MERRILL LYNCH
ARIZONA
MUNICIPAL
BOND FUND
FUND LOGO
Annual Report
July 31, 1996
Officers and Trustees
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Jerry Weiss, Secretary
<PAGE>
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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 Arizona
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011
TO OUR SHAREHOLDERS
<PAGE>
The Municipal Market Environment
Municipal bond yields rose dramatically over the six-month period
ended July 31, 1996. Investors became increasingly alarmed that
earlier forecasts of continued moderate growth were overly
optimistic. As indications of stronger growth were released,
particularly the strong employment reports released beginning in
March, fears of associated inflationary pressures mounted and yield
rose in response. By May and June, long-term municipal bond yields
rose into the 6.25%--6.30% range.
However, in early July the combination of the Federal Reserve Board
suggesting that growth was expected to slow later in 1996 and a
temporary stock market correction allowed municipal bond yields to
fall as investors scrambled to purchase relatively scarce
securities. As measured by the Bond Buyer Revenue Bond Index, long-
term, A-rated uninsured tax-exempt bonds yielded 6.02% at July 31,
1996, an increase of over 30 basis points (0.30%) in the last six
months. Long-term US Treasury bond yields rose significantly higher
over the same period. By July 31, 1996, yields on US Treasury bonds
increased almost 100 basis points to end the six-month period at
6.97%.
The municipal bond market's recent outperformance as compared to its
taxable counterpart was largely the result of two principal factors.
First, much of the concern in the tax-exempt market regarding the
potential loss of the inherent tax-advantage of the municipal bonds
dissipated. For much of 1995, various tax proposals, such as the
flat-tax or national sales tax, were put forward either to reduce
the national debt or reform the current tax system. Most of these
proposals would have severely limited the tax advantages enjoyed by
the municipal bond market. However, in February 1996, the Kemp
Commission released its findings regarding various tax reform
proposals. While noting that numerous changes should be made, no
mention of curtailing or stopping municipal bonds' current favored
tax status was made.
The second major factor leading to the municipal bond market's
recent outperformance was the return of a more favorable technical
environment. The rate of increase in new bond issuance recently
slowed. Over the last 12 months, approximately $175 billion in long-
term municipal securities were issued, an increase of over 27% as
compared to the same period a year earlier. Much of this increase
was the result of issuers seeking to refinance their existing higher-
couponed debt as interest rates declined in 1995 and early 1996. As
interest rates rose, these financings became increasingly
economically impractical and issuance declined. Over the last six
months, less than $70 billion in long-term tax-exempt securities
were underwritten, an increase of 20% versus the comparable period a
year earlier. Only $43 billion in tax-exempt securities were issued
in the last three months, a total essentially unchanged from the
comparable quarter in 1995. In July 1996, less than $10 billion in
long-term municipal bonds were issued, representing the lowest
issuance for the month of July since 1990.
<PAGE>
At the same time investor demand remained consistently strong. With
nominal new issue yields above 6%, retail investor interest was
steady. Additionally, investors received over $50 billion this June
and July in assets derived from coupon income, bond maturities, and
proceeds from early redemptions. Annual new bond issuance has
declined in recent years and is expected to remain below levels seen
in the early 1990s. Consequently, as the higher-coupon bonds issued
in the early-to-mid 1980s were redeemed at their first optional call
dates, the total number of outstanding tax-exempt bonds has
declined. This combination of a declining net supply and significant
amounts of assets helped maintain investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While still historically
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of US Treasury bond market.
Fiscal Year in Review
Over the first half of the Fund's fiscal year, interest rates
steadily declined and Merrill Lynch Arizona Municipal Bond Fund's
net asset values appreciated rapidly. Early in 1996, the economic
picture changed from slow growth to an expanding economy. This
growing environment caused municipal bond yields to rise
dramatically over the second half of the Fund's fiscal year ended
July 31, 1996. Because of the conservative investment strategy we
employed this year, Merrill Lynch Arizona Municipal Bond Fund was
slightly hindered in its total returns to shareholders. However, the
Fund provided attractive yields for the 12 months ended July 31,
1996.
<PAGE>
Arizona municipal bonds continued to outperform compared to the rest
of the municipal bond market. This strong performance was caused by
continued demand and a lack of supply of new-issue Arizona municipal
bonds. This lack of supply was largely responsible for the Fund
remaining nearly fully invested even in these volatile times. We
continued to put a heavy emphasis on quality with 90% of the Fund's
portfolio holdings rated A or better by at least one of the major
rating agencies. We still believe that quality bonds will be the
most attractive investments over the long term. Looking ahead, we
will continue to monitor signs of economic growth and await further
supply of Arizona municipal bonds.
In Conclusion
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
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
<PAGE>
September 5, 1996
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* 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.
* 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.)
* 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.
* 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. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/96 4/30/96 7/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.54 $10.49 $10.46 +0.76% +0.48%
Class B Shares* 10.54 10.49 10.46 +0.76 +0.48
Class C Shares* 10.54 10.49 10.46 +0.76 +0.48
Class D Shares* 10.53 10.48 10.45 +0.77 +0.48
Class A Shares--Total Return* +6.04(1) +1.79(2)
Class B Shares--Total Return* +5.49(3) +1.66(4)
Class C Shares--Total Return* +5.38(5) +1.63(6)
Class D Shares--Total Return* +5.93(7) +1.76(8)
Class A Shares--Standardized 30-day Yield 4.61%
Class B Shares--Standardized 30-day Yield 4.30%
Class C Shares--Standardized 30-day Yield 4.20%
Class D Shares--Standardized 30-day Yield 4.51%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.541 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.135 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.487 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.122 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.477 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.119 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.530 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.132 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares and Class B Shares
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
11/29/91** 7/96
ML Arizona Municipal Bond Fund++--
Class A Shares* $ 9,600 $13,537
<PAGE>
ML Arizona Municipal Bond Fund++--
Class B Shares* $10,000 $13,772
Lehman Brothers Municipal Bond
Index++++ $10,000 $13,963
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the Lehman Brothers Municipal Bond Index. Beginning
and ending values are:
11/29/91** 7/96
ML Arizona Municipal Bond Fund++--
Class C Shares* $10,000 $11,437
ML Arizona Municipal Bond Fund++--
Class D Shares* $ 9,600 $11,076
Lehman Brothers Municipal Bond
Index++++ $10,000 $11,840
[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 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.
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 6/30/96 +6.19% +1.95%
Inception (11/29/91)
through 6/30/96 +7.59 +6.63
<PAGE>
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +5.65% +1.65%
Inception (11/29/91)
through 6/30/96 +7.05 +7.05
[FN]
*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 6/30/96 +5.55% +4.55%
Inception (10/21/94)
through 6/30/96 +7.70 +7.70
[FN]
*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 6/30/96 +6.09% +1.85%
Inception (10/21/94)
through 6/30/96 +8.29 +5.71
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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 +10.01
1993 10.49 11.07 $0.065 0.739 +13.48
1994 11.07 9.79 0.054 0.568 - 6.03
1995 9.79 10.98 -- 0.545 +18.11
1/1/96--7/31/96 10.98 10.54 -- 0.303 - 1.12
------ ------
Total $0.119 Total $2.948
Cumulative total return as of 7/31/96: +41.01%**
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <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 + 9.45
1993 10.49 11.07 $0.065 0.684 +12.91
1994 11.07 9.79 0.054 0.516 - 6.50
1995 9.79 10.98 -- 0.492 +17.52
1/1/96--7/31/96 10.98 10.54 -- 0.273 - 1.40
------ ------
Total $0.119 Total $2.700
Cumulative total return as of 7/31/96: +37.72%***
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $10.05 $ 9.79 $0.054 $0.091 - 1.13%
1995 9.79 10.98 -- 0.480 +17.39
1/1/96--7/31/96 10.98 10.54 -- 0.267 - 1.46
------ ------
Total $0.054 Total $0.838
Cumulative total return as of 7/31/96: +14.37%***
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $10.05 $ 9.78 $0.054 $0.107 - 1.07%
1995 9.78 10.97 -- 0.534 +18.01
1/1/96--7/31/96 10.97 10.53 -- 0.296 - 1.18
------ ------
Total $0.054 Total $0.937
Cumulative total return as of 7/31/96: +15.38%**
<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.
***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>
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)
GO General Obligation Bonds
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
LEVRRS Leveraged Reverse Rate Securities
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
<PAGE>
<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>
Arizona Educational Loan Marketing Corporation, Educational Loan
Revenue Bonds, AMT, Series B:
NR* A $1,600 7% due 3/01/2003 $ 1,718
NR* A 1,100 7% due 3/01/2005 1,173
NR* A 750 Arizona Educational Loan Marketing Corporation, Educational Loan Revenue
Bonds, AMT, Sub-Series, 6.625% due 9/01/2005 795
NR* Aaa 2,305 Arizona Health Facilities Authority, Hospital Systems Revenue Refunding
Bonds (Saint Luke's Health Systems), 7.25% due 11/01/2003 (h) 2,593
AAA Aaa 1,725 Arizona State Power Authority, Power Resource Revenue Refunding Bonds
(Hoover Uprating Project), 5.25% due 10/01/2017 (d)(j) 1,638
AAA Aaa 4,000 Arizona State Transportation Board, Excise Tax Revenue Bonds (Maricopa
County Regional Area Road), Series A, 5.40% due 7/01/2001 (f) 4,146
AA Aa 1,660 Arizona State Transportation Board, Highway Revenue Refunding Bonds,
Sub-Series A, 5% due 7/01/2010 1,607
AA+ Aa 2,000 Arizona State Wastewater Management Authority, Wastewater Treatment
Financial Assistance Revenue Bonds, 6.80% due 7/01/2011 2,200
NR* Aa 2,000 Arizona Student Loan Acquisition Authority, Student Loan Revenue Bonds,
AMT, Senior Series B, 6.60% due 5/01/2010 2,112
AAA Aaa 700 Avondale, Arizona, Municipal Development Corporation, Municipal Facilities
Revenue Bonds, 6.625% due 7/01/2001 (d)(h) 768
Coconino and Yavapai Counties, Arizona, Joint Unified School District No.9
Revenue Bonds (Sedona Oak Creek), Series A, UT (i):
A- Baa1 200 6.70% due 7/01/2006 214
A- Baa1 250 6.75% due 7/01/2007 270
A1+ P1 300 Coconino County, Arizona, Pollution Control Corporation Revenue Bonds (Arizona
Public Service--Navajo Project), VRDN, AMT, Series A, 3.80% due 10/01/2029 (e) 300
AAA Aaa 3,620 Gilbert, Arizona, Water and Sewer Revenue Refunding Bonds, 6.50% due
7/01/2022 (b) 3,828
</TABLE>
<PAGE>
<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>
Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds
(American Graduate School International) (g):
AAA NR* $1,000 7.125% due 7/01/2005 (h) $ 1,159
AAA NR* 500 5.875% due 7/01/2015 505
AAA Aaa 4,500 Maricopa County, Arizona, Elementary School District No. 68, Revenue
Refunding Bonds (Alhambra), Series A, UT, 6.75% due 7/01/2014 (f) 4,897
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) 2,223
Maricopa County, Arizona, IDA, Hospital Facilities Revenue Refunding Bonds:
AAA Aaa 2,800 (John C. Lincoln Hospital), 7.50% due 12/01/2013 (c) 3,108
AAA Aaa 750 (Samaritan Health Service Hospital), Series A, 7% due 12/01/2013 (d) 824
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding
(Arizona Public Service Co.), VRDN (e):
A1+ P1 100 Series B, 3.50% due 5/01/2029 100
A1+ P1 100 Series E, 3.50% due 5/01/2029 100
AAA Aaa 3,100 Maricopa County, Arizona, Unified School District No. 69, Paradise Valley,
Project of 1994, UT, Series B, 5.25% due 7/01/2015 (d) 2,981
AAA Aaa 1,000 Mohave County, Arizona, IDA, Hospital System Revenue Bonds (Baptist
Hospital), 5.75% due 9/01/2026 (d) 983
NR* NR* 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Co. Project), AMT, 6.70%
due 3/01/2020 2,117
AAA Aaa 1,325 Mohave County, Arizona, Unified High School District No. 30, GO, UT,
Series B, 6.70% due 7/01/2001 (b)(h) 1,457
Peoria, Arizona, Improvement District No. 8801, Special Assessment Bonds
(North Valley Power Center):
BBB NR* 200 7.30% due 1/01/2009 218
BBB NR* 395 7.30% due 1/01/2011 429
Peoria, Arizona, Improvement District No. 8802, Special Assessment Bonds:
BBB NR* 430 7.20% due 1/01/2010 465
BBB NR* 510 7.20% due 1/01/2013 549
<PAGE>
AAA Aaa 1,000 Peoria, Arizona, Water and Sewer Revenue Refunding Bonds, 6.625% due
7/01/2006 (b) 1,070
AAA Aaa 2,000 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities Excise
Tax Revenue Bonds, 6.90% due 7/01/2021 (d) 2,196
Phoenix, Arizona, Civic Improvement Corporation, Wastewater System, Lease
Revenue Bonds:
AA- Aa 1,000 Junior Lien, 5.60% due 7/01/2017 993
AA- Aa 1,250 Junior Lien, 6% due 7/01/2019 1,268
A A1 3,000 Refunding, 5% due 7/01/2018 2,697
AAA Aaa 1,000 Refunding, 5% due 7/01/2018 (d) 907
AA+ Aa1 1,400 Phoenix, Arizona, GO, Refunding, UT, Series A, 6.25% due 7/01/2017 1,517
Pima County, Arizona, Sewer Revenue Refunding Bonds (b):
AAA Aaa 950 6.75% due 7/01/2015 1,033
AAA Aaa 1,000 Series A, 5% due 7/01/2015 927
A1+ P1 2,200 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corporation),
VRDN, 3.70% due 12/01/2009 (e) 2,200
</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>
BBB NR* $ 750 Prescott Valley, Arizona, Improvement District, Special Assessment Sewer
Collection System, Roadway Repair Revenue Bonds, 7.90% due 1/01/2012 $ 834
AA Aa 4,000 Salt River Project, Arizona, Agricultural Improvement and Power District,
Electric System Revenue Bonds, Series A, 6.50% due 1/01/2022 4,194
BBB NR* 1,600 Sedona, Arizona, Sewer Revenue Refunding Bonds, 7% due 7/01/2012 1,690
AAA Aaa 500 Tucson, Arizona, Airport Authority Revenue Bonds, AMT, Series B, 7.25% due
6/01/2020 (d) 542
AAA Aaa 1,500 Tucson, Arizona, GO, Refunding, 6.50% due 7/01/2002 (b) 1,642
A+ NR* 1,650 Tucson, Arizona, Water Revenue Bonds, Series D, 6.75% due 7/01/2001 (h) 1,828
Tucson, Arizona, Water Revenue Refunding Bonds:
A+ A1 1,250 6.50% due 7/01/2016 1,332
A+ A1 1,000 5.25% due 7/01/2018 933
<PAGE>
University of Arizona Revenue Bonds:
AA A1 2,000 Refunding, Series A, 6.20% due 6/01/2016 2,132
AA NR* 1,570 Series B, 6.90% due 6/01/2000 (h) 1,726
Puerto Rico--8.4%
AAA Baa1 3,000 Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue Bonds,
Series A, 7% due 7/01/1998 (h) 3,223
AAA Aaa 2,000 Puerto Rico Commonwealth, YCN, 7.942% due 7/01/2020 (a)(c) 1,990
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Bonds, LEVRRS, 8.328%
due 7/01/2023 (a)(c) 1,893
Total Investments (Cost--$79,907)--99.3% 84,244
Variation Margin on Financial Futures Contracts++--(0.1%) (58)
Other Assets Less Liabilities--0.8% 669
-------
Net Assets--100.0% $84,855
=======
<FN>
(a)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, 1996.
(b)FGIC Insured.
(c)FSA Insured.
(d)MBIA Insured.
(e)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rates shown are those in
effect at July 31, 1996.
(f)AMBAC Insured.
(g)Insured by Connie Lee.
(h)Prerefunded.
(i)Bank qualified.
(j)All or portion of security held as collateral in connection with
open financial futures contracts.
*Not Rated.
++Financial futures contracts sold as of July 31, 1996 (in
thousands) were as follows:
Value
Number of Expiration (Notes
Contracts Issue Date 1a & 1b)
85 US Treasury Bonds September 1996 $9,276
Total Financial Futures Contracts Sold
(Total Contract Price--$9,103) $9,276
======
<PAGE>
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of July 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$79,907,356) (Note 1a) $ 84,244,109
Cash 62,382
Receivables:
Interest $ 794,684
Beneficial interest sold 149,560 944,244
------------
Deferred organization expenses (Note 1e) 4,868
Prepaid expenses (Note 1e) 2,150
------------
Total assets 85,257,753
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 99,552
Beneficial interest redeemed 96,423
Variation margin (Note 1b) 58,438
Investment adviser (Note 2) 39,289
Distributor (Note 2) 28,941 322,643
------------
Accrued expenses 79,759
------------
Total liabilities 402,402
------------
Net Assets: Net assets $ 84,855,351
============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 142,219
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 630,968
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 14,232
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 17,768
Paid-in capital in excess of par 82,033,804
Accumulated realized capital losses on investments--net (Note 5) (2,147,268)
Unrealized appreciation on investments--net 4,163,628
------------
Net assets $ 84,855,351
============
<PAGE>
Net Asset Value: Class A--Based on net assets of $14,987,656 and 1,422,186
shares of beneficial interest outstanding $ 10.54
============
Class B--Based on net assets of $66,497,585 and 6,309,683
shares of beneficial interest outstanding $ 10.54
============
Class C--Based on net assets of $1,499,460 and 142,324
shares of beneficial interest outstanding $ 10.54
============
Class D--Based on net assets of $1,870,650 and 177,677
shares of beneficial interest outstanding $ 10.53
============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
July 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 5,207,085
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 485,178
Account maintenance and distribution fees--Class B (Note 2) 353,826
Professional fees 55,572
Printing and shareholder reports 45,199
Transfer agent fees--Class B (Note 2) 36,444
Accounting services (Note 2) 34,986
Amortization of organization expenses (Note 1e) 14,974
Registration fees (Note 1e) 7,935
Account maintenance and distribution fees--Class C (Note 2) 7,658
Pricing fees 7,327
Transfer agent fees--Class A (Note 2) 6,467
Custodian fees 6,059
Trustees' fees and expenses 4,730
Account maintenance fees--Class D (Note 2) 1,106
Transfer agent fees--Class C (Note 2) 656
Transfer agent fees--Class D (Note 2) 470
Other 2,237
------------
Total expenses 1,070,824
------------
Investment income--net 4,136,261
------------
<PAGE>
Realized & Realized gain on investments--net 375,382
Unrealized Change in unrealized appreciation on investments--net 351,174
Gain on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 4,862,817
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 4,136,261 $ 4,577,301
Realized gain (loss) on investments--net 375,382 (2,172,813)
Change in unrealized appreciation on investments--net 351,174 2,791,773
------------ ------------
Net increase in net assets resulting from operations 4,862,817 5,196,261
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (769,592) (906,229)
Shareholders Class B (3,253,699) (3,649,429)
(Note 1f): Class C (57,446) (7,364)
Class D (55,524) (14,279)
Realized gain on investments--net:
Class A -- (23,660)
Class B -- (103,854)
Class C -- (13)
Class D -- (245)
In excess of realized gain on investments--net:
Class A -- (64,782)
Class B -- (284,350)
Class C -- (34)
Class D -- (671)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (4,136,261) (5,054,910)
------------ ------------
Beneficial Interest Net decrease in net assets derived from beneficial
Transactions interest transactions (4,200,184) (10,791,148)
(Note 4): ------------ ------------
<PAGE>
Net Assets: Total decrease in net assets (3,473,628) (10,649,797)
Beginning of year 88,328,979 98,978,776
------------ ------------
End of year $ 84,855,351 $ 88,328,979
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<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. 1991++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.46 $ 10.40 $ 11.01 $ 10.74 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .54 .55 .57 .60 .41
Realized and unrealized gain (loss) on
investments--net .08 .11 (.39) .39 .74
-------- -------- -------- -------- --------
Total from investment operations .62 .66 .18 .99 1.15
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.54) (.55) (.57) (.60) (.41)
Realized gain on investments--net -- (.01) (.22) (.12) --
In excess of realized gain on
investments--net -- (.04) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.54) (.60) (.79) (.72) (.41)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.54 $ 10.46 $ 10.40 $ 11.01 $ 10.74
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.04% 6.76% 1.62% 9.62% 11.82%+++
Return:** ======== ======== ======== ======== ========
<PAGE>
Ratios to Expenses, net of reimbursement .79% .80% .56% .41% .22%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses .79% .83% .80% .81% .98%*
======== ======== ======== ======== ========
Investment income--net 5.09% 5.44% 5.32% 5.57% 5.99%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 14,988 $ 14,893 $ 18,363 $ 17,988 $ 14,564
Data: ======== ======== ======== ======== ========
Portfolio turnover 36.39% 62.65% 53.35% 73.48% 66.50%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<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. 1991++ to
For the Year Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.46 $ 10.40 $ 11.01 $ 10.74 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .49 .50 .52 .54 .38
Realized and unrealized gain (loss) on
investments--net .08 .11 (.39) .39 .74
-------- -------- -------- -------- --------
Total from investment operations .57 .61 .13 .93 1.12
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.49) (.50) (.52) (.54) (.38)
Realized gain on investments--net -- (.01) (.22) (.12) --
In excess of realized gain on
investments--net -- (.04) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.49) (.55) (.74) (.66) (.38)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.54 $ 10.46 $ 10.40 $ 11.01 $ 10.74
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 5.49% 6.22% 1.11% 9.07% 11.45%+++
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.30% 1.31% 1.07% .92% .74%*
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.30% 1.33% 1.30% 1.32% 1.47%*
======== ======== ======== ======== ========
Investment income--net 4.59% 4.92% 4.82% 5.06% 5.48%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands). $ 66,497 $ 72,090 $ 80,616 $ 81,078 $ 59,881
Data: ======== ======== ======== ======== ========
Portfolio turnover 36.39% 62.65% 53.35% 73.48% 66.50%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
<PAGE> Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
July 31, July 31, July 31, July 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.46 $ 10.05 $ 10.45 $ 10.05
Operating -------- -------- -------- --------
Performance: Investment income--net .48 .37 .53 .42
Realized and unrealized gain on investments--net .08 .46 .08 .45
-------- -------- -------- --------
Total from investment operations .56 .83 .61 .87
-------- -------- -------- --------
Less dividends and distributions
Investment income--net (.48) (.37) (.53) (.42)
Realized gain on investments--net -- (.01) -- (.01)
In excess of realized gain on investments--net -- (.04) -- (.04)
-------- -------- -------- --------
Total dividends and distributions (.48) (.42) (.53) (.47)
-------- -------- -------- --------
Net asset value, end of period $ 10.54 $ 10.46 $ 10.53 $ 10.45
======== ======== ======== ========
Total Investment Based on net asset value per share 5.38% 8.53%+++ 5.93% 8.92%+++
Return:** ======== ======== ======== ========
Ratios to Expenses, net of reimbursement 1.40% 1.43%* .89% .93%*
Average Net ======== ======== ======== ========
Assets Expenses 1.40% 1.43%* .89% .93%*
======== ======== ======== ========
Investment income--net 4.49% 4.58%* 5.01% 5.23%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 1,499 $ 729 $ 1,871 $ 617
Data: ======== ======== ======== ========
Portfolio turnover 36.39% 62.65% 36.39% 62.65%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
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
diversified, open-end management investment company. The Fund offers
four classes of shares under the Merrill Lynch Select Pricing SM
System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio
securities in which the Fund invests are traded primarily in the
over-the-counter municipal bond and money markets and are valued at
the last available bid price in the over-the-counter market or on
the basis of yield equivalents as obtained from one or more dealers
that make markets in the securities. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their
settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Trust, including
valuations furnished by a pricing service retained by the Trust,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Trust under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* 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
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.
<PAGE>
(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. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
NOTES TO FINANCIAL STATEMENTS (continued)
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidi-
ary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $500 million;
0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in
excess of $1 billion. 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 to FAM during any fiscal year which will cause such expenses
to exceed expense limitation at the time of payment.
<PAGE>
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.25%
Class C 0.25% 0.35%
Class D 0.10% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1996, MLFD earned underwriting discounts
and direct commissions and MLPF&S earned dealer concessions on sales
of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $1,382 $7,503
Class D $ 908 $8,897
For the year ended July 31, 1996, MLPF&S received contingent
deferred sales charges of $165,581 and $413 relating to transactions
in Class B and Class C Shares, respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1996 were $30,966,615 and $35,375,868,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1996 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 536,342 $ 4,336,753
Financial futures contracts (160,960) (173,125)
----------- -----------
Total $ 375,382 $ 4,163,628
=========== ===========
As of July 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $4,336,753, of which $4,482,163 related to
appreciated securities and $145,410 related to depreciated
securities. The aggregate cost of investments at July 31, 1996 for
Federal income tax purposes was $79,907,356.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $4,200,184 and $10,791,148 for the years ended July
31, 1996 and July 31, 1995, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 158,471 $ 1,664,285
Shares issued to share-
holders in reinvestment
of dividends 37,815 403,055
----------- -----------
Total issued 196,286 2,067,340
Shares redeemed (197,525) (2,098,198)
----------- -----------
Net decrease (1,239) $ (30,858)
=========== ===========
<PAGE>
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 187,774 $ 1,903,153
Shares issued to share-
holders in reinvestment of
dividends and distributions 43,703 443,793
----------- -----------
Total issued 231,477 2,346,946
Shares redeemed (573,315) (5,830,865)
----------- -----------
Net decrease (341,838) $(3,483,919)
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 1,176,459 $12,522,295
Shares issued to share-
holders in reinvestment
of dividends 121,346 1,293,460
----------- -----------
Total issued 1,297,805 13,815,755
Automatic conversion
of shares (32,533) (348,316)
Shares redeemed (1,845,769) (19,662,985)
----------- -----------
Net decrease (580,497) $(6,195,546)
=========== ===========
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 981,663 $10,018,567
Shares issued to share-
holders in reinvestment of
dividends and distributions 142,045 1,444,428
----------- -----------
Total issued 1,123,708 11,462,995
Shares redeemed (1,983,196) (20,087,313)
----------- -----------
Net decrease (859,488) $(8,624,318)
=========== ===========
<PAGE>
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 89,888 $ 953,026
Shares issued to share-
holders in reinvestment
of dividends 3,816 40,631
----------- -----------
Total issued 93,704 993,657
Shares redeemed (21,076) (224,505)
----------- -----------
Net increase 72,628 $ 769,152
=========== ===========
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Period
October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 69,910 $ 729,055
Shares issued to share-
holders in reinvestment of
dividends and distributions 513 5,375
----------- -----------
Total issued 70,423 734,430
Shares redeemed (727) (7,648)
----------- -----------
Net increase 69,696 $ 726,782
=========== ===========
[FN]
++Commencement of Operations.
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 101,332 $ 1,072,810
Automatic conversion
of shares 32,564 348,316
Shares issued to share-
holders in reinvestment
of dividends 2,352 25,016
----------- -----------
Total issued 136,248 1,446,142
Shares redeemed (17,616) (189,074)
----------- -----------
Net increase 118,632 $ 1,257,068
=========== ===========
<PAGE>
Class D Shares for the Period
October 21, 1994++ to Dollar
July 31, 1995 Shares Amount
Shares sold 64,086 $ 643,501
Shares issued to share-
holders in reinvestment of
dividends and distributions 561 5,822
----------- -----------
Total issued 64,647 649,323
Shares redeemed (5,602) (59,016)
----------- -----------
Net increase 59,045 $ 590,307
=========== ===========
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At July 31, 1996, the Fund had a net capital loss carryforward of
approximately $1,068,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
<AUDIT-REPORT>
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, 1996, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period
then ended and 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.
<PAGE>
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,
1996 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 Arizona Municipal Bond Fund of Merrill Lynch Multi-
State Municipal Series Trust as of July 31, 1996, 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 5, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
Merrill Lynch Arizona Municipal Bond Fund during its taxable year
ended July 31, 1996 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, there were no capital gains distributions during the
year.
Please retain this information for your records.
