Merrill Lynch Arizona Municipal Bond Fund
Quarterly Report -- April 30, 1994
To Our Shareholders:
The magnitude of the rise in tax-exempt bond yields
experienced this past quarter has not been seen since 1987
when municipal bond rates rose 250 basis points (2.50%)
from March to October of that year. It is very important to
note that the municipal bond price declines of the April quarter,
while certainly damaging, were essentially much different than
those in 1987. Recent price declines were largely the result of
consistent and insistent selling pressures over the last two months.
In 1987, the tax-exempt bond market was much more volatile
and, at times, chaotic as investors sought to liquidate
positions without concern for fundamental value. For the
most part, the recent price deterioration has been orderly,
and the municipal bond market's liquidity and integrity
have not been challenged or jeopardized.
Despite recent price declines, tax-exempt securities remain
among the most attractive investment alternatives
available. After the yield increases experienced in the
April quarter, longer-term municipal securities yielded
approximately 90% of comparable US Treasury yields.
Purchasers of these municipal bonds also accrue substantial
after-tax yield advantages. To investors in the 39%
marginal Federal income tax bracket, the purchase of a
municipal bond yielding 6.50% represents an after-tax
equivalent of 10.65%. With prevailing estimates of 1994
inflation at no more than 3%--4%, real after-tax rates in
excess of 6.50% easily compensate longer-term investors for
much of the price volatility recently experienced.
<PAGE>
Portfolio Strategy
The Arizona municipal marketplace has been characterized
recently by abnormally low primary new issuance. This
situation, along with the probability of a resumption of
demand from regional retail firms and unit investment trusts,
creates a potentially solid technical foundation for the second
half of 1994. This positive backdrop for municipal bonds has led
us to maintain a relatively fully invested position in the
Fund, while focusing on using significant market declines
to increase the performance-oriented holdings in the
portfolio mix. The narrowing of quality spreads has allowed
the Fund to keep the majority of its assets in AA or higher
rated paper without sacrificing current return. Purchases
of more performance-oriented holdings were financed through
the sale of some prerefunded positions and holdings of
serial maturities.
We appreciate your ongoing interest in Merrill Lynch
Arizona Municipal Bond Fund, and we look forward to serving
your investment needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
May 25, 1994
<PAGE>
Performance Data
None of the past results shown should be considered a
representation of future performance. Investment return and
principal value of Class A and Class B Shares will fluctuate
so that shares, when redeemed, may be worth more or less than
their original cost.
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
4/30/94 1/31/94 4/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.28 $11.18 $10.86 -4.87(1)% -8.05%
Class B Shares 10.28 11.18 10.86 -4.87(1) -8.05
Class A Shares--Total Return +1.87(2) -6.67(3)
Class B Shares--Total Return +1.25(4) -6.88(5)
Class A Shares--Standardized 30-day Yield 5.38%
Class B Shares--Standardized 30-day Yield 5.10%
<FN>
*Investment results shown for the 3-month and 12-month periods are before the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.065 per share capital gains distributions.
(2)Percent change includes reinvestment of $0.735 per share ordinary income dividends and
$0.065 capital gain distributions.
(3)Percent change includes reinvestment of $0.146 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.679 per share ordinary income dividends and
$0.065 capital gain distributions.
(5)Percent change includes reinvestment of $0.133 per share ordinary income dividends.
</TABLE>
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/94 +2.20% -1.89%
Inception (11/29/91)
through 3/31/94 +8.33 +6.45
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/94 +1.69% -2.10%
Inception (11/29/91)
through 3/31/94 +7.79 +7.01
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
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.
