MERRILL LYNCH
NEW JERSEY
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 1998
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1998, long-term tax-exempt revenue bond
yields were little changed. Throughout the period, the near absence of
inflationary pressures continued to support low interest rates. However,
consistently strong domestic economic growth has caused some investors to fear
that the Federal Reserve Board will be forced eventually to raise short-term
interest rates. Such action would be taken to ensure that the US economy's
present rate of growth would decelerate before any inflationary pressures could
develop. These concerns pushed bond yields modestly higher by late April.
However, the weakening financial conditions in many Asian countries subsequently
calmed investor fears of Federal Reserve Board intervention, and fixed-income
prices again moved higher. Long-term uninsured municipal bond yields, as
measured by the Bond Buyer Revenue Bond Index, rose less than 5 basis points
(0.05%) to end the July quarter at 5.36%. As in late 1997 and early 1998, US
Treasury bond yields benefited from a "flight to quality" as foreign investors
were drawn to the relative safe haven of US Government securities. Long-term US
Treasury bond yields declined approximately 10 basis points to end the July
quarter at 5.71%.
Thus far in 1998, the municipal bond market has experienced unexpectedly strong
supply pressures. These supply pressures have prevented tax-exempt bond yields
from declining as much as US Treasury bond yields. During the first six months
of 1998, more than $153 billion in new tax-exempt bonds were underwritten, an
increase of almost 50% compared to the same period a year ago. During the
quarter ended July 31, 1998, municipalities issued over $75 billion in new
securities, an increase of more than 35% compared to the same three-month period
in 1997. Additionally, corporate issuers have also viewed current interest rate
levels as an opportunity to issue significant amounts of taxable securities.
Thus far in 1998, over $500 billion in investment-grade corporate bonds have
been underwritten, an increase of more than 70% compared to the same period a
year ago. This sizeable corporate bond issuance has tended to both support
generally higher fixed-income yields and reduce the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely to be
maintained. Continued increases in bond issuance will require lower and lower
tax-exempt bond yields to generate the economic savings necessary for additional
municipal bond refinancings. Preliminary estimates for 1998 total municipal bond
issuance are in the $200 bil- lion-$225 billion range. These estimates suggest
that recent supply pressures are likely to abate later in the year. Earlier this
year, municipal bond investors received approximately $30 billion in coupon
payments, bond maturities and proceeds from early redemptions. The demand
generated by these assets has helped to offset the increase in supply seen thus
far in 1998.
The continued impact of the Asian financial crisis on the US domestic economy's
future growth remains unclear. Current Asian economic conditions continue to
reflect ongoing weakness. Recent trade data indicated that reduced US exports to
these countries may have lowered US economic growth by as much as 2% in the
first quarter of 1998. Since further trade deterioration is possible in the
coming months, we do not believe that the Federal Reserve Board will be willing
to raise interest rates, barring a dramatic and unexpected resurgence of
domestic inflation.
These factors suggest that over the near term, interest rates are unlikely to
rise by any appreciable amount. Recent supply pressures have caused municipal
bond yield ratios to rise relative to US Treasury bond yields. At July 31, 1998,
long-term tax-exempt bond yields were at attractive yield ratios relative to US
Treasury securities of comparable maturities (over 90%), well in excess of their
expected range of 85%-88%. Tax-exempt bond yield ratios rarely exceeded 90% in
the 1980s and 1990s. Previous instances have usually been associated with
potential changes in Federal tax code that would have adversely affected the
tax-favored status of municipal bonds. The present situation has developed
largely because of a temporary supply imbalance. These imbalances should soon be
corrected as tax-exempt bond issuance slows from its current rapid pace later
this year. Any further pressure on the municipal market may well represent a
very attractive investment opportunity.
1
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
Portfolio Strategy
During the six-month period ended July 31, 1998, our investment outlook for
Merrill Lynch New Jersey Municipal Bond Fund was basically constructive. The
deterioration in the Asian economies helped keep interest rates low, even in the
face of strong domestic economic growth. This combination of strong growth and
low inflation kept bond yields within a rather narrow trading range over the
past six months.
New issuance of New Jersey tax-exempt municipal bonds was just over $4 billion
during the six-month period ended July 31, 1998. This represents a decrease of
just over 25% compared to the same six-month period a year ago. Additionally,
the majority of new issuance in New Jersey was dominated by current coupons and
lesser call protection. We do not view such securities as attractive additions
to the Fund's portfolio.
Looking ahead, we expect to continue to maintain our fully invested position and
our constructive portfolio strategy to seek to benefit from a lower interest
rate environment. However, anticipated lack of new issuance in New Jersey may
curtail our ability to execute this strategy.
Fiscal Year in Review
During the fiscal year ended July 31, 1998, total municipal issuance increased
by more than 40% compared to the same period last year, while New Jersey
municipal issuance decreased by more than 10% over the same period. Both the
tax-exempt and US Treasury markets experienced a decline in yields, although the
greater increase in tax-exempt issuance resulted in municipal performance
lagging that of US Treasury securities.
Given the narrow trading range of the municipal bond market, we maintained a
slightly defensive strategy going into the second half of 1997. We believed that
economic growth would resurge and the Federal Reserve Board would raise interest
rates in order to keep inflation under control. However, in late October 1997,
the Asian equity market turmoil created an increased demand for US Treasury
securities, causing a rally in the bond market. In response to the Asian
economic crisis and the continued domestic low inflation environment, we shifted
the Fund to a more aggressive position by early November 1997.
The Fund remained constructive through July 31, 1998, participating in the
continued bond market rally, which brought interest rates to their recent
historic lows. These strategies produced total returns of +5.51%, +4.98%, +4.96%
and +5.50% for the Fund's Class A, Class B, Class C and Class D Shares,
respectively, for the year ended July 31, 1998. This compares to the Lipper
Analytical Services, Inc. average total return of +5.26% for similar New Jersey
tax-exempt funds during the same 12-month period.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch New Jersey Municipal Bond
Fund, and we look forward to assisting you with your financial needs in the
months and years ahead.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Roberto Roffo
Roberto Roffo
Vice President and Portfolio Manager
September 3, 1998
- --------------------------------------------------------------------------------
We are pleased to announce that Roberto Roffo is responsible for the day-to-day
management of Merrill Lynch New Jersey Municipal Bond Fund. Mr. Roffo has been
employed by Merrill Lynch Asset Management, L.P. (an affiliate of the Fund's
investment adviser) since 1996 as Vice President and since 1992 as Portfolio
Manager.
- --------------------------------------------------------------------------------
2
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class A
Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.25% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.35% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of future
performance. Figures shown in the "Recent Performance Results" and "Average
Annual Total Return" tables assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. Investment return
and principal value of shares will fluctuate so that shares, when redeemed, may
be worth more or less than their original cost. Dividends paid to each class of
shares will vary because of the different levels of account maintenance,
distribution and transfer agency fees applicable to each class, which are
deducted from the income available to be paid to shareholders.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Recent Performance Results*
- --------------------------------------------------------------------------------------------------------------------
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/98
====================================================================================================================
<S> <C> <C> <C> <C>
ML New Jersey Municipal Bond Fund Class A Shares +5.51% +2.43% +76.59% 4.17%
- --------------------------------------------------------------------------------------------------------------------
ML New Jersey Municipal Bond Fund Class B Shares +4.98 +2.20 +69.65 3.83
- --------------------------------------------------------------------------------------------------------------------
ML New Jersey Municipal Bond Fund Class C Shares +4.96 +2.27 +29.09 3.73
- --------------------------------------------------------------------------------------------------------------------
ML New Jersey Municipal Bond Fund Class D Shares +5.50 +2.40 +31.73 4.07
====================================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's inception dates are Class A and
Class B Shares, 8/31/90 and Class C and Class D Shares, 10/21/94.
3
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
PERFORMANCE DATA (concluded)
Merrill Lynch New Jersey Municipal Bond Fund
Total Return Based on a $10,000 Investment--Class A Shares and Class B Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class B Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
8/31/90** 7/98
ML New Jersey Municipal Bond Fund+--Class A Shares* $ 9,600 $16,954
ML New Jersey Municipal Bond Fund+--Class B Shares* $10,000 $16,965
Lehman Brothers Municipal Bond Index++ $10,000 $18,699
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
10/21/94** 7/98
ML New Jersey Municipal Bond Fund+--Class C Shares* $10,000 $12,909
ML New Jersey Municipal Bond Fund+--Class D Shares* $ 9,600 $12,646
Lehman Brothers Municipal Bond Index++ $10,000 $13,837
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML New Jersey Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of New
Jersey, its political subdivisions, agencies and instrumentalities and
obligations of other qualifying issuers.
++ This unmanaged Index consists of long-term revenue bonds, prerefunded
bonds, general obligation bonds and insured bonds. The starting date for
the Index in the Class C & Class D Shares graph is 10/31/94.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 6/30/98 +8.59% +4.25%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/98 +5.42 +4.56
- --------------------------------------------------------------------------------
Inception (8/31/90)
through 6/30/98 +7.51 +6.95
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/98 +8.05% +4.05%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/98 +4.89 +4.89
- --------------------------------------------------------------------------------
Inception (8/31/90)
through 6/30/98 +6.96 +6.96
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 6/30/98 +8.04% +7.04%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/98 +7.12 +7.12
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 6/30/98 +8.58% +4.24%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/98 +7.70 +6.51
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------------
New Jersey--93.9%
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<S> <C> <C> <C> <C>
AAA Aaa $ 250 Camden County, New Jersey, Improvement Authority Revenue Bonds (Health
System--Catholic Health East), Series B, 5% due 11/15/2028 (c) $ 243
- ---------------------------------------------------------------------------------------------------------------------------------
Cape May County, New Jersey, Industrial Pollution Control Financing Authority
Revenue Bonds (Atlantic City Electric Company Project), Series A (d):
AAA Aaa 6,000 AMT, 7.20% due 11/01/2029 6,851
AAA Aaa 4,500 Refunding, 6.80% due 3/01/2021 5,523
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East Orange, New Jersey, Board of Education, COP (AGH Leasing Inc.) (h):
AAA Aaa 2,500 5.34%** due 8/01/2020 822
AAA Aaa 2,850 5.38%** due 2/01/2028 636
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AAA Aaa 3,800 Essex County, New Jersey, Improvement Authority, Utility System Revenue Bonds
(Orange Franchise), UT, Series A, 5.75% due 7/01/2027 (d) 4,024
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AA Aa3 3,200 Jersey City, New Jersey, School, GO, UT, 6.65% due 2/15/2002 (g) 3,519
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AAA Aaa 3,250 Landis, New Jersey, Sewer Authority, Revenue Bonds, CARS, 7.22% due 9/19/2019 (b)(f) 3,823
- ---------------------------------------------------------------------------------------------------------------------------------
NR* NR* 5,750 Middlesex County, New Jersey, Pollution Control Financing Authority, Revenue
Refunding Bonds (Amerada Hess), 6.875% due 12/01/2022 6,271
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,100 Middlesex County, New Jersey, Utilities Authority, Sewer Revenue Bonds, Series A,
6.50% due 3/15/2001 (f)(g) 1,188
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Monmouth County, New Jersey, Improvement Authority Revenue Bonds (Howell
Township Board of Education Project), UT, 5.80% due 7/15/2017 (c) 1,068
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Monmouth County, New Jersey, Improvement Authority, Sewer Facilities Revenue
Refunding Bonds, 6.75% due 2/01/2001 (d)(g) 2,166
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New Jersey EDA, Economic Development Revenue Bonds:
BBB- Baa2 4,000 (American Airlines Inc. Project), AMT, 7.10% due 11/01/2031 4,343
BBB- NR* 2,500 Refunding (First Mortgage--Fellowship Village), Series A, 5.50% due 1/01/2018 2,467
A1+ NR* 400 Refunding (Foreign Trade Zone Project), VRDN, 3.50% due 12/01/2007 (a) 400
A+ NR* 2,000 Refunding (Health Village--1996 Project), 6% due 5/01/2016 2,155
AAA Aaa 2,500 Refunding (RWJ Health Care Corporation), 6.50% due 7/01/2024 (h) 2,772
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,700 New Jersey EDA, Educational Testing Services Revenue Bonds, Series B,
6.25% due 5/15/2025 (d) 1,878
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AAA Aaa 2,500 New Jersey EDA, Lease Rental (Liberty State Park Project), 6.80% due 3/15/2002 (g) 2,769
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch New Jersey Municipal Bond Fund's
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
CARS Complementary Auction Rate Securities
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
M/F Multi-Family
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
5
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------------
New Jersey (continued)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $ 100 New Jersey EDA, Natural Gas Facilities Revenue Refunding Bonds (New Jersey Gas
Company Project), VRDN, AMT, Series B, 3.10% due 1/01/2028 (a)(c) $ 100
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 New Jersey EDA, Package Facilities Revenue Bonds (Elizabeth Development
Company Project), 5.60% due 10/15/2026 (f) 1,047
- ---------------------------------------------------------------------------------------------------------------------------------
BB- Ba2 2,000 New Jersey EDA, Special Facility Revenue Bonds (Continental Airlines Inc. Project),
AMT, 5.50% due 4/01/2028 1,983
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 New Jersey EDA, Water Facilities Revenue Bonds, RITR, AMT, Series 35, 6.72%
due 2/01/2038 (b)(d) 2,538
- ---------------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority Revenue Refunding Bonds:
A- A3 2,000 (Atlantic City Medical Center), Series C, 6.80% due 7/01/2011 2,199
BBB Baa2 4,980 (Englewood Hospital & Medical Center), 6.75% due 7/01/2024 5,470
AAA Aaa 2,000 (Hackensack University Medical Center), 6.625% due 7/01/2001 (f)(g) 2,178
AAA Aaa 4,350 (Hackensack University Medical Center), Series A, 5% due 1/01/2028 (d) 4,213
AAA Aaa 7,745 (Jersey Shore Medical Center), 6.75% due 7/01/2019 (c) 8,687
BBB Baa2 4,000 (Saint Elizabeth Hospital Obligation Group), 6% due 7/01/2027 4,177
- ---------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,090 New Jersey Sports and Exposition Authority (State Contract),
VRDN, Series C, 3.25% due 9/01/2024 (a)(d) 1,090
- ---------------------------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority Revenue Bonds:
AA+ Aaa 2,325 (Institute for Advanced Study), Series G, 5% due 7/01/2028 2,286
BBB Baa2 440 (Monmouth University), Series D, 5.125% due 7/01/2018 430
BBB Baa2 550 (Monmouth University), Series D, 5.125% due 7/01/2024 531
AA+ Aaa 230 Refunding (Institute for Advanced Study), Series F, 5% due 7/01/2021 227
AAA Aaa 1,000 Refunding (Seton Hall University Project), 5% due 7/01/2018 (c) 970
AAA Aaa 1,000 Refunding (Seton Hall University Project), Series F, 5% due 7/01/2021 (c) 980
A- Baa1 500 (Seton Hall University Project), Series D, 7% due 7/01/2021 537
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,855 New Jersey State Housing and Mortgage Finance Agency, Home Buyer Revenue
Bonds, AMT, Series M, 7% due 10/01/2026 (d) 5,277
- ---------------------------------------------------------------------------------------------------------------------------------
AAA NR* 7,000 New Jersey State Housing and Mortgage Finance Agency, M/F Housing Revenue
Refunding Bonds (Presidential Plaza), 6.95% due 5/01/2013 (e) 7,567
- ---------------------------------------------------------------------------------------------------------------------------------
A1 VMIG1+ 14,700 New Jersey State Transportation Trust Fund Authority, RITR,
Series RI-1, 7.595% due 6/15/2014 (b) 16,651
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,120 Passaic Valley, New Jersey, Water Commission, Water Supply Revenue Bonds,
Series A, 6.40% due 12/15/2002 (f)(g) 2,349
- ---------------------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Consolidated Revenue Bonds:
AA- A1 3,800 69th Series, 7.125% due 6/01/2025 4,024
AA- A1 5,250 72nd Series, 7.35% due 10/01/2002 (g) 5,943
AAA Aaa 3,300 96th Series, AMT, 6.60% due 10/01/2023 (f) 3,642
AA- A1 1,000 111th Series, 5% due 10/01/2027 972
- ---------------------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Special Obligation Revenue Bonds
(Versatile Structure Obligation), VRDN (a):
A1+ VMIG1+ 1,600 AMT, Series 6, 3.65% due 12/01/2017 1,600
A1+ VMIG1+ 700 Refunding, Series 2, 3.60% due 5/01/2019 700
A1+ VMIG1+ 800 Series 3, 3.65% due 6/01/2020 800
A1+ VMIG1+ 100 Series 5, 3.65% due 8/01/2024 100
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------------
New Jersey (concluded)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA A1 $1,000 Rutgers State University, New Jersey, University Revenue Bonds, Series P, 6.85%
due 5/01/2001 (g) $ 1,092
- ---------------------------------------------------------------------------------------------------------------------------------
South Brunswick Township, New Jersey, Board of Education Revenue Bonds, UT (f)(g):
AAA Aaa 1,215 6.40% due 8/01/2005 1,369
AAA Aaa 1,000 6.40% due 8/01/2005 1,126
- ---------------------------------------------------------------------------------------------------------------------------------
BBB NR* 1,090 South Jersey Transportation Authority, New Jersey, Lease Revenue Bonds (Raytheon
Aircraft Service, Inc. Project), AMT, Series A, 6.15% due 1/01/2022 1,161
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Trenton, New Jersey, GO, UT, 6.55% due 8/15/2002 (d)(g) 2,768
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,185 Union County, New Jersey, Improvement Authority Revenue Bonds (Plainfield Board of
Education Project), 5.85% due 8/01/2026 (f) 2,332
- ---------------------------------------------------------------------------------------------------------------------------------
Union County, New Jersey, Utilities Authority Solid Waste Revenue Bonds:
AA+ Aaa 1,750 (County Deficiency), Series C1, 5% due 6/15/2028 1,707
AA+ Aaa 500 (County Deficiency), Series C2, 5% due 6/15/2028 488
AAA Aaa 2,000 (Ogden Martin), AMT, Senior Lease, Series A, 5% due 6/01/2015 (c) 1,960
AAA Aaa 3,000 (Ogden Martin), AMT, Senior Lease, Series A, 5% due 6/01/2016 (c) 2,927
- ---------------------------------------------------------------------------------------------------------------------------------
University of Medicine and Dentistry, New Jersey (g):
AA- A3 1,170 Refunding, Series D, 6.50% due 12/01/2001 1,280
AA- A3 2,750 Series E, 6.50% due 12/01/2001 3,009
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--4.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue Refunding Bonds, Series EE:
BBB+ Baa1 3,500 4.75% due 7/01/2024 3,268
AAA Aaa 3,750 4.75% due 7/01/2024 (d) 3,547
- ---------------------------------------------------------------------------------------------------------------------------------
AA Aa3 1,500 Puerto Rico Industrial, Medical and Environmental Pollution Control Facilities,
Financing Authority Revenue Bonds (Motorola Inc. Project), Series A, 6.75% due 1/01/2014 1,651
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$160,776)--98.8% 171,871
Other Assets Less Liabilities--1.2% 2,026
--------
Net Assets--100.0% $173,897
========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rates shown are those in effect at July 31,
1998.
(b) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1998.
(c) AMBAC Insured.
(d) MBIA Insured.
(e) FHA Insured.
(f) FGIC Insured.
(g) Prerefunded.
(h) FSA Insured.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
7
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of July 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$160,775,571) (Note 1a) .......... $171,871,330
Cash ..................................................................... 2,087
Receivables:
Securities sold ........................................................ $ 10,588,796
Interest ............................................................... 2,096,341
Beneficial interest sold ............................................... 281,274 12,966,411
------------
Prepaid registration fees and other assets (Note 1e) ..................... 15,119
------------
Total assets ............................................................. 184,854,947
------------
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ................................................... 8,849,219
Beneficial interest redeemed ........................................... 1,764,264
Dividends to shareholders (Note 1f) .................................... 136,657
Investment adviser (Note 2) ............................................ 87,167
Distributor (Note 2) ................................................... 61,758 10,899,065
------------
Accrued expenses and other liabilities ................................... 58,531
------------
Total liabilities ........................................................ 10,957,596
------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................... $173,897,351
============
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized ........................................................ $ 291,820
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 1,134,290
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 64,995
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 66,880
Paid-in capital in excess of par ......................................... 162,378,398
Accumulated realized capital losses on investments--net .................. (966,304)
Accumulated distributions in excess of realized capital gains--net
(Note 1f) ................................................................ (168,487)
Unrealized appreciation on investments--net .............................. 11,095,759
------------
Net assets ............................................................... $173,897,351
============
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $32,570,611 and 2,918,196 shares
of beneficial interest outstanding ....................................... $ 11.16
============
Class B--Based on net assets of $126,606,084 and 11,342,896 shares
of beneficial interest outstanding ....................................... $ 11.16
============
Class C--Based on net assets of $7,252,531 and 649,950 shares
of beneficial interest outstanding ....................................... $ 11.16
============
Class D--Based on net assets of $7,468,125 and 668,802 shares
of beneficial interest outstanding ....................................... $ 11.17
============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Statement of Operations
- ---------------------------------------------------------------------------------------------------------------------------
For the Year Ended
July 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ................. $ 10,615,123
(Note 1d):
- ---------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ........................................ $ 996,046
Account maintenance and distribution fees--Class B (Note 2) .............. 653,198
Professional fees ........................................................ 64,676
Transfer agent fees--Class B (Note 2) .................................... 58,975
Printing and shareholder reports ......................................... 56,562
Account maintenance & distribution fees--Class C (Note 2) ................ 35,309
Accounting services (Note 2) ............................................. 32,485
Transfer agent fees--Class A (Note 2) .................................... 14,086
Custodian fees ........................................................... 10,548
Trustees' fees and expenses .............................................. 10,193
Pricing fees ............................................................. 7,576
Registration fees (Note 1e) .............................................. 6,040
Account maintenance fees--Class D (Note 2) ............................... 5,806
Transfer agent fees--Class C (Note 2) .................................... 2,677
Transfer agent fees--Class D (Note 2) .................................... 2,067
Other .................................................................... 5,400
------------
Total expenses ........................................................... 1,961,644
------------
Investment income--net ................................................... 8,653,479
------------
- ---------------------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments--net ........................................ 2,594,585
ized Gain (Loss) on Change in unrealized appreciation on investments--net .................... (2,231,431)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ..................... $ 9,016,633
============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
For the Year Ended
July 31,
---------------------------
Increase (Decrease) in Net Assets: 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ..................................................... $ 8,653,479 $ 9,212,587
Realized gain on investments--net .......................................... 2,594,585 2,401,190
Change in unrealized appreciation on investments--net ...................... (2,231,431) 5,264,581
------------ ------------
Net increase in net assets resulting from operations ....................... 9,016,633 16,878,358
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Class A .................................................................. (2,003,879) (1,957,776)
Shareholders Class B .................................................................. (6,087,084) (6,816,441)
(Note 1f): Class C .................................................................. (268,273) (213,894)
Class D .................................................................. (294,243) (224,476)
In excess of realized gain on investments--net:
Class A .................................................................. (37,255) --
Class B .................................................................. (122,063) --
Class C .................................................................. (4,660) --
Class D .................................................................. (4,509) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ............................................................ (8,821,966) (9,212,587)
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions ... (12,838,456) (16,583,986)
Transactions ------------ ------------
(Note 4):
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets ............................................... (12,643,789) (8,918,215)
Beginning of year .......................................................... 186,541,140 195,459,355
------------ ------------
End of year ................................................................ $173,897,351 $186,541,140
============ ============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------------------------------------------------------
Class A
The following per share data and ratios have been derived -------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
-------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ......... $ 11.15 $ 10.69 $ 10.71 $ 10.63 $ 11.23
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ..................... .58 .57 .58 .58 .58
Realized and unrealized gain (loss) on
investments--net ........................... .02 .46 (.02) .08 (.55)
--------- --------- --------- --------- ---------
Total from investment operations ........... .60 1.03 .56 .66 .03
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ................... (.58) (.57) (.58) (.58) (.58)
In excess of realized gain on
investments--net ......................... (.01) -- -- -- (.05)
--------- --------- --------- --------- ---------
Total dividends and distributions .......... (.59) (.57) (.58) (.58) (.63)
--------- --------- --------- --------- ---------
Net asset value, end of year ............... $ 11.16 $ 11.15 $ 10.69 $ 10.71 $ 10.63
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 5.51% 9.95% 5.32% 6.51% .19%
Return:* ========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ................................... .69% .70% .71% .74% .69%
Average ========= ========= ========= ========= =========
Net Assets: Investment income--net ..................... 5.17% 5.29% 5.36% 5.57% 5.28%
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ..... $ 32,571 $ 39,343 $ 38,173 $ 39,482 $ 46,669
Data: ========= ========= ========= ========= =========
Portfolio turnover ......................... 57.00% 54.02% 60.21% 57.17% 65.97%
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
loads.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------------------------------------------------------
Class B
The following per share data and ratios have been derived -------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
-------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ......... $ 11.15 $ 10.69 $ 10.71 $ 10.63 $ 11.23
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ..................... .52 .52 .52 .53 .53
Realized and unrealized gain (loss) on
investments--net ........................... .02 .46 (.02) .08 (.55)
--------- --------- --------- --------- ---------
Total from investment operations ........... .54 .98 .50 .61 (.02)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ................... (.52) (.52) (.52) (.53) (.53)
In excess of realized gain on
investments--net ......................... (.01) -- -- -- (.05)
--------- --------- --------- --------- ---------
Total dividends and distributions .......... (.53) (.52) (.52) (.53) (.58)
--------- --------- --------- --------- ---------
Net asset value, end of year ............... $ 11.16 $ 11.15 $ 10.69 $ 10.71 $ 10.63
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 4.98% 9.39% 4.77% 5.97% (.31%)
Return:* ========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ................................... 1.20% 1.21% 1.21% 1.25% 1.20%
Average ========= ========= ========= ========= =========
Net Assets: Investment income--net ..................... 4.66% 4.78% 4.85% 5.06% 4.77%
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ..... $ 126,606 $ 137,485 $ 149,455 $ 164,020 $ 178,322
Data: ========= ========= ========= ========= =========
Portfolio turnover ......................... 57.00% 54.02% 60.21% 57.17% 65.97%
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
loads.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Financial Highlights (continued)
- -----------------------------------------------------------------------------------------------------------------------
Class C
--------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
-------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............... $ 11.14 $ 10.69 $ 10.71 $ 10.34
Operating -------- -------- -------- --------
Performance: Investment income--net ............................. .51 .50 .51 .40
Realized and unrealized gain (loss) on
investments--net ................................... .03 .45 (.02) .37
-------- -------- -------- --------
Total from investment operations ................... .54 .95 .49 .77
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net ........................... (.51) (.50) (.51) (.40)
In excess of realized gain on investments--net ... (.01) -- -- --
-------- -------- -------- --------
Total dividends and distributions .................. (.52) (.50) (.51) (.40)
-------- -------- -------- --------
Net asset value, end of period ..................... $ 11.16 $ 11.14 $ 10.69 $ 10.71
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ................. 4.96% 9.18% 4.66% 7.62%++
Return:** ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ........................................... 1.30% 1.31% 1.32% 1.39%*
Average ======== ======== ======== ========
Net Assets: Investment income--net ............................. 4.56% 4.68% 4.76% 4.83%*
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ........... $ 7,252 $ 5,088 $ 4,179 $ 1,337
Data: ======== ======== ======== ========
Portfolio turnover ................................. 57.00% 54.02% 60.21% 57.17%
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Financial Highlights (concluded)
- -----------------------------------------------------------------------------------------------------------------------
Class D
--------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
-------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............... $ 11.15 $ 10.70 $ 10.71 $ 10.34
Operating -------- -------- -------- --------
Performance: Investment income--net ............................. .57 .56 .57 .44
Realized and unrealized gain (loss) on
transactions--net .................................. .03 .45 (.01) .37
-------- -------- -------- --------
Total from investment operations ................... .60 1.01 .56 .81
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net ........................... (.57) (.56) (.57) (.44)
In excess of realized gain on investments--net ... (.01) -- -- --
-------- -------- -------- --------
Total dividends and distributions .................. (.58) (.56) (.57) (.44)
-------- -------- -------- --------
Net asset value, end of period ..................... $ 11.17 $ 11.15 $ 10.70 $ 10.71
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ................. 5.50% 9.73% 5.31% 8.05%++
Return:** ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ........................................... .79% .80% .80% .86%*
Average ======== ======== ======== ========
Net Assets: Investment income--net ............................. 5.07% 5.19% 5.27% 5.45%*
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ........... $ 7,468 $ 4,625 $ 3,652 $ 2,390
Data: ======== ======== ======== ========
Portfolio turnover ................................. 57.00% 54.02% 60.21% 57.17%
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch New Jersey Municipal Bond Fund (the "Fund") is part of Merrill
Lynch 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 Fund offers four classes of shares under the
Merrill Lynch Select Pricing(SM) System. Shares of Class A and Class D are sold
with a front-end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio securities in
which the Fund invests are traded primarily in the over-the-counter municipal
bond and money markets and are valued at the last available bid price in the
over-the-counter market or on the basis of yield equivalents as obtained from
one or more dealers that make markets in the securities. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are valued at
amortized cost, which approximates market value. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Trust, including valuations furnished by a pricing service retained by the
Trust, which may utilize a matrix system for valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
(c) 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.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates. Distributions in excess of realized capital gains are due
primarily to differing tax treatments for financial futures transactions.
15
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). 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. The Fund has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of Merrill Lynch
Group, Inc.
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: 0.55% of the Fund's average daily net assets not exceeding $500
million; 0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in excess of $1
billion.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B ............................... 0.25% 0.25%
Class C ............................... 0.25% 0.35%
Class D ............................... 0.10% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1998, MLFD earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A ............................... $ 356 $ 4,253
Class D ............................... $9,477 $40,513
- --------------------------------------------------------------------------------
For the year ended July 31, 1998, MLPF&S received contingent deferred sales
charges of $179,458 and $3,277 relating to transactions in Class B and Class C
Shares, respectively.
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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 1998 were $100,860,704 and $117,469,490, respectively.
Net realized gains (losses) for the year ended July 31, 1998 and net unrealized
gains as of July 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ................. $ 2,956,925 $ 11,095,759
Financial futures contracts ........... (362,340) --
----------- ------------
Total ................................. $ 2,594,585 $ 11,095,759
=========== ============
- --------------------------------------------------------------------------------
As of July 31, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $11,095,759, of which $11,165,654 related to appreciated securities
and $69,895 related to depreciated securities. The aggregate cost of investments
at July 31, 1998 for Federal income tax purposes was $160,775,571.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$12,838,456 and $16,583,986 for the years ended July 31, 1998 and July 31, 1997,
respectively.
16
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 381,222 $ 4,240,657
Shares issued to shareholders
in reinvestment of dividends and
distributions .......................... 100,156 1,114,966
----------- -------------
Total issued ........................... 481,378 5,355,623
Shares redeemed ....................... (1,093,270) (12,202,101)
. ----------- -------------
Net decrease ........................... (611,892) $ (6,846,478)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 526,344 $ 5,690,235
Shares issued to shareholders in
reinvestment of dividends .............. 88,609 956,809
----------- -------------
Total issued ........................... 614,953 6,647,044
Shares redeemed ........................ (654,764) (7,060,967)
----------- -------------
Net decrease ........................... (39,811) $ (413,923)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,689,073 $ 18,826,264
Shares issued to shareholders in
reinvestment of dividends and
distributions .......................... 287,713 3,202,655
----------- -------------
Total issued ........................... 1,976,786 22,028,919
Automatic conversion of shares ......... (34,629) (384,276)
Shares redeemed ........................ (2,934,034) (32,654,647)
----------- -------------
Net decrease ........................... (991,877) $ (11,010,004)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,761,373 $ 19,014,349
Shares issued to shareholders
in reinvestment of dividends ........... 328,245 3,543,243
----------- -------------
Total issued ........................... 2,089,618 22,557,592
Automatic conversion of shares ......... (54,762) (591,748)
Shares redeemed ........................ (3,675,342) (39,652,155)
----------- -------------
Net decrease ........................... (1,640,486) $ (17,686,311)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 379,219 $ 4,239,001
Shares issued to shareholders in
reinvestment of dividends and
distributions .......................... 17,631 196,384
----------- -------------
Total issued ........................... 396,850 4,435,385
Shares redeemed ........................ (203,523) (2,261,041)
----------- -------------
Net increase ........................... 193,327 $ 2,174,344
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 239,355 $ 2,581,711
Shares issued to shareholders in
reinvestment of dividends .............. 13,237 142,942
----------- -------------
Total issued ........................... 252,592 2,724,653
Shares redeemed ........................ (186,786) (2,015,866)
----------- -------------
Net increase ........................... 65,806 $ 708,787
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 601,822 $ 6,735,516
Automatic conversion of shares ......... 34,617 384,276
Shares issued to shareholders in
reinvestment of dividends and
distributions .......................... 13,765 153,429
----------- -------------
Total issued ........................... 650,204 7,273,221
Shares redeemed ........................ (396,206) (4,429,539)
----------- -------------
Net increase ........................... 253,998 $ 2,843,682
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 148,901 $ 1,617,551
Automatic conversion of shares ......... 54,762 591,748
Shares issued to shareholders in
reinvestment of dividends .............. 10,026 108,271
----------- -------------
Total issued ........................... 213,689 2,317,570
Shares redeemed ........................ (140,344) (1,510,109)
----------- -------------
Net increase ........................... 73,345 $ 807,461
=========== =============
- --------------------------------------------------------------------------------
17
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, Merrill Lynch New Jersey Municipal Bond
Fund of Merrill Lynch Multi-State Municipal Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch New Jersey Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust as of July 31, 1998, 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 July 31,
1998 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 Merrill Lynch New
Jersey Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series Trust
as of July 31, 1998, 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
September 8, 1998
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch New
Jersey Municipal Bond Fund during its taxable year ended July 31, 1998 qualify
as tax-exempt interest dividends for Federal income tax purposes.
Additionally, the following table summarizes the capital gains distributions
paid by the Fund during the year:
- --------------------------------------------------------------------------------
Record Payable Long-Term
Date Date Capital Gains
- --------------------------------------------------------------------------------
12/19/97 12/31/97 $.010421*
- --------------------------------------------------------------------------------
* Of this long-term capital gain distribution, 49.44% is subject to the 28%
tax rate and 50.56% is subject to the 20% tax rate.
Please retain this information for your records.
18
<PAGE>
Merrill Lynch New Jersey Municipal Bond Fund July 31, 1998
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Roberto Roffo, Vice President
Gerald M. Richard, Treasurer
Robert E. Putney, III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
19
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This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch New Jersey
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #11298--7/98
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