MERRILL LYNCH
ARIZONA
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 1998
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1998, long-term tax-exempt revenue bond
yields were little changed. Throughout the period, the near absence of
inflationary pressures continued to support low interest rates. However,
consistently strong domestic economic growth has caused some investors to fear
that the Federal Reserve Board will be forced eventually to raise short-term
interest rates. Such action would be taken to ensure that the US economy's
present rate of growth would decelerate before any inflationary pressures could
develop. These concerns pushed bond yields modestly higher by late April.
However, the weakening financial conditions in many Asian countries subsequently
calmed investor fears of Federal Reserve Board intervention, and fixed-income
prices again moved higher. Long-term uninsured municipal bond yields, as
measured by the Bond Buyer Revenue Bond Index, rose less than 5 basis points
(0.05%) to end the July quarter at 5.36%. As in late 1997 and early 1998, US
Treasury bond yields benefited from a "flight to quality" as foreign investors
were drawn to the relative safe haven of US Government securities. Long-term US
Treasury bond yields declined approximately 10 basis points to end the July
quarter at 5.71%.
Thus far in 1998, the municipal bond market has experienced unexpectedly strong
supply pressures. These supply pressures have prevented tax-exempt bond yields
from declining as much as US Treasury bond yields. During the first six months
of 1998, more than $153 billion in new tax-exempt bonds were underwritten, an
increase of almost 50% compared to the same period a year ago. During the
quarter ended July 31, 1998, municipalities issued over $75 billion in new
securities, an increase of more than 35% compared to the same three-month period
in 1997. Additionally, corporate issuers have also viewed current interest rate
levels as an opportunity to issue significant amounts of taxable securities.
Thus far in 1998, over $500 billion in investment-grade corporate bonds have
been underwritten, an increase of more than 70% compared to the same period a
year ago. This sizeable corporate bond issuance has tended to both support
generally higher fixed-income yields and reduce the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely to be
maintained. Continued increases in bond issuance will require lower and lower
tax-exempt bond yields to generate the economic savings necessary for additional
municipal bond refinancings. Preliminary estimates for 1998 total municipal bond
issuance are in the $200 billion-$225 billion range. These estimates suggest
that recent supply pressures are likely to abate later in the year. Earlier this
year, municipal bond investors received approximately $30 billion in coupon
payments, bond maturities and proceeds from early redemptions. The demand
generated by these assets has helped to offset the increase in supply seen thus
far in 1998.
The continued impact of the Asian financial crisis on the US domestic economy's
future growth remains unclear. Current Asian economic conditions continue to
reflect ongoing weakness. Recent trade data indicated that reduced US exports to
these countries may have lowered US economic growth by more than 2% in the first
quarter of 1998. Since further trade deterioration is possible in the coming
months, we do not believe that the Federal Reserve Board will be willing to
raise interest rates, barring a dramatic and unexpected resurgence of domestic
inflation.
These factors suggest that over the near term, interest rates are unlikely to
rise by any appreciable amount. Recent supply pressures have caused municipal
bond yield ratios to rise relative to US Treasury bond yields. At July 31, 1998,
long-term tax-exempt bond yields were at attractive yield ratios relative to US
Treasury securities of comparable maturities (over 90%), well in excess of their
expected range of 85%-88%. Tax-exempt bond yield ratios rarely exceeded 90% in
the 1980s and 1990s. Previous instances have usually been associated with
potential changes in Federal tax code that would have adversely affected the
tax-favored status of municipal bonds. The present situation has developed
largely because of a temporary supply imbalance. These imbalances should soon be
corrected as tax-exempt bond issuance slows from its current rapid pace later
this year. Any further pressure on the municipal market may well represent a
very attractive investment opportunity.
1
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
Portfolio Strategy
During the six-month period ended July 31, 1998, our investment outlook for
Merrill Lynch Arizona Municipal Bond Fund was basically constructive. We
believed that the strong economic growth seen in late 1997 and thus far in 1998
would be offset by a combination of the extremely positive inflationary
environment and deteriorating Asian economic conditions. Consequently, as 1998
progressed, we expected tax-exempt bond yields to trade in a relatively narrow
range, with a bias toward lower bond yields. The Fund also maintained a fully
invested position in order to seek to enhance shareholder income and participate
fully in the anticipated market improvement.
Looking ahead, we expect little change in the Fund's existing structure. Current
economic fundamentals and a strong domestic economy offset by equally favorable
inflationary pressures suggest that interest rates should trade in a narrow
range. Should economic weakness in Asia reverse in the coming months and no
longer constrain US economic growth, we will look to adopt a more defensive
position for the Fund. Consequently, the Fund is expected to remain fully
invested in order to generate optimal shareholder income.
Fiscal Year in Review
During the fiscal year ended July 31, 1998, yields within the municipal bond
market generally declined, although there was considerable monthly volatility.
This volatility was largely the result of an increase in new bond issuance
compared to the same period a year ago. During the fiscal year ended July 31,
1998, more than $275 billion in long-term, tax-exempt securities were issued, an
increase of over 40% compared to the same period a year ago. Arizona
municipalities issued more than $3.8 billion in new securities, representing an
increase of almost 60%. At times during the period, such increases in supply
outweighed investor demand, allowing yields to rise temporarily.
During the fiscal year, we generally maintained a constructive approach toward
the municipal bond market. The Fund was fully invested in long-term Arizona
tax-exempt securities throughout the 12-month period. These strategies produced
total returns of +5.25%, +4.71%, +4.61% and +5.14% for the Fund's Class A, Class
B, Class C and Class D Shares, respectively, for the year ended July 31, 1998.
This compares to the Lipper Analytical Services, Inc. average total return of
+5.31% for similar Arizona tax-exempt funds during the same 12-month period.
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,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Walter C. O'Connor
Walter C. O'Connor
Vice President and Portfolio Manager
September 8, 1998
- --------------------------------------------------------------------------------
We are pleased to announce that Walter C. O'Connor is responsible for the
day-to-day management of Merrill Lynch Arizona Municipal Bond Fund. Mr. O'Connor
has been employed by Merrill Lynch Asset Management, L.P. (an affiliate of the
Fund's investment adviser) since 1993 as Vice President.
- --------------------------------------------------------------------------------
2
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class A
Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.25% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.35% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different
levels of account maintenance, distribution and transfer agency fees
applicable to each class, which are deducted from the income available to
be paid to shareholders.
Recent Performance Results*
<TABLE>
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 7/31/98
==============================================================================================================
<S> <C> <C> <C> <C>
ML Arizona Municipal Bond Fund Class A Shares +5.25% +2.21% +61.21% 4.00%
- --------------------------------------------------------------------------------------------------------------
ML Arizona Municipal Bond Fund Class B Shares +4.71 +2.07 +55.86 3.65
- --------------------------------------------------------------------------------------------------------------
ML Arizona Municipal Bond Fund Class C Shares +4.61 +2.05 +29.18 3.55
- --------------------------------------------------------------------------------------------------------------
ML Arizona Municipal Bond Fund Class D Shares +5.14 +2.18 +31.64 3.90
==============================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's inception dates are: Class A and
Class B Shares, 11/29/91; and Class C and Class D Shares, 10/21/94.
3
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
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** 7/98
ML Arizona Municipal Bond Fund+--
Class A Shares* $ 9,600 $15,478
ML Arizona Municipal Bond Fund+--
Class B Shares* $10,000 $15,586
Lehman Brothers Municipal Bond
Index++ $10,000 $16,318
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
10/21/94** 7/98
ML Arizona Municipal Bond Fund+--
Class C Shares* $10,000 $12,918
ML Arizona Municipal Bond Fund+--
Class D Shares* $ 9,600 $12,638
Lehman Brothers Municipal Bond
Index++ $10,000 $13,837
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML 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.
The starting date for the Index in the Class C & Class D Shares graph is
from 10/31/94.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 6/30/98 +7.81% +3.50%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/98 +5.61 +4.75
- --------------------------------------------------------------------------------
Inception (11/29/91)
through 6/30/98 +7.50 +6.83
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/98 +7.27% +3.27%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/98 +5.07 +5.07
- --------------------------------------------------------------------------------
Inception (11/29/91)
through 6/30/98 +6.95 +6.95
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 6/30/98 +7.06% +6.06%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/98 +7.13 +7.13
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 6/30/98 +7.71% +3.40%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/98 +7.69 +6.51
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================
Arizona--92.4%
====================================================================================================================
<S> <C> <C> <C> <C>
Arizona Educational Loan Marketing Corporation, Educational Loan
Revenue Bonds, AMT, Series B:
NR* Aa2 $1,600 7% due 3/01/2003 $ 1,734
NR* Aa2 1,100 7% due 3/01/2005 1,189
- --------------------------------------------------------------------------------------------------------------------
NR* A 750 Arizona Educational Loan Marketing Corporation, Educational Loan
Revenue Bonds, AMT, Sub-Series, 6.625% due 9/01/2005 812
- --------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,180 Arizona Health Facilities Authority, Hospital System Revenue Refunding
Bonds (Saint Luke's Health Systems), 7.25% due 11/01/2003 (h) 2,464
- --------------------------------------------------------------------------------------------------------------------
AA+ Aa1 2,000 Arizona State Wastewater Management Authority, Wastewater Treatment
Financial Assistance Revenue Bonds (City of Phoenix), 6.80% due 7/01/2011 2,207
- --------------------------------------------------------------------------------------------------------------------
NR* Aa 2,000 Arizona Student Loan Acquisition Authority, Student Loan Revenue Bonds,
AMT, Senior Series B, 6.60% due 5/01/2010 2,168
- --------------------------------------------------------------------------------------------------------------------
Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada
Power Co. Project), AMT:
BBB- NR* 1,750 6.375% due 10/01/2036 1,886
BBB- NR* 2,500 Series B, 5.80% due 11/01/2032 2,545
- --------------------------------------------------------------------------------------------------------------------
A1+ P1 500 Coconino County, Arizona, Pollution Control Corporation Revenue Bonds
(Arizona Public Service--Navajo Project), VRDN, AMT, Series A, 3.70% due
10/01/2029 (a) 500
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,950 Coconino County, Arizona, Unified School District No. 001, Refunding
(Flagstaff), UT, 5% due 7/01/2007 (f) 2,030
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,620 Gilbert, Arizona, Water and Sewer Revenue Refunding Bonds, 6.50% due
7/01/2022 (b) 4,016
- --------------------------------------------------------------------------------------------------------------------
Glendale, Arizona, IDA, Educational Facilities
Revenue Refunding Bonds (American Graduate School International)(g):
AAA NR* 1,000 7.125% due 7/01/2005 (h) 1,175
AAA NR* 500 5.875% due 7/01/2015 535
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,700 Glendale, Arizona, Unified High School District No. 205 (Projects of
1993), UT, Series B, 5.70% due 7/01/2014 (b) 1,796
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Maricopa County, Arizona, Elementary School District No. 68, Refunding
(Alhambra), UT, Series A, 6.75% due 7/01/2014 (f) 5,085
- --------------------------------------------------------------------------------------------------------------------
</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
M/F Multi-Family
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
5
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================
Arizona (continued)
====================================================================================================================
<S> <C> <C> <C> <C>
BBB- Baa1 $1,000 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health
Corporation), 6.125% due 4/01/2018 $ 1,055
- --------------------------------------------------------------------------------------------------------------------
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) 2,163
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,235 Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds (Stanford
Court Apartments Project), Series A, 5.30% due 7/01/2028 (d) 2,235
- --------------------------------------------------------------------------------------------------------------------
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding:
A1+ P1 1,300 (Arizona Public Service Co.), VRDN, Series E, 3.65% due 5/01/2029 (a) 1,300
BB+ Ba1 1,500 (Public Service Company of New Mexico Project), Series A, 5.75% due
11/01/2022 1,524
BB+ Ba1 1,500 (Public Service Company of New Mexico Project), Series A, 6.30% due
12/01/2026 1,602
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,125 Mesa, Arizona, Utilities System Revenue Bonds, 6.125% due 7/01/2007 (b)(h) 1,277
- --------------------------------------------------------------------------------------------------------------------
NR* NR* 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Co. Project), AMT,
6.70% due 3/01/2020 2,189
- --------------------------------------------------------------------------------------------------------------------
Peoria, Arizona, Improvement District No. 8801, Special Assessment Bonds
(North Valley Power Center):
BBB NR* 200 7.30% due 1/01/2009 221
BBB NR* 395 7.30% due 1/01/2011 434
- --------------------------------------------------------------------------------------------------------------------
Peoria, Arizona, Improvement District No. 8802, Special Assessment Bonds:
BBB NR* 430 7.20% due 1/01/2010 472
BBB NR* 510 7.20% due 1/01/2013 560
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities
Excise Tax Revenue Bonds, 6.90% due 7/01/2004 (d)(h) 2,309
- --------------------------------------------------------------------------------------------------------------------
AA- Aa3 1,250 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue
Bonds, Junior Lien, 6% due 7/01/2006 (h) 1,387
- --------------------------------------------------------------------------------------------------------------------
AA+ Aa1 1,400 Phoenix, Arizona, GO, Refunding, UT, Series A, 6.25% due 7/01/2017 1,614
- --------------------------------------------------------------------------------------------------------------------
Phoenix, Arizona, Various Purpose Bonds, GO, UT:
AA+ Aa1 2,500 4.50% due 7/01/2019 2,308
AA+ Aa1 3,450 4.50% due 7/01/2022 3,152
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 750 Pima County, Arizona, IDA, Revenue Refunding Bonds (Healthpartners),
Series A, 5.625% due 4/01/2014 (d) 793
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 950 Pima County, Arizona, Sewer Revenue Refunding Bonds, 6.75% due
7/01/2015 (b) 1,023
- --------------------------------------------------------------------------------------------------------------------
A1+ P1 100 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corp.),
VRDN, 3.65% due 12/01/2009 (a) 100
- --------------------------------------------------------------------------------------------------------------------
BBB NR* 750 Prescott Valley, Arizona, Improvement District, Special Assessment
Sewer Collection System, Roadway Repair Bonds, 7.90% due 1/01/2012 846
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================
Arizona (concluded)
====================================================================================================================
<S> <C> <C> <C> <C>
BBB NR* $1,600 Sedona, Arizona, Sewer Revenue Refunding Bonds, 7% due 7/01/2012 $ 1,761
- --------------------------------------------------------------------------------------------------------------------
A+ A1 1,250 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 1,343
- --------------------------------------------------------------------------------------------------------------------
AA A1 2,000 University of Arizona, University Revenue Refunding Bonds, Series A,
6.20% due 6/01/2016 2,278
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
Puerto Rico--6.4%
====================================================================================================================
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, YCN, 8.132% due 7/01/2020 (c)(e) 2,243
- --------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Bonds, LEVRRS,
8.328% due 7/01/2023 (c)(e)(h) 2,204
- --------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$63,642)--98.8% 68,535
Other Assets Less Liabilities--1.2% 816
-------
Net Assets--100.0% $69,351
=======
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rates shown are those in
effect at July 31, 1998.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rates shown are
those in effect at July 31, 1998.
(f) AMBAC Insured.
(g) Connie Lee Insured.
(h) Prerefunded.
* Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
7
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets and Liabilities as of July 31, 1998
=======================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$63,641,669) (Note 1a) . $ 68,535,436
Cash ........................................................... 94,111
Receivables:
Interest ..................................................... $ 629,355
Beneficial interest sold ....................................... 285,195 914,550
--------
Prepaid expenses and other assets .............................. 5,348
------------
Total assets ................................................... 69,549,445
------------
- -----------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Beneficial interest redeemed ................................. 58,785
Dividends to shareholders (Note 1e) .......................... 50,675
Investment adviser (Note 2) .................................. 34,293
Distributor (Note 2) ......................................... 23,903 167,656
---------
Accrued expenses and other liabilities ......................... 30,607
------------
Total liabilities .............................................. 198,263
------------
- -----------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ..................................................... $ 69,351,182
============
- -----------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized .......................... $ 127,481
Class BShares of beneficial interest, $.10 par value, unlimited
number of shares authorized ................................... 473,170
Class CShares of beneficial interest, $.10 par value, unlimited
number of shares authorized ................................... 11,332
Class DShares of beneficial interest, $.10 par value, unlimited
number of shares authorized ................................... 25,198
Paid-in capital in excess of par ............................... 64,287,451
Accumulated realized capital losses on investments--net ........ (467,217)
Unrealized appreciation on investments--net .................... 4,893,767
------------
Net assets ..................................................... $ 69,351,182
============
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $13,875,181 and 1,274,813 shares
of beneficial interest outstanding ............................. $ 10.88
============
Class B--Based on net assets of $51,503,005 and 4,731,702 shares
of beneficial interest outstanding ............................. $ 10.88
============
Class C--Based on net assets of $1,232,862 and 113,318 shares
of beneficial interest outstanding ............................. $ 10.88
============
Class D--Based on net assets of $2,740,134 and 251,975 shares
of beneficial interest outstanding ............................. $ 10.87
============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Statement of Operations
=======================================================================================================================
For the Year Ended July 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ....... $ 4,138,227
(Note 1d):
- -----------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) .............................. $ 390,732
Account maintenance and distribution fees--Class B(Note 2) ..... 266,722
Professional fees .............................................. 52,091
Printing and shareholder reports ............................... 51,413
Accounting services (Note 2) ................................... 36,664
Transfer agent fees--Class B(Note 2) ........................... 20,698
Registration fees .............................................. 10,812
Account maintenance and distribution fees--Class C(Note 2) ..... 6,298
Pricing fees ................................................... 5,308
Custodian fees ................................................. 4,515
Transfer agent fees--Class A(Note 2) ........................... 4,398
Trustees' fees and expenses .................................... 3,976
Account maintenance fees--Class D(Note 2) ...................... 2,485
Transfer agent fees--Class D(Note 2) ........................... 772
Transfer agent fees--Class C(Note 2) ........................... 408
Other .......................................................... 2,819
---------
Total expenses ................................................. 860,111
------------
Investment income--net ......................................... 3,278,116
------------
- -----------------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments--net .............................. 1,528,306
ized Gain (Loss) on Change in unrealized appreciation on investments--net .......... (1,500,179)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ........... $ 3,306,243
============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
=======================================================================================================================
For the Year Ended July 31,
-------------------------------
Increase (Decrease) in Net Assets: 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ......................................... $ 3,278,116 $ 3,853,601
Realized gain on investments--net .............................. 1,528,306 151,745
Change in unrealized appreciation on investments--net .......... (1,500,179) 2,230,318
----------- ------------
Net increase in net assets resulting from operations ........... 3,306,243 6,235,664
----------- ------------
- -----------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders Class A ..................................................... (709,010) (735,203)
(Note 1e): Class B ..................................................... (2,401,175) (2,958,031)
Class C ..................................................... (46,121) (56,040)
Class D ..................................................... (121,810) (104,327)
Net decrease in net assets resulting from dividends to ----------- ------------
shareholders ................................................... (3,278,116) (3,853,601)
----------- ------------
- -----------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net decrease in net assets derived from beneficial interest
Transactions transactions ................................................... (6,115,987) (11,798,372)
(Note 4): ----------- ------------
- -----------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets ................................... (6,087,860) (9,416,309)
Beginning of year .............................................. 75,439,042 84,855,351
----------- ------------
End of year .................................................... $69,351,182 $ 75,439,042
=========== ============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Financial Highlights (continued)
===============================================================================================================================
Class A
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ... $ 10.87 $ 10.54 $ 10.46 $ 10.40 $ 11.01
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net ............... .55 .55 .54 .55 .57
Realized and unrealized gain (loss) on
investments--net ..................... .01 .33 .08 .11 (.39)
---------- ---------- ---------- ---------- ----------
Total from investment operations ..... .56 .88 .62 .66 .18
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net ............. (.55) (.55) (.54) (.55) (.57)
Realized gain on investments--net .. -- -- -- (.01) (.22)
In excess of realized gain on
investments--net ................... -- -- -- (.04) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions .... (.55) (.55) (.54) (.60) (.79)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ......... $ 10.88 $ 10.87 $ 10.54 $ 10.46 $ 10.40
========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ... 5.25% 8.63% 6.04% 6.76% 1.62%
Return:* ========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement ....... .82% .79% .79% .80% .56%
Average ========== ========== ========== ========== ==========
Net Assets: Expenses ............................. .82% .79% .79% .83% .80%
========== ========== ========== ========== ==========
Investment income--net ............... 5.01% 5.21% 5.09% 5.44% 5.32%
========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $ 13,875 $ 14,012 $ 14,988 $ 14,893 $ 18,363
Data: ========== ========== ========== ========== ==========
Portfolio turnover ................... 53.75% 29.68% 36.39% 62.65% 53.35%
========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Financial Highlights
===============================================================================================================================
Class B
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ... $ 10.87 $ 10.54 $ 10.46 $ 10.40 $ 11.01
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net ............... .49 .50 .49 .50 .52
Realized and unrealized gain (loss) on
investments--net ..................... .01 .33 .08 .11 (.39)
---------- ---------- ---------- ---------- ----------
Total from investment operations ..... .50 .83 .57 .61 .13
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net ............. (.49) (.50) (.49) (.50) (.52)
Realized gain on investments--net .. -- -- -- (.01) (.22)
In excess of realized gain on
investments--net ................... -- -- -- (.04) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions .... (.49) (.50) (.49) (.55) (.74)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ......... $ 10.88 $ 10.87 $ 10.54 $ 10.46 $ 10.40
========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ... 4.71% 8.08% 5.49% 6.22% 1.11%
Return:* ========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement ....... 1.32% 1.30% 1.30% 1.31% 1.07%
Average ========== ========== ========== ========== ==========
Net Assets: Expenses ............................. 1.32% 1.30% 1.30% 1.33% 1.30%
========== ========== ========== ========== ==========
Investment income--net ............... 4.50% 4.70% 4.59% 4.92% 4.82%
========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $ 51,503 $ 58,282 $ 66,497 $ 72,090 $ 80,616
Data: ========== ========== ========== ========== ==========
Portfolio turnover ................... 53.75% 29.68% 36.39% 62.65% 53.35%
========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Financial Highlights (continued)
=====================================================================================================================
Class C
------------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
----------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 10.87 $ 10.54 $ 10.46 $ 10.05
Operating --------- --------- --------- ---------
Performance: Investment income--net ................. .48 .49 .48 .37
Realized and unrealized gain on
investments--net ....................... .01 .33 .08 .46
--------- --------- --------- ---------
Total from investment operations ....... .49 .82 .56 .83
--------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ............... (.48) (.49) (.48) (.37)
Realized gain on investments--net .... -- -- -- (.01)
In excess of realized gain on
investments--net ..................... -- -- -- (.04)
--------- --------- --------- ---------
Total dividends and distributions ...... (.48) (.49) (.48) (.42)
--------- --------- --------- ---------
Net asset value, end of period ......... $ 10.88 $ 10.87 $ 10.54 $ 10.46
========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ..... 4.61% 7.97% 5.38% 8.53%++
Return:** ========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ............................... 1.42% 1.40% 1.40% 1.43%*
Net Assets: ========= ========= ========= =========
Investment income--net ................. 4.39% 4.59% 4.49% 4.58%*
========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $ 1,233 $ 957 $ 1,499 $ 729
Data: ========= ========= ========= =========
Portfolio turnover ..................... 53.75% 29.68% 36.39% 62.65%
========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
<CAPTION>
Financial Highlights (concluded)
=====================================================================================================================
Class D
------------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
----------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 10.86 $ 10.53 $ 10.45 $ 10.05
Operating --------- --------- --------- ---------
Performance: Investment income--net ................. .54 .54 .53 .42
Realized and unrealized gain on
investments--net ....................... .01 .33 .08 .45
--------- --------- --------- ---------
Total from investment operations ....... .55 .87 .61 .87
--------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ............... (.54) (.54) (.53) (.42)
Realized gain on investments--net .... -- -- -- (.01)
In excess of realized gain on
investments--net ..................... -- -- -- (.04)
--------- --------- --------- ---------
Total dividends and distributions ...... (.54) (.54) (.53) (.47)
--------- --------- --------- ---------
Net asset value, end of period ......... $ 10.87 $ 10.86 $ 10.53 $ 10.45
========= ========= ========= =========
Based on net asset value per share ..... 5.14% 8.52% 5.93% 8.92%++
========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------
Total Investment Expenses ............................... .92% .89% .89% .93%*
Return:** ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------
Ratios to Average Investment income--net ................. 4.90% 5.11% 5.01% 5.23%*
Net Assets: ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $ 2,740 $ 2,188 $ 1,871 $ 617
Data: ========= ========= ========= =========
Portfolio turnover ..................... 53.75% 29.68% 36.39% 62.65%
========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
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 diversified, open-end management
investment company. The Fund offers four classes of shares under the Merrill
Lynch Select PricingSM System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio securities in
which the Fund invests are traded primarily in the over-the-counter municipal
bond and money markets and are valued at the last available bid price in the
over-the-counter market or on the basis of yield equivalents as obtained from
one or more dealers that make markets in the securities. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are valued at
amortized cost, which approximates market value. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Trust, including valuations furnished by a pricing service retained by the
Trust, which may utilize a matrix system for valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) 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.
15
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an
indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds Distributor ("MLFD" or
"Distributor"), a division of Princeton Funds Distributor, Inc. ("PFD"), which
is a wholly-owned subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee
based upon the average daily value of the Fund's net assets at the following
annual rates: 0.55% of the Fund's average daily net assets not exceeding $500
million; 0.525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and 0.50% of average daily net assets in excess of $1
billion.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B .................................. 0.25% 0.25%
Class C .................................. 0.25% 0.35%
Class D .................................. 0.10% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1998, MLFD earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A .................................. $345 $ 889
Class D .................................. $732 $7,925
- --------------------------------------------------------------------------------
For the year ended July 31, 1998, MLPF&S received contingent deferred sales
charges of $91,163 and $200 relating to transactions in Class B and Class C
Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 1998 were $37,015,130 and $43,003,384, respectively.
Net realized gains for the year ended July 31, 1998 and net unrealized gains as
of July 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................... $1,528,306 $4,893,767
---------- ----------
Total .................................... $1,528,306 $4,893,767
========== ==========
- --------------------------------------------------------------------------------
As of July 31, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $4,889,179, of which $4,981,425 related to appreciated securities and
$92,246 related to depreciated securities. The aggregate cost of investments at
July 31, 1998 for Federal income tax purposes was $63,646,257.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$6,115,987 and $11,798,372 for the years ended July 31, 1998 and July 31, 1997,
respectively.
16
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 175,556 $ 1,909,593
Shares issued to shareholders
in reinvestment of dividends ................ 36,527 397,097
-------- ----------
Total issued ................................ 212,083 2,306,690
Shares redeemed ............................. (225,839) (2,456,398)
-------- ----------
Net decrease ................................ (13,756) $(149,708)
======== ==========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 135,108 $ 1,430,774
Shares issued to shareholders
in reinvestment of dividends ................ 37,066 392,786
-------- -----------
Total issued ................................ 172,174 1,823,560
Shares redeemed ............................. (305,791) (3,233,977)
-------- -----------
Net decrease ................................ (133,617) $(1,410,417)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 536,958 $ 5,842,041
Shares issued to shareholders
in reinvestment of dividends ................ 88,306 959,568
---------- -----------
Total issued ................................ 625,264 6,801,609
Automatic conversion of
shares ...................................... (7,775) (84,480)
Shares redeemed ............................. (1,245,399) (13,515,437)
---------- -----------
Net decrease ................................ (627,910) $(6,798,308)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 617,462 $ 6,538,480
Shares issued to shareholders
in reinvestment of dividends ................ 112,661 1,193,941
-------- ------------
Total issued ................................ 730,123 7,732,421
Automatic conversion of
shares ...................................... (33,885) (358,302)
Shares redeemed ............................. (1,646,309) (17,437,458)
-------- ------------
Net decrease ................................ (950,071) $(10,063,339)
======== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 50,035 $ 547,389
Shares issued to shareholders
in reinvestment of dividends ................ 2,131 23,155
------ -----------
Total issued ................................ 52,166 570,544
Shares redeemed ............................. (26,897) (291,649)
------ -----------
Net increase ................................ 25,269 $ 278,895
====== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 28,288 $ 298,514
Shares issued to shareholders
in reinvestment of dividends ................ 3,437 36,392
------- -----------
Total issued ................................ 31,725 334,906
Shares redeemed ............................. (86,000) (912,398)
------- -----------
Net decrease ................................ (54,275) $ (577,492)
======= ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 92,554 $ 1,006,808
Automatic conversion
of shares ................................... 7,782 84,480
Shares issued to shareholders
in reinvestment of dividends ................ 4,643 50,442
------ -----------
Total issued ................................ 104,979 1,141,730
Shares redeemed ............................. (54,421) (588,596)
------ -----------
Net increase ................................ 50,558 $ 553,134
====== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ................................. 44,242 $ 470,086
Automatic conversion
of shares ................................... 33,915 358,302
Shares issued to shareholders
in reinvestment of dividends ................ 4,452 47,135
------ -----------
Total issued ................................ 82,609 875,523
Shares redeemed ............................. (58,869) (622,647)
------ -----------
Net increase ................................ 23,740 $ 252,876
====== ===========
- --------------------------------------------------------------------------------
17
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
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, 1998, the
related statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July 31,
1998 by correspondence with the custodian. 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, 1998, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 11, 1998
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, 1998 qualify
as tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributions made by the Fund during
the year.
Please retain this information for your records.
18
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1998
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Walter C. O'Connor, Vice President
Gerald M. Richard, Treasurer
Robert E. Putney, III, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
19
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Arizona
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16238--7/98
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