83,900,990 52,943,177
Beginning of year 441,846,216 388,903,039
--------------- ---------------
End of year* $ 525,747,206 $ 441,846,216
=============== ===============
<FN>
*Undistributed investment income--net (Note 1f) $ -- $ 657
=============== ===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA NEW JERSEY MUNICIPAL MONEY FUND
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: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Investment income--net .02 .02 .02 .03 .03
--------- --------- --------- --------- ---------
Total from investment operations .02 .02 .02 .03 .03
--------- --------- --------- --------- ---------
Less dividends from investment income--net (.02) (.02) (.02) (.03) (.03)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Investment Return 2.52% 1.82% 2.21% 3.49% 4.95%*
========= ========= ========= ========= =========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .59% .58% .58% .62% .52%*
========= ========= ========= ========= =========
Expenses, net of reimbursement .71% .70% .70% .74% .64%*
========= ========= ========= ========= =========
Expenses .71% .70% .70% .74% .76%*
========= ========= ========= ========= =========
Investment income--net 2.51% 1.80% 2.16% 3.42% 4.74%*
========= ========= ========= ========= =========
Supplemental Data:
Net assets, end of period (in thousands) $ 525,747 $ 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 management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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--Generally accepted accounting principles
require that certain differences between undistributed net
investment income for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net realized capital
losses. Accordingly, current year's permanent book/tax differences
of $7,515 have been reclassified from undistributed net investment
income to accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset value
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"or "Adviser"). The general partner of
FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the limited
partner.
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.
<PAGE>
CMA NEW JERSEY 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 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 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 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 pro-cessing 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, PSI, 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, 1995, the Fund had a net capital loss carryforward of
approximately $72,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
<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, 1995, 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, 1995 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 York Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1995, 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 LLP
Princeton, New Jersey
May 2, 1995
<PAGE>
Portfolio Abbreviations for CMA New York Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
CP Commercial Paper
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
TAN Tax Anticipation Notes
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
CMA NEW YORK MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New York-- $22,250 Brentwood, New York, United Free School District, TAN, UT, 4.25% due
94.7% 6/30/1995 $ 22,271
3,000 Broome County, New York, BAN, UT, 3.75% due 4/20/1995 3,001
8,000 Buffalo, New York, RAN, Series A, 5% due 7/12/1995 8,018
7,500 Chautauqua County, New York, TAN, UT, 5.50% due 12/21/1995 7,534
Eagle Tax Exempt Trust, VRDN (a):
27,000 Series 1994-3201, 4.30% due 4/01/2034 27,000
7,200 Series 1994-C4, 4.30% due 8/01/2003 7,200
20,000 Series 1995-3201, 4.30% due 8/15/2024 20,000
3,500 Great Neck, North New York, Water Authority System, Revenue Refunding
Bonds, VRDN, Series A, 4% due 1/01/2020 (a) 3,500
34,900 Metropolitan Transit Authority, New York, Commuter Facilities Revenue
Bonds, VRDN, 3.90% due 7/01/2021 (a) 34,900
200 Monroe County, New York, GO, AMT, UT, Series B, 6.90% due 6/01/1995 201
2,425 Municipal Assistance Corporation, City of New York, New York, Series 54,
9% due 7/01/1995 (b) 2,503
16,600 Nassau County, New York, GO, RAN, 4% due 4/14/1995 16,602
New York City, New York, CP:
20,000 4.15% due 5/24/1995 20,000
24,400 4.40% due 8/22/1995 24,400
New York City, New York, CP, RAN, UT:
5,000 Series A, 4.50% due 4/12/1995 5,001
4,100 Series B, 4.75% due 6/30/1995 4,103
68,000 New York City, New York, Floating Notes, UT, 4.063% due 6/30/1995 (a) 68,000
New York City, New York, GO, VRDN, UT, Sub-series A-4 (a):
300 4.15% due 8/01/2021 300
1,400 4.15% due 8/01/2022 1,400
5,300 4.15% due 8/01/2023 5,300
5,600 New York City, New York, Housing Development Corporation, M/F Mortgage
Revenue Bonds (Tribecca Towers), VRDN, AMT, Series A, 4% due
12/15/2024 (a) 5,600
14,000 New York City, New York, Housing Development Corporation, Special
Obligation Revenue Bonds (East 96th Street Project), VRDN, Series A,
3.95% due 8/01/2015 (a) 14,000
</TABLE>
<PAGE>
<TABLE>
CMA NEW YORK MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New York New York City, New York, IDA, Civic Facilities Revenue Bonds, VRDN (a):
(continued) $ 3,550 (Children's Oncology Society/Ronald McDonald House), 3.90%
due 5/01/2021 $ 3,550
3,200 (Columbia Grammar School Project), 3.90% due 6/30/2014 3,200
New York City, New York, IDA, IDR, VRDN, AMT (a):
1,350 Composite XXV, Series E, 4.10% due 11/01/2010 1,350
1,850 Series K, 4.10% due 11/01/2010 1,850
New York City, New York, Municipal Water Finance Authority Revenue
Bonds, CP:
3,500 4.10% due 4/06/1995 3,500
15,000 4% due 4/07/1995 15,000
6,000 4% due 4/11/1995 6,000
21,000 3.90% due 5/09/1995 21,000
15,000 4.05% due 5/24/1995 15,000
New York City, New York, Trust Cultural Resource Revenue Bonds, VRDN (a):
2,600 (Museum of Broadcasting), 4.10% due 5/01/2014 2,600
9,000 Refunding (American Natural Museum), Series A, 3.90% due 4/01/2021 9,000
New York State Dormitory Authority Revenue Bonds (Memorial Sloan
Kettering), CP:
14,900 Series A, 4.15% due 4/21/1995 14,900
5,400 Series B, 4.15% due 4/21/1995 5,400
18,410 Series B, 4.15% due 4/28/1995 18,410
11,740 Series C, 4.05% due 4/12/1995 11,740
6,200 Series D, 4.05% due 4/12/1995 6,200
13,200 Series D, 4.15% due 4/21/1995 13,200
New York State Dormitory Authority Revenue Bonds, VRDN (a):
7,900 (Metropolitan Museum of Art), Series A, 3.85% due 7/01/2015 7,900
400 (Saint Francis Center at The Knolls), 4.15% due 7/01/2023 400
New York State Dormitory Authority, Special Obligation Revenue Bonds
(State University Educational Facilities):
1,000 Series A, 6.55% due 5/01/1995 1,003
200 Series B, 6.30% due 5/01/1995 200
15,700 New York State Energy Research and Development Authority, Electric
Facilities Revenue Bonds (Long Island Lighting Co.), VRDN, Series B,
3.85% due 11/01/2023 (a) 15,700
New York State Energy Research and Development Authority, PCR
(Central Hudson Gas & Electric Company Project), VRDN, Series A (a):
7,000 AMT, 3.70% due 6/01/2027 7,000
5,650 3.80% due 11/01/2020 5,650
New York State Energy Research and Development Authority, PCR:
13,325 (Long Island Lighting Co. Project), Series A, 4.70% due 3/01/1996 13,325
16,700 (Niagara Power Corporation Project), VRDN, AMT, Series B,
4.40% due 7/01/2027 (a) 16,700
7,900 Refunding (Central Hudson Gas & Electric Company Project), VRDN,
Series B, 3.55% due 6/01/2027 (a) 7,900
13,800 Refunding (Orange & Rockland Project), VRDN, Series A, 3.90% due
10/01/2014 (a) 13,800
</TABLE>
<PAGE>
<TABLE>
CMA NEW YORK MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New York New York State Energy Research and Development Authority, PCR
(continued) (New York State Electric & Gas Corporation Project), CP:
$16,800 3.85% due 4/17/1995 $ 16,800
5,000 Series D, 4% due 4/10/1995 5,000
9,000 Series D, 3.60% due 4/12/1995 9,000
New York State Environmental Facilities Corp., Solid Waste Disposal
Revenue Bonds (General Electric Company Project), CP, Series A:
3,300 3.95% due 4/07/1995 3,300
5,600 3.95% due 4/12/1995 5,600
2,500 Refunding, 4.10% due 5/23/1995 2,500
12,000 New York State Floating Rate Trust Certificates, VRDN, Series A, 4.25%
due 3/02/2003 (a) 12,000
18,500 New York State HFA Revenue Bonds (Normandie Court I), VRDN, 4.05% due
5/15/2015 (a) 18,500
300 New York State HFA, Special Obligation Revenue Bonds (Health Facilities
of New York City), Series A, 6.45% due 5/01/1995 301
New York State Job Development Authority, VRDN (a):
120 1984 Series C, 3.85% due 3/01/1999 120
1,220 1984 Series E, 3.85% due 3/01/1999 1,220
200 1984 Series F, 3.85% due 3/01/1999 200
15 1984 Series G, 3.85% due 3/01/1999 15
320 Series A, 3.80% due 3/01/2000 320
2,435 Series B, 3.80% due 3/01/2000 2,435
4,685 Series C, 3.80% due 3/01/2000 4,685
3,890 Series D, 3.05% due 3/01/2000 3,890
New York State Local Government Assistance Corporation Revenue Bonds,
VRDN (a):
20,500 Series A, 3.85% due 4/01/2022 20,500
200 Series B, 3.85% due 4/01/2023 200
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
6,100 (Children's Hospital of Buffalo), VRDN, Series A, 3.95% due
11/01/2005 (a) 6,100
4,000 (Mt. Sinai Hospital), Series C, 8.875% due 1/15/1996 (b) 4,214
16,300 (Pooled Loan Equipment Program), VRDN, Series A, 4.10% due
11/01/2003 (a) 16,300
1,200 (Pooled Loan Equipment Program), VRDN, Series 1, 4.10% due
11/01/2015 (a) 1,200
New York State Power Authority, Revenue and General Purpose Bonds:
8,000 4.05% due 5/08/1995 8,000
7,800 3.95% due 6/08/1995 7,800
41,345 (Junior Lien), 4.40% due 9/01/1995 41,345
2,500 Niagara Falls, New York, Commission Toll Bridge Revenue Bonds, VRDN,
Series A, 3.95% due 10/01/2019 (a) 2,500
5,313 Oneida County, New York, BAN, 4.70% due 5/17/1995 5,314
7,250 Patchogue-Medford, New York, Unified Free School District, TAN, UT,
4.50% due 6/30/1995 7,255
</TABLE>
<PAGE>
<TABLE>
CMA NEW YORK MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
New York Port Authority of New York and New Jersey, CP:
(concluded) $ 3,345 4.10% due 4/12/1995 $ 3,345
3,415 4.05% due 4/13/1995 3,415
10,350 3.80% due 6/08/1995 10,350
9,500 Rochester, New York, RAN, 5.25% due 6/30/1995 9,516
2,145 Saint Lawrence County, New York, IDA, Civic Facility Revenue Bonds
(Clarkson University Project), VRDN, 4.25% due 10/01/2005 (a) 2,145
7,700 Saranac, New York, Central School District Revenue Bonds, BAN, 5% due
6/30/1995 7,708
3,335 South Huntington, New York, Unified Free School District, TAN, UT,
4.50%due 6/30/1995 3,340
29,100 Suffolk County, New York, IDA, IDR (Nissequogue Cogeneration Partners),
VRDN, 4.10% due 12/15/2023 (a) 29,100
41,000 Triborough Bridge and Tunnel Authority, New York Special Obligation
Revenue Bonds, VRDN, 3.80% due 1/01/2024 (a) 41,000
12,200 West Babylon, New York, Unified Free School District, TAN, 4.50% due
6/29/1995 12,213
Puerto Rico-- Puerto Rico Commonwealth, Government Development Bank Revenue Bonds:
4.7% 15,000 CP, 3.90% due 4/10/1995 15,000
5,000 CP, 4% due 4/10/1995 5,000
20,000 CP, 3.75% due 5/10/1995 20,000
3,000 Refunding, VRDN, 4.10% due 12/01/2015 (a) 3,000
Total Investments (Cost--$914,058*)-- 99.4% 914,058
Other Assets Less Liabilities--0.6% 5,794
----------
Net Assets--100.0% $ 919,852
==========
<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, 1995.
(b)Prerefunded; to be called.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA NEW YORK MUNICIPAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<S> <C> <C>
Assets:
Investments, at value (identified cost--$914,057,864) (Note 1a) $ 914,057,864
Cash 48,362
Interest receivable 6,567,679
Prepaid registration fees and other assets (Note 1d) 17,245
---------------
Total assets 920,691,150
---------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 372,351
Distributor (Note 2) 274,983 647,334
---------------
Accrued expenses and other liabilities 191,576
---------------
Total liabilities 838,910
---------------
Net Assets $ 919,852,240
===============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 92,074,474
Paid-in capital in excess of par 828,670,265
Accumulated realized capital losses--net (Note 4) (892,499)
---------------
Net Assets--Equivalent to $1.00 per share based on 920,744,739 shares of
beneficial interest outstanding $ 919,852,240
===============
</TABLE>
<TABLE>
CMA NEW YORK MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 26,492,486
Expenses:
Investment advisory fees (Note 2) $ 3,831,293
Distribution fees (Note 2) 1,013,471
Transfer agent fees (Note 2) 179,256
Registration fees (Note 1d) 115,354
Accounting services (Note 2) 89,857
Printing and shareholder reports 60,555
Professional fees 55,368
Custodian fees 53,399
Pricing fees 10,756
Trustees' fees and expenses 10,348
Other 11,878
---------------
Total expenses 5,431,535
---------------
Investment income--net 21,060,951
Realized Loss on Investments--Net (Note 1c) (251,800)
---------------
Net Increase in Net Assets Resulting from Operations $ 20,809,151
===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA NEW YORK MUNICIPAL MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C>
Operations:
Investment income--net $ 21,060,951 $ 12,427,056
Realized loss on investments--net (251,800) (358,449)
--------------- ---------------
Net increase in net assets resulting from operations 20,809,151 12,068,607
--------------- ---------------
Dividends to Shareholders (Note 1e):
Investment income--net (21,059,960) (12,413,890)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (21,059,960) (12,413,890)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 3,003,904,257 2,518,353,375
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1e) 21,059,556 12,413,591
--------------- ---------------
3,024,963,813 2,530,766,966
Cost of shares redeemed (2,877,620,567) (2,423,631,596)
--------------- ---------------
Net increase in net assets derived from beneficial interest transactions 147,343,246 107,135,370
--------------- ---------------
Net Assets:
Total increase in net assets 147,092,437 106,790,087
Beginning of year 772,759,803 665,969,716
--------------- ---------------
End of year* $ 919,852,240 $ 772,759,803
=============== ===============
<FN>
*Undistributed investment income-- net (Note 1f) $ -- $ 12,534
=============== ===============
</TABLE>
<TABLE>
CMA NEW YORK MUNICIPAL MONEY FUND
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: 1995 1994 1993 1992 1991
<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 .03 .02 .02 .03 .05
--------- --------- --------- --------- ---------
Total from investment operations .03 .02 .02 .03 .05
--------- --------- --------- --------- ---------
Less dividends from investment income--net (.03) (.02) (.02) (.03) (.05)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Investment Return 2.59% 1.79% 2.19% 3.37% 4.86%
========= ========= ========= ========= =========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .54% .54% .55% .55% .57%
========= ========= ========= ========= =========
Expenses .67% .67% .67% .68% .69%
========= ========= ========= ========= =========
Investment income--net 2.59% 1.78% 2.16% 3.31% 4.73%
========= ========= ========= ========= =========
Supplemental Data:
Net assets, end of year (in thousands) $ 919,852 $ 772,760 $ 665,970 $ 625,768 $ 633,819
========= ========= ========= ========= =========
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 management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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 de-
ducting 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--Generally accepted accounting principles
require that certain differences between undistributed net
investment income for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net realized capital
losses. Accordingly, current year's permanent book/tax differences
of $13,525 have been reclassified from undistributed net investment
income to accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset value
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" or "Adviser"). The general partner of
FAM is Princeton Serv-ices, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
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.
<PAGE>
CMA NEW YORK 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 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 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 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, PSI, 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, 1995, the Fund had a net capital loss carryforward of
approximately $887,000, of which $87,000 expires in 1998, $203,000
expires in 2001, $293,000 expires in 2002, and $304,000 expires in
2003. This amount 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, 1995, 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 three-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 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, 1995 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 North Carolina Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1995, 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 LLP
Princeton, New Jersey
May 2, 1995
<PAGE>
Portfolio Abbreviations for CMA North Carolina Municipal Money Fund
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
COP Certificates of Participation
CP Commercial Paper
DATES Daily Adjustable Tax-Exempt Securities
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (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
Carolina--91.0% Control Financing Authority Revenue Bonds (Texasgulf, Inc. Project),
VRDN, 4.375% due 12/01/2000 (a) $ 1,000
3,000 Carteret County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, IDR (Texasgulf, Inc. Project), VRDN,
4.375% due 10/01/2005 (a) 3,000
12,300 Charlotte, North Carolina, Airport Revenue Refunding Bonds, VRDN,
Series A, 4.15% due 7/01/2016 (a) 12,300
1,071 Columbus County, North Carolina, Water and Sewer District No. 1, BAN,
4.50% due 7/12/1995 1,072
Craven County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority Revenue Bonds (Cravenwood Energy Project), VRDN,
AMT (a):
2,840 Series A, 4.30% due 5/01/2011 2,840
5,600 Series B, 4.30% due 5/01/2011 5,600
5,000 Series C, 4.30% due 5/01/2011 5,000
Cumberland County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Revenue Refunding Bonds (Monsanto Co. Project),
VRDN (a):
1,715 3.90% due 6/01/2012 1,715
600 3.90% due 10/01/2014 600
Durham County, North Carolina, Public Improvement Bonds, VRDN, UT (a):
1,000 4.05% due 5/01/2009 1,000
2,800 4.05% due 2/01/2010 2,800
1,000 4.05% due 5/01/2010 1,000
1,000 4.05% due 5/01/2011 1,000
1,800 Durham, North Carolina, Water and Sewer Utility System Revenue Bonds,
VRDN, 3.95% due 12/01/2015 (a) 1,800
2,800 Gaston County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Mount Holly Enterprises/
Queens G.P. Inc.), VRDN, AMT, 4.45% due 5/01/2004 (a) 2,800
Granville County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds, VRDN, AMT (a):
4,000 (Mayville Metal Production Project), 4.10% due 5/23/2020 4,000
2,375 (Tuscarora Plastics, Inc. Project), 4.45% due 12/01/2001 2,375
500 Greene County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, IDA, Revenue Bonds (Federal Paper Board
Company, Inc. Project), VRDN, AMT, 4.35% due 11/01/2009 (a) 500
Greensboro, North Carolina, Public Improvement Bonds, VRDN, Series B (a):
1,400 4.25% due 4/01/2007 1,400
1,450 4.25% due 4/01/2008 1,450
1,650 4.25% due 4/01/2010 1,650
1,950 4.25% due 4/01/2013 1,950
2,000 4.25% due 4/01/2014 2,000
</TABLE>
64
<PAGE>
<TABLE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
North Carolina $16,800 Halifax County, North Carolina, Industrial Facilities and Pollution
(continued) Control Financing Authority Revenue Bonds (Exempt Facilities-Westmoreland),
VRDN, 4.35% due 12/01/2019 (a) $ 16,800
2,700 Haywood County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Solid Waste Disposal Revenue Refunding
Bonds (Champion International Corporation Project), VRDN, 4.05% due
3/01/2020 (a) 2,700
3,727 Hoke County, North Carolina, BAN, 4.75% due 9/27/1995 3,735
8,300 Iredell County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Rubbermaid Specialty Products,
Inc.), 3.85% due 6/01/1995 (a) 8,300
3,700 Lenoir County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority Revenue Bonds (West Co. Nebraska, Inc. Project), VRDN,
4.15% due 10/01/2005 (a) 3,700
9,500 Lincoln County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority Revenue Bonds (Hof Textiles Inc. Project), VRDN, AMT,
4.15% due 10/01/2011 (a) 9,500
Mecklenberg County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds, VRDN (a):
2,000 (Edgecomb Metals Company Project), 4.25% due 12/01/2009 2,000
1,000 (Flawa Corporation Project), AMT, 4% due 12/01/2008 1,000
1,130 Mecklenburg County, North Carolina, Refunding Bonds, UT, 7% due
7/01/1995 (b) 1,144
2,000 New Hanover County, North Carolina, BAN, 3.80% due 6/21/1995 2,000
1,055 New Hanover County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Interroll Corp. Project), VRDN,
4.45% due 11/01/2003 (a) 1,055
North Carolina Eastern Municipal Power Agency, Power System Revenue
Bonds, Series B, CP:
12,085 4.10% due 4/03/1995 12,085
7,300 4.25% due 4/03/1995 7,300
5,400 4.10% due 5/15/1995 5,400
7,000 4.30% due 5/17/1995 7,000
5,400 4.15% due 5/18/1995 5,400
1,600 3.80% due 5/22/1995 1,600
North Carolina Educational Facilities Finance Agency Revenue Bonds,
VRDN (a):
950 (Bowman Grey School of Medicine Project), 4.10% due 9/01/2020 950
3,900 (Duke University Project), Series A, 4.075% due 12/01/2017 3,900
1,500 (Duke University Project), Series A, 4.075% due 6/01/2027 1,500
4,300 (Duke University Project), Series B, 4.075% due 12/01/2021 4,300
2,700 (Wake Forest University Project), 3.95% due 1/01/2009 2,700
North Carolina Medical Care Commission, Hospital Revenue Bonds,
VRDN (a):
6,900 (Carol Woods Project), 4.30% due 4/01/2021 6,900
3,300 (Duke University Hospital), Series B, 4.075% due 6/01/2015 3,300
2,130 (Duke University Hospital), Series D, 4.075% due 6/01/2015 2,130
3,500 (North Carolina Baptist Hospital Project), Series B, 4.10% due
6/01/2022 3,500
13,200 (Park Ridge Hospital Project), 4.25% due 8/15/2018 13,200
7,100 (Pooled Equipment Financing Project), ACES, 4.20% due 12/01/2025 7,100
5,650 Refunding (Duke University Hospital Project), Series A, 4.075%
due 6/01/2023 5,650
3,300 Refunding (Moses H. Cone Memorial Hospital Project), 4.10% due
10/01/2023 3,300
1,100 Person County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Solid Waste Disposal Revenue Bonds
(Carolina Power and Light Company), DATES, 4.40% due 11/01/2016 (a) 1,100
</TABLE>
<PAGE>
<TABLE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
North Carolina $ 1,000 Piedmont Triad Airport Authority, North Carolina, Special Facility
(concluded) Revenue Bonds (Purpose-Cessna Aircraft Company Project), VRDN, AMT,
4.45% due 10/01/2012 (a) $ 1,000
700 Rowan County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Reynolds Metals Company
Project), 4.40% due 6/01/1995 (a) 700
7,000 Union County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, IDR, Refunding (Square D Co. Project),
VRDN, 4.125% due 3/01/2003 (a) 7,000
6,100 University of North Carolina, Chapel Hill Foundation, Inc., COP, CP,
4% due 4/07/1995 6,100
4,050 University of North Carolina, Chapel Hill Revenue Bonds (Kenan Memorial
Stadium), VRDN, 3.85% due 11/01/2007 (a) 4,050
University of North Carolina, Chapel Hill, School of Medicine and
Ambulatory Care Clinic Revenue Bonds:
3,900 CP, 4% due 4/07/1995 3,900
2,800 VRDN, 4.15% due 10/01/2002 (a) 2,800
Wake County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Carolina Power and Light
Company Project) (a):
1,600 DATES, 4.45% due 3/01/2017 1,600
4,500 VRDN, Series C, 4.20% due 10/01/2015 4,500
2,000 Wayne County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Revenue Refunding Bonds (General Signal),
VRDN, 4.125% due 12/01/2000 (a) 2,000
1,400 Wilson County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, IDR (North Carolina Chip Co. Project), VRDN,
4.45% due 1/01/2000 (a) 1,400
1,350 Winston-Salem, North Carolina, Urban Redevelopment Mortgage Revenue
Refunding Bonds (Summit Square Garden Apartments), CP, 4.10% due
4/03/1995 1,350
Winston-Salem, North Carolina, Water and Sewer System Revenue Bonds:
6,000 CP, 3.75% due 5/17/1995 6,000
2,100 VRDN, 4.10% due 6/01/2014 (a) 2,100
Puerto Rico-- Puerto Rico Commonwealth, Government Development Bank, Revenue Bonds:
9.0% 5,000 CP, 3.75% due 5/10/1995 5,000
600 Refunding, VRDN, 4.10% due 12/01/2015 (a) 600
5,000 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, VRDN, Series X, 3.60% due 7/01/l999 (a) 5,000
Puerto Rico Industrial, Medical and Environmental Pollution Control
Facilities, Financing Authority Revenue Bonds:
2,000 (Ana G. Mendez Foundation), CP, 3.50% due 4/12/1995 2,000
12,500 (Reynolds Metals Co. Project), 4% due 9/01/1995 12,502
Total Investments (Cost--$278,703*)-- 100.0% 278,703
Other Assets Less Liabilities--0.0% 1
--------
Net Assets--100.0% $278,704
========
<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, 1995.
(b)Prerefunded.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<S> <C> <C>
Assets:
Investments, at value (identified cost--$278,703,454) (Note 1a) $ 278,703,454
Cash 131,110
Interest receivable 1,171,294
Deferred organization expenses (Note 1d) 9,362
Prepaid registration fees and other assets (Note 1d) 14,212
-------------
Total assets 280,029,432
-------------
Liabilities:
Payables:
Securities purchased $ 1,072,050
Investment adviser (Note 2) 99,110
Distributor (Note 2) 93,745 1,264,905
-------------
Accrued expenses and other liabilities 60,549
-------------
Total liabilities 1,325,454
-------------
Net Assets $ 278,703,978
=============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 27,873,249
Paid-in capital in excess of par 250,859,243
Accumulated realized capital losses--net (Note 4) (28,514)
-------------
Net Assets--Equivalent to $1.00 per share based on 278,732,492 shares of
beneficial interest outstanding $ 278,703,978
=============
</TABLE>
<TABLE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 9,431,728
Expenses:
Investment advisory fees (Note 2) $ 1,474,176
Distribution fees (Note 2) 366,625
Transfer agent fees (Note 2) 68,413
Accounting services (Note 2) 57,506
Professional fees 49,342
Registration fees (Note 1d) 36,158
Custodian fees 28,231
Printing and shareholder reports 27,124
Pricing fees 8,322
Amortization of organization expenses (Note 1d) 8,097
Trustees' fees and expenses 3,769
Other 6,319
-------------
Total expenses before reimbursement 2,134,082
Reimbursement of expenses (Note 2) (294,835)
-------------
Total expenses after reimbursement 1,839,247
-------------
Investment income--net 7,592,481
Realized Loss on Investments--Net (Note 1c) (13,460)
-------------
Net Increase in Net Assets Resulting from Operations $ 7,579,021
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C>
Operations:
Investment income--net $ 7,592,481 $ 4,383,724
Realized loss on investments--net (13,460) (14,754)
------------- -------------
Net increase in net assets resulting from operations 7,579,021 4,368,970
------------- -------------
Dividends to Shareholders (Note 1e):
Investment income--net (7,592,405) (4,380,466)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (7,592,405) (4,380,466)
------------- -------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 924,263,338 819,514,191
Net asset value of shares issued to shareholders in reinvestment of dividends
(Note 1e) 7,592,507 4,380,479
------------- -------------
931,855,845 823,894,670
Cost of shares redeemed (946,590,315) (765,815,611)
------------- -------------
Net increase (decrease) in net assets derived from beneficial interest transactions (14,734,470) 58,079,059
------------- -------------
Net Assets:
Total increase (decrease) in net assets (14,747,854) 58,067,563
Beginning of year 293,451,832 235,384,269
------------- -------------
End of year* $ 278,703,978 $ 293,451,832
============= =============
<FN>
*Undistributed investment income--net (Note 1f) $ -- $ 298
============= =============
See Notes to Financial Sta tements.
</TABLE>
<PAGE>
<TABLE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
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++ to
For the Year Ended March 31, March 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992
<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 .03 .02 .02 .03
-------- -------- -------- --------
Total from investment operations .03 .02 .02 .03
-------- -------- -------- --------
Less dividends from investment income--net (.03) (.02) (.02) (.03)
-------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Investment Return 2.61% 1.85% 2.25% 3.49%*
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .50% .48% .45% .33%*
======== ======== ======== ========
Expenses, net of reimbursement .62% .61% .57% .45%*
======== ======== ======== ========
Expenses .72% .71% .73% .83%*
======== ======== ======== ========
Investment income--net 2.58% 1.84% 2.20% 3.25%*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $278,704 $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 management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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--Generally accepted accounting principles
require that certain differences between undistributed net
investment income for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net realized capital
losses. Accordingly, current year's permanent book/tax differences
of $374 have been reclassified from undistributed net investment
income to accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset value
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" or "Adviser"). The general partner of
FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the limited
partner.
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
<PAGE>
CMA NORTH CAROLINA MUNICIPAL MONEY FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
of $500 million but not exceeding $1 billion, and 0.375% of average daily
net assets in excess of $ l billion. For the year ended March 31, 1995,
FAM earned fees of $1,474,176, of which $294,835 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 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 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 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, PSI, 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, 1995, the Fund had a net capital loss carryforward of
approximately $28,000, of which $5,000 expires in 2001, $10,000
expires in 2002 and $13,000 expires in 2003. 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, 1995, 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 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 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, 1995 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, 1995, 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 LLP
Princeton, New Jersey
May 3, 1995
<PAGE>
Portfolio Abbreviations for CMA Ohio Municipal Money Fund
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
CP Commercial Paper
HFA Housing Finance Agency
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Ohio--101.1% $ 2,000 Akron, Ohio, Sanitation Sewer System Revenue Bonds, VRDN, 4.15% due
12/01/2014 (a) $ 2,000
1,540 Allen County, Ohio, IDR (Nickles Bakery Project), VRDN, 4.90% due
1/02/2003 (a) 1,540
2,555 Ashtabula County, Ohio, IDR (Neff-Perkins Co. Project), VRDN,
AMT, 4.45% due 6/01/2005 (a) 2,555
2,000 Blue Ash, Ohio, BAN, 5% due 10/30/1995 2,010
Brooklyn Heights, Ohio, IDR, VRDN, AMT (a):
555 (ATC Nymold Inc.), 4.45% due 2/01/2002 555
3,350 (Keynote Office Center), 4.55% due 12/01/2009 3,350
Cincinnati and Hamilton Counties, Ohio, Port Authority,
IDR, VRDN (a):
3,500 (Multi-Color Corp. Project), 4% due 11/01/2000 3,500
425 Refunding (Schottenstein Stores), 4.20% due 9/01/1997 425
Cincinnati, Ohio, Student Loan Funding Corporation, Student Loan
Revenue Bonds, VRDN (a):
1,800 AMT, Series A-1, 4.30% due 1/01/2007 1,800
2,000 AMT, Series A-2, 4.30% due 1/01/2007 2,000
1,500 AMT, Series A-3, 4.30% due 1/01/2007 1,500
500 Series 1983A, 4.20% due 12/29/1998 500
2,600 Clermont County, Ohio, IDR (Southern Ohio Fabricator), VRDN, AMT,
Series A, 4.35% due 9/01/2005 (a) 2,600
2,100 Columbus, Ohio, Sewer Revenue Refunding Bonds, VRDN, 4.05% due
6/01/2011 (a) 2,100
8,000 Cuyahoga County, Ohio, Hospital Improvement Revenue Bonds (Cleveland
University Hospital), VRDN, 4.25% due 1/01/2016 (a) 8,000
Cuyahoga County, Ohio, IDR, VRDN (a):
1,000 (Allen Group Incorporated Project), 4.05% due 12/01/2015 1,000
1,000 (Athens Pastries Inc. Project), AMT, 4.45% due 6/03/2009 1,000
4,200 (Cleveland E Excel Ltd.), AMT, 4.45% due 3/01/2019 4,200
2,025 (Puritas Association Project), 4.55% due 12/01/2006 2,025
4,200 (Suburban Pavilion Inc. Project), AMT, 4.50% due 10/02/2006 4,200
1,770 Dawson-Bryant, Ohio, Local School District Construction and
Improvement Notes, UT, 4.25% due 6/01/1995 1,771
1,000 Dayton, Ohio, Special Facilities Revenue Bonds (Emery Air Freight
Project), VRDN, AMT, Series D, 4.80% due 10/01/2009 (a) 1,000
3,500 Dublin, Ohio, BAN, Series A, 5% due 9/20/1995 3,514
</TABLE>
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (continued) (IN THOUSANDS)
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Ohio $ 500 Erie County, Ohio, IDR (Brighton Manor Company Project), VRDN, AMT,
(continued) 4.45% due 11/01/2016 (a) $ 500
1,915 Erie County, Ohio, IDR, Refunding (Huron Health Care Center Project),
VRDN, 4.30% due 8/01/2007 (a) 1,915
6,000 Franklin County, Ohio, Health System Revenue Bonds (Franciscan Sisters-
Saint Anthony Medical Facility), VRDN, Series B, 4.25% due 7/01/2015 (a) 6,000
Franklin County, Ohio, Hospital Revenue Bonds, VRDN (a):
5,300 (Children's Hospital Project), Series B, 4.40% due 12/01/2014 5,300
1,000 (Lutheran Senior City Inc. Project), 4.15% due 5/01/2015 1,000
Franklin County, Ohio, IDR, VRDN, AMT (a):
2,500 Refunding (Heekin Can Inc. Project), 4.35% due 5/01/2007 2,500
2,000 (Tigeropoly Manufacturing, Inc.), 4.25% due 7/01/1997 2,000
5,500 Franklin County, Ohio, M/F Housing Revenue Bonds (Colonial Courts
Project), VRDN, AMT, 4.65% due 12/01/2024 (a) 5,500
130 Geauga County, Ohio, IDR (Best Sand Corp. Project), VRDN, AMT, 4.55% due
4/01/l999 (a) 130
1,250 Grandview Heights, Ohio, City School District, BAN, 4.84% due 4/13/1995 1,250
3,000 Greene County, Ohio, Certificates of Indebtedness, Series B, 4.25% due
7/19/1995 3,002
3,400 Greene County, Ohio, IDR, Refunding (Apple Valley Association), VRDN,
4% due 8/01/2009 (a) 3,400
12,200 Hamilton County, Ohio, Health Systems Revenue Bonds (Franciscan Sisters
Poor Health), VRDN, Series A, 4.25% due 3/01/2017 (a) 12,200
1,850 Hancock County, Ohio, IDR (Quality Material Handling Equipment),
VRDN, AMT, 4.55% due 12/01/1998 (a) 1,850
8,000 Hilliard County, Ohio, School District, BAN, UT, 4.77% due 4/13/1995 8,002
1,250 Huber Heights, Ohio, IDR (Lasermike Inc. Project), VRDN, AMT, 4.45% due
12/01/2014 (a) 1,250
3,000 Kent, Ohio, IDR (Ravens Metal Products Project), VRDN, AMT, 4.35% due
12/01/2009 (a) 3,000
250 Lucas County, Ohio, Hospital Revenue Bonds (Sunshine Children's Home
Project), VRDN, 4.35% due 12/01/2007 (a) 250
Marion County, Ohio, Hospital Improvement Revenue Bonds (Pooled Lease
Program):
2,325 4.25% due 10/01/1995 2,325
1,615 VRDN, 4.30% due 5/01/2019 (a) 1,615
3,330 Mentor, Ohio, IDR (Metcor Partnership/Tridelt), VRDN, AMT, 4.45% due
12/01/2008 (a) 3,330
2,650 Moraine, Ohio, IDR, Refunding (Gray America Corporation Project), VRDN,
AMT, 4.45% due 12/01/2001 (a) 2,650
3,680 Morrow County, Ohio, BAN (Detention Facilities), 4.20% due 6/01/1995 3,682
2,455 Ohio HFA, M/F Housing Revenue Bonds (Kenwood Congregate Retirement
Program), VRDN, 4% due 12/01/2015 (a) 2,455
2,500 Ohio State Air Quality Development Authority, Pollution Control
Facilities, PCR (Duquesne Light), CP, AMT, 4.35% due 5/12/1995 2,500
1,115 Ohio State Coal Development, Series B, 5% due 8/01/1995 1,119
4,000 Ohio State Environmental Improvement Revenue Bonds (US Steel Corp.),
VRDN, 4.30% due 5/01/2011 (a) 4,000
2,910 Ohio State Higher Educational Facilities, Commission Revenue Bonds
(Mount Vernon), VRDN, 4.35% due 9/01/2009 (a) 2,910
</TABLE>
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (continued) (IN THOUSANDS)
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Ohio $ 3,400 Ohio State Higher Educational Facilities Revenue Bonds (Kenyon
(continued) College Project), VRDN, 4.15% due 4/01/2022 (a) $ 3,400
2,150 Ohio State PCR, Refunding (Alcoa Project), VRDN, 4.15% due 10/01/2000 (a) 2,150
1,950 Ohio State University, General Receipts, VRDN, Series B, 4.15% due
12/01/2012 (a) 1,950
Ohio State Water Development Authority, Environmental Improvement Revenue
Bonds (Mead Corp. Project), CP, AMT:
2,500 4.25% due 4/13/1995 2,500
5,000 4.20% due 4/20/1995 5,000
1,500 4.10% due 5/18/1995 1,500
1,300 Ohio State Water Development Authority, Environmental Revenue Bonds
(Honda America), VRDN, 4.15% due 1/01/1997 (a) 1,300
Ohio State Water Development Authority, Pollution Control Facilities, PCR
(Duquesne Light), CP, AMT:
3,000 4.25% due 4/07/1995 3,000
1,000 4% due 5/11/1995 1,000
Ohio State Water Development Authority, Pollution Control Facilities
Revenue Bonds:
3,000 (Duquesne Light Co. Project), VRDN, AMT, 4.35% due 10/01/2023 (a) 3,000
4,500 (Ohio Edison Co. Project), Series B, 4.25% due 9/01/1995 4,500
2,200 Olentangy, Ohio, Local School District, BAN, UT, 4.90% due 4/13/1995 2,200
3,000 Olmsted Falls, Ohio, Local School District, BAN, 5% due 5/31/1995 3,004
800 Paulding County, Ohio, IDR, Refunding (Countrymark Cooperative Inc.
Project), VRDN, 4.20% due 3/01/l999 (a) 800
2,100 Portage County, Ohio, IDR (NCSP L.P. Project), VRDN, AMT, 4.45% due
7/01/2014 (a) 2,100
2,800 Portage County, Ohio, IDR (PM Property One, Ltd.), VRDN, AMT, 4.45%
due 11/01/2012 (a) 2,800
3,000 Richland County, Ohio, BAN, 4.85% due 9/14/1995 3,008
1,500 Rickenbacker, Ohio, Port Authority, IDR, Refunding (Rickenbacker
Holdings, Inc.), VRDN, 4.30% due 12/01/2010 (a) 1,500
1,300 Sandusky County, Ohio, IDR (Brighton Manor Co. Project), VRDN, AMT,
4.45% due 12/01/2016 (a) 1,300
425 Solon, Ohio, IDR (Tameran Project), VRDN, AMT, 4.45% due 11/01/2004 (a) 425
2,250 Strongsville, Ohio, IDR (E & E Properties/Dupli System Project),
VRDN, AMT, 4.50% due 2/01/2010 (a) 2,250
1,000 Summit County, Ohio, Hospital Facilities Revenue Bonds (Cuyahoga Falls
General Hospital), VRDN, AMT, Series B, 4.20% due 7/01/1999 (a) 1,000
Summit County, Ohio, IDR:
500 (Adjusted Forest Manufacturing Project), 4.50% due 11/01/2001 500
1,000 (Austin Printing Co. Inc. Project), VRDN, 4.50% due 8/01/2006 (a) 1,000
845 (Lucerne Production Project), VRDN, 4.45% due 6/01/2002 (a) 845
4,200 (Shin-Etsu Silicones Project), VRDN, 4.15% due 11/01/2004 (a) 4,200
1,465 (Sigma Properties Project), VRDN, 4.45% due 6/01/2008 (a) 1,465
750 (Struktol Project), VRDN, Series A, 4.45% due 6/01/2002 (a) 750
1,200 (Texler Inc. Project), 4.15% due 5/01/1995 1,200
Toledo, Ohio, City Services Special Assessment Notes:
4,000 4.80% due 7/27/1995 4,006
1,700 Refunding, 4.15% due 6/01/1995 1,701
</TABLE>
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (concluded) (IN THOUSANDS)
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Ohio $ 1,250 Troy, Ohio, Economic Development Revenue Bonds (L&CP Corporation
(concluded) Project), AMT, 4.40% due 6/01/1995 $ 1,250
University of Cincinnati, Ohio, General Receipts, BAN:
5,465 Series S, 4.75% due 8/30/1995 5,480
3,000 Series S1, 5% due 3/21/1996 3,010
1,860 Vermilion, Ohio, IDR, Refunding (Landover Properties Ltd.), VRDN,
4.25% due 10/01/2004 (a) 1,860
Warren County, Ohio, IDR, VRDN (a):
4,000 (Johnson & Hardin Enterprises), AMT, Series A, 4.35% due 2/01/2010 4,000
2,080 (Kardol Quality Products Project), AMT, 4.35% due 12/01/2014 2,080
1,900 (Pioneer Industrial Components), 4.20% due 12/01/2005 1,900
3,700 West Clermont, Ohio, Local School District, BAN, UT, 5.25% due 8/09/1995 3,707
1,540 Williams County, Ohio, IDR (Letts Industries Inc. Project), VRDN, AMT,
4.20% due 11/01/2008 (a) 1,540
1,000 Willoughby, Ohio, BAN, 4.19% due 8/16/1995 1,001
2,650 Willoughby, Ohio, IDR (Malish Brush & Specialty), VRDN, AMT, 4.45% due
6/01/2009 (a) 2,650
3,260 Wood County, Ohio, Economic Development Revenue Bonds (Great Lakes
Window Project), AMT, 4.75% due 6/01/1995 3,260
4,465 Zanesville-Muskingum County, Ohio, Port Authority, IDR (B.E. Products
Inc. Project), VRDN, AMT, 4.45% due 9/01/2004 (a) 4,465
Total Investments (Cost--$240,337*)-- 101.1% 240,337
Liabilities in Excess of Other Assets--(1.1%) (2,682)
--------
Net Assets--100.0% $237,655
========
<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, 1995.
*Cost for Federal income tax purposes.
</TABLE>
See Notes to Financial Statements.
<PAGE>
CMA OHIO MUNICIPAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$240,336,954) (Note 1a) $ 240,336,954
Cash 31,031
Interest receivable 1,557,723
Deferred organization expenses (Note 1d) 8,399
Prepaid registration fees and other assets (Note 1d) 18,473
-------------
Total assets 241,952,580
-------------
Liabilities:
Payables:
Securities purchased $ 4,056,711
Investment adviser (Note 2) 101,184
Distributor (Note 2) 72,070 4,229,965
-------------
Accrued expenses and other liabilities 67,550
-------------
Total liabilities 4,297,515
-------------
Net Assets $ 237,655,065
=============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 23,768,662
Paid-in capital in excess of par 213,917,958
Accumulated realized capital losses--net (Note 4) (31,555)
-------------
Net Assets--Equivalent to $1.00 per share based on 237,686,620 shares of
beneficial interest outstanding $ 237,655,065
=============
</TABLE>
CMA OHIO MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 7,289,416
Expenses:
Investment advisory fees (Note 2) $ 1,078,893
Distribution fees (Note 2) 268,476
Accounting services (Note 2) 67,499
Professional fees 49,207
Transfer agent fees (Note 2) 46,965
Registration fees (Note 1d) 26,353
Custodian fees 20,300
Printing and shareholder reports 16,490
Pricing fees 11,063
Amortization of organization expenses (Note 1d) 7,801
Trustees' fees and expenses 2,895
Other 5,522
-------------
Total expenses 1,601,464
-------------
Investment income--net 5,687,952
Realized Loss on Investments--Net (Note 1c) (285)
-------------
Net Increase in Net Assets Resulting from Operations $ 5,687,667
=============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CMA OHIO MUNICIPAL MONEY FUND For the Year Ended March 31,
STATEMENTS OF CHANGES IN NET ASSETS 1995 1994
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 5,687,952 $ 3,547,011
Realized loss on investments--net (285) (3,204)
------------- -------------
Net increase in net assets resulting from operations 5,687,667 3,543,807
------------- -------------
Dividends to Shareholders (Note 1e):
Investment income--net (5,687,952) (3,547,011)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (5,687,952) (3,547,011)
------------- -------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 823,958,852 854,339,246
Net asset value of shares issued to shareholders in reinvestment of dividends
(Note 1e) 5,687,899 3,547,085
------------- -------------
829,646,751 857,886,331
Cost of shares redeemed (805,646,384) (831,571,902)
------------- -------------
Net increase in net assets derived from beneficial interest transactions 24,000,367 26,314,429
------------- -------------
Net Assets:
Total increase in net assets 24,000,082 26,311,225
Beginning of year 213,654,983 187,343,758
------------- -------------
End of year $ 237,655,065 $ 213,654,983
============= =============
</TABLE>
CMA OHIO MUNICIPAL MONEY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<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: 1995 1994 1993 1992
<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 .03 .02 .02 .03
-------- -------- -------- --------
Total from investment operations .03 .02 .02 .03
-------- -------- -------- --------
Less dividends from investment income--net (.03) (.02) (.02) (.03)
-------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Investment Return 2.65% 1.88% 2.27% 3.65%*
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding distribution fees .62% .59% .61% .44%*
======== ======== ======== ========
Expenses, net of reimbursement .74% .72% .74% .57%*
======== ======== ======== ========
Expenses .74% .72% .74% .82%*
======== ======== ======== ========
Investment income--net 2.64% 1.86% 2.24% 3.52%*
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $237,655 $213,655 $187,344 $192,173
======== ======== ======== ========
<FN>
*Annualized.
++Commencement of Operations.
</TABLE>
See Notes to Financial Statements.
<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 management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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" or "Adviser"). The general partner of
FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
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.
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
<PAGE>
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 during any year which
will cause such expenses to exceed the pro rata expense limitation
at the time of such payment.
CMA OHIO 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, PSI, 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, 1995, the Fund had a net capital loss carryforward of
approximately $32,000, of which $23,000 expires in 2000, $5,000
expires in 2001, and $4,000 expires in 2002. This amount 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
liabilities, including the schedule of investments, of CMA
Pennsylvania Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1995, 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 four-year period
then ended and the period August 27, 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, 1995 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 Pennsylvania Municipal Money Fund of CMA Multi-State Municipal
Series Trust as of March 31, 1995, 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 LLP
Princeton, New Jersey
May 1, 1995
<PAGE>
Portfolio Abbreviations for CMA Pennsylvania Municipal Money Fund
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
CP Commercial Paper
IDA Industrial Development 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
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Pennsylvania-- Allegheny County, Pennsylvania, Allegheny Hospital Development Authority
100.4% Revenue Bonds, VRDN (a):
$ 1,500 (Presbyterian University Health System), Series A, 4.20% due 3/01/2020 $ 1,500
4,700 (Presbyterian University Health System), Series B, 4.20% due 3/01/2020 4,700
6,900 (Presbyterian University Health System), Series C, 4.20% due 3/01/2020 6,900
1,400 (Presbyterian University Health System), Series D, 4.20% due 3/01/2020 1,400
3,000 Refunding (Harmarville Rehabilitation Center Project), 4.20% due
7/01/2007 3,000
6,500 Allegheny County, Pennsylvania, IDA, PCR (Duquesne Light Project),
CP, Series A, 4.75% due 12/07/1995 6,500
5,500 Allegheny County, Pennsylvania, IDA, Refunding (Commercial Development
Parkway Center Project), VRDN, Series A, 4.35% due 5/01/2009 (a) . 5,500
7,000 Allegheny County, Pennsylvania, Port Authority Grant Anticipation
Notes, 4.10% due 7/03/1995 7,000
Beaver County, Pennsylvania, IDA, PCR, CP (Duquesne Light Project),
AMT, Series A:
2,500 4.20% due 4/07/1995 2,500
2,100 4.25% due 4/07/1995 2,100
3,000 4.15% due 5/12/1995 3,000
Beaver County, Pennsylvania, IDA, PCR, Refunding (Duquesne Light
Project), VRDN (a):
900 (Beaver Valley), 4.25% due 8/01/2020 900
1,300 (Mansfield), Series B, 4.25% due 8/01/2009 1,300
2,000 Beaver County, Pennsylvania, IDA, PCR, Refunding (Toledo Edison
Project), CP, Series E, 4.20% due 5/03/1995 2,000
2,765 Berks County, Pennsylvania, IDA, IDR (Valley Forge Company, Inc.,
Project), VRDN, AMT, Series A, 4.75% due 9/01/2006 (a) 2,765
2,000 Bucks County, Pennsylvania, IDA, Revenue Bonds (Edgecomb Metal Co.),
VRDN, 4.25% due 10/01/2009 (a) 2,000
Carbon County, Pennsylvania, IDA, Resource Recovery Revenue Bonds
(Panther Creek Partners), CP, AMT:
2,000 Series A, 4.25% due 4/07/1995 2,000
2,600 Series A, 4.30% due 4/07/1995 2,600
1,600 Series A, 4.15% due 5/11/1995 1,600
2,550 Series B, 4.25% due 4/07/1995 2,550
7,500 Series B, 4.35% due 5/12/1995 7,500
1,900 Series B, 4.15% due 5/15/1995 1,900
4,235 Cumberland County, Pennsylvania, Municipal Authority, Revenue Refunding
Bonds (United Methodist Homes for the Aging), VRDN, 4.20% due
6/01/2019 (a) 4,235
6,100 Delaware County, Pennsylvania, Health Care Authority Revenue Bonds
(Capital Asset), VRDN, Series B, 4.25% due 7/01/2015 (a) 6,100
9,500 Delaware County, Pennsylvania, IDA, PCR (BP Oil Inc. Project),
UPDATES, 4.20% due 12/01/2009 (a) 9,500
</TABLE>
<PAGE>
<TABLE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Pennsylvania Delaware County, Pennsylvania, IDA, PCR, Refunding (Philadelphia
(continued) Electric Company), CP:
$ 4,000 Series A, 4.10% due 4/06/1995 $ 4,000
1,500 Series C, 4% due 4/28/1995 1,500
2,500 Series C, 4.35% due 5/24/1995 2,500
Eagle Tax Exempt Trust, Pennsylvania, VRDN (a):
4,300 Series 94, 4.35% due 5/01/2008 4,300
6,100 Series A, 4.15% due 7/01/2025 6,100
Emmaus, Pennsylvania, General Authority Revenue Bonds (Local
Government Pool), VRDN (a):
1,500 Series A, 4.25% due 3/01/2024 1,500
10,000 Series B, 4.25% due 3/01/2024 10,000
15,900 Series F, 4.25% due 3/01/2024 15,900
3,500 Erie County, Pennsylvania, IDA, Revenue Bonds (McInnes Steel Co.),
VRDN, AMT, 4.30% due 11/01/2001 (a) 3,500
1,800 Geisinger, Pennsylvania, Health Systems Revenue Bonds, VRDN, Series
E, 4.20% due 7/01/2022 (a) 1,800
300 Lehigh County, Pennsylvania, Sewer Authority Revenue Bonds, VRDN,
Series B, 4.10% due 3/15/2005 (a) 300
1,700 Montgomery County, Pennsylvania, IDA, Revenue Bonds (Merck & Co.
Project), VRDN, Series A, 4.625% due 10/01/2017 (a) 1,700
3,850 Montour County, Pennsylvania, IDA, PCR (Merck & Co. Project), VRDN,
Series A, 4.375% due 10/01/2003 (a) 3,850
Pennsylvania Economic Development Financing Authority, Economic
Development Revenue Bonds, VRDN (a):
1,000 AMT, Series A1, 4.35% due 8/01/2004 1,000
1,000 AMT, Series A4, 4.35% due 8/01/2001 1,000
3,000 AMT, Series B2, 4.35% due 12/01/2008 3,000
800 AMT, Series D4, 4.35% due 12/01/1997 800
900 AMT, Series D10, 4.35% due 7/01/2011 900
350 (Carson Industries Project), AMT, Series B2, 4.35% due 6/01/2000 350
2,000 (Erie Forge & Steel Project), Series B4, 4.35% due 12/01/1999 2,000
2,000 (Erie Plating Company Project), Series B5, 4.35% due 12/01/2004 2,000
1,400 (Kerner Co. Project), Series B4, 4.35% due 6/01/2007 1,400
2,100 (Kyowa America Project), Series B5, 4.35% due 6/01/2002 2,100
1,100 (Robert & Karen Wickerham Project), AMT, Series B7, 4.35% due
5/01/2005 1,100
450 (Winter Welding Project), Series B8, 4.35% due 6/01/2007 450
12,700 Pennsylvania Energy Development Authority, Energy Development Revenue
Bonds (B&W Ebensburg Project), VRDN, AMT, 4.25% due 12/01/2011 (a) 12,700
Pennsylvania Energy Development Authority, Energy Development Revenue
Bonds (Piney Creek Project), VRDN, AMT (a):
14,000 Series A, 4.25% due 12/01/2011 14,000
900 Series C, 4.25% due 12/01/2011 900
Pennsylvania State Higher Education Assistance Agency, Student Loan
Revenue Bonds, VRDN (a):
17,400 AMT, Series A, 4.20% due 1/01/2018 17,400
9,000 AMT, Series A, 4.20% due 12/01/2024 9,000
5,900 AMT, Series B, 4.20% due 7/01/2018 5,900
11,900 Series C, 4.20% due 7/01/2018 11,900
4,200 Series E, 4.20% due 7/01/2018 4,200
</TABLE>
<PAGE>
<TABLE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1995(CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Pennsylvania $ 7,000 Pennsylvania State Higher Education, University Funding Obligation
(concluded) Bonds (Temple University), 4.50% due 5/24/1995 $ 7,007
Pennsylvania State Higher Educational Facilities Authority, College and
University Revenue Bonds, VRDN (a):
3,000 (Carnegie-Mellon University), Series A, 4.10% due 11/01/2015 3,000
5,400 (Temple University), 4.20% due 10/01/2009 5,400
1,500 Pennsylvania State Higher Educational Facilities Authority, Health
Services Revenue Bonds (University of Pennsylvania), ACES, Series B,
4.20% due 1/01/2024 (a) 1,500
13,000 Pennsylvania State Higher Educational Facilities Authority, Revenue
Refunding Bonds (Thomas Jefferson University), ACES, Series B, 3.70%
due 6/01/1995 (a) 13,000
Philadelphia, Pennsylvania, Hospital and Higher Education Facilities
Authority, Hospital Revenue Bonds, VRDN (a):
3,600 (Children's Hospital of Philadelphia Project), 4.20% due 3/01/2027 3,600
2,400 (Friends Hospital), Series A, 4.20% due 3/01/2006 2,400
4,900 Refunding (Pennsylvania Hospital), Series C, 4% due 7/01/1995 4,900
6,400 Philadelphia, Pennsylvania, IDA, M/F Mortgage Revenue Refunding Bonds
(Harbor View Towers), VRDN, 4.20% due 11/01/2027 (a) 6,400
Philadelphia, Pennsylvania, IDA, Revenue Bonds, VRDN, AMT (a):
10,200 (30th Street Station Project), 3.50% due 1/01/2011 10,200
13,700 (Philadelphia Airport Hotel), 4.15% due 12/01/2017 13,700
8,000 Philadelphia, Pennsylvania, School District TRAN, UT, 4.75% due
6/30/1995 8,011
15,500 Philadelphia, Pennsylvania, TRAN, Series A, 4.75% due 6/15/1995 15,526
4,240 Pittsburgh, Pennsylvania, Urban Redevelopment Authority, S/F Mortgage
Revenue Bonds, AMT, Series C, 4.45% due 6/01/1995 4,240
2,000 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue Bonds
(Northeastern Power Company), VRDN, 4.20% due 12/01/2011 (a) 2,000
Venango, Pennsylvania, IDA, Resource Recovery Revenue Bonds (Scrubgrass
Project):
2,915 AMT, Series 1993, 4.25% due 4/07/1995 2,915
2,950 AMT, Series A, 4.25% due 4/07/1995 2,950
2,550 AMT, Series A, 4.30% due 4/07/1995 2,550
2,000 AMT, Series A, 4.35% due 5/12/1995 2,000
2,750 Series A, 3.95% due 5/11/1995 2,750
1,000 York County, Pennsylvania, IDA, IDR (Edgecomb Metals Co. Project), VRDN,
4.25% due 7/01/2009 (a) 1,000
Total Investments (Cost--$355,149*)--100.4% 355,149
Liabilities in Excess of Other Assets--(0.4%) (1,514)
----------
Net Assets--100.0% $ 353,635
==========
<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, 1995.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1995
<S> <C> <C>
Assets:
Investments, at value (identified cost--$355,148,972) (Note 1a) $ 355,148,972
Cash 163,050
Interest receivable 2,697,993
Deferred organization expenses (Note 1d) 3,976
Prepaid registration fees and other assets (Note 1d) 13,999
---------------
Total assets 358,027,990
---------------
Liabilities:
Payables:
Securities purchased $ 4,047,134
Investment adviser (Note 2) 152,360
Distributor (Note 2) 111,396 4,310,890
---------------
Accrued expenses and other liabilities 82,271
---------------
Total liabilities 4,393,161
---------------
Net Assets $ 353,634,829
===============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 35,366,117
Paid-in capital in excess of par 318,295,057
Accumulated realized capital losses--net (Note 4) (26,345)
---------------
Net Assets--Equivalent to $1.00 per share based on 353,661,174 shares of
beneficial interest outstanding $ 353,634,829
===============
</TABLE>
<TABLE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 11,352,855
Expenses:
Investment advisory fees (Note 2) $ 1,689,896
Distribution fees (Note 2) 420,594
Transfer agent fees (Note 2) 101,396
Professional fees 50,204
Accounting services (Note 2) 35,994
Registration fees (Note 1d) 32,473
Custodian fees 28,028
Printing and shareholder reports 27,365
Amortization of organization expenses (Note 1d) 9,806
Pricing fees 9,007
Trustees' fees and expenses 4,521
Other 6,871
---------------
Total expenses 2,416,155
---------------
Investment income--net 8,936,700
Realized Loss on Investments--Net (Note 1c) (12,217)
---------------
Net Increase in Net Assets Resulting from Operations $ 8,924,483
===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C>
Operations:
Investment income--net $ 8,936,700 $ 5,863,031
Realized loss on investments--net (12,217) (3,224)
--------------- ---------------
Net increase in net assets resulting from operations 8,924,483 5,859,807
--------------- ---------------
Dividends to Shareholders (Note 1e):
Investment income--net (8,935,523) (5,863,031)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (8,935,523) (5,863,031)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 1,238,593,671 1,153,799,544
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1e) 8,935,464 5,863,001
--------------- ---------------
1,247,529,135 1,159,662,545
Cost of shares redeemed (1,230,735,908) (1,141,760,453)
--------------- ---------------
Net increase in net assets derived from beneficial interest transactions 16,793,227 17,902,092
--------------- ---------------
Net Assets:
Total increase in net assets 16,782,187 17,898,868
Beginning of year 336,852,642 318,953,774
--------------- ---------------
End of year* $ 353,634,829 $ 336,852,642
=============== ===============
<FN>
*Undistributed investment income--net (Note 1f) $ -- $ --
=============== ===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA PENNSYLVANIA MUNICIPAL MONEY FUND
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: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Investment income--net .03 .02 .02 .03 .03
--------- --------- --------- --------- ---------
Total from investment operations .03 .02 .02 .03 .03
--------- --------- --------- --------- ---------
Less dividends from investment income--net (.03) (.02) (.02) (.03) (.03)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Investment Return 2.65% 1.87% 2.29% 3.58% 4.95%*
========= ========= ========= ========= =========
Ratios to Average Net Assets:
Expenses, net of reimbursement and excluding
distribution fees .59% .59% .60% .65% .63%*
========= ========= ========= ========= =========
Expenses, net of reimbursement .71% .72% .72% .77% .75%*
========= ========= ========= ========= =========
Expenses .71% .72% .72% .77% .80%*
========= ========= ========= ========= =========
Investment income--net 2.64% 1.85% 2.22% 3.47% 4.75%*
========= ========= ========= ========= =========
Supplemental Data:
Net assets, end of period (in thousands) $ 353,635 $ 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
registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment 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 value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
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 de-
ducting 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--Generally accepted accounting principles
require that certain differences between undistributed net
investment income for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net realized capital
losses. Accordingly, current year's permanent book/tax differences
of $1,177 have been reclassified from undistributed net investment
income to accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset value
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" or "Adviser"). The general partner of
FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the limited
partner.
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.
The most restrictive annual expense limitation requires that the
Adviser reimburse the
<PAGE>
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 during any year
which will cause such expenses to exceed the pro rata expense limitation
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 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, PSI, 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, 1995, the Fund had a net capital loss carryforward of
approximately $26,000, of which $15,000 expires in 2002 and $11,000
expires in 2003. This amount 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
Compensation of Trustees.................................................. 6
Management and Advisory Arrangements...................................... 8
Purchase and Redemption of Shares.......................................... 10
Portfolio Transactions..................................................... 12
Determination of Net Asset Value........................................... 13
Yield Information.......................................................... 14
Taxes...................................................................... 14
Federal................................................................... 14
Environmental Tax......................................................... 16
State..................................................................... 16
General Information........................................................ 20
Description of Series and Shares.......................................... 20
Custodian and Transfer Agent.............................................. 21
Independent Auditors...................................................... 21
Legal Counsel............................................................. 21
Reports to Shareholders................................................... 21
Additional Information.................................................... 21
Appendices................................................................. A-1
Financial Statements....................................................... FS-1
</TABLE>
CMA MULTI-STATE
MUNICIPAL SERIES TRUST
. ARIZONA
. CALIFORNIA
. CONNECTICUT
. MASSACHUSETTS
. MICHIGAN
. NEW JERSEY
. NEW YORK
. NORTH CAROLINA
. OHIO
. PENNSYLVANIA
- ----------------------------------
STATEMENT OFADDITIONAL INFORMATION
- ----------------------------------
CMA(R)
August 2, 1995
- ----------------------------------
LOGO MERRILL LYNCH
Code #16818-0895
