MERRILL LYNCH
MINNESOTA
MUNICIPAL
BOND FUND
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 2000
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
TO OUR SHAREHOLDERS
The Municipal Market Environment
During the six months ended July 31, 2000, US domestic economic growth remained
robust. After growing at a 4.2% annual rate in 1999, US domestic economic growth
expanded at a 4.8% rate during the first quarter of 2000 and at a 5.2% rate
during the second quarter. However, despite these significant growth rates, few
price measure indicators have shown any meaningful signs of future price
pressures at the consumer level, despite the lowest unemployment rates since
1970. With few signs of any economic slowdown, the Federal Reserve Board
continued to raise short-term interest rates in February, March and May 2000.
The Federal Reserve Board cited both the continued growth of US employment and
the continued strength of US equity markets as reasons for attempting to
moderate US economic growth before inflationary price pressures can occur.
However, since then fixed-income markets have largely ignored strong economic
fundamentals and concentrated upon very positive technical supply factors.
Declining bond issuance--both current, and more importantly, expected future
issuance--helped push bond yields lower into mid-April 2000. In late January and
early February 2000, the US Treasury announced its intention to reduce the
amounts to be auctioned in the quarterly Treasury note and bond auctions.
Furthermore, budgetary surpluses allowed the US Treasury to repurchase
outstanding, higher-couponed Treasury issues, primarily in the 15-year and
longer maturity sector. Both these actions resulted in significant reduction in
the outstanding supply of longer-dated maturity US Treasury debt. Domestic and
international investors quickly began to accumulate what was expected to become
a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined more than 80 basis
points (0.80%) to 5.67%. During the remainder of the period, US Treasury bond
prices were volatile as strong economic reports and investors' concerns of
additional moves by the Federal Reserve Board occasionally overshadowed the
positive technical position of the long-term US Treasury bond market.
Recently, a number of economic indicators have begun to suggest that the actions
taken by the Federal Reserve Board in 1999 and early 2000 have started to affect
US economic growth. Both new home sales and consumer spending have slowed,
suggesting that economic growth may subside into a 4%-4.5% range by late 2000.
In our opinion, this range of growth was targeted by the Federal Reserve Board
as being sustainable, given current productivity measures, without endangering
the present benign inflationary environment.
By June, investor focus returned to the dwindling supply of long-term US
Treasury securities and bond prices generally rose for the remainder of the
period. The decline in long-term US Treasury bond yields resulted in an inverted
yield curve as short-term and intermediate-term interest rates did not fall
proportionately to long-term interest rates as the Federal Reserve Board was
expected to continue to raise short-term interest rates. The current inversion
has had as much to do with debt reduction and US Treasury buybacks as with
investor expectations of slower economic growth. During the last six months, US
Treasury bond yields have declined more than 70 basis points to end the period
at 5.78%, their lowest monthly closing level since May 1999.
Tax-exempt bond yields also have declined in recent months. The decline has
largely been in response to the rally in US Treasury securities, as well as a
continued positive technical supply environment. States such as California and
Maryland have announced that their large current and anticipated future budget
surpluses will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to repurchase
existing debt, reducing the supply of tax-exempt bonds in the secondary market
as well. Given the decline in available long-term US Treasury securities, some
investors who need longer maturity investment vehicles have begun to consider
long-term municipal bonds as potential substitutes. This has further
strengthened the overall positive technical position of the tax-exempt market.
During the last six months, long-term municipal revenue bond yields have
declined nearly 50 basis points to 5.85%, their lowest level since late August
1999, as measured by the Bond Buyer Revenue Bond Index.
The relative underperformance of the municipal bond market in recent months has
been especially disappointing given the strong technical position the
1
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
tax-exempt bond market has enjoyed. The issuance of long-term tax-exempt
securities has dramatically declined. During the last year, almost $200 billion
in new long-term municipal securities was issued, a decline of almost 20%
compared to the same period a year earlier. For the six months ended July 31,
2000, approximately $100 billion in new tax-exempt bonds was underwritten, a
decline of 17% compared to the same period in 1999.
Although investors received more than $45 billion in coupon payments, bond
maturities and the proceeds from early bond redemptions during June and July,
overall investor demand has diminished. Long-term municipal bond mutual funds
have seen consistent outflows in recent months as the yields of individual
securities have risen faster than those of larger, more diverse mutual funds.
Thus far this year, tax-exempt mutual funds have had net redemptions of more
than $12 billion.
However, the rate at which these redemptions have been occurring has slowed in
recent months. Recent US equity market volatility, especially in the NASDAQ, has
reduced some investor interest in the stock market. This investor interest,
especially earlier this year, had been siphoning away demand for municipal bonds
by retail investors. Also, the demand from property and casualty companies is
expected to increase in the coming months. These firms are becoming more
profitable after experiencing losses in the past few years resulting from a
series of weather-related natural disasters. Yet as positive as the tax-exempt
bond market's technical environment has been for much of this year, investor
response to the reduction in both current and future supply of US Treasury bonds
has been overwhelmingly positive and municipal bond yields have underperformed
their taxable counterparts.
Significantly lower municipal bond yields are still likely to require weaker US
employment growth and consumer spending. The actions taken in recent months by
the Federal Reserve Board should eventually slow US economic growth. Recent
declines in US new home sales are perhaps the first sign that consumer spending
is being slowed by higher interest rates. Until further signs develop, it is
likely that the municipal bond market's current favorable technical position
will dampen significant tax-exempt interest rate volatility and provide a stable
environment for eventual improvement in municipal bond prices.
Fiscal Year in Review
We entered the fiscal year ended July 31, 2000 in a defensive position in
response to heightened economic growth and inflationary fears. During the first
six months of the fiscal year, we initially retained our defensive position
toward the municipal bond market, then gradually shifted to a neutral stance. We
accomplished this shift by investing the majority of the Fund's cash reserve and
by purchasing bonds with longer maturities in exchange for bonds with shorter
maturities. Our goal in this shift of strategy was to both enhance shareholder
income and to take advantage of the highest absolute municipal yields since the
spring of 1997. During the last six months, we maintained our neutral investment
position and fully invested status for the majority of the period. We found it
prudent to maintain this position in anticipation of clearer signs regarding
future economic growth and inflation expectations. Our shift in strategy to a
neutral stance from a defensive one aided the Fund's performance during the last
six months as municipal yields declined in conjunction with the US Treasury
market.
During the fiscal year, the Fund's investment restructuring was somewhat
inhibited by a lack of municipal bond issuance. Minnesota municipal issuance
declined 8% from year ago levels. While the lack of supply may have aided in
keeping the prices of Minnesota municipal bonds relatively firm, it also limited
our options of coupon structuring, issuer diversification and call protection.
We continually monitor the call protection, credit quality, coupon structuring
and diversification of the Fund in an effort to provide optimal performance. The
decline in new municipal bond issuance can be traced, in part, to the strong
fiscal performance of municipal entities at most levels of government.
Our strategy throughout the period resulted in above-average total returns of
+3.45%, +3.03%, +2.92% and +3.45% for the Fund's Class A, Class B, Class C and
Class D Shares, respectively, for the year ended July 31, 2000. This compares to
the Lipper Analytical Services, Inc. average total return of +1.71% for similar
Minnesota municipal tax-exempt funds for the same 12-month period. (Investment
results shown do not reflect sales charges and would be lower if sales charges
were included. For complete performance information, see pages 4 and 5 of this
report to shareholders.) Looking ahead, we intend to remain fully invested in
the municipal market in an effort to enhance shareholder
2
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
income. We will be looking for opportunities provided by new Minnesota municipal
issuance to enhance the Fund's call protection and issuer diversification. We
will also consider taking a more aggressive investment stance should the
economic indicators continue to point to a cooling of growth and a more stable
inflation environment.
In Conclusion
We appreciate your ongoing interest in Merrill Lynch Minnesota 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 and Trustee
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Michael Kalinoski
Michael Kalinoski
Vice President and
Portfolio Manager
September 1, 2000
3
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 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. The Fund's
Investment Adviser voluntarily waived a portion of its management fee. Without
such waiver, the Fund's performance would have been lower.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 6/30/00 +2.47% -1.63%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +5.02 +4.17
--------------------------------------------------------------------------------
Inception (3/27/92)
through 6/30/00 +5.88 +5.35
--------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 6/30/00 +1.95% -1.94%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +4.49 +4.49
--------------------------------------------------------------------------------
Inception (3/27/92)
through 6/30/00 +5.34 +5.34
--------------------------------------------------------------------------------
* 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*
--------------------------------------------------------------------------------
One Year Ended 6/30/00 +1.85% +0.87%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +4.38 +4.38
--------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/00 +5.03 +5.03
--------------------------------------------------------------------------------
* 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*
--------------------------------------------------------------------------------
One Year Ended 6/30/00 +2.37% -1.72%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +4.94 +4.08
--------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/00 +5.59 +4.84
--------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
4
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
Total Return Based on a $10,000 Investment--Class A Shares and Class B Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class B Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
3/27/92** 7/00
ML Minnesota Municipal Bond Fund+--Class A Shares* $9,600 $15,569
ML Minnesota Municipal Bond Fund+--Class B Shares* $10,000 $15,558
Lehman Brothers Municipal Bond Index++ $10,000 $17,094
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the Lehman Brothers
Municipal Bond Index. Beginning and ending values are:
10/21/94** 7/00
ML Minnesota Municipal Bond Fund+--Class C Shares* $10,000 $13,389
ML Minnesota Municipal Bond Fund+--Class D Shares* $9,600 $13,241
Lehman Brothers Municipal Bond Index++ $10,000 $14,849
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Minnesota Municipal Bond Fund invests primarily in long-term
investment-grade obligations issued by or on behalf of the state of
Minnesota, 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 A & Class B Shares' graph is from 3/31/92 and in
the Class C & Class D Shares' graph is from 10/31/94.
Past performance is not predictive of future performance.
Recent Performance Results*
<TABLE>
<CAPTION>
6 Month 12 Month Since Inception Standardized
As of July 31, 2000 Total Return Total Return Total Return 30-Day Yield
==============================================================================================================
<S> <C> <C> <C> <C>
ML Minnesota Municipal Bond Fund Class A Shares +6.11% +3.45% +62.16% 4.73%
==============================================================================================================
ML Minnesota Municipal Bond Fund Class B Shares +5.84 +3.03 +55.58 4.42
==============================================================================================================
ML Minnesota Municipal Bond Fund Class C Shares +5.78 +2.92 +33.89 4.31
==============================================================================================================
ML Minnesota Municipal Bond Fund Class D Shares +6.05 +3.45 +37.92 4.63
==============================================================================================================
</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 dates are from
3/27/92 for Class A & Class B Shares and from 10/21/94 for Class C & Class
D Shares.
5
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
-----------------------------------------------------------------------------------------------------------------------------------
Minnesota--102.9%
<C> <C> <C> <S> <C>
AA- Aa3 $1,750 Anoka County, Minnesota, Solid Waste Disposal Revenue Bonds (Natural Rural Utilities),
AMT, Series A, 6.95% due 12/01/2008 $ 1,797
-----------------------------------------------------------------------------------------------------------------------------------
A1+ NR* 1,700 Beltrami County, Minnesota, Environmental Control Revenue Refunding Bonds
(Northwood Panelboard Co. Project), VRDN, 4.25% due 12/01/2021 (f) 1,700
-----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 525 Bemidji, Minnesota, Lease Revenue Bonds (Minnesota State Bureau of Criminal
Apprehension), 5.70% due 12/01/2017 (d) 532
-----------------------------------------------------------------------------------------------------------------------------------
BBB+ NR* 1,000 Cloquet, Minnesota, PCR, Refunding (Potlatch Corporation Projects), 5.90% due 10/01/2026 913
-----------------------------------------------------------------------------------------------------------------------------------
AAA NR* 3,530 Coon Rapids, Minnesota, M/F Housing Revenue Refunding Bonds (Browns Meadow), AMT,
6.85% due 8/01/2033 (b) 3,622
-----------------------------------------------------------------------------------------------------------------------------------
NR* Aa1 500 Hutchinson, Minnesota, Independent School District No. 423, GO, Series A,
5.85% due 2/01/2018 511
-----------------------------------------------------------------------------------------------------------------------------------
Minneapolis and St. Paul, Minnesota, Housing and Redevelopment Authority, Health Care System
Revenue Refunding Bonds:
A1+ VMIG1@ 500 (Children's Health Care), VRDN, Series B, 4.25% due 8/15/2025 (c)(f) 500
BBB+ Baa1 1,050 (Group Health Plan Inc. Project), 6.90% due 10/15/2022 1,031
-----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Minneapolis and Saint Paul, Minnesota, Metropolitan Airports Commission, Airport Revenue
Bonds, Series A, 5% due 1/01/2030 (a) 1,794
-----------------------------------------------------------------------------------------------------------------------------------
AA+ Aa1 1,000 Minneapolis, Minnesota, COP (Special School District No. 001), 5.75% due 2/01/2014 1,029
-----------------------------------------------------------------------------------------------------------------------------------
A NR* 485 Minneapolis, Minnesota, Community Development Agency, M/F Housing Revenue Bonds
(Riverside Homes Project), AMT, 6.20% due 9/01/2029 466
-----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Minneapolis, Minnesota, Sales Tax Refunding Bonds, GO, 6.25% due 4/01/2012 1,044
-----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Minneapolis, Minnesota, Tax Increment, GO, Series B, 5.125% due 12/01/2024 1,413
-----------------------------------------------------------------------------------------------------------------------------------
A A2 500 Minnesota Agriculture and Economic Development Board Revenue Bonds (Fairview Health
Care System), Series A, 6.375% due 11/15/2022 507
-----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Minnesota Agriculture and Economic Development Board, Revenue Refunding Bonds
(Evangelical Lutheran Project), 5% due 12/01/2023 (a) 910
-----------------------------------------------------------------------------------------------------------------------------------
Minnesota State, HFA, S/F Mortgage Revenue Bonds:
AA+ Aa1 315 AMT, Series C, 5.30% due 7/01/2025 322
AA+ Aa1 1,165 AMT, Series E, 6.85% due 1/01/2024 1,196
AA+ Aa1 1,050 AMT, Series L, 6.70% due 7/01/2020 1,083
AA+ Aa1 560 Series A, 6.95% due 7/01/2016 578
AA+ Aa1 1,345 Series D-1, 6.50% due 1/01/2017 1,371
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of Merrill Lynch Minnesota Municipal Bond Fund's
portfolio holdings in the Schedule of Investments, we have abbreviated the names
of many of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
IDR Industrial Development Revenue Bonds
IRS Inverse Rate Securities
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
6
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
Ratings Ratings Amount Issue Value
-----------------------------------------------------------------------------------------------------------------------------------
Minnesota (concluded)
<C> <C> <C> <S> <C>
NR* Baa2 $1,000 Minnesota State Higher Education Facilities Authority, Revenue Refunding Bonds (College
at Saint Benedict), Series 4-T, 5.35% due 3/01/2020 $ 919
-----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Northern Municipal Power Agency, Minnesota, Electric System Revenue Refunding Bonds,
Series B, 4.75% due 1/01/2020 (a) 886
-----------------------------------------------------------------------------------------------------------------------------------
AAA A3 750 Northfield, Minnesota, College Facility Revenue Refunding Bonds (Saint Olaf College
Project), 6.40% due 10/01/2021 764
-----------------------------------------------------------------------------------------------------------------------------------
AA+ Aaa 500 Ramsey County, Minnesota, GO (Capital Improvement Plan), Series A, 6.25% due 2/01/2010 543
-----------------------------------------------------------------------------------------------------------------------------------
AA+ NR* 2,450 Rochester, Minnesota, Health Care Facilities Revenue Bonds, IRS, Series H,
7.256% due 11/15/2015 (e) 2,554
-----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Saint Cloud, Minnesota, Health Care Revenue Refunding Bonds (Saint Cloud Hospital
Obligation Group), Series A, 6.25% due 5/01/2020 (c) 1,057
-----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Saint Francis, Minnesota, Independent School District No. 015, GO, Series A,
6.35% due 2/01/2013 (c) 1,077
-----------------------------------------------------------------------------------------------------------------------------------
AA+ Aa2 1,820 Saint Paul, Minnesota, GO (Tax Increment--Block 39 Project), Series A, 4.75% due 2/01/2019 1,614
-----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Saint Paul, Minnesota, Housing and Redevelopment Authority, M/F Housing Revenue
Refunding Bonds (Highland Park Residential LP--Wellington Project), Series A,
5% due 8/01/2016 (g) 917
-----------------------------------------------------------------------------------------------------------------------------------
AA NR* 1,000 Saint Paul, Minnesota, Housing and Redevelopment Authority, Revenue Refunding Bonds
(District Cooling of Saint Paul), Series J, 5.125% due 3/01/2012 977
-----------------------------------------------------------------------------------------------------------------------------------
AA+ Aa1 1,060 Saint Paul, Minnesota, Independent School District No. 625, GO, Series A,
5.50% due 2/01/2021 1,048
-----------------------------------------------------------------------------------------------------------------------------------
Sartell, Minnesota, Refunding (Champion International Corporation):
BBB+ Baa1 990 IDR, 6.95% due 7/01/2012 1,022
BBB+ Baa1 665 PCR, 6.95% due 10/01/2012 694
-----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,715 Scott County, Minnesota, Housing and Redevelopment Authority, Facility Lease Revenue
Bonds (Justice Center Project), 5.50% due 12/01/2015 (a) 1,715
-----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 260 Southern Minnesota Municipal Power Agency, Power Supply System Revenue Refunding
Bonds, Series A, 4.75% due 1/01/2016 (d) 238
-----------------------------------------------------------------------------------------------------------------------------------
AA NR* 1,500 Waconia, Minnesota, Health Care Facilities Revenue Bonds (Ridgeview Medical Center
Project), Series A, 6.125% due 1/01/2029 1,528
-----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,400 Windom, Minnesota, Independent School District No. 177, GO, 4.75% due 2/01/2024 (c) 1,221
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$40,445)--102.9% 41,093
Liabilities in Excess of Other Assets--(2.9%) (1,158)
-------
Net Assets--100.0% $39,935
=======
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) FHA Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at July 31, 2000.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31,
2000.
(g) FHLMC Collateralized.
* Not Rated.
@ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
7
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 2000
<TABLE>
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$40,445,282) .... $ 41,093,273
Cash .................................................... 592,109
Interest receivable ..................................... 600,875
Prepaid registration fees and other assets .............. 5,545
------------
Total assets ............................................ 42,291,802
------------
----------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased .................................. $ 2,053,526
Beneficial interest redeemed .......................... 165,355
Dividends to shareholders ............................. 34,764
Investment adviser .................................... 17,463
Distributor ........................................... 13,825 2,284,933
------------
Accrued expenses ........................................ 71,399
------------
Total liabilities ....................................... 2,356,332
------------
----------------------------------------------------------------------------------------------------------
Net Assets: Net assets .............................................. $ 39,935,470
============
----------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized ................... $ 40,110
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized ................... 314,948
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized ................... 16,190
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized ................... 15,470
Paid-in capital in excess of par ........................ 39,235,448
Accumulated realized capital losses on investments--net . (334,687)
Unrealized appreciation on investments--net ............. 647,991
------------
Net assets .............................................. $ 39,935,470
============
----------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $4,141,200 and 401,101
shares of beneficial interest outstanding ............... $ 10.32
============
Class B--Based on net assets of $32,523,656 and 3,149,476
shares of beneficial interest outstanding ............... $ 10.33
============
Class C--Based on net assets of $1,672,059 and 161,895
shares of beneficial interest outstanding ............... $ 10.33
============
Class D--Based on net assets of $1,598,555 and 154,697
shares of beneficial interest outstanding ............... $ 10.33
============
----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
July 31, 2000
----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Investment Income: Interest and amortization of premium and discount earned $ 2,562,807
----------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees ............................... $ 230,897
Account maintenance & distribution fees--Class B ....... 169,991
Professional fees ...................................... 78,835
Accounting services .................................... 48,518
Transfer agent fees--Class B ........................... 14,768
Printing and shareholder reports ....................... 10,831
Account maintenance & distribution fees--Class C ....... 9,944
Registration fees ...................................... 7,888
Trustees' fees and expenses ............................ 5,217
Custodian fees ......................................... 4,666
Pricing fees ........................................... 3,847
Account maintenance fees--Class D ...................... 1,798
Transfer agent fees--Class A ........................... 1,567
Transfer agent fees--Class C ........................... 736
Transfer agent fees--Class D ........................... 618
Other .................................................. 1,817
-----------
Total expenses ......................................... 591,938
-----------
Investment income--net ................................. 1,970,869
-----------
----------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments--net ...................... 182,532
ized Gain (Loss) on Change in unrealized appreciation on investments--net .. (1,036,596)
Investments--Net: -----------
Net Increase in Net Assets Resulting from Operations ... $ 1,116,805
===========
----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended
July 31,
----------------------------
Increase (Decrease) in Net Assets: 2000 1999
---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Operations: Investment income--net ............................................... $ 1,970,869 $ 2,155,066
Realized gain on investments--net .................................... 182,532 27,325
Change in unrealized appreciation on investments--net ................ (1,036,596) (1,429,174)
------------ ------------
Net increase in net assets resulting from operations ................. 1,116,805 753,217
------------ ------------
---------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders: Class A ............................................................ (232,332) (342,917)
Class B ............................................................ (1,572,900) (1,671,655)
Class C ............................................................ (75,069) (72,290)
Class D ............................................................ (90,568) (68,204)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders .. (1,970,869) (2,155,066)
------------ ------------
---------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net increase (decrease) in net assets derived from beneficial interest
Transactions: transactions ......................................................... (6,455,015) 490,135
------------ ------------
---------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets ......................................... (7,309,079) (911,714)
Beginning of year .................................................... 47,244,549 48,156,263
------------ ------------
End of year .......................................................... $ 39,935,470 $ 47,244,549
============ ============
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
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: 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ... $10.50 $10.79 $10.72 $10.28 $10.31
Operating ------ ------ ------ ------ ------
Performance: Investment income--net ............... .52 .52 .54 .53 .54
Realized and unrealized gain (loss) on
investments--net ..................... (.18) (.29) .07 .44 (.03)
------ ------ ------ ------ ------
Total from investment operations ..... .34 .23 .61 .97 .51
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income--net ............. (.52) (.52) (.54) (.53) (.54)
In excess of realized gain on
investments--net ................... -- -- --+ -- --
------ ------ ------ ------ ------
Total dividends and distributions .... (.52) (.52) (.54) (.53) (.54)
------ ------ ------ ------ ------
Net asset value, end of year ......... $10.32 $10.50 $10.79 $10.72 $10.28
====== ====== ====== ====== ======
--------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ... 3.45% 2.08% 5.85% 9.71% 4.98%
Return:* ====== ====== ====== ====== ======
--------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ....... .97% 1.02% .91% .92% .84%
Net Assets: ====== ====== ====== ====== ======
Expenses ............................. .97% 1.02% .91% .92% .95%
====== ====== ====== ====== ======
Investment income--net ............... 5.12% 4.80% 4.98% 5.09% 5.16%
====== ====== ====== ====== ======
--------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $4,141 $6,067 $6,993 $5,390 $5,884
Data: ====== ====== ====== ====== ======
Portfolio turnover ................... 43.42% 26.09% 56.43% 28.42% 53.99%
====== ====== ====== ====== ======
--------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
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: 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ... $ 10.50 $ 10.79 $ 10.72 $ 10.28 $ 10.31
Operating ------- ------- ------- ------- -------
Performance: Investment income--net ............... .47 .46 .48 .48 .48
Realized and unrealized gain (loss) on
investments--net ..................... (.17) (.29) .07 .44 (.03)
------- ------- ------- ------- -------
Total from investment operations ..... .30 .17 .55 .92 .45
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net ............. (.47) (.46) (.48) (.48) (.48)
In excess of realized gain on
investments--net ................... -- -- --+ -- --
------- ------- ------- ------- -------
Total dividends and distributions .... (.47) (.46) (.48) (.48) (.48)
------- ------- ------- ------- -------
Net asset value, end of year ......... $ 10.33 $ 10.50 $ 10.79 $ 10.72 $ 10.28
======= ======= ======= ======= =======
--------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ... 3.03% 1.56% 5.31% 9.15% 4.44%
Return:* ======= ======= ======= ======= =======
--------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ....... 1.47% 1.53% 1.42% 1.43% 1.35%
Net Assets: ======= ======= ======= ======= =======
Expenses ............................. 1.47% 1.53% 1.42% 1.43% 1.46%
======= ======= ======= ======= =======
Investment income--net ............... 4.61% 4.29% 4.47% 4.58% 4.64%
======= ======= ======= ======= =======
--------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $32,524 $37,507 $38,585 $41,274 $48,696
Data: ======= ======= ======= ======= =======
Portfolio turnover ................... 43.42% 26.09% 56.43% 28.42% 53.99%
======= ======= ======= ======= =======
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C
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: 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ... $10.50 $10.80 $10.72 $10.28 $10.31
Operating ------ ------ ------ ------ ------
Performance: Investment income--net ............... .46 .45 .47 .47 .47
Realized and unrealized gain (loss) on
investments--net ..................... (.17) (.30) .08 .44 (.03)
------ ------ ------ ------ ------
Total from investment operations ..... .29 .15 .55 .91 .44
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income--net ............. (.46) (.45) (.47) (.47) (.47)
In excess of realized gain on
investments--net ................... -- -- --+ -- --
------ ------ ------ ------ ------
Total dividends and distributions .... (.46) (.45) (.47) (.47) (.47)
------ ------ ------ ------ ------
Net asset value, end of year ......... $10.33 $10.50 $10.80 $10.72 $10.28
====== ====== ====== ====== ======
---------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ... 2.92% 1.37% 5.30% 9.04% 4.33%
Return:* ====== ====== ====== ====== ======
---------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ....... 1.57% 1.63% 1.52% 1.53% 1.48%
Net Assets: ====== ====== ====== ====== ======
Expenses ............................. 1.57% 1.63% 1.52% 1.53% 1.57%
====== ====== ====== ====== ======
Investment income--net ............... 4.52% 4.19% 4.37% 4.48% 4.50%
====== ====== ====== ====== ======
---------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $1,672 $1,721 $1,437 $1,201 $1,219
Data: ====== ====== ====== ====== ======
Portfolio turnover ................... 43.42% 26.09% 56.43% 28.42% 53.99%
====== ====== ====== ====== ======
---------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D
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: 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ... $10.50 $10.80 $10.73 $10.28 $10.31
Operating ------ ------ ------ ------ ------
Performance: Investment income--net ............... .51 .51 .53 .52 .53
Realized and unrealized gain (loss) on
investments--net ..................... (.17) (.30) .07 .45 (.03)
------ ------ ------ ------ ------
Total from investment operations ..... .34 .21 .60 .97 .50
------ ------ ------ ------ ------
Less dividends and distributions:
Investment income--net ............. (.51) (.51) (.53) (.52) (.53)
In excess of realized gain on
investments--net ................... -- -- --+ -- --
------ ------ ------ ------ ------
Total dividends and distributions .... (.51) (.51) (.53) (.52) (.53)
------ ------ ------ ------ ------
Net asset value, end of year ......... $10.33 $10.50 $10.80 $10.73 $10.28
====== ====== ====== ====== ======
---------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ... 3.45% 1.88% 5.74% 9.70% 4.88%
Return:* ====== ====== ====== ====== ======
---------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ....... 1.07% 1.13% 1.01% 1.02% .94%
Net Assets: ====== ====== ====== ====== ======
Expenses ............................. 1.07% 1.13% 1.01% 1.02% 1.05%
====== ====== ====== ====== ======
Investment income--net ............... 5.02% 4.69% 4.88% 4.99% 5.05%
====== ====== ====== ====== ======
---------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $1,598 $1,950 $1,141 $ 924 $ 684
Data: ====== ====== ====== ====== ======
Portfolio turnover ................... 43.42% 26.09% 56.43% 28.42% 53.99%
====== ====== ====== ====== ======
---------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales charges.
+ Amount is less than $.01 per share.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Minnesota Municipal Bond Fund (the "Fund") is part of Merrill
Lynch Multi-State Municipal Series Trust (the "Trust"). The Fund is registered
under the Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The Fund's financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America, which may require the use of management accruals and estimates. The
Fund offers four classes of shares under the Merrill Lynch Select Pricing(SM)
System. Shares of Class A and Class D are sold with a front-end sales charge.
Shares of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class B, Class C and
Class D Shares bear certain expenses related to the account maintenance of such
shares, and Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with respect
to matters relating to its account maintenance and distribution expenditures.
The following is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments--Municipal bonds and other portfolio securities in
which the Fund invests are traded primarily in the over-the-counter municipal
bond and money markets and are valued at the last available bid price in the
over-the-counter market or on the basis of yield equivalents as obtained from
one or more dealers that make markets in the securities. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their settlement prices as of the close of such exchanges. Short-term
investments with remaining maturities of sixty days or less are valued at
amortized cost, which approximates market value. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Trust, including valuations furnished by a pricing service retained by the
Trust, which may utilize a matrix system for valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to increase or decrease the level of risk to which the Fund is
exposed more quickly and efficiently than transactions in other types of
instruments. 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) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
14
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
(f) Dividends and distributions--Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). 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 FAM Distributors, Inc.
("FAMD" or the "Distributor"), 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, 2000, FAMD earned underwriting discounts and MLPF&S
earned dealer concessions on sales of the Fund's Class A and Class D Shares as
follows:
--------------------------------------------------------------------------------
FAMD MLPF&S
--------------------------------------------------------------------------------
Class A .......................................... $ 60 $ 625
Class D .......................................... $157 $1,800
--------------------------------------------------------------------------------
For the year ended July 31, 2000, MLPF&S received contingent deferred sales
charges of $20,572 and $1,400 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $4,912 relating to transactions subject to front-end sales charge
waivers in Class D 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.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 2000 were $17,464,507 and $22,531,083, respectively.
Net realized gains (losses) for the year ended July 31, 2000 and net unrealized
gains as of July 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
--------------------------------------------------------------------------------
Long-term investments ............................ $ 230,057 $ 647,991
Financial futures contracts ...................... (47,525) --
----------- ----------
Total ............................................ $ 182,532 $ 647,991
=========== ==========
--------------------------------------------------------------------------------
As of July 31, 2000, net unrealized appreciation for Federal income tax purposes
aggregated $647,991, of which $1,108,386 related to appreciated securities and
$460,395 related to depreciated securities. The
15
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
aggregate cost of investments at July 31, 2000 for Federal income tax purposes
was $40,445,282.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $(6,455,015) and $490,135 for the years July 31, 2000 and July
31, 1999, respectively.
Transactions in shares of beneficial interest for each class were as follows:
--------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 26,372 $ 268,604
Shares issued to shareholders
in reinvestment of dividends ............. 11,752 119,534
----------- -----------
Total issued ............................. 38,124 388,138
Shares redeemed .......................... (215,094) (2,208,086)
----------- -----------
Net decrease ............................. (176,970) $(1,819,948)
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 78,157 $ 847,710
Shares issued to shareholders
in reinvestment of dividends ............. 20,901 225,827
----------- -----------
Total issued ............................. 99,058 1,073,537
Shares redeemed .......................... (168,901) (1,799,858)
----------- -----------
Net decrease ............................. (69,843) $ (726,321)
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 216,963 $ 2,207,654
Shares issued to shareholders
in reinvestment of dividends ............. 78,027 793,481
----------- -----------
Total issued ............................. 294,990 3,001,135
Automatic conversion
of shares ................................ (6,875) (69,500)
Shares redeemed .......................... (711,692) (7,232,241)
----------- -----------
Net decrease ............................. (423,577) $(4,300,606)
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 407,155 $ 4,417,744
Shares issued to shareholders
in reinvestment of dividends ............. 80,842 872,851
----------- -----------
Total issued ............................. 487,997 5,290,595
Automatic conversion
of shares ................................ (2,809) (29,925)
Shares redeemed .......................... (486,652) (5,247,345)
----------- -----------
Net increase (decrease) .................. (1,464) $ 13,325
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 38,107 $ 386,695
Shares issued to shareholders
in reinvestment of dividends ............. 5,190 52,780
----------- -----------
Total issued ............................. 43,297 439,475
Shares redeemed .......................... (45,261) (460,819)
----------- -----------
Net decrease ............................. (1,964) $ (21,344)
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 67,767 $ 739,605
Shares issued to shareholders
in reinvestment of dividends ............. 5,147 51,186
----------- -----------
Total issued ............................. 72,914 790,791
Shares redeemed .......................... (42,211) (451,091)
----------- -----------
Net increase ............................. 30,703 $ 339,700
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 116,085 $ 1,182,236
Automatic conversion
of shares ................................ 6,874 69,500
Shares issued to shareholders
in reinvestment of dividends ............. 3,582 36,457
----------- -----------
Total issued ............................. 126,541 1,288,193
Shares redeemed .......................... (157,469) (1,601,310)
----------- -----------
Net decrease ............................. (30,928) $ (313,117)
=========== ===========
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 95,986 $ 1,037,830
Automatic conversion
of shares ................................ 2,806 29,925
Shares issued to shareholders
in reinvestment of dividends ............. 2,507 27,023
----------- -----------
Total issued ............................. 101,299 1,094,778
Shares redeemed .......................... (21,307) (231,347)
----------- -----------
Net increase ............................. 79,992 $ 863,431
=========== ===========
--------------------------------------------------------------------------------
5. Short-Term Borrowings:
On December 3, 1999, the Fund, along with certain other funds managed by FAM and
its affiliates, entered into a one-year, unsecured $1,000,000,000 credit
agreement with The Bank of New York and
16
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
other lenders. The funds may borrow money for temporary or emergency purposes to
meet shareholder redemptions. Each fund may borrow up to the maximum amount
allowable under the fund's current prospectus and statement of additional
information, subject to various other legal, regulatory or contractual limits.
The funds collectively pay a commitment fee of .09% per annum on the available
portion of the facility. Amounts borrowed under the facility bear interest at
the Federal Funds rate plus .50%. The Fund did not borrow from the facility
during the year ended July 31, 2000.
6. Capital Loss Carryforward:
At July 31, 2000, the Fund had a net capital loss carryforward of approximately
$100,000, of which $26,000 expires in 2004 and $74,000 expires in 2008. This
amount will be available to offset like amounts of any future taxable gains.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, Merrill Lynch Minnesota 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 Minnesota Municipal Bond Fund of
Merrill Lynch Multi-State Municipal Series Trust as of July 31, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000 by correspondence with the custodian and
brokers. 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
Minnesota Municipal Bond Fund of Merrill Lynch Multi-State Municipal Series
Trust as of July 31, 2000, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
September 5, 2000
17
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 31, 2000
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by Merrill Lynch
Minnesota Municipal Bond Fund during its taxable year ended July 31, 2000
qualify as tax-exempt interest dividends for Federal income tax purposes.
Additionally, there were no capital gains distributions paid by the Fund during
the year.
Please retain this information for your records.
18
<PAGE>
Merrill Lynch Minnesota Municipal Bond Fund July 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
Michael A. Kalinoski, 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 Minnesota
Municipal Bond Fund
Merrill Lynch Multi-State
Municipal Series Trust
Box 9011
Princeton, NJ
08543-9011 #16187--7/00
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