MERRILL
LYNCH
ARIZONA
MUNICIPAL
BOND FUND
Annual Report July 31, 1994
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.
Merrill Lynch Arizona
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, New Jersey
08543-9011
TO OUR SHAREHOLDERS
The expectation of increasing inflationary pressures and higher
interest rates initially heightened investor concerns and increased
financial market volatility during the July quarter. However, as the
quarter progressed, it was the weakness of the US dollar in foreign
exchange markets that dominated the financial news and prolonged
stock and bond market declines. Although the US dollar had
strengthened slightly by July quarter-end, which may have improved
investor confidence in the stock and bond markets, the possibility
of continued tightening by the Federal Reserve Board resurfaced
following Chairman Alan Greenspan's recent congressional testimony.
Nevertheless, as the quarter drew to a close, a lower-than-expected
rate of growth reported for the US economy during the second
calendar quarter allayed investor concerns and led to stock and bond
market rallies.
<PAGE>
During the July quarter, the US dollar's weakness relative to other
major currencies reflected the deteriorating US trade deficit and
widening net long-term capital outflows. In 1993, an expanding US
economy and recession in other industrial countries led to a higher
level of imports and weaker export growth, widening the US trade
deficit further. In addition, global investors favored non-US dollar
denominated assets throughout 1993, which has further depressed the
dollar's value. This trend is not improving significantly thus far
in 1994 since foreign inflows into US capital markets continue to
decline, although US investors are investing outside of the United
States to a lesser degree.
Over the longer term, if the economies of the United States' major
trading partners expand (improving the prospects for US export
growth), the outlook for the US dollar is likely to improve. In the
near term, central banks have attempted to reverse the dollar's
decline through currency market intervention. These efforts have met
with limited success thus far, giving rise to the concern that the
Federal Reserve Board will be forced to continue to raise short-term
interest rates to attract investment capital back to the United
States and bolster the dollar's value. However, further interest
rate increases may jeopardize the US economic expansion. Despite
evidence of a moderating trend in the US economy, Federal Reserve
Board Chairman Alan Greenspan indicated in his July Humphrey-Hawkins
testimony that the central bank would prefer to err on the side of
too much monetary tightening rather than too little. In the weeks
ahead, investors will continue to assess economic data and
inflationary trends as they focus on the US dollar in order to gauge
whether further increases in short-term interest rates are imminent.
Continued indications of moderate and sustainable levels of economic
growth would be positive for the US capital markets.
The Municipal Market
Long-term tax-exempt bond yields ended the July quarter essentially
unchanged. The Bond Buyer Revenue Bond Index rose five basis points
(0.05%) to 6.47%. The Index, however, failed to capture the dramatic
bond rally on July 29, 1994, when municipal bond yields had their
largest one-day decline thus far this year. Responding to reports of
a continued mild inflationary outlook and a potentially weakening
economy, municipal bond yields declined by approximately 10 basis
points. US Treasury bonds displayed a similar pattern over the last
three months, ending with an equally dramatic rally on July 29,
1994. Long-term US Treasury bonds ended the quarter yielding
approximately 7.40%.
The tax-exempt bond market has continued to be very volatile with
yields fluctuating by as much as 15 basis points from week to week.
This continued volatility is largely a reflection of the same lack
of conviction regarding the near-term direction of interest rates
that has prevailed for much of 1994. Throughout this past quarter,
the municipal bond market had been unable to maintain a consensus
regarding either the potential strength of the current economic
recovery or the resultant response by the Federal Reserve Board.
However, a number of economic indicators released in late July began
to suggest that the robust pace of recent economic growth was
slowing. This promoted a more positive market environment,
culminating in the market rally on July 29.
The municipal bond market's technical position has remained
supportive. Approximately $40 billion in long-term securities were
issued during the three months ended July 31, 1994. This represents
a decline of over 50% versus the July quarter from the previous
year. As discussed in earlier reports, this reduction in new-issue
supply has minimized the selling pressure by larger institutional
investors who fear being unable to purchase sizable amounts of
securities in the future. Such a significant decline in issuance
would normally be expected to trigger a decline in yields as
investors chase a commodity in scarce supply. Investor demand,
however, has also diminished somewhat in recent months as net flows
into long-term municipal bond funds have dramatically slowed or, in
some instances, reversed. Consequently, the supply/demand relation-
ship within the municipal bond market has remained in balance,
promoting the overall stability in yield levels seen in the past
months.
With after-tax equivalents in excess of 10%, long-term tax-exempt
bonds continue to represent considerable value relative to other
investment alternatives. We continue to anticipate that municipal
bond yields will decline further in late 1994 and into 1995. The
economic impact of the significant interest rate increases
experienced since early February have yet to be totally realized.
The resultant drag on the economy should provide the foundation for
further interest rate declines. Under such a scenario, current tax-
exempt bond yields may prove to represent considerable value.
<PAGE>
Fiscal Year in Review
Merrill Lynch Arizona Municipal Bond Fund was consistently
positioned to provide as generous as possible a current return to
its shareholders while concentrating the majority of its assets in
higher-rated Arizona credits. Throughout the past fiscal year, we
have addressed these goals by maintaining a minimal cash reserve
position, ranging from 2% of net assets during more aggressive
periods to a high of approximately 10% during times when interest
rate volatility called for a more guarded approach. The level of
coupon the Fund utilizes is above industry average, given our view
that in periods of interest rate uncertainty the cushioned effect
these higher-coupon issues provide is better suited to protecting
the Fund's overall asset value. This structure has allowed the Fund
to perform on a total return basis above the general Arizona
municipal bond marketplace. Contributing to this built-in cushioning
effect is a relatively high portion of the Fund's assets in
prerefunded securities. These holdings currently provide the Fund
with a generous level of current return with the additional benefit
of the market sensitivity of a shorter maturity position. As time
passes and the call provisions for these securities near, we expect
to sell these prerefunded bonds before the premium they command
begins to run off. We will continue to manage the Fund with a focus
toward a point where more confidence for a general stabilization in
interest rates can be forecast. The technical background for the
Arizona municipal bond market is exceedingly positive with limited
issuance scheduled over the next six months. Therefore, as signs of
economic slowing materialize, which could encourage interest rate
stability, we will look toward becoming more aggressive to take
advantage of any new leg in an upturn for fixed-income security
prices.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 22, 1994
<PAGE>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid monthly by
Merrill Lynch Arizona Municipal Bond Fund during its taxable year
ended July 31, 1994 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the Fund distributed short-term capital gains of
$.101984 per share and long-term capital gains of $.122022 per share
to shareholders of record on December 22, 1993.
Please retain this information for your records.
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.
Average Annual Total Return--Class A Shares*
% Return Without % Return With
Sales Charge Sales Charge**
Year Ended 6/30/94 -0.31% -4.29%
Inception (11/29/91)
through 6/30/94 +8.04 +6.35
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 1.
<PAGE>
Average Annual Total Return--Class B Shares*
% Return % Return
Without CDSC With CDSC**
Year Ended 6/30/94 -0.90% -4.59%
Inception (11/29/91)
through 6/30/94 +7.46 +6.77
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 2.
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/29/91--12/31/91 $10.00 $10.24 -- $0.052 + 2.92%
1992 10.24 10.49 -- 0.741 +10.02
1993 10.49 11.07 $0.065 0.739 +13.48
1/1/94--7/31/94 11.07 10.40 -- 0.322 - 3.04
------ ------
Total $0.065 Total $1.854
Cumulative total return as of 7/31/94: +24.58%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/29/91--12/31/91 $10.00 $10.24 -- $0.047 + 2.87%
1992 10.24 10.49 -- 0.688 + 9.46
1993 10.49 11.07 $0.065 0.684 +12.91
1/1/94--7/31/94 11.07 10.40 -- 0.293 - 3.32
------ ------
Total $0.065 Total $1.712
Cumulative total return as of 7/31/94: +22.92%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
7/31/94 4/30/94 7/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.40 $10.28 $11.01 -4.99%(1) +1.17%
Class B Shares 10.40 10.28 11.01 -4.99(1) +1.17
Class A Shares--Total Return +1.62(2) +2.57(3)
Class B Shares--Total Return +1.11(4) +2.44(5)
Class A Shares--Standardized 30-day Yield 5.15%
Class B Shares--Standardized 30-day Yield 4.86%
<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 $0.734 per share ordinary
income dividends and $0.065 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.142 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.679 per share ordinary
income dividends and $0.065 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.129 per share ordinary
income dividends.
</TABLE>
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Arizona 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 below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
STRIPES Short-Term Rate Inverse Payment Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona--90.9%
<S> <S> <C> <S> <C>
Apache County, Arizona, Public Finance Corporation, COP:
A A $1,425 5.50% due 5/01/2007 $ 1,418
A A 500 5.50% due 5/01/2010 477
Arizona Educational Loan Marketing Corporation, Educational Loan Revenue Bonds,
AMT, Series B:
NR A 1,600 7% due 3/01/2003 1,699
NR A 1,100 7% due 3/01/2005 1,165
NR A 750 Arizona Educational Loan Marketing Corporation, Educational Loan Revenue Bonds, AMT,
Sub-Series, 6.625% due 9/01/2005 782
AAA Aaa 1,750 Arizona Health Facilities Authority, Hospital Systems Revenue Bonds (Samaritan Health
Services), 6.25% due 12/01/2006 (d) 1,829
<PAGE>
NR Ba 2,415 Arizona Health Facilities Authority, Hospital Systems Revenue Refunding Bonds (Saint
Luke's Health Systems), 7.25% due 11/01/2014 2,442
AAA Aaa 245 Arizona Health Facilities Authority Revenue Bonds (Yavapai Community Hospital),
Series B, 7.25% due 10/01/2013 (b) 266
A+ A 850 Arizona State University, COP (Towers Project), 7.05% due 7/01/2010 909
AA A1 2,750 Arizona State University, Revenue Refunding Bonds, Series A, 5.50% due 7/01/2019 2,520
NR A 2,000 Arizona Student Loan Acquisition Authority, Student Loan Revenue Bonds, AMT, Senior
Series B, 6.60% due 5/01/2010 2,039
AA Aaa 1,000 Arizona Transportation Board, Highway Revenue Bonds, Sub-Series B, 6.50% due
7/01/2011 (e) 1,091
AA+ Aa 2,000 Arizona Wastewater Management Authority, Wastewater Treatment Financial Assistance
Revenue Bonds, 6.80% due 7/01/2011 2,164
AAA Aaa 700 Avondale, Arizona, Municipal Development Corporation, Municipal Facilities Revenue Bonds,
6.625% due 7/01/2011 (d) 735
AA- A1 1,940 Central Arizona, Water Conservation District, Contract Revenue Bonds (Central Arizona
Project), Series B, 6.50% due 5/01/2001 (e) 2,123
Coconino and Yavapai Counties, Arizona, Joint Unified School District No. 9 Revenue
Bonds (Sedona Oak Creek), Series A, UT:
A- Baa1 200 6.70% due 7/01/2006 210
A- Baa1 250 6.75% due 7/01/2007 259
AAA NR 2,100 Coconino County, Arizona, IDA, IDR (Citizens Utilities Company Project), AMT,
5.80% due 11/15/2028 2,027
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona (continued)
<S> <S> <C> <S> <C>
AAA Aaa $3,520 Gilbert, Arizona, Water and Sewer Revenue Refunding Bonds, 6.50% due 7/01/2022 (b) $ 3,647
A A3 4,000 Greenlee County, Arizona, IDA, PCR, Refunding (Phelps Dodge Corporation Project),
5.45% due 6/01/2009 3,785
AAA Aaa 2,000 Maricopa County, Arizona, IDA, Health Facilities Revenue Bonds (Saint Joseph's Care
Center Project), Series A, 7.75% due 7/01/2020 (d) 2,229
<PAGE>
Maricopa County, Arizona, IDA, Hospital Facilities Revenue Refunding Bonds:
AAA Aaa 2,800 (John C. Lincoln Hospital), 7.50% due 12/01/2013 (c) 3,149
AAA Aaa 750 (Samaritan Health Services), Series A, 7% due 12/01/2013 (d) 819
BB Ba2 1,000 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (Public
Service Company--Palo Verde), Series A, 6.375% due 8/15/2023 922
AA A1 1,900 Maricopa County, Arizona, School District No. 3 Revenue Bonds (Tempe Elementary
Projects of 1991), Series C, UT, 6% due 7/01/2011 1,923
AAA Aaa 500 Maricopa County, Arizona, Unified School District No. 11--Peoria, Revenue Refunding
Bonds, 6.40% due 7/01/2010 (d) 517
AAA Aaa 2,000 Mesa, Arizona, IDA, Health Care Facilities Revenue Bonds (Western Health Network),
Series A-1, 7.625% due 1/01/2019 (a) 2,206
AAA Aaa 2,325 Mohave County, Arizona, Unified High School District No. 30--Mohave Revenue Bonds,
Series B, UT, 6.70% due 7/01/2011 (b)(e) 2,562
AAA NR 1,000 Navajo County, Arizona, IDA, IDR (Citizens Utilities Company Project), AMT, 5.80%
due 11/15/2028 965
AAA Aaa 1,000 Navajo County, Arizona, Pollution Control Corporation, Revenue Refunding Bonds
(Arizona Public Service Corporation), Series A, 5.50% due 8/15/2028 (h) 904
Peoria, Arizona, Improvement District, Special Assessment Bonds:
BBB NR 430 7.20% due 1/01/2010 450
BBB NR 510 7.20% due 1/01/2013 533
Peoria, Arizona, Improvement District, Special Assessment Bonds (North Valley Power
Center No. 8801):
BBB NR 200 7.30% due 1/01/2009 214
BBB NR 395 7.30% due 1/01/2011 423
AAA Aaa 1,000 Peoria, Arizona, Municipal Development Authority, Municipal Facilities Revenue
Refunding Bonds, 5.20% due 7/01/2013 (d) 904
AAA Aaa 1,000 Peoria, Arizona, Water and Sewer Revenue Refunding Bonds, 6.625% due 7/01/2006 (b) 1,060
Phoenix, Arizona, Civic Improvement Corporation, Excise Tax Revenue Bonds:
AA+ Aa 2,000 (New City Hall Project), Senior Lien, 5.10% due 7/01/2018 1,741
AA+ Aa 750 Refunding (Airport Improvements), Series B, 6.30% due 7/01/2014 765
AA A1 1,000 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds, Junior
Lien, 5.40% due 7/01/2014 912
AA+ Aa 1,860 Phoenix, Arizona, GO, Refunding, AMT, UT, 6.375% due 7/01/2013 1,916
<PAGE>
Phoenix, Arizona, IDA, Hospital Revenue Bonds (John C. Lincoln Hospital and Health):
BBB+ NR 500 6% due 12/01/2010 475
BBB+ NR 1,000 6% due 12/01/2014 912
AA NR 2,000 Phoenix, Arizona, Street and Highway User Revenue Bonds, Senior Lien, 6.25% due
7/01/2002 (e) 2,157
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona (concluded)
<S> <S> <C> <S> <C>
Al+ Aa $4,000 Pima and Maricopa Counties, Arizona, IDA, M/F Housing Revenue Bonds (Privado Park
Apartments), Series A, AMT, VRDN, 3.25% due 6/01/2034 (f) $ 4,000
AAA Aaa 1,750 Pima County, Arizona, Sewer Revenue Refunding Bonds, 6.75% due 7/01/2015 (b) 1,856
AAA Aaa 1,065 Pima County, Arizona, Unified School District No. 1--Tucson School Improvement,
Series D, UT, 5.90% due 7/01/2005 (b) 1,101
AA P1 3,600 Pinal County, Arizona, IDA, PCR (Magma-Copper-Newmont Mining Corporation), VRDN,
2.80% due 12/01/2009 (f) 3,600
BBB- NR 750 Prescott Valley, Arizona, Improvement District, Special Assessment Sewer
Collection System, Roadway Repair Revenue Bonds, 7.90% due 1/01/2012 820
Salt River Project, Arizona, Agricultural Improvement and Power District, Electric
System Revenue Bonds:
AA Aa 2,000 Series A, 6.50% due 1/01/2022 2,038
AA Aa 2,000 Series C, 6.20% due 1/01/2012 2,030
AA Aa 2,000 Salt River Project, Arizona, Agricultural Improvement and Power District, Electric
System Revenue Bonds, STRIPES, 6.777% due 1/01/2011 (g) 1,568
BBB NR 1,600 Sedona, Arizona, Sewer Revenue Refunding Bonds, 7% due 7/01/2012 1,651
AAA Aaa 500 Tucson, Arizona, Airport Authority Revenue Bonds, AMT, Series B, 7.25% due 6/01/2020 (d) 532
A+ NR 2,650 Tucson, Arizona, Water Revenue Bonds, Series D, 6.75% due 7/01/2019 (e) 2,943
Tucson, Arizona, Water Revenue Refunding Bonds:
A+ A1 1,250 6.50% due 7/01/2016 1,294
A+ A1 2,400 Series A, 5.75% due 7/01/2018 2,301
University of Arizona, Medical Center Corporation, Hospital Revenue Bonds (d):
AAA Aaa 750 7% due 7/01/2001 (e) 843
AAA Aaa 1,000 Refunding, 6.25% due 7/01/2016 1,009
<PAGE>
AA NR 1,920 University of Arizona Revenue Bonds, Series B, 6.90% due 6/01/2000 (e) 2,131
Puerto Rico--8.7%
BB Baa 3,000 Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue Bonds, Series A,
7% due 7/01/2019 3,126
AAA Aaa 2,000 Puerto Rico Commonwealth, YCN, 8.492% due 7/01/2020 (c)(g) 1,885
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Bonds, RIB, 8.778% due
7/01/2023 (c)(g) 1,836
Puerto Rico Electric Power Authority, Power Revenue Bonds:
A- Baa1 265 Series N, 7.125% due 7/01/2014 283
A- Baa1 1,500 Series R, 6.25% due 7/01/2017 1,508
Total Investments (Cost--$97,579)--99.6% 98,600
Other Assets Less Liabilities--0.4% 379
-------
Net Assets--100.0% $98,979
=======
<FN>
(a)BIG Insured.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)Prerefunded.
(f)The interest rate is subject to change periodically based on
prevailing market rates. The interest rates shown are those in
effect at July 31, 1994.
(g)The interest rate is subject to change periodically and inversely
to the prevailing market rate. The interest rate shown is the rate
in effect at July 31, 1994.
(h)AMBAC Insured.
NR--Not Rated.
Ratings shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$97,578,922) (Note 1a) $ 98,599,603
Cash 11,758
Receivables:
Interest $ 825,734
Beneficial interest sold 117,128 942,862
------------
Deferred organization expenses (Note 1e) 34,775
Prepaid expenses and other assets (Note 1e) 13,116
------------
Total assets 99,602,114
============
Liabilities: Payables:
Capital shares redeemed 403,687
Dividends to shareholders (Note 1f) 80,917
Distributor (Note 2) 33,980
Investment adviser (Note 2) 33,367 551,951
------------
Accrued expenses and other liabilities 71,387
------------
Total liabilities 623,338
------------
Net Assets: Net assets $ 98,978,776
============
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number
Consist of: of shares authorized $ 176,526
Class B Shares of beneficial interest, $.10 par value, unlimited number
of shares authorized 774,967
Paid-in capital in excess of par 96,878,830
Undistributed realized capital gains--net 127,772
Unrealized appreciation on investments--net 1,020,681
------------
Net assets $ 98,978,776
============
Net Asset Class A--Based on net assets of $18,363,001 and 1,765,263 shares of
Value: beneficial interest outstanding $ 10.40
============
Class B--Based on net assets of $80,615,775 and 7,749,668 shares of
beneficial interest outstanding $ 10.40
============
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1994
<S> <S> <C>
Investment Interest and amortization of premium and discount earned $ 6,067,542
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) 566,701
Distribution fees--Class B (Note 2) 418,781
Printing and shareholder reports 59,423
Professional fees 52,827
Accounting services (Note 2) 48,042
Transfer agent fees--Class B (Note 2) 34,318
Custodian fees 15,235
Amortization of organization expenses (Note 1e) 14,891
Registration fees (Note 1e) 11,584
Pricing fees 8,399
Transfer agent fees--Class A (Note 2) 6,784
Trustees' fees and expenses 4,715
Other 3,242
------------
Total expenses before reimbursement 1,244,942
Reimbursement of expenses (Note 2) (239,468)
------------
Total expenses 1,005,474
------------
Investment income--net 5,062,068
------------
Realized & Realized gain on investments--net 1,099,669
Unrealized Change in unrealized depreciation on investments--net (5,162,578)
Gain on ------------
(Loss) Net Increase in Net Assets Resulting from Operations $ 999,159
Investments ============
- --Net
(Notes 1d
& 3):
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 5,062,068 $ 4,423,726
Realized gain on investments--net 1,099,669 1,488,701
Change in unrealized appreciation/depreciation on investments--net (5,162,578) 2,011,436
------------ ------------
Net increase in net assets resulting from operations 999,159 7,923,863
------------ ------------
Dividends & Investment income--net:
Distribu- Class A (1,026,371) (901,362)
tions to Class B (4,035,697) (3,522,364)
Shareholders Realized gain on investments--net:
(Note 1f): Class A (387,548) (182,088)
Class B (1,714,015) (744,535)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (7,163,631) (5,350,349)
------------ ------------
Beneficial Net increase in net assets derived from beneficial interest
Interest transactions 6,077,308 22,046,923
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (87,164) 24,620,437
Beginning of year 99,065,940 74,445,503
------------ ------------
End of year $ 98,978,776 $ 99,065,940
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the
Period
The following per share data and ratios have been derived Nov. 29,
from information provided in the financial statements. For the Year 1991++ to
Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.01 $ 10.74 $ 10.00
Operating ----------- ----------- -----------
Performance: Investment income--net .57 .60 .41
Realized and unrealized gain (loss) on investments--net (.39) .39 .74
----------- ----------- -----------
Total from investment operations .18 .99 1.15
----------- ----------- -----------
Less dividends:
Investment income--net (.57) (.60) (.41)
Realized gain on investments--net (.22) (.12) --
----------- ----------- -----------
Total dividends (.79) (.72) (.41)
----------- ----------- -----------
Net asset value, end of period $ 10.40 $ 11.01 $ 10.74
=========== =========== ===========
Total Based on net asset value per share 1.62% 9.63% 11.82%+++
Investment =========== =========== ===========
Return:**
Ratios to Expenses, net of reimbursement .56% .41% .22%*
Average =========== =========== ===========
Net Assets: Expenses .80% .81% .98%*
=========== =========== ===========
Investment income--net 5.32% 5.57% 5.99%*
=========== =========== ===========
Supplemental Net assets, end of period (in thousands) $ 18,363 $ 17,988 $ 14,564
Data: =========== =========== ===========
Portfolio turnover 53.35% 73.48% 66.50%
=========== =========== ===========
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived Nov. 29,
from information provided in the financial statements. For the Year 1991++ to
Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.01 $ 10.74 $ 10.00
Operating ----------- ----------- -----------
Performance: Investment income--net .52 .54 .38
Realized and unrealized gain (loss) on investments--net (.39) .39 .74
----------- ----------- -----------
Total from investment operations .13 .93 1.12
----------- ----------- -----------
Less dividends and distributions:
Investment income--net (.52) (.54) (.38)
Realized gain on investments--net (.22) (.12) --
----------- ----------- -----------
Total dividends and distributions (.74) (.66) (.38)
----------- ----------- -----------
Net asset value, end of period $ 10.40 $ 11.01 $ 10.74
=========== =========== ===========
Total Based on net asset value per share 1.11% 9.08% 11.45%+++
Investment =========== =========== ===========
Return:**
Ratios to Expenses, excluding distribution fees and net of reimbursement .57% .42% .24%*
Average =========== =========== ===========
Net Assets: Expenses, net of reimbursement 1.07% .92% .74%*
=========== =========== ===========
Expenses 1.30% 1.32% 1.47%*
=========== =========== ===========
Investment income--net 4.82% 5.06% 5.48%*
=========== =========== ===========
Supplemental Net assets, end of period (in thousands) $ 80,616 $ 81,078 $ 59,881
Data: =========== =========== ===========
Portfolio turnover 53.35% 73.48% 66.50%
=========== =========== ===========
<PAGE>
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Arizona 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
both Class A and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject to a
contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B Shares bear certain
expenses related to the distribution of such shares and have
exclusive voting rights with respect to matters relating to such
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. Options,
which are traded on exchanges, are valued at their last sale price
as of the close of such exchanges or, lacking any sales, at the last
available bid price. 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.
<PAGE>
(b)Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing 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
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)Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). Effective January 1, 1994, the
investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an indirect wholly-
owned subsidiary of ML & Co. The Fund has also entered into
Distribution Agreements and a Distribution Plan with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Investment Management, Inc. ("MLIM"),
which is also an indirect wholly-owned subsidiary of ML & Co.
<PAGE>
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. The Investment Advisory Agreement obligates
FAM to reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of the average daily
net assets in excess thereof. FAM's obligation to reimburse the Fund
is limited to the amount of the management fee. No fee payment will
be made during any fiscal year which will cause such expenses to
exceed expense limitation at the time of such payment. For the year
ended July 31, 1994, FAM had management fees of $566,701, of which
$239,468 was voluntarily waived.
The Fund has adopted a Plan of Distribution (the "Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940
pursuant to which the Fund pays the Distributor ongoing account
maintenance and distribution fees relating to Class B Shares which
are accrued daily and paid monthly at the annual rate of 0.25% and
0.25%, respectively, of the average daily net assets of the Class B
Shares of the Fund. Pursuant to a sub-agreement with the
Distributor, Merrill Lynch also provides account maintenance and
distribution services to the Fund. The ongoing account maintenance
fee compensates the Distributor and Merrill Lynch for providing account
maintenance services to Class B shareholders. As authorized by the
plan, the Distributor has entered into an agreement with Merrill
Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), an affiliate of ML &
Co., which provides for the compensation of MLPF&S for providing
distribution-related services to the Fund.
For the year ended July 31, 1994, MLFD earned underwriting discounts
of $6,133, and MLPF&S earned dealer concessions of $76,301 on sales
of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges of $217,476
relating to Class B Share transactions during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
<PAGE>
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, FAMI, PSI, MLFD, MLIM, FDS, MLPF&S, and/or ML &
Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period ended July 31, 1994 were $58,315,671 and $51,271,681,
respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
Net realized and unrealized gains as of July 31, 1994 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 495,325 $1,020,681
Financial futures contracts 604,344 --
---------- ----------
Total $1,099,669 $1,020,681
========== ==========
As of July 31, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $1,020,681, of which $2,990,675 related to
appreciated securities and $1,969,994 related to depreciated
securities. The aggregate cost of investments at July 31, 1994 for
Federal income tax purposes was $97,578,922.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest
transactions was $6,077,308 and $22,046,923 for the year ended July
31, 1994 and July 31, 1993, respectively.
Transactions in shares of beneficial interest for Class A and Class
B Shares were as follows:
<PAGE>
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 627,096 $ 6,804,755
Shares issued to shareholders
in reinvestment of dividends
and distributions 67,361 730,862
----------- ------------
Total issued 694,457 7,535,617
Shares redeemed (562,798) (5,985,598)
----------- ------------
Net increase 131,659 $ 1,550,019
=========== ============
Class A Shares for the Year Dollar
Ended July 31, 1993 Shares Amount
Shares sold 584,723 $ 6,243,131
Shares issued to shareholders
in reinvestment of dividends
and distributions 48,118 511,965
----------- ------------
Total issued 632,841 6,755,096
Shares redeemed (354,895) (3,778,384)
----------- ------------
Net increase 277,946 $ 2,976,712
=========== ============
Class B Shares for the Dollar
Year Ended July 31, 1994 Shares Amount
Shares sold 1,806,398 $ 19,567,507
Shares issued to shareholders
in reinvestment of dividends
and distributions 224,144 2,439,428
----------- ------------
Total issued 2,030,542 22,006,935
Shares redeemed (1,643,963) (17,479,646)
----------- ------------
Net increase 386,579 $ 4,527,289
=========== ============
<PAGE>
Class B Shares for the Dollar
Year Ended July 31, 1993 Shares Amount
Shares sold 2,432,048 $25,974,673
Shares issued to shareholders
in reinvestment of dividends
and distributions 163,371 1,737,881
----------- ------------
Total issued 2,595,419 27,712,554
Shares redeemed (806,190) (8,642,343)
----------- ------------
Net increase 1,789,229 $ 19,070,211
=========== ============
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Arizona 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
Arizona Municipal Bond Fund of Merrill Lynch Multi-State Municipal
Series Trust as of July 31, 1994, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended and the financial
highlights for each of the years in the two-year period then ended
and for the period November 29, 1991 (commencement of operations) to
July 31, 1992. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at July 31,
1994 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
<PAGE>
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Arizona Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1994, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 29, 1994
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Kenneth S. Axelson, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
Custodian
National Westminster Bank NJ
Exchange Place Centre
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
APPENDIX: GRAPHIC AND IMAGE MATERIAL.
Item 1:
Total Return Based on a $10,000 Investment--Class A Shares*
A line graph depicting the grawth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
11/29/91** 7/94
ML Arizona Municipal Bond Fund++ $ 9,600 $11,959
Lehman Brothers
Municipal Bond Index++++ $10,000 $12,143
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Arizona Municipal Bond Fund invests primarily in long-term
investment grade obligations issued by or on the behalf of the
State of Arizona, 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.
Item 2:
Total Investment Return Based on a $10,000 Investment--Class B Shares*
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to the growth of an investment in the Lehman
Brothers Municipal Bond Index. Beginning and ending values are:
11/29/91** 7/94
ML Arizona Municipal Bond Fund++ $10,000 $12,092
Lehman Brothers
Municiapl Bond Index++++ $10,000 $12,143
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++ML Arizona Municipal Bond Fund invests primarily in long-term
investment grade obligations issued by or on the behalf of the
State of Arizona, 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.
