MERRILL LYNCH
ARIZONA
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
January 31, 2000
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended January 31, 2000, continued strong domestic growth,
gradual improvement in foreign economies and investor concerns regarding future
inflationary pressures pushed long-term fixed-income bond yields higher. The
Federal Reserve Board continued to raise short-term interest rates in August and
November 1999 as well as just after the period's close, seeking to moderate US
economic growth and maintain the existing benign inflationary environment. US
economic growth, in part intensified by Year 2000 preparations, grew 5.8% during
the last fiscal quarter of 1999 and had an annual rate of 4.1% for 1999. A
number of inflationary indicators have also begun to signal some increase in
price pressures.
However, most investors believe that the Federal Reserve Board will be extremely
vigilant in preventing such pressures from any material escalation. US Treasury
bond yields responded by rising approximately 60 basis points (0.60%) by
mid-January 2000. A strong rally, largely based upon an expected significant
reduction in the future supply of US Treasury 30-year maturity bonds, pushed
yields lower to 6.50% at January 31, 2000. Over the last six months, yields on
30-year US Treasury bonds rose approximately 40 basis points.
The tax-exempt bond market was also under pressure throughout the entire period.
Despite receiving more than $30 billion in coupon payments, bond matu-rities and
proceeds from early redemptions in December and January, overall investor demand
has diminished. It is likely that the returns generated by the US equity market
have continued to attract investor attention and have left little demand for
competing investment alternatives. At January 31, 2000, the long-term tax-exempt
revenue bond yield, as measured by the Bond Buyer Revenue Index, was 6.34%, an
increase of nearly 70 basis points over the last six months.
Issuance by municipalities has significantly declined in recent months. Over the
last six months, less than $100 billion in long-term tax-exempt bonds were
issued, representing a decline of over 20% compared to the same period a year
ago. During the last three months, less than $45 billion in long-term bonds were
issued by various municipalities. This most recent quarterly issuance is 30%
below the level of the January 31, 1999 quarter. Additionally, during January
2000, less than $8 billion in municipal debt was underwritten, down more than
50% from January 1999 levels. This represents the lowest monthly issuance in
over five years. Toward the end of 1999, consensus estimates for 2000 annual
issuance were in the $210 billion-$215 billion range. January's underwritings,
as well as those expected to be issued in the near future, have led some
analysts to revise their forecasts to the $190 billion range.
We believe an overall reduction in bond supply in the coming year should help
support the municipal bond market's overall technical position. While tax-exempt
bond yields, which are at their highest level in over three years, have
attracted significant retail investor interest, institutional demand declined
sharply. Long-term municipal mutual funds have seen consistent outflows in
recent months as the yields of individual securities rose faster than those of
larger, more diverse mutual funds. During the six months ended January 31, 2000,
tax-exempt mutual funds have had net redemptions of approximately $9 billion.
Also, the demand from property and casualty insurance companies has weakened as
a result of the losses and anticipated losses incurred from a series of damaging
storms across much of the eastern United States. Additionally, many
institutional investors who have in recent years been attracted to the municipal
bond market by historically attractive tax-exempt bond yield ratios of over 90%,
found other asset classes even more attractive. Even with a reduced supply
position, tax-exempt issuers have been forced to repeatedly raise municipal bond
yields in an attempt to attract adequate demand. We believe a reduced bond
supply going forward is likely to promote a more closely balanced supply/demand
structure and foster a more stable tax-exempt interest rate environment.
Looking ahead, it appears to us that long-term tax-exempt bond yields will
remain under pressure, trading in a broad range centered around current levels.
Investors are also likely to remain concerned regarding future action by the
Federal Reserve Board in early 2000. Any improvement in bond prices may be
contingent upon weakening in both US employment
1
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
growth and consumer spending. The 100 basis point rise in US Treasury bond
yields seen thus far could negatively affect US economic growth. The US housing
market is likely to be among the first sectors 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 may 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 January 31, 2000, our strategy for the Fund focused
on seeking to enhance state and Federal tax-exempt income through a fully
invested position in quality Arizona municipal credits. The Fund experienced low
turnover because of sparse primary issuance in Arizona and a relatively inactive
illiquid secondary market. Because of the Fund's low duration, we were able to
insulate the Fund from the price deterioration that occurred as interest rates
rose.
Eventually, as the economic backdrop for fixed-income securities becomes more
conducive to lower interest rates, we will look to position the Fund in a more
aggressive position. At the present time, signs of an economic slowdown are not
imminent, so the Fund will remain with an above-average coupon structure,
enabling it to generate an attractive level of current income.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Arizona Municipal Bond
Fund, and we look forward to assisting you with your financial needs in the
months and years ahead.
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
March 6, 2000
2
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
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>
6 Month 12 Month Since Inception Standardized
As of January 31, 2000 Total Return Total Return Total Return 30-Day Yield
================================================================================================================
<S> <C> <C> <C> <C>
ML Arizona Municipal Bond Fund Class A Shares -3.11% -4.58% +60.14% 4.78%
- ----------------------------------------------------------------------------------------------------------------
ML Arizona Municipal Bond Fund Class B Shares -3.36 -5.06 +53.66 4.47
- ----------------------------------------------------------------------------------------------------------------
ML Arizona Municipal Bond Fund Class C Shares -3.31 -5.16 +27.16 4.36
- ----------------------------------------------------------------------------------------------------------------
ML Arizona Municipal Bond Fund Class D Shares -3.16 -4.68 +30.56 4.68
================================================================================================================
</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 January 31, 2000
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 12/31/99 -3.15% -7.02%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/99 +5.93 +5.07
- --------------------------------------------------------------------------------
Inception (11/29/91)
through 12/31/99 +6.07 +5.54
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
- --------------------------------------------------------------------------------
Year Ended 12/31/99 -3.64% -7.31%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/99 +5.40 +5.40
- --------------------------------------------------------------------------------
Inception (11/29/91)
through 12/31/99 +5.53 +5.53
- --------------------------------------------------------------------------------
* 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 12/31/99 -3.64% -4.56%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/99 +5.29 +5.29
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/99 +4.86 +4.86
- --------------------------------------------------------------------------------
* 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 12/31/99 -3.25% -7.12%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/99 ++5.83 +4.97
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 12/31/99 ++5.39 +4.56
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arizona--91.6%
- -------------------------------------------------------------------------------------------------------------------------
NR* AAA $2,040 Arizona Health Facilities Authority, Hospital System Revenue
Refunding Bonds (Saint Luke's Health Systems), 7.25% due 11/01/2003 (f) $ 2,204
- -------------------------------------------------------------------------------------------------------------------------
BBB+ Baa1 2,000 Arizona Health Facilities Authority Revenue Bonds (Catholic
Healthcare West), Series A, 6.625% due 7/01/2020 1,903
- -------------------------------------------------------------------------------------------------------------------------
AA+ Aa1 2,000 Arizona State Wastewater Management Authority, Wastewater Treatment
Financial Assistance Revenue Bonds, 6.80% due 7/01/2002 (f) 2,130
- -------------------------------------------------------------------------------------------------------------------------
Arizona Student Loan Acquisition Authority, Student Loan Revenue
Refunding Bonds, AMT:
NR* Aaa 500 Senior Series A-1, 5.90% due 5/01/2024 477
NR* Aa 2,000 Senior Series B, 6.60% due 5/01/2010 2,086
- -------------------------------------------------------------------------------------------------------------------------
Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada
Power Co. Project), AMT:
BBB NR* 1,750 6.375% due 10/01/2036 1,596
BBB NR* 2,500 Series B, 5.80% due 11/01/2032 2,078
- -------------------------------------------------------------------------------------------------------------------------
A1 P1 1,750 Coconino County, Arizona, Pollution Control Corporation Revenue Bonds
(Arizona Public Service Co.-- Navajo Project), VRDN, AMT, Series A,
3.30% due 10/01/2029 (h) 1,750
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,620 Gilbert, Arizona, Water and Sewer Revenue Refunding Bonds,
6.50% due 7/01/2022 (c) 3,702
- -------------------------------------------------------------------------------------------------------------------------
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) 1,106
AAA NR* 500 5.875% due 7/01/2015 500
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Maricopa County, Arizona, Elementary School District No. 68 (Alhambra),
GO, Refunding, Series A, 6.75% due 7/01/2014 (a) 4,849
- -------------------------------------------------------------------------------------------------------------------------
BBB Baa1 1,000 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun
Health Corporation), 6.125% due 4/01/2018 877
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds (Metro
Gardens--Mesa Ridge Project), Series A, 5.65% due 7/01/2019 (e) 942
- -------------------------------------------------------------------------------------------------------------------------
</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
5
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arizona (concluded)
- -------------------------------------------------------------------------------------------------------------------------
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding:
A1+ P1 $ 200 (Arizona Public Service Company), VRDN, Series F, 3.65% due 5/01/2029 (h) $ 200
BBB- Baa3 1,500 (Public Service Company), Series A, 5.75% due 11/01/2022 1,283
BBB- Baa3 1,500 (Public Service Company of New Mexico Project), Series A, 6.30% due 12/01/2026 1,374
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Maricopa County, Arizona, School District No. 11, Peoria University, GO
(Projects of 1996), Series D, 5.50% due 7/01/2014 (c) 979
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,125 Mesa, Arizona, Utility System Revenue Bonds, 6.125% due 7/01/2007 (c)(f) 1,200
- -------------------------------------------------------------------------------------------------------------------------
NR* NR* 2,000 Mohave County, Arizona, IDA, IDR (North Star Steel Company Project), AMT,
6.70% due 3/01/2020 2,019
- -------------------------------------------------------------------------------------------------------------------------
Peoria, Arizona, Improvement District No. 8401, Special Assessment Bonds No. 8802:
BBB NR* 430 7.20% due 1/01/2010 452
BBB NR* 510 7.20% due 1/01/2013 535
- -------------------------------------------------------------------------------------------------------------------------
Peoria, Arizona, Improvement District, Special Assessment Bonds No. 8801:
BBB NR* 200 7.30% due 1/01/2009 211
BBB NR* 395 7.30% due 1/01/2011 416
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Phoenix, Arizona, Civic Improvement Corporation, Municipal Facilities
Excise Tax Revenue Bonds, 6.90% due 7/01/2004 (e)(f) 2,188
- -------------------------------------------------------------------------------------------------------------------------
Phoenix, Arizona, GO:
AA+ Aa1 2,000 4.50% due 7/01/2022 1,567
AA+ Aa1 500 4.75% due 7/01/2023 407
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa 750 Pima County, Arizona, IDA, Revenue Refunding Bonds (Healthpartners),
Series A, 5.625% due 4/01/2014 (e) 730
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa 950 Pima County, Arizona, Sewer Revenue Refunding Bonds, 6.75% due 7/01/2015 (e) 981
- -------------------------------------------------------------------------------------------------------------------------
Pinal County, Arizona, IDA, PCR (Newmont Mining), DATES (h):
A1+ P1 400 3.65% due 12/01/2009 400
A1+ P1 100 Series A, 3.65% due 12/01/2009 100
- -------------------------------------------------------------------------------------------------------------------------
BBB NR* 750 Prescott Valley, Arizona, Improvement District, Special Assessment
Bonds (Sewer Collection System Roadway Repair), 7.90% due 1/01/2012 800
- -------------------------------------------------------------------------------------------------------------------------
AA Aa2 1,000 Salt River Project, Arizona, Agriculture Improvement and Power District,
Electric System Revenue Refunding Bonds, Series C, 6% due 1/01/2016 1,002
- -------------------------------------------------------------------------------------------------------------------------
AA Aa1 1,000 Scottsdale, Arizona, Water and Sewer Revenue Bonds (Project of 1989),
Series E, 4.50% due 7/01/2023 779
- -------------------------------------------------------------------------------------------------------------------------
BBB+ NR* 1,600 Sedona, Arizona, Sewer Revenue Refunding Bonds, 7% due 7/01/2012 1,680
- -------------------------------------------------------------------------------------------------------------------------
A+ A1 1,250 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 (f) 1,301
- -------------------------------------------------------------------------------------------------------------------------
AA A1 2,000 University of Arizona, University Revenue Refunding Bonds, Series A,
6.20% due 6/01/2016 2,084
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Puerto Rico--7.4%
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa $2,000 Puerto Rico Commonwealth, GO, Refunding, YCN, 7.982% due 7/01/2020 (d)(g) $ 1,900
- -------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
LEVRRS, 5.9291% due 7/01/2002 (d)(f)(g) 2,057
- -------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$52,791)--99.0% 52,845
Other Assets Less Liabilities--1.0% 531
-------
Net Assets--100.0% $53,376
=======
- -------------------------------------------------------------------------------------------------------------------------
</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 rate shown is the rate in
effect at January 31, 2000.
(h) The interest rate is subject to change periodically based upon pre-
vailing market rates. The interest rate shown is the rate in effect at
January 31, 2000.
* Not Rated.
See Notes to Financial Statements.
7
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of January 31, 2000
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$52,790,998) ..................... $ 52,845,375
Cash ..................................................................... 137,586
Receivables:
Interest ............................................................... $ 515,576
Beneficial interest sold ............................................... 72,393 587,969
------------
Prepaid expenses and other assets ........................................ 1,755
------------
Total assets ............................................................. 53,572,685
------------
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Dividends to shareholders .............................................. 51,886
Investment adviser ..................................................... 23,396
Distributor ............................................................ 15,357
Beneficial interest redeemed ........................................... 7,604 98,243
------------
Accrued expenses and other liabilities ................................... 98,704
------------
Total liabilities ........................................................ 196,947
------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................... $ 53,375,738
============
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value, unlimited number of
Consist of: shares authorized ........................................................ $ 123,567
Class B Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 367,143
Class C Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 11,853
Class D Shares of beneficial interest, $.10 par value, unlimited number of
shares authorized ........................................................ 34,847
Paid-in capital in excess of par ......................................... 53,823,017
Accumulated realized capital losses on investments--net .................. (336,712)
Accumulated distributions in excess of realized capital gains--net ....... (702,354)
Unrealized appreciation on investments--net .............................. 54,377
------------
Net assets ............................................................... $ 53,375,738
============
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $12,273,447 and 1,235,664 shares
of beneficial interest outstanding ....................................... $ 9.93
============
Class B--Based on net assets of $36,467,721 and 3,671,433 shares
of beneficial interest outstanding ....................................... $ 9.93
============
Class C--Based on net assets of $1,176,542 and 118,530 shares
of beneficial interest outstanding ....................................... $ 9.93
============
Class D--Based on net assets of $3,458,028 and 348,471 shares
of beneficial interest outstanding ....................................... $ 9.92
============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
January 31, 2000
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income: Interest and amortization of premium and discount earned $ 1,738,472
- --------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees ............................... $ 156,116
Account maintenance and distribution fees--Class B ..... 99,369
Professional fees ...................................... 36,093
Printing and shareholder reports ....................... 21,595
Accounting services .................................... 7,901
Transfer agent fees--Class B ........................... 6,650
Registration fees ...................................... 6,586
Pricing fees ........................................... 2,802
Account maintenance and distribution fees--Class C ..... 2,758
Custodian fees ......................................... 2,326
Trustees' fees and expenses ............................ 1,980
Account maintenance fees--Class D ...................... 1,936
Transfer agent fees--Class A ........................... 1,565
Transfer agent fees--Class D ........................... 496
Transfer agent fees--Class C ........................... 163
Other .................................................. 1,307
-----------
Total expenses ......................................... 349,643
-----------
Investment income--net ................................. 1,388,829
-----------
- --------------------------------------------------------------------------------------------------------------
Realized & Realized loss on investments--net ...................... (290,260)
Unrealized Loss on Change in unrealized appreciation on investments--net .. (2,981,349)
Investments--Net: -----------
Net Decrease in Net Assets Resulting from Operations ... $(1,882,780)
===========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ................................................. $ 1,388,829 $ 2,940,370
Realized gain (loss) on investments--net ............................... (290,260) 453,831
Change in unrealized appreciation on investments--net .................. (2,981,349) (1,858,041)
------------ ------------
Net increase (decrease) in net assets resulting from operations ........ (1,882,780) 1,536,160
------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Class A .............................................................. (322,106) (656,919)
Shareholders: Class B .............................................................. (945,313) (2,061,958)
Class C .............................................................. (21,410) (51,880)
Class D .............................................................. (100,000) (169,613)
Realized gain on investments--net:
Class A .............................................................. (7,114) (141,226)
Class B .............................................................. (23,230) (507,086)
Class C .............................................................. (534) (14,324)
Class D .............................................................. (2,189) (39,718)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ........................................................ (1,421,896) (3,642,724)
------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net decrease in net assets derived from beneficial interest transactions (4,101,842) (6,462,362)
Transactions: ------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets ........................................... (7,406,518) (8,568,926)
Beginning of period .................................................... 60,782,256 69,351,182
------------ ------------
End of period .......................................................... $ 53,375,738 $ 60,782,256
============ ============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended July 31,
Jan. 31, -------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 10.53 $ 10.88 $ 10.87 $ 10.54 $ 10.46
Operating ------- ------- ------- ------- -------
Performance: Investment income--net ......................... .27 .52 .55 .55 .54
Realized and unrealized gain (loss) on
investments--net ............................... (.59) (.24) .01 .33 .08
------- ------- ------- ------- -------
Total from investment operations ............... (.32) .28 .56 .88 .62
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net ....................... (.27) (.52) (.55) (.55) (.54)
Realized gain on investments--net ............ (.01) -- -- -- --
In excess of realized gain on investments--net -- (.11) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions .............. (.28) (.63) (.55) (.55) (.54)
------- ------- ------- ------- -------
Net asset value, end of period ................. $ 9.93 $ 10.53 $ 10.88 $ 10.87 $ 10.54
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ............. (3.11%)+ 2.52% 5.25% 8.63% 6.04%
Return:** ======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ....................................... .85%* .94% .82% .79% .79%
Average ======= ======= ======= ======= =======
Net Assets: Investment income--net ......................... 5.22%* 4.77% 5.01% 5.21% 5.09%
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ....... $12,273 $12,975 $13,875 $14,012 $14,988
Data: ======= ======= ======= ======= =======
Portfolio turnover ............................. 17.47% 25.16% 53.75% 29.68% 36.39%
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Aggregate total investment return.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended July 31,
Jan. 31, -------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 10.53 $ 10.88 $ 10.87 $ 10.54 $ 10.46
Operating ------- ------- ------- ------- -------
Performance: Investment income--net ......................... .24 .46 .49 .50 .49
Realized and unrealized gain (loss) on
investments--net ............................... (.59) (.24) .01 .33 .08
------- ------- ------- ------- -------
Total from investment operations ............... (.35) .22 .50 .83 .57
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net ....................... (.24) (.46) (.49) (.50) (.49)
Realized gain on investments--net ............ (.01) -- -- -- --
In excess of realized gain on
investments--net ............................. -- (.11) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions .............. (.25) (.57) (.49) (.50) (.49)
------- ------- ------- ------- -------
Net asset value, end of period ................. $ 9.93 $ 10.53 $ 10.88 $ 10.87 $ 10.54
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ............. (3.36%)+ 2.01% 4.71% 8.08% 5.49%
Return:** ======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ....................................... 1.36%* 1.44% 1.32% 1.30% 1.30%
Average ======= ======= ======= ======= =======
Net Assets: Investment income--net ........................ 4.72%* 4.26% 4.50% 4.70% 4.59%
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ....... $36,468 $42,758 $51,503 $58,282 $66,497
Data: ======= ======= ======= ======= =======
Portfolio turnover ............................. 17.47% 25.16% 53.75% 29.68% 36.39%
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Aggregate total investment return.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended July 31,
Jan. 31, ------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 10.52 $ 10.88 $ 10.87 $ 10.54 $ 10.46
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ................. .24 .45 .48 .49 .48
Realized and unrealized gain (loss) on
investments--net ....................... (.58) (.25) .01 .33 .08
--------- --------- --------- --------- ---------
Total from investment operations ....... (.34) .20 .49 .82 .56
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ............... (.24) (.45) (.48) (.49) (.48)
Realized gain on investments--net .... (.01) -- -- -- --
In excess of realized gain on
investments--net ..................... -- (.11) -- -- --
--------- --------- --------- --------- ---------
Total dividends and distributions ...... (.25) (.56) (.48) (.49) (.48)
--------- --------- --------- --------- ---------
Net asset value, end of period ......... $ 9.93 $ 10.52 $ 10.88 $ 10.87 $ 10.54
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ..... (3.31%)+ 1.81% 4.61% 7.97% 5.38%
Return:** ========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ............................... 1.46%* 1.54% 1.42% 1.40% 1.40%
Average ========= ========= ========= ========= =========
Net Assets: Investment income--net ................. 4.61%* 4.16% 4.39% 4.59% 4.49%
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $ 1,177 $ 996 $ 1,233 $ 957 $ 1,499
Data: ========= ========= ========= ========= =========
Portfolio turnover ..................... 17.47% 25.16% 53.75% 29.68% 36.39%
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Aggregate total investment return.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D
-------------------------------------------------------------
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended July 31,
Jan. 31, ------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 10.52 $ 10.87 $ 10.86 $ 10.53 $ 10.45
Operating --------- --------- --------- --------- --------
Performance: Investment income--net ................. .26 .51 .54 .54 .53
Realized and unrealized gain (loss) on
investments--net ....................... (.59) (.24) .01 .33 .08
--------- --------- --------- --------- --------
Total from investment operations ....... (.33) .27 .55 .87 .61
--------- --------- --------- --------- --------
Less dividends and distributions:
Investment income--net ............... (.26) (.51) (.54) (.54) (.53)
Realized gain on investments--net .... (.01) -- -- -- --
In excess of realized gain on
investments--net ..................... -- (.11) -- -- --
--------- --------- --------- --------- --------
Total dividends and distributions ...... (.27) (.62) (.54) (.54) (.53)
--------- --------- --------- --------- --------
Net asset value, end of period ......... $ 9.92 $ 10.52 $ 10.87 $ 10.86 $ 10.53
========= ========= ========= ========= ========
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ..... (3.16%)+ 2.42% 5.14% 8.52% 5.93%
Return:** ========= ========= ========= ========= ========
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Expenses ............................... .95%* 1.05% .92% .89% .89%
Average ========= ========= ========= ========= ========
Net Assets: Investment income--net ................. 5.13%* 4.67% 4.90% 5.11% 5.01%
========= ========= ========= ========= ========
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $ 3,458 $ 4,053 $ 2,740 $ 2,188 $ 1,871
Data: ========= ========= ========= ========= ========
Portfolio turnover ..................... 17.47% 25.16% 53.75% 29.68% 36.39%
========= ========= ========= ========= ========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Aggregate total investment return.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
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. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund offers four classes of shares under
the Merrill Lynch Select Pricing(SM) System. Shares of Class A and Class D are
sold with a front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds and other portfolio securities in
which the Fund invests are traded primarily in the over-the-counter municipal
bond and money markets and are valued at the last available bid price in the
over-the-counter market or on the basis of yield equivalents as obtained from
one or more dealers that make markets in the securities. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their settlement prices as of the close of such exchanges. Short-term
investments with remain- ing 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.
15
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
NOTES TO FINANCIAL STATEMENTS (continued)
(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 tax treatments for future 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 divi- sion 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 six months ended January 31, 2000, 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 ............................ $ 170 $1,188
Class D ............................ $ 97 $1,105
- --------------------------------------------------------------------------------
For the six months ended January 31, 2000, MLPF&S received contingent deferred
sales charges of $23,305 relating to transactions in Class B Shares.
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.
16
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
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 six
months ended January 31, 2000 were $7,976,460 and $12,027,446, respectively.
Net realized losses for the six months ended January 31, 2000 and net unrealized
gains as of January 31, 2000 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Gains
- --------------------------------------------------------------------------------
Long-term investments ............... $(290,260) $ 54,377
--------- ---------
Total ............................... $(290,260) $ 54,377
========= =========
- --------------------------------------------------------------------------------
As of January 31, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $54,377, of which $1,819,366 related to appreciated
securities and $1,764,989 related to depreciated securities. The aggregate cost
of investments at January 31, 2000 for Federal income tax purposes was
$52,790,998.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$4,101,842 and $6,462,362 for the six months ended January 31, 2000 and for the
year ended July 31, 1999, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 111,489 $ 1,117,577
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 17,499 177,662
------- -----------
Total issued ........................... 128,988 1,295,239
Shares redeemed ........................ (125,883) (1,283,460)
------- -----------
Net increase ........................... 3,105 $ 11,779
======= ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 B Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 124,851 $ 1,264,891
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 37,985 385,742
-------- -----------
Total issued ........................... 162,836 1,650,633
Automatic conversion
of shares .............................. (7,679) (78,939)
Shares redeemed ........................ (545,485) (5,546,289)
-------- -----------
Net decrease ........................... (390,328) $(3,974,595)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 C Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 37,146 $ 371,291
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 1,373 13,931
Total issued ........................... 38,519 385,222
Shares redeemed ........................ (14,687) (151,204)
------ -----------
Net increase ........................... 23,832 $ 234,018
====== ===========
- --------------------------------------------------------------------------------
17
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
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 D Shares for the Six Months Dollar
Ended January 31, 2000 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 46,349 $ 467,770
Automatic conversion
of shares .............................. 7,687 78,939
Shares issued to shareholders
in reinvestment of dividends
and distributions ...................... 4,279 43,425
------- -----------
Total issued ........................... 58,315 590,134
Shares redeemed ........................ (95,197) (963,178)
------- -----------
Net decrease ........................... (36,882) $ (373,044)
======= ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
======= ===========
- --------------------------------------------------------------------------------
18
<PAGE>
Merrill Lynch Arizona Municipal Bond Fund January 31, 2000
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, 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
- --------------------------------------------------------------------------------
Robert R. Martin, Trustee of Merrill Lynch Arizona Municipal Bond Fund has
recently retired. The Fund's Board of Trustees wishes Mr. Martin well in his
retirement.
- --------------------------------------------------------------------------------
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--1/00
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