MERRILL LYNCH
ARIZONA
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 1999
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 1999, long-term bond yields rose
significantly. Steady US economic growth combined with improvement in foreign
economies, most notably Japan and Brazil, as well as an inflation scare in early
May put upward pressure on bond yields throughout the period. Continued strong
US employment growth, particularly the decline in the US unemployment rate to
4.2% in early June, was among the reasons the Federal Reserve Board cited for
raising short-term interest rates in late June. US Treasury bond yields reacted
by climbing above 6.15% by late June before improving somewhat to 6.10% by July
31, 1999. During the six-month period ended July 31, 1999, yields on long-term
US Treasury securities increased approximately 100 basis points (1.00%).
Long-term tax-exempt bond yields also rose during the six-month period ended
July 31, 1999. Until early May, the municipal bond market had been able to
withstand much of the upward pressure on bond yields. However, investor concerns
regarding ongoing US economic strength and the fear of additional moves by the
Federal Reserve Board eventually pushed municipal bond yields higher throughout
June and July. During the period, yields on long-term tax-exempt revenue bonds
rose almost 50 basis points to 5.65%, as measured by the Bond Buyer Revenue Bond
Index.
The ability of the tax-exempt bond market to withstand much of the recent upward
pressure on long-term fixed-income bond yields has been a reflection of the
continued strong technical position the municipal bond market has enjoyed in
recent quarters. During the last six months, more than $120 billion in long-term
municipal bonds was underwritten, a decrease of more than 20% compared to the
same period a year ago. During the past three months, more than $60 billion in
municipal bonds was underwritten. This quarterly issuance represents a decline
of nearly 25% compared to the same three-month period a year ago.
Recently, the municipal supply position deteriorated even further. Total
issuance in July 1999 of $16.5 billion was more than 30% lower than July 1998
levels. Additionally, in June and July, investors received more than $40 billion
in coupon income and proceeds from bond maturities and early bond redemptions.
These proceeds have generated significant retail investor interest, easily
absorbing the recent diminished supply. This very favorable supply/demand
position allowed the tax-exempt bond market to outperform its taxable
counterpart in recent months.
However, the recent relative outperformance of the municipal bond market has
somewhat reduced the very attractive tax-exempt bond yield ratios that were
available at the end of 1998. In December 1998, long-term, uninsured municipal
bond yields were higher than the yields of their taxable counterparts.
Historically, long-term tax-exempt bond yields have been approximately 82%-85%
of long-term US Treasury bond yields. Municipal bond yields rose at a lower rate
in recent months than US Treasury bond yields causing the bond yield ratio to
decline. At July 31, 1999, long-term municipal bond yields were approximately
92% of their taxable counterparts. Current ratios, while lower than those
available at the end of 1998, still represent historically attractive levels. We
expect the municipal bond market to maintain its strong technical position for
the remainder of 1999. Consequently, there appears to be little reason for the
tax-exempt bond market to underperform the taxable US Treasury bond market. This
suggests that the present bond yield ratio is likely to be stable in the coming
months and a return ratio in excess of 100% of taxable Treasury securities is
improbable.
Looking ahead, it appears to us that long-term municipal bond yields will trade
in a relatively tight range near current levels. Strong US economic performance
is being balanced by nearly negligible inflation data, as well as improvements
in productivity in both manufacturing and service industries. Future moves by
the Federal Reserve Board have largely been discounted by bond markets and are
to a great extent reflected in present bond yields.
Any improvement in bond prices is likely to be contingent upon weakening in both
US employment growth and consumer spending. The 100 basis point rise in US
Treasury bond yields seen thus far this year is likely to negatively affect US
economic growth. The
1
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
US housing market will be among the first sectors likely to be affected, as some
declines have already been evidenced because of higher mortgage rates. We
believe it is also unrealistic to expect double-digit returns in US equity
markets to continue indefinitely. Much of the US consumer's wealth is tied to
recent stock market appreciation. Any slowing in these incredible growth rates
is likely to reduce consumer spending. We believe that these factors suggest
that the worst of the recent increase in bond yields has passed and stable, if
not slightly improving, bond prices may be expected.
Portfolio Strategy
During the six months ended July 31, 1999, we consistently maintained a fully
invested posture in order to seek to enhance shareholder income with an emphasis
on credit quality. The Arizona municipal marketplace was relatively inactive as
a result of a scarcity of new issuance. Therefore, restructuring of portfolio
assets was quite limited. We positioned the Fund with an above-industry average
level coupon structure, which served it well in the current environment of
generally rising interest rates. Since our investments had a higher average
coupon structure than municipal bonds in general, they were somewhat more
insulated from the price deterioration that occurred as interest rates rose in
the first half of 1999. Looking ahead, we will survey domestic economic data for
signs of slowing growth and a controlled inflationary picture in order to
position the Fund more aggressively.
Fiscal Year in Review
The municipal bond marketplace proved extremely volatile during the past 12
months, with a dramatic rise in taxable interest rates occurring through-out
most of the period. Municipal bonds were slightly better performers. The
percentage of tax-exempt yields compared to their taxable counterparts decreased
(municipals have become more expensive) as interest rates have risen. This
outperformance by municipal bonds was quite evident with regard to Arizona
municipal bonds specifically because of a fairly benign new-issue calendar in
1999. The Fund's total returns benefited from our defensive posture of holding
higher-couponed securities that are less sensitive to changes (in this case
negative changes) in interest rates. Credit quality remained a focus throughout
the fiscal year, with 78% of Fund assets rated A or better. This strategy also
benefited Fund performance in a period when rising interest rates widened credit
quality spreads.
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/ Terry K. Glenn
Terry K. Glenn
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
August 27, 1999
2
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select PricingSM System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class A
Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.25% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.35% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains 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 7/31/99
==============================================================================================================================
<S> <C> <C> <C> <C>
ML Arizona Municipal Bond Fund Class A Shares +2.52% -1.49% +65.28% 4.14%
- ------------------------------------------------------------------------------------------------------------------------------
ML Arizona Municipal Bond Fund Class B Shares +2.01 -1.62 +58.99 3.80
- ------------------------------------------------------------------------------------------------------------------------------
ML Arizona Municipal Bond Fund Class C Shares +1.81 -1.74 +31.52 3.70
- ------------------------------------------------------------------------------------------------------------------------------
ML Arizona Municipal Bond Fund Class D Shares +2.42 -1.52 +34.83 4.04
==============================================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's since inception periods are from
11/29/91 for Class A & Class B Shares and from 10/21/94 for Class C &
Class D Shares.
3
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
PERFORMANCE DATA (continued)
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** 7/99
ML Arizona Municipal Bond Fund+--
Class A Shares* $9,600 $15,868
ML Arizona Municipal Bond Fund+--
Class B Shares* $10,000 $15,899
Lehman Brothers Municipal Bond
Index++ $10,000 $16,788
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** 7/99
ML Arizona Municipal Bond Fund+--
Class C Shares* $10,000 $13,152
ML Arizona Municipal Bond Fund+--
Class D Shares* $9,600 $12,944
Lehman Brothers Municipal Bond
Index++ $10,000 $14,235
* Assuming maximum sales charge, transaction costs and other operating expenses,
including advisory fees.
** Commencement of operations.
+ ML 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.
4
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 6/30/99 +2.25% -1.84%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +6.15 +5.28
- --------------------------------------------------------------------------------
Inception (11/29/91)
through 6/30/99 +6.79 +6.22
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/99 +1.74% -2.12%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +5.63 +5.63
- --------------------------------------------------------------------------------
Inception (11/29/91)
through 6/30/99 +6.25 +6.25
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 6/30/99 +1.63% +0.67%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +5.93 +5.93
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1
year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 6/30/99 +2.15% -1.94%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +6.48 +5.56
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
5
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C>
Arizona -- 93.0%
- ---------------------------------------------------------------------------------------------------------------------------------
NR* Aaa $2,115 Arizona Health Facilities Authority, Hospital System Revenue Refunding Bonds (Saint Luke's
Health Systems), 7.25% due 11/01/2003 (f) $ 2,351
- ---------------------------------------------------------------------------------------------------------------------------------
AA+ Aa1 2,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds, 6.80% due 7/01/2011 2,165
- ---------------------------------------------------------------------------------------------------------------------------------
NR* Aa 2,000 Arizona Student Loan Acquisition Authority, Student Loan Revenue Refunding Bonds, AMT,
Senior Series B, 6.60% due 5/01/2010 2,122
- ---------------------------------------------------------------------------------------------------------------------------------
Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada Power Co.
Project), AMT:
BBB NR* 1,750 6.375% due 10/01/2036 1,829
BBB NR* 2,500 Series B, 5.80% due 11/01/2032 2,449
- ---------------------------------------------------------------------------------------------------------------------------------
A1 P1 1,150 Coconino County, Arizona, Pollution Control Corporation Revenue Bonds (Arizona Public
Service -- Navajo Project), VRDN, AMT, Series A, 3.10% due 10/01/2029 (h) 1,150
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,620 Gilbert, Arizona, Water and Sewer Revenue Refunding Bonds, 6.50% due 7/01/2022 (c) 3,919
- ---------------------------------------------------------------------------------------------------------------------------------
Glendale, Arizona, Development Authority, Educational Facilities Revenue Refunding Bonds
(American Graduate School International) (b):
AAA NR* 1,000 7.125% due 7/01/2005 (f) 1,142
AAA NR* 500 5.875% due 7/01/2015 522
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,700 Glendale, Arizona, Union High School District Number 205, GO (Projects of 1993), Series B,
5.70% due 7/01/2005 (c)(f) 1,821
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Maricopa County, Arizona, Elementary School District No. 68 (Alhambra), GO, Series A,
6.75% due 7/01/2014 (a) 4,987
- ---------------------------------------------------------------------------------------------------------------------------------
BBB Baa1 1,000 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health Corporation),
6.125% due 4/01/2018 1,052
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Maricopa County, Arizona, IDA, Health Facilities Revenue Bonds (Saint Joseph's Care
Center Project), Series A, 7.75% due 7/01/2000 (e)(f) 2,114
- ---------------------------------------------------------------------------------------------------------------------------------
Maricopa County, Arizona, IDA, M/F Housing Revenue
Bonds, Series A (e):
AAA Aaa 1,000 (Metro Gardens -- Mesa Ridge Project), 5.65% due 7/01/2019 1,023
AAA NR* 2,235 (Stanford Court Apartments Project), 5.30% due 7/01/2028 2,183
- ---------------------------------------------------------------------------------------------------------------------------------
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding:
A1+ P1 1,100 (Arizona Public Service Co.), VRDN, Series F, 3.25% due 5/01/2029 (h) 1,100
BB+ Ba1 1,500 (Public Service Company), Series A, 5.75% due 11/01/2022 1,436
BB+ Ba1 1,500 (Public Service Company of New Mexico Project), Series A, 6.30% due 12/01/2026 1,535
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,125 Mesa, Arizona, Utility System Revenue Bonds, 6.125% due 7/01/2007 (c)(f) 1,241
- ---------------------------------------------------------------------------------------------------------------------------------
</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)
DATES Daily Adjustable Tax-Exempt Securities
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
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
6
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C>
Arizona (concluded)
- ---------------------------------------------------------------------------------------------------------------------------------
NR* NR* $2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Company Project), AMT,
6.70% due 3/01/2020 $ 2,119
- ---------------------------------------------------------------------------------------------------------------------------------
Peoria, Arizona, Improvement District, Special Assessment Bonds No. 8801:
BBB NR* 200 7.30% due 1/01/2009 216
BBB NR* 395 7.30% due 1/01/2011 425
- ---------------------------------------------------------------------------------------------------------------------------------
Peoria, Arizona, Improvement District No. 8401, Special Assessment Bonds No. 8802:
BBB NR* 430 7.20% due 1/01/2010 462
BBB NR* 510 7.20% due 1/01/2013 546
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities Excise Tax Revenue
Bonds, 6.90% due 7/01/2004 (e)(f) 2,254
- ---------------------------------------------------------------------------------------------------------------------------------
AA- Aaa 1,250 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds, Junior Lien,
6% due 7/01/2006 (f) 1,356
- ---------------------------------------------------------------------------------------------------------------------------------
AA+ Aa1 3,000 Phoenix, Arizona, GO, 4.50% due 7/01/2022 2,615
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 750 Pima County, Arizona, IDA, Revenue Refunding Bonds (Healthpartners), Series A,
5.625% due 4/01/2014 (e) 768
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 950 Pima County, Arizona, Sewer Revenue Refunding Bonds, 6.75% due 7/01/2015 (c) 1,001
- ---------------------------------------------------------------------------------------------------------------------------------
Pinal County, Arizona, IDA, PCR (Newmont Mining), DATES (h):
A1+ P1 500 3.20% due 12/01/2009 500
A1+ P1 300 Series A, 3.20% due 12/01/2009 300
- ---------------------------------------------------------------------------------------------------------------------------------
BBB NR* 750 Prescott Valley, Arizona, Improvement District, Special Assessment Bonds (Sewer Collection
System Roadway Repair), 7.90% due 1/01/2012 826
- ---------------------------------------------------------------------------------------------------------------------------------
AA Aa1 2,000 Scottsdale, Arizona, Water and Sewer Revenue Bonds (Project of 1989), Series E,
4.50% due 7/01/2023 1,738
- ---------------------------------------------------------------------------------------------------------------------------------
BBB+ NR* 1,600 Sedona, Arizona, Sewer Revenue Refunding Bonds, 7% due 7/01/2012 1,717
- ---------------------------------------------------------------------------------------------------------------------------------
A+ A1 1,250 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 (a) 1,323
- ---------------------------------------------------------------------------------------------------------------------------------
AA A1 2,000 University of Arizona, University Revenue Refunding Bonds, Series A, 6.20% due 6/01/2016 2,208
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Puerto Rico -- 7.0%
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, Refunding, YCN, 8.182% due 7/01/2020 (d)(g) 2,145
- ---------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, LEVRRS,
5.9291% due 7/01/2002 (d)(f)(g) 2,116
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$57,740)--100.0% 60,776
Other Assets Less Liabilities--0.0% 6
-------
Net Assets--100.0% $60,782
=======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) Connie Lee Insured.
(c) FGIC Insured.
(d) FSA Insured.
(e) MBIA Insured.
(f) Prerefunded.
(g) 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, 1999.
(h) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rates shown are those in effect at July 31,
1999.
* 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, 1999
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1999
<TABLE>
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$57,739,905) (Note 1a) .............. $ 60,775,631
Cash ........................................................................ 37,279
Interest receivable ......................................................... 540,873
Prepaid expenses and other assets ........................................... 1,755
------------
Total assets ................................................................ 61,355,538
------------
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Beneficial interest redeemed .............................................. $ 357,679
Dividends to shareholders (Note 1e) ....................................... 45,367
Investment adviser (Note 2) ............................................... 29,619
Distributor (Note 2) ...................................................... 19,904 452,569
----------
Accrued expenses and other liabilities ...................................... 120,713
------------
Total liabilities ........................................................... 573,282
------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets .................................................................. $ 60,782,256
============
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized ........................................................... $ 123,256
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................... 406,176
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................... 9,470
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................... 38,535
Paid-in capital in excess of par ............................................ 57,884,833
Accumulated realized capital losses on investments--net ..................... (13,386)
Accumulated distributions in excess of realized capital gains--net (Note 1e) (702,354)
Unrealized appreciation on investments--net ................................. 3,035,726
------------
Net assets .................................................................. $ 60,782,256
============
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A -- Based on net assets of $12,974,723 and 1,232,559 shares
of beneficial interest outstanding .......................................... $ 10.53
============
Class B -- Based on net assets of $42,758,521 and 4,061,761 shares
of beneficial interest outstanding .......................................... $ 10.53
============
Class C -- Based on net assets of $996,249 and 94,698 shares
of beneficial interest outstanding .......................................... $ 10.52
============
Class D -- Based on net assets of $4,052,763 and 385,353 shares
of beneficial interest outstanding .......................................... $ 10.52
============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
For the Year Ended July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned ........ $ 3,826,393
(Note 1d):
- -----------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ............................... $ 368,955
Account maintenance and distribution fees -- Class B (Note 2) ... 242,098
Professional fees ............................................... 74,550
Printing and shareholder reports ................................ 71,366
Accounting services (Note 2) .................................... 56,198
Transfer agent fees -- Class B (Note 2) ......................... 22,678
Registration fees ............................................... 12,945
Account maintenance and distribution fees -- Class C (Note 2) ... 7,491
Pricing fees .................................................... 6,387
Custodian fees .................................................. 5,610
Transfer agent fees -- Class A (Note 2) ......................... 5,467
Trustees' fees and expenses ..................................... 4,021
Account maintenance fees -- Class D (Note 2) .................... 3,633
Transfer agent fees -- Class D (Note 2) ......................... 1,468
Transfer agent fees -- Class C (Note 2) ......................... 582
Other ........................................................... 2,574
----------
Total expenses .................................................. 886,023
-----------
Investment income -- net ........................................ 2,940,370
-----------
- -----------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments -- net ............................. 453,831
ized Gain (Loss) On Change in unrealized appreciation on investments -- net ......... (1,858,041)
Investments -- Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ............ $ 1,536,160
===========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended July 31,
-----------------------------
Increase (Decrease) in Net Assets: 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations: Investment income -- net ..................................................... $ 2,940,370 $ 3,278,116
Realized gain on investments -- net .......................................... 453,831 1,528,306
Change in unrealized appreciation on investments -- net ...................... (1,858,041) (1,500,179)
------------ ------------
Net increase in net assets resulting from operations ......................... 1,536,160 3,306,243
------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income -- net:
Distributions to Class A .................................................................... (656,919) (709,010)
Shareholders Class B .................................................................... (2,061,958) (2,401,175)
(Note 1e): Class C .................................................................... (51,880) (46,121)
Class D .................................................................... (169,613) (121,810)
In excess of realized gain on investments -- net:
Class A .................................................................... (141,226) --
Class B .................................................................... (507,086) --
Class C .................................................................... (14,324) --
Class D .................................................................... (39,718) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders .............................................................. (3,642,724) (3,278,116)
------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions ..... (6,462,362) (6,115,987)
Transactions ------------ ------------
(Note 4):
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets ................................................. (8,568,926) (6,087,860)
Beginning of year ............................................................ 69,351,182 75,439,042
------------ ------------
End of year .................................................................. $ 60,782,256 $ 69,351,182
============ ============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
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: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ......... $ 10.88 $ 10.87 $ 10.54 $ 10.46 $ 10.40
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net ................... .52 .55 .55 .54 .55
Realized and unrealized gain (loss) on
investments -- net ......................... (.24) .01 .33 .08 .11
-------- -------- -------- -------- --------
Total from investment operations ........... .28 .56 .88 .62 .66
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net ................. (.52) (.55) (.55) (.54) (.55)
Realized gain on investments -- net ...... -- -- -- -- (.01)
In excess of realized gain on
investments -- net ....................... (.11) -- -- -- (.04)
-------- -------- -------- -------- --------
Total dividends and distributions .......... (.63) (.55) (.55) (.54) (.60)
-------- -------- -------- -------- --------
Net asset value, end of year ............... $ 10.53 $ 10.88 $ 10.87 $ 10.54 $ 10.46
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 2.52% 5.25% 8.63% 6.04% 6.76%
Return:* ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement ............. .94% .82% .79% .79% .80%
Average ======== ======== ======== ======== ========
Net Assets: Expenses ................................... .94% .82% .79% .79% .83%
======== ======== ======== ======== ========
Investment income -- net ................... 4.77% 5.01% 5.21% 5.09% 5.44%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ..... $ 12,975 $ 13,875 $ 14,012 $ 14,988 $ 14,893
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................... 25.16% 53.75% 29.68% 36.39% 62.65%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</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, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
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: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ........ $ 10.88 $ 10.87 $ 10.54 $ 10.46 $ 10.40
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net .................. .46 .49 .50 .49 .50
Realized and unrealized gain (loss) on
investments -- net ........................ (.24) .01 .33 .08 .11
-------- -------- -------- -------- --------
Total from investment operations .......... .22 .50 .83 .57 .61
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net ................ (.46) (.49) (.50) (.49) (.50)
Realized gain on investments -- net ..... -- -- -- -- (.01)
In excess of realized gain on
investments -- net ...................... (.11) -- -- -- (.04)
-------- -------- -------- -------- --------
Total dividends and distributions ......... (.57) (.49) (.50) (.49) (.55)
-------- -------- -------- -------- --------
Net asset value, end of year .............. $ 10.53 $ 10.88 $ 10.87 $ 10.54 $ 10.46
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 2.01% 4.71% 8.08% 5.49% 6.22%
Return:* ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses, net of reimbursement ............ 1.44% 1.32% 1.30% 1.30% 1.31%
Average ======== ======== ======== ======== ========
Net Assets: Expenses .................................. 1.44% 1.32% 1.30% 1.30% 1.33%
======== ======== ======== ======== ========
Investment income -- net .................. 4.26% 4.50% 4.70% 4.59% 4.92%
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) .... $ 42,758 $ 51,503 $ 58,282 $ 66,497 $ 72,090
Data: ======== ======== ======== ======== ========
Portfolio turnover ........................ 25.16% 53.75% 29.68% 36.39% 62.65%
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
</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, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
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: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 10.88 $ 10.87 $ 10.54 $ 10.46 $ 10.05
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net ................... .45 .48 .49 .48 .37
Realized and unrealized gain (loss) on
investments -- net ......................... (.25) .01 .33 .08 .46
------- ------- ------- ------- -------
Total from investment operations ........... .20 .49 .82 .56 .83
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net ................. (.45) (.48) (.49) (.48) (.37)
Realized gain on investments -- net ...... -- -- -- -- (.01)
In excess of realized gain on
investments -- net ....................... (.11) -- -- -- (.04)
------- ------- ------- ------- -------
Total dividends and distributions .......... (.56) (.48) (.49) (.48) (.42)
------- ------- ------- ------- -------
Net asset value, end of period ............. $ 10.52 $ 10.88 $ 10.87 $ 10.54 $ 10.46
======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 1.81% 4.61% 7.97% 5.38% 8.53%++
Return:** ======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ................................... 1.54% 1.42% 1.40% 1.40% 1.43%*
Average ======= ======= ======= ======= =======
Net Assets: Investment income -- net ................... 4.16% 4.39% 4.59% 4.49% 4.58%*
======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $ 996 $ 1,233 $ 957 $ 1,499 $ 729
Data: ======= ======= ======= ======= =======
Portfolio turnover ......................... 25.16% 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, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
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: 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 10.87 $ 10.86 $ 10.53 $ 10.45 $ 10.05
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net ................... .51 .54 .54 .53 .42
Realized and unrealized gain (loss) on
investments -- net ......................... (.24) .01 .33 .08 .45
------- ------- ------- ------- -------
Total from investment operations ........... .27 .55 .87 .61 .87
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net ................. (.51) (.54) (.54) (.53) (.42)
Realized gain on investments -- net ...... -- -- -- -- (.01)
In excess of realized gain on
investments -- net ....................... (.11) -- -- -- (.04)
------- ------- ------- ------- -------
Total dividends and distributions .......... (.62) (.54) (.54) (.53) (.47)
------- ------- ------- ------- -------
Net asset value, end of period ............. $ 10.52 $ 10.87 $ 10.86 $ 10.53 $ 10.45
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ......... 2.42% 5.14% 8.52% 5.93% 8.92%++
Return:** ======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ................................... 1.05% .92% .89% .89% .93%*
Average ======= ======= ======= ======= =======
Net Assets: Investment income -- net ................... 4.67% 4.90% 5.11% 5.01% 5.23%*
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ... $ 4,053 $ 2,740 $ 2,188 $ 1,871 $ 617
Data: ======= ======= ======= ======= =======
Portfolio turnover ......................... 25.16% 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, 1999
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's financial statements are prepared in accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. The Fund offers four classes of shares under
the Merrill Lynch Select PricingSM System. Shares of Class A and Class D are
sold with a front-end sales charge. Shares of Class B and Class C may be subject
to a 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. Distributions in excess of realized capital gains are due
primarily to differing
15
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
tax treatments for futures transactions and post-October losses.
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 ("MLFD" or the "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of Merrill Lynch
Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee
based upon the average daily value of the Fund's net assets at the following
annual rates: .55% of the Fund's average daily net assets not exceeding $500
million; .525% of average daily net assets in excess of $500 million but not
exceeding $1 billion; and .50% of average daily net assets in excess of $1
billion.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B .............. .25% .25%
Class C .............. .25% .35%
Class D .............. .10% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1999, MLFD earned underwriting discounts and 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 .......................... $327 $ 5,749
Class D .......................... $515 $22,220
- --------------------------------------------------------------------------------
For the year ended July 31, 1999, MLPF&S received contingent deferred sales
charges of $78,116 and $557 relating to transactions in Class B and Class C
Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 1999 were $16,417,411 and $23,777,140, respectively.
Net realized gains for the year ended July 31, 1999 and net unrealized gains as
of July 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................... $ 347,890 $3,035,726
Financial futures contracts .............. 105,941 --
---------- ----------
Total .................................... $ 453,831 $3,035,726
========== ==========
- --------------------------------------------------------------------------------
As of July 31, 1999, net unrealized appreciation for Federal income tax purposes
aggregated $3,031,138, of which $3,465,378 related to appreciated securities and
$434,240 related to depreciated securities. The aggregate cost of investments at
July 31, 1999 for Federal income tax purposes was $57,744,493.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$6,462,362 and $6,115,987
16
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
for the years ended July 31, 1999 and July 31, 1998, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 141,504 $ 1,545,495
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 40,747 442,486
------------ ------------
Total issued ........................... 182,251 1,987,981
Shares redeemed ........................ (224,505) (2,437,621)
------------ ------------
Net decrease ........................... (42,254) $ (449,640)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 408,994 $ 4,460,737
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 97,485 1,059,041
------------ ------------
Total issued ........................... 506,479 5,519,778
Automatic conversion of
shares ................................. (23,300) (249,775)
Shares redeemed ........................ (1,153,120) (12,542,400)
------------ ------------
Net decrease ........................... (669,941) $ (7,272,397)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 21,966 $ 240,344
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 3,430 37,216
------------ ------------
Total issued ........................... 25,396 277,560
Shares redeemed ........................ (44,016) (474,152)
------------ ------------
Net decrease ........................... (18,620) $ (196,592)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 133,894 $ 1,462,794
Automatic conversion
of shares .............................. 23,321 249,775
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 8,210 88,945
------------ ------------
Total issued ........................... 165,425 1,801,514
Shares redeemed ........................ (32,047) (345,247)
------------ ------------
Net increase ........................... 133,378 $ 1,456,267
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
============ ============
- --------------------------------------------------------------------------------
17
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
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, 1999, the
related statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July 31,
1999 by correspondence with the custodian. 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, 1999, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 31, 1999
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, 1999 qualify
as tax-exempt interest dividends for Federal income tax purposes.
Additionally, the following table summarizes the taxable distributions paid by
the Fund during the year.
- ------------------------------------------------------
Record Payable Ordinary Long-Term
Date Date Income Capital Gains*
- ------------------------------------------------------
12/21/98 12/31/98 $.011352 $.099913
- ------------------------------------------------------
* The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
18
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund July 31, 1999
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Walter C. O'Connor, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
19
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch Arizona
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16238--7/99
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