MERRILL LYNCH
MASSACHUSETTS
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 1999
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1999, long-term bond yields rose
significantly. Steady US economic growth combined with improvement in foreign
economies, most notably Japan and Brazil, as well as an inflation scare in early
May put upward pressure on bond yields throughout the period. Continued strong
US employment growth, particularly the decline in the US unemployment rate to
4.2% in early June, was among the reasons the Federal Reserve Board cited for
raising short-term interest rates in late June. US Treasury bond yields reacted
by climbing above 6.15% by late June before improving somewhat to 6.10% by July
31, 1999. During the last six months, yields on long-term US Treasury securities
increased approximately 100 basis points (1.00%).
Long-term tax-exempt bond yields also rose during the last six months. Until
early May, the municipal bond market had been able to withstand much of the
upward pressure on bond yields. However, investor concerns regarding ongoing US
economic strength and the fear of additional moves by the Federal Reserve Board
eventually pushed municipal bond yields higher throughout June and July. During
the period, the yields on long-term tax-exempt revenue bonds rose almost 50
basis points to 5.65%, as measured by the Bond Buyer Revenue Bond Index.
The ability of the tax-exempt bond market to withstand much of the recent upward
pressure on long-term fixed-income bond yields has been a reflection of the
continued strong technical position the muni cipal bond market has enjoyed in
recent quarters. During the last six months, more than $120 billion in long-term
municipal bonds was underwritten, a decrease of more than 20% compared to the
same period a year ago. During the past three months, more than $60 billion in
municipal bonds was underwritten. This quarterly issuance represents a decline
of nearly 25% compared to the same three-month period in 1998.
Recently, the municipal supply position deteriorated even further. Total
issuance in July 1999 of $16.5 billion was more than 30% lower than July 1998
levels. Additionally, in June and July, investors received more than $40 billion
in coupon income and proceeds from bond maturities and early bond redemptions.
These proceeds have generated significant retail investor interest, easily
absorbing the recent diminished supply. This very favorable supply/demand
position allowed the tax-exempt bond market to outperform its taxable
counterpart in recent months.
However, the recent relative outperformance of the municipal bond market has
somewhat reduced the very attractive tax-exempt bond yield ratios that were
available at the end of 1998. In December 1998, long-term, uninsured municipal
bond yields were higher than those of their taxable counterparts. Historically,
long-term tax-exempt bond yields have been approximately 82%-85% of long-term US
Treasury bond yields. Municipal bond yields rose at a lower rate in recent
months than US Treasury bond yields, causing the yield ratio to decline. At July
31, 1999, long-term municipal bond yields were approximately 92% of their
taxable counterparts. Current ratios, while lower than those available at the
end of 1998, still represent historically attractive levels. We expect the
municipal bond market to maintain its strong technical position for the
remainder of 1999. Consequently, there appears to be little reason for the
tax-exempt bond market to underperform the taxable US Treas ury bond market.
This suggests that the present bond yield ratio is likely to remain stable in
the coming months and a return to a ratio in excess of 100% of taxable Treasury
securities is improbable.
Looking ahead, it appears to us that long-term munici pal bond yields will trade
in a relatively tight range near current levels. Strong US economic performance
is being balanced by nearly negligible inflation data, as well as improvements
in productivity in both manufacturing and service industries. Future moves by
the Federal Reserve Board have largely been discounted by bond markets and are
to a great extent reflected in present bond yields.
Any improvement in bond prices is likely to be contingent upon weakening in both
US employment growth and consumer spending. The 100 basis point rise in US
Treasury bond yields seen thus far this year is likely to negatively affect US
economic growth. The US housing market will be among the first sectors likely to
be affected, as some declines have already been evidenced because of higher
mortgage rates. We believe it is also unrealistic to expect double-digit returns
in US equity markets to continue indefinitely. Much of the US consumer's wealth
is tied to recent stock
1
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
market appreciation. Any slowing in these incredible growth rates is likely to
reduce consumer spending. These factors suggest that the worst of the recent
increase in bond yields has passed and stable, if not slightly improving, bond
prices may be expected.
Fiscal Year in Review
Given the considerable volatility exhibited by long-term interest rates during
the past year, we made several changes in portfolio strategy in order to guide
the Fund through a difficult investment environment. Initially, the worldwide
economic and financial market turbulence witnessed last fall prompted a more
constructive outlook on our part as expectations of sharp declines in long-term
interest rates were soon fulfilled. As a result, the Fund benefited from our
efforts to position the portfolio more aggressively during this period.
However, interest rates began to rise as evidence of renewed financial market
stability slowly mounted. Signs of continued strength in the domestic economy
added to investor concerns, signaling a shift in investor psychology. Our
efforts turned to repositioning the portfolio more defensively as a means to
preserve net asset values. We increased cash reserves temporarily while we
accomplished a modest restructuring of the Fund's holdings. While these efforts
helped to insulate the Fund to some degree, the full impact of the bond market's
decline could by no means be avoided.
Technical limitations inherent within the municipal market and the Massachusetts
market in particular further hindered our efforts to insulate the portfolio.
New-issue tax-exempt volume in Massachusetts for the year declined 10%, equal to
the 10% decline in national volume. This lack of new issuance allowed for few
opportunities to significantly restructure the portfolio in a manner consistent
with our changing investment outlook.
Finally, two other investment themes affected the Fund during the year. First,
quality spreads (that is, yield spreads between higher-rated and lower-rated
credits) remained very narrow for most of the year. In our opinion, investors
were not being adequately compensated for the assumption of added credit risk.
Consequently, we sought to upgrade the average quality of the portfolio. Second,
with many of the Fund's holdings facing early redemption during the next few
years, the current rise in long-term interest rates, in our opinion, presented
an excellent opportunity to sell off those holdings and reinvest the proceeds in
securities possessing more attractive redemption features. We sought to extend
the portfolio's average call protection at an opportune time. Furthermore, we
believe our proactive approach toward managing call protection should help to
insulate the Fund from any untimely redemptions, which we believe will help
sustain shareholder income for the near term.
As a result of our efforts this year, the Fund generated total returns for the
12-month period ended July 31, 1999 that underperformed the average return for
all Massachusetts municipal tax-exempt funds, as measured by Lipper Analytical
Services, Inc. However, the Fund did produce 12-month yields that exceeded the
industry average.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Massachusetts Municipal
Bond Fund, and we look forward to serving your investment needs in the months
and years to come.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Trustee
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Theodore R. Jaeckel Jr.
Theodore R. Jaeckel Jr.
Vice President and Portfolio Manager
August 31, 1999
2
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM 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 distri butions 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 share holders.
Recent Performance Results*
<TABLE>
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/99
==================================================================================================================
<S> <C> <C> <C> <C>
ML Massachusetts Municipal Bond Fund Class A Shares -0.21% -2.67% +59.59% 4.00%
- ------------------------------------------------------------------------------------------------------------------
ML Massachusetts Municipal Bond Fund Class B Shares -0.71 -2.80 +53.70 3.65
- ------------------------------------------------------------------------------------------------------------------
ML Massachusetts Municipal Bond Fund Class C Shares -0.81 -2.82 +30.91 3.55
- ------------------------------------------------------------------------------------------------------------------
ML Massachusetts Municipal Bond Fund Class D Shares -0.30 -2.70 +34.32 3.90
==================================================================================================================
</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 since inception dates are from
2/28/92 for Class A & Class B Shares and from 10/21/94 for Class C & Class
D Shares.
3
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
Class A and Class B Shares
A line graph depicting the growth of an investment in the Portfolio'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:
2/28/92** 7/99
ML Massachusetts Municipal Bond Fund+--Class A Shares* $ 9,600 $15,320
ML Massachusetts Municipal Bond Fund+--Class B Shares* $10,000 $15,370
Lehman Brothers Municipal Bond Index++ $10,000 $16,393
Class C and Class D Shares
A line graph depicting the growth of an investment in the Portfolio's Class C
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** 7/99
ML Massachusetts Municipal Bond Fund+--Class C Shares* $10,000 $13,091
ML Massachusetts Municipal Bond Fund+--Class D Shares* $ 9,600 $12,895
Lehman Brothers Municipal Bond Index++ $10,000 $14,235
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Massachusetts Municipal Bond Fund invests primarily in long-term,
investment-grade obligations issued by or on behalf of the Commonwealth of
Massachusetts, 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 from 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 6/30/99 -0.26% -4.25%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +5.93 +5.07
- --------------------------------------------------------------------------------
Inception (2/28/92)
through 6/30/99 +6.52 +5.93
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/99 -0.77% -4.57%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +5.42 +5.42
- --------------------------------------------------------------------------------
Inception (2/28/92)
through 6/30/99 +5.98 +5.98
- --------------------------------------------------------------------------------
* 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 6/30/99 -0.86% -1.81%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +5.85 +5.85
- --------------------------------------------------------------------------------
* 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 6/30/99 -0.36% -4.34%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +6.42 +5.50
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts--98.9%
- ------------------------------------------------------------------------------------------------------------------------------------
AA- Aa3 $1,000 Massachusetts Bay Transportation Authority Revenue Bonds
(General Transportation System), Series A, 7% due 3/01/2021 $ 1,188
- ------------------------------------------------------------------------------------------------------------------------------------
AA- Aa3 1,750 Massachusetts Bay Transportation Authority, Revenue Refunding Bonds (General
Transportation System), Series A, 7% due 3/01/2011 2,038
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 815 Massachusetts Education Loan Authority, Education Loan Revenue Bonds, AMT, Issue E,
Series A, 7.375% due 1/01/2012 (a) 870
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,880 Massachusetts Educational Financing Authority, Education Loan Revenue Refunding
Bonds, AMT, Issue E, 5.85% due 7/01/2014 (a) 1,931
- ------------------------------------------------------------------------------------------------------------------------------------
BBB+ NR* 1,000 Massachusetts State Development Finance Agency Revenue Bonds (YMCA of Greater
Boston Issue), 5.45% due 11/01/2028 935
- ------------------------------------------------------------------------------------------------------------------------------------
BBB+ A3 2,500 Massachusetts State Development Finance Agency, Revenue Refunding Bonds (Boston
University), Series P, 5.45% due 5/15/2059 2,342
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Massachusetts State HFA, Revenue Refunding Bonds (Residential Development), Series C,
6.875% due 11/15/2011 (c) 2,144
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts State HFA, S/F Housing Revenue Bonds, AMT:
A+ Aa3 1,400 Series 38, 7.20% due 12/01/2026 1,456
AAA Aaa 1,730 Series 48, 6.35% due 6/01/2026 (d) 1,810
- ------------------------------------------------------------------------------------------------------------------------------------
A+ Aa3 1,995 Massachusetts State HFA, S/F Housing Revenue Refunding Bonds, AMT, Series 40, 6.65%
due 12/01/2027 2,111
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities Authority Revenue Bonds:
AAA Aaa 5,150 (Medical Center of Central Massachusetts), CARS, Series B, 9.47% due 6/23/2022 (a)(e) 6,206
AAA Aaa 1,000 (Northeastern University), Series I, 5% due 10/01/2029 (d) 917
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities Authority, Revenue Refunding Bonds:
NR* Ba2 805 (Bay Cove Human Services Issue), Series A, 5.85% due 4/01/2004 808
AAA Aaa 85 (Boston College), Series J, 6.625% due 7/01/2021 (b) 90
A1+ VMIG1+ 400 (Harvard University), VRDN, 3% due 2/01/2016 (f) 400
NR* Ca 1,000 (New England Memorial Hospital), Series B, 6.125% due 7/01/2013 (i) 315
AAA Aaa 1,000 (Northeastern University), Series E, 6.55% due 10/01/2022 (d) 1,076
AA- A1 1,950 (Partners Healthcare System), Series B, 5.125% due 7/01/2019 1,824
NR* Aaa 1,600 (Southcoast Health System), Series A, 4.75% due 7/01/2027 (d) 1,391
AAA NR* 2,500 (Stonehill College), RIB, Series 80, 7.015% due 7/01/2028 (d)(e) 2,271
AAA Aaa 450 (Stonehill College), Series E, 6.60% due 7/01/2002 (d)(g) 488
AAA Aaa 550 (Stonehill College), Series E, 6.60% due 7/01/2020 (d) 590
NR* A2 2,335 (Wheaton College), Series C, 5.25% due 7/01/2019 2,254
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Massachusetts 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
GO General Obligation Bonds
HFA Housing Finance Agency
RIB Residual Interest Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
5
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $1,000 Massachusetts State Industrial Finance Agency Revenue Bonds (College of the Holy Cross),
5% due 9/01/2023 (d) $ 926
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Massachusetts State Industrial Finance Agency, Revenue Refunding Bonds (Tufts University),
Series H, 4.75% due 2/15/2028 (d) 2,189
- ------------------------------------------------------------------------------------------------------------------------------------
BBB NR* 2,000 Massachusetts State Industrial Financial Agency, Resource Recovery Revenue Refunding
Bonds (Ogden Haven Hill Project), AMT, Series A, 5.60% due 12/01/2019 1,929
- ------------------------------------------------------------------------------------------------------------------------------------
AA- Aa3 2,000 Massachusetts State Port Authority, Revenue Refunding Bonds, Series A, 5% due 7/01/2023 1,848
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Massachusetts State Water Pollution Abatement Trust Revenue Bonds (Pooled Loan Program),
Series 4, 4.70%*** due 8/01/2012 508
- ------------------------------------------------------------------------------------------------------------------------------------
AA+ Aa3 1,680 Massachusetts State Water Pollution Abatement Trust, Water Pollution Abatement Revenue
Bonds (Secured Loan Program), Series A, 6.375% due 2/01/2015 1,820
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,550 Massachusetts State Water Pollution Abatement Trust, Water Pollution Abatement Revenue
Refunding Bonds (New Bedford Program), Series A, 4.75% due 2/01/2021 (b) 1,383
- ------------------------------------------------------------------------------------------------------------------------------------
A+ A1 6,000 Massachusetts State Water Resource Authority Revenue Bonds, Series A, 6.50% due 7/15/2019 6,756
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 South Essex, Massachusetts, Sewer District, GO, Series A, 5.25% due 6/15/2024 (d) 958
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,210 Southern Berkshire, Massachusetts, Regional School District, GO, 7% due 4/15/2011 (d)(h) 1,322
- ------------------------------------------------------------------------------------------------------------------------------------
NR* Baa3 1,500 Springfield, Massachusetts, GO (School Project Loan), Series B, 7.10% due 9/01/2002 (g) 1,650
- ------------------------------------------------------------------------------------------------------------------------------------
A+ Aa3 1,000 University of Massachusetts Building Authority, Revenue Refunding Bonds, Series B, 6.875%
due 5/01/2014 1,166
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 100 Puerto Rico Commonwealth Highway and Transportation Authority, Transportation
Revenue Refunding Bonds, VRDN, Series A, 2.85% due 7/01/2028 (a)(f) 100
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$57,021)--99.1% 58,010
Variation Margin on Financial Futures Contracts**--0.1% 57
Other Assets Less Liabilities--0.8% 462
--------
Net Assets--100.0% $ 58,529
========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FNMA Collateralized.
(d) MBIA Insured.
(e) 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, 1999.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31,
1999.
(g) Prerefunded.
(h) All or a portion of security held as collateral in connection with open
financial futures contracts.
(i) Non-income producing security.
+ Highest short-term rating by Moody's Investors Service, Inc.
* Not Rated.
** Financial futures contracts sold as of July 31, 1999 were as follows:
- --------------------------------------------------------------------------------
(in Thousands)
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
166 US Treasury Bonds September 1999 $19,085
- --------------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$19,386) $19,085
=======
- --------------------------------------------------------------------------------
*** Represents a zero coupon or step bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
6
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$57,021,305) (Note 1a)... $58,010,270
Cash............................................................ 92,875
Receivables:
Interest...................................................... $ 643,959
Variation margin (Note 1b).................................... 57,062
Beneficial interest sold...................................... 651 701,672
---------
Prepaid registration fees and other assets (Note 1e)............ 1,709
-----------
Total assets.................................................... 58,806,526
-----------
- -----------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Beneficial interest redeemed.................................. 75,825
Dividends to shareholders (Note 1f)........................... 42,150
Investment adviser (Note 2)................................... 28,526
Distributor (Note 2).......................................... 22,731 169,232
---------
Accrued expenses and other liabilities.......................... 108,626
-----------
Total liabilities............................................... 277,858
-----------
- -----------------------------------------------------------------------------------------------------------------
Net Assets: Net assets...................................................... $58,528,668
===========
- -----------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized........................... $ 47,779
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized........................... 432,558
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized........................... 35,902
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized........................... 34,288
Paid-in capital in excess of par................................ 57,060,672
Accumulated realized capital losses on investments--net......... (372,371)
Unrealized appreciation on investments--net..................... 1,289,840
-----------
Net assets...................................................... $58,528,668
===========
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $5,080,011 and 477,789 shares
of beneficial interest outstanding.............................. $ 10.63
===========
Class B--Based on net assets of $45,988,289 and 4,325,578
shares of beneficial interest outstanding....................... $ 10.63
===========
Class C--Based on net assets of $3,813,910 and 359,017 shares
of beneficial interest outstanding.............................. $ 10.62
===========
Class D--Based on net assets of $3,646,458 and 342,880 shares
of beneficial interest outstanding.............................. $ 10.63
===========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
July 31, 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned........ $ 3,488,812
(Note 1d):
- -----------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2)............................... $ 347,000
Account maintenance and distribution fees--Class B (Note 2)..... 252,190
Professional fees............................................... 75,945
Printing and shareholder reports................................ 67,015
Accounting services (Note 2).................................... 53,354
Transfer agent fees--Class B (Note 2)........................... 22,239
Account maintenance and distribution fees--Class C (Note 2)..... 20,817
Registration fees (Note 1e)..................................... 19,000
Pricing fees.................................................... 5,086
Trustees' fees and expenses..................................... 3,642
Account maintenance fees--Class D (Note 2)...................... 3,536
Custodian fees.................................................. 3,065
Transfer agent fees--Class A (Note 2)........................... 1,997
Transfer agent fees--Class C (Note 2)........................... 1,509
Transfer agent fees--Class D (Note 2)........................... 1,294
Other........................................................... 1,809
--------
Total expenses.................................................. 879,498
-----------
Investment income--net ......................................... 2,609,314
-----------
- -----------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments--net .............................. 961,543
ized Gain (Loss) on Change in unrealized appreciation on investments--net........... (3,934,953)
Investments--Net -----------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations............ $ (364,096)
===========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended July 31,
----------------------------
Increase (Decrease) in Net Assets: 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations: Investment income--net ................................................. $ 2,609,314 $ 2,804,178
Realized gain on investments--net ...................................... 961,543 239,318
Change in unrealized appreciation on investments--net .................. (3,934,953) 157,464
------------ ------------
Net increase (decrease) in net assets resulting from operations ........ (364,096) 3,200,960
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders Class A .............................................................. (258,922) (288,288)
(Note 1f): Class B .............................................................. (2,055,046) (2,368,275)
Class C .............................................................. (137,236) (68,440)
Class D .............................................................. (158,110) (79,175)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders .... (2,609,314) (2,804,178)
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (129,628) (954,651)
Transactions ------------ ------------
(Note 4):
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets ........................................... (3,103,038) (557,869)
Beginning of year ...................................................... 61,631,706 62,189,575
------------ ------------
End of year ............................................................ $ 58,528,668 $ 61,631,706
============ ============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------
For the Year Ended July 31,
-----------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ....... $ 11.15 $ 11.07 $ 10.60 $ 10.46 $ 10.48
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ................... .51 .56 .56 .56 .56
Realized and unrealized gain (loss) on
investments--net ......................... (.52) .08 .47 .14 (.02)
--------- --------- --------- --------- ---------
Total from investment operations ......... (.01) .64 1.03 .70 .54
--------- --------- --------- --------- ---------
Less dividends from investment income--net (.51) (.56) (.56) (.56) (.56)
--------- --------- --------- --------- ---------
Net asset value, end of year ............. $ 10.63 $ 11.15 $ 11.07 $ 10.60 $ 10.46
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ....... (.21%) 5.92% 10.02% 6.78% 5.35%
Return:* ========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ........... .95% .86% .83% .84% .88%
Net Assets: ========= ========= ========= ========= =========
Expenses ................................. .95% .86% .83% .84% .91%
========= ========= ========= ========= =========
Investment income--net ................... 4.58% 5.02% 5.22% 5.23% 5.42%
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ... $ 5,080 $ 5,705 $ 5,757 $ 5,887 $ 6,630
Data: ========= ========= ========= ========= =========
Portfolio turnover ....................... 89.30% 23.32% 24.64% 56.05% 89.62%
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------
For the Year Ended July 31,
-----------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ....... $ 11.15 $ 11.07 $ 10.60 $ 10.46 $ 10.48
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net ................... .45 .50 .51 .51 .50
Realized and unrealized gain (loss) on
investments--net ......................... (.52) .08 .47 .14 (.02)
---------- ---------- ---------- ---------- ----------
Total from investment operations ......... (.07) .58 .98 .65 .48
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.45) (.50) (.51) (.51) (.50)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ............. $ 10.63 $ 11.15 $ 11.07 $ 10.60 $ 10.46
========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ....... (.71%) 5.38% 9.46% 6.23% 4.82%
Return:* ========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ........... 1.46% 1.37% 1.34% 1.35% 1.39%
Net Assets: ========== ========== ========== ========== ==========
Expenses ................................. 1.46% 1.37% 1.34% 1.35% 1.42%
========== ========== ========== ========== ==========
Investment income--net ................... 4.07% 4.51% 4.71% 4.72% 4.91%
========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ... $ 45,988 $ 51,255 $ 53,336 $ 59,868 $ 66,927
Data: ========== ========== ========== ========== ==========
Portfolio turnover ....................... 89.30% 23.32% 24.64% 56.05% 89.62%
========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------
For the
Period
Oct. 21,
For the Year Ended July 31, 1994+ to
--------------------------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ..... $ 11.14 $ 11.06 $ 10.60 $ 10.46 $ 10.03
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ................... .44 .49 .49 .49 .37
Realized and unrealized gain (loss) on
investments--net ......................... (.52) .08 .46 .14 .43
--------- --------- --------- --------- ---------
Total from investment operations ......... (.08) .57 .95 .63 .80
--------- --------- --------- --------- ---------
Less dividends from investment income--net (.44) (.49) (.49) (.49) (.37)
--------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.62 $ 11.14 $ 11.06 $ 10.60 $ 10.46
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ....... (.81%) 5.28% 9.25% 6.12% 8.13%++
Return:** ========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................. 1.57% 1.47% 1.43% 1.45 1.56%*
Net Assets: ========= ========= ========= ========= =========
Investment income--net ................... 3.96% 4.40% 4.63% 4.61% 4.68%*
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $ 3,814 $ 1,835 $ 1,495 $ 1,185 $ 432
Data: ========= ========= ========= ========= =========
Portfolio turnover ....................... 89.30% 23.32% 24.64% 56.05% 89.62%
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
Class D
---------------------------------------------------------------
For the
Period
Oct. 21,
For the Year Ended July 31, 1994+ to
--------------------------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ..... $ 11.15 $ 11.07 $ 10.61 $ 10.47 $ 10.03
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ................... .50 .55 .55 .55 .42
Realized and unrealized gain (loss) on
investments--net ......................... (.52) .08 .46 .14 .44
--------- --------- --------- --------- ---------
Total from investment operations ......... (.02) .63 1.01 .69 .86
--------- --------- --------- --------- ---------
Less dividends from investment income--net (.50) (.55) (.55) (.55) (.42)
--------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.63 $ 11.15 $ 11.07 $ 10.61 $ 10.47
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ....... (.30%) 5.82% 9.80% 6.67% 8.70%++
Return:** ========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ................................. 1.06% .96% .93% .94% 1.04%*
Net Assets: ========= ========= ========= ========= =========
Investment income--net ................... 4.47% 4.91% 5.13% 5.12% 5.22%*
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $ 3,647 $ 2,837 $ 1,602 $ 1,290 $ 750
Data: ========= ========= ========= ========= =========
Portfolio turnover ....................... 89.30% 23.32% 24.64% 56.05% 89.62%
========= ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------------
</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 Massachusetts Municipal Bond Fund July 31, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Massachusetts 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's financial statements are prepared in
accordance with generally accepted accounting principles, which may require the
use of management accruals and estimates. The Fund offers four classes of shares
under the Merrill Lynch Select PricingSM 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 contin gent 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.
14
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Manage ment, 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 Distrib
utor ("MLFD" or the "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: .55% of the Fund's average daily net assets not exceeding $500
million; .525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and .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................. .25% .25%
Class C................. .25% .35%
Class D................. .10% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("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, 1999, MLFD earned underwriting discounts 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.................... $ 57 $ 787
Class D.................... $286 $25,812
- --------------------------------------------------------------------------------
For the year ended July 31, 1999, MLPF&S received contingent deferred sales
charges of $31,815 and $5,118 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, 1999 were $54,598,947 and $52,579,134, respectively.
Net realized gains for the year ended July 31, 1999 and net unrealized gains as
of July 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................. $ 961,543 $ 988,965
Financial futures ...................... -- 300,875
---------- ----------
Total .................................. $ 961,543 $1,289,840
========== ==========
- --------------------------------------------------------------------------------
As of July 31, 1999, net unrealized appreciation for Federal income tax purposes
aggregated $988,965, of which $2,726,184 related to appreciated securities and
$1,737,219 related to depreciated securities. The aggregate cost of investments
at July 31, 1999 for Federal income tax purposes was $57,021,305.
15
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$129,628 and $954,651 for the years ended July 31, 1999 and July 31, 1998,
respectively.
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 82,772 $ 924,254
Shares issued to shareholders
in reinvestment of dividends ............. 9,936 110,112
-------- -----------
Total issued ............................. 92,708 1,034,366
Shares redeemed .......................... (126,725) (1,402,310)
-------- -----------
Net decrease ............................. (34,017) $ (367,944)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 55,712 $ 618,548
Shares issued to shareholders
in reinvestment of dividends ............. 9,979 110,642
-------- -----------
Total issued ............................. 65,691 729,190
Shares redeemed .......................... (73,879) (821,852)
-------- -----------
Net decrease ............................. (8,188) $ (92,662)
======== ===========
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 529,211 $ 5,897,022
Shares issued to shareholders
in reinvestment of dividends ............. 97,126 1,076,842
-------- -----------
Total issued ............................. 626,337 6,973,864
Automatic conversion
of shares ................................ (4,517) (48,743)
Shares redeemed .......................... (894,470) (9,884,471)
-------- -----------
Net decrease ............................. (272,650) $(2,959,350)
======== ===========
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 479,010 $ 5,315,771
Shares issued to shareholders
in reinvestment of dividends ............. 115,457 1,279,860
-------- -----------
Total issued ............................. 594,467 6,595,631
Automatic conversion
of shares ................................ (14,966) (165,584)
Shares redeemed .......................... (798,678) (8,856,952)
-------- -----------
Net decrease ............................. (219,177) $(2,426,905)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 275,198 $ 3,090,519
Shares issued to shareholders
in reinvestment of dividends ............. 10,688 117,964
-------- -----------
Total issued ............................. 285,886 3,208,483
Shares redeemed .......................... (91,629) (1,010,515)
-------- -----------
Net increase ............................. 194,257 $ 2,197,968
======== ===========
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 67,852 $ 755,430
Shares issued to shareholders
in reinvestment of dividends ............. 4,793 53,138
-------- -----------
Total issued ............................. 72,645 808,568
Shares redeemed .......................... (43,020) (474,178)
-------- -----------
Net increase ............................. 29,625 $ 334,390
======== ===========
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 141,301 $ 1,584,586
Automatic conversion
of shares ................................ 4,514 48,743
Shares issued to shareholders
in reinvestment of dividends ............. 4,215 46,523
-------- -----------
Total issued ............................. 150,030 1,679,852
Shares redeemed .......................... (61,590) (680,154)
-------- -----------
Net increase ............................. 88,440 $ 999,698
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 128,646 $ 1,434,340
Automatic conversion
of shares ................................ 14,965 165,584
Shares issued to shareholders
in reinvestment of dividends ............. 1,763 19,572
-------- -----------
Total issued ............................. 145,374 1,619,496
Shares redeemed .......................... (35,553) (388,970)
-------- -----------
Net increase ............................. 109,821 $ 1,230,526
======== ===========
- -------------------------------------------------------------------------------
16
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, Merrill Lynch Massachusetts 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 Massachusetts Municipal Bond Fund
of Merrill Lynch Multi-State Municipal Series Trust as of July 31, 1999, 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,
1999 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 Merrill Lynch
Massachusetts Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series
Trust as of July 31, 1999, 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 3, 1999
17
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch
Massachusetts Municipal Bond Fund during its taxable year ended July 31, 1999
qualify as tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributions made by the Fund during
the year.
Please retain this information for your records.
18
<PAGE>
Merrill Lynch Massachusetts Municipal Bond Fund July 31, 1999
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Theodore R. Jaeckel Jr., Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, 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
<PAGE>
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 Massachusetts
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16150-7/99
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